TRxADE HEALTH, INC - Quarter Report: 2016 March (Form 10-Q)

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, 2016

OR

      .

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from      to    

Commission File Number: 000-55218

TRXADE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		46-3673928
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

	1115 Gunn Hwy, Suite 202
	Odessa, Florida 33556
(Address of Principal Executive Offices) (Zip Code)

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  X . No      .

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

Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	. (Do not check if a smaller reporting company)	Smaller reporting company	X .

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

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

Class	Outstanding at  April 20, 2016
Common Stock, $0.00001 par value per share	31,435,827 shares

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TRXADE GROUP, INC.
FORM 10-Q
For the Quarter Ended March 31, 2016

INDEX

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PART 1: FINANCIAL INFORMATION

Item 1: Financial Statements

Trxade Group, Inc.
Consolidated Balance Sheets
March 31, 2016 and December 31, 2015
(unaudited)

			March 31, 2016		December 31, 2015
Assets
Current Assets
	Cash	$	508,279	$	860,132
	Accounts Receivable, net		452,141		498,100
	Inventory, net		475,862		284,718
	Prepaid Assets		220,095		201,361
	Other Assets		167,509		183,359
	Total Current Assets		1,823,886		2,027,670
Total Assets		$	1,823,886	$	2,027,670
Liabilities and Shareholders’ Equity (Deficit)
Current Liabilities
	Accounts Payable	$	338,541	$	356,159
	Accrued Liabilities		396,477		296,803
	Notes Payable net of $3,750 and $15,000 discount		246,250		235,000
	Short term Convertible Payable net of $8,923 and $35,697 discount		191,077		164,303
	Total Current Liabilities		1,172,345		1,052,265
Long Term Liabilities
	Convertible Note net of $220,621 and $241,612 discount		729,379		708,388
Total Liabilities			1,901,724		1,760,653
Shareholders’ Equity
	Preferred Stock, $0.00001 par value, 10,000,000 shares   authorized; 0 issued and outstanding,   as of March 31, 2016 and December 31, 2015, respectively		-		-
	Common Stock, $0.00001 par value, 100,000,000 shares   authorized; 31,435,827 and 31,435,827 issued and outstanding   as of March 31, 2016 and December 31, 2015, respectively		314		314
	Additional Paid-in Capital		5,943,199		5,915,674
	Retained Earnings (Deficit)		(6,021,351)		(5,648,971)
	Total Shareholders’ Equity (Deficit)		(77,838)		267,017
Total Liabilities and Shareholders’ Equity (Deficit)		$	1,823,886	$	2,027,670

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, 2016 and 2015
(unaudited)

		Three Months Ended
		2016		2015
Revenues	$	1,847,151	$	696,133
Cost of Sales		1,016,082		230,463
Gross Profit		831,069		465,670
Operating Expenses
General and Administrative		1,140,816		908,321
Operating Loss		(309,747)		(442,651)
Interest Expense		62,633		969
Net Loss		(372,380)		(443,620)
Basic loss per Common Share	$	(.01)		(.01)
Diluted loss per Common Share	$	(.01)		(.01)
Basic weighted average number of
Common Shares outstanding		31,435,827		31,269,160
Diluted weighted average number of
Common Shares outstanding		31,435,827		31,269,160

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, 2016 and 2015

(unaudited)

		2016		2015
Operating Activities:
Net Loss	$	(372,380)	$	(443,620)
Adjustments to reconcile net loss to net cash provided by
Operating activities:
Depreciation		-		1,200
Bad Debt Expense		711		-
Options expense		27,525		116,037
Amortization of debt discount		59,015		-
Changes in Operating assets and Liabilities:
Accounts Receivable		45,248		(1,054)
Prepaid Assets		(18,734)		(53,194)
Other Current Assets		15,850		-
Inventory		(191,144)		(104,535)
Other Assets		-		56,934
Accounts Payable		(17,618)		84,725
Accrued Liabilities		99,674		6,331
Other Liabilities		-		(10,560)
Deferred Income		-		(22,568)
Net Cash used in operating activities		(351,853)		(370,304)
Net increase or (Decrease) in Cash		(351,853)		(370,304)
Cash at Beginning of the Year		860,132		705,602
Cash at March 31, 2016 and 2015	$	508,279	$	335,298
Supplemental Cash Flow Information
Cash Paid for Interest	$	3,618	$	969
Cash Paid for Income Taxes	$	-	$	-

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

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Trxade Group, Inc.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the three months ended March 31, 2016 and 2015

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

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

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

Westminster Pharmaceutical LLC, provides US state licensed pharmacies and other buying groups with FDA approved pharmaceuticals as well as access to current benchmark pricing of pharmaceuticals.

Pinnacle Tek, Inc. is a technology consultant provider that supports the programming needs of parent company and also provides other information technology consulting services.  This subsidiary is no longer active and has no material impact on the Company’s operation results.

Income (loss) Per Share – Basic net loss per common share is computed by dividing net loss available to commons stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed similar to basic net loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilute. At March 31, 2016 and March 31, 2015 diluted net loss per share is equivalent to basic net loss per share as the inclusion of any shares committed to be issued would be anti-dilutive.

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

		Three-month		Three-month
		March 31, 2016		March 31, 2015
Numerator:
Net Loss	$	(372,380)	$	(443,620)
Numerator for basic EPS – income (loss)
Available to common shareholders		(372,380)		(443,620)
Numerator for diluted EPS – income (loss)
Income available to common shareholders		(372,380)		(443,620)
Denominator:
Denominator for basic EPS –
Weighted average shares		31,435,827		31,269,160
Denominator for diluted EPS -
Weighted-average shares and assumed Conversions		31,435,827		31,269,160
Basic loss per common share	$	(0.01)	$	(0.01)
Diluted loss per common share	$	(0.01)	$	(0.01)

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

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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, 2015 as reported in the Company’s Registration Statement on Form 10K have been omitted.

NOTE 2 – SHORT-TERM DEBT

Convertible Promissory Note

Convertible promissory notes were issued in the aggregate amount of $200,000 in April and May 2015. The term of the notes is one year. Simple interest of 10% is payable at the maturity date of the note. Prior to maturity the notes may be converted for common stock at a conversion price of $1.50. The holders of the notes were granted warrants at one common stock for $4.00 of the note amount, 50,000 warrants were issued at a strike price of $1.50 with an expiration date of five years from date of issuance.

The Company evaluated the embedded conversion feature within the above convertible notes under ASC 815-15 and ASC 815-40 and determined embedded conversion feature does not meet the definition of a 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 a total debt discount of $53,546 was recorded.

The Company also uses the Black-Scholes pricing model to estimate the fair value of the warrants issued along with convertible notes on the date of grant. The Company accounted for relative fair value of the warrants issued and a total debt discount of $53,546 was recorded.

During the three months ended March 31, 2016, debt discount of $26,774 was amortized. As of March 31, 2016, convertible note has a balance of $191,077, net of $8,923 unamortized debt discount.

Promissory Note

In May 2015, a promissory note was issued in the face amount of $250,000. The term of the note is one year. The note has an original issuance discount of $45,000, thus the cash proceeds from the promissory note is $205,000.

During the three months ended March 31, 2016, debt discount of $11,250 was amortized. As of March 31, 2016, promissory note has a balance of $246,250, net of $3,750 unamortized debt discount.

NOTE 3 – LONG TERM DEBT

Convertible Promissory Note

Convertible promissory notes were issued in the aggregate amount of $950,000 in November and December 2015. The term of the notes are three years. Interest rate is a “Royalty Payment” which consists of a percentage of net Profit of certain transactions, payable within 45 days of the end of each quarter. Prior to maturity the notes may be converted for common stock at a conversion price of $2.50. The holders of the notes were granted warrants at one common stock for $3.00 of the note amount, 316,667 warrants were issued at a strike price of $0.01 with an expiration date of five years from date of issuance. An additional 10,000 warrants were issued under the same terms.

The Company evaluated the embedded conversion feature within the above convertible notes under ASC 815-15 and ASC 815 40 and determined embedded conversion feature does not meet the definition of a 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 a total debt discount of $0 was recorded.

The Company also uses the Black-Scholes pricing model to estimate the fair value of the warrants issued along with convertible notes on the date of grant. The Company accounted for relative fair value of the warrants issued and a total debt discount of $251,883 was recorded.

During the three months ended March 31, 2016 debt discount of $20,991 was amortized. As of March 31, 2016, convertible note has a balance of $729,379, net of $220,621 unamortized debt discount.

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NOTE 4 - WARRANTS

For the three-month period ended March 31, 2016, no warrants were issued, exercised or forfeited.  

The Company’s outstanding and exercisable warrants as of March 31, 2016 are presented below:

	Number		Weighted Average	Contractual		Intrinsic
	Outstanding		Exercise Price	Life in Years		Value
Warrants Outstanding as of December 31, 2015	845,000	$	0.61	3.77	$	435,900
Warrants Granted	-		-	-		-
Warrants Forfeited	-		-	-		-
Warrants Exercised	-			-		-
Warrants Outstanding as of March 31, 2016	845,000	$	0.61	3.52	$	372,300

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

For the three-month period ended March 31, 2016, no options were issued, and 52,500 options were forfeited or expired due to employee resignation.  The options were not vested and the option expense reversed was $47,370.

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 $27,525 for the three months ended March 31, 2016. As of March 31, 2016, there was $322,808 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 as of and for the period ended March 31, 2016:

	Number of		Average	Contractual Life		Intrinsic
	Options		Exercise Price	in Years		Value
Outstanding at December 31, 2015	1,200,000	$	1.07	5.19		-
Exercisable at December 31, 2015	332,000	$	1.04	3.34	$	28,000
Forfeited	42,500	$	1.56	8.42		-
Granted	-	$	-	-		-
Expired	10,000	$	1.60	8.80		-
Outstanding at March 31, 2016	1,147,500	$	1.00	4.57		-
Exercisable at March 31, 2016	431,500	$	1.05	3.24	$	13,515

NOTE 6 – SEGMENT REPORTING

The Company classifies its business interests into reportable segments which are Trxade and Westminster.

Three Months Ended March 31, 2016		Trxade		Westminster
Revenue	$	641,826	$	1,202,636
Segment Assets		317,565		1,398,850
Segment Profit/Loss		(41,752)		(326,112)
Three Months Ended March 31, 2015		Trxade		Westminster
Revenue	$	483,527	$	127,639
Segment Assets		372,661		278,604
Segment Profit/Loss		(104,427)		(323,801)

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Corporate Overhead was allocated based on revenue, the amount was $(302,023) and $(257,604) for the three months ended March 31, 2016 and 2015, respectively.

NOTE 7 – CONTINGENCY

On November 19, 2015, Family Medicine Pharmacy, LLC filed a class-action claim against Trxade Group, Inc. and its wholly owned subsidiary Westminster Pharmaceutical, LLC, Inc. (Family Medicine Pharmacy, LLC v. Trxade Group, Inc. and Westminster, Inc., Case No.: 1:15-CV-00590-KD-B, United States District Court, Southern District of Alabama, Mobile Division). Family Medicine has served Trxade for allegedly utilizing a “junk fax” advertising program. Family Medicine seeks statutory damages on behalf of a class of similarly situated entities throughout the United States. The litigation is in its preliminary stages, and discovery has not yet commenced. Although management denies any material liability and the propriety of class certification in this lawsuit, the litigation could have a lengthy duration, it is more likely than not that damages and/or settlement costs will be incurred, and the ultimate outcome cannot be predicted at this time. Therefore under ASC 450”loss on contingencies”, no accrual is recorded as of March 31, 2016.

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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 balance sheets and cash flows and discussion of our financial condition.

·

Results of Operations. An analysis of our financial results comparing the twelve months ended December 31, 2015 and 2014.

·

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). Important additions to this platform further include the generation of pharmacy to pharmacy trading capabilities to help independents with their overstocked inventories in a more organized manner. We expanded rapidly in 2015 and now have over 5,000 registered pharmacy members purchasing on our platform.

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

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

Lastly, in 2015 Westminster Pharmaceuticals, LLC, our wholly-owned subsidiary and distribution division launched its private label pharmaceutical product program, and has entered into various supply contracts with pharmaceutical manufactures to supply Westminster with generic pharmaceutical products on a private label basis to sell to our customers. In connection with this expansion, Westminster and received significant funding in late 2015 and early 2016.

Company Organization

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

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

Westminster Pharmaceutical LLC, provides US state licensed pharmacies and other buying groups with FDA approved pharmaceuticals under a private label program.

Pinnacle Tek, Inc. was the Company’s wholly-owned technology consulting division. This division is no longer active and has no material impact on the Company’s operation results.

Liquidity and Capital Resources

Cash and Cash Equivalents

Cash and cash equivalents were $508,279 at March 31, 2016. 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 of each quarterly period were as follows:

		March 31, 2016		December 31, 2015
Cash and cash equivalents	$	508,279	$	860,132
Current assets (excluding cash and cash equivalents)		1,315,607		1,167,538
Current liabilities (excluding short term debt)		735,018		652,962
Short term debt		437,327		399,303
Working Capital		651,541		975,405

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As of March 31, 2016, we had cash and cash equivalents of approximately $508,279 and other current assets of $1,315,607.  

The decrease in our current assets was primarily due to a $351,853 decrease in cash.  Inventory increased by $191,144.  Accounts receivable decreased by $45,959 and prepaid assets increased by $18,737.

The current liabilities increase is primarily due to short term debt of $437,327. Additional funds will be needed to continue to expand our platform and customer base, and cover general and administrative expense. Our principal sources of liquidity have been cash provided by operations, equity capital and borrowings under various debt arrangements. Our principal uses of cash have been for operating expenses, inventory purchases and private label distribution agreements. We anticipate these uses will continue to be our principal uses of cash in the future.

Current liabilities increase is primarily due to an increase in accrued liabilities of $99,674. The accrued liabilities increase is primarily accrued management wages from executive employment contracts.

For discussion of our various debt arrangements see Note 3 – Short-Term Debt and Related Party Debt and Note 4 – Long Term Debt of the Notes to Consolidated Financial Statements in Part IV of our Form 10-K.  

Liquidity Outlook

Cash Requirements

Our primary objectives for 2016 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 believe the Company will be able to obtain 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. 

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

Expense		Amount
Cost of Sales (1)		$	5,300,000
General and administrative (2)		$	2,400,000
Total		$	7,700,000

(1)

Includes the cost of drugs for Westminster Pharmaceuticals, LLC and consulting expenses for Pinnacle Tek.

(2)

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. Further, we may continue to be unprofitable.

We will need significantly more cash to implement our plan to operate a business-to-business web based marketplace focused on the US pharmaceutical industry. Our core service 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.

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Cash Flows

The following table summarizes our Consolidated Statement of Cash Flows for the three months ended March 31, 2016 and 2015:

		Three Months Ended
		March 31,		March 31,
		2016		2015
		($)		($)
Net cash provided by (used in):
Operating activities		(351,853)		(370,304)
Investing activities		-		-
Financing activities		-		-
Net increase (decrease) in cash and cash equivalents		(351,853)		(370,304)

Cash used in operating activities for the three months ended March 31, 2016 was $351,853. This is a decrease of $18,451 from same period in 2015 and was due to increased customers and revenue.  There were no investing activities or financing activities.

Results of Operations

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

 

		Three months ending		Three months ending
		March 31, 2016		March 31, 2015
Revenues	$	1,847,151	$	696,133
Cost of Sales		1,016,082		230,463
Gross Profit		831,069		465,670
Operating Expenses:
General and Administrative		1,113,291		792,284
Warrants and Options Expense		27,525		116,037
Total Operating Expenses		1,140,816		908,321
Loss from operations		(309,747)		(442,651)
Amortization of Debt Discount		59,015		-
Interest Expense		3,618		969
Net loss	$	(372,380)	$	(446,620)

Revenues increased for the three months ended March 31, 2016 to $1,847,151 compared to $696,133 for the comparable period in 2015.  This increase was attributable to an increase of fee income from our web-based platform and pharmaceuticals sales. Our sales department has continued to add customers in 2016 through direct marketing and customer training.

Cost of sales increased for the three months ended March 31, 2016 to $1,016,082 compared to $230,463 for the comparable period in 2015.  This increase was primarily attributable to an increase in revenue from the pharmaceutical sales which has higher cost of sales than our other revenue sources.

General and administrative expenses increased for the three months ended March 31, 2016 to $1,113,291 compared to $792,284 for the comparable period in 2015.  A large component of general and administrative expenses in 2016 was affected by an increase in employee cash compensation expense in the 2016 period due to increased staffing as we reached our operational phase and our payroll expense was $601,904.  

Warrant and options expense in the 2016 and 2015 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, 2016.

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Critical Accounting Policies

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

Revenue Recognition

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

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

 

Pinnacle Tek, Inc. generates gross revenues from IT Consulting and Job Placement. Revenue is recognized (1) with the execution of a contract for the price and scope of services. (2) The contract also provides persuasive evidence of an existing arrangement. (3) The IT Consulting services are performed and invoiced monthly and the job placement is invoiced at the hiring of the applicant, delivery of services. (4) The collectability of the resulting receivable is determined by credit checks prior to the performance of services and payment experience with the client. This division is no longer active and has no material impact on the Company’s operation results.

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

Stock-Based Compensation

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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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, 2016 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

In addition to the legal matters below, in the ordinary course of business, we may become a party to lawsuits involving various matters. The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We believe the ultimate resolution of any such current proceeding will not have a material adverse effect on our continued financial position, results of operations or cash flows

On November 19, 2015, Family Medicine Pharmacy, LLC filed a class-action claim against Trxade Group, Inc. and its wholly owned subsidiary Westminster Pharmaceutical, LLC, Inc. (Family Medicine Pharmacy, LLC v. Trxade Group, Inc. and Westminster, Inc., Case No.: 1:15-CV-00590-KD-B, United States District Court, Southern District of Alabama, Mobile Division). Family Medicine has served Trxade for allegedly utilizing a “junk fax” advertising program. Family Medicine seeks statutory damages on behalf of a class of similarly situated entities throughout the United States. The litigation is in its preliminary stages, and discovery has not yet commenced. Although management denies any material liability and the propriety of class certification in this lawsuit, the litigation could have a lengthy duration, it is more likely than not that damages and/or settlement costs will be incurred, and the ultimate outcome cannot be predicted at this time.

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, 2015 filed with the SEC on March 28, 2016.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

Not Applicable

ITEM 6. EXHIBITS

Exhibit No.

Description

31.A

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

31.B

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

32.A

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

32.B

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

101

XBRL (Extensible Business Language)

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SIGNATURES

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

	TRXADE GROUP, INC.
	By:		/s/ SUREN AJJARAPU
			Suren Ajjarapu
			Chief Executive Officer
			Date: April 20, 2016
	By:		/s/ HOWARD DOSS
			Howard Doss
			Chief Financial Officer
			Date: April 20, 2016

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