The Company’s unaudited interim consolidated financial statements for the nine months ended September 30, 2017, 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 unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2016, on Form 10-K, as filed with the Securities and Exchange Commission on July 11, 2018.

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

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

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PARALLAX HEALTH SCIENCES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2016. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated 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 pharmacy services provided by RoxSan Pharmacy, Inc. (“RoxSan”), remote healthcare services provided by Parallax Health Management, Inc. (formerly Qolpom, Inc.) (“PHM”), behavioral healthcare services provided by Parallax Behavioral Health Inc. (“PBH”), and eventually through the Parallax Diagnostics Inc.'s medical diagnostic testing platform, which is capable of diagnosing and monitoring several health issues.

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

On March 22, 2017, the Company formed a wholly-owned subsidiary, Parallax Behavioral Health, Inc., a Delaware corporation.

1. a stock purchase agreement to purchase 2,500,000 shares of the Company’s common stock; 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 April 26, 2017, in conjunction with the ProEventa Agreement, the Company entered into a consulting agreement with James Gaynor, founder of ProEventa, 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 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 May 14, 2018, pursuant to a unanimous resolution of the Boards of Directors of RoxSan Pharmacy, Inc. and Parallax Health Sciences, Inc., RoxSan filed a Chapter 7 petition in the United States Bankruptcy Court for the Central District of California.  Mr. Timothy Yoo was appointed trustee on May 15, 2018.  In connection with this filing, RoxSan seeks to discharge approximately $5 million of liabilities owed to various parties including more than $1 million owed to the Company.

The Company’s business segments consist of: Retail Pharmacy Services (“RPS”), Remote Care Services(“RCS”), Behavioral Healthcare Services (“BHS”), and Corporate.

Retail Pharmacy Services (RPS)

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

RoxSan generates net revenues primarily by dispensing prescription drugs, both through local channels by direct delivery as well as mail order. RoxSan 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.  In 2017, the pharmacy was fully licensed and qualified to conduct business in over 40 US States.

Soon thereafter, in July 2017, RoxSan’s contract with its primary drug supplier was terminated for similar reasons connected to the former owner and alleged criminal activities associated with the Melamed family name, despite the Company’s new ownership and management. After careful consideration, the Company determined that RoxSan was unable to generate enough profits to sustain its pharmacy business, and in December 2017, the RPS segment ceased operations. In May 2018, RoxSan filed a Chapter 7 bankruptcy petition.

Remote Care Services (RCS)

PHM provides the healthcare 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.

Behavioral Healthcare Services (BHS)

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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 unaudited 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 $30,149,865, and a working capital deficit of $6,601,912, 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 Company will require additional financing in order to proceed with its plan of operations, including approximately $3,000,000 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 unaudited interim 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 unaudited interim consolidated 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.), Parallax Behavioral Health, 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.

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 nine months or less at the time of issuance to be cash equivalents. As at September 30, 2017, and December 31, 2016, the Company had no cash equivalents.

Fair Value of Financial Instruments

As of September 30, 2017, and December 31, 2016, 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 9 and 14 for additional information about long-term debt.

There were no outstanding derivative financial instruments as of September 30, 2017, and December 31, 2016.

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 and the year ended September 30, 2017, and December 31, 2016, respectively, is as follows:

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Management has determined that the collection of certain revenues relating to workers compensation insurance claims in the amount of $8,402,787, generated between August 2015 and December 2016, cannot be reasonably assured. As a result, an allowance for doubtful collections of these claims was established. At December 31, 2016, management determined that no future collectability is likely, and the uncollectable claims receivable of $8,402,787 and related allowance of $8,402,787, was written off as of December 31, 2016.  

During the nine months and the year ended September 30, 2017, and December 31, 2016, the allowance for doubtful collections of customer receivables and insurance claims not related to workers compensation increased by $72,579 and $77,000, respectively.  

As of September 30, 2017, and December 31, 2016, the allowance for doubtful collections was $5,000 and $50,000, respectively.

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 4 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.

Due to the Retail Pharmacy segment’s recurring losses and the liquidation of RoxSan in 2018, its goodwill was evaluated for impairment and the entire amount of goodwill of $3,887,818 was written off as of December 31, 2016.

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.

Due to the Retail Pharmacy segment’s recurring losses and the liquidation of RoxSan in 2018, its long-lived assets were evaluated for impairment.  The Company has determined there is limited recoverability for these assets, and an impairment of property and equipment of $129,106 was recorded as of December 31, 2016.

The Company believes that future projected cash flows are sufficient for the recoverability of the remainder of its long-lived assets, and no other impairment exists.  There can be no assurance, however, that market conditions will not change or demand for the Company’s products and products under development will continue.  Either of these could result in future impairment losses.

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, 2017, and December 31, 2016, 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.

Shipping and Handling Costs

The Company includes shipping and handling costs relating to the delivery of products to its locations (freight-in) as costs of sales. Shipping and handling costs, which include third-party shipment providers, postage, messenger and driver salaries and fees relating to the delivery of products to customers, are classified as Selling, Marketing and Pharmacy (“SM&P”) expense. Shipping and handling costs included in SM&P expense were:

Income Taxes

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

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

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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 March 2016, the FASB issued ASU No. 2016-09 (“ASU 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. ASU 2016-09 will be effective for the Company for annual periods beginning after December 15, 2017, including interim periods, 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 May 2016, the FASB issued ASU No. 2016-12 (“ASU 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. ASU 2016-12 will be effective for the Company for annual periods beginning after December 15, 2017, including interim periods. Earlier application is permitted only as of annual periods beginning after December 15, 2016, including interim periods.  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 (“ASU 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.  ASU 2016-15 will be effective for the Company 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.

In October 2016, the FASB issued ASU No. 2016-16 (“ASU 2016-16”), Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory.  ASU 2016-16 improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. as part of the Board’s initiative to reduce complexity in accounting standards. ASU 2016-16 will be effective for the Company for annual reporting periods beginning after December 15, 2017, and interim periods.  Early adoption is permitted for interim or annual reporting periods for which financial statements have not been issued or made available for issuance. The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.

In October 2016, the FASB issued ASU No. 2016-17 (“ASU 2016-17”), Consolidation (Topic 810), Interests Held through Related Parties That Are Under Common Control.  ASU 2016-17 amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity. The amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods.  Early adoption is permitted.

Not Yet Adopted:

In January 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”), Business Combinations (Topic 805), Clarifying the Definition of a Business.  ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.  ASU 2017-01 will be effective for the Company for annual periods beginning after December 15, 2017, and interim periods.  Early adoption is permitted under certain conditions. The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04 (“ASU 2017-04”), Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment.  ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test, which should reduce the cost and complexity of evaluating goodwill for impairment. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.  ASU 2017-04 will be effective for the Company for annual periods beginning after December 15, 2019, and interim periods.  Early adoption is permitted for testing performed after January 1, 2017. The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.

In May 2017, the FASB issued ASU No. 2017-09 (“ASU 2017-09”), Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting.   ASU 2017-09 clarifies and reduces both the (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. ASU 2017-09 will be effective for the Company for annual periods 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 other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

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NOTE 3. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consists of the following:

As of September 30, 2017, and December 31, 2016, respectively, the Company was owed $144,416 and $815,785 in accounts receivable, consisting of $63,912 and $603,316 in insurance claims, $31,236 and $59,015 in workers compensation claims, and $49,268 and $153,454 in customer house account charges, for which payment has not yet received.

As of September 30, 2017, and December 31, 2016, respectively, $49,268 and $153,454 was owed from customers, consisting of $9,876 and $2,043 in services revenue, $15,441 and $93,731 in copayments, and $23,951 and $57,680 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.

During the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, the allowance for doubtful collections of insurance claims increased by $72,579 and $77,000, respectively.  As of September 30, 2017, and December 31, 2016, the allowance for doubtful collection of these insurance claims was $5,000 and $50,000, respectively.

NOTE 4. LOANS RECEIVABLE

As of September 30, 2017, and December 31, 2016, loans receivable consists of $169,902 in monies owed to the Company from the former owner of RoxSan Pharmacy.  Included in this amount are monies collected by the former owner for revenues earned subsequent to the closing date of August 13, 2015 (the “Closing Date”), less monies collected by the Company for revenues earned prior the Closing Date; and monies advanced by the Company on behalf of the former owner for expenses incurred prior to the Closing Date, less monies advanced by the former owner on behalf of the Company for expenses incurred subsequent to the Closing Date.  

The amount owed to the Company is being disputed by the former owner and is part of the legal proceedings disclosed in Note 19. 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:

Impairment losses for the nine months and the year ended September 30, 2017, and December 31, 2016, was $0 and $129,106, respectively.

Depreciation expense for the nine months ended September 30, 2017 and 2016, was $22,018 and $30,393, respectively.

NOTE 6. INTANGIBLE ASSETS

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

On April 26, 2017, the Company, through its wholly owned subsidiary, Parallax Behavioral Health, Inc., acquired certain intangible assets at a cost of $2,422,500.

Amortization expense for the nine months ended September 30, 2017 and 2016, was $205,792 and $127,427, respectively.

NOTE 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of:

[1]As of September 30, 2017, $105,746 has been reclassified from related party payables to accounts payable, resulting from a change in related parties (Note 10).   

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NOTE 8. PENSION PLAN

On June 1, 2016, the Company, through its wholly-owned subsidiary, RoxSan Pharmacy, Inc. (the “Plan Sponsor”), adopted the RoxSan Pharmacy Inc. Profit Sharing Plan (the “Plan”).  The Plan is available to all RoxSan employees employed over three (3) months. Participants may make voluntary contributions, subject to plan limitations.  The Plan Sponsor provides matching contributions up to 4%, subject to plan limitations.  All contributions vest immediately.  For the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, the Plan Sponsor contributed $22,488 and $37,715 to the Plan. As of September 30, 2017, and December 31, 2016, respectively, contributions in the amount of $5,884 and $10,822 are payable.

NOTE 9. NOTES AND LOANS PAYABLE

Notes and loans payable consists of the following:

On August 7, 2017, the Company, through its wholly-owned subsidiary, RoxSan Pharmacy, Inc., entered into an Inventory Security Agreement (the “Agreement”) to be provided with financing in the amount of $100,000 to purchase inventory (the “Loan Amount”).  The Loan Amount is secured by the Company’s physical inventory, and provides for repayment over an eight (8) month period in equal monthly installments of $12,500.  In lieu of interest, the Company issued 800,000 warrants to purchase Parallax common stock for a term of three (3) years at an exercise price of $0.10 per share. During the nine months ended September 30, 2017, principal payments in the amount of $12,500 were made.  As of September 30, 2017, $87,500 in principal remained.

As of September 30, 2017, and December 31, 2016, respectively, long-term non-related party loans and promissory notes in the aggregate sum of $95,975 are owed by the Company.  The loans in the amount of $11,900 were for overhead requirements, and are unsecured and non-interest bearing.  The notes in the amount of $84,075 bear an interest rate of 8% to 10% per annum, are unsecured, and are payable upon demand.  As of September 30, 2017, no demand has been made.  During the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, interest in the amount of $5,459 and $7,320 was expensed. As of September 30, 2017, and December 31, 2016, respectively, a total of $49,591 and $44,132 in interest has been accrued and is included as an accrued expense on the accompanying consolidated balance sheet.

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

As of September 30, 2017, and December 31, 2016, 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.[1] As of September 30, 2017, no demand for payment or conversion has been made. During the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, interest in the amount of $7,539 and $10,107 was expensed.  As of September 30, 2017, and December 31, 2016, respectively, a total of $57,966 and $50,427 in interest has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheet.

Between July 2017 and September 2017, the Company issued convertible promissory notes (“Convertible Notes”) to twenty-one (21) accredited investors (“Investor Group A”) for financing in the aggregate amount of $696,000.  The Convertible Notes include interest at a rate of 10% per annum, mature in three (3) years, and are convertible into restricted shares of the Company’s common stock at a conversion rate of $0.10 per share.  The common shares were issued with 50% warrant coverage for a period of three (3) years at an exercise price of $0.25 per common share. During the nine months ended September 30, 2017, interest in the amount of $8,447 was expensed.  As of September 30, 2017, a total of $8,447 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 13).  The note bears interest at a rate of 6% per annum, and matures 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 due to fraudulent inducement and false representations and warranties of the seller at the time this note was issued.  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 and the year ended September 30, 2017, and December 31, 2016, respectively, the Company expensed $3,825,000 and $5,100,000 in discount amortization.  As of September 30, 2017, and December 31, 2016, respectively, $4,420,000 and $8,245,000 in unamortized discount remains, to be amortized over the next 11 months, to the note's Maturity.  During the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, interest in the amount of $626,604 and $607,398 has been expensed. As of September 30, 2017, and December 31, 2016, respectively, a total of $1,335,704 and $709,100, in interest has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheet. The Company is currently in litigation with the note holder/former owner of RoxSan, and is also evaluating this liability in connection with RoxSan’s Chapter 7 petition filed in May 2018 (Note 19).

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On October 9, 2015, the Company, through its wholly-owned subsidiary, RoxSan, entered into a Business Loan and Security Agreement (the "Loan") with American Express, FSB, in the principal sum of $2,000,000.  The Loan includes interest in the form of a flat fee of $240,000, or 6% 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 and the year ended September 30, 2017, and December 31, 2016, respectively, payments totaling $216,900 and $854,481, representing $126,900 and $734,481 in principal and $90,000 and $120,000 in interest, have been made. As of September 30, 2017, and December 31, 2016, respectively, principal of $969,020 and $1,095,920, and unamortized loan fees of $5,807 and $95,807 remained.

On February 11, 2016, the Company was advanced $100,000 from a line of credit (“LOC”) with Bank of America.  The LOC bore interest at a rate of between 6.06% and 6.31% per annum, variable upon Prime Rate fluctuations.  During 2017 and 2016, respectively, principal payments on the LOC in the amount of $50,028 and $530 were made. On April 11, 2017, the Company converted the unpaid balance of the LOC to a term loan in the principal sum of $49,442 (the “Loan).  The Loan bears interest at a rate of 6.23%, with monthly payments of principal and interest in the amount of $2,020, for a period of twenty-seven (27) months, maturing July 17, 2019.  During the nine months September 30, 2017, principal payments on the Loan in the amount of $7,595 were made. An aggregate of $57,623 and $530 in principal and $3,298 and $4,693 in interest was paid on the LOC and the Loan during the nine months and the year ended September 30, 2017, and December 31, 2016, respectively. As of September 30, 2017, and December 31, 2016, respectively, principal of $41,846 and $99,470 remained.

The future maturities of notes payable are summarized as follows:

[2] Includes notes payable on demand in the amount of $84,075

During the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, interest on non-related party notes and loans payable in the amount of $648,049 and $749,518 has been expensed.  As at September 30, 2017, and December 31, 2016, respectively, a total of $1,451,708 and $803,659 in interest has been accrued and is included as part of accrued expenses on the accompanying consolidated balance sheets.

NOTE 10. RELATED PARTY TRANSACTIONS

Related party transactions consist of the following:

[1]As of January 1, 2017, Mr. Dave Engert, former Executive Chairman of the board of directors, is no longer a related party.  As a result, related party payables has been reduced by $105,746, representing $105,000 in accrued compensation and $746 in cash advances. As of September 30, 2017, $105,746 is included as part of accounts payable (Note 7) on the accompanying consolidated balance sheets. See Note 19 for additional information and legal proceedings related to Mr. Engert.  

As at September 30, 2017, and December 31, 2016, respectively, related parties are due a total of $2,069,735 and $1,782,334, consisting of $571,346 and $198,700 in accrued compensation owed to officers; $146,135 and $41,380 in cash advances from officers and beneficial owners to the Company for operating expenses; and $1,352,254 and $1,542,254 in related party notes payable, of which $1,167,254 and $1,357,254 contain conversion features.

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 (Note 11).

On March 16, 2017, in connection with a related party convertible promissory note in the amount of $250,000 and accrued interest of $7,954, of which $6,422 and $1,532 was expensed during the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, the Company issued 1,228,346 shares of its restricted common stock at a conversion rate of $0.21 per share (Note 12).

On May 18, 2017, in connection with a related party convertible promissory note in the amount of $200,000 and accrued interest of $27,781, of which $3,781 and $24,000 was expensed during the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, the Company issued 2,277,808 shares of its restricted common stock at a conversion rate of $0.10 per share (Note 12).  

On September 11, 2017, in connection with a related party convertible promissory note in the amount of $331,100, the note holder elected to convert a portion of the principal in the amount of $40,000.  As a result, the Company issued 400,000 shares of its restricted common stock at a conversion rate of $0.10 per share (Note 12), and the principal balance of the note was reduced to $291,100.

Related party convertible notes payable consist of the following:

[2]Upon maturity, the note was extended and amended.  See Note 19 for additional information.  

On April 26, 2017, the Company issued a subordinate secured convertible promissory note in the principal sum of $250,000.  The note bears interest at a rate of 12.5% per annum, is for a term of twelve (12) months, and contains a repayment provision to convert the principal into restricted shares of the Company’s common stock at a price of $0.20 per share.  The note is secured by 1,500,000 shares of the Company’s restricted common stock. During the nine months ended September 30, 2017, interest in the amount of $5,565 was expensed.  As of September 30, 2017, a total of $13,442 in interest has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheet.

On May 8, 2017, the Company issued a subordinate secured convertible promissory note in the principal sum of $50,000.  The note bears interest at a rate of 12.5% per annum, is for a term of twelve (12) months, and contains a repayment provision to convert the principal into restricted shares of the Company’s common stock at a price of $0.20 per share.  The note is secured by 250,000 shares of the Company’s restricted common stock. During the nine months ended September 30, 2017, interest in the amount of $907 was expensed.  As of September 30, 2017, a total of $2,482 in interest has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheet.

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As of September 30, 2017, the Company has convertible promissory notes issued to its principals in the aggregate sum of $1,167,254, representing cash loans and unpaid compensation.  The notes bear interest at a rate of between 5% to 12.5% per annum, mature between December 31, 2015 to May 8, 2018, and contain repayment provisions to convert the debt into the Company’s common stock at a price of between $0.10 to $0.20 per share. The conversion price of $0.10 resulted in a beneficial conversion feature.  As a result, the difference between the conversion rate and the market rate in the aggregate of $473,494 was classified as discounts on the notes, and was fully expensed in prior years. During the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, interest in the amount of $61,081 and $63,686 was expensed, of which $16,688 and $35,130 was paid to the note holders in cash.  As of September 30, 2017, and December 31, 2016, respectively, a total of $148,892 and $136,453 in interest has been accrued and is included as part of accrued expenses on the accompanying consolidated balance sheets.

On January 1, 2017, the Company, through its wholly-owned subsidiary, Parallax Health Management, Inc. (formerly Qolpom, Inc.) entered into an Employment Agreement with Mr. Nathaniel T. Bradley, the President of Parallax Health Management, Inc. The agreement is for a term of three (3) years, and includes annual compensation of $150,000, as well as a bonus plan contingent upon the Company's performance, and customary employee benefits.  In addition, the agreement provides for a non-refundable, fully-vested signing bonus of $50,000. Effective August 1, 2017, the Employment Agreement was superseded by a new agreement which was executed on November 30, 2017, and replaces any other employment agreement between Mr. Bradley and the Company or any of its subsidiaries.  The agreement is for an initial term of three (3) years, and provides annual compensation for Mr. Bradley to serve as the Company’s Chief Technology Officer (“CTO”), as well as CTO of Parallax Health Management, Inc. and Parallax Behavioral Health, Inc., in the aggregate of $222,000 year one, $265,000 in year two and $320,000 in year three, as well as various performance bonuses, and customary employee benefits. In addition, the agreement provides for a grant to purchase 3,000,000 restricted common shares at $0.001 per share, valued at $750,000 and 100% vesting immediately, as well as options granted to purchase 1,000,000 shares of the Company's common stock at a price of $0.25 per share.  The options are for a period of five (5) years, and vest annually over a three (3) year period, with an initial vesting of 25%.  As of September 30, 2017, $132,172 in compensation has been accrued under this agreement, and is included as part of related party payables on the accompanying consolidated balance sheets.

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 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 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 grant to purchase 10,000,000 restricted common shares at $0.001 per share, 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 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. The Agreement also includes the grant of 5,000,000 stock options at an exercise price of $0.25 per share.  The options are exercisable for a period of five (5) years, and vest when certain market share prices of the Company’s common stock are met.  As of September 30, 2017, $35,050 in compensation has been accrued under this agreement, and is included as part of related party payables on the accompanying consolidated balance sheets.

On January 31, 2017, the Company’s wholly-owned subsidiary, RoxSan Pharmacy, Inc. issued a secured promissory note to Parallax Health Sciences, Inc. along with a Pledge and Security Agreement and Note Agreement of the same date, for funding, up to $2,000,000, to be disbursed to RoxSan upon request (the “Principal”).  The note bears interest at a rate of 3% per annum, is for a term of five (5) years, and is secured by all of RoxSan’s unencumbered assets.  Repayment of the Principal is to be made to Parallax in installments of up to $400,000 at the end of year 3; $400,001 up to $1,000,000 by the end of year 4; and the remainder of any unpaid Principal at the end of year 5, along with all accrued interest.  As of September 30, 2017, principal in the amount of $884,576 has been disbursed, and interest in the amount of $3,081 has been accrued.

During the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, interest on related party notes payable in the amount of $71,780 and $66,259 was expensed. As of September 30, 2017, and December 31, 2016, respectively, a total of $158,384 and $139,026 in interest has been accrued and is included as part of accrued expenses on the accompanying consolidated balance sheets.

NOTE 11: 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.

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 per share to a related party, for cash in the amount of $150,000. As a result, $149,970 was recorded to paid in capital.  

The holders of the Preferred Stock shall be entitled to the number of votes equal to the number of shares of common stock into which such shares of Preferred Stock could be converted. 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.  Series B preferred shares were issued with 50% warrant coverage for a period of two (2) years, to purchase shares of the Company's common stock at a price of $0.75 per share.(Note 13).  The number of shares of common stock underlying the warrants and the exercise price are subject to adjustment upon certain events. The outstanding shares of Preferred Stock automatically convert into common stock upon the election of the holders of a majority of the then outstanding shares of Preferred Stock. Dividends are payable semi-annually on the Company’s Series A preferred stock at a rate of 7% per annum, and 10% per annum on Series B preferred stock.  Dividends may be paid in kind, at the option of the Company, to the extent that if the Company is not legally permitted to distribute cash dividends, it shall pay dividends in the form of preferred shares equal to the amount of the dividend. No dividends have been declared on the Company’s preferred stock. In the event of any liquidation, dissolution, winding-up or sale or merger of the Company, whether voluntarily or involuntarily, each holder of Preferred Stock is entitled to receive, in preference to the holders of common stock, a per-share amount equal to the original issue price plus all declared but unpaid dividends.

As of September 30, 2017, and December 31, 2016, respectively, the Company had 863,691 and 833,691 shares of preferred stock issued and outstanding.

NOTE 12. 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 March 16, 2017, in connection with a certain related party convertible promissory note in the amount of $250,000 and accrued interest of $7,954, 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 May 17, 2017, in connection with the ProEventa Agreement dated April 26, 2017, the Company issued 2,500,000 shares of its restricted common stock. The shares, valued at $625,000, were issued for cash in the amount of $2,500.  As a result, $622,500 was recorded to paid in capital.

On May 17, 2017, in connection with a certain consulting agreement dated April 26, 2017, the Company issued 500,000 shares of its restricted common stock to the consultant for cash in the amount of $500, for services to be provided over a thirty-six (36) month period.  The shares were valued at $125,000, of which $124,500 was recorded to paid in capital, $6,916 was expensed, and $117,854 was deferred, to be amortized over the next thirty-five (35) months.

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.

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On July 1, 2017, in connection with a certain consulting agreement, the Company issued 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 7, 2017, in connection with a certain executive employment agreement, the Company granted the executive 10,000,000 shares of its restricted common stock at $0.001 per share, of which 25% vest immediately, and the remaining vest over a period of twenty-four (24) months.  The shares were valued at $2,000,000, of which $1,990,000 was recorded to paid in capital, $507,500 was expensed, and $1,492,500 was deferred, to be amortized over the next twenty-four (24) months.

On July 21, 2017, in connection with a certain consulting agreement, the Company issued 1,000,000 shares of its restricted common stock to the consultant for services rendered.  The shares were valued at $270,000. As a result, $269,000 was recorded to paid in capital.

On August 1, 2017, in connection with a certain executive employment agreement, the Company issued 3,000,000 shares of its restricted common stock at $0.001 per share.  The shares were valued at $750,000.  As a result, $747,000 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 1, 2017, in connection with certain consulting agreements, the Company issued 250,000 shares of its restricted common stock to the consultants for services to be provided over a twelve (12) month period.  The shares were valued at $50,000, which was deferred, to be amortized over the next twelve (12) months, and $49,750 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.

During the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, a total of $2,749,250 and $0 in deferred stock compensation was recorded, of which $800,106 and $0 was expensed. As of September 30, 3017, and December 31, 2016, respectively, there remains $1,949,064 and $0 in deferred stock compensation to be expensed over the next thirty-two (32) months.

As of September 30, 2017, and December 31, 2016, respectively, the Company had 130,104,530 and 107,066,774 common shares issued and outstanding.

NOTE 13. WARRANTS AND OPTIONS

As of September 30, 2017, and December 31, 2016, respectively, the Company had 5,180,000 and 15,362,491 warrants and 20,675,000 and 11,135,000 options issued and outstanding.

On January 23, 2017, in connection with the issuance of 30,000 shares of the Company’s Series B preferred stock, 300,000 warrants were issued.  The warrants are exercisable for a period of two (2) years at an exercise price of $0.75 per share of common stock.

On June 17, 2017, 14,535,706 warrants underlying 726,786 shares of Series A preferred stock expired.

Between July 2017 and September 2017, in connection with certain convertible promissory notes issued to twenty-one (21) accredited investors (“Investor Group A”), 4,780,000 warrants were issued (Note 9).  The warrants are exercisable for a period of three (3) years at an exercise price of $0.25 per share of common stock.

On August 7, 2017, in connection with certain financing, 800,000 warrants were issued (Note 9).  The warrants are exercisable for three (3) years at an exercise price of $0.10 per share of common stock.

On September 30, 2017, 726,785 warrants underlying 36,339 shares of Series A preferred stock expired.

On April 26, 2017, in connection with a certain consulting agreement, the Company granted the consultant 1,000,000 options to purchase common shares at $0.25 for a period of three (3) years.  The options vest annually over a three (3) year period, and were valued at $220,900, using the Black-Scholes method.  The assumptions used in valuing the options were: expected term 2.5 years, expected volatility 1.97, risk free interest rate 1.46%, and dividend yield 0%.  

On April 30, 2017, the Company granted key employees 1,980,000 options to purchase common shares at $0.05 for a period of five (5) years.  The options vest quarterly over a three (3) year period, and were valued at $472,030, using the Black-Scholes method.  The assumptions used in valuing the options were: expected term 5.75 years, expected volatility 1.97, risk free interest rate 1.84%, and dividend yield 0%.  Of the options granted, 840,000, valued at $200,260, were forfeited.

On July 7, 2017, in connection with an executive employment agreement, the Company granted the executive 5,000,000 options to purchase common shares at $0.25 for a period of five (5) years.  The options vest as follows: 25% immediately, and the remainder vest when certain market goals are met. The options were valued at $915,500 using the Black-Scholes method.  The assumptions used in valuing the options were: expected term 3.5 years, expected volatility 1.88, risk free interest rate 1.95%, and dividend yield 0%.

On July 10, 2017, the Company granted a key employee 90,000 options to purchase common shares at $0.05 for a period of three (3) years.  The options vest quarterly over a three (3) year period, and were valued at $24,230, using the Black-Scholes method.  The assumptions used in valuing the options were: expected term 4.75 years, expected volatility 2.47, risk free interest rate 1.81%, and dividend yield 0%.

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On August 1, 2017, in connection with an executive employment agreement, the Company granted the executive 1,000,000 options to purchase common shares at $0.25 for a period of five (5) years.  The options vest annually over a three (3) year period, and were valued at $229,400 using the Black-Scholes method.  The assumptions used in valuing the options were: expected term 3.5 years, expected volatility 1.84, risk free interest rate 1.80%, and dividend yield 0%.

On September 20, 2017, in connection with the acquisition of PHM, the Company granted the sellers 2,500,000 options to purchase common shares as follows: 500,000 options at an exercise price of $0.10; 1,000,000 options at $0.15; and 1,000,000 options at $0.25. The options vest quarterly over a four (4) year period, and were valued at an aggregate of $65,000 using the Black-Scholes method.  The assumptions used in valuing the options were: expected term 3 years, expected volatility 1.41, risk free interest rate 1.60%, and dividend yield 0%.

During the nine months and the year ended September 30, 2017, and December 31, 2016, respectively, 11,570,000 and 2,160,000 options were issued, 300,000 and 0 options were exercised, 0 and 225,000 options expired, and 1,730,000 and 0 options were forfeited/cancelled. A total of $1,679,765 and $65,040 in deferred stock option compensation was recorded, and $534,390 and $154,017 in stock option compensation was expensed during the nine months and the year ended September 30, 2017, and December 31, 2016, respectively.  There remains $1,374,098 and $232,909 in deferred compensation as of September 30, 2017, and December 31, 2016, respectively, to be expensed over the next 36 months.

NOTE 14: BUSINESS ACQUISITIONS

Parallax Health Management, Inc. (formerly Qolpom, Inc.)

On August 31, 2016 (the “Execution Date”), 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:

1.5,000,000 shares of the Company’s common stock; and 

2.2,500,000 options to purchase shares of the Company's common stock, to be granted one year from the Execution Date, and vesting over three (3) years, 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 PHM 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. 

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

The goodwill represents future economic benefits expected to arise from the Company’s expanded presence in the remote patient monitoring and telehealth 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 19).  During the year ended December 31, 2016, acquisition costs of $10,000 were expensed and incurred within general and administrative expenses.

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NOTE 15. 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:

Rent expense for the nine months ended September 30, 2017 and 2016, respectively, was $302,222 and $325,747, including $43,838 and $43,813 of common area maintenance cost.

NOTE 16. CONCENTRATIONS

Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of demand deposits with a financial institution. At September 30, 2017, there are no balances exceeding FDIC insurance of $250,000. The Company believes there is minimal credit risk relative to its cash and investment accounts.

The Company is also potentially subject to concentrations of credit risk in its accounts receivable. Credit risk with respect to receivables is limited due to the source of its receivables is primarily from insurance payers, from which a pre-approval of payment is provided at the time of sale. In addition, historically, there have been no significant unpaid customer receivables. Although the Company is directly affected by the financial condition of its customers, management does not believe significant credit risks exist at September 30, 2017, and December 31, 2016. Generally, the Company does not require collateral or other securities to support its accounts receivable.

Major Customer

The Company has one major insurance payer that accounted for approximately 78% and $1,615,732 and 75% and $9,101,422 of insurance payments received for the nine months and the year ended September 30, 2017, and December 31, 2016, respectively.

The Company also has one major fertility clinic that accounted for approximately 1% and $5,460 and 8% and $1,320,957 of fertility sales for the nine months and the year ended September 30, 2017, and December 31, 2016, respectively.

In August 2016, RoxSan’s contract with its primary fertility drug rebate program was terminated. As a result, RoxSan was no longer eligible to receive incentive rebates for the majority of its fertility drug purchases, and RoxSan was unable to provide its customers with comparably priced fertility drugs.  This, among other things, caused the loss of its major customers.

Major Vendor

The Company has one major supplier that accounted for approximately 32% and $876,266 and 78% and $15,000,618 of cost of sales for the nine months and the year ended September 30, 2017, and December 31, 2016, respectively. In July 2017, RoxSan’s contract with its primary drug supplier was terminated.

NOTE 17. INCOME TAXES

A reconciliation of the expected statutory federal and state taxes and the total income tax expense (benefit) at September 30, 2017, and December 31, 2016, was as follows:

The significant components of deferred income tax assets and liabilities at September 30, 2017, and December 31, 2016 are as follows:

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The Company’s net operating losses are as follows:

As at September 30, 2017, and December 31, 2016, respectively, the Company had approximately $22,485,900 and $18,948,200 of federal net operating losses. The Company is open to examinations for the tax year 2011 through the current tax year.

NOTE 18. SEGMENT REPORTING

As of September 30, 2017, the Company’s business segments consisted of: Retail Pharmacy Services, Remote Care Services, Behavioral Healthcare, 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:

(1)Remote Care Services Segment commenced September 20, 2016 

(2)Behavioral Healthcare Segment commenced March 22, 2017 

NOTE 19. SUBSEQUENT EVENTS

The Company has evaluated the events and transactions for recognition or disclosure subsequent to September 30, 2017, and has determined that there have been no events that would require disclosure, except for the following:

On October 4, 2017, in connection with a certain consulting agreement, the Company issued 200,000 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 $38,000, of which 25% vest immediately, and the remainder vest monthly over the first three (3) months of the agreement.  As  a result, $9,500 was expensed, $28,500 was deferred, to be amortized over three (3) months, and $37,800 was recorded to paid in capital.

On October 23, 2017, the Company issued a convertible promissory note to an accredited investor for financing in the amount of $45,000.  The note includes interest at a rate of 10% per annum, matures in three (3) years, and is convertible into restricted shares of the Company’s common stock at a conversion rate of $0.10 per share.  The common shares were issued with 50% warrant coverage for a period of three (3) years at an exercise price of $0.25 per common share.

On November 14, 2017, the Company suspended the services provided by Dr. Robert Arnot under the Consulting Agreement dated September 25, 2016.

Between November 14, 2017 and December 13, 2017, in connection with an equity offering, the Company issued 3,950,000 shares of its restricted common stock at a price of $0.05 per share, for cash in the amount of $197,500.  As a result, $193,550 was recorded to paid in capital.

On December 4, 2017, in connection with a certain settlement for debt in the amount of $87,500 and interest of $12,500, the Company issued 2,000,000 shares of its restricted common stock at a rate of $0.05 per share.  As a result, $98,000 was recorded to paid in capital.

On December 15, 2017, in connection with a certain consulting agreement, the Company issued 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 $51,250, of which 60% vest immediately, and the remainder vest periodically over the term of the agreement.  As a result, $30,750 was expensed, $20,500 was deferred, to be amortized over the next twelve (12) months, and $50,750 was recorded to paid in capital.  In addition, the consultant was issued 500,000 warrants for a period of three (3) years to purchase shares of the Company’s common stock at a price of $0.15 per share.  The warrants vest periodically over the term of the agreement.

On December 22, 2017, RoxSan Pharmacy, Inc. terminated its operations and closed the business location in Beverly Hills, CA.

On January 11, 2018, pursuant to a resolution of the Board of Directors, the Company issued 6,000,000 shares of its restricted common stock to certain officers and directors.  The shares were purchased at par, or $0.001 per share, for cash in the amount of $6,000.

On January 19, 2018, in connection with an equity offering, the Company issued 1,000,000 shares of its restricted common stock at a price of $0.04 per share, for cash in the amount of $40,000.  As a result, $39,000 was recorded to paid in capital.

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On January 25, 2018, the Company issued a convertible promissory note to an accredited investor for financing in the amount of $5,000.  The note includes interest at a rate of 10% per annum, matures in three (3) years, and is convertible into restricted shares of the Company’s common stock at a conversion rate of $0.10 per share.  The common shares were issued with 50% warrant coverage for a period of three (3) years at an exercise price of $0.25 per common share.

On January 29, 2018, in connection with a certain consulting agreement, the Company issued 250,000 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 $67,500, of which 25% vest immediately, and the remainder vest periodically over the term of the agreement.  As a result, $16,875 was expensed, $50,625 was deferred, to be amortized over the next twelve (12) months, and $67,250 was recorded to paid in capital.  In addition, the consultant was issued 250,000 warrants to purchase shares of the Company’s common stock at a price of $0.25 per share, for a period of three years.  The warrants vest periodically over the term of the agreement.

In February 2018, the Company issued three senior secured convertible notes (the “CV Note(s)”) in the aggregate principal sum of $220,000. Two (2) of the CV Notes in the aggregate principal sum of $145,000 bear interest at a rate of twelve percent (12%) for ninety (90) days, or $17,400. The CV Note in the principal sum of $75,000 bears interest at a rate of four percent (4%) for thirty (30) days, or $3,000.  In addition to interest, the note holders were issued an aggregate of 440,000 shares of the Company’s restricted common stock, valued at $44,000. As a result, $43,560 was recorded to paid in capital. The CV Notes have been extended to mature July 15, 2018.

On April 5, 2018, in connection with a stock purchase agreement, the Company granted a key employee the right to purchase 1,000,000 shares of its restricted common stock at a price of $0.001 per share.  The shares, valued at $200,000, were issued for cash in the amount of $1,000.  As a result, $199,000 was recorded to paid in capital.

On April 26, 2018, the Company extended and amended the subordinate secured convertible promissory note dated April 26, 2017 in the principal sum of $250,000.  The amended note was issued for the principal sum of $281,500, to include accrued interest to date (the “Amended Note”). The Amended Note bears interest at rate of 12% per annum, matures October 26, 2018, or earlier, contingent upon certain financing conditions, and contains a repayment provision to convert the note into restricted shares of the Company’s common stock at a price of $0.10 per share.  The Amended Note is secured by all of the Company’s personal property, and includes warrant coverage for a period of three (3) years to purchase shares of the Company’s common stock at a purchase price of $0.20 per share, with a provision for the price to be reduced to $0.10 per share if certain conditions are not met by the Company.

On May 8, 2018, the Company extended and amended the subordinate secured convertible promissory note dated May 8, 2017 in the principal sum of $50,000. The amended note was issued for the principal sum of $56,250, to include accrued interest to date (the “Amended Note”). The Amended Note bears interest at rate of 12% per annum, matures November 8, 2018, or earlier, contingent upon certain financing conditions, and contains a repayment provision to convert the note into restricted shares of the Company’s common stock at a price of $0.10 per share.  The Amended Note is secured by all of the Company’s personal property, and includes warrant coverage for a period of three (3) years to purchase shares of the Company’s common stock at a purchase price of $0.20 per share, with a provision for the price to be reduced to $0.10 per share if certain conditions are not met by the Company.

On May 14, 2018, pursuant to a unanimous resolution of the Boards of Directors of RoxSan Pharmacy, Inc. and Parallax Health Sciences, Inc., RoxSan filed a Chapter 7 petition in the United States Bankruptcy Court for the Central District of California.  Mr. Timothy Yoo was appointed trustee on May 15, 2018.  In connection with this filing, RoxSan seeks to discharge approximately $5 million of liabilities owed to various parties including more than $1 million owed to the Company.

On June 4, 2018, Mr. Anand Kumar resigned as a member of the Board of Directors.  This resignation did not involve any disagreement with the Company.  Mr. Nathaniel T. Bradley, currently serving as Chief Technology Officer, succeeds him; to serve as a member of the Board of Directors until the next annual meeting of the shareholders and/or until his successor is duly appointed.

On June 18, 2018, the Company issued senior secured convertible promissory notes (the “Notes”) to four accredited investors in the aggregate principal sum of $600,000.  The Notes bear interest at rate of 12% per annum, mature December 15, 2018, or earlier, contingent upon certain financing conditions, and contain a repayment provision to convert the Notes into restricted shares of the Company’s common stock at a price of $0.10 per share.  The Notes are secured by all of the Company’s personal property, and include warrant coverage for a period of three (3) years to purchase shares of the Company’s common stock at a purchase price of $0.20 per share, with a provision for the price to be reduced to $0.10 per share if certain conditions are not met by the Company.

On July 31, 2018, the unsecured convertible promissory note in the principal sum of $144,000 (Note 9) was modified 1) to extend the note’s maturity to October 1, 2019 and 2) to change the conversion price from $0.25 to $0.10 per share.

On August 20, 2018, in connection with certain convertible debt in the amount of $150,000 and accrued interest of $15,000, the Company issued 1,650,000 shares of its restricted common stock at a conversion rate of $0.10 per share.  As a result, $164,835 was recorded to paid in capital.

On August 28, 2018, in connection with certain convertible debt in the amount of $20,000 and accrued interest of $2,000, the Company issued 220,000 shares of its restricted common stock at a conversion rate of $0.10 per share.  As a result, $21,780 was recorded to paid in capital.

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Legal Matters:

Dispute with Former Owner of RoxSan

In October 2015, shortly following the Company's acquisition of RoxSan, Shahla Melamed (“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.  

In the matter, action No. SC 124873, Melamed sought rescission of the August 13, 2015 Purchase Agreement. During the proceedings, Melamed also contended that the Company owed Melamed monies for, among other things, expenses paid by Melamed on behalf of the Company.  As a result, the Court split the action into two separate rulings: (1) Rescission Phase and (2) Accounting Phase.

●Action No. SC 124873-Rescission Phase: 

In the Matter, action no. SC 124873, rescission was sought by Melamed 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.  Subsequently filed pleadings by the Company and RoxSan in action no. 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.

Final Ruling:  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.

●Action No. SC 124873-Accounting Phase: 

In the Matter, action No. SC 124873, Melamed contended that the Company owed Melamed monies for, among other things, expenses paid by Melamed post-Closing.  An accounting was presented by Melamed’s expert, BDO Seidman (“BDO”), alleging that the Company owed Melamed in excess of $500,000.  The Company disputed this vigorously and prepared a 400+ page analysis (the “Analysis Report”) of the BDO reconciliation report.  The Analysis Report identified errors in the BDO report in excess of $900,000 and found that Melamed owed the Company over $400,000.  Melamed argued the findings in the Analysis Report. Consequently, due to the complexities of the accountings, the Court ordered a third-party adjudicator with an accounting background to review both the BDO report and the Company’s Analysis Report.

Draft Ruling: On July 24, 2017, in the Matter, action No. SC124873, the Company was notified that the results of the reconciliation review performed by third-party adjudicator were in favor of the Company in the amount of $412,948.  Melamed objected to the adjudicator’s findings, and a final hearing was held in January 2018.  A final judgment is pending for the Court’s decision on the exact monies owed by Melamed to the Company.

●Action No. SC125702: 

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.  A trial date is currently set for December 2018.

●Action No. SC 124898:  

The Company has initiated legal action against Melamed and filed a complaint, action number SC 124898, 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.  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. A trial date is currently set for December 2018.

As part of the Company’s pleadings to the courts, the Company has presented the following matters:

●Purchase Price Dispute 

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

Included in the false representations made by the former owner were prescription revenues in excess of $8 million (and approximately $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 / US Postal Interference 

For a period of time immediately after the closing of the Acquisition, the Melamed 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.

The former owner continued to interfere in the transference of control of the Pharmacy by submitting change of address forms to the US Postal Service, wherein the former owner diverted the Pharmacy mail to her home address.  Once this was discovered and rectified with the post office, the former owner filed another change of address to divert mail to a post office box.  During these periods of time, the former owner received check payments and negotiated the checks by opening up a bank account utilizing a DBA, "Roxsan Pharmacy."  The Company was able to identify some of the checks the former owner negotiated by directly contacting the payer and receiving copies of the cancelled checks, with the former owner's signature endorsement and account number on the check.

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Disputes with Former Executives

●Action No. CV2017-052804 

On March 9, 2017, Dave Engert former Executive Chairman and director of the Company filed a lawsuit in Arizona and then on or about May 5, 2017, Mr. Engert, changed the venue and 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.