Parallax Health Sciences Inc (EDVP) SEC Quarterly Report (10-Q) for Q2 2016

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2016
or

o   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to _________
Commission File Number 000-52534

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

o YES       x   NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o YES       x   NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of " large accelerated filer " , " accelerated filer " and " smaller reporting company " in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

o YES       x NO

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

113,954,530 common shares issued and outstanding as of August 20, 2017

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PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The Company's unaudited interim consolidated financial statements for the six months ended June 30, 2016, form part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2015, on Form 10-K, as filed with the Securities and Exchange Commission on July 27, 2017.

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The accompanying notes are an integral part of these consolidated financial statements

3

The accompanying notes are an integral part of these consolidated financial statements

4

The accompanying notes are an integral part of these consolidated financial statements

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PARALLAX HEALTH SCIENCES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

NOTE 1. OVERVIEW AND NATURE OF BUSINESS

These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2015. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements have been omitted.

Parallax Health Sciences, Inc. (the "Company") was incorporated in the State of Nevada on July 6, 2005.  The Company's principal focus is on personalized patient care, through the Company's wholly owned subsidiary, RoxSan Pharmacy, Inc. ("RoxSan"), and through the Company's wholly owned subsidiary, Parallax Diagnostics Inc., which holds the right, title, and interest in perpetuity to certain point of care diagnostic tests.  The Company's diagnostic testing platform is capable of diagnosing and monitoring several health issues.

On August 13, 2015, the Company entered into an agreement with RoxSan Pharmacy, Inc., a California corporation, and its sole shareholder, Shahla Melamed, to purchase 100% of the issued and outstanding shares of RoxSan's common stock and its assets and inventory. As a result, effective August 13, 2015, RoxSan became the Company's wholly owned subsidiary (Note 11).  Concurrently, Mrs. Melamed resigned from all positions within RoxSan, and Mr. J. Michael Redmond was appointed RoxSan's President and Chief Executive Officer, and Ms. Calli Bucci its Chief Financial Officer.  Mr. Redmond and Ms. Bucci were also appointed as Chairman and member, respectively, of RoxSan's board of directors.

On July 6, 2017, Mr. J. Michael Redmond was terminated as Chief Executive Officer and President of the Company and resigned as chairman and member of the board of directors, pursuant to his employment agreement.  Effective July 7, 2017, Mr. Paul R. Arena was appointed as Chief Executive Officer and President of the Company and elected as a member of the board of directors.

The Company has the following two business segments: Retail Pharmacy Services (RPS) and Corporate.

Retail Pharmacy Services (RPS)

The RPS provides a full range of pharmacy services including retail, compounding and fertility medications.  

The RPS generates net revenues primarily by dispensing prescription drugs, both through local channels by direct delivery as well as mail order. The RPS also sells a wide assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, seasonal merchandise and convenience foods, through the Company's pharmacy.

The pharmacy is fully licensed and qualified to conduct business in over 40 US States.  

Corporate

The Corporate Segment provides management and administrative services to support the Company, and consists of certain aspects of the Company's executive management, corporate relations, legal, compliance, human resources, and corporate information technology and finance departments.  In addition, the Corporate Segment supports the costs and operating expenses related to the continued development and exploitation of the Company's proprietary medical diagnostic and monitoring platform and processes, which remains the Company's primary focus.  

The accompanying 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 $10,627,917 and a working capital deficit of $1,030,307, 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 generate profitable operations and/or 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 subsidiaries, Parallax Diagnostics, Inc. and RoxSan Pharmacy, Inc., unless otherwise indicated.

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 subsidiaries. All intercompany balances and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

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Fair Value Hierarchy

The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:

Level 1:  Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2:  Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.

Level 3:  Inputs to the valuation methodology are unobservable inputs based upon management's best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.

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 June 30, 2016, and December 31, 2015, the Company had no cash equivalents.

Fair Value of Financial Instruments

As of June 30, 2016, and December 31, 2015, respectively, the carrying values of Company's Level 1 financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and short-term debt approximate fair value. The fair value of Level 3 instruments is calculated as the net present value of expected cash flows based on externally provided or obtained inputs. Certain Level 3 instruments may also be based on sales prices of similar assets. The Company's fair value calculations take into consideration the credit risk of both the Company and its counterparties as of the date of valuation. See Note 7 and 11 for additional information about long-term debt.

There were no outstanding derivative financial instruments as of June 30, 2016, and December 31, 2015.

Accounts Receivable

Accounts receivable are stated net of an allowance for doubtful accounts. The accounts receivable balance primarily includes amounts due from third party providers (e.g., pharmacy benefit managers, insurance companies and governmental agencies), as well as customers, vendors and manufacturers.  Charges to bad debt are based on both historical write-offs and specifically identified receivables.

The activity in the allowance for doubtful accounts receivable for the six months ended June 30, 2016, and the year ended December 31, 2015, is as follows:

Management has determined that the collection of certain revenues relating to workers compensation insurance claims, in the retail value of $8,402,788, cannot be reasonably assured.  As a result, an allowance for doubtful collections of workers compensation claims in the amount of $8,402,788 has been established until such time as collection can be reasonably assured.

Inventory

Inventory is stated at the lower of cost or market. Prescription drug inventories are accounted for using the weighted average cost method. Front store inventories are accounted for on a first-in, first-out basis using the retail inventory method. Physical inventory counts are taken on a regular basis and a continuous cycle count process is the primary procedure used to validate the inventory balances on hand to ensure that the amounts reflected in the accompanying financial statements are properly stated.

Property and Equipment

Property and equipment is comprised of office and computer equipment and software, furniture and fixtures, leasehold improvements, and vehicles, recorded at cost and depreciated using the double declining balance method over the estimated useful lives of 5 to 7 years. Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated. Application development stage costs for significant internally developed software projects are capitalized and depreciated. See Note 4 for additional information about property and equipment.

Intangible Assets

Product processes, patents and customer lists are amortized on a straight-line basis over their estimated useful lives between 10 and 20 years. See Note 5 for additional information about intangible assets.

Goodwill and other Indefinitely-lived assets

Goodwill and other indefinitely-lived assets are not amortized, but are subject to impairment reviews annually, or more frequently if necessary.

Impairment of Long-Lived Assets

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.

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

Convertible Debt

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.

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Net Income (Loss) Per Common 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

As at June 30, 2016, and December 31, 2015, 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

Revenue is recognized when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured.

The Retail Pharmacy recognizes revenue at the time the customer takes possession of the merchandise. Customer returns are not material. Sales taxes are not included in revenue.

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 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:

Adopted :

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.

In April 2015, the FASB issued ASU 2015-03 Interest-Imputation of Interest (Subtopic 835-30: Simplifying the Presentation of Debt Issuance Costs.  ASU 2015-03 is part of the Simplification Initiative, and its objective of to simplify the presentation of debt issuance costs.  This Update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update.  The amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued.

In July 2015, the FASB issued ASU 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory.  ASU 2015-11 is part of the Simplification Initiative, and its objective is to simplify the measurement of inventory.  This Update applies to inventory that is measured using FIFO or average cost, and requires an entity measure inventory at the lower of cost and net realizable value.  The amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The amendments in this Update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.  

In September 2015, the FASB issued ASU 2015-16 Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments.  ASU 2015-16 is part of the Simplification Initiative, and eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not been issued.

Not Yet Adopted :

In February 2016, the FASB issued ASU No. 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The ASU will be effective for the Company beginning January 1, 2019 with early adoption permitted. The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation. The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this standard are effective for the Company's annual year and first fiscal quarter beginning on January 1, 2017 with early adoption permitted. The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.

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In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.  ASU 2016-10 clarifies the accounting for licenses of intellectual property as well as the identification of distinct performance obligations in a contract. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09).  The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 addresses certain issues identified in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09).  The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.

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.

NOTE 3. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consists of the following:

As of June 30, 2016, and December 31, 2015, respectively, the Company had accounts receivable of $9,830,335 and $9,862,407, consisting of $1,171,865 and $999,612 in insurance claims, $8,464,832 and $8,549,073 in workers compensation claims, and $193,638 and $313,722 in customer house account charges, for which payment has not yet received.

As of June 30, 2016, and December 31, 2015, respectively, $193,638 and $313,722 was owed from customers receivable, consisting of $26,057 and $33,894 in copayments, and $167,581 and $279,828 in charges for prescriptions and other retail purchases made by certain preferred customers, for which the Company provides monthly invoices to and receives regular payments on.  

Management has determined that, as of June 30, 2016, and December 31, 2015, respectively, the collection of certain revenues relating to workers compensation claims, in the retail value of $8,402,788 and $8,378,853, cannot be reasonably assured.  As a result, an allowance for the doubtful collection of workers compensation claims in the amount of $8,402,788 and $8,378,853 has been established until such time as collection can be reasonably assured. The collectability of workers compensation claims in the amount of $128,441 and $170,220 can be reasonably assured.  As a result, the Company has included this amount as revenues earned on the accompanying income statement.

An allowance for doubtful collection of insurance claims has been established in the amount of $34,000.

As of June 30, 2016, and December 31, 2015, respectively, accounts receivable, net of allowances for doubtful accounts, was $1,393,547 and $1,449,554.

NOTE 4. PROPERTY AND EQUIPMENT

The following are the components of property and equipment:

During the year ended December 31, 2015, the Company disposed of equipment valued at $0, and recognized a loss in the amount of $10,155.  

Depreciation expense for the six months ended June 30, 2016, and 2015, was $19,013 and $3,078, respectively.

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NOTE 5. INTANGIBLE ASSETS

The following are the components of finite-lived intangible assets:

Amortization expense for the six months ended June 30, 2016, and 2015, was $84,166 and $832, respectively.

NOTE 6. LOANS RECEIVABLE

Loans receivable consists of $412,448 and $176,884, respectively, in monies owed to the Company from the former owner of RoxSan Pharmacy as of June 30, 2016, and December 31, 2015.  Included in this amount are monies collected by the former owner for revenues earned subsequent to the closing date of August 13, 2015 (the "Closing Date"), less monies collected by the Company for revenues earned prior the Closing Date; and monies advanced by the Company on behalf of the former owner for expenses incurred prior to the Closing Date, less monies advanced by the former owner on behalf of the Company for expenses incurred subsequent to the Closing Date.  

The amount owed to the Company is being disputed by the former owner, and is part of the legal proceedings disclosed in Note 16. The Company is confident that it shall prevail in this matter.

NOTE 7. NOTES AND LOANS PAYABLE

Notes and loans payable consists of the following:

As of June 30, 2016, and December 31, 2015, non-related party loans and promissory notes in the aggregate sum of $95,975 are owed by the Company.  The loans, made in previous years, were for short-term overhead requirements, and are unsecured and non-interest bearing.  The notes bear interest a rate of 8% to 10% per annum, are unsecured, and are payable upon demand.  As of June 30, 2016, and December 31, 2015, respectively, no demand has been made.  During the six months ended June 30, 2016, and the year ended December 31, 2015, respectively, interest in the amount of $3,640 and $7,300 was expensed. As of June 30, 2016, and December 31, 2015, respectively, a total of $40,452 and $36,812 in interest has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheet.

Non-related party convertible notes payable consists of the following:

As of June 30, 2016, and December 31, 2015, a non-related party convertible promissory note in the amount of $144,000 is owed by the Company. The unsecured note bears interest at a rate of 7% per annum, was due by January 1, 2015, and contains a repayment provision to convert the debt into shares of the Company's common stock at a rate of $0.25 per share.  As of June 30, 2016, and December 31, 2015, respectively, no demand for payment or conversion has been made. During the six months ended June 30, 2016, and the year ended December 31, 2015, respectively, interest in the amount of $5,026 and $10,080 was expensed.  As of June 30, 2016, and December 31, 2015, respectively, a total of $45,346 and $40,320 in interest has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheet.

On August 13, 2015, the Company issued a secured promissory note in the amount of $20.5 million in connection with the acquisition of RoxSan Pharmacy, Inc. (Note 11).  The note bears interest at a rate of 6% per annum, and matures in three (3) years, or August 13, 2018 ("Maturity").  Management has determined that the note issued does not fairly represent the fair market value for the related acquisition at the date of purchase.  As a result, a discount of $15,300,000, representing the difference between the face value and the estimated fair market value of the note has been recorded. During the six months ended June 30, 2016, and the year ended December 31, 2015, the Company expensed $2,550,000 and $1,955,000, respectively, in discount amortization.  As of June 30, 2016, and December 31, 2015, respectively, $10,795,000 and $13,345,000 in unamortized discount remains, to be amortized over the next 26 months, to the note's maturity.  During the six months ended June 30, 2016, and the year ended December 31, 2015, interest in the amount of $281,788 and $101,702, respectively, has been expensed.  As of June 30, 2016, and December 31, 2015, respectively, a total of $383,490 and $101,702 has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheets.

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On October 9, 2015, the Company, through its wholly owned subsidiary, RoxSan, entered into a Business Loan and Security Agreement (the "Loan") with American Express, FSB, in the principal sum of $2,000,000.  The Loan includes interest in the form of a flat fee of $240,000, or 12% per annum, to be amortized over twenty-four (24) months, to the Loan's maturity.  Payments of principal and interest are made through collection of merchant funds received by the Company for customer purchases paid with the American Express credit card.  During the six months ended June 30, 2016, and the year ended December 31, 2015, respectively, payments totaling $504,412 and $193,792 have been made, representing $444,412 and $169,599 in principal and $60,000 and $24,193 in interest. As of June 30, 2016, and December 31, 2015, respectively, principal of $1,385,990 and $1,830,401 and unamortized loan fee of $135,807 and $215,806 remains.

During the six months ended June 30, 2016, and the year ended December 31, 2015, respectively, interest on notes and loans payable in the amount of $290,454 and $143,275 has been expensed.  As at June 30, 2016, and December 31, 2015, respectively, a total of $469,288 and $203,027 in interest has been accrued and is included as part of accrued expenses on the accompanying consolidated balance sheets.

NOTE 8. RELATED PARTY TRANSACTIONS

Related party transactions consist of the following:

As at June 30, 2016, and December 31, 2015, respectively, related parties are due a total of $1,215,860 and $1,240,864, consisting of $104,800 and $120,800 in accrued compensation; $3,806 and $12,810 in cash advances to the Company for operating expenses; and $1,107,254 and $1,107,254 in related party convertible notes payable.

Related party convertible notes payable consists of the following:

The Company has issued convertible promissory notes to its principals in the aggregate sum of $1,107,254, representing cash loans and unpaid compensation.  The notes bear interest at a rate of between 5% and 7% per annum, mature between and December 31, 2015 and July 31, 2017, and contain a repayment provision to convert the debt into common stock of the Company at a strike price of $0.10.  During the six months ended June 30, 2016, and the year ended December 31, 2015, respectively, interest in the amount of $30,908 and $70,646 was expensed.  As of June 30, 2016, and December 31, 2015, respectively, a total of $138,805 and $107,897 in interest has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheet.

During the years ended June 30, 2016, and December 31, 2015, respectively, interest on related party notes payable in the amount of $30,908 and $70,646 was expensed.  As at June 30, 2016, and December 31, 2015, respectively, a total of $138,805 and $107,897 in interest has been accrued, and is included as part of accrued expenses on the accompanying consolidated balance sheets.

NOTE 9: CONVERTIBLE PREFERRED STOCK

The total number of authorized shares of preferred stock that may be issued by the Company is 10,000,000 with a par value of $0.001 per share.

All preferred shares are convertible into the Company's common stock at a rate of 20 shares of common stock for each preferred share held, and were issued with 100% warrant coverage (Note 11).  The number of shares of common stock underlying the warrants and the exercise price are subject to adjustment upon certain events.

As of June 30, 2016, and December 31, 2015, the Company had 823,691 shares of preferred stock issued and outstanding.

NOTE10. COMMON STOCK

The total number of authorized shares of common stock that may be issued by the Company is 250,000,000 with a par value of $0.001 per share.  

As of June 30, 2016, and December 31, 2015, the Company had 120,566,774 common shares issued and outstanding.

NOTE 11. WARRANTS AND OPTIONS

As of June 30, 2016, and December 31, 2015, respectively, the Company had 15,262,491 and 15,989,276 warrants and 9,035,000 and 9,200,000 options issued and outstanding.

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On January 12, 2016, the Company granted a key employee 60,000 options to purchase common shares at $0.05 for a period of 5 years.  The options vest quarterly over a three (3) year period, and were valued at $1,610, using the Black-Scholes method.  The assumptions used in valuing the options were: expected term 5.75 years, expected volatility 1.42, risk free interest rate 1.55%, and dividend yield 0%.

During the six months ended June 30, 2016, and the year ended December 31, 2015, respectively, a total of $1,610 and $379,910 in deferred compensation was recorded, and $65,984 and $58,024 in stock option compensation was expensed.  There remains $257,512 and $321,886 in deferred compensation as of June 30, 2016, and December 31, 2015, respectively, to be expensed over the next 27 months.

NOTE 12: BUSINESS ACQUISITIONS

On August 13, 2015, the Company purchased 100% of the issued and outstanding shares of RoxSan Pharmacy, Inc. common stock and its assets and inventory in exchange for a secured promissory note in the principal sum of $20.5 million (the "Acquisition Agreement").  As part of the Acquisition Agreement, all existing cash and trade receivables, and all existing debt as of August 12, 2015, remained the property/obligation of the seller.  

The negotiated purchase price was based upon, among other things, the guarantee of certain revenues being collectible and contracts being in place after closing.  It was discovered after closing that, among other things, the revenues were not collectible and the contracts were not in place.  The improper disclosures by the seller during negotiations significantly affected the purchase price and related note payable, and management has determined that the purchase price and related promissory note do not fairly represent the fair market value at the date of purchase.  As a result, the company has discounted the promissory note to its estimated fair market value of $5.2 million (Note 7).

The following represent the fair values of the assets acquired by the Company on August 13, 2015:

The fair market value established at August 13, 2015 does not include the effects of any liabilities the seller omitted or caused the Company to incur as a result of the seller and its associates.

The goodwill represents future economic benefits expected to arise from the Company's expanded presence in the specialty pharmaceuticals market, the assembled workforce acquired, and the expected synergies from combining operations with RoxSan. The goodwill is nondeductible for income tax purposes.

RoxSan's results of operations are included in the Company's statements of operations beginning on August 13, 2015 (Note 15).  During the year ended December 31, 2015, acquisition costs of $110,000 were expensed and incurred within general and administrative expenses.

NOTE 13. COMMITMENTS AND CONTINGENCIES

The Company leases office space and commercial facilities in Beverly Hills, California.  The lease agreement for the office space renews annually at a base rent of $92,880.  The commercial facilities are leased under agreements with original terms of twelve (12) years, with one (1) renewal option of twelve (12) years, and contain base monthly rent for premises plus a proportionate share of common area maintenance cost (CAM). The company also sub-leases office space for its administrative offices in Santa Monica, California, for $5,600 per month, on a month-to-month basis.

The future minimum rental payments required under the lease agreements are summarized as follows:

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Rent expense for the six months ended June 30, 2016, and the year ended December 31, 2015, was $215,667 and $155,713, respectively, including $29,209 and $22,456, respectively, of common area maintenance cost.

NOTE 14. INCOME TAXES

The components of the cumulative net deferred tax asset at June 30, 2016, and December 31, 2015, the statutory tax rate, the effective tax rate and the amount of the valuation allowance are indicated below:

The significant components of deferred income tax assets and liabilities at June 30, 2016, and December 31, 2015 are as follows:

As at June 30, 2016, and December 31, 2015, respectively, the Company had approximately $10,587,000 and $6,698,000 of federal net operating losses which expire commencing in the year 2026.

NOTE 15. SEGMENT REPORTING

The Company has the following two business segments: Retail Pharmacy Services and Corporate. See Note 1 for a description of the Retail Pharmacy Services and Corporate segments and related significant accounting policies.

The following table is a reconciliation of the Company's business segments to the consolidated financial statements:

NOTE 16. SUBSEQUENT EVENTS

The Company has evaluated the events and transactions for recognition or disclosure subsequent to June 30, 2016, and has determined that there have been no events that would require disclosure, except for the following:

On July 28, 2016, 20,000,000 shares of the Company's common stock held by three (3) shareholders were cancelled and returned to treasury. As a result, $20,000 was recorded as additional paid in capital.

On September 20, 2016, pursuant to a resolution of the board of directors, the Company completed the acquisition (the "Acquisition") of QOLPOM, Inc., an Arizona corporation ("QOLPOM") in the remote healthcare monitoring industry, in accordance with an Agreement to Purchase One Hundred Percent of the Issued and Outstanding Shares of QOLPOM, Inc. and its Assets, Inventory and Intellectual Property (the "QOLPOM Agreement") between the Company, QOLPOM and its shareholders (the "Seller").  Pursuant to the QOLPOM Agreement, in exchange for 100% of the QOLPOM stock and 100% of QOLPOM's assets, inventory and intellectual property, among other things, consideration to the Seller included:

1.

stock purchase agreements for the Seller to purchase an aggregate of 5,000,000 shares of the Company's common stock at $0.001 per share; and

2.

a cash earn-out of $2,000,000, to be derived from revenue generated from the QOLPOM business segment; and

3.

a royalty of 3% of the revenue generated by QOLPOM from its technology to a third-party non-profit organization located in Arizona; and

4.

options granted to the Sellers to purchase 2,500,000 shares of the Company's common stock, to vest quarterly over three (3) years beginning one (1) year after Closing, with the following terms:

a.

500,000 common stock options priced at $0.10.

b.

1,000,000 common stock options priced at $0.15.

c.

1,000,000 common stock options priced at $0.25.

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On September 23, 2016, in connection with the Acquisition, and pursuant to the terms and conditions of the QOLPOM Agreement, the Company issued 5,000,000 shares of its restricted common stock to the QOLPOM Seller.  The shares, valued at $225,000, were issued for cash in the amount of $5,000.  As a result, $220,000 was recorded to additional paid in capital.

On September 25, 2016, pursuant to a resolution of the board of directors, the Company entered into an executive agreement for Dr. Robert Burns Arnot to join the Company as its Chief Medical Officer.  Pursuant to the executive agreement, the Company granted Dr. Arnot the right to purchase 250,000 shares of the Company's restricted common stock at $0.001 per share, and was granted options to purchase1,000,000 shares of common stock at a strike price of $0.05 per share.  Concurrently, the Company entered into a revenue sharing agreement that provides for  Dr. Arnot to receive 10% of adjusted gross revenue from the certain sales generated by the Company, as defined in the agreement.

On December 2, 2016, in connection with a certain subscription agreement, the Company issued 10,000 shares of its Series B Preferred Stock at $5.00 per share, for cash in the amount of $50,000. Each Preferred share is convertible into twenty (20) common shares at a price of $0.25 per share, for a total of 200,000 common shares, if converted.  The subscription includes 50% warrant coverage for a period of two (2) years, to purchase 100,000 shares of the Company's common stock at a price of $0.75 per share. Dividends are payable semi-annually at a rate of 10% per annum, to be paid in cash or in kind, at the option of the Company.

On January 20, 2017, the Company changed the name of its wholly owned subsidiary, QOLPOM, Inc., to Parallax Health Management, Inc.

On January 23, 2017, in connection with a certain subscription agreement, the Company issued 30,000 shares of its Series B Preferred Stock at $5.00 per share, for cash in the amount of $150,000. Each Preferred share is convertible into twenty (20) common shares at a price of $0.25 per share, for a total of 600,000 common shares, if converted.  The subscription includes 50% warrant coverage for a period of two (2) years, to purchase 300,000 shares of the Company's common stock at a price of $0.75 per share. Dividends are payable semi-annually at a rate of 10% per annum, to be paid in cash or in kind, at the option of the Company.

On March 22, 2017, the Company formed a wholly owned subsidiary, Parallax Behavioral Health, Inc. ("PBH"), a Delaware corporation.

On May 1, 2017, pursuant to a resolution of the board of directors, the Company and its wholly-owned subsidiary, Parallax Behavioral Health, Inc., completed the acquisition of 100% of certain intellectual property from ProEventa Inc., a Virginia Corporation ("ProEventa"), in accordance with the Intellectual Property Purchase Agreement between the Company, PBH and ProEventa (the "ProEventa Agreement"). ProEventa has an expertise in the development of behavioral health technologies, and is the wholly owned subsidiary of Grafton Integrated Health Network, Inc., a non-profit Virginia corporation ("Grafton"), Pursuant to the ProEventa Agreement, in exchange for 100% of that certain intellectual property, among other things, consideration to ProEventa included:

1.

a stock purchase agreement to purchase 2,500,000 shares of the Company's common stock at $0.001 per share; and

2.

a revenue sharing agreement, providing for a cash earn-out to be paid to the ProEventa shareholders of up to $3,000,000, to be derived from certain net revenue generated by the Company, as defined in the agreement; and

3.

a royalty agreement, providing for a royalty of 3% of the revenues be paid to ProEventa, up to $25,000,000 in revenues, generated from the intellectual property, and

4.

a limited license to ProEventa for the use of certain of the Intellectual Property's technology at Grafton Schools.

On May 1, 2017, in conjunction with the ProEventa Agreement, the Company entered into a consulting agreement with James Gaynor that, among other things, provides for consideration to Mr. Gaynor as follows:

1.

a stock purchase agreement to purchase 500,000 shares of the Company's common stock at $0.001 per share; and

2.

a grant of options to purchase 1,000,000 shares of the Company's common stock at a price of $0.25 per share, with the following terms:

a.

334,000 common stock options vesting on September 1, 2017.

b.

333,000 common stock options vesting on September 1, 2018.

c.

333,000 common stock options vesting on September 1, 2019.

On May 17, 2017, in connection with the ProEventa Agreement, and related consulting agreement, the Company issued 3,000,000 shares of its restricted common stock. The shares, valued at $720,000, were issued for cash in the amount of $3,000.  As a result, $717,000 was recorded to additional paid in capital.

Effective July 7, 2017, the Board of the Company caused the departure of Mr. Redmond from his position as President and Chief Executive Officer of the Company and its wholly-owned subsidiary, RoxSan Pharmacy, Inc. Pursuant to the Employment Agreement dated August 1, 2015, Mr. Redmond resigned from the Board of the Company and its wholly-owned subsidiary, RoxSan Pharmacy, Inc.

Effective July 7, 2017, pursuant to a unanimous Board resolution, Mr. Paul Arena was appointed as the Company's President and Chief Executive Officer, and the Board caused Mr. Arena's election to the Company's Board and the Board of its wholly-owned subsidiary, RoxSan Pharmacy, Inc.

In connection with Mr. Arena's appointment, the Company entered into an Executive Employment Agreement (the "Agreement") with Mr. Arena dated July 7, 2017, wherein Mr. Arena's will serve as President and Chief Executive Officer for a period of three (3) years.  As compensation for his services, Mr. Arena will receive a base compensation of Three Hundred Fifty Thousand Dollars ($350,000) per annum in year one, of which 30% shall be deferred until certain funding goals are met; Four Hundred Twenty Five Thousand dollars ($425,000) in year two; and Five Hundred Fifty Thousand ($550,000) in year three. Mr. Arena shall also be entitled to bonus compensation in the amount of twice (2x) the base salary in any given year the Company's EBITDA reaches or exceeds certain minimums, as set forth in the Agreement.  In addition, the Agreement includes a restricted stock award of ten million (10,000,000) common shares, of which 25% vests immediately; 25% vests in one year; 25% vests after two years; and 25% vests when certain funding goals have been met.  The Agreement also includes the grant of five million (5,000,000) stock options at an exercise price of twenty five cents ($0.25) per share.  The options are for a period of five years, and vest as follows: a) 25% immediately upon execution of the Agreement; b) 25% when the Company's stock trades above forty cents ($0.40) per share for a period of thirty (30) days; c) 25% when the Company's stock trades above seventy-five cents ($0.75) per share for a period of sixty (60) days; and d) 25% when the Company's stock trades at over one dollar ($1.00) per share for a period of ninety (90) days.

Legal Matters:

Following the Company's acquisition of RoxSan Pharmacy (the "Pharmacy"), the former owner ("Melamed") initiated two (2) legal actions against the Company in the Superior Court of the State of California, County of Los Angeles, West District, Shahla Melamed v. Parallax Health Sciences, Inc ., action numbers SC 124873 and SC 125702 (the "Matter").  

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In the Matter, action No. SC124873, Melamed sought rescission of the August 13, 2015, Agreement, whereby the Company acquired 100% of the issued and outstanding shares of the Pharmacy and its assets and inventory (the "Purchase Agreement").  Rescission was sought on the basis that, allegedly, in order to acquire the Pharmacy, the Company and its principals had allegedly defrauded Melamed, there had allegedly been a complete failure of consideration, and a unilateral mistake was allegedly made on the part of Melamed.

On March 17, 2017, in the Matter, action No. SC124873, the Court ruled in favor of the Company, and issued that Melamed is not entitled to rescission of the Purchase Agreement.  The ruling of the Court stated that no fraud on the part of the Company or its principals had been demonstrated.  The Court further ruled that there had been no failure of consideration, and that Melamed's entry into the Agreement was not a result of a unilateral mistake on the part of Melamed.  The Minutes of the Ruling were entered by the County Clerk on March 17, 2017.

The Company has likewise initiated legal action against Melamed and filed an action in the Superior Court of the State of California, County of Los Angeles, West District, Parallax Health Sciences, et al. v. Shahla Melamed, et al. , case number SC 124898.  The Complaint in that action alleges that Melamed has breached several obligations under the Purchase Agreement, and the Company seeks to reduce the Secured Note due to undisclosed material changes in the business.

Subsequently filed pleadings by the Company and RoxSan in case number SC 124873 allege, among other things, that Melamed misrepresented the true earnings and source of income for the pharmacy business and had engaged in a fraudulent and illegal scheme to ship medications to states where her pharmacy was not licensed prior to the sale of the Pharmacy.

Purchase Price Dispute

Included in the Acquisition Agreement for RoxSan Pharmacy, Inc., and as part of the negotiated purchase price, were representations and warranties made by the former owner involving certain primary revenue streams and related contracts.  Shortly after the closing, however, management discovered that these representations were substantially inaccurate and/or completely false.  These inaccuracies, and the improper disclosures and/or omissions made by the former owner during negotiations, would have significantly affected the purchase price and related note payable.   As a result, among other things, management has initiated legal action against the former owner to seek a reduction in the purchase price.  

In addition, management engaged a third-party to perform a valuation of the Pharmacy, utilizing revised inputs that more accurately reflected the Pharmacy's revenue streams as of the date of Acquisition.  The valuation performed resulted in a fair market value of $4.7 to $5.2 million. After careful consideration, and based upon these significant differences, management has determined that the purchase price and related promissory note of $20.5 million does not fairly represent the fair market value at the date of purchase.  The Company has, therefore, applied a discount to the note of $15.3 million, to reduce the purchase price and related note to its estimated fair market value of $5.2 million, utilizing the higher value on the range as a conservative measure.  

The valuation performed does not include the effects of any liabilities the former owner omitted or damages caused to the Company as a result of the former owner and her immediate family members connected to the Pharmacy.

Control of Funds Dispute

For a period of time immediately after the closing of the Acquisition, the former owner would not relinquish control of the Pharmacy's bank accounts, and collected the Pharmacy's incoming cash revenues, refusing to transfer the funds to the new ownership. Furthermore, when the Company attempted to change the corporate records and signatories on the existing bank accounts, the former owner disputed the changes, resulting in approximately $180,000 in corporate funds being frozen and held for adjudication. During this period, the Company was forced to request that the former owner pay the Pharmacy's operating expenses.  At no time after the Company opened new accounts did the former owner cooperate with the transference or willingly relinquish control of the Pharmacy's operating cash flow or incoming cash revenues. As a result, an extensive reconciliation was performed to determine what amounts were collected and paid by the former owner, and what amounts were due to the Company.  The reconciliation resulted in over $412,000 owed to the Company from the former owner.  The reconciliation and underlying documentation went under judicial review, and on July 24, 2017, the Company was notified that the results of the review were in favor of the Company in the amount of $412,948.  A judgment is pending for the order of $412,948 owed to the Company from the former owner (See Note 3).

In the Matter, action No. SC125702, Melamed alleges that the Company is in default under the terms of the Purchase Agreement and Secured Note, (Note 7), and the Company's termination of Melamed's employment agreement.  The Company firmly believes that it had adequate grounds to justify the termination of the employment, that it acted within its rights, and shall prevail in these proceedings.  

All above legal matters are currently pending.

*    *    *    *    *

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This quarterly report contains forward-looking statements. These statements relate to future events or the Company's future financial performance. In some cases, you can identify forward-looking statements 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, including the risks in the section entitled "Risk Factors" that may cause the Company 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 unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with the Company's financial statements and the related notes that appear elsewhere in this quarterly report.

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

As used in this quarterly report, the terms "we", "us", "our" and "Parallax" means Parallax Health Sciences, Inc., and its wholly-owned subsidiaries, Parallax Diagnostics, Inc. and RoxSan Pharmacy, Inc., unless otherwise indicated.

Corporate History and Overview

The Company was incorporated in the State of Nevada on July 6, 2005.  On November 1, 2012, the Company, formerly Endeavor Power Corporation, and its wholly owned subsidiary Endeavor Holdings, Inc., a Nevada corporation, entered into an Agreement and Plan of Merger with Parallax Diagnostics, Inc., a Nevada corporation ("Parallax Diagnostics"), whereby Parallax Diagnostics became a wholly owned subsidiary.  On January 9, 2014, the Company changed its name to Parallax Health Sciences, Inc. ("Parallax").  (OTC:PRLX).

Parallax Diagnostics was founded in 2010, and holds the right, title, and interest in perpetuity to certain Target System Immunoassay point-of-care diagnostic testing system and related FDA-cleared tests in the area of infectious disease.  Its primary focus was to commercialize the proprietary testing system and test in a worldwide domain.

Parallax Diagnostics is currently pre-revenue, and continues to pursue viable opportunities for the commercialization of its product.  The Company has sought to identify strategies that would make its proposition more valuable and competitive.  To this end, the Company has pursued the creation of patents around its foundational technology, and developed a novel immune status test targeting the HIV/AIDS and TB markets. Since the inception of Parallax Diagnostics, the novel CD4-CD8 immune status test has been developed, and the Company has been issued patents on elements of its core technology and testing system.

In 2013, Parallax identified an opportunity to acquire RoxSan Pharmacy, Inc. ("RoxSan"), a California corporation, and began the due diligence process.  The Company's initial interest centered on utilizing the acquisition as a means of accelerating the commercialization of the Parallax Target System and diagnostic platform, as RoxSan had access to a nationwide network of doctors and sales representatives.  During the due diligence process, the Company became aware of the numerous opportunities that RoxSan and its markets represented.

On March 21, 2013, the Company entered into a Letter of Intent with Shahla Melamed, RoxSan's sole Shareholder, to acquire RoxSan.  Between 2013 and 2015, four (4) amendments were also executed.  

As part of the acquisition, the Company was required to obtain licensure from the State of California, and on July 31, 2015, the Company received notice that its pharmacy and sterile compounding licenses were issued by the California State Board of Pharmacy.

On August 13, 2015 (the "Closing Date"), pursuant to a resolution of the board of directors, the Company entered into an Agreement to Purchase and Sell One Hundred Percent of the Issued and Outstanding Shares of RoxSan Pharmacy, Inc. ("RoxSan" or the "Pharmacy"), and its Assets and Inventory (the "Purchase Agreement").  Pursuant to the Purchase Agreement between the Company, RoxSan and its sole shareholder (the "Seller"), in exchange for 100% of RoxSan's common stock, and its assets and inventory, the Company, among other things, issued the Seller a Secured Promissory Note (the "Note") dated August 13, 2015 in the amount of $20.5 million (the "Acquisition").  The Note bears interest at a rate of 6% per annum, and matures in three (3) years, or August 13, 2018 ("Maturity"). As a result of the Acquisition, effective August 13, 2015, RoxSan Pharmacy, Inc., a California corporation, became the Company's wholly owned subsidiary.

Purchase Price Dispute

Included in the Acquisition Agreement for RoxSan Pharmacy, Inc., and as part of the negotiated purchase price, were representations and warranties made by the former owner involving certain primary revenue streams and related contracts.  Shortly after the closing, however, management discovered that these representations were substantially inaccurate and/or completely false.  These inaccuracies, and the improper disclosures and/or omissions made by the former owner during negotiations, would have significantly affected the purchase price and related note payable.   As a result, among other things, management has initiated legal action against the former owner to seek a reduction in the purchase price.  

Included in the false representations made by the former owner were prescription revenues in excess of $8 million (and $16 million prior to the change in ownership) related to workers compensation claims that the former owner warranted as collectible.  The insurance claims related to these prescriptions, which originated from and were provided to the pharmacy by the former owner's direct family members, were investigated by a third-party expert retained by the Company, and the claims were substantially identified as fraudulent.  The former owner's family member has been indicted by the Department of Justice for among other things, insurance fraud.

In addition, management engaged a third-party to perform a valuation of the Pharmacy, utilizing revised inputs that more accurately reflected the Pharmacy's revenue streams as of the date of Acquisition.  The valuation performed resulted in a fair market value of $4.7 to $5.2 million. After careful consideration, and based upon these significant differences, management has determined that the purchase price and related promissory note of $20.5 million does not fairly represent the fair market value at the date of purchase.  The Company has, therefore, applied a discount to the note of $15.3 million, to reduce the purchase price and related note to its estimated fair market value of $5.2 million, utilizing the higher value on the range as a conservative measure.  

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The valuation performed does not include the effects of any liabilities the former owner omitted or damages caused to the Company as a result of the former owner and her immediate family members connected to the Pharmacy.

The following summary of the Company's financial condition should be read in conjunction with the consolidated financial statements for the quarter ended June 30, 2016, which are included herein.

Balance Sheet

As at June 30, 2016, the Company had total assets of $7,235,959, compared with total assets of $8,157,050 at December 31, 2015. The decrease in total assets of $921,091 is attributable to a decrease in cash of $737,521, a decrease in trade and other receivables, net of allowance for doubtful accounts of $56,007, an increase in rebates receivable of $62,333, a decrease in inventories of $367,495, a decrease in employee advances of $17,588, a decrease in prepaid expenses of $21,051, an increase in loans receivable of $235,564, an increase in property and equipment of $83,853, $19,013 of depreciation related to equipment, and $84,166 of amortization related to the intangible assets.  

As at June 30, 2016, the Company had total liabilities of $16,180,508, compared with total liabilities of $13,254,442 at December 31, 2015. The increase in total liabilities of $2,926,066 is attributable to an increase in accounts payable and accrued expenses of $745,481, a decrease in related party payables of $25,004, a decrease in secured notes payable of $344,412, and a decrease in unamortized discount of $2,550,000.

Results of Operations

Three and six months ended June 30, 2016, compared to three and six months ended June 30, 2015

The financial information provided includes the accounts of the Company and its wholly owned subsidiaries, Parallax Diagnostics, Inc. and RoxSan Pharmacy, Inc., on a consolidated basis.  All significant intercompany accounts and transactions have been eliminated.  

Revenue

Revenue for the three months ended June 30, 2016, in the amount of $6,812,592 consists primarily of pharmaceutical sales related to the Company's pharmacy operations.

Revenue for the six months ended June 30, 2016, in the amount of $14,217,251 consists primarily of pharmaceutical sales related to the Company's pharmacy operations.

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

Cost of sales

Costs of sales for the three months ended June 30, 2016, in the amount of $6,050,647consists primarily of pharmaceutical drug purchases, direct labor, and indirect pharmacy costs related to the Company's pharmacy operations.  

Costs of sales for the six months ended June 30, 2016, in the amount of $12,176,326 consists primarily of pharmaceutical drug purchases, direct labor, and indirect pharmacy costs related to the Company's pharmacy operations.

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

General and Administrative Expenses

During the three months ended June 30, 2016, the Company incurred operating expenses totaling $965,087, compared with $150,729 for the three months ended June 30, 2015. The increase in operating expenses of $814,358 is attributable to:

·

an increase in legal, accounting and management fees of $221,686, due to an increase in legal fees of $124,156 primarily related to the RoxSan Pharmacy acquisition; an increase of $750 in audit related costs; and an increase in outside consulting fees of $96,780 resulting from the engagement of additional management support; and

·

an increase in stock compensation/stock option amortization of $33,003, primarily due to the issuance of stock options in the current period resulting in amortization expense of $33,003, compared to no options issued or amortization expense for the same period in the prior year; and

17

·

an increase in salaries and fees, and related taxes and benefits, of $150,863, due to an increase in salaries of $82,486 and related payroll taxes of $11,375 resulting primarily from an increase in officer compensation; and an increase in outside services of $14,424 and employee benefits of $42,578, compared to no such expense for the same period in the prior year; and

·

an increase in depreciation and amortization of $51,397, due to professional equipment purchased in the current period resulting in an increase in depreciation expense of $9,730; and an increase in intangible assets resulting in an increase in amortization expense of $41,667; and

·

an increase in rent expense of $40,020 due to additional office space leased, resulting in an increase in rent of $40,020, compared to no such expense for the same period in the prior year; and

·

an increase in travel, meals and entertainment of $63,163, due to an increase in travel expenses of $38,963 and meals and entertainment of $24,200; and

·

an increase in publicity and promotion of $90,130, due to an increase in promotion of $18,823, and an increase in fertility video production support of $71,307, compared to no such expense for the same period in the prior year; and

·

an increase in office supplies and miscellaneous expenses of $164,096, due to automobile expenses of $20,655, computer and internet expenses of $21,466, insurance expense of $22,748, office supplies and expenses of $18,107, parking expense of $13,750, pension plan administrative costs of $18,000, taxes, licenses and permits of $14,425, and telephone costs of $10,797 incurred during the current period, compared to no such expense incurred for the same period last year; and an increase in miscellaneous office expenses of $24,148.

During the six months ended June 30, 2016, the Company incurred operating expenses totaling $2,026,720, compared with $290,346 for the six months ended June 30, 2015. The increase in operating expenses of $1,736,374 is attributable to:

·

an increase in legal, accounting and management fees of $531,217, due to an increase in legal fees of $342,947 primarily related to the RoxSan Pharmacy acquisition; an increase of $5,240 in audit related costs; and an increase in outside consulting fees of $183,030 resulting from the engagement of additional management support; and

·

an increase in stock compensation/stock option amortization of $65,984, primarily due to the issuance of stock options in the current period resulting in amortization expense of $65,984, compared to no options issued or amortization expense for the same period in the prior year; and

·

an increase in salaries and fees, and related taxes and benefits, of $313,905, due to an increase in salaries of $159,245 and related payroll taxes of $17,733 resulting primarily from an increase in officer compensation; and an increase in outside services of $32,054 and employee benefits of $104,873, compared to no such expense for the same period in the prior year; and

·

an increase in depreciation and amortization of $99,269, due to professional equipment purchased in the current period resulting in an increase in depreciation expense of $15,935; and an increase in intangible assets resulting in an increase in amortization expense of $83,334; and

·

an increase in rent expense of $80,040 due to additional office space leased, resulting in an increase in rent of $80,040, compared to no such expense for the same period in the prior year; and

·

an increase in travel, meals and entertainment of $131,266, due to an increase in travel expenses of $83,612 and meals and entertainment of $47,654; and

·

an increase in publicity and promotion of $195,324, due to an increase in promotion of $42,558 and an increase in fertility video production support of $152,766, compared to no such expense for the same period in the prior year; and

·

an increase in office supplies and miscellaneous expenses of $319,379, due to automobile expenses of $33,957, computer and internet expenses of $29,349, insurance expense of $42,971, office supplies and expenses of $36,825, parking expense of $27,580, pension plan administrative costs of $36,525, taxes, licenses and permits of $35,336, and telephone costs of $26,230 incurred during the current period, compared to no such expense incurred for the same period last year; and an increase in miscellaneous office expenses of $50,596.

Net Loss

During the three months ended June 30, 2016, the Company incurred a net loss of $2,020,166, compared with a net loss of $276,893 for the three months ended June 30, 2015. The increase in net loss of $1,743,273 is primarily attributable to an increase revenue of $6,812,592, an increase in cost of goods sold of $6,050,647, an increase in sales, marketing and pharmacy expenses of $353,427, an increase in general and administrative expenses of $814,358, an increase in discount amortization of $1,171,300, and an increase in interest expense of $166,133.

During the six months ended June 30, 2016, the Company incurred a net loss of $3,913,141, compared with a net loss of $540,920 for the six months ended June 30, 2015. The increase in net loss of $3,372,221 is primarily attributable to an increase revenue of $14,217,251, an increase in cost of goods sold of $12,176,326, an increase in sales, marketing and pharmacy expenses of $988,893, an increase in general and administrative expenses of $1,736,374, an increase in discount amortization of $2,342,600, and an increase in interest expense of $345,279.

Liquidity and Capital Resources

As at June 30, 2016, the Company had cash in the amount of $174,878 compared to $912,399 as of December 31, 2015.

The Company had a working capital deficit of $1,030,307 as of June 30, 2016, compared to working capital of $827,499 as of December 31, 2015. The decrease in working capital of $1,857,806 is primarily attributable to a decrease in cash of $737,521, a decrease in trade and other receivables, net of allowance, of $56,007, an increase in rebates receivable of $62,333, a decrease in inventory of $367,495, a decrease in employee advances of $17,588, a decrease in prepaid expenses of $21,051, an increase in accounts payable and accrued expenses of $745,481, and a decrease in related party payables of $25,004.

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Cash Flows from Operating Activities

During the six months ended June 30, 2016, the Company used $309,256 of cash flow for operating activities compared with $36,018 for the six months ended June 30, 2015. The increase in cash used for operating activities of $273,238 is attributable an increase in net loss of $3,372,221, an increase in depreciation and amortization expense of $99,269, an increase in stock compensation/stock option amortization of $65,984, an increase in discount amortization of $2,342,600, an increase in bad debt allowance of $23,935, a decrease in accruals converted to related party loans of $201,635, an increase in trade and other receivables of $12,672, a decrease in inventories of $367,495, a decrease in prepaid expenses of $21,051, an increase in accounts payable and accrued expenses of $671,541, and a decrease in related party payables of $278,585.

Cash Flows from Investing Activities

During the six months ended June 30, 2016, the Company used $83,853 of cash flow for investing activities compared with $0 for the six months ended June 30, 2015. The increase in cash used for investing activities of $83,853 is attributable the purchase of professional equipment.

Cash Flows from Financing Activities

During the six months ended June 30, 2016, the Company used $344,412 of cash flow from financing activities, compared with being provided with $37,980 for the six months ended June 30, 2015.  The decrease in cash flows provided by financing activities is attributable to an increase in proceeds from notes payable of $100,000, an increase in repayment of notes payable of $444,412, and a decrease in proceeds of $37,980 from the sale of common stock.

During the six months ended June 30, 2016, the Company received no funds from the issuance of common shares or other equity instruments, compared to $37,980 in proceeds during the six months ended June 30, 2015.

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.

Contractual Obligations

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.

Going Concern

The Company has incurred losses since inception resulting in an accumulated deficit of $10,627,917, 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 unaudited 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 unaudited 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 unaudited 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.

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Included in the Acquisition Agreement for RoxSan Pharmacy, Inc., and as part of the negotiated purchase price, were representations and warranties made by the former owner involving certain primary revenue streams and related contracts.  Shortly after the closing, however, management discovered that these representations were substantially inaccurate and/or completely false.  These inaccuracies, and the improper disclosures and/or omissions made by the former owner during negotiations, would have significantly affected the purchase price and related note payable issued under the Acquisition Agreement.   Mnagement engaged a third-party to perform a valuation of the Pharmacy, utilizing revised inputs that more accurately reflected the Pharmacy's revenue streams as of the date of Acquisition.  The valuation performed resulted in a fair market value of $4.7 to $5.2 million. After careful consideration, and based upon these significant differences, management has determined that the purchase price and related promissory note of $20,500,000 does not fairly represent the fair market value at the date of purchase.  The Company has, therefore, applied a discount to the note of $15.3 million, to reduce the purchase price and related note to its estimated fair market value of $5.2 million, utilizing the higher value on the range as a conservative measure.  The discount is being amortized over thirty-six (36) months.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

ITEM 4. CONTROLS AND PROCEDURES

Management's Report on Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's president, chief executive officer and chief financial officer to allow for timely decisions regarding required disclosure. In designing and evaluating the Company's disclosure controls and procedures, the Company's management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company's management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As of June 30, 2016, the end of the Company's period covered by this quarterly report, the Company carried out an evaluation, under the supervision and with the participation of the Company's president, chief executive officer and chief financial officer of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, the Company's president, chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company's internal controls over financial reporting that occurred during the three month period ended June 30, 2016, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

Audit Committee

The Company established an audit committee of the board of directors comprised of John L. Ogden and E. William "Bill" Withrow Jr. The audit committee's duties are to recommend to the Company's board of directors the engagement of an independent registered public accounting firm to audit the Company's financial statements and to review the Company's accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of the Company's board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In October 2015, shortly following the Company's acquisition of RoxSan, Melamed initiated two (2) legal actions against the Company in the Superior Court of the State of California, County of Los Angeles, West District, Shahla Melamed v. Parallax Health Sciences, Inc., action numbers SC 124873 and SC 125702 (the "Matter").  

In the Matter, action No. SC124873, Melamed sought rescission of the August 13, 2015 Purchase Agreement. Rescission was sought on the basis that, allegedly, in order to acquire the Pharmacy, the Company and its principals had allegedly defrauded Melamed, there had allegedly been a complete failure of consideration, and a unilateral mistake was allegedly made on the part of Melamed.

On March 17, 2017, the Court ruled in favor of the Company, and issued that Melamed is not entitled to rescission of the Purchase Agreement.  The ruling of the Court stated that no fraud on the part of the Company or its principals had been demonstrated.  The Court further ruled that there had been no failure of consideration, and that Melamed's entry into the Agreement was not a result of a unilateral mistake on the part of Melamed.  The Minutes of the Ruling were entered by the County Clerk on March 17, 2017.

The Company has likewise initiated legal action against Melamed and filed an action in the Superior Court of the State of California, County of Los Angeles, West District, Parallax Health Sciences, et al. v. Shahla Melamed, et al., case number SC 124898.  The Complaint in that action alleges that Melamed has breached several obligations under the Purchase Agreement, and the Company is seeking to reduce the Secured Note due to undisclosed material changes in the business.

Subsequently filed pleadings by the Company and RoxSan in case number SC 124873 allege, among other things, that Melamed misrepresented the true earnings and source of income for the pharmacy business and had engaged in a fraudulent and illegal scheme to ship medications to states where her pharmacy was not licensed prior to the sale of the Pharmacy.

Purchase Price Dispute

Included in the Acquisition Agreement, and as part of the negotiated purchase price, were representations and warranties made by the former owner involving certain primary revenue streams and related contracts.  Shortly after the closing, however, management discovered that these representations were substantially inaccurate and/or completely false.  These inaccuracies, and the improper disclosures and/or omissions made by the former owner during negotiations, would have significantly affected the purchase price and related note payable.   As a result, among other things, management has initiated legal action against the former owner to seek a reduction in the purchase price.  

Included in the false representations made by the former owner were prescription revenues in excess of $8 million (and $16 million prior to the change in ownership) related to workers compensation claims that the former owner warranted as collectible.  The insurance claims related to these prescriptions, which originated from and were provided to the pharmacy by the former owner's direct family members, were investigated by a third-party expert retained by the Company, and the claims were substantially identified as fraudulent.  The former owner's family member has been indicted by the Department of Justice for among other things, insurance fraud.

In addition, management engaged a third-party to perform a valuation of the Pharmacy, utilizing revised inputs that more accurately reflected the Pharmacy's revenue streams as of the date of Acquisition.  The valuation performed resulted in a fair market value of $4.7 to $5.2 million. After careful consideration, and based upon these significant differences, management has determined that the purchase price and related promissory note of $20.5 million does not fairly represent the fair market value at the date of purchase.  The Company has, therefore, applied a discount to the note of $15.3 million, to reduce the purchase price and related note to its estimated fair market value of $5.2 million, utilizing the higher value on the range as a conservative measure.  

The valuation performed does not include the effects of any liabilities the former owner omitted or damages caused to the Company as a result of the former owner and her immediate family members connected to the Pharmacy.

Control of Funds Dispute

For a period of time immediately after the closing of the Acquisition, the former owner would not relinquish control of the Pharmacy's bank accounts, and collected the Pharmacy's incoming cash revenues, refusing to transfer the funds to the new ownership. Furthermore, when the Company attempted to change the corporate records and signatories on the existing bank accounts, the former owner disputed the changes, resulting in approximately $180,000 in corporate funds being frozen and held for adjudication. During this period, the Company was forced to request that the former owner pay the Pharmacy's operating expenses.  At no time after the Company opened new accounts did the former owner cooperate with the transference or willingly relinquish control of the Pharmacy's operating cash flow or incoming cash revenues. As a result, an extensive reconciliation was performed to determine what amounts were collected and paid by the former owner, and what amounts were due to the Company.  The reconciliation resulted in over $412,000 owed to the Company from the former owner.  The reconciliation and underlying documentation went under judicial review, and on July 24, 2017, the Company was notified that the results of the review were in favor of the Company in the amount of $412,948.  A judgment is pending for the order of $412,948 owed to the Company from the former owner.

In the Matter, action No. SC125702, Melamed alleges that the Company is in default under the terms of the Purchase Agreement and Secured Note and the Company's termination of Melamed's employment agreement.  The Company firmly believes that it had adequate grounds to justify the termination of the employment, that it acted within its rights, and shall prevail in these proceedings.  

All above legal matters are currently pending.

The Company is currently attempting to settle a contractual and governance disagreement with Mr. David M. Engert out of court, but had received a legal Complaint in May 2017. The management of the Company believes it will prevail in this matter.

On September 14, 2015, the US Securities and Exchange Commission and the Justice Department filed a complaint and an indictment in the Massachusetts District of the United States District Court (the "Cases") against, among others, Edward W. Withrow III, the co-founder of the Company, co-inventor of the Company's foundational patents, and one of the Company's beneficial shareholders.  The Cases allege that the individuals named within the SEC complaint engaged in activities involving the Company's securities to obtain financial benefit, and made false statements during SEC examination.  The criminal case is currently pending and set for trial on December 2, 2017.  Mr. Withrow has consistently denied all allegations of wrongdoing against him and he intends to continue to defend the case vigorously.

The Company knows of no other 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 any of the Company's directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to the Company.

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ITEM 1A. RISK FACTORS

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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY STANDARDS

Not Applicable .

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibits required by Item 601 of Regulation S-B

*

Filed herewith.

**

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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