EDVP Q2 2016 10-Q

Parallax Health Sciences Inc (EDVP) SEC Quarterly Report (10-Q) for Q3 2016

EDVP 2016 10-K
EDVP Q2 2016 10-Q EDVP 2016 10-K

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 September 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)

Nevada

46-4733512

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1327 Ocean Avenue, Suite B, Santa Monica, CA

90401

(Address of principal executive offices)

(Zip Code)

Registrant's telephone number, including area code:

(310) 899-4442



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.


Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

x

(Do not check if a smaller reporting company)


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.


129,854,530 common shares issued and outstanding as of October 31, 2017


1


PART 1 – FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


The Company's unaudited interim consolidated financial statements for the nine months ended September 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.


2




PARALLAX HEALTH SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2016

December 31, 2015

ASSETS

Current assets

Cash and cash equivalents

$

111,327

$

912,399

Accounts receivable, net

1,020,444

1,449,554

Rebates receivable

64,667

424,066

Inventories

528,207

831,156

Employee advances

6,906

21,800

Prepaid expenses

144,473

110,336

Total current assets

1,876,024

3,749,311

Loans receivable-long-term

477,271

176,884

Property and equipment, net

177,211

116,531

Intangible assets, net

2,073,972

203,756

Goodwill

4,030,235

3,887,818

Deposits

22,750

22,750

TOTAL ASSETS

$

8,657,463

$

8,157,050

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities

Accounts payable and accrued expenses

$

3,682,479

$

2,788,202

Pension plan contribution payable

6,882

Related party payables

203,450

133,610

Total current liabilities

3,892,811

2,921,812

Long-term liabilities

Royalties payable

2,000,000

––

Notes and loans payable, unsecured

95,975

95,975

Convertible notes payable

144,000

144,000

Convertible notes payable, related party

1,107,254

1,107,254

Note payable, secured, net of unamortized discount

12,281,316

7,155,000

Total long-term liabilities

15,628,545

10,332,630

Total liabilities

19,521,356

13,254,442

Stockholders' deficit

Preferred stock, $.001 par, 10,000,000 shares authorized, 823,691 issued and outstanding at September 30, 2016, and December 31, 2015

824

824

Common stock: 250,000,000 shares authorized, $.001 par, 106,066,774 and 120,566,774 issued and outstanding at September 30, 2016 and December 31, 2015, respectively

106,067

120,567

Additional paid in capital-preferred

465,843

465,843

Additional paid in capital-common

1,405,029

1,030,342

Subscriptions receivable

(592

)

(192

)

Accumulated deficit

(12,841,064

)

(6,714,776

)

Total stockholders' deficit

(10,863,893

)

(5,097,392

)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

8,657,463

$

8,157,050




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


3



PARALLAX HEALTH SCIENCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended

For the nine months ended

September 30, 2016

September 30, 2015

September 30, 2016

September 30, 2015

Revenue

$

5,591,659

$

4,717,206

$

19,808,910

$

4,717,206

Cost of sales

4,738,492

3,657,829

16,914,818

3,657,829

Gross profit

853,167

1,059,377

2,894,092

1,059,377

Sales, marketing, and pharmacy expenses

472,683

425,825

1,461,576

425,825

General and administrative expenses

1,067,314

566,793

3,094,034

857,139

Operating loss

(686,830

)

66,759

)

(1,661,518

)

(223,587

)

Other income (expenses)

Dividend income

205

––

205

––

Discount amortization

(1,275,000

)

(49,276

)

(3,825,000

)

(256,676

)

Interest expense

(251,522

)

(185,871

)

(639,975

)

(229,045

)

Total other income (expenses)

(1,526,317

)

(235,147

)

(4,464,770

)

(485,721

)

Net loss

$

(2,213,147

)

$

(168,388

)

$

(6,126,288

)

$

(709,308

)

Net (loss) per common share - basic and diluted

$

(0.021

)

$

(0.001

)

$

(0.053

)

$

(0.005

)

Weighted average common shares outstanding - basic and diluted

107,392,861

132,026,053

116,143,416

131,678,248




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


4



PARALLAX HEALTH SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended

September 30, 2016

September 30, 2015

Cash flows from operating activities:

Net loss

$

(6,126,288

)

$

(709,308

)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

157,820

12,036

Stock compensation/stock option amortization

134,687

7,014

Discount amortization

3,825,000

256,676

Allowance for doubtful collections

23,935

7,810,670

Accruals converted to convertible notes payable

––   

303,750

Changes in operating assets and liabilities:

(Increase) decrease in trade and other receivables

779,468

(10,144,923

)

Decrease in inventories

302,949

––   

Increase in prepaid expenses

(34,136

)

(27,259

)

Increase in loans receivable

(213,379

)

(176,334

)

Increase in accounts payable and accrued expenses

887,208

3,227,259

Increase in pension contribution payable

6,882

––   

Increase in related party payables

69,940

33,646

Net cash provided by (used in) operating activities

(185,914

)

593,227

Cash flows from investing activities:

Purchase of professional equipment

(91,073

)

(2,227

)

Net cash used in investing activities

(91,073

)

(2,227

)

Cash flows from financing activities:

Proceeds from notes payable

100,000

––   

Repayment of notes payable

(629,085

)

––   

Proceeds from issuance of common shares

5,000

37,980

Net cash provided by (used in) financing activities

(524,085

)

37,980

Net increase (decrease) in cash

(801,072

)

628,980

Cash - beginning of period

912,399

513

Cash - end of period

$

111,327

$

629,493

NON-CASH ACTIVITIES

Note payable issued for purchase of subsidiary common stock

$

––   

$

20,500,000

Discount on long-term secured note payable

$

3,825,000

$

––   

Conversion of related party payable to convertible notes payable

$

––   

$

201,635

Assets acquired upon acquisition of subsidiary

$

2,084,651

$

––   

Liabilities assumed upon acquisition of subsidiary

$

(2,007,068

)

$

––   

Cancellation of common stock

$

20,000

$

––

Subscriptions receivable

$

(592

)

$

(192

)

SUPPLEMENTAL INFORMATION

Interest paid

$

131,767

$

––   

Income taxes paid

$

––   

$

––   




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


5


PARALLAX HEALTH SCIENCES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 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 12).  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.


On August 31, 2016, the Company entered into an agreement with QOLPOM, Inc., an Arizona corporation ("QOLPOM") and its shareholders (the "Seller") to purchase 100% of the issued and outstanding Shares of QOLPOM's common stock and its assets, inventory and intellectual property.   As a result, effective September 20, 2016, QOLPOM became the Company's wholly owned subsidiary (Note 12) in the remote healthcare monitoring industry ("RCS").  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.

5,000,000 shares of the Company's common stock at $0.001 per share; and

2.

2,500,000 options to purchase shares of the Company's common stock, vesting over three (3) years beginning August 31, 2017, of which 500,000 shares are exercisable at $0.10, 1,000,000 are exercisable at $0.15, and 1,000,000 are exercisable at $0.25; and

3.

10% of revenues generated from the RCS business segment, up to $1,000,000; and 7% thereafter, up to $2,000,000; and

4.

3% of revenues generated from the sale of QOLPOM hardware and monitoring service fees.


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


The Company has the following three business segments: Retail Pharmacy Services (RPS), Remote Care Systems (RCS) 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.  


Remote Care Systems (RCS)

The RCS provides the health care industry's first comprehensive remote patient monitoring system, which utilizes proprietary software and technology to bridge clinical behavioral science with technology and logistics across a variety of wellness and clinical devices, including both fitness and clinical applications, for payers, providers and clinical professionals.


The RCS generates net revenues primarily through the licensing, installation and maintenance of its patented QOLPOM Hub, an integrated, secure and scalable platform for collecting, transmitting and analyzing biometric data, as well as the sale of wireless medical devices and home monitoring kits.


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 $12,841,064 and a working capital deficit of $2,016,787, 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., Parallax Health Management, Inc. (formerly QOLPOM, 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.


6



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


Fair Value of Financial Instruments

As of September 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 12 for additional information about long-term debt.

There were no outstanding derivative financial instruments as of September 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 nine months ended September 30, 2016, and the year ended December 31, 2015, is as follows:


September 30, 2016

December 31, 2015

Beginning balance

$

8,412,853

$

––

Additions charged to bad debt expense for insurance claims

––

34,000

Allowance for doubtful collection of workers compensation claims

65,776

8,378,853

Collection of workers compensation claims

(41,841

)

Write-offs charged to allowance

––

––

Ending balance

$

8,436,788

$

8,412,853


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 5 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 6 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.


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 September 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.


7


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 all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 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.


In April 2016, the FASB issued ASU No. 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.


In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance on eight specific cash flow issues, for which specific guidance had not previously been provided, with the objective of reducing the existing diversity in practice.  The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods.  Early adoption is permitted. 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:

September 30, 2016

December 31, 2015

Insurance claims receivable

$

929,010

$

999,612

Workers compensation claims receivable

8,466,691

8,549,073

Customer receivables

63,392

313,722

Total accounts receivable

9,457,232

9,862,407

Allowance for doubtful accounts:

Allowance-insurance claims

(34,000

)

(34,000

)

Allowance-workers compensation claims

(8,402,788

)

(8,378,853

)

Total allowances for doubtful accounts receivable

(8,436,788

)

(8,412,853

)

Accounts receivable, net

$

1,020,444

$

1,449,554



8



As of September 30, 2016, and December 31, 2015, respectively, the Company had accounts receivable of $9,457,232 and $9,862,407, consisting of $929,010 and $999,612 in insurance claims, $8,466,691 and $8,549,073 in workers compensation claims, and $63,392 and $313,722 in customer house account charges, for which payment has not yet received.


As of September 30, 2016, and December 31, 2015, respectively, $63,392 and $313,722 was owed from customers receivable, consisting of $24,430 and $33,894 in copayments, and $38,962 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 September 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 $130,300 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 September 30, 2016, and December 31, 2015, respectively, accounts receivable, net of allowances for doubtful accounts, was $1,020,444 and $1,449,554.


NOTE 4. LOANS RECEIVABLE


Loans receivable consists of $477,271 and $176,884, respectively, in monies owed to the Company from former owners of subsidiaries, including $412,948 and $176,884 from the former owner of RoxSan Pharmacy, and $64,323 and $0 from the former owner of Parallax Health Management, Inc. as of September 30, 2016, and December 31, 2015.  


Included in these amounts are monies collected by the former owner of RoxSan 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 17. The Company is confident that it shall prevail in this matter.


NOTE 5. PROPERTY AND EQUIPMENT


The following are the components of property and equipment:

September 30, 2016

December 31, 2015

Appliances

$

7,160

$

3,360

Computer and office equipment

63,875

32,718

Furniture and fixtures

38,488

23,453

Leasehold improvements

104,357

78,881

Software

6,323

873

Medical devices and instruments

45,194

45,194

Sub-total

265,397

184,479

Less: accumulated depreciation

(88,186

)

(57,793

)

Property and equipment, net, before disposals

177,211

126,686

Less: disposals, net of depreciation

––

(10,155

)

Property and equipment, net of disposals

$

177,211

$

116,531


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 nine months ended September 30, 2016, and 2015, was $30,393 and $3,078, respectively.


NOTE 6. INTANGIBLE ASSETS


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

September 30, 2016

December 31, 2015

Products and processes

$

12,500

$

12,500

Trademarks and patents

2,010,143

12,500

Customer list

250,000

250,000

Sub-total

2,022,643

275,000

Accumulated amortization

(201,028

)

(71,244

)

Intangible assets, net

$

2,073,972

$

203,756


On September 20, 2016, through the acquisition of PHM (Note 12), the Company acquired certain intellectual property, valued at $1,997,643, with a useful life of 18.5 years.


Amortization expense for the nine months ended September 30, 2016, and 2015, was $127,427 and $832, respectively.


NOTE 7. NOTES AND LOANS PAYABLE


Notes and loans payable consists of the following:

September 30, 2016

December 31, 2015

Notes and loans payable, unsecured

Loans payable

$

11,900

$

11,900

Notes payable

84,075

84,075

Total notes and loans payable, unsecured

95,975

95,975

Convertible notes payable

144,000

144,000

Notes payable, secured, net of unamortized discount

Note payable-merchant

1,201,316

1,830,401

Note payable-bank

100,000

––

Note payable

20,500,000

20,500,000

Less: unamortized discount

(9,520,000

)

(13,345,000

)

Note payable, net of unamortized discount

10,980,000

7,155,000

Total notes payable, secured, net of unamortized discount

12,281,316

8,985,401

Total notes and loans payable

$

12,521,291

$

9,225,376


As of September 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 September 30, 2016, and December 31, 2015, respectively, no demand has been made.  During the nine months ended September 30, 2016, and the year ended December 31, 2015, respectively, interest in the amount of $5,480 and $7,300 was expensed. As of September 30, 2016, and December 31, 2015, respectively, a total of $42,292 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:

Note Holder

Principal

APR

Accrued Interest

Conversion

Price

Term/Due

The Kasper Group, Ltd.

$

144,000

7%

$

47,887

$0.25

01/01/2015



9



As of September 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 September 30, 2016, and December 31, 2015, respectively, no demand for payment or conversion has been made. During the nine months ended September 30, 2016, and the year ended December 31, 2015, respectively, interest in the amount of $7,567 and $10,080 was expensed.  As of September 30, 2016, and December 31, 2015, respectively, a total of $47,887 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 nine months ended September 30, 2016, and the year ended December 31, 2015, the Company expensed $3,825,000 and $1,955,000, respectively, in discount amortization.  As of September 30, 2016, and December 31, 2015, respectively, $9,520,000 and $13,345,000 in unamortized discount remains, to be amortized over the next 26 months, to the note's maturity.  During the nine months ended September 30, 2016, and the year ended December 31, 2015, interest in the amount of $434,917 and $101,702, respectively, has been expensed.  As of September 30, 2016, and December 31, 2015, respectively, a total of $536,619 and $101,702 has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheets.


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 nine months ended September 30, 2016, and the year ended December 31, 2015, respectively, payments totaling $719,084 and $193,792 have been made, representing $629,084 and $169,599 in principal and $90,000 and $24,193 in interest. As of September 30, 2016, and December 31, 2015, respectively, principal of $1,201,316 and $1,830,401 and unamortized loan fee of $125,807 and $215,806 remains.


During the nine months ended September 30, 2016, and the year ended December 31, 2015, respectively, interest on notes and loans payable in the amount of $447,964 and $143,275 has been expensed.  As at September 30, 2016, and December 31, 2015, respectively, a total of $626,798 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:

September 30, 2016

December 31, 2015

Related party payables

Accrued compensation

$

98,450

$

120,800

Cash advances

105,000

12,810

Total related party payables

203,450

133,610

Convertible notes payable

1,107,254

1,107,254

Total related party transactions

$

1,310,704

$

1,240,864


As at September 30, 2016, and December 31, 2015, respectively, related parties are due a total of $1,310,704 and $1,240,864, consisting of $98,450 and $120,800 in accrued compensation; $105,000 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:

Note Holder

Principal

APR

Accrued Interest

Conversion

Price

Term/Due

Joseph M. Redmond, President (former)

$

776,154

5%

$

76,266

$0.10

07/31/2017

Huntington Chase, Beneficial Owner

331,100

7%

55,455

$0.10

12/31/2015

Total

$

1,107,254

$

131,721


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 nine months ended September 30, 2016, and the year ended December 31, 2015, respectively, interest in the amount of $46,531 and $70,646 was expensed, of which interest payments in the amount of $27,707 and $0 were made to note holders. As of September 30, 2016, and December 31, 2015, respectively, a total of $131,721 and $107,897 in interest has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheet.


During the nine months ended September 30, 2016, and the year ended December 31, 2015, respectively, interest on related party notes payable in the amount of $46,531 and $70,646 was expensed.  As at September 30, 2016, and December 31, 2015, respectively, a total of $131,721 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 September 30, 2016, and December 31, 2015, the Company had 823,691 shares of preferred stock issued and outstanding.


NOTE 10. 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.  


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 July 30, 2016, in connection with certain consulting agreements, the Company issued 250,000 shares of its restricted common stock for $0.001 per share.  The shares, valued at $7,500, were issued for cash in the amount of $250.  As a result, $6,500 was recorded to additional paid in capital.


On September 23, 2016, in connection with the acquisition of PHM (Note 12), the Company issued 5,000,000 shares of its restricted common stock for $0.001 per share.  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, in connection with a certain consulting agreement (Note 13), the Company issued 250,000 shares of its restricted common stock for $0.001 per share.  The shares, valued at $16,000, were issued for cash in the amount of $250.  As a result, $15,750 was recorded to additional paid in capital.


As of September 30, 2016, and December 31, 2015, respectively, the Company had 106,066,774 and 120,566,774 common shares issued and outstanding.



10


NOTE 11. WARRANTS AND OPTIONS


As of September 30, 2016, and December 31, 2015, respectively, the Company had 15,262,491 and 15,989,276 warrants and 11,135,000 and 9,200,000 options issued and outstanding.


Warrants Outstanding

Number of

Remaining

Exercise Price

Weighted

Common

Contractual Life

times Number

Average

Exercise Price

Shares

(in years)

of Shares

Exercise Price

$0.27518

14,535,706

0.69

$

4,000,000

$0.27518

$0.41278

726,785

0.98

300,000

$0.41278

15,262,491

$

4,300,000

$0.41278


Warrant Activity

Number of

Weighted Average

Shares

Exercise Price

Outstanding at December 31, 2015

15,989.276

$0.41278

Issued

––

––

Exercised

––

––

Expired / Cancelled

(484,125

)

$0.41278

Outstanding at September 30, 2016

15,262,491

$0.41278


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%.


On July 30, 2016, in connection with certain consulting agreements, the Company granted the consultants 1,000,000 options to purchase common shares for a period of 5 years, of which 250,000 each have a strike price of $0.10, $0.25, $0.35 and $0.60.  The options vest quarterly over a one (1) year period, and were valued at $17,260, using the Black-Scholes method.  The assumptions used in valuing the options were: expected term 3.75 years, expected volatility 1.52, risk free interest rate 1.13%, and dividend yield 0%.


On August 30, 2016, the Company granted a key employee 100,000 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 $5,970, using the Black-Scholes method.  The assumptions used in valuing the options were: expected term 5.75 years, expected volatility 1.69, risk free interest rate 1.18%, and dividend yield 0%.


On September 20, 2016, in connection with a certain consulting agreement, the Company granted the consultant 1,000,000 options to purchase common shares at $0.05 for a period of 2 years.  The options vest quarterly over a two (2) year period, and were valued at $40,200, using the Black-Scholes method.  The assumptions used in valuing the options were: expected term 3.25 years, expected volatility 1.81, risk free interest rate 1.19%, and dividend yield 0%.


Options Outstanding

Remaining

Exercise Price

Weighted

Number of

Contractual Life

times Number

Average

Exercise Price

Shares

(in years)

of Shares

Exercise Price

$0.60

250,000

3.00

$

150,000

$0.08

$0.35

250,000

3.00

87,500

$0.08

$0.25

250,000

3.00

62,500

$0.08

$0.10

1,375,000

4.25

137,500

$0.10

$0.10

250,000

3.00

25,000

$0.08

$0.05

60,000

4.50

3,000

$0.05

$0.05

7,600,000

4.00

380,000

$0.05

$0.05

100,000

3.00

5,000

$0.08

$0.05

1,000,000

2.00

50,000

$0.08

11,135,000

$

900,500

$0.07


Options Activity

Number of

Weighted Average

Shares

Exercise Price

Outstanding at December 31, 2015

9,200,000

$0.05

Issued

2,160,000

$0.05

Exercised

––

––

Expired / Cancelled

(225,000

)

$0.25

Outstanding at September 30, 2016

11,135,000

$0.07


During the nine months ended September 30, 2016, and the year ended December 31, 2015, respectively, a total of $65,040 and $379,910 in deferred compensation was recorded, and $112,437 and $58,024 in stock option compensation was expensed.  There remains $274,489 and $321,886 in deferred compensation as of September 30, 2016, and December 31, 2015, respectively, to be expensed over the next 24 months.


NOTE 12: BUSINESS ACQUISITIONS


RoxSan Pharmacy, Inc.

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:


Inventory

$

913,835

Prepaid insurance

3,108

Property and equipment

105,368

Identifiable intangibles

250,000

Goodwill

3,887,818

Security deposits

22,000

Fair market value of assets acquired

$

5,200,000


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 16).  During the year ended December 31, 2015, acquisition costs of $110,000 were expensed and incurred within general and administrative expenses.



11


Parallax Health Management, Inc. ("PHM") (formerly QOLPOM, Inc.)

On August 31, 2016, the Company entered into an agreement with QOLPOM, Inc., an Arizona corporation ("QOLPOM") and its shareholders (the "Seller") to purchase 100% of the issued and outstanding shares of QOLPOM's common stock and its assets, inventory and intellectual property on the Closing Date in exchange for:


5.

5,000,000 shares of the Company's common stock at $0.001 per share; and

6.

2,500,000 options to purchase shares of the Company's common stock, vesting over three (3) years beginning August 31, 2017, of which 500,000 shares are exercisable at $0.10, 1,000,000 are exercisable at $0.15, and 1,000,000 are exercisable at $0.25; and

7.

10% of revenues generated from the RCS business segment, up to $1,000,000; and 7% thereafter, up to $2,000,000; and

8.

3% of revenues generated from the sale of QOLPOM hardware and monitoring service fees.


The following represent the fair values of the assets acquired and liabilities assumed by the Company on the Closing Date of September 20, 2016:


Assets :

Intellectual property

$

1,997,643

Loans receivable

87,008

Total assets

2,084,651

Liabilities :

Accounts payable

7,068

License fee payable

2,000,000

Total liabilities

2,007,068

Goodwill

142,417

Fair market value of assets acquired

$

220,000


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


PHM's results of operations are included in the Company's statements of operations beginning on September 20, 2016 (Note 16).  During the year ended December 31, 2016, acquisition costs of $10,000 were expensed and incurred within general and administrative expenses.


NOTE 13. COMMITMENTS AND CONTINGENCIES


On August 31, 2016, the Company entered into an agreement with QOLPOM, Inc., an Arizona corporation ("QOLPOM") and its shareholders (the "Seller") to purchase 100% of the issued and outstanding Shares of QOLPOM's common stock and its assets, inventory and intellectual property in exchange for, among other things, 5,000,000 shares of the Company's restricted common stock, and options to purchase 2,500,000 shares at an exercise price of $0.05 (Note 12).  In addition, the agreement provides for, among other thing the Seller to receive up to $2,000,000 through a percentage of revenue generated from the RCS business segment, as well as a 3% royalty on certain revenues generated from the intellectual property, as defined in the agreement.


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, for an initial term of three (3) years.  The executive agreement includes compensation in the amount of $10,000 per month, to be deferred until certain funding goals are met.  In addition, Dr. Arnot was granted the right to purchase 250,000 shares of the Company's restricted common stock at $0.001 per share, and options to purchase 1,000,000 shares of common stock at a strike price of $0.05 per share, of which 250,000 vest immediately, and the remaining vest quarterly over a two (2) year period.  Concurrently, the Company entered into a revenue sharing agreement for a term of three (3) years, that provides for Dr. Arnot to receive 10% of Adjusted Gross Revenue (AGR) from certain sales generated by the Company up to $125 million in revenues for any given year, and 5% of AGR thereafter, as defined in the agreement, subject to certain performance criteria.


NOTE 14. LEASES


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:

Year

Base

CAM

Total

2016

$

153,262

$

14,604

$

167,866

2017

391,556

58,417

449,973

2018

400,037

58,417

458,455

2019

330,525

42,298

372,822

$

1,275,379

$

173,737

$

1,449,116


Rent expense for the nine months ended September 30, 2016, and the year ended December 31, 2015, was $325,747 and $155,713, respectively, including $43,813 and $22,456, respectively, of common area maintenance cost.


NOTE 15. INCOME TAXES


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

September 30, 2016

December 31, 2015

Income (loss) before taxes

$

(6,126,288

)

$

(3,719,898

)

Statutory rate

34%

34%

Computed expected tax payable (recovery)

$

(2,082,900

)

$

(1,264,800

)

Non-deductible expenses

11,200

4,500

Change in valuation allowance

2,071,700

1,260,300

Reported income taxes

$

––

$

––


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


September 30, 2016

December 31, 2015

Net operating loss carried forward

 $

4,349,000

$

2,227,300

Valuation allowance

(4,349,000

)

(2,227,300

)

Net deferred income tax asset

 $

––

$

––


As at September 30, 2016, and December 31, 2015, respectively, the Company had approximately $12,791,000 and $6,698,000 of federal net operating losses which expire commencing in the year 2026.



12


NOTE 16. SEGMENT REPORTING


The Company has the following three business segments: Retail Pharmacy Services, Remote Care Systems and Corporate. See Note 1 and 2 for a description of each segment and related significant accounting policies.


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


Pharmacy

Segment (1)

Remote Care

Segment (2)

Corporate

Segment

Consolidated

Totals

September 30, 2016 (2)

Revenue

$

19,808,910

$

––

$

––

$

19,808,910

Gross profit

2,894,092

––

––

2,894,092

Operating income (loss)

(743,437

)

(23,865

)

(894,216

)

(1,661,518

)

Depreciation and amortization

4,152,022

1,179

4,619

157,820

Discount amortization

––

––

3,825,000

3,825,000

Interest expense

145,481

––

494,494

639,975

Total assets

6,434,763

2,203,203

19,496

8,657,463

Goodwill

3,887,818

142,417

––

4,030,235

Additions to property and equipment

91,073

––

––

91,073

September 30, 2015 (1)

Revenue

4,717,206

––

––

––

Gross profit

1,059,377

––

––

––

Operating income (loss)

216,288

––

(439,875

)

(223,587

)

Depreciation and amortization

6,171

––

5,865

12,036

Discount amortization

––

––

256,676

256,676

Interest expense

––

––

229,045

229,045

Total assets

8,104,577

––

22,536

8,127,113

Goodwill

3,887,818

––

––

3,887,818

Additions to property and equipment

––

––

––

––

(1)

Pharmacy Segment commenced August 13, 2015

(2)

Remote Care Segment commenced September 20, 2016


NOTE 17. SUBSEQUENT EVENTS


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


On December 2, 2016, the Company issued 1,000,000 shares of its restricted common stock to its attorneys as partial payment for services rendered. The shares, valued at $190,000, were issued for cash in the amount of $1,000.  As a result, $189,000 was recorded to paid in capital.


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 December 13, 2016, the Company issued a convertible promissory note to a related party for cash proceeds in the amount of $250,000.  The note bears interest at a rate of 12.5% per annum, matures June 13, 2017, and contains a repayment provision to convert the debt into the Company's common stock at a strike price based upon a thirty (30) day average market price on the date of conversion.


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 to a related party, 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 16, 2017, in connection with a certain related party convertible debt in the amount of $250,000 and accrued interest of $7,953, the Company issued 1,228,346 shares of its restricted common stock at a conversion rate of $0.21 per share.  As a result, $256,724 was recorded to paid in capital.


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, vesting annually over a three (3) year period beginning September 1, 2017.


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 paid in capital.


On May 18, 2017, in connection with a certain related party convertible debt in the amount of $200,000 and accrued interest of $27,781, the Company issued 2,277,808 shares of its restricted common stock at a conversion rate of $0.10 per share.  As a result, $225,503 was recorded to paid in capital.


On June 2, 2017, in connection with the exercise of certain employee stock options, the Company issued 237,500 shares of its restricted common stock at a conversion rate of $0.05 per share.  The shares were issued on a cashless basis, resulting in a net value of $57,000.  As a result, $56,763 was recorded to paid in capital.


On July 1, 2017, in connection with a certain consulting agreement, the Company granted 1,500,000 shares of its restricted common stock to the consultant for services to be provided over a twelve (12) month period.  The shares were valued at of $315,000, of which $78,750 was expensed, and $236,250 was deferred, to be amortized over the next twelve (12) months. As a result, $313,500 was recorded to paid in capital,


On July 6, 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.



13


On 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.


On July 7, 2017, 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 $350,000 in year one, of which 30% shall be deferred until certain funding goals are met, $425,000 in year two, and $550,000 in year three, as well as annual bonus compensation equal to 2x base when certain Company earnings are reached.  In addition, the Agreement includes a restricted stock award of 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 5,000,000 stock options at an exercise price of $0.25 per share.  The options are for a period of five years, and vest when certain market share prices of the Company's common stock are met


On July 7, 2017, in connection with the Agreement, Mr. Arena was awarded 10,000,000 shares of the Company's restricted common stock for services to be provided over a thirty-six (36) month period.  The shares were valued at $2,000,000, of which $500,000 was expensed, and $1,500,000 was deferred, to be amortized over the next thirty-six (36) months. As a result, $1,990,000 was recorded to paid in capital,


On July 21, 2017, in connection with a certain consulting agreement, the Company granted 4,000,000 shares of its restricted common stock to the consultant for services to be provided over a twelve (12) month period.  The shares were valued at $1,080,000, of which $270,000 was expensed, and $810,000 was deferred, to be amortized over the next twelve (12) months. As a result, $1,076,000 was recorded to paid in capital,


On August 3, 2017, in connection with the exercise of certain employee stock options, the Company issued 44,102 shares of its restricted common stock at a conversion rate of $0.05 per share.  The shares were issued on a cashless basis, resulting in a net value of $10,584.  As a result, $10,540 was recorded to paid in capital.


On August 9, 2017, in connection with a certain debt settlement, the Company issued 100,000 shares of its restricted common stock to a consultant as partial payment for services rendered. The shares were valued at $15,000.  As a result, $14,900 was recorded to paid in capital.


On September 11, 2017, in connection with a certain related party convertible debt in the amount of $40,000, the Company issued 400,000 shares of its restricted common stock at a conversion rate of $0.10 per share.  As a result, $39,600 was recorded to paid in capital.


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").  


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 4).


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.


On or about May 5, 2017, David Engert, former Executive Chairman and director of the Company filed suit against the Company and RoxSan Pharmacy, Inc. in the United States District Court, Central District of California for an amount exceeding $75,000.  The Company intends to vigorously defend against this action, and on October 23, 2017, filed an answer and counterclaims against Mr. Engert for an amount exceeding $100,000.  The counterclaims include possible fraud and negligence committed by Mr. Engert and Mr. J. Michael Redmond, former successor Chairman of Mr. Engert, director, President and Chief Executive Officer of the Company and former President, Chief Executive Officer, Chairman and director of RoxSan Pharmacy, Inc.


On or about June 20, 2017, American Express Bank, FSB filed suit against RoxSan Pharmacy, Inc. in Superior Court of California, County of Los Angeles for an amount of $1,015,052.  On or about June 27, 2017, American Express Travel Related Services Company, Inc. filed suit against RoxSan Pharmacy, Inc. in Supreme Court of New York, County of New York in the amounts of $153,500 and $273,500.  On July 31, 2017 and August 16, 2017 respectively, the Company entered into stipulation and settlement agreements of these matters to make payments in lieu of further litigation at this time.


*    *    *    *    *


14



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., Parallax Health Management, Inc. (formerly QOLPOM, 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). The Company's principal focus is on personalized patient care.

The Company's subsidiary, 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.


Acquisition of RoxSan Pharmacy, Inc:


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.


Dispute with former owner of RoxSan


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.  


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.


Acquisition of Parallax Health Management, Inc. (formerly QOLPOM, Inc.)


On August 31, 2016, the Company entered into an agreement with QOLPOM, Inc., an Arizona corporation ("QOLPOM") and its shareholders (the "Seller") to purchase 100% of the issued and outstanding Shares of QOLPOM's common stock and its assets, inventory and intellectual property.   As a result, effective September 20, 2016, QOLPOM became the Company's wholly owned subsidiary in the remote healthcare monitoring industry ("RCS").  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.

5,000,000 shares of the Company's common stock at $0.001 per share; and

2.

2,500,000 options to purchase shares of the Company's common stock, vesting over three (3) years beginning August 31, 2017, of which 500,000 shares are exercisable at $0.10, 1,000,000 are exercisable at $0.15, and 1,000,000 are exercisable at $0.25; and

3.

10% of revenues generated from the RCS business segment, up to $1,000,000; and 7% thereafter, up to $2,000,000; and

4.

3% of revenues generated from the sale of QOLPOM hardware and monitoring service fees.



15


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


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 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.


Operating Segments


The Company currently has the following three (3) business segments: Retail Pharmacy Services (RPS), Remote Care Systems (RCS) 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.  


Remote Care Systems (RCS)

The RCS provides the health care industry's first comprehensive remote patient monitoring system, which utilizes proprietary software and technology to bridge clinical behavioral science with technology and logistics across a variety of wellness and clinical devices, including both fitness and clinical applications, for payers, providers and clinical professionals.


The RCS generates net revenues primarily through the licensing, installation and maintenance of its patented QOLPOM Hub, an integrated, secure and scalable platform for collecting, transmitting and analyzing biometric data, as well as the sale of wireless medical devices and home monitoring kits.


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


Balance Sheet

As at September 30, 2016, the Company had total assets of $8,657,463, compared with total assets of $8,157,050 at December 31, 2015. The decrease in total assets of $500,413 is attributable to a decrease in cash of $801,072, a decrease in trade and other receivables, net of allowance for doubtful accounts of $429,110, a decrease in rebates receivable of $359,399, a decrease in inventories of $302,949, a decrease in employee advances of $14,894, an increase in prepaid expenses of $34,137, an increase in loans receivable of $300,387, an increase in property and equipment of $91,073, $30,393 of depreciation related to equipment, an increase in intangible assets of $1,997,643, $127,427 of amortization related to the intangible assets, and an increase in goodwill of $142,417.  

As at September 30, 2016, the Company had total liabilities of $19,521,356, compared with total liabilities of $13,254,442 at December 31, 2015. The increase in total liabilities of $6,266,914 is attributable to an increase in accounts payable and accrued expenses of $894,277, an increase in pension contribution payable of $6,882, an increase in related party payables of $69,840, an increase in license fees payable of $2,000,000, a decrease in secured notes payable of $529,085, and a decrease in unamortized discount of $3,825,000.


Results of Operations


Three and nine months ended September 30, 2016, compared to three and nine months ended September 30, 2015


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


For the three months ended

For the nine months ended

September 30, 2016

September 30, 2015

September 30, 2016

September 30, 2015

Revenue

$

5,591,659

$

4,717,206

$

19,808,910

$

4,717,206

Cost of sales

$

4,738,492

$

3,657,829

$

16,914,818

$

3,657,829

Gross profit (loss)

$

853,167

$

1,059,377

$

2,894,092

$

1,059,377

Sales, marketing, and pharmacy expenses

$

472,683

$

425,825

$

1,461,576

$

425,825

General and administrative expenses

$

1,067,314

$

566,793

$

3,094,034

$

857,139

Operating income (loss)

$

(686,830

)

$

66,759

$

(1,661,518

)

$

(223,587

)

Dividend income

$

205

$

––

$

205

––

Discount amortization

$

(1,275,000

)

$

(49,276

)

$

(3,825,000

)

$

(256,676

)

Interest expense

$

(251,522

)

$

(185,871

)

$

(639,975

)

$

(229,045

)

Net loss

$

(2,213,147

)

$

(168,388

)

$

(6,126,288

)

$

(709,038

)


Revenue


Revenue for the three months ended September 30, 2016, in the amount of $5,591,659 consists primarily of pharmaceutical sales related to the Company's pharmacy operations.


Revenue for the nine months ended September 30, 2016, in the amount of $19,808,910 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 September 30, 2016, in the amount of $4,738,492 consists primarily of pharmaceutical drug purchases, direct labor, and indirect pharmacy costs related to the Company's pharmacy operations.  


16



Costs of sales for the nine months ended September 30, 2016, in the amount of $16,94,818 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

For the three months ended

For the nine months ended

Variance

September 30, 2016

September 30, 2015

September 30, 2016

September 30, 2015

3-month

9-month

Legal, accounting, and management services

$

349,155

$

227,628

$

1,037,233

$

384,464

$

121,527

$

652,769

Stock compensation/stock option amortization

68,703

7,014

134,687

7,014

61,689

127,673

Salaries and fees, and related taxes and benefits

281,615

143,291

711,856

259,626

138,324

452,228

Depreciation and amortization

54,641

8,126

157,820

12,036

46,515

145,784

Rent expense-office

40,020

12,484

120,060

12,484

27,536

107,576

Travel, meals and entertainment

44,591

14,593

177,304

16,040

29,998

161,266

Publicity and promotion

47,185

25,863

242,807

26,162

21,322

216,645

Office supplies and miscellaneous expenses

181,404

127,794

512,267

139,313

53,610

372,954

Total general and administrative expenses

$

1,067,314

$

566,793

$

3,094,034

$

857,139

$

500,521

$

2,236,895


During the three months ended September 30, 2016, the Company incurred operating expenses totaling $1,067,314, compared with $566,793 for the three months ended September 30, 2015. The increase in operating expenses of $500,521 is attributable to:


·

an increase in legal, accounting and management fees of 121,527, due to an increase in legal fees of $110,559 primarily related to the RoxSan Pharmacy acquisition; a decrease of $79,000 in audit related costs resulting from prior year audit expenses incurred in prior period compared to none in the current period; and an increase in outside consulting fees of $83,968 resulting from the engagement of additional management support; and

·

an increase in stock compensation/stock option amortization of $61,689, primarily due to stock compensation expense of $22,250 incurred in the current period compared to none in the prior period; and stock option amortization expense of $46,453, compared to $7,014 for the same period in the prior year; and

·

an increase in salaries and fees, and related taxes and benefits, of $138,324, due to an increase in salaries of $53,347 and related payroll taxes of $11,860 resulting primarily from an increase in officer compensation; and an increase in outside services of $44,271 compared to none for the same period in the prior year; and an increase employee benefits of $26,846 resulting primarily from an increase in health insurance premiums; and

·

an increase in depreciation and amortization of $46,515, due to professional equipment purchased in the current period resulting in an increase in depreciation expense of $3,670; and an increase in intangible assets resulting in an increase in amortization expense of $42,845; and

·

an increase in rent expense of $27,536 due to additional office space leased; and

·

an increase in travel, meals and entertainment of $29,998, due to an increase in travel expenses of $14,381 and meals and entertainment of $15,617; and

·

an increase in publicity and promotion of $21,322, due to an increase in promotion of $14,728, and an increase in fertility video production support of $6,594; and

·

an increase in office supplies and miscellaneous expenses of $53,610, due to an increase in automobile expenses of $15,974, computer and internet expenses of $14,996, insurance expense of $19,026, office supplies and expenses of $6,827, parking expense of $6,812, pension plan administrative costs of $16,580, pension plan contributions of $20,071, taxes, licenses and permits of $3,185, telephone costs of $6,111, and other general and administrative expenses of $29,706; and a decrease in bad debt expense of $85,678.


During the nine months ended September 30, 2016, the Company incurred operating expenses totaling $3,094,034, compared with $857,139 for the nine months ended September 30, 2015. The increase in operating expenses of $2,236,895 is attributable to:


·

an increase in legal, accounting and management fees of $652,769, due to an increase in legal fees of $453,531 primarily related to the RoxSan Pharmacy acquisition; a decrease of $67,760 in audit related costs primarily resulting from prior year audit expenses incurred in prior period compared to none in the current period; and an increase in outside consulting fees of $266,999 resulting from the engagement of additional management support; and

·

an increase in stock compensation/stock option amortization of $127,673, primarily due to stock compensation expense of $22,250 incurred in the current period compared to none in the prior period; and stock option amortization expense of $112,437, compared to $7,014 for the same period in the prior year; and

·

an increase in salaries and fees, and related taxes and benefits, of $452,228, due to an increase in salaries of $212,592 and related payroll taxes of $29,593 resulting primarily from an increase in officer compensation; and an increase in outside services of $78,325 compared to none for the same period in the prior year; and an increase in employee benefits of $131,718, resulting primarily from an increase in health insurance premiums; and

·

an increase in depreciation and amortization of $145,784, due to professional equipment purchased in the current period resulting in an increase in depreciation expense of $19,605; and an increase in intangible assets resulting in an increase in amortization expense of $126,179; and

·

an increase in rent expense of $107,576 due to additional office space leased; and

·

an increase in travel, meals and entertainment of $161,266, due to an increase in travel expenses of $97,994 and meals and entertainment of $63,271; and

·

an increase in publicity and promotion of $216,645, due to an increase in promotion of $57,287 and an increase in fertility video production support of $159,358; and

·

an increase in office supplies and miscellaneous expenses of $372,954, due to an increase in automobile expenses of $49,931, computer and internet expenses of $44,345, insurance expense of $61,996, office supplies and expenses of $43,629, parking expense of $34,392, pension plan administrative costs of $53,105, pension plan contributions of $20,071, taxes, licenses and permits of $38,521, telephone costs of $32,341, and other general and administrative expenses of $80,301; and a decrease in bad debt expense of $85,678.


Net Loss


During the three months ended September 30, 2016, the Company incurred a net loss of $2,213,147, compared with a net loss of $168,388 for the three months ended September 30, 2015. The increase in net loss of $2,044,759 is primarily attributable to an increase revenue of $874,453, an increase in cost of goods sold of $1,080,663, an increase in sales, marketing and pharmacy expenses of $46,858, an increase in general and administrative expenses of $500,521, an increase in dividend income of $205, an increase in discount amortization of $1,225,724, and an increase in interest expense of $65,651.


During the nine months ended September 30, 2016, the Company incurred a net loss of $6,126,288, compared with a net loss of $709,308 for the nine months ended September 30, 2015. The increase in net loss of $5,416,980 is primarily attributable to an increase revenue of $15,091,704, an increase in cost of goods sold of $13,256,989, an increase in sales, marketing and pharmacy expenses of $1,035,751, an increase in general and administrative expenses of $2,236,895, an increase in discount amortization of $3,568,324, and an increase in interest expense of $410,930.


Liquidity and Capital Resources


Working Capital

Increase

At September 30, 2016

At December 31, 2015

(Decrease)

Current Assets

$

1,876,024

$

3,749,311

$

(1,873,287

)

Current Liabilities

2,016,787

2,921,812

970,999

Working Capital (Deficit)

$

(2,016,787

)

$

827,499

$

(2,844,286

)


As at September 30, 2016, the Company had cash in the amount of $111,327 compared to $912,399 as of December 31, 2015.



17


The Company had a working capital deficit of $2,016,787 as of September 30, 2016, compared to working capital of $827,499 as of December 31, 2015. The decrease in working capital of $2,844,286 is primarily attributable to a decrease in cash of $801,072, a decrease in trade and other receivables, net of allowance, of $429,110, a decrease in rebates receivable of $359,399, a decrease in inventory of $302,949, a decrease in employee advances of $14,894, an increase in prepaid expenses of $34,137, an increase in accounts payable and accrued expenses of $894,277, an increase in pension contribution payable of $6,882, and a decrease in related party payables of $69,840.


Cash Flows

For the nine months ended

Increase

September 30, 2016

September 30, 2015

(Decrease)

Net cash provided by (used in) operating activities

$

(185,914

)

$

593,227

$

(779,141

)

Net cash used in investing activities

(91,073

)

(2,227

)

(88,846

)

Net cash provided by (used in) financing activities

(524,085

)

37,980

(562,065

)

Increase (decrease) in cash

$

(524,085

)

$

628,980

$

(1,430,052

)


Cash Flows from Operating Activities


During the nine months ended September 30, 2016, the Company used $185,914 of cash flow for operating activities compared with $593,227 provided by operating activities for the nine months ended September 30, 2015. The decrease in cash provided by operating activities of $779,141 is attributable an increase in net loss of $5,416,980, an increase in depreciation and amortization expense of $145,784, an increase in stock compensation/stock option amortization of $127,673, an increase in discount amortization of $3,569,324, a decrease in bad debt allowance of $7,786,735, a decrease in accruals converted to related party loans of $303,750, a decrease in trade and other receivables of $10,924,391, a decrease in inventories of $302,949, an increase in prepaid expenses of $6,877, an increase in loans receivable of $37,045, a decrease in accounts payable and accrued expenses of $2,340,051, an increase in pension contribution payable of $6,882, and an increase in related party payables of $36,294.


Cash Flows from Investing Activities


During the nine months ended September 30, 2016, the Company used $91,073 of cash flow for investing activities compared with $2,227 for the nine months ended September 30, 2015. The increase in cash used for investing activities of $88,846 is attributable the purchase of professional equipment.


Cash Flows from Financing Activities


During the nine months ended September 30, 2016, the Company used $562,065 of cash flow from financing activities, compared with $37,980 provided by financing activities for the nine months ended September 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 $629,085, and a decrease in proceeds of $37,980 from the sale of common stock.


During the nine months ended September 30, 2016, the Company received $5,000 from the issuance of common shares or other equity instruments, compared to $37,980 in proceeds during the nine months ended September 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 $12,841,064, 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.


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. 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 $20,500,000 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.


18



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 September 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 September 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.




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.


19



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.


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.


On or about May 5, 2017, David Engert, former Executive Chairman and director of the Company filed suit against the Company and RoxSan Pharmacy, Inc. in the United States District Court, Central District of California for an amount exceeding $75,000.  The Company intends to vigorously defend against this action, and on October 23, 2017, filed an answer and counterclaims against Mr. Engert for an amount exceeding $100,000.  The counterclaims include possible fraud and negligence committed by Mr. Engert and Mr. J. Michael Redmond, former successor Chairman of Mr. Engert, director, President and Chief Executive Officer of the Company and former President, Chief Executive Officer, Chairman and director of RoxSan Pharmacy, Inc.


On or about June 20, 2017, American Express Bank, FSB filed suit against RoxSan Pharmacy, Inc. in Superior Court of California, County of Los Angeles for an amount of $1,015,052.  On or about June 27, 2017, American Express Travel Related Services Company, Inc. filed suit against RoxSan Pharmacy, Inc. in Supreme Court of New York, County of New York in the amounts of $153,500 and $273,500.  On July 31, 2017 and August 16, 2017 respectively, the Company entered into stipulation and settlement agreements of these matters to make payments in lieu of further litigation at this time.


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.


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


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


On July 28, 2016, 20,000,000 shares of the Company's common stock held by three (3) shareholders were cancelled and returned to treasury.


On July 30, 2016, in connection with certain consulting agreements, the Company issued 250,000 shares of its restricted common stock for $0.001 per share.  The shares, valued at $7,500, were issued for cash in the amount of $250.  


On September 23, 2016, in connection with the acquisition of Parallax Health Management, Inc. (formerly QOLPOM, Inc.), the Company issued 5,000,000 shares of its restricted common stock for $0.001 per share.  The shares, valued at $225,000, were issued for cash in the amount of $5,000.


On September 25, 2016, in connection with a certain consulting agreement, the Company issued 250,000 shares of its restricted common stock for $0.001 per share.  The shares, valued at $16,000, were issued for cash in the amount of $250.  


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


ITEM 3. DEFAULTS UPON SENIOR SECURITIES


None.


ITEM 4. MINE SAFETY STANDARDS


Not Applicable .



20


ITEM 5. OTHER INFORMATION


The following financial information is provided in reference to the Registrant's merger (the "Merger") that took place on September 20, 2016, as disclosed in the Registrant's Current Report filed on Form 8-K September 23, 2016 herewith incorporated by reference.


(a)

Financial Statements of Business Acquired.


The audit on the financial statements of Qolpom, Inc. as of December 31, 2015 is currently being performed.  The audited financial statements will be filed upon completion of the audit.


The following financial statements reflect the unaudited balance sheet of Qolpom, Inc. ("Qolpom") as of June 30, 2016 and December 31, 2015, before the Merger occurred on September 20, 2016, and also reflect the unaudited statements of income, stockholders' equity, and cash flows of Qolpom for the six months ended June 30, 2016 and the four months ended December 31, 2015, before the Merger occurred on September 20, 2016.


QOLPOM, INC.

BALANCE SHEET

(unaudited)

June 30, 2016

December 31, 2015

ASSETS

Current assets

Due from affiliates

$

64,492

$

24,915

TOTAL ASSETS

$

64,492

$

24,915

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

$

5,576

$

––

Total current liabilities

5,576

––

Total liabilities

5,576

––

Stockholders' equity

Common stock: 1,000,000 shares authorized, $1 par, 150 issued and outstanding as of June 30, 2016 and December 31, 2015

150

150

Retained earnings

58,766

24,765

Total stockholders' equity

58,916

24,915

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

64,492

$

24,915


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



QOLPOM, INC.

STATEMENT OF OPERATIONS

(unaudited)

For the six months ended

For the four months ended

June 30, 2016

December 31, 2015

Revenue

$

180,000

$

24,930

Cost of sales

5,576

––

Gross profit

174,424

24,930

General and administrative expenses

140,423

165

Net income

$

34,001

$

24,765

Net (loss) per common share - basic and diluted

$

226.67

$

165.10

Weighted average common shares outstanding - basic and diluted

150

150


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



QOLPOM, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

PERIOD FROM SEPTEMBER 16, 2015 TO JUNE 30, 2016

(unaudited)

COMMON STOCK

RETAINED

SHARES

AMOUNT

EARNINGS

TOTAL

Balance, September 16, 2015 (date of inception)

––

$

––

$

––

$

––

Issuance of common stock to officers

150

150

150

Net income

24,765

24,765

Balance, December 31, 2015

150

$

150

24,765

24,765

Net income

34,001

34,001

Balance, June 30, 2016

150

$

150

$

58,766

$

58,766


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





QOLPOM, INC.

STATEMENT OF CASH FLOWS

(unaudited)

For the six months ended

For the four months ended

June 30, 2016

December 31, 2015

Cash flows from operations:

Net loss

$

34,001

$

24,765

Adjustments to reconcile net loss to net cash used in operating activities:

Increase in affiliate receivables

(39,577

)

(24,915

)

Increase in accounts payable

5,576

––

Net cash used in operating activities

––

(150

)

Cash flows from financing activities:

Proceeds from issuance of common shares

––

150

Net cash provided by financing activities

––

150

Net increase (decrease) in cash

––

––

Cash - beginning of period

––

––

Cash - end of period

$

––

$

––

NON-CASH ACTIVITIES:

$

––

$

––

SUPPLEMENTAL INFORMATION

Interest paid

$

––

$

––

Income taxes paid

$

––

$

––


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


21


QOLPOM, INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2016 AND DECEMBER 31, 2015


NOTE 1. OVERVIEW AND NATURE OF BUSINESS


The Company was founded in Arizona in September 2015, and on June 20, 2016, QOLPOM, Inc. filed its articles of incorporation with the Secretary of the state of Arizona.


The Company's primary focus is creating a home health hub to support remote patient monitoring, medication adherence and tele-medicine.  The Company's patent-pending QOLPOM product line includes a personal medication dispensing and remote monitoring system that can capture (through external sensors), monitor, and store patient vital signs along with electronic patient records that gives users access to digital health care and telemedicine.


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.


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.


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.


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 of 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.


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


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.  As of June 30, 2016, and December 31, 2015, the Company had no dilutive common stock equivalents.


Comprehensive Loss

As of 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.


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. 


Not yet adopted:

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. The Company is evaluating the effect, if any, adoption of ASU No. 2015-16 will have on its consolidated financial statements.


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 all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 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.


In April 2016, the FASB issued ASU No. 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


22


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. COMMON STOCK


The total number of authorized shares of common stock that may be issued by the Company is 1,000,000 with a par value of $1.00 per share.  


The Company issued 150 shares of the Company's common stock to its founders at $1.00 per share, for cash in the amount of $150.  


As of June 30, 2016, and December 31, 2015, the Company had 150 common shares issued and outstanding.


NOTE 4. SUBSEQUENT EVENTS


The Company has evaluated the events and transactions for recognition or disclosure subsequent to December 31, 2015, and has determined that there have been no events that would require disclosure, except for the following:


On August 25, 2016, the Company entered into an Assignment Agreement with La Frontera Community Solutions Inc., an Arizona nonprofit corporation (the "Assignor"), for all rights, title and interest in certain intellectual property, including the QOLPOM patents and trademarks. Consideration for the assignment of rights includes:


1.

a royalty fee of $2,000,000, to be paid through revenues generated by the Company from the QOLPOM hardware and monitoring service, payable in full by August 25, 2021; and

2.

a royalty of 3% of the revenue generated from the QOLPOM hardware and monitoring service, in perpetuity.


On August 29, 2016, the Company entered into a License Agreement with La Frontera Community Solutions Inc., (the "Assignor"), for the license of certain intellectual property for a term of twenty (20) years. Consideration for the assignment of rights includes:


1.

a royalty fee of $1,500; and

2.

a royalty of 3% of the revenue generated from the licensed property, in perpetuity.


On September 20, 2016 (the "Closing"), the Company and its shareholders (the "Seller"), entered into an Agreement to Purchase/Sell One Hundred Percent of the Issued and Outstanding Shares of QOLPOM, Inc. and its Assets, Inventory and Intellectual Property (the "Purchase Agreement") with Parallax Health Sciences, Inc., a Nevada corporation ("PRLX"). Pursuant to the Purchase 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 includes:


1.

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

2.

a cash earn-out of $2,000,000, to be paid through revenues 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 PRLX 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.


On September 23, 2016, pursuant to the terms and conditions of the Purchase Agreement, 5,000,000 shares of PRLX restricted common stock were issued to the Seller.  The shares, valued at $225,000, were issued for cash in the amount of $5,000.  


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




*    *    *    *    *


23




(b)

Pro Forma Financial Information.


The following financial information reflects the unaudited condensed consolidated pro forma income statement of Parallax Health Sciences, Inc. ("Parallax") for the nine months ended September 30, 2016, as if the Merger had occurred on January 1, 2016, and the unaudited condensed consolidated pro forma income statement of Parallax for the year ended December 31, 2015, as if the Merger had occurred on January 1, 2015.

The pro forma adjustments are preliminary and have been made solely for purposes of developing the pro forma financial information for illustrative purposes necessary to comply with the requirements of the SEC.  The actual results reported in periods following the transactions may differ significantly from that reflected in these pro forma consolidated income statements for a number of reasons, including differences between the assumptions used to prepare these pro forma consolidated income statements and actual amounts and cost savings from operating efficiencies.  In addition, no adjustments have been made to the unaudited pro forma consolidated income statements for non-recurring items related to the transactions.  As a result, the pro forma financial information does not purport to be indicative of what the results of operations would have been had the transactions been completed on the applicable dates of this pro forma financial information.  The pro forma consolidated income statements are based upon the historical financial statements of Parallax and do not purport to project future results of operations after giving effect to the transactions.



PARALLAX HEALTH SCIENCES INC.

CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS

As of and for the nine months ended September 30, 2016 **

(unaudited)

 Parallax

 Qolpom

 Pro Forma

Historical

Consolidation

Pro Forma

 Consolidated

9/30/2016

9/30/2016

Adjustments

9/30/2016

Revenue

$

19,808,910

$

292,821

$

––

$

20,101,731

Cost of revenues

16,914,818

16,931

––

16,931,749

Gross profit

2,894,092

275,890

––

3,169,982

Sales, marketing, and pharmacy expenses

1,461,576

––

––

1,461,576

General and administrative expenses

3,070,169

249,196

––

3,319,365

Operating loss

(1,637,653

)

26,694

––

(1,610,959

)

Other income (expense)

(4,464,770

)

––

––

(4,464,770

)

Net income (loss)

$

(6,102,423

)

$

26,694

$

––

$

(6,075,729

)

Net (loss) per common share - basic and diluted

$

(0.05

)

$

(0.05

)

Weighted average common shares outstanding - basic and diluted

116,143,416

116,143,416

**

As if the transaction took place January 1, 2016



PARALLAX HEALTH SCIENCES INC.

CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS

As of and for the year ended December 31, 2015 **

(unaudited)

 Parallax

 Qolpom

 Pro Forma

Historical

Consolidation

Pro Forma

 Consolidated

12/31/2015

12/31/2015

Adjustments

12/31/2015

Revenue

$

11,579,720

$

24,930

$

––

$

11,604,650

Cost of revenues

9,874,244

––

––

9,874,244

Gross profit

1,705,476

24,930

––

1,730,406

Sales, marketing, and pharmacy expenses

1,061,069

––

––

1,061,069

General and administrative expenses

1,906,488

165

––

1,906,653

Operating loss

(1,262,081

)

24,765

––

(1,237,316

)

Other income (expense)

(2,457,817

)

––

––

(2,457,817

)

Net income (loss)

$

(3,719,898

)

$

24,765

$

––

$

(3,695,133

)

Net (loss) per common share - basic and diluted

$

(0.03

)

$

(0.03

)

Weighted average common shares outstanding - basic and diluted

131,734,518

131,734,518

**

As if the transaction took place January 1, 2015



24


ITEM 6. EXHIBITS


Exhibits required by Item 601 of Regulation S-B


Exhibit

Number

Description of Exhibit

Filing Reference

(2)

Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or Succession

2.1

Share Exchange Agreement between Endeavor Power Corporation, Endeavor Holdings, Inc. and Parallax Diagnostics, Inc. and the Parallax Shareholders dated October 1, 2012

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

2.2

Letter of Intent between Parallax Diagnostics, Inc. and Endeavor Power Corporation dated August 15, 2012

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

2.3

Agreement to Purchase and Sell 100% of RoxSan Pharmacy, and Its Assets and Inventory

Filed with the SEC on August 18, 2015 as part of the Company's Current Report on Form 8-K.

2.4

Agreement to Purchase and Sell 100% of Qolpom, Inc, and Its Assets, Intellectual Property and Inventory dated August 31, 2016

Filed with the SEC on September 23, 2016, as part of the Company's Current Report on Form 8-K

(3)

Articles of Incorporation and Bylaws

3.1

Articles of Incorporation

Filed with the SEC on March 5, 2007 as part of the Company's Registration Statement on Form SB-2.

3.1(a)

Amended and Restated Articles of Incorporation

Filed with the SEC on May 17, 2010 as part of the Company's Annual Report on Form 10-K.

3.2

Bylaws

Filed with the SEC on March 5, 2007 as part of the Company's Registration Statement on Form SB-2.

3.2(a)

Amended Bylaws

Filed with the SEC on May 17, 2010 as part of the Company's Annual Report on Form 10-K.

3.3

Articles of Merger between Endeavor Power Corporation and Parallax Diagnostics, Inc. filed with Secretary of State of Nevada on November 6, 2012

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

3.4

Certificate of Amendment filed with the Secretary of State of Nevada on January 9, 2014

Filed with the SEC on April 14, 2014 as part of the Company's Annual Report on Form 10-K.

(4)

Instruments Defining the Rights of Security Holders

4.1

2011 Equity Incentive Plan dated March 26, 2011

Filed with the SEC on March 31, 2011 as part of the Company's Current Report on Form 8-K.

4.2

Sample Stock Option Agreement

Filed with the SEC on March 31, 2011 as part of the Company's Current Report on Form 8-K.

4.3

Sample Stock Award Agreement for Stock Units

Filed with the SEC on March 31, 2011 as part of the Company's Current Report on Form 8-K.

4.4

Sample Stock Award Agreement for Restricted Stock

Filed with the SEC on March 31, 2011 as part of the Company's Current Report on Form 8-K.

4.5

2010 Employee Stock Option Plan of Parallax Diagnostics, Inc, dated October 1, 2010

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

4.6

Sample Stock Option Agreement

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

(10)

Material Contracts

10.1

Second Amendment to Joint Venture Agreement between the Company and Federated Energy Corporation dated September 15, 2009

Filed with the SEC on September 19, 2009 as part of the Company's Current Report on Form 8-K.

10.2

Farmount Agreement between the Company and Togs Energy, Inc. and M-C Production & Drilling Co, Inc. dated July 21, 2009

Filed with the SEC on July 23, 2009 as part of the Company's Current Report on Form 8-K.

10.3

Convertible Promissory Note to Regal Capital Development, Inc. dated August 25, 2009

Filed with the SEC on September 4, 2009 as part of the Company's Current Report on Form 8-K.

10.4

Common Stock Purchase Warrant to Regal Capital Development, Inc. dated August 25, 2009

Filed with the SEC on September 4, 2009 as part of the Company's Current Report on Form 8-K.

10.5

Settlement Agreement between the Company and Regal Capital Development, Inc. dated September 11, 2010

Filed with the SEC on July 12, 2010 as part of the Company's Current Report on Form 8-K.

10.6

Promissory Note to Regal Capital Development, Inc. dated September 11, 2010

Filed with the SEC on July 12, 2010 as part of the Company's Current Report on Form 8-K.

10.7

Amended Promissory Note to Regal Capital Development, Inc. dated September 11, 2010

Filed with the SEC on April 14, 2011 as part of the Company's Annual Report on Form 10-K.

10.8

Settlement Agreement between the Company and Andrew I. Telsey, P.C., dated August 3, 2010

Filed with the SEC on August 22, 2011 as part of the Company's Quarterly Report on Form 10-Q.

10.9

Settlement Agreement between the Company and Regal Capital Development, Inc. dated September 17, 2010

Filed with the SEC on October 21, 2010 as part of the Company's Current Report on Form 8-K.

10.10

Promissory Note to Regal Capital Development, Inc. dated September 17, 2010

Filed with the SEC on October 21, 2010 as part of the Company's Current Report on Form 8-K.

10.11

Employment Agreement between the Company and Alfonso Knoll dated November 8, 2010

Filed with the SEC on November 12, 2010 as part of the Company's Current Report on Form 8-K.

10.12

Promissory Note to Regal Capital Development, Inc. dated November 23, 2010

Filed with the SEC on November 30, 2010 as part of the Company's Current Report on Form 8-K.

10.13

Amendment to Employment Agreement between the Company and Alfonso Knoll dated November 17, 2010

Filed with the SEC on November 30, 2010 as part of the Company's Current Report on Form 8-K.

10.14

Consulting Agreement between the Company and The Musser Group, LLC dated February 21, 2011

Filed with the SEC on February 25, 2011 as part of the Company's Current Report on Form 8-K.

10.15

Promissory Note to Marans Invest & Finance S.A. dated April 8, 2011

Filed with the SEC on August 22, 2011 as part of the Company's Quarterly Report on Form 10-Q.

10.16

Promissory Note to Rast Trade Corp. dated April 21, 2011

Filed with the SEC on August 22, 2011 as part of the Company's Quarterly Report on Form 10-Q.

10.17

Settlement Agreement between the Company and Mr. Alfonso Knoll dated June 8, 2011

Filed with the SEC on June 16, 2011 as part of the Company's Current Report on Form 8-K.

10.18

Settlement Agreement between the Company and The Musser Group, LLC dated July 19, 2011

Filed with the SEC on August 22, 2011 as part of the Company's Quarterly Report on Form 10-Q.

10.19

Assignment of Intellectual Property between Roth Kline, Inc. and Montecito BioSciences, Ltd. dated September 10, 2010

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.20

License of Intellectual Property between Roth Kline Inc. and Montecito BioSciences, Ltd. dated September 10, 2010

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.21

Modification to the Assignment of Intellectual Property between Roth Kline, Inc. and Montecito BioSciences, Ltd.

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.22

Modification to the License of Intellectual Property between Roth Kline Inc. and Montecito BioSciences, Ltd. dated September 10, 2010

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.23

Employment Agreement between Roth Kline, Inc. and Michael Redmond dated November 15, 2010

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.24

Development and Supply Agreement between Parallax Diagnostics, Inc. and Corder Engineering, LLC dated July 1, 2011

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.25

Supply Agreement between Parallax Diagnostics, Inc. and Meyer Stevens Group, Inc. dated July 1, 2011

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.26

Consulting Agreement between Parallax Diagnostics, Inc. and Huntington Chase Financial Group, LLC dated January 2, 2012

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.27

Consulting Agreement between Parallax Diagnostics, Inc. and Greg Suess dated July 11, 2012

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.28

Convertible Preferred Purchase Agreement between Parallax Diagnostics, Inc. and Hamburg Investment Company, LLC, dated June 17, 2011

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.29

Convertible Preferred Purchase Agreement between Parallax Diagnostics, Inc. and Huntington Chase Financial Group, LLC, dated June 17, 2011

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.30

Convertible Preferred Purchase Agreement between Parallax Diagnostics, Inc. and Huntington Chase Financial Group, LLC, dated September 30, 2011

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

10.31

Consulting Agreement between Endeavor Power Corporation and Capital Group Communications, Inc. dated January 10, 2013

Filed with the SEC on May 15, 2013 as part of the Company's Quarterly Report on Form 10-Q.

10.32

Employment Agreement between Parallax Health Sciences, Inc., RoxSan Pharmacy, and Shahla Melamed dated August 13, 2015

Filed with the SEC on August 18, 2015 as part of the Company's Current Report on Form 8-K.

10.33

Assignment Agreement between La Frontera Community Solutions, Inc. and QOLPOM Inc. dated August 25, 2016

Filed with the SEC on September 23, 2016, as part of the Company's Current Report on Form 8-K.

10.34

License Royalty Agreement between La Frontera Community Solutions, Inc. and QOLPOM Inc. dated August 29, 2016

Filed with the SEC on September 23, 2016, as part of the Company's Current Report on Form 8-K.

10.35

Intellectual Property Purchase Agreement between Parallax Health Sciences, Inc., Parallax Behavioral Health, Inc., and ProEventa Inc. dated April 27, 2017

Filed with the SEC on September 23, 2016, as part of the Company's Current Report on Form 8-K.

10.36

Consulting Agreement between Parallax Health Sciences, Inc., and James Gaynor dated April 27, 2017

Filed with the SEC on May 3, 2017 as part of the Company's Current Report on Form 8-K.

10.37

Employment Agreement between Parallax Health Sciences, Inc., and Paul R. Arena dated July 1, 2017

Filed with the SEC on July 24, 2017 as part of the Company's Annual Report on Form 10-K.

(14)

Code of Ethics

14.1

Code of Ethics

Filed with the SEC on April 14, 2011 as part of the Company's Annual Report on Form 10-K.

(16)

Letter Re Change in Certifying Accountant

16.1

Letter from Moore and Associates, Chartered dated August 13, 2009

Filed with the SEC on August 13, 2009 as part of the Company's Current Report on Form 8-K.

16.2

Letter from Seale & Beers, CPAs dated August 26, 2009

Filed with the SEC on August 27, 2009 as part of the Company's Current Report on Form 8-K.

16.3

Letter from M&K CPAs, PLLC dated March 12, 2010

Filed with the SEC on March 12, 2010 as part of the Company's Current Report on Form 8-K.

16.4

Letter from Ron Chadwick, P.C. dated August 3, 2010

Filed with the SEC on August 4, 2010 as part of the Company's Current Report on Form 8-K.

16.5

Letter from Davis Accounting Group, P.C. dated November 29, 2010

Filed with the SEC on November 30, 2010 as part of the Company's Current Report on Form 8-K.

16.6

Letter from M&K CPAs, PLLC dated October 23, 2012

Filed with the SEC on October 25, 2012 as part of the Company's Current Report on Form 8-K.

16.7

Letter from Seale & Beers, CPAs dated November 18, 2015

Filed with the SEC on November 18, 2015 as part of the Company's Current Report on Form 8-K.

(23)

Consent Letters

23.1

Letter from Seale & Beers, CPAs dated April 14, 2014

Filed with the SEC on April 14, 2014 as part of the Company's Annual Report on Form 10-K.

23.2

Letter from Seale & Beers, CPA's dated March 31, 2015

Filed with the SEC on March 31, 2015 as part of the Company's Annual Report on Form 10-K.

23.3

Letter from Seale & Beers, CPA's dated July 20, 2017

Filed with the SEC on July 24, 2017 as part of the Company's Annual Report on Form 10-K.

23.4

Letter from Dave Banerjee, CPA's dated July 25, 2017

Filed with the SEC on July 24, 2017 as part of the Company's Annual Report on Form 10-K.

(31)

Section 302 Certifications

31.1*

Section 302 Certification of Paul R. Arena

Filed herewith .

31.2*

Section 302 Certification of Calli R. Bucci

Filed herewith .

(32)

Section 906 Certifications

32.1*

Section 906 Certification of Paul R. Arena

Filed herewith .

32.2*

Section 906 Certification of Calli R. Bucci

Filed herewith .

(99)

Other Documents

99.1

Confidential Private Placement Memorandum for Parallax Diagnostics dated July 1, 2012

Filed with the SEC on November 15, 2012 as part of the Company's Current Report on Form 8-K.

99.2

Patent Report issued by Marathon Patent Group on April 1, 2013

Filed with the SEC on April 16, 2013 as part of the Company's Annual Report on Form 10-K.

(100)

XBRL Related Documents

101.INS**

XBRL Instance Document

Filed herewith.

101.SCH**

XBRL Taxonomy Extension Schema Document

Filed herewith.

101.CAL**

XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith.

101.LAB**

XBRL Taxonomy Extension Labels Linkbase Document

Filed herewith.

101.PRE**

XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.

101.DEF**

XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith.



*

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.


25


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.


PARALLAX HEALTH SCIENCES, INC.

 Dated: November 29, 2017

/s/ Paul R. Arena

Paul R. Arena

President and Chief Executive Officer

 Dated: November 29, 2017

/s/ Calli R. Bucci

Calli R. Bucci

Chief Financial Officer



26