UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
For
the fiscal year ended December 31, 2023
OR
For
the transition period from: _____________to______________
Commission
File Number: 001-39199
TRxADE
HEALTH, INC.
(Exact
name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code: (800)261-0281
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Securities
registered pursuant to Section 12(g) of the Act:
None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”
and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the last business day
of the registrant’s most recently completed second fiscal quarter was approximately $11,457,013.
As
of April 22, 2024, there were 1,406,348 shares of common stock issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s definitive proxy statement relating to its 2024 annual meeting of stockholders (the “2024 Proxy Statement”)
are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2024 Proxy Statement will be filed
with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
TABLE
OF CONTENTS
Page
Glossary 3
Cautionary Statement Regarding Forward-Looking Information 5
PART I
Item 1. Business 7
Item 1A. Risk Factors 17
Item 1B. Unresolved Staff Comments 44
Item 1C. Cybersecurity 44
Item 2. Properties 44
Item 3. Legal Proceedings 45
Item 4. Mine Safety Disclosures 45
PART II
Item 6. [Reserved] 46
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 53
Item 8. Financial Statements and Supplemental Data 54
Item 9A. Controls and Procedures 82
Item 9B. Other Information 83
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections 83
PART III
Item 10. Directors, Executive Officers and Corporate Governance 84
Item 11. Executive Compensation 84
Item 14. Principal Accountant Fees and Services 84
PART IV
Item 15. Exhibits, Financial Statements and Schedules 85
Signatures 88
\
GLOSSARY
The
following are abbreviations and definitions of certain terms used in this Report, which are commonly used in the pharmaceutical industry:
“ACA”
means the Patient Protection and Affordable Care Act, often shortened to the Affordable Care Act, nicknamed Obamacare, which is a U.S.
federal statute which provides numerous rights and protections that make health coverage fairer and easier to understand, along with
subsidies (through “premium tax credits” and “cost-sharing reductions”) to make it more affordable.
The law also expands the Medicaid program to cover more people with low incomes.
“ADR”
means Authorized Distributor of Record. Under current federal law, an ADR means a distributor with whom a manufacturer has established
an ongoing relationship to distribute such manufacturer’s products.
“CMS”
means the Centers for Medicare & Medicaid Services, which is a federal agency within the HHS that administers the Medicare program
and works in partnership with state governments to administer Medicaid.
“CSA”
means the Controlled Substances Act, the statute establishing federal U.S. drug policy under which the manufacture, importation, possession,
use, and distribution of certain substances is regulated.
“DEA”
means the Drug Enforcement Administration, a United States federal law enforcement agency under the United States Department of Justice,
tasked with combating drug trafficking and distribution within the United States.
“DQSA”
means the Drug Quality and Security Act which is a law that amended the FFDCA to grant the FDA more authority to regulate and monitor
the manufacturing of compounded drugs.
“FDA”
means U.S. The Food and Drug Administration, which is a federal agency of the United States Department of Health and Human Services.
The FDA is responsible for protecting the public health by ensuring the safety, efficacy, and security of human and veterinary drugs,
biological products, and medical devices; and by ensuring the safety of U.S. food supply, cosmetics, and products that emit radiation.
“FFDCA”
means the Federal Food, Drug and Cosmetic Act, which is a set of U.S. laws passed by Congress in 1938 giving authority to the FDA to
oversee the safety of food, drugs, medical devices, and cosmetics.
“Generic
drugs” are copies of brand-name drugs that have exactly the same dosage, intended use, effects, side effects, route of administration,
risks, safety, and strength as the original drug.
“Health
plan” means health insurance coverage provided by an individual or group that provides or pays the cost of medical care. Health
plans can be provided by public (Medicaid) or private (an employer) entities.
“HHS”,
the U.S. Department of Health and Human Services also known as the Health Department, is a cabinet-level department of the U.S. federal
government with the goal of protecting the health of all Americans and providing essential human services.
“HIPAA”
means the Health Insurance Portability and Accountability Act of 1996, which has the goal of making it easier for people to keep health
insurance, protect the confidentiality and security of healthcare information and help the healthcare industry control administrative
costs.
“Individually
identifiable health information” is defined by HIPPA to mean information that is a subset of health information, including
demographic information collected from an individual, and: (1) is created or received by a health care provider, health plan, employer,
or health care clearinghouse; and (2) relates to the past, present, or future physical or mental health or condition of an individual;
the provision of health care to an individual; or the past, present, or future payment for the provision of health care to an individual;
and (a) that identifies the individual; or (b) with respect to which there is reasonable basis to believe the information can be used
to identify the individual.
“Medicaid”
is a federal and state health insurance program in the U.S. that helps with medical costs for some people with limited income and resources.
Medicaid also offers benefits not normally covered by Medicare, including nursing home care and personal care services.
“Medicare”
is a national health insurance program in the U.S. It primarily provides health insurance for Americans aged 65 and older, but also for
some younger people with disability status as determined by the Social Security Administration, as well as people with end stage renal
disease and amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease).
“NDC”
means a National Drug Code, a unique 10-digit, 3-segment number. It is a universal product identifier for human drugs in the United States.
The code is present on all non-prescription (OTC) and prescription medication packages and inserts in the U.S. The 3 segments of the
NDC identify the labeler, the product, and the commercial package size.
“PBM”
means a Pharmacy Benefits Manager. In the United States, a PBM is a third-party administrator of prescription drug programs for commercial
health plans, self-insured employer plans, Medicare Part D plans (prescription drug plans), the Federal Employees Health Benefits Program,
and state government employee plans.
“PDMA”
means the Prescription Drug Marketing Act of 1987. The PDMA establishes legal safeguards for prescription drug distribution to ensure
safe and effective pharmaceuticals and is designed to discourage the sale of counterfeit, adulterated, misbranded, subpotent, and expired
prescription drugs.
“Pedigree
tracking laws” mean laws which help ensure the integrity of the U.S. drug supply chain through the use of drug pedigrees, verifiable
written or electronic documents that track each move in a drug’s journey from manufacturer to patient.
“PPE”
means personal protective equipment, which is worn to minimize exposure to hazards that cause serious workplace injuries and illnesses.
When used below, PPE typically refers to protective equipment used by medical personnel, including masks, sanitizers and gloves.
“Rebates”
these are provided by manufacturers and are typically based on the ability of a payer to move market share for the manufacturer’s
product. Rebates are confidential.
“SNI”
means Serialized Numerical Identifier. Pursuant to FDA requirements, a product’s SNI has to include the item’s NDC and unique
Serial Number (SN).
“Wholesaler”
typically, the wholesaler is the first purchaser of a drug product – direct from the manufacturer. Wholesalers buy large quantities
and then resell either direct to provider-purchasers (like a large health system, pharmacy or pharmacy chain), or resell to smaller,
regional distributors for regional or local distribution to retail pharmacies and hospitals.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This
Annual Report on Form 10-K (this “Report”) contains statements that constitute forward-looking statements which are
subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Some of the statements in this Annual Report constitute forward-looking statements because they relate to future events
or our future performance or future financial condition. These forward-looking statements are not historical facts, but rather are based
on current expectations, estimates and projections about our company, our industry, our beliefs and our assumptions. Our forward-looking
statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions
or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future
events or circumstances, including any underlying assumptions, are forward-looking statements. In some cases, you can identify forward-looking
statements by the following words: “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “intend,” “may,” “ongoing,”
“plan,” “potential,” “predict,” “project,” “should,”
or the negative of these terms or other similar expressions may identify forward-looking statements, but the absence of these words does
not mean that a statement is not forward-looking. These factors include those set forth below and those disclosed under “Risk
Factors”, below. Forward-looking statements in this Annual Report may include, for example, statements about:
● Technical problems with our websites;
● Our ability to manage our growth;
● Regulatory and licensing requirement risks;
● Risks related to changes in the U.S. healthcare environment;
● The status of our information systems, facilities and distribution networks;
● Risks associated with the operations of our more established competitors;
● Regulatory changes;
● Healthcare fraud;
● Changes in laws or regulations relating to our operations;
● Privacy laws;
● System errors;
● Dependence on current management;
● Our growth strategy; and
The
forward-looking statements contained in this Annual Report are based on our current expectations and beliefs concerning future developments
and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated.
These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions
that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements.
These
risks and uncertainties include, but are not limited to, those factors described under the section of this Annual Report entitled “Risk
Factors”. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual
results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required
under applicable securities laws.
We
use words such as “anticipates,” “believes,” “expects,” “intends,” “seeks,”
“plans,” “estimates,” “targets” and similar expressions to identify forward-looking statements. The
forward-looking statements contained in this Annual Report involve risks and uncertainties. Our actual results could differ materially
from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Part I —
Item 1A. Risk Factors” in this Annual Report.
Although
we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove
to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these
and other uncertainties, the inclusion of a projection or forward-looking statements in this Annual Report should not be regarded as
a representation by us that our plans and objectives will be achieved.
We
have based the forward-looking statements included in this Annual Report on information available to us on the date of this Annual Report,
and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any
forward-looking statements in this Annual Report, whether as a result of new information, future events or otherwise, you are advised
to consult any additional disclosures that we may make directly to you or through reports that we may file in the future with the Securities
and Exchange Commission (the “SEC”), including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K.
PART
I
ITEM 1. BUSINESS
INTRODUCTION
This
information included in this Annual Report on Form 10-K should be read in conjunction with the consolidated financial statements and
related notes in “Item 8. Financial Statements and Supplemental Data” of this Report.
Please
see the “Glossary” above for a list of abbreviations and definitions used throughout this Report.
Our
logo and some of our trademarks and tradenames are used in this Report. This Report may also include trademarks, tradenames and service
marks that are the property of others. Solely for convenience, trademarks, tradenames and service marks referred to in this Report may
appear without the ®, TM and SM symbols. References to our trademarks, tradenames and service marks are not intended to indicate
in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors if
any, nor that respective owners to other intellectual property rights will not assert, to the fullest extent under applicable law, their
rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with,
or endorsement or sponsorship of us by, any other companies.
The
market data and certain other statistical information used throughout this Report are based on independent industry publications, reports
by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research,
surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do
not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosures contained in this Report,
and we believe these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any
misstatements regarding any third-party information presented in this Report, their estimates, in particular, as they relate to projections,
involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those
discussed under the section entitled “Risk Factors” beginning on page 17 of this Report. These and other factors
could cause our future performance to differ materially from our assumptions and estimates. Some market and other data included herein,
as well as the data of competitors as they relate to TRxADE HEALTH, INC., is also based on our good faith estimates.
Our
fiscal year ends on December 31st. Interim results are presented on a quarterly basis for the quarters ended March 31st, June 30th, and
September 30th, the first quarter, second quarter and third quarter, respectively, with the quarter ending December 31st being referenced
herein as our fourth quarter. “Fiscal 2023” means the Fiscal year ended December 31, 2023, whereas “Fiscal 2022”
means the year ended December 31, 2022.
Unless
the context requires otherwise, references to the “Company,” “we,” “us,” “our,”
“Trxade”, “Trxade Group” and “TRxADE HEALTH, INC.” refer specifically to TRxADE
HEALTH, INC. and its consolidated subsidiaries.
In
addition, unless the context otherwise requires and for the purposes of this Report only:
● “Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
● “Securities Act” refers to the Securities Act of 1933, as amended.
Available
Information
We
file annual, quarterly, and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the
public over the Internet at the SEC’s website at http://www.sec.gov and are available for download, free of charge, soon
after such reports are filed with or furnished to the SEC, on the “NASDAQ: MEDS,” “SEC Filings”
page of our website at www.trxadehealth.com. Copies of documents filed by us with the SEC are also available from us without charge,
upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of
this Report. Our website addresses are www.trxadehealth.com and www.rxintegra.com. Information on our websites is not incorporated
by reference into this Form 10-K. The information on, or that may be accessed through, our websites not incorporated by reference into
this Report and should not be considered a part of this Report.
CORPORATE
AND ORGANIZATIONAL HISTORY
Background
of XCEL
Our
Company was incorporated in Delaware on July 15, 2005, as “Bluebird Exploration Company” (“Bluebird”).
Bluebird was originally formed to engage in the exploitation of mineral properties. In December 2008, Bluebird changed its name to “Xcellink
International, Inc.” (“XCEL”), and subsequently announced that its business plan was being expanded to include
the development and marketing of platform-independent customer-centric payment systems and methodologies. XCEL was unable to raise the
funds necessary to implement its business strategy, and never generated any revenue. On January 9, 2014, Trxade Group, Inc., a then privately
held Nevada corporation, merged with and into XCEL, and XCEL changed its name to “Trxade Group, Inc.” On June 1, 2021,
the Company changed its name from “Trxade Group, Inc” to “TRxADE HEALTH, INC.”
Background
of Trxade
PharmaCycle
LLC, a Nevada limited liability company (“PharmaCycle”), was formed in August 2010 by Prashant Patel, our President,
to serve as a web-based market platform designed to enable trading among healthcare buyers and sellers of pharmaceuticals, accessories
and services. In January 2013, PharmaCycle converted into a Florida corporation and changed its name to Trxade, Inc. (“Trxade
Florida”). In May 2013, Trxade Florida created a new wholly-owned subsidiary, Trxade Group, Inc., a Nevada corporation (“Trxade
Nevada”). Trxade Nevada acquired Trxade Florida pursuant to a reverse triangular merger, resulting in Trxade Florida becoming
a wholly-owned subsidiary of Trxade Nevada (the “Nevada-Florida Merger”). The sole purpose of the Nevada-Florida Merger
was to provide for a holding company to own Trxade Florida, the operating company. Immediately following the Nevada-Florida Merger, Messrs.
Ajjarapu and Patel collectively owned 99% of Trxade Nevada.
Reverse
Merger with Trxade
On
September 26, 2008, Mark Fingarson, the former President, sole Director and controlling shareholder of XCEL, sold 80,000,000 shares of
XCEL (prior to the Merger Reverse Split and Reverse Stock Splits (each discussed and defined below)). On November 22, 2013, Trxade Nevada
acquired Mr. McIntyre’s controlling interest of 80,000,000 shares in XCEL pursuant to a Purchase and Sale Agreement dated November
7, 2013. At the time of the sale, XCEL had 104,160,000 shares of common stock issued and outstanding, including the 80,000,000 shares
of stock acquired by Trxade Nevada (prior to the Merger Reverse Split and Reverse Stock Split(s) (each discussed and defined below)).
On
December 16, 2013, Trxade Nevada and XCEL entered into a definitive merger agreement (the “Merger Agreement”) providing
for the merger (the “Merger”) of Trxade Nevada with and into XCEL, with XCEL continuing as the surviving corporation.
The Merger closed on January 8, 2014. Under the terms of the Merger Agreement, we amended our certificate of incorporation and changed
our name to “Trxade Group, Inc.,” and changed our trading symbol to “TRXD”.
Recapitalization
of Common Stock by a Reverse Split and Increase of Authorized Shares of Stock
We
also reversed our issued and outstanding stock at the ratio of one for one thousand (1:1,000) shares effective upon the closing of the
Merger (the “Merger Reverse Split”). In connection with the Merger Reverse Split, 104,160,000 outstanding shares of
our common stock, including the 80,000,000 shares held by Trxade Nevada, were exchanged for 104,160 post-Merger Reverse Split shares
of common stock. As a result of the Merger, Trxade Nevada stockholders holding 28,800,000 shares of common stock and 670,000 shares of
Series A Preferred Stock converted their shares on a one-to-one basis into 28,800,000 shares of our common stock and 670,000 shares of
our Series A Preferred Stock, for an aggregate total of 29,470,000 shares. Further, 100,000 shares of our common stock (on a post-Reverse
Split basis and considering the Reverse Stock Split(s) (discussed below)) were issued following the Merger in connection with the conversion
of our promissory notes. The 80,000,000 pre-Merger shares held by Trxade Nevada, which amounted to 13,334 shares (on a post-Reverse Split
basis and taking into account the Reverse Stock Split(s)), reverted to treasury stock of the Company. Except as otherwise disclosed,
the share amounts in the paragraph above have not been adjusted for the Merger Reverse Split or the Reverse Stock Split.
February
2020 Reverse Stock Split and NASDAQ Capital Market Listing
In
February 2020, the Company effected a 1-for-6 reverse stock split of the then outstanding common stock in order to allow us to meet the
initial listing criteria of The NASDAQ Capital Market.
Our
common stock was approved for listing on The NASDAQ Capital Market under the symbol “MEDS”, on February 13, 2020.
June
2023 Reverse Stock Split.
In
June 2023 the Company effected a 1-for-15 reverse stock split of its issued and outstanding common stock.
Subsidiaries
We
own 100% of Trxade Inc. (a Florida corporation). Trxade Inc. was the subsidiary through which we previously operated a web-based market
platform to enable commerce among healthcare buyers and sellers of pharmaceuticals, accessories and services. On February 16, 2024, we
entered into an asset purchase agreement with Trxade, Inc. and Micro Merchant Systems, Inc. (“MMS”), under which MMS purchased
for cash substantially all of the assets of Trxade, Inc. in a transaction that closed on February 16, 2024.
We
own 100% of Integra Pharma Solutions, LLC (formerly Pinnacle Tek, Inc., a Florida corporation) founded by Mr. Suren Ajjarapu, our CEO,
in 2011 (“Integra”). Until the end of 2016, Integra served as our technology consultant provider, but we discontinued
that line of business in 2016. Integra now serves as our logistics company for pharmaceutical distribution.
Former
Subsidiaries
In
February of 2022 we entered into an agreement with Exchange Health to own 51% of SOSRx, LLC a Delaware limited liability company. In
December of 2022 management determined that the subsidiary did not generate significant revenue and the assets were 100% impaired. In
February of 2023 we voluntarily withdrew from the agreement with Exchange Health.
We
previously owned 100% of Community Specialty Pharmacy, LLC (“CSP”) and Alliance Pharma Solutions, LLC (d.b.a. DelivMeds)
(“APS”). Our interests in CSP and APS were sold in September 2023 and have been included in discontinued operations.
As
of December 31, 2023 we owned 100% of Superlatus, Inc. (“Superlatus”), and its wholly owned subsidiary Sapientia
Technologies, LLC. Superlatus is a diversified food technology company with distribution capabilities and systems to optimize
food security and population health via innovative Consumer Packaged Goods products, agritech, foodtech, plant-based proteins and alt-protein
and includes, Sapientia, a food tech business. In March 2024 we divested our entire interest in Superlatus.
We previously owned 100% of The
Urgent Company, Inc. (“The Urgent Company” or “TUC”), a retail and distribution provider of prepackaged, prepared foods. We divested our interest in The Urgent Company in connection
with our divestiture of Superlatus.
BUSINESS
OF TRXADE
Company
Overview
We
are a health services IT company focused on digitalizing the retail pharmacy experience by optimizing drug procurement, the prescription
journey and patient engagement in the U.S. and have designed and developed, and now own and operate, a business-to-business web-based
marketplace. Our core service brings the nation’s independent pharmacies, accredited national suppliers, and manufacturers of pharmaceuticals
together to provide efficient and transparent buying and selling opportunities.
We
began operations as Trxade Group, Inc., a Nevada corporation (“Trxade Nevada”) in August of 2010 and spent over two
years creating and enhancing our web-based services. The Company changed its name on June 1, 2021, from “Trxade Group, Inc”
to “TRxADE HEALTH, INC.” Our services provided pricing transparency, purchasing capabilities and other value-added services
on a single platform focused on serving the nation’s approximately 19,397 independent pharmacies with annual purchasing power of
$67.1 billion (according to the National Community of Pharmacists Association’s 2021 Digest). Our national wholesale supply partners
and manufacturers are able to fulfill orders on our platform in real-time and provide pharmacies and wholesale suppliers with cost-saving
payment terms and next-day delivery capabilities in unrestrictive states. We expanded significantly since 2015 and served approximately
14,400+ registered members on our sales platform.
Our
Principal Products and Services and their Markets
Trxade.com
previously operated the Company’s web-based pharmaceutical marketplace engaged in promoting and enabling commerce among independent
pharmacies, small chains, hospitals, clinics, and alternate dispensing sites with large pharmaceutical suppliers nationally. That marketplace
had over 60 national and regional pharmaceutical suppliers providing over 120,000 branded and generic drugs, including over-the-counter
drugs (OTCs), and drugs available for purchase by pharmacists. We served approximately 14,400+ registered members, providing access to
Trxade’s proprietary pharmaceutical database and data analytics regarding medication pricing. We generated revenue from these services
by charging a transaction fee to the seller of the products for sales conducted via the Trxade platform. The buyers do not bear the cost
of transaction fees for the purchases that they make, nor do they pay a fee to join or register with our platform. In February 2024 we
divested substantially all of our assets related to our web-based pharmaceutical marketplace previously operated through TRxADE, Inc.
Substantially all of our revenues during Fiscal 2023, Fiscal 2022, and Fiscal 2021 were from platform revenue generated on www.rx.trxade.com,
product sales through Integra Pharma Solutions, LLC, and prescription sales through Community Specialty Pharmacy, LLC.
Status
of current products and services and business plans; Status of former business products and initiatives
We previously had a number of
products and services focused on the US market in operation and business assets, which are described below. In addition, in 2024 we expect
to explore other strategic transactions and acquisitions as a means to monetize and enhance the Company’s current assets and operations,
which transactions may involve effecting acquisitions of new businesses in industries that differ from our legacy operations.
Integra
Pharma Solutions, LLC. Integra is intended to serve as our logistics company for pharmaceutical distribution. We currently distribute
through our manufacturer and strategic distribution partners prescription medication, medical devices and over the counter medication
to over 1,600 pharmacies and medical clinics across 38 states.
Trxade
Prime. Trxade Prime previously allowed pharmacy members on the Trxade platform to process, consolidate and ship purchase orders that
are placed directly with Trxade suppliers via the Trxade Prime. This service was provided at no cost, with the goal of offering a single
tool with one low order minimum, one invoice, one package and one delivery from multiple quality wholesalers and distributors. Revenue
had been generated from this service through our Integra subsidiary, which provides the consolidation of the orders.
Bonum
Health Application. The “Bonum Health app,” previously provided an overall healthcare experience comparable to
a Primary Care practitioner, and an online portal as a personal electronic medical record and scheduling system was available on a subscription
basis, primarily as a stand-alone telehealth software application that can be licensed on a business-to-business (B2B) model to clients
as an employment health benefit for the clients’ employees. Revenue was generated from this service through our Bonum subsidiary.
Bonum+
Business to Business (B2B). Bonum+ previously bundled telehealth, a COVID-19 risk assessment tool and a Personal Protective Equipment
(PPE) purchasing tool, through a secure mobile dashboard for corporate clients. The B2B platform eased pressure on employees who were
required to report any relevant health issues daily, centralizing communication and contact tracing to deliver risk scores. This allowed
employers to monitor employee COVID-19 risk profiles and streamlined the ordering of new PPE as needed. An integrated artificial intelligence
(AI) tool offered health recommendations and connects employees with board certified physicians, as needed. No revenue was generated
from this product.
SOSRx,
LLC. On February 15, 2022, the Company entered into a relationship with Exchange Health, LLC, a technology company providing an online
platform for manufacturers and suppliers to sell and purchase pharmaceuticals (“Exchange Health”). SOSRx LLC, a Delaware
limited liability company (“SOSRx”), was formed, which is owned 51% by the Company and 49% by Exchange Health. SOSRx
did not generate material revenue and in February of 2023, the Company voluntarily withdrew from the joint venture agreement. The asset
impairment is reflected in the statement of operations for Fiscal 2022 as impairment of intangible asset. Additionally, the Company contributed
a cash investment of $275,000 in February of 2022 when the joint venture was formed. The Company did not recover this investment as part
of the withdrawal settlement.
Superlatus.
As of December 31, 2023, Superlatus was a wholly owned subsidiary of the Company as a result of a merger transaction that closed in July
2023. Superlatus is a diversified food technology company with distribution capabilities and systems to optimize food security and population
health via innovative Consumer Packaged Goods products, agritech, foodtech, plant-based proteins and alt-protein and includes wholly-owned
subsidiary, Sapientia, Inc., a food tech business. Subsequent to December 31, 2023, the Company divested its entire interest in Superlatus.
The
Pharmaceutical Industry
The
pharmaceutical market is comprised primarily of three wholesalers that control an estimated approximately 92% of the market. Our management
believes that this concentration has, over the years, led to a lack of price and cost transparency, thereby resulting in severe limitations
on the purchasing choices of industry participants. These market dynamics have enabled these large wholesalers (McKesson, Cardinal Health
and AmerisourceBergen), known as ADR distributors, to dominate the industry with respect to both generic and brand pharmaceuticals.
To
fuel this change, insurance companies (Pharmacy Benefits Management (“PBM”) and private health payers) and the federal
government have initiated lower medication reimbursement payments to healthcare providers. We believe that pharmacies face increasing
pressure to source medications as inexpensively as possible and improve operational efficiency. Trxade Health aims to address these pricing
concerns by providing independent, retail pharmacies with exceptional service and pricing on their most commonly used pharmaceuticals
by partnering with strategic manufacturers and other authorized suppliers.
Competitive
Business Conditions, Our Competitive Position in our Industry, and our Methods of Competition
We
expect to face competition from large ADR distributors (including McKesson, Cardinal Health and AmerisourceBergen), other pharmaceutical
distributors, buying groups, software products, and other start-up companies. Most of our competitors’ operations have substantially
greater financial- and manufacturer-backed resources, longer operating histories, greater name recognition, and more established relationships
in the industry.
Other
Start-up Companies Which Provide Competitive Services
There
are currently several smaller regional and national secondary distributors of pharmaceuticals such as (Anda Pharmaceutical, Masters Pharmaceutical
etc)as well as other innovative trading platforms such as PharmaBid, RxCherrypick, PharmSaver, MatchRx and GenericBid, that allow
pharmacies to buy from several suppliers. Integra differentiates itself from these distributors by providing our pharmacies with unique
specialty, brand and generic pharmaceutical products that are in short supply and offered via limited distribution channels.
Buying
Groups
Buying
Groups provide discounted prices to their members by negotiating better pricing with one primary wholesaler, while charging administrative
fees generally ranging from 3 to 5 percent. Some Buying Groups are structured like co-operatives (such as Independent Pharmacy Cooperative
(IPC) and American Pharmacy Cooperative, Inc. (APCI)) and offer their members monthly or quarterly rebates. Although they can function
well to bring pricing competition to the industry, they often offer rebates only after the purchase. Management does not believe Buying
Groups will provide long-term savings to customers with this model given the increased transparency and competition in the industry.
Pharmaceutical
Software
Some
pharmaceutical software companies compete with us to varying degrees at different levels. SureCost, for example, provides inventory management
software enabling pharmacies to comply with primary supplier contracts. This software is fee-based and requires training.
Pharmacies
may be reluctant to buy pharmaceuticals on the internet due to the historical negativity and uncertainty with respect to the origin and
purity of drugs purchased off the web. Trxade management believes that as we continue to develop our brand, our customer base, and our
product offerings, we will gain the trust of the market and overcome the negativity associated with purchasing from multiple distributors
outside of their primary vendor agreements.
One
advantage that we believe we have over our competition is our ability to be flexible and fast moving in adjusting our business model
to address the needs of our customer base.
Telehealth
Providers
We
previously anticipated facing competition in the telehealth industry (in connection with Bonum Health) from current and future
health care companies in the telehealth market including, Teladoc Health, Inc., MDLive, Inc., American Well Corporation and Grand Rounds,
Inc., among other smaller industry participants.
Sources
and Availability of Raw Materials; Principal Suppliers
Because
we are not a manufacturing company, we do not need any raw materials.
Dependence
on One or More Major Customers
As
of the date of this filing, we have approximately 1600 registered members and over 10 pharmaceutical suppliers as customers, with an
estimated market potential of approximately 20,000+ independent pharmacies.
Intellectual
Property
Although
we believe that our name and brand are protected by applicable state common law trademark laws, we do not currently have any patents,
concessions, licenses, royalty agreements, or franchises.
We
believe that we have taken all necessary steps to protect our proprietary rights, but no assurance can be given that we will be able
to successfully enforce or protect our rights in the event that they are infringed upon by a third party.
Need
for Government Approval of Products and Services
We
are required to hold state pharmaceutical business licenses and to follow applicable state and federal government regulations detailed
herein.
Effect
of Existing or Probable Government Regulations on the Business
Federal
Drug Administration Guidelines
On
April 12, 1988, President Ronald Reagan signed into law the Prescription Drug Marketing Act of 1987 (PDMA), setting the baseline for
wholesale distribution regulations. The final regulations were published in 1999, establishing the minimum wholesale distribution requirements
for state licensure. With the intent to prevent the introduction and retail sale of substandard, ineffective, or counterfeit drugs into
the distribution system, state licensing systems moved to update their standards to match those provided federally as guided under FDA’s
Guidelines for State Licensing of Wholesale Prescription Drug Distributors (21 CFR 205). PDMA established minimum federal pedigree requirements
to trace the ownership of prescription drugs through the supply chain. The principal goal of the PDMA was to further secure the nation’s
drug supply from counterfeit and substandard prescription drugs. The law establishes two types of distributors: “Authorized
distributor[s] of record” or ADRs; and “Unauthorized distributor[s],” such as wholesalers. The pedigree
requirement was to require each person engaged in the wholesale distribution of a prescription drug in interstate commerce, who is not
the manufacturer or an authorized distributor of record for that drug, to provide a pedigree to the recipient. After meeting resistance
from various stakeholders, the FDA delayed the effective date of the regulations several times, until final implementation in December
2006.
At
the federal level the implementation of the track and trace legislation which went into effect in 2018, requires the use of pharmaceutical
pedigree to track the movement of pharmaceuticals along the supply chain. The costs of complying with this new legislation may be too
burdensome for many of the smaller suppliers.
State
Drug Administration Guidelines
There
are a number of national and state-wide regulations that have an effect on our business. All drug wholesalers must be licensed under
state licensing systems, which must in turn meet the FDA guidelines under State Licensing of Wholesale Prescription Drug Distributors
(21 CFR Part 205). The regulations set forth minimum requirements for prescription drug storage and security as well as for the treatment
of returned, damaged, and outdated prescription drugs. Further, wholesale drug distributors must establish and maintain inventories and
records of all transactions regarding the receipt and distribution of prescription drugs and make these available for inspection and
copying by authorized federal, state, or local law enforcement officials. In most states, wholesale distributor licenses are issued by
the State Boards of Pharmacy and require periodic renewal. Approximately 40 states also require out-of-state wholesalers that distribute
drugs within their borders to be licensed as well.
On
February 4, 2022, the FDA published a proposed rule to set national standards for the licensing of prescription drug wholesale distributors
and third-party logistics providers. The comment period was open until June 6, 2022. New regulations and requirements for wholesale distributors
and third-party logistics providers could be too burdensome and could impact our registered suppliers on the Trxade platform.
California,
Florida, Nevada, New Mexico and Indiana define the normal distribution channel to not include the lateral sales of pharmaceuticals between
wholesalers. The Supply Chain Act, part of the Quality Drug Act, which was signed into federal law in December 2013, precludes all states
from restricting, investigating or inspecting the distribution channel and transactional history. Until the federal government provides
guidelines for the new federal law, no state regulation or guideline exists.
The
warehousing of pharmaceuticals is also restricted and requires additional state licenses. Some licenses require bonds and written exams
and may take some time to approve. Currently, Integra Pharma Solutions, LLC, our wholesale distributor, asks for formal pedigrees from
the ADR wholesalers and provides pedigrees to those entities they sell to in the marketplace. This requirement limits liability and provides
assurance if a recall is warranted that Trxade and its participants will receive value for the commodity.
Our
national wholesale supply partners are able to fulfill orders on our platform in real-time and provide pharmacies 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).
Potential
New Regulations; Price Gouging Rules
In
addition to the above, regulatory mandates in response to certain unexpected events, such as viral outbreaks, could negatively impact
sales. For example, in December 2019 an outbreak of a coronavirus surfaced in China and resulted in governments around the world adopting
restrictions on public gatherings, travel and restrictions on companies’ (including our) ability to conduct normal business operations.
Price
gouging may be an issue in the coming months due to the continued effects of the coronavirus and responses thereto and supply chain issues
associated therewith and separately; as of the date of this Report, 42 states have enacted price gouging laws of one kind or another.
The laws vary from state to state, but one constant throughout is a prohibition to charge “excessive” or “unconscionable”
prices for consumer goods. Some states define “excessive” or “unconscionable” while others define what makes
a prima facie case for price gouging and what constitutes a prima facie defense, shifting the burden of proof to the accuser. In almost
all of the 42 states with price gouging laws on the books, a price is excessive or unconscionable if the price of a good has increased,
in some states by a certain percentage, over the price of the good prior to the onset of the abnormal disruption of the market. Some