UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 5

(Mark One)

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

For the fiscal year ended December 31, 2018

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

Commission file number 000-52534

 

PARALLAX HEALTH SCIENCES, INC.

(Exact name of registrant as specified in its charter)

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act.	Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.	Yes ☐ No ☒
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 registration statement was required to submit such files).	Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.	☐
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 definition 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 ☒

The aggregate market value of Common Stock held by non-affiliates of the Registrant as of June 30, 2019, was $12,850,866, based on a closing price of $0.14 for the Common Stock on June 30, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter. For purposes of this computation, all executive officers and directors have been deemed to be affiliates. Such determination should not be deemed to be an admission that such executive officers and directors are, in fact, affiliates of the Registrant.

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

classes of common stock as of the latest practicable date.

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

EXPLANATORY NOTE

This Amendment No. 5 (“Amendment No. 5”) to the Annual Report on Form 10-K of Parallax Health Sciences, Inc. (together with its subsidiaries, the “Company,” “we,” “our” or “us”) for the year ended December 31, 2018, filed with the SEC on April 1, 2019, (the “2018 Annual Report”), is being filed (1) in response to SEC Comment Letter dated December 11, 2019.

In addition to amending the 2018 Annual Report as described above, this Amendment No. 5 amends (1) Item 15 of Part IV, to include (i) new certifications for this Amendment No. 5 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. 5 does not affect any other portion of the 2018 Annual Report, nor does it reflect any event occurring after April 1, 2019, the filing date of the 2018 Annual Report, except as amended in the section entitled, “Management’s Report on Internal Control over Financial Reporting” under Item 9A: Controls and Procedures.

TABLE OF CONTENTS

ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	35
ITEM 2.	PROPERTIES	36
ITEM 3.	LEGAL PROCEEDINGS	36
ITEM 4.	MINE SAFETY STANDARDS	38
ITEM 5.	MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	39
ITEM 6.	SELECTED FINANCIAL DATA	42
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	42
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS	53
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	53
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	54
ITEM 9A.	CONTROLS AND PROCEDURES	54
ITEM 9B.	OTHER INFORMATION	55
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	56
ITEM 11.	EXECUTIVE COMPENSATION	59
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	63
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	64
ITEM 14.	PRINCIPAL ACCOUNTANTS FEES AND SERVICES	66
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	67

PART I

ITEM 1.BUSINESS 

Forward-Looking Statements

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

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

In this annual report, unless otherwise specified, all dollar amounts are expressed in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. All references to “Common Stock” refer to the common shares; and “Preferred Stock” refer to the preferred shares; of the Company’s capital stock.

As used in this annual report, the terms “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. The Company’s former wholly-owned subsidiary, RoxSan Pharmacy, Inc., was derecognized effective May 14, 2018. (See “RoxSan Pharmacy” and “Legal Proceedings” sections contained within this annual report.)

CORPORATE OVERVIEW

Parallax Health Sciences, Inc. is an outcome driven, integrated digital healthcare company delivering scalable connected products, services and actionable data on an 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 Company’s principal executive office is located at 1327 Ocean Avenue, Suite B, Santa Monica, California, 90401. The Company’s telephone number is (310) 899-4442.

The Company’s websites are at www.parallaxcare.com, www.parallaxhealthsciences.com, www.parallaxhealthmanagement.com, and www.parallaxdiagnostics.com.

Parallax is a fully reporting company with its stock traded on the OTCQB Markets under the symbol “PRLX” (OTCQB.PRLX).

CORPORATE HISTORY

Formation and Development

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

The Parallax business was founded on the Company’s Point-of-Care diagnostic business, Parallax Diagnostics, Inc., in 2010, when the Company acquired the right, title, and interest, through an exclusive license with Montecito BioSciences, Ltd. (“MBS”), to develop, manufacture and commercialize the Target System, an FDA-cleared ² desktop point-of-care immunoassay diagnostic testing system. Concurrently, through an Assignment Agreement with MBS, the Company acquired the right, title, and interest to twenty-five (25) FDA-cleared 2 tests in the area of infectious disease, medical conditions, drugs of abuse, cardiac and pregnancy, that are designed to be utilized with the Target System.

²FDA 510(k) clearances do not expire. For additional information on FDA clearance and 510(k) requirements, see “FDA Clearances and Approvals” section. 

- 1 -

On August 31, 2016, the Company entered into an agreement with Qolpom®, Inc., an Arizona corporation in the remote healthcare monitoring and telehealth business (“Qolpom®”) and its shareholders (the “Seller”) to purchase 100% of the issued and outstanding shares of Qolpom®’s common stock and its assets, inventory and intellectual property.  The agreement was fully executed and the transaction was completed on September 20, 2016. The consideration for the acquisition resulted in a fair market value of $290,000, and goodwill of $785,060.  In addition, the agreement included contingent royalties and revenue sharing for future revenues generated from the Qolpom® technology. The Qolpom® name was later changed to Parallax Health Management, Inc. (“PHM”).

On March 22, 2017, the Company formed a wholly-owned subsidiary, Parallax Behavioral Health, Inc. (“PBH”), a Delaware corporation, and on April 26, 2017, completed the asset acquisition of 100% of certain intellectual property (“Intellectual Property”) from ProEventa Inc., a Virginia Corporation (“ProEventa”), in accordance with the Intellectual Property Purchase Agreement between the Company, PBH and ProEventa (the “ProEventa Agreement”). ProEventa has an expertise in the development of behavioral health technologies, and is the wholly-owned subsidiary of Grafton Integrated Health Network, Inc., a non-profit Virginia corporation (“Grafton”). Pursuant to the ProEventa Agreement, the initial consideration for the Intellectual Property was paid to ProEventa in the form of a stock purchase agreement to purchase 2,500,000 shares of the Company’s Common Stock for $2,500, resulting in a net cost for the Intellectual Property of $622,500.  In addition, the Agreement included conditional contingent royalties and revenue sharing for future revenues generated from the Intellectual Property.

On September 20, 2018, the Company formed Parallax Communications, Inc, a Delaware corporation and wholly-owned subsidiary of Parallax Health Management, Inc.

Changes in Management

On April 6, 2017, the Company’s board of directors (the “Board”) elected Mr. J. Michael Redmond as Chairman, to serve until the next annual meeting of the shareholders, in accordance with the Company’s bylaws, and/or until his successor is duly appointed, or a resignation is duly tendered.

Effective July 6, 2017, the Board caused the departure of Mr. Redmond from his position as President and Chief Executive Officer of the Company and RoxSan Pharmacy, Inc.

Effective July 7, 2017, pursuant to a unanimous Board resolution, Mr. Paul R. Arena was appointed as the Company’s President and Chief Executive Officer, and the Board caused Mr. Arena's election to the Board and the Boards of the Company’s wholly-owned subsidiaries, Parallax Health Management, Inc. and Parallax Behavioral Health, Inc.

On July 26, 2017, Mr. Jorn Gorlach resigned as a member of the Board.  This resignation did not involve any disagreements with the Company.

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

RoxSan Pharmacy

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

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

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

On August 13, 2015, (the “Closing Date”), pursuant to a resolution of the Board, the Company entered into an Agreement to Purchase and Sell One Hundred Percent of the Issued and Outstanding Shares of RoxSan Pharmacy, Inc. (“RoxSan” or the “Pharmacy”), and its Assets and Inventory (the “Purchase Agreement”).  Pursuant to the Purchase Agreement between Parallax, RoxSan and its sole shareholder, Shahla Melamed (the “Seller” or “Melamed” or “Former Owner”), in exchange for 100% of RoxSan's common stock, and its assets and inventory, Parallax, among other things, issued the Seller a Secured Promissory Note (the “Note”) dated August 13, 2015, in the amount of $20.5 million (the “Acquisition”).  The Note bore interest at a rate of 6% per annum, and matured August 13, 2018 (“Maturity”).  the Company is seeking a reduction in the Purchase Price and related promissory note (See ITEM 3. LEGAL PROCEEDINGS section).  As a result of the Acquisition, effective August 13, 2015, RoxSan became a wholly-owned subsidiary of Parallax. No change in control occurred as a result of the Acquisition.

- 2 -

In connection with the Acquisition, the Company entered into an Employment Agreement (the “Employment Agreement”) with the Seller.  Under the Employment Agreement, Melamed agreed to provide exclusive consulting services to RoxSan in the areas of public relations and marketing for a term of four (4) years. On March 4, 2016, the Company terminated the Employment Agreement in accordance with paragraph 3.2 Termination for Cause.  The termination was the result of, among other things, Melamed's breaches in the Agreement, which were substantiated by an investigation conducted by an employment law firm retained by RoxSan.  Under the terms of the Agreement, no financial obligation resulted in the termination.

Since Parallax’s acquisition of RoxSan, the deleterious actions against the pharmacy by the Former Owner, including, among other things, interference with management and operations, and attempts to damage and/or divert customer and vendor relationships, had a significant adverse impact on the pharmacy. Furthermore, the discovery of the Former Owner’s alleged involvement in suspected insurance fraud caused RoxSan’s contract with its primary IVF drug rebate program to be terminated in August 2016. As a result, RoxSan was no longer eligible to receive incentive rebates for the majority of its IVF drug purchases, which were key to the profitability of the IVF drug sales; and for which without the rebates, RoxSan was unable to provide its customers with competitively priced IVF drugs.  This, among other things, caused a precipitous drop in RoxSan’s IVF revenues, and ultimate exit from the IVF market in mid-2017.  Soon thereafter, in July 2017, RoxSan’s contract with its primary drug supplier was terminated for similar reasons connected to the Former Owner and alleged criminal activities associated with the Melamed family name, despite Parallax’s new ownership and management. After careful consideration, the Company determined that RoxSan was unable to generate enough profits to sustain its pharmacy business, and in December 2017, the pharmacy ceased operations and closed the business location in Beverly Hills, CA; some residual operations were still ongoing during 2018 to wind down the business.  

On May 14, 2018, pursuant to unanimous resolutions of the boards of directors of RoxSan Pharmacy, Inc. and Parallax Health Sciences, Inc., RoxSan filed a Chapter 7 petition in the United States Bankruptcy Court for the Central District of California (the “Court”).  Mr. Timothy Yoo was appointed trustee (“Trustee”) on May 15, 2018.  In connection with this filing, RoxSan sought to discharge approximately $5 million of liabilities owed to various parties, and intercompany loans in excess of $1 million owed to Parallax.  The Chapter 7 bankruptcy proceeding by RoxSan Pharmacy, Inc. was fully discharged and the case was closed on March 13, 2019, in U.S. Bankruptcy Court, Central District of California.

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.  The Company has retained a tax resolution specialist and is in communications with the taxing agencies in order to resolve RoxSan’s liability.

As a result of the loss of financial control of RoxSan, the Company derecognized the subsidiary as of September 30, 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.

DESCRIPTION OF BUSINESS

Overview

The Company’s principal focus is on personalized patient care through remote healthcare services, behavioral health systems, and Point-of-Care diagnostic testing.  Parallax’s current family of companies[1] 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. 

[1]During 2017, Parallax’s operations included RoxSan Pharmacy, Inc.  However, the pharmacy ceased operations in December 2017, and the Company derecognized the subsidiary effective May 2018. (see Corporate History and Legal Proceedings).  

- 3 -

Parallax Care™

The Company envisions a world where healthcare is accessible, reliable and affordable, without compromising quality and economics of the healthcare industry.  Driven by a sincere desire to make people’s lives better and push back on the healthcare industry’s crippling economic outlook, the Parallax Care™ platform was created; the Company’s design is for “outcomes realized through intelligent health.”

The Parallax Care™ system facilitates cost-effective remote diagnosis, treatment and monitoring of patients with chronic diseases. Parallax’s integrated products and services provide Point-of-Care (“POC”) patient testing and monitoring, along with information communicated via cloud-based mobile smartphone applications that are agnostic as to operating systems and utilize sophisticated data analytics. Information is retrieved in real-time by physicians and other healthcare professionals and is integrated into electronic health records.  The Company’s digital products and services capitalize on the transformation of healthcare to provide improved compliance, diagnosis, monitoring and support to patients, along with cost savings and efficiencies to healthcare systems.

Parallax Care™ encompasses 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.

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

Each of the Company’s divisions target a separate vertical market that complement each other and the Company value proposition. In addition, the synergistic operational cross-over affords the Company the ability to use built-in economies of scale across multiple operating platforms.

The Company believes that the solutions lay in the empowerment of the patient, the payer and the provider; creating a model of healthcare that aligns all three interests and creates a singular goal of better health outcomes, at reduced cost.  The Parallax Care™ platform involves these areas of focus:

•Behavioral Modification 

The Company believes in working to empower the patient to modify their behavior through personal empowerment. The Company has developed and designed a revolutionary technology that will aid in the challenges of behavior modification, and improve adherence to medical regimens, which can lead to lower costs and better health.

REBOOT™, the Company’s patented cloud-based behavioral software technology, along with COMPASS™, the Company’s mobile application that incorporates REBOOT™ with unique mobile phone features, and WIZARD™, which supports scalability of the REBOOT™/COMPASS™ platform, was developed by behavioral specialists at Grafton Integrated Health Network, a multistate behavioral healthcare organization with over 60 years of clinical experience and data in behavioral health.

•Connected Health 

Continually increasing healthcare costs, difficulty accessing care, and a greater need for convenience, are driving consumers to demand more value out of their healthcare dollar and seek care that meets their needs and preferences. The market is responding to this growing demand, and non-traditional care models are rapidly expanding, such as:

•Traditional providers (e.g., office-based primary care physicians (PCPs) and specialists, hospitals) are partnering with non-traditional care providers to expand reach.  

•New parties, such as consumer product and technology companies, are entering this billion-dollar market. 

•Non-traditional care models have the opportunity to complement traditional care models to help improve access and affordability, and to deliver a more personalized healthcare experience. 

To meet these changing demands, the Company has developed Fotodigm®, the Company’s proprietary connected health platform that provides remote patient monitoring, telehealth, POC diagnostics and health education products and services on a single platform.  Currently in its beta stage, Fotodigm® has the capability for systems integration of an unlimited number of third-party services and solutions. The Company is continuing the Fotodigm® beta stage to test economic models and delivery modalities in preparation for large-scale deployment of the Fotodigm® platform.  The Fotodigm® platform is based on the following:

- 4 -

•Telehealth/Remote Patient Monitoring 

•Improves digital connectivity among consumers, providers, health plans, and life sciences companies.  

•Facilitates self-managed care, with the help of technology-enabled solutions. 

•Provides a secure environment that protects consumer privacy. 

•Delivers care outside the traditional clinical setting, potentially providing better access to care at a lower cost.  

•Assists chronic disease management and improves population health outcomes.  

•Empowers patients by providing a cost-effective tool that connects them with their doctors.  

•Empowers doctors with improved patient scheduling flexibility and timely communications.  

•Provides hospitals with a tool to address the problem and economic hardship caused by readmissions. 

•Provides a virtual management tool for chronic disease management. 

•Target System  

•Allows doctors to test patients in their office.  

•Requires only a one-time learning process to perform all tests.  

•Delivers test results in 12 minutes or less.  

•Provides patients with important information at the time of testing.  

•Costs less than outside lab-based tests, allowing for a reduction in payer costs and patient co-pays.  

•Allows doctors to earn additional revenue that they cannot participate in with outside labs and testing not performed in their offices. 

•Patients can test from their homes and transmit data to doctors. 

The Parallax Business Model

In the past 60 years, healthcare has transitioned from a direct relationship between doctor and patient, to one that has patients separated from their doctors by the introduction of a huge number of stakeholders, ranging from health insurers, employers, pharmacy benefit managers, imaging, diagnostic testing, lawyers, specialists and a plethora of others.  The patient and healthcare provider both want the same thing: information, quality of service, transparency, value for their hard-earned dollars, and more time in their day.

The Company has developed, acquired and licensed multiple proprietary and exclusive platforms that provide services and products, across the healthcare continuum.  These platforms are designed to allow for multiple points of reciprocal consideration, through innovative business models, that provide patients with increased quality of services and products, at reduced cost of time and money.  They also provide healthcare providers with increased access to their patients, the ability to deliver better and more efficient service and increase their income from the services they supply.  The Company believes the Parallax Care™ system will deliver solutions to problems of health and economics, while providing essential actionable data to pharmaceutical firms, payers and healthcare providers, through our:

•Patented behavioral machine learning technology; 

•Patented POC diagnostic testing technology; 

•Patent-pending interoperable connected health platform targeting two of healthcare’s biggest problems that, combined, address markets that represent over $1 trillion in costs ³:   

•Medical nonadherence  

•Chronic disease management; and 

•Smart Data delivered through enhanced patient/disease stratification, in combination with dynamic behavioral data, relating to adherence to pharmacologic and medical therapy regimens designed to: 

•help patient outcomes  

•reduce the cost of care associated with nonadherence 

•deliver actionable data. 

Cognitive AI

The Company is working with partners that have developed a cognitive artificial intelligence, (“Cognitive AI”) agent architecture with the interaction of emotion, motivation and cognition of situated agents, mainly based on the Psi theory of Dietrich Dörner. The Psi theory addresses emotion, perception, representation and bounded rationality, but being formulated within psychology, has had relatively little impact on the discussion of agents within computer science. Cognitive AI is a formulation of the original theory in a more abstract and formal way, at the same time enhancing it with additional concepts for memory, building of ontological categories and attention.

³ https://www.milkeninstitute.org/publications/view/910  

- 5 -

Big Data Opportunity

The Company’s real-time data generated from patient-users can be stripped to protect the specific patient-user identity and exchanged for historical data with Center for Disease Control, (“CDC”), National Institute of Health, (“NIH”), various universities and others to provide valuable empirical health related information to the Company’s patient-users using Cognitive AI provided by the Company’s partners and coordinated through various electronic health record organizations for which the Company is agnostic.  This empirical data when it becomes available on the Company’s outcomes optimization based platform will become a valuable tool for determining predictive and supportive diagnostics to its patient-users.

The Company’s endeavors to change the healthcare industry are strengthened by providing solutions to real problems facing healthcare stakeholders today. The Company’s products and services have been developed, and are continuing to be developed, to address these issues now. The Company’s models include revenue from, and are compatible with, both the traditional reimbursement through payers, and the new performance-based compensation and financial incentive for the adoption of healthy, preventative behavior.

The Cross-Over and Cross-Pollination Model

The Company’s business model is built on identifying opportunities represented by one market vertical that provides for a separate vertical to utilize one or more of the Company’s core operations. Although the multiple operations of Parallax Care™ are focused in separate vertical markets, the Company has designed its business model to allow for cross-pollination and reciprocal transfer of value at multiple points in their respective economic food chains.

As an example of how each of the Company’s divisions can support each otherutilizing the cross-over and cross-pollination model:

•The Optimized Outcomes division can provide a range of after-care products and servicesthrough the Connected Health division. 

•The Connected Health division can offer telehealth and remote patient monitoring, and POC testing and diagnostics services directly to the doctors and patients of the Optimized Outcomes division.  Further, remote patent monitoring customers can be offered POC testing and diagnostics, and vice versa. 

•The Smart Data division can offer the Company’s software and Intrinsic Code™ technology systems to the Optimized Outcomes and/or Connected Health clientele. 

The term cross-over and cross-pollination is best demonstrated by the manner in which Parallax customers are exposed to products and services they might benefit from other than what they are seeking, and these additional products and services could augment the core product or service they receive from Parallax.  The cross-over component comes from the customer, their unique situation and perspective (including socio-economic, demographic and stratified health profile), and their participation in innovation through their individual goals as it relates to their health regimen; the cross-pollination comes through the value represented by the exposure to Parallax’s product and technology offerings. By way of the cross-over and cross-pollination model, the customer is empowered and increases participation in their own health, which is one of Parallax’s core strategies.  

An example of the cross-over and cross-pollination model is further illustrated as follows:

A customer has identified Parallax Care as a solution for Remote Monitoring of their health or medical condition (i.e. a chronic disease); 

The customer will be prescribed a medical regimen that includes prescription medication and biometric vitals (i.e. blood pressure, weight, glucose, et al); 

The opportunity is created for Parallax to introduce its Medication Adherence product to the customer. 

The customer type will vary, depending upon the sales and marketing approach and target audience, but is primarily comprised of:

Patients 

Providers: Doctors, Nurses, Clinicians and Caregivers 

Payers: Insurance Companies, Corporations, Government 

The Company believes that the current healthcare system is built on unsustainable models and significant challenges for all the stakeholders in the healthcare system. The Company also believes that it can deliver solutions which fill a void in the current market for high quality, high efficacy products and services delivered at reasonable and rational prices. The Company’s business strategy is to expand through organic growth, selective synergistic acquisition, and develop, license and/or acquire, quality products and or services that complement the Parallax Care™ systems.

- 6 -

Products and Services

Parallax believes that its products and services can provide solutions that mitigate rising costs, reduce waste in spending through transparency, reduce the amount of unnecessary services, and increase the health and wellness of patients before they are sick.  

Remote healthcare products include patented and patent pending software and mobile apps (to be available for iPhone on Apple App Play Store and Android on Google Play)  and other services, as well as electronic kits and devices from third-party licensed platforms that are designated towards a patient’s primary health concern (i.e. diabetes, blood pressure, cardiovascular, general monitoring, etc.), and offer both audio and video options that interface with the patient’s healthcare providers.  Prescription medication dosage monitoring is also available.

Behavioral health products include the proprietary behavioral health technology, REBOOT™, which powers decision support that can also be delivered securely to any internet connected device.  The software can be used by an individual or an organization of any size, with the potential to transform the cost of treating and managing chronic illnesses such as pulmonary-COPD-asthma, diabetes, and cardiovascular disease by effecting the modification of behavior in patients being treated for these chronic diseases.

Diagnostics products include the Target System, the Company’s proprietary POC diagnostic immunoassay testing platform and test cartridges for the areas of infectious diseases, cardiac markers, drugs of abuse and various other medical conditions, and the patented SPARKS Mobile™, the next-generation handheld mobile analyzer currently under development. The Target System will allow doctors to test patients in their office, with test results delivered in 10 minutes or less.  This allows patients to be provided with important information at the time of testing. The costs of the Target System are less than outside lab-based tests, benefiting both payers and patients.  In addition, doctors will be able to generate additional revenue that would normally be paid to an outside laboratory, and patients can even perform test from their homes, with results transmitted directly to their doctor.

Through the development and design of the Fotodigm® platform, the Company’s telehealth, RPM and POC products and services are interoperable and interchangeable with any FDA cleared/approved medical device, providing ease of use and connectivity between patient and doctor.  The advancement in the Company’s technology is strengthened by the ability to scale its products to meet the demands of both individuals and large groups alike.

Targeted Problems

Medication Nonadherence

Medication nonadherence is a priority public health consideration, affecting health outcomes and overall healthcare costs on a worldwide basis. Increasing adherence to medical regimens leads to better health outcomes in chronic disease and reduces the overall costs to the patient, payer and all of the stakeholders across the healthcare continuum.

Nonadherence to medication regimen in chronic disease management is the cause of ⁴:

•$300 billion in avoidable costs to the U.S. healthcare system annually; 

•125,000 premature deaths in the U.S. annually. 

Research from the World Health Organization ⁵ has shown that better adherence to antihypertensive treatment could prevent 89,000 deaths each year in the U.S., with a projected savings of $106 billion a year.

Chronic Disease Management

Chronic diseases are on the rise in the U.S., leaving healthcare payers with the challenge of covering care for patients with these expensive, long-term conditions.  Healthcare spending reached a total of $3.2 trillion in 2015, based upon estimates from the Center for Medicare Services (“CMS”).  Spending is expected to grow at an average of 5.5% through 2025, with chronic disease treatment comprising a major portion of that spending.

Based on the latest data from the Center for Disease Control (“CDC”), the top 8 most expensive chronic diseases for healthcare payers to treat are:

•Cardiovascular Disease 

Cardiovascular disease (“CVD”) in the U.S. total $317 billion per year, split between $193.7 billion in direct medical costs and $123.5 billion in lost productivity. An adult in the U.S dies from CVD related health conditions every 40 seconds, with CVD deaths accounting for 31% of all U.S. deaths each year.

•Smoking-Related Health Issues 

The estimated costs for smoking-related health issues in the U.S. total over $300 billion per year, split between direct healthcare expenses of $170 billion and indirect costs of roughly $156 billion.

⁴ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3234383/#B8 

⁵ https://www.who.int/chp/knowledge/publications/adherence_report/en/ 

- 7 -

•Alcohol-Related Health Issues 

In 2010, excessive alcohol use cost the U.S. economy $249 billion, or roughly $2.05 per drink. Alcohol-related deaths totaled 88,000 people per year, and shortened the lives of working adults by an average of 30 years.

•Diabetes 

As one of the most prevalent chronic conditions in healthcare, diabetes care costs reached $245 billion in 2016. Seventy-one percent of diabetes treatment costs ($176 billion) were related to direct healthcare expenses. That equates to 20 percent of U.S. healthcare spending.

•Cancer 

According to the latest estimates from the CDC and the National Cancer Institute, cancer care costs are roughly $171 billion a year due to healthcare inflation over previous decades.

•Obesity 

The United States spends $147 billion on healthcare related to obesity, and roughly $117 billion on costs related to inadequate physical activity. In 2006, healthcare costs for obese patients were $1,429 higher than patients at a normal weight. Obesity is implicated in the development or worsening of many other chronic conditions, including diabetes and cardiovascular disease.

•Arthritis 

The total cost of arthritis in the U.S. was an estimated $128 billion, split between $81 billion in direct medical expenses and $47 billion in related losses of productivity and care management.  Arthritis affects 23 percent of adults in the U.S., or 54 million people, and is expected to rise to 78 million cases by 2040. Arthritis also occurs with other chronic conditions, as many patients are unsure on how to manage their own symptoms.

•Strokes 

On its own, strokes in the U.S. create medical expenses of $33 billion annually and accounts for 1 out of 20 deaths in the country, or an estimated 130,000 deaths per year.

These nonadherence and chronic disease numbers are daunting in the best of conditions, but the reality is that the sheer volume of U.S. citizens reaching the age of 60 will impact the cost trajectory. The projected financial impact is not sustainable under the current healthcare system.

Management

Parallax is led by experienced veterans with backgrounds from the healthcare, medical devices, drug development, technology, FDA regulatory, medical insurance billing and patient management, finance and management of early stage and high growth companies. The Company’s disciplined and organized approach is balanced by its optimism for the future, and the opportunities present in the current healthcare market. The Parallax team is grounded in a belief that success in business is built on a combination of research, planning and execution.

At Parallax, management continually strives to identify solutions to the challenges facing the current healthcare system.  The Company and its management team of professionals are committed to delivering the highest quality products and services to patients, payers, healthcare insurers and stakeholders that are accessible and reasonable, and are built upon sound business models and economics that are designed to provide for sustainable growth and increased value to the Company’s shareholders.

TARGET SYSTEM and DIAGNOSTIC TESTING PLATFORM

Overview

Parallax continues its focus on Point-of-Care diagnostics, with an emphasis on its Target System testing platform, including the FDA-cleared VT-1000 desktop analyzer and novel applications that detect and/or monitor infectious diseases, cardiac markers and drug of abuse assays.  The Company holds exclusive licenses, in perpetuity, to a line of proprietary, patented and/or patent-pending, FDA-cleared, Point-of-Care diagnostic tests to be utilized with its single platform diagnostic testing Target System.  Parallax, with its products and products in development, offers the potential to transform the diagnostic landscape by transitioning critical tests from the centralized lab directly to the hands of the physician or clinicians.  

The Company continues to pursue viable opportunities for the commercialization of its product, including strategic partnerships with third-party companies in order to limit the Company’s capital outlay.  Additionally, the Company has sought to identify strategies that would make its proposition more valuable and competitive.  The Company has made the strategic decision to keep the POC diagnostics product line off the market, and has spent the last few years prosecuting its patents and further developing potential integration of new applications. The Company has been issued patents on core technology of its technology for its Target System.  In 2014, 2015 and 2017, the Company and its license partner, Montecito BioSciences, Ltd. (“MBS”), received patents on its mobile testing platform in conjunction with its Target System cartridges in the United States, China, Hong Kong, Macao, and India. To this end, the Company has pursued patents around its foundational technology and the SPARKS Mobile™ diagnostic reader. The Company also has a technology that was previously cleared by the FDA technology that is being used as a platform for a test that will detect CD4 and CD8 cells which in turn determine a patient’s immune status.

- 8 -

Target System Product Strategy

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

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

The commercial success of the current generation of small, simple to use diagnostic devices which provide rapid results in POC applications has been limited by their inability to provide precise, highly sensitive, quantitative measurement. Despite these limitations, the rapid increase in discovery of individual markers of disease processes, coupled with the advancements in rapid detection technologies, has made these tools available to medical professionals on a wide scale and POC diagnostics are quickly becoming a high growth industry.

The Target System (the VT-1000 Desktop Analyzer, the Target Antigen Detection Cartridge and associated reagents) technology addresses these limitations by applying sophisticated immunochemical and optical methods to detect and quantify analytes present in various human specimens, including blood, urine, and feces. Data indicates that sensitivity will be comparable to expensive and complicated laboratory-based analyzers. The Company believes that there is market potential for advanced POC diagnostic products that provide quick and accurate diagnosis during a patient visit, shortening the decision time to medical intervention and minimizing the need for additional patient follow-up, thereby reducing overall healthcare delivery costs.

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

The Diagnostics Products

The Company’s assets include a FDA-cleared VT-1000 Desktop Analyzer and more than two dozen FDA 510(k) cleared diagnostic tests.  The Desktop Analyzer and immunoassay system incorporates a flow-through rapid antigen test platform configuration that has the ability to produce high-performance quantitative blood test results with the ease of rapid qualitative diagnostic strips.  The Company has patents and patent applications related to its current and future products, as well as methods for future test development. The Target VT-1000 Desktop Analyzer is ideally suited for rapid development and commercialization of all new tests that may be introduced, as well as integrating remote patient monitoring and telehealth products and services into the Target System through the SPARKS Mobile™ platform.

VT-1000 Desktop Analyzer: Quantitative and Qualitative Immunoassay

The Company’sVT-1000 Desktop Analyzer is FDA-cleared and is capable of rapidly detecting qualitative and quantitative data for its FDA-cleared Target Platform tests.  The VT-1000 Desktop Analyzer is used for all Target Platform Tests, allowing for clinical personnel to be trained once and also gives consistent results for both qualitative and quantitative testing. The Company plans to develop the SPARKS Mobile, a hand-held analyzer unit, similar in size to a mobile phone/PDA, which will be based on the VT-1000 Desktop Analyzer (see “SPARKS Mobile™:  The Target System Hand-Held Analyzer).

- 9 -

 

VT-1000 Desktop Analyzer

Target Antigen Detection System (“TADS”)

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

Each individual TADS test cartridge operates in a uniform fashion using a controlled flow-through rapid antigen testing system, utilizing an enzyme-linked immunosorbent assay (“ELISA”).  The ELISA method is a technique used to determine if a certain substance is present within a sample.  Using special antibodies that attach to the substance, the sample will generate a specific color.  The amount of color indicates the amount of substance present. Another set of antibodies are used to “capture” the substance.⁶ The results can then be measured at specific wavelengths by an ELISA analyzer, such as the VT-1000, in two forms:

Qualitative:  Refers to whether an analyte is present, and provides “positive” or “negative” results through color changes, using known positive and negative samples.   

Quantitative: Refers to how much is present, and uses a series of standards to measure the unknown amount of analyte. 

 

TADS Cartridges

The simplicity of the fully loaded single-use test cartridge, and subsequent ease-of-use of the instrument, helps to alleviate the technical burden on medical staff, and makes patient diagnosis more efficient.

⁶ “ELISA,” Simple English Wikipedia, [website], March 2013, https://simple.wikipedia.org/wiki/ELISA 

- 10 -

The Company’s Target Antigen Detection System is a departure from the standard devices typical to the rapid testing markets and can allow for physicians to share in revenues. The device is part of the manufacturer’s qualitative and quantitative “Target System Diagnostics Platform,” which offers an array of improved modifications and features to the traditional qualitative and semi-quantitative flow-through immunoassay test. With its platform uniformity, vacuum pump, absorption layer for sample overflow, and complete compatibility with single and multi-light source reflectometer technology, the TADS cartridge is a unique collection of tests for qualitative and quantitative detection diseases and of conditions. The TADS cartridge utilizes a vacuum technology to deposit specimen samples uniformly on test membranes.  The Vacuum Control Flow Device provides a vacuum pump action, which reduces test time and ensures maximum contact with the membrane antibodies.  This collection device allows for numerous tests to be incorporated. The vacuum specimen filtration and excess specimen absorption is built right in.

 

TADS Components

TADS 2.0 Flow Through Testing System with Pressure Indicator

On March 3, 2017, the Company, through its licensor, Montecito BioSciences, Inc., was granted patent 9,588,114 (See “Intellectual Property Summary”) for the new and improved TADS testing cartridge, which provides an assay device that has an externally manipulatable piston for creating a region of reduced air pressure beneath a membrane containing an analytic compound, preferably a receptor or antibody. The region of reduced pressure causes a fluid sample to be tested to be rapidly drawn through the membrane. To ensure that a sufficient reduction in pressure is achieved, the membrane further includes a pressure sensing means, so the entire sample contacts the analytic compound.  The Company believes that obtaining the greatest level of contact where the antibody and antigen meet, is essential when striving for the best possible test results to be consistently achieved.

How the Target Antigen Detection System (“TADS”) Works

The TADS testing system performs immunoassays on analytes for determining the presence and/or amount of an analyte in a sample, and includes:

An immunosorbent membrane;  

An absorbent material; 

A piston component located below the absorbent material to draw analytes in a sample through the immunosorbent membrane into the absorbent material; and 

Discrete groups of pressure-sensitive microcapsules located on the immunosorbent membrane. 

Each group of microcapsules has a different predetermined average burst strength; and 

Each group of microcapsules includes a dye that is different from the dye of any other of said groups. 

- 11 -

The TADS testing system has an immunosorbent membrane with one or more binding agents non-diffusively bound to its upper surface. The immunosorbent membrane refers to a porous support membrane having at least one antibody (polyclonal or monoclonal antibody), antibody fragment or derivative thereof, aptamer, or other non-protein based entity (e.g., a carbohydrate or lipid), which specifically binds to a cognate epitope. In particular, the porous material is a thin disk of material such as nitrocellulose, nylon (e.g., cast from nylon 6,6 polymer) or polyvinylidene difluoride (PDVF).

A sample or analyte solution refers to any sample suspected of containing a particular analyte.  It is recognized that a sample may contain no analyte, or, in other words, the test for that ligand (a molecule that binds to another molecule) is negative. 

The sample can be of biological or environmental origin.  

Examples of biological samples include whole blood, serum, plasma, amniocentesis fluid, pleural fluid, peritoneal fluid, sputum, urine, feces, cerebrospinal fluid, exudates, extracts of skin or tissue specimens, swabs from the throat or wounds and the like. 

Examples of environmental samples include water specimens (e.g., drinking water or streams), extracts of soil samples, and swabs of shipping packages, food samples, and the like. In this respect, an “analyte” refers to any material that can be involved in an antibody/antigen reaction. 

Typically the analyte will be an antigen, for example, a protein, a carbohydrate, cell walls (e.g., bacterial or fungal cell walls), virus particles and small molecule haptens.  Other examples include molecules such as cocaine, morphine, progesterone, luteinizing hormone-releasing hormone, or DNA. It is also possible that the analyte is an antibody that reacts with a bound antigen or an antibody to the antibody. 

Additional Tests and Products for Development

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

Rapid turnaround time 

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

Disposable device or minimal maintenance required 

Minimal technical expertise required 

Positive identification and specimen tracking strategy that eliminates specimen identification errors 

Simple strategy for calibration and QC 

Transferability of data to the LIS or HIS 

Agreement of result with accepted “Gold Standard” tests 

Affordable cost 

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

SPARKS Mobile™: The Target System Hand-Held Analyzer:

The SPARKS Mobile™ is the Company’s next-generation analyzer.  Utilizing re-engineered technology of the VT-1000 Desktop Analyzer, the SPARKS Mobile™ is a handheld device that will utilize the Company’s TADS test cartridges and include a small, rapid testing format, in conjunction with a data acquisition and test reading, with connectivity and features similar to a smartphone device. The SPARKS Mobile™ is currently in the design stage of the development process.

 

SPARKS Mobile™

Design Concept

- 12 -

Whether searching for markers in the blood stream, or diagnosing a pathogen in urine, the Company’s SPARKS Mobile™ will be a portable tool for rapid diagnostics. The SPARKS Mobile™ will also provide an improvement in POC diagnostics and applications in countries with limited healthcare infrastructures and geographic limitations, both of which are of paramount importance in the combat against infectious diseases and in the fight against proliferation of endemic and pandemic diseases.  This innovative SPARKS Mobile™ will allow for a fast (minutes instead of hours or days) performance of tests at the point of care and will only require a test cartridge and a small number of ready-to-use solutions in preformatted quantities.  Moreover, the SPARKS Mobile™ will include the ability to store patient information, test data, and QC data, and transmit data through wireless connections.

The SPARKS Mobile™ design goals will plan to:

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

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

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

The densimeter/multi-light spectrum reflectometer utilizing immobilized enzyme antigens in blood plasma or urine, which is the core testing system of the VT-1000, will not change.  The testing technology in the initial SPARKS Mobile™ testing device will be based upon the same FDA. 510(k) cleared technology employed in the Company’s VT-1000 Desktop Analyzer and is compatible with existing TADS test cartridges. However, a number of innovative features will be integrated into the design to meet customer and patient needs, including those included in the Company’s most recent conceptualization of design and functionality and environmental interface:

•High Infrared Light Spectrum;  

•Easy Field Upgrades; 

•No Change of Equipment;  

•Printer Hook-up Capability;  

•Low Entry Cost for New Test Development and Analysis;  

•Safety, Security and Accuracy by design; and 

•Desk to Docking Station: Smart Phone Capability 

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

The graphics below represent the Company’s most recent conceptualization of the design components and features for the SPARKS Mobile™, its technology, operational construct and environmental interface:  

 

SPARKS Mobile™

Design Concept

The Company has also initiated the development of telehealth, remote patient monitoring and cognitive service offering capabilities into the SPARKS Mobile™ design and business model, for the integration of the Parallax Care™ (Fotodigm® and REBOOT™) and Parallax Communications products and services (see “Additional Tests and Products for Development”).

- 13 -

 

 

SPARKS Mobile™

Operation Concepts

- 14 -

The Company will continue to develop the design of the SPARKS Mobile™ as well as economic models designed to maximize the value of the SPARKS Mobile™.  Although the Company’s 2019 budget does not include 100% of the funding resources to bring the development of the SPARKS Mobile™ to the prototype and beta stages, the Company continues to seek third-party resources, with the goal of obtaining FDA 510(k)-clearance for the SPARKS Mobile™ based upon the FDA 510(k)-cleared VT-1000.

Immunoassays: Defined ⁷

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

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

Quantitative Immunoassay Analysis

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

Quantitative Immunoassays would allow:

Detection of the absolute concentration of components 

Reduce inter-assay variation in data 

Permit successful statistical analysis of smaller sample sets 

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

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

Calibration curve

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

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

⁷ “Immunoassay tests,” Encyclopedia of Surgery, [website], 2001, https://www.surgeryencyclopedia.com/Fi-La/Immunoassay-Tests.html 

- 15 -

Molecular Identity of Calibration Standards

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

 

Figure 1: Schematic representation of calibration standard molecules.

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

 

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

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

 

Figure 3: Mathematical description of a calibration curve.

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

 

Figure 4: Accuracy of Quantitative Immunoassays.

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

- 16 -

Market Opportunities

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

Diagnostic tests performed outside the central laboratory or decentralized testing is generally known as Point-of-Care. Over the years, the increasing introduction of transportable, portable, and handheld instruments has resulted in the migration of POC testing from the hospital environment to a range of medical environments including the workplace, home, disaster care and most recently, convenience clinics. Moreover, POC test devices have contributed significantly to the growth of the overall diagnostics market over the past 10 years. As more diagnostic manufacturers pursue CLIA ⁸ waiver status for their POC devices and CE Mark ⁹ for POC or self-use. At the same time, more decentralized test venues invest in non-waived rapid tests and instruments. POC testing appears to be headed for an even bigger role in diagnosis and monitoring patient care. ¹⁰

The Global In-Vitro Diagnostics (“IVD”) market is expected to exceed $92 billion by 2025, up from $64 billion in 2017 ¹¹, and is expected to continue at a 4.8% compounded annual growth rate over the next eight years. Self-testing is the biggest trend fueling the growth, and the recent advancements in IVD technology has a large influence over the product type segment, which is poised to grow at a compounded annual growth rate of 6.1% from 2018 to 2025 ¹².  The growth is being driven by devices aimed at making acute care more efficient. There is a concerted effort to reduce time spent in expensive intensive care units and in the hospital in general. More tests and technologies have been adapted to serve the needs of physician offices and home testing.

Key Drivers

The two factors that are significant to the rapid growth of POC testing are technology advancements and healthcare economics. The development of new and improved technologies has resulted in the ability to make evidence-based medical decisions that improve patient outcomes and reduce patient acuity, criticality, morbidity and mortality.  Quicker diagnosis of infectious agents can also permit the earlier prescription of appropriate medications, thereby potentially shortening the duration of illness.  Additionally, the economic climate is driving significant changes in the manner in which patients will be tested and how results are delivered. Recent revisions to government regulations, together with growing patient and insurer pressures on hospitals and physicians have increased incentives to reduce overall patient healthcare costs while providing a higher level of care to a greater number of patients. One cost-cutting measure is to reduce the high cost of diagnostic testing carried out in central laboratory sites.

Limitations

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

Competitive Landscape

There are approximately 40 to 50 companies in the Point-of Care diagnostic industry in the U.S. and approximately another 100 outside the U.S. ¹³. The POC space can be broken down into various sub-sets such as molecular biologist developing reagents, and markers to diagnostic equipment and test development companies, as well as companies who do neither and focus on marketing tests, equipment and assays.  Most notably in the POC space are the large pharmaceutical companies such as Bayer, Roche, Abbott Labs, ThermoFisher and others.  Parallax’s specific competitive landscape is tied to its patented process involving the SPARKS Mobile™ Analyzer and Target System platform In-Vitro Tests.  There are a number of companies developing mobile devices to perform a host of health industry-related services and the Company believes that more companies will enter the mobile diagnostic space in the next few years.  The industry has yet to develop a standardized Point-of-Care immunoassay platform for any device to be integrated into.  The Company’s SPARKS Mobile™ Analyzer is designed to deliver a device that adds immediate value to health providers, patients and health insurance companies. 

⁸Clinical Laboratory Improvement Amendments (CLIA) of 1988 are United States federal regulatory standards that apply to all clinical laboratory testing performed on humans in the United States, except clinical trials and basic research. 

⁹The letters "CE" are the abbreviation of French phrase "Conformité Européene" which literally means "European Conformity" CE Marking indicates that your medical device complies with the applicable EU regulations and enables the commercialization of your products in 32 European countries. 

¹⁰“The Worldwide Market for Point-of-Care (POC) Testing (Infectious Disease Testing, POC Cancer Tests, Rapid Coagulation, Urine Testing, Lipid Tests, Pregnancy Testing, Glucose Testing and Other POC)”, Kalorama Information, [website], February 2018, https://kaloramainformation.com/ product/the-worldwide-market-for- point-of-care-poc-testing-infectious-disease- testing-poc-cancer-tests-rapid- coagulation-urine-testing-lipid-tests-pregnancy- testing-glucose-testing-and-other-poc/ 

¹¹S. Ugalmugale and S. Mupid, “In-vitro Diagnostics Market … Competitive Market Share & Forecast, 2018 – 2024,” Global Market Insights, Inc, [website], August 2018, https://www.gminsights.com/toc/detail/in-vitro-diagnostics-market 

¹²“In Vitro Diagnostics (IVD) Market…Global Opportunity Analysis and Industry Forecast, 2018-2025,” Allied Market Research, [website], December 2018, https://www.alliedmarketresearch.com/ivd-in-vitro-diagnostics-market 

¹³“Top 50 Companies on Point of Care Diagnostic Testing,” Kalorama Information, [website], May 2017,  https://www.kaloramainformation.com/product/top-50-companies-in-point-of-care-diagnostic-testing/ 

- 17 -

The Company’s primary goal is to create a mobile platform that can integrate and utilize the flow-through process of its Target System platform, and offer the healthcare provider a system that is fully interoperable and ubiquitous with a potentially large number of in vitro tests.  There are other test platforms in the space, but the Company has filed a patent application on the process of its SPARKS Mobile™ Analyzer and TADS test cartridge.  There can be no assurance that the Company’s POC devices will prove to be competitive with the other POC devices under development.

Until the Company secures a minimum of one million dollars ($1,000,000) of additional capital to operate for the next twelve months it will remain highly vulnerable to competition.  The Company anticipates the need for a minimum of an additional two million dollars ($2,000,000) of investment capital for it to achieve its goals of developing a commercially viable rapid POC CD4-CD8 immune status test and the SPARKS Mobile™ Analyzer version of the VT-1000 Desktop Analyzer. The Company intends to explore licensing partners for manufacturing and distribution. Should adequate funds be available from future funding resources, the Company may use a small portion of the budgeted proceeds for Research and Development to fund the remaining development of the SPARKS Mobile™ device.  However, the Parallax Care™ and Outcomes Platform is the Company’s near term focus.  There can be no assurance that such amount will prove adequate to develop the Company’s products. Furthermore, the Company’s competition has significantly greater resources that they can deploy and time to head off competition.

In Vitro Diagnostic Sales Leaders

A 2017 report from Kalorama Information ranked the top 10 companies in the In Vitro Diagnostics market, based upon estimated 2017 revenues from clinical diagnostic test instruments, reagents and supplies, as follows:

1.Roche Diagnostics, Switzerland www.roche.com  

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

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

4.Danaher Corporation, Washington, DC, www.danaher.com 

5.Thermo Fisher Scientific, Waltham, MA www.thermofisher.com 

6.Sysmex America, Inc. Lincolnshire, IL, www.sysmex.com 

7.bioMérieux SA, Marcy l’Etoile, France www.biomerieux.com  

8.Ortho Clinical Diagnostics, a division of Johnson & Johnson, Raritan, NJ www.jnj.com  

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

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

Barriers to Use

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

Acceptability:Rapid tests need to be acceptable to policymakers, clinicians, and patients, and the medical community. In the POC rapid test market, tests need to have sufficient sensitivity and specificity and need to have an adequate predictive value. Ease of use is critical for POC use by clinicians. Culturally appropriate specimens and credible results are important if rapid tests are to be accepted by patients. 

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

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

Reimbursement:The ability to gain scale in reimbursement across a wide number of tests is still a challenge for POC diagnostic companies such as Parallax.  

Intellectual Property (Diagnostics)

The Company’s products include a FDA-cleared VT-1000 Desktop Analyzer and more than two dozen FDA-cleared tests.  The Company acquired the exclusive rights in perpetuity to a number of pending United States Patent and Trademark Office (“USPTO”) patent applications on the Company’s products in the area of infectious diseases, as well as methods for future test development, through a License Agreement with Montecito BioSciences, Ltd.  The Company intends to seek intellectual property protection for all supporting products such as novel biomarker candidates, antibodies, proteins, and diagnostic tests surrounding its core indication areas, in order to create a barrier to entry for competitors.

- 18 -

Expired Patents-Target System

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

Patent #	Description	Date Filed in US	Date Expired
US4,748,042	Target Ringing & Spotting Machine (method and Apparatus for Imprinting membrane with pattern of antibody)	May 31, 1988	May 31, 2008
US4,797,260	Target Cassette (Antibody testing system)	January 10, 1989	January 10, 2009
US5,137,691	Target Cassette with Removable Air Gap (Antibody testing system with removable air gap)	August 11, 1992	August 11, 2012

The Company has retained a team of professionals in the field of patent protection and is continuously seeking out new opportunities for its products and products in development.

Key Patented and Patent-Pending Concepts

•Sample Analysis 

•Plurality of Isolated Antibodies to a Plurality of Cognate Antigens 

•Identifying Drugs, Targeting Moieties or Diagnostics 

•Determining the Immune Status of a Subject  

•Flow Through Testing System with Pressure Indicator 

•Novel Biomarker Candidates 

•Antibodies 

•Proteins 

•Diagnostic Testing 

For additional information on the Company’s patents and patents-pending, see “INTELLECTUAL PROPERTY SUMMARY“ section below.

The FDA-Cleared Tests

The Company acquired, through an Assignment Agreement, the exclusive rights in perpetuity to the following FDA-cleared tests (the “Tests”):

No.	Test/Device Name	510(k) No.	No.	Test/Device Name	510(k) No.
1	Rotacube (Rotavirus)	K884017	14	Target Hcg	K914303
2	Rubella-Cube TM	K892051	15	Target Quantitative Hog One Step	K903937
3	Cmv-Cube TM	K884842	16	V-Trend Target Rf Test	K904105
4	Target Quantitative Hcg	K890131	17	Blue Dot Test for Pregnancy	K884017
5	Target Strep A (Streptococcus Spp.)	K880460	18	Target Cocaine Metabolites-R Test	K910122
6	V-Trend Target Im Test (infect mononucleosis)	K890041	19	Target Cocaine Metabolites-V Test	K910123
7	First Sign (Pregnancy, Hcg)	K973208	20	Target Cannabinoids-R Test	K910893
8	Target Cardiac Ck-Mb	K890295	21	Target Cannabinoids-V Test	K910892
9	Target Cardiac Troponin 1	K972094	22	Target Amphetamines / Methamphetamines-R Test	K910739
10	Target C-Reactive Protein Test	K892231	23	Target Amphetamines / Methamphetamines-V Test	K910740
11	Target C-Reactive Protein Test	K890423	24	Target Opiate-R Test	K890978
12	Target Myoglobin	K963680	25	Target Opiate-V Test	K890979
13	Target Aso Test	K910073

The Company is in the planning process of developing and obtaining FDA clearance for rapid immunoassay tests for the detection of HIV 1 and 2.  There can be no assurance that the Company will be successful in developing such tests or in obtaining the required FDA clearance.

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

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

- 19 -

Government Regulations

The long legal journey toward medical device regulation began with the Pure Food and Drugs Act of 1906.  Medical devices were not included, as no one envisioned how technology would grow increasingly complex, and would ultimately require regulation. The Medical Device Amendments of 1976 gave the FDA authority to ensure the safety and effectiveness of a range of life-saving medical devices, while also protecting the public from fraudulent devices.  The Amendments:

•defined a medical device, 

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

•identified pathways to market, 

•established Advisory Panels, and 

•set clinical investigation requirements. 

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

Legislation	Significance
Safe Medical Devices Act of 1990	•Established Quality System requirements
	•Supported post market surveillance
	•Allowed FDA discretion for PMAs brought to panel
FDA Modernization Act of 1997	•Supported for early collaboration, expanded Class I and Class II exemptions
	•Set the “least burdensome provision”*
	•Supported dispute resolution
	•Established evaluation of automatic Class III designation (giving the sponsor the opportunity to   •request lower classification due to a minimal risk device, known as “de novo” review)
	•Mandated free and open participation by all interested persons
Medical Device User Fee and Modernization Act (MDUFMA) of 2002	•Established a fee schedule for most types of device submissions to achieve shorter review times
	•Requires FDA to include pediatric experts on the panel for a product intended for pediatric use
FDA Modernization Act of 2007	•Reauthorized and expanded MDUFMA

FDA Clearances and Approvals

As part of the regulatory infrastructure, the FDA has established almost 1,700 classifications for generic medical devices.  Each one of the generic devices is assigned one of three regulatory Classes, based upon the control level necessary to assure the devices’ safety and effectiveness.  The least burdensome provision allows industry and FDA to consider the least burdensome appropriate means of evaluating a device’s effectiveness when there is a reasonable likelihood of its approval. The intent is to help expedite the availability of new device technologies without compromising scientific integrity in the decision-making process or FDA's ability to protect the public health. This provision does not lower the standard for premarket clearance.  The FDA maintains a database on its website at www.accessdata.fda.gov for many types of applications, including 510(k) records dating back to 1976, and PMA submissions.

FDA Classes

Device classifications depend on the intended use of the device, its indications for use, and risk posed to the patient and/or user.

Class	Risk Level	Type of Controls	Exemptions
Class I	Low	General Controls	Yes
Class II	Moderate	General Controls & Special Controls	Yes
Class III	High	General Controls & Premarket Approval (PMA)	No

The FDA requires that medical devices obtain either Premarket Notification Clearance (“PNC” or “510(k)”) or Premarket Approval (“PMA”) prior to commercial distribution, unless an exemption is met.  Whether to submit a 510(k) or a PMA is determined by the applicant.  A 510(k) is normally submitted for a device that can be compared to a similar device already on the market, to illustrate the device’s safety and effectiveness.   A PMA is normally submitted for a device that is completely new to the market or is classified as a Class III device.

510(k) Clearance

The term “510(k)” refers to Section 510(k) of the Food, Drug and Cosmetic Act, wherein it provides a pathway to clearance for a device that maintains FDA standards, without the lengthy and costly PMA submission process. A 510(k) submission for clearance must demonstrate that the device is at least as safe and effective, that is, substantially equivalent, to an already legally marketed device.  The 510(k) submission must be made at least ninety days in advance of commercial distribution, and if the device meets the requirements, the  FDA orders the device as “cleared.”

To further illustrate the 510(k) submission requirement, a 510(k) clearance is required when:

•introducing a device into commercial distribution (marketing) for the first time; 

•there is a significant change in the safety or effectiveness of a legally marketed device; or 

•a legally marketed device is being marketed for a new or different intended use. 

- 20 -

In contrast, a 510(k) is not required when:

•unfinished devices or components are sold for further processing or assembly by other parties, excluding the sale of direct replacement parts to end users; 

•the device is not being marketed or commercially distributed; 

•distributing another party’s domestically manufactured device; 

•repackaging or relabeling, if the condition of the device is not significantly changed; 

•the device was commercially distributed prior to May 28, 1976, and no significant changes to design, method, component, method of manufacture or intended use have been made; 

•acting as an importer of a foreign made medical device; or 

•The device falls into a Class I or II exemption classification; or is a Class III device requiring PMA.   

To summarize the 510(k) for Parallax’s VT-1000 Target System, the submission was made to the FDA on December 23, 1988, and received 510(k) clearance on January 27, 1989.  In this instance, the clearance process took approximately thirty days.  The VT-1000 will not require any further FDA clearance unless there are significant changes in the safety or effectiveness of the device, or its intended use is changed or appended.  The same is true for the 25 FDA-cleared tests.

Premarket Approval

Premarket Approval (PMA) is the most stringent type of device submission required by the FDA. A PMA application must be submitted to request FDA approval to market a device.  Unlike 510(k) clearance, PMA approval is based upon a determination that there is sufficient valid scientific evidence that the device is safe and effective for its intended use. PMA submissions include extensive research and development, three-phase clinical trials, and a lengthy FDA review process.  

To reasonably assure that a device is safe and effective, PMA requires valid scientific evidence that the probable benefits to health from the intended use of a device outweigh the probable risks, and that the device will significantly help a large portion of the target population. Sources of valid scientific evidence may include well controlled investigations, partially controlled studies, historical controls, well documented case histories by qualified experts, and robust human experience.  Independence is an important concept for PMAs, meaning that each PMA should establish the safety and effectiveness of the device under review, and that data about one device cannot be used to support another. 

The cost to obtain PMA approval on one novel device can be anywhere from $10 million to $1 billion, and can take an average of 3 to 7 years to bring a device to market. ¹⁴ Examples of PMAs include digital mammography, minimally invasive and non-invasive glucose testing devices, implanted defibrillators, and implantable middle ear devices.  

Class III De Novo

As indicated in the FDA Classes chart above, PMA submissions are required for all Class III devices, regardless of any similarity to a previously marketed product.  Class III devices are those that support or sustain human life, are of substantial important in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury.

A “de novo” Class III device is one that was originally submitted for 510(k) clearance, but because the device used for comparison in the 510(k) was “not substantially equivalent” (NSE), the device was automatically denied 510(k) clearance, and was reclassified as being a novel Class III medical device requiring PMA approval.  

In the event of a de novo designation of a low to moderate risk device, the applicant may submit a request for consideration to be classified as a Class I or Class II device within thirty days of receiving 510(k) NSE determination.  Alternatively, if there is no similar equivalent device for comparison under a 510(k) submission, the applicant may request the FDA to make a risk-based classification of the device as Class I or Class II without ever submitting a 510(k).

Devices that are classified through the de novo process can be marketed and used as predicates for future 510(k) submissions, to be utilized as a “substantially equivalent” device, despite the fact that PMA approval was not provided.

Post-Approval Studies

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

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

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

•community performance (clinicians and patients) 

•effectiveness of training programs 

•sub-group performance 

•outcomes of concern – real and potential 

¹⁴ https://www.sciencedirect.com/ 

- 21 -

Summary Comparison of 510(k) and PMA

510(k) Submissions	PMA Submissions
•primarily for Class II devices (Class I devices are predominantly exempt)	•primarily for Class III devices
•a Class I or II pre-amendment or legally marketed device (predicate) exists	•a Class I or II pre-amendment or legally marketed device (predicate) does not exist
•third-party review option is available for devices not requiring clinical data	•device is life supporting and/or has potential risk to patient
•documented proof of Substantial Equivalence to a predicate is required	•documented safety and effectiveness data for the device is required

Manufacturing

The Company does not intend to manufacture in house, with the exception of prototype and small batch production of tests for clinical trials and in-house testing.  The Company is required to use manufacturers who operate under Good Manufacturing Practices (“GMP”).  A GMP is a production and testing practice that helps to ensure a quality product. Many countries have legislated that pharmaceutical and medical device companies must follow GMP procedures, and have created their own GMP guidelines that correspond with their legislation. Basic concepts of all of these guidelines remain more or less similar to the ultimate goals of safeguarding the health of the patient as well as producing good quality medicine, medical devices or active pharmaceutical products. In the U.S. a drug may be deemed adulterated if it has passed all of the specifications tests but is found to be manufactured in a condition which violates current good manufacturing practice guidelines. Therefore, complying with GMP is a mandatory aspect in pharmaceutical manufacturing.

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

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

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

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

•Operators are trained to carry out and document procedures. 

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

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

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

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

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

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

Distribution

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

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

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

Principal Suppliers

The Company has not yet commenced commercial operations of the Target System, and thus has yet to establish principal suppliers of its diagnostics product line.

- 22 -

CONNECTED HEALTH and FOTODIGM® PLATFORM

Overview

Parallax’s primary goal is to deliver good health outcomes for patients through a service that allows healthcare providers of all types to reduce costs, increase revenues and provide a better patient experience and satisfaction. Connected Health and the Fotodigm® platform are a part of the Company’s overall healthcare strategy.  

Fotodigm® is a systems integration software platform that provides remote patient monitoring (“RPM”), medication adherence, and an intelligent telemedicine delivery system.  Featuring distinctive data capture and analysis capabilities, the Fotodigm® platform can be promoted directly through hospital and accredited nursing facilities, as well as health and wellness service providers, all seeking to integrate RPM and telehealth services as part of their offerings.

Currently in its beta stage, Fotodigm® integrates remote monitoring solutions to improve a patient’s compliance to therapy, pharmaceutical and other treatment regimens prescribed by their physicians.  Through the Fotodigm® platform, alerts and notifications, including visual, audible and vibratory, are sent to patients through email and SMS. In addition, cloud-based recordings are maintained for continuous patient monitoring and telehealth delivery, benefitting both caregivers and patients. FotoDigm® is network agnostic and captures data from any data-generating device, insulin meter, or scale, and works with any analog device, providing easy, flexible data management.

Parallax’s Connected Health systems will also offer automated medication dispensing through a patented process, which can reduce the costs and risks associated with noncompliance of medication, therapy and treatment.  This can, in turn, increase the financial yields and service delivery successes for healthcare providers, ultimately improving the quality of life and peace of mind for the patient, the doctors and the care providers overall.

Biometric Monitoring ¹⁵

A biometric monitor is a device that measures different aspects of a person’s behavioral or physiological behavior. It basically measures the biological data of a human being.

There are different kinds of biometric monitors that can be used, depending on the purpose. There are monitors that measure the temperature of the body; the pulse rate or the heart activity; blood pressure; blood glucose level etc. Below are a few common biometric monitors that are often used in households and hospitals:

•Thermometers – One of the popular kinds of thermometer is the mercury thermometer which is used to measure the temperature or fever of the body. The mercury expands when heated, and rises up a glass tube, stopping at the corresponding temperature mark. Most thermometers have both Celsius and Fahrenheit readings for the ease of the user. 

•Blood Pressure Monitors – A blood pressure monitor is a device that measures the blood pressure of an individual based on the readings of two values – the systolic pressure, which is the peak pressure in the arteries, over the diastolic pressure, which is the minimum pressure. Blood pressure should be monitored regularly in patients suffering from hypertension or hypotension, and other related conditions. 

•Glucose Monitors – Also known as glucometer, glucose monitors measure a person’s blood glucose level. Glucometers are essential to monitor the glucose in the blood of diabetic patients, as an increase in sugar may initiate serious medical conditions. There are two types of glucometers: continuous glucose monitors, which measure the glucose level every few minutes using small sensors; and the fingerstick glucose monitors that uses a sample of blood to read the glucose level. 

•Pulse Oximeters – Pulse oximeters are used to determine the amount of oxygen in the blood. It is generally used to detect breathing or respiratory problems, and is also used to monitor oxygen saturation in patients under intensive care. There can be three types of pulse oximeters – stand-alone, handheld, or pocket PC –based pulse oximeters. 

•EKG Machines – Electrocardiogram or EKG machines are devices that measure the activity of the heart. It detects the electronic signals sent by the heart in between heartbeats. It is used to detect abnormal activities of the heart induced by sleep, or stress-related problems. EKG machines can be of two types: continuous, which continuously monitors heart activity; or intermittent which records the activity once in a while, but can be used for weeks or months. 

•Pedometers– Used mainly for exercise purposes, a pedometer measures the number of steps a person takes while walking to stay fit. By quantifying the number of steps taken, a person can then calculate the amount of calories burned. Many sports item manufacturers are producing pedometers to help motivate fitness enthusiasts. 

There are numerous other biometric monitors used for medical or physical training purposes. There are the calorie counters, the body-fat calculators, the cholesterol monitors, fitness monitors – and a number of other devices. Prices of these vary in accordance with the brand, the quality, and the durability of the product.

Many cheap monitors do not give correct readings, and can be deadly when monitoring critical patients. Therefore, biometric monitors should be high-quality products that come with a guarantee, rather than inexpensive brand-less ones. Biometric monitors keep a check on health conditions, and a person should never compromise with their health.

¹⁵ http://www.ihealthdirectory.com/biometric-monitor/ 

- 23 -

Remote Patient Care

The Fotodigm® platform features a full set of modern communications technologies that provide cloud-based Health Insurance Portability and Accountability Act (“HIPPA”) compliant patient data security. The platform was designed specifically for patients’ ease of use, and provides real-time voice and “video conference” communication directly from any mobile or internet-connected device using biometric data collection. The platform, combined with systems integration services that interface with Electronic Health Records (“EHR”) and Electronic Medical Records (“EMR”) technology platforms, enables “virtual doctor visits,” increasing the conveniences for both patients and their doctors and care providers.  The Fotodigm® platform and its systems integration positioning allows for any physician, clinician, nurse, pharmacist, caregiver, or family member to support the treatment of the chronically ill, both acute and post-acute, in a persistently connected real-time environment, on a larger scale and with greater precision and patient satisfaction.  

RPM benefits are equally important in a residential environment. Seniors and chronically ill residents have shown to require less support and/or interventions, have higher group participation rates and improved cognitive capabilities, as well as an overall improved health, a more assured time with family, and longer residencies, which results in greater value-added contributions and greater job satisfaction from staff members.

The ability to remotely monitor each resident, from medication compliance and connected sensors, including vital sign, sleep monitoring, and fall detection devices, enables the residential caregiver to provide a significantly enhanced (and commercially desirable) service for optimal health conditions.  With the adoption of a centralized monitoring system, residences will also begin to see a marked reduction in the inter-dependencies that can exist between residents, and an improved state of health for every resident, further reducing the support load on staff members.  

Medication Monitoring/Compliance/Adherence

Nonadherence with medication is a complex and multidimensional healthcare problem. Patients forget to take their medications, creatively alter their medications, engage in unendorsed polypharmacy, mix their medications, and take medications in combinations that may have dire synergistic interaction effects, such as dizziness and confusion.  Estimates of medication nonadherence rates typically range from 20% to 85%, (see figure below) ¹⁶. As a result, a substantial number of patients do not benefit optimally from pharmacotherapy and can wind up in emergency situations, hospitalized, or worse.  In fact, hospital readmission generated by medical non-compliance and nonadherence was a $41 billion-dollar problem in the United States in prior years and is growing ¹⁷.

 

Medication adherence is a cornerstone of significantly improved quality of life, and the Fotodigm® platform is the cornerstone of medication adherence. A unique device specifically designed for seniors and the chronically ill, the Fotodigm® platform offers enormous potential for patients, their families, their caregivers and for those residences that choose to offer superior services and a superior health environment for their clients.

The Fotodigm® platform monitors the adherence of treatment and therapy regimens. In addition, with the advent of an intelligent personal medication device with bio-feedback, Fotodigm® allows, perhaps for the very first time, the quantitative and qualitative feedback of real-time data to pharmacists, physicians and clinicians and, based on the individual patient, enables medication titration to achieve optimal medication therapy.

Product Development

Parallax is in the development stage of acquiring, licensing and developing in-house solutions/products for personalized health monitoring of seniors that will capture a host of a patient’s vital information, including temperature, heart rate, perspiration and movement disorders. All of these sensor products can be connected to the Fotodigm® platform so that the bio-feedback information is directly correlated with medication consumption information, providing clinicians, pharmacists and physicians with real-time, comprehensive data and information on patients’ conditions.

The Company is reducing to practice the claims of its Fotodigm® data capture technology through internal development and through external technology development partnerships.  The Fotodigm® system is being developed to utilize a proprietary Machine Face Recognition engine along with proven and existing Optical Character Recognition (“OCR”) technology through third-party license.  The technology has been beta tested and utilized in the field by patients within remote patient monitoring systems for the reduction of hospital readmissions.

¹⁶ https://www.pillsy.com/articles/medication-adherence-stats 

¹⁷ https://cvshealth.com/newsroom 

- 24 -

Parallax’s customer pilot was able to offer a biometric monitoring capability from devices that were not Internet connected and this lowered the cost of service delivery and sustainability. The pilot for a large hospital group met the requirements of removing the connectivity and cloud based requirements on biometric measurement devices. The focusing on FDA approved measurement devices connected via Fotodigm® allowed for the reduction of costs of telehealth services delivery. The system has been developed in a mobile application that can be downloaded by Parallax end users at the Company’s remote patient monitoring website at www.parallaxcare.com.

Product Strategy

Parallax’s product strategy is to eliminate obstructions to consumer adoption of remote patient care systems, so patients can stay out of the hospital longer and have a better quality of care and quality of life.

Remote patient monitoring systems enable efficient healthcare delivery to patients outside conventional hospital or clinical settings by transmitting real-time patient data for remote clinical review. Correlating vitals with medication history and consumption directly informs healthcare providers as to the real-time status of a patient, at home or in residences. Anomalies can be reported or alerted to those in need through a cloud-based network.  RPM systems incorporate wireless medical devices and computer-based software applications. The evolution of IoT and IoS technologies is clear, and will offer significant business opportunities for patients, residences and the healthcare system in general. RPM is a cost-effective means of keeping patients out of the hospital and have a better quality of care.

Product Benefits

RPM systems, even within the walls of a single building, can offer countless benefits for the overall healthcare management of clients.  There are countless tangible benefits to medication adherence as well, including significant reductions in hospitalizations, enhanced quality of life, and reductions in the effects of both overmedication and undermedication. Eliminating the distribution and administration of scheduled medications exonerates the residence from the liabilities associated with this task. Human error is all but eliminated. Corporate risks are significantly reduced for this activity and liability insurance premiums may be reduced as well.  Essentially, increasing medication adherence through automation, empowerment and monitoring improves patient outcomes and achieves benefits for all health system stakeholders.

Patients: •Better quality of life  •Fewer hospital visits  •Better outcomes  •Reduced travel and health costs  •Increased social interaction with family and friends

Patient Families: •Better visibility into the quality of life of loved ones  •Fewer hospital visits – fewer interruptions into   •their work days  •Better outcomes  •Reduced travel costs  •Increased peace of mind – reduced stress and concern

Residential Providers: •Better overall quality of life in the residence  •Reduced risk and liability  •Superior service  •Reduced labor costs  •Increased revenues for enhanced services  •Superior reputation / higher desirability / increased ability to charge for core services  •Healthcare professionals and providers deliver better care more efficiently at lower risk

Healthcare Industry: •Government, insurance and other payers reduce spending  •Patients who are more adherent with medication regimes use fewer health services  •Pharmaceutical companies increase profitability   •and deliver value beyond the pill  •Pharmacy retailers ensure repeat orders, increased fulfillment and enhance brand loyalty  •Physicians have the ability to become proactive,   •rather than reactive  •Every 1% improvement in medication adherence results in $2 billion in savings to U.S. Healthcare system and a $4 billion revenue increase to pharmaceuticals 18  •Differentiation in the marketplace for early adopters

Market Opportunities

The market demand for remote patient care (“RPC”) solutions is at an all-time high and continues to increase due to healthcare insurance reimbursement of the services delivered over RPC systems.  Further, the move from “fee-for-services” to outcomes-based payment structures have brought about the need for doctors and all other healthcare providers to increase the efficiency and to reduce the costs of care delivery to patients.  Clearly, as with the introduction of any new technology, there is a significant market differentiator for early adopters. Residences, assisted living facilities, and long-term care facilities all exist in a competitive environment in which differentiation between them is based upon higher desirability, which amounts to higher profits for those who are able to offer more. Unlike other service businesses, residences have the ability to attract clients requiring services on a long-term basis. ¹⁹ Additional market opportunities exist around hospitals and their management’s needs surrounding the reduction and elimination of patient readmissions.  

¹⁸ “Adherence, Compliance, Persistence,” MediPENSE, [website], https://medipense.com/en/medication-adherence-compliance/ 

¹⁹ “The Long Term Care Market: Nursing Homes, Home Care, Hospice Care, and Assisted Living,“ Research and Markets, [website], February 2019, https://www.researchandmarkets.com/research/476vtw/united_states?w=12 

- 25 -

The global RPM systems market draws immense focus due to strict governmental measures to cut down healthcare expenditure, and reduce hospital stays. Remote patient monitoring serves to minimize hospital readmissions, and reduces the load on physician time, and nursing staff, thus greatly reducing healthcare costs. A rapidly aging population vulnerable to chronic diseases, and a growing desire to live independent lives among the elderly are driving growth in the market. Given the rise in the number of insured patients covered under reforms such as the Affordable Care Act, coupled with stricter reimbursement norms, healthcare providers are under constant pressure to manage wider patient population at lower costs. With the healthcare industry migrating towards an outcome-driven effective healthcare system, remote patient monitoring technology stands optimally positioned for growth.²⁰

Encouraged by the widespread proliferation of high-speed internet, and related services, the adoption of RPM systems is witnessing strong demand. There is growing interest in IoT-driven healthcare services and wearable medical devices that feature sensors, actuators, and other mobile communication methods through which patient data can be continuously transmitted onto a cloud-based platform. Healthcare providers are increasingly adopting cloud computing technologies, which not only offer cost benefits but also allow healthcare organizations to increase operational efficiency.²¹

The global market for remote monitoring systems is projected to reach over $66 billion by 2020, driven by government measures to reduce healthcare spending against a backdrop widening healthcare budget deficit.²²  As stated by the new market research report on Remote Patient Monitoring Devices, North America represents the largest market worldwide, occupying close to 41% of the total market share, and is expected to grow at an exponential compounded annual growth rate of 21.34% during the forecast period.²³ Asia-Pacific ranks as the fastest growing market with a compounded annual growth rate of 13% over the forecast period. The growth in the region is driven by the increase in per capita healthcare spending and the need for a cost-effective and sustainable healthcare system along with infrastructure capable of addressing the growing healthcare needs of an expanding population. ²⁴

Misuse of Opioids and Other Addictive Substances

During 2017, there were more than 72,000 overdose deaths in the United States, including 49,068 that involved an opioid, according to a provisional CDC count.²⁵ More than 130 people died every day from opioid-related drug overdoses in 2016 and 2017, according to the US Department of Health & Human Services (HHS).

There are many organizations talking about the prevalence of this medical problem; however, those working with the addicted population are segmented and fragmented by a limited or narrow scope of work.  The clinics and treatment centers are restricted by the need for an on-site appointment for testing and counseling, the hospital emergency rooms are only able to treat the critical physical problem that presents from misuse or overdose and have difficulty finding treatment resources that are readily available for referral to treatment, and the patients who do enter treatment encounter many challenges including access to treatment,  frequent appointment schedules making it difficult to maintain employment and lapses in proper chronic disease and pain management.

The Company believes that bringing together a number of partners and adding the dimension of population health in-home visits will provide improved, measurable outcomes for the patient and their families.  Regularly scheduled home visits can provide the link between the provider, the healthcare plans and patients.  

It is also the Company’s belief that education, early intervention and remote patient monitoring can have a significant, positive impact on reducing the misuse of opioids, alcohol, tobacco and other addictive substances. The Community Health Workers (“CHW”) have been providing health screenings and educational classes for chronic disease management and healthy living for several years, and have been successful in identifying potential health risks and referrals for care. The CHW have become respected and trusted advisors and regarded as a link to the healthcare system.

Outcomes Optimization Platform monitoring:

•Reduction in number of opioid prescriptions issued; 

•Number of individuals attending educational sessions; 

•Increase in number of patients finding timely access to treatment facility; 

•Reduction in number of patient relapses; 

•Reduction in hours spent to recovery independence; 

•Number of times transportation arranged for appointments;  

•Number of enrollments of uninsured patients; 

•Referrals to other public benefits and community resources. 

²⁰ S. Kripalani, et al, “Reducing Hospital Readmission: Current Strategies and Future Directions,” Annual Review of Medicine, [website], https://www.annualreviews.org/doi/10.1146/annurev-med-022613-090415 

²¹ I. Liao, “5 Real-Time & Remote Patient Monitoring Trends,” MPO Magazine, [website], August 2018, https://www.mpo-mag.com/contents/view_online-exclusives/2018-08-22/5-real-time-remote-patient-monitoring-trends/7970 

²² “Focus On Cost Savings Through Streamlining Clinical Workflow Processes Drives the Healthcare IT Market, According to New Report by Global Industry Analysts, Inc.,” PRWeb, [website], July 2019, https://www.prweb.com/releases/ healthcare_it_market/ electronic_health_record/ prweb11718606.htm 

²³ “Remote Healthcare (mHealth, Tele-ICUs, & Virtual Health) Market - Global Outlook and Forecast 2018-2023,” Research and Markets, [website], March 2018, https://www.researchandmarkets.com/research/d9cmmq/global_remote?w=4 

²⁴ “Asia-Pacific Remote Patient Monitoring Systems Market-Growth, Trends and Forecast (2019-2024)”, Mordor Intelligence, [website], https://www.mordorintelligence.com/industry-reports/asia-pacific-remote-patient-monitoring-system-market-industry 

²⁵ “Provisional Drug Overdose Death Counts,” Center for Disease Control, National Center for Health Statistics,” [website], https://www.cdc.gov/nchs/nvss/vsrr/drug-overdose-data.htm 

- 26 -

The lucrative reimbursement policy introduced by the government agencies promoting the use of telemedicine and virtual health services is driving the market in North America. The U.S. and Canada are the major revenue contributors to the market in North America. Further, the increasing investments in research and development and technological innovations will help major players in the North American region occupy a larger market share over the next few years.

Barriers to Entry

Despite the significant potential benefits to outcomes and patient satisfaction that may accrue through the leveraging of patient-generated health data (“PGHD”) in clinical care, data ownership remains a barrier to greater use of PGHD in some circumstances. Though the collection and use of PGHD is intuitive to experienced patients, inclusion of such data represents a shift in the way medicine has been practiced. Taking an active role in the collection and management of data about one’s health status increases patient activation, which is strongly related to better health outcomes in multiple conditions.

Patients’ and providers’ use of mobile health (“mHealth”) apps provide a framework for assessing the role mHealth can play in medicine and as a source of PGHD. Physicians use social media primarily for personal use (60%), though accessing healthcare news (21%), communicating with peers (18%), marketing the practice (11%), and communicating to patients (4%) are also practiced. Among physicians who choose not to use social media, concerns about patient privacy (52%), lack of time (51%), concerns about liability (42%), the belief that social media has little professional value (40%), and lack of familiarity (23%) are cited most frequently. In 2014, two-thirds of physicians surveyed reported using a mobile app to check medication interactions, diagnose a condition, access EHRs, check results, create clinical notes, and prescribe electronically, and more than a third of U.S. physicians recommended their patients use health apps.²⁶

Questions related to provider licensure pose another potential barrier to the routine use of mHealth. When a patient has his or her radiograph read, many current U.S. state laws require that it be read by a physician licensed in the state where the patient is located and had the radiograph. PGHD can raise special issues. For example, if a patient lives in New York and has an mHealth device that continues to monitor certain aspects of his or her health and the patient crosses three states and then travels into the EU, does the patient’s physician need to be licensed in each of the other three states and in the applicable country in the EU when the data is transmitted from that state or country in the EU? Within the United States, most states require that the out-of-state physician receive an unrestricted license in the state in which the initial patient interaction occurred.  Some states issue a telemedicine license to facilitate practice across state lines when the physician holds an unrestricted license in another state.  In the radiograph situation, the imaging physician is reading the radiograph at one point in time and billing for that service. With the monitoring of an individual’s health information continuously, the clinician may be being paid to manage the patient’s condition or his or her overall care.  The special privacy and confidentiality issues can raise important mHealth implications. It is important that vendors and healthcare systems coordinate their efforts to minimize these issues.  

Competitive Landscape

Countless smaller companies around the world are innovating in this sector and are now offering everything from Bluetooth connected toothbrushes and bathroom scales (weight loss or gain is a key indicator of health and disease state) to “wearable’s” that capture everything from body temperature, pulse rates, respiratory rates and blood pressure monitoring to game-changing technologies such as non-invasive blood glucometers that sample blood sugar level several times per second – continuously – without requiring lancets and the drawing of blood samples.

Medical clinics, on a global scale, are already adopting technologies that allow them to provide better healthcare to a wider population base.  Insurance companies and HMOs also continue to seek the highest quality healthcare with the highest return on investment by leveraging modern technologies to provide better care to a greater population base at lower cost.

There are a large number of companies offering some form of wireless and remote technologies, patient data processing applications and equipment, and electronic medical record data transfer equipment. Competitors supplying advanced patient monitoring and telehealth systems to hospitals are large, established healthcare companies, often working in conjunction with information technology (“IT”) companies on an entire system. The home healthcare and other sectors are much more fragmented and are dominated by privately held companies. In addition, some companies supply innovative products, but only for a small segment of the market; and some companies supply products on a regional basis only.

There is a worldwide interest in “connected health” with major companies such as Philips, Nokia, Apple, IBM, Microsoft and Google, all investing heavily in sensors and sensor systems for healthcare, connectivity and RPM. Traditional telecommunications companies like AT&T, Verizon and a host of others are also investing heavily in healthcare systems and in the RPM market.

Major players in the global RPM market include Abbott Laboratories, Aerotel Medical Systems, AMD Global Telemedicine, Inc., BIOTRONIK SE & Co. KG, Boston Scientific Corporation, GE Healthcare Ltd., Honeywell Life Care Solutions, Intelesens Ltd., LifeWatch AG, Masimo Corporation, Medtronic Plc, Mindray North America, Nihon Kohden Corporation, Omron Healthcare, Inc., Philips Healthcare, Qualcomm Life, Inc., St. Jude Medical Inc., and Welch Allyn, Incorporated.

²⁶Petersen C, DeMuro P. Legal and regulatory considerations associated with use of patient-generated health data from social media and mobile health (mHealth) devices. Appl Clin Inf 2015; 6: 16–26 http://dx.doi.org/10.4338/ACI-2014-09-R-0082 

- 27 -

Intellectual Property (Remote Patient Care)

The Company, through Assignment Agreements with La Frontera Community Solutions, Inc., acquired all worldwide rights, title and interest in and to the patent applications for the technology underlying the Fotodigm®  platform and systems.

Key Patented and Patent-Pending Concepts

•Diagnostic Monitoring 

•Data Driven Outcomes  

•Remote Patient Monitoring  

•Remote Patient Biometrics  

•Remote Patient Diagnostics  

•Remote Medication Monitoring 

•Remote Medication Delivery 

•Remote Medication Reconciliation   

For more information on these patent applications, please see “INTELLECTUAL PROPERTY SUMMARY“ section below.  

Government Regulations

The FDA regulates certain medical devices and also certain mobile medical apps. On September 25, 2013, it issued a Final Guidance that defines “mobile medical app,” as a mobile app that (1) meets the definition of a “device” in the Federal Food, Drug and Cosmetic Act and (2) is intended to be used as an accessory to a “regulated medical device” or to transform a platform into a “regulated medical device.” The Guidance grouped mobile medical apps into three categories: 1) apps that are actively regulated, (e.g., a mobile medical app that monitors the patient’s blood glucose levels and calculates the amount of insulin needed based on the patient’s condition, age, weight, etc.); 2) apps that are subject to enforcement discretion, (e.g., a mobile medical app that provides a patient an alert as to when to take his or her medications); and 3) those that are not considered devices and thus are not regulated (e.g., a mobile medical app that merely provides general healthcare information available on the internet, not directed to a specific patient).

The FDA guidance addresses data security because patients and other users may experience severe consequences should the device lack adequate data protection or be hacked. The guidance does not address the protection of privacy. Rather, privacy is protected by Health Insurance Portability and Accountability Act (“HIPAA”), where applicable. When patients’ health information is in the possession of health providers, health plans, business associates, or other covered entities, it is protected under HIPAA; when it is transmitted among individuals or organizations that are not covered entities under HIPAA, it is not protected. Accordingly, health information transmitted via a mobile device by a covered entity is protected under HIPAA privacy and security rules. However, this same information transmitted via a non-covered entity under HIPAA is not protected. HIPAA also does not cover information on an individual’s mobile device.

Patient-generated health data (“PGHD”) is merely data of the patient if a patient checks their blood glucose levels with a mobile device. If, however, he or she uses the device to transmit that information to their clinician for the purpose of monitoring that person’s care and the information becomes part of the patient’s electronic health records (“EHR”), the PGHD then falls under HIPAA.

The Federal Trade Commission (“FTC”) is not hesitant to file complaints against companies that it believes fail to reasonably protect the security of consumers’ personal data, including medical information. In August 2013, FTC filed a complaint against LabMD, Inc., alleging that the medical testing laboratory exposed the personal medical information of more than 9,000 consumers by placing the information on a peer-to-peer file-sharing network. The filing followed the discovery of the personal information of several hundred consumers who used LabMD’s services in the possession of identity thieves. In this case, as in an earlier case against a medical transcription firm that exposed personal medical information on the public internet, FTC is acting to enforce HIPAA’s security requirements.  

The Company makes patient security an utmost priority.  With the Company’s secure HIPAA-compliant cloud-based system, a patient can have confidence that their personal HER, EMR and PGHD is protected with the highest level of technology available.

FTC also regulates misleading claims. If in the sale or distribution of a mobile medical app or device one makes claims about what the device can do, FTC can bring an action to make the individual or entity cease and desist from making such claims. In 2013, FTC published a written guidance and a short video for mobile app developers that offer advice on creating apps that protect users’ privacy and comply with truth-in-advertising principles.

- 28 -

Principal Suppliers

As of December 31, 2018, the principal suppliers of the medical devices utilized with the Fotodigm® platform were:

•Amazon Web Services, Seattle, WA	HIPAA-compliant secure server environments for hosting and management of Fotodigm® platform
•La Frontera’s Empact Suicide Prevention Center, Tempe, AZ	Largest CARF (Commission on Accreditation of Rehabilitation Facilities) certified behavioral health suicide prevention call center in United States.
•Royal Phillips, Inc. 1070 MX Amsterdam, The Netherlands	Primary RPM software and hardware supplier; platform built upon Salesforce.com infrastructure providing clinical, monitoring center, and patient management portals for mobile and desktop access.

The Company relies upon these suppliers to provide the majority of the delivery of its remote patient monitoring systems and services.  The services are web-based and although the Company relies on these vendors, it can also hold them accountable, receive volume-based pricing, discounts and partnership advantages through the competition of its suppliers. The Company has the ability to change vendors at any time in all service and product lines. Further, the Company is working towards the elimination of its reliance on software and hardware providers related to its in-home RPM offerings and services.

PATENTED REBOOT™ TECHNOLOGY

Overview

On April 26, 2017, the Company completed the acquisition of 100% of certain intellectual property from ProEventa Inc., a Virginia Corporation (“ProEventa”), in accordance with the Intellectual Property Purchase Agreement between the Company and ProEventa (the “ProEventa Agreement”). ProEventa has an expertise in the development of behavioral health technologies, and is the wholly-owned subsidiary of Grafton Integrated Health Network, Inc., a non-profit Virginia corporation (“Grafton”), Pursuant to the ProEventa Agreement, in exchange for 100% of that certain intellectual property, among other things, consideration to ProEventa included:

•a stock purchase agreement to purchase 2,500,000 shares of the Company’s Common Stock; and 

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

•a royalty agreement, providing for a royalty of 3% of the revenues generated from the intellectual property, ending at such time as the Company has paid ProEventa $25,000,000; and 

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

On April 26, 2017, in conjunction with the ProEventa Agreement, the Company entered into a consulting agreement with James Gaynor, founder of ProEventa, that, among other things, provides for consideration to Mr. Gaynor as follows:

•a stock purchase agreement to purchase 500,000 shares of the Company’s Common Stock at $0.001 per share; and 

•a grant of options to purchase 1,000,000 shares of the Company’s Common Stock at a price of $0.25 per share, vesting annually over a three (3) year period beginning September 1, 2017. 

With the completion of this acquisition, the patented technology entitled “Platform for Optimizing Data Driven Outcomes,” is added to the Company’s patent portfolio.  

Product History

For over a decade, Grafton School, Inc. (“Grafton”), a Virginia corporation, perfected a manual system of outcomes developed by Dr. Lisa Marshall and James Gaynor, that re-invented utilizing cloud computing and the internet.  In March 2014, ProEventa, Inc. (a Latin word meaning, “Good Outcomes”), and wholly-owned subsidiary of Grafton, was formed, and began marketing the software based on rights granted by Grafton. REBOOT™ (“REBOOT™”), an acronym for Reliable Evidence-Based Outcomes Optimization Technology, is the behavioral health platform, and was developed to provide goal obtainment through mastery of skills in a customized and fully automated data analysis and intervention model.

The technology is supported by applied behavioral analytics and over 25 years of efficacy studies and reduction to practice at Grafton, combined with over $3.75 million-dollar invested to transition the system to a cloud-based platform with mobile applications.

- 29 -

Goal Mastery ²⁷

In 2004, Grafton Health’s CEO, Jim Gaynor, asked his leadership team to provide the percentage of goals clients at Grafton mastered annually overall and within specific programs and services. While observations and anecdotal reports from Grafton providers and stakeholders indicated clients were showing improvement in their identified goal areas, there was not a system in place to provide an actual goal mastery rate. Out of this request, Grafton’s “Goal Mastery Initiative” was created.

The goal mastery process was designed to provide a structured and sustainable system to identify, monitor, and evaluate client progress and to embed data-based decision-making into the transdisciplinary treatment and instruction planning. There are several steps to this process: (1) conducting a thorough assessment of the individual’s strengths and needs, (2) writing goals that are functional, measurable, and specific to the needs, (3) collecting data, typically on a weekly basis, (4) graphing data and comparing them to a Minimum Growth Line, (5) determining level of progress according to a specific standard, and (7) providing a reporting mechanism to identify goal mastery rates at all levels within the organization. When the data trend indicates the goal is not on track for mastery, six primary decision-support factors (Six M’s) are explored to help the transdisciplinary team evaluate the situation and make recommendations for changes to treatment and instruction. After an initial baseline goal mastery rate of 35% when this initiative first started and progressive increases over the year, Grafton has maintained a goal mastery rate at or above 80% for the past several years.

The Company has licensed the improved REBOOT™ technology platform for systems integration into the diagnostics and remote patient care systems.  The next step in the Company’s commitment to data-based decision-making is the introduction of website and mobile technology to support the goal mastery process. The REBOOT™ technology will be made available to organizations, individual providers, and family members who want to effectively track individuals’ progress and use the Company’s evidence-based process for increasing goal mastery.

Ultimately, through the goal mastery process and the deployment of REBOOT™, the Company will continue to provide individuals with the support they need to make meaningful and sustainable improvements in their functioning and quality of life.

Product Strategy

The patented feature set of the REBOOT™ platform allows it to provide progressive-predictive analytics and goal optimization intelligence on concurrent and compounding goals for an individual or group of people. Its’ utility is broad and has use cases in many vertical growth markets.

The product strategy is to enter the market through the healthcare initiative of the Company’s remote patient care and diagnostics divisions. The integration of REBOOT™ is a key differentiating advantage within the remote patient care market.  The software can be harnessed to assess and prioritize patient goals, provide interventions, track behavioral data and provide meaningful feedback toward goal obtainment, as well as real time decision support with robust progress reporting. The resulting decision and patient support, combined with the remote patient care and diagnostics technologies, make for a technology advantage and a feature set that is designed to take away market share from competitors and capture new client accounts in healthcare field focused on doctors, nursing operations, and hospitals.

The technology can be marketed through user licensing or enterprise licensing contracts within the healthcare market, in both platform and supported mobile applications, including the Company’s application known as COMPASS™ (“COMPASS™”).

The Company believes that healthcare organizations for the first time will have the opportunity to “scale” their patient adherence programs while having visibility into its effectiveness and bottom-line impact. Individual users will have a goal wizard, virtual coach and rules engine that will help create a path toward wellness. With personalized analysis, decision support and “goal” mastery feedback, the individual will be primed, guided and motivated to adhere to their treatment plan.

REBOOT™ is also applicable to many vertical markets outside healthcare.  The short-term strategy is to monetize the patented technology in healthcare, and license to non-competitive companies within other market verticals. The Company is assessing and prioritizing the licensing prospects.  The management team is also monitoring and identifying patent infringement, and some, already identified, are being assessed for licensing value.

Behavioral Healthcare Industry

Per a Behavioral Health Services 2016 Report by Capstone Partners, the demand for behavioral health services will continue to grow due to increased awareness and affordability of mental health and substance abuse treatment options. According to the Substance Abuse and Mental Health Services Administration (“SAMHSA”), expenditures on mental health and substance abuse treatment are estimated to have reached $239 billion in 2014. By comparison, expenditures only totaled $42 billion in 1986 and $121 billion in 2003. More specifically, revenues generated by the substance abuse treatment industry reached an estimated $29.8 billion in 2015, a 3.5% growth over the prior year and 2.9% annual growth rate since 2006. Industry revenues are expected to grow 2.6% annually to reach $33.9 billion by 2020. There are a variety of factors that impact growth of the substance abuse treatment market, including development of new treatments, drug availability and healthcare reform.

²⁷ Grafton Integrated Health Network® 

- 30 -

Industry Drivers

Increased Exposure to Drugs and Alcohol

In the United States, illicit drug use and alcoholism have grown significantly among all age groups due to increased availability of prescription drugs and medication. This has resulted in an unfortunate trend of increased prescription medication abuse by secondary school and college-aged young adults.

Development of New Treatments and Programs

Clinical advancements in therapy and medication management have yielded new and better procedures for both psychological and detoxification treatments. Over the past several years, medication-assisted opioid therapy, which allows patients to rid their system of substance dependence through new-aged medication treatments, has led to an increased demand for treatment. Another driver is the future need for clinics to provide youth, elderly and gender-specific programs.

Healthcare Reform and Affordability

Healthcare in the U.S. has undergone significant changes in recent years that are favorable for the substance abuse treatment industry. Healthcare reform, specifically the Affordable Care Act (“ACA”), the Mental Health Parity and Addiction Equity Act (“MHPAEA”) and the Medicaid Certified Match Substance Abuse Program (“MCMSAP”), has led to more affordable substance abuse treatment.

Growth in Private Insurance

In the five years following the 2014 health insurance exchange implemented by healthcare reform, the number of people with private health insurance is predicted to significantly increase.

Increased Awareness

One of the biggest challenges for the industry has been the reluctance of substance abusers and addicts to undergo treatment. Individuals afflicted by substance abuse typically refuse treatment due to the social stigma associated with admitting they have a problem or lack of knowledge about the treatments available. However, recent efforts by health and government agencies have resulted in greater public awareness and acceptance of substance abuse as a disease.

Autism Disorder and Treatment Industry

Although the specific causes of autism are still not known, one thing is. The rate is increasing, and the market for treatment is growing.

Based on new government data, as of 2017, 1 in 45 children in the United States, aged 3-17, have autism. This is up from only 1 in 150 children back in 2000.

Research firm, Market Data’s March 2018 report entitled, “The U.S. Autism Treatment Market,” states that market data analysts estimate that there are currently 1.4 million American children with autism. Another 700,000 adults have autism, having “aged out” of children’s programs, and, 81% of autistic children are male.

The total annual costs for children with Autism Spectrum Disorder (“ASD”) in the United States in 2017 were estimated to be between $11.5 billion and $60.9 billion - a significant economic burden.

Insurance coverage is a problem, but the share of children with access to insurance coverage is expected to increase from the 36% level today. In addition, the number of self-funded private employers covering autism treatment continues to grow.

Autism Treatment Options

In the past, it was thought that the best way to treat the symptoms of autism was to medicate. Data suggest that approximately 58% of patients with a diagnosis of childhood autism receive some type of pharmaceutical treatment. However, this segment of the market has been shrinking in value as concerns continue over the side effects of commonly used drugs.

Today, this attitude is changing, as Applied Behavior Analysis (“ABA”) programs have become more widespread and have displayed good outcomes. There are basically three types of ABA program providers: brick and mortar centers, community providers, and in-home therapists.

Many autism treatment organizations, and some of the largest competitors, are located in California. This is due to the fact that funding for treatment programs has been in place there since the 1990s, prior to the insurance mandates that were later put into place.

- 31 -

Market Opportunities

With healthcare costs continuously on the rise, REBOOT™ is positioned to be unique as an evidenced based, cost-effective approach in improving patient care.  The selection of the healthcare market as the Company’s focal effort is a choice based upon the market size and market demand for outcomes improvement across the market that is both target rich and highly scalable.

•An estimated one in four adults (about 60 million Americans) experiences mental illness in a given year.²⁸ 

•About 14 million people live with a serious mental illness.²⁹ 

•Approximately 20% of youth ages 13 to 18 experience severe mental disorders in a given year. 28 

•7% of American adults live with major depression.29 

•An estimated 18% of American adults live with anxiety disorders (e.g., panic disorder, OCD, PTSD). 28 

•About 9 million adults have co-occurring mental health and addiction disorders. 28 

•20 million Americans suffer from substance abuse. 28 

In addition, there is a critical mental health provider shortage creating significant access to care issues:

•Only 40% of Americans with mental illness report receiving treatment. 28 

•One mental health provider exists for every 790 individuals. ³⁰ 

•Approximately 4,000 Mental Health HPSA (professional shortage areas) exist which is based on a psychiatrist to population ratio of 1:30,000 -- meaning it would take approximately 3,000 additional psychiatrists to eliminate the current mental health HPSA designations. ³¹ 

•A report to Congress found that 55 percent of the nation’s 3,100 counties have no practicing psychiatrists, psychologists or social workers. ³² 

There exists an abundance of opportunities for the Company that are focused on the use of the patented REBOOT™ technology. The market opportunities currently being pursued for REBOOT™ include, but are not limited by:

•Integration within Parallax’s remote patient care platform for goal obtainment and mastery within healthcare operations. 

•Integration within Parallax’s COMPASS™ mobile smartphone applications targeted at and focused on specific user applications including, but not limited to, remote patient care, doctor decision support, patient empowerment, population health, ASD (Autism), chronic disease management and hospital readmissions reduction.  

•Development alongside the SPARKS Mobile, Parallax’s patented handheld POC analyzer, featuring immunoassay blood testing and FDA-cleared tests, to enable a complete suite of platform-based offerings for medical practitioners, including individual doctor’s offices, doctor groups, accredited nursing, and hospital operations.  

Management is seeking additional opportunities with or in the study of the following markets:

•Environmental 

•Economic 

•Healthcare 

•Enterprise licensing 

•E-learning applications 

•Professional sports 

•Fitness  

Management is also in the process of identifying the comprehensive patent landscape, and determining the best course and greatest value accretion in the prospective markets that will be approached through the patents and intellectual property licensing, including the market values related to patent infringement and outbound licensing opportunities centered around REBOOT™ as well as the adjacent assets held by Parallax.

Autism Market ³³

The U.S. autism treatment market was estimated to be valued at $1.85 billion as of 2016, growing to $1.87 billion last year. Market data forecasts 3.9% average yearly growth, to $2.23 billion by 2022. This could be conservative, as insurance coverage is improving. In addition, venture capital firms are starting to take notice of investment opportunities in this market.

The average ABA center grosses about $821,000, and many are non-profit organizations. Many programs now have waiting lists, and there is a shortage of qualified supervisors.

Nine large multi-site ABA program providers operate an estimated 296 brick and mortar centers, and employ thousands of therapists. Together, they account for about $390 million in revenues, representing a 38% market share of ABA programs.

²⁸https://www.nami.org/learn-more/mental-health-by-the-numbers  

²⁹http://www.lb7.uscourts.gov/documents/12-cv-1072url2.pdf  

³⁰https://khn.org/news  

³¹https://www.kff.org  

³²https://www.jconline.com/story/news/2014/04/12/dire-shortage-of-psychiatrists-in-greater-lafayette-leaves-patients-waiting-months-for-help/7656745/  

³³https://blog.marketresearch.com/autism-treatment-programs-are-growing-a-1.8-billion-market-in-the-u.s  

- 32 -

Revenues of ABA programs are estimated to generate $1.07 billion in revenues in 2018, outpacing sales of prescription drugs used for autism symptoms.

Competitive Landscape

Parallax competes with other technology consulting companies, which provides the Company with key technological advantages over the competing companies in the remote patient care and diagnostics markets. Within licensing, Parallax competes with other value-based contracting and technology companies like Oracle, Accenture and IBM, that have taken the same systems integration go-to-market approach.

Intellectual Property (Behavioral Health)

The Company, through an Intellectual Property Purchase Agreement with ProEventa, Inc., acquired all rights, title and interest in and to the patent entitled “Platform for Data Driven Outcomes.” The patent has been granted in the U.S. under patent #10,061,812, and applications have been filed worldwide. It has been published in the UK under filing GB2526749. A third filing is pending issuance in Australia.  Along with the patents, the Company acquired the technology platform referred to as Reliable Evidenced Based Outcomes Optimization Technologies, or REBOOT™, a technology platform specifically designed to improve health treatment outcomes using proprietary applied behavioral analytics technology systems.

For more information on these patents and patent applications, please see “INTELLECTUAL PROPERTY SUMMARY” section below.  

Government Regulations

Mental health and substance abuse services are subject to many federal, state and local regulations regarding licensing, operations, facility ownership, reimbursement rates and procedures. These regulations and strict licensure requirements create high barriers to entry for the industry. Licensing prerequisites typically relate to the provider’s medical qualifications, personnel and equipment, staff-to-patient ratio, adequate records maintenance, rate-setting and compliance with standard building and safety codes. Expansion of substance abuse facilities are also subject to state regulations. The construction of new facilities; expansion of existing facilities; transfer or change of ownership; and the addition of new beds, services or equipment may be subject to state laws that require prior approval by regulatory agencies under Certificate of Need (“CON”) laws. CON laws generally require that a state agency determine the public need for construction or acquisition of facilities/addition of new services.

The HIPAA regulations also have a unique impact on the Company, as they impact the management and controls of the data it collects and encounter throughout the Parallax operations.  Also, the state and local governments’ Medicare and Medicaid payments and reimbursements require consistent and diligent management, both in following the advantageous changes in the move towards connected healthcare and greater reimbursements.  There are also regulations and requirements with each approved connected healthcare treatment.  Lastly, there are American Medical Association regulations over U.S. medical practices that affect how the Company’s business is operated, requiring both compliance and alignment with its customers, who require unique reporting and other data and service-related processes as a result of these, and other, regulations. 

Principal Suppliers

As of December 31, 2018, the principal suppliers for the Behavioral Health platform were:

•Amazon Web Services, Seattle, WA	HIPAA-compliant secure server environments for hosting and management of REBOOT™ and COMPASS™.
•La Frontera’s Empact Suicide Prevention Center, Tempe, AZ	Largest CARF-certified behavioral health suicide prevention call center in United States.

The Company relies upon these suppliers to provide the majority of the delivery of its behavioral health platform products and services.  The services are web-based and although the Company relies on these vendors, it can also hold them accountable, receive volume-based pricing, discounts and partnership advantages through the competition of its suppliers. The Company has the ability to change vendors at any time in all service and product lines. Further, the Company is working towards the elimination of its reliance on software and hardware providers related to its in-home behavioral health offerings and services.

INTELLECTUAL PROPERTY SUMMARY

Mr. Nathaniel T. Bradley, Chief Technical Officer (‘CTO”) for the Company, provides Intellectual Property protection recommendations for all of Parallax’s Intellectual Property, open patent applications and products, both domestically and internationally. Mr. Bradley informs the Company and its shareholders of the accurate and current state of the commercial patented coverage and, where possible, identifies the existence of novel and patentable inventions present in the current innovation initiative.  Mr. Bradley concluded that the Company has a strong patent portfolio protecting its business, and recommended that the Company aggressively proceed with additional patent applications to protect Parallax’s inventions and innovations.  

Patents, Patent Applications, Exclusive Licenses and Patent Portfolio Overview

I.The Company, through a License Agreements with Montecito BioSciences, Ltd., acquired the worldwide exclusive rights to sub-license, sell, have sold, make, have made, develop, have developed, further develop and modify, or to have further developed or modified, within the field of use set forth in the agreement, the following patents and/or patents pending: 

1. Patent 8,920,725 and 9,170,258 - “Portable Apparatus for Improved Sample Analysis” 

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

This Patent and pending application(s) cover the Company’s SPARKS Mobile™ hand-held analyzer, which is used in conjunction with the Target System test cartridges. The hand-held Target Analyzer device is capable of housing and analyzing two assay cassettes, and optionally features wired or wireless data transfer and multiple data acquisition components including a keypad, a touch-pad, a barcode wand and / or a finger print reader.  On August 23, 2013, the Company was notified that its Chinese Patent Application No. 200780039901.X “Portable Apparatus for Improved Sample Analysis” had been granted by the States’ Intellectual Property Office of the Peoples Republic of China. Patents were also issued in Hong Kong and Macao.  The Company filed in India under a New Indian Patent Application based on the PCT Application No. PCT/US2007/082499 The case is currently pending.

Following is the family of cases under Patent 8,920,725 and 9,170,258:

ApplicationCountryDate FiledStatusDate GrantedPatent Number 

1.60/863,241United States10/27/2006ProvisionalN/AN/A - continued under 1a 

1a.11/924,033 [1]United States10/25/2007AbandonedN/AN/A - continued under 1b 

1b.13/248,307United States09/29/2011Granted12/30/20148,920,725 B2 

1c.14/553,011United States11/25/2014Granted10/27/20159,170,258 B2 

1d.CN101558302China10/25/2007Granted08/23/2013CN200780039901.X 

1e.HK2010010103654Hong Kong10/25/2007Granted03/28/2014HK1137813 

1f.MO J/001298Macau10/25/2007Pending 

1g.IN785/MUMNP/2009India10/25/2007Pending 

[1]Patent Application US11/924,033 is being prosecuted worldwide.  The now abandoned EPO Application No. 07854420.2 was filed in the following designee countries: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Monaco, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Liechtenstein, Turkey and the United Kingdom.   

2. Application 14/492,641 - “Method for Determining the Immune Status of a Subject” 

The present invention, whose application has been abandoned, is a method for using levels of soluble Clusters of Differentiation (CD) proteins, or cell surface-localized CD proteins extracted from T lymphocytes for determining the immune status of a subject. The present invention also a kit containing a CD protein extraction means and at least one antibody which specifically binds a CD protein for use in carrying out the method of the invention. This family of cases covers a technique and kit for assessing immune status, e.g., in HIV patients, based upon the amount of soluble or surface-localized CD3-CD4, and / or CD8 protein present in a patient sample. This method and kit are an alternative to conventional cell sorting technologies and is owned by Montecito BioSciences, Ltd.

ApplicationCountryDate FiledStatusDate GrantedPatent Number 

2.60/845,395United States09/18/2006ProvisionalN/AN/A - continued under 2a 

2a.11/856,925United States09/18/2007AbandonedN/AN/A - continued under 2b 

- 33 -

3. Application 12/769,036 - “Method of Identifying Drugs, Targeting Moieties or Diagnostics” 

The present invention relates to a method for identifying a binding agent or epitope for use in drug design, drug targeting or diagnostics. The method employs contacting and sorting binding agents and cognate epitopes from collections thereof, characterizing the binding agent and cognate epitope, detecting the level or location of the epitope in a sample using the binding agent, and correlating the level or location of the epitope in the sample with the presence or stage of a disease or condition to identify novel drugs, targeting moieties, or diagnostic agents. This family of cases covers a technique for obtaining a population of antibodies that specifically binds to a corresponding population of antigens, without any a priori information about either population. The antigens identified by the method are subsequently characterized and correlated with the presence or stage of a disease or condition there by serving as a target for drug design, drug targeting or diagnostics.

ApplicationCountryDate FiledStatusDate GrantedPatent Number 

3.60/608,342United States09/09/2004ProvisionalN/AN/A - continued under 3a 

3a.11/221,038United States09/07/2005AbandonedN/AN/A - continued under 3b 

3b12/769,036United States04/28/2010Pending 

4. Patent 9,573,990 - “Method of Producing a Plurality of Isolated Antibodies to a Plurality of Cognate Antigens” 

The present invention relates to a method for producing high affinity antibodies that are antigen-specific. The method involves binding a plurality of antibody-producing B-cells from a mammal to a plurality of cognate antigens; sorting the bound antibody-producing B-cell and cognate antigen; amplifying nucleic acid sequences encoding each antibody, or fragment thereof, from the B-cells; and expressing each antibody in a protein expression system. Antibodies produced in this manner are useful in diagnostic and therapeutic applications. This family of cases covers a technique for obtaining a population of antibodies produced by B-cells, without any a priori information about the population of antibodies, and use of the same in an array for profiling antigen expression.

ApplicationCountryDate FiledStatusDate GrantedPatent Number 

4.60/608,526United States09/09/2004ProvisionalN/AN/A - continued under 4a 

4a.11/221,252United States09/07/2005AbandonedN/AN/A - continued under 4b 

4b13/253,366United States10/05/2011Granted02/21/20179,573,990 

5. Application 14/786,282 – “Flow Through Testing System with Pressure Indicator” 

This family of cases covers an improved assay cassette with pressure-sensitive microcapsules for ensuring that a sufficient reduction in pressure is achieved there by maximizing contact between the sample and analytic compound. A device for performing immunoassays on analytes. The device includes an immunosorbent membrane, an absorbent material, a piston component located below said absorbent material to draw analytes in a sample through the immunosorbent membrane into the absorbent material, and discrete groups of pressure-sensitive microcapsules located on the immunosorbent membrane.

ApplicationCountryDate FiledStatusDate GrantedPatent Number 

5.61/814,916United States04/23/2013ProvisionalN/AN/A - continued under 5a 

5a.14/786,272United States04/23/2014Pending 

5b.PCT14/35073United States10/22/2015Pending 

Summary of Open Applications available for continuation filings (from above):

2b. US14/492,641 - “Method for Determining the Immune Status of a Subject” 

3b. US12/769,036 - “Method of Identifying Drugs, Targeting Moieties or Diagnostics” 

5a. US14/786,272 – “Flow Through Testing System with Pressure Indicator” 

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

II.The Company, through an Assignment Agreements with La Frontera Community Solutions, Inc., acquired all worldwide rights, title and interest in and to the following patent applications and the invention in its entirety: 

1.Application 14/979,889 – “Remote User Monitoring System”  

A system and method for monitoring a status of a user. One or more biometrics associated with a user in a residence where the user resides are sensed. A status of the user is determined in response to sensing the one or more biometrics. One or more questions about the status to the user are communicated. One or more answers to the one or more questions communicated to the user are received. The status is communicated to an administrator of the residence. The status is communicated in response to one or more of the answers.

ApplicationCountryDate FiledStatusDate GrantedPatent Number 

1.14/979,889United States12/28/2015Pending 

2.Application 14/979,742 – “Remote Medication Delivery Systems” 

A system and method for medication delivery. Information is received indicating a user is scheduled to receive medication. A route between a dispensary storing the medication and a location of the user is determined. The medication is sent in a container from the dispensary to the location utilizing the route.

ApplicationCountryDate FiledStatusDate GrantedPatent Number 

2.14/979,742United States06/29/2017Pending 

For further information on the exclusive license of the Patent Applications above, and the complete text of the Intellectual Property Purchase Agreement, please refer to Exhibit 10.33 to the Company’s Current Report filed September 26, 2016 on Form 8-K.

- 34 -

III.The Company, through a License Agreements with ProEventa, Inc., acquired all rights, title and interest in and to the following patent applications and the invention in its entirety: 

1.Application 14/212,429 – “Platform for Optimizing Data Driven Outcomes” 

A computer-based method for tracking outcome specific data specifically for optimizing, managing, and tracking data driven outcomes. Process utilizes a multi-dimensional platform to facilitate data-driven outcomes processes through assessment, goal development, data tracking, graphing, and re-evaluation. The process allows for optimization of best practices, successful actions, and success-based plan execution, which is identified through automatic data-mining and analysis as well as user specified parameters, algorithms, and analytics.  The process can be utilized by a client, patient, student, service provider, program, product, service, device, organization, business, department, or so forth.  The tool can be utilized across various industries for client behavior management, educational instruction, school improvement activities, program evaluation, organizational key performance indicators, financial management, weight management, tracking insurance claims, or so forth. Also published as WO2014144749A1 Platform for optimizing data driven outcomes. Also published as GB2526749 Platform for optimizing data driven outcomes.  

This patent application covers the intellectual property known as “REBOOT™”, which stands for “Reliable Evidence Based Outcomes Optimization Technologies,” a structured, scalable and sustainable software system used to identify, monitor, and evaluate a single user or an entire organization's progress towards mastery of any achievable task, objective or goal.

ApplicationCountryDate FiledStatusDate GrantedPatent Number 

1.61/791,218United States03/15/2013ProvisionalN/AN/A - continued under 1a 

1a.14/212,429United States03/14/2014Pending 

1b.2014144749A1Worldwide09/18/2014Pending 

For further information on the exclusive license of the Patent Application above, and the complete text of the Intellectual Property Purchase Agreement, please refer to Exhibit 10.33 to the Company’s Current Report filed May 4, 2017 on Form 8-K.

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

Expired Patents

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

Patent #	Description	Date Filed in US	Date Expired
US4,748,042	Target ringing and spotting machine (method and apparatus for imprinting membrane with pattern of antibody)	May 31, 1988	May 31, 2008
US4,797,260	Target cassette (antibody testing system)	January 10, 1989	January 10, 2009
US5,137,691	Target cassette with removable air gap (antibody testing system with removable air gap)	August 11, 1992	August 11, 2012

Trademarks

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

Facilities

The Company’s principal executive office is located at 1327 Ocean Avenue, Suite B, Santa Monica, California, 90401, with operations during 2017 at 465 N. Roxbury Drive, Beverly Hills, CA 90210. The Company’s Beverly Hills location was closed in December 2017. The Company’s telephone number is (310) 899-4442 (phone) and (888) 899-3966 (fax).

For additional information on the leased properties in Beverly Hills, CA, see “ITEM 2. PROPERTIES“ section contained within this annual report.

Employees

As of December 31, 2018, the Company had 7 employees, inclusive of its 3 executive officers. All 7 employees were full-time employees.

The Company currently has 9full-time employees, inclusive of its 4 executive officers. All 9 employees are full-time employees.

Research and Development

The Company incurred $74,000 and $0 in expenditures during 2018 and 2017, respectively, relating to the research and development of its proprietary medical technology, including costs for patent consultants and filings, and costs incurred to develop new products.

Reports to Security Holders

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

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

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 1B. UNRESOLVED STAFF COMMENTS 

None.

- 35 -

ITEM 2. PROPERTIES 

The Company’s principal executive offices are located at 1327 Ocean Avenue, Suite B, Santa Monica, CA 90401.  The pharmacy operations located at 465 N. Roxbury Drive, Beverly Hills, CA 90210 ceased operations in December 2017, and the space was vacated in January 2018.  As of December 31, 2018, the Company sub-leases the Santa Monica space for approximately $5,600 a month.  This space is sufficient to meet its needs at December 31, 2018.  However, once the Company expands its business to a significant degree, it will require additional space. The Company does not currently own any real estate.

Dispute with Landlord-Beverly Hills, CA

Upon the completion of the acquisition of RoxSan Pharmacy, Inc., in August 2015, the Company became aware that the former owner, Shahla Melamed (“Melamed”), among other things, failed to properly notify the landlord or the Roxbury Drive property owners (the “Lessors”) of the change in ownership of the pharmacy, as required in the lease agreements.  Subsequently, in an effort to unwind the  acquisition of the pharmacy, Melamed attempted to undermine the Company’s efforts to obtain any lease assignment or new lease from the Lessors.  As a result, no lease assignments or lease agreements were made as of December 31, 2017, and the Company vacated the space in January 2018.

ITEM 3. 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 are the Company involved as a plaintiff in any material proceeding or pending litigation, beyond those defined below.  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 that is adverse to the Company’s interests.

Dispute with Former Owner of RoxSan

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

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

•Action No. SC 124873-Rescission Phase: 

In the Matter, action no. SC 124873, rescission was sought by Melamed on the basis that, allegedly, in order to acquire the Pharmacy, the Company and its principals had allegedly defrauded Melamed, there had allegedly been a complete failure of consideration, and a unilateral mistake was allegedly made on the part of Melamed.  Subsequently filed pleadings by the Company and RoxSan in action no. SC 124873 allege, among other things, that Melamed misrepresented the true earnings and source of income for the pharmacy business and had engaged in a fraudulent and illegal scheme to ship medications to states where her pharmacy was not licensed prior to the sale of the Pharmacy.

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

•Action No. SC 124873-Accounting Phase: 

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

Draft Ruling: On July 24, 2017, in the Matter, action No. SC124873, the Company was notified that the results of the reconciliation review performed by third-party adjudicator were in favor of the Company in the amount of $412,948.  Melamed objected to the adjudicator’s findings, and a final hearing was held in January 2019.  A final judgment is pending for the Court’s decision on the exact monies owed by Melamed to Parallax.

- 36 -

•Action No. SC125702: 

In the Matter, action No. SC125702, Melamed alleges that the Company is in default under the terms of the Purchase Agreement and Secured Note, and the Company’s termination of Melamed’s employment agreement.  The Company firmly believes that it had adequate grounds to justify the termination of the employment, that it acted within its rights, and shall prevail in these proceedings.  A trial date is pending.  In January 2019, Melamed requested mediation and is seeking settlement.

•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, Inc., et al. v. Shahla Melamed, et al.  The complaint in that action alleges that Melamed has breached several obligations under the Purchase Agreement, and the Company is seeking to reduce the Secured Note due to undisclosed material changes in the business. A trial date is pending.  In January 2019, Melamed requested mediation and is seeking settlement.

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

•Purchase Price Dispute 

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

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

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

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

•Control of Funds Dispute / US Postal Interference 

For a period of time immediately after the closing of the Acquisition, the Melamed would not relinquish control of the Pharmacy's bank accounts, and collected the Pharmacy's incoming cash revenues, refusing to transfer the funds to the new ownership. Furthermore, when the Company attempted to change the corporate records and signatories on the existing bank accounts, the former owner disputed the changes, resulting in approximately $180,000 in corporate funds being frozen and held for adjudication. During this period, the Company was forced to request that the former owner pay the Pharmacy's operating expenses.  At no time after the Company opened new accounts did the former owner cooperate with the transference or willingly relinquish control of the Pharmacy's operating cash flow or incoming cash revenues.

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

- 37 -

On May 14, 2018, pursuant to unanimous resolutions of the boards of directors of RoxSan Pharmacy, Inc. and Parallax Health Sciences, Inc., RoxSan filed a Chapter 7 petition in the United States Bankruptcy Court for the Central District of California (the “Court”).  Mr. Timothy Yoo was appointed trustee (“Trustee”) on May 15, 2018.  In connection with this filing, RoxSan seeks to discharge approximately $5 million of liabilities owed to various parties, and intercompany loans in excess of $1 million owed to Parallax.  The Chapter 7 bankruptcy proceeding by RoxSan Pharmacy, Inc. was fully discharged and the case was closed on March 13, 2019, in U.S. Bankruptcy Court, Central District of California.

Disputes with Former Executives

•Action No. CV2017-052804 

On March 9, 2017, Mr. Dave Engert filed a lawsuit in Arizona and then later changed the venue to Federal Court in Southern California claiming, among other issues, that monies are owed to him under his Consulting Agreement and that his termination was without cause.  On October 23, 2017, the Company filed a response 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, the Company reached a settlement with Mr. Engert, subject to the release of the bankruptcy Trustee in the RoxSan matter.  On January 22, 2019, the Trustee filed a “No Assets” report with the bankruptcy Court.  The order was released by the court and the settlement agreement is being concluded.

•Action No. BC700070 

On March 28, 2018, Mr. J. Michael Redmond filed a lawsuit against the Company and RoxSan Pharmacy, Inc. in the United States District Court, Central District of California for an amount exceeding $75,000.  The Company intends to vigorously defend against this action. There are counterclaims that include possible fraud and negligence committed by Mr. 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.

All five (5) legal matters are currently pending.

ITEM 4.MINE SAFETY STANDARDS  

Not applicable.

- 38 -

PART II

ITEM 5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  

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

Quarter Ended	High	Low
December 31, 2018	$0.11	$0.08
September 30, 2018	$0.13	$0.13
June 30, 2018	$0.21	$0.15
March 31, 2018	$0.24	$0.16
December 31, 2017	$0.11	$0.10
September 30, 2017	$0.24	$0.22
June 30, 2017	$0.21	$0.21
March 31, 2017	$0.24	$0.20

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

Record Holders

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

As of December 31, 2018, pursuant to Action Stock Transfer Corp., the Company’s shareholders' list showed 116 registered shareholders and 143,798,141 shares of Common Stock outstanding. The total shares of Common Stock outstanding does not include 14,315,000 shares to be issued, of which 375,000 are in Common Stock awards and purchases, 6,070,000 are debt conversions, 2,370,000 are in connection with debt settlements, and 5,500,000 which were unvested at December 31, 2018.

As of December 31, 2018, an aggregate of 1,013,691 shares of the Company’s Preferred Stock were issued and outstanding and are held by 10 shareholders. All 823,691 shares of Series A Preferred Stock and 40,000 shares of Series B Preferred Stock are convertible into the Company’s Common Stock at a conversion rate of 20 shares of Common Stock for each share of Preferred Stock held. Shares of Series C Preferred Stock are convertible into the Company’s Common Stock at a conversion rate of 41.67 shares of Common Stock for each share of Preferred Stock held.  Shares of Series B and Series C Preferred Stock include 50% warrant coverage (see Warrants).

Dividends

The Company has never declared or paid dividends on its Common Stock, nor does the Company anticipate paying dividends on its Common Stock in the foreseeable future.  Instead, the Company anticipates that all of its earnings, if any, will be used or the operation and growth of its business.  Further, any credit agreement the Company may expect to enter into may restrict its ability to pay dividends or make distributions to its stockholders.  Any future determination to pay dividends will be at the discretion of the Board and will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants, applicable law and other factors as the Board deems relevant.  

Dividends are payable semi-annually on the Company’s Series A Preferred Stock at a rate of 7% per annum, 10% per annum on Series B Preferred Stock, and 8% per annum on Series C Preferred Stock.  Dividends may be paid in kind, at the option of Parallax, to the extent that if the Company is not legally permitted to distribute cash dividends, the Company shall pay dividends in the form of shares of Preferred Stock equal to the amount of the dividend. No dividends have been declared on the Company’s Preferred Stock. Dividends in the amount of $362,252, representing cumulative dividends on Parallax’s Preferred Stock, were in arrears as of December 31, 2018.

- 39 -

Equity Compensation Plan Information

In 2015, the Board adopted and approved the 2015 Incentive Compensation Plan (“the 2015 Plan“), wherein ten million (10,000,000) shares of restricted Common Stock were reserved for issuance. The 2015 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 2015 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.

In 2016, the Board adopted and approved the 2016 Incentive Compensation Plan (“the 2016 Plan“), wherein ten million (10,000,000) shares of restricted Common Stock were reserved for issuance. The 2016 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 2016 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.

As of December 31, 2018, the Company has granted options to purchase an aggregate of 18,060,000 shares of its Common Stock, net of options exercised, expired and forfeited. In connection with the options granted, a total of $3,051,306 has been recorded as deferred stock option compensation, of which $1,082,970 was expensed in prior years, and $572,870 was expensed in 2018.  There remains $1,395,466 in deferred stock option compensation to be expensed over the next twenty-one (21) months.

Warrants

In connection with 823,691 shares of Series A Preferred Stock issued and outstanding as of December 31, 2018, the 15,262,491 underlying warrants have expired.

In connection with 40,000 shares of Series B Preferred Stock issued and outstanding as of December 31, 2018, the Company issued warrants to purchase 400,000 shares of Common Stock at an exercise price of $0.75 per share for a period of two (2) years.

In connection with 150,000 shares of Series C Preferred Stock issued and outstanding as of December 31, 2018, the Company issued warrants to purchase 3,125,000 shares of Common Stock at an exercise price of $0.25 per share for a period of three (3) years.

In connection with certain convertible promissory notes issued in 2018, the Company issued warrants to purchase 25,000 shares of Common Stock at an exercise price of $0.25 per share for a period of three (3) years.

In connection with certain consulting agreements entered into in 2018, the Company issued warrants to purchase 450,000 shares of Common Stock at an exercise price of $0.25 per share for a period of three (3) years.

In connection with certain related party convertible promissory notes issued in 2018, as amended, the Company issued warrants to purchase 1,688,750 shares of Common Stock at an exercise price of $0.10 per share for a period of three (3) years.

In connection with certain convertible promissory notes issued in 2018, as amended, the Company issued warrants to purchase 6,000,000 shares of Common Stock at an exercise price of $0.10 for a period of three (3) years.

In connection with a certain consulting agreement entered into in 2018, the Company issued warrants to purchase 300,000 shares of Common Stock at an exercise price of $0.001 for a period of five (5) years.

In connection with a certain consulting agreement entered into in 2018, the Company issued warrants to purchase 250,000 shares of Common Stock at an exercise price of $0.25 for a period of three (3) years.

In connection with certain convertible debentures issued in 2018, the Company issued warrants to purchase 600,000 shares of Common Stock at an exercise price of $0.15 per share for a period of five (5) years.

In connection with a certain consulting agreement entered into in 2018, the Company issued warrants to purchase 75,000 shares of Common Stock at an exercise price of $0.01 for a period of two (2) years.

In connection with 10,000 shares of Series B Preferred Stock, the 100,000 underlying warrants expired December 2, 2018.

As of December 31, 2018, the Company had 21,232,500 warrants issued and outstanding.  The number of shares of Common Stock underlying the warrants and the exercise price are subject to adjustment upon certain events.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

The Company did not purchase any shares of its Common Stock or other securities during the year ended December 31, 2018.

- 40 -

Recent Sales of Unregistered Securities

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

On January 11, 2018, pursuant to a resolution of the Board, the Company issued 6,000,000 shares of its restricted Common Stock to certain officers and directorsas follows: 5,000,000 shares to Calli R. Bucci, an officer and director, and 500,000 shares each to John L. Ogden and Edward W. Withrow Jr., directors.  The shares were purchased at par, or $0.001 per share, for  $6,000, of which $1,000 was cash and $5,000 was stock compensation. ³⁴

On January 19, 2018, in connection with an equity offering, the Company issued 1,000,000 shares of its restricted Common Stock at a price of $0.04 per share to accredited investors, for cash in the amount of $40,000. 34

On January 29, 2018, in connection with a certain consulting agreement, the Company issued 250,000 shares of its restricted Common Stock to the consultant for services to be provided over a twelve (12) month period.  The shares were valued at $67,500, of which 25% vest immediately, and the remainder vest periodically over the term of the agreement. 34

In February 2018, in connection with certain senior secured promissory notes, the Company issued 440,000 shares of its restricted Common Stock to the note holders, accredited investors, as a form of interest.  The shares were valued at $44,000, of which $22,211 was expensed, $21,789 was deferred, to be amortized over the term of the notes, and $43,560 was recorded to paid in capital. 34

On April 5, 2018, in connection with a stock purchase agreement, the Company granted a key employee the right to purchase 1,000,000 shares of its restricted Common Stock at a price of $0.001 per share.  The shares, valued at $200,000, were issued for cash in the amount of $1,000.  As a result, $199,000 was recorded to paid in capital. 34

On April 8, 2018, in connection with certain convertible debt in the amount of $45,000 and accrued interest of $3,114, the Company issued 481,130 shares of its restricted Common Stock to accredited investors at a conversion rate of $0.10 per share. 34

In May 2018, in connection with certain senior secured promissory notes, the Company issued 890,000 shares of its restricted Common Stock to the note holders, accredited investors, as a form of interest.  The shares were valued at $89,000, of which $62,583 was expensed, $11,417 was deferred, to be amortized over the term of the notes. 34

On June 30, 2018, in connection with the exercise of certain employee stock options, the Company issued 846,051 shares of its restricted Common Stock at a conversion rate of $0.05 per share.  The shares were issued on a cashless basis, resulting in a net value of $269,325. 34

On July 28, 2018, in connection with certain senior secured promissory notes, the Company issued 150,000 shares of its restricted Common Stock to the note holders, accredited investors, as a form of interest.  The shares were valued at $15,000. 34

In August 2018, in connection with certain senior secured promissory notes, the Company issued 440,000 shares of its restricted Common Stock to the note holders, accredited investors, as a form of interest.  The shares were valued at $44,000. 34

On August 10, 2018, in connection with the Company’s convertible Series C Preferred Stock (“Series C Shares”) equity offering, an accredited investor was issued 20,000 Series C Shares at a price of $5.00 per share, for cash in the amount of $100,000.  The Series C Shares are convertible into shares of the Company’s restricted common stock at a ratio of 41.67 shares of common stock for each share of preferred stock held ($0.12) for a period of one (1) year from the date of issuance; or thereafter at the lower of (i) $0.12 per share or (ii) a 33% discount of (a) the Company’s next primary offering or (b) any new equity linked financing within the next 24 months of the closing date of the Series C Shares offering.34

On August 11, 2018, in connection with the Company’s Series C Shares equity offering, an accredited investor was issued 40,000 Series C Shares at a price of $5.00 per share, for cash in the amount of $200,000. 34

On August 12, 2018, in connection with certain convertible debt in the amount of $10,000 and accrued interest of $1,000, the Company issued 110,000 shares of its restricted Common Stockto an accredited investor at a conversion rate of $0.10 per share. 34

On August 13, 2018, in connection with the exercise of certain employee stock options, the Company issued 1,071,430 shares of its restricted Common Stock at a conversion rate of $0.05 per share to Calli R. Bucci, an officer and director.  The shares were issued on a cashless basis, resulting in a net value of $187,500. 34

On August 20, 2018, in connection with certain convertible debt in the amount of $150,000 and accrued interest of $15,000, the Company issued 1,650,000 shares of its restricted Common Stockto an accredited investor at a conversion rate of $0.10 per share. 34

On August 28, 2018, in connection with certain convertible debt in the amount of $20,000 and accrued interest of $2,000, the Company issued 220,000 shares of its restricted Common Stockto an accredited investor at a conversion rate of $0.10 per share. 34

On September 28, 2018, in connection with certain senior secured promissory notes, the Company issued 150,000 shares of its restricted Common Stock to the note holders, accredited investors, as a form of interest.  The shares were valued at $15,000. 34

On September 30, 2018, in connection with certain convertible debt in the amount of $50,000, the Company issued 625,000 shares its restricted Common Stock to an accredited investor at a conversion rate of $0.08 per share.  As a result, $49,375 was recorded to paid in capital. 34

On September 30, 2018, in connection with the Company’s Series C Shares equity offering, Paul R. Arena, Calli R. Bucci and Nathaniel T. Bradley, officers and directors of the Company, were each issued 30,000 Series C Preferred shares, for an aggregate of 90,000 Series C Shares, at a price of $5.00 per share, in exchange for debt in the principal sum of $450,000. 34

On November 1, 2018, in connection with a certain consulting agreement, the Company issued 600,000 shares of its restricted Common Stock to the consultant for services to be provided over a twelve (12) month period.  The shares were valued at $85,500, and vest monthly over the term of the agreement. 34

As of December 31, 2018, a total of $3,272,500 in deferred stock compensation was recorded, of which $1,028,498 was expensed in prior years, and $1,095,193 was expensed in 2018.  There remains $1,148,809 in deferred stock compensation as of December 31, 2018, to be expensed over the next thirty (30) months.

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 were 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) as transactions by an issuer not involving any public offering. 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.

³⁴ The securities were issued by the Company to accredited investors and/or officers/directors, were not part of a public offering, were not solicited or advertised, and are exempt from registration under Section 4(a)(2) and Rule 506(b) of Regulation D promulgated thereunder. 

- 41 -

ITEM 6.SELECTED FINANCIAL DATA  

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 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

Forward-Looking Statements

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

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.

Unless otherwise specified, all dollar amounts are expressed in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. All references to “Common Stock” refer to the common shares; and “Preferred Stock” refer to the preferred shares; of the Company’s capital stock.

You should read the following discussion of the Company’s results of operations and financial condition with the consolidated financial statements and related notes included elsewhere in this annual report. The Company intends for this discussion to provide you with information that will assist you in understanding the Company’s financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes.

NOTE: The following sections of this 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. The Company’s former wholly-owned subsidiary, RoxSan Pharmacy, Inc., was derecognized effective May 14, 2018. (See “RoxSan Pharmacy” and “Legal Proceedings” sections contained within this annual report.)

Corporate History

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

- 42 -

The Parallax business was founded on the Company’s point of care diagnostic business, Parallax Diagnostics, Inc., in 2010, when the Company acquired the right, title, and interest, through an exclusive license with Montecito BioSciences, Ltd. (“MBS”), to develop, manufacture and commercialize the Target System, an immunoassay point-of-care diagnostic testing system. Concurrently, through an Assignment Agreement with MBS, the Company acquired the right, title, and interest to twenty-five (25) FDA-cleared tests in the area of infectious disease, medical conditions, drugs of abuse, cardiac and pregnancy, that are designed to be utilized with the Target System.

In August 2015, the Company acquired RoxSan Pharmacy, Inc. (“RoxSan” or the “Pharmacy”).  In December 2017, the Pharmacy ceased operations, and in May 2018, RoxSan filed a Chapter 7 bankruptcy petition.  See “Dispute with Former Owner of RoxSan” below.  

On August 31, 2016, the Company entered into an agreement with Qolpom®, Inc., an Arizona corporation in the remote healthcare monitoring and telehealth business (“Qolpom®”) and its shareholders (the “Seller”) to purchase 100% of the issued and outstanding shares of Qolpom®’s common stock and its assets, inventory and intellectual property.  The agreement was fully executed on September 20, 2016, and the transaction was completed. The consideration for the acquisition resulted in a fair market value of $290,000, and goodwill of $785,060.  In addition, the agreement included contingent royalties and revenue sharing for future revenues generated from the Qolpom® technology. The Qolpom® name was later changed to Parallax Health Management, Inc. (“PHM”).

On March 22, 2017, the Company formed Parallax Behavioral Health, Inc. (“PBH”), a Delaware corporation and wholly-owned subsidiary, and on April 26, 2017, completed the asset acquisition of 100% of certain intellectual property (“Intellectual Property”) from ProEventa Inc., a Virginia Corporation (“ProEventa”), in accordance with the Intellectual Property Purchase Agreement between the Company, PBH and ProEventa (the “ProEventa Agreement”). ProEventa has an expertise in the development of behavioral health technologies, and is the wholly-owned subsidiary of Grafton Integrated Health Network, Inc., a non-profit Virginia corporation (“Grafton”). Pursuant to the ProEventa Agreement, the initial consideration for the Intellectual Property was paid to ProEventa in the form of a stock purchase agreement to purchase 2,500,000 shares of the Company’s Common Stock for $2,500, resulting in a net cost for the Intellectual Property of $622,500.  In addition, the Agreement included conditional contingent royalties and revenue sharing for future revenues generated from the Intellectual Property.

On September 20, 2018, the Company formed Parallax Communications, Inc, a Delaware corporation and wholly-owned subsidiary of Parallax Health Management, Inc.

Changes in Management

On April 6, 2017, the Company’s board of directors (the “Board”) elected Mr. J. Michael Redmond as Chairman, to serve until the next annual meeting of the shareholders, in accordance with the Company’s bylaws, and/or until his successor is duly appointed, or a resignation is duly tendered.

Effective July 6, 2017, the Board caused the departure of Mr. Redmond from his position as President and Chief Executive Officer of Parallax and RoxSan Pharmacy, Inc.

Effective July 7, 2017, pursuant to a unanimous Board resolution, Mr. Paul R. Arena was appointed as the Company’s President and Chief Executive Officer, and the Board caused Mr. Arena's election to the Board and the board of directors of the Company’s wholly-owned subsidiaries, Parallax Health Management, Inc. and Parallax Behavioral Health, Inc.

On July 26, 2017, Mr. Jorn Gorlach resigned as a member of the Board.  This resignation did not involve any disagreements with us.

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

Dispute with Former Owner of RoxSan

On August 13, 2015, the Company completed the acquisition of RoxSan Pharmacy, Inc. (“RoxSan” or the “Pharmacy”).  Shortly thereafter, the Company's management and the former owner (“Former Owner” or “Melamed”) clashed over control of the RoxSan Pharmacy business operations and bank accounts.

•Purchase Price Dispute 

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

- 43 -

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

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

•Control of Funds Dispute / US Postal Service Interference 

For a period of time immediately after the closing of the acquisition, the Former Owner would not relinquish control of the Pharmacy's bank accounts, and collected the Pharmacy's incoming cash revenues, refusing to transfer the funds to the new ownership. Furthermore, when the Company attempted to change the corporate records and signatories on the existing bank accounts, the Former Owner disputed the changes, resulting in approximately $180,000 in corporate funds being frozen and held for adjudication. During this period, the Company was forced to request that the Former Owner pay the Pharmacy's operating expenses.  At no time after the Company opened new accounts did the Former Owner cooperate with the transference or willingly relinquish control of the Pharmacy's operating cash flow or incoming cash revenues.

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

As a result, an extensive reconciliation was performed to determine what amounts were collected and paid by the Former Owner, and what amounts were due to the Company.  The reconciliation resulted in over $412,000 owed to the Company from the Former Owner.  The reconciliation and underlying documentation went under judicial review, and on July 24, 2017 the Company was notified that the results of the review were in favor of the Company in the amount of $412,948.  A final judgment is pending for the exact amount of monies owed to the Company from the Former Owner.

Faced with Melamed continuing to materially interfere with the Pharmacy’s operations to the detriment of its business, the Company retained the services of an employment law firm to investigate Melamed's actions and provide a report to the Company’s Board (the "Report").  The Company also placed Melamed on a paid leave of absence because of her actions. The Board, after reviewing the findings in the Report, found substantive cause for Melamed's termination, and immediately sent Melamed written notification of the Company's intent to dismiss her for cause.  Under the Employment Agreement, Melamed was provided with a thirty (30) day cure period.  However, the Company received no response of intent to cure from Melamed or her counsel, and no evidence of a cure was provided to the Company.  As a result, the Board authorized Melamed's termination for cause on March 3, 2016, and on March 6, 2016, Melamed was formally terminated in writing.

In the course of management’s operation of the RoxSan Pharmacy, and adherence to Financial Accounting Standards Board revenue recognition policies, management became concerned with the absence of the claim processing for over $16 million of pre-Close Workers Compensation prescription revenues, which Melamed represented to the Company prior to Closing as being the vast majority of the high margin compound revenue. In addition to the $16 million in pre-Close claims, the Pharmacy generated over $8 million after the change in ownership, until the CFO alerted management of a serious and dramatic change in the receivables collection timetable, the underpinning cash flow processes, and the potential illegitimacy of the Workers Compensation revenues. Further, the CFO was uncomfortable with recognizing the revenue as it was presented by Melamed's financial records, and, in the absence of any reasonable assurance of collectability of the Workers Compensation revenues, the Company established an allowance for doubtful receivables for the $8 million in post-Close claims for which collectability was highly unlikely.

The Company retained the services of a forensic Workers Compensation fraud specialist to determine the legitimacy of the pre-Close Workers Compensation revenues and related insurance claims.  As a result of this forensic review, it was determined that these claims were essentially valueless.  As a result of these findings and undisclosed changes to the cash flow and quality of earnings that represented a majority of the revenue of the Pharmacy, the Company’s Board deemed it necessary to demand a reduction in the terms of the Sale and Purchase Agreement to more accurately reflect the true valuation of RoxSan.  This was met with resistance on the part of the Seller.

Shortly thereafter, in October 2015, Melamed, initiated two (2) legal actions against the Company in the Superior Court of the State of California, County of Los Angeles, West District, Shahla Melamed v. Parallax Health Sciences, Inc., action numbers SC 124873 and SC 125702.

- 44 -

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

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

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

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

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, Inc., 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.

On May 14, 2018, pursuant to unanimous resolutions of the boards of directors of RoxSan Pharmacy, Inc. and Parallax Health Sciences, Inc., RoxSan filed a Chapter 7 petition in the United States Bankruptcy Court for the Central District of California (the “Court”).  Mr. Timothy Yoo was appointed trustee (“Trustee”) on May 15, 2018.  In connection with this filing, RoxSan seeks to discharge approximately $5 million of liabilities owed to various parties, and intercompany loans in excess of $1 million owed to Parallax.  The Chapter 7 bankruptcy proceeding by RoxSan Pharmacy, Inc. was fully discharged and the case was closed on March 13, 2019, in U.S. Bankruptcy Court, Central District of California.

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.  The Company has retained a tax resolution specialist and is in communications with the taxing agencies in order to resolve RoxSan’s liability.

As a result of the loss of financial control of RoxSan, the Company derecognized the subsidiary as of September 30, 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.

Disputes with Former Executives

On March 9, 2017, Mr. Dave Engert filed a lawsuit in Arizona and then on or about May 5, 2017, Mr. Engert, changed the venue and filed suit against the Company and RoxSan Pharmacy, Inc. in the United States District Court, Central District of California for an amount exceeding $75,000.  The Company filed an answer and counterclaims against Mr. Engert for an amount exceeding $100,000.  The counterclaims included 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, the Company reached a settlement with Mr. Engert (the “Engert Settlement”), subject to the release of the bankruptcy trustee in the RoxSan bankruptcy matter.  On January 22, 2019, the Trustee filed a “No Assets” report with the Court.  The order was released by the court and the settlement agreement is being concluded.

On March 28, 2018, Mr. J. Michael Redmond filed a lawsuit against the Company and RoxSan Pharmacy, Inc. in the United States District Court, Central District of California for an amount exceeding $75,000.  The Company intends to vigorously defend against this action. There are counterclaims that include possible fraud and negligence committed by Mr. 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.

For additional information on these proceedings, see “ITEM 3. LEGAL PROCEEDINGS“ section contained within this annual report.

- 45 -

Extinguishment of Debt

As a result of the loss of financial control and derecognition of the subsidiary, RoxSan Pharmacy, Inc., the Company extinguished $22,778,281 in debt and accrued interest related to the acquisition of RoxSan.

In addition, management determined that there is no future sacrifice of economic benefit arising from certain debt previously recognized by the Company to transfer assets or provide services in the future.  As a result, certain notes and loans payable in the amount of $95,975, accrued interest in the amount of $56,892, and accounts payable in the amount of $284,714, were extinguished, and a loss of $357,853 was recognized from a debt exchange transaction.  

The total gain on extinguishment of debt for the year ended December 31, 2018 was $22,858,009.

Description of Business  

Parallax Health Sciences, Inc. 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 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 Company has developed, acquired and licensed multiple platforms, proprietary and exclusive, that provide services and products across the healthcare continuum.  These platforms are designed to allow for multiple points of reciprocal consideration through innovative business models that provide patients with increased quality of services and products at reduced cost of time and money.  They also provide healthcare providers with increased access to their patients, the ability to deliver better and more efficient service and increase their income from the services they supply.

The Company believes that the Parallax Care™ products and services can provide solutions that mitigate rising costs, reduce waste in spending and the amount of unnecessary services, and increase the health and wellness of patients.  The Company’s endeavors to change the healthcare industry are strengthened by providing solutions to real problems facing healthcare stakeholders today.  The Company’s products and services have been developed, and are continuing to be developed, to address these issues now.

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 

The Company’s REBOOT™ technology, an acronym for “Reliable Evidence-Based Outcome Optimization Technology,” is at the heart of the Company’s behavioral technology provides reliable evidence-based outcome optimization through a patented machine learning platform.  REBOOT™ has been specifically designed to improve health treatment outcomes through internet-based and mobile behavioral technology systems that enable its users and user groups to more effectively achieve goals within a prescribed timeline, with the potential to transform the cost of treating and managing chronic illnesses such as pulmonary-COPD-asthma, diabetes, and cardiovascular disease by effecting the modification of behavior in patients being treated for these chronic diseases.  The REBOOT™ technology, developed and commercially tested for over 5 years at a cost exceeding $4,000,000, provides reliable evidence-based outcome optimization through a patented machine learning platform delivered through:

•A cloud-based software system, scalable for use from one patient to over 100 million; 

•A mobile application, COMPASS™, that is interchangeable from one disease to another, and one patient to another; and 

•A stratification tool, WIZARD™, which was developed specifically to support scalability of the REBOOT™/ COMPASS™ platform.   

REBOOT™ can be sold as a product line into certain defined verticals, independent of, or in combination with, the Company’s connected healthcare and data platforms, products and services.  The REBOOT™ technology is currently protected by patents issued in U.S., China, India, and Hong Kong and Macao.

•Connected Health 

Fotodigm®

Fotodigm® is the Company’s patent-pending, integrated, interoperable, cloud-based platform, that allows for ease of use of the Company’s proprietary products and services and third-party Plug-n-Play interfaces. Designed with increased accessibility and accelerated adoption in mind, Fotodigm® enables patients and doctors to use a singular, integrated, interoperable platform for:

•Telehealth;  

•Remote Patient Monitoring (“RPM”); 

•Point-of-Care (“POC”) testing; 

•Healthcare education services.  

- 46 -

Fotodigm® provides simple, cost-effective, accessible and affordable products and services that deliver industry breakthrough advantages.  The Fotodigm® construct was developed to provide payers, patients and providers with the ability to choose and interchange their services, and be able to interchange where the healthcare practitioner deems it the best course of action. The Fotodigm® system is being developed to utilize a proprietary Machine Face Recognition engine along with proven and existing Optical Character Recognition (“OCR”) technology through third-party license.  The technology has been beta tested and utilized in the field by patients within remote patient monitoring systems for the reduction of hospital readmissions.

•The Target System 

The Target System is the Company’s proprietary diagnostic immunoassay testing platform and test cartridges designed for twenty-five specific FDA-cleared tests in areas of infectious diseases, cardiac markers, drugs of abuse and various other medical conditions. The Target System is comprised of:

•the VT-1000, an FDA-cleared, clinically and commercially proven bench-top quantitative and qualitative immunoassay testing system specifically designed to reside in the primary care physician office; 

•the SPARKS Mobile, a patented (US, China, India, Hong Kong and Macao) mobile testing system that incorporates the VT-1000 feature set with smartphone capabilities (to be completed before commercialization, includes design and build, then certification); 

•25 FDA-cleared rapid tests in the areas of: 

•Cardiac;  

•Infectious diseases;  

•Medical conditions;  

•Drugs of abuse;  

•Pregnancy. 

•the Target Antigen Detection System (“TADS”),  a unique, patented single-use device cartridge that allows for positive, controlled sample processing, a system of specific immune reactions to detect individual disease conditions, and a quick response diagnostic system that provides answers to specific screening problems under ten minutes. 

The Target System has the capacity to test hundreds of conditions, and is to be offered to doctors for use at the doctors’ offices and at patients’ homes, or in triage and ambulatory environments.

The Target System is not commercially available at this time, as the product is currently in redesign and development, with a primary focus on developing the SPARKS Mobile™, the patented handheld mobile version of the VT-1000 desktop analyzer.

•Smart Data 

Parallax’s Intrinsic Code™ is the Company’s unique Smart Data patient data collection and repository system.  Intrinsic Code™ not only identifies the traditional data from patients, but is also designed to provide actionable insights into the behavioral changes in patients, which has resulted in increased adherence to their medical regimens and pharmacologic therapies.  These insights are extremely valuable to pharmaceutical companies, as medication nonadherence creates false efficacy results of therapies in the manner in which they were designed, tested and provided regulatory approval upon. Payers are deeply concerned with the data on adherence to medical and medication therapy regimens, as it directly affects their financial performance.

Management

Parallax is led by experienced veterans from the healthcare, technology, finance and management fields.  The Company's disciplined and organized approach is balanced by its optimism for the future, and the opportunities present in the current healthcare market. The Parallax team is grounded in a belief that success in business is built on a combination of research, planning and execution.

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  

Parallax has developed 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 using optical character recognition, otherwise known as “Machine Face Recognition” technology that is licensed from others.

- 47 -

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 

In April 2017, the Behavioral Health Services 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 December 31, 2018, 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.  

The following summary of the Company’s financial condition and results of operations should be read in conjunction with the Company’s audited consolidated financial statements for the years ended December 31, 2018 and 2017, which are included herein. 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 December 31, 2018, the Company had total assets of $1,364,357 compared with total assets of $1,752,036 at December 31, 2017. The decrease in total assets of $387,679 is attributable to an increase in cash of $79, a decrease in accounts receivable, net of allowance for doubtful accounts, of $3,275, a decrease in current assets held for sale of $51,961, a decrease in intangible assets of $10,000, $120,620 of amortization related to intangible assets, and a decrease in noncurrent assets held for sale of $201,902.

As of December 31, 2018, the Company had total liabilities of $7,314,811 compared with total liabilities of $28,190,825 at December 31, 2017. The decrease in total liabilities of $20,876,014 is attributable to a decrease in accounts payable and accrued expenses of $393,210, an increase in short-term derivative liability of $23,925, an increase in short-term debentures, net of unamortized discount, of $724,903, an increase in related party short-term debentures of $411,006, an increase in convertible notes payable of $294,294, an increase in related party payables of $375,153, a decrease in license fees payable of $460,000, an increase in royalties payable of $110,000, an increase in long-term derivative liability of $34,000, an increase in long-term debentures, net of unamortized discount, of $184,870, a decrease in unsecured notes payable of $95,975, a decrease in related party convertible notes payable of $100,000, repayments of secured notes payable of $9,245, a decrease in unamortized discount of $3,145,000, a decrease in long-term secured promissory notes of $20,500,000, and a decrease in liabilities subject to compromise of $4,620,735.

Results of Operations

The year ended December 31, 2018, compared to the year ended December 31, 2017

	For the year ended
	December 31, 2018			December 31, 2017
Revenue	$	11,739		$	94,937
Cost of sales	$	20,339		$	142,044
Gross profit (loss)	$	(8,600	)	$	(47,107	)
General and administrative expenses	$	6,626,063		$	4,125,612
Operating loss	$	(6,634,663	)	$	(4,172,719	)
Gain on disposal of subsidiary	$	4,478,268		$	––
Gain on extinguishment of debt	$	22,858,009		$	––
Loss on fair value adjustments	$	(123,875	)	$	––
Discount amortization	$	(2,805,000	)	$	(5,450,000	)
Interest expense, net of income	$	(2,164,530	)	$	(1,018,479	)
Net income (loss) – continuing operations	$	15,608,209		$	(10,641,198	)
Net income (loss) – discontinued operations	$	(824,398	)	$	(3,153,553	)
Net income (loss)	$	14,783,811		$	(13,794,751	)

- 48 -

Revenue

Revenue in the amount of $11,739 for the year ended December 31, 2018, consists contract fees and equipment sales related to the Company’s remote health care systems in the amount of $9,939, and subscription fees related to the Company’s behavioral health services in the amount of $1,800.

Revenue in the amount of $94,937 for the year ended December 31, 2017, consists of contract fees and equipment sales related to the Company’s remote health care systems in the amount of $93,737, and subscription fees related to the Company’s behavioral health services in the amount of $1,200.

The Company’s behavioral health services segment had not yet begun full operations, generating limited test market sales.  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 $20,339 for the year ended December 31, 2018, consists of equipment and other costs related to the Company’s remote health care systems.

Costs of sales in the amount of $142,044 for the year ended December 31, 2017, consists of equipment and other costs related to the Company’s remote health care systems.

The Company’s behavioral health services segment had not yet begun full operations, generating limited test market sales.  The Company has not yet fully launched the medical diagnostics and testing activities of the Company’s Connected Health division.

General and Administrative Expenses

	For the year ended
	December 31, 2018		December 31, 2017		Variances
Legal, accounting, and management services	$	2,279,281	$	741,553	$	1,537,728
Stock compensation/stock option amortization		3,513,710		2,601,608		912,102
Salaries, taxes and benefits		360,226		619,574		(259,348	)
Depreciation and amortization		120,620		83,739		36,881
Rent expense-office		73,351		8,148		65,203
Travel, meals and entertainment		50,767		23,900		26,867
Office supplies and miscellaneous expenses		228,108		47,090		181,018
Total general and administrative expenses	$	6,626,063	$	4,125,612	$	2,500,451

General and administrative expenses in the amount of $6,626,063 for the year ended December 31, 2018, were comprised of $2,279,281 in legal, accounting and management fees, $3,513,710 in stock compensation/stock option amortization, $360,226 in salaries and related taxes and benefits, $120,620 in depreciation and amortization, $73,351 in rent expense, $50,767 in travel, meals and entertainment, and $228,108 of office overhead and other general and administrative expenses.

General and administrative expenses in the amount of $4,125,612 for the year ended December 31, 2017, were comprised of $741,553 in legal, accounting and management fees, $2,601,608 in stock compensation/stock option amortization, $619,574 in salaries and related taxes and benefits, $83,739 in depreciation and amortization, $8,148 in rent expense, $23,900 in travel, meals and entertainment, and $47,090 of office overhead and other general and administrative expenses.

General and administrative expenses for the year ended December 31, 2018, were $6,626,063 as compared to $4,125,612 for the year ended December 31, 2017, which resulted in an increase in general and administrative expenses for the current year of $2,500,451.

Significant changes in general and administrative expenses of $2,500,451 during the year 2018 compared to 2017 were attributable to the following items:

•an increase in legal, accounting and consulting services of $1,537,728, primarily due to an increase in legal costs of $480,598 resulting from pending litigation and other matters requiring legal counsel; an increase from the establishment of a $250,000 reserve for anticipated future legal costs related to pending litigation; an increase of $112,441 resulting from consultants retained for litigation and valuation purposes in the current year, compared to no such expense in the prior year; a decrease in accounting and audit fees of $164,786 due to a change in auditors in the prior year, resulting in 2016 and 2017 audit fees charged by the newly engaged audit firm in the prior year, compared to only 2018 fees charged in the current year; an increase management consulting fees of $824,225 resulting from changes in management; and an increase in miscellaneous management fees of $35,250; and 

- 49 -

•an increase in stock compensation/stock option amortization of $912,102, primarily due to an increase in stock awards, resulting in an increase in stock compensation of $926,944; an increase in deferred compensation for stock awards, resulting in an increase in stock award amortization expense of $42,863; the issuance of additional stock options, resulting in an increase in stock option amortization of $301,392; and fully amortized stock options, resulting in a decrease in stock option amortization of $359,097; and  

•a decrease in salaries and fees, and related taxes and benefits of $259,348 primarily due to a decrease in compensation of $18,798, and employee benefits of $73,715, resulting from a decrease in staff; a decrease in payroll tax expense of $131,335 resulting from a reduction in accrued compensation and related payroll taxes; and a decrease in miscellaneous fees for outside services in the amount of $35,500; and 

•an increase in depreciation and amortization of $36,881, primarily due to  the acquisition of additional intangible assets in the prior year, resulting in partial year amortization expense in the prior year compared to a full year amortization in the current year; and 

•an increase in rent expense for office space of $65,203, due to vacating certain temporary office space and the reallocation of primary office space; and 

•an increase in travel, meals and entertainment of $26,867, primarily due to an increase in travel costs of $5,209; a one-time relocation cost incurred in the current year of $20,000, and an increase in meals and entertainment of $1,658; and  

•an increase in office supplies and miscellaneous expenses of $181,018, due to an increase in automobile expense of $40,371, computer and internet costs of $9,814, transfer agent fees of $10,935, patent and product development costs of $73,896, storage and moving of $31,343, communication costs of $10,712, and other general office and administrative expenses of $3,947. 

General and administrative expenses for both 2018 and 2017 were incurred for the purpose of advancing the Company closer to its financing and operating goals in the bio-medical and digital healthcare sectors.

Net Income (Loss)

During the year ended December 31, 2018, the Company generated net income from continuing operations of $15,608,209, compared with a net loss from continuing operations of $10,641,198 for the year ended December 31, 2017. The increase in net income of $26,249,407 is attributable to a decrease in gross losses of $38,507, an increase in general and administrative expenses of $2,500,451, an increase from the gain on disposal of subsidiary of $4,478,268, an increase from the gain on extinguishment of debt of $22,858,009, a decrease in discount amortization of $2,645,000, and an increase in interest expense of $1,146,051.

Liquidity and Capital Resources

Working Capital							Increase
	December 31, 2018			December 31, 2017			(Decrease)
Current assets	$	262		$	55,419		$	(55,157	)
Current liabilities		5,115,692			3,679,621			1,436,071
Working capital (deficit)	$	(5,115,430	)	$	(3,624,202	)	$	(1,491,228	)

As of December 31, 2018, the Company had cash in the amount of $262 compared to $183 as of December 31, 2017.

The Company had a working capital deficit of $5,115,430 as of December 31, 2018, compared to a working capital deficit of $3,624,202 at December 31, 2017. The increase in working capital deficit of $1,491,228 is primarily attributable to an increase in cash of $79; decreases in accounts receivable of $3,275, and current assets held for sale of $51,961; increases in short-term derivative liability of $23,925, short-term debentures of $724,903, related party short-term debentures of $411,006, convertible notes payable of $294,294, and related party payable of $375,153; and a decrease in accounts payable and accrued expenses of $393,210.

Cash Flows	For the year ended						Increase
	December 31, 2018			December 31, 2017			(Decrease)
Net cash used by operating activities	$	(1,291,984	)	$	(1,351,195	)	$	59,211
Net cash used by investing activities		––			––			––
Net cash provided by financing activities		1,332,005			1,392,500			(60,495	)
Net cash provided (used) by continuing operations	$	40,021		$	41,305		$	(1,284	)
Net cash provided (used) by discontinued operations		(39,942	)		(51,032	)		11,090
Net increase (decrease) in cash	$	79		$	(9,727	)	$	9,806

During the year ended December 31, 2018, the Company used $1,291,984 of cash flow for operating activities of continuing operations, compared with $1,351,195 for the year ended December 31, 2017. The decrease in cash used by operating activities of $59,211 is primarily attributable to an increase in net income from continuing operations of $26,249,407; increases in depreciation and amortization of $36,881, stock compensation/stock option amortization of $912,102, losses from fair value adjustments of $123,875, and debt accretion of $1,107,753; decreases in discount amortization of $2,645,000, and allowance for bad debt of $3,764; decreases resulting from the gain on disposal of subsidiary of $4,478,268, and the gain on extinguishment of debt of $22,858,009; an increase in the changes in accounts receivable of $4,271, accounts payable and accrued expenses of $249,220, and related party payables of $1,365,139; and a decrease in the changes in prepaid expenses of $2,690.

- 50 -

Cash Flows from Investing Activities

During the years ended December 31, 2018 and 2017, the Company used no cash flow for investing activities.

Cash Flows from Financing Activities

During the year ended December 31, 2018, the Company was provided with $1,332,005 in cash flows from financing activities of continuing operations, compared to $1,392,500 during the year ended December 31, 2017. The decrease in cash flows provided by financing activities of $60,495 is attributable to an increase in repayments of notes payable of $9,245, an increase in proceeds from convertible notes payable of $84,000, an increase in repayment of convertible notes payable of $50,000, a decrease in proceeds from the issuance of related party convertible notes payable of $300,000, an increase in proceeds from the issuance of debentures of $225,000, an increase in proceeds from the issuance of preferred shares of $150,000, and a decrease in the proceeds from the issuance of Common Stock of $160,250, of which $2,500 was in connection with the acquisition of certain intangible assets.

As of December 31, 2018, related parties are due a total of $1,906,826, consisting of $869,859 in accrued compensation owed to officers; $134,861 in cash advances from officers and beneficial owners to the Company for operating expenses; $411,006 in convertible debentures; and $491,100 in related party convertible notes payable.

The Company has issued a convertible promissory note to a related party in the aggregate sum of $491,100, representing cash loans and unpaid compensation.  The note bears interest at a rate of 7% per annum, matures December 31, 2023, and contains a repayment provision to convert the debt into restricted shares of the Company’s Common Stock at a conversion rate of $0.10 per share.  During the year ended December 31, 2018, interest in the amount of $20,378 was expensed, of which $798 was paid to the note holders in cash.  As of December 31, 2018, a total of $74,060 in interest remains accrued.

The Company exchanged related party convertible promissory notes in the aggregate principal of $337,750 and related accrued interest and penalties of $128,132, into convertible debentures in the aggregate principal of $428,132, dated November 14, 2018 (the “Effective Date”).  The convertible debentures bear interest at a rate of 12% per annum, mature February 29, 2019, and are convertible into restricted shares of the Company’s Common Stock at a conversion rate of $0.10 per share, or, in the event of default has occurred or the date of conversion is 120 days after the Effective Date, the lesser of (a) $0.10 or (b) 70% of the second lowest traded price for the 20 trading days immediately preceding the date of conversion.  During the year ended December 31, 2018, interest on the convertible promissory notes in the amount of $102,755 was expensed.  As of December 31, 2018, no accrued interest remains.

The Company’s principal sources of funds have been from the Company’s sales of its Preferred and Common Stock, and loans from related parties and third-party lenders.

Defaults

The following represents the obligations previously in default at December 31, 2018, as a result of cash flow constraints, which have been cured to the satisfaction of the noteholder:

Debt Type	Principal		Default APR	Maturity	Date Cured	Aggregate Settlement
Convertible Promissory Notes	$	100,000	20%	05/2018	08/2019	$	435,000	[1]

[1]Consists of $125,000 in new no-convertible promissory note, $30,000 in cash and 2,400,000 shares of Common Stock, valued at $280,000. 

A convertible promissory note in the principal sum of $100,000 matured in May 2018.  Due to cash flow constraints, the note went into default.  In August 2019, a settlement was reached with the noteholder, the terms of which include the issuance of a new non-convertible promissory note in the amount of $125,000, a cash payment in the amount of $30,000, and 2,400,000 shares of the Company’s Common Stock, valued at $280,000, at which time the default was cured. The new promissory note bears interest at a rate of 8%, and matures August 2020.

In addition to the defaults disclosed above, $111,000 of the Company’s short-term indebtednessat December 31, 2018, has been extended by verbal agreement from its original maturity date. Under the verbal agreements, the noteholders have agreed to extend the due date until such time as the Company completes its August 2019 private placement offering; or the noteholders opt to convert the debt into common stock.  With the exception of the extension the maturity date, the terms of the notes under verbal agreement remain the same as the original notes, which bear interest at a rate of 10%-12% per annum, and are convertible into restricted shares of the Company’s Common Stock at a conversion rate of $0.10 per share.  As of the date of this filing, no demand for payment or request for conversion has been made.  

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 2018, the Company established a private placement equity offering for the purchase of Series C convertible Preferred Stock (the “Series C Shares”).  The offering provides for, among other thing, the purchase of Series C Shares at a price of $5.00 per share, with a minimum unit of 20,000 shares, or $100,000.  All Series C Shares are convertible into Common Stock at a conversion rate of $0.12 per share, or a ratio of 41.67 shares of Common Stock for each Series C Share held (41.67:1) (“Conversion Ratio”) if converted within one (1) year, or a lesser Conversion Ratio after one year.  The Company issued $750,000 of Series C Preferred to various accredited investors; including three persons who are officers and directors of the Company that converted deferred compensation in the aggregate of $450,000. The issuances also included warrants to purchase Common Stock for a period of 3 years at an exercise price of $0.25 per share, the number of warrants of which is determined at 50% of the prevailing Conversion Ratio. The Series C offering is closed to further investors.

In November 2018, the Company exchanged non-related party convertible promissory notes in the aggregate principal of $600,000, and related accrued interest of $155,627, for convertible debentures (“Debentures”) in the aggregate principal of $755,627. The Debentures bear an interest rate of 10% per annum, mature February 28, 2019, and are convertible into restricted shares of the Company’s Common Stock at a conversion rate of $0.12 per share. During the year ended December 31, 2018, interest on the convertible promissory notes in the amount of $155,627 was expensed.  As of December 31, 2018, no accrued interest remains.

- 51 -

In November 2018, the Company also issued $250,000 in debentures at a discount of 10%, for $225,000 cash.  The debentures bear an interest rate of 10% per annum, mature November 14, 2021, and are convertible into restricted shares of the Company’s Common Stock at a conversion rate of $0.12 per share.

In 2019, the Company issued convertible promissory notes in the principal sum of $585,000 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 an average conversion price of $0.12 per share.

On July 3, 2019, the Company issued Senior Secured Notes (the “Senior Notes”) for proceeds in the aggregate principal sum of $220,000. The Senior Notes bear interest at a rate of 8% per annum, and mature 180 days from issuance. As additional consideration, 1,200,000 shares of the Company’s restricted common stock is being issued to the note holders, valued at $190,200.

In August 2019, the Company amended the private placement equity offering (the “Offering”) originally 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 at the Company’s discretion, to be determined.  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.

Personnel

As of December 31, 2018, the Company had 7 employees, inclusive of its 3 executive officers. All 7 employees were full-time employees.

Currently, the Company has 9 employees, inclusive of its 4 executive officers. All 9 employees are full-time employees.

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 $19,190,922, and further losses are anticipated in the development of its business. The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, which may not be available at commercially reasonable terms. There can be no assurance that the Company will be able to generate profitable operations and/or continue to raise funds, in which case the Company may be unable to meet its obligations and the Company may cease operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

The audited consolidated financial statements included with this annual report have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that the Company’s assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the audited 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 audited 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 involved with the following aspects of the Company’s financial statements is critical to an understanding of its consolidated financial statements.

- 52 -

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

ITEM 7A.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 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  

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

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

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as at December 31, 2018 and 2017	F-2
Consolidated Statements of Operations for the years ended December 31, 2018 and 2017	F-3
Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2018 and 2017	F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017	F-5
Notes to the Consolidated Financial Statements for the years ended December 31, 2018 and 2017	F-6

- 53 -

FREEDMAN & GOLDBERG

CERTIFIED PUBLIC ACCOUNTANTS

A PROFESSIONAL CORPORATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Parallax Health Sciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Parallax Health Sciences, Inc., and subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Correction of Material Misstatement in Previously Issued Financial Statements

As discussed in Note 2 to the financial statements, the 2017 and 2018 consolidated financial statements have been restated to correct a misstatement.

We have served as the Company’s auditor since 2016.

/s/ Freedman & Goldberg

Freedman & Goldberg, C.P.A.s, P.C.

Farmington Hills, Michigan

March 29, 2019, except for the effects of the restatement described in Note 2 of the notes to the consolidated financial statements as to which the date is October 21, 2019.

31150 Northwestern Highway, Suite 200, Farmington Hills, Michigan 48334  (248) 626-2400  Fax (248) 626-4298

2444 East Hill Road, Grand Blanc, Michigan 48439  (810) 694-0336  Fax (810) 694-9789

Website: freedmangoldberg.com

- F-1 -

PARALLAX HEALTH SCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

	December 31, 2018			December 31, 2017
	As Restated			As Restated
ASSETS
Current assets
Cash and cash equivalents	$	262		$	183
Accounts receivable, net		––			3,275
Current assets held for sale		––			51,961
Total current assets		262			55,419
Intangible assets, net		579,035			709,655
Goodwill		785,060			785,060
Noncurrent assets held for sale		––			201,902
TOTAL ASSETS	$	1,364,357		$	1,752,036
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses	$	2,655,138		$	3,048,348
Derivative liability, short-term		23,925			––
Debentures, convertible		724,903			––
Debentures, convertible, related party		411,006			––
Notes payable, convertible, net of discount		296,000			1,706
Related party payables		1,004,720			629,567
Total current liabilities		5,115,692			3,679,621
Long-term liabilities
License fee payable		430,000			890,000
Royalties payable		310,000			200,000
Derivative liability, long-term		34,000			––
Debentures, convertible, net of unamortized discount		184,870			––
Notes and loans payable, unsecured		––			95,975
Note payable, convertible		720,154			144,000
Notes payable, related party, convertible		491,100			1,167,254
Notes payable, secured, net of unamortized discount		28,995			17,393,240
Total long-term liabilities		2,199,119			19,890,469
Liabilities subject to compromise		––			4,620,735
Total liabilities		7,314,811			28,190,825
Stockholders' deficit
Preferred stock, $.001 par, 10,000,000 shares authorized,		1,014			864
1,013,691 and 863,691 issued and outstanding
as of December 31, 2018 and 2017, respectively
Common stock, $.001 par, 500,000,000 and 250,000,000 shares authorized,		158,113			136,754
158,113,141 and 136,754,530 issued and outstanding
as of December 31, 2018 and 2017, respectively
Additional paid in capital - preferred		1,699,000			665,803
Additional paid in capital - common		11,382,341			6,449,768
Subscriptions receivable		––			(592	)
Accumulated deficit		(19,190,922	)		(33,691,386	)
Total stockholders' deficit		(5,950,454	)		(26,438,789	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	1,364,357		$	1,752,036

The accompanying notes are an integral part of these financial statements

- F-2 -

PARALLAX HEALTH SCIENCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the year ended
	December 31, 2018			December 31, 2017
	As Restated			As Restated
Revenue	$	11,739		$	94,937
Cost of sales		20,339			142,044
Gross profit (loss)		(8,600	)		(47,107	)
General and administrative expenses		6,626,063			4,125,612
Operating loss		(6,634,663	)		(4,172,719	)
Other income (expenses)
Gain on disposal of subsidiary		4,478,268			––
Gain on extinguishment of debt		22,858,009			––
Loss on fair value adjustments		(123,875	)		––
Discount amortization		(2,805,000	)		(5,450,000	)
Interest expense, net of  income		(2,164,530	)		(1,018,479	)
Total other income (expenses)		22,242,872			(6,468,479	)
Net income (loss) - continuing operations		15,608,209			(10,641,198	)
Net loss - discontinued operations		(824,398)			(3,153,553	)
Net income (loss)	$	14,783,811		$	(13,794,751	)
Net income (loss) per common share - basic
Continuing operations	$	0.105		$	(0.088	)
Discontinued operations	$	(0.006	)	$	(0.026	)
Net income (loss) per common share - diluted
Continuing operations	$	0.072		$	(0.060	)
Discontinued operations	$	(0.004	)	$	(0.018	)
Weighted average common shares outstanding - basic		148,335,736			120,493,618
Weighted average common shares outstanding - diluted		215,576,153			178,292,040

The accompanying notes are an integral part of these financial statements

- F-3 -

PARALLAX HEALTH SCIENCES, INC.

STATEMENT OF STOCKHOLDERS DEFICIT – AS RESTATED

FROM JANUARY 1, 2017 TO DECEMBER 31, 2018

	PREFERRED STOCK			COMMON STOCK			ADDITIONAL PAID IN CAPITAL					DEFERRED			SUBSCRIPTIONS			ACCUMULATED
	SHARES	AMOUNT		SHARES	AMOUNT		PREFERRED		COMMON			COMPENSATION			RECEIVABLE			DEFICIT			TOTAL
Balance, January 1, 2017	833,691	$	834	107,066,774	$	107,067	$	515,833	$	1,933,518		$	(232,906	)	$	(1,592	)	$	(19,896,635	)	$	(17,573,881	)
Issuance of preferred stock for cash	30,000		30					149,970														150,000
Issuance of common stock for acquisition of intangible assets				2,500,000		2,500				622,500												625,000
Issuance of common stock for cash				3,950,000		3,950				193,550												197,500
Issuance of common stock for services				3,000,000		3,000				747,000						(3,000	)					747,000
Issuance of common stock for debt settlement				2,100,000		2,100				112,900												115,000
Conversion of related party debt				3,906,154		3,906				521,827												525,733
Beneficial conversion feature of debt										592,582												592,582
Grant of stock options to consultants										1,430,800			(1,430,800	)								––
Grant of stock options to employees										495,950			(495,950	)								––
Grant of stock awards for services				13,950,000		13,950				2,835,300			(2,838,500	)		(10,250	)					500
Grant of stock warrants										335,598			(187,180	)								148,418
Exercise of stock options-employees				281,602		281				67,303												67,584
Forfeiture of stock options										(246,985	)		246,985									––
Change in value of stock options										(3,983	)		3,983									––
Amortization of stock options													589,678									589,678
Amortization of stock awards													1,028,498									1,028,498
Amortization of stock warrant													128,100									128,100
Subscriptions received																14,250						14,250
Net loss																			(13,794,751	)		(13,794,751	)
Balance, December 31, 2017	863,691	$	864	136,754,530	$	136,754	$	665,803	$	9,637,859		$	(3,188,092	)	$	(592	)	$	(33,691,386	)	$	(26,438,789	)
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 to directors				1,000,000		1,000				164,000												165,000
Issuance of common stock to officers				5,000,000		5,000				820,000						(5,000	)					820,000
Issuance of common stock for cash				2,000,000		2,000				238,000												240,000
Issuance of common stock for debt service				2,810,000		2,810				278,190			(281,000	)								––
Conversion of debt for common stock				6,881,130		6,881				668,733												675,614
Beneficial conversion feature of debt										(27,643	)											(27,643	)
Grant of stock options to consultant										539,200			(539,200	)								––
Grant of stock options to officers/directors										294,500			(294,500	)								––
Grant of stock awards for services				1,750,000		1,750				277,360			(153,000	)								126,110
Grant of stock warrants										114,603			(113,210	)								1,393
Exercise of stock options-officers				1,071,430		1,071				186,429												187,500
Exercise of stock options-employees				846,051		847				268,479												269,326
Forfeiture of stock options										(184,373	)		184,373									––
Amortization of stock options													572,869									572,869
Amortization of stock awards													1,095,193									1,095,193
Amortization of stock warrant													73,370									73,370
Change in derivative liability to equity										750,200												750,200
Deemed dividend on Series C preferred stock										283,347									(283,347	)		––
Subscriptions received																5,592						5,592
Net income																			14,783,811			14,783,811
Balance, December 31, 2018	1,013,691	$	1,014	158,113,141	$	158,113	$	1,699,000		14,025,538		$	(2,643,197	)	$	––		$	(19,190,922	)	$	(5,950,454	)

The accompanying notes are an integral part of these financial statements

- F-4 -

PARALLAX HEALTH SCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended
	December 31, 2018			December 31, 2017
	As Restated			As Restated
Cash flows from operating activities:
Net income (loss)	$	15,608,209		$	(10,641,198	)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization		120,620			83,739
Stock compensation/stock option expense		3,513,710			2,601,608
Discount amortization		2,805,000			5,450,000
Allowance for bad debt		236			4,000
Gain on disposal of subsidiary		(4,478,268	)		––
Gain on extinguishment of debt		(22,858,009	)		––
Loss on fair value adjustments		123,875			––
Debt accretion		1,107,753			1,706
Changes in operating assets and liabilities:
(Increase) decrease in trade and other receivables		3,039			(1,232	)
Decrease in prepaid expenses		––			2,690
Increase in accounts payable and accrued expenses		1,980,979			1,731,757
Increase (decrease) in related party payables		780,872			(584,267	)
Net cash used by operating activities		(1,291,984	)		(1,351,195	)
Cash flows from financing activities:
Repayment of notes payable		(9,245	)		––
Proceeds from convertible notes payable		825,000			741,000
Repayment of convertible notes payable		(50,000	)		––
Proceeds from convertible notes payable, related party		––			300,000
Proceeds from issuance of debentures		225,000
Proceeds from issuance of preferred shares		300,000			150,000
Proceeds from issuance of common shares		41,250			199,000
Proceeds from issuance of common shares for acquisitions		––			2,500
Net cash provided by financing activities		1,332,005			1,392,500
Net cash provided by continuing operations		40,021			41,305
Cash flows from discontinued operations:
Net cash provided (used) by operating activities		(39,942	)		43,792
Net cash used by investing activities		––			(94,824	)
Net cash used by discontinued operations		(39,942	)		(51,032	)
Net increase (decrease) in cash		79			(9,727	)
Cash - beginning of period		183			9,910
Cash - end of period	$	262		$	183
NON-CASH ACTIVITIES
Discounts on long-term liabilities	$	2,805,000		$	5,450,000
Beneficial conversion feature of convertible promissory notes	$	347,487		$	592,582
Fair value of stock warrants	$	1,393		$	148,418
Embedded conversion option of convertible promissory notes	$	60,350		$	––
Intrinsic value of beneficial conversion feature upon extinguishment of debt	$	375,100		$	––
Conversion of accounts payable to related party debentures	$	128,132		$	––
Conversion of accounts payable into common stock	$	––		$	15,000
Conversion of related party payables to preferred stock	$	450,000		$	––
Conversion of convertible related party payable to common stock	$	––		$	510,733
Conversion of convertible notes payable into common stock	$	675,614		$	87,500
Conversion of convertible notes payable to debentures	$	755,627		$	––
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		$	105,746
Issuance of common stock for acquisition of intangible assets	$	––		$	622,500
Subscriptions receivable	$	––		$	(592	)
SUPPLEMENTAL INFORMATION
Interest paid:
Continuing operations	$	185,937		$	52,566
Discontinued operations	$	106		$	202,550
Income taxes paid	$	––		$	––

The accompanying notes are an integral part of these financial statements

- F-5 -

PARALLAX HEALTH SCIENCES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017

NOTE 1. OVERVIEW AND NATURE OF BUSINESS

Corporate History

Parallax Health Sciences, Inc. (the “Company”) was incorporated in the State of Nevada on July 6, 2005.  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 proprietary platform.

On August 31, 2016, the Company entered into an agreement (the “Qolpom® Agreement”) with Qolpom®, Inc., an Arizona corporation in the remote healthcare monitoring and telehealth business (“Qolpom®”) and its shareholders (the “Seller”) to purchase 100% of the issued and outstanding shares of Qolpom®’s common stock and its assets, inventory and intellectual property.  The Qolpom® Agreement was fully executed on September 20, 2016, and the transaction was completed. The consideration for the acquisition resulted in a fair market value of $290,000, and goodwill of $785,060.  In addition, the Qolpom® Agreement included contingent royalties and revenue sharing for future revenues generated from the Qolpom® technology. The Qolpom® name was later changed to Parallax Health Management, Inc. (“PHM”).

On March 22, 2017, the Company formed a wholly-owned subsidiary, Parallax Behavioral Health, Inc. (“PBH”), a Delaware corporation and, on April 26, 2017, completed the asset acquisition of 100% of certain intellectual property (“Intellectual Property”) from ProEventa Inc., a Virginia Corporation (“ProEventa”), in accordance with the Intellectual Property Purchase Agreement between the Company, PBH and ProEventa (the “ProEventa Agreement”). ProEventa has an expertise in the development of behavioral health technologies, and is the wholly-owned subsidiary of Grafton Integrated Health Network, Inc., a non-profit Virginia corporation (“Grafton”). Pursuant to the ProEventa Agreement, the initial consideration for the Intellectual Property was paid to ProEventa in the form of a stock purchase agreement to purchase 2,500,000 shares of the Company’s Common Stock for $2,500, resulting in a net cost for the Intellectual Property of $622,500.  In addition, the ProEventa Agreement included conditional contingent royalties and revenue sharing for future revenues generated from the Intellectual Property.

On September 20, 2018, the Company formed Parallax Communications, Inc., a Delaware corporation and wholly-owned subsidiary of Parallax Health Management, Inc. to pursue additional opportunities for connected healthcare through the use of telecommunications technology.

Business Overview

The Company’s principal focus is on personalized patient care through remote healthcare services, behavioral health systems, and Point-of-Care 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 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

- F-6 -

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.

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 

In April 2017, the Behavioral Health Services 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 December 31, 2018, 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.  

RoxSan Pharmacy

On August 13, 2015, the Company entered into an agreement with RoxSan Pharmacy, Inc., a California corporation (“RoxSan” or the “Pharmacy”), and its sole shareholder, Shahla Melamed (“Melamed” or “Former Owner”), to purchase 100% of the issued and outstanding shares of RoxSan's common stock and its assets and inventory. Pursuant to the agreement , the Company, among other things, issued the Seller a Secured Promissory Note in the amount of $20.5 million.  As a result, effective August 13, 2015, RoxSan became the Company's wholly-owned subsidiary.  Concurrently, Mrs. Melamed resigned from all positions within RoxSan, and Mr. J. Michael Redmond was appointed RoxSan's President and Chief Executive Officer, and Ms. Calli R. Bucci its Chief Financial Officer. Mr. Redmond and Ms. Bucci were also appointed as Chairman and member, respectively, of RoxSan’s board of directors.

RoxSan provided a full range of pharmacy services including retail, compounding and fertility medications, and generated revenues primarily by dispensing prescription drugs, both through local channels by direct delivery as well as mail order. RoxSan also sold a wide assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, seasonal merchandise and convenience foods, through the Company’s pharmacy.  The pharmacy was fully licensed and qualified to conduct business in over 40 US States.

Since the Company’s acquisition of RoxSan, the deleterious actions against the pharmacy by the Former Owner, including, among other things, interference with management and operations, and attempts to damage and/or divert customer and vendor relationships, had a significant adverse impact on the pharmacy. Furthermore, the discovery of the Former Owner’s alleged involvement in suspected insurance fraud caused RoxSan’s contract with its primary In Vitro Fertilization (“IVF”) drug rebate program to be terminated in August 2016. As a result, RoxSan was no longer eligible to receive incentive rebates for the majority of its IVF drug purchases, which were key to the profitability of the IVF drug sales; and for which without the rebates, RoxSan was unable to provide its customers with comparably priced IVF drugs.   This, among other things, caused a precipitous drop of over 90% in RoxSan’s IVF revenues, and ultimate exit from the IVF market in mid-2017.  Soon thereafter, in July 2017, RoxSan’s contract with its primary drug supplier was terminated for similar reasons connected to the Former Owner and alleged criminal activities associated with the Melamed family name, despite the Company’s new ownership and management. After careful consideration, the Company determined that RoxSan was unable to generate enough profits to sustain its pharmacy business, and on December 22, 2017, the pharmacy ceased operations and closed the business location in Beverly Hills, CA; however, some residual operations were still ongoing during 2018 to wind down the business.

- F-7 -

On May 14, 2018, pursuant to unanimous resolutions of the boards of directors of RoxSan Pharmacy, Inc. and Parallax Health Sciences, Inc., RoxSan filed a Chapter 7 petition in the United States Bankruptcy Court for the Central District of California.  Mr. Timothy Yoo was appointed trustee on May 15, 2018.  In connection with this filing, RoxSan 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 RoxSan Pharmacy, Inc. was fully discharged and the case was closed on March 13, 2019, in U.S. Bankruptcy Court, Central District of California.

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.  The Company has retained a tax resolution specialist and is in communications with the taxing agencies in order to resolve RoxSan’s liability.

As a result of the loss of financial control of RoxSan, the Company has 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.

Going Concern

The Company has incurred losses since inception resulting in an accumulated deficit of $19,190,922, and a working capital deficit of $5,115,430, and further losses are anticipated. The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, which may not be available at commercially reasonable terms.  There can be no assurance that the Company will be able to continue to raise funds, in which case the Company may be unable to meet its obligations and the Company may cease operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

The Company will require additional financing in order to proceed with its plan of operations, including approximately $3,000,000 over the next 12 months to pay for its ongoing expenses. These cash requirements include working capital, general and administrative expenses, the development of the Company’s product line, and the pursuit of acquisitions. These cash requirements are in excess of the Company’s current cash and working capital resources. Accordingly, the Company will require additional financing in order to continue operations and to repay its liabilities. There is no assurance that the financing will be completed as planned or at all. If the Company is unable to secure adequate capital to continue the Company’s planned operations, the Company’s shareholders may lose some or all of their investment and the Company’s business may fail.

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

The consolidated financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The 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.  The Company’s former wholly-owned subsidiary, RoxSan Pharmacy, Inc., was derecognized effective May 14, 2018. (See “RoxSan Pharmacy” section of Note 1)

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, 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 years ended December 31, 2018 and 2017. There was no impact from this restatement on the years ended prior to December 31, 2017:  

	December 31, 2018									December 31, 2017
	As Previously Reported			As Restated			Increase (Decrease)			As Previously Reported			As Restated			Increase (Decrease)
CONSOLIDATED BALANCE SHEETS
Derivative liability, short-term		––			23,925			23,925			––			––			––
Debentures, convertible		755,627			724,903			(30,724	)		––			––			––
Debentures, convertible, related party		428,132			411,006			(17,126	)		––			––			––
Notes payable, convertible, net of discount		296,000			296,000			––			741,000			1,706			(739,294	)
Total current liabilities		5,139,617			5,115,692			(23,925	)		4,418,915			3,679,621			(739,294	)
Derivative liability, long-term		––			34,000			34,000			––			––			––
Debentures, convertible, net of unamortized discount		226,050			184,870			(41,180	)		––			––			––
Total liabilities		7,345,916			7,314,811			(31,105	)		28,930,119			28,190,825			(739,294	)
Additional paid in capital - preferred		1,415,653			1,699,000			283,347			665,803			665,803			––
Additional paid in capital - common		9,715,921			11,382,341			1,666,420			5,580,668			6,449,768			869,100
Accumulated deficit		(17,272,260	)		(19,190,922	)		1,918,662	[1]		(33,561,580	)		(33,691,386	)		129,806
Total stockholders' deficit		(5,981,559	)		(5,950,454	)		(31,105	)		(27,178,083	)		(26,438,789	)		(739,294	)
CONSOLIDATED STATEMENTS OF OPERATIONS
General and administrative expenses	$	6,552,693		$	6,626,063		$	73,370		$	3,997,512		$	4,125,612		$	128,100
Operating loss		(6,561,293	)		(6,634,663	)		73,370			(4,044,619	)		(4,172,719	)		128,100
Gain on extinguishment of debt		23,215,862			22,858,009			(357,853	)		––			––			––
Loss on fair value adjustments		––			(123,875	)		123,875			––			––			––
Discount amortization		(2,806,050	)		(2,805,000	)		(1,050	)		––			––			––
Interest expense, net of income		(1,213,069	)		(2,164,530	)		951,461			(1,016,773	)		(1,018,479	)		(1,706	)
Total other income (expenses)		23,675,011			22,242,872			(1,432,139	)		(6,466,773	)		(6,468,479	)		(1,706	)
Net income (loss) - continuing operations		17,113,718			15,608,209			(1,505,509	)		(10,511,392	)		(10,641,198	)		129,806
Net income (loss)		16,289,320			14,783,811			(1,505,509	)		(13,664,945	)		(13,794,751	)		129,806
Net income (loss) per common share - continuing operations - basic	$	0.115		$	0.105		$	(0.010	)	$	(0.087	)	$	(0.088	)	$	(0.001	)
Net income (loss) per common share - continuing operations - diluted	$	0.079		$	0.072		$	(0.007	)	$	(0.059	)	$	(0.060	)	$	0.001
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net income (loss)	$	17,113,718		$	15,608,209		$	(1,505,509	)	$	(10,511,392	)	$	(10,641,198	)	$	129,806
Stock compensation/stock option expense		3,440,340			3,513,710			73,370			2,473,510			2,601,608			128,098
Discount amortization		2,806,050			2,805,000			(1,050	)		––			––			––
Gain on extinguishment of debt		(23,215,862	)		(22,858,009	)		357,853			––			––			––
Loss on fair value adjustments		––			123,875			123,875			––			––			––
Debt accretion		––			1,107,753			1,107,753			––			1,706			1,706
Increase in accounts payable and accrued expenses		2,137,271			1,980,979			(156,292	)		1,731,757			1,731,759			2
Non-Cash Activities:
Discounts on long-term liabilities	$	2,806,050		$	2,805,000		$	(1,050	)	$	5,450,000		$	5,450,000		$	––
Beneficial conversion feature of convertible promissory notes		––			347,487			347,487			––			592,582			592,582
Fair value of stock warrants		––			1,393			1,393			––			148,418			148,418
Embedded conversion option of convertible promissory notes		––			60,350			60,350			––			––			––
Supplemental Information:
Interest paid-continuing operations		342,230			185,937			(156,293	)		52,566			52,566			––

[1] Includes 2018 and 2017 net increase in accumulated deficit of $1,505,509 and $129,806, respectively, and deemed dividends of $283,347 and $0, respectively.

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. 

- F-8 -

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.

Use of Estimates

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

Fair Value Hierarchy

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

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

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

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

Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. As of  December 31, 2018 and 2017, the Company had no cash equivalents.

Fair Value of Financial Instruments

As of December 31, 2018 and 2017, the carrying values of Company’s Level 1 financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and short-term debt, approximate fair value. The fair value of Level 3 instruments is calculated as the net present value of expected cash flows based on externally provided or obtained inputs. Certain Level 3 instruments may also be based on sales prices of similar assets. The Company’s fair value calculations take into consideration the credit risk of both the Company and its counterparties as of the date of valuation. See Note 6 for additional information about long-term debt.

•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:

	December 31, 2018		December 31, 2017
Convertible debentures	$	23,925	$	––
Warrants		34,000		––
Total derivative liability	$	57,925	$	––

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

	December 31, 2018			December 31, 2017
Fair valueof derivative liability, beginning	$	––		$	––
Increase in derivative liability-debentures		60,350			––
Increase in derivative liability-warrants		623,900			––
Fair value adjustment-debentures		(2,500	)		––
Fair value adjustment-warrants		126,375			––
Reclassification of warrant carrying value due to reset of exercise price		(750,200	)		––
Fair value of derivative liability, ending	$	57,925		$	––

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.

The activity in the allowance for doubtful accounts receivable for the years ended December 31, 2018 and 2017, is as follows:

	December 31, 2018			December 31, 2017
Beginning balance	$	4,000		$	––
Additions charged to bad debt expense		236			4,000
Write off of allowance for doubtful collections		(4,236	)		––
Ending balance	$	––		$	4,000

During the years ended December 31, 2018 and 2017, the allowance for doubtful collections of customer receivables increased by $236 and $4,000, respectively.  

As of December 31, 2018 and 2017, the allowance for doubtful collections was $0 and $4,000, respectively.

Intangible Assets

Product processes, patents and customer lists are amortized on a straight-line basis over their estimated useful lives between 4 and 20 years. See Note 4 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.

- F-9 -

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 Income (Loss) Per Common Share

Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible debt, convertible preferred shares and the exercise of the Company’s stock options and warrants.

Comprehensive Loss

As of  December 31, 2018 and 2017, the Company has no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.

Revenue Recognition

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

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 December 31, 2018, the Company has not yet filed its 2012 through 2017 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 January 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”), Business Combinations (Topic 805), Clarifying the Definition of a Business.  ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.  ASU 2017-01 was effective for the Company for annual periods beginning after December 15, 2017, and interim periods.  Early adoption is permitted under certain conditions.

- F-10 -

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

In May 2017, the FASB issued ASU No. 2017-09 (“ASU 2017-09”), Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting.  ASU 2017-09 clarifies and reduces both the (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. ASU 2017-09 was effective for the Company for annual periods beginning after December 15, 2017, and interim periods.  Early adoption is permitted.

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.

Not Yet Adopted:

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 will be effective for the Company for annual periods beginning after December 15, 2018, 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. 2018-13 (“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 various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

NOTE 4. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consists of the following:

	December 31, 2018		December 31, 2017
Customer receivables	$	––	$	7,275
Less: allowance for doubtful accounts		––		(4,000	)
Accounts receivable, net	$	––	$	3,275

As of December 31, 2018 and 2017, respectively, the Company was owed $0 and $7,275 in accounts receivable due from customers.

During the years ended December 31, 2018 and 2017, respectively, the allowance for doubtful collections increased by $236 and $4,000, respectively.  As of December 31, 2018 and 2017, the allowance for doubtful collection was $0 and $4,000, respectively.

NOTE 5. INTANGIBLE ASSETS

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

	December 31, 2018			December 31, 2017
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			40,000
Marketing related		64,000			64,000
Software		510,300			510,300
Sub-total		797,500			807,500
Accumulated amortization		(218,465	)		(97,845	)
Intangible assets, net	$	579,035		$	709,655

Amortization expense for the years ended December 31, 2018 and 2017, was $120,620 and $83,739, respectively.

- F-11 -

NOTE6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of:

	December 31, 2018		December 31, 2017
Accounts payable-vendors	$	830,590	$	865,569
Credit cards payable		42,552		39,841
Payroll taxes payable		78,608		75,637
Accrued interest		450,187		1,894,694
Accrued payroll and payroll taxes		402,053		172,607
Other liabilities		601,148		––
		2,405,138		3,048,348
Reserve-legal fees		250,000		––
Total accounts payable and accrued expenses	$	2,655,138	$	3,048,348

Payroll taxes payable includes $17,475 and $5,485 in penalties, and $4,202 and $634 in interest, related to unpaid payroll taxes as of December 31, 2018 and 2017, respectively.

Other liabilities consists of certain payroll tax liabilities owed by the bankrupt entity, RoxSan Pharmacy, Inc. that are 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.

The Company has established an estimated reserve of $250,000 and $0 at December 31, 2018 and 2017, respectively, for future legal fees to be incurred in connection with pending legal actions (Note 18).

NOTE 7. NOTES AND LOANS PAYABLE

Notes and loans payable consists of the following:

	December 31, 2018		December 31, 2017
Short-term:
Notes payable, convertible	$	296,000	$	1,706
Debentures, convertible		724,903		––
Total short-term notes payable		1,020,903		1,706
Long-term:
Notes and loans payable, unsecured		––		95,975
Debentures, convertible, net of unamortized discount		184,870		––
Notes payable, convertible		720,154		144,000
Notes payable, secured, net of unamortized discount:		28,995		17,393,240
Total long-term notes and loans payable		934,019		17,633,215
Total notes and loans payable	$	1,954,922	$	17,634,921

- F-12 -

Non-related party convertible debt consist of the following:

Holder	Principal			APR	Accrued Interest			Conversion Price	Term/Due
Convertible promissory notes:
Lender Group A	$	120,000		12-20%	$	164,060		$0.10	05/2018
Investor Group A		176,000		10%		21,681		$0.10	09/2018
The Kasper Group, Ltd.		144,000		7%		70,587		$0.10	10/2019
Joseph M. Redmond		576,154	[1]	5%		119,550	[1]	$0.10	07/2017
		1,016,154				376,127
Convertible debentures:
Short-term		724,903		10%		––		$0.12	02/2019
Long-term		184,870		10%		––		$0.12	11/2021
		909,773				––
Total convertible debt	$	1,925,927			$	376,127

[1]As of January 1, 2018, Mr. Joseph M. Redmond, former President and member of the board of directors, is no longer a related party.  As a result, $576,154 in convertible promissory notes and accrued interest of $90,742 was reclassified from related party transactions (Note 8) to non-related party transactions. See Note 18 for additional information and legal proceedings related to Mr. Redmond.  

During the years ended December 31, 2018 and 2017, respectively, the Company issued short-term non-related party convertible promissory notes in the aggregate principal sum of $825,000 and $741,000, along with 625,000 and 3,705,000 warrants (Note 12), which, upon issuance, were discounted by a total of $605,000 and $741,000, representing $223,607 and $592,582 for beneficial conversion feature, $1,393 and $148,418 for value of warrants, and $380,000 and $0 for derivative liability.  Effective November 14, 2018, $600,000 in principal, plus $55,627 in accrued interest, was exchanged for short-term convertible debentures, at which time $240,000 was reclassified to equity for intrinsic value of warrants, $30,725 was reclassified as derivative liability for embedded conversion option, and $105,320 was recognized as a loss on extinguishment of debt. During the years ended December 31, 2018 and 2017, respectively, a total of  $1,098,974 and $1,706 in debt accretion was expensed; and repayments totaling $670,000 and $0 were made, of which $50,000 and $0 was repaid in cash, and $620,000 and $0 was converted into the Company’s common stock.  The short-term non-related party convertible notes and debentures bear interest at a rate of 10% to 20% per annum, mature in 2019, and are convertible into shares of the Company’s common stock at a conversion price of $0.10 per share. In addition, the holders of certain short-term non-related party convertible notes in the principal sum of $145,000 are granted 290,000 shares of the Company’s restricted common stock for each ninety (90) day period; and the holders of certain short-term non-related party convertible notes in the principal sum of $75,000 are granted 150,000 shares of the Company’s restricted common stock for each thirty (30) day period.  An aggregate of 2,810,000 shares of the Company’s restricted common stock are issuable to the note holders through December 31, 2018, valued at $281,000.  As of December 31, 2018 and 2017, respectively, $296,000 and $1,706 in short-term non-related party convertible promissory notes, and $724,903 and $0 in short-term non-related party convertible debentures, remains.  

During the years ended December 31, 2018 and 2017, respectively, long-term unsecured non-related party loans and promissory notes in the principal sum of $95,975 and $0, and $56,892 and $0 in accrued interest, were extinguished, resulting in a gain of $152,867 and $0. As of December 31, 2018 and 2017, respectively, long-term unsecured non-related party loans and promissory notes consists of $0 and $95,975, respectively.

During the year ended December 31, 2018, the Company issued long-term non-related party convertible debentures in the aggregate principal sum of $250,000, along with 600,000 warrants (Note 12), which, upon issuance, were discounted by a total of $67,500, representing $25,000 in original issue discount, $30,000 for derivative liability, and $12,500 for embedded conversion option. During the year ended December 31, 2018, a total of  $2,370 in debt accretion was expensed.  The debentures mature in 2021, and are convertible into the Company’s common stock at a conversion price of $0.10 per share. As of December 31, 2018, a total of $23,630 in unamortized discount remains, to be expensed over the next twenty-two (22) months.

As of December 31, 2018 and 2017, respectively, long-term non-related party convertible promissory notes consists of $720,154^[1] and $144,000. The notes bear interest at a rate of 5% to 7% per annum, mature between 2017 to 2019, and are convertible into the Company’s common stock at a conversion price of $0.10 per share.

As of December 31, 2018 and 2017, respectively, long-term secured notes payable includes a term loan in the principal sum of $28,995 and $38,240.  The loan bears interest at a rate of 7.48%, with monthly payments of principal and interest in the amount of $1,475, maturing July 17, 2020.

During the year ended December 31, 2018, a long-term secured non-related party promissory note in the principal sum of $20,500,000, and $2,278,281 in accrued interest, was extinguished in connection with RoxSan’s Chapter 7 petition filed in May 2018 (Note 18), and recharacterized as a contingent liability (Note 9), resulting in a gain of $22,778,281.  As of December 31, 2018 and 2017, respectively, long-term secured non-related party promissory notes consists of $28,995 and $17,393,240, net of unamortized discount of $0 and $3,145,000.

The future maturities of long-term notes payable are summarized as follows:

Year	2019	2020	2021	Total
Principal	$720,154	$28,995	$184,870	$934,019

During the years ended December 31, 2018 and 2017, respectively, interest on non-related party notes and loans payable in the amount of $1,009,525 and $920,434 was expensed.  As of  December 31, 2018 and 2017, respectively, a total of $376,127 and $1,724,093 in interest, net of debt extinguishments of $2,335,173 and $0, and conversions to common stock of $55,613 and $0, remains accrued and is included as part of accrued expenses on the accompanying consolidated balance sheets.

- F-13 -

NOTE 8. RELATED PARTY TRANSACTIONS

Related party transactions consist of the following:

	December 31, 2018			December 31, 2017
Related party payables
Accrued compensation	$	869,859	[1]	$	501,270
Cash advances		134,861			128,297
Total related party payables		1,004,720			629,567
Debentures, convertible		411,006			––
Notes payable, related party, convertible		491,100	[1]		1,167,254
Total related party transactions	$	1,906,826		$	1,796,821

[1]As of January 1, 2018, Mr. Joseph M. Redmond, former President and member of the board of directors, is no longer a related party.  As a result, related party transactions was reduced by $618,510, representing $42,356 in accrued compensation, and $576,154 in convertible promissory notes. As of December 31, 2018, $42,356 is included as part of accounts payable and accrued expenses, and $576,154 is included as part of long-term convertible notes payable, on the accompanying consolidated balance sheets. In addition, accrued interest of $90,742 related to the convertible promissory notes was reclassified from related party to non-related party accrued interest. See Note 17 for additional information and legal proceedings related to Mr. Redmond.  

As of December 31, 2018 and 2017, respectively, related parties are due a total of $1,906,826 and $1,769,821, consisting of $869,859 and $501,270 in accrued compensation owed to officers; $134,861 and $128,297 in cash advances from officers and beneficial owners to the Company for operating expenses; $411,006 and $0 in convertible debentures, net of embedded conversion option of $17,125 and $0; and $491,100  and $1,167,254 in convertible promissory notes.

Related party convertible debt consists of the following:

Note Holder	Principal		APR	Accrued Interest		Conversion Price	Term/Due
Convertible promissory notes:
Huntington Chase, Beneficial Owner	$	491,100	7%	$	74,060	$0.10	12/2023
Convertible debentures:
AvantGarde, LLC, Beneficial Owner		342,734	12%		––	$0.10	02/2019
Hamburg Investment Co., Beneficial Owner		68,272	12%		––	$0.10	02/2019
		428,132			––
Total convertible debt-related parties	$	919,232		$	74,060

Promissory Notes

On September 30, 2015, the Company issued a modified convertible promissory note in the principal sum of $631,100, representing cash loans and unpaid compensation, of which principal repayments in the aggregate of $100,000 have been made, and $40,000 of which was converted into common stock.  The note bears interest at a rate of 7% per annum, and contains a repayment provision to convert the debt into restricted shares of the Company’s common stock at a price of $0.10 per share. On December 31, 2018, the note was modified to 1) reduce the principal balance to $491,100; and 2) mature December 31, 2023.

Between April 26, 2018 and May 8, 2018, the Company issued senior secured convertible promissory notes (the “Notes”) to a related party in the aggregate principal sum of $337,750, along with 3,377,500 warrants (Note 12),which, upon issuance, was discounted by a total of $337,500, representing $123,850 for beneficial conversion feature, and $213,900 for derivative liability. During the year ended December 31, 2018, a total of $6,409 in debt accretion was expensed. The Notes bore interest at rate of 12% per annum, contained a repayment provision to convert the Notes into restricted shares of the Company’s common stock at a price of $0.10 per share, and included warrant coverage for a period of three (3) years to purchase shares of the Company’s common stock at an exercise price of $0.10 per share. Effective November 14, 2018, the Notes and related accrued interest of $34,090 were exchanged into convertible debentures (“Debentures”) in the principal amount of $428,132, at which time $135,100 was reclassified to equity for intrinsic value of warrants, and $17,125 was reclassified as derivative liability for embedded conversion option, and $252,533 was recognized as a loss on extinguishment of debt. The Debentures bear interest at a rate of 10% per annum, mature February 28, 2019, and are convertible into shares of the Company’s restricted common stock at a conversion rate of $0.12 per share.

As of December 31, 2018 and 2017, respectively, related party convertible debt consists of $491,100 and $1,167,254 in promissory notes and $411,006 and $0 in debentures.

During the years ended December 31, 2018 and 2017, respectively, interest in the amount of $66,840 and $76,511 was expensed, of which $798 and $16,833 was paid to the note holders in cash; $0 and $35,733 was converted to restricted shares of the Company’s common stock, and accrued interest of $71,839 and $0 was converted to principal.  As of December 31, 2018 and 2017, respectively, a total of $74,060 and $170,600 in accrued interest remains and is included as part of accrued expenses on the accompanying consolidated balance sheets.

- F-14 -

Stock Issuances

On January 23, 2017, in connection with a certain subscription agreement, the Company issued 30,000 shares of its Series B preferred stock at $5.00 per share to a related party, for cash in the amount of $150,000.  The shares are convertible into common stock at a conversion rate of 20 common share for each Series B preferred share held.

On March 16, 2017, in connection with a related party convertible promissory note in the amount of $250,000 and accrued interest of $7,954, the Company issued 1,228,346 shares of its restricted common stock at a conversion rate of $0.21 per share.

On May 18, 2017, in connection with a related party convertible promissory note in the amount of $200,000 and accrued interest of $27,781, the Company issued 2,277,808 shares of its restricted common stock at a conversion rate of $0.10 per share.

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

On August 1, 2017, in connection with a certain executive employment agreement, the Company issued 3,000,000 shares of its restricted common stock at $0.001 per share.  The shares were valued at $750,000 and are fully vested.  

On September 11, 2017, in connection with the related party convertible promissory note in the amount of $491,100, the note holder elected to convert a portion of the principal in the amount of $40,000.  As a result,  the Company issued 400,000 shares of its restricted common stock at a conversion rate of $0.10 per share.

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

On August 13, 2018, in connection with the exercise of certain employee stock options, the Company issued 1,071,430 shares of its restricted common stock at a conversion rate of $0.05 per share.  The shares were issued on a cashless basis, resulting in a net value of $187,500.  

On September 30, 2018, in connection with the Series C convertible preferred stock equity offering (Note 10), three officers of the Company were issued an aggregate of 90,000 Series C preferred shares at a price of $5.00 per share in exchange for accrued compensation in the aggregate of $450,000. Upon issuance, a beneficial conversion feature of $100,578 was recorded as a deemed dividend. In connection with the Series C preferred shares, the officers were also issued an aggregate of 1,250,000 warrants, valued at an aggregate of $75,000, and exercisable for a period of three (3) years at an exercise price of $0.25 per share.

- F-15 -

Agreements

On January 1, 2017, the Company, through its wholly-owned subsidiary, Parallax Health Management, Inc. (formerly Qolpom, Inc.) entered into an Employment Agreement with Mr. Nathaniel T. Bradley, the President of Parallax Health Management, Inc. The agreement is for a term of three (3) years, and includes annual compensation of $150,000, as well as a bonus plan contingent upon the Company's performance and customary employee benefits.  In addition, the agreement provides for a non-refundable, fully-vested signing bonus of $50,000. Effective August 1, 2017, the Employment Agreement was superseded by a new agreement which was executed on November 30, 2017, and replaces any other employment agreement between Mr. Bradley and the Company or any of its subsidiaries.  The agreement is for an initial term of three (3) years, and provides annual compensation for Mr. Bradley to serve as the Company’s Chief Technology Officer (“CTO”), as well as CTO of Parallax Health Management, Inc. and Parallax Behavioral Health, Inc., in the aggregate of $222,000 year one, $265,000 in year two and $320,000 in year three, as well as various performance bonuses and customary employee benefits. In addition, the agreement, as amended, provides for a grant to purchase 3,000,000 restricted common shares at $0.001 per share, vesting immediately, as well as options granted to purchase 2,000,000 shares of the Company's common stock at a price of $0.25 per share.  The options are for a period of five (5) years, and vest annually over a three (3) year period, with an initial vesting of 25%.  

On July 7, 2017, the Company entered into an Executive Employment Agreement (the “Agreement”) with Mr. Paul R. Arena to serve as the Company’s President and Chief Executive Officer for a period of three (3) years.  As compensation for his services, the Agreement provides for a base compensation of $350,000 in year one, of which 30% shall be deferred until certain goals are met, $425,000 in year two, and $550,000 in year three, as well as annual bonus compensation equal to 2x base when certain Company earnings are reached.  In addition, the Agreement includes a grant to purchase 10,000,000 restricted common shares at $0.001 per share, of which 25% vests immediately; 25% vests in one year; 25% vests after two years; and 25% vests when certain funding goals have been met. The Agreement also includes the grant of 5,000,000 stock options at an exercise price of $0.25 per share.  The options are exercisable for a period of five (5) years, and vest when certain market share prices of the Company’s common stock are met.  

On January 1, 2018, the Company entered into an Executive Agreement with its Chief Financial Officer.  The agreement replaces any other written agreement with the Company, is for a term of one (1) year, with the option to extend, and includes annual compensation of $216,000 in year 1, as well as a bonus plan and customary executive benefits.  In addition, the agreement provides for a non-refundable, fully-vested signing bonus of $100,000, as well as a grant of stock options to purchase 1,000,000 shares of the Company's common stock at an exercise price of $0.25 per share. The options are for a period of five (5) years, and vest quarterly over a one (1) year period.

On January 1, 2018, the Company entered into a Consulting Agreement with Huntington Chase Financial Group, LLC, whose principal is a related party. The agreement replaces any other written agreement with the Company, is for a term of three (3) years, and includes monthly compensation of $25,000 in year 1; $30,000 in year 2 and $35,000 in year 3, of which the year 2 and 3 increases are deferred until completion of certain development projects, as well as customary expense allowances.  In addition, the agreement provides for a grant of stock options to purchase 4,000,000 shares of the Company's common stock at an exercise price of $0.25 per share. The options are for a period of five (5) years, of which 25% vest immediately, and the remainder vest when certain market share prices of the Company’s common stock are met.

- F-16 -

NOTE 9. 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”).  At the time of issuance, management determined that the Promissory Note did not fairly represent the fair market value for the related acquisition.  As a result, a discount of $15,300,000, representing the difference between the face value and the estimated fair market value of the Promissory Note was recorded and has been fully expensed.  As part of the derecognition of RoxSan resulting from its Chapter 7 petition filed on May 14, 2018 (Note 18), 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 has extinguished the debt of $20,500,000 and related $2,278,281 in accrued interest during the current year, 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 December 31, 2018 and 2017, respectively, the present value of future Revenue Share was $430,000 and $890,000 (Note 15); and the present value of future Royalties was $310,000 and $200,000.

On April 26, 2017, as part of the Company’s acquisition of 100% of certain intellectual property (“Intellectual Property”) from ProEventa, Inc., a Virginia Corporation (“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 December 31, 2018 and 2017, respectively, the present value of future Revenue Share was $1,040,000 and $1,000,000; and the present value of future Royalties was $690,000 and $800,000.

NOTE 10. 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.

The holders of all series of  Preferred Stock have no voting rights. Series A and Series B preferred shares are convertible into the Company’s common stock at a rate of 20 shares of common stock for each preferred share held. Series C preferred shares are convertible into the Company’s common stock at a rate of 41.67 shares of common stock for each preferred share held.  Series B preferred shares were issued with 50% warrant coverage for a period of two (2) years, to purchase shares of the Company's common stock at a price of $0.75 per share. Series C preferred shares were issued with 50% warrant coverage for a period of three (3) years, to purchase shares of the Company's common stock at a price of $0.25 per share.  The number of shares of common stock underlying the warrants and the exercise price are subject to adjustment upon certain events.  Dividends are payable semi-annually on the Company’s Series A preferred stock at a rate of 7% per annum, 10% per annum on Series B, and 8% per annum on Series C.  Dividends may be paid in kind, at the option of the Company, to the extent that if the Company is not legally permitted to distribute cash dividends, it shall pay dividends in the form of preferred shares equal to the amount of the dividend. No dividends have been declared on the Company’s preferred stock. In the event of any liquidation, dissolution, winding-up or sale or merger of the Company, whether voluntarily or involuntarily, each holder of Preferred Stock is entitled to receive, in preference to the holders of common stock, a per-share amount equal to the original issue price plus all declared but unpaid dividends and dividends in arrears.

During the year ended December 31, 2017, in connection with a certain subscription agreement, the Company issued 30,000 shares of its Series B preferred Stock at $5 per share to a related party, for cash in the amount of $150,000. As a result, $149,970 was recorded to paid in capital.  

In August 2018, the Company established a private placement equity offering for the purchase of Series C convertible preferred stock (the “Series C Shares”).  The offering provided for, among other thing, the purchase of Series C Shares at a price of $5.00 per share, with a minimum unit of 20,000 shares, or $100,000.  All Series C Shares are convertible into common stock at a conversion rate of $0.12 per share, or a ratio of 41.67 shares of common stock for each Series C Share held (41.67:1) (“Conversion Ratio”) if converted within one (1) year, or at a lesser Conversion Ratio after one year.  The shares also include warrants to purchase common stock for a period of 3 years at an exercise price of $0.25 per share, of which the number of warrants is determined at 50% of the prevailing Conversion Ratio. The Series C offering is closed to further investors.

During the year ended December 31, 2018, in connection with the Series C Shares equity offering, 150,000 Series C Shares were issued at a price of $5.00 per share, of which 60,000 were issued to accredited investors for cash in the amount of $300,000, and 90,000 were issued to officers of the Company in exchange for debt in the principal sum of $450,000. As a result, $749,850 was recorded to preferred paid in capital, and a beneficial conversion feature of $283,347 was recorded as a deemed dividend, of which $100,578 was in connection with the shares issued to officers of the Company.

As of December 31, 2018 and 2017, respectively, the Company had 1,013,691 and 863,691 shares of preferred stock issued and outstanding.

- F-17 -

NOTE 11. COMMON STOCK

The total number of authorized shares of common stock that may be issued by the Company at December 31, 2018 and 2017, respectively, is 500,000,000 and 250,000,000 with a par value of $0.001 per share.  

During the years ended December 31, 2018 and 2017, respectively, 6,881,130 and 0 shares of the Company’s common stock were issued in connection with the conversion of non-related party debt in the amount of $675,914 and $0.  As a result, $668,733 and $0 was recorded to paid in capital.

During the years ended December 31, 2018 and 2017, respectively, 0 and 3,906,154 shares of the Company’s common stock were issued in connection with the conversion of related party debt in the amount of $0 and $525,733.  As  a result, $0 and $521,827 was recorded to paid in capital.

During the years ended December 31, 2018 and 2017, respectively, 846,051 and 281,602 were issued for the exercise of stock options, and  1,071,430 and 0 were issued for the exercise of related party stock options. As  a result, $454,908 and $67,303 was recorded to paid in capital.

During the years ended December 31, 2018 and 2017, respectively, 1,750,000 and 3,950,000 shares of the Company’s common stock were issued in connection with stock awards to non-related parties, valued at $279,110 and $849,250. As  a result, $153,000 and $848,500 was deferred, to be amortized over the next twenty-one (21) months, and  $277,360 and $845,300 was recorded to paid in capital.

During the years ended December 31, 2018 and 2017, respectively, 0 and 13,000,000 shares of the Company’s common stock were issued in connection with stock awards to related parties valued at $0 and $2,750,000. As  a result, $0 and $1,990,000 was deferred, to be amortized over the next twenty-one (21) months, and  $0 and $2,737,000 was recorded to paid in capital.

During the years ended December 31, 2018 and 2017, respectively, 0 and 2,500,000 shares of the Company’s common stock were issued for $0 and $2,500 cash, in connection with the acquisition of intellectual property.  As a result, $0 and $622,500 was recorded to paid in capital.

During the years ended December 31, 2018 and 2017, respectively, 2,000,000 and 3,950,000 shares of the Company’s common stock were issued for cash in the amount of $240,000 and $197,500.  As a result, $238,900 and $193,550 was recorded to paid in capital.

During the years ended December 31, 2018 and 2017, respectively, 2,810,000 and 2,100,000 shares of the Company’s common stock were issued in connection with debt and debt service in the amount of $281,000 and $115,000.  As a result, $278,190 and $112,900 was recorded to paid in capital.  

During the years ended December 31, 2018 and 2017, respectively, 6,000,000 and 0 shares of the Company’s common stock were issued to officers, for cash in the amount of $6,000 and $0. As a result, $990,000 and $0 was recorded to paid in capital.

During the years ended December 31, 2018 and 2017, respectively, a total of 21,358,611 and 29,687,756 shares of the Company’s common stock were issued.  A total of $434,000 and $2,838,500 in deferred stock compensation was recorded, and $1,095,193 and $1,028,498 was expensed. As of December 31, 2018 and 2017, respectively, there remains $1,148,809 and $1,810,002 in deferred stock compensation to be expensed over the next twenty-one (21) months.

As of December 31, 2018 and 2017, respectively, the Company had 158,113,141 and 136,734,530 common shares issued and outstanding.

NOTE 12. WARRANTS AND OPTIONS

As of December 31, 2018 and 2017, respectively, the Company had 21,232,500 and 7,205,000 warrants, and 18,060,000 and 20,675,000 options issued and outstanding.

During the years ended December 31, 2018 and 2017, respectively, 14,077,500 and 7,155,000 warrants were granted, and 100,000 and 14,535,706 expired.  The warrants carry an exercise price of between $0.001 to $0.75 per share, expire between 2019 to 2023,and were valued at $851,610 and $325,020, using the Black-Scholes method. The assumptions used in valuing the warrants were: expected term between 2 to 5 years; expected volatility 40%; risk free interest rate between 1.16% to 2.91%; and a dividend yield of 0%. A total of $113,210 and $129,820 in deferred stock warrant compensation was recorded, and $73,370 and $70,740 was expensed during the years ended December 31, 2018 and 2017, respectively.  There remains $98,920 and $172,290 in deferred compensation as of December 31, 2018 and 2017, respectively, to be expensed over the next twelve (12) months.

- F-18 -

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	4.50	$	300	$0.17
$0.01	75,000	2.00		750	$0.19
$0.10	250,000	1.75		25,000	$0.29
$0.10	6,377,500	2.25		637,750	$0.21
$0.10	3,000,000	2.50		300,000	$0.19
$0.10	62,500	4.25		6,250	$0.27
$0.15	1,000,000	2.00		150,000	$0.26
$0.15	600,000	5.00		90,000	$0.19
$0.17	62,500	4.25		10,625	$0.27
$0.18	62,500	4.25		11,250	$0.27
$0.21	100,000	1.75		21,000	$0.31
$0.21	62,500	4.25		13,125	$0.27
$0.25	1,500,000	1.50		375,000	$0.34
$0.25	3,255,000	1.75		813,750	$0.29
$0.25	475,000	2.00		118,750	$0.25
$0.25	3,250,000	2.75		812,500	$0.18
$0.35	250,000	1.75		87,500	$0.29
$0.60	250,000	1.75		150,000	$0.31
$0.75	300,000	0.25		225,000	$0.29
	21,232,500		$	3,848,550	$0.18

Warrant Activity
	Number of			Weighted Average
	Shares			Exercise Price
Outstanding at December 31, 2016		15,362,491		$0.28
Issued		21,232,500		$0.18
Exercised		––		––
Expired / Forfeited		(15,362,491	)	$0.28
Outstanding at December 31, 2018		21,232,500		$0.18

During the years ended December 31, 2018 and 2017, respectively, 6,000,000 and 11,570,000 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 $0.50 per share, and were valued at $833,700 and $1,926,750, using the Black-Scholes method. The assumptions used in valuing the options were: expected term between 2.50 to 5.75 years; expected volatility between 1.82 to 2.06; risk free interest rate between 1.46% 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	3.50	$	4,500	$0.14
$0.05	1,140,000	3.25		57,000	$0.09
$0.05	100,000	2.75		5,000	$0.08
$0.05	60,000	2.00		3,000	$0.06
$0.05	170,000	1.75		8,500	$0.12
$0.10	500,000	1.75		50,000	$0.14
$0.10	250,000	0.75		25,000	$0.06
$0.15	1,000,000	1.75		150,000	$0.14
$0.25	5,000,000	4.25		1,250,000	$0.16
$0.25	7,000,000	3.50		1,750,000	$0.16
$0.25	1,000,000	1.75		250,000	$0.15
$0.25	1,000,000	1.25		250,000	$0.10
$0.25	250,000	0.75		62,500	$0.06
$0.35	250,000	0.75		87,500	$0.07
$0.60	250,000	0.75		150,000	$0.08
	18,060,000		$	4,103,000	$0.23

- F-19 -

Options Activity
	Number of			Weighted Average
	Shares			Exercise Price
Outstanding at December 31, 2016		11,135,000		$0.08
Issued		17,570,000		$0.14
Exercised		(2,273,189	)	$0.15
Expired / Forfeited		(8,371,811	)	$0.17
Outstanding at December 31, 2018		18,060,000		$0.23

During the years ended December 31, 2018 and 2017, respectively, 6,000,000 and 11,570,000 options were issued, 1,973,189 and 300,000 options were exercised, 1,000,000 and 0 options expired, and 5,641,811 and 1,730,000 options were forfeited. A total of $649,327 and $1,679,765 in deferred stock option compensation was recorded, net of forfeitures, and $572,870 and $589,679 was expensed during the years ended December 31, 2018 and 2017, respectively.  There remains $1,395,466 and $1,319,010 in deferred compensation as of December 31, 2018 and 2017, respectively, to be expensed over the next twenty-four (24) months.

NOTE 13. LEASES

The Company sub-leases office space for its headquarters in Santa Monica, California, for $5,600 per month, on a month-to-month basis.

Rent expense for the years ended December 31, 2018 and 2017, respectively, was $73,351 and $8,148.

NOTE 14. INCOME TAXES

A reconciliation of the expected statutory federal and state taxes and the total income tax expense (benefit) at December 31, 2018 and 2017, was as follows:

	December 31, 2018			December 31, 2017
Income (loss) before taxes	$	15,608,209		$	(10,641,198	)
Statutory rate (Fed & State(s))		30%			30%
Computed expected tax payable (recovery)		4,781,700			(3,185,900	)
Effect of the U.S. tax law change		––			658,800
Effect of release of net operating loss carryforwards		(2,417,700	)		––
Tax effect of non-deductible expenses:
Gain on extinguishment of debt-principal		(6,124,000	)		––
Stock compensation/amortization of stock options		1,048,500			776,300
Discount amortization		837,000			1,626,300
Other		1,500			6,200
Total tax effect of non-deductible expenses		(4,237,000	)		2,408,800
Change in valuation allowance		(1,873,000	)		118,300
Income tax expense	$	––		$	––
Reported income taxes:
Federal	$	––		$	––
State		––			––
Total	$	––		$	––

- F-20 -

The significant components of deferred income tax assets and liabilities at December 31, 2018 and 2017, are as follows:

	December 31, 2018			December 31, 2017
Net operating loss carried forward	$	––		$	1,948,000
Bad debt allowance		––			1,100
Officers’ accrued compensation		243,400			140,300
Accrued related party interest		20,700			47,700
Valuation allowance		(264,100	)		(2,137,100	)
Net deferred income tax asset	$	––		$	––

During the year ended December 31, 2018, the company realized extinguishment of debt principal in the amount of $20,522,835.  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 with no remaining net operating losses available to use toward future taxable income as of December 31, 2018. 

The Company is open to examinations for the tax year 2011 through the current tax year.

NOTE 15. CHANGE IN ESTIMATE AND CORRECTION OF ERROR

Change in Estimate:

On July 18, 2018, an amendment (the “Amendment”) was made to the Agreement to Purchase and Sell One Hundred Percent (100%) of the Issued and Outstanding Shares of Qolpom, Inc. and its Assets, Intellectual Property and Inventory dated August 31, 2016 (the “Agreement”). The Amendment modifies the Agreement’s Earn-Out consideration by basing any monies due under the Earn-Out solely upon revenues generated, with no guaranteed minimum payment owed, thereby eliminating the $2,000,000 guaranteed payment previously owed by the Company.  The Amendment resulted in a change in the value of certain assets acquired and liabilities assumed as follows:

	As Previously Reported			Revised Value		Increase
	December 31, 2017			July 18, 2018		(Decrease)
Assets
Cash	$	5,000		$	5,000	$	––
Intellectual property		160,000			150,000		(10,000	)
Loans receivable		87,008			87,008		––
Total assets		252,008			242,008		(10,000	)
Liabilities
Accounts payable		7,068			7,068		––
License fees payable		2,000,000			260,000		(1,740,000	)
License fees payable, unamortized discount		(1,460,000	)		––		(1,460,000	)
Royalties payable		200,000			200,000		––
Total liabilities		747,068			467,068		(280,000	)
Goodwill		785,060			785,060		––
Fair market value of consideration	$	290,000			290,000		––
Net effect-current period adjustment				$	270,000	$	270,000

- F-21 -

Correction of Error:

During 2018, the Company discovered that the April 26, 2017 asset acquisition of intellectual property from ProEventa, Inc. erroneously included certain conditional contingent consideration as a part of the purchase price.  As a result, certain liabilities contingent in nature were erroneously recorded.  The errors have been corrected by restating each of the affected financial statement line items for the year ended December 31, 2017. The following tables summarize the impacts on the Company’s consolidated financial statements prior to the restatement in Note 2:

	As Previously Reported			Corrected			Increase
	December 31, 2017			December 31, 2017			(Decrease)
CONSOLIDATED BALANCE SHEETS
Intangible assets, net	$	2,298,094		$	709,655		$	(1,588,439	)
Total assets		3,340,475			1,752,036			(1,588,439	)
License fees payable		1,890,000			890,000			(1,000,000	)
Royalties payable		1,000,000			200,000			(800,000	)
Total long-term liabilities		21,690,469			19,890,469			(1,800,000	)
Total liabilities		30,730,119			28,930,119			(1,800,000	)
Accumulated deficit		(33,773,141	)		(33,561,580	)		(211,561	)
Total stockholders' deficit		(27,389,644	)		(27,178,083	)		(211,561	)
Total liabilities and stockholders' deficit		3,340,475			1,752,036			(1,588,439	)
CONSOLIDATED STATEMENTS OF OPERATIONS
General and administrative expenses	$	4,209,073		$	3,997,512		$	(211,561	)
Operating loss		(4,256,180	)		(4,044,619	)		(211,561	)
Net loss – continuing operations		(10,722,953	)		(10,511,392	)		(211,561	)
Net loss		(13,876,506	)		(13,664,995	)		(211,561	)
Net loss per common share – basic – continuing operations	$	(0.089	)	$	(0.087	)	$	(0.002	)
Net loss per common share – diluted – continuing operation	$	(0.060	)	$	(0.059	)	$	(0.001	)

NOTE 16. DISCONTINUED OPERATIONS

In December 2017, the Company discontinued all operations related to the Retail Pharmacy Segment involving the Company’s wholly-owned subsidiary, RoxSan Pharmacy, Inc.  On May 14, 2018, pursuant to  unanimous resolutions of the board of directors of RoxSan Pharmacy, Inc. (“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.

The pharmacy operations resulted in an accumulated deficit of $11,582,906 and $10,758,507 as of May 14, 2018, and December 31, 2017, respectively. In addition, certain advances were made to RoxSan Pharmacy, Inc. for the purpose of overhead expenses for which a secured promissory note was issued to the Company. As of May 14, 2018 and December 31, 2017, respectively, principal in the amount of $1,280,692 and $1,153,395 had been disbursed, and interest in the amount of $22,797 and $10,395 had been accrued in connection with the note.

- F-22 -

As of May 14, 2018, and December 31, 2017, respectively, the assets and liabilities relating to the discontinued operations of RoxSan Pharmacy, Inc. were as follows:

	May 14, 2018			December 31, 2017
Current assets held for sale
Cash and cash equivalents	$	––		$	2,421
Accounts receivable, net		––			40,856
Employee advances		––			1,800
Prepaid expenses		––			6,884
Total current assets held for sale		––			51,961
Noncurrent assets held for sale:
Loans receivable - long term		––			169,902
Property and equipment, net		––			10,000
Deposits		––			22,000
Total noncurrent assets held for sale	$	––			201,902
Total asset held for sale		––			253,863
Liabilities subject to compromise
Accounts payable and accrued expenses		2,942,012	[2]		2,979,132	[1]
Pension plan contribution payable		––			12,570
Note payable, related party		––			185,000	[2]
Related party payables		376,430	[2]		469,207	[2]
Note payable		185,000	[2]		––
Note payable-merchant		974,826			974,826
Total liabilities subject to compromise		4,478,268			4,620,735
Net liabilities of discontinued operations	$	4,478,268		$	4,366,872

[1]As of January 1, 2017, Mr. Dave Engert, former Executive Chairman of the board of directors, is no longer a related party.  As a result, related party payables was reduced by $105,746, representing $105,000 in accrued compensation and $746 in cash advances. As of December 31, 2017, $105,746 is included in accounts payable and accrued expenses as part of liabilities subject to compromise. See Note 18 for additional information and legal proceedings related to Mr. Engert.  

[2]As of January 1, 2018, Mr. Joseph M. Redmond, former President and member of the board of directors, is no longer a related party.  As a result, related party payables was reduced by $307,997, representing $185,000 in promissory notes, $119,270 in accrued compensation, and $3,727 in expense advances. As of May 14, 2018, $185,000 is reflected as a note payable, and $122,997 is included in accounts payable and accrued expenses as part of liabilities subject to compromise. In addition, accrued interest of $11,823 related to the promissory note was reclassified from related party to non-related party accrued interest, and is included in accounts payable and accrued expenses as part of liabilities subject to compromise. See Note 18 for additional information and legal proceedings related to Mr. Redmond. 

Included in accounts payable and accrued expenses as of May 14, 2018, and December 31, 2017, respectively, are $181,580 and $783,556 in unpaid payroll taxes, $296,959 and $283,058 in penalties, and $50,167 and $33,860 in interest related to unpaid payroll taxes.

The results of the discontinued operations of RoxSan Pharmacy, Inc. are summarized as follows:

	May 14, 2018			December 31, 2017
Revenue	$	––		$	3,100,207
Cost of sales		––			3,084,204
Gross profit		––			16,003
Sales, marketing and pharmacy expenses		170,630			660,400
General and administrative expenses		586,993			2,217,902
Operating loss		(757,623	)		(2,862,299	)
Interest expense		(56,775	)		(291,254	)
Loss on disposal of equipment		(10,000	)		––
Net loss from discontinued operations	$	(824,398	)	$	(3,153,553	)

- F-23 -

NOTE 17. SEGMENT REPORTING

The Company currently has three (3) business segments: Remote Care Systems, Behavioral Health Services and Diagnostics/Corporate. During 2017, Parallax’s operations also included the Pharmacy segment. However, RoxSan Pharmacy, Inc. ceased operations in December 2017, and was deconsolidated effective May 14, 2018.  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 Systems			Behavioral[1] Health Services			Diagnostics/ Corporate			Pharmacy[2]			Consolidated Totals
December 31, 2018
Revenue	$	9,399		$	1,800		$	––		$	––		$	11,739
Gross profit (loss)		(10,400	)		1,800			––			––			(8,600	)
Operating loss		(365,426	)		(191,446	)		(6,077,791	)		––			(6,634,663	)
Depreciation and amortization		9,196			109,760			1,664			––			120,620
Interest expense, net of income		2,970			––			2,161,560			––			2,164,530
Gain on disposal of subsidiary		––			––			4,478,268			––			4,478,268
Gain on extinguishment of debt		––			––			22,858,009			––			22,858,009
Discount amortization		(340,000	)		––			3,145,000			––			2,805,000
Loss on fair value adjustments		––			––			(123,875	)		––			(123,875	)
Discontinued operations		––			––			––			(824,398	)		(824,398	)
Total assets		913,636			439,567			11,154			––			1,364,357
Goodwill		785,060			––			––			––			785,060
Additions to property and equipment		––			––			––			––			––

December 31, 2017
Revenue	$	93,737		1,200		$	––		$	––		$	94,937
Gross profit (loss)		(48,307	)	1,200			––			––			(47,107	)
Operating loss		(618,952	)	(116,163	)		(3,437,604	)		––			(4,172,719	)
Depreciation and amortization		8,902		73,173			1,664			––			83,739
Interest expense, net of income		9,626		––			1,008,853			––			1,018,479
Discount amortization		350,000		––			5,100,000			––			5,450,000
Discontinued operations		––		––			––			(3,153,553	)		(3,153,553	)
Total assets		936,654		549,327			12,192			253,863	[3]		1,752,036
Goodwill		785,060		––			––			––			785,060
Additions to property and equipment		––		––			––			––			––

[1]Behavioral Health Segment commenced March 22, 2017 

[2]Discontinued operations effective May 14, 2018  

[3]Assets held for sale 

NOTE 18. LEGAL MATTERS

Dispute with Former Owner of RoxSan

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

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

Action No. SC 124873-Rescission Phase:

In the Matter, action no. SC 124873, rescission was sought by Melamed on the basis that, allegedly, in order to acquire the Pharmacy, the Company and its principals had allegedly defrauded Melamed, there had allegedly been a complete failure of consideration, and a unilateral mistake was allegedly made on the part of Melamed.  Subsequently filed pleadings by the Company and RoxSan in action no. SC 124873 allege, among other things, that Melamed misrepresented the true earnings and source of income for the pharmacy business and had engaged in a fraudulent and illegal scheme to ship medications to states where her pharmacy was not licensed prior to the sale of the Pharmacy.

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

- F-24 -

Action No. SC 124873-Accounting Phase:

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

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

Action No. SC125702:

In the Matter, action No. SC125702, Melamed alleges that the Company is in default under the terms of the Purchase Agreement and Secured Note, and the Company’s termination of Melamed’s employment agreement.  The Company firmly believes that it had adequate grounds to justify the termination of the employment, that it acted within its rights, and shall prevail in these proceedings.  A trial date is currently set for December 2018.

Action No. SC 124898:

The Company has initiated legal action against Melamed and filed a complaint, action number SC 124898, in the Superior Court of the State of California, County of Los Angeles, West District, Parallax Health Sciences, et al. v. Shahla Melamed, et al.  The Complaint in that action alleges that Melamed has breached several obligations under the Purchase Agreement, and the Company is seeking to reduce the Secured Note due to undisclosed material changes in the business. A trial date is currently set for December 2018.

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

Purchase Price Dispute

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

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

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

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

Control of Funds Dispute / US Postal Interference

For a period of time immediately after the closing of the Acquisition, the Melamed would not relinquish control of the Pharmacy's bank accounts, and collected the Pharmacy's incoming cash revenues, refusing to transfer the funds to the new ownership. Furthermore, when the Company attempted to change the corporate records and signatories on the existing bank accounts, the Former Owner disputed the changes, resulting in approximately $180,000 in corporate funds being frozen and held for adjudication. During this period, the Company was forced to request that the Former Owner pay the Pharmacy's operating expenses.  At no time after the Company opened new accounts did the Former Owner cooperate with the transference or willingly relinquish control of the Pharmacy's operating cash flow or incoming cash revenues.

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

- F-25 -

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 subject to the release of the bankruptcy trustee in the RoxSan matter.  On January 22, 2019, the Trustee filed a “No Assets” report with the Court.  The order was released by the court and the settlement agreement is being concluded.

Action No. BC700070

On March 28, 2018, Mr. J. Michael Redmond filed a lawsuit against the Company and RoxSan Pharmacy, Inc. in the United States District Court, Central District of California for an amount exceeding $75,000. The Company intends to vigorously defend against this action. There are counterclaims that include possible fraud and negligence committed by Mr. 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.

There are five (5) legal matters currently pending at this time.

NOTE 19. SUBSEQUENT EVENTS

The Company has evaluated the events and transactions for recognition or disclosure subsequent to December 31, 2018, through the date of the issuance of the financial statements, and has determined that there have been no events that would require disclosure, except for the following:

On January 28, 2019, pursuant to a majority shareholder consent and resolution of the board of directors dated December 24, 2018, the Company filed an Amendment to the Articles of Incorporation to increase its authorized common shares from 250,000,000 to 500,000,000.

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. As a result, $14,850 was recorded to paid in capital.

On January 30, 2019, in connection with certain convertible debt in the amount of $175,000, the Company issued 1,750,000 shares of its restricted common stock at a conversion rate of $0.10 per share.  As a result, $173,250 was recorded to paid in capital.

On January 31, 2019, in connection with a certain senior secured promissory note, the Company issued 250,000 shares of its restricted common stock to the note holders as a form of interest.  The shares were valued at $25,000. As a result, $24,750 was recorded to paid in capital.

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.  As a result, $49,500 was recorded to paid in capital.

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.  As a result, $21,780 was recorded to paid in capital.

On February 12, 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.  As a result, $371,250 was recorded to paid in capital.

On February 23, 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. As a result, $14,850 was recorded to paid in capital.

On February 25, 2019, the Company issued a convertible promissory note in the principal sum of $20,000 for unpaid fees. The note is interest-free, matures August 24, 2019, and contains a repayment provision to convert the debt into shares of the Company's common stock at conversion price equal to the twenty (20) day volume weighted average closing price of the Company’s common stock for the twenty (20) days prior to conversion.

On February 27, 2019, the Company issued a convertible promissory note for working capital in the principal sum of $111,000, with $104,340 in proceeds disbursed to the Company after an original issue discount (“OID”) of 6%. The note bears interest at a rate of 12% per annum, matures November 27, 2019, and contains a repayment provision to convert the debt into shares of the Company's common stock at conversion price equal to the lower of: (i) $0.12; or (ii) 70% of the second lowest sale price for the Company's common stock during the twenty (20) trading days prior to conversion on which at least 100 shares of the Company's common stock was traded.  In addition, the note holder was issued 300,000 warrants to purchase the Company’s common stock at an exercise price of $0.15 per share for a period of five (5) years.

- F-26 -

On March 18, 2019, the Company issued a convertible promissory note for working capital in the maximum principal sum of $260,000, with a maximum aggregate of $250,000 in proceeds disbursed to the Company after an original issue discount (“OID”) of $10,000. The note bears interest at a rate of 12% per annum, matures six months from the effective date each payment of disbursed proceeds is made, and contains a repayment provision to convert the debt into shares of the Company's common stock at conversion price of $0.10 per share.  In addition, the note holder was issued 1,300,000 warrants to purchase the Company’s common stock at an exercise price of $0.20 per share for a period of five (5) years.

On March 25, 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. As a result, $14,850 was recorded to paid in capital.

In April 2019, the Company issued 12% convertible promissory notes in the aggregate principal sum of $214,000.  The notes matures by April 2, 2020, and contain repayment provisions for the holders of the notes to convert the principal sum and any accrued interest into shares of the Company’s common stock at a conversion rate of the lesser of (i) $0.12 per share, or (ii) 65% of the average lowest trading prices during the trading days immediately preceding the conversion date.  In addition, the Company issued warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.15 per share for a period of five (5) years.

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.  As a result, $102,660 was recorded to paid in capital.

In April 2019, the Company issued 825,000 shares of its restricted common stock for various services valued at $80,500. As a result, $79,675 was recorded to paid in capital.

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 commences 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 at $0.001 per share, 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 are for a period of five (5) years, and vest annually over the term of the agreement, with an initial vesting of 25%.

On May 1, 2019, the Company entered into a sub-lease for office space located at 28 West 36th Street, 8th Floor, New York, NY 10018.  The lease is for a term of thirteen (13) months, with a monthly rent payment of $8,900.

On May 2, 2019, in connection with a SAFE offering, the Company issued 2,500,000 shares of its restricted common stock at $0.10 per share, for cash in the amount of $250,000.  As a result, $247,500 was recorded to paid in capital.

On May 6, 2019, in connection with an equity funding, the Company issued 6,000,000 shares of its restricted common stock for cash in the amount of $500,000.  As a result, $494,000 was recorded to paid in capital.

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.

On July 17, 2019, 293,146 shares of the Company’s restricted common stock, valued at $10,289, which were previously issued in connection with the cashless exercise of certain warrants, were returned to treasury and cancelled, and the warrant was fully retired.

On July 25, 2019, the related party convertible debentures in the principal sum of $428,132, plus premiums of $261,604 and accrued interest of $68,926, were exchanged 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 addition, as part of the commitment to extend the debt, the noteholders were issued an aggregate of 1,380,811 shares of the Company’s restricted Common Stock, valued at $131,315, as well as warrants to purchase an aggregate of 2,528,413 shares of the Company’s Common Stock for a period of five (5) years at an exercise price of $0.10461.

In August 2019, the Company amended the private placement equity offering (the “Offering”) originally 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 four of the Company’s executive officers and directors for the reduction of accrued 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 retained Maxim Group, LLC (“Maxim”) to serve as its placement agent for the Offering. The Company has agreed to pay the placement agent a placement fee equal to 7% of the aggregate gross proceeds raised in the Offering and warrants exercisable for a term of five years to purchase 7% of the number of shares of common stock included in the Units sold in the Offering at an exercise price of $0.125 per share.  In connection with the Maxim Agreement, the Company issued Maxim 1,000,000 shares of its restricted common stock, valued at $71,000.  As a result, $70,000 was recorded to paid in capital.

On August 28, 2019, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Global Career Networks Inc., a Delaware corporation, (“GCN”) to acquire a 19% interest in GCN.  The Purchase Agreement was fully executed on September 6, 2019, and on October 15, 2019 (the deemed effective date), all of the closing conditions in the Purchase Agreement were satisfied.  Pursuant to the Purchase Agreement, in exchange for 6,666,667 shares of the Company’s restricted common stock, valued at $1,000,000, the Company acquired 760 shares of GCN common stock.

*    *    *    *    *

- F-27 -

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  

(a)Withdrawal of Independent Certifying Accountant 

Effective November 29, 2017, Dave Banerjee, CPA (“Banerjee”) will no longer act as the Company’s independent registered public accounting firm.

The reports of Banerjee regarding the Company’s financial statements for the fiscal year ended December 31, 2015, did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles, except that the audit report of Banerjee on the Company’s financial statements for fiscal years ended December 31, 2015, contained an explanatory paragraph which noted that there was substantial doubt about the Company’s ability to continue as a going concern.

During the year ended December 31, 2015, and during the period from January 1, 2016, to November 29, 2017, the date of withdrawal, (i) there were no disagreements with Banerjee on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Banerjee would have caused it to make reference to such disagreement in its reports; and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

The Company provided Banerjee with a copy of the foregoing disclosures and requested that Banerjee furnish the Company with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter is Exhibit 16.8 to the Current Report on Form 8-K. filed on December 13, 2017.

(b)Engagement of Independent Certifying Accountant 

Effective December 11, 2017, the Company engaged Freedman & Goldberg, CPA’s (“F&G”) as its independent registered public accounting firm.

During each of the Company’s two most recent fiscal years and through the interim periods preceding the engagement of F&G, the Company (a) has not engaged F&G as either the principal accountant to audit the Company’s financial statements, or as an independent accountant to audit a significant subsidiary of the Company and on whom the principal accountant is expected to express reliance in its report; and (b) has not consulted with F&G regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and no written report or oral advice was provided to the Company by F&G concluding there was an important factor to be considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event, as that term is described in Item 304(a)(1)(v) of Regulation S-K.

ITEM 9A.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, a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. 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 December 31, 2018, the end of the Company’s fiscal year covered by this 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 not effective as of the end of the period covered by this annual report.

- 54 -

Management’s Report on Internal Controls over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of the Company’s control procedures. The objectives of internal controls include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013) .

In September 2019, subsequent to the April 2019 filing of the Company’s original 2018 annual report (the “Original Report”), and the audited financial statements contained therein, management identified a material weakness in its internal controls.  This weakness relates 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, a misstatement was made of the Company’s financial statements for the years ended December 31, 2018 and 2017.   

Specifically, the Company did not adequately analyze and identify certain debt and equity instruments being issued by the Company, to determine, among other things, the instruments’ derivative features.  Such derivative instruments had not been recognized in the past, and no internal controls were in place at the time to mitigate the risk of material misstatements in financial reporting processes.

The Company’s management has concluded that, due to a material weakness in internal control over financial reporting as of December 31, 2018, the Company’s internal control over financial reporting was not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Company generally accepted accounting principles. The Company’s management reviewed the results of their assessment with the Company’s board of directors (the “Board”).

This amended annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Remediation efforts to address material weakness

The Company has remedied the material weaknesses by, 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. Included in this amended Annual Report are the restated audited financial statements for the years ended December 31, 2018 and 2017.

Subsequent to the discovery of weaknesses, the Company took immediate measures to remedy the deficiencies.  As of the date of filing of this amended Annual Report, the proper controls have been designed and implemented, and management 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.

Inherent limitations on effectiveness of controls

Internal control over financial reporting has inherent limitations which include , but is not limited to , the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance , and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis . H owever , these inherent limitations are known features of the financial reporting process , and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. 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.

Changes in Internal Control over Financial Reporting

There have been no other changes in the Company’s internal controls over financial reporting that occurred during the year ended December 31, 2018, that have materially or are reasonably likely to materially affect, the Company’s internal controls over financial reporting, except those disclosed above.

ITEM 9B.OTHER INFORMATION  

None

- 55 -

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  

Identification of Directors and Executive Officers

The following table represents the directors and executive officers of the Company as of the date of the filing of this annual report:

Name	Position(s) Held	Age	Date first Elected or Appointed
Paul R. Arena	President, Chief Executive Officer, Director	60	July 7, 2017
Calli R. Bucci	Chief Financial Officer Corporate Secretary Director	54	November 1, 2012 March 31, 2014 December 29, 2016
John L. Ogden	Director	65	December 29, 2016
E. William Withrow Jr.	Director	80	November 1, 2012
Nathaniel T. Bradley	Director	43	June 4, 2018

Term of Office

The Board elects the Company’s officers, and their terms of office are at the discretion of the Board.  Each officer serves until the earlier occurrence of the election of his or her successor; or by death, resignation or removal by the Board.  A director need not be a stockholder.

The members of the Company’s board of directors are elected through a majority vote of the Company’s stockholders, in accordance with the Company’s by-laws.  Each director shall hold office until his or her successor has been duly elected and qualified; or by death, resignation or removal by a majority vote of the Company’s stockholders.

Any director or officer may resign at any time.

Recent Changes in Directors and Executive Officers

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

Background and Business Experience

Paul R. Arena – President, Chief Executive Officer, Director

Mr. Paul R. Arena, age 60, has over thirty years of executive management experience and has held senior executive positions in a number of publicly traded companies.

Mr. Arena has served as a director and as the Company’s President and Chief Executive Officer since July 2017.  Mr. Arena has held the position of Chief Executive Officer of Intellectual Property Network, LLC from April 2017 to present, and is also a shareholder.  From May 2016 to present, Mr. Arena founded and is a beneficial owner of ArenaLife, LLC, and from March 1991 to present, Mr. Arena has held the positions of Chairman of the Board, Chief Executive Officer, President and owner of AIM Group, Inc.  

Previously, from March 2013 through January 2014, Mr. Arena was a Senior Managing Director of AudioEye, Inc., and then became Executive Chairman from January 2014 through March 2015. From June 2010 to December 2012, he held various executive positions, including Chairman of the Board, Chief Executive Officer, and Principal Financial Officer of Augme Technologies, Inc. and its subsidiary, Hipcricket, Inc..  From February 2002 to March 2010, Mr. Arena held various executive positions, including Chairman of the Board, Chief Executive Officer, Principal Financial Officer and founder of Geos Communications (formerly i2 Telecom International) and its subsidiaries.  Mr. Arena served in various executive capacities, including Chairman of the Board, Chief Executive Officer, President and founder of Cereus Technology Partners, Inc. and its subsidiaries from May 1991 to April 2000.

The Company believes Mr. Arena is qualified to be the Company’s President, Chief Executive Officer, and director because of his extensive senior executive experience in a multitude of different technology hardware and service markets.

Calli R. Bucci – Chief Financial Officer, Corporate Secretary, Director

Ms. Bucci has over thirty years of experience in the field of finance and business management.  She joined Parallax in 2010 as its controller, and has served as its Chief Financial Officer since November 2012.  Before joining the Company, Ms. Bucci held the position of Chief Financial Officer at InstaSave, Inc., a promotional incentive company, from December 2007 to January 2010, where she was responsible for financial reporting, capital structure strategy and modeling, financial transactions with consumers, consumer product goods companies and retailers, investor relations, audits, payroll and corporate income taxes.

- 56 -

In addition to her public accounting background, Ms. Bucci held the position of Manager/Senior Accountant at Gelfand, Rennert & Feldman, a division of PriceWaterhouseCoopers, from April 1993 to August 1999, where she was responsible for all financial transactions for high net worth clientele, was liaison for annual audits, general ledger reviews and annual tax preparation.

Ms. Bucci held the position of Director of Accounting and Contract Administration at Intercontinental Releasing Corporation (IRC), a Los Angeles based Motion Picture Distribution Company, from April 1989 to April 1993.  Ms. Bucci was responsible for all functions within the company’s accounting department, from financial statements and forecasting, to annual audits and corporate taxes. During her tenure with IRC, Ms. Bucci also designed and implemented a custom computerized availabilities system for the film rights of over 35 film properties distributed to foreign territories throughout the world. She was also responsible for the administration and facilitation of all client contracts, dealing heavily in foreign currencies and international import regulations.

Ms. Bucci concurrently holds the position of Chief Financial Officer of PearTrack Security Systems, Inc., a Nevada corporation.

Ms. Bucci attended Santa Monica College and the University of California at Berkley, majoring in Accounting.  

The Company believes Ms. Bucci is qualified to be the Company’s Chief Financial Officer, Secretary and director because of her knowledge of and extensive experience in a multitude of different capacities in corporate finance, business affairs, and public markets.

Nathaniel T. Bradley – Director, Chief Technology Officer

Mr. Bradley has served as the Company’s Chief Technology Officer since January 2016 and as President of the Company’s wholly-owned subsidiary, Parallax Health Management, Inc. (fka Qolpom®, Inc.), since the founding of the company in 2014.  He has also served as Chief Technology Officer and Chief Product Officer of Montecito BioSciences, Ltd. from 2011 to present. Mr. Bradley is also founder of Bradley Brothers, LLC and Intellectual Property Network, Inc., both formed in 2012.  Mr. Bradley previously served as a member of the board of directors of AudioEye, Inc., from the company’s founding in 2005 to 2015, and as Chief Executive Officer and President between 2007 and 2015.

Mr. Bradley is a recognized pioneer and active expert in the new media internet technology sector. He is the named inventor of several internet technology patents and patents-pending with the U.S. Patent and Trademark Office. Over the past decade, Mr. Bradley has been involved in the invention, reduction to practice, commercial licensing, and enforcement of foundational internet and mobile technology patents. Prior to AudioEye, Mr. Bradley was Chairman of the Board of Modavox® from 2006 to 2013, which became Augme Technologies, Inc., and Chief Technology Officer of its subsidiary, Hipcricket, Inc.  Mr. Bradley was also founder and managing member of Kino Digital, Kino Communications and Kino Interactive.

The Company believes Mr. Bradley is qualified to be a director of the Company because of his extensive experience in strategic business development, intellectual properties and inventive technologies.

E. William Withrow Jr. – Director

Mr. Withrow Jr. has nearly twenty years of experience in the financial investment industry, twenty-four years of experience in the logistics field, and twenty years of experience in civic leadership. Since 2004, Mr. Withrow has served as an elected member of the Board of Trustees of the Peralta College District in the San Francisco Bay area, an institution consisting of 2,000 faculty and staff and approximately 30,000 students.  From 1997 to 2002, Mr. Withrow Jr. served as a financial consultant for Wells Fargo, a provider of personal banking and investing services.  From 1993 to 1997, he served as a financial consultant for Merrill Lynch, a financial management and advisory company.  From 1987 to 1989, Mr. Withrow Jr. served as a sales manager for Paine Webber, a stock brokerage and asset management firm, and from 1983 to 1987, he served as a financial consultant for Drexel Burnham Lambert, an investment banking firm.  As a financial consultant and sales manager for the aforementioned financial institutions, Mr. Withrow Jr. examined financial statements, evaluated investment opportunities, provided advice to clients about possible investment opportunities and provided advice to stockbrokers and other individuals attempting to sell securities. 

Additionally, Mr. Withrow Jr. served twenty-four years on active duty in the U.S. Navy as a professional logistician, retiring with the rank of Captain.

Mr. Withrow Jr. has been very active in civic leadership for the past 20 years serving in a number of elected and appointed positions, including Mayor of Alameda, California. 

Mr. Withrow Jr. received a Bachelor of Business in Finance and Accounting from the University of Colorado in 1959, and in 1972 received a Master in Business Administration from Harvard University.

The Company believes Mr. Withrow Jr. is qualified to be a director of the Company because of his extensive experience in financial consulting and strategic business development.

- 57 -

John L. Ogden – Director

Mr. Ogden has more than 35 years’ experience in corporate finance, international negotiations, corporate and asset acquisition, business development and company management. Since 1995, he has been a principal and managing director of Wood Roberts, LLC, an energy corporate financial advisory firm based in Houston, Texas. Between 1985 and 1995, he managed an independent corporate financial consulting business specializing in domestic and international energy issues, providing M&A advice, and strategic corporate financial consulting services. Mr. Ogden graduated from the University of Leeds, England, with a Bachelor of Laws (honors) and is qualified as a Barrister-at-Law in England.

The Company believes Mr. Ogden is qualified to be a director of the Company because of his extensive experience in corporate finance and strategic business development.

Identification of Significant Consultants

Dr. David Stark, Consultant

Dr. Stark has 18 years’ experience from the toxicology labs to the investigator site and has been essential to all aspects clinical and device research. Dr. Stark is the President and CEO of Stark-SMO, a Site Management Organization whose services go far beyond that of an ordinary SMO.  Due to his extensive and broad experiences in the inner workings of the research and regulatory aspects of clinical trials, Dr. Stark brings a unique vision to the industry and the Company as a motivated designer of superior approaches to research challenges. Most importantly, Dr. Stark is highly qualified to manage the development opportunities of the Company.

Formerly the Director of the National Institute of Clinical Research (NICR), he has been responsible for the design, organization and implementation of clinical trials for pharmaceutical and device companies.  He has a broad background in designing, conducting, and monitoring clinical trials of new pharmaceuticals and devices.  He is one of the few that has worked in the manufacturing validation of pharmaceuticals, the clinical field, and the regulatory (IRB) arenas, and therefore possesses a big-picture understanding of pharmaceutical development.

Through Dr. Stark’s diverse and devoted networking within the industry, Stark-SMO has assembled a wide network of more than 5,000 physicians throughout the United States, which extends to the international community. Currently, he is negotiating a unique DMF partnership with drug manufacturers in China.

In addition to his significant accomplishments on the industry side of clinical drug and device development, Dr. Stark has experience with the FDA (major focus on IND’s NDA’s and 510(k) applications). Prior to his employment at NICR, Dr. Stark was the President and Chief Executive Officer of Powder Ice, Inc a medical products company. Additionally, Dr. Stark is a California state licensed Qualified Medical Examiner and Certified Clinical Research Associate.

The Company does not expect any other individuals to make a significant contribution to the Company’s business.

Family Relationships

There are no family relationships among its directors or executive officers.

Involvement in Certain Legal Proceedings

In December 2015, the Company’s Chief Executive Officer, Paul R. Arena, filed for personal bankruptcy in connection with his divorce. The Company does not believe Mr. Arena’s personal bankruptcy has any impact on the Parallax business.

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 subject to the release of the bankruptcy trustee in the RoxSan matter.  On January 22, 2019, the Trustee filed a “No Assets” report with the Court.  The order was released by the court and the settlement agreement is being concluded.

On March 28, 2018, Mr. J. Michael Redmond filed a lawsuit against the Company and RoxSan Pharmacy, Inc. in the United States District Court, Central District of California for an amount exceeding $75,000.  The Company intends to vigorously defend against this action. There are counterclaims that include possible fraud and negligence committed by Mr. 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.

- 58 -

On May 14, 2018, pursuant to unanimous resolutions of the boards of directors of Parallax Health Sciences, Inc and RoxSan Pharmacy, Inc. (“RoxSan”), RoxSan filed a Chapter 7 petition in the United States Bankruptcy Court for the Central District of California.  Mr. Timothy Yoo was appointed trustee on May 15, 2018.  In connection with this filing, RoxSan seeks to discharge approximately $5 million of liabilities owed to various parties, and intercompany loans in excess of $1 million owed to the Company.  The Chapter 7 bankruptcy proceeding by RoxSan Pharmacy, Inc. was fully discharged and the case was closed on March 13, 2019, in U.S. Bankruptcy Court, Central District of California.

Except as disclosed above, the Company’s directors, executive officers and control persons, have not been involved in any of the following events during the past five years:

1.any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;  

2.any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);  

3.being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or  

4.being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.  

Audit Committee and Audit Committee Financial Expert

The Company established an audit committee of the Board 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 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, 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.

Code of Ethics

The Company has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K of the Securities Exchange Act of 1934. The Code of Ethics applies to directors and senior officers, such as the principal executive officer, principal financial officer, controller, and persons performing similar functions.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under Rule 16a-3(e) during the year ended December 31, 2018, Forms 5 and any amendments thereto furnished to the Company with respect to the year ended December 31, 2018, and the representations made by the reporting persons to the Company, the Company believes that during the year ended December 31, 2018, its executive officers and directors and all persons who own more than ten percent of a registered class of the Company’s equity securities complied with all Section 16(a) filing requirements.

ITEM 11.EXECUTIVE COMPENSATION  

Summary Compensation Table

The table below summarizes the compensation paid by the Company to the following persons:

(a)its principal executive officer;  

(b)each of the Company’s two most highly compensated executive officers who were serving as executive officers at the end of the years ended December 31, 2018 and 2017; and  

(c)up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as the Company’s executive officer at the end of the years ended December 31, 2018 and 2017. 

No disclosure is provided for any named executive officer, other than the Company’s principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year:

- 59 -

SUMMARY COMPENSATION TABLE
		Salary		Bonus		Stock Award		Option Awards		Non-Equity Incentive Plan Compensation	Change in Pension Value and Nonqualified Deferred Compensation Earnings	All Other Compensation		Total
Name and Principal Position	Year	($)		($)		($)		($)		($)	($)	($)		($)
Paul R. Arena Chief Executive Officer, President	2018	350,000	[4] [6]	75,000	[6]	None	[1]	None	[1]	None	None	55,483	[5]	480,483
	2017	169,750	[6]	None		2,000,000	[1]	915,500	[1]	None	None	17,287	[5]	3,102,537
Calli R. Bucci Chief Financial Officer, Secretary	2018	216,000	[4] [7]	100,000	[7]	820,000	[2]	134,500	[2]	None	None	8,308	[5]	1,278,808
	2017	250,691	[4] [7]	None		None		None	[2]	None	None	12,063	[5]	262,754
Nathaniel T. Bradley Chief Technology Officer, President, PHM	2018	222,000	[4] [8]	None		None		160,000	[3]	None	None	44,655	[5]	426,655
	2017	180,000	[4] [8]	50,000	[8]	750,000	[3]	229,400	[3]	None	None	28,704	[5]	1,238,104

[1]	Pursuant to Employment Agreement effective July 7, 2017, 10,000,000 shares of restricted Common Stock were granted, , with an aggregate grant date fair value of $2,000,000, of which 2,500,000 vested during 2017, valued at $500,000, and 2,500,000 vested during 2018, valued at $500,000; and 5,000,000 options were granted, valued at $915,500 using the Black Scholes method, of which 1,250,000 vested during 2017, valued at $228,875, and none vested in 2018.  The assumptions used in valuing the options were: expected term 3.5 years, expected volatility 1.88, risk free interest rate 1.95%, and dividend yield 0%.
[2]	Pursuant to Executive Agreement effective January 1, 2018, 1,000,000 options were granted, all of which vested in 2018, valued at $134,500 using the Black Sholes method.  The assumptions used in valuing the options were: expected term 3.75 years, expected volatility 1.78, risk free interest rate 2.25%, and dividend yield 0%; and, pursuant to 2018 stock award of 5,000,000 shares,100% vested immediately, with an aggregate grant date fair value of $820,000.
[3]	Pursuant to Employment Agreement effective August 1, 2017, 3,000,000 shares of restricted Common Stock were granted, 100% vesting immediately, with an aggregate grant date fair value of $750,000; and 1,000,000 options were granted, valued at $229,400 using the Black Scholes method.  The assumptions used in valuing the options were: expected term 3.25 years, expected volatility 1.95, risk free interest rate 2.29%, and dividend yield 0%.  An additional 1,000,000 options were granted on August 1, 2018, valued at $160,000 using the Black Scholes method. The assumptions used in valuing the options were: expected term 3 years, expected volatility 2.06, risk free interest rate 2.78%, and dividend yield 0%.
[4]	Includes $150,000 paid by each officer in connection with the purchase of convertible preferred Series C shares.
[5]	Accrued vacation and benefits.
[6]	Pursuant to agreements with Company, included in amounts for 2018 and 2017, respectively, are $45,500 and $97,800 in officer’s compensation, $75,000 and $0 in bonuses, and $55,483 and $17,287 in benefits that have been accrued and deferred until the Company reaches certain funding and earnings goals.  Included in these goals are a private placement offering for $3-$6 million.
[7]	Pursuant to agreement with Company, included in amounts for 2018 and 2017, respectively, are $0 and $115,651 in officer’s compensation, $100,000 and $0 in bonuses, and $8,308 and $12,063 in benefits that have been accrued and deferred until the Company reaches certain funding and earnings goals.  Included in these goals are a private placement offering for $3-$6 million.
[8]	Pursuant to agreement with Company, included in amounts for 2018 and 2017, respectively, are $0 and $105,172 in officer’s compensation, $0 and $50,000 in bonuses, and $44,655 and $28,704 in benefits that have been accrued and deferred until the Company reaches certain funding and earnings goals.  Included in these goals are a private placement offering for $3-$6 million.

Employment Contracts and Termination of Employment and Change in Control Arrangements

On July 6, 2017, the Company terminated the August 13, 2015 employment agreement and caused the removal of Mr. Joseph M. Redmond from all positions held in the Company and its subsidiaries (if any).

On July 7, 2017, the board of directors appointed Mr. Paul R. Arena as the Company’s new President and Chief Executive Officer.  In connection with the appointment, the Company entered into an Executive Employment Agreement (the “Agreement”) with Mr. Arena dated July 7, 2017, for a period of three (3) years.  The Agreement provides a base compensation of $350,000 in year one, of which 30% shall be deferred until certain funding goals are met, $425,000 in year two, and $550,000 in year three, as well as annual bonus compensation equal to 2x base when certain Company earnings are reached.  In addition, the Agreement includes a grant to purchase 10,000,000 restricted common shares at $0.001 per share, of which 25% vests immediately; 25% vests in one year; 25% vests after two years; and 25% vests when certain funding goals have been met.  The shares were valued at $2,000,000, of which $500,000 was expensed, and $1,500,000 was deferred, to be amortized over the next thirty-six (36) months. The Agreement also includes the grant of 5,000,000 stock options at an exercise price of $0.25 per share.  The options are exercisable for a period of five (5) years, and vest when certain market share prices of the Company’s Common Stock are met.

On November 30, 2017, the Company executed an Employment Agreement with Mr. Nathaniel T. Bradley, with an effective date of August 1, 2017, to serve as the Company’s Chief Technology Officer (“CTO”), as well as CTO of Parallax Health Management, Inc. and Parallax Behavioral Health, Inc.  The agreement replaces any other agreement between Mr. Bradley and the Company or any of its subsidiaries, is for an initial term of three (3) years, and provides a base compensation in the aggregate of $222,000 year one, $265,000 in year two and $320,000 in year three, as well as various performance bonuses, and customary employee benefits. In addition, the agreement, as amended, includes a grant to purchase 3,000,000 restricted common shares at $0.001 per share, valued at $750,000 and 100% vesting immediately, as well as options granted to purchase 2,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share.  The options are for a period of five (5) years, and vest annually over a three (3) year period, with an initial vesting of 25%.

On January 1, 2018, the Company entered into an Executive Agreement with its Chief Financial Officer.  The agreement replaces any other written agreement with the Company, is for a term of one (1) year, with the option to extend, and includes annual compensation of $216,000 in year 1, as well as a bonus plan and customary executive benefits.  In addition, the agreement provides for a non-refundable, fully-vested signing bonus of $100,000, as well as a grant of stock options to purchase 1,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share. The options are for a period of five (5) years, and vest quarterly over a one (1) year period.

- 60 -

Each agreement above includes provisions for 1) the accelerated vesting of stock options or similar securities upon a change in control of the Company; and 2) six (6) months continued benefits and salary at the prevailing rate upon their termination without just cause. There are no other employment contracts, compensatory plans or arrangements, including payments to be received from the Company with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with the Company, or its subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of the Company.

There are no other employment contracts, compensatory plans or arrangements, including payments to be received from the Company with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other termination of employment with the Company, or its subsidiaries, any change in control, or a change in the person’s responsibilities following a change in control of the Company.

There are no agreements or understandings for any executive officer to resign at the request of another person. None of the Company’s executive officers acts or will act on behalf of or at the direction of any other person.

Equity Compensation Plan

In 2015, the Company adopted and approved the 2015 Incentive Compensation Plan (“the 2015 Plan”), wherein ten million (10,000,000) restricted shares of Common Stock were reserved for issuance. The 2015 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 2015 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.

In 2016, the Company adopted and approved the 2016 Incentive Compensation Plan (“the 2016 Plan”), wherein ten million (10,000,000) restricted shares of Common Stock were reserved for issuance. The 2016 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 2016 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.

As of December 31, 2018, an aggregate of 18,060,000 stock options have been granted under the plans, of which 8,551,000 are vested, and 9,509,000 vest periodically over the next 28 months.

In June 2019, the Company adopted and approved the 2019 Stock Incentive Plan (“the 2019 Plan”), wherein forty million (40,000,000) restricted shares of 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 of directors. Subject to the provisions of the plan, the board will determine who shall receive options, the number of shares of Common Stock that may be purchased under the options. On June 17, 2019, the Company filed a Form S-8 registration statement with the Securities and Exchange Commission for the 40,000,000 shares underlying the 2019 Plan.

Stock Options/SAR Grants

On July 7, 2017, in connection with an executive employment agreement, the Company granted the officer 5,000,000 options to purchase common shares at $0.25 for a period of five (5) years.  The options vest as follows: 25% immediately, and the remainder vest when certain market goals are met.  

On August 1, 2017, in connection with an executive employment agreement, the Company granted the officer 1,000,000 options to purchase common shares at $0.25 for a period of five (5) years.  The options vest annually over a three (3) year period.

On January 1, 2018, in connection with an executive agreement, the Company granted the officer 1,000,000 options to purchase common shares at $0.25 for a period of five (5) years.  The options vest annually over a one (1) year period.

On August 1, 2018, in connection with an executive employment agreement, the Company granted the officer 1,000,000 options to purchase common shares at $0.25 for a period of five (5) years.  Of the options granted, 50% vest immediately, and the remaining vest annually over a two (2) year period.  

There were no other stock options granted to directors and officers during the years ended December 31, 2017 or 2018.

Aggregated Option Exercised in Last Fiscal Year

On August 13, 2018, in connection with the exercise of certain employee stock options, the Company issued 1,071,430 shares of its restricted Common Stock at a conversion rate of $0.05 per share.

There were no other options exercised during the years ended December 31, 2018 or 2017, by any officer or director of the Company.

- 61 -

Outstanding Equity Awards at Fiscal Year End

The following tables summarize the outstanding equity awards held by each executive officer and director at December 31, 2018:

	Option Awards					Stock Awards
Name	Total Number of Options Granted	Number of Options Vested / Exercisable	Number of Options Non-Exercisable	Exercise Price	Expiration Date	Number of Unvested Units	Value of Unvested Units
Paul R. Arena	5,000,000	1,250,000	3,750,000	$0.25	07/07/2022	5,000,000	$1,000,000
Nathaniel T. Bradley	2,000,000	1,000,000	1,000,000	$0.25	08/01/2022	––	––
Calli R. Bucci	1,000,000	1,000,000	––	$0.25	08/13/2020	––	––
John L. Ogden	500,000	500,000	––	$0.05	10/05/2020	––	––
Edward W. Withrow Jr.	750,000	750,000	––	$0.05	10/05/2020	––	––
Total	9,250,000	4,500,000	4,750,000			5,000,000	$1,000,000

Compensation of Directors

The table below summarizes the compensation paid to the Company’s independent directors for their services as members of the Company’s board of directors for the years ended December 31, 2018, and December 31, 2017:

Director Name		Fees earned or paid in cash  ($)	Stock awards ($)	Option awards  ($)	Non-equity incentive plan compensation ($)	Nonqualified deferred  compensation earnings  ($)		All other compensation ($)	Total ($)
Edward W. Withrow Jr. Director	2018	None	None	None	None		None	None		None
	2017	None	None	None	None		None	None		None
John L. Ogden Director	2018	None	None	None	None		None	None		None
	2017	None	None	None	None		None	None		None

The Company reimburses its directors for expenses incurred in connection with attending board meetings. In addition, certain directors and officers of the Company have received stock options to purchase common shares under the Company’s Employee Stock Option Plan and Incentive Compensation Plan, and may receive additional stock options at the discretion of the Company’s Board.  

The Company adopted a formal compensation and expense reimbursement plan for its independent directors effective January 1, 2019 (the “DC Plan”), to provide the directors with reasonable compensation for the performance of their duties as members of the board of directors and the amount of time spent on official business of the Company. The compensation provided under the DC Plan is as follows:

1.Annual retainer of $24,000 for Board membership, inclusive of all board meeting attendance. 

2.Annual retainer of $12,000 for Committee membership, inclusive of all Committee meeting attendance. 

3.Annual retainer for service as the Audit and Compensation Committee Chairpersons of $5,000. 

4.Annual retainer for service as the Chairperson of any committee established by the Board, other than the Audit or Compensation Committee, of $2,500. 

5.Reimbursement for reasonable out-of-pocket expenses actually incurred in connection with participation and/or attendance of Board and Committee meetings. 

The Company has not paid any other cash compensation or directors’ fees for services rendered as a director since the Company’s inception to the adoption of the DC Plan..

Pension, Retirement or Similar Benefit Plans

As of December 31, 2018, the Company had no other pension plans or compensatory plans or other arrangements which provide compensation in the event of termination of employment or change in control the Company. There are no arrangements or plans in which the Company provides pension, retirement or similar benefits for directors or executive officers. The Company has no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to its directors or executive officers, except that stock options may be granted at the discretion of the Board or a committee thereof.

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 will oversee and determine 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, approve all employment and severance agreements for executive officers, approve significant changes to benefit plans and perform such other functions as the Board may direct.  The compensation committee will also approve all other agreements containing compensation and services rendered, such as consulting and other compensatory agreements, and will administer the Company’s stock incentive plans and make recommendations to the Board concerning any director compensation plan.

- 62 -

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS  

The following table sets forth, as of December 31, 2018, certain information with respect to the beneficial ownership of its Common Stock by each stockholder known by the Company to be the beneficial owner of more than 5% of its Common Stock and by each of its current directors and executive officers. Each person has sole voting and investment power with respect to the shares of Common Stock, subject to community property laws where applicable, except as otherwise indicated. In computing the number of shares of Common Stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of Common Stock subject to restricted stock awards, stock options, warrants, rights or other convertible securities held by that person that are currently exercisable or will be exercisable within 60 days after December 31, 2018. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.:

Shareholder	Address	City, State, Zip	Amount and Nature of Beneficial Ownership [1]		Percentage of Shares of Common Stock
Edward W. Withrow III	1327 Ocean Avenue, Suite B	Santa Monica, CA 90401	74,566,194	[2] [4]	42.33%
Jorn & Jennifer Gorlach	2154 NW Everett Street, Apt B	Portland, OR 97210	66,589,362	[2] [3]	37.62%
Huntington Chase LLC	1327 Ocean Avenue, Suite B	Santa Monica, CA 90401	18,056,822	[4]	10.25%
Montecito BioSciences, Ltd.	1327 Ocean Avenue, Suite M	Santa Monica, CA 90401	38,156,227	[2]	24.13%
AvantGarde LLC	2154 NW Everett Street, Apt B	Portland, OR 97210	9,937,953	[4]	6.09%
Hamburg Investment Group LLC	2154 NW Everett Street, Apt B	Portland, OR 97210	13,916,435	[4]	8.09%
Directors and Executive Officers:
Paul R. Arena	28 W. 36th Street, 8th Floor	New York, NY 10018	8,150,205	[5]	5.05%
Calli R. Bucci	1327 Ocean Avenue, Suite B	Santa Monica, CA 90401	10,353,197	[7]	6.43%
Nathaniel T. Bradley	28 W. 36th Street, 8th Floor	New York, NY 10018	8,350,773	[6]	5.18%
John L. Ogden	Two Riverway, Suite 1710	Houston, TX 77056	2,816,964		1.78%
Edward W. Withrow Jr.	133 Cumberland Way	Alameda, CA 94502	1,784,187		1.12%
Directors and officers as a group (5 shareholders)			31,455,326		19.56%

[1]Based upon 158,113,141 shares issued and outstanding at December 31, 2018, , and Common Stock deemed outstanding for each beneficial shareholder.  The Common Stock deemed outstanding was not deemed outstanding, however, for the purpose of computing the percentage ownership of any other person. The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. 

[2]38,156,227 shares held by Montecito BioSciences, Ltd., of which 18,200,522 shares are indirectly beneficially owned by Edward W. Withrow III, and 9,539,057 shares are indirectly beneficially owned by Dr. Jorn Gorlach. See footnote [3] and [4].  Mr. Withrow III and Dr. Gorlach each disclaim beneficial ownership over the shares held by Montecito BioSciences, Ltd. except to the extent of their proportionate pecuniary interest therein. 

[3]Includes direct beneficial ownership of 4,578,747 common shares; and indirect beneficial ownership of (i) 4,960,310 common shares and 1,407,500 warrants to purchase common shares held by Avantgarde LLC, and (ii) 281,250 warrants and 12,924,010 common shares underlying convertible preferred stock and dividends held by Hamburg Investment Group, entities controlled by Dr. Jorn Gorlach; and (iii) 4,281,318 common shares underlying convertible debt; and (iv) 38,156,227 shares of Montecito BioSciences, Ltd., of which 9,539,057 shares are held by Dr. Gorlach. [2]   

[4]Includes direct beneficial ownership of 7,631,245common shares; and indirect beneficial ownership of (i) 5,721,900 common shares held by Withrow Sinclair & Co., and (ii) 1,000,000 vested stock options and 13,405,222 common shares underlying convertible preferred stock and dividends held by Huntington Chase LLC, entities controlled by Edward W. Withrow III; (iii) 5,000,000 shares held by M. Katuska Sandoval, spouse of Edward W. Withrow III; and (iv) 3,651,600 common shares underlying convertible debt; and (v) 38,156,227 shares of Montecito BioSciences, Ltd., of which 18,200,522 shares are held by Mr. Withrow III. [2]  

[5]Includes direct beneficial ownership of 5,000,000 common shares and 1,250,000 stock options, respectively, exercisable within 60 days of December 31, 2018, of 10,000,000 restricted stock award and 5,000,000 stock options granted per Employment Agreement dated July 7, 2017; 625,000 warrants to purchase common stock;  and 1,275,205 common shares underlying convertible preferred stock and dividends.  

[6]Includes direct beneficial ownership of 1,222,222 stock options exercisable within 60 days of December 31, 2018, of 2,000,000 granted per Employment Agreement dated August 1, 2017, as amended;625,000 warrants to purchase common stock; 1,275,205 common shares underlying convertible preferred stock and dividends; and indirect beneficial ownership of 5,228,346 common shares held by Bradley Bros, LLC, an entity controlled by Nathaniel T. Bradley, director. 

[7]Includes direct beneficial ownership of 7,452,992 common shares; 1,000,000 stock options exercisable within 60 days of December 31, 2018, of 1,000,000 granted per Employment Agreement dated January 1, 2018; 625,000 warrants to purchase common stock; and 1,275,205 common shares underlying convertible preferred stock and dividends. 

Changes in Control

The Company is unaware of any contract or other arrangement or provisions of its Articles or Bylaws the operation of which may at a subsequent date result in a change of control of the Company. There are not any provisions in its Articles or Bylaws, the operation of which would delay, defer, or prevent a change in control of its company.

- 63 -

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE  

Related Party Transactions

None of the directors or executive officers of the Company, nor any person who owned of record or was known to own beneficially more than 5% of the Company’s outstanding shares of its Common Stock, nor any associate or affiliate of such persons or companies, has any material interest, direct or indirect, in any transaction that has occurred during the year ended December 31, 2018, or in any proposed transaction, which has materially affected or will affect the Company, with the exception of the following:

Related Parties:

Montecito BioSciences, Ltd. (“MBS”) is a beneficial ownership shareholder of the Company.  The President of MBS, Mr. Edward W. Withrow III, is also a beneficial ownership shareholder.  Mr. Withrow III, is also principal/control person of Withrow Sinclair & Co., and Huntington Chase, LLC, shareholders of the Company.  Mrs. M. Katuska Sandoval, a shareholder, is the spouse of Mr. Withrow III.

Dr. Jorn Gorlach, a beneficial ownership shareholder of MBS, is also a beneficial ownership shareholder of the Company.  Dr. Gorlach is also principal/control person of Hamburg Investment Company, LLC and AvantGarde LLC, shareholders of the Company.

Bradley Bros. LLC, a shareholder of the Company, is controlled by Nathaniel T. Bradley, an officer and director.

Intellectual Property Network, Inc. (“IPN”) is the former controlling shareholder of Parallax Health Management, Inc. (formerly Qolpom, Inc.), the Company’s wholly owned subsidiary since September 2016.  IPN is controlled by Paul R. Arena and Nathaniel T. Bradley, officers and directors of the Company.

Stock Issuances:

On January 23, 2017, the Company issued 30,000 shares of its Series B Preferred Stock at $5.00 per share to Hamburg Investment Company, LLC, an entity controlled by Dr. Jorn Gorlach, a beneficial shareholder, for cash in the amount of $150,000.

On March 16, 2017, in connection with a related party convertible promissory note in the amount of $250,000 and accrued interest of $7,954, the Company issued 1,228,346 shares of its restricted Common Stock at a conversion rate of $0.21 per share to Bradley Brothers, LLC, an entity controlled by Nathaniel T. Bradley, an officer and director.

On May 18, 2017, in connection with a related party convertible promissory note in the amount of $200,000 and accrued interest of $27,781, the Company issued 2,277,808 shares of its restricted Common Stock at a conversion rate of $0.10 per share to Joseph M. Redmond, former President, CEO and director.  

On September 11, 2017, in connection with a related party convertible promissory note in the amount of $491,100, the note holder elected to convert a portion of the principal in the amount of $40,000.  As a result,  the Company issued 400,000 shares of its restricted Common Stock at a conversion rate of $0.10 per share to Edward W. Withrow, III, a beneficial owner.

On January 11, 2018, pursuant to a resolution of the board of directors, the Company issued 6,000,000 shares of its restricted Common Stock to certain officers and directors as follows: 5,000,000 shares to Calli R. Bucci, an officer and director, and 500,000 shares each to John L. Ogden and Edward W. Withrow Jr., directors.  The shares were purchased at par, or $0.001 per share, for cash in the amount of $6,000.

On August 13, 2018, in connection with the exercise of certain employee stock options, the Company issued 1,071,430 shares of its restricted Common Stock at a conversion rate of $0.05 per share to Calli R. Bucci, an officer and director.  The shares were issued on a cashless basis, resulting in a net value of $187,500.  

On September 30, 2018, in connection with the Series C convertible Preferred Stock equity offering (Note 10), Paul R. Arena, Calli R. Bucci and Nathaniel T. Bradley, officers and directors of the Company were each issued 30,000 Series C Preferred shares, for an aggregate of 90,000 Series C preferred shares, at a price of $5.00 per share in exchange for accrued compensation in the aggregate of $450,000. In connection with the Series C preferred shares, the officers were also each issued 625,000 warrants, for an aggregate of 1,875,000 warrants, which are exercisable for a period of three (3) years at an exercise price of $0.25 per share.

Preferred Stock Holdings:

As of December 31, 2018, Huntington Chase Financial Group, whose principal, Edward W. Withrow, III is a beneficial shareholder of the Company, holds 399,732 shares of Series A Preferred Stock.  Each share of Series A Preferred Stock is convertible into twenty (20) common shares at an average price of $0.27518 per share, for a total of 7,994,638 common shares, if converted.  Dividends are payable semi-annually at a rate of 7% per annum, to be paid in cash or in kind, at the option of the Company. As of December 31, 2018, dividend payable totaled $132,742, or 5,410,582 common shares, as converted.

As of December 31, 2018, Hamburg Investment Company, LLC, whose principal, Dr. Jorn Gorlach, is a beneficial shareholder of the Company, holds 363,393 shares of Series A and 30,000 shares of Series B convertible Preferred Stock.  Each share of Series A Preferred Stock is convertible into twenty (20) common shares at a price of $0.27518 per share, for a total of 7,267,853 common shares, if converted. Each share of Series B Preferred Stock is convertible into twenty (20) common shares at a price of $0.25 per share, for a total of 600,000 common shares, if converted.  The Series B subscription included warrants to purchase 300,000 shares of the Company's Common Stock at a price of $0.75 per share for a period of two (2) years. Dividends on Series A and Series B Preferred Stock are payable semi-annually at a rate of 7% and 10% per annum, respectively, to be paid in cash or in kind, at the option of the Company. As of December 31, 2018, dividend payable totaled $97,052, or 5,056,150 common shares, as converted.

- 64 -

As of December 31, 2018, Paul R. Arena, Calli. R. Bucci, and Nathaniel T. Bradley, all officers and directors of the Company, each hold 30,000 shares of convertible Service C Preferred Stock.  Each share of Series C Preferred Stock is convertible into 41.67 shares of Common Stock at a conversion price of $0.12 per share, for a total of 1,250,000 common shares each, if converted. The Series C subscription included warrants to purchase 625,000 shares of the Company's Common Stock at a price of $0.25 per share for a period of three (3) years. Dividends on Series C Preferred Stock are payable semi-annually at a rate of 8% per annum, to be paid in cash or in kind, at the option of the Company. As of December 31, 2018, dividend payable totaled $3,025 each, or 25,205 common shares each, as converted.

Agreements

On January 1, 2017, the Company, through its wholly-owned subsidiary, Parallax Health Management, Inc. (formerly Qolpom, Inc.) entered into an Employment Agreement with Mr. Nathaniel T. Bradley, the President of Parallax Health Management, Inc. The agreement is for a term of three (3) years, and includes annual compensation of $150,000, as well as a bonus plan contingent upon the Company's performance and customary employee benefits.  In addition, the agreement provides for a non-refundable, fully-vested signing bonus of $50,000. Effective August 1, 2017, the Employment Agreement was superseded by a new agreement which was executed on November 30, 2017, and replaces any other employment agreement between Mr. Bradley and the Company or any of its subsidiaries.  The agreement is for an initial term of three (3) years, and provides annual compensation for Mr. Bradley to serve as the Company’s Chief Technology Officer (“CTO”), as well as CTO of Parallax Health Management, Inc. and Parallax Behavioral Health, Inc., in the aggregate of $222,000 year one, $265,000 in year two and $320,000 in year three, as well as various performance bonuses and customary employee benefits. In addition, the agreement, as amended, provides for a grant to purchase 3,000,000 restricted common shares at $0.001 per share, vesting immediately, as well as options granted to purchase 2,000,000 shares of the Company's Common Stock at a price of $0.25 per share.  The options are for a period of five (5) years, and vest annually over a three (3) year period, with an initial vesting of 25%.  

On July 7, 2017, the Company entered into an Executive Employment Agreement (the “Agreement”) with Mr. Paul R. Arena to serve as the Company’s President and Chief Executive Officer for a period of three (3) years.  As compensation for his services, the Agreement provides for a base compensation of $350,000 in year one, of which 30% shall be deferred until certain goals are met, $425,000 in year two, and $550,000 in year three, as well as annual bonus compensation equal to 2x base when certain Company earnings are reached.  In addition, the Agreement includes a grant to purchase 10,000,000 restricted common shares at $0.001 per share, of which 25% vests immediately; 25% vests in one year; 25% vests after two years; and 25% vests when certain funding goals have been met. The Agreement also includes the grant of 5,000,000 stock options at an exercise price of $0.25 per share.  The options are exercisable for a period of five (5) years, and vest when certain market share prices of the Company’s Common Stock are met.  

On January 1, 2018, the Company entered into an Executive Agreement withCalli R. Bucci, its Chief Financial Officer.  The agreement replaces any other written agreement with the Company, is for a term of one (1) year, with the option to extend, and includes annual compensation of $216,000 in year 1, as well as a bonus plan and customary executive benefits.  In addition, the agreement provides for a non-refundable, fully-vested signing bonus of $100,000, as well as a grant of stock options to purchase 1,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share. The options are for a period of five (5) years, and vest quarterly over a one (1) year period.

On January 1, 2018, the Company entered into a Consulting Agreement with Huntington Chase Financial Group, LLC, whose principal, Edward W .Withrow III, is a related party. The agreement replaces any other written agreement with the Company, is for a term of three (3) years, and includes monthly compensation of $25,000 in year 1; $30,000 in year 2 and $35,000 in year 3, of which the year 2 and 3 increases are deferred until completion of certain development projects, as well as customary expense allowances.  In addition, the agreement provides for a grant of stock options to purchase 4,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share. The options are for a period of five (5) years, of which 25% vest immediately, and the remainder vest when certain market share prices of the Company’s Common Stock are met.

Related Party Payable:

On September 30, 2015, the Company issued a modified convertible promissory note in the principal sum of $631,100, to Huntington Chase, LLC, whose principal, Edward W . Withrow III, is a beneficial shareholder, representing cash loans and unpaid compensation, of which principal repayments in the aggregate of $100,000 were made in prior years, and $40,000 of which was converted into Common Stock.  The note bears interest at a rate of 7% per annum, and contains a repayment provision to convert the debt into restricted shares of the Company’s Common Stock at a price of $0.10 per share. On December 31, 2018, the note was modified to 1) reduce the principal balance to $491,100; and 2) mature December 31, 2023. During the three months ended March 31, 2019, no payments of principal or interest were made.  As of March 31, 2019, the principal balance remaining was $491,100.

Between April 26, 2018 and May 8, 2018, the Company issued senior secured convertible promissory notes (the “Notes”) to Avantgarde, LLC and Hamburg Investment Group LLC, whose principal, Dr. Jorn Gorlach, is a beneficial shareholder, in the aggregate principal sum of $337,750.  The Notes bore interest at rate of 12% per annum, contained a repayment provision to convert the Notes into restricted shares of the Company’s Common Stock at a price of $0.10 per share, and included warrant coverage for a period of three (3) years to purchase shares of the Company’s Common Stock at an exercise price of $0.10 per share. Effective November 14, 2018 (the “Effective Date”), the Notes and related accrued interest of $90,382 were exchanged into convertible debentures (“Debentures”) in the principal amount of $428,132. The Debentures bear interest at a rate of 12% per annum, matured February 28, 2019, and are convertible into shares of the Company’s restricted Common Stock at a conversion rate of $0.10 per share or, if an event of default has occurred or the date of conversion is 120 days after the Effective Date, the lesser of (a) $0.10 or (b) 70% of the second lowest traded price for the 20 trading days immediately preceding the date of conversion..

During the year ended December 31, 2018, accrued benefits increased by $71,463, of which payments were made in the amount of $33,475; and cash advances made by officers and beneficial shareholders to the Company for operating expenses increased by $32,688, of which repayments of cash advances were made in the amount of $64,112.  As of December 31, 2018, accrued benefits and cash advances, are owed to Paul R. Arena in the amount of $18,525; Calli R. Bucci in the amount of $2,398; Nathaniel T. Bradley in the amount of $20,114; Huntington Chase LLC, whose principal, Edward W. Withrow III is a beneficial shareholder, in the amount of $17,753; and Intellectual Property Network, whose principals, Paul R. Arena and Nathaniel T. Bradley are officers and directors, in the amount of $76,073; for a total accrued benefits and cash advances owed in the amount of $134,861 as of December 31 2018, as follows:

			For the year ended December 31, 2018
Related Party	Balance 12/31/2017		Accrued Benefits Owed to Related Party		Benefits Paid to Related Party		Cash Advances to Company		Repayments of Cash Advances		Balance 12/31/2018
Paul R. Arena	$	––	$	47,000	$	(28,475)	$	3,000	$	(3,000)	$	18,525
Calli R. Bucci		––		6,710		(5,000)		29,188		(28,500)		2,398
Nathaniel T. Bradley		37,685		––		––		500		(18,073)		20,112
Huntington Chase, LLC		––		17,753		––		––		––		17,753
Intellectual Property Network		90,612		––		––				(14,539)		76,073
Total	$	128,297	$	71,463	$	(33,475)	$	32,688	$	(64,112)	$	134,861

The cash advances made to the Company were used for the purpose of overhead and operating expenses. All accrued benefits and cash advances are non-interest bearing.

As of December 31, 2018, related party convertible debt consists of $491,100 in promissory notes and $411,006 in Debentures.  During the year ended December 31, 2018, interest in the amount of $66,840 was expensed, of which $798 was paid to the note holders in cash; $0 and $35,733 was converted to restricted shares of the Company’s common stock; and accrued interest in the amount of $71,839 was converted to principal.  As of December 31, 2018, a total of $74,060 in accrued interest remains.

As of December 31, 2018, related parties are due a total of $1,906,826, consisting of $869,859 in accrued compensation owed to officers; $134,861 in cash advances from officers and beneficial owners to the Company for operating expenses; $411,006 in convertible debentures, and $491,100 in convertible promissory notes.

- 65 -

Director Independence

For purposes of determining director independence, the Company have applied the definitions set out in NASDAQ Rule 5605(a)(2).  The OTCQB on which shares of Common Stock are quoted does not have any director independence requirements.  The NASDAQ definition of “Independent Officer” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.  According to the NASDAQ definition, Paul R. Arena, Calli R. Bucci and Nathaniel T. Bradley are not independent directors of the Company.

ITEM 14.PRINCIPAL ACCOUNTANTS FEES AND SERVICES  

The aggregate fees billed or to be billed for the most recently completed fiscal year ended December 31, 2018 and 2017, for professional services rendered by the principal accountant for the audit of its annual financial statements and review of the financial statements included in its quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

	Year Ended
	December 31, 2018		December 31, 2017
Audit Fees	$	95,000	$	120,000
Audit Related Fees (Valuations and Restatements)		100,000		0
Tax Fees		0		0
All Other Fees		0		0
Total	$	195,000	$	120,000

The Company’s board of directors pre-approves all services provided by its independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.

The Company’s board of directors has considered the nature and amount of fees billed by its independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining its independent auditors’ independence.

- 66 -

PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES  

Exhibits required by Item 601 of Regulation S-B.

Exhibit Number	Description of Exhibit	Filing Reference
(2)	Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or Succession
2.1	Share Exchange Agreement between Endeavor Power Corporation, Endeavor Holdings, Inc. and Parallax Diagnostics, Inc. and the Parallax Shareholders dated October 1, 2012	Filed with the SEC on November 15, 2012, as part of the Company’s Current Report on Form 8-K.
2.2	Letter of Intent between Parallax Diagnostics, Inc. and Endeavor Power Corporation dated August 15, 2012	Filed with the SEC on November 15, 2012, as part of the Company’s Current Report on Form 8-K.
2.3	Agreement to Purchase and Sell 100% of RoxSan Pharmacy, and Its Assets and Inventory	Filed with the SEC on August 18, 2015, as part of the Company's Current Report on Form 8-K.
2.4	Agreement to Purchase and Sell 100% of Qolpom, Inc, and Its Assets, Intellectual Property and Inventory dated August 31, 2016	Filed with the SEC on September 23, 2016, as part of the Company's Current Report on Form 8-K
(3)	Articles of Incorporation and Bylaws
3.1	Articles of Incorporation	Filed with the SEC on March 5, 2007, as part of the Company’s Registration Statement on Form SB-2.
3.1(a)	Amended and Restated Articles of Incorporation	Filed with the SEC on May 17, 2010, as part of the Company’s Annual Report on Form 10-K.
3.1(b)	Amended and Restated Articles of Incorporation	Filed with the SEC on November 26, 2019, as part of the Company's Annual Report on Form 10-K/A.
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 November 26, 2019, as part of the Company’s Annual Report on Form 10-K/A.
3.5	Certificate of Designation effective June 17, 2011-Series A Preferred Stock	Filed with the SEC on November 26, 2019, as part of the Company's Current Report on Form 10-K/A.
3.6	Certificate of Designation effective December 2, 2016-Series B Preferred Stock	Filed with the SEC on November 26, 2019, as part of the Company's Current Report on Form 10-K/A.
3.7	Certificate of Designation effective August 10, 2018-Series C Preferred Stock	Filed with the SEC on November 26, 2019, as part of the Company's Current Report on Form 10-K/A.
(4)	Instruments Defining the Rights of Security Holders, Including Indentures
4.1	Debenture issued to Peak One Opportunity Fund LP dated November 14, 2018	Filed with the SEC on November 26, 2018, as part of the Company's Current Report on Form 8-K
4.2	Debenture issued to TFK Investments LLC dated November 14, 2018	Filed with the SEC on November 26, 2018, as part of the Company's Current Report on Form 8-K
4.3	Form of Common Stock Purchase Warrant	Filed with the SEC on November 26, 2018, as part of the Company's Current Report on Form 8-K
4.4	Form of Registration Rights Agreement	Filed with the SEC on November 26, 2018, as part of the Company's Current Report on Form 8-K
4.5	Form of 12% Senior Secured Convertible Debenture dated December 31, 2018	Filed with the SEC on January 7, 2019, as part of the Company's Current Report on Form 8-K
4.6	12% Convertible Promissory Note dated February 27, 2019	Filed with the SEC on March 15, 2019, as part of the Company's Current Report on Form 8-K
4.7	Warrant dated February 27, 2019	Filed with the SEC on March 15, 2019, as part of the Company's Current Report on Form 8-K
4.8	12% Fixed Convertible Promissory Note dated March 18, 2019	Filed with the SEC on March 22, 2019, as part of the Company's Current Report on Form 8-K
4.9	Warrant dated March 18, 2019	Filed with the SEC on March 22, 2019, as part of the Company's Current Report on Form 8-K
4.10	12% Convertible Promissory Note dated April 2, 2019	Filed with the SEC on November 26, 2019 as part of the Company’s Current Report on Form 10-K/A.
4.11	Securities Purchase Agreement dated April 2, 2019	Filed with the SEC on November 26, 2019 as part of the Company’s Current Report on Form 10-K/A.
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 November 26, 2019 as part of the Company's Current Report on Form 10-K/A.
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

- 69 -

(10)	Material Contracts
10.35	Intellectual Property Purchase Agreement between Parallax Health Sciences, Inc., Parallax Behavioral Health, Inc., and ProEventa Inc. dated April 27, 2017	Filed with the SEC on May 3, 2017, as part of the Company's Current Report on Form 8-K.
10.36	Consulting Agreement between Parallax Health Sciences, Inc., and James Gaynor dated April 27, 2017	Filed with the SEC on May 3, 2017, as part of the Company's Current Report on Form 8-K.
10.37	Employment Agreement between Parallax Health Sciences, Inc., and Paul R. Arena dated July 1, 2017	Filed with the SEC on July 27, 2017, as part of the Company's Annual Report on Form 10-K.
10.38	Securities Purchase Agreement between Parallax Health Sciences, Inc., and Peak One Opportunity Fund LP dated November 14, 2018	Filed with the SEC on November 26, 2018, as part of the Company's Current Report on Form 8-K
10.39	Equity Purchase Agreement between Parallax Health Sciences, Inc., and Peak One Opportunity Fund LP dated November 14, 2018	Filed with the SEC on November 26, 2018, as part of the Company's Current Report on Form 8-K
10.40	Letter Agreements dated December 31, 2018 between Parallax Health Sciences, Inc. and, Cavalry Fund LLP, DiamondRock, LLC, The Corbran LLC, and Digital Power Lending, LLC	Filed with the SEC on October 21, 2019 as part of the Company's amended Annual Report on Form 10-K/A
10.41	Exchange Agreements dated December 31, 2018 between Parallax Health Sciences, Inc. and, Cavalry Fund LLP, DiamondRock, LLC, The Corbran LLC, and Digital Power Lending, LLC	Filed with the SEC on October 21, 2019 as part of the Company's amended Annual Report on Form 10-K/A
10.42	Securities Purchase Agreement between EMA Financial, LLC  dated February 27, 2019	Filed with the SEC on October 21, 2019 as part of the Company's amended Annual Report on Form 10-K/A
10.43	Purchase Agreement between Parallax Health Sciences and Global Center Networks dated as of August 28, 2019	Filed with the SEC on October 16, 2019, as part of the Company's Current Report on Form 8-K
10.44	Employment Agreement between Parallax Health Sciences, Inc., and Nathaniel T. Bradley dated August 1, 2017	Filed with the SEC on October 21, 2019 as part of the Company's amended Annual Report on Form 10-K/A
10.45	Executive Agreement between Parallax Health Sciences and MJ Management Services Inc. dated January 1, 2018 FSO Calli R. Bucci	Filed with the SEC on October 21, 2019 as part of the Company's amended Annual Report on Form 10-K/A
10.46	Employment Agreement between Parallax Health Sciences, Inc. and David Appel dated April 19, 2019	Filed with the SEC on October 23, 2019 as part of the Company's amended Quarterly Report on Form 10-Q
(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	Press release dated September 19, 2019	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 Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. 

- 70 -

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant 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
	President, Chief Executive Officer
	(Principal Executive Officer)
Dated: December 12, 2019	/s/ Calli R. Bucci
	Calli R. Bucci
	Chief Financial Officer
	(Principal Financial Officer)

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated: December 12, 2019	/s/ Paul R. Arena
	Paul R. Arena
	President, Chief Executive Officer
	(Principal Executive Officer)
Dated: December 12, 2019	/s/ Calli R. Bucci
	Calli R. Bucci
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)
Dated: December 12, 2019	/s/ E. William Withrow Jr.
	E. William Withrow Jr.
	Director
Dated: December 12, 2019	/s/ John L. Ogden
	John L. Ogden
	Director
Dated: December 12, 2019	/s/ Nathaniel T. Bradley
	Nathaniel T. Bradley
	Director

- 71 -