10-Q/A 1 20190930prlxform10qa1.htm QUARTERLY REPORT 09-30-19-AMENDMENT NO. 1 Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q/A

Amendment No. 1

(Mark One)

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

For the quarterly period ended September 30, 2019

or

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

 

Copy of all Communications to:

Peter Hogan, Esq.

Buchalter

1000 Wilshire Blvd., Suite 1500

Los Angeles, CA 90017

(213) 891-0700

 

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 last 90 days.

Yes No

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)

Yes No

 

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Yes No

 

 

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

 

238,579,740 common shares issued and outstanding as of December 12, 2019


1


EXPLANATORY NOTE

 

This Amendment No. 1 (“Amendment No. 1”) to the Quarterly Report on Form 10-Q of Parallax Health Sciences, Inc. (together with its subsidiaries, the “Company,” “we,” “our” or “us”) for the quarterly period ended September 30, 2019, filed with the SEC on November 15, 2019, (the “Quarterly Report”), is being filed in response to SEC Comment Letter dated December 11, 2019 in connection with the Company’s Annual Report on Form 10-K/A filed November 26, 2019.

 

In addition to amending the Quarterly Report as described above, this Amendment No. 1 amends (1) Item 6 to include (i) new certifications for this Amendment No. 1 pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002; and (2) the cover page to update the number of outstanding shares of Company’s Common Stock.

 

Additionally, except as specifically referenced herein, this Amendment No. 1 does not affect any other portion of the Quarterly Report, nor does it reflect any event occurring after November 15, 2019, the filing date of the Quarterly Report, except as amended in the section(s) entitled, “Management’s Report on Internal Control over Financial Reporting” and “Changes to Internal Control of Financial Reporting” under Item 4: Controls and Procedures


2


 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The Company’s unaudited interim consolidated financial statements for the nine-month period ended September 30, 2019, 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. The comparative period ended September 30, 2018, has been restated to include any applicable changes for the nine month period then ended, in connection with the restatement of the 2018 financial statements, as described below.

 

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, 2018, on Form 10-K, as amended and restated, filed with the Securities and Exchange Commission on October 21, 2019.


3


 

PARALLAX HEALTH SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

 

 

September 30, 2019

 

December 31, 2018

 

 

Unaudited

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

$

11,973

 

$

262

 

Operating lease right of use asset

 

77,494

 

 

––

 

Total current assets

 

89,467

 

 

262

 

 

 

 

 

 

 

 

Investments

 

1,000,000

 

 

––

 

Property and equipment, net

 

2,408

 

 

––

 

Intangible assets, net

 

488,570

 

 

579,035

 

Deposits

 

7,800

 

 

––

 

Goodwill

 

785,060

 

 

785,060

 

 

 

 

 

 

 

 

TOTAL ASSETS

$

2,373,305

 

$

1,364,357

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable and accrued expenses

$

2,419,514

 

$

2,655,138

 

Operating lease liability

 

77,494

 

 

––

 

Derivative liability, short-term

 

53,920

 

 

23,925

 

Debentures, convertible

 

––

 

 

724,903

 

Debentures, convertible, related party

 

––

 

 

411,006

 

Notes payable

 

360,000

 

 

––

 

Notes payable, related party

 

126,152

 

 

––

 

Notes payable, convertible, net of unamortized discount

 

680,176

 

 

296,000

 

Notes payable, convertible, related party

 

20,000

 

 

––

 

Related party payables

 

1,474,436

 

 

1,004,720

 

Total current liabilities

 

5,211,692

 

 

5,115,692

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

License fees payable

 

450,000

 

 

430,000

 

Royalties payable

 

316,258

 

 

310,000

 

Derivative liability, long-term

 

––

 

 

34,000

 

Debentures, convertible, net of unamortized discount

 

––

 

 

184,870

 

Notes payable, related party

 

633,294

 

 

––

 

Notes payable, convertible

 

576,154

 

 

720,154

 

Notes payable, convertible, related party

 

––

 

 

491,100

 

Notes payable, bank

 

21,320

 

 

28,995

 

Total long-term liabilities

 

1,997,026

 

 

2,199,119

 

Total liabilities

 

7,208,718

 

 

7,314,811

 

 

 

 

 

 

 

 

Stockholders' deficit

 

 

 

 

 

 

Preferred stock, $.001 par, 10,000,000 shares authorized,

 

978

 

 

1,014

 

977,352 and 1,013,691 issued and outstanding

 

 

 

 

 

 

at September 30, 2019, and December 31, 2018, respectively

 

 

 

 

 

 

Common stock, $.001 par, 500,000,000 shares authorized,

 

234,455

 

 

158,113

 

234,454,740 and 158,113,141 issued and outstanding

 

 

 

 

 

 

at September 30, 2019, and December 31, 2018, respectively

 

 

 

 

 

 

Additional paid in capital - preferred

 

1,599,036

 

 

1,699,000

 

Additional paid in capital - common

 

19,479,319

 

 

11,382,341

 

Subscriptions receivable

 

(500,000

)

 

––

 

Accumulated deficit

 

(25,649,201

)

 

(19,190,922

)

Total stockholders' deficit

 

(4,835,413

)

 

(5,950,454

)

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

2,373,305

 

$

1,364,357

 

 

 

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


4


 

PARALLAX HEALTH SCIENCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

 

 

For the three months ended

 

For the nine months ended

 

 

September 30, 2019

 

September 30, 2018

 

September 30, 2019

 

September 30, 2018

 

 

 

 

 

 

As Restated

 

 

 

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

25,855

 

$

990

 

$

77,745

 

$

10,749

 

Cost of sales

 

3,899

 

 

5,230

 

 

12,871

 

 

15,507

 

Gross profit (loss)

 

21,956

 

 

(4,240

)

 

64,874

 

 

(4,758

)

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

1,937,991

 

 

2,116,821

 

 

5,203,088

 

 

5,252,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(1,916,035

)

 

(2,121,061

)

 

(5,138,214

)

 

(5,257,256

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

Gain on disposal of subsidiary

 

––

 

 

5,079,416

 

 

––

 

 

5,079,416

 

Gain (loss) on fair value adjustments

 

1,253

 

 

(93,700

)

 

105,141

 

 

(156,300

)

Gain (loss) on extinguishment of debt

 

(347,612

)

 

22,931,148

 

 

(915,615

)

 

22,931,148

 

Loss on settlement

 

––

 

 

––

 

 

(33,272

)

 

––

 

Discount amortization

 

(48,000

)

 

(155,000

)

 

(19,000

)

 

(2,775,000

)

Interest expense

 

(149,914

)

 

(660,518

)

 

(457,319

)

 

(1,741,726

)

Total other expenses

 

(544,273

)

 

27,101,346

 

 

(1,320,065

)

 

23,337,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) – continuing operations

 

(2,460,308

)

 

24,980,285

 

 

(6,458,279

)

 

18,080,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) – discontinued operations

 

––

 

 

93,773

 

 

––

 

 

(824,398

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(2,460,308

)

$

25,074,058

 

$

(6,458,279

)

$

17,255,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share – basic

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.011

)

$

0.167

 

$

(0.034

)

$

0.124

 

Discontinued operations

$

––

 

$

0.001

 

$

––

 

$

(0.006

)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share – diluted

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.009

)

$

0.120

 

$

(0.028

)

$

0.088

 

Discontinued operations

$

––

 

$

––

 

$

––

 

$

(0.004

)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

218,115,643

 

 

149,431,153

 

 

190,038,071

 

 

146,294,981

 

Weighted average common shares outstanding - diluted

 

262,011,413

 

 

208,254,652

 

 

233,933,841

 

 

205,118,481

 

 

 

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


5


 

PARALLAX HEALTH SCIENCES, INC.

STATEMENT OF STOCKHOLDERS' DEFICIT

JANUARY 1, 2018 TO SEPTEMBER 30, 2019

Unaudited

 

 

Preferred Stock

 

Common Stock

 

Paid In Capital

 

Deferred

 

Subscriptions

 

Accumulated

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Preferred

 

Common

 

Compensation

 

Receivable

 

Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2018

863,691

 

$

864

 

136,754,530

 

$

136,754

 

$

665,803

 

$

9,637,860

 

$

(3,188,092

)

$

(592

)

$

(33,691,386

)

$

(26,438,789

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock to officers

 

 

 

 

 

6,000,000

 

 

6,000

 

 

 

 

 

984,000

 

 

 

 

 

(5,000

)

 

 

 

 

985,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash

 

 

 

 

 

1,000,000

 

 

1,000

 

 

 

 

 

39,000

 

 

 

 

 

 

 

 

 

 

 

40,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for debt service

 

 

 

 

 

440,000

 

 

440

 

 

 

 

 

43,560

 

 

(44,000

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock options to consultant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

539,200

 

 

(539,200

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock options to officers/directors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

134,500

 

 

(134,500

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock awards for services

 

 

 

 

 

250,000

 

 

250

 

 

 

 

 

67,250

 

 

(67,500

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,263

 

 

(38,870

)

 

 

 

 

 

 

 

1,393

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,607

 

 

 

 

 

 

 

 

 

 

 

3,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

193,484

 

 

 

 

 

 

 

 

193,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

150,148

 

 

 

 

 

 

 

 

150,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,508

 

 

 

 

 

 

 

 

21,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscriptions received

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,250

 

 

 

 

 

5,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,727,134

)

 

(3,727,134

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2018

863,691

 

$

864

 

144,444,530

 

$

144,444

 

$

665,803

 

$

11,489,240

 

$

(3,647,022

)

$

(342

)

$

(37,418,520

)

$

(28,765,533

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash

 

 

 

 

 

1,000,000

 

 

1,000

 

 

 

 

 

199,000

 

 

 

 

 

 

 

 

 

 

 

200,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for debt service

 

 

 

 

 

890,000

 

 

890

 

 

 

 

 

88,110

 

 

(89,000

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of debt for common stock

 

 

 

 

 

481,130

 

 

481

 

 

 

 

 

47,633

 

 

 

 

 

 

 

 

 

 

 

48,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options-employees

 

 

 

 

 

846,051

 

 

846

 

 

 

 

 

268,479

 

 

 

 

 

 

 

 

 

 

 

269,325

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(184,373

)

 

184,373

 

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62,730

 

 

(62,730

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

343,850

 

 

 

 

 

 

 

 

 

 

 

343,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,000

 

 

 

 

 

 

 

 

38,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

193,621

 

 

 

 

 

 

 

 

193,621

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,937

 

 

 

 

 

 

 

 

13,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,091,040

)

 

(4,091,040

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2018

863,691

 

$

864

 

147,661,711

 

$

147,661

 

$

665,803

 

$

12,314,670

 

$

(3,368,821

)

$

(342

)

$

(41,509,560

)

$

(31,749,725

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of preferred stock for cash

60,000

 

 

60

 

 

 

 

 

 

 

299,940

 

 

 

 

 

 

 

 

 

 

 

 

 

 

300,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of preferred stock for related party debt

90,000

 

 

90

 

 

 

 

 

 

 

449,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

450,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for debt service

 

 

 

 

 

740,000

 

 

740

 

 

 

 

 

73,260

 

 

(74,000

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of debt for common stock

 

 

 

 

 

2,605,000

 

 

2,605

 

 

 

 

 

245,395

 

 

 

 

 

 

 

 

 

 

 

248,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock options to officers/directors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

160,000

 

 

(160,000

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options-officers

 

 

 

 

 

1,071,430

 

 

1,071

 

 

 

 

 

186,429

 

 

 

 

 

 

 

 

 

 

 

187,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effects of change in warrant characteristics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

750,200

 

 

 

 

 

 

 

 

 

 

 

750,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed dividend on preferred stock

 

 

 

 

 

 

 

 

 

 

 

283,347

 

 

 

 

 

 

 

 

 

 

 

(283,347

)

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

251,907

 

 

 

 

 

 

 

 

251,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

630,155

 

 

 

 

 

 

 

 

630,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,108

 

 

 

 

 

 

 

 

14,108

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscriptions received

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

250

 

 

 

 

 

250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,074,058

 

 

25,074,058

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2018

1,013,691

 

$

1,014

 

152,078,141

 

$

152,077

 

$

1,699,000

 

$

13,729,954

 

$

(2,706,651

)

$

(92

)

$

(16,718,849

)

$

(3,843,547

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for debt service

 

 

 

 

 

740,000

 

 

740

 

 

 

 

 

73,260

 

 

(74,000

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of debt for common stock

 

 

 

 

 

3,795,000

 

 

3,796

 

 

 

 

 

375,705

 

 

 

 

 

 

 

 

 

 

 

379,501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock awards for services

 

 

 

 

 

1,500,000

 

 

1,500

 

 

 

 

 

210,110

 

 

(85,500

)

 

 

 

 

 

 

 

126,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,610

 

 

(11,610

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(375,100

)

 

 

 

 

 

 

 

 

 

 

(375,100

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

89,478

 

 

 

 

 

 

 

 

89,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

121,268

 

 

 

 

 

 

 

 

121,268

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,817

 

 

 

 

 

 

 

 

23,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscriptions received

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

92

 

 

 

 

 

92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,472,073

)

 

(2,472,073

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

1,013,691

 

$

1,014

 

158,113,141

 

$

158,113

 

$

1,699,000

 

$

14,025,539

 

$

(2,643,198

)

$

––

 

$

(19,190,922

)

$

(5,950,454

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of preferred stock to treasury

(36,339

)

 

(36

)

 

 

 

 

 

 

(99,964

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(100,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash

 

 

 

 

 

5,000,000

 

 

5,000

 

 

 

 

 

495,000

 

 

 

 

 

 

 

 

 

 

 

500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for debt service

 

 

 

 

 

740,000

 

 

740

 

 

 

 

 

73,260

 

 

(74,000

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72,750

 

 

 

 

 

 

 

 

 

 

 

72,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of debt for common stock

 

 

 

 

 

3,689,328

 

 

3,689

 

 

 

 

 

483,642

 

 

 

 

 

 

 

 

 

 

 

487,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock awards for services

 

 

 

 

 

2,716,667

 

 

2,717

 

 

 

 

 

322,283

 

 

 

 

 

 

 

 

 

 

 

325,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock options to officers/directors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

96,100

 

 

(96,100

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,442

 

 

 

 

 

 

 

 

29,442

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

124,357

 

 

 

 

 

 

 

 

124,357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,225

 

 

 

 

 

 

 

 

3,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,542,987

)

 

(1,542,987

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2019

977,352

 

$

978

 

170,259,136

 

$

170,259

 

$

1,599,036

 

$

15,568,574

 

$

(2,656,274

)

$

––

 

$

(20,733,909

)

$

(6,051,336

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid in kind on preferred stock to treasury

21,161

 

 

21

 

 

 

 

 

 

 

58,211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of preferred stock to treasury

(21,161

)

 

(21

)

 

 

 

 

 

 

(58,211

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(58,232

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of preferred treasury stock

57,500

 

 

57

 

 

 

 

 

 

 

68,943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of preferred stock to common stock

(57,500

)

 

(57

)

1,150,000

 

 

1,150

 

 

(68,943

)

 

67,850

 

 

 

 

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash

 

 

 

 

 

14,350,000

 

 

14,350

 

 

 

 

 

1,220,650

 

 

 

 

 

(500,000

)

 

 

 

 

735,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

 

 

 

1,550,000

 

 

1,550

 

 

 

 

 

134,450

 

 

 

 

 

 

 

 

 

 

 

136,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of common stock for debt service

 

 

 

 

 

(510,000

)

 

(510

)

 

 

 

 

(50,490

)

 

51,000

 

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for warrants

 

 

 

 

 

2,168,146

 

 

2,168

 

 

 

 

 

207,605

 

 

 

 

 

 

 

 

 

 

 

209,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of debt for common stock

 

 

 

 

 

9,240,597

 

 

9,241

 

 

 

 

 

597,408

 

 

 

 

 

 

 

 

 

 

 

606,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock awards for services

 

 

 

 

 

3,600,000

 

 

3,600

 

 

 

 

 

324,110

 

 

(33,050

)

 

 

 

 

 

 

 

294,660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock awards for services-officer

 

 

 

 

 

3,000,000

 

 

3,000

 

 

 

 

 

198,300

 

 

(198,300

)

 

 

 

 

 

 

 

3,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock options for services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

608,450

 

 

(608,450

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock options to officers/directors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

195,600

 

 

(195,600

)

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,760

 

 

 

 

 

 

 

 

 

 

 

7,760

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

134,480

 

 

 

 

 

 

 

 

134,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

47,198

 

 

 

 

 

 

 

 

47,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,225

 

 

 

 

 

 

 

 

3,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,454,984

)

 

(2,454,984

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2019

977,352

 

$

978

 

204,807,879

 

$

204,808

 

$

1,599,036

 

$

19,080,267

 

$

(3,455,771

)

$

(500,000

)

$

(23,188,893

)

$

(6,259,575

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash

 

 

 

 

7,737,500

 

 

7,737

 

 

 

 

 

346,262

 

 

 

 

 

 

 

 

 

 

 

353,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash-related parties

 

 

 

 

4,500,000

 

 

4,500

 

 

 

 

 

370,500

 

 

 

 

 

 

 

 

 

 

 

375,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

 

 

37,500

 

 

38

 

 

 

 

 

(38

)

 

 

 

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for debt service

 

 

 

 

2,580,811

 

 

2,580

 

 

 

 

 

318,934

 

 

 

 

 

 

 

 

 

 

 

321,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for investment

 

 

 

 

6,666,667

 

 

6,667

 

 

 

 

 

993,333

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of common stock for services

 

 

 

 

(300,000

)

 

(300

)

 

 

 

 

(42,450

)

 

28,500

 

 

 

 

 

 

 

 

(14,250

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of common stock for cashless warrant

 

 

 

 

(293,146

)

 

(293

)

 

 

 

 

(30,780

)

 

 

 

 

 

 

 

 

 

 

(31,073

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of debt for common stock

 

 

 

 

9,055,029

 

 

9,055

 

 

 

 

 

846,448

 

 

 

 

 

 

 

 

 

 

 

855,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock awards for services

 

 

 

 

37,500

 

 

38

 

 

 

 

 

3,712

 

 

 

 

 

 

 

 

 

 

 

3,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant of stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

149,800

 

 

 

 

 

 

 

 

 

 

 

149,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of stock awards for services

 

 

 

 

(375,000

)

 

(375

)

 

 

 

 

(24,787

)

 

24,787

 

 

 

 

 

 

 

 

(375

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of stock options for services

 

 

 

 

 

 

 

 

 

 

 

 

(24,450

)

 

24,450

 

 

 

 

 

 

 

 

––

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

362,728

 

 

 

 

 

 

 

 

362,728

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

507,874

 

 

 

 

 

 

 

 

507,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,460,308

)

 

(2,460,308

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2019

977,352

 

$

978

 

234,454,740

 

$

234,455

 

$

1,599,036

 

$

21,986,751

 

$

(2,507,432

)

$

(500,000

)

$

(25,649,201

)

$

(4,835,413

)

 

 

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


6


 

PARALLAX HEALTH SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

 

 

For the nine months ended

 

 

September 30, 2019

 

September 30, 2018

 

 

 

 

As Restated

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

$

(6,458,279

)

$

18,080,282

 

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

 

 

 

 

 

 

Depreciation and amortization

 

90,685

 

 

90,465

 

Stock compensation/stock option amortization

 

2,572,741

 

 

3,152,943

 

Discount amortization

 

19,000

 

 

2,775,000

 

Allowance for bad debt

 

––

 

 

236

 

Gain on disposal of subsidiary

 

––

 

 

(5,079,416

)

(Gain) loss on extinguishment of debt

 

915,615

 

 

(22,931,148

)

(Gain) loss on fair value adjustments

 

(105,141

)

 

156,300

 

Loss on settlement

 

33,272

 

 

––

 

Debt accretion

 

136,582

 

 

791,125

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Decrease in trade and other receivables

 

––

 

 

3,039

 

(Increase) in deposits

 

(7,800

)

 

––

 

Increase in accounts payable and accrued expenses

 

95,155

 

 

1,398,093

 

Increase in royalties payable

 

7,258

 

 

––

 

Increase in related party payables

 

886,383

 

 

492,356

 

Net cash used by operating activities

 

(1,814,529

)

 

(1,070,725

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of professional equipment

 

(2,628

)

 

––

 

Net cash used by investing activities

 

(2,628

)

 

––

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from notes payable

 

220,000

 

 

––

 

Repayment of notes payable

 

(22,675

)

 

(5,451

)

Proceeds from convertible notes payable

 

556,780

 

 

825,000

 

Repayment of convertible notes payable

 

(65,000

)

 

(50,000

)

Repayment of debentures

 

(754,369

)

 

––

 

Proceeds from issuance of preferred shares

 

69,000

 

 

300,000

 

Proceeds from issuance of common shares

 

1,825,132

 

 

41,250

 

Net cash provided by financing activities

 

1,828,868

 

 

1,110,799

 

 

 

 

 

 

 

 

Net cash provided by continuing operations

 

11,711

 

 

40,074

 

 

 

 

 

 

 

 

Cash flows from discontinued operations:

 

 

 

 

 

 

Net cash used by operating activities

 

––

 

 

(39,942

)

Net cash used by discontinued operations

 

––

 

 

(39,942

)

 

 

 

 

 

 

 

Net increase in cash

 

11,711

 

 

132

 

 

 

 

 

 

 

 

Cash - beginning of period

 

262

 

 

183

 

 

 

 

 

 

 

 

Cash - end of period

$

11,973

 

$

315

 

 

 

 

 

 

 

 

NON-CASH ACTIVITIES

 

 

 

 

 

 

Discounts on long-term liabilities

$

19,000

 

$

2,775,000

 

Beneficial conversion feature of convertible promissory note

$

––

 

$

347,457

 

Fair value of stock warrants

$

335,310

 

$

810,000

 

Embedded conversion option of convertible promissory notes

$

9,370

 

$

850

 

Deemed dividends on preferred stock

$

––

 

$

283,347

 

Dividends paid in kind on preferred stock returned to treasury

$

58,232

 

$

––

 

Conversion of preferred stock to common stock

$

69,000

 

$

––

 

Preferred stock returned to treasury for debt settlement

$

100,000

 

$

––

 

Conversion of accounts payable to convertible note payable

$

20,000

 

$

37,500

 

Conversion of related party payables to preferred stock

$

––

 

$

450,000

 

Conversion of accounts payable to related party convertible note payable

$

20,000

 

$

––

 

Conversion of convertible notes payable to common stock

$

1,093,240

 

$

296,114

 

Conversion of related party convertible notes payable to common stock

$

1,021,057

 

$

––

 

Conversion of related party convertible notes payable to non-related party convertible notes payable

$

––

 

$

576,154

 

Conversion of related party payables to non-related party payables

$

––

 

$

42,356

 

Subscriptions receivable

$

(500,000

)

$

(92

)

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION

 

 

 

 

 

 

Interest paid

 

 

 

 

 

 

Continuing operations

$

539,476

 

$

798

 

Discontinued operations

$

––

 

$

106

 

Income taxes paid

$

––

 

$

––

 

 

 

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


7


PARALLAX HEALTH SCIENCES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

NOTE 1. OVERVIEW AND NATURE OF BUSINESS

 

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, 2018. Notes to the unaudited interim consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements have been omitted.

 

The accompanying unaudited interim 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.

 

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., and Parallax Behavioral Health, Inc. unless otherwise indicated.

 

Business Overview

 

The Company’s principal focus is on personalized patient care through remote healthcare services, behavioral health systems, and Point-of-Care (“POC”) diagnostic testing.  Parallax’s current family of companies that serve as the foundation for its cross-over business model of operations include:

 

Parallax Diagnostics, Inc. (“Parallax Diagnostics” or “PDI”) acquired a proprietary Point-of-Care diagnostic immunoassay testing platform and 25 test cartridges for the areas of infectious diseases, cardiac markers, drugs of abuse and various other medical conditions.  

 

Parallax Health Management, Inc. (“PHM”) develops Remote Patient Monitoring (“RPM”) and telehealth market products and services, and commercializes them, including the Fotodigm® proprietary platform which allows for systems integration with a number of third-party services and solutions.  

 

Parallax Behavioral Health, Inc. (“PBH”) acquired the intellectual property known as REBOOT™, the acronym for Reliable Evidence-Based Outcomes Optimization Technologies, as well as the Intrinsic Code™ technology, a software platform specifically designed to improve health treatment outcomes through cloud-based and mobile behavioral technology systems that enable its users and user groups to more effectively achieve goals within a prescribed timeline. 

 

Parallax Care™ is the Company’s technology-enabled digital healthcare system, structured with three separate divisions that can operate independently of one another, or integrate services to meet the various needs of the Company’s clientele: Optimized Outcomes, Connected Health and Smart Data.  Each of these divisions target a separate vertical market that are synergistic, compliment, and strengthen each other.

 

Optimized Outcomes

REBOOT™ / COMPASS™

Behavioral modification

Connected Health

Fotodigm® platform

Remote patient monitoring, telehealth, and POC diagnostic testing

Smart Data

Intrinsic Code™ technology

Actionable insights to behavior modification

 

Operating Segments

 

The Company’s operations include the following operating segments for financial statement presentation: Remote Patient Monitoring (RPM), Behavioral Health Services (BHS), and Diagnostics/Corporate.

 

Remote Patient Monitoring  

 

The Company provides a distinctive technology platform that provides for the complete remote patient care delivery system: the patent-pending Fotodigm® platform, which utilizes proprietary software and technology to bridge clinical behavioral science with technology and logistics for payers, providers and clinical professionals across a variety of wellness and clinical devices, including both fitness and clinical applications. Fotodigm® is a secure and scalable platform for collecting, transmitting and analyzing biometric, pharmaceutical, and health data to healthcare providers, primarily hospitals, accredited nursing operations, and physicians.


8


 

The RPM segment generates revenues through fees charged for the license and utilization of its proprietary system that provides software integrations of the Fotodigm® platform.  Additionally, the RPM segment will generate incremental revenues through the delivery of acute, post-acute and chronic health patient management software systems that enable Parallax customers to bill for and collect payments from patients and third-party payers for telemonitoring and remote services that they deliver.

 

Behavioral Health Services 

 

The BHS segment commenced with the acquisition of the REBOOT™ and Intrinsic Code™ technologies in April 2017. The BHS segment will generate revenues primarily through licensing and subscription of software and systems. As of September 30, 2019, the BHS segment had not yet begun full operations, generating limited test market sales.

 

Diagnostics/Corporate  

 

The Diagnostics/Corporate Segment supports the costs and operating expenses related to the continued development and exploitation of the Company’s proprietary Target System POS diagnostic platform and processes.  In addition, the Diagnostics/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, corporate information technology and finance departments.  

 

Going Concern

The Company has incurred losses since inception resulting in an accumulated deficit of $25,649,201, and a working capital deficit of $5,122,225, 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.

 

 

NOTE 2. RESTATEMENT

 

On October 18, 2019, the Company concluded that the previously issued audited consolidated financial statements as of and for the years ended December 31, 2018 and 2017, should no longer be relied upon.  The Company reached its conclusion after consultation with its Audit Committee and a joint discussion with the Company’s independent registered public accounting firm.

 

The Company has restated its audited consolidated financial statements as of and for the years ended December 31, 2018 and 2017, and interim periods, to reflect adjustments made in connection with the accounting treatment of certain convertible debt (the “Subject Debt”), warrants (the “Subject Warrants”), and convertible preferred stock (the “Subject Preferred Stock”). The adjustments resulted in material overstatements and understatements, the nature and impact of which are further described below.

 

Valuation of Convertible Debt and Warrant Liabilities:

 

The Company reviewed the accounting treatment of the Subject Debt, Subject Warrants, and Subject Preferred Stock, and concluded that it was not in accordance with U.S. generally accepted accounting principles.  Specifically, the Subject Debt, Subject Warrants and Subject Preferred Stock were not evaluated to determine the impact (if any) of 1) embedded conversion option; 2) beneficial conversion feature; 3) bifurcation; 4) derivative liability; and 5) fair value adjustments and other expenses thereto.  A third-party valuation was performed on the Subject Debt, Subject Warrants and Subject Preferred Stock, and the accounting treatment was determined.  

 

The effects of the accounting treatment, all non-cash in nature, resulted in a restatement of convertible debentures and convertible notes payable, additional paid in capital, and accumulated deficit, and the establishment of a derivative liability, resulting in changes to total liabilities and total stockholders’ deficit on the consolidated balance sheets; and a restatement of general and administrative expenses, gain on extinguishment of debt, discount amortization, and interest expense, and the establishment of a loss on fair value adjustments, resulting in changes to net income (loss), net loss per share-basic, and net loss per share-diluted on the consolidated statements of operations; and the restatement of stock compensation/stock option expense, discount amortization, gain on extinguishment of debt, loss on fair value adjustments, debt accretion, and the increase in accounts payable and accrued expenses from operating activities on the consolidated statements of cash flows.  The following tables summarize the impacts on the Company’s consolidated financial statements as of and for the nine months ended September 30, 2018:


9


 

 

 

September 30, 2018

 

 

As Previously Reported

 

As Restated

 

Increase

(Decrease)

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

Notes payable, convertible, net of discount

$

1,241,000

 

$

350,081

 

$

(890,919

)

Total current liabilities

 

4,037,238

 

 

3,146,319

 

 

(890,919

)

Total liabilities

 

6,129,031

 

 

5,238,112

 

 

(890,919

)

Additional paid in capital - preferred

 

1,415,653

 

 

1,699,000

 

 

283,347

 

Additional paid in capital - common

 

9,005,599

 

 

11,023,303

 

 

2,017,704

 

Accumulated deficit

 

(15,308,717

)

 

(16,718,849

)

 

1,410,132

 

Total stockholders' deficit

 

(4,734,466

)

 

(3,843,547

)

 

(890,919

)

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

5,202,944

 

 

5,252,498

 

 

49,554

 

Operating loss

 

(5,207,702

)

 

(5,257,256

)

 

49,554

 

Loss on fair value adjustments

 

––

 

 

(156,300

)

 

156,300

 

Interest expense, net of income

 

(950,601

)

 

(1,741,726

)

 

791,125

 

Total other income (expenses)

 

24,284,963

 

 

23,337,538

 

 

(947,425

)

Net income (loss) - continuing operations

 

19,077,261

 

 

18,080,282

 

 

(996,979

)

Net income (loss)

 

18,252,863

 

 

17,255,884

 

 

(996,979

)

Net income (loss) per common share - continuing operations - basic

 

0.125

 

 

0.124

 

 

(0.001

)

Net income (loss) per common share - continuing operations - diluted

 

0.089

 

 

0.088

 

 

(0.001

)

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

Net income

 

19,077,261

 

 

18,080,282

 

 

(996,979

)

Stock compensation/stock option expense

 

3,103,390

 

 

3,152,943

 

 

49,553

 

Loss on fair value adjustments

 

––

 

 

156,300

 

 

156,300

 

Debt accretion

 

––

 

 

791,125

 

 

791,125

 

Increase in accounts payable and accrued expenses

 

2,182,548

 

 

1,398,093

 

 

(784,455

)

Net cash provided by continuing operations

 

824,530

 

 

40,074

 

 

(784,456

)

Net cash used by operating activities-discontinued operations

 

(824,398

)

 

(39,942

)

 

784,456

 

Non-Cash Activities:

 

 

 

 

 

 

 

 

 

Beneficial conversion feature of convertible promissory notes

 

––

 

 

347,457

 

 

347,457

 

Fair value of stock warrants

 

––

 

 

810,000

 

 

810,000

 

Embedded conversion option of convertible promissory notes

 

––

 

 

850

 

 

850

 

Deemed dividends on preferred stock

 

––

 

 

283,347

 

 

283,347

 

 

 

NOTE 3. 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.

 

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control over the subsidiaries are accounted for as equity transactions. When the Company loses control of a subsidiary, a gain or loss is recognized and is calculated as the difference between:

 

the aggregate of the fair value of consideration received and the fair value of any retained interest at the date when control is lost; 

and

the carrying amount of the net assets (liabilities) of the subsidiary and any noncontrolling interest. 

 

Upon deconsolidation of a subsidiary, any loans to the former subsidiary made by the Company are measured at fair value at the deconsolidation date.  Any difference between the carrying amount of the loan to the subsidiary and its fair value is included as part of the gain or loss calculation upon deconsolidation.


10


 

 

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 of September 30, 2019, and December 31, 2018, the Company had no cash equivalents.

 

Fair Value of Financial Instruments

As of September 30, 2019, and December 31, 2018, 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.

 

Derivatives of financial instruments: 

Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period, with changes in fair value recognized in profit or loss.  A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realized or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

 

Embedded derivatives: 

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognized in profit or loss. An embedded derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the hybrid instrument to which the embedded derivative relates is more than 12 months and it is not expected to be realized or settled within 12 months. Other embedded derivatives are presented as current assets or current liabilities.

.

The following table represents the Company’s derivative financial instruments:

 

September 30, 2019

 

December 31, 2018

 

Convertible debentures

$

––

 

$

23,925

 

Convertible promissory notes

 

––

 

 

––

 

Warrants

 

53,920

 

 

34,000

 

Total derivative liability

$

53,920

 

$

57,925

 

 

The following table represents the changes in the Company’s derivative financial instruments:

 

September 30, 2019

 

December 31, 2018

 

Fair value of derivative liability, beginning

$

57,925

 

$

––

 

Increase in derivative liability-convertible promissory notes

 

9,370

 

 

60,350

 

Increase in derivative liability-warrants

 

105,000

 

 

623,900

 

Fair value adjustment-debentures

 

(8,296

)

 

(2,500

)

Fair value adjustment-convertible promissory notes

 

(9,370

)

 

––

 

Fair value adjustment-warrants

 

(87,475

)

 

126,375

 

Reclassification of warrant carrying value due to reset of exercise price

 

––

 

 

(750,200

)

Reclassification to gain (loss) upon extinguished debt

 

(13,234

)

 

––

 

Fair value of derivative liability, ending

$

53,920

 

$

57,925

 


11


 

 

Investments

The Company held $1 million and $0 million of equity securities without readily determinable fair value as of September 30, 2019 and December 31, 2018, respectively. The Company records these investments at cost, net of impairment. During the nine-month period ended September 30, 2019, there were no events or changes in circumstances that may have had a significant adverse effect on the fair value of these investments and no impairment was recorded.

 

Accounts Receivable

Accounts receivable are stated net of an allowance for doubtful accounts. The accounts receivable balance primarily includes amounts due from customers.  Charges to bad debt are based on both historical write-offs and specifically identified receivables.

 

Property and Equipment

Property and equipment is comprised of office and computer equipment and software, furniture and fixtures, and leasehold improvements, 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. See Note 4 for additional information about property and equipment.

 

Intangible Assets

Product processes, patents and customer lists are amortized on a straight-line basis over their estimated useful lives between 4 and 20 years. Application development stage costs for significant internally developed software projects are capitalized and amortized on a straight-line basis over the useful life, between 2 and 5 years. Costs to extend and maintain patents and trademarks are charged directly to expense as incurred. 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 believes that future projected cash flows are sufficient for the recoverability of its long-lived assets, and no 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 Loss Per Share

The computation of basic earnings per share ("EPS") is based on the weighted average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common stock equivalents. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible debt, convertible preferred shares and the exercise of the Company’s stock options and warrants.

 

Comprehensive Loss

As of September 30, 2019, and December 31, 2018, the Company has no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.

 

Revenue Recognition

The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. Revenue is measured based on a consideration specified in a contract with a customer, and excludes any amounts collected on behalf of third parties.  


12


 

 

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 may have 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.

 

As of September 30, 2019, the Company has not yet filed its 2012 through 2018 annual corporate income tax returns.  Due to the Company’s recurring losses, it is anticipated that no corporate income taxes are due for these periods.

 

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 July 2017, the FASB issued ASU No. 2017-11 (“ASU 2017-11”), Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).  ASU 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. ASU 2017-11 also addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. ASU 2017-11 is effective for the Company for annual periods beginning after December 15, 2018, and interim periods.  Early adoption is permitted.

 

In June 2018, the FASB issued ASU No. 2018-07 (“ASU 2018-07”), Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting.  ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for the Company for annual periods beginning after December 15, 2018, and interim periods.  Early adoption is permitted.

 

In July 2018, the FASB issued ASU No. 2018-11 (“ASU 2018-11”), Leases (Topic 842), Targeted Improvements. ASU 2018-11 addresses certain issues in implementing ASU 2016-02, Leases, which was issued to increase transparency ad comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing transaction.  ASU 2018-11 clarifies 1) comparative reporting requirements for initial adoption; and 2) for lessors only, separating lease and non-lease components in a contract and allocating the consideration in the contract to the separate components. The amendments in this Update related to separating components of a contract affect the amendments in Update 2016-02, which is effective for the Company for annual periods beginning after December 15, 2018, and interim periods.  Early adoption is permitted.

 

Not yet adopted:

 

In August 2018, the FASB issued ASU No. 2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.  ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. ASU 2018-13 will be effective for the Company for annual periods beginning after December 15, 2019, 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 August 2018, the FASB issued ASU No. 2018-15 (“ASU 2018-15”), Intangibles-Goodwill and Other Internal-Use Software (Subtopic 350-40).  ASU 2018-15 was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license.  ASU 2018-15 will be effective for the Company for annual periods beginning after December 15, 2019, 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.


13


 

NOTE 4. PROPERTY AND EQUIPMENT

 

Property and equipment, net, consists of the following:

 

September 30, 2019

 

December 31, 2018

 

Computer equipment

$

6,615

 

$

3,987

 

Medical devices

 

45,194

 

 

45,194

 

Property and equipment, gross

 

51,809

 

 

49,181

 

Accumulated depreciation

 

(49,401

)

 

(49,181

)

Property and equipment, net

$

2,408

 

$

––

 

 

Depreciation expense was $132 and $0 for the three months ended September 30, 2019 and 2018, respectively, and was $220 and $0 for the nine months then ended, respectively.

 

NOTE 5. OPERATING LEASES

 

The Company entered into a sub-lease agreement with PearTrack Security Systems, Inc. (“PearTrack”), whose principal is a related party, on December 1, 2017, for its headquarters in Santa Monica, California, with a monthly sub-lease payment of $5,600, on a month-to-month basis, consistent with the underlying lease between PearTrack and property owner. Due to the short-term nature of the sub-lease, the Company has elected to not recognize the operating lease asset and liability, and will expense the rent as incurred.

 

The Company entered into a sub-lease agreement with AI Assist, Inc. (“AI Assist”) on May 1, 2019, for certain office space located in New York, New York, with a monthly sub-lease payment of $8,900 for a term of fourteen (14) months, maturing June 30, 2020. The right-of-use present value of the sub-lease has been calculated as $118,585, utilizing an implied interest rate of 8%. The operating lease asset and liability will be amortized over the term of the lease.

 

During the three months and the nine months ended September 30, 2019, respectively, the Company recognized $24,819 and $41,091 in amortization.  The present value of future lease payments at September 30, 2019, was $77,494.  As of September 30, 2019, the future minimum lease payments are as follows:

 

 

2019

 

2020

 

Total

 

Operating lease minimum payments

$

26,700

 

$

53,400

 

$

80,100

 

Less: amount treated as interest

 

1,382

 

 

1,224

 

 

2,606

 

Present value of minimum lease payments

$

25,318

 

$

52,176

 

$

77,484

 

 

The total lease costs are summarized as follows:

 

September 30, 2019

 

December 31, 2018

 

Operating lease costs

$

44,500

 

$

––

 

Short-term lease costs

 

51,240

 

 

73,351

 

Total lease costs

$

95,740

 

$

73,351

 

 

Lease costs were $43,780 and $16,800 for the three months ended September 30, 2019 and 2018, respectively, and were $95,740 and $53,557 for the nine months then ended, respectively.

 

NOTE 6. INTANGIBLE ASSETS

 

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

 

September 30, 2019

 

December 31, 2018

 

Products and processes

$

12,500

 

$

12,500

 

Trademarks and patents / technology

 

150,700

 

 

150,700

 

Customer lists / relationships

 

30,000

 

 

30,000

 

Non-compete agreement

 

30,000

 

 

30,000

 

Marketing related

 

64,000

 

 

64,000

 

Software

 

510,300

 

 

510,300

 

Intangible assets, gross

 

797,500

 

 

797,500

 

Accumulated amortization

 

(308,930

)

 

(218,465

)

Intangible assets, net

$

488,570

 

$

579,035

 

 

Amortization expense for the three months ended September 30, 2019 and 2018, was $30,155 and $29,821, respectively, and for the nine months ended September 30, 2019 and 2018, was $90,465 and $90,465, respectively.


14


 

 

NOTE 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of:

September 30, 2019

December 31, 2018

Accounts payable-vendors

$

1,014,668

 

$

830,590

 

Credit cards payable

 

42,552

 

 

42,552

 

Payroll taxes payable

 

80,922

 

 

78,608

 

Accrued interest

 

229,316

 

 

450,187

 

Accrued payroll and payroll taxes

 

540,908

 

 

402,053

 

Other liabilities

 

426,148

 

 

601,148

 

 

 

2,334,514

 

 

2,405,138

 

Reserve-legal fees

 

85,000

 

 

250,000

 

 

 

 

 

 

 

 

Total accounts payable and accrued expenses

$

2,419,514

 

$

2,655,138

 

 

Payroll taxes payable includes $17,475 and $17,475 in penalties, and $6,516 and $4,202 in interest, related to unpaid payroll taxes as of September 30, 2019, and December 31, 2018, respectively.

 

Other liabilities consists of certain payroll tax liabilities in the amount of $426,148 and $601,148 owed as of September 30, 2019, and December 31, 2018, respectively, by the bankrupt entity, RoxSan Pharmacy, Inc., that were not discharged under California bankruptcy laws.  The Company has retained a tax resolution specialist to aid the Company in resolving the liability with the taxing agencies on behalf of RoxSan.

 

During the year ended December 31, 2018, accounts payable and accrued expenses was reduced by $341,606, resulting from the extinguishment of debt consisting of accounts payable-vendors in the amount of $284,714 and accrued interest in the amount of $56,892.

 

In 2018, the Company established a reserve for future legal fees to be incurred in connection with pending legal actions.  As of September 30, 2019, and December 31, 2018, respectively, the reserve balance was $85,000 and $250,000.

 

NOTE 8. NOTES AND LOANS PAYABLE

 

Notes and loans payable consists of the following:

September 30, 2019

 

December 31, 2018

 

Short-term:

 

 

 

 

 

 

Debentures, convertible

$

––

 

$

724,903

 

Notes payable

 

360,000

 

 

––

 

Notes payable, convertible , net of unamortized discount

 

680,176

 

 

296,000

 

Total short-term

 

1,040,176

 

 

1,020,903

 

 

 

 

 

 

 

 

Long-term:

 

 

 

 

 

 

Debentures, convertible, net of unamortized discount

 

––

 

 

184,870

 

Note payable, convertible

 

576,154

 

 

720,154

 

Note payable-bank

 

21,320

 

 

28,995

 

Total long-term

 

597,474

 

 

934,019

 

 

 

 

 

 

 

 

Total notes and loans payable

$

1,637,650

 

$

1,954,922

 

 

Non-related party convertible debt consists of the following convertible promissory notes:

Holder

 

Principal

 

APR

 

Accrued

Interest

 

Conversion

Price

 

Term/Due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term:

 

 

 

 

 

 

 

 

 

 

 

 

 

Lender Group A

 

$

20,000

 

20%

 

$

15,840

 

$0.10

 

05/2018

 

Lender Group B

 

 

569,176

 

12%

 

 

36,217

 

$0.10 to $.12

 

09/2019-04/2020

 

Investor Group A

 

 

91,000

 

10%

 

 

18,720

 

$0.10

 

09/2018

 

 

 

 

680,176

 

 

 

 

70,777

 

 

 

 

 

Long-term:

 

 

 

 

 

 

 

 

 

 

 

 

 

Joseph M. Redmond

 

 

576,154

 

5%

 

 

141,096

 

$0.10

 

07/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total convertible debt

 

$

1,256,330

 

 

 

$

211,873

 

 

 

 

 

 

During the nine months ended September 30, 2019, the Company issued 12% convertible promissory notes in the aggregate principal sum of $585,000 (“Lender Group B”) for working capital, of which $556,780 in proceeds was disbursed to the Company after an original issue discount of $28,220. The notes bear interest at a rate of 12% per annum, mature six to twelve months from payment of disbursed proceeds, and contain a repayment provision to convert the debt into shares of the Company's common stock at conversion rates equal to the lower of 1) between $0.10 to $0.12 per share; or 2) between 65% to 70% of the 2nd lowest trading prices during the twenty (20) trading days preceding the conversion date.  In addition, the Company issued warrants to purchase 2,600,000 shares of the Company’s common stock at an exercise price of $0.15 per share for a period of five (5) years. The notes were discounted for embedded conversion option of $9,370 and warrant fair value of $105,000, reclassified as derivative liabilities.


15


 

On July 5, 2019, in connection with cash proceeds received in June 2019, the Company issued three (3) Senior Secured Notes (the “Notes”) in the aggregate principal of $220,000, pursuant to certain Note and Purchase Agreements (the “Purchase Agreements”) of the same date.  The Notes bears interest at 8% per annum, and mature 180 days from the issuance date (“Maturity Date”).  As additional consideration for entering into the Purchase Agreements, 400,000 shares of the Company’s restricted common stock is being issued to each of the note holders, for an aggregate of 1,200,000 shares, valued at $190,200.

 

As of September 30, 2019, and December 31, 2018, respectively, short-term non-related party debt in the amount $1,040,176 and $1,020,903 consists of $0 and $724,903 in convertible debentures; $360,000 and $0 in notes payable; and $680,176 and $296,000 in convertible notes payable.  During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, notes and debentures in the principal aggregate of $585,000 and $825,000 were issued; principal in the amount of $622,369 and $50,000, along with interest in the amount of $41,519 and $608, was repaid in cash; principal in the amount of $395,000 and $620,000, along with interest in the amount of $2,000 and $55,613, was converted to common stock; losses on extinguishment of debt of $220,469 and $105,320 were incurred; and debt accretion in the amount of $126,766 and $1,087,974, and interest in the amount of $164,447 and $270,142 was expensed. As of September 30, 2019, and December 31, 2018, respectively, a total of $75,069 and $185,741 in accrued interest remains, and is included as an accrued expense on the accompanying consolidated balance sheet.

 

As of September 30, 2019, and December 31, 2018, respectively, long-term non-related party debt in the amount of $597,474 and $934,019 consists of $0 and $207,500 in convertible debentures, less unamortized discount of $0 and $22,630; $576,154 and $720,154 in convertible notes payable, of which $576,154 and $576,154 is related to pending litigation with a former executive (see Note 18), and subject to compromise; and $21,320 and $28,995 in notes payable to banks.  During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, debentures in the principal aggregate of $0 and $225,000 were issued; principal in the amount of $219,675 and $9,245, along with interest in the amount of $1,176 and $632 was repaid in cash; principal in the amount of $95,142 and $0 was converted to common stock; losses on extinguishment of debt of $168,159 and $0 were incurred; and debt accretion in the amount of $9,816 and $2,370, and interest in the amount of $74,174 and $739,383 was expensed.  As of September 30, 2019, and December 31, 2018, respectively, a total of $141,603 and $190,386 in accrued interest remains, and is included as an accrued expense on the accompanying consolidated balance sheet.

 

The future maturities of notes payable are summarized as follows:

Year

 

2020

 

2021

 

Total

 

 

 

 

 

 

 

 

 

 

Principal

 

$

576,154

 

$

21,320

 

$

$597,474

 

During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, interest expense on non-related party notes and loans payable in the amount of $238,601 and $1,009,525 was expensed.  As of September 30, 2019, and December 31, 2018, respectively, a total of $216,672 and $376,127 in interest has been accrued and is included as part of accrued expenses on the accompanying consolidated balance sheets.

 

NOTE 9. RELATED PARTY TRANSACTIONS

 

Related party transactions consist of the following:

 

September 30, 2019

 

December 31, 2018

 

Related party payables:

 

 

 

 

 

 

Accrued compensation

$

1,000,643

 

$

869,859

 

Cash advances

 

473,793

 

 

134,861

 

Total related party payables

 

1,474,436

 

 

1,004,720

 

 

 

 

 

 

 

 

Debentures, convertible

 

––

 

 

411,006

 

Notes payable, related party

 

759,446

 

 

––

 

Notes payable, convertible, related party

 

20,000

 

 

491,100

 

 

 

 

 

 

 

 

Total related party transactions

$

2,253,882

 

$

1,906,826

 

 

Related party convertible debt consists of the following convertible promissory notes:

Note Holder

 

Principal

 

APR

 

Accrued

Interest

 

Conversion

Price

 

Term/Due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John Ogden, Director

 

$

20,000

 

10%

 

$

986

 

$0.10

 

12/2019

 

 

As of September 30, 2019, and December 31, 2018, respectively, related parties are due a total of $2,253,882 and $1,906,826, consisting of $1,000,643 and $869,859 in accrued compensation owed to officers; $473,793 and $134,861 in accrued benefits and cash advances from officers and beneficial owners to the Company for operating expenses; $759,446 and $0 in promissory notes; $0 and $411,006 in convertible debentures; and $20,000 and $491,100 in convertible promissory notes.


16


 

On July 25, 2019, related party convertible debentures in the principal sum of $411,006, plus accrued interest of $42,778, were converted to Senior Secured Promissory Notes (the “Senior Notes”) in the aggregate principal of $759,446.  The Senior Notes bear interest at a rate of 8% per annum, with payments of $126,152 plus interest accrued thereon due December 31, 2019; $300,000 due December 31, 2020; and the remaining principal and accrued interest due December 31, 2021.  In connection with the exchange, the Company issued the following in favor of the lender, Jorn Gorlach, a related party: 1,380,811 shares of the Company’s restricted Common Stock, valued at $131,315; warrants, valued at $92,150, to purchase 2,528,413 shares of the Company’s Common Stock for a period of five (5) years at an exercise price of $0.10461; and an increase in principal of $305,662.  As a result, the Company recognized a net loss on the exchange in the amount of $526,987, net of $2,140 in derivative liability remaining from the warrants issued with the debentures.

 

In September 2019, $491,100 in related party convertible promissory notes, along with $98,642 in accrued interest, were converted into 5,897,419 shares of the company’s restricted common stock at a conversion price of $0.10 per share.

 

During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, $1,003,783 and $1,371,446 in related party compensation was accrued, $573,000 and $510,500 was paid, $300,000 and $0 was converted to common stock; and $0 and $450,000 was converted to preferred stock.  In June 2019, $575,132 of related party debt was purchased by non-related-parties (the “Proceeds”).  The Proceeds were collected on behalf of the related parties by the Company.  Of the $396,500 paid to related parties during the current period, $159,500 was Proceeds.  The remaining Proceeds of $415,632 were subsequently loaned to the Company by the related parties for operating expenses.

 

During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, $498,870 and $121,949 in benefits were accrued and cash advances were made to the Company by related parties for overhead requirements, of which $159,938 and $115,384 was paid/repaid to related parties.

 

During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively; interest in the amount of $80,003 and $66,840 was expensed, of which $0 and $798 was paid to the note holders in cash; and $0 and $71,839 was converted to principal. As of September 30, 2019, and December 31, 2018, respectively, a total of $12,643 and $74,060 in accrued interest remains and is included as part of accrued expenses on the accompanying consolidated balance sheets.

 

In April 2019, the Company entered into an employment agreement with Mr. David Appell to serve as the Company’s Chief Operating Officer. The agreement commenced May 15, 2019, is for an initial term of two (2) years, and provides a base compensation of $250,000 year one, and $275,000 in year two, as well as various performance bonuses, and customary employee benefits. In addition, the agreement includes a grant to purchase 3,000,000 restricted common shares, valued at $201,300, for cash in the amount of $3,000, of which 25% vest immediately, and the remainder vest when certain earnings goals are met; as well as options granted to purchase 3,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share.  The options, valued at $195,600 using the Black-Scholes method, are for a period of five (5) years, and vest annually over the term of the agreement, with an initial vesting of 25%. The assumptions used in valuing the options were: expected term 4.75 years, expected volatility 2.21, risk free interest rate 2.15%, and dividend yield 0%.

 

NOTE 10. COMMITMENTS AND CONTINGENCIES

 

On August 13, 2015, the Company issued a secured promissory note in the amount of $20,500,000 (the “Promissory Note”) in connection with the acquisition of RoxSan Pharmacy, Inc. (“RoxSan”). The Promissory Note bore interest at a rate of 6% per annum, and matured August 13, 2018 ("Maturity").  In September 2018, as part of the deconsolidation of RoxSan resulting from its Chapter 7 petition filed on May 14, 2018, management reevaluated the characteristics of the Promissory Note.  Included in the evaluation were the following considerations: 1) the related asset is no longer a part of the parent financial statements due to a loss of financial control; 2) the Company is currently in litigation as a result of material breaches by the note holder;  3) the Company has claims against the note holder for losses and damages directly related to the Promissory Note and its underlying assets; 4) there is a high likelihood that no obligation exists.  After careful consideration, management has determined that the current characteristics of the liability are contingent in nature, and the debt of $20,500,000 and related $2,278,281 in accrued interest was extinguished in 2018, resulting in a gain of $22,778,281.

 

On August 31, 2016, as part of the Company’s acquisition of 100% of the issued and outstanding shares of Qolpom®’s common stock and its assets, inventory and intellectual property, the agreement provides for, among other things, the seller to receive up to $2,000,000 through a percentage of revenue generated from RPM business segment (“Revenue Share”), as well as a royalty of 3% (“Royalties”) of certain revenues generated from the Qolpom® intellectual property, as defined in the agreement.  As of September 30, 2019, and December 31, 2018, respectively, the present value of future Revenue Share was $450,000 and $430,000; and the present value of future Royalties was $309,000 and $310,000; and are included as part of long-term liabilities on the accompanying consolidated balance sheets.

 

On April 26, 2017, as part of the Company’s acquisition of certain intellectual property (“Intellectual Property”) from ProEventa, Inc (“ProEventa”), the agreement provides for, among other things, ProEventa to receive a revenue sharing cash earn-out of up to $3,000,000 to be derived from certain net revenue generated by the Company; as well as Royalties of 3% of certain revenues generated from the Intellectual Property, ending at such time as the Company has paid ProEventa $25,000,000, as defined in the agreement. As of September 30, 2019, and December 31, 2018, respectively, the present value of future Revenue Share was $1,189,000 and $1,270,000; the present value of future Royalties was $845,000 and $690,000, and $7,258 and $0 in Royalties payable on earned revenues was accrued.


17


 

 

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 March 31, 2019, in connection with the settlement agreement with Mr. Dave Engert, 36,339 shares of the Company’s Series A preferred stock held by Mr. Engert, with a book value of $100,000, were returned to treasury.  As a result, preferred paid in capital was reduced by $99,964. On April 1, 2019, dividends owed on the Series A preferred stock were paid in kind with the issuance and immediate return to treasury of 21,121 shares of Series A preferred stock, resulting in a total of 57,500 shares of Series A preferred stock held in treasury (the “Treasury Shares”).

 

On May 15, 2019, the 57,500 Treasury Shares were reissued for cash in the amount of $69,000.  Subsequently, the 57,500 shares of Series A preferred stock were converted into 1,150,000 shares of common stock at a ratio of 20 shares of common stock for each share of preferred stock held.

 

As of September 30, 2019, and December 31, 2018, respectively, the Company had 977,352 and 1,013,691 shares of preferred stock issued and outstanding.

 

NOTE 12. COMMON STOCK

 

Effective December 24, 2018, pursuant to a majority shareholder consent, the Company increased its authorized common stock from 250,000,000 shares to 500,000,000 shares, with a par value of $0.001 per share.  On January 28, 2019, the amended articles of incorporation were filed with the state of Nevada.

 

During the nine months ended September 30, 2019, 1,150,000 shares of the Company’s restricted common stock were issued in connection with the conversion of 57,500 shares of Series A preferred stock, valued at $69,000.  As a result, $67,850 was recorded to paid in capital.  

 

During the nine months ended September 30, 2019, 21,987,535 shares of the Company’s restricted common stock were issued in connection with the conversion of non-related party debt in the amount of $1,713,740.  As a result, $1,691,753 was recorded to paid in capital.

 

During the nine months ended September 30, 2019, 5,897,419 shares of the Company’s restricted common stock were issued in connection with the conversion of related party debt in the amount of $589,742.  As a result, $583,845 was recorded to paid in capital.

 

During the nine months ended September 30, 2019, 5,679,167 shares of the Company’s restricted common stock were issued in connection with stock awards to non-related parties, valued at $588,548, including 125,000 shares valued at $8,388 for cash in the amount of $125.  As a result, $582,868 was recorded to paid in capital.

 

During the nine months ended September 30, 2019, 3,000,000 shares of the Company’s restricted common stock were issued in connection with a stock award to David Appell, the company’s Chief Operating Officer, valued at $201,300 for cash in the amount of $3,000, of which 25% vests immediately, and the remainder vest when certain earnings goals are met. As  a result, $198,300 was deferred, to be amortized over the vesting terms, and $198,300 was recorded to paid in capital.

 

During the nine months ended September 30, 2019, 13,875,000 shares of the Company’s restricted common stock were issued in connection with a Simple Agreement Future Equity (“SAFE”) offering, including 4,500,000 issued to related parties, for cash in the amount of $735,000, services valued at $15,000, and $375,000 in related party accrued compensation.  As a result, $1,111,124 was recorded to paid in capital.

 

During the nine months ended September 30, 2019, 1,875,000 shares of the Company’s restricted common stock were issued, valued at $178,700, in connection with the retirement of 4,550,000 warrants.  As a result, $176,825 was recorded to paid in capital.  

 

During the nine months ended September 30, 2019, 1,400,000 shares of the Company’s restricted common stock were issued in connection with services valued at $121,000.  As a result, $119,600 was recorded to paid in capital.  

 

During the nine months ended September 30, 2019, 2,810,811 shares of the Company’s common stock were issued in connection with debt and debt service valued at $344,514.  As a result, $341,704 was recorded to paid in capital.  

 

During the nine months ended September 30, 2019, in connection with an equity funding, 12,000,000 shares of the Company’s restricted common stock were issued for cash in the amount of $1,000,000, of which $500,000 was recorded to subscription receivable.  As  a result, $988,000 was recorded to paid in capital.

 

During the nine months ended September 30, 2019, in connection with an investment in securities, 6,666,667 shares of the Company’s restricted common stock were issued for $0.15 per share, valued at $1,000,000.  As a result, $993,333 was recorded to paid in capital.

 

During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, a total of 76,341,599 and 21,358,611 shares of the Company’s common stock were issued.  As of September 30, 2019 and December 31, 2018, respectively, the Company had 234,454,740 and 158,113,141 common shares issued and outstanding.


18


 

Restricted Stock Awards

During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, 3,730,000 and 3,660,000 restricted stock awards were granted, valued at $254,350 and $434,000; and 1,654,270 and 6,827,368 restricted stock awards vested, for which $171,555 and $1,095,193 in deferred stock compensation was expensed. As of September 30, 2019 and December 31, 2018, respectively, there remains 7,963,925 and 5,888,195 shares to be vested, and $1,231,604 and $1,148,809 in deferred stock compensation to be expensed over the next eighteen (18) months.

 

Restricted Stock Awards Activity

Number of

 

Deferred

 

 

Shares

 

Compensation

 

Outstanding at December 31, 2017

9,055,563

 

$

1,810,002

 

Granted

3,660,000

 

 

434,000

 

Vested

(6,827,368

)

 

(1,095,193

)

Outstanding at December 31, 2018

5,888,195

 

 

1,148,809

 

Granted

3,730,000

 

 

254,350

 

Vested

(4,095,932

)

 

(665,179

)

Forfeited

(675,000

)

 

(67,537

)

Outstanding at September 30, 2019

5,522,263

 

$

670,443

 

 

NOTE 13. WARRANTS AND OPTIONS

 

As of September 30, 2019, and December 31, 2018, respectively, the Company had 49,435,913 and 21,232,500 warrants, and 26,685,000 and 18,060,000 options, issued and outstanding.

 

During the nine months and the year ended September 30, 2019 and December 31, 2018, respectively, 33,353,413 and 14,077,500 warrants were granted, 4,850,000 and 0 were retired, and 300,000 and 100,000 expired.  The warrants carry an exercise price of between $0.001 to $0.60 per share, expire between 2020 to 2024, and were valued at $335,310 and $851,610, using the Black-Scholes method. The assumptions used in valuing the warrants were: expected term between 2 to 5 years; expected volatility 40% to 45%; risk free interest rate between 1.16% to 2.91%; and a dividend yield of 0%.  A total of $0 and $113,210 in deferred stock warrant compensation was recorded, and $144.610 and $73,370 was expensed during the nine months and the year ended September 30, 2019, and December 31, 2018, respectively.  There remains $92,470 and $98,920 in deferred compensation as of September 30, 2019, and December 31, 2018, respectively, to be expensed over the next twelve (12) months.

 

Warrants Outstanding

 

 

 

 

 

 

 

 

 

 

 

Number of

 

Remaining

 

Exercise Price

 

Weighted

 

 

 

Common

 

Contractual Life

 

Times Number

 

Average

 

Exercise Price

 

Shares

 

(in years)

 

Of Shares

 

Exercise Price

 

 

 

 

 

 

 

$0.001

 

300,000

 

3.75

 

$

300

 

$0.17

 

$0.01

 

75,000

 

1.25

 

 

750

 

$0.18

 

$0.10

 

2,528,413

 

5.00

 

 

252,841

 

$0.21

 

$0.10

 

62,500

 

3.50

 

 

6,250

 

$0.29

 

$0.10

 

250,000

 

1.75

 

 

25,000

 

$0.19

 

$0.10

 

4,877,500

 

1.50

 

 

487,750

 

$0.21

 

$0.10

 

250,000

 

1.00

 

 

25,000

 

$0.32

 

$0.15

 

600,000

 

4.50

 

 

90,000

 

$0.19

 

$0.15

 

1,000,000

 

1.25

 

 

150,000

 

$0.28

 

$0.17

 

62,500

 

3.50

 

 

10,625

 

$0.29

 

$0.18

 

62,500

 

3.50

 

 

11,250

 

$0.29

 

$0.20

 

2,600,000

 

4.50

 

 

520,000

 

$0.19

 

$0.21

 

62,500

 

3.50

 

 

13,125

 

$0.29

 

$0.21

 

100,000

 

1.00

 

 

21,000

 

$0.34

 

$0.25

 

5,625,000

 

4.50

 

 

1,406,250

 

$0.19

 

$0.25

 

4,500,000

 

3.00

 

 

1,125,000

 

$0.22

 

$0.25

 

250,000

 

2.75

 

 

62,500

 

$0.22

 

$0.25

 

3,250,000

 

2.00

 

 

812,500

 

$0.18

 

$0.25

 

3,750,000

 

1.75

 

 

937,500

 

$0.19

 

$0.25

 

13,500,000

 

1.50

 

 

3,375,000

 

$0.21

 

$0.25

 

475,000

 

1.25

 

 

118,750

 

$0.27

 

$0.25

 

3,255,000

 

1.00

 

 

813,750

 

$0.32

 

$0.25

 

1,500,000

 

0.75

 

 

375,000

 

$0.39

 

$0.35

 

250,000

 

1.00

 

 

87,500

 

$0.32

 

$0.60

 

250,000

 

1.00

 

 

150,000

 

$0.34

 

 

 

49,435,913

 

 

 

$

10,877,641

 

$0.22

 


19


 

 

 

 

 

 

Weighted

 

Warrant Activity

Number of

 

Average

 

 

Shares

 

Exercise Price

 

Outstanding at December 31, 2018

 

21,232,500

 

$0.18

 

Issued

 

33,353,413

 

$0.20

 

Exercised

 

––

 

––

 

Retired / Cancelled

 

(4,850,000

)

$0.22

 

Expired / Forfeited

 

(300,000

)

$0.18

 

Outstanding at September 30, 2019

 

49,435,913

 

$0.22

 

 

During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, 10,000,000 and 6,000,000 stock options were granted, which vest periodically over a two (2) year period, are exercisable for a period of between 3 to 5 years at an exercise price of between $0.05 to $0.60 per share, and were valued at $900,150 and $833,700 using the Black-Scholes method. The assumptions used in valuing the options were: expected term between 3.00 to 4.75 years; expected volatility between 1.78 to 2.29; risk free interest rate of between 1.69% to 2.78%; and a dividend yield of 0%.

 

 

Options Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

Exercise Price

 

Weighted

 

 

 

Number of

 

Contractual Life

 

times Number

 

Average

 

Exercise Price

 

Shares

 

(in years)

 

of Shares

 

Exercise Price

 

 

 

 

 

 

 

$0.05

 

90,000

 

3.00

 

$

4,500

 

$0.14

 

$0.05

 

1,140,000

 

2.75

 

 

57,000

 

$0.09

 

$0.05

 

100,000

 

2.25

 

 

5,000

 

$0.08

 

$0.05

 

60,000

 

1.50

 

 

3,000

 

$0.06

 

$0.05

 

170,000

 

1.25

 

 

8,500

 

$0.12

 

$0.09

 

5,500,000

 

3.00

 

 

467,500

 

$0.20

 

$0.10

 

500,000

 

1.25

 

 

50,000

 

$0.14

 

$0.15

 

1,000,000

 

1.25

 

 

150,000

 

$0.14

 

$0.25

 

3,125,000

 

4.75

 

 

781,250

 

$0.22

 

$0.25

 

1,000,000

 

4.50

 

 

250,000

 

$0.20

 

$0.25

 

5,000,000

 

3.75

 

 

1,250,000

 

$0.16

 

$0.25

 

7,000,000

 

3.00

 

 

1,750,000

 

$0.16

 

$0.25

 

1,000,000

 

1.25

 

 

250,000

 

$0.15

 

$0.25

 

1,000,000

 

0.75

 

 

250,000

 

$0.10

 

 

 

26,685,000

 

 

 

$

5,276,750

 

$0.20

 

 

 

 

 

 

 

Weighted

 

Options Activity

Number of

 

Average

 

 

Shares

 

Exercise Price

 

Outstanding at December 31, 2018

 

18,060,000

 

$0.23

 

Issued

 

10,000,000

 

$0.22

 

Exercised

 

––

 

––

 

Expired / Forfeited

 

(1,375,000

)

––

 

Outstanding at September 30, 2019

 

26,685,000

 

$0.20

 

 

During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, 10,000,000 and 6,000,000 options were issued, 0 and 1,973,189 options were exercised, 1,000,000 and 1,000,000 options expired, and 375,000 and 5,641,811 options were forfeited. A total of $875,700 and $649,327 in deferred stock option compensation was recorded, net of forfeitures, and $526,650 and $572,870 was expensed during the nine months and the year ended September 30, 2019, and December 31, 2018, respectively.  There remains $1,744,518 and $1,395,466 in deferred compensation as of September 30, 2019, and December 31, 2018, respectively, to be expensed over the next 15 months.


20


 

NOTE 14. INCOME TAXES

 

A reconciliation of the expected statutory federal and state taxes and the total income tax expense (benefit) at September 30, 2019, and December 31, 2018, was as follows:

 

 

September 30, 2019

 

December 31, 2018

 

 

 

 

 

 

 

 

Income (loss) before taxes

$

(6,458,278

)

$

15,608,209

 

Statutory rate (Fed & State(s))

 

30%

 

 

30%

 

 

 

 

 

 

 

 

Computed expected tax payable (recovery)

 

(1,797,800

)

 

4,781,700

 

 

 

 

 

 

 

 

Effect of release of net operating loss carryforwards

 

(927,100

)

 

(2,417,700

)

 

 

 

 

 

 

 

Tax effect of non-deductible expenses:

 

 

 

 

 

 

Gain on extinguishment of debt-principal

 

––

 

 

(6,124,000

)

Stock compensation/amortization of stock options

 

767,700

 

 

1,048,500

 

Discount amortization

 

5,600

 

 

837,000

 

Other

 

1,700

 

 

1,500

 

Total tax effect of non-deductible expenses

 

775,000

 

 

(4,237,000

)

 

 

 

 

 

 

 

Change in valuation allowance

 

1,949,900

 

 

(1,873,000

)

 

 

 

 

 

 

 

Income tax expense

$

––

 

$

––

 

 

 

 

 

 

 

 

Reported income taxes:

 

 

 

 

 

 

Federal

$

––

 

$

––

 

State

 

––

 

 

––

 

Total

$

––

 

$

––

 

 

The significant components of deferred income tax assets and liabilities at September 30, 2019, and December 31, 2018, are as follows:

 

 

September 30, 2019

 

December 31, 2018

 

 

 

 

 

 

 

 

Net operating loss carried forward

$

1,930,500

 

$

––

 

Bad debt allowance

 

––

 

 

––

 

Officers’ accrued compensation

 

280,000

 

 

243,400

 

Accrued related party interest

 

3,500

 

 

20,700

 

Valuation allowance

 

(2,214,000

)

 

(264,100

)

 

 

 

 

 

 

 

Net deferred income tax asset

$

––

 

$

––

 

 

During the year ended December 31, 2018, the company realized extinguishment of debt principal in the amount of $20,880,688.  Per Internal Revenue Code (“IRC”) Section 108(a) (1) (A) the extinguishment of debt principal is excluded from taxable income for the Company.  However, any available tax attributes must be released up and to the amount of the extinguishment.  Therefore, net operating loss carryforwards were released for the amount of income excluded from taxable income.  The remaining net operating losses available to use toward future taxable income are as follows:  

 

Tax Year

 

Net Operating Loss

 

Expires

 

 

 

 

 

 

2016

 

$

442,900

 

2036

2017

 

 

2,115,400

 

2037

2018

 

 

548,900

 

No Expiration

2019 to date

 

 

3,791,500

 

No Expiration

 

 

 

 

 

 

Total

 

$

6,898,700

 

 

 

As at September 30, 2019, the Company had approximately $6,898,700 of federal net operating losses, of which $4,340,400 have no expiration date. The Company is open to examinations for the tax year 2011 through the current tax year.


21


 

 

NOTE 15. DISCONTINUED OPERATIONS

 

In December 2017, the Company discontinued all operations related to the Retail Pharmacy Segment (RPS) involving the Company’s wholly-owned subsidiary, RoxSan Pharmacy, Inc. (“RoxSan”).  On May 14, 2018, pursuant to a unanimous resolution of the Boards of Directors of RoxSan 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 the filing, RoxSan sought to discharge approximately $5 million of liabilities owed to various parties, and intercompany loans in excess of $1 million owed to the Company.  The Chapter 7 bankruptcy proceeding by was fully discharged and the case was closed on March 13, 2019.

 

Due to, among other things, the reduction in RoxSan’s cash flows during 2016 and 2017, RoxSan became delinquent in its payroll tax depository obligations, resulting in a liability owed to federal and state taxing agencies in the aggregate of $1,148,811, which includes $601,148 in taxes withheld from employees (“Trust Fund Taxes”), employer taxes of $183,172, and penalties and interest of $364,491 through December 31, 2018. The liability was included as part of the Chapter 7 bankruptcy petition, and certain portions of the liability may be discharged.  However, in accordance with California bankruptcy laws, federal and state Trust Fund Taxes are not dischargeable. During the nine months ended September 30, 2019, the company has made payments on behalf of RoxSan to the taxing agencies in the amount of $175,000.  As of September 30, 2019, $426,148 in Trust Fund Taxes remains outstanding. The Company has retained a tax resolution specialist and is in communications with the taxing agencies in order to resolve RoxSan’s liability (Note 7).

 

As a result of the loss of financial control of RoxSan, the Company derecognized the subsidiary effective May 14, 2018. The derecognition resulted in a gain of $4,478,268.  The Company also extinguished $22,778,281 in debt and accrued interest related to the acquisition of RoxSan.

 

The results of the discontinued operations of RoxSan Pharmacy, Inc. for the three and nine months ending September 30, 2018, are summarized as follows:

 

September 30, 2018

 

 

Three months ended

 

Nine months ended

 

 

 

 

 

 

 

Revenue

$

––

 

$

––

 

Cost of sales

 

––

 

 

––

 

Gross profit

 

––

 

 

––

 

Sales, marketing and pharmacy expenses

 

(24,260

)

 

170,630

 

General and administrative expenses

 

(79,006

)

 

586,993

 

Operating income (loss)

 

103,266

 

 

(757,623

)

Loss on disposal of assets

 

––

 

 

(10,000

)

Interest expense

 

(9,493

)

 

(56,775

)

Net income (loss) from discontinued operations

$

93,773

 

$

(824,398

)

 

NOTE 16. SEGMENT REPORTING

 

The Company has the following business segments: Remote Care Services (RCS), Behavioral Health Services (BHS), and Diagnostics/Corporate (DCS).  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:

 

 

Remote Care

Segment

 

Behavioral

Health Segment

 

Diagnostics/

Corporate

Segment

 

Discontinued

Operations

 

Consolidated

Totals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

1,395

 

$

76,350

 

$

––

 

$

––

 

$

77,745

 

Gross profit (loss)

 

75

 

 

64,800

 

 

––

 

 

––

 

 

64,875

 

Operating loss

 

(204,145

)

 

(97,700

)

 

(4,836,369

)

 

––

 

 

(5,138,214

)

Depreciation and amortization

 

6,897

 

 

82,320

 

 

1,468

 

 

––

 

 

90,685

 

Interest expense

 

2,315

 

 

––

 

 

455,004

 

 

––

 

 

457,319

 

Gain on fair value adjustments

 

––

 

 

––

 

 

105,141

 

 

––

 

 

105,141

 

Loss on extinguishment of debt

 

––

 

 

––

 

 

(915,615

)

 

––

 

 

(915,615

)

Loss on settlement

 

––

 

 

––

 

 

(33,272

)

 

––

 

 

(33,272

)

Discount amortization

 

19,000

 

 

––

 

 

––

 

 

––

 

 

19,000

 

Total assets

 

906,466

 

 

357,247

 

 

1,109,592

 

 

––

 

 

2,373,305

 

Goodwill

 

785,060

 

 

––

 

 

––

 

 

––

 

 

785,060

 

Additions to property and equipment

 

––

 

 

––

 

 

2,628

 

 

––

 

 

2,628

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

9,399

 

 

1,350

 

 

––

 

 

––

 

 

10,749

 

Gross profit (loss)

 

(6,108

)

 

1,350

 

 

––

 

 

––

 

 

(4,758

)

Operating loss

 

(277,261

)

 

(144,218

)

 

(4,835,777

)

 

––

 

 

(5,257,256

)

Depreciation and amortization

 

6,897

 

 

82,320

 

 

1,248

 

 

––

 

 

90,465

 

Interest expense

 

2,206

 

 

––

 

 

1,739,520

 

 

––

 

 

1,741,726

 

Gain on disposal of subsidiary

 

––

 

 

––

 

 

5,079,416

 

 

––

 

 

5,079,416

 

Gain on extinguishment of debt

 

––

 

 

––

 

 

22,931,148

 

 

––

 

 

22,931,148

 

Loss on fair value adjustments

 

––

 

 

––

 

 

(156,300

)

 

––

 

 

(156,300

)

Discount amortization

 

(370,000

)

 

––

 

 

3,145,000

 

 

––

 

 

2,775,000

 

Discontinued operations

 

––

 

 

––

 

 

––

 

 

(824,398

)

 

(824,398

)

Total assets

 

915,652

 

 

467,007

 

 

11,906

 

 

––

 

 

1,394,565

 

Goodwill

 

785,060

 

 

––

 

 

––

 

 

––

 

 

785,060

 

Additions to property and equipment

 

––

 

 

––

 

 

––

 

 

––

 

 

––

 


22


 

NOTE 17. LEGAL MATTERS

 

The Company knows of no material developments to its legal matters other than those disclosed below:

 

Dispute with Former Owner of RoxSan

 

Action No. SC125702:

In the Matter, action No. SC125702, in the Superior Court of the State of California, County of Los Angeles, West District, the former owner of RoxSan Pharmacy, Inc., Shahla Melamed (“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, previously set for December 2018, is currently set for January 2020.

 

Action No. SC 124898:

The Company 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, previously set for December 2018, is currently set for January 2020.

 

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.  On October 23, 2017, the Company 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 October 8, 2018, a settlement was reached between Mr. Engert and the Company (the “Settlement”). The Settlement includes, among other things, a cash payment to Mr. Engert in the amount of $139,000, and the cancellation of all of Mr. Engert’s equity holdings in the Company, including preferred shares (see Note 11).  The Settlement resulted in a net loss to the Company of $33,272. On April 10, 2019, a stipulation for dismissal was filed, and the matter has been fully resolved.

 

NOTE 18. SUBSEQUENT EVENTS

 

The Company has evaluated the events and transactions for recognition or disclosure subsequent to September 30, 2019, through the date of the issuance of the financial statements, and has determined that there have been no events that would require disclosure.

 

 

 

*    *    *    *    *


23


 

 

ITEM 2. MANAGEMENTS 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, forward-looking statements can be identified by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause the Company’s or the Company’s industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

The Company’s unaudited interim consolidated financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. All references to "common shares" refer to the common shares in the Company’s capital stock. 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.

 

NOTE: The following sections of this quarterly report 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., and Parallax Behavioral Health, Inc., unless otherwise indicated.

 

Description of Business  

 

Parallax Health Sciences, Inc. (“Parallax”), incorporated in the State of Nevada on July 6, 2005, is an innovative digital healthcare company headquartered in Santa Monica, California. The Company’s principal focus is to build and expand an integrated digital healthcare network with products and services that can provide remote communication, diagnosis, treatment, and monitoring of patients on a single proprietary platform. The Parallax Care™ system being developed  provides scalable connected products, services and actionable data integrated on a single interoperable platform.  The Company’s principal mission is to deliver solutions that empower patients, reduce costs and improve the quality of care through patented leading-edge technologies.

 

The Parallax Care™ technology-enabled digital healthcare system is structured with three separate divisions that can operate independently of one another, or integrate services to meet the various needs of the Company’s clientele: Optimized Outcomes, Connected Health and Smart Data.  Each of these divisions target a separate vertical market that are synergistic, compliment, and strengthen each other and the  Company value proposition as a whole.

 

Optimized Outcomes

REBOOT™ / COMPASS™

Behavioral modification

Connected Health

Fotodigm® platform

Remote patient monitoring, telehealth, and POC diagnostic testing

Smart Data

Intrinsic Code™ technology

Actionable insights to behavior modification

 

Operating Segments

 

The Company’s current operations include the following business segments for financial statement presentation: Remote Patient Monitoring (RPM), Behavioral Health Services (BHS), and Corporate.

 

Remote Patient Monitoring  

 

The RPM segment generates revenues through fees charged for the license and utilization of its proprietary system that provides software integrations of the Fotodigm® platform.  Additionally, the RPM segment generates incremental revenues through the delivery of acute, post-acute and chronic health patient management software systems that enable Parallax customers to bill for and collect payments from patients and third-party payers for telemonitoring and remote services that they deliver.

 

Behavioral Health Services 

 

The BHS segment commenced with the acquisition of the REBOOT™ and Intrinsic Code™ technologies. The BHS segment will generate revenues primarily through licensing and subscription of software and systems. As of September 30, 2019, the BHS segment had not yet begun full operations, generating limited test market sales.

 

Diagnostics/Corporate  

 

The Diagnostics/Corporate Segment supports the costs and operating expenses related to the continued development and exploitation of the Company’s proprietary Target System POS medical diagnostic and monitoring platform and processes.  In addition, the Diagnostics/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.  


24


Recent Developments

 

Effective December 24, 2018, pursuant to a majority shareholder consent, the Company increased its authorized common stock from 250,000,000 shares to 500,000,000 shares, with a par value of $0.001 per share. On January 28, 2019, the amended articles of incorporation were filed with the state of Nevada.

 

In April 2019, the Company entered into an employment agreement with Mr. David Appell to serve as the Company’s Chief Operating Officer. The agreement commenced May 15, 2019, is for an initial term of two (2) years, and provides a base compensation of $250,000 year one, and $275,000 in year two, as well as various performance bonuses, and customary employee benefits. In addition, the agreement includes a grant to purchase 3,000,000 restricted common shares, valued at $201,300, for cash in the amount of $3,000, of which 25% vest immediately, and the remainder vest when certain earnings goals are met; as well as options granted to purchase 3,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share.  The options, valued at $195,600 using the Black-Scholes method, are for a period of five (5) years, and vest annually over the term of the agreement, with an initial vesting of 25%. The assumptions used in valuing the options were: expected term 4.75 years, expected volatility 2.21, risk free interest rate 2.15%, and dividend yield 0%.

 

In May 2019, the Company established a second location at 28 West 36th Street, 8th Floor, New York, NY 10018.

 

In June 2019, the Company filed a Registration Statement on form S-1 for the registration of 33,361,321 shares of common stock.  The Company received comments and questions from the SEC in relation to the filing, and on November 13, 2019, the Company filed an amended S-1 and responses to the SEC inquiries.  If no further comments are received from the SEC, the Company anticipates receiving an effective date for its registration statement by December 2019.

 

In June 2019, pursuant to a resolution of the board of directors, the Company adopted the 2019 Stock Incentive Plan (the “2019 Plan”), wherein forty million (40,000,000) shares of the Company’s restricted Common Stock were reserved for issuance. The 2019 Plan was intended to assist the Company in securing and retaining key employees, directors and consultants by allowing them to participate in the Company's ownership and growth through the grant of incentive and non-qualified options. The 2019 Plan is currently administered by the Company's Board. Subject to the provisions of the plan, the board will determine who shall receive options, the number of shares of Common Stock that may be purchased under the options.  On June 17, 2019, the Company filed a Registration Statement on form S-1 for the registration of shares reserved under the 2019 Plan.

 

In August 2019, the Company amended the private placement equity offering (the “Offering”) previously established in March 2019.  The revised Offering is for the purchase of the 31.875,000 shares, or a maximum of $3,000,000, in Common Stock, plus equal Warrants at an exercise price of $0.25 per share for a term of three (3) years (the Common Stock and the Warrants together, the “Units”).  The Offering provides for, among other thing, the purchase of the Units at a price of $0.10 per share, with a minimum total Offering of $2,000,000, and a minimum investment of 200,000 shares, or $20,000.  Prior to the Offering, the Company sold $1,125,000 in Units through a Simple Agreement Future Equity (“SAFE”) offering, which included an aggregate of $375,000 in SAFE shares to be issued to three of the Company’s executive officers for the reduction of accrued officer compensation.  The SAFE Units were sold at a 20% discount of the offering Unit price of $0.10, and are not a part of, nor reduce, the $2,000,000 minimum. The initial closing will occur on a date set by the Company in its discretion.  The Company may sell Units in one or more closings.

 

NOTE: The financial information of Parallax Health Sciences, Inc., and its wholly-owned subsidiaries, Parallax Diagnostics, Inc., Parallax Health Management, Inc., and Parallax Behavioral Health, Inc., is provided below on a consolidated basis, unless otherwise indicated. All significant intercompany accounts and transactions have been eliminated.  

 

Balance Sheet

 

As of September 30, 2019, the Company had total assets of $2,373,305 compared with total assets of $1,364,357 at December 31, 2018. The increase in total assets of $1,008,948 is attributable to an increase in cash of $11,711, an increase in operating lease asset of $77,494, an increase in property and equipment of $2,628, an increase in investments in securities of $1,000,000, $220 of depreciation related to property and equipment, $90,465 of amortization related to intangible assets, and an increase in deposits of $7,800.

 

As of September 30, 2019, the Company had total liabilities of $7,208,718 compared with total liabilities of $7,314,811 at December 31, 2018. The decrease in total liabilities of $106,093 is attributable to a decrease in accounts payable and accrued expenses of $235,624, an increase in operating lease liability of $77,494, an increase in short-term derivative liability of $29,995, a decrease in short-term debentures of $724,903, a decrease in short-term related party convertible debentures of $411,006, an increase in notes payable of $360,000, an increase in short-term related party notes payable of $126,152, an increase in short-term convertible notes payable, net of unamortized discount, of $384,176, an increase in short-term related party convertible notes payable of $20,000, an increase in related party payables of $469,716, an increase in license fees payable of $20,000, an increase in royalties payable of $6,258, a decrease in long-term derivative liability of $34,000, a decrease in long-term debentures, net of unamortized discount, of $184,870, an increase in long-term related party notes payable of $633,294, and a decrease in long-term convertible notes payable of $144,000, a decrease in long-term related party convertible notes payable of $491,100, and a decrease in notes payable to bank of $7,675.


25


Results of Operations

 

The three and nine months ended September 30, 2019, compared to the three and nine months ended September 30, 2018.

 

 

For the three months ended

 

For the nine months ended

 

 

September 30, 2019

 

September 30, 2018

 

September 30, 2019

 

September 30, 2018

 

Revenue

$

25,855

 

$

990

 

$

77,745

 

$

10,749

 

Cost of sales

$

3,899

 

$

5,230

 

$

12,871

 

$

15,507

 

Gross profit (loss)

$

21,956

 

$

(4,240

)

$

64,874

 

$

(4,758

)

General and administrative expenses

$

1,937,991

 

$

2,116,821

 

$

5,203,088

 

$

5,252,498

 

Operating loss

$

(1,916,035

)

$

(2,121,061

)

$

(5,138,214

)

$

(5,257,256

)

Gain on disposal of subsidiary

$

––

 

$

5,079,416

 

$

––

 

$

5,079,416

 

Gain (loss) on fair value adjustments

$

1,253

 

$

(93,700

)

$

105,141

 

$

(156,300

)

Gain (loss) on extinguishment of debt

$

(347,612

)

$

22,931,148

 

$

(915,615

)

$

22,931,148

 

Loss on settlement

$

––

 

$

––

 

$

(33,272

)

$

––

 

Discount amortization

$

(48,000

)

$

(155,000

)

$

(19,000

)

$

(2,775,000

)

Interest expense

$

(149,914

)

$

(660,518

)

$

(457,319

)

$

(1,741,726

)

Net income (loss) – continuing operations

$

(2,460,308

)

$

24,980,285

 

$

(6,458,279

)

$

18,080,282

 

Net income (loss) – discontinued operations

$

––

 

$

93,773

 

$

––

 

$

(824,398

)

Net income (loss)

$

(2,460,308

)

$

25,074,058

 

$

(6,458,279

)

$

17,255,884

 

 

Revenue

 

Revenue in the amount of $25,855 for the three months ended September 30, 2019, consists of fees of $25,000 for sub-licensing related to behavioral health software;  and subscription fees related to its behavioral health services in the amount of $855.

 

Revenue in the amount of $990 for the three months ended September 30, 2018, consists of contract fees related to the Company’s remote health care systems in the amount of $990.

 

Revenue in the amount of $77,745 for the nine months ended September 30, 2019, consists of fees of $75,000 for sub-licensing related to behavioral health software, contract fees related to the Company’s remote health care systems in the amount of $1,890, and subscription fees related to its behavioral health services in the amount of $855.

 

Revenue in the amount of $10,749 for the nine months ended September 30, 2018, consists contract fees and equipment sales related to the Company’s remote health care systems in the amount of $8,859, and subscription fees related to its behavioral health services in the amount of $1,890.

 

The Company has not yet fully launched the medical diagnostics and testing activities of the Company’s Connected Health division.

 

Cost of sales

 

Costs of sales in the amount of $3,899 for the three months ended September 30, 2019, consists of equipment and other costs related to the Company’s remote health care systems.

 

Costs of sales in the amount of $5,230 for three months ended September 30, 2018, consists of equipment and other costs related to the Company’s remote health care systems.

 

Costs of sales in the amount of $12,871 for the nine months ended September 30, 2019, consists of equipment and other costs related to the Company’s remote health care systems.

 

Costs of sales in the amount of $15,507 for nine months ended September 30, 2018, consists of equipment and other costs related to the Company’s remote health care systems.

 

The Company has not yet fully launched the medical diagnostics and testing activities of the Company’s Connected Health division.


26


 

General and Administrative Expenses

 

For the three months ended

 

For the nine months ended

 

Variances

 

 

September 30, 2019

 

September 30, 2018

 

September 30, 2019

 

September 30, 2018

 

3-month

 

6-month

 

Legal, accounting, and management services

$

485,365

 

$

785,766

 

$

1,560,770

 

$

1,543,900

 

$

(300,401

)

$

16,870

 

Stock compensation/stock option amortization

 

1,151,504

 

 

1,083,669

 

 

2,572,741

 

 

3,152,943

 

 

67,835

 

 

(580,202

)

Salaries, fees, taxes and benefits

 

113,603

 

 

137,056

 

 

406,535

 

 

224,581

 

 

(23,453

)

 

181,954

 

Depreciation and amortization

 

30,287

 

 

29,821

 

 

90,685

 

 

90,465

 

 

466

 

 

220

 

Rent expense-office

 

43,780

 

 

16,800

 

 

95,740

 

 

53,557

 

 

26,980

 

 

42,183

 

Travel, meals and entertainment

 

1,243

 

 

15,237

 

 

37,433

 

 

42,243

 

 

(13,994

)

 

(4,810

)

Office supplies and miscellaneous expenses

 

112,209

 

 

48,472

 

 

439,184

 

 

144,809

 

 

63,737

 

 

294,375

 

Total general and administrative expenses

$

1,937,991

 

$

2,116,821

 

$

5,203,088

 

$

5,252,498

 

$

(178,830

)

$

(49,410

)

 

General and administrative expenses in the amount of $1,937,991 for the three months ended September 30, 2019, were comprised of $485,365 in legal, accounting and management fees, $1,151,504 in stock compensation/stock option amortization, $113,603 in salaries, fees and related taxes and benefits, $30,287 in depreciation and amortization, $43,780 in rent expense, $1,243 in travel, meals and entertainment, and $112,209 in office overhead and other general and administrative expenses.

 

General and administrative expenses in the amount of $2,116,821 for the three months ended September 30, 2018, were comprised of $785,766 in legal, accounting and management fees, $1,083,669 in stock compensation/stock option amortization, $137,056 in salaries, fees and related taxes and benefits, $29,821 in depreciation and amortization, $16,800 in rent expense, $15,237 in travel, meals and entertainment, and $48,472 in office overhead and other general and administrative expenses.

 

General and administrative expenses of $1,937,991 for the three months ended September 30, 2019 as compared to $2,116,821 for the three months ended September 30, 2018, resulted in a decrease in general and administrative expenses of $178,830. The decrease in in general and administrative expenses of $178,830 was attributable to the following items:

 

a decrease in legal, accounting and management fees of $300,401, due to a decrease in legal fees of $327,392; an increase in accounting and audit fees of $29,750; and an increase in management fees of $17,633 primarily resulting from the addition of Chief Operating Officer, as well as director compensation effective January 2019; and a decrease in professional fees of $20,392; and 

an increase in stock compensation/stock option amortization of $67,835 primarily due to a decrease in amortization expense of $75,506 resulting from stock options granted in prior years; amortization expense of $168,327 resulting from stock options granted in the current period; a decrease in deferred stock compensation amortization of $122,280 resulting from stock awards granted in prior years; and a decrease in stock compensation amortization of $14,625 resulting from stock awards granted in the current period; and a decrease in stock compensation expense of $214,823 resulting from stock awards granted in prior years; stock compensation expense of $265,200 for stock awards granted in the current period, and an increase in warrant expense of $43,542; and 

a decrease in salaries and fees, and related taxes and benefits of $23,453, primarily due to a decrease in accrued staff salaries of $65,729, an increase in accrued payroll taxes of $2,776; a decrease in accrued benefits of $18,000; and an increase in miscellaneous fees for outside services in the amount of $57,500 resulting from additional contracted services; and 

an increase in depreciation and amortization of $466, primarily due to additional assets acquired; and 

an increase in rent expense of $26,980 primarily due to additional office space leased in the current period; and 

a decrease in travel, meals and entertainment of $13,994, primarily due to a decrease in travel costs of $8,802; and a decrease in meals and entertainment of $5,192; and 

an increase in office supplies and miscellaneous expenses of $63,737, due to increases in automobile expenses and allowances of $3,374, transfer agent fees of $6,498, insurance expense and allowances of $28,666, marketing and publicity of $29,747, and telephone of $2,680; and decreases in computer and internet expenses of $3,002, and other general office expenses of $4,226. 


27


 

 

General and administrative expenses in the amount of $5,203,088 for the nine months ended September 30, 2019, were comprised of $1,560,770 in legal, accounting and management fees, $2,572,741 in stock compensation/stock option amortization, $406,535 in salaries, fees and related taxes and benefits, $90,685 in depreciation and amortization, $95,740 in rent expense, $37,433 in travel, meals and entertainment, and $439,184 in office overhead and other general and administrative expenses.

 

General and administrative expenses in the amount of $5,252,498 for the nine months ended September 30, 2018, were comprised of $1,543,900 in legal, accounting and management fees, $3,152,943 in stock compensation/stock option amortization, $224,581 in salaries, fees and related taxes and benefits, $90,465 in depreciation and amortization, $53,557 in rent expense, $42,243 in travel, meals and entertainment, and $144,809 in office overhead and other general and administrative expenses.

 

General and administrative expenses of $5,203,088 for the nine months ended September 30, 2019 as compared to $5,252,498 for the nine months ended September 30, 2018, resulted in a decrease in general and administrative expenses for the current period of $49,410. The increase in in general and administrative expenses of $49,410 was attributable to the following items:

 

an increase in legal, accounting and management fees of $16,870, due to a decrease in legal fees of $267,306; an increase in accounting and audit fees of $24,643; and an increase in management fees of $105,735 primarily resulting from the addition of Chief Operating Officer, as well as director compensation effective January 2019; and an increase in professional fees of $153,798 primarily related to investor relations and private placement due diligence; and 

a decrease in stock compensation/stock option amortization of $580,202 primarily due to a decrease in amortization expense of $296,156 resulting from stock options granted in prior years; amortization expense of $339,415 resulting from stock options granted in the current period; a decrease in deferred stock compensation amortization of $395,083 resulting from stock awards granted in prior years; and stock compensation amortization of $85,963 resulting from stock awards granted in the current period; and a decrease in stock compensation expense of $1,571,075 resulting from stock awards granted in prior years; stock compensation expense of $1,161,677 for stock awards granted in the current period; and an increase in warrant expense of $95,057; and 

an increase in salaries and fees, and related taxes and benefits of $181,954, primarily due to a decrease in accrued staff salaries of $57,654, an increase in accrued payroll taxes of $65,428; a decrease in accrued benefits of $39,070 resulting from changes in benefits; and an increase in miscellaneous fees for outside services in the amount of $213,250 resulting from additional contracted services; and 

an increase in depreciation and amortization of $220, primarily due to additional assets acquired; and 

an increase in rent expense of $42,183 primarily due to additional office space leased in the current period; and 

a decrease in travel, meals and entertainment of $4,810, primarily due to an increase in travel costs of $5,632; and an increase meals and entertainment of $822; and 

an increase in office supplies and miscellaneous expenses of $294,375, due to an increase in automobile expenses and allowances of $62,630, computer and internet expenses of $3,651, transfer agent costs of $12,724, insurance expense of $50,679, marketing and publicity of $165,269, office expense of $4,685, repairs and maintenance of $7,769, royalties of $7,258, taxes, licenses and permits of $5,976, and telephone expense of $6,725; and decreases in product development and patent costs of $4,859, storage and moving of $23,585, and other general office expenses of $4,547.  

 

Net Loss

 

During the nine months ended September 30, 2019, the Company generated a net loss from continuing operations of $6,458,279, compared with net income from continuing operations of $18,080,282 for the nine months ended September 30, 2018. The decrease in net income from continuing operations of $24,538,561 is primarily attributable to an increase in revenue of $66,996, a decrease in cost of goods sold of $2,636, a decrease in general and administrative expenses of $49,410, a decrease in the gain from disposal of subsidiary of $5,079,416, an increase in the gain on fair value adjustments of $261,441, a decrease in the gain from extinguished debt of $23,846,763, an increase in the loss on settlement of $33,272, a decrease in discount amortization of $2,756,000, and an increase in interest expense of $1,284,407.

 

Liquidity and Capital Resources

 

Working Capital

 

 

 

 

Increase

 

 

At September 30, 2019

 

At December 31, 2018

 

(Decrease)

 

Current Assets

$

89,467

 

$

262

 

$

89,205

 

Current Liabilities

 

5,211,692

 

 

5,115,692

 

 

96,000

 

Working Capital (Deficit)

$

(5,122,225

)

$

(5,115,430

)

$

(6,795

)

 

As of September 30, 2019, the Company had cash in the amount of $11,973 compared to $262 as of December 31, 2018.

 

The Company had a working capital deficit of $5,122,225 as of September 30, 2019, compared to a working capital deficit of $5,115,430 as of December 31, 2018. The increase in working capital deficit of $6,795 is primarily attributable to an increase in cash of $11,711, an increase in operating lease asset of $77,494, a decrease in accounts payable and accrued expenses of $235,624, an increase in operating lease liability of $77,494, an increase in short-term derivative liability of $29,995, a decrease in convertible debentures of $724,903, a decrease in related party convertible debentures of $411,006, an increase in notes payable of $360,000, an increase in related party notes payable of $126,152, an increase in convertible notes payable, net of unamortized discount, of $384,176, an increase in related party convertible notes payable of $20,000, and an increase in related party payables of $469,716.


28


 

Cash Flows

For the nine months ended

 

Increase

 

 

September 30, 2019

 

September 30, 2018

 

(Decrease)

 

Net cash used by operating activities

$

(1,814,529

)

$

(1,070,725

)

$

(743,084

)

Net cash used by investing activities

 

(2,628

)

 

––

 

 

(2,628

)

Net cash provided by financing activities

 

1,828,868

 

 

1,110,799

 

 

718,069

 

Net cash provided by continuing operations

 

11,711

 

 

40,074

 

 

(28,363

)

Net cash used by discontinued operations

 

––

 

 

(39,942

)

 

39,942

 

Increase (decrease) in cash

$

11,711

 

$

132

 

$

11,579

 

 

Cash Flows from Operating Activities

 

During the nine months ended September 30, 2019, the Company used $1,814.529 of cash for operating activities compared with $1,070,725 for the nine months ended September 30, 2018. The increase in cash used by operating activities of $743,084 is primarily attributable to a decrease in net income of $24,538,561; increases in depreciation and amortization of $220, losses on fair value adjustments of $261,441, a loss on settlement of $33,272, deposits of $7,800, royalties payable of $7,258, and related party payables of $394,027; and decreases in stock compensation/stock option amortization of $580,202, discount amortization of $2,756,000, allowance for bad debt of $236, gain on disposal of subsidiary of $5,079,416, gain on extinguishment of debt of $23,846,763, debt accretion of $654,543, accounts receivable of $3,039, and accounts payable and accrued expenses of $1,302,938.

 

Cash Flows from Investing Activities

 

During the nine months ended September 30, 2019, the Company used $2,628 of cash flow from investing activities compared to $0 for the nine months ended September 30, 2018.  The increase in cash used by investing activities is attributable to the purchase of computer equipment in the current period.

 

Cash Flows from Financing Activities

 

During the nine months ended September 30, 2019, the Company was provided with $1,828,868 of cash flow from financing activities, compared with $1,110,799 for the nine months ended September 30, 2018.  The increase in cash flows provided by financing activities of $718,069 is attributable to an increase in proceeds from notes payable of $220,000, an increase in repayments of notes payable of $17,224, a decrease in proceeds from convertible notes payable of $268,220, an increase in repayments of convertible notes payable of $15,000, an increase in repayments of debentures of $754,369, a decrease in proceeds from the issuance of preferred shares of $231,000, and an increase in proceeds from the issuance of common stock of $1,783,882.

 

The Company’s principal sources of funds have been from the Company’s sales of its preferred and common stock, loans from related parties and third-party lenders, and net revenues generated from the sale and licensing of its remote healthcare products and services.

 

During the nine months ended September 30, 2019, the Company received $1,825,132 and $69,000 in funds from the issuance common shares and preferred shares, respectively, compared to $41,250 and $300,000 during the nine months ended September 30, 2018.

 

As of September 30, 2019, related parties are due a total of $2,253,882 consisting of $1,000,643 in accrued compensation owed to officers and directors; $473,793 in accrued benefits and cash advances from officers and beneficial owners to the Company for operating expenses; $759,446 in promissory notes; and $20,000 in convertible promissory notes.

 

During the nine months ended September 30, 2019, $1,003,783 in related party compensation was accrued, and $573,000 was paid, and $300,000 was used for the subscription of $3,600,000 shares of the Company’s restricted common stock.  In June 2019, $575,132 of related party debt was purchased by non-related-parties (the “Proceeds”).  The Proceeds were collected on behalf of the related parties by the Company.  Of the $396,500 paid to related parties during the current period, $159,500 was Proceeds.  The remaining Proceeds of $415,632 were subsequently loaned to the Company by the related parties for operating expenses.

 

During the nine months ended September 30, 2019, $498,870 in benefits were accrued and cash advances were made to the Company by related parties for overhead requirements, of which $159,938 was paid/repaid to related parties.

 

During the nine months ended September 30, 2019, interest on related party debt in the amount of $80,003 was expensed. As of September 30, 2019, a total of $12,643 in accrued interest remains.


29


 

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 $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.

 

In August 2019, the Company amended the private placement equity offering (the “Offering”) previously established in March 2019.  The revised Offering is for the purchase of the 31,875,000 shares, or a maximum of $3,000,000, in Common Stock, plus equal Warrants at an exercise price of $0.25 per share for a term of three (3) years (the Common Stock and the Warrants together, the “Units”).  The Offering provides for, among other thing, the purchase of the Units at a price of $0.10 per share, with a minimum total Offering of $2,000,000, and a minimum investment of 200,000 shares, or $20,000.  Prior to the Offering, the Company sold $1,125,000 in Units through a Simple Agreement Future Equity (“SAFE”) offering, which included an aggregate of $375,000 in SAFE shares to be issued to three of the Company’s executive officers for the reduction of accrued officer compensation.  The SAFE Units were sold at a 20% discount of the offering Unit price of $0.10, and are not a part of, nor reduce, the $2,000,000 minimum. The initial closing will occur on a date set by the Company in its discretion.  The Company may sell Units in one or more closings.

 

The Company anticipates continuing to rely on equity sales of its common stock and preferred 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 $25,649,201, 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 unaudited interim consolidated financial statements included with this quarterly 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 unaudited interim consolidated 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 unaudited interim consolidated 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 provided within the notes to the Company’s financial statements are sufficient to an understanding of its consolidated financial statements.


30


 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4. CONTROLS AND PROCEDURES

 

Management’s Report on Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s president, chief executive officer and chief financial officer to allow for timely decisions regarding required disclosure. In designing and evaluating the Company’s disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

As of September 30, 2019, the end of the 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 , to provide reasonable assurance that the information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods specified, 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, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

During the nine months ended September 30, 2019, the Company instituted changes in its internal control over financial reporting.  The changes were made as a result of a material weakness identified at December 31, 2018, relating to the lack of controls over the period-end financial reporting process, and the lack of accounting and financial reporting personnel able to implement formal accounting policies with an appropriate level of accounting knowledge to identify and value complex debt and equity instruments.  As a result of the weakness, a misstatement was made of the Company’s financial statements for the years ended December 31, 2018 and 2017.   

In response to the material weaknesses described above, during the nine months ended September 30, 2019, the Company implemented and evaluated new internal controls over financial reporting. The new controls include, among other things, engaging qualified third-party service providers to assist with the financial reporting issues related to accounting for derivatives, and establishing internal processes to ensure the appropriate identification and analysis of derivative instruments.  In addition, training was conducted related to analysis of debt and equity instruments, effective internal controls, and key accounting policies for derivative instruments.  

As of September 30, 2019, the end of the period covered by this quarterly report, management believes that the improved processes remediate the material weaknesses, and has concluded that they are sufficient and operating effectively. Management has and will continue to enhance the risk assessment process, and the design and implementation of internal controls over financial reporting.

There have been no other changes in the Company’s internal controls over financial reporting that occurred during the nine-month period ended September 30, 2019, that have materially or are reasonably likely to materially affect, the Company’s internal controls over financial reporting , except those disclosed above .

 

Audit Committee

 

The Company established an audit committee of the board of directors comprised of John L. Ogden (Chair) 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.

 

Compensation Committee

 

The  Company established a compensation committee of the Board comprised of John L. Ogden and E. William “Bill” Withrow Jr (Chair).  The compensation committee oversees and determines the compensation of Parallax’s Chief Executive Officer and other executive officers, including salaries, bonuses, grants of stock options and other forms of equity-based compensation, approves all employment and severance agreements for executive officers, approves significant changes to benefit plans and performs such other functions as the Board may direct.  The compensation committee also approves all other agreements containing compensation and services rendered, such as consulting and other compensatory agreements, and administers the Company’s stock incentive plans and make recommendations to the Board concerning any director compensation plan.


31


 

 

PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course of business.  The Company knows of no material, existing or pending legal proceedings against it, nor is the Company involved as a plaintiff in any material proceeding or pending litigation, beyond those defined in the Company’s Annual Report on Form 10-K filed April 1, 2019, with the exception of those updates disclosed below: 

 

Dispute with Former Owner of RoxSan

 

Action No. SC125702:

In the Matter, action No. SC125702, in the Superior Court of the State of California, County of Los Angeles, West District, the former owner of RoxSan Pharmacy, Inc., Shahla Melamed (“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, previously set for December 2018, is currently set for January 2020.

 

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, previously set for December 2018, is currently set for January 2020.

 

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.  On October 23, 2017, the Company 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 October 8, 2018, a settlement was reached between Mr. Engert and the Company (the “Settlement”). The Settlement includes, among other things, a cash payment to Mr. Engert in the amount of $139,000, and the cancellation of all of Mr. Engert’s equity holdings in the Company.  The Settlement resulted in a net loss to the Company of $33,272. On April 10, 2019, a stipulation for dismissal was filed, and the matter has been fully resolved.

 

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

 

On January 24, 2019, in connection with a certain senior secured promissory note, the Company issued 150,000 shares of its restricted common stock to the note holders as a form of interest.  The shares were valued at $15,000.

 

On January 30, 2019, in connection with a certain convertible debenture, the holder elected to convert $175,000 into 1,750,000 shares of its restricted common stock at a conversion rate of $0.10 per share.

 

On January 31, 2019, in connection with a certain consulting agreement, the Company issued 1,666,667 shares of its restricted common stock to the consultant for services valued at $200,000.

 

On January 31, 2019, in connection with a Simple Agreement Future Equity (“SAFE”) offering, the Company issued 500,000 shares of its restricted common stock at $0.10 per share for $50,000 cash.  

 

On February 6, 2019, in connection with certain convertible debt in the amount of $20,000 and accrued interest in the amount of $2,000, the Company issued 220,000 shares of its restricted common stock at a conversion rate of $0.10 per share.  


32


On February 12, 2019, in connection with a certain senior secured promissory note, the Company issued 40,000 shares of its restricted common stock to the note holders as a form of interest.  The shares were valued at $4,000.

 

On February 25, 2019, in connection with a SAFE offering, the Company issued 3,750,000 shares of its restricted common stock at $0.10 per share for $375,000 cash.  

 

On February 25, 2019, in connection with a certain consulting agreement, the Company issued 25,000 shares of its restricted common stock to the consultant for services valued at $2,500.

 

On February 27, 2019, in connection with a certain consulting agreement, the Company issued 1,000,000 shares of its restricted common stock to the consultant for services valued at $120,000.

 

In March 2019, in connection with a certain convertible debenture, the holder elected to convert $95,000 into 1,719,328 shares of the Company’s restricted common stock.  

 

On March 25, 2019, in connection with a certain consulting agreement, the Company issued 25,000 shares of its restricted common stock to the consultant for services valued at $2,500.

 

On March 25, 2019, in connection with a SAFE offering, the Company issued 750,000 shares of its restricted common stock at $0.10 per share for $75,000 cash.  

 

In April 2019, in connection with a certain convertible debenture, the holder elected to convert $105,000 into 2,340,410 shares of the Company’s restricted common stock.  

 

On April 5, 2019, in connection with a certain services agreement, the Company issued 600,000 shares of its restricted common stock for services valued at $44,160.

 

On April 15, 2019, the Company issued 400,000 shares of its restricted common stock for services valued at $50,000.

 

On April 25, 2019, in connection with a certain consulting agreement, the Company issued 25,000 shares of its restricted common stock to the consultant for services valued at $2,500.

 

On April 25, 2019, in connection with a SAFE offering, the Company issued 2,000,000 shares of its restricted common stock at $0.10 per share for $200,000 cash.  

 

On April 26, 2019, in connection with a certain stock purchase agreement, the Company issued 400,000 shares of its restricted common stock, valued at $28,000, for cash in the amount of $400.  

 

On April 29, 2019, in connection with a certain private placement agent agreement, the Company issued 1,000,000 shares of its restricted common stock to the consultant for services valued at $71,000.

 

On May 2, 2019, in connection with a SAFE offering, the Company issued 500,000 shares of its restricted common stock at $0.10 per share for $50,000 cash.  

 

On May 6, 2019, in connection with an equity funding, the Company issued 12,000,000 shares of its restricted common stock for cash in the amount of $1,000,000, of which $500,000 is receivable.

 

On May 8, 2019, in connection with a certain convertible promissory note in the principal sum of $20,000, the Company issued 289,017 shares of its restricted common stock.

 

On May 12, 2019, in connection with a certain senior secured promissory note, the Company issued 40,000 shares of its restricted common stock to the note holders as a form of interest.  The shares were valued at $4,000.

 

On May 15 2019, in connection with the conversion of 57,500 Series A preferred stock valued at $69,000, the Company issued 1,150,000 shares of its restricted common stock at a conversion ratio of 20 shares of common stock for each share of Series A preferred stock held.

 

On May 15, 2019, in connection with the executive employment agreement, the Company issued David Appell, the Chief Operating Officer, 3,000,000 shares of the Company’s restricted common stock for cash in the amount of $3,000.  The shares were valued at $201,300, of which 25% vest immediately, and the remaining vest when the Company achieves certain earnings goals.

 

On May 15, 2019, in connection with an employment agreement, the Company issued 125,000 shares of the Company’s restricted common stock, valued at $8,388, for cash in the amount of $125.

 

On May 25, 2019, in connection with a certain consulting agreement, the Company issued 37,500 shares of its restricted common stock to the consultant for services valued at $3,750.


33


In May 2019, in connection with a certain convertible debenture, the holder elected to convert $15,000 into 378,310 shares of the Company’s restricted common stock.  

 

On June 11, 2019, in connection with a settlement for the retirement of 3,666,670 warrants (4,401,760 warrants, as adjusted under anti-dilution provisions) , the Company issued 1,000,000 shares of the Company’s restricted common stock, valued at $71,000.

 

On June 20, 2019, in connection with the cashless exercise of certain warrants, the Company issued 600,000 shares of the Company’s restricted common stock, valued at $63,600.

 

On June 20, 2019, in connection with a certain consulting agreement, the Company issued 2,000,000 shares of its restricted common stock to the consultant for services valued at $212,000.

 

On June 25, 2019, in connection with a certain consulting agreement, the Company issued 37,500 shares of its restricted common stock to the consultant for services valued at $3,750.

 

In June 2019, in connection with certain convertible debentures, the holders elected to convert $80,142 into 2,605,660 shares of the Company’s restricted common stock.  

 

In June 2019, in connection with certain convertible debt in the amount of $256,232, the Company issued 3,902,200 shares of its restricted common stock.

 

In July 2019, in connection with certain convertible debt in the amount of $354,000, the Company issued 5,900,000 shares of its restricted common stock.

 

In July 2019, in connection with certain promissory notes in the amount of $220,000, the Company issued 1,200,000 shares of its restricted common stock, valued at $190,200.

 

In July 2019, in connection with the settlement of certain related party convertible debentures, the Company issued 1,380,811 shares of its restricted common stock, valued at $131,315.

 

In July 2019, in connection with a certain consulting agreement, the Company issued 37,500 shares of its restricted common stock to the consultant for services valued at $3,750.

 

In August 2019, in connection with an investment in Global Career Network, Inc., the Company issued 6,666,667 shares of its restricted common stock for $0.15 per share, valued at $1,000,000.

 

In August 2019, in connection with the SAFE offering, the Company issued 6,375,000 shares of its restricted common stock, including 1,875,000 shares issued to accredited investors, valued at $156,250, and 4,500,000 shares issued to four officers/directors in exchange for the reduction of accrued compensation in the amount of $375,000.

 

In September 2019, in connection with the conversion of certain convertible debt in the amount of $855,503, the Company issued 8,555,029 shares of its restricted common stock, including 5,897,419 shares issued to Huntington Chase, LLC, a beneficial owner, for convertible debt in the amount of $589,742.

 

Exemption From Registration. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. Unless otherwise stated, the sales of the above securities re deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (and Regulation D or Regulation S promulgated thereunder) or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to, or for sale in connection with, any distribution thereof, and appropriate legends were placed on the share certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY STANDARDS

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.


34


ITEM 6. EXHIBITS

 

Exhibits required by Item 601 of Regulation S-B

 

Exhibit

Number

Description of Exhibit

Filing Reference

(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.

3.1(b)

Amended and Restated Articles of Incorporation

Filed with the SEC on April 1, 2019, 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 15, 2014 as part of the Company’s Annual Report on Form 10-K.

3.5

Certificate of Designation effective June 17, 2011-Series A Preferred Stock

Filed with the SEC on March 19, 2019 as part of the Company's Current Report on Form 8-K

3.6

Certificate of Designation effective December 2, 2016-Series B Preferred Stock

Filed with the SEC on March 19, 2019 as part of the Company's Current Report on Form 8-K

3.7

Certificate of Designation effective August 10, 2018-Series C Preferred Stock

Filed with the SEC on March 19, 2019 as part of the Company's Current Report on Form 8-K

(4)

Instruments Defining the Rights of Security Holders, Including Indentures

4.10

12% Convertible Promissory Note dated April 2, 2019

Filed with the SEC on April 9, 2019 as part of the Company’s Current Report on Form 8-K

4.11

Securities Purchase Agreement dated April 2, 2019

Filed with the SEC on April 9, 2019 as part of the Company’s Current Report on Form 8-K

4.12

12% Convertible Promissory Note dated April 8, 2019

Filed with the SEC on April 19, 2019 as part of the Company's Current Report on Form 8-K

4.13

Warrant dated April 8, 2019

Filed with the SEC on April 19, 2019 as part of the Company's Current Report on Form 8-K

4.14

Securities Purchase Agreement dated May 6, 2019

Filed with the SEC on May 7, 2019 as part of the Company's Current Report on Form 8-K

4.15

Registration Rights Agreement dated May 6, 2019

Filed with the SEC on May 7, 2019 as part of the Company's Current Report on Form 8-K

4.16

Warrant dated May 6, 2019

Filed with the SEC on May 7, 2019 as part of the Company's Current Report on Form 8-K

4.17

Debt Settlement and Warrant Retirement dated June 4, 2019

Filed with the SEC on June 11, 2019 as part of the Company's Current Report on Form 8-K

4.18

Senior Secured Note dated July 3, 2019

Filed with the SEC on July 12, 2019 as part of the Company's Current Report on Form 8-K

4.19

Note and Purchase Agreement dated July 3, 2019

Filed with the SEC on July 12, 2019 as part of the Company's Current Report on Form 8-K

4.19

12% Fixed Convertible Promissory Note dated October 23, 2019

Filed with the SEC on October 16, 2019 as part of the Company's Current Report on Form 8-K

4.20

10% Convertible Promissory Note dated October 30, 2019

Filed with the SEC on October 16, 2019 as part of the Company's Current Report on Form 8-K

(10)

Material Contracts

 

10.1

Employment Agreement between Parallax Health Sciences, Inc. and David Appell dated April 19, 2019

Filed with the SEC on October 23, 2019, as part of the Company’s Quarterly Report on Form 10-Q.

10.2

Purchase Agreement between Parallax Health Sciences, Inc. and Global Center Networks dated August 28, 2019

Filed with the SEC on October 16, 2019 as part of the Company's Current Report on Form 8-K

(22)

List of Subsidiaries

 

 

Parallax Health Management, Inc.

 

 

Parallax Behavioral Health, Inc.

 

 

Parallax Diagnostics, Inc.

 

 

Parallax Communications, Inc.

 

(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)

Additional Exhibits

 

99.1

Parallax Health Sciences, Inc. Investor Presentation dated March 29, 2019

Filed with the SEC on April 1, 2019 as part of the Company's Current Report on Form 8-K

99.2

Press release dated September 19, 2019 – Global Career Networks, Inc.

Filed with the SEC on October 16, 2019 as part of the Company's Current Report on Form 8-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. 


35


 

 

 

 

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: December 12, 2019

/s/ Paul R. Arena

 

 

 

Paul R. Arena

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dated: December 12, 2019

/s/ Calli R. Bucci

 

 

 

Calli R. Bucci

 

 

 

Chief Financial Officer

 

 

 

 

 


36