Business context and reporting period
This is Trxade Group, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018. The request metadata names Scienture Holdings, Inc., but the filing identifies Trxade Group, Inc. as the registrant. Trxade operates a web-based marketplace connecting independent pharmacies with pharmaceutical suppliers; its other subsidiaries had limited or no operations or revenue.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue, 2018 | $837,688 | $1,690,611 |
| Revenue, 2017 | $704,728 | $1,450,671 |
| Operating income, 2018 | $31,446 | $130,174 |
| Operating income, 2017 | $48,783 | $190,233 |
| Net income (loss), 2018 | $20,513 | $102,782 |
| Net income (loss), 2017 | $(6,842) | $72,884 |
| Net cash from operations | Not provided by quarter | $146,456 in 2018; $1,576 in 2017 |
Revenue rose 18.9% for the quarter and 16.5% for the six-month period year over year. Operating margin declined to about 3.8% for the quarter and 7.7% for the six months, from about 6.9% and 13.1%, respectively. Six-month net margin was about 6.1%, versus 5.0% in 2017. The filing reports earnings per share of $0.00 for the periods, rounded to cents.
At June 30, 2018, cash was $207,906, current assets $702,174, current liabilities $510,701, working capital $191,473, total assets $712,174 and total liabilities $833,253. Shareholders’ deficit was $121,079. Current short-term debt totaled $221,500; the balance sheet also reported $322,552 of long-term debt, including related-party notes. Operating cash flow was largely offset by $122,464 of financing outflows, primarily debt repayments; cash increased by $23,992 during the six months.
Changes, outlook and notable disclosures
- Management attributed revenue growth to increased platform transaction-fee income, added customers, and transition fees from the sale of Westminster. It attributed higher general and administrative costs in part to increased employee cash compensation. Interest expense fell to $27,392 for the six months from $105,837 in 2017.
- Management estimated approximately $2.425 million of operating expenses and working-capital needs for the next 12 months, and said it expected to seek additional financing. It cautioned that continued positive cash flow and access to financing on acceptable terms were not assured. No specific revenue or earnings guidance was provided.
- After quarter-end, the company issued 300,000 shares for $300,000 and warrants to purchase 161,538 shares. July 24 shares outstanding were 32,285,827, compared with 31,985,827 at June 30.
- The company reported that disclosure controls and procedures were not effective at period-end. It reported no material change in internal control over financial reporting, no legal proceedings, and no off-balance-sheet arrangements. Risk factors were unchanged from the 2017 Form 10-K.
- Topic 606 was adopted January 1, 2018, with no material impact reported. Stock-option compensation was $88,072 for the six months; $281,417 of unrecognized compensation cost remained at June 30.
Important facts for investors to verify
- Confirm the intended issuer: the supplied metadata says Scienture Holdings, Inc., while the filing is for Trxade Group, Inc.
- Reconcile expense presentation: the financial statements show general and administrative expense of $1,560,437 for six months, while MD&A separately describes $1,472,365 of general and administrative expense plus $88,072 of warrant and option expense.
- Review the company’s financing needs, related-party debt terms and subsequent $300,000 share issuance, including potential dilution from outstanding warrants and options.
- Assess the disclosed ineffective controls and the company’s ability to fund the stated 12-month expense and working-capital requirements.