Scienture Holdings, Inc. annual report, FY2022

Business context and reporting period

This filing is TRxADE HEALTH, INC.’s Form 10-K for the fiscal year ended December 31, 2022, filed March 27, 2023. The request identifies Scienture Holdings, Inc.; that name does not match the registrant named in the filing. This is a full-year report, not a standalone fourth-quarter report.

TRxADE operated a pharmaceutical marketplace, a wholesale distribution business through Integra Pharma Solutions, a specialty pharmacy, and telehealth-related businesses. Marketplace revenue is generally reported net as transaction fees; Integra and the pharmacy recognize product revenue. The company reported approximately 14,400 registered platform members.

Financial performance and position

Revenue increased 15.8%. Marketplace revenue rose 10% to $5.44 million, while Integra revenue increased 46% to $4.75 million; specialty pharmacy revenue fell to $1.18 million from $1.65 million. Gross profit grew 14.9%, but margin declined slightly as higher-volume wholesale sales carried product costs. The net loss narrowed, reflecting higher revenue and gross profit, lower certain expenses and a $825,544 favorable change in warrant fair value.

At December 31, 2022, total assets were $3.71 million, total liabilities $3.37 million and total stockholders’ equity $342,867, including a $420,269 non-controlling-interest deficit. Current liabilities were $2.15 million. The balance sheet included $500,000 of related-party notes payable to Exchange Health, split between current and long-term portions, and a $588,533 warrant liability. Operating lease obligations totaled approximately $1.35 million undiscounted. Cash used in investing activities was $427,845; net cash used in financing activities was $35,171.

Material changes, unusual items and outlook

• Fiscal 2022 included an $875,250 inventory-investment loss for COVID-19 test kits that the FDA deemed misbranded and adulterated, and a $792,500 impairment of SOSRx-related intangible assets. The company said it expected to seek recovery from the test-kit vendor; recovery was uncertain.
• TRxADE contributed $275,000 cash to SOSRx and did not recover that investment when it withdrew from the joint venture in February 2023. The company also reported a $225,000 payment in a 2022 settlement of the Jain litigation.
• The company received $825,000 from sales of future receivables and paid $716,964 to repay receivable advances. It reported $315,217 net interest expense, driven in part by these funding arrangements.
• Management estimated 2023 operating expenses and working-capital requirements of approximately $6 million and said additional funding would be needed to support operations over the next 12 months. Funding was expected from equity or debt, with no assurance of availability or favorable terms; equity financing could dilute shareholders. The filing provides no revenue or profitability guidance.
• The independent auditor issued an unqualified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern. The statements were prepared on a going-concern basis and include no adjustments for the outcome of this uncertainty.
• Disclosure controls and internal control over financial reporting were reported ineffective, with material weaknesses involving the financial reporting system, accounting staffing, segregation of duties and review processes. The auditor did not audit internal control effectiveness.
• Nasdaq had notified the company of deficiencies in stockholders’ equity and minimum bid price. After a January 2023 delisting determination concerning equity compliance, the company requested a hearing; trading was to continue pending that process. The filing also said the minimum-bid-price cure period ran to May 29, 2023.
• Subsequent to year-end, the company agreed to sell Alliance Pharma Solutions and Community Specialty Pharmacy for $125,000 and $100,000, respectively, subject to closing, and expected approximately $266,000 in additional amounts under a services agreement. The CFO transitioned to a consulting role in March 2023; the President became interim principal financial/accounting officer.
• The October 2022 financing included common shares, pre-funded warrants and private-placement warrants. The 2,663,045 private-placement warrants were liability-classified and subject to fair-value remeasurement and anti-dilution terms, creating potential earnings volatility and dilution.

Important facts for investors to verify

1. Confirm the intended issuer: the request names Scienture Holdings, Inc., while the supplied 10-K is for TRxADE HEALTH, INC. (ticker MEDS).
2. Review the going-concern disclosure, cash burn, near-term funding needs, and the availability and terms of any financing after the filing date.
3. Check the outcome of Nasdaq’s listing hearings and compliance with both the stockholders’ equity and minimum bid-price requirements.
4. Assess potential dilution, warrant exercise terms, anti-dilution provisions and the effect of warrant fair-value changes.
5. Verify the status and proceeds of the proposed subsidiary sales, SOSRx withdrawal, and efforts to recover the test-kit payment and other disputed deposits.
6. Review remediation of the disclosed internal-control material weaknesses and any subsequent changes in finance leadership.