Item 9A. Controls and Procedures
ITEM
9A.
CONTROLS
AND PROCEDURES
Disclosure
controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms and
is accumulated and communicated to the Company’s management, as appropriate, in order to allow timely decisions in connection with
required disclosure.
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and with the participation of our management, including our Chief Executive Officer and our interim Chief Financial Officer,
Mr. Ajjarapu and Mr. Patel, respectively, we conducted an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this
Annual Report (December 31, 2023). Based on this evaluation, our Chief Executive Officer and our interim Chief Financial Officer concluded
that as of December 31, 2023, our disclosure controls and procedures were not effective to provide reasonable assurance that information
required to be disclosed in our reports filed with the SEC pursuant to the Exchange Act, is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our
management, including our CEO and interim CFO, as appropriate, to allow timely decisions regarding required disclosures.
As
a result of the formative stage of our development, the Company has not fully implemented the necessary internal controls. The matters
involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards
of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) were: (1) The Company did not maintain a fully integrated
financial consolidation and reporting system throughout the period and as a result, extensive manual analysis, reconciliation and adjustments
were required in order to produce financial statements for external reporting purposes, and (2) The Company does not currently have a
sufficient complement of technical accounting and external reporting personnel commensurate to support standalone external financial
reporting under public company or SEC requirements. Specifically, the Company did not effectively segregate certain accounting duties
due to the small size of its accounting staff and maintain a sufficient number of adequately trained personnel necessary to anticipate
and identify risks critical to financial reporting and the closing process. In addition, there were inadequate reviews and approvals
by the Company’s personnel of certain reconciliations and other processes in day-to-day operations due to the lack of a full complement
of accounting staff.
Management
believes that the material weaknesses set forth above did not have an effect on the Company’s financial results reported herein.
We are committed to improving our financial organization. As part of this commitment, we have increased our personnel resources and technical
accounting expertise as we develop the internal and financial resources of the Company. In addition, the Company has prepared and implemented
sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the
requirements and application of GAAP and SEC disclosure requirements.
Management
has prepared and is in the process of implementing sufficient written policies and checklists to remedy the following material weaknesses
(i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application
of GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes.
We
have improved our financial organization as we have increased our personnel resources and technical accounting expertise. We will continue
to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting
on an ongoing basis.
Management’s
Report on Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with GAAP, but because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. The Company’s internal control over financial reporting includes those policies and procedures that are designed
to:
●
pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
●
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors
of the Company; and
●
provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.
82
Management
conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control — Integrated Framework (2013). Based on our assessment, management concluded that the Company’s internal
controls over financial reporting were not effective as of December 31, 2023, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements in accordance with GAAP. Specifically, management’s determination
was based on the following material weaknesses which existed as of December 31, 2023:
●
Financial
Reporting Systems : The Company did not maintain a fully integrated financial consolidation and reporting system throughout the
period and as a result, extensive manual analysis, reconciliation and adjustments were required in order to produce financial statements
for external reporting purposes.
●
Segregation
of Duties : The Company does not currently have a sufficient complement of technical accounting and external reporting personnel
commensurate to support standalone external financial reporting under public company or SEC requirements. Specifically, the Company
did not effectively segregate certain accounting duties due to the small size of its accounting staff and maintain a sufficient number
of adequately trained personnel necessary to anticipate and identify risks critical to financial reporting and the closing process.
In addition, there were inadequate reviews and approvals by the Company’s personnel of certain reconciliations and other processes
in day-to-day operations due to the lack of a full complement of accounting staff.
Limitations
on the Effectiveness of Controls
Management
of the Company, including its Chief Executive Officer and its Chief Financial Officer, does not expect that the Company’s disclosure
controls and procedures or its internal control over financial reporting will prevent or detect all error and all fraud. A control system,
no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives
will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Furthermore, because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud,
if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons or
by the collusion of two or more persons. The design of any system of controls is based in part on certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls
may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes
in Internal Control Over Financial Reporting.
There
have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2023, that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Our workforce operated primarily in a work from home environment for the year ended December 31, 2023. While pre-existing
controls were not specifically designed to operate in our current work-from-home operating environment, we do not believe that such work-from-home
actions have had a material adverse effect on our internal controls over financial reporting. We have continued to re-evaluate and refine
our financial reporting process to provide reasonable assurance that we could report our financial results accurately and timely.
ITEM
9B.
OTHER
INFORMATION
Securities
Trading Plans of Directors and Officers
During
the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement”
or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Resignation
of Director
Effective April 10, 2024, Candice Beaumont voluntarily
resigned as a director of the Company. Ms. Beaumont’s decision to resign was not the result of any dispute or disagreement with
the Company or any matter relating to the Company’s operations, policies or practices.
Nasdaq
Notification
On
April 2, 2024 the Company filed with the SEC a Notification of Late Filing on Form 12b-25 reporting that it required additional time to
complete its Annual Report on Form 10-K for the period ending December 31, 2023 (the “Form 10-K”).
On
April 17, 2024, the Company received a notice (the “Notice”) from the Nasdaq Listing Qualifications Department indicating
that the Company was not compliant with the timely filing requirement for continued listing under Nasdaq Listing Rule 5250(c)(1) (the
“Listing Rule”), which requires listed companies to timely file all required periodic reports with the SEC.
The
Notice had no immediate effect on the listing or trading of the Company’s common stock. The Notice indicated that the Company must,
no later than June 17, 2024, submit a plan to regain compliance with respect to the filing requirement. However, as a result of filing
this Form 10-K on April 22, 2024, the Company believes it has fully regained compliance with the Nasdaq Listing Rule.
ITEM
9C.
DISCLOSURE
REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not
applicable.
83
PART
III
Information
required by Items 10, 11, 12, 13 and 14 of Part III is omitted from this Annual Report and will be filed in a definitive proxy statement
or by an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report (subject
to any extension provided by Exchange Act Rule 0-3).
ITEM
10.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
information required by this Item will be set forth in the Company’s 2024 Proxy Statement to be filed with the SEC within 120 days
after December 31, 2023 (subject to any extension provided by Exchange Act Rule 0-3) in connection with the solicitation of proxies for
the Company’s 2024 annual meeting of stockholders including under the headings “ Election of Directors ”, “ Information
about our Executive Officers ”, “ Corporate Governance ”, “ Code of Ethics ”, “ Committees
of the Board ”, and “ Delinquent Section 16(a) Reports ” (to the extent applicable and warranted), and is incorporated
herein by reference.
ITEM
11.
EXECUTIVE
COMPENSATION
The
information required by this Item will be set forth in the Company’s 2024 Proxy Statement to be filed with the SEC within 120 days
after December 31, 2023 (subject to any extension provided by Exchange Act Rule 0-3), including under the headings “ Executive
Compensation ”, “ Directors Compensation ”, “ Outstanding Equity Awards at Fiscal Year-End ”,
“ Compensation Committee Interlocks and Insider Participation ” and “ Compensation Committee Report ”
(to the extent required), and is incorporated herein by reference.
ITEM
12.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
information required by this Item will be set forth under the heading “ Voting Rights and Principal Stockholders ” and
“ Equity Compensation Plan Information ” in the Company’s 2024 Proxy Statement to be filed with the SEC within
120 days after December 31, 2023 (subject to any extension provided by Exchange Act Rule 0-3) and is incorporated herein by reference.
ITEM
13.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
information required by this Item will be set forth in the Company’s 2024 Proxy Statement to be filed with the SEC within 120 days
after December 31, 2023 (subject to any extension provided by Exchange Act Rule 0-3), including under the headings “ Certain
Relationships and Related Transactions ” and “ Committees of the Board ” - “ Director Independence ”,
and is incorporated herein by reference.
ITEM
14.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The
information required by this Item will be set forth under the heading “ Ratification of Appointment of Auditors ” -
“ Audit Fees ” in the Company’s 2024 Proxy Statement to be filed with the SEC within 120 days after December 31,
2023 (subject to any extension provided by Exchange Act Rule 0-3), and is incorporated herein by reference.
84
PART
IV
ITEM
15.
EXHIBITS,
FINANCIAL STATEMENTS AND SCHEDULES
(a)
Documents filed as part of this Annual Report:
The
following is an index of the financial statements, schedules and exhibits included in this Form 10-K or incorporated herein by reference.
(1)
All
Financial Statements
Index
to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
55
Consolidated Balance Sheets
58
Consolidated Statements of Operations
59
Consolidated Statements of Changes in Stockholders’ Equity
60
Consolidated Statements of Cash Flows
61
Notes to Consolidated Financial Statements
62
(2)
Consolidated
Financial Statement Schedules
Except
as provided above, all financial statement schedules have been omitted, since the required information is not applicable or is not present
in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial
statements and notes thereto included in this Form 10-K.
(3)
Exhibits
Incorporated
by Reference
Exhibit
No.
Description
Form
File
No.
Exhibit
Filing
Date
Filed/Furnished
Herewith
3.1
Second Amended and Restated Certificate of Incorporation of Trxade Group, Inc.
S-1
333-234221
3.1
10/15/2019
3.3
Certificate of Amendment to Second Amended and Restated Certificate of Incorporation (1-for-6 Reverse Stock Split of Common Stock) filed with the Delaware Secretary of State on February 12, 2020, and effective February 13, 2020
8-K
001-39199
3.1
2/13/2020
3.4
Certificate of Amendment of Certificate of Incorporation (changing name TRxADE HEALTH, INC.)
8-K
001-39199
3.1
5/28/2021
3.5
Form of Certificate of Amendment to Second Amended and Restated Certificate of Incorporation
8-K
001-39199
3.1
6/15/2023
3.6
Certificate of Designation of Series B Preferred Stock
8-K
000-55218
3.1
06/26/2023
3.7
Certificate of Designation of Preferences, Rights and Limitations of Series C Preferred Stock
8-K
000-55218
3.1
10/11/2023
3.8
Amended and Restated Bylaws of Trxade Group, Inc.
10-12G/A
000-55218
3.1
7/24/2014
3.9
Form of Common Stock Purchase Warrant
8-K
000-55218
4.2
10/7/2022
4.1
Description of Registered Securities
10-K
001-39199
4.1
3/27/2023
10.1***
Indemnification Agreement dated February 6, 2019 with Prashant Patel and Suren Ajjarapu
10-K
000-55218
10.1
3/22/2019
10.2***
Form of Indemnification Agreement entered into between Trxade Group, Inc. and its directors and certain officers
10-12G
000-55218
10.4
6/11/2014
10.3***
Employment Agreement between Trxade, Inc. and Prashant Patel dated May 24, 2013
10-12G/A
000-55218
10.6
7/24/2014
10.4***
First Amendment to Employment Agreement with Mr. Patel
8-K
001-39199
10.3
9/1/2022
10.5***
Second Amendment to Employment Agreement between Trxade, Inc. and Prashant Patel dated January 17, 2023 and effective September 1, 2022
8-K
001-39199
10.7
1/20/2023
10.6***
April 14, 2020 Executive Employment Agreement with Suren Ajjarapu
8-K
001-39199
10.4
4/16/2020
10.7***
First Amendment to Executive Employment Agreement with Suren Ajjarapu dated May 5, 2020
8-K
001-39199
10.2
5/7/2020
10.8***
Second Amendment to Employment Agreement with Mr. Ajjarapu
8-K
001-39199
10.3
9/1/2022
10.9***
Third Amendment to Employment Agreement between TRxADE HEALTH, Inc. and Suren Ajjarapu dated January 17, 2023 and effective September 1, 2022
8-K
001-39199
10.4
1/20/2023
10.10***
2014 Equity Incentive Plan
10-12G
000-55218
10.3
6/11/2014
85
10.11***
Second Amended and Restated Trxade Group, Inc. 2019 Equity Incentive Plan
8-K
001-39199
10.1
5/28/2021
10.12***
Form of Stock Option Agreement (April 2020 Grants to Employees) April 14, 2020
8-K
001-39199
10.2
4/16/2020
10.13***
Form of Restricted Stock Grant Agreement (Independent Directors 2020 Award, 2020 CFO Award and 2020 Legal Counsel) April 14, 2020
8-K
001-39199
10.3
4/16/2020
10.14***
Restricted Stock Grant Agreement (Mr. Ajjarapu 2020 Performance Bonus)(Updated) May 5, 2020
8-K
001-39199
10.3
5/7/2020
10.15***
Form of First Amendment to Trxade Group, Inc. 2019 Equity Incentive Plan Restricted Stock Grant Agreement (April 2020 Grants to Employees; Independent Directors 2020 Award, 2020 CFO Award and 2020 Legal Counsel Award)
8-K
001-39199
10.4
8/4/2020
10.16***
Form of Stock Option Agreement Trxade Group, Inc. Amended and Restated 2019 Equity Incentive Plan
S-8
333-246318
10.6
8/14/2020
10.17***
Form of Restricted Stock Grant Agreement Trxade Group, Inc. Amended and Restated 2019 Equity Incentive Plan
S-8
333-246318
10.7
8/14/2020
10.18***
Form of Trxade Group, Inc. 2019 Equity Incentive Plan Restricted Stock Grant Agreement
S-8
333-246318
10.8
8/14/2020
10.19***
Trxade Group, Inc. Independent Director Compensation Policy adopted April 14, 2020
10-Q
001-39199
10.1
7/27/2020
10.20
Membership Interest Purchase Agreement dated January 20, 2023, by and among Alliance Pharma Solutions, LLC, Wood Sage, LLC, as buyer, and TRxADE HEALTH, Inc., as seller
8-K
001-39199
10.1
1/23/2023
10.21
Membership Interest Purchase Agreement dated January 20, 2023, by and among Community Specialty Pharmacy, LLC, Wood Sage, LLC, as buyer, and TRxADE HEALTH, Inc., as seller
8-K
001-39199
10.2
1/23/2023
10.22
Voluntary Withdrawal and Release Agreement effective February 4, 2023, by and between TRxADE HEALTH, INC., SOSRx, LLC and Exchange Health, LLC
8-K
001-39199
10.1
2/7/2023
10.23
Agreement and Plan of Merger dated as of June 30, 2023, by and among TRxADE Health, Inc., Foods Merger Sub, Inc., and Superlatus Inc.
8-K
001-39199
2.1
6/30/2023
10.24
Stock Swap Agreement dated June 28, 2023, by and among TRxADE Health, Inc., Suren Ajjarapu and Prashant Patel
8-K
001-39199
10.1
6/30/2023
10.25
Amended and Restated Agreement and Plan of Merger, dated July 14, 2023 by and between TRxADE Health, Inc. and Superlatus, Inc.
8-K
001-39199
2.1
7/14/2023
10.26
Form of Lock-Up Agreement
8-K
001-39199
10.1
7/31/2023
10.27
Form of MEDS Shareholder Registration Rights Agreement for MEDS Rights
8-K
001-39199
10.2
7/31/2023
10.28
Asset Purchase Agreement, dated August 21, 2023, by and among Superlatus Inc., Perfect Day, Inc., and The Urgent Company, Inc.
8-K
001-39199
10.1
8/24/2023
86
10.29
Reserved
10.30
Supplier Agreement, dated October 9, 2023, by and among Superlatus PD Holding Company and Rainforest Distribution Corp.
8-K
001-39199
10.1
10/13/2023
10.31
Amendment No. 1 to the Amended and Restated Agreement and Plan of Merger by and between the Company, Superlatus Inc. and Foods Merger Sub Inc., dated January 8, 2024
8-K
001-39199
10.1
1/11/2024
10.32
Asset Purchase Agreement between Trxade, Inc., Micro Merchant Systems, Inc. and TRxADE HEALTH Inc. (for the limited purposes identified therein), dated February 16, 2024
8-K
001-39199
2.1
2/16/2024
10.33
Subscription Agreement, dated February 29, 2024 between Trxade, Inc. and Lafayette Energy Corp.
8-K
001-39199
10.1
3/6/2024
10.34
Stock Purchase Agreement, dated March 5, 2024 between TRxADE HEALTH Inc. and Superlatus Foods Inc.
8-K
001-39199
10.2
3/6/2024
14.1
Code of Ethics
10-K
000-55218
14.1
3/23/2015
16.1
Letter from MaloneBailey, LLP to the Securities and Exchange Commission dated September 14, 2023
8-K
001-39199
16.1
9/14/2023
19.1*
Insider Trading Policy
X
21.1*
List of Subsidiaries
X
23.1*
Consent of Independent Registered Accounting Firm
X
23.2
Consent of Independent Registered Accounting Firm
X
31.1*
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
X
31.2*
Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act
X
32.1**
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
X
32.2**
Certification of Principal Accounting Officer Pursuant to Section 906` of the Sarbanes-Oxley Act
X
101.INS
Inline
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document
X
101.SCH
Inline
XBRL Taxonomy Extension Schema Document
X
101.CAL
Inline
XBRL Taxonomy Extension Calculation Linkbase Document
X
101.DEF
Inline
XBRL Taxonomy Extension Definition Linkbase Document
X
101.LAB
Inline
XBRL Taxonomy Extension Label Linkbase Document
X
101.PRE
Inline
XBRL Taxonomy Extension Presentation Linkbase Document
X
104
Inline
XBRL for the cover page of this Annual Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set.
*
Filed
herewith.
**
Furnished
herewith.
***
Indicates
management contract or compensatory plan or arrangement.
ITEM
16.
FORM
10–K SUMMARY
None.
87
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TRxADE
HEALTH, INC.
Date:
April 22, 2024
/s/
Suren Ajjarapu
By:
Suren
Ajjarapu, Chief Executive Officer (Principal Executive Officer)
Date:
April 22, 2024
/s/
Prashant Patel
By:
Prashant
Patel
(Principal
Financial and Accounting Officer)
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/
Suren Ajjarapu
Chairman
of the Board, Chief Executive Officer and Secretary
April
22, 2024
Suren
Ajjarapu
(Principal
Executive Officer)
/s/
Prashant Patel
Director,
President, Principal Accounting Officer and Chief Operating Officer
April
22, 2024
Prashant
Patel
/s/
Donald G. Fell
Director
April
22, 2024
Donald
G. Fell
/s/
Jeff Newell
Director
April
22, 2024
Jeff
Newell
/s/
Michael L. Peterson
Director
April
22, 2024
Michael
L. Peterson
88