Scienture Holdings, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA TABLE OF CONTENTS TO FINANCIAL STATEMENTS Consolidated Financial Statements Table of Contents Report of Independent Registered Public Accounting Firm 65 Consolidated Balance Sheets 66 Consolidated Statements of Operations 67 Consolidated Statements of Changes in Stockholders’ Equity 68 Consolidated Statements of Cash Flows 69 Notes to Consolidated Financial Statements 70 64 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of TRxADE HEALTH, INC. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of TRxADE HEALTH, INC. and its subsidiaries (collectively, the “Company”) as of December 31, 2021, and 2020, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and 2020, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ MaloneBailey, LLP www.malonebailey.com We have served as the Company’s auditor since 2013. Houston, Texas March 28, 2022 (PCAOB ID: 00 206 ) 65 TRxADE HEALTH, INC. Consolidated Balance Sheets December 31, 2021 and 2020 December 31, 2021 December 31, 2020 Assets Current Assets Cash $ 3,122,578 $ 5,919,578 Accounts Receivable, net 978,973 805,043 Inventory 56,279 1,257,754 Prepaid Assets 216,414 151,248 Other Receivables - 1,087,675 Total Current Assets 4,374,244 9,221,298 Property Plant and Equipment, Net 98,751 162,397 Other Assets Deposits 60,136 21,636 Right of use leased assets 1,233,033 387,371 Total Assets $ 5,766,164 $ 9,792,702 Liabilities and Stockholders’ Equity Current Liabilities Accounts Payable $ 477,028 $ 256,829 Accrued Liabilities 270,437 219,256 Current Portion - Operating Lease Liabilities 178,561 131,153 Customer Deposits - 10,000 Notes Payable – Related Party - 225,000 Total Current Liabilities 926,026 842,238 Long Term Liabilities Operating Lease Liabilities, net of current portion 1,069,965 271,306 Total Liabilities 1,995,991 1,113,544 Stockholders’ Equity Series A Preferred Stock, $ 0.00001 par value; 10,000,000 shares authorized; none issued and outstanding as of December 31, 2021, and December 31, 2020, respectively - - Common Stock, $ 0.00001 par value; 100,000,000 shares authorized; 8,166,457 and 8,093,199 shares issued and outstanding as of December 31, 2021 and 2020, respectively 82 81 Additional Paid-in Capital 20,017,528 19,610,631 Retained Deficit ( 16,247,437 ) ( 10,931,554 ) Total Stockholders’ Equity 3,770,173 8,679,158 Total Liabilities and Stockholders’ Equity $ 5,766,164 $ 9,792,702 The accompanying notes are an integral part of the consolidated financial statements. 66 TRxADE HEALTH, INC. Consolidated Statements of Operations Years Ended December 31, 2021 and 2020 2021 2020 Revenues, net $ 9,889,433 $ 17,122,520 Cost of Sales 5,143,468 11,415,198 Gross Profit 4,745,965 5,707,322 Operating Expenses Loss on Inventory Investment 1,226,426 - Loss on Impairment of Goodwill - 725,973 General and Administrative 8,811,832 7,488,011 Total Operating Expenses 10,038,258 8,213,984 Operating Loss ( 5,292,293 ) ( 2,506,662 ) Interest Expense ( 23,590 ) ( 29,389 ) Net Loss $ ( 5,315,883 ) $ ( 2,536,051 ) Net Loss per Common Share – Basic and Diluted $ ( 0.65 ) $ ( 0.33 ) Weighted average Common Shares Outstanding – Basic and Diluted 8,136,740 7,705,620 The accompanying notes are an integral part of the consolidated financial statements. 67 TRxADE HEALTH, INC. Consolidated Statements of Changes in Stockholders’ Equity Years Ended December 31, 2021 and 2020 Shares Amount Shares Amount Capital Deficit Equity Preferred Stock Common Stock Additional Paid-in- Accumulated Total Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance at December 31, 2019 - $ - 6,539,415 $ 65 $ 12,535,655 $ ( 8,395,503 ) $ 4,140,217 Common Stock Issued from Offering - - 922,219 10 5,994,414 - 5,994,424 Fractional Common Stock Issued due to reverse split - - 40 - - - - Stock Issuance Costs - - - - ( 820,587 ) - ( 820,587 ) Common Stock Issued for Services - - 217,965 2 1,357,757 - 1,357,759 Options Exercised for Cash - - 167 - 501 - 501 Warrants Exercised for Cash - - 413,393 4 37,602 - 37,606 Warrants Expense - - - - 56,885 - 56,885 Options Expense - - - - 448,404 - 448,404 Net Loss - - - - - ( 2,536,051 ) ( 2,536,051 ) Balance at December 31, 2020 - $ - 8,093,199 $ 81 $ 19,610,631 $ ( 10,931,554 ) $ 8,679,158 Common Stock Issued for Services - - 37,905 - 181,163 - 181,163 Options Exercised for Cash - - 30,353 - 1,821 - 1,821 Warrants Exercised for Cash - - 5,000 1 15,000 - 15,001 Warrants Expense - - - - 21,640 - 21,640 Options Expense - - - - 187,273 - 187,273 Net Loss - - - - - ( 5,315,883 ) ( 5,315,883 ) Balance at December 31, 2021 - - 8,166,457 82 20,017,528 ( 16,247,437 ) 3,770,173 The accompanying notes are an integral part of the consolidated financial statements. 68 TRxADE HEALTH, INC. Consolidated Statements of Cash Flows Years ended December 31, 2021 and 2020 2021 2020 Operating Activities: Net loss $ ( 5,315,883 ) $ ( 2,536,051 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation Expense 7,351 5,500 Options Expense 187,273 448,404 Warrant Expense 21,640 56,885 Common Stock Issued for Services 181,163 1,357,759 Bad Debt Expense 615,657 10,539 Loss on Inventory Investment 143,891 - Loss on Impairment of Goodwill - 725,973 Loss on write-down of Inventory 376,348 1,218,020 Amortization of Right-of-Use Asset 131,558 97,020 Changes in operating assets and liabilities: Accounts Receivable ( 789,587 ) ( 23,532 ) Prepaid Assets and Other Current Assets ( 103,666 ) ( 68,796 ) Inventory 825,127 ( 2,419,013 ) Deposits for Inventory Purchases - ( 1,087,675 ) Other Receivables 1,087,675 - Lease Liability ( 131,153 ) ( 97,033 ) Accounts Payable 220,199 ( 33,190 ) Accrued Liabilities and Other Liabilities ( 13,819 ) 120,404 Customer Deposits ( 10,000 ) 10,000 Net cash used in operating activities ( 2,566,226 ) ( 2,214,786 ) Investing Activities: Purchase of Fixed Assets ( 22,596 ) ( 37,505 ) Net cash used in Investing Activities ( 22,596 ) ( 37,505 ) Financing Activities: Repayments of Short-Term Promissory Notes – Related Parties ( 225,000 ) - Payment of Stock Issuance Costs - ( 732,356 ) Proceeds from Exercise of Warrants 15,001 37,606 Proceeds from Exercise of Stock Options 1,821 501 Proceeds from Issuance of Common Stock - 5,994,424 Net Cash provided by (used in) financing activities ( 208,178 ) 5,300,175 Net increase (decrease) in Cash ( 2,797,000 ) 3,047,884 Cash at Beginning of the Year 5,919,578 2,871,694 Cash at End of the Year $ 3,122,578 $ 5,919,578 Supplemental Cash Flow Information Cash Paid for Interest $ 28,337 $ 29,442 Cash Paid for Income Taxes $ - $ - Non-Cash Transactions Remeasurement of ROU Assets and Lease Liability for Nonrenewal of Lease $ - $ 273,319 The accompanying notes are an integral part of the consolidated financial statements. 69 TRxADE HEALTH, INC. Notes to Consolidated Financial Statements For the years ended December 31, 2021 and 2020 NOTE 1 – ORGANIZATION TRxADE HEALTH, INC. (“ we ”, “ our ”, “ Trxade ”, and the “ Company ”) owns 100 % of Trxade, Inc., Integra Pharma Solutions, LLC, Community Specialty Pharmacy, LLC, Alliance Pharma Solutions, LLC, Bonum Health, LLC and MedCheks, LLC (from January 2021 to December 2021, when it was dissolved). The merger of Trxade, Inc. and TRxADE HEALTH, INC. occurred in May 2013. Community Specialty Pharmacy was acquired in October 2018. Trxade, Inc. operates a web-based market platform that enables commerce among healthcare buyers and sellers of pharmaceuticals, accessories and services. Integra Pharma Solutions, LLC is a licensed pharmaceutical wholesaler and sells brand, generic and non-drug products. Community Specialty Pharmacy, LLC is an accredited independent retail pharmacy with a focus on specialty medications and a community-based model offering home delivery services to patients. Alliance Pharma Solutions, LLC (d.b.a. DelivMeds) has developed a same day Pharma delivery software – Delivmeds.com and invested in SyncHealth MSO, LLC a managed services organization in January 2019, which investment was divested in February 2020. Bonum Health, LLC, was formed to hold certain telehealth assets acquired in October 2019. The “ Bonum Health Hub ” was launched in November 2019 and was expected to be operational in April 2020; however, due to the COVID-19 pandemic, the Company does not anticipate installations moving forward, and has taken a write off of the hubs purchased at June 30, 2021, in Loss on Inventory Investments of $ 143,891 for the year ended December 31, 2021. The Bonum Health mobile application is 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. MedCheks, LLC, was formed in January 2021 and is a patient-centered, digital, precision healthcare platform that lets patients consolidate and control their health data via a digital Health Passport. This product has been discontinued and MedCheks, LLC was subsequently dissolved in December 2021. On October 9, 2019, the Company’s Board of Directors, and on October 15, 2019, stockholders holding a majority of the Company’s outstanding voting shares, approved resolutions authorizing a reverse stock split of the outstanding shares of the Company’s common stock in the range from one-for-two (1-for-2) to one-for-ten (1-for-10) and provided authority to the Company’s Board of Directors to select the ratio of the reverse stock split in their discretion (the “ Stockholder Authority ”). On February 12, 2020, the Board of Directors of the Company approved a stock split ratio of 1-for-6 (“ Reverse Stock Split ”) in connection with the Stockholder Authority and the Company filed a Certificate of Amendment with the Secretary of Delaware to affect the Reverse Stock Split. Proportional adjustments were made to the conversion and exercise prices of the Company’s outstanding warrants and stock options, and to the number of shares issued and issuable under the Company’s stock incentive plans in connection with the Reverse Stock Split. The Reverse Stock Split did not affect any stockholder’s ownership percentage of the Company’s common stock, except to the limited extent that the Reverse Stock Split resulted in any stockholder owning a fractional share. Fractional shares of common stock were rounded up to the nearest whole share based on each holder’s aggregate ownership of the Company. All issued and outstanding shares of common stock, options and warrants to purchase common stock and per share amounts contained in the financial statements, have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented. 70 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“ GAAP ”) in all material respects and have been consistently applied in preparing the accompanying financial statements. The summary of significant accounting policies presented below is designed to assist in understanding the Company’s financial statements. Such financial statements and accompanying notes are the representations of the Company’s management, who are responsible for their integrity and objectivity. Liquidity – Historically, operations have been funded primarily through the sale of equity or debt securities and operating activities. In 2020, the Company raised approximately $ 5.99 million in capital (See Note 4 – Stockholders’ Equity ). The Company has the ability to maintain the current level of spending or reduce expenditures to maintain operations if funding is not available. Use of Estimates – In preparing these financial statements, management is required to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Reclassification – Certain prior year amounts have been reclassified to conform to the current year presentation. Principle of Consolidation – The Company’s consolidated financial statements include the accounts of TRxADE HEALTH, INC., Trxade, Inc., Integra Pharma Solutions, Inc., Alliance Pharma Solutions, LLC, Community Specialty Pharmacy, LLC, Bonum Health, LLC and MedCheks, LLC. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents – Cash in bank accounts are at risk to the extent that they exceed U.S. Federal Deposit Insurance Corporation insured amounts. All investments purchased with a maturity of three months or less are cash equivalents. Cash and cash equivalents are available on demand and are generally within FDIC insurance limits for 2021. Accounts Receivable – The Company’s receivables are from customers and are collectible within 90 days. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. During the years ended December 31, 2021, and 2020, $ 615,657 and $ 10,539 of bad debt expense, respectively and $ 0 of recovery of bad debt, was recognized. Inventory – Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first in first out basis. These are merchandise inventories at Community Specialty Pharmacy, LLC and Integra Pharma Solutions, LLC. On a quarterly basis, we evaluate inventory for net realizable value using estimates based on historical experience, current or projected pricing trends, specific categories of inventory, age and expiration dates of on-hand inventory and manufacturer return policies. If actual conditions are less favorable than our assumptions, additional inventory write-downs may be required, and no reserve is maintained as obsolete or expired inventories are written off. We believe that the inventory valuation provides a reasonable approximation of the current value of inventory. There is no reserve for inventory obsolescence and inventory is not pledged during the periods presented. During the years ended December 31, 2021 and 2020, included in cost of sales were write-downs to reduce inventory to net realizable value of $ 376,348 and $ 1,218,020 , respectively. Beneficial Conversion Features – The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion. 71 Fair Value of Financial Instruments – The Company measures its financial assets and liabilities in accordance with the requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, “ Fair Value Measurements and Disclosures ”. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The Company does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis. The carrying amounts of cash, accounts receivable, accounts payable, accrued liabilities and short-term debt approximate fair value because of the short-term nature of these instruments. The carrying amount of long-term debt approximates fair value because the debt is based on current rates at which the Company could borrow funds with similar maturities. Goodwill – The Company accounts for goodwill and intangible assets in accordance with ASC 350 “ Intangibles Goodwill and Other ”. ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset is more likely than not has decreased below its carrying value. The Company performed impairment analysis using the quantitative analysis under ASC 350-20 and because of declining revenues and operating losses an impairment of goodwill was recognized as of December 31, 2021 and 2020, was $ 0 and $ 725,973 , respectively. Revenue Recognition – 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. The Company adopted ASU 2014-09 using the modified retrospective approach effective January 1, 2018, under which prior periods were not retrospectively adjusted. The adoption of Topic 606 did not have a material impact on the Company’s consolidated financial statements, including the presentation of revenues in the Company’s Consolidated Statements of Operations. 72 Trxade, Inc. provides an online website service, a buying and selling marketplace for licensed Pharmaceutical Wholesalers to sell products and services to licensed Pharmacies. The Company charges Suppliers a transaction fee, a percentage of the purchase price of the Prescription Drugs and other products sold through its website service. The fulfillment of confirmed orders, including delivery and shipment of Prescription Drugs and other products, is the responsibility of the Supplier and not of the Company. The Company holds no inventory and assumes no responsibility for the shipment or delivery of any products or services from the Company’s website. The Company considers itself an agent for this revenue stream and as such, reports revenue as net. Step One: Identify the contract with the customer – Trxade, Inc.’s Terms and Use Agreement is acknowledged between the Wholesaler and Trxade, Inc. which outlines the terms and conditions. The collection is probable based on the credit evaluation of the Wholesaler. Step Two: Identify the performance obligations in the contract – The Company provides to the Supplier access to the online website, uploading of catalogs of products and Dashboard access to review status of inventory posted and processed orders. The Agreement requires the supplier to provide a catalog of pharmaceuticals for posting on the platform, deliver the pharmaceuticals and upon shipment remit the stated platform fee. Step Three: Determine the transaction price – The Fee Agreement outlines the fee based on the type of product, generic, brand or non-drug. There are no discounts for volume of transactions or early payment of invoices. Step Four: Allocate the transaction price – The Fee Agreement outlines the fee. There is no difference between contract price and “ stand-alone selling price ”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation – Revenue is recognized the day the order has been processed by the Supplier. Integra Pharma Solutions, LLC is a licensed wholesaler and sells to licensed pharmacies brand, generic and non-drug products. The Company takes orders for product and creates invoices for each order and recognizes revenue at the time the Customer receives the product. Customer returns are not material. Step One: Identify the contract with the customer – The Company requires that an application and a credit card for payment is completed by the Customer prior to the first order. Each transaction is evidenced by an order form sent by the customer and an invoice for the product is sent by the Company. The collection is probable based on the application and credit card information provided prior to the first order. Step Two: Identify the performance obligations in the contract – Each order is distinct and evidenced by the shipping order and invoice. Step Three: Determine the transaction price – The consideration is variable if product is returned. The variability is determined based on the return policy of the product manufacturer. There are no sales or volume discounts. The transaction price is determined at the time of the order evidenced by the invoice. Step Four: Allocate the transaction price – There is no difference between contract price and “ stand-alone selling price ”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation - The Revenue is recognized when the Customer receives the product. Community Specialty Pharmacy, LLC is in the retail pharmacy business. The Company fills prescriptions for drugs written by a doctor and recognizes revenue at the time the patient confirms delivery of the prescription. Customer returns are not material. Step One: Identify the contract with the customer – The prescription is written by a doctor for a customer and delivered to the Company. The prescription identifies the performance obligations in the contract. The Company fills the prescription and delivers to the Customer the prescription, fulfilling the contract. The collection is probable because there is confirmation that the customer has insurance for the reimbursement to the Company prior to filling of the prescription. Step Two: Identify the performance obligations in the contract – Each prescription is distinct to the Customer. Step Three: Determine the transaction price – The consideration is not variable. The transaction price is determined to be the price of the prescription at the time of delivery which considers the expected reimbursements from third party payors (e.g., pharmacy benefit managers, insurance companies and government agencies). Step Four: Allocate the transaction price – The price of the prescription invoiced represents the expected amount of reimbursement from third party payors. There is no difference between contract price and “ stand-alone selling price ”. Step Five: Recognize revenue when or as the entity satisfies a performance obligation – Revenue is recognized upon the delivery of the prescription. Cost of Goods Sold – The Company recognized cost of goods sold from activities in Integra Pharma Solutions, LLC and Community Specialty Pharmacy, LLC. Stock-Based Compensation – 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. Stock option forfeitures are recognized at the date of employee termination. Effective January 1, 2019, the Company adopted ASU 2018-07 for the accounting of share-based payments granted to non-employees for goods and services. 73 Income Taxes – The Company accounts for income taxes utilizing ASC 740, “ Income Taxes ” (SFAS No. 109). ASC 740 requires the measurement of deferred tax assets for deductible temporary differences and operating loss carry forwards, and of deferred tax liabilities for taxable temporary differences. Measurement of current and deferred tax liabilities and assets is based on provisions of enacted tax law. The effects of future changes in tax rates are not included in the measurement. The Company recognizes the amount of taxes payable or refundable for the current year and recognizes deferred tax liabilities and assets for the expected future tax consequences of events and transactions that have been recognized in the Company’s financial statements or tax returns. The Company currently has substantial net operating loss carry forwards. The Company has recorded a 100 % valuation allowance against net deferred tax assets due to uncertainty of their ultimate realization. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Tax years from 2018 forward are open to examination by the Internal Revenue Service. Equity Investments – If the investments are less than 50% owned and more than 20% owned, the entities use the equity method of accounting in accordance with ASC 323-10 Investments – Equity Method and Joint Ventures. The share of income (loss) of such entities is recorded as a single amount as share in equity income (loss) of investments. Dividends, if any, are recorded as a reduction of the investment. The Company had no equity investment for the year ended December 31, 2021. Income (loss) Per 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. As of December 31, 2021, we had 44,535 outstanding warrants to purchase shares of common stock and 410,964 options to purchase shares of common stock. The following table sets forth the computation of basic and diluted income (loss) per common share for the years ended December 31, 2021, and 2020: SCHEDULE OF BASIC AND DILUTIVE INCOME (LOSS) PER COMMON SHARE December 31, 2021 December 31, 2020 Numerator: Net Income (Loss) $ ( 5,315,883 ) $ ( 2,536,051 ) Numerator for basic and diluted EPS - income (loss) available to common Shareholders $ ( 5,315,883 ) $ ( 2,536,051 ) Denominator: Denominator for basic and diluted EPS – Weighted average shares 8,136,740 7,705,620 Basic Income (Loss) per common share $ ( 0.65 ) $ ( 0.33 ) Concentration of Credit Risks and Major Customers - Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents and receivables. The Company places its cash and cash equivalents with financial institutions. Deposits are insured to Federal Deposit Insurance Corp limits. The amount of cash not insured by the FDIC as of December 31, 2021, is $ 2,332,137 . During the years ended December 31, 2021, no sales to customers represented greater than 10 % of revenue. 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. Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842 ) (“ ASU 2016-02 ”) using the required modified retrospective approach. The most significant changes under the new guidance include clarification of the definition of a lease, and the requirements for lessees to recognize a Right of Use (“ ROU ”) asset and a lease liability for all qualifying leases with terms longer than twelve months in the consolidated balance sheet. In addition, under Topic 842, additional disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. See Note 10 – Leases , below for more detail on the Company’s accounting with respect to leases. 74 Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Based Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ ASU 2018-7 ”), which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity – Equity-Based Payments to Non-Employees. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements. Recently Issued Accounting Pronouncements Not Yet Adopted - In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ ASU 2016-13 ”). ASU 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, and a modified retrospective approach is required, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022, for smaller reporting companies. The Company does not expect the adoption of this new accounting guidance to have a material impact on its financial position, results of operations, or cash flows. NOTE 3 – SHORT-TERM DEBT AND RELATED PARTIES DEBT Related Party Promissory Notes In October 2018, in connection with the acquisition of Community Specialty Pharmacy, LLC, a $ 300,000 promissory note was issued to Nikul Panchal, a non-executive officer of the Company, accruing simple interest at the rate of 10 % per annum, payable annually, and having a maturity date on October 15, 2021 . In October 2019, $ 75,000 of the note was converted into 25,000 common shares at $ 3.00 per share, leaving $ 225,000 of principal owed under the promissory note. There was a loss recognized on this conversion of $ 76,500 . In September 2021, the promissory note was paid in full. At December 31, 2021 and 2020, total related party debt was $ 0 and $ 225,000 , respectively. NOTE 4 – STOCKHOLDERS’ EQUITY In August 2021, warrants to purchase 5,000 shares of common stock were granted with an exercise price of $ 3.00 per share, and were exercised at $ 3.00 per share; the Company issued 5,000 shares of common stock, and $ 15,000 in proceeds were received in connection with such exercise. 2020 Equity Compensation Awards On April 14, 2020, the Compensation Committee approved the grant of (a) 5,000 shares of restricted common stock to the Company’s legal counsel; and (b) 12,500 shares of restricted common stock to Howard A. Doss, the Company’s Chief Financial Officer, which shares vested at the rate of ¼ th of such shares on July 1 and October 1, 2020, and January 1 and April 1, 2021. The shares have a fair value of $ 107,100 and the Company recognized stock-based compensation expense of $ 53,550 for the twelve months ended December 31, 2021. On April 14, 2020, the then three independent members of the Board of Directors (Mr. Donald G. Fell, Dr. Pamela Tenaerts, and Mr. Michael L. Peterson), were each awarded 8,987 shares of restricted stock, which vested at the rate of ¼ th of such shares on July 1 and October 1, 2020, and January 1 and April 1, 2021. The shares have a fair value of $ 165,000 and the Company recognized stock-based compensation expense of $ 82,501 for the twelve months ended December 31, 2021. 75 2021 Equity Compensation Awards On April 15, 2021, the Board of Directors, with the recommendation of the Compensation Committee, approved the grant of options to purchase an aggregate of 17,500 shares of our common stock to certain employees of the Company, in consideration for services to be rendered by such individuals through 2025. The options vest at the rate of ¼ th of such options per year, on the first, second, third and fourth anniversaries of the grant date, subject to such option holders continuing to provide services to the Company on such dates, subject to the terms of the Company’s Second Amended and Restated 2019 Equity Incentive Plan (the “Plan”) and the option agreements entered into evidence such grants. The options were granted pursuant to, and are subject to, the Plan, and have a term of five years from the grant date. The options have an exercise price of $ 4.76 per share, the closing price of the Company’s common stock on the date of the grant of such options. In connection with and pursuant to the independent director compensation policy previously adopted by the Board of Directors, on April 15, 2021, the then three independent members of the Board of Directors (Mr. Donald G. Fell, Dr. Pamela Tenaerts, and Mr. Michael L. Peterson), were each awarded 10,721 shares of restricted stock, valued at $ 55,000 ($ 5.13 per share) based on the closing sales price of the Company’s common stock on the Nasdaq Capital Market on the effective date of the grant, April 1, 2021, which vest at the rate of ¼ th of such shares on July 1 and October 1, 2021 and January 1 and April 1, 2022, subject to such persons continuing to provide services to the Company on such dates, subject to the terms of the Plan and the Restricted Stock Grant Agreements entered into as evidence of such awards. The shares have a fair value of $ 165,000 and the Company recognized stock-based compensation expense of $ 68,750 for the twelve months ended December 31, 2021. Common Shares totaling 16,082 were cancelled on May 27, 2021, when the director services of Mr. Peterson and Ms. Tenaerts were terminated. The Board of Directors of the Company, on May 27, 2021, confirmed the vesting of 2,680 shares of common stock previously issued to each of Michael L. Peterson and Dr. Pamela Tenaerts on July 1, 2021, which were subject to forfeiture subject to such persons continued service on the Board of Directors prior to the vesting date. In connection with and pursuant to the independent director compensation policy previously adopted by the Board of Directors, on May 27, 2021, the Board of Directors awarded Charles L. Pope, and Christine L. Jennings, each independent members of the Board of Directors appointed to the Board of Directors on May 27, 2021, 10,912 shares of restricted stock each, valued at $ 41,250 each ($ 3.78 per share) based on the closing sales price of the Company’s common stock on the Nasdaq Capital Market on the effective date of the grant, May 27, 2021, which vested at the rate of 1/3rd of such shares on October 1, 2021 and January 1, with the last tranche thereof vesting on April 1, 2022, subject to such persons continuing to provide services to the Company on such date. The Company recognized stock-based compensation expense of $ 64,167 for the twelve months ended December 31, 2021. Employment Agreement with Suren Ajjarapu, Chief Executive Officer In connection with our employment agreement with Mr. Suren Ajjarapu, our Chief Executive Officer, no stock or other equity compensation was granted for the year ended December 31, 2021. Stock Repurchase Program On May 27, 2021, the Board of Directors of the Company authorized and approved a stock repurchase program for up to $ 1 million of the currently outstanding shares of the Company’s common stock. There is no time frame for the repurchase program, and such program will remain in place until a maximum of $1.0 million of the Company’s common stock has been repurchased or until such program is suspended or discontinued by the Board of Directors. At the Market Offering On August 5, 2021, our Board of Directors paused the Stock Repurchase Program until the “at-the-market” offering (discussed below) was complete. 76 On August 6, 2021, the Company entered into an Equity Distribution Agreement, relating to an “at-the-market” offering for the sale of up to $ 9 million in shares of the common stock under which EF Hutton, division of Benchmark Investments, LLC, the distribution agent, could sell the offering shares in public market transactions reported on the consolidated tape or privately negotiated transactions which could include block trades pursuant to and in connection with the Company’s previously filed Form S-3 Shelf Registration Statement filed with the Securities and Exchange Commission on August 28, 2020 and declared effective by the Commission on September 3, 2020 (File Number: 333-248473) and the Prospectus Supplement was filed with the Commission under Rule 424(b)(5) dated August 6, 2021 (the “ATM Program”). Effective on November 30, 2021, the Company provided the distribution agent notice of the termination of the Equity Distribution Agreement and the ATM Program (each of which were terminated effective December 5, 2021, pursuant to the terms of the Equity Distribution Agreement), and as a result, $ 128,000 of deferring offering costs were recognized. No shares of common stock were sold pursuant to the “at-the-market” offering prior to the termination date. Continuation of the Stock Repurchase Program On December 10, 2021, the Board of Directors authorized and approved the resumption of the Company’s prior share repurchase program. The share repurchase program as approved by the Board of Directors on December 10, 2021, modified the prior repurchase program to allow for the repurchase of up to 100,000 of the currently outstanding shares of the Company’s common stock. There is no time frame for the repurchase program, and such program will remain in place until a maximum of 100,000 shares of the Company’s common stock has been repurchased or until such program is discontinued by the Board of Directors. As of December 31, 2021, no shares have been repurchased. NOTE 5 - WARRANTS In 2021, warrants to purchase 5,000 shares of common stock were granted, 5,000 were exercised, and warrants to purchase 38,216 shares of common stock expired and were forfeited. See Note 4 – Stockholders’ Equity . For the twelve-month period ended December 31, 2021, warrants to purchase 5,000 shares of common stock were exercised, resulting in proceeds of $ 15,000 . The Company uses the Black-Scholes pricing model to estimate the fair value of stock-based awards on the date of the grant. The compensation cost related to the warrants granted was $ 0 and $ 21,640 for the year ended December 31, 2021, and 2020, respectively. The following table summarizes the assumptions used to estimate the fair value of the warrants granted during the years ended December 31, 2021 and 2020. SUMMARY OF ASSUMPTIONS USED TO ESTIMATE FAIR VALUE OF WARRANTS GRANTED 2021 2020 Expected dividend yield 0 % 0 % Weighted-average expected volatility 217 % 217 % Weighted-average risk-free interest rate 2.75 % 2.75 % Expected life of warrants 5 years 5 years 77 The Company’s outstanding and exercisable warrants as of December 31, 2021 and 2020 are presented below: SCHEDULE OF OUTSTANDING AND EXERCISABLE WARRANTS Number Outstanding Weighted Average Exercise Price Contractual Life in Years Intrinsic Value Warrants Outstanding as of December 31, 2019 524,480 $ 0.42 2.39 $ 3,273,897 Warrants granted 5,000 $ 0.06 5.00 - Warrants forfeited ( 33,336 ) $ 2.30 - - Warrants exercised ( 413,393 ) $ 0.09 - - Warrants Outstanding as of December 31, 2020 82,751 $ 1.33 2.73 $ 352,951 Warrants granted 5,000 $ 3.00 1.48 - Warrants forfeited ( 38,216 ) $ 2.51 - - Warrants exercised ( 5,000 ) $ 3.00 - - Warrants Outstanding as of December 31, 2021 44,535 $ 0.32 0.95 $ 208,078 Warrants Exercisable as of December 31, 2021 44,535 $ 0.32 0.95 $ 208,078 NOTE 6 - OPTIONS The Company maintains stock option plans under which certain employees are awarded option grants based on a combination of performance and tenure. The stock option plans provide for the grant of up to 2,333,333 shares, and the Company’s Second Amended and Restated 2019 Equity Incentive Plan provides for automatic increases in the number of shares available under such plan (currently 2,000,000 shares) on April 1 st of each calendar year, beginning in 2021 and ending in 2029 (each a “Date of Determination”), in each case subject to the approval and determination of the administrator of the plan (the Board of Directors or Compensation Committee) on or prior to the applicable Date of Determination, equal to the lesser of (A) ten percent (10%) of the total shares of common stock of the Company outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares as determined by the administrator, provided that not more than 25 million shares of common stock may be issued pursuant to the exercise of incentive stock options pursuant to the plan. The administrator did not approve an increase in the number of shares covered under the plan as of April 1, 2021. For 2021, options to purchase 36,700 shares of common stock were granted, 30,353 were exercised, 21,200 were forfeited, and none expired. The options granted during the period vest over a four-year period, the average exercise price was $ 4.86 per share and the options have a term of 5 years. For the twelve-month period ended December 31, 2021, options to purchase 30,353 shares of common stock were exercised, resulting in proceeds of $ 1,821 . Under the Black-Scholes option price model, fair value of the options granted in 2021 and 2020 were $ 168,008 and $ 557,308 , respectively. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant. The following table summarizes the assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2021 and 2020: SCHEDULE OF ESTIMATE FAIR VALUE OF STOCK OPTIONS 2021 2020 Expected dividend yield 0 % 0 % Weighted-average expected volatility 102 - 207 % 133 - 236 % Weighted-average risk-free interest rate 0.25 % 0.25 % Expected life of options 5 years 5 - 7 years 78 Total compensation cost related to stock options was $ 187,273 and $ 448,404 for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was $ 135,118 of unrecognized compensation costs related to stock options, which is expected to be recognized over a weighted average period of 5 years. The following table represents stock option activity for the two years ended December 31, 2021: SCHEDULE OF STOCK OPTION ACTIVITY Number Outstanding Weighted Average Exercise Price Contractual Life in Years Intrinsic Value Options Outstanding as of December 31, 2019 346,998 $ 4.39 6.77 $ 817,220 Options Exercisable as of December 31, 2019 207,485 $ 5.29 5.53 314,338 Options granted 94,154 4.42 3.97 Options forfeited ( 15,168 ) 3.18 7.12 Options expired - - - - Options exercised ( 167 ) 3.00 - - Options Outstanding as of December 31, 2020 425,817 $ 4.44 5.33 $ 597,322 Options Exercisable as of December 31, 2020 282,167 $ 4.52 4.56 $ 384,226 Options granted 36,700 5.74 4.19 - Options forfeited ( 21,200 ) 6.45 4.11 - Options expired - - - - Options exercised ( 30,353 ) 0.06 - - Options Outstanding as of December 31, 2021 410,964 $ 4.78 4.67 $ 368,417 Options Exercisable as of December 31, 2021 302,191 $ 4.88 4.38 $ 257,186 NOTE 7 – INCOME TAXES On December 22, 2017, H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “ Tax Act ”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“ Federal Tax Rate ”) from 35 % to 21 % effective January 1, 2018. The statutory tax rate is the percentage imposed by law; the effective tax rate is the percentage of income actually paid by a company after considering tax deductions, exemptions, credits and operating loss carry forwards. At December 31, 2021 and 2020 deferred tax assets consist of the following: SCHEDULE OF DEFERRED TAX ASSETS December 31, 2021 December 31, 2020 Federal loss carryforwards $ 2,347,266 $ 1,309,534 Less: valuation allowance ( 2,347,266 ) ( 1,309,534 ) Deferred tax assets $ - $ - The Company has established a valuation allowance equal to the full amount of the deferred tax asset primarily due to uncertainty in the utilization of the net operating loss carry forwards. The estimated net operating loss carry forwards of approximately $ 10,462,828 will be available based on the new carryover rules in section 172(a) passed with the Tax Cuts and Jobs Acts. NOTE 8 – OTHER RECEIVABLES In July 2020, the Company’s wholly-owned subsidiary, Integra, entered into an agreement with Studebaker Defense Group, LLC (“Studebaker”) wherein Integra would pay Studebaker a down payment of $ 500,000 and Studebaker would deliver 180,000 boxes of nitrile gloves by August 14, 2020. Integra wired the $ 500,000 to Studebaker, but to date, Studebaker has not delivered the gloves or provided a refund of the deposit. On December 31, 2020, we filed a complaint against Studebaker in Florida state court, Case No. 20-CA-010118 in the Circuit Court for the Thirteenth Judicial Circuit in Hillsborough County, for among other things, breach of contract. On January 29, 2021, Integra Pharma Solutions filed a motion for clerk’s default against Studebaker. On February 2, 2021, the clerk of court issued default against Studebaker. On March 4, 2021, Integra Pharma Solutions filed a motion for final default judgment against Studebaker. On March 22, 2021, counsel for Studebaker filed a notice of appearance in the case. On March 24, Studebaker filed a response in opposition to the motion for final judgment, and on March 25, 2021, Studebaker filed a motion to dismiss the case. On May 14, 2021, the Court denied Integra’s motion for final default judgment, granted Studebaker’s motion to set aside the clerk’s default, and denied Studebaker’s motion to dismiss. An amended answer and affirmative defenses were filed by Studebaker on October 14, 2021. Integra’s motion to strike the affirmative defenses, or in the alternative, motion for more definite statement is scheduled for hearing on April 27, 2022. We have also scheduled the deposition of Studebaker’s corporate representative on April 12, 2022, and moved to compel better answers to outstanding discovery. The litigation remains pending and is in the discovery phase. Integra remains confident it can successfully prosecute its claims against Studebaker on the merit. On June 30, 2021, the $ 500,000 was recorded as Loss on Inventory Investment. 79 In August 2020, Integra, entered into an agreement with Sandwave Group Dsn Bhd (“Sandwave”), wherein Integra would pay Sandwave a down payment of $ 581,250 and Sandwave’s supplier, Crecom Burj Group SDN BHD (“Crecom”), would deliver 150,000 boxes of nitrile gloves within 45 days. Integra wired the $ 581,250 to Sandwave, which in turn wired the purchase price to Crecom, which Crecom accepted; however, to date, Crecom has not delivered the nitrile gloves. Integra demanded return of its $ 581,250 and Crecom has acknowledged that Integra is entitled to a refund, but to date Crecom has failed to return Integra’s money. In February 2021, Integra filed a complaint against Crecom in Malaysia: Case No. WA-22NCC-55-02/2021 in the High Court of Malaysia at Kuala Lumpur in the Federal Territory, Malaysia for the Malaysian equivalent of breach of contract. Crecom filed an appearance on March 1, 2021. In April 2021, an Application for Summary Judgment was filed with the court, and on May 25, 2021, the Court extracted the sealed application, and a copy thereof was served on Crecom’s attorneys and Crecom, 14 days later, filed an Affidavit in Reply with the court alleging that there are issues to be tried and that this case must go to a full trial. On June 28, 2021, the court directed both parties to file their written submissions/arguments in relation to the application for summary judgment on or before July 12, 2021, and scheduled a hearing thereon for August 26, 2021. At the final hearing on October 18 th , the ruling for the summary judgment was denied and a trial date is pending. The Company believes that it will prevail in the lawsuit filed; but the steps to enforce a judgment in Malaysia, if any, may be cumbersome, time consuming or costly. The Company cannot determine the timing of the judgment, nor the amount ultimately collected. At June 30, 2021, the $ 581,250 was recorded as Loss on Inventory Investment. On November 19, 2021, Integra filed a complaint against GSG PPE, LLC (“GSG”) and Gary Waxman (“Waxman”), the owner, alleging three counts of breach of contract for a purchase agreement, a promissory note, and a personal guaranty. Collectively, the company alleges that GSG and Waxman have materially breached all three contracts. In late 2020, GSG and Integra executed a valid initial contract setting the terms of a business transaction. GSG failed to pay Integra approximately 75% of the amount owed to Integra. GSG acknowledged it owed the money and executed a promissory note in favor of Integra in the amount of $ 630,000 which matured on September 30, 2021. The note provides for attorney fees and interest in addition to the $ 630,000 . Waxman’s personal guaranty confirmed that GSG owed Integra $ 630,000 . Integra has propounded discovery and plans to file a motion for summary judgment on all three counts of breach of contract shortly after this filing. The company believes that the facts of the case are favorable to Integra, but the outcome of the summary judgment hearing is unknown. On September 30, 2021, the $ 630,000 was recorded as Bad Debt Expense. NOTE 9 - CONTINGENCIES Jain, et al., v. Memantine, et al. In January 2020, we became aware of a complaint filed by Jitendra Jain, Manish Arora, Scariy Kumaramangalam, Harsh Datta and Balvant Arora (collectively, plaintiffs), against our wholly-owned subsidiary, Trxade, Inc. and our Chief Executive Officer, Suren Ajjarapu as well as certain unrelated persons, Annapurna Gundlapalli, Gajan Mahendiran and Nexgen Memantine (collectively, defendants), in the Circuit Court of Madison County, Alabama (Case:47-CV-2019-902216.00). The complaint alleged causes of actions against the defendants including fraud in the inducement, relating to certain investments alleged to have been made by plaintiffs in Nexgen Memantine, breach of fiduciary duty, conversion and voidable transactions. The complaint related to certain investments alleged made by the plaintiffs in Nexgen Memantine and certain alleged fraudulent transfers of assets and funds alleged to have been taken by the defendants which are unrelated to the Company. On May 14, 2021, Plaintiffs filed a second amended complaint against the defendants. The second amended complaint alleges causes of action against the defendants including securities fraud, breach of fiduciary duty, violation of the Florida RICO Act, and breach of contract. The operative complaint relates to certain investments alleged to have been made by the plaintiffs in Nexgen Memantine and certain alleged transfers of assets and funds alleged to have been taken by the defendants which are unrelated to the Company. The amended complaint seeks injunctive relief, $ 425,000 in compensatory damages, treble damages, punitive damages, and fees and costs In February 2022, A settlement as to Suren Ajjarapu, Annapurna Gundlapalli and Trxade Group has been reached and signed. This settlement involves no admission of liability and a full and complete release of all actions after a lump-sum payment of $ 225,000 is made. Because the complaint purports to be a derivative action, court approval is required. A hearing was held on the request to approve the settlement, and changes were made at the instruction of the court which should lead to it being approved by the court. The settlement has been fully funded and the money transferred to the attorneys for the $ 225,000 . A settlement has also been reached regarding defendant Nexgen Memantine, Inc., to which defendant Gajan Mahendiran has objected because of some of the factual recitations. This dispute is before a court-appointed mediator and should not prevent the Ajjarapu/Trxade settlement from being approved, but this is causing some delay. Mahendiran, Ajjarapu, Gundlapalli and Trxade have agreed to move the Court to dismiss all counter and crossclaims that were filed between the defendants in this matter and will do so once the Court approves the settlement. Because the suit against Gajan Mahendiran remains active, it is possible that Trxade may incur future expenses related to its employees being called as witnesses by either or both of the sides. However, it is expected that all liability issues will be resolved once the settlement is finally approved. 80 NOTE 10 – LEASES The Company elected the practical expedient under ASU 2018-11 “ Leases: Targeted Improvements ” which allows the Company to apply the transition provision for Topic 842 at the Company’s adoption date instead of at the earliest comparative period presented in the financial statements. Therefore, the Company recognized and measured leases existing at January 1, 2019, but without retrospective application. In addition, the Company elected the optional practical expedient permitted under the transition guidance which allows the Company to carry forward the historical accounting treatment for existing leases upon adoption. No impact was recorded to the beginning retained earnings for Topic 842. The Company has two operating leases for corporate offices. The following table outlines the details of such leases: SCHEDULE OF OPERATING LEASES Lease 1 Lease 2 Initial Lease Term January 2021 to December 2021 November 2018 to November 2023 Renewal Lease Term - November 2023 to November 2028 New Initial Lease Term January 2022 to December 2026 - New Renewal Lease Term January 2027 to December 2031 - Initial Recognition of Right to use assets at January 1, 2019 $ 534,140 $ 313,301 New Initial Recognition of Right to use Assets at December 31, 2021 $ 977,220 $ - Incremental Borrowing Rate 10 % 10 % The Company entered into a new corporate office lease (Lease 1) on January 2022. The Company determined that entering into the new lease required remeasurement of the lease liability resulting in the increase of the right-of-use asset and the associated lease liability by $ 977,220 . The new lease is still classified as an operating lease. The table below reconciles the fixed component of the undiscounted cash flows for each of the first five years and the total remaining years to the operating lease liabilities recorded in the Consolidated Balance Sheet as of December 31, 2021. SCHEDULE OF FUTURE MINIMUM PAYMENTS FOR OPERATING LEASE LIABILITIES Amounts due within twelve months of December 31 2022 $ 294,932 2023 293,683 2024 302,494 2025 311,569 2026 320,916 Thereafter 105,531 Total minimum lease payments 1,629,125 Less: effect of discounting ( 380,599 ) Present value of future minimum lease payments 1,248,526 Less: current obligations under leases 178,561 Long-term lease obligations $ 1,069,965 For the years ended December 31, 2021, and 2020, amortization of assets was $ 131,558 and 97,020 , respectively. For the years ended December 31, 2021, and 2020, operating lease liabilities paid was $ 131,153 and 97,033 , respectively. 81 NOTE 11 – SEGMENT REPORTING The Company classifies its business interests into reportable segments which are Trxade, Inc., Community Specialty Pharmacy, LLC, Integra Pharma, LLC and Other (Unallocated). Operating segments are defined as the components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability, cash flows, and growth opportunities of each respective segment. SCHEDULE OF BUSINESS INTERESTS INTO REPORTABLE SEGMENTS Year Ended December 31, 2021 Trxade, Inc. Community Specialty Pharmacy, LLC Integra Pharma, LLC Unallocated Total Revenue $ 4,924,015 $ 1,652,841 $ 3,250,561 $ 62,016 $ 9,889,433 Gross Profit $ 4,921,084 $ 156,785 $ ( 393,582 ) $ 61,678 $ 4,745,965 Segment Assets $ 2,273,330 $ ( 431,593 ) $ 565,619 $ 3,358,808 $ 5,766,164 Segment Profit/Loss $ 1,977,938 $ ( 128,563 ) $ ( 2,749,028 ) $ ( 4,416,230 ) $ ( 5,315,883 ) Year Ended December 31, 2020 Trxade, Inc. Community Specialty Pharmacy, LLC Integra Pharma, LLC Unallocated Total Revenue $ 5,546,746 $ 1,653,924 $ 9,877,067 $ 44,783 $ 17,122,520 Gross Profit $ 5,546,746 107,771 8,374 $ 44,431 $ 5,707,322 Segment Assets $ 2,076,934 $ ( 457,784 ) 2,698,357 $ 5,475,195 $ 9,792,702 Segment Profit/Loss $ 3,309,128 $ ( 900,427 ) $ ( 531,092 ) $ ( 4,413,660 ) $ ( 2,536,051 ) NOTE 12 – SUBSEQUENT EVENTS STOCKHOLDERS’ EQUITY In January 2022, warrants to purchase 14,584 shares of common stock were exercised with an exercise price of $ 0.06 per share; the Company issued 14,584 shares of common stock, and $ 875 in proceeds were received in connection with such exercise. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT – EXCHANGE HEALTH, 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. On February 15, 2022, the Company contributed cash to SOSRx in the amount of $ 325,000 , issued a promissory note to SOSRx in the amount of $ 500,000 , which was immediately assigned to Exchange Health (the “ Promissory Note ”), and agreed to make an earn out payment of up to $ 400,000 , payable, at the Company’s discretion, in cash or common stock of the Company, based on SOSRx achieving certain revenue targets of SOSRx as discussed below (the “ Earn Out Payments ”); and entered into a Distribution Services Agreement with SOSRx (the “ Distribution Agreement ”). The Earn Out Payments require the Company to pay (a) $25,000 to Exchange Health if total revenue for SOSRx are over $0.7 million, and $25,000 to Exchange Health if total EBITDA is over $0.5 million, for fiscal year ending 2022; (b) $87,500 to Exchange Health if total revenue for SOSRx is over $3.3 million, and $87,500 to Exchange Health if total EBITDA is over $2.95 million, for fiscal year ending 2023; and (c) $87,500 to Exchange Health if total revenue for SOSRx is over $5.7 million, and $87,500 to Exchange Health if total EBITDA is over $4.9 million, for fiscal year ending 2024, provided that certain amounts will be payable in the event at least 95% of such milestones are met, and such payments will be grossed up or down by up to 5% of such amounts, if such milestone amounts are between 95% and 105% of the required thresholds. At the Company’s option, the Earn Out Payments may be paid in cash or shares of common stock, valued at the then current trading price of the Company’s common stock. If one year’s milestones are not achieved, no earnout will be payable for that year and those earn out payments will not be eligible to be earned in any other year. Exchange Health contributed certain property, contracts and licenses to SOSRx, having an agreed value of $ 792,500 , in exchange for its 49 % membership interest in SOSRx and received a cash payment of $ 275,000 from SOSRx, LLC, pursuant to a Member Asset Contribution Agreement (the “ Asset Contribution Agreement ”), also entered into on February 15, 2022. 82 Promissory Note The Promissory Note, which was immediately assigned to Exchange Health, and represents amounts currently due to Exchange Health, bears interest at the rate of the prime rate, plus 2 % per annum (currently 5.25 % per annum), with (i) one-third of the principal ($ 166,666.67 ) and interest payable after one year (on February 15, 2023) and (ii) the remaining two-thirds of principal payable quarterly over the next two years in eight equal installments of $ 41,666.67 , together with any unpaid accrued interest thereupon, at the end of every full fiscal quarter, beginning, June 20, 2023. The Promissory Note may be prepaid by the Company, at its discretion, in whole or in part at any time, without premium or penalty. Notwithstanding the foregoing, if the Company effectuates a Voluntary Withdrawal (defined below) under the Company Agreement (as discussed below) prior to February 15, 2024 (the “ Earn Out Period ”), and SOSRx has failed to meet any of the revenue targets required by the Earn Out Payments prior to the expiration of the Earn Out Period, then all remaining amounts of interest and principal not yet due and payable under the Promissory Note shall immediately terminate and all related indebtedness evidenced hereby shall be deemed canceled. Amounts owed under the Promissory Note are secured by the Company’s membership interests in the SOSRx and are a non-recourse obligation of the Company, secured solely by such membership interests. In the event that the Company is delinquent to pay when due (whether at maturity, by reason of acceleration or otherwise) any principal of or interest on the Promissory Note, then if such payment is not made within fifteen days of the due date, then Exchange Health may declare an additional interest fee of 2% of the delinquent amount to be due. If the delinquency is thirty days or more late from the due date, then Exchange Health may declare another additional interest fee of 3%, to make a total of 5%, for the delinquent payment. In the event that we fail to pay when due (whether at maturity, by reason of acceleration or otherwise) any principal of or interest on Promissory Note, then if such payment is not made within sixty days of the due date, then Exchange Health may declare all obligations (including without limitation, outstanding principal and accrued and unpaid interest thereon) under the Promissory Note to be immediately due and payable. SOSRx Operating Agreement The rights of the Company and Exchange Health in connection with SOSRx are set forth in the Operating Agreement of SOSRx (the “ Operating Agreement ”), effective February 15, 2022. Pursuant to the Operating Agreement, SOSRx is to be managed by a management committee consisting of three members, two of which are nominated by the Company, who currently include Suren Ajjarapu, the Company’s Chief Executive Officer and Chairman and Prashant Patel, the Company’s President and director, and one person nominated by Exchange Health. If either the Company or Exchange Health shall ever hold less than 25 % of the membership interests of SOSRx, such entity shall forfeit its management appointment rights, and such appointment rights shall be held by such other member which holds over 50 % of the membership interests. The Operating Agreement includes customary transfer restrictions on the SOSRx membership interests, right of first refusal rights upon receipt of a bona fide third party offer for purchase of a member’s membership interest (exercisable first by SOSRx and then the other members), preemptive rights (subject to certain exceptions), tag-along rights, and drag-along rights (applying if any greater than 50 % owner desires to transfer their ownership in SOSRx). Any member of SOSRx has the right to effect a voluntary withdrawal from the Company (a “ Voluntary Withdrawal ”), provided that such member must give ninety days prior written notice to all other members. Any member who effectuates a Voluntary Withdrawal is not permitted to receive the fair value or any value of the member’s membership interest as of the date of the Voluntary Withdrawal, and may instead effect a Voluntary Withdrawal by forfeiture of its membership interests in SOSRx without compensation or consideration; provided however, that if the Company (a) effectuates a Voluntary Withdrawal prior to February 15, 2024, and (b) SOSRx has failed to meet any of the revenue targets required by the Earn Out Payments prior to the date of withdrawal, then all obligations of the Company under the Earn Out Payments and the Promissory Note shall terminate. 83 The Company or its assigns may at any time by written notice to any other member, offer to purchase all (but not less than all) of such other member’s membership interests, which shall be calculated and payable pursuant to a discounted cash flow model. If the buyout is paid to Exchange Health or its successors or assigns, any remaining amounts payable under the Promissory Note become immediately due and payable upon such payment. The Operating Agreement also provides, that without the prior written approval of the unanimous consent of the management committee, a manager or member may not, directly or indirectly, (a) enter into a business relationship with any other person that is materially adverse to the business of SOSRx or an affiliate of SOSRx, or (b) cause any person to reduce or terminate its relationship with SOSRx or any affiliate of SOSRx. The foregoing covenants apply to each member, and each manager during the period in which each manager is a member. Distribution Agreement On February 15, 2022, SOSRx entered into the Distribution Agreement with Integra Pharma Solutions LLC, the Company’s wholly-owned subsidiary (“ Integra ”). Pursuant to the Distribution Agreement, Integra appoints each SOSRx member an active account for Manufacturer Non-Control (Schedule 2-5 as classified by the US Drug Enforcement Agency) products bought on the SOSRx platform. The agreement remains in effect until December 31, 2023, and renews thereafter on a yearly basis until terminated; which agreement can only be terminated by the non-breaching party, upon the breach of the agreement by a party thereto, with a 30-day cure right. Pursuant to the Distribution Agreement, for each calendar quarter (or portion thereof) during the term, SOSRx agreed to pay Integra a fee equal to 2% of the net price of all purchases of products during such period. Integra also agreed to participate in SOSRx’s annual trade show, once established. Integra made certain representations and warranties in the Distribution Services Agreement, and agreed to indemnify SOSRx against certain damages and losses. The Distribution Services Agreement included customary confidentiality obligations. Asset Contribution Agreement On February 15, 2022, Exchange Health entered into a Member Asset Contribution Agreement with SOSRx, pursuant to which it contributed certain assets and assigned certain contracts, relating to software, manufacturers and members, to SOSRx, in consideration for its 49 % membership interest in SOSRx. SOSRx did not assume any of Exchange Health’s liabilities or obligations other than the obligations and commitments of Exchange Health arising under the assumed contracts. 84 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.