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 (Firm ID: 00206 ) 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 Shareholders 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, 2022 and 2021, and the related consolidated statements of operations, 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, 2022 and 2021, 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. Going Concern Matter The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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 27, 2023 65 TRxADE HEALTH, INC. Consolidated Balance Sheets December 31, 2022 and 2021 December 31, December 31, 2022 2021 Assets Current Assets Cash $ 1,133,633 $ 3,122,578 Accounts receivable, net 728,964 978,973 Inventory 119,582 56,279 Prepaid assets 110,944 216,414 Total Current Assets 2,093,123 4,374,244 Property plant and equipment, net 65,214 98,751 Intangible assets and capitalized software, net 450,845 - Deposits 49,029 60,136 Operating lease right-of-use assets 1,051,815 1,233,033 Total Assets $ 3,710,026 $ 5,766,164 Liabilities and Shareholders’ Equity Current Liabilities Accounts payable 729,153 477,028 Accrued liabilities 290,013 270,437 Other current liabilities 67,517 - Contingent funding liabilities 108,036 - Current portion lease liabilities 196,872 178,561 Warrant liability 588,533 - Notes payable— related party 166,667 - Total Current liabilities 2,146,791 926,026 Long Term Liabilities Other long-term liabilities — leases 887,035 1,069,965 Notes payable- related party 333,333 - Total Liabilities 3,367,159 1,995,991 Stockholders’ Equity Series A preferred stock, $ 0.00001 par value; 10,000,000 shares authorized; none issued and outstanding as of December 31, 2022 and December 31, 2021 - - Common stock, $ 0.00001 par value; 100,000,000 shares authorized; 9,393,708 , and 8,166,457 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 99 82 Additional paid-in capital 20,482,573 20,017,528 Retained deficit ( 19,719,536 ) ( 16,247,437 ) Total TRxADE Health, Inc stockholders’ equity 763,136 3,770,173 Non-controlling interest in subsidiary ( 420,269 ) - Total stockholders’ equity 342,867 3,770,173 Total Liabilities and Stockholders’ Equity $ 3,710,026 $ 5,766,164 The accompanying notes are an integral part of the consolidated financial statements. 66 TRxADE HEALTH, INC. Consolidated Statements of Operations Years Ended December 31, 2022 and 2021 2022 2021 Years Ended December 31, 2022 2021 Revenues $ 11,448,265 $ 9,889,433 Cost of Sales 5,997,049 5,143,468 Gross Profit 5,451,216 4,745,965 Operating Expenses: Impairment of intangible asset 792,500 - Loss on inventory investment 875,250 1,226,426 Loss on write-down of inventory - 376,348 Wage and salary expense 3,941,475 3,846,522 Professional fees 519,642 1,094,917 Accounting and legal expense 830,355 697,825 Technology expense 1,160,856 899,705 General and administrative 1,755,433 1,896,515 Total operating expenses 9,875,511 10,038,258 Operating Loss ( 4,424,295 ) ( 5,292,293 ) Other income (expense) Change in fair value of warrant liability 825,544 - Interest income 20,989 - Gain on disposal of asset 4,100 - Interest expense ( 336,206 ) ( 23,590 ) Total nonoperating expense 514,427 ( 23,590 ) Net Loss $ ( 3,909,868 ) $ ( 5,315,883 ) Net loss attributable to TRxADE Health, Inc. ( 3,472,099 ) ( 5,315,883 ) Net loss attributable to non-controlling interests ( 437,769 ) - Net loss per common share — basic and diluted $ ( 0.41 ) $ ( 0.65 ) Weighted average common shares outstanding - basic and diluted 8,472,946 8,136,740 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, 2022 and 2021 Shares $ Amount Shares $ Amount Capital Deficit Subsidiary Equity Preferred stock Common Stock Additional Non-Controlling Total Shares $ Amount Shares $ Amount Paid-in Capital Accumulated Deficit Interest in Subsidiary Stockholders’ Equity 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 Warrants exercised for cash - 5,000 1 15,000 - - 15,001 Warrants expense - - - - 21,640 - - 21,640 Option exercised for cash - 30,353 - 1,821 - - 1,821 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 Capital Contributions - - - - - 792,500 792,500 Capital Distribution - - - - - ( 775,000 ) ( 775,000 ) Common stock issued for services - 292,667 2 254,104 - - 254,106 Common stock issued for placement, net issuance costs - 920,000 15 130,903 - - 130,918 Warrants exercised for cash - 14,584 0 875 - - 875 Options expense - - - 79,163 - - 79,163 Net loss - - - - ( 3,472,099 ) ( 437,769 ) ( 3,909,868 ) Balance at December 31, 2022 - $ - 9,393,708 $ 99 $ 20,482,573 $ ( 19,719,536 ) $ ( 420,269 ) $ 342,867 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, 2022 and 2021 2022 2021 Cash flows from operating activities: Net loss $ ( 3,909,868 ) $ ( 5,315,883 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 14,637 7,351 Options expense 79,163 187,273 Common stock issued for services 254,106 181,163 Bad debt expense ( 246,683 ) 615,657 Warrant Expense - 21,640 Loss on write-off of intangible asset 792,500 - Loss on write-down of inventory 875,250 376,348 Loss on inventory investments - 143,891 Gain on sale of asset ( 4,100 ) - Amortization of right of use assets 181,218 131,558 Changes in operating assets and liabilities: Accounts receivable, net 496,692 ( 789,587 ) Prepaid assets and deposits 336,928 ( 103,666 ) Inventory ( 63,303 ) 825,127 Other receivables ( 875,250 ) 1,087,675 Lease liability ( 164,618 ) ( 131,153 ) Accounts payable 252,125 220,199 Accrued liabilities ( 200,776 ) ( 13,819 ) Current liabilities 67,517 - Warrant liability 588,533 - Customer deposits - ( 10,000 ) Net cash used in operating activities ( 1,525,929 ) ( 2,566,226 ) Cash flows from investing activities: Purchase of fixed assets - ( 22,596 ) Sale of fixed assets 23,000 - Investment in capitalized software ( 450,845 ) - Net cash used in investing activities ( 427,845 ) ( 22,596 ) Cash flows from financing activities: Repayments of Promissory Notes - Related Parties - ( 225,000 ) Repayment of contingent liability ( 716,964 ) - Distributions to non-controlling interest ( 275,000 ) - Proceeds from sale of future revenue 825,000 - Proceeds from exercise of stock options - 1,821 Proceeds from exercise of warrants 875 15,001 Proceeds from Issuance of Common Stock, net of issuance costs 130,918 - Net cash provided by financing activities ( 35,171 ) ( 208,178 ) Net decrease in cash ( 1,988,945 ) ( 2,797,000 ) Cash at beginning of the year 3,122,578 5,919,578 Cash at end of the period $ 1,133,633 $ 3,122,578 Supplemental disclosure of cash flow information Cash paid for interest, net $ 336,206 $ 28,337 Cash paid for income taxes $ - $ - Non-Cash Transactions Insurance premium financed $ 220,354 $ - Note issued as SOSRx contribution $ 500,000 $ - Intangible asset contribution from non-controlling interest $ 792,500 $ - 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, 2022 and 2021 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. SOSRx, LLC was formed 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, the created entity relating to the relationship, a Delaware limited liability company, was formed in February 2022, and is owned 51 % by the Company and 49 % by Exchange Health. 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. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business within one year after the date the consolidated financial statements are issued. In accordance with Financial Accounting Standards Board, or the FASB, Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), our management evaluates whether there are conditions or events, considered in aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. As of December 31, 2022 the Company had an accumulated deficit of $ 19.7 million. We have limited financial resources. As of December 31, 2022 we had working capital deficit of approximately $ 54,000 and a cash balance of $ 1.1 million. We will need to raise additional capital or secure debt funding to support on-going operations. The sources of this capital are expected to be the sale of equity and debt, which may not be available on favorable terms, if at all, and may, if sold, cause significant dilution to existing stockholders. If we are unable to access additional capital moving forward, it may hurt our ability to grow and to generate future revenues, our financial position, and liquidity. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Unless Management is able to obtain additional financing, it is unlikely that the Company will be able to meet its funding requirements during the next 12 months. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Liquidity – Historically, operations have been funded primarily through the sale of equity or debt securities and operating activities. In 2022, the Company raised approximately $ 1.5 million in capital (See Note 4 – Stockholders’ Equity). 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. The reclassification did not result in a change in the net loss. 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 – 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 is available on demand and are generally within FDIC insurance limits for 2022. 71 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, 2022, and 2021, $( 246,683 ) and $ 615,657 of bad debt expense, respectively and $ 247,861 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, 2022 and 2021, included in cost of sales were write-downs to reduce inventory to net realizable value of $ 0 and $ 376,348 , 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. 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 has warrant liabilities on its balance sheet at December 31, 2022 that are required to be measured and recorded at fair value on a recurring basis. The Company uses the Black Scholes method to calculate the liability. 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 had no goodwill as of December 31, 2022 and 2021. The Company recorded an intangible asset associated with the joint venture formed with Exchange Health in February 2022 in the amount of $ 792,000 . It was determined that the intangible assets had a definite live of 15 years and is being amortized quarterly with the straight line method. The Company recognized an amortization expense of $ 44,100 in fiscal year 2022. At December 31, 2022 the Company determined this asset was impaired and recorded a loss on asset impairment of $ 792,000 . 72 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. 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. 73 SOSRX LLC.: SOSRx provides pharmaceutical manufacturers with an efficient platform in which to divest short-dated, overstock, and slow-moving products to direct purchasers. SOSRx’s proprietary method researches the current market, allowing the manufacturer to list the optimal selling price for their products. Manufacturers list their short-dated overstock and slow-moving products by lot with pictures and descriptions. The manufacturer then determines which vetted and registered customers can bid on or outright purchase their products. Once products from a manufacturer have been entered into SOSRx’s platform, a bid cycle begins. Each bid cycle is 3 days. Each buyer (wholesaler, distributor or chain) will have 3 options. The options are buy now, bid, or pass. In the buy now option the manufacturer has an established price in which they would sell the product. The bid option allows the buyers to put in a price if they value the product and at the end of the bid cycle the manufacturer has several options. The manufacturer can accept the highest bidder if the buyer has met the minimum bid requirement, counter if the bid is below the minimum bid requirement or begin a negotiation to an agreed upon price or accepted bid, regardless of minimum bid requirement. The fourth option is to decline. If one of the four options described above, except decline, have been selected a committed offer is generated in the system. The buyer then submits a purchase order to the manufacturer. The manufacturer then processes the purchase order and sends the product directly to the buyer. This is when revenue is recognized as a transaction fee. At no point does SOSRx take possession of the inventory. SOSRx bills the manufacturer per committed offer at a fee percentage of total offer value. Cost of Sales – 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. 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. 74 Warrant Liability - The Company will account for the 2,663,045 warrants issued in connection with the Private Placement in accordance with the guidance contained in FASB ASC 815 “Derivatives and Hedging” whereby under that provision the warrants do not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company will classify the warrant instruments as a liability at fair value and adjust the instrument to fair value at each reporting period. This liability will be re-measured at each balance sheet date until the warrants are exercised or expire, and any change in fair value will be recognized in the Company’s statement of operations. The fair value of warrants will be estimated using a Black-Scholes model. The valuation model will utilize inputs such as closing share prices, volatility, risk free interest factors and other assumptions and may not be reflective of the price at which they can be settled. 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, 2022, we had 2,689,969 outstanding warrants to purchase shares of common stock and 295,623 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, 2022, and 2021: SCHEDULE OF BASIC AND DILUTIVE INCOME (LOSS) PER SHARE December 31, 2022 December 31, 2021 Numerator: Net loss $ ( 3,909,868 ) $ ( 5,315,883 ) Numerator for basic and diluted EPS - income available to common stockholders ( 3,472,099 ) $ ( 5,315,883 ) Denominator: Denominator for basic and diluted EPS – weighted average shares 8,472,946 8,136,740 Basic and diluted loss per common share $ ( 0.41 ) $ ( 0.65 ) 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, 2022 is $ 518,419 . During the years ended December 31, 2022, 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. 75 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, 2022 and 2021, total related party debt was $ 0 . NOTE 4 – STOCKHOLDERS’ EQUITY In January of 2022, warrants to purchase 14,584 shares of common stock were exercised and $ 875 in proceeds were received in connection with the exercise. 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. 2022 Equity Compensation Awards On September 1, 2022, the Board of Directors and Compensation Committee, awarded shares to six employees and officers in lieu of reduced cash salary. In lieu of the reduced cash salary payable to each employee and Officer, the Board and Compensation Committee agreed to issue such officers and employees shares of the Company’s common stock equal to the amount of reduced cash salary set forth in the table above, divided by the closing sales price of the Company’s common stock on the NASDAQ Capital Market on August 31, 2022, the date approved by the Board of Directors. There was a total of 108,617 common stock shares issued at a price of $ 1.16 , the closing price of MEDS on August 31, 2022. A total of the shares of common stock issuable to the employees and officers vest at the rate of 1/4 th of such shares on each of September 30, 2022, October 31, 2022, November 30, 2022, and December 31, 2022, subject to each applicable Officer’s and employees continued service to the Company on such dates and subject to the restricted stock award agreements entered into to evidence such awards. 76 2022 Independent Director Compensation Effective on August 31, 2022, the Board of Directors approved the issuance of 54,525 shares of common stock of the Company to each independent member of the Board of Directors, for services rendered to the Company during fiscal 2022, which shares were valued at $ 63,250 , and based on the closing sales price of the Company’s common stock on the date approved by the Board of Directors. The shares vest at the rate of 1/4 th of such shares immediately on the grant date, and 1/4 th of such shares on each of October 1, 2022, January 1, 2023 and April 1, 2023, subject to each applicable independent director’s continued service to the Company on such dates. All of the awards discussed above were issued under the Company’s Second Amended and Restated 2019 Plan and all restricted stock awards discussed above were evidenced by Restricted Stock Grant Agreements. There will be 1,407,276 shares available to grant from the Company’s Second Amended and restated 2019 Equity Incentive Plan. 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 September of 2022 and effective on September 1, 2022 the Board of Directors with recommendation of the Compensation Committee, agreed to issue certain employees of the Company shares of the Company’s common stock in lieu of reductions to annual cash compensation. The employees agreed to reduce their salaries by an aggregate of $ 37,000 in consideration for an aggregate of 31,896 shares of the Company’s restricted common stock. The shares vested at a rate of 1/4 th each on September 30, 2022, October 31, 2022, November 30, 2022 and December 31, 2022. 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. 77 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. Effective September 1, 2022 the Board of Directors and Compensation Committee with the approval of the officers agreed to reduce the annual cash compensation of Mr. Suren Ajjarapu. The reduction was documented in a Second Amendment to Employment Agreement with Mr. Ajjarapu. Mr. Ajjarapu’ s annual compensation was reduced from $ 360,000 to $ 300,000 . In lieu of the reduced cash salary payable the Board and Compensation Committee agreed to issue shares of the Company’s common stock equal to the amount of reduced cash salary divided by the closing sales price of the Company’s common stock on the Nasdaq Capital Market on August 31, 2022. The number of common shares issued was 51,724 . The shares vested at a rate of 1/4 th each on September 30, 2022, October 31, 2022, November 30, 2022 and December 31, 2022. Employment Agreement with Prashant Patel, Chief Operating Officer Effective September 1, 2022 the Board of Directors and Compensation Committee with the approval of the officers agreed to reduce the annual cash compensation of Mr. Prashant Patel. The reduction was documented in the First Amendment to Employment Agreement with Mr. Patel. Mr. Patel s annual compensation was reduced from $ 150,000 to $ 140,000 . In lieu of the reduced cash salary payable the Board and Compensation Committee agreed to issue shares of the Company’s common stock equal to the amount of reduced cash salary divided by the closing sales price of the Company’s common stock on the Nasdaq Capital Market on August 31, 2022. The number of common shares issued was 8,620 . The shares vested at a rate of 1/4 th each on September 30, 2022, October 31, 2022, November 30, 2022 and December 31, 2022. Offer Letter with Ms. Huffman, Chief Financial Officer Effective September 1, 2022 the Board of Directors and Compensation Committee with the approval of the officers agreed to reduce the annual cash compensation of Ms. Huffman. The reduction was documented in an Amendment to Offer Letter with Ms. Huffman. Ms. Huffman’s annual compensation was reduced from $ 225,000 to $ 200,000 . In lieu of the reduced cash salary payable the Board and Compensation Committee agreed to issue shares of the Company’s common stock equal to the amount of reduced cash salary divided by the closing sales price of the Company’s common stock on the Nasdaq Capital Market on August 31, 2022. The number of common shares issued was 21,551 . The shares vested at a rate of 1/4 th each on September 30, 2022, October 31, 2022, November 30, 2022 and December 31, 2022. On December 13, 2022 the Board of Directors with recommendation of the Compensation Committee approved the issuance of 50,000 shares of Restricted Common Stock of the Company to Ms. Huffman in consideration for services to be rendered. The shares were awarded pursuant to and are subject in all cases to the terms and conditions of, the Company’s Second Amended and Restated 2019 Equity Incentive Plan. The shares vest at the rate of 1/4th of such Restricted Common Stock shares on each of December 31, 2022, March 31, 2023, June 30, 2023 and September 30, 2023, subject to Ms. Huffman remaining employed by the Company through such vesting dates. The shares were awarded pursuant to, and are subject in all cases to the terms and conditions of, the Company’s Second Amended and Restated 2019 Equity Incentive Plan. 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. 78 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, 2022, no shares have been repurchased. NOTE 5 – PREFUNDED AND PRIVATE PLACEMENT WARRANTS Simultaneously with the closing of the stock placement, the investor pre-purchased 601,740 Private Warrants at a purchase price of $ 1.14999 per warrant. The Pre-Funded Warrants are immediately exercisable, have an exercise price of $ 0.00001 per share, and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. Each Private Warrant has an exercise price of $ 1.50 per share, will be exercisable following Stockholder Approval, which was obtained in December 2022, and will expire on the fifth anniversary of the date on which the Private Warrants become exercisable. The Private Warrants contain standard adjustments to the exercise price including for stock splits, stock dividend, rights offerings and pro rata distributions, and include full ratchet anti-dilutive rights in the event the Company issues shares of Common Stock or Common Stock equivalents within fifteen months of the initial exercise date, with a value less than the then exercise price of such Private Warrants, subject to certain customary exceptions, and further subject to a minimum exercise price of $ 0.232 per share. The Private Warrants also include certain rights upon ‘fundamental transactions’ as described in the Private Warrants, including allowing the holders thereof to require that the Company re-purchase such Private Warrants at the Black Scholes Value of such securities. NOTE 6 - WARRANTS In 2022, 2,663,045 private-placement warrants were granted as part of the stock offering, 14,584 were exercised and warrants to purchase 3,027 shares of common stock expired and were forfeited. 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, 2022 and 2021, warrants to purchase 14,584 and 5,000 shares of common stock were exercised, resulting in proceeds of $ 875 and $ 15,000 respectively. The Company uses the Black-Scholes pricing model to estimate the fair value of stock-based awards on the date of the grant. There were 2,663,045 warrants granted in 2022. The warrant valuation income/(expense) for the fiscal year 2022 was $ 825,544 . There was no warrant expense for the fiscal year ended 2021. 79 The following table summarizes the assumptions used to estimate the fair value of the warrants granted during the years ended December 31, 2022 and 2021. SUMMARY OF ASSUMPTIONS USED TO ESTIMATE FAIR VALUE OF WARRANTS GRANTED 2022 2021 Expected dividend yield 0 % 0 % Weighted-average expected volatility 86 % 217 % Weighted-average risk-free interest rate 4.3 % 2.75 % Warrants, measurement input 4.3 % 2.75 % Expected life of warrants 5 years 5 years The Company’s outstanding and exercisable warrants as of December 31, 2022 and 2021 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, 2020 82,751 $ 1.33 2.73 $ 352,951 Warrants granted 5,000 3.00 1.48 - Warrants forfeited, expired, cancelled ( 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 granted 2,663,045 1.50 4.77 - Warrants forfeited, expired, cancelled ( 3,027 ) 3.90 - - Warrants exercised ( 14,584 ) 0.06 - - Warrants outstanding as of December 31, 2022 2,689,969 1.50 4.72 6,731 Warrants exercisable as of December 31, 2022 2,689,969 1.50 4.72 6,731 NOTE 7 - 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 2022, no options were exercised, 18,499 shares were forfeited, and 96,842 shares expired. 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. 80 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. There were no stock options granted during the year ended December 31, 2022. The following table summarizes the assumptions used to estimate the fair value of stock options granted during the year ended December 31, 2021: SCHEDULE OF ESTIMATE FAIR VALUE OF STOCK OPTIONS 2021 Expected dividend yield 0 % Weighted-average expected volatility 102 - 207 % Weighted-average risk-free interest rate 0.25 % Expected life of options 5 years Total compensation cost related to stock options was $ 79,163 and $ 187,273 for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, there was $ 29,729 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, 2022: SCHEDULE OF STOCK OPTION ACTIVITY Number Outstanding Weighted-Average Exercise Price Weighted-Average Contractual Life in Years Intrinsic Value Options outstanding as of December 31, 2020 425,817 $ 4.44 5.33 $ 597,332 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 Options granted - - - - Options forfeited ( 18,499 ) 5.82 4.91 - Options expired ( 96,842 ) 5.74 2.66 - Options exercised - - - - Options outstanding as of December 31, 2022 295,623 4.40 3.92 - Options exercisable as of December 31, 2022 257,506 4.42 3.89 - 81 NOTE 8 – 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, 2022 and 2021 deferred tax assets consist of the following: SCHEDULE OF DEFERRED TAX ASSETS December 31, 2022 December 31, 2021 Federal loss carryforwards $ 4,030,755 $ 2,347,266 Less: valuation allowance ( 4,030,755 ) ( 2,347,266 ) 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 $ 17,105,445 will be available based on the new carryover rules in section 172(a) passed with the Tax Cuts and Jobs Acts. NOTE 9 – OTHER RECEIVABLES 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 . On September 30, 2021, the $ 630,000 was recorded as Bad Debt Expense. A settlement was entered into between the parties in June 2022, whereby GSG and Waxman agreed to pay $ 743,000 which included attorney fees and interest, which is required to be paid to the Company in monthly installments over 17 months. In Fiscal 2022, the Company received approximately $ 248,000 recorded as credits to legal expenses and bad debt expense. NOTE 10 – CONTINGENCIES Studebaker Defense Group, LLC In July 2020, the Company’s wholly-owned subsidiary, Integra Pharma Solutions, LLC (“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. In December 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. Studebaker did not answer the complaint, nor did counsel for Studebaker file an appearance. Accordingly, in February 2021, the Company filed for a default judgment; however, on March 22, 2021, counsel for Studebaker filed an appearance and shortly thereafter filed a motion to vacate the default judgment and dismiss the complaint on jurisdictional grounds. The court granted Studebaker’s motion to set aside the default judgment but denied the motion to dismiss. The Company has filed several pretrial motions; the next step in the litigation after the pre-trial motions are resolved will be a motion for summary judgment. The Company believes it will prevail on the merits but cannot determine the timing of the judgment or the amount ultimately collected. At June 30, 2021, the $ 500,000 was recorded as Loss on Inventory Investment. 82 Sandwave Group Dsn Bhd and Crecom Burj Group SDN BHD 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, 2021, the ruling for the summary judgment was denied. On September 1, 2022, Crecom informed the court that Crecom had been liquidated pursuant to Malaysian insolvency laws and the court proceedings were stayed. ON September 7, 2022, Integra received written confirmation from Crecom counsel and a copy of the relevant Winding Up Order. Accordingly, the complaint was dismissed. At June 30, 2021, the $ 581,250 was recorded as Loss on Inventory Investment. 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 the Company was reached and signed. This settlement involved no admission of liability and a full and complete release of all actions after a lump-sum payment of $ 225,000 was made. Because the complaint purports to be a derivative action, court approval was required, which approval was received on March 14, 2022. As a result of the settlement, the Plaintiff’s dismissed their lawsuit with prejudice. 83 NOTE 11 – 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, 2022. SCHEDULE OF FUTURE MINIMUM PAYMENTS FOR OPERATING LEASE LIABILITIES Amounts due within twelve months of December 31 2023 293,683 2024 302,494 2025 311,569 2026 320,916 Thereafter 105,531 Total minimum lease payments 1,334,193 Less: effect of discounting ( 264,228 ) Present value of future minimum lease payments 1,069,965 Less: current obligations under leases 195,475 Long-term lease obligations $ 874,490 The difference to the balance sheet above is due to the current and long-term remaining obligations of the copier lease not included in the amount of $ 13,943 as of December 31, 2022. For the years ended December 31, 2022, and 2021, amortization of right-of-use assets was $ 181,218 and $ 131,558 , respectively. For the years ended December 31, 2022, and 2021, operating lease liabilities paid was $ 164,618 and 131,153 , respectively. NOTE 12 – 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, 2022 Trxade, Inc. CSP Integra Unallocated Total Revenue $ 5,435,814 $ 1,175,474 $ 4,754,067 $ 82,910 $ 11,448,265 Gross Profit 5,433,641 ( 90,678 ) 25,343 82,910 5,451,216 Segment Assets 1,877,881 ( 621,686 ) 445,264 2,008,567 3,710,026 Segment Profit/Loss 1,924,355 ( 469,778 ) ( 545,557 ) ( 4,818,888 ) ( 3,909,868 ) Cost of Sales $ 2,173 $ 1,266,152 $ 4,728,724 $ - $ 5,997,049 84 Year Ended December 31, 2021 Trxade, Inc. CSP Integra 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 ) Cost of Sales $ 2,931 $ 1,496,056 $ 3,644,143 $ 338 $ 5,143,468 NOTE 13 – SUBSEQUENT EVENTS Subsequent to December 31, 2022 and prior to the filing of this Form 10-K the Company had the following events. On January 3, 2023, Charles L. Pope resigned as a member of the Board of Directors. Until Mr. Pope’s resignation he also served as the Chairman of the Company’s Audit Committee and served on the Company’s Compensation Committee and Nominating and Governance Committee. On January 4, 2023, to fill the vacancy left by Mr. Pope’s resignation, the Board of Directors of the Company, with the recommendation of the Nominating and Corporate Governance Committee of the Board of Directors, appointed Mr. Michael L. Peterson as a member of the Board of Directors. Mr. Peterson was also appointed to serve as the Chairperson of the Board of Director’s Audit Committee and as a member of the Compensation Committee and Nominating and Corporate Governance Committee. As part of Mr. Peterson’s compensation he will receive cash compensation in the amount of $ 55,000 per year for services on the board of directors, $ 20,000 per year for services as the Chairman of the Audit Committee (each paid 1/4 th quarterly). The Company also issued Mr. Peterson 100,000 shares of restricted common stock, vesting quarterly over two years (beginning April 1, 2023), as well as options vesting over two years valued at $ 55,000 , for his services on the Board. All equity awards were issued under a stockholder approved equity incentive plan, and are subject to the terms of such plan. On January 6, 2023, a restricted stock grant to Jeff Newell of 79,062 , as compensation as part of Board compensation. On January 6, 2023, the investor exercised their prefunded warrants in the amount of 601,740 shares per the stock issuance agreement from the October 2023 funding. The total amount paid to exercise the shares was $ 6.02 at a price of $ .00001 per share. On January 20, 2023, the Company entered into Membership Interest Purchase Agreements to sell 100 % of the outstanding membership interests of the Company’s subsidiaries, Alliance Pharma Solutions, LLC and Community Specialty Pharmacy, LLC. The Company will receive consideration in the amount of $ 125,000 for Alliance Pharma Solutions, LLC and $ 100,000 for Community Specialty Pharmacy, LLC. The Company also agreed to enter into a Master Service Agreement to operate the businesses prior to closing, additional amounts owed to the Company as a result of this Master Service Agreement are estimated to total approximately an aggregate of $ 266,000 as of the closing date, currently expected to occur on April 30, 2023. On January 30, 2023, the Company received a delist determination letter from The Nasdaq Stock Market LLC. (the “Staff”), advising the Company that the Staff had determined that the Company was not in compliance with the minimum continued listing requirements of stockholders’ equity, and that the Company had not met the terms of the extension granted to them in in October 2022 to regain compliance by the deadline of January 25, 2023. Specifically, the Company did not complete its proposed transactions and was unable to file a Current Report Form 8-K by the January 25, 2023 deadline previously required by the Staff, evidencing compliance with the Rule. On February 6, 2023, the Company submitted a hearing request to the Nasdaq Hearings Panel (the “Panel”), which request will stay any delisting action by the Staff at least until the hearing process concludes and any extension granted by the Panel expires. At the Panel hearing, the Company intends to present a plan to regain compliance with the minimum stockholders’ equity requirement. In the interim, the Company’s common stock will continue to trade on Nasdaq under the symbol “MEDS” at least pending the ultimate conclusion of the hearing process. Effective February 27, 2023, Ms. Janet Huffman, the Company’s Chief Financial Officer notified the Company of the termination of her Offer Letter dated February 3, 2022. Effective March 1, 2023, Ms. Huffman also transitioned from Chief Financial Officer to a consulting relationship with the Company instead of a full-time employee relationship. It is expected that Ms. Huffman will provide a set number of hours of her time to the Company and that the Company will engage a new Chief Financial Officer (or similar position) to replace Ms. Huffman. Effective March 6, 2023, Prashant Patel, a member of the Board of Directors, the President and the Chief Operating Officer of the Company, was appointed as Interim Principal Financial/Accounting Officer of the Company. On March 1, 2023, the Company issued 50,000 shares to White Lion Capital LLC as part of an agreement. On March 2, 2023, the Company entered into an agreement with Agile Capital Funding LLC., for an accounts receivable funding agreement in the amount of $ 787,500 . 85 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.