UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the Quarterly Period Ended
OR
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip code) |
(Registrant’s telephone number, including area code)
TRxADE HEALTH, INC.
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
|
The |
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.
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark
if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
There were shares of the registrant’s common stock outstanding on May 12, 2025.
Scienture Holdings, Inc. formerly TRxADE HEALTH, INC.
FORM 10-Q
For the Quarter Ended March 31, 2025
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Report”), including without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements, within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, regarding future events and the future results of Scienture Holdings, Inc. (f/k/a TRxADE Health, Inc.) (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. These factors include, but are not limited to:
| ● | Our limited amount of cash; | |
| ● | The negative effect on our business and our ability to raise capital that is created by the fact that there is a substantial doubt about our ability to continue as a going concern; | |
| ● | Risks of our operations not being profitable; | |
| ● | Claims relating to alleged violations of intellectual property rights of others; | |
| ● | Technical problems with our websites; | |
| ● | Cybersecurity risks; | |
| ● | Risks relating to implementing our acquisition strategies, and, risks related to our ability to integrate the business operations of businesses that we acquire from time to time; | |
| ● | Negative effects on our operations associated with the opioid pain medication health crisis; | |
| ● | Regulatory and licensing requirement risks; | |
| ● | Risks related to changes in the U.S. healthcare environment; | |
| ● | The status of our information systems, facilities and distribution networks; | |
| ● | Risks associated with the operations of our more established competitors; | |
| ● | Political uncertainty; | |
| ● | Healthcare fraud; | |
| ● | The potential impact of some future pandemic; | |
| ● | Inflation, rising interest rates, governmental responses thereto and possible recessions caused thereby; | |
| ● | Changes in laws relating to our operations; | |
| ● | Privacy laws; | |
| ● | System errors; | |
| ● | Dependence on current management; | |
| ● | Our growth strategy; | |
| ● | Risks related to the disruption of management’s attention from ongoing business operations due to pursuit of requirements related to being a listed company; and | |
| ● | Other factors discussed in this Quarterly Report on Form 10-Q and our Annual Form 10-K for the year ended December 31, 2024. |
While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance. The forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. Moreover, because we operate in a very competitive and rapidly changing environment, new risk factors are likely to emerge from time to time. We caution investors not to place undue reliance on these forward-looking statements and urge you to carefully review the disclosures we make concerning risks in this Quarterly Report and in our Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission (“SEC”). Readers of this Quarterly Report on Form 10-Q should also read our other periodic filings made with the SEC and other publicly filed documents for further discussion regarding such factors.
| 3 |
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Scienture Holdings, Inc. formerly TRxADE HEALTH, INC.
Condensed Consolidated Balance Sheets
As of March 31, 2025 and December 31, 2024
(Unaudited)
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Notes receivable - related party | ||||||||
| Other receivables | ||||||||
| Deferred offering costs | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Deposits | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred tax asset | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Other current liabilities | ||||||||
| Loan payable, related party | ||||||||
| Convertible note, net of debt discount - current portion | ||||||||
| Operating lease liability - current | ||||||||
| Warrant liability | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Convertible notes, net of debt discount | ||||||||
| Derivative liability | ||||||||
| Operating lease liability - net of current portion | ||||||||
| Development agreement liability | ||||||||
| Deferred tax liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Series A preferred stock, $par value; and shares authorized; shares issued and outstanding as of both March 31, 2025 and December 31, 2024 | ||||||||
| Series B preferred stock, $ par value; shares authorized; shares issued and outstanding as of both March 31, 2025 and December 31, 2024 | ||||||||
| Series C preferred stock, $par value; shares authorized; shares issued and outstanding as of both March 31, 2025 and December 31, 2024 | ||||||||
| Series X preferred stock, $par value; shares authorized; shares issued and outstanding as of both March 31, 2025 and December 31, 2024 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| 4 |
Scienture Holdings, Inc. formerly TRxADE HEALTH, INC.
Condensed Consolidated Statements Of Operations
For the Three Months Ended March 31, 2025 and 2024
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Wage and salary expense | ||||||||
| Professional fees | ||||||||
| Accounting and legal expense | ||||||||
| Technology expense | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Change in fair value of derivative liability | ||||||||
| Loss on conversion of note payable | ( | ) | ||||||
| Interest income | ||||||||
| Loss on disposal of asset | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Benefit / (provision) for income taxes | ||||||||
| Net loss from continuing operations, net of tax | ( | ) | ( | ) | ||||
| Net income from discontinued operations, net of tax | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Net loss per common share from continuing operations | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Net income per common share from discontinued operations | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Net (loss) income per common share | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
| Weighted average common shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| 5 |
Scienture Holdings, Inc. formerly TRxADE HEALTH, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
| Series B | Series C | Common | Additional | Total | ||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||
| Options exercised for common shares | - | - | ||||||||||||||||||||||||||||||||||
| Warrants exercised for cash | - | - | ||||||||||||||||||||||||||||||||||
| Options expense | - | - | - | |||||||||||||||||||||||||||||||||
| Cash dividends paid ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||
| Balances at March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Balances at December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued for cash pursuant to ELOC agreement, net of offering costs | - | - | ||||||||||||||||||||||||||||||||||
| Equity line of commitment shares issued | - | - | ||||||||||||||||||||||||||||||||||
| Conversion of note payable into common stock | - | - | ||||||||||||||||||||||||||||||||||
| Options expense | - | - | - | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balances at March 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements
| 6 |
Scienture Holdings, Inc. formerly TRxADE HEALTH, INC.
Condensed Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2025 and 2024
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Loss on conversion of note payable | ||||||||
| Options expense | ||||||||
| Common stock issued for services | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and deposits | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ||||||||
| Current liabilities | ( | ) | ||||||
| Net cash used in operating activities from continuing operations | ( | ) | ( | ) | ||||
| Net cash used in operating activities from discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Investment in securities | ( | ) | ||||||
| Net cash used in investing activities from continuing operations | ( | ) | ||||||
| Net cash provided by investing activities from discontinued operations | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Repayment of contingent liability | ( | ) | ||||||
| Proceeds from loan payable, related party | ||||||||
| Gross proceeds from issuance of common stock | ||||||||
| Cash dividends paid | ( | ) | ||||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from exercise of options | ||||||||
| Net cash provided by (used in) financing activities from continuing operations | ( | ) | ||||||
| Net cash used in financing activities from discontinued operations | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of note payable into common stock | $ | $ | ||||||
| Equity line of commitment shares issued as offering costs | $ | $ | ||||||
| Insurance premium financed | $ | $ | ||||||
| Note issued as SOSRx contribution | $ | $ | ||||||
| Disposition of assets, related party | $ | $ | ||||||
| Issuance of note receivable | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
| 7 |
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
Overview
On September 20, 2024, the Company filed with the Secretary of State of the State of Delaware an amendment to its Second Amended and Restated Certificate of Incorporation to change the legal name of the Company from “TRxADE HEALTH, Inc.” to “Scienture Holdings, Inc.”
The Company owned, as of March
31, 2025,
On October 4, 2024, the Company
and Softell Inc. (f/k/a Trxade Inc.) (“Softell”) entered into an Assignment and Assumption of Membership Interests (the “IPS
Assignment Agreement”), pursuant to which the Company transferred, and Softell accepted,
IPS is a licensed pharmaceutical wholesaler and sells brand, generic and non-drug products to customers. IPS’ customers include all healthcare markets including government organizations, hospitals, clinics and independent pharmacies nationwide.
Bonum Health, LLC was formed to hold certain telehealth assets acquired in October 2019. The “Bonum Health Hub” was launched in February 2020; however, the Company does not anticipate installations moving forward. The Company anticipates dissolving Bonum Health, Inc. and Bonum Health, LLC.
Scienture, LLC (f/k/a Scienture, Inc.) (“Scienture”) is a New York based branded, specialty pharmaceutical research company which is engaged in the research and development of branded pharmaceutical products. The intellectual property application process was initiated in November 2019 and the product development activities commenced in January 2020. Scienture also plans to foray into commercialization of innovative and branded pharmaceutical products in the US market. Scienture’s assets in development are across therapeutics areas and indications and cater to different market segments. Scienture’s mission is to identify, develop and bring to market innovative technology-based products to address unmet medical needs. Its targeted portfolio consists of short term and long-term opportunities with efficient development, regulatory, and go to market strategies.
Disposition of Legacy Subsidiaries
On April 8, 2025, the Company entered into a Membership Interest Purchase Agreement (the “IPS MIPA”) with Tollo Health, Inc. (“Tollo”), pursuant to which Tollo agreed to purchase and the Company agreed to sell all of the Company’s membership interests in IPS. Suren Ajjarapu, the Company’s Chief Executive Officer, and Prashant Patel, the Company’s President and Chief Operating Officer, each have a beneficial interest in Tollo.
On April 8, 2025, the Company also entered into a Stock Purchase Agreement (the “Bonum SPA” and together with the IPS MIPA, the “Agreements”) with Tollo, pursuant to which Tollo agreed to purchase and the Company agreed to sell all issued and outstanding shares of common stock of Bonum Health, Inc.
In connection with each of the Agreements, the Company agreed to retain certain excluded liabilities of IPS and Bonum including all liabilities: (i) related to, in connection with or arising out of any claims, charges, complaints, actions, suits, settlements, hearings, investigations, proceedings, or governmental or regulatory inquiries with respect to IPS or Bonum, respectively, prior to the closing under the applicable Agreement; (ii) related to, in connection with or arising out of any breach by the Company of the applicable Agreement or any other agreements and documents required to be delivered by the Company; (iii) not disclosed by the Company in accordance with each Agreement; (iv) related to any actions threatened or initiated by a governmental entity against IPS or Bonum, respectively; and (v) related to tax returns or tax matters of the Company, IPS, or Bonum, respectively, for any periods prior to closing under the applicable Agreement.
The Company and Tollo have agreed
to consummate the closing of each of the Agreements on June 30, 2025, or such other time as the Company and Tollo may agree. As consideration
for acquiring IPS and Bonum, Tollo has agreed to pay the Company $
The divestitures are part of a broader strategic realignment at the Company designed to sharpen operational focus and unlock long-term value. It is aligned with the Company’s commitment to streamline its core operations, optimize its portfolio, and accelerate growth in the Branded and Specialty Pharma markets. The Company intends to use the proceeds obtained from the divestment to facilitate the high-growth commercial and strategic product development activities at its Scienture, LLC subsidiary (see Note 15).
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules of the SEC 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 for the year ended December 31, 2024, as filed with the SEC on March 26, 2025.
| 8 |
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. All significant intercompany balances and transactions have been eliminated in consolidation. 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, 2024, as reported in the Company’s Annual Report on Form 10-K have been omitted.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from its estimates. Significant estimates for the three months ended March 31, 2025 and 2024 include the valuation of intangible assets, including goodwill, and gain (losses) on dispositions.
Fair Value of Financial Instruments
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| ● | Level 1—Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. | |
| ● | Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
The carrying amounts for cash, accounts receivable, accounts payable, accrued liabilities, and other current liabilities approximate their fair value because of their short-term maturity. The Company’s notes payables approximate the fair value of such instruments as the notes bear interest rates that are consistent with current market rates.
The Company’s derivative liability is a Level 3 liability measured at fair value on a recurring basis (see Note 8).
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. During the three months ended
March 31, 2025 and 2024, no sales to customers represented greater than
Accounts Receivable, net
The Company’s receivables are from customers and are typically collected within 90 days. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence.
Other Receivables
As of March 31, 2025 and December
31, 2024, other receivables are $
| 9 |
Deferred Offering Costs
The Company complies with the
requirements of Accounting Standards Codification (“ASC”) 340-10-S99-1 with regards to offering costs. Prior to the completion
of an offering, offering costs are capitalized. The deferred offering costs are charged to additional paid-in capital or as a discount
to debt, as applicable, upon the completion of an offering or to expense if the offering is not completed. As of March 31, 2025, the Company
has not capitalized any amount in deferred offering costs. During the three months ended March 31, 2025, $
Acquisitions
The Company accounts for acquisitions and investments in businesses as business combinations if the target meets the definition of a business and (a) the target is a variable interest entity and the Company is the target’s primary beneficiary, and therefore the Company must consolidate its financial statements, or (b) the Company acquires more than 50% of the voting interest of the target and it was not previously consolidated. The Company records business combinations using the acquisition method of accounting, which requires all the assets acquired and liabilities assumed to be recorded at fair value as of the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill.
The application of the acquisition method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset, if applicable.
If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the Company’s financial statements may be exposed to potential impairment of the intangible assets and goodwill.
If the Company’s investment involves the acquisition of an asset or group of assets that does not meet the definition of a business, the transaction is accounted for as an asset acquisition. An asset acquisition is recorded at cost, which includes capitalizing transaction costs, and does not result in the recognition of goodwill.
On July 25, 2024, the Company
acquired intangible assets of $
Goodwill
Goodwill is an asset representing the excess cost over the fair market value of net assets acquired in business combinations. In accordance with Intangibles - Goodwill and Other (Topic 350), goodwill is not amortized but is tested annually for impairment or on an interim basis when indicators of potential impairment exist. Goodwill is tested for impairment at the reporting unit level. The Company’s reporting units discrete financial information is available and management regularly reviews the operating results. For purposes of impairment testing, goodwill is allocated to the applicable reporting units based on the reporting structure.
The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Qualitative factors assessed for each of the applicable reporting units include, but are not limited to, changes in macroeconomic conditions, industry and market considerations, cost factors, discount rates, competitive environments and financial performance of the reporting units. If the qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, a quantitative test is required.
The Company also has the option to proceed directly to the quantitative test. Under the quantitative impairment test, the estimated fair value of each reporting unit is compared to its carrying value, including goodwill. If the carrying value of the reporting unit including goodwill exceeds its fair value, an impairment charge equal to the excess would be recognized, up to a maximum amount of goodwill allocated to that reporting unit. Management can resume the qualitative assessment in any subsequent period for any reporting unit.
As of March 31, 2025, management performed a qualitative impairment assessment of our reporting units, of which there were no indications that it was more likely than not that the fair value of our reporting units were less than their respective carrying values. As such, a quantitative goodwill test was not required, and no goodwill impairment was recognized during the three months ended March 31, 2025 and 2024.
Intangible Assets
In connection with the Scienture acquisition, the Company identified product technologies assets. The product technologies represent a broad range of novel product candidates including new potential treatments for hypertension, migraine, pain and thrombosis and other related disorders. Each of the product technologies are in various phases of development and had not achieved regulatory approval as of the valuation date.
| 10 |
The product technologies are 505(b)(2)
products and represent modifications and new delivery methods of already approved drugs (rather than novel drug compounds/formulations/treatments
which require significant regulatory approvals and testing). These assets should be amortized over their expected remaining economic life.
The product technology assets will remain unamortized, subject to potential impairment testing, until the assets are placed in service,
which is when commercialization of the product commences. At that point, the assets will be amortized over their expected remaining life
(likely a period of
Impairment of Long-Lived Assets
The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
The Company did not record an impairment charge for the three months ended March 31, 2025 and 2024.
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 Accounting Standards Update (“ASU”) 2018-07 for the accounting of share-based payments granted to non-employees for goods and services.
Leases
The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
In calculating the right of use asset and lease liability, the Company has elected to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.
Research & Development Expenses
Research and development costs are expensed in the period incurred in accordance with ASC 730, Research and Development. These expenses consist of independent contractor costs, costs for outsourced analytical research and development activities, batch manufacturing cost and, advisory costs as a part of research, market research costs and other regulatory consulting costs.
Income (loss) Per Common Share
Basic net income per common share
is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted
net income per common share is computed similar to basic net income 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 March 31, 2025, we had
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 | 2024 | |||||||
| Numerator: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Net income on discontinued operations | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Denominator: | ||||||||
| Denominator for EPS – weighted average shares | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Net loss per common share from continuing operations | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Net income per common share from discontinued operations | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Net (loss) income | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
| 11 |
Income Taxes
The Company’s provision for income taxes was $ for the three months ended March 31, 2025 and 2024. The income tax provisions for these periods are based upon estimates of annual income (loss), annual permanent differences and statutory tax rates in the various jurisdictions in which the Company operates. For all periods presented, the Company utilized net operating loss carryforwards to offset the impact of any taxable income. The Company’s tax rate differs from the applicable statutory rates due primarily to the establishment of a valuation allowance, utilization of deferred and the effect of permanent differences and adjustments.
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
NOTE 2 – GOING CONCERN
The accompanying interim 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 March 31, 2025, the Company
had an accumulated deficit of $
The Company will need to raise additional capital or secure debt funding to support on-going operations, and to fund the assets and operations of any businesses or assets we acquire. 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.
NOTE 3 – ACQUISITIONS AND DISPOSITIONS
Acquisitions
Scienture, Inc.
The Company evaluated the Scienture Merger Agreement pursuant to ASC 805 and ASU 2017-01, Topic 805, Business Combinations. The Company first determined that Scienture met the definition of a business as it includes inputs and a substantive process that together significantly contribute to the ability to create outputs. Scienture’s results of operations are included in the Company’s consolidated financial statements from the date of acquisition. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their estimated respective fair values as of the closing date of the acquisition. Goodwill recognized in connection with this transaction represents primarily the potential economic benefits that the Company believes may arise from the acquisition. The purchase price allocation is preliminary and could be significantly revised as a result of additional information obtained regarding assets acquired and liabilities assumed and revisions of estimates of fair values of tangible assets and related deferred tax assets and liabilities. The Company will finalize its valuation and the allocation of the purchase price, along with required retrospective adjustments, if any, within a year following the acquisition date.
On July 25, 2024, the Company
issued shares of common stock and shares of Series X Preferred Stock pursuant to the Scienture Merger Agreement. The
aggregate fair value of the purchase price consideration was $
The following summarizes the purchase price consideration and the preliminary purchase price allocation as of the acquisition date:
| July 25, 2024 | ||||
| Purchase consideration: | ||||
| Common stock | $ | |||
| Series X preferred stock | ||||
| Total purchase consideration | $ | |||
| Purchase price allocation: | ||||
| Cash | $ | |||
| Operating lease right-of-use assets | ||||
| Goodwill | ||||
| Intangible assets - product technologies | ||||
| Accounts payable | ( | ) | ||
| Accrued liabilities | ( | ) | ||
| Loan payable, related party | ( | ) | ||
| Lease liability | ( | ) | ||
| Development agreement liability | ( | ) | ||
| Long-term convertible notes | ( | ) | ||
| Deferred tax liability | ( | ) | ||
| Net assets acquired | $ | |||
Goodwill is primarily attributable to the go-to-market synergies that are expected to arise as a result of the acquisition and other intangible assets that do not qualify for separate recognition. The goodwill is not deductible for tax purposes.
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents the Company’s financial results as if the Scienture Merger had occurred as of January 1, 2024. The unaudited pro forma financial information is not necessarily indicative of what the financial results actually would have been had the acquisitions been completed on this date. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the Company’s future financial results. The pro forma information does not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition:
| Three Months | ||||
| Ended | ||||
| March 31, | ||||
| 2024 | ||||
| Revenue | $ | |||
| Net loss from continuing operations | $ | ( | ) | |
| Net loss from continuing operations per share | $ | ( | ) | |
| 12 |
Dispositions and Divestitures
MMS APA
On February 16, 2024, the Company,
together with Softell and MMS, entered into the MMS APA under which MMS agreed to purchase for cash substantially all of the assets of
Softell. On February 16, 2024, the parties consummated the closing of the transactions contemplated by the MMS APA. The purchase price
paid at closing was $
The MMS APA was accounted for a business disposition in accordance with ASC 810-40-40-3A. As of February 16, 2024, the Company no longer consolidated the assets, liabilities, revenues and expenses of Softell. The components of the disposition are as follows:
| Cash received from MMS | $ | |||
| Other receivable from MMS | ||||
| Total fair value of consideration received | $ | |||
| Carrying amount of assets and liabilities | ||||
| Cash | $ | |||
| Accounts receivable, net | ||||
| Prepaid expenses | ||||
| Property, plant and equipment, net | ||||
| Operating lease right-of-use assets | ||||
| Accounts payable | ( | ) | ||
| Accrued liabilities | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Lease liability, current | ( | ) | ||
| Notes payable, current portion | ( | ) | ||
| Lease liability, net of current portion | ( | ) | ||
| Total carrying amount of assets and liabilities | ||||
| Gain on disposition of business | $ |
The gain on disposition of business
of $
Superlatus SPA
On March 5, 2024, the Company entered into the Superlatus SPA with the Buyer. Pursuant to the Superlatus SPA, the Company sold all of the issued and outstanding stock of Superlatus to the Buyer. The $ purchase price for the stock was delivered to the Company at the closing, which occurred simultaneously with the execution of the Superlatus SPA. As a result of the transaction, Superlatus ceased to be a subsidiary of the Company, and the rights and assets of Superlatus together with various liabilities and obligations that were specific to Superlatus became rights and obligations of the Buyer.
The transaction was accounted for a business disposition in accordance with ASC 810-40-40-3A. As of March 5, 2024, the Company no longer consolidated the assets, liabilities, revenues and expenses of Superlatus. The components of the disposition are as follows:
| Fair value of consideration received | $ | |||
| Total fair value of consideration received | $ | |||
| Carrying amount of assets and liabilities | ||||
| Cash | $ | |||
| Property, plant and equipment, net | ||||
| Intangible assets, net | ||||
| Operating lease right-of-use assets | ||||
| Purchase price payable | ( | ) | ||
| Accounts payable | ( | ) | ||
| Accrued liabilities | ( | ) | ||
| Notes payable, current portion | ( | ) | ||
| Lease liability - current | ( | ) | ||
| Lease liability - net of current portion | ( | ) | ||
| Notes payable | ( | ) | ||
| Total carrying amount of assets and liabilities | ||||
| Loss on disposition of business | $ | ( | ) |
The loss of disposition of business of $
| 13 |
Discontinued Operations
In accordance with the provisions of ASC 205-20, the Company has excluded the results of discontinued operations from its results of continuing operations in the accompanying consolidated statements of operations for the three months ended March 31, 2025 and 2024. The results of the discontinued operations for the three months ended March 31, 2025 and 2024 consist of the following:
| TRX | Bonum | Superlatus | Total | |||||||||||||||||||||||||||||
| Three Months Ended | Three Months Ended | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||||
| March 31, | March 31, | March 31, | March 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Wage and salary expense | ||||||||||||||||||||||||||||||||
| Professional fees | ||||||||||||||||||||||||||||||||
| Technology expense | ||||||||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||||||||
| Operating income | ( | ) | ||||||||||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||||||
| Goodwill impairment | ||||||||||||||||||||||||||||||||
| Gain on dispositions | ( | ) | ||||||||||||||||||||||||||||||
| Other expense | ||||||||||||||||||||||||||||||||
| Other income | ||||||||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||||||||
| Total other income(expense) | ( | ) | ||||||||||||||||||||||||||||||
| Provision for income taxes | ||||||||||||||||||||||||||||||||
| Net income(loss) on discontinued operations | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
In the second quarter of 2024, the Company determined to dissolve Bonum Health, Inc. and Bonum Health, LLC, and have presented the results of operations in net income (loss) from discontinued operations.
| 14 |
NOTE 4- RELATED PARTY TRANSACTIONS
Wellgistics Health and Tollo Health
On November 21, 2023, but effective
September 14, 2023, the Company issued a promissory note (the “Wellgistics Note”) to Wellgistics Health, Inc. (f/k/a Danam
Health Inc.) (“Wellgistics”) in the amount of $
As of March 31, 2025, other receivables
include a $
See Note 6 for detail on the note receivable from Wood Sage.
Both Wellgistics Health and Tollo Health have common ownership and management with the Company.
Scienture
In July 2024, the executives of
Scienture issued a short-term loan to Scienture for an aggregate amount of $
In November 2024, the executives
of Scienture issued a short-term loan to Scienture for $
In February 2025, the executives
of Scienture issued a short-term loan to Scienture for $
NOTE 5 – REVENUE RECOGNITION
The Company derives revenue from two primary sources—product revenue and service revenue.
Product revenue consists of shipments of:
| ● | Resale of pharmaceutical products to pharmacies; and | |
| ● |
Revenues for our products are recognized and invoiced when the product is shipped to the customer.
Revenues for one-time services are recognized at the point in time when services are rendered. Payment terms for products and services are generally 0 to 60 days and the Company has no contract assets or liabilities. |
Revenues for the three months ended
March 31, 2025 and 2024 were $
NOTE 6 – NOTES RECEIVABLE – RELATED PARTY
On August 22, 2023, the Company
received a Promissory Note (the “Wood Sage Note”) in the amount of $
| 15 |
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS
In connection with the Scienture
Merger on July 25, 2024, the Company recorded goodwill of $
The purchase price allocation of intangible assets was evaluated under ASC 805. The identified intangible assets were determined to be product technologies, and were valued accordingly by each product candidate:
| Product Candidate | Fair Value | |||
| SCN-102(a) | $ | |||
| SCN-104(b) | ||||
| SCN-106(c) | ||||
| SCN-107(d) | ||||
| $ | ||||
|
(a) |
| |
| (b) | ||
| (c) | ||
| (d) |
The fair value of the product
technologies was determined by the Income Approach: Multi-Period Excess Earnings Methods (“MPEEM”). The MPEEM measures economic
benefits by calculating the cash flows attributable to an asset after deducting appropriate returns for contributory assets used by the
business in generating the asset’s revenue and earnings. The MPEEM utilized revenue and cash flow projections through 2030 based
on each product candidate’s phase of development.
As of March 31, 2025, the Company has not begun amortizing any of the product technology intangible assets.
| 16 |
NOTE 8 – CONVERTIBLE DEBT AND NOTES PAYABLE
Convertible Debenture – Arena
On
November 22, 2024, the Company entered into a Securities Purchase Agreement with the Arena Finance Markets, LP (“Arena Finance”),
Arena Special Opportunities Partners III, LP (“ASOP” and, together with Arena Finance, the “Arena Investors”).
Under the Securities Purchase Agreement, the Company will issue
The
closing of the first tranche was consummated on November 25, 2024 (the “First Closing”) and the Company issued to the Arena
Investors Debentures in an aggregate principal amount of $
The
First Closing Debentures contain customary events of default. If an event of default occurs, until it is cured, the holder may increase
the interest rate applicable to the First Closing Debentures to two percent (
As
consideration for the Arena Investors’ consummation of the First Closing, concurrently with the First Closing, the Company issued
to each Arena Investor participating in the First Closing its pro rata portion of the shares of common stock (the “SPA Commitment
Fee Shares”) issued to the Arena Investors as a commitment fee upon the execution of the Securities Purchase Agreement. Furthermore,
as consideration for the Arena Investors’ consummation of subsequent closings, the Company shall issue to the Arena Investors participating
in such closing a certain number of Company common stock as agreed upon among the Company and the Arena Investors participating. The
fair value of the shares of common stock issued was $
The Company agreed, pursuant to a Security Agreement, dated November 25, 2024 (the “Security Agreement”), to grant the Arena Investors a security interest in all of its assets to secure the prompt payment, performance, and discharge in full of all of the Company’s obligations under the Debentures. In addition, the Company’s wholly-owned subsidiary, Scienture, LLC, entered into a Guarantee Agreement, dated November 25, 2024 (the “Guarantee”), with the Arena Investors, pursuant to which it agreed to guarantee the prompt payment,
Interest
shall accrue on the outstanding principal amount of this Debenture at a rate equal to
During
the three months ended March 31, 2025, the Company accrued $
As
a result of the debentures, the Company recognized an aggregate debt discount of $
| Arena Note | ||||
| Convertible debenture - Arena Principal | $ | |||
| Original issuance discount | ( | ) | ||
| Other issuance costs | ( | ) | ||
| Fair value of shares issued | ( | ) | ||
| Derivative liability recognized as debt discount | ( | ) | ||
| Excess debt discount amortization at issuance date | ||||
| Amortization of debt discount | ||||
| Arena note, net of unamortized debt discount, at March 31, 2025 | $ | |||
Derivative Liability
The
Company evaluated the terms of the conversion features of the debentures as noted above in accordance with ASC Topic No. 815 - 40, Derivatives
and Hedging - Contracts in Entity’s Own Stock, and determined they are not indexed to the Company’s common stock and
that the conversion feature, which is akin to a redemption feature, meet the definition of a liability. The notes contain an indeterminate
number of shares to settle with conversion options outside of the Company’s control. Therefore, the Company bifurcated the conversion
feature and accounted for it as a separate derivative liability. Upon issuance of the convertible debenture, the Company recognized a
derivative liability at a fair value of $
The Company measured the derivative liability at fair value based on significant inputs not observable in the market, which causes it to be classified as a Level 3 measurement within the fair value hierarchy. The valuation of the derivative liability uses assumptions and estimates the Company believes would be made by a market participant in making the same valuation. The Company assesses these assumptions and estimates on an on-going basis as additional data impacting the assumptions and estimates are obtained. Changes in the fair value of the contingent consideration liability related to updated assumptions and estimates are recognized within the statements of operations.
The Company valued the derivative liability using a Black-Scholes method using following assumptions:
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (in years) | ||||||||
| Expected volatility+A13 | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| 17 |
The following is a summary of the derivative liability:
| Derivative | ||||
| Liability | ||||
| Outstanding as of December 31, 2024 | $ | |||
| Change in fair value | ( | ) | ||
| Outstanding as of March 31, 2025 | $ | |||
Scienture Convertible Debt
In
September 2023, Scienture entered into a Loan and Security Agreement (the “NVK Loan Agreement”) with NVK Finance, LLC, a
Nebraska Limited Liability Company (“NVK”) for $
August 2024 Note
In
August 2024, the Company issued a convertible note of $
In
connection with the note, the Company issued
Total
debt discount recognized in connection with the note was $
Debt Summary
The following is a summary of the Company’s debt as of March 31, 2025 and December 31, 2024:
| As of March 31, 2025 | ||||||||||||
Principal outstanding | Unamortized debt discount | Debt, net of unamortized debt discount | ||||||||||
| Convertible debenture - Arena | $ | $ | ( | ) | $ | |||||||
| Scienture convertible debt | ||||||||||||
| Total debt | ( | ) | ||||||||||
| Current maturity of debt | ||||||||||||
| Total long-term debt | $ | $ | ( | ) | $ | |||||||
| As of December 31, 2024 | ||||||||||||
Principal outstanding | Unamortized debt discount | Debt, net of unamortized debt discount | ||||||||||
| Convertible debenture - Arena | $ | $ | ( | ) | $ | |||||||
| August 2024 note | ( | ) | ||||||||||
| Scienture convertible debt | ||||||||||||
| Total debt | ( | ) | ||||||||||
| Current maturity of debt | ( | ) | ||||||||||
| Total long-term debt | $ | $ | ( | ) | $ | |||||||
NOTE 9 – STOCKHOLDERS’ EQUITY
Designation of Series X Preferred Stock
On July 25, 2024, the Company revoked the authorization to issue shares of the Company’s Series A Preferred Stock, par value $ per share (the “Series A Preferred Stock”). Concurrently with revoking the Company’s authority to issue Series A Preferred Stock, the Company authorized the issuance of up to shares of the Series X Preferred Stock, a new class of preferred stock.
Holders of the Series X Preferred Stock are entitled to receive dividends on shares of the Series X Preferred Stock on an as-if-converted-to-Common-Stock basis, without regard to any beneficial ownership limitation described in a letter of transmittal, equal to and in the same form and manner as dividends are paid to holders of the shares of Common Stock. Subject to any requirements of the General Corporation Law of the State of Delaware, the Series X Preferred Stock has no voting rights. The Series X Preferred Stock ranks on parity with shares of Common Stock as to distributions of assets upon liquidation, dissolution, or winding up of the Company.
As consideration for the Scienture Merger, at the Effective Time of First Merger, the shares of Scienture common stock issued and outstanding immediately prior to the Effective Time were converted into the right to receive, in the aggregate, (i) shares of the Company’s common stock and (ii) shares of the Company’s Series X Preferred Stock, each share of which is convertible into one share of common stock.
On September 20, 2024, all previously issued shares of Series X Preferred Stock were converted into a total of shares of common stock.
| 18 |
Common Stock
During
the three months ended March 31, 2025, the Company issued shares of common stock for services. The fair value of shares issued
for services was $
During
the three months ended March 31, 2025, the Company issued shares of common stock at a fair value of $
Arena Note Commitment Shares
As additional consideration for the Purchaser’s execution and delivery of this Agreement, (i) concurrently with the execution and delivery of this Agreement on the First Closing Date (as defined below), the Company shall cause the Transfer Agent, to issue to each Purchaser participating in the first Closing or its designee on the First Closing Date its pro rata portion of of the shares of Common Stock being issued as Commitment Shares in connection with the First Closing, and (ii) in connection with any Closing following the First Closing, the Company shall cause its Transfer Agent to issue to each Purchaser participating in such Closing or its designee a certain number of Commitment Shares. The aggregate number of Commitment Shares owing to each Purchaser in connection with any Closing following the First Closing will be agreed among the Company and the Purchasers participating in such Closing, and shall be set forth in an allocation table prior to such Closing (each a “Commitment Shares Allocation Table.”) For the avoidance of doubt, all of the Commitment Shares issuable in connection with the First Closing on the First Closing Date shall be fully earned as of the First Closing Date regardless of whether a Subsequent Closing shall occur (see Note 8).
In
this connection, the Company issued to each Arena Investor participating in the First Closing its pro rata portion of shares of
the Company’s common stock. The fair value of shares issued was $
Equity Line of Credit
On
November 25, 2024, the Company entered into a purchase agreement (“ELOC Agreement”) with Arena Business Solutions Global
SPC II, Ltd (the “Investor”). Under the ELOC Agreement, the Company has the right, but not the obligation, to direct the
Investor to purchase up to $
| 19 |
In consideration for the Investor’s execution and delivery of the ELOC Agreement, the Company agreed to issue to the Investor, as a commitment fee: (i) shares of the Company’s Common Stock (“Initial Commitment Fee Shares”) and (ii) in two separate tranches, a number of additional shares of common stock (“Additional Commitment Fee Shares” and, together with the Initial Commitment Fee Shares, the “Commitment Fee Shares”) equal to (a) with respect to the first tranche, divided by the simple average of the daily VWAP of our common stock during the five (5) trading days immediately preceding the effectiveness of the initial registration statement on which the Commitment Fee Shares are registered (the “Effectiveness Date”) and (b) with respect to the second tranche, divided by the simple average of the daily VWAP of our common stock during the five (5) trading days immediately preceding the two (2) month anniversary of the Effectiveness Date. The Additional Commitment Fee Shares shall be subject to a true-up after each issuance pursuant to the terms of the ELOC Agreement.
In
consideration for the Investor’s execution and delivery of the ELOC Agreement, the Company issued to the Investor, as a commitment
fee, shares of the Company’s common stock on November 25, 2024. The fair value of shares issued was $
In
2025, the Company issued to the Investor, as another commitment fee, in aggregate shares of the Company’s common stock.
The fair value of shares issued was $
In
March 2025, the Company issued in aggregate shares of common stock pursuant to the above ELOC Agreement for aggregate gross
proceeds of $
Equity Compensation Awards
Each
independent member of the Company’s board of directors (the “Board”) is to receive an annual grant of restricted common
stock of the Company equal to $
The Company’s board of directors and stockholders approved an amendment to the Second Amended and Restated 2019 Equity Incentive Plan (Plan increasing the available shares under the Plan to shares of the Common Stock as such common stock existed on July 24, 2024.
| 20 |
NOTE 10 – WARRANTS
In
connection with a note (see Note 8), in August 2024 the Company issued
As
of March 31, 2025, the Company remeasured the fair value of warrants outstanding at $
The Company’s outstanding and exercisable warrants, as of March 31, 2025, are presented below:
Number Outstanding | Weighted Average Exercise Price | Contractual
Life | Intrinsic Value | |||||||||||||
| Warrants outstanding as of December 31, 2024 | $ | $ | ||||||||||||||
| Warrants exercisable as of December 31, 2024 | ||||||||||||||||
| Warrants granted | - | - | ||||||||||||||
| Warrants forfeited, expired, cancelled | - | - | ||||||||||||||
| Warrants exercised | - | - | ||||||||||||||
| Warrants outstanding as of March 31, 2025 | $ | |||||||||||||||
| Warrants exercisable as of March 31, 2025 | $ | |||||||||||||||
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 shares, and the Plan provides for automatic increases in the number of shares available under such plan (currently shares) on April 1st of each calendar year,
The Company’s board of directors and stockholders approved an amendment to the Plan increasing the available shares under the Plan to shares of the Common Stock as such common stock existed on July 24, 2024.
Total
compensation cost related to stock options granted was $
Number Outstanding | Weighted-Average Exercise Price | Weighted-Average Contractual Life in Years | Intrinsic Value | |||||||||||||
| Options outstanding as of December 31, 2024 | $ | $ | ||||||||||||||
| Options exercisable as of December 31, 2024 | ||||||||||||||||
| Options granted | - | - | ||||||||||||||
| Options adjusted | - | - | ||||||||||||||
| Options expired | - | - | ||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options outstanding as of March 31, 2025 | $ | |||||||||||||||
| Options exercisable as of March 31, 2025 | $ | |||||||||||||||
NOTE 12 – CONTINGENCIES
Exclusive License and Commercial Agreements
Scienture entered into an exclusive license and commercial agreement with Kesin Pharma Corporation (“Kesin”) whereby Scienture granted the exclusive license rights to commercialize SCN-102 in 2022 and SCN-104 in 2023 to Kesin (SCN-102 and SCN-104 are together referred to as “the Products”) for use in the United States of America.
In
March 2024, the parties have terminated the agreement, and the parties agreed that Scienture shall pay Kesin a total gross amount of
$
This
agreement also requires that if
In August 2024, Kesin demanded immediate payment of the full amount under the Kesin Termination Agreement, alleging the full amount is payable in connection with the consummation Scienture LLC’s business combination with the Company. Scienture LLC has disputed that the amount is payable, and the parties entered into discussions to resolve the issue.
On
March 11, 2025, Kesin filed a complaint against Scienture LLC in the United States District Court for the Eastern District of New York
seeking payment of the disputed $
| 21 |
NOTE 13 – LEASES
The
Company entered into a lease agreement for the period of October 2018 to November 2023. At inception, management had included the renewal
period from November 2023 to November 2028 within the initial recognition of the related right of use assets and lease liabilities, as
it was reasonably expected, at the time, that the renewal option would be exercised. The Company determined that the new lease required
measurement and recognition of the lease liability and right-of-use assets of $
On
July 25, 2024, the Company entered into and closed the Scienture Merger Agreement. Pursuant to the Scienture Merger Agreement, the Company
acquired right of use asset value of $
The table below reconciles the fixed component of the undiscounted cash flows for and the total remaining years to the lease liabilities recorded in the consolidated balance sheet as of March 31, 2025.
Supplemental balance sheet information related to leases are as follows:
| March 31, 2025 | December 31, 2024 | |||||||
| Weighted-average remaining lease term (in years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
| Future lease obligations | ||||
| 2025 remaining | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total minimum lease payments | ||||
| Less: effect of discounting | ( | ) | ||
| Present value of future minimum lease payments | ||||
| Less: current obligation under lease | ||||
| Long-term lease obligations | $ | |||
For
the three months ended March 31, 2025, and 2024, total operating lease expense was $
NOTE 14 – SEGMENT REPORTING
Factors used to identify the Company’s reportable segments include the organizational structure of the Company and the financial information available for evaluation by the chief operating decision-maker in making decisions about how to allocate resources and assess performance. The Company’s operating segments have been broken out based on similar economic and other qualitative criteria. The Company operates all reporting segments in one geographical area (the United States).
The Company’s CEO is the chief operating decision-maker.
The Company classifies its business interests into reportable segments which are:
| ● | Integra - Licensed wholesaler of brand, generic and non-drug products – B2B sales | |
| ● | Scienture – pharmaceutical research company which is engaged in the research and development of branded pharmaceutical products | |
| ● | Unallocated - Other – corporate overhead expense and discontinued operations. |
| Three Months Ended March 31, 2025 | Integra | Scienture | Unallocated | Total | ||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Total Assets as of March 31, 2025 | $ | $ | $ | $ | ||||||||||||
Geographic information as of and for the three months ended March 31, 2025 is presented below:-
Revenues For The Three Months Ended March 31, 2025 | Total Assets as of March 31, 2025 | |||||||
| United States | $ | $ | ||||||
| Three Months Ended March 31, 2024 | Integra | Scienture | Unallocated | Total | ||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Sales | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||
| Interest expense | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Total Assets as of December 31, 2024 | $ | $ | $ | $ | ||||||||||||
Geographic information as of and for the three months ended March 31, 2024 is presented below:-
Revenues For The Three Months Ended March 31, 2024 | Total Assets as of December 31, 2024 | |||||||
| United States | $ | $ | ||||||
NOTE 15 – SUBSEQUENT EVENTS
On April 8, 2025, the Company entered into a Membership Interest Purchase Agreement (the “IPS MIPA”) with Tollo Health, Inc. (“Tollo”), pursuant to which Tollo agreed to purchase and the Company agreed to sell all of the Company’s membership interests in IPS. Suren Ajjarapu, the Company’s Chief Executive Officer, and Prashant Patel, the Company’s President and Chief Operating Officer, each have a beneficial interest in Tollo.
On April 8, 2025, the Company also entered into a Stock Purchase Agreement (the “Bonum SPA” and together with the IPS MIPA, the “Agreements”) with Tollo, pursuant to which Tollo agreed to purchase and the Company agreed to sell all issued and outstanding shares of common stock of Bonum Health, Inc.
In connection with each of the Agreements, the Company agreed to retain certain excluded liabilities of IPS and Bonum including all liabilities: (i) related to, in connection with or arising out of any claims, charges, complaints, actions, suits, settlements, hearings, investigations, proceedings, or governmental or regulatory inquiries with respect to IPS or Bonum, respectively, prior to the closing under the applicable Agreement; (ii) related to, in connection with or arising out of any breach by the Company of the applicable Agreement or any other agreements and documents required to be delivered by the Company; (iii) not disclosed by the Company in accordance with each Agreement; (iv) related to any actions threatened or initiated by a governmental entity against IPS or Bonum, respectively; and (v) related to tax returns or tax matters of the Company, IPS, or Bonum, respectively, for any periods prior to closing under the applicable Agreement.
The
Company and Tollo have agreed to consummate the closing of each of the Agreements on June 30, 2025, or such other time as the
Company and Tollo may agree. As consideration for acquiring IPS and Bonum, Tollo has agreed to pay the Company $
The divestitures are part of a broader strategic realignment at the Company designed to sharpen operational focus and unlock long-term value. It is aligned with the Company’s commitment to streamline its core operations, optimize its portfolio, and accelerate growth in the Branded and Specialty Pharma markets. The Company intends to use the proceeds obtained from the divestment to facilitate the high-growth commercial and strategic product development activities at its Scienture, LLC subsidiary.
On April 16, 2025, the Company issued to the Investor, as a commitment fee, shares of the Company’s common stock, in consideration for the Investor’s execution, delivery of the ELOC Agreement and shares issued in quarter one of 2025 (see Note 9).
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Information
This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and “Part II. Other Information – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contained in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 26, 2025 (the “Annual Report”).
Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited consolidated financial statements included above under “Part I – Financial Information” – “Item 1. Financial Statements”.
Please see the section entitled “Glossary” in our Annual Report for a list of abbreviations and definitions used throughout this Report.
Unless the context requires otherwise, references to the “Company,” “we,” “us,” and “our” refer specifically to Scienture Holdings, Inc., formerly TRxADE HEALTH, INC., and its consolidated subsidiaries. References to “Q1”, “Q2”, “Q3”, and “Q4” refer to the first, second, third, and fourth quarter, respectively, of the applicable year. Unless otherwise stated or the context otherwise requires, comparisons from one period to another are to the same period of the prior fiscal year.
In addition, unless the context otherwise requires and for the purposes of this report only:
| ● | “Exchange Act” refers to the Securities Exchange Act of 1934, as amended; | |
| ● | “Securities Act” refers to the Securities Act of 1933, as amended. |
Summary of The Information Contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:
| ● | Company Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A. | |
| ● | Recent Events. Summary of material transactions occurring during the three months ended March 31, 2025. | |
| ● | Liquidity and Capital Resources. An analysis of changes in our consolidated balance sheets and cash flows and discussion of our financial condition. | |
| ● | Results of Operations. An analysis of our financial results comparing the three months ended March 31, 2025, and 2024. | |
| ● | Critical Accounting Policies. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. |
Company Overview
On September 20, 2024, the Company filed with the Secretary of State of the State of Delaware an amendment to its Second Amended and Restated Certificate of Incorporation to change the legal name of the Company from “TRxADE HEALTH, Inc.” to “Scienture Holdings, Inc.”
The Company owned, as of March 31, 2025, 100% of Softell Inc. (f/k/a Trxade Inc.), Integra Pharma Solutions, LLC and Scienture, LLC (f/k/a Scienture, Inc.).
On October 4, 2024, the Company and Softell entered into IPS Assignment Agreement, pursuant to which the Company transferred, and Softell accepted, 100% of the membership interests of IPS. As a result, IPS is now a wholly-owned subsidiary of Softell. During the year ended December 31, 2023 and a portion of the quarter ended March 31, 2024, Softell, operated a web-based market platform that enabled commerce among healthcare buyers and sellers of pharmaceuticals, accessories and services. Softell’s current primary operations are conducted through IPS. IPS is a licensed pharmaceutical wholesaler and sells brand, generic and non-drug products to customers. IPS’ customers include all healthcare markets including government organizations, hospitals, clinics and independent pharmacies nationwide.
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Bonum Health, LLC was formed to hold certain telehealth assets acquired in October 2019. The “Bonum Health Hub” was launched in February 2020; however, the Company does not anticipate installations moving forward. The Company anticipates dissolving Bonum Health, Inc. and Bonum Health, LLC.
Scienture is a New York based branded, specialty pharmaceutical research company which is engaged in the research and development of branded pharmaceutical products. The intellectual property application process was initiated in November 2019 and the product development activities commenced in January 2020. Scienture also plans to foray into commercialization of innovative and branded pharmaceutical products in the US market. Scienture’s assets in development are across therapeutics areas and indications and cater to different market segments. Scienture’s mission is to identify, develop and bring to market innovative technology-based products to address unmet medical needs. Its targeted portfolio consists of short term and long-term opportunities with efficient development, regulatory, and go to market strategies.
Disposition of Legacy Subsidiaries
On April 8, 2025, the Company entered into a Membership Interest Purchase Agreement (the “IPS MIPA”) with Tollo Health, Inc. (“Tollo”), pursuant to which Tollo agreed to purchase and the Company agreed to sell all of the Company’s membership interests in IPS. Suren Ajjarapu, the Company’s Chief Executive Officer, and Prashant Patel, the Company’s President and Chief Operating Officer, each have a beneficial interest in Tollo.
On April 8, 2025, the Company also entered into a Stock Purchase Agreement (the “Bonum SPA” and together with the IPS MIPA, the “Agreements”) with Tollo, pursuant to which Tollo agreed to purchase and the Company agreed to sell all issued and outstanding shares of common stock of Bonum Health, Inc.
In connection with each of the Agreements, the Company agreed to retain certain excluded liabilities of IPS and Bonum including all liabilities: (i) related to, in connection with or arising out of any claims, charges, complaints, actions, suits, settlements, hearings, investigations, proceedings, or governmental or regulatory inquiries with respect to IPS or Bonum, respectively, prior to the closing under the applicable Agreement; (ii) related to, in connection with or arising out of any breach by the Company of the applicable Agreement or any other agreements and documents required to be delivered by the Company; (iii) not disclosed by the Company in accordance with each Agreement; (iv) related to any actions threatened or initiated by a governmental entity against IPS or Bonum, respectively; and (v) related to tax returns or tax matters of the Company, IPS, or Bonum, respectively, for any periods prior to closing under the applicable Agreement.
The Company and Tollo have agreed to consummate the closing of each of the Agreements on June 30, 2025, or such other time as the Company and Tollo may agree. As consideration for acquiring IPS and Bonum, Tollo has agreed to pay the Company $5 million in the form of a promissory note bearing interest at the prime rate. The promissory note matures on June 30, 2030. However, Tollo is required to pay 20% of the proceeds of a future equity financing toward repayment of the principal and accrued but unpaid interest owed under the promissory note.
The divestitures are part of a broader strategic realignment at the Company designed to sharpen operational focus and unlock long-term value. It is aligned with the Company’s commitment to streamline its core operations, optimize its portfolio, and accelerate growth in the Branded and Specialty Pharma markets. The Company intends to use the proceeds obtained from the divestment to facilitate the high-growth commercial and strategic product development activities at its Scienture, LLC subsidiary.
The Company believes that the key benefits of the divestitures include:
| ● | Increased Operational Efficiency: Streamlining the Company’s structure aimed at strengthening its balance sheet, providing for leaner operations and a more agile decision-making framework. | |
| ● | Realize Synergies: Consolidating overlapping functions and eliminating redundancies intended to cause annualized cost savings. | |
| ● | Dedicated Focus: Affording the full focus and deployment of resources to the commercial products and the high value product pipeline in development at its Scienture, LLC subsidiary. |
Liquidity and Capital Resources
Cash
Cash was $2,049,638 as of March 31, 2025, compared to $308,096 as of December 31, 2024. The increase in cash was primarily due to the proceeds from issuance of common stock pursuant to ELOC agreement. We expect that our future available capital resources will consist primarily of cash generated from operations, remaining cash balances, borrowings, and additional funds raised through sales of debt and/or equity securities.
Liquidity
Cash, current assets, current liabilities, short term debt and working capital at the end of each period were as follows:
| March 31, | December 31, | Percent | ||||||||||||||
| 2025 | 2024 | Change | Change | |||||||||||||
| Cash | $ | 2,049,638 | $ | 308,096 | $ | 1,741,542 | 565 | % | ||||||||
| Current assets (excluding cash) | $ | 5,775,588 | $ | 5,997,381 | $ | (221,793 | ) | -4 | % | |||||||
| Current liabilities | $ | 7,461,666 | $ | 7,906,893 | $ | (445,227 | ) | -6 | % | |||||||
| Working capital | $ | 363,561 | $ | (1,601,416 | ) | $ | 1,964,977 | -123 | % | |||||||
Our principal sources of liquidity have historically been cash provided by operations, sales of business assets and operations from time to time, sales of equity, and borrowings under various debt arrangements. Our principal uses of cash have been for operating expenses, technology development, and acquisitions. We anticipate these uses will continue to be our principal sources of, and uses of, cash in the future.
| 24 |
Liquidity Outlook Cash Explanation
Cash Requirements
Our primary objectives for the remainder of 2025 are expected to be the continued implementation of Scienture business plan, and to complete potential strategic transactions of our business-to-consumer subsidiaries, which may include a potential sale, spin-off, fund raising, combination or other strategic transaction, and also include the winding down of such entities. There can be no assurance that our operations will generate significant positive cash flow, or that additional funds will be available to us, through borrowings or otherwise, on favorable terms if required in the future, or at all. We may also raise additional funding in the future through the sale of equity.
We estimate our operating expenses and working capital requirements for the next 12 months to be approximately as follows:
| Projected Expenses from April 2025 to March 2026 | Amount | |||
| General and administrative (1) | $ | 9,800,000 | ||
| Total | $ | 9,800,000 | ||
(1) Includes estimated wages and payroll, legal and accounting, marketing, rent and web development.
We may require additional funding in the future to implement on our business plan and potentially to expand or complete acquisitions. The sources of this capital are expected to be equity investments and notes payable. Our plan for the next twelve months is to continue using the same marketing and management strategies to promote our IPS assets and operations, exploring strategic transactions involving our corporate assets, while also seeking to expand our and Scienture operations organically or through acquisitions, as funding and opportunities arise. In the event we require additional funding, we plan to raise that through the sale of debt or equity, 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.
Going Concern
The accompanying interim 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 March 31, 2025, the Company had an accumulated deficit of $42,102,970. As of March 31, 2025, the Company had $2,049,638 in cash.
We will need to raise additional capital or secure debt funding to support on-going operations, and to fund the assets and operations of any businesses or assets we acquire. 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.
Cash Flows
The following table summarizes our Consolidated Statements of Cash Flows for the following periods:
| Three Months Ended | ||||||||||||||||
| March 31, | Percent | |||||||||||||||
| 2025 | 2024 | Change | Change | |||||||||||||
| Net cash (used in) provided by operating activities from continuing operations | (2,956,457 | ) | (9,659,231 | ) | 6,702,774 | -69 | % | |||||||||
| Net cash (used in) provided by operating activities from discontinued operations | - | (530,442 | ) | 530,442 | -100 | % | ||||||||||
| Operating Activities | (2,956,457 | ) | (10,189,673 | ) | 7,233,216 | -71 | % | |||||||||
| Net cash (used in) provided by investing activities from continuing operations | - | (2,500,000 | ) | 2,500,000 | -100 | % | ||||||||||
| Net cash (used in) provided by investing activities from discontinued operations | - | 29,932,589 | (29,932,589 | ) | -100 | % | ||||||||||
| Investing Activities | - | 27,432,589 | (27,432,589 | ) | -100 | % | ||||||||||
| Net cash (used in) provided by financing activities from continuing operations | 4,697,999 | (13,891,011 | ) | 18,589,010 | -134 | % | ||||||||||
| Net cash (used in) provided by financing activities from discontinued operations | - | (5,000 | ) | 5,000 | -100 | % | ||||||||||
| Financing Activities | 4,697,999 | (13,896,011 | ) | 18,594,010 | -134 | % | ||||||||||
| Net change in cash | $ | 1,741,542 | $ | 3,346,905 | $ | (1,605,363 | ) | -48 | % | |||||||
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Cash used in operating activities for the three months ended March 31, 2025, was $2,956,457, compared to cash used in operations for the three months ended March 31, 2024, of $10,189,673. The decrease in cash used in operations for the three months ended March 31, 2025 compared to 2024 was primarily due to a lower net loss in and less cash used in operating assets and liabilities in 2025.
Cash provided by (used in) investing activities for the three months ended March 31, 2025, was $0 and cash provided by investing activities was $27,432,589 for the three months ended March 31, 2024. The cash provided by investing activities in 2024 was primarily due to the MMS disposition in the first quarter, partially offset by the investment in securities of $2,500,000.
Cash provided by financing activities for the three months ended March 31, 2025, was $4,697,999 compared to $13,896,011 of cash used in financing activities for the three months ended March 31, 2024. Cash provided by financing activities in 2025 was due to proceeds from issuance of common stock pursuant to ELOC agreement. The change was primarily due to the payment of dividends of $14,858,831 in 2024. In August 2024, the Company received note proceeds of $314,000 and $2,640,000 in net proceeds from convertible debenture in November 2024.
Results of Operations
The following selected consolidated financial data should be read in conjunction with the unaudited consolidated financial statements and the notes to these statements included above.
Three Month Period Ended March 31, 2025, compared to Three Month Period Ended March 31, 2024
| Three Months Ended | ||||||||||||||||
| March 31, | Percent | |||||||||||||||
| 2025 | 2024 | Change | Change | |||||||||||||
| Revenues | $ | 10,258 | $ | - | 10,258 | 100 | % | |||||||||
| Cost of sales | 9,585 | - | 9,585 | 100 | % | |||||||||||
| Gross profit | 673 | - | 673 | 100 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Wage and salary expense | 696,068 | 222,594 | 473,474 | 213 | % | |||||||||||
| Professional fees | 412,850 | 179,553 | 233,297 | 130 | % | |||||||||||
| Accounting and legal expense | 470,825 | 339,047 | 131,778 | 39 | % | |||||||||||
| Technology expense | 61,620 | 51,615 | 10,005 | 19 | % | |||||||||||
| General and administrative (including stock-based compensation expense) | 1,355,948 | 4,700,162 | (3,344,214 | ) | -71 | % | ||||||||||
| Research and development | 574,679 | - | 574,679 | 100 | % | |||||||||||
| Total operating expenses | 3,571,990 | 5,492,971 | (1,920,981 | ) | -35 | % | ||||||||||
| Change in fair value of warrant liability | 645,986 | (729,889 | ) | 1,375,875 | -189 | % | ||||||||||
| Change in fair value of derivative liability | 603,322 | - | 603,322 | 100 | % | |||||||||||
| Loss on conversion of note payable | (96,646 | ) | - | (96,646 | ) | -100 | % | |||||||||
| Interest income | 25,442 | 62,921 | (37,479 | ) | -60 | % | ||||||||||
| Loss on disposal of asset | - | (374,968 | ) | 374,969 | -100 | % | ||||||||||
| Interest expense | (670,784 | ) | (98,515 | ) | (572,269 | ) | 581 | % | ||||||||
| Net loss from operations | (3,063,997 | ) | (6,633,422 | ) | 3,569,426 | -54 | % | |||||||||
| Income from discontinued operations, net of tax | - | 27,879,455 | (27,879,455 | ) | -100 | % | ||||||||||
| Net (loss) income | $ | (3,063,997 | ) | $ | 21,246,033 | $ | (24,310,030 | ) | -114 | % | ||||||
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There are $10,258 in revenues for the three months ended March 31, 2025. Revenues increased by $10,258 compared to the same period ended March 31, 2024 primarily because of the disposition of the assets and operations of Softell completed in February 2024 which resulted in the Company having fewer revenue generating operations.
For the three-month period ended March 31, 2025, cost of goods sold and gross profit were $9,585 and $673, and $0 and $0, all respectively for the same period in 2024. Gross profit as a percentage of sales was 6.56% for the three months ended March 31, 2025, compared to no such gross profit (loss) for the three months ended March 31, 2024.
Wages and salary expense increased by $473,474 for the three months ended March 31, 2025 to $696,068 compared to $222,594 for the comparable period in 2024. The increase is primarily due to an increase in salaries for executives, as well as the Scienture Merger in July 2024, as compared to the same period in 2024, which increased the headcount of the Company’s operations.
Professional fees increased by $233,297 to $412,850 compared to $179,553 for the comparable period in 2024. The increase was primarily due to increase in post-acquisition professional fees expense of Scienture, including increased advisory and consulting efforts as Scienture’s operations prepare for commercialization.
Accounting and legal expenses increased by $131,778 for the three months ended March 31, 2025 to $470,825 compared to $339,047 for the comparable period in 2024. The increase is primarily due to more SEC filings and corporate actions requiring additional accounting and legal services.
General and administrative expenses (including stock-based compensation expense) decreased by $3,344,214 for the three months ended March 31, 2025, to $1,355,948 compared to $4,700,162 for the comparable period in 2024. The decrease from 2024 was mainly due to a decrease in the fair value of shares issued for services in 2025.
Technology expense increased $10,005 for the three months ended March 31, 2025 to $61,620 compared to $51,615 for the comparable period in 2024. The increase was mainly due to increased software expense and software support expense.
Research and development expense pertaining to Scienture LLC’s operations post-acquisition. Research and development expenses was mainly due to contract research organization costs of Scienture LLC. Total expenses by program were as follows:
| Three Months Ended | ||||||
| March 31, | ||||||
| Project Codes | Product Name | 2025 | ||||
| SCN-102 | Losartan | $ | 205,063 | |||
| SCN-104 | DHE | 159,852 | ||||
| SCN-106 | Alteplase | 140,000 | ||||
| SCN-107 | Bupivacaine | 69,765 | ||||
| Total research and development expense | $ | 574,679 | ||||
We had interest expense of $670,784 for the three months ended March 31, 2025, compared to interest expense of $98,515 for the three months ended March 31, 2024. The increase is due to the interest expense on Scienture LLC’s convertible debt, the convertible notes issued in August and November 2024, and related debt discount amortization on these notes.
We recognized a gain on the change in the fair value of the warrant liability of $645,986 for the three months ended March 31, 2025, compared to a loss of $729,889 during the three months ended March 31, 2024, based on the underlying valuation inputs.
We recognized a gain on the change in the fair value of the derivative liability of $603,322 for the three months ended March 31, 2025, based on the underlying valuation inputs and the conversion features of the Arena convertible debenture.
During the three months ended March 31, 2025, the Company incurred a net loss from continuing operations of $3,063,997 compared to a net loss from continuing operations of $6,633,422 for the three months ended March 31, 2024. The change was due to change in operating income, other income (expense).
Net income from discontinued operations was $27,879,455 for the three months ended March 31, 2024. The income was primarily due to the disposal of Softell assets, partially offset by loss on disposal of Superlatus during the three months ended March 31, 2024.
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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 606, “Revenue from Contracts with Customers.”
IPS is a licensed wholesaler of brand, generic and non-drug products to Customers. IPS takes orders for products, 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 – IPS requires that an application and a credit card for payment be 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 IPS. 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.
The Urgent Company, Inc., which was a wholly-owned subsidiary, is a retail and distribution provider of prepackaged, prepared foods. Subsequent to December 31, 2023, we divested our interest in The Urgent Company, Inc.
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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.
Recently Issued Accounting Standards
For more information on recently issued accounting standards, see “NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION”, to the Notes to Consolidated Financial Statements included herein under “PART I. - ITEM 1. FINANCIAL STATEMENTS”.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
Disclosure 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.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal accounting/financial officer), Mr. Ajjarapu and Mr. Sherb, respectively, as of March 31, 2025, 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 Quarterly Report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of March 31, 2025, 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 CFO, as appropriate, to allow timely decisions regarding required disclosures.
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 March 31, 2025, 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. 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, we may become a party to lawsuits involving various matters. The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We believe the ultimate resolution of any such current proceeding will not have a material adverse effect on our continued financial position, results of operations or cash flows.
Such current litigation or other legal proceedings are described in, and incorporated by reference in, this “ITEM 1. LEGAL PROCEEDINGS” of this Quarterly Report on Form 10-Q from, “PART I – ITEM 1. FINANCIAL STATEMENTS” in the Notes to Consolidated Financial Statements in “NOTE 16 – CONTINGENCIES”. The Company believes that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal claims could change in light of the discovery of facts not presently known to the Company or by judges, juries or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.
Additionally, the outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 26, 2025 (the “Form 10-K”). Investors should review the risks disclosed in the Form 10-K and in this Quarterly Report on Form 10-Q, prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K and this Quarterly Report on Form 10-Q, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.
The Company’s stockholders may not realize a benefit from the Company’s acquisition of its existing subsidiary, Scienture, LLC, commensurate with the ownership dilution stockholders have experienced in connection with such acquisition.
As previously disclosed, the Company and Scienture completed a merger transaction on July 25, 2024. If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the merger, the Company’s stockholders will have experienced dilution of their ownership interests in the Company without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the merger.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the three months ended March 31, 2025, the Company issued 240,000 shares of common stock for services. The Company relied on the exemption from registration set forth in Section 4(a)(2) of the Securities Act for this issuance.
During the three months ended March 31, 2024, the Company issued 274,000 shares of common stock at fair value of $411,000 in exchange for August convertible note of $314,354 and recognized $96,646 loss on conversion of note to non-operating income (expense) in the unaudited condensed consolidated statements of operations
In each case, the issuance did not involve a public offering and was made without general solicitation or general advertising, and the recipient of the shares was an accredited investor.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company repurchased no shares of common stock during the first quarter of 2025.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
(a) During the quarter ended March 31, 2025, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.
(b) During the quarter ended March 31, 2025, there were no material changes to the procedures by which stockholders may recommend nominees to our board of directors.
(c)
During the quarter ended March 31, 2025, no officer or director
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ITEM 6. EXHIBITS
+ Indicates management contract or compensatory plan or arrangement.
# Exhibits and/or schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish supplementally copies of any of the omitted exhibits and schedules upon request by the SEC; provided, however, that the registrant may request confidential treatment pursuant to Rule 24b-2 under the Exchange Act for any exhibits or schedules so furnished.
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SIGNATURES
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.
| SCIENTURE HOLDINGS, INC. | ||
| By: | /s/ Suren Ajjarapu | |
| Suren Ajjarapu | ||
Chief Executive Officer (Principal Executive Officer) | ||
| Date: May 12, 2025 | ||
| By: | /s/ Eric Sherb | |
| Prashant Patel | ||
Interim Chief Financial Officer (Principal Accounting/Financial Officer) | ||
| Date: May 12, 2025 | ||
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