UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X .
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2015
OR
.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number: 000-55218
TRXADE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
46-3673928
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
1115 Gunn Hwy
Odessa, Florida 33556
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (800)-261-0281
Former name, former address and former fiscal year, if changed since last report: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes . No X .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X . No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer .
Accelerated filer
. .
Non-accelerated filer .
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes . No X .
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at
July 30, 2015
Common Stock, $0.00001 par value per share
31,269,160 shares
For the Quarter Ended June 30, 2015
INDEX
Page
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
3
a)
Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014
b)
Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2015 and 2014 (unaudited)
4
c)
Consolidated Statements of Cash Flows for Six Months Ended June 30, 2015 and 2014 (unaudited)
5
d)
Notes to (unaudited) Financial Statements
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
9
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
13
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
Legal Proceedings
14
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
SIGNATURES
15
2
PART 1: FINANCIAL INFORMATION
Item 1: Financial Statements
Trxade Group, Inc.
Consolidated Balance Sheets
June 30, 2015 and December 31, 2014
(unaudited)
June 30,
December 31,
2015
2014
Assets
Current Assets
Cash
$
414,167
705,602
Accounts Receivable
416,806
349,025
Inventory
421,934
46,429
Prepaid Assets
188,315
57,676
Other Assets
85,705
59,584
Total Current Assets
1,526,927
1,218,316
Property and Equipment (net)
1,402
3,802
Total Assets
1,528,329
1,222,118
Liabilities and Shareholders’ Equity (Deficit)
Current Liabilities
Accounts Payable
508,419
291,059
Accrued Liabilities
209,044
175,786
Other Liabilities
40,276
64,264
Promissory Note, net $37,500 and $0 discount
212,500
-
Convertible Note, net of $89,244 and $0 discount
110,756
Deferred Income
22,568
Total Current Liabilities
1,080,995
553,677
Shareholders’ Equity
Preferred Stock, $0.00001 par value; 100,000,000
shares authorized; 0 shares issued and outstanding,
as of June 30, 2015 and December 31, 2014,
respectively
Common Stock, $0.00001 par value; 500,000,000
shares authorized; 31,269,160 and 31,269,160
shares issued and outstanding, as of June 30, 2015
and December 31, 2014, respectively
312
Additional Paid-in Capital
5,476,786
5,199,917
Retained Earnings (Deficit)
(5,029,764)
(4,531,788)
Total Shareholders’ Equity
447,334
668,441
Total Liabilities and Shareholders’ Equity
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Consolidated Statements of Operations
Three months and six months ended June 30, 2015 and 2014
Three Months Ended
Six Months Ended
Revenues
1,167,195
287,717
1,863,328
531,913
Cost of Sales
382,004
51,186
612,467
197,976
Gross Profit
785,191
236,531
1,250,861
333,937
Operating Expenses
General and Administrative
811,639
536,561
1,719,960
978,484
Operating Loss
(26,448)
(300,030)
(469,099)
(644,547)
Loss on Debt Conversion
576,417
Interest Expense
27,908
991
28,877
2,052
Net Loss
(54,356)
(301,021)
(497,976)
(1,223,016)
Basic loss per Common Share
(0.00)
(0.01)
(0.02)
(0.04)
Diluted loss per Common Share
Basic weighted average number of
Common Shares outstanding
31,269,160
29,424,160
Diluted weighted average number of
Consolidated Statements of Cash Flows
Six months ended June 30, 2015 and 2014
Operating Activities:
Adjustments to reconcile net loss to net cash provided by
Operating activities:
Depreciation
2,400
Loss from Debt Conversion
Options expense
169,776
191,043
Amortization of debt discount
25,349
Changes in Operating assets and Liabilities:
(67,781)
(44,776)
(130,639)
(82,032)
(375,505)
26,778
(26,121)
217,360
39,417
33,258
101,326
(23,988)
(22,568)
Net Cash used in operating activities
(696,435)
(412,443)
Financing Activities:
Repayments of Short Term Debt – Related Parties
(42,889)
Proceeds from Short Term Debt – Related Parties
52,250
Proceeds from Short Term Convertible Debt
200,000
Proceeds from Short Term Promissory Note
205,000
Proceeds from subscription receivable
160,000
Proceeds from issuance of Common Stock
4,250
Proceeds from issuance of Preferred Stock
225,000
Net Cash provided by financing activities
405,000
398,611
Net increase or (Decrease) in Cash
(291,435)
(13,832)
Cash at Beginning of the Year
84,317
Cash at June 30, 2015 and 2014
70,485
Supplemental Cash Flow Information
Cash Paid for Interest
11,028
Cash Paid for Income Taxes
Non –Cash Transactions
Beneficial conversion features and relative fair value of warrants
107,093
Shares issued for Related Party Debt
19,333
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the six months ended June 30, 2015 and 2014
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Trxade Group, Inc. (“Company”) owns 100% of Trxade, Inc., Westminster Pharmaceutical LLC and Pinnacle Tek, Inc. The merger of Trxade, Inc. and Trxade Group, Inc. occurred in July 2013. Pinnacle Tek was merged with Trxade Group, Inc. in July 2013. Westminster Pharmaceutical LLC was formed in January 2013.
Trxade, Inc. is a web based market platform that enables trade among healthcare buyers and sellers of pharmaceuticals, accessories and services.
Westminster Pharmaceutical LLC, provides US state licensed pharmacies and other buying groups with FDA approved pharmaceuticals as well as access to current benchmark pricing of pharmaceuticals.
Pinnacle Tek, Inc. is a technology consultant provider that supports the programming needs of parent company and also provides other information technology consulting services.
Income (loss) Per Share – Basic net loss per common share is computed by dividing net loss available to commons 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 dilute. At June 30, 2015 diluted net loss per share is equivalent to basic net loss per share as the inclusion of any shares committed to be issued would be anti-dilutive.
The following table sets forth the computation of basic and diluted Loss per Share:
Three-month
Six-month
June 30, 2015
Numerator:
Numerator for basic EPS – income (loss)
Available to common shareholders
Numerator for diluted EPS – income (loss)
Income available to common shareholders
Denominator:
Denominator for basic EPS –
Weighted average shares
Denominator for diluted EPS -
Weighted-average shares and assumed Conversions
Basic loss per common share
0.00
Diluted loss per common share
The accompanying unaudited interim financial statements of Trxade Group, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K.
In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended December 31, 2014 as reported in the Annual Report on Form 10K have been omitted.
NOTE 2 – SHORT-TERM DEBT
Convertible Promissory Note
Convertible promissory notes were issued in the aggregate amount of $200,000 in April and May 2015. The term of the notes are one year. Simple interest of 10% is payable at the maturity date of the note. Prior to maturity the notes may be converted for common stock at a conversion price of $1.50. The holders of the notes were granted warrants at one common stock for $4.00 of the note amount, 50,000 warrants were issued at a strike price of $1.50 with an expiration date of five years from date of issuance.
The Company evaluated the embedded conversion feature within the above convertible notes under ASC 815-15 and ASC 815 40 and determined embedded conversion feature does not meet the definition of a liability. Then the Company evaluated the conversion feature for a beneficial conversion feature at inception. The Company accounted for the intrinsic value of a Beneficial Conversion Feature inherent to the convertible note payable and a total debt discount of $53,546 was recorded.
The Company also uses the Black-Scholes pricing model to estimate the fair value of the warrants issued along with convertible notes on the date of grant. See assumptions employed in the calculation in Note 3. The Company accounted for relative fair value of the warrants issued and a total debt discount of $53,547 was recorded.
During the six months ended June 30, 2015, debt discount of $17,849 was amortized. As of June 30, 2015, convertible note has a balance of $110,756, net of $89,244 unamortized debt discount.
Promissory Note
In May 2015, a promissory note was issued in the face amount of $250,000. The term of the note is one year. The note has an original issuance discount of $45,000, thus the cash proceeds from the promissory note is $205,000.
During the six months ended June 30, 2015, debt discount of $7,500 was amortized. As of June 30, 2015, promissory note has a balance of $212,500, net of $37,500 unamortized debt discount.
NOTE 3 - WARRANTS
For the six month period ended June 30, 2015, 50,000 warrants were issued along with convertible debt. See Note 2.
The Company uses the Black-Scholes warrant pricing model to estimate the fair value of warrants on the date of grant.
Under the Black-Scholes warrant price model, fair value of the option granted is estimated at $73,124 at the respective issuance date.
The following table summarizes the assumptions used to estimate the fair value of warrants granted during the six months ended June 30, 2015:
Expected dividend yield
0%
Weighted-average expected volatility
200%
Weighted-average risk-free interest rate
0.48%
Expected life of warrants
5 years
The Company’s outstanding and exercisable warrants as of June 30, 2015 are presented below:
Number
Weighted
Average
Contractual
Intrinsic
Outstanding
Exercise Price
Life in Years
Value
Warrants Outstanding and exercisable as of December 31, 2014
635,000
0.69
4.15
515,500
Warrants Granted
50,000
1.50
5.00
2,500
Warrants Forfeited
Warrants Outstanding and exercisable as of June 30, 2015
685,000
0.75
3.74
549,750
7
NOTE 4 - OPTIONS
The Company maintains a stock option plan under which certain employees are awarded option grants based on a combination of performance and tenure. The stock option plan provides for the grant of up to 2,000,000 shares. All options may be exercised for a period up to 10 years following the grant date, after which they expire and are vested in 4 or 5 years from the grant date.
During the six months ended June 30, 2015, 480,000 options were granted to employees. These options vest over five years and are granted with an exercise price of $1.60 and the expiration date is ten years from the grant date. The last ones expire January 2025.
During the six months ended June 30, 2015, 380,000 options were forfeited due to employee resignation. The options were not vested and the option expense reversed was $70,563.
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards on the date of grant.
Under the Black-Scholes option price model, fair value of the option granted is estimated at $759,838 at the respective issuance date.
The following table summarizes the assumptions used to estimate the fair value of stock options granted during the six months ended June 30, 2015:
Expected life of options
5-8 years
Total compensation cost related to stock options was $169,776 for the six months ended June 30, 2015. As of June 30, 2015, there was $460,124 of unrecognized compensation costs related to stock options, which is expected to be recognized over a weighted average period of 4.57 years. The following table represents stock option activity as of and for the period ended June 30, 2015:
Number of
Contractual Life
Options
in Years
Outstanding at December 31, 2014
900,000
1.00
3.41
Exercisable at December 31, 2014
112,500
3.16
56,250
Forfeited
(380,000)
Granted
480,000
1.60
9.56
Exercised
Outstanding at June 30, 2015
1,000,000
1.16
4.57
Exercisable at June 30, 2015
272,500
1.02
2.94
144,375
8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Report”), including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Report, and in other reports the Company files with the Securities and Exchange Commission (“SEC”), including the Company’s Annual Report on Form 10-K. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.
The following discussion is based upon our unaudited Consolidated Financial Statements included elsewhere in this report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. In the course of operating our business, we routinely make decisions as to the timing of the payment of invoices, the collection of receivables, the shipment of products, the fulfillment of orders, the purchase of supplies, and the building of inventory, among other matters. Each of these decisions has some impact on the financial results for any given period. In making these decisions, we consider various factors including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives. On an on-going basis, we evaluate our estimates, including those related to sales returns, pricing credits, warranty costs, allowance for doubtful accounts, impairment of long-term assets, especially goodwill and intangible assets, contract manufacturer exposures for carrying and obsolete material charges, assumptions used in the valuation of stock-based compensation, and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Company Overview
We have designed, developed, and now own and operate business-to-business web based marketplace focused on the US pharmaceutical industry. Our core service brings the nation’s independent pharmacies and accredited national suppliers of pharmaceuticals together to provide efficient and transparent buying and selling opportunities.
We began operations under Trxade Nevada in August of 2010 and spent over two years creating and enhancing our web-based services. Our services provide enhanced pricing transparency, purchasing capabilities and other value added services on a single platform to focus on serving the nation’s approximately 24,000 independent pharmacies with an annual purchasing power of $96 billion. Our national supplier partners are able to fulfill orders on our platform immediately and provide the pharmacy with cost saving payment terms and next day delivery capabilities in unrestrictive states under the Model State Pharmacy Act and Model Rules of the National Association of Boards of Pharmacy (Model Act). Important additions to this platform further include the generation of pharmacy to pharmacy trading capabilities to help independents with their overstocked inventories in a more organized manner. We expanded rapidly in 2013 and broke the 1,000 member pharmacy mark that year.
In December 2013 we launched a second service to help the pharmaceutical distributor better source their pharmaceutical needs within a highly structured single platform. This solution is designed to help purchasers overcome pharmaceutical supply issues related to drug shortages, as a means to control costs on drugs with volatile pricing and to help buyers make better purchasing choices based on their needs. Planned enhancements will expand this offering to manufactures and hospitals alike.
Additionally, we built and, in February 2014, launched, a new desktop application, named RxGuru, to bring product information on a just in time basis to our member base. Our pharmacy members should benefit immensely from this application by gaining advanced data analytics at point of purchase and patient care.
Other related developments include the creation of a Delaware registered supply arm in April 2013 to take advantage of certain supply disruptions for specialty and other niche pharmaceuticals and operates via a third party logistics warehouse. Our Information Technology consultancy division located in Tampa, Florida, focuses on staffing and healthcare data analytics research in areas of product pricing, drug shortages and governmental pharmaceutical reimbursement benchmark monitoring.
Company Organization
Westminster Pharmaceutical LLC, provides US state licensed pharmacies and other buying groups with FDA approved pharmaceuticals.
Pinnacle Tek, Inc. is a technology consultant provider that supports the programming needs of parent company, analyzes current benchmark pricing of pharmaceuticals and provides other information technology consulting services to third parties.
Liquidity and Capital Resources
Liquidity Outlook
Cash Requirements
Our primary objectives for the remainder of 2015 are to continue the development of the Trxade Platform, and increase our client base. In addition, we expect to pursue raising capital to fund our operations and provide personnel to expand operations and required working capital.
We estimate our operating expenses and working capital requirements for the next 12 months to be approximately as follows:
Expense
Amount
Cost of Sales(1)
1,200,000
General and administrative(2)
3,500,000
Total
4,700,000
(1)
Includes the cost of drugs for Westminster Pharmaceuticals and consulting expenses for Pinnacle Tek.
(2)
Includes wages and payroll, legal and accounting, marketing, rent and web development.
As of June 30, 2015, we had cash and cash equivalents of approximately $414,167 and other current assets of $1,112,760. Additional funds will be needed to continue to expand our platform and customer base, and cover general and administrative expense.
Since inception, we have funded our operations primarily through equity capital raises, convertible debt, loans and operational revenue. We expect to continue to do so in the future although no assurance can be given that we will be able to obtain financing on reasonable terms or revenues will continue. If we obtain additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. We may be unable to maintain operations at a level sufficient for investors to obtain a return on their investments in our common stock. Further, we may continue to be unprofitable.
We will need significantly more cash to implement our plan to operate a business-to-business web based marketplace focused on the US pharmaceutical industry. Our core service brings the nation’s independent pharmacies and accredited national suppliers of pharmaceuticals together to provide efficient and transparent buying and selling opportunities.
Cash Flows
The following table summarizes our Consolidated Statement of Cash Flows for the six months ended June 30, 2015 and 2014:
June 30, 2014
Net cash provided by (used in):
Operating activities
Financing activities
Net increase (decrease) in cash and cash equivalents
10
Cash used in operating activities for the six months ended June 30, 2015 was $696,435. This is an increase of $283,992 from same period in 2014 and was due to increased staffing as the Company transitioned to its operational phase, continuing IT development of the Company’s web platform, professional fees and inventory purchases.
Cash provided by financing activities for the six months ended June 30, 2015 was $405,000. This is an increase of $6,389 for the same period in 2014 and was due to more debt borrowing.
Historical Liquidity and Capital Resources
Working Capital
Our working capital as of June 30, 2015 and December 31, 2014 is summarized as follows:
At June 30,
At December 31,
Current assets
445,932
664,639
The increase in our current assets was primarily due to a $375,505 and $130,639 increase in inventory and prepaid assets, respectfully. Cash decreased $291,435.
Current liabilities increase is primarily due to an increase in accounts payable by $217,360 and notes payable of $323,256.
Results of Operations
Six Months Ended June 30, 2015 Compared To Six Months Ended June 30, 2014
Six months ending
612,427
Operating expenses:
1,550,184
787,441
Warrants and Options Expense
Total Operating Expenses
Loss from operations
Loss on debt conversion
(576,417)
(28,877)
(2,052)
Net loss
Revenues increased for the six months ended June 30, 2015 to $1,863,328 compared to $531,913 for the comparable period in 2014. This increase was primarily attributable to fee income from our web-based platform. Our sales department has continued to add customers in 2015 through direct marketing and customer training.
Cost of sales increased for the six months ended June 30, 2015 to $612,427 compared to $197,976 for the comparable period in 2014. This increase was primarily attributable to an increase in revenue from the pharmaceutical sales which has higher cost of sales than our other revenue sources.
General and administrative expenses increased for the six months ended June 30, 2015 to $1,550,184 compared to $787,441 for the comparable period in 2014. A large component of general and administrative expenses in 2015 was affected by an increase in employee cash compensation expense in the 2015 period due to increased staffing as we reached our operational phase and our payroll expense was $830,747.
11
Warrant and options expense in the 2015 and 2014 periods represents compensation cost related to the issuance of employee stock options.
In February 2014, the Xcellink loan of $19,333 was converted to 600,000 shares of common stock along with $4,250 of proceeds. The shares were valued at the market price on the respective date of the transaction and the fair value of the shares was determined to be $600,000 and $576,417 was recorded as loss on conversion of debt during the six months ended June 30, 2014.
Three Months Ended June 30, 2015 Compared To Three Months Ended June 30, 2014
Three Months Ending
757,900
440,015
53,739
96,546
Total Operating Expense
Loss from Operations
(27,908)
(991)
Revenues increased for the three months ended June 30, 2015 to $1,167,195 compared to $287,717 for the comparable period in 2014. This increase was primarily attributable to fee income from our web-based platform. Our sales department has continued to add customers in 2015 through direct marketing and customer training.
Cost of sales increased for the three months ended June 30, 2015 to $382,004 compared to $51,186 for the comparable period in 2014. This increase was primarily attributable to an increase in revenue from the pharmaceutical sales which has higher cost of sales than our other revenue sources. General and administrative expenses increased for the three months ended June 30, 2015 to $757,900 compared to $440,015 for the comparable period in 2014. A large component of general and administrative expenses in 2015 was affected by an increase in employee cash compensation expense in the 2015 period due to increased staffing.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of net sales and expenses for each period. The following represents a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal of our financial condition and results of operations and that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
Revenue Recognition
In general the Company accounts for revenue recognition in accordance with ASC 605, “Revenue Recognition”.
Trxade, Inc. generates net fee income as a percentage of the total transactions between the buyer (independent pharmacies) and the seller (wholesaler) of pharmaceutical drugs on the Trxade web-based platform. Revenue is recognized when (1) the price is fixed and determined as the buyer orders the drugs from the wholesaler. (2) The wholesaler has signed a contract with Trxade, Inc. which recognizes that an arrangement exists. (3) The wholesaler delivers the drugs purchased to the buyer, products are delivered. (4) The collectability is reasonably assured by the wholesaler through prior credit checks and payment experience.
12
Pinnacle Tek, Inc. generates gross revenues from IT Consulting and Job Placement. Revenue is recognized (1) with the execution of a contract for the price and scope of services. (2) The contract also provides persuasive evidence of an existing arrangement. (3) The IT Consulting services are performed and invoiced monthly and the job placement is invoiced at the hiring of the applicant, delivery of services. (4) The collectability of the resulting receivable is determined by credit checks prior to the performance of services and payment experience with the client.
Westminster Pharmaceutical LLC generates gross revenues from the sale of pharmaceutical drugs to independent pharmacies or wholesalers. The revenue recognized when (1) the price is fixed and determinable at the time of the transaction with an invoice. (2) The invoice is also persuasive evidence that an arrangement exists. (3) The products are delivered to the buyer. (4) The collectability of the resulting receivable is reasonably assured by credit check prior to the transaction and experience with the customer.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with the provision of ASC 505, “Equity Based Payments to Non-Employees” (“ASC 505”), Share Based Payments to Non-Employees, and ASC 505 which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of stock-based compensation is subject to periodic adjustment as the underlying instruments vest.
The Company accounts for stock-based compensation 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and our principal accounting officer (the “Certifying Officers”), evaluated the effectiveness of our disclosure controls and procedures. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), such as this quarterly report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure. Based on these evaluations, the Certifying Officers have concluded, that, as of the end of the period covered by this quarterly report on Form 10-Q:
(a)
our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and
(b)
our disclosure controls and procedures were not effective to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Exchange Act was accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has not been any change in our internal control over financial reporting that occurred during the six months ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K, which could materially affect our business, financial position and results of operations. Risk factors which could cause actual results to differ materially from those suggested by forward-looking statements include but are not limited to those discussed or identified in this document, in our public filings with the SEC, and those included in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Convertible promissory notes were issued in the aggregate amount of $200,000 in April and May 2015. The term of the notes are one year. Simple interest of 10% is payable at the maturity date of the note. Prior to maturity the notes may be converted for common stock at a conversion price of $1.50. The holders of the notes were also granted warrants at one common stock for $4.00 of the note amount, for a total of 50,000 warrants, which were issued at a strike price of $1.50 with an expiration date of five years from date of issuance.
The issuances of the convertible promissory notes and warrants described above were exempt from registration pursuant to Section 4(2), Rule 506 of Regulation D and/or Regulation S of the Securities Act since the foregoing issuances and grants did not involve a public offering, the recipients took the securities for investment and not resale, we took take appropriate measures to restrict transfer, and the recipients were (a) “accredited investors”; (b) had access to similar documentation and information as would be required in a Registration Statement under the Act; (c) were non-U.S. persons; and/or (d) were officers or directors of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS
Exhibit No.
Description
31.A
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.B
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.A
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.B
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
[ADD XBRL EXHIBITS]
Pursuant to the requirements 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.
By:
/s/ SUREN AJJARAPU
Suren Ajjarapu
Chief Executive Officer
Date: July 30, 2015
/s/ HOWARD DOSS
Howard Doss
Chief Financial Officer