Parallax Health Sciences Inc (EDVP) SEC Annual Report (10-K) for 2014

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☑  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

¨  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 
 EXCHANGE ACT OF 1934

Commission file number 000-52534

PARALLAX HEALTH SCIENCES, INC.
(Exact name of registrant as specified in its charter)

Copy of all Communications to:

Lawrence I. Washor

Washor & Associates

21800 Oxnard Street, Suite 790

Woodland Hills, CA 91367

(310) 479-2660

The aggregate market value of Common Stock held by non-affiliates of the Registrant as of June 30, 2014 was $8,557,786, based on a closing price of $0.16 for the Common Stock on June 30, 2014, the last business day of the Registrant's most recently completed second fiscal quarter. For purposes of this computation, all executive officers and directors have been deemed to be affiliates. Such determination should not be deemed to be an admission that such executive officers and directors are, in fact, affiliates of the Registrant.

Indicate the number of shares outstanding of each of the registrant's

classes of common stock as of the latest practicable date.

128,228,018 Common Shares issued and outstanding as of March 15, 2014

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PART I

This annual report contains forward-looking statements. These statements relate to future events or the Company's future financial performance, and include statements made by the Company regarding product development and obtaining FDA clearances. In some cases, forward-looking statements can be identified by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors" that may cause the Company's or its industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

The Company's financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

In this annual report, unless otherwise specified, all dollar amounts are expressed in United States Dollars and all references to "common shares" refer to the common shares in the Company's capital stock.

As used in this annual report, the terms "we", "us", "our" and "Parallax" mean Parallax Health Sciences, Inc., and its wholly-owned subsidiary, Endeavor Sciences, Inc., unless otherwise indicated.

Corporate Overview

The Company's principal executive office is located at One Boston Place, Suite 2600, Boston, MA 02108, with operations at 1327 Ocean Avenue, Suite M, Santa Monica, California, 90401. The Company's telephone numbers are (617) 209-7999 (Boston) and (310) 899-4442 (Santa Monica).

The Company's website under construction will be at www.parallaxhealthsciences.com .

The Company is a fully reporting Company with its stock traded on the OTC Bulletin Board and the OTCQB under the symbol "PRLX".

Corporate History

Formation and Development

The Company was incorporated in the State of Nevada on July 6, 2005, and began its development activities in the field of online website design and commerce. In September 2007, it merged with Endeavor Uranium, Inc. and began activities in the mineral exploration field, with mineral properties in the northwestern United States.  Furthering the Company's development, on December 23, 2008, the Company entered into a Joint Venture Agreement with Federated Energy Corporation, a Tennessee corporation, for working interests in prospective oil and gas wells, and changed its operating name to Endeavor Power Corporation. The Company's development activities in oil and gas exploration continued until November, 2010.

In November 2010, management assessed a potential business opportunity and determined that in an effort to create value for its Shareholders, the Company should change its business direction. On November 8, 2010, the Company discontinued its operations in its working interests in oil and gas exploration and changed its operating focus to E-Waste processing services aimed at industrial and government clients.  The Company's new direction sought to limit the impact of discarded "E-Waste" on the environment, as discarded computers and electronic equipment pose environmental hazards.  However, in accordance with a change in management effective September 27, 2011, the Company's business operations changed, and its activities in the e-waste were discontinued.

During 2012, the Company's management entered discussions and assessed a potential business opportunity with Parallax Diagnostics, Inc., a Nevada corporation ("Parallax'), whose principal business is in the bio-medical sector. More specifically, Parallax is focused on the exploitation of a proprietary diagnostic and monitoring platform and processes in the area of infectious disease.  Parallax holds the right, title, and interest to certain FDA 510(k) approved tests in perpetuity. In addition, Parallax acquired the exclusive license to a suite of medical devices, tests and utility processes in perpetuity.

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On November 1, 2012, the Company, and its wholly owned subsidiary Endeavor Holdings, Inc. entered into an Agreement and Plan of Merger (the "Merger Agreement") with Parallax and the shareholders of Parallax.  As a result of the transactions effected by the Merger Agreement, (i) Parallax merged with and into Endeavor Holdings whereupon Endeavor Holdings continued as the surviving entity and the corporate existence of Parallax ceased; (ii) the former business of Parallax is now the Company's primary business, (iii) the Company's existing business in managerial services will continue as ancillary operations,  and (iv) there is a change of control whereby the former shareholders of Parallax now own a controlling 60% ownership interest in the Company on a fully diluted basis. On November 26, 2012, Parallax Diagnostic, Inc. changed its name to Endeavor Sciences, Inc. ("ESI"), a wholly owned subsidiary of Parallax Health Sciences, Inc.  

On July 22, 2013, the Company entered into a binding Letter of Intent for the acquisition of a privately held California corporation, whose primary operations are in the pharmaceutical industry (the "Pharmacy").   On April 17, 2014, pursuant to a resolution of the board of directors, the Company executed an Agreement to Purchase One Hundred Percent of the Issued and Outstanding Shares of the Pharmacy and its Assets and Inventory (the "Purchase Agreement") between the Company, the Pharmacy and its sole shareholder (the "Seller"). Pursuant to the Purchase Agreement, in exchange for 100% of the Pharmacy's common stock and 100% of the Pharmacy's Assets and Inventory, among other things, the Company shall deliver to the Seller by, or prior to, the Closing Date:

1.

Cash in the amount of $15 million;

2.

A subordinate Promissory Note in the amount of $5 million, bearing interest at a rate of 6% per annum commencing three (3) years from the date of the Promissory Note, to be repaid after the senior credit facility has been paid in full, over a period of twelve (12) months; and 

3.

An ownership of Common Stock in the Company, representing approximately 9.9% of the issued and outstanding stock in the Company on a fully diluted basis.

Certain terms and conditions of the Purchase Agreement remain confidential pursuant to a written non-disclosure agreement with the Seller until the Closing.  The Closing is subject to the Company obtaining the necessary financing and the required regulatory approval for the acquisition of the Pharmacy.

On July 15, 2014, the Company and the Pharmacy executed an amendment to the Purchase Agreement which, among other things, extended the Closing Date to July 31, 2014. The Company is currently working in good faith with the Pharmacy to obtain regulatory approval from the California State Board of Pharmacy (the "State Board"). On December 5, 2014 the parties formalized an extension of the Closing Date to March 30, 2015.  The Company and the Pharmacy continue to work together closely to bring this transaction to a close as soon as possible.

In the event that the Company does not obtain the requisite financing and regulatory approval, the transaction will not occur without a modification mutually acceptable to both parties.

On January 9, 2014, the Company changed its name from Endeavor Power Corp. (OTCQB.EDVP) to Parallax Health Sciences, Inc. (OTCQB.PRLX)

NOTE : The following sections of this annual report and any further reference made to "the Company", "we", "us", "our" and "Parallax " shall mean Parallax Health Sciences, Inc.,  and its wholly-owned subsidiary, Endeavor Sciences, Inc., unless otherwise indicated.

Description of Business

The Company's principal line of business is in the bio-medical sector.  More specifically, the Company, through its wholly owned subsidiary, Endeavor Sciences, Inc. ("ESI"), is focused on the exploitation of a diagnostic and monitoring platform and processes.

Product Strategy and Overview

In recent years, there has been a continuing shift from the use of laboratory-based analyzers to point-of-care ("POC") tests that can be performed in a matter of minutes. Unlike the centralized clinical laboratory segment of the diagnostic market, which is mature and highly competitive, the POC market is still in its relatively early stages, According to the recent worldwide research reports, however, such as the 2010 Worldwide IVD Market, by the research firm Kalorama Information, the growth rate of the POC market continues to rise. Although certain simple, single analyte diagnostic tests have been developed, such tests have remained incapable of precise and highly sensitive quantitative measurements. As a result, medical tests that require precise quantization of the target analyte have remained the domain of immunoassay analyzers in the centralized laboratory.

Point-of-care diagnostic kits typically consist of test strips that the health care provider applies a patient's sample to and then reads the strip either visually or with an instrument in order to determine a result.  They are simple to use, fast, disposable and reliable within an acceptable range. More sensitive analytes or tests requiring quantitative analysis and definitive antibody screening needed in most situations, must be sent out to a diagnostic lab, and hours or days later results arrive. These tests are comparatively complex, expensive, and time consuming; only centralized diagnostic facilities can manage sample handling and the cost of instruments and reagents.  A point-of-care instrument that has the advantage of a test strip device in terms of ease of use and rapid results along with ELISA-like capabilities for major diseases would circumscribe diagnosis routinely within the course of a patient visit. This could disrupt the current model.  The Company is developing just such a device that it intends to sell to doctors and health care providers.

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The commercial success of the current generation of small, simple to use diagnostic devices which provide rapid results in POC applications has been limited by their inability to provide precise, highly sensitive, quantitative measurement. 

Despite these limitations, the rapid increase in discovery of individual markers of disease processes, coupled with the advancements in rapid detection technologies, has made these tools available to medical professionals on a wide scale and POC diagnostics are quickly becoming a high growth industry.

The Company believes that there is market potential for advanced POC diagnostic products that provide quick and accurate diagnosis during a patient visit, shortening the decision time to medical intervention and minimizing the need for additional patient follow-up, thereby reducing overall health care delivery costs.

The Company's Target System (the systems includes the VT-1000 Desktop Analyzer, the Target Antigen Detection Cartridge and associated reagents) technology addresses these limitations by applying sophisticated immunochemical and optical methods to detect and quantify analytes present in various human specimens, including blood, urine, and feces. Data indicates that sensitivity will be comparable to expensive and complicated laboratory-based analyzers. 

The Company also believes that there is growth opportunity for the exploitation of its Target System platform in developing nations and regions such as Africa, India, South America, Eastern Europe, Russia and Asia as well as developed markets of North America and Western Europe. One of the first initiatives to be developed for this market will combine the Company's SPARKS Mobile (a portable hand-held diagnostic analyzer based on the VT-1000 Desktop Analyzer technology, but smaller and more portable), currently in development, with a test for the monitoring of AIDS/TB patients through the use of a proprietary rapid point-of-care immunoassay CD4-CD8 test called PROMISE CD4, also in development.

The Products

Overview

The Company's product line will include a previously FDA-cleared VT-1000 Desktop Analyzer and more than a dozen FDA 510(k) cleared diagnostic tests.  

The Company's previously FDA-cleared VT-1000 Desktop Analyzer and immunoassay system incorporates a flow-through rapid antigen test platform configuration that has the ability to produce high-performance quantitative blood test results with the ease of rapid qualitative diagnostic strips.  The Company has patent applications related to its current and future products, as well as methods for future test development. The Target VT-1000 Desktop Analyzer is ideally suited for rapid development and commercialization of all new tests that may be introduced.

VT-1000 Desktop Analyzer: Quantitative and Qualitative Immunoassay

The Company's VT-1000 Desktop Analyzer was FDA 510(k) cleared and is capable of rapidly detecting qualitative and quantitative data for the Company's FDA-cleared Target Platform tests.  The VT-1000 Desktop Analyzer is used for all Target Platform Tests, allowing for clinical personnel to be trained once and also gives consistent results for either qualitative or quantitative testing.

Target Antigen Detection System ("TADS")

The Target Antigen Detection System consists of a unique disposable cartridge with reagents capable of testing multiple test markers, combined with the VT-1000 Desktop Analyzer. The TADS requires a small amount of sample and provides results in minutes.  The simplicity of the fully loaded disposable test cartridge and subsequent ease-of-use of the instrument helps to alleviate the technical burden on medical staff and makes patient diagnosis more efficient.

The Company's Target Antigen Detection System is a departure from the standard devices typical to the rapid testing markets. The device is part of the manufacturer's qualitative and quantitative "Target System Diagnostics Platform," which offers an array of improved modifications and features to the traditional qualitative and semi-quantitative flow-through immunoassay test. With its platform uniformity, vacuum pump, absorption layer for sample overflow, and complete compatibility with single and multi-light source reflectometer technology, the TADS cartridge is a unique collection of tests for qualitative and quantitative detection diseases and of conditions.

The Company is currently developing the SPARKS Mobile, a hand-held analyzer unit, similar in size to a mobile phone/PDA, which will be based on the VT-1000 Desktop Analyzer (see Products in Development).

TADS Vacuum Control Flow Device

The TADS cartridge utilizes a vacuum technology to deposit specimen samples uniformly on test membranes.  The Vacuum Control Flow Device provides a vacuum pump action, which reduces test time and ensures maximum contact with the membrane antibodies.  This collection device allows for numerous tests to be incorporated. The vacuum specimen filtration and excess specimen absorption is built right in.

Target System Patent Status:   The Target System and certain of its related components were previously issued patents by the United States Patent and Trademark Office ("USPTO").  The following previously-issued patents have expired:  

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The Company's Current Technology

The Company currently holds the rights to certain technology related to the VT-1000 Desktop Analyzer and the Target System, for which four patent applications have been filed and are pending with the USPTO.

The Company also retained the services of Marathon Patent Group to perform an analysis of the Company's intellectual property ("Patent Report").  The Patent Report, included in this filing as Exhibit 99.2, was issued on April 1, 2013, and was intended to inform the Company and its shareholders of the accurate and current state of the commercial patent pending coverage and, where possible, to identify the existence of novel and patentable inventions present in the current innovation initiative.  The Patent Report concluded that the Company has a strong patent portfolio protecting its business, and recommended that the Company aggressively proceed with additional patent applications to protect the Company's inventions and innovations.  As a result, the Company has initiated the drafting of a minimum of one (potentially two) additional USPTO and International patent applications.

There can be no assurance that the Company will be granted patents for any of the patent applications it has filed with the USPTO.

For more information on the Company's patent applications, please see the section entitled "Intellectual Property" contained within this Annual Report.

The Company's previously FDA-Cleared Tests in the area of Infectious Diseases

Rubella

Rubella, German measles, is a highly contagious disease, which is generally transmitted by direct contact with infected persons. Rubella is generally a mild disease. However, when a pregnant woman becomes infected with rubella, the virus may infect the placenta, multiply and induce serious damage to the fetus.  Rubella and congenital rubella syndrome became nationally notifiable diseases in 1966. The largest annual total of cases of rubella in the United States was in 1969, when 57,686 cases were reported (58 cases per 100,000 populations). Following vaccine licensure in 1969, rubella incidence fell rapidly. By 1983, fewer than 1,000 cases per year were reported (<0.5 cases per 100,000 population).  A moderate resurgence of rubella occurred in 1990-1991, primarily due to outbreaks in California (1990) and among the Amish in Pennsylvania (1991). In 2002 a record low annual total of 18 cases were reported.

Rotavirus

Human rotavirus is recognized as a major cause of gastroenteritis in infants, young children, and the elderly. During the winter months a portion of gastroenteritis in children is due to rotavirus infection. The disease manifests with the symptoms of vomiting, diarrhea, and fever. Rapid and accurate diagnosis is important to avoid inappropriate antibiotic therapy, provide proper treatment early, and to prevent spread of nosocomial infection.

Globally, rotavirus accounts for an estimated 125 million cases of diarrhea each year and represents 30% - 40% of hospitalizations for diarrhea in children less than five years. In developing countries, between 600,000 and 800,000 children die from rotavirus each year (or approximately 2,000 children each day.) This accounts for about one quarter of the deaths from diarrhea and about 5% of all deaths among children less than five years of age.

CMV- Herpes

Cytomegalovirus (CMV) is a human viral pathogen belonging to the Herpes family. Infection in humans is widespread and usually results in asymptomatic disease. However, severe symptomatic infections are a very significant risk in infants and Immuno-compromised individuals. An important primary source of such infection is via blood transfusion and allograft transfer. The serological status of donor and recipient is, therefore, important in patient management.

The United States is not unique in its high rates of CMV seroprevalence. Virtually every country in the world presents similar numbers. Since recurrences are often mild and few patients are aware that they are infected, the infection is likely to continue to rise at double-digit rates without an intervention.

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Group A Streptococci: Strep A, Strep Throat, Necrotizing Fasciitis, impetigo

Strep throat is an infection of the pharynx (the part of the throat between the tonsils and the larynx) caused by streptococcus bacteria. The infection is spread by person-to-person contact with nasal secretions or saliva, often among family or household members. Even though the sore throat usually gets better on its own, people who have strep throat should take antibiotics to prevent some of the more serious complications of this infection, particularly acute rheumatic fever.

Approximately 15% of children who have a sore throat and fever are infected by Group A streptococci.  CDC estimates that approximately 9,100 cases of invasive GAS disease (rate: 3.2/100,000) and 1,350 deaths occurred nationally during 2002. Disease incidence was highest among children aged <1 year (6.9/100,000) and adults aged >65 years.

Infectious Mononucleosis: EB, Epstein-Barr Viral Syndrome, Mono

Infectious mononucleosis (IM) is a viral infection causing high temperature, sore throat, and swollen lymph glands, especially in the neck. The Epstein-Barr virus typically causes it. Infectious mononucleosis may begin slowly with fatigue, malaise, headache, and sore throat. The sore throat becomes progressively worse, often with enlarged tonsils covered with a whitish-yellow fibrinous exudate. The lymph nodes in the neck are frequently enlarged and painful. Symptoms of mononucleosis gradually subside over a period of weeks to a month. The disease is generally self-limited.

Tests Currently in Development for the Target System Diagnostic Platform

The Company is in the process of developing and obtaining FDA clearance for the following products.  There can be no assurance that the Company will be successful in developing such tests or in obtaining the required FDA clearance.

HIV 1 & 2 TADS Rapid Test

Today, 42 million people are estimated to be living with HIV/AIDS. Of these, 38.6 million are adults. 19.2 million are women, and 3.2 million are children under 15. During 2002, AIDS caused the deaths of an estimated 3.1 million people, including 1.2 million women and 610,000 children under 15. With the recent advent of Rapid HIV testing, HIV detection and prevention programs around the world have become increasingly effective by reducing their time and costs of detecting the virus, thus allowing for a far greater number of individuals to be screened. The FDA has approved several rapid Immunoassay tests for the detection of HIV, but none of these tests are designed for HIV 1 and 2.  The current "rate" of these "rapid" tests is from 15 minutes to hours and only a few can produce results less than 15 minutes.

The Company has an HIV 1 & 2 qualitative rapid test in development.  The Company realizes that there are numerous competing HIV 1 & 2 tests but has decided to develop the test so that health care providers utilizing the Target VT-1000 Desktop Analyzer and Platform would have the opportunity to incorporate the Company's HIV 1 & 2 test into their use of the Company's platform. The Company has prepared a Clinical Trial Protocol to test the accuracy of the test and the efficacy and specificity of the results.  The Company will need to secure additional capital to conduct the FDA-required trials and to prepare the test for commercialization if the FDA approves it for commercialization.

Additional Products in Development

The Company also believes that there is growth opportunity for the exploitation of the Target System platform in developing nations and regions such as Africa, India, South America, Eastern Europe, Russia and Asia as well as developed markets of North America and Western Europe.

One of the first initiatives for the development of this specific market will be to combine the SPARKS Mobile, the Company's hand-held analyzer (the portable version of its VT-1000 Desktop Analyzer), currently in development, with a test for the monitoring of HIV/AIDS patients and Tuberculosis patients, through the use of the Company's proprietary rapid POC immunoassay PROMISE CD4 quantitative test, also in development.

The Target System Hand-Held Analyzer: SPARKS Mobile

The Company's next generation Target System Analyzer, the SPARKS Mobile, a hand-held analyzer currently under development, will include a small, rapid testing format, in conjunction with a hand-held data acquisition and test reading device. The SPARKS Mobile will be a re-engineered version of the Company's previously FDA-approved VT-1000 Desktop Analyzer.

Whether searching for markers in the blood stream, or diagnosing a pathogen in urine, the Company's SPARKS Mobile will be a portable tool for rapid diagnostics. The SPARKS Mobile will also provide an improvement in POC diagnostics and applications in countries with limited health care infrastructures and geographic limitations, both of which are of paramount importance in the combat against infectious diseases and in the fight against proliferation of endemic and pandemic diseases.  

This innovative SPARKS Mobile will allow for a fast (minutes instead of hours or days) performance of tests at the point-of-care, and will only require a test cartridge and a small number of ready-to-use solutions in preformatted quantities.  Moreover, the SPARKS Mobile will include the ability to store patient information, test data, and QC data, and transmit data through wireless connections.

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The SPARKS Mobile is being developed to:

a)

achieve a portable monitoring system, which is compatible with proven and reliable ELISA-based target system technology.

b)

expand readout capabilities to provide a mobile testing and monitoring platform.

c)

increase the economy of scale and scope of the diagnostics and monitoring platform by the development of additional utility of the device without redundant infrastructure investments (additional data acquisition of patients, additional tests for other, predominant diseases).

The basic design of the Company's SPARKS Mobile is based on the same 510(k) cleared technology employed in its VT-1000 Desktop Analyzer and is compatible with existing Test Cartridges. However, a number of innovative features will be integrated into the design to meet customer and patient needs:

1.

High Infrared Light Spectrum : Multiple light source system providing variable light wave analysis into the infra-red spectrum. This diversity in light source and detection will allow for the simultaneous identification and diagnosis of a broader spectrum of different targets within the same sample and assay. It will also allow for very specific test development, without having to develop a new analyzer to read the results. 

2.

Easy Field Upgrades : Field software upgrades made through memory chip (SIMM) or Flash memory stick.

3.

No Change of Equipment : The same Analyzer will be used for all Target System Tests (example: Cardiac Panel., infectious disease), and will be able to be used on all future tests, allowing for training personnel only once, and displaying consistent test results on an easy to read LCD screen.

4.

Printer Hook-up Capability : When hooked to a printer, the  SPARKS Mobile will be able to provide printed results for any Target System Test, both Qualitative (when written results must be stored with original test for HIPPA and other compliance issues), or Quantitative (measured amount analysis must be printed and maintained in the patient chart folder).

5.

Low Entry Cost for New Test Development and Analysis : Due to the technologies' broad capability, a new analyzer will not have to be developed for different samples types (blood, serum, plasma, urine, soil or human skin).

6.

Safety, Security and Accuracy by design: For all tests, the SPARKS Mobile bar code activation system will identify the test to be analyzed.

7.

Desk to Docking Station : The SPARKS Mobile will be able to be configured with or without a desk-to-docking station. The docking station will provide a stationary platform when in use in an office or non-mobile application. It will also provide the user to set up multiple tests samples while the analyzer is processing tests.

8.

Smart Phone Capability:  The SPARKS Mobile will have many Smart Phone Capabilities including, but not limited to, Bluetooth, WiFi, MMS messaging, SMS, Memory Cards, internal memory expandable to 8GB, data transfer, and more.

The SPARKS Mobile is being specifically designed to work with the Company's Target System Diagnostics Platform to provide reliable quantitative results within minutes, right at the point-of-care or site of testing. The continuity of the Company's Platform upgrades and the continuous development of new tests based on an increasing point-of-care market paradigm, points to the VT-1000 Desktop Analyzer and the SPARKS Mobile as low cost alternatives to large laboratory analyzers and specialized training of personnel on multiple machinery. The ultimate value to the clinician or the attending physician is the ease of use, reproducibility and the history of accuracy of this type of rapid immunoassay principle in the area of quantitative analysis.  

PROMISE CD4: CD4-CD8 Rapid Monitoring Test

The Company has initiated the development of the CD4-CD8 monitoring rapid test using an immunoassay test the Company has named PROMISE CD4, which the Company believes has the potential to enhance the testing, monitoring and treatment of AIDS patients in developing economies such as South Africa, Sub-Saharan countries, India and other nations struggling to deal with the treatment of AIDS.  The PROMISE CD4 monitoring test is being developed in conjunction with some of the leaders of research in the HIV testing community. 

AIDS Diagnostics and Immune Status

The Company's aim is to use markers for a disease progression instead of using the cell count method that is associated with and based on those markers. The PROMISE CD4 will include quantification of CD4-CD8 protein in either total blood or CD3 + pre-selected cell populations. This quantification can directly be used to assess an individual's immune status.

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AIDS Immune Status: Value Proposition

The treatment of AIDS patients represents a challenge in the developed world and much more so in developing countries. The current methodology to determine the status of an HIV-positive individual involves elaborate technologies to determine the immune status of an individual as well as the presence of the HIV virus in the individual's blood (called the "viral load").

Determination of the immune status is usually performed through so-called cell counts of T-cells, in particular the determination of CD4 + cell count or the relationship of CD4 and CD3 positive cells. This diagnostic procedure requires high-tech machinery (e.g. cell counters), and well-educated laboratory personnel in a stationary laboratory setting. In addition, the cell counting method presently employed and defined by the Western medical community as the "Gold Standard" has shortcomings, which limit its reproducibility and reliability. These factors might cause changes in diagnostic procedures even within those communities in the future. The determination of the amount of virus populating the blood of a person infected with HIV is currently performed through quantitative PCR, again a method requiring stationary settings, as well as highly educated personnel and sophisticated machinery. These setting are usually not available in developing economies. While, in the Western economic environment, the medical care of HIV positive individuals and AIDS patients involves a combination of the above mentioned medical diagnostics in combination with additional, patient dependent procedures, the situation in developing countries looks to the contrary.In South Africa, the country with one of the highest infection rates with HIV in the world, treatment is only available to a small number of infected people. Even under those medication-limited circumstances, treatment is usually administered without any diagnostic procedures concerning the immune status or the viral load of an individual in question, leading to unnecessary treatment of otherwise non-immuno-compromised individuals and the lack of treatment for others with AIDS at later progression. Countries like China have only recently begun to diagnose for HIV positive individuals, and have not moved into the AIDS diagnostic either. The same can be said for many other countries in Africa and Asia.

Requirements for "appropriate" AIDS diagnostics have been defined by many national and international, organizations, amongst them the World Health Organization ("WHO"), under strong influence of scientists mainly from the US and the EU. These requirements have led to the above described situation in developing counties: No appropriate diagnosis of AIDS patients caused by requirements that cannot be achieved under the given circumstances and a strong increase of HIV infection in most of these countries over the last years.

Furthermore, the lack of financial resources are limiting to the expansion of suitable points of diagnostics. Cell counts require elaborate machinery (like FACS or alike) and there are no low-cost or highly portable testing systems available to date. There is an overwhelming demand and urgent need to reduce the costs for cell counting or other methods to determine the immune status, and to increase their usefulness in non-laboratory settings.

In addition, the geographic and social structures of many countries require a more POC oriented approach, as opposed to the dominating centralized care found in highly populated countries in North America and Europe. Therefore, it would by highly desirable to reduce the measurements used as a guide for disease progression or treatment to more simple technologies, like an ELISA performed on a handheld device or similar.

For the Company and its efforts to design a handheld diagnostics device for optimal market use, this means:

·

development of a testing system which is compatible with proven and reliable ELISA based target system technology.

·

expansion of the capabilities of  handheld device to provide a mobile testing platform.

·

increase the economy of the diagnostics platform by the development of additional utility of the device without redundant infrastructure investments (additional data acquisition of patients, additional tests for other, predominant diseases).

·

acceptance of the Company's testing system as well as the platform within the medical community of African, Asian, and other countries with mounting problems in the field of HIV and other infectious diseases.

Tests for Other Diseases

The Company's testing system is not limited to HIV or AIDS diagnostics. The test format has been applied in the past to viral and bacterial infections (e.g., Rubella, Rotavirus, Strep. A), and can be adopted toward other epidemics. Diseases like malaria, cholera, hepatitis, yellow fever, or West Nile virus and other viral diseases present increasing health threats to large populations in the world, with major existing problems at the stage of proper diagnosis.  The Company believes that it can adapt its VT-1000 Desktop Analyzer and SPARKS Mobile to the rapid, simple, point-of-care diagnosis of almost all of these diseases without the requirement of additional equipment. Further, the Company believes that the combination of a mobile, hand-held testing device with a large number of different tests provided by a family of cartridges will improve the ability of current health care and disease diagnostics in a fast majority of today's underserved regions. In addition, the Target System Platform also allows for the monitoring of environmental components influencing the health of populations, including the presence of toxins in soil and drinking water as well as contamination of food supply.

The Company's innovative process for the development of new antibodies, which is patent pending, will also be used in the identification of test markers for its Target System Platform, adding a dimension that further distinguishes the Company from its competition.  The Company believes that the innovative antibody development process will allow it to create new barriers to entry on certain antigens that it identifies by subsequent patent application filings for use in conjunction the Company's VT-1000 Desktop Analyzer and SPARKS Mobile.

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Ease of Use

The Company's platform provides tremendous flexibility in sample requirements, clinician training and result interpretation. The Company's "train once" system means the clinician can now perform a number of single use tests on a wide variety of conditions with the interpretation of results consistent through the platform paradigm. The "while you watch" speed of the test development, results in a significant cost saving in time and training.

Application and Economy of Scale

The Company's unique vacuum pump action reduces test time and ensures maximum contact with the membrane antibodies. This collection device is versatile in the number of different tests that can be incorporated. The economy of scale is provided to health care provider or any other customer group by being able to utilize a single test system for multiple tests with varies little variance in training needed. A clinician can move from one test to the next in a matter of minutes. 

Furthermore, the capability of acquiring and transmitting patient related data in addition to the tests performed at the point-of-care will enable the Company's SPARKS Mobile Analyzer to become the central diagnostic device in a decentralized, patient oriented, and cost-conscious environment to provide or maintain a high level of health care in the face of threatening epidemics.

Safety and Accuracy by Design

For all tests, the Company's bar code activation system will identify the test to be analyzed, allowing only those medical personal that possess that test will be aware that it is available. Without the Company's specific Target System Test Cartridge, read by the bar code reader, the analyzer will not calibrate to that test. This precludes mistakes by the user or erroneous results by the device.

Each Test Cartridge bar code must be read to initialize the analyzer, and load the appropriate algorithm from the software table. This provides a level of security for patient related tests and eliminates errors based on operator's mistakes.

The Company will provide a combination of innovative, fast, and inexpensive diagnostic testing products with a highly mobile data collection and transfer test reader. In this regard, the Company's Target System is suitable for rapid, point-of-care testing in almost every environment, which includes emergency situations, remote locations within the US as well as other parts of the world, immediate response teams, personal testing in a home setting, and many more.

Advantageously, many different tests can be performed using the same reader, e.g., either the Company's VT-1000 Desktop Analyzer or its SPARKS Mobile, currently in development, at any location.

Mobility

The Company's mobile testing, data acquisition, and data transmission system being developed is intended to meet the needs for diagnostics in particular in areas where either no structured health care systems exist or where, due to geographic nature and population density and distribution, a more decentralized approach is necessary. The highly mobile test reader can be used in basically all environments, and will be suited to use power sources independent of an electric network (rechargeable batteries, solar panel, running on motor vehicle voltage and power supply). Furthermore, the tests can be performed within short time periods, and do not require the performing medical personnel, the physician, or the patient to return for test results or potential initiation of treatment.

New Product Screening Criteria

The Target System Platform is broken down into three categories and their associated sub-groups. The categories are:

The following list represents a general representation of targeted test to be developed in the area of infectious or highly contagious diseases:

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Raw substances as well as fully developed and commercially available disease markers and antibodies for the diseases listed above as well as many others can be purchased by the Company from a variety of sources and incorporated into the Target System Platform.

This in no way represents the complete segment of Qualitative or Semi-Quantitative tests available for rapid development on the Target System Platform.

New Product Identification

·

Track all CDC, FDA, WHO, relevant reports of medical diagnostic requirements. Provide analysis of whether the test should be Specialized, Quantitative or Qualitative.

·

Determine human capital requirements: project management, outsourcing needed political needs (if any) and social needs (affiliations with association or non-profit groups).

·

Determine the market size and utilization of device needed to address identified diagnostic needs.

·

Determine from source venders what antibodies and antigens are available to use in the Company's device with minimal regulatory and manufacturing hurdles.

·

Perform cost analysis of device manufacture, to include: regulatory application time estimates, clinical requirements, third party and vendor involvement for regulatory support.

·

Identify and prepare pre-market distributor (government or commercial) analysis for market penetration timetable and/or government contract fulfillment.

·

Identify new partnership resources if necessary for specialty devices.

·

On all Quantitative Devices the Company will determine the Biohazard level at which it is to perform its algorithm development. For highly contagious diseases, the Company will outsource its complete process to a certified lab.

·

In the development of standard quantitative test the Company will determine through the protocol process: how many tests must be performed for an I.R.B. for both the algorithm development (quantitative controls for each test process) and the accuracy of the variable light analysis.

·

All new quantitative tests will be videotaped during algorithm development (light source verification and reflectivity of known sample), and equivalency testing (where the Company compares its device to another like kind device).

·

All software developed for the Company's tests, that are not modifications of existing source code, will be previewed via written outline to the FDA.

Market Opportunities

In recent years, there has been a continuing shift from the use of laboratory-based analyzers to more technologically advanced point-of-care tests that can be performed in a matter of minutes. Unlike the centralized clinical laboratory segment, which is mature and highly competitive, the point-of-care market is still a relatively early stage market. Although certain simple single analyte diagnostic tests have been developed, such tests have remained incapable of precise and highly sensitive quantitative measurements. As a result, medical tests that require precise quantization of the target analyte have remained the domain of immunoassay analyzers.

Global Statistics

The global In Vitro Diagnostics ("IVD") market was valued at $44 billion in the year 2011, growing at a CAGR of 7.8% from 2011 to 2016. The U.S. represented the biggest market for the IVD equipment's accounting for a share of 47% of the total IVD market in the year 2011.  The European region accounted for 31% of the global IVD market, with Germany accounting for the largest share of 23.24%, followed by France (16.89%) and Italy (16.41%) of the total IVD market. Asia is the fastest growing region of the global market and accounts to be 22.88% of the global market and is estimated to reach the market of $17.20 billion with a CAGR 11.3% from 2011 to 2016. China is the fastest growing market within Asia and is growing at a CAGR of 18.8% to reach the market of $1.24 billion by 2016. The Asian region is expected to be ruled by the emerging economies such as China and India, showing the highest CAGR by the year 2016. The Chinese IVD market is taking frog leap amongst the emerging nations, followed by India, Russia, and Brazil.

Budget constraints causing and unfavorable reimbursement scenario for tests especially for severe conditions like cancer are prime reasons for slow growth in the U.S. and Canadian markets.  However, the condition is reverse in the Latin American countries like Brazil and Mexico. There has been huge funding from the Brazilian government and the public sector, with increased efforts being taken to prevent infectious diseases in the country by conducting all the preventive tests.

Molecular diagnostics is the largest growing segment of the global IVD market with a highest CAGR for year 2011 to 2016.  The major players in the IVD market are Roche Diagnostics (Germany), Abbott Diagnostics (U.S.), Beckman Coulter (U.S.), BD Diagnostics (U.S.), and Siemens Diagnostics (Germany).

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The major driving factor for the IVD industry to boom in the emerging countries is the government funding and improved healthcare facilities. However, the condition is completely reverse in the developed countries such as North America and Eu-5 as these countries are facing major financial, thus hampering the growth of the IVD industry. The major factors driving the growth of the IVD market are:

Other major drivers for the growth of the IVD industry is rise in the number of diseases, like respiratory infections, hospital acquired infections, and sexually transmitted diseases.  Similarly, rises in the chronic diseases such as diabetes, hypertension, cardiovascular diseases, and cancer are driving the overall IVD market.

Point-of-Care Diagnostics

The trend is moving toward POC diagnostics using systems and procedures, which do not require extensive laboratory equipment. Here, direct read-out technology will provide a suitable tool, which can be used in basically every environment. The global point-of-care (POC) diagnostics market reached $13.4 billion in 2010 and is expected to reach $13.8 billion in 2011. It will further grow to $16.5 billion in 2016 for a compound annual growth rate (CAGR) of 3.7% between 2011 and 2016. The growth in the POC market is expected to continue through the end of the decade.

The point-of-care market includes hospitals, clinicians, laboratories, assisted living facilities, retirement communities and geriatric facilities and the international market. The Company's system provides the platform for the development of a series of quantitative tests for important diagnostic applications that can provide results at a patient's bedside, in a doctor's office, in the emergency room, in a clinic or in an ambulance.

The two factors that are significant to the rapid growth of POC testing are technology advancements and health care economics. The development of new and improved technologies has resulted in the ability to make evidence-based medical decisions that improve patient outcomes and reduce patient acuity, criticality, morbidity and mortality.  Quicker diagnosis of infectious agents can also permit the earlier prescription of appropriate medications, thereby potentially shortening the duration of illness.

Additionally, the economic climate is driving significant changes in the manner in which patients will be tested and how results are delivered. Recent revisions to government regulations, together with growing patient and insurer pressures on hospitals and physicians have increased incentives to reduce overall patient healthcare costs while providing a higher level of care to a greater number of patients. One cost-cutting measure is to reduce the high cost of diagnostic testing carried out in central laboratory sites.

The Target System provides the platform for the development of a series of quantitative tests for important diagnostic applications that can provide results at a patient's bedside, in a doctor's office, in the emergency room, in a clinic, in an ambulance, on the battlefield, on site agri-business locations, rural and economically disadvantaged areas.

The Target System expects to meet the POC diagnostic market criteria as follows:

·

Rapid turnaround time

·

Direct application of a non-critical volume or placement of sample directly into instrument

·

Disposable device or minimal maintenance required

·

Minimal technical expertise required

·

Positive identification and specimen tracking strategy that eliminates specimen identification errors

·

Simple strategy for calibration and QC

·

Transferability of data to the LIS or HIS

·

Agreement of result with accepted "Gold Standard" tests

·

Affordable cost

Immunoassays: Defined

Immunoassays are chemical tests used to detect or quantify a specific substance, the analyte, in a blood or body fluid sample, using an immunological reaction.  Immunoassays are highly sensitive and specific. Their high specificity results from the use of antibodies and purified antigens as reagents. An antibody is a protein (immunoglobulin) produced by B-lymphocytes (immune cells) in response to stimulation by an antigen. Immunoassays measure the formation of antibody-antigen complexes and detect them via an indicator reaction. High sensitivity is achieved by using an indicator system (e.g., enzyme label) that results in amplification of the measured product. Immunoassays may be qualitative (positive or negative) or quantitative (amount measured). An example of a qualitative assay is an immunoassay test for pregnancy. Pregnancy tests detect the presence of human chorionic gonadotropin (hCG) in urine or serum. Highly purified antibodies can detect pregnancy within two days of fertilization. Measuring the signal produced by the indicator reaction performs quantitative immunoassays. This same test for pregnancy can be made into a quantitative assay of hCG by measuring the concentration of product formed.

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The purpose of an immunoassay is to measure (or, in a qualitative assay, to detect) an analyte. Immunoassay is the method of choice for measuring analytes normally present at very low concentrations that cannot be determined accurately by other less expensive tests. Common uses include measurement of drugs, hormones, specific proteins, tumor markers, and markers of cardiac injury. Qualitative immunoassays are often used to detect antigens on infectious agents and antibodies that the body produces to fight them. For example, immunoassays are used to detect antigens on Hemophilus, Cryptococcus, and Streptococcus organisms in the cerebrospinal fluid (CSF) of meningitis patients. They are also used to detect antigens associated with organisms that are difficult to culture, such as hepatitis B virus and Chlamydia trichomatis. Immunoassays for antibodies produced in viral hepatitis, HIV, and Lyme disease are commonly used to identify patients with these diseases.

Quantitative Immunoassay Analysis

Immunoassays are powerful techniques for understanding the role of specific components in complex systems. They work on the basis of the recognition of a specific component (target X) by an antibody or equivalent (affibody, RNA aptamer, recombinant antibody, etc.), which results in the production of a detectable signal. In most cases immunoassays are qualitative, providing information in terms of signal intensity. What is really wanted, however, is quantitative assay providing information in absolute chemical terms, namely the concentration of target X.

Quantitative Immunoassays would allow:

·

Detection of the absolute concentration of components

·

Reduce inter-assay variation in data

·

Permit successful statistical analysis of smaller sample sets

·

Permits direct comparison of data generated at independent sites or occasions.

Quantitative Immunoassays are simple to construct. They require the simultaneous analysis of experimental (or test) samples and calibration standards. The signal intensity generated by calibration standards of known concentration permits conversion of the signals generated by the test samples into absolute units of concentration.

Calibration curve

A calibration curve (or standard curve) establishes the relationship between the amount of material present and the signal intensity measured. In the case of immunoassays, this would represent the relationship between the epitope concentration and the signal intensity obtained. This relationship is often non-linear, and in many applications displays a dynamic range (or response range) of approximately two orders of magnitude in the concentration of target X.

To perform a Quantitative Immunoassay, a set of "calibration standards" containing the epitope in various concentrations, are deployed in the immunoassay alongside experimental "test samples". Densitometry is performed on all data from the assay, and curve fitting used to define the relationship between epitope concentration and signal intensity. This mathematical relationship is then used to convert the signals generated by experimental samples into concentration of target X, which in the Company's experience is highly accurate.

Molecular Identity of Calibration Standards

For Western Blot applications, a calibration standard is a molecule which contains the epitope feature of an immunoassay covalently bonded to a protein of known molecular weight. Two configurations of this structure are possible (Figure 1), where the epitope structure is either linked to the amino acid backbone (Fig 1a) in the form of a fusion protein or linked to a side chain of a specific amino acid (Fig 1b).

Figure

Figure 1 : Schematic representation of calibration standard molecules.

A set of calibration standards to common epitope tags (His6, c-myc, HA, FLAG, AU1, AU5, glu-glu,) was analyzed by SDS-PAGE/Western blotting (detected via the His6 tag). A single band of 55kDa was detected, and the intensity of signal decreased with decreasing calibration standard loading as expected (Figure 2).

Figure

Figure 2 : Immunodetection of a serial dilution of His6-calibration standard.

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Densitometry of the data was performed and the data plotted to define the relationship between epitope amount and signal intensity (Figure 3). Mathematical fitting of the data was performed, with the best fit achieved by "one site-specific binding" analysis (GraphPad Prism) as shown in Figure 3. An excellent fit of the data was achieved using 6 calibration standard concentrations each analyzed in quadruplicate. Similar excellent fits could also be achieved by analysis of fewer standards, with indistinguishable results obtained from 3 calibration standard samples analyzed in triplicate.

Figure

Figure 3 : Mathematical description of a calibration curve.

To determine the epitope concentration of an experimental sample, the mathematical description of the calibration curve is rearranged to calculate epitope concentration from raw signal intensity.  Figure 4 displays the quantitative measurement of three "test" samples. Test samples of 2pmol and 0.5 pmol were analyzed and the results obtained were 2.153± 0.127 pmol (mean ± standard error, n=4), 0.552± 0.045 pmol (mean ± standard error, n=4), confirming the accuracy of the measure (Figure 4). Samples should only be analyzed which fall within the calibration range, as errors are higher for observations beyond the confines of the calibration curve e.g. 0.125 pmol in this example.

Figure

Figure 4 : Accuracy of Quantitative Immunoassays.

In summary, Quantitative Immunoassays are easy to construct and offer several valuable benefits to the researcher. They permit calculation of the absolute concentration of the component of study with high accuracy (error <10%) and high reproducibility. This enhances the quality of research results and also the productivity of research programs by facilitating the direct comparison of data obtained on separate occasions.

The Immunoassay Market

Overview

Immunoassays have been used since the mid-1960's by hospitals, laboratories and research facilities. With the widespread usage of blood and other biological specimen tests for disease and medical condition diagnoses, there is a growing need for new and better technologies to achieve fast and accurate test results.  Though the traditional laboratory testing of blood samples has been an acceptable form of screening for certain conditions for quite some time, it has only been in the last twenty years that rapid POC qualitative (yes/no) and semi quantitative (based on predetermined cutoff levels) testing has become an acknowledged source of accurate information. 

Rapid Immunoassay Test

With continuing breakthroughs in detectable markers in the body that can identify the presence of a growing number of diseases and conditions, coupled with the advancements in rapid detection technologies, the tools available to medical professionals is quickly becoming a booming industry.

Rapid immunoassays generally come in two configurations: Lateral Flow and Flow-Through.  Examples of the rapid immunoassay test are the home pregnancy test and the on-site drug screening test. While both of these examples are based on urine specimens, many of the new rapid screening devices have been developed to use blood as the specimen. The different types of rapid immunoassay test include:

·

Lateral Flow Test

·

Solid Phase Test

·

Agglutination Assay

·

Flow Through Immunoassay

Lateral Flow Tests

A popular testing method used by both professional and over-the-counter tests, the lateral flow test is quick and efficient. Depending on the specific test kit, a sample of urine, whole blood, blood plasma, and in some cases feces, may be mixed with diluting substances, reactive agents or other solutions that are provided for the conduct of the test. Most of the tests are classified as solid phase enzyme immunoassays.

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Most home pregnancy tests utilize lateral-flow technology, whereby urine is absorbed through the exposed sample application pad and is allowed (by natural wicking) to migrate to the analytical membrane and react with an embedded agent designed to change color if hormones associated with pregnancy are present in the urine. This is a direct specimen application and does not require dilution or other agents to be added for results to appear.  The typical finished product in general use encases all but the application pad in plastic with view openings for the test line or dot and the control line.  

Lateral flow devices have been used for home pregnancy tests, drugs of abuse testing in clinical laboratories and, more recently, for home use. Manufactured in continuous membrane strips cut to the desired length and batch tested for accuracy, the manufacture of test kits is highly automated and inexpensive, making lateral flow tests well suited for mass market applications.

Lateral flow devices, however, can suffer in performance when the sample being tested is not handled within strict conditions. Test samples may be affected by environmental conditions (barometric pressure, temperature and humidity), thereby requiring special care in sample preparation, exact dilution controls and controlled time for the test to develop properly. Test development time, for example, can vary from a few minutes (3 to 5) for urine-based tests and up to 20 minutes for whole blood or plasma.

Solid Phase Tests

Solid phase assays include the so-called "dipstick" or "dipstick comb" tests. As its title suggests, the detection materials are in a solid state affixed to a solid, non-porous base. The dipstick is then incubated with the patient's specimen.  

The solid phase tests use urine, saliva, serum, plasma, or whole blood as its specimen and the same patient can be tested for multiple parameters with a single assay.  Results are usually provided in an hour or less.  The sensitivity and accuracy is generally lower than the flow through and lateral flow tests.

Agglutination Test

The basic principle of an agglutination test is the formation of clumps (agglutination) of small particles coated with antigens when exposed to antibodies specific for the antigen. The test particles and the patient antibodies combine to form a visible precipitate.  This usually is observed under a microscope.

Some of the advantages of the agglutination test are that its individual test cost is low, the results are semi-quantitative, and it takes a relatively short time to obtain results.  However, results can vary as the test reaction depends upon careful control of the test re-agents and environmental conditions.  The sensitivity/accuracy is lower than the flow through or lateral flow tests.

Flow-Through Immunoassay

The flow through test procedure requires a number of steps, and includes a vacuum device that deposits fluid containing the test sample through a porous membrane and into an absorbent pad. A second layer, or sub-membrane, inhibits the immediate back-flow of fluids, which can obscure results.

Positive, uniform deposition of test samples on a membrane containing selected diagnostic reagents provides for a flexible, inexpensive and reproducible platform technology to test for a large number of diseases.

The flow-through platform technology can be used to detect both antibodies and antigens. To perform the test, a sample is applied to the membrane followed by a wash step, the addition of the signal reagent, and a second wash to clear the membrane. The solutions can be added as rapidly as the previous liquids are absorbed into the cassette.

The time it takes for a test to display results is subject to the viscosity of the sample, which can be affected by environmental conditions, such as humidity and barometric pressure, further interfering with the time the test takes is the amount of sample used.

Limitations

Each of the screening devices described above have limitations in their utility and range of application. Many screening devices have been adopted from their use in clinical laboratories and, when applied to POC application, required special handling of the specimen samples (blood, urine, and feces) and decreased sensitivity and/or specificity.

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Competition

There are approximately 40 to 50 companies in the point-of care ("POC") diagnostic industry in the U.S. and approximately another 100 outside the U.S. The POC space can be broken down into various sub-sets such as molecular biologist developing reagents, and markers to diagnostic equipment and test development companies, as well as companies who do neither and focus on marketing tests, equipment and assays.  Most notably in the POC space are the large pharmaceutical companies such as Bayer, Roche, Abbot Labs and others.  The Company's specific competitive landscape is tied to its patent pending process involving its SPARKS Mobile Analyzer and Target System Platform In-Vitro Tests.  There are a number of companies developing mobile devices to perform a host of health industry-related services and the Company believes that more companies will enter the mobile diagnostic space in the next few years.   The industry has yet to develop a standardized point of care immunoassay platform for any device to be integrated into.  The goal of the Company's SPARKS Mobile Analyzer is to deliver a device that adds immediate value to health providers, patients and health insurance companies.  The Company's primary goal is to create a mobile platform that could integrate and utilize the flow-through process of the Company's Target System Platform and offer the healthcare provider a system that is fully interoperable and ubiquitous with a potentially large number of in vitro tests.  There are other test platforms in the space but the Company has filed a patent on the process of its SPARKS Mobile Analyzer and its TADS Cartridge.  There can be no assurance that the Company's POC device will prove to be competitive with the other POC devices under development.

Until the Company secures a minimum of two million dollars ($2,000,000) of additional capital to operate for the next eighteen months the Company will remain highly vulnerable from the Company's competition.  The Company anticipates the need for a minimum of an additional four million ($4,000,000) dollars of investment capital will be required for it to achieve its goal of developing a commercially viable rapid point of care CD4-8 immune status test and its proposed mobile SPARKS Mobile version of its FDA Approved VT 1000 Desktop Analyzer.  There can be no assurance that such amount will prove adequate to develop the Company' products. Furthermore, the Company's competition has significantly greater resources that it can deploy and anytime to head off competition.

In Vitro Diagnostic Sales Leaders

·

Roche Diagnostics, Switzerland www.roche.com

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Abbott Diagnostics, Abbott Park, IL 60064 www.abbott.com

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Siemens Medical Solutions Diagnostics, Deerfield, IL www.diagnostics.siemens.com

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Johnson & Johnson, Ortho Clinical Diagnostics (OCD) division, Raritan, NJ www.jnj.com

·

Beckman Coulter Inc., Fullerton, CA www.beckmancoulter.com

·

Becton, Dickinson & Co., Franklin Lakes, NJ www.bd.com

·

bioMerieux SA, Marcy l'Etoile, France www.biomerieux.com

·

Bio-Rad Laboraties Inc., Hercules, CA www.bio-rad.com

·

Arkray Inc., Kyoto, Japan www.arkray.co.jp

·

Mitsubishi,Japan www.mitsubishi.com

Top Medical Device Manufacturers

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Barriers to Use

The main barriers and constraints to the use of rapid diagnostic tests can be put into three main categories:  

·

Acceptability :  Rapid tests need to be acceptable to policymakers, clinicians, and patients. Tests need to have sufficient sensitivity and specificity and need to have an adequate predictive value. Ease-of-use is critical for point-of-care use by clinicians. Culturally appropriate specimens and credible results are important if rapid tests are to be accepted by patients.

·

Affordability: Many rapid diagnostic tests are more expensive than the tests or syndromic algorithms they are intended to replace. Decreasing per-test costs, carefully designing diagnostic algorithms, and educating end users about the cost-savings of more efficient use of therapeutic drugs are important means of maximizing rapid test affordability.

·

Availability: Rapid diagnostic tests are not always available in developing countries. Most tests have limited shelf lives, and many countries have weak public and private sector procurement and distribution systems. The consistency and quality of imported tests can also be issues. To address these constraints, local government regulations, quality assurance, shelf life testing, and distribution systems all need to be assessed and improved. The Company will initially control all of the manufacturing of its Target System test cartridges and Desk Top Analyzer and SPARKS Mobile Analyzer in conjunction with Montecito. 

Intellectual Property

The Company's products include a previously FDA-cleared VT-1000 Desktop Analyzer and more than a dozen previously FDA 510(k)-cleared tests.  The Company holds the rights in perpetuity to a number of pending USPTO Patent Applications on the Company's products, as well as methods for future test development.

USPTO and International Patent Pending Applications:

The Company acquired exclusive rights in perpetuity to certain USPTO Patent Applications in the area of Infectious Diseases through a License Agreement with Montecito BioSciences, Ltd.  The Company is currently prosecuting its pending USPTO Patent Applications under the following application numbers:

The Company also filed to prosecute its Patent Pending Application in China through NPA International, Inc., and with the U.S. Office of China SINDA Intellectual Property Ltd. under the Chinese Patent Application No. 200780039901.X, and is published under the publication No. CN 1015558302A in No. 41 of Vol. 25 of Patent Gazette.

On August 23, 2013 the Company was notified that its Chinese Patent Application No. 200780039901.X "Portable Apparatus for Improved Sample Analysis" had been granted by the States Intellectual Property Office of the Peoples Republic of China. This Patent Application covers the Company's SPARKS Mobile hand held analyzer in conjunction with the TARGET System Test Cartridge. Patents have also been granted in the countries of Hong Kong and Macau.

For further information on the exclusive license of these Patent Applications, and the complete text of the License Agreement and subsequent Modification, please refer to Exhibits 10.20 and 10.22, respectively, to the Company's Current Report filed November 15, 2012 on Form 8-K.

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The Company considers its US Patent Application US 11/924,033 "Portable Apparatus for Improved Sample Analysis" an important Patent Application for the potential protection of its Test Platform and its mobile version of its VT-1000 Desktop Analyzer. The US Patent Application US 11/924,033 "Portable Apparatus for Improved Sample Analysis" was filed to protect the process of testing with the Company's Target Antigen Detection System Cartridge and a mobile version of the Company's VT-1000 Desktop Analyzer. Currently, Patent Application US 11/924,033 is the only Patent Application that the Company has sought to protect outside of the U.S.  However, the Company intends to seek Intellectual Property protection for all of its products, both domestically and internationally.  Moreover, the Company intends to seek Intellectual Property protection for all supporting products such as novel biomarker candidates, antibodies, proteins, and diagnostic tests surrounding the Company's core indication areas, in order to create a barrier to entry for its competitors.

The Company retained the services of Marathon Patent Group to perform an analysis of the Company's intellectual property ("Patent Report").  The Patent Report, included as Exhibit 99.2 to the Company's Annual Report filed April 16, 2013 on Form 10-K, was issued on April 1, 2013, and was intended to inform the Company and its shareholders of the accurate and current state of the commercial patent pending coverage and where possible to identify the existence of novel and patentable inventions present in the current innovation initiative.  The Patent Report concluded that the Company has a strong patent portfolio protecting its business, and recommended that the Company aggressively proceed with additional patent applications to protect the Company's inventions and innovations.   As a result, the Company has initiated the drafting of a minimum of one (potentially two) additional USPTO and International patent applications.

There can be no assurance that the Company will be granted patents for any of the patent applications it has filed with the USPTO.

USPTO Patent Applications Abstracts

Following are the Company's Patent Application Abstracts, which provide information on the methods and practice underlying the Company's pending Patent Application(s):

Abstract to U.S. Patent Application No. 11/221,252 "Method of Producing a Plurality of Isolated Antibodies to a Plurality of Cognate Antigens "

The present invention relates to a method for producing high affinity antibodies that are antigen-specific. The method involves binding a plurality of antibody-producing B-cells from a mammal to a plurality of cognate antigens; sorting the bound antibody-producing B-cell and cognate antigen; amplifying nucleic acid sequences encoding each antibody, or fragment thereof, from the B-cells; and expressing the each antibody in a protein expression system. Antibodies produced in this manner are useful in diagnostic and therapeutic applications.

Abstract to U.S. Patent Application No. 11/221,038 "Method of Identifying Drugs, Targeting Moieties or Diagnostics "

The present invention relates to a method for identifying a binding agent or epitope for use in drug design, drug targeting or diagnostics. The method employs contacting and sorting binding agents and cognate epitopes from collections thereof, characterizing the binding agent and cognate epitope, detecting the level or location of the epitope in a sample using the binding agent, and correlating the level or location of the epitope in the sample with the presence or stage of a disease or condition to identify novel drugs, targeting moieties, or diagnostic agents.

Abstract to U.S. Patent Application No. 11/856,925 "Method for Determining the Immune Status of a Subject"

The present invention is a method for using levels of soluble Clusters of Differentiation (CD) proteins, or cell surface-localized CD proteins extracted from T lymphocytes for determining the immune status of a subject. The present invention also a kit containing a CD protein extraction means and at least one antibody which specifically binds a CD protein for use in carrying out the method of the invention.

Abstract to U.S. Patent Application No. 11/924,033 "Portable Apparatus for Improved Sample Analysis"

The present invention is an improved apparatus for sample analysis. The apparatus employs an assay component containing a membrane having one or a plurality of analyte-specific binding agents attached thereto, a means for absorbing liquid, and a piston means for drawing analytes through said membrane into said means for absorbing liquid. The apparatus is configured to be portable and provide a detector for detecting binding of an analyte to an analyte-specific binding agent, a plurality of data acquisition components, and a computer for integrating, analyzing and storing the detected analyte specific binding and acquired data.

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Expired Patents :

The Target System and certain of its related components were previously issued patents by the USPTO.  The following previously-issued patents have expired:  

The Company's Previously FDA-Cleared Tests

The Company acquired the exclusive rights in perpetuity to the following FDA-approved 510(k) tests (the "Tests") through an Assignment Agreement with Montecito BioSciences, Ltd.:

For further information on the exclusive rights to these Tests, and the complete text of the Assignment Agreement and subsequent Modification, please refer to Exhibits 10.19 and 10.21, respectively, to the Company's Current Report filed November 15, 2012 on Form 8-K.

It is expected that after successful re-introduction of the Target System and the introduction of its novel PROMISE CD4 immune status test, additional tests will be developed and protected by the Company. Generally, the Company and Montecito BioSciences, Ltd., will own improvements to the basic technology platform in exclusivity.

Trademarks

The Company will also utilize trademark applications to protect its Intellectual Property that may not be suitable for patent protection. Unlike patent applications, which in many cases must be filed in advance of a particular date, there is no specific date by which a trademark application must be filed. Instead, the time constraint is in a different direction. In the United States, an ordinary so-called "use" trademark application can only be filed after the goods or services have been in interstate commerce.

Government Regulations

The long legal journey toward medical device regulation began with the Pure Food and Drugs Act of 1906.  Medical devices were not included, as no one envisioned how technology would grow increasingly complex, and would ultimately require regulation.

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The Medical Device Amendments of 1976 gave FDA authority to ensure the safety and effectiveness of a range of life-saving medical devices, while also protecting the public from fraudulent devices.  The Amendments:

·

defined a medical device,

·

established three device classes (I, II, and III),

·

identified pathways to market,

·

established Advisory Panels, and

·

set clinical investigation requirements.

Subsequent legislation strengthened the FDA's regulatory authority.  The following table identifies the legislation and significance for the Major Medical Device:  

The least burdensome provision allows industry and FDA to consider the least burdensome appropriate means of evaluating a device's effectiveness when there is a reasonable likelihood of its approval. The intent is to help expedite the availability of new device technologies without compromising scientific integrity in the decision-making process or FDA's ability to protect the public health. This provision does not lower the standard for premarket clearance.

Medical Devices: Defined

The definition has several components. A medical device:

·

diagnoses, cures, lessens, treats, or prevents disease

·

affects the function or structure of the body

·

does not achieve primary intended purposes through chemical action

FDA's Center for Devices and Radiological Health regulates companies that design, manufacture, repackage, relabeling, and/or import medical devices into the United States. The agency does not regulate the practice of medicine – how and which physicians can use a device. The only exception is FDA's regulation of mammography facilities under the Mammography Quality Standards Act.

Combination Products

Combination products are therapeutic and diagnostic products that combine drugs, devices, and/or biological products. The term acknowledges the role technological advancements have made in merging medical product types. Examples of combination products include a drug-eluting stent, a nicotine patch, and surgical mesh with antibiotic coating, prefilled syringes, and a steroid-eluting pacing lead.

Combination products raise regulatory challenges because they involve components that were normally regulated under different types of authorities and often by different FDA Centers. Differences in regulatory pathways for each component can affect the regulatory processes for all aspects of product development and management, including preclinical testing, clinical investigation, marketing applications, manufacturing and quality control, adverse event reporting, promotion and advertising, and post-approval modifications.

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Three classes of regulatory control

The three device classes are based on the degree of regulatory control necessary to ensure their safety and effectiveness:

Class I:

devices present a low risk of harm to the user and are subject to general controls that are sufficient to protect the user. Most are exempt from the regulatory process.

Examples: non-powered breast pumps, elastic bandages, tongue depressors, examination gloves, most hearing aids, arm slings, microbial analyzers, keratoscopes

Class II:

devices are more complicated and require special controls for labeling, guidance, tracking, design, performance standards, and post market monitoring. Most require Premarket Notification 510(k).

Examples: powered wheelchairs, CT scanners, and contact lens care products, endolymphatic shunts

Class III:

devices usually sustain or support life, are implanted, or present potential unreasonable risk of illness or injury. They have the toughest regulatory controls. Most of these devices require Premarket Approval because general and special controls alone cannot reasonably assure their safety and effectiveness.

Examples: pacemakers, implanted weight loss devices, non-invasive glucose testing devices, medical imaging analyzers, cochlear implants, breast implants

FDA Review of Medical Devices

Investigational Device Exemptions (IDE ) 

An IDE allows an investigational device to be used in a clinical study to collect the safety and effectiveness data required for a Premarket Approval (PMA) application or a Premarket Notification (510(k)) submission to FDA. Both FDA and an Institutional Review Board (IRB) must approve clinical studies with devices of significant risk before the study can begin. Studies with devices posing non-significant risk must be approved by an IRB before the study can begin.

FDA observes a 30-day review period for IDE applications. The agency focuses its review on the data provided to demonstrate the safety and anticipated benefits of the device for use in humans, as well as the scientific validity of the proposed clinical trial protocol. 

Following clinical studies, a device's journey to market can take one of four major pathways:

Premarket Notification (510(k))

510(k) is required when demonstrating substantial equivalence to a legally marketed device, when making significant modifications to a marketed device, and when a person required to register with FDA introduces a device for the first time. If a device requires the submission of a 510(k), it cannot be commercially distributed until the FDA authorizes it.

Substantial Equivalence

A device is substantially equivalent (SE) if it has the same intended use and same technological characteristics as a legally marketed device, known as the predicate. A legally marketed device:

Applicants must compare their device to one or more similar legally marketed devices and make and support their SE claims. If the device is SE to a predicate, it is placed in the same class. If it is not SE, it becomes non-SE and is placed into Class III.

Examples of 510(k)s include x-ray machines, dialysis machines, fetal monitors, lithotripsy machines, and muscle stimulators.

Premarket Approval (PMA)

PMA refers to the scientific and regulatory review necessary to evaluate the safety and effectiveness of Class III devices or devices that were found not substantially equivalent to a Class I or II predicate through the 510(k) process.

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PMA is the most involved process. To reasonably assure that a device is safe and effective, PMA requires valid scientific evidence that the probable benefits to health from the intended use of a device outweigh the probable risks, and that the device will significantly help a large portion of the target population. Sources of valid scientific evidence may include well controlled investigations, partially controlled studies, historical controls, well documented case histories by qualified experts, and robust human experience.

Independence is an important concept for PMAs, meaning that each PMA should establish the safety and effectiveness of the device under review, and that data about one device cannot be used to support another.  Examples of PMAs include digital mammography, minimally invasive and non-invasive glucose testing devices, implanted defibrillators, and implantable middle ear devices.

Summary Comparison of 510(k) and PMA

Humanitarian Device Exemption (HDE)

An HDE is a device that is intended to benefit patients by treating or diagnosing a disease or condition that affects fewer than 4,000 individuals in the United States per year. HDEs are exempt from requirements to demonstrate effectiveness. Still, they must pose no unreasonable risks, or, at least, the probable benefits should outweigh the risks. And the device must be used at a facility with an Institutional Review Board.

HDEs provide a powerful incentive for device manufacturers to develop devices that help diagnose or treat patients with rare conditions. Otherwise, a company's research and development costs would likely exceed the market returns for serving such small patient populations.

Examples of HDEs include a fetal bladder stent, iris replacement, radioactive microspheres for cancer treatment, and semi-constructed finger joints.

Post-Approval Studies

The FDA can impose requirements at the time of approval of a PMA or HDE, or by regulation afterwards. One requirement may be the need for post-approval studies. The CDRH Post-Approval Studies Program helps ensure that well designed post-approval studies are conducted effectively and efficiently and in the least burdensome manner. Post-approval studies should not be used to evaluate unresolved premarket issues that are important to the initial establishment of device safety and effectiveness.

With post-approval studies, FDA can evaluate device performance and potential problems when the device is used more widely than in clinical trials and over a longer period of time. This allows FDA to build in accountability and gather essential post market information, including:

·

longer-term performance of the device (for example, effects of re-treatments and product changes)

·

community performance (clinicians and patients)

·

effectiveness of training programs

·

sub-group performance

·

outcomes of concern – real and potential

Manufacturing

The Company does not intend to manufacture in house for at least three years, with the exception of prototype and small batch production of tests for clinical trials and in-house testing.  The Company is required to use manufacturers who operate under Good Manufacturing Practices ("GMP").

A GMP is a production and testing practice that helps to ensure a quality product. Many countries have legislated that pharmaceutical and medical device companies must follow GMP procedures, and have created their own GMP guidelines that correspond with their legislation. Basic concepts of all of these guidelines remain more or less similar to the ultimate goals of safeguarding the health of the patient as well as producing good quality medicine, medical devices or active pharmaceutical products. In the U.S. a drug may be deemed adulterated if it has passed all of the specifications tests but is found to be manufactured in a condition which violates current good manufacturing practice guidelines. Therefore, complying with GMP is a mandatory aspect in pharmaceutical manufacturing.

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Although there are a number of them, all guidelines follow a few basic principles:

a.

Manufacturing processes are clearly defined and controlled. All critical processes are validated to ensure consistency and compliance with specifications.

b.

Manufacturing processes are controlled, and any changes to the process are evaluated. Changes that have an impact on the quality of the drug are validated as necessary.

c.

Instructions and procedures are written in clear and unambiguous language. (Good Documentation Practices)

d.

Operators are trained to carry out and document procedures.

e.

Records are made, manually or by instruments, during manufacture that demonstrate that all the steps required by the defined procedures and instructions were in fact taken and that the quantity and quality of the drug was as expected. Deviations are investigated and documented.

f.

Records of manufacture (including distribution) that enable the complete history of a batch to be traced are retained in a comprehensible and accessible form.

g.

The distribution of the drugs minimizes any risk to their quality.

h.

A system is available for recalling any batch of drug from sale or supply.

i.

Complaints about marketed drugs are examined, the causes of quality defects are investigated, and appropriate measures are taken with respect to the defective drugs and to prevent recurrence.

j.

GMP guidelines are not prescriptive instructions on how to manufacture products. They are a series of general principles that must be observed during manufacturing. When a company is setting up its quality program and manufacturing process, there may be many ways it can fulfill GMP requirements. It is the company's responsibility to determine the most effective and efficient quality process.

Food & Drug Administration ("FDA") and International Regulatory recognition of GMP [1]

GMPs are enforced in the United States by the US FDA, under Section 501(B) of the 1938 Food, Drug, and Cosmetic Act (21 USCS § 351). The regulations use the phrase "current good manufacturing practices" ("cGMP") to describe these guidelines. Courts may theoretically hold that a drug product is adulterated even if there is no specific regulatory requirement that was violated as long as the process was not performed according to industry standards. As of June 2010, a different set of cGMP requirements apply to all manufacturers of dietary supplements.

The World Health Organization ("WHO") version of GMP is used by pharmaceutical regulators and the pharmaceutical industry in over one hundred countries worldwide, primarily in the developing world. The European Union's GMP enforces similar requirements to the WHO GMP, as does the Food and Drug Administration's version in the US. Similar GMPs are used in other countries, with Australia, Canada, Japan, Singapore, Philippines and others having highly developed/sophisticated GMP requirements. In the United Kingdom, the Medicines Act (1968) covers most aspects of GMP in what is commonly referred to as "The Orange Guide", which is named so because of the color of its cover; it is officially known as Rules and Guidance for Pharmaceutical Manufacturers and Distributors .

Since the 1999 publication of GMPs for Active Pharmaceutical Ingredients , by the International Conference on Harmonization (ICH), GMPs now apply in those countries and trade groupings that are signatories to ICH (the EU, Japan and the U.S.), and applies in other countries (e.g., Australia, Canada, Singapore) which adopt ICH guidelines for the manufacture and testing of active raw materials.

[1] Source: " Guideline Versions ", Good Manufacturing Practices, Wikipedia, 2012.

Distribution

 The Company has not yet commenced commercial operations, and thus it has yet to develop methods of distribution for its products beyond the business plan stage.

In order to commercially sell the Company's VT-1000 Desktop Analyzer, the Company must have it manufactured under GMP.  The Company can and will provide demonstrations of its VT-1000 Desktop Analyzer capabilities to potential customers.

The Company will need to secure additional capitalization before it can acquire additional antibody markers, produce additional Target System cartridges or produce its VT-1000 Desktop Analyzer under GMP.

Principal Suppliers

Corder Engineering, LLC : Located in Chesterton, Indiana, Corder Engineering provides the Company with engineering services related to the Company's medical testing equipment, and manufactured the Company's evaluation units, including software, hardware and instrumentation.

Meyers Stevens Group, Inc. :  Located in Montebello, California, Meyers Stevens Group manufactures and supplies the Company's diagnostic assays related to the Company's medical testing equipment.

The Company relies upon these suppliers to provide all of its test cartridges and materials used in association with the development of its products. If these suppliers were to cease providing test cartridges and materials to the Company, the Company's ability to develop its products may be adversely affected.

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Facilities

In addition to its corporate headquarters, the Company maintains operations at 1327 Ocean Avenue Suite M, Santa Monica, California 90401.

Employees

As of December 31, 2014, the Company had one employee, exclusive of its directors and executive officers.

The Company currently has one employee, exclusive of its directors and executive officers.

Research and Development

The Company has incurred no expenditures relating to the research and development of its proprietary medical diagnostic equipment during 2014 and 2013, including costs for consultants, costs to develop and manufacture prototype units, and assays, costs to conduct clinical trials, and costs incurred to develop new products.    

Reports to Security Holders

The Company is not required to deliver an annual report to its stockholders, but will voluntarily send an annual report, together with the Company's annual audited financial statements upon request. The Company is required to file annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission. The Company's Securities and Exchange Commission filings are available to the public over the Internet at the SEC's website at www.sec.gov .

The public may read and copy any materials filed by the Company with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an electronic filer. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The Internet address of the site is www.sec.gov .

The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.

None.

The Company's principal executive offices are located at One Boston Place, Suite 2600, Boston, MA 02108, with operations at 1327 Ocean Avenue, Suite M, Santa Monica, CA 90401.  The Company currently rents the Boston space for approximately $300 a month, and sub-leases the Ocean Avenue space for $1,000 per month.  Currently, this space is sufficient to meet the Company's needs.  However, once the Company expands its business to a significant degree, it will require additional space. The Company does not currently own any real estate.

The Company knows of no material, existing or pending legal proceedings against it, nor is the Company involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which its director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to its interest.

Not applicable.

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PART II

The Company's Common Stock is quoted on the OTC Quotation Board "OTCQB – U.S. Registered" under the trading symbol PRLX.QB. The following table sets forth the high and low bid prices for its Common Stock per quarter as reported by the OTCQB for the last two years. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions.

The high and low prices of the Company's common shares for the periods indicated below are as follows:

The Company's common stock is subject to rules adopted by the Commission regulating broker dealer practices in connection with transactions in "penny stocks." Those disclosure rules applicable to "penny stocks" require a broker dealer, prior to a transaction in a "penny stock" not otherwise exempt from the rules, to deliver a standardized list disclosure document prepared by the Securities and Exchange Commission. That disclosure document advises an investor that investment in "penny stocks" can be very risky and that the investor's salesperson or broker is not an impartial advisor but rather paid to sell the shares. The disclosure contains further warnings for the investor to exercise caution in connection with an investment in "penny stocks," to independently investigate the security, as well as the salesperson with whom the investor is working and to understand the risky nature of an investment in this security. The broker dealer must also provide the customer with certain other information and must make a special written determination that the "penny stock" is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. Further, the rules require that, following the proposed transaction, the broker provide the customer with monthly account statements containing market information about the prices of the securities.

Record Holders

The Company's common shares are issued in registered form. Action Stock Transfer Corp., 2469 E. Fort Union Blvd., Suite 214, Salt Lake City, UT 84121 (Telephone 801-274-1088, Facsimile 801-274-1099) is the registrar and transfer agent for the Company's common shares.

As of December 31, 2014, pursuant to Action Stock Transfer Corp., the shareholders' list of the Company's common shares showed 55 registered shareholders and 128,228,018 shares outstanding.

As of December 31, 2014, an aggregate of 823,691 shares of the Company's preferred stock were issued and outstanding and are held by 4 shareholders. All preferred shares are convertible into the Company's common stock at a conversion ratio of 20 shares of common stock and 20 warrants for each preferred share held (see Warrants).   

Dividends

The Company has not declared any dividends on its common stock since the Company's inception. There is no restriction in the Company's Articles of Incorporation and Bylaws that will limit its ability to pay dividends on its common stock. However, the Company does not anticipate declaring and paying dividends to its shareholders in the near future.

Dividends are payable semi-annually on the Company's preferred stock at a rate of 7% per annum.  Dividends may be paid in kind, at the option of the Company, to the extent that if the Company is not legally permitted to distribute cash dividends, it shall pay dividends in the form of preferred shares equal to the amount of the dividend. No dividends have been declared on the Company's preferred stock.

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Equity Compensation Plan Information

On October 1, 2010, the board of directors of the Company adopted the 2010 Employee Stock Option Plan (the "2010 Plan").  Under the 2010 Plan, 2,800,000 restricted shares of common stock have been reserved for issuance upon exercise of options granted from time to time under the stock option plan. The 2010 plan is intended to assist the Company in securing and retaining key employees, directors and consultants by allowing them to participate in the Company's ownership and growth through the grant of incentive and non-qualified options. Under the 2010 Plan, the Company may grant incentive stock options only to key employees and employee directors, or the Company may grant non-qualified options to employees, officers, directors and consultants. Subject to the provisions of the 2010 Plan, the board of directors will determine who shall receive options, the number of shares of common stock that may be purchased under the options.  As of December 31, 2014, the Company has granted options to purchase a total of 1,950,000 shares, of which 50,000 were cancelled in October 2012. In connection with the options granted, a total of $281,250 was recorded as deferred compensation, and was amortized over a 12-18 month vesting period. 

On March 26, 2011, the Company adopted and approved the 2011 Equity Incentive Plan ("the 2011 Plan"), wherein 20,000,000 restricted shares of common stock were reserved for issuance. The 2011 Plan was intended to assist the Company in securing and retaining key employees, directors and consultants by allowing them to participate in the Company's ownership and growth through the grant of incentive and non-qualified options. The 2011 Plan is currently administered by the Company's board of directors. Subject to the provisions of the plan, the board will determine who shall receive options, the number of shares of common stock that may be purchased under the options. Under the 2011 Plan, no options have been granted.  

As of December 31, 2014, the Company has granted options to purchase a total of 1,900,000 shares. In connection with the options granted, a total of $281,250 was recorded as deferred compensation, which was fully expensed in prior years.

Warrants

In connection with the 823,691 shares of preferred stock issued and outstanding, there are warrants to purchase 16,473,401 shares of common stock. Of these warrants, 14,535,706 are issued at an exercise price of $0.27518 per share, and 1,973,695 are issued at an exercise price of $0.41278 per share.  The number of shares of common stock underlying the warrants and the exercise price are subject to adjustment upon certain events.

As of December 31, 2014, the Company had 16,473,401 warrants issued and outstanding.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

The Company did not purchase any shares of its common stock or other securities during the year ended December 31, 2014.

On January 7, 2014, 36,462,819 shares of the Company's common stock were purchased from certain shareholders by its Chairman, Edward W. Withrow III.  On the same day, Mr. Withrow III cancelled the shares.  As a result of this transaction, the total issued and outstanding shares of common stock was reduced by 36,462,819 shares.

Recent Sales of Unregistered Securities

The following represents all unregistered securities issued by the registrant during the current period, including sales of reacquired securities, as well as new issues, securities issued in exchange for property, services, or other securities, and new securities resulting from the modification of outstanding securities:

On May 20, 2014, pursuant to two Stock Purchase Agreements, the Company issued 1,600,000 shares of the Company's restricted common stock, valued at $320,000, to two officers, for cash in the amount of $160.  As a result, $318,400 was recorded to additional paid in capital.

On May 20, 2014, pursuant to two Stock Purchase Agreements, the Company issued 325,000 shares of the Company's restricted common stock, valued at $65,000, to two consultants for cash in the amount of $33.  As a result, $64,675 was recorded to additional paid in capital.

On January 21, 2015, pursuant to a certain Stock Purchase Agreement, the Company issued 3,798,035 shares of the Company's restricted common stock, valued at $170,912, for cash in the amount of $37,980.  As a result, $167,114 was recorded to additional paid in capital.

Exemption From Registration . The shares of Common Stock referenced herein were issued in reliance upon an exemption from registration afforded either under Section 4(2) of the Securities Act for transactions by an issuer not involving a public offering, or Regulation D promulgated thereunder, or Regulation S for offers and sales of securities outside the U.S.

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As a "smaller reporting company", the Company is not required to provide the information required by this Item.

Forward-Looking Statements

This annual report contains forward-looking statements. These statements relate to future events or the Company's future financial performance. In some cases, forward-looking statements can be identified by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause the Company's or the Company's industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results..

The Company's consolidated audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Corporate History

The Company was incorporated in the State of Nevada on July 6, 2005, and began its development activities in the field of online website design and commerce. In September 2007, it merged with Endeavor Uranium, Inc. and began activities in the mineral exploration field, with mineral properties in the northwestern United States.  Furthering the Company's development, on December 23, 2008, the Company entered into a Joint Venture Agreement with Federated Energy Corporation, a Tennessee corporation, for working interests in prospective oil and gas wells, and changed its operating name to Endeavor Power Corporation. The Company's development activities in oil and gas exploration continued until November, 2010.

In November 2010, management assessed a potential business opportunity and determined that in an effort to create value for its Shareholders, the Company should change its business direction. On November 8, 2010, the Company discontinued its operations in its working interests in oil and gas exploration and changed its operating focus to the development of E-Waste processing services aimed at industrial and government clients.  The Company's new direction sought to limit the impact of discarded "E-Waste" on the environment, as discarded computers and electronic equipment pose environmental hazards.  However, in accordance with a change in management effective September 27, 2011, the Company's business operations changed, and its activities in the e-waste were discontinued.

The Company began developing activities in managerial services, and pursued potential funding opportunities for the Company. It also retained consultants to perform due diligence on certain mining properties located in Venezuela, Brazil, Bolivia, Guyana and several other South American countries. Management, however, determined that the outcome of such due diligence did not provide the Company a viable opportunity and that it did not provide sufficient economic benefit for the Company. Management therefore ceased its due diligence, and continued its operations in managerial services whilst pursuing other viable business opportunities to increase shareholder value.

During 2012, the Company's management entered discussions and assessed a potential business opportunity with Parallax Diagnostics, Inc., a Nevada corporation ("Parallax'), whose principal business is in the bio-medical sector. More specifically, Parallax is focused on the exploitation of a proprietary diagnostic and monitoring platform and processes in the area of infectious disease.  Parallax holds the right, title, and interest to certain FDA 510(k) approved tests in perpetuity. In addition, Parallax acquired the exclusive license to a suite of medical devices, tests and utility processes in perpetuity.

On November 1, 2012, the Company, and its wholly owned subsidiary Endeavor Holdings, Inc. entered into an Agreement and Plan of Merger (the "Merger Agreement") with Parallax and the shareholders of Parallax.  As a result of the transactions effected by the Merger Agreement, (i) Parallax merged with and into Endeavor Holdings whereupon Endeavor Holdings continued as the surviving entity and the corporate existence of Parallax ceased; (ii) the former business of Parallax is now the Company's primary business, (iii) the Company's existing business in managerial services will continue as ancillary operations,  and (iv) there is a change of control whereby the former shareholders of Parallax now own a controlling 60% ownership interest in the Company on a fully diluted basis. On November 26, 2012, Parallax Diagnostic, Inc. changed its name to Endeavor Sciences, Inc. ("ESI"), a wholly owned subsidiary of Parallax Health Sciences, Inc.,   

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On July 22, 2013, the Company entered into a binding Letter of Intent for the acquisition of a privately held California corporation, whose primary operations are in the pharmaceutical industry (the "Pharmacy").  On April 17, 2014, pursuant to a resolution of the board of directors, the Company executed an Agreement to Purchase One Hundred Percent of the Issued and Outstanding Shares of the Pharmacy and its Assets and Inventory (the "Purchase Agreement") between the Company, the Pharmacy and its sole shareholder (the "Seller"). Pursuant to the Purchase Agreement, in exchange for 100% of the Pharmacy's common stock and 100% of the Pharmacy's Assets and Inventory, among other things, the Company shall deliver to the Seller by, or prior to, the Closing Date:

1.

Cash in the amount of $15 million;

2.

A subordinate Promissory Note in the amount of $5 million, bearing interest at a rate of 6% per annum commencing three (3) years from the date of the Promissory Note, to be repaid after the senior credit facility has been paid in full, over a period of twelve (12) months; and 

3.

An ownership of Common Stock in the Company, representing approximately 9.9% of the issued and outstanding stock in the Company on a fully diluted basis.

On July 15, 2014, the Company and the Pharmacy executed an amendment to the Purchase Agreement which, among other things, extended the Closing Date to July 31, 2014. The Company is currently working in good faith with the Pharmacy to obtain regulatory approval from the California State Board of Pharmacy (the "State Board"). The Company has submitted its pharmacy license application to the State Board, and is awaiting approval of its temporary permit. Along with the Company's application, the Pharmacy provided the State Board with a Seller's Certification, which attests to the Pharmacy's involvement in the pending transaction with the Company.  The parties expect to formalize an extension as approval from the State Board nears completion. The Company and the Pharmacy continue to work together closely to bring this transaction to a close as soon as possible.  Certain terms and conditions of the Purchase Agreement remain confidential pursuant to a written non-disclosure agreement with the Seller until the Closing.  The Closing is subject to the Company obtaining the necessary financing and the required regulatory approval for the acquisition of the Pharmacy. In the event that the Company does not obtain the requisite financing and regulatory approval, the transaction will not occur without a modification mutually acceptable to both parties.

On January 9, 2014, the Company changed its name from Endeavor Power Corp. (OTCQB.EDVP) to Parallax Health Sciences, Inc. (OTCQB.PRLX)

Results of Operations

The following summary of the Company's results of operations should be read in conjunction with the Company's audited consolidated financial statements for the years ended December 31, 2014 and 2013, which are included herein. The financial information provided includes the accounts of the Company and its wholly owned subsidiary, Endeavor Sciences, Inc. ("ESI"), on a consolidated basis.  All significant inter-company accounts and transactions have been eliminated.  

Revenue

The Company has not yet launched its major business activity, which is medical diagnostics and testing.

Cost of sales

The Company has not yet launched its major business activity, which is medical diagnostics and testing.

General and Administrative Expenses

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General and administrative expenses in the amount of $858,658 for the year ended December 31, 2014, were comprised of $236,744 of legal and accounting fees, $384,808 in stock compensation, $236,550 of salaries and related taxes and benefits, and $556 of office overhead and other general and administrative expenses.

General and administrative expenses in the amount of $473,403 for the year ended December 31, 2013, were comprised of $217,813 of legal and accounting fees, $246,573 of salaries and related taxes and benefits, and $9,017 of office overhead and other general and administrative expenses.

General and administrative expenses for the year ended December 31, 2014 were $ 858,658 as compared to $ 475,403 for the year ended December 31, 2013, which resulted in an increasein general and administrative expenses for the current year of $385,255.

Significant changes in general and administrative expenses of $385,255 during the year 2014 compared to 2013 were attributable to the following items

·

an increase in legal, accounting and consulting services of $18,931, due to a decrease in legal costs of $16,069 resulting from a change in legal counsel; and an increase in management fees of $35,000 resulting from additional staffing;

·

a decrease increase in management salaries and fees, and related taxes and benefits of $10,023, due to an adjustment in accrued payroll tax expense;  

·

an increase in stock compensation of $384,808, due to stock issuances made in the current year valued at $384,808, compared to none in the previous year; and

·

a decrease in office supplies and miscellaneous expenses of $8,461, due to a decrease in filing fees of $4,793 resulting from a change in firms; a decrease in publicity and promotion of $2,560 resulting from press releases costs incurred in 2013, compared to none in the current year; and a decrease in general office expenses of $1,108.

General and administrative expenses for both 2014 and 2013 were incurred primarily for the purpose of advancing the Company closer to its financing and operating goals in the bio-medical sector.

Net Loss

During the year ended December 31, 2014, the Company incurred a net loss of $1,113,197 compared with a net loss of $504,494 for the year ended December 31, 2013. The increase in net loss of $608,703 is attributable to an increase in general and administrative expenses of $385,255; a decrease in miscellaneous income of $1,695; a decrease in depreciation and amortization expense of $4,244; an increase in amortization of discounts on notes payable of $194,753, and a decrease in other interest expense of $31,244.

Liquidity and Capital Resources

As at December 31, 2014, the Company had cash in the amount of $513 compared to $569 as of December 31, 2013.

The Company had a working capital deficit of $1,500,945 as of December 31, 2014, compared to a working capital deficit of $1,179,252 at December 31, 2013. The increase in working capital deficit of $321,593 is primarily attributable to a decrease in cash of $56; an increase in accounts payable and accrued expenses of $91,315; reclassification of $190,100 from long term notes payable to short term notes payable; cancellation of related party debt of $103,449; an increase in related party notes payable of $405,866; an increase in unamortized discount on related party notes payable of $278,741; and an increase in related party payable of $16,546.

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Cash Flows from Operating Activities

During the year ended December 31, 2014, the Company used $56 of cash flow for operating activities, compared with $26,428 for the year ended December 31, 2013. The decrease in cash used for operating activities of $26,372 is primarily attributable to an increase in the net loss from operations of $608,703; a decrease in depreciation and amortization of $4,244; an increase in discount amortization of $194,753; an increase in stock compensation of $384,808; an increase in related party accruals converted to notes payable of $375,866; an increase in accounts payable and accrued expenses of $45,887; and a decrease in related party payables of $361,995.

Cash Flows from Investing Activities

During the years ended December 31, 2014 and 2013, the Company had no cash flows from investing activities.

Cash Flows from Financing Activities

During the year ended December 31, 2014, the Company was provided with $0 of cash flow from financing activities compared with $17,600 during the year ended December 31, 2013. The decrease in cash flows provided from financing activities of $17,600 is attributable to a decrease in related party loans.

As at December 31, 2014 and 2013, respectively, related parties are due a total of $958,615 and $1,111,793, consisting of $75,800 and $795,127 in accrued compensation; $27,763 and $126,566 in cash advances to the Company for operating expenses; and $855,052 and $190,100 in related party convertible notes payable, net of unamortized discounts.  The notes bear interest at a rate of between 5% and 7% per annum and mature between July 31, 2015 and December 31, 2015. As at December 31, 2014 and 2013, interest in the amount of $37,251 and $22,994 respectively, of interest has been accrued on related party notes payable.

The Company's principal sources of funds have been from sales of the Company's preferred and common stock and loans from related parties.

Future Financings

The Company has suffered recurring losses from operations. The continuation of the Company's operations is dependent upon the Company's attaining and maintaining profitable operations and raising additional capital as needed. The Company anticipates that it will have to raise additional funds through private placements of the Company's equity securities and/or debt financing to complete its business plan.

The Company will require additional financing in order to proceed with its plan of operations, including approximately $2,000,000 over the next 12 months to pay for its ongoing expenses. These cash requirements include working capital, general and administrative expenses, the development of the Company's product line, and the pursuit of acquisitions. These cash requirements are in excess of the Company's current cash and working capital resources. Accordingly, the Company will require additional financing in order to continue operations and to repay its liabilities. There is no assurance that the financing will be completed as planned or at all. If the Company is unable to secure adequate capital to continue the Company's planned operations, the Company's shareholders may lose some or all of their investment and the Company's business may fail.

The Company anticipates continuing to rely on equity sales of its common stock in order to continue to fund its business operations. Issuances of additional shares will result in dilution to the Company's existing stockholders. There is no assurance that the Company will achieve any additional sales of its equity securities or arrange for debt or other financing to fund its planned business activities.

Personnel

As of December 31, 2014, the Company had no employees, excluding its directors and executive officers. Currently, the Company has one employee, excluding its directors and executive officers.

Contractual Obligations

As a "smaller reporting company", the Company is not required to provide the information required by this Item.

Going Concern

The Company has incurred losses since inception resulting in an accumulated deficit of $2,994,878, and further losses are anticipated in the development of its business. The Company's ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, which may not be available at commercially reasonable terms  There can be no assurance that the Company will be able to continue to raise funds, in which case the Company may be unable to meet its obligations and the Company may cease operations. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern.

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The consolidated audited financial statements included with this annual report have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that the Company's assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the consolidated audited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

Off-Balance Sheet Arrangements

The Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Critical Accounting Policies

The discussion and analysis of the Company's financial condition and results of operations are based upon the Company's consolidated audited financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. The Company believes that understanding the basis and nature of the estimates and assumptions involved with the following aspects of the Company's financial statements is critical to an understanding of its consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Endeavor Sciences, Inc. ("ESI").  All significant inter-company accounts and transactions have been eliminated

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Estimates that are critical to the accompanying consolidated financial statements include the, estimates related to asset impairments of long lived assets and investments, classification of expenditures as either an asset or an expense, valuation of deferred tax assets, and the likelihood of loss contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are revised periodically and the effects of revisions are reflected in the financial statements in the period it is determined to be necessary. Actual results could differ from these estimates.

Convertible Debt

In accordance with Accounting Standards Codification ("ASC") 470-20-25, the Company recognizes the advantageous value of conversion rights attached to convertible debt. Such rights give the debt holder the ability to convert debt into common stock at a price per share that is less than the trading price to the public on the date of the debt. The beneficial value is calculated as the intrinsic value (the market price of the stock at the commitment date in excess of the conversion rate) of the beneficial conversion feature of the debt, and is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized over the remaining outstanding period of related debt using the interest method.

Net Income (Loss) Per Common Share

The Company computes earnings per share in accordance with ASC 260-10, Earnings Per Share . Net earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible preferred shares and the exercise of the Company's stock options and warrants.

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC 718,  Share-Based Payments , using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

Recently Adopted Accounting Standards

The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board ("FASB"), the US Securities and Exchange Commission ("SEC"), and the Emerging Issues Task Force ("EITF"), to determine the impact of new pronouncements on US GAAP and the impact on the Company. The Company has recently adopted the following new accounting standards:

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Adopted :

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (ASU 2013-02). This guidance is the culmination of the FASB's deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income. However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. The adoption of this update did not have a material impact on its consolidated financial statements.

In April 2013, the FASB issued ASU No. 2013-07, Presentation of Financial Statements (Top 205): Liquidation Basis of Accounting. The objective of ASU No. 2013-07 is to clarify when an entity should apply the liquidation basis of accounting and to provide principles for the measurement of assets and liabilities under the liquidation basis of accounting, as well as any required disclosures. The amendments in this standard is effective prospectively for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. The adoption of this update did not have a material impact on its consolidated financial statements.

In July 2013, the FASB issued ASU No 2013-11, Presentation of an Unrecognized Tax Benefit When Net Operating Loss Carryforward Exists.  The objective of ASU 2013-11 is to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits, and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, and interim reporting periods therein. Early adoption is permitted. The adoption of this update did not have a material impact on its consolidated financial statements.

In June 2014, the FASB issued ASU No, 2014-10, Elimination of Certain Financial Reporting Requirements for Development Stage Entities.  The objective of ASU 2014-10 is to reduce the cost and complexity associated with the incremental reporting requirements for development stage entities.  This Update removes all incremental financial reporting requirements, and eliminates an exception provided to development stage entities in Topic 810.  The amendments in this standard are effective retrospectively for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted.

As a "smaller reporting company", the Company is not required to provide the information required by this Item.

The Company's consolidated audited financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

The following consolidated audited financial statements are filed as part of this annual report:

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PCAOB Registered Auditors – www.sealebeers.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Parallax Health Sciences, Inc.

We have audited the accompanying consolidated balance sheets of Parallax Health Sciences, Inc. as of December 31, 2013 and 2014, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2014. Parallax Health Sciences, Inc.'s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parallax Health Sciences, Inc. as of December 31, 2013 and 2014, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has no revenues, has negative working capital at December 31, 2014, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern.  Management's plans concerning these matters are also described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Seale and Beers, CPAs

Seale and Beers, CPAs

Las Vegas, Nevada

March 27, 2015

8250 W. Charleston Blvd., Suite 100 - Las Vegas, NV 89117 Phone: (888)727-8251 Fax: (888)782-2351

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The accompanying notes are an integral part of these financial statements

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The accompanying notes are an integral part of these financial statements

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The accompanying notes are an integral part of these financial statements

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The accompanying notes are an integral part of these financial statements

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PARALLAX HEALTH SCIENCES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 and 2013

NOTE 1. OVERVIEW AND NATURE OF BUSINESS

Parallax Health Sciences, Inc.  (the "Company") was incorporated in the State of Nevada on July 6, 2005.  The Company's principal focus is on the exploitation of a proprietary diagnostic and monitoring platform and processes in the area of infectious disease.  Through the Company's wholly owned subsidiary, Endeavor Sciences, Inc., the Company holds the right, title, and interest to certain FDA 510(k) approved tests in perpetuity, and acquired the exclusive license to a suite of medical devices, tests and utility processes in perpetuity.

On January 9, 2014, the Company changed its name from Endeavor Power Corp. (OTCQB.EDVP) to Parallax Health Sciences, Inc. (OTCQB.PRLX).

On April 17, 2014, pursuant to a resolution of the board of directors, the Company entered into an Agreement to Purchase One Hundred Percent of the Issued and Outstanding Shares of the Pharmacy and its Assets and Inventory (the "Purchase Agreement") for the acquisition of a privately held California corporation, whose primary operations are in the pharmaceutical industry (the "Pharmacy").  Pursuant to the Purchase Agreement between the Company, the Pharmacy and its sole shareholder (the "Seller"), in exchange for 100% of the Pharmacy's common stock and 100% of the Pharmacy's Assets and Inventory, among other things, the Company shall deliver to the Seller by, or prior to, the Closing Date:

1.

Cash in the amount of $15 million;

2.

A subordinate Promissory Note in the amount of $5 million, bearing interest at a rate of 6% per annum commencing three (3) years from the date of the Promissory Note, to be repaid after the senior credit facility has been paid in full, over a period of twelve (12) months; and 

3.

An ownership of Common Stock in the Company, representing approximately 9.9% of the issued and outstanding stock in the Company on a fully diluted basis.

On December 4, 2014, the Company and the Seller executed an amendment to the Purchase Agreement which, among other things, extended the Closing Date to March 31, 2015. The Company is currently working in good faith with the Pharmacy to obtain regulatory approval from the California State Board of Pharmacy (the "State Board"). The Company has submitted its pharmacy license application to the State Board, and is awaiting approval of its temporary permit. Along with the Company's application, the Pharmacy provided the State Board with a Seller's Certification, which attests to the Pharmacy's involvement in the pending transaction with the Company.  The Company and the Pharmacy continue to work together closely to bring this transaction to a close as soon as possible.

Certain terms and conditions of the Purchase Agreement remain confidential pursuant to a written non-disclosure agreement with the Seller until the Closing.  The Closing is subject to the Company obtaining the necessary financing and the required regulatory approval for the acquisition of the Pharmacy.  In the event that the Company does not obtain the requisite financing and regulatory approval, the transaction will not occur without a modification mutually acceptable to both parties.

The accompanying audited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP").  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that effect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates .

Going Concern

The Company has incurred losses since inception resulting in an accumulated deficit of $2,994,878, and a working capital deficit of $1,500,945, and further losses are anticipated. The Company's ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, which may not be available at commercially reasonable terms  There can be no assurance that the Company will be able to continue to raise funds, in which case the Company may be unable to meet its obligations and the Company may cease operations. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern.

The consolidated financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue as a going concern.

NOTE : The following notes and any further reference made to "the Company", "we", "us", "our" and "Parallax" shall mean Parallax Health Sciences, Inc. and its wholly-owned subsidiary, Endeavor Sciences, Inc., unless otherwise indicated.

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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

This summary of significant accounting policies is presented to assist in understanding the Company's financial statements.  These accounting policies conform to accounting principles, generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.

The Company's fiscal year-end is December 31.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Endeavor Sciences, Inc., ("ESI").  All significant inter-company accounts and transactions have been eliminated

Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. As at December 31, 2014, the Company had no cash equivalents.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Estimates that are critical to the accompanying consolidated financial statements include the, estimates related to asset impairments of long lived assets and investments, classification of expenditures as either an asset or an expense, valuation of deferred tax assets, and the likelihood of loss contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are revised periodically and the effects of revisions are reflected in the financial statements in the period it is determined to be necessary. Actual results could differ from these estimates.

Convertible Debt

In accordance with Accounting Standards Codification ("ASC") 470-20-25, the Company recognizes the advantageous value of conversion rights attached to convertible debt. Such rights give the debt holder the ability to convert debt into common stock at a price per share that is less than the trading price to the public on the date of the debt. The beneficial value is calculated as the intrinsic value (the market price of the stock at the commitment date in excess of the conversion rate) of the beneficial conversion feature of the debt, and is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized over the remaining outstanding period of related debt using the interest method.

Net Income (Loss) Per Common Share

The Company computes earnings per share in accordance with ASC 260-10, Earnings Per Share . Net earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible preferred shares and the exercise of the Company's stock options and warrants.

Comprehensive Loss

ASC 220,  Comprehensive Income,  establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at December 31, 2014, the Company has no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 605 , Revenue Recognition . Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service has been provided, and collectability is reasonably assured.  As at December 31, 2014, the Company has not commenced its principal operations and, therefore, has not recognized any revenue.

Property and Equipment

Property and equipment is comprised of office equipment and medical testing and prototype equipment, recorded at cost and depreciated using the double declining balance method over the estimated useful lives of 5 to 7 years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized.  

Impairment of Long-Lived Assets

In accordance with ASC 350-30, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable.  When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount.  Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.  The Company currently believes there is no impairment of its long-lived assets.  There can be no assurance, however, that market conditions will not change or demand for the Company's products under development will continue.  Either of these could result in future impairment of long-lived assets.

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Due to the Company's recurring losses, its patents were evaluated for impairment and it was determined that future cash flows were sufficient for recoverability of the asset.

Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.

The Company has net operating loss carryforwards available to reduce future taxable income. Future tax benefits for these net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that the Company will not realize a future tax benefit, a valuation allowance is established.

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC 718,  Share-Based Payments , using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

Fair Value Measurements

Pursuant to ASC 820,  Fair Value Measurements and Disclosures  and ASC 825,  Financial Instruments , an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 and 825 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 and 825 prioritizes the inputs into three levels that may be used to measure fair value:

The Company's financial instruments consist principally of cash, accounts payable, and accrued liabilities. Pursuant to ASC 820 and 825, the fair value of cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

Recently Adopted Accounting Standards

The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board ("FASB"), the US Securities and Exchange Commission ("SEC"), and the Emerging Issues Task Force ("EITF"), to determine the impact of new pronouncements on GAAP and the impact on the Company. The Company has recently adopted the following new accounting standards:

Adopted :

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive. This guidance is the culmination of the FASB's deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income. However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. The adoption of this update did not have a material impact on its consolidated financial statements.

In April 2013, the FASB issued ASU No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. The objective of ASU No. 2013-07 is to clarify when an entity should apply the liquidation basis of accounting and to provide principles for the measurement of assets and liabilities under the liquidation basis of accounting, as well as any required disclosures. The amendments in this standard is effective prospectively for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. The adoption of this update did not have a material impact on its consolidated financial statements.

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In July 2013, the FASB issued ASU No 2013-11, Presentation of an Unrecognized Tax Benefit When Net Operating Loss Carryforward Exists.  The objective of ASU 2013-11 is to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits, and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, and interim reporting periods therein. Early adoption is permitted. The adoption of this update did not have a material impact on its consolidated financial statements.

In June 2014, the FASB issued ASU No, 2014-10, Elimination of Certain Financial Reporting Requirements for Development Stage Entities.  The objective of ASU 2014-10 is to reduce the cost and complexity associated with the incremental reporting requirements for development stage entities.  This Update removes all incremental financial reporting requirements, and eliminates an exception provided to development stage entities in Topic 810.  The amendments in this standard are effective retrospectively for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted.

Not Yet Adopted:

In April 2014, the FASB issued ASU No. 2014-08 Presentation of Financial Statements (Topic 205): Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity.  The objective of ASU No. 2014-08 is to clarify the criteria for determining which disposals can be presented as discontinued operations and also modifies related disclosure requirements. The standard is required to be adopted by public business entities in annual periods beginning on or after December 15, 2014, and interim periods within those annual periods.  Early adoption is permitted for new disposals beginning in the first quarter of 2014, provided financial statements have not been issued before the release of this standard. The Company is evaluating the effect, if any, adoption of ASU No. 2014-08 will have on its consolidated financial statements.

In August 2014, the FASB issued ASU No 2014-15 Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The objective of ASU 2014-15 is to provide guidance in GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.  The Company is evaluating the effect, if any, adoption of ASU No. 2014-15 will have on its consolidated financial statements.

In November 2014, the FASB issued ASU No. 2014-17 Business Combinations (Topic 805): Pushdown Accounting. The objective of ASU 2014-17 is to provide guidance on whether and at what threshold an acquired entity that is a business or nonprofit activity can apply pushdown accounting in its separate financial statements. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. However, if the financial statements for the period in which the most recent change-in-control event occurred already have been issued or made available to be issued, the application of this guidance would be a change in accounting principle. The Company is evaluating the effect, if any, adoption of ASU No. 2014-17 will have on its consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01 Income Statement-Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The effective date is the same for both public business entities and all other entities. The Company is evaluating the effect, if any, adoption of ASU No. 2015-01 will have on its consolidated financial statements.

Recently Issued Accounting Standards Updates:

There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

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NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:  

Depreciation expense for the years ended December 31, 2014 and 2013 was $6,324 and $10,566, respectively.

NOTE 4. INTANGIBLE ASSETS

Intangible assets consists of the following:

Amortization expense for the years ended December 31, 2014 and 2013 was $1,664 and $1,666, respectively.

NOTE 5. NOTES AND LOANS PAYABLE

Notes and loans payable consists of the following:

In June 2010, the Company issued a note payable in the principal amount of $9,075 to a non-related party.  Under the terms of the note, the amount is unsecured, non-interest bearing, and due upon demand. As of December 31, 2014, no demand has been made.

In June 2010, the Company issued a note payable in the principal amount of $10,000 to a non-related party. Under the terms of the note, the amount is unsecured, accrues interest at a rate of 8% per annum, and is due upon demand. As of December 31, 2014, no demand has been made.  Interest in the amount of $3,815 and $3,015 has been accrued as of December 31, 2014 and 2013, respectively, and is included as part of accrued expenses on the accompanying consolidated balance sheets.

On April 21, 2011, the Company issued a note payable in the principal amount of $65,000 to a non-related party. The note is unsecured, bears interest at a rate of 10% per annum, and is due upon demand. As of December 31, 2014, no demand has been made. Interest in the amount of $25,697 and $19,197 has been accrued as of December 31, 2014 and 2013, respectively, and is included as part of accrued expenses on the accompanying consolidated balance sheets.

On September 30, 2010, the Company issued a Convertible Note Payable in the amount of $144,000 to a non-related party pursuant to a Confidential Settlement Agreement.  On January 1, 2012, the note was assigned and purchased by The Kasper Group. Ltd., a former related party, and a new Convertible Promissory Note was issued (the "Kasper Note"). The Kasper Note bears interest at a rate of 7% per annum, is due by January 1, 2015, and contains a repayment provision to convert the debt into common stock of the Company at a rate of $0.25 per share.  On March 31, 2014, the former related party resigned, and the note, included as a related party transaction at December 31, 2013 [1] , was reclassified as a non-related party transaction at March 31, 2014. Interest in the amount of $30,240 and $20,160 has been accrued as of December 31, 2014 and 2013, respectively, and is included as an accrued expense on the accompanying consolidated balance sheets.

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Certain loans payable in the aggregate sum of $11,900, previously classified as related party transactions at December 31, 2013 [2] , were reclassified as non-related party transactions during the current year.  The loans, which were made by former officers of the Company for the purpose of short term overhead requirements, are unsecured, non-interest bearing, and are due upon demand. As of December 31, 2014, no demand has been made.

As at December 31, 2014 and 2013, interest in the amount of $59,752 and $42,372, respectively, has been accrued on notes payable, and is included as part of accrued expenses on the accompanying consolidated balance sheets.

NOTE 6. RELATED PARTY TRANSACTIONS

Related party transactions consist of the following:

On November 15, 2010, the Company entered into an employment agreement with its CEO, Mr. J. Michael Redmond (the "Employment Agreement"). Under the Employment Agreement, Mr. Redmond agrees to serve as the President, CEO, and Director of the Company for a term of three years, and thereafter renewed automatically in one (1) year periods. As compensation for his services, Mr. Redmond's base salary will be $200,000 per annum for the first year, increasing to $225,000 in year 2, and $250,000 in year 3, contingent upon the Company meeting certain goals. In addition, Mr. Redmond was granted one million three hundred seventy five thousand (1,375,000) options at an exercise price of $0.10 per share. On July 31, 2014, a convertible promissory note was issued to Mr. Redmond in the principal sum of $544,231, representing all unpaid compensation [1] through July 31, 2014. On December 31, 2014, the Company modified the note to increase the principal by $93,462 for additional unpaid compensation through December 31, 2014. The note bears interest at a rate of 5% per annum, is due by July 31, 2015, and contains a repayment provision to convert the debt into common stock of the Company at a strike price of $0.10. The conversion price of $0.10 results in a beneficial conversion feature.  As a result, the difference between the conversion rate and the market rate of $326,539 has been classified as a discount on the note.  During the year ended December 31, 2014, the Company expensed $136,058 in discount amortization.  As of December 31, 2014, $190,481 of unamortized discount remains, and will be amortized over the next 7 months. As of December 31, 2014, interest in the amount of $11,406 has been accrued, and is included as part of accrued expenses on the accompanying consolidated balance sheets.

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On January 2, 2012, the Company entered into a consulting agreement with Huntington Chase Financial Group LLC ("HCFG"), a Nevada corporation, whose principal is a related party. The consulting agreement provides for HCFG to provide advisory services to the Company for a period of three years for a fee of $12,500 per month, which has been deferred until such time as the Company reaches certain funding goals. HCFG made cash advances to the Company in the amount of $46,100 for the purpose of overhead advances, for which a Convertible Promissory note was issued on December 31, 2012. On December 31, 2014, the Company modified the note to increase the principal to $496,100, to include all unpaid compensation [2] due HCFG through December 31, 2014.  The note bears interest at a rate of 7% per annum, is due by December 31, 2015, and contains a repayment provision to convert the debt into common stock of the Company at a strike price of $0.10. The conversion price of $0.10 results in a beneficial conversion feature.  As a result, the difference between the conversion rate and the market rate of $146,955 has been classified as a discount on the note.  During the year ended December 31, 2014, the Company expensed $58,695 in discount amortization.  As of December 31, 2014, $88,260 of unamortized discount remains, and will be amortized over the next 15 months. As of December 31, 2014 and 2013, respectively, interest in the amount of $25,845 and $2,834 has been accrued, and is included as part of accrued expenses on the accompanying consolidated balance sheets.

Certain accrued compensation in the aggregate sum of $37,500, previously classified as related party transactions at December 31, 2013 [3], was reclassified as non-related party transactions during the current year.  The accrued compensation, owed to former officers of the Company, is included as part of accrued expenses on the accompanying balance sheet as of December 31, 2014.

Certain advances made by former officers of the Company for the purpose of short term overhead requirements in the amount of $103,449 [4] were forgiven.  As a result, $103,449 was reclassified to additional paid in capital.

As at December 31, 2014 and 2013, respectively, related parties are due a total of $958,615 and $1,111,793, consisting of $75,800 and $795,127 in accrued compensation; $27,763 and $126,566 in cash advances to the Company for operating expenses; and $855,052 and $190,100 in related party convertible notes payable, net of unamortized discounts.  The notes bear interest at a rate of between 5% and 7% per annum and mature between July 31, 2015 and December 31, 2015.  As at December 31, 2014 and 2013, interest in the amount of $37,251 and $22,994 respectively, has been accrued on related party notes payable, and is included as part of accrued expenses on the accompanying consolidated balance sheets.