UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q10-Q/A
Amendment No. 1
(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 20162019
or
o☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to _________
Commission File Number000-52534
PARALLAX HEALTH SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Nevada | 46-4733512 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
|
1327 Ocean Avenue, Suite B, Santa Monica, CA | 90401 |
(Address of principal executive offices) | (Zip Code) |
|
|
Registrant's telephone number, including area code: | (310) 899-4442 |
Copy of all Communications to:
Peter Hogan, Esq.
Buchalter
1000 Wilshire Blvd., Suite 1500
Los Angeles, CA 90017
(213) 891-0700
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the last 90 days. | Yes☒ No☐ |
|
|
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) | Yes☒ No☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
oYES x NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
oYES x NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
| Accelerated filer |
| ||
Non-accelerated filer |
|
| Smaller reporting company |
| ||
|
|
|
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | Yes☐ No☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
oYES xNO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
129,854,530238,579,740 common shares issued and outstanding as of October 31, 2017 December 12, 2019
This Amendment No. 1 (“Amendment No. 1”) to the Quarterly Report on Form 10-Q of Parallax Health Sciences, Inc. (together with its subsidiaries, the “Company,” “we,” “our” or “us”) for the quarterly period ended September 30, 2019, filed with the SEC on November 15, 2019, (the “Quarterly Report”), is being filed in response to SEC Comment Letter dated December 11, 2019 in connection with the Company’s Annual Report on Form 10-K/A filed November 26, 2019.
In addition to amending the Quarterly Report as described above, this Amendment No. 1 amends (1) Item 6 to include (i) new certifications for this Amendment No. 1 pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002; and (2) the cover page to update the number of outstanding shares of Company’s Common Stock.
Additionally, except as specifically referenced herein, this Amendment No. 1 does not affect any other portion of the Quarterly Report, nor does it reflect any event occurring after November 15, 2019, the filing date of the Quarterly Report, except as amended in the section(s) entitled, “Management’s Report on Internal Control over Financial Reporting” and “Changes to Internal Control of Financial Reporting” under Item 4: Controls and Procedures
PART 1 – FINANCIAL INFORMATION
The Company’s unaudited interim consolidated financial statements for the nine monthsnine-month period ended September 30, 2016,2019, form part of this quarterly report. They are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles. The comparative period ended September 30, 2018, has been restated to include any applicable changes for the nine month period then ended, in connection with the restatement of the 2018 financial statements, as described below.
These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2015,2018, on Form 10-K, as amended and restated, filed with the Securities and Exchange Commission on July 27, 2017.October 21, 2019.
2
The accompanying notes are an integral part of these consolidated financial statementsPARALLAX HEALTH SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
3
| September 30, 2019 |
| December 31, 2018 |
| ||
| Unaudited |
|
|
| ||
ASSETS |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents | $ | 11,973 |
| $ | 262 |
|
Operating lease right of use asset |
| 77,494 |
|
| –– |
|
Total current assets |
| 89,467 |
|
| 262 |
|
|
|
|
|
|
|
|
Investments |
| 1,000,000 |
|
| –– |
|
Property and equipment, net |
| 2,408 |
|
| –– |
|
Intangible assets, net |
| 488,570 |
|
| 579,035 |
|
Deposits |
| 7,800 |
|
| –– |
|
Goodwill |
| 785,060 |
|
| 785,060 |
|
|
|
|
|
|
|
|
TOTAL ASSETS | $ | 2,373,305 |
| $ | 1,364,357 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable and accrued expenses | $ | 2,419,514 |
| $ | 2,655,138 |
|
Operating lease liability |
| 77,494 |
|
| –– |
|
Derivative liability, short-term |
| 53,920 |
|
| 23,925 |
|
Debentures, convertible |
| –– |
|
| 724,903 |
|
Debentures, convertible, related party |
| –– |
|
| 411,006 |
|
Notes payable |
| 360,000 |
|
| –– |
|
Notes payable, related party |
| 126,152 |
|
| –– |
|
Notes payable, convertible, net of unamortized discount |
| 680,176 |
|
| 296,000 |
|
Notes payable, convertible, related party |
| 20,000 |
|
| –– |
|
Related party payables |
| 1,474,436 |
|
| 1,004,720 |
|
Total current liabilities |
| 5,211,692 |
|
| 5,115,692 |
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
License fees payable |
| 450,000 |
|
| 430,000 |
|
Royalties payable |
| 316,258 |
|
| 310,000 |
|
Derivative liability, long-term |
| –– |
|
| 34,000 |
|
Debentures, convertible, net of unamortized discount |
| –– |
|
| 184,870 |
|
Notes payable, related party |
| 633,294 |
|
| –– |
|
Notes payable, convertible |
| 576,154 |
|
| 720,154 |
|
Notes payable, convertible, related party |
| –– |
|
| 491,100 |
|
Notes payable, bank |
| 21,320 |
|
| 28,995 |
|
Total long-term liabilities |
| 1,997,026 |
|
| 2,199,119 |
|
Total liabilities |
| 7,208,718 |
|
| 7,314,811 |
|
|
|
|
|
|
|
|
Stockholders' deficit |
|
|
|
|
|
|
Preferred stock, $.001 par, 10,000,000 shares authorized, |
| 978 |
|
| 1,014 |
|
977,352 and 1,013,691 issued and outstanding |
|
|
|
|
|
|
at September 30, 2019, and December 31, 2018, respectively |
|
|
|
|
|
|
Common stock, $.001 par, 500,000,000 shares authorized, |
| 234,455 |
|
| 158,113 |
|
234,454,740 and 158,113,141 issued and outstanding |
|
|
|
|
|
|
at September 30, 2019, and December 31, 2018, respectively |
|
|
|
|
|
|
Additional paid in capital - preferred |
| 1,599,036 |
|
| 1,699,000 |
|
Additional paid in capital - common |
| 19,479,319 |
|
| 11,382,341 |
|
Subscriptions receivable |
| (500,000 | ) |
| –– |
|
Accumulated deficit |
| (25,649,201 | ) |
| (19,190,922 | ) |
Total stockholders' deficit |
| (4,835,413 | ) |
| (5,950,454 | ) |
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 2,373,305 |
| $ | 1,364,357 |
|
PARALLAX HEALTH SCIENCES, INC. |
| |||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS |
| |||||||||||
|
| |||||||||||
| For the three months ended |
| For the nine months ended |
| ||||||||
| September 30, 2016 |
| September 30, 2015 |
| September 30, 2016 |
| September 30, 2015 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue | $ | 5,591,659 |
| $ | 4,717,206 |
| $ | 19,808,910 |
| $ | 4,717,206 |
|
Cost of sales |
| 4,738,492 |
|
| 3,657,829 |
|
| 16,914,818 |
|
| 3,657,829 |
|
Gross profit |
| 853,167 |
|
| 1,059,377 |
|
| 2,894,092 |
|
| 1,059,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, marketing, and pharmacy expenses |
| 472,683 |
|
| 425,825 |
|
| 1,461,576 |
|
| 425,825 |
|
General and administrative expenses |
| 1,067,314 |
|
| 566,793 |
|
| 3,094,034 |
|
| 857,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
| (686,830 | ) |
| 66,759 | ) |
| (1,661,518 | ) |
| (223,587 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income |
| 205 |
|
| –– |
|
| 205 |
|
| –– |
|
Discount amortization |
| (1,275,000 | ) |
| (49,276 | ) |
| (3,825,000 | ) |
| (256,676 | ) |
Interest expense |
| (251,522 | ) |
| (185,871 | ) |
| (639,975 | ) |
| (229,045 | ) |
Total other income (expenses) |
| (1,526,317 | ) |
| (235,147 | ) |
| (4,464,770 | ) |
| (485,721 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (2,213,147 | ) | $ | (168,388 | ) | $ | (6,126,288 | ) | $ | (709,308 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) per common share - basic and diluted | $ | (0.021 | ) | $ | (0.001 | ) | $ | (0.053 | ) | $ | (0.005 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted |
| 107,392,861 |
|
| 132,026,053 |
|
| 116,143,416 |
|
| 131,678,248 |
|
The accompanying notes are an integral part of these consolidated financial statements
4PARALLAX HEALTH SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
| For the three months ended |
| For the nine months ended |
| ||||||||
| September 30, 2019 |
| September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 |
| ||||
|
|
|
|
| As Restated |
|
|
|
|
| As Restated |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Revenue | $ | 25,855 |
| $ | 990 |
| $ | 77,745 |
| $ | 10,749 |
|
Cost of sales |
| 3,899 |
|
| 5,230 |
|
| 12,871 |
|
| 15,507 |
|
Gross profit (loss) |
| 21,956 |
|
| (4,240 | ) |
| 64,874 |
|
| (4,758 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
| 1,937,991 |
|
| 2,116,821 |
|
| 5,203,088 |
|
| 5,252,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
| (1,916,035 | ) |
| (2,121,061 | ) |
| (5,138,214 | ) |
| (5,257,256 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal of subsidiary |
| –– |
|
| 5,079,416 |
|
| –– |
|
| 5,079,416 |
|
Gain (loss) on fair value adjustments |
| 1,253 |
|
| (93,700 | ) |
| 105,141 |
|
| (156,300 | ) |
Gain (loss) on extinguishment of debt |
| (347,612 | ) |
| 22,931,148 |
|
| (915,615 | ) |
| 22,931,148 |
|
Loss on settlement |
| –– |
|
| –– |
|
| (33,272 | ) |
| –– |
|
Discount amortization |
| (48,000 | ) |
| (155,000 | ) |
| (19,000 | ) |
| (2,775,000 | ) |
Interest expense |
| (149,914 | ) |
| (660,518 | ) |
| (457,319 | ) |
| (1,741,726 | ) |
Total other expenses |
| (544,273 | ) |
| 27,101,346 |
|
| (1,320,065 | ) |
| 23,337,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) – continuing operations |
| (2,460,308 | ) |
| 24,980,285 |
|
| (6,458,279 | ) |
| 18,080,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) – discontinued operations |
| –– |
|
| 93,773 |
|
| –– |
|
| (824,398 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (2,460,308 | ) | $ | 25,074,058 |
| $ | (6,458,279 | ) | $ | 17,255,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share – basic |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations | $ | (0.011 | ) | $ | 0.167 |
| $ | (0.034 | ) | $ | 0.124 |
|
Discontinued operations | $ | –– |
| $ | 0.001 |
| $ | –– |
| $ | (0.006 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss) per common share – diluted |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations | $ | (0.009 | ) | $ | 0.120 |
| $ | (0.028 | ) | $ | 0.088 |
|
Discontinued operations | $ | –– |
| $ | –– |
| $ | –– |
| $ | (0.004 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average common shares outstanding - basic |
| 218,115,643 |
|
| 149,431,153 |
|
| 190,038,071 |
|
| 146,294,981 |
|
Weighted average common shares outstanding - diluted |
| 262,011,413 |
|
| 208,254,652 |
|
| 233,933,841 |
|
| 205,118,481 |
|
The accompanying notes are an integral part of these consolidated financial statements
5
PARALLAX HEALTH SCIENCES, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
JANUARY 1, 2018 TO SEPTEMBER 30, 2019
Unaudited
| Preferred Stock |
| Common Stock |
| Paid In Capital |
| Deferred |
| Subscriptions |
| Accumulated |
|
|
| ||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Preferred |
| Common |
| Compensation |
| Receivable |
| Deficit |
| Total |
| ||||||||
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Balance, January 1, 2018 | 863,691 |
| $ | 864 |
| 136,754,530 |
| $ | 136,754 |
| $ | 665,803 |
| $ | 9,637,860 |
| $ | (3,188,092 | ) | $ | (592 | ) | $ | (33,691,386 | ) | $ | (26,438,789 | ) |
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Issuance of common stock to officers |
|
|
|
|
| 6,000,000 |
|
| 6,000 |
|
|
|
|
| 984,000 |
|
|
|
|
| (5,000 | ) |
|
|
|
| 985,000 |
|
|
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|
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Issuance of common stock for cash |
|
|
|
|
| 1,000,000 |
|
| 1,000 |
|
|
|
|
| 39,000 |
|
|
|
|
|
|
|
|
|
|
| 40,000 |
|
|
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Issuance of common stock for debt service |
|
|
|
|
| 440,000 |
|
| 440 |
|
|
|
|
| 43,560 |
|
| (44,000 | ) |
|
|
|
|
|
|
| –– |
|
|
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|
|
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Grant of stock options to consultant |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 539,200 |
|
| (539,200 | ) |
|
|
|
|
|
|
| –– |
|
|
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|
|
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Grant of stock options to officers/directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 134,500 |
|
| (134,500 | ) |
|
|
|
|
|
|
| –– |
|
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Grant of stock awards for services |
|
|
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|
| 250,000 |
|
| 250 |
|
|
|
|
| 67,250 |
|
| (67,500 | ) |
|
|
|
|
|
|
| –– |
|
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Grant of stock warrants |
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| 40,263 |
|
| (38,870 | ) |
|
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|
| 1,393 |
|
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Beneficial conversion feature of debt |
|
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|
|
|
|
|
|
|
|
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| 3,607 |
|
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|
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|
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| 3,607 |
|
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Amortization of stock options |
|
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|
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| 193,484 |
|
|
|
|
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|
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| 193,484 |
|
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Amortization of stock awards |
|
|
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|
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|
|
|
|
|
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|
|
|
|
| 150,148 |
|
|
|
|
|
|
|
| 150,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 21,508 |
|
|
|
|
|
|
|
| 21,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,250 |
|
|
|
|
| 5,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3,727,134 | ) |
| (3,727,134 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2018 | 863,691 |
| $ | 864 |
| 144,444,530 |
| $ | 144,444 |
| $ | 665,803 |
| $ | 11,489,240 |
| $ | (3,647,022 | ) | $ | (342 | ) | $ | (37,418,520 | ) | $ | (28,765,533 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash |
|
|
|
|
| 1,000,000 |
|
| 1,000 |
|
|
|
|
| 199,000 |
|
|
|
|
|
|
|
|
|
|
| 200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for debt service |
|
|
|
|
| 890,000 |
|
| 890 |
|
|
|
|
| 88,110 |
|
| (89,000 | ) |
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt for common stock |
|
|
|
|
| 481,130 |
|
| 481 |
|
|
|
|
| 47,633 |
|
|
|
|
|
|
|
|
|
|
| 48,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options-employees |
|
|
|
|
| 846,051 |
|
| 846 |
|
|
|
|
| 268,479 |
|
|
|
|
|
|
|
|
|
|
| 269,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (184,373 | ) |
| 184,373 |
|
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Grant of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 62,730 |
|
| (62,730 | ) |
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 343,850 |
|
|
|
|
|
|
|
|
|
|
| 343,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 38,000 |
|
|
|
|
|
|
|
| 38,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 193,621 |
|
|
|
|
|
|
|
| 193,621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,937 |
|
|
|
|
|
|
|
| 13,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,091,040 | ) |
| (4,091,040 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2018 | 863,691 |
| $ | 864 |
| 147,661,711 |
| $ | 147,661 |
| $ | 665,803 |
| $ | 12,314,670 |
| $ | (3,368,821 | ) | $ | (342 | ) | $ | (41,509,560 | ) | $ | (31,749,725 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock for cash | 60,000 |
|
| 60 |
|
|
|
|
|
|
| 299,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock for related party debt | 90,000 |
|
| 90 |
|
|
|
|
|
|
| 449,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 450,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for debt service |
|
|
|
|
| 740,000 |
|
| 740 |
|
|
|
|
| 73,260 |
|
| (74,000 | ) |
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt for common stock |
|
|
|
|
| 2,605,000 |
|
| 2,605 |
|
|
|
|
| 245,395 |
|
|
|
|
|
|
|
|
|
|
| 248,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock options to officers/directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 160,000 |
|
| (160,000 | ) |
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options-officers |
|
|
|
|
| 1,071,430 |
|
| 1,071 |
|
|
|
|
| 186,429 |
|
|
|
|
|
|
|
|
|
|
| 187,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of change in warrant characteristics |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 750,200 |
|
|
|
|
|
|
|
|
|
|
| 750,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividend on preferred stock |
|
|
|
|
|
|
|
|
|
|
| 283,347 |
|
|
|
|
|
|
|
|
|
|
| (283,347 | ) |
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 251,907 |
|
|
|
|
|
|
|
| 251,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 630,155 |
|
|
|
|
|
|
|
| 630,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 14,108 |
|
|
|
|
|
|
|
| 14,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 250 |
|
|
|
|
| 250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
| 25,074,058 |
|
| 25,074,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2018 | 1,013,691 |
| $ | 1,014 |
| 152,078,141 |
| $ | 152,077 |
| $ | 1,699,000 |
| $ | 13,729,954 |
| $ | (2,706,651 | ) | $ | (92 | ) | $ | (16,718,849 | ) | $ | (3,843,547 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for debt service |
|
|
|
|
| 740,000 |
|
| 740 |
|
|
|
|
| 73,260 |
|
| (74,000 | ) |
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt for common stock |
|
|
|
|
| 3,795,000 |
|
| 3,796 |
|
|
|
|
| 375,705 |
|
|
|
|
|
|
|
|
|
|
| 379,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Grant of stock awards for services |
|
|
|
|
| 1,500,000 |
|
| 1,500 |
|
|
|
|
| 210,110 |
|
| (85,500 | ) |
|
|
|
|
|
|
| 126,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,610 |
|
| (11,610 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (375,100 | ) |
|
|
|
|
|
|
|
|
|
| (375,100 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 89,478 |
|
|
|
|
|
|
|
| 89,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 121,268 |
|
|
|
|
|
|
|
| 121,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 23,817 |
|
|
|
|
|
|
|
| 23,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 92 |
|
|
|
|
| 92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,472,073 | ) |
| (2,472,073 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018 | 1,013,691 |
| $ | 1,014 |
| 158,113,141 |
| $ | 158,113 |
| $ | 1,699,000 |
| $ | 14,025,539 |
| $ | (2,643,198 | ) | $ | –– |
| $ | (19,190,922 | ) | $ | (5,950,454 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of preferred stock to treasury | (36,339 | ) |
| (36 | ) |
|
|
|
|
|
| (99,964 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (100,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash |
|
|
|
|
| 5,000,000 |
|
| 5,000 |
|
|
|
|
| 495,000 |
|
|
|
|
|
|
|
|
|
|
| 500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for debt service |
|
|
|
|
| 740,000 |
|
| 740 |
|
|
|
|
| 73,260 |
|
| (74,000 | ) |
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 72,750 |
|
|
|
|
|
|
|
|
|
|
| 72,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt for common stock |
|
|
|
|
| 3,689,328 |
|
| 3,689 |
|
|
|
|
| 483,642 |
|
|
|
|
|
|
|
|
|
|
| 487,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock awards for services |
|
|
|
|
| 2,716,667 |
|
| 2,717 |
|
|
|
|
| 322,283 |
|
|
|
|
|
|
|
|
|
|
| 325,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock options to officers/directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 96,100 |
|
| (96,100 | ) |
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,442 |
|
|
|
|
|
|
|
| 29,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 124,357 |
|
|
|
|
|
|
|
| 124,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,225 |
|
|
|
|
|
|
|
| 3,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,542,987 | ) |
| (1,542,987 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019 | 977,352 |
| $ | 978 |
| 170,259,136 |
| $ | 170,259 |
| $ | 1,599,036 |
| $ | 15,568,574 |
| $ | (2,656,274 | ) | $ | –– |
| $ | (20,733,909 | ) | $ | (6,051,336 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid in kind on preferred stock to treasury | 21,161 |
|
| 21 |
|
|
|
|
|
|
| 58,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 58,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of preferred stock to treasury | (21,161 | ) |
| (21 | ) |
|
|
|
|
|
| (58,211 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (58,232 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sale of preferred treasury stock | 57,500 |
|
| 57 |
|
|
|
|
|
|
| 68,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 69,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock to common stock | (57,500 | ) |
| (57 | ) | 1,150,000 |
|
| 1,150 |
|
| (68,943 | ) |
| 67,850 |
|
|
|
|
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash |
|
|
|
|
| 14,350,000 |
|
| 14,350 |
|
|
|
|
| 1,220,650 |
|
|
|
|
| (500,000 | ) |
|
|
|
| 735,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services |
|
|
|
|
| 1,550,000 |
|
| 1,550 |
|
|
|
|
| 134,450 |
|
|
|
|
|
|
|
|
|
|
| 136,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of common stock for debt service |
|
|
|
|
| (510,000 | ) |
| (510 | ) |
|
|
|
| (50,490 | ) |
| 51,000 |
|
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for warrants |
|
|
|
|
| 2,168,146 |
|
| 2,168 |
|
|
|
|
| 207,605 |
|
|
|
|
|
|
|
|
|
|
| 209,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt for common stock |
|
|
|
|
| 9,240,597 |
|
| 9,241 |
|
|
|
|
| 597,408 |
|
|
|
|
|
|
|
|
|
|
| 606,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock awards for services |
|
|
|
|
| 3,600,000 |
|
| 3,600 |
|
|
|
|
| 324,110 |
|
| (33,050 | ) |
|
|
|
|
|
|
| 294,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock awards for services-officer |
|
|
|
|
| 3,000,000 |
|
| 3,000 |
|
|
|
|
| 198,300 |
|
| (198,300 | ) |
|
|
|
|
|
|
| 3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock options for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 608,450 |
|
| (608,450 | ) |
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock options to officers/directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 195,600 |
|
| (195,600 | ) |
|
|
|
|
|
|
| –– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,760 |
|
|
|
|
|
|
|
|
|
|
| 7,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 134,480 |
|
|
|
|
|
|
|
| 134,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 47,198 |
|
|
|
|
|
|
|
| 47,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,225 |
|
|
|
|
|
|
|
| 3,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,454,984 | ) |
| (2,454,984 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019 | 977,352 |
| $ | 978 |
| 204,807,879 |
| $ | 204,808 |
| $ | 1,599,036 |
| $ | 19,080,267 |
| $ | (3,455,771 | ) | $ | (500,000 | ) | $ | (23,188,893 | ) | $ | (6,259,575 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Issuance of common stock for cash |
|
|
|
| 7,737,500 |
|
| 7,737 |
|
|
|
|
| 346,262 |
|
|
|
|
|
|
|
|
|
|
| 353,999 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Issuance of common stock for cash-related parties |
|
|
|
| 4,500,000 |
|
| 4,500 |
|
|
|
|
| 370,500 |
|
|
|
|
|
|
|
|
|
|
| 375,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Issuance of common stock for services |
|
|
|
| 37,500 |
|
| 38 |
|
|
|
|
| (38 | ) |
|
|
|
|
|
|
|
|
|
| –– |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Issuance of common stock for debt service |
|
|
|
| 2,580,811 |
|
| 2,580 |
|
|
|
|
| 318,934 |
|
|
|
|
|
|
|
|
|
|
| 321,514 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Issuance of common stock for investment |
|
|
|
| 6,666,667 |
|
| 6,667 |
|
|
|
|
| 993,333 |
|
|
|
|
|
|
|
|
|
|
| 1,000,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cancellation of common stock for services |
|
|
|
| (300,000 | ) |
| (300 | ) |
|
|
|
| (42,450 | ) |
| 28,500 |
|
|
|
|
|
|
|
| (14,250 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cancellation of common stock for cashless warrant |
|
|
|
| (293,146 | ) |
| (293 | ) |
|
|
|
| (30,780 | ) |
|
|
|
|
|
|
|
|
|
| (31,073 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Conversion of debt for common stock |
|
|
|
| 9,055,029 |
|
| 9,055 |
|
|
|
|
| 846,448 |
|
|
|
|
|
|
|
|
|
|
| 855,503 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Grant of stock awards for services |
|
|
|
| 37,500 |
|
| 38 |
|
|
|
|
| 3,712 |
|
|
|
|
|
|
|
|
|
|
| 3,750 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Grant of stock warrants |
|
|
|
|
|
|
|
|
|
|
|
| 149,800 |
|
|
|
|
|
|
|
|
|
|
| 149,800 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cancellation of stock awards for services |
|
|
|
| (375,000 | ) |
| (375 | ) |
|
|
|
| (24,787 | ) |
| 24,787 |
|
|
|
|
|
|
|
| (375 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cancellation of stock options for services |
|
|
|
|
|
|
|
|
|
|
|
| (24,450 | ) |
| 24,450 |
|
|
|
|
|
|
|
| –– |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Amortization of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 362,728 |
|
|
|
|
|
|
|
| 362,728 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Amortization of stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 507,874 |
|
|
|
|
|
|
|
| 507,874 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,460,308 | ) |
| (2,460,308 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019 | 977,352 |
| $ | 978 |
| 234,454,740 |
| $ | 234,455 |
| $ | 1,599,036 |
| $ | 21,986,751 |
| $ | (2,507,432 | ) | $ | (500,000 | ) | $ | (25,649,201 | ) | $ | (4,835,413 | ) |
The accompanying notes are an integral part of these consolidated financial statements
PARALLAX HEALTH SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
| For the nine months ended |
| ||||
| September 30, 2019 |
| September 30, 2018 |
| ||
|
|
| As Restated |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
Net income (loss) | $ | (6,458,279 | ) | $ | 18,080,282 |
|
Adjustments to reconcile net loss to net cash used by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
| 90,685 |
|
| 90,465 |
|
Stock compensation/stock option amortization |
| 2,572,741 |
|
| 3,152,943 |
|
Discount amortization |
| 19,000 |
|
| 2,775,000 |
|
Allowance for bad debt |
| –– |
|
| 236 |
|
Gain on disposal of subsidiary |
| –– |
|
| (5,079,416 | ) |
(Gain) loss on extinguishment of debt |
| 915,615 |
|
| (22,931,148 | ) |
(Gain) loss on fair value adjustments |
| (105,141 | ) |
| 156,300 |
|
Loss on settlement |
| 33,272 |
|
| –– |
|
Debt accretion |
| 136,582 |
|
| 791,125 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Decrease in trade and other receivables |
| –– |
|
| 3,039 |
|
(Increase) in deposits |
| (7,800 | ) |
| –– |
|
Increase in accounts payable and accrued expenses |
| 95,155 |
|
| 1,398,093 |
|
Increase in royalties payable |
| 7,258 |
|
| –– |
|
Increase in related party payables |
| 886,383 |
|
| 492,356 |
|
Net cash used by operating activities |
| (1,814,529 | ) |
| (1,070,725 | ) |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
Purchase of professional equipment |
| (2,628 | ) |
| –– |
|
Net cash used by investing activities |
| (2,628 | ) |
| –– |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
Proceeds from notes payable |
| 220,000 |
|
| –– |
|
Repayment of notes payable |
| (22,675 | ) |
| (5,451 | ) |
Proceeds from convertible notes payable |
| 556,780 |
|
| 825,000 |
|
Repayment of convertible notes payable |
| (65,000 | ) |
| (50,000 | ) |
Repayment of debentures |
| (754,369 | ) |
| –– |
|
Proceeds from issuance of preferred shares |
| 69,000 |
|
| 300,000 |
|
Proceeds from issuance of common shares |
| 1,825,132 |
|
| 41,250 |
|
Net cash provided by financing activities |
| 1,828,868 |
|
| 1,110,799 |
|
|
|
|
|
|
|
|
Net cash provided by continuing operations |
| 11,711 |
|
| 40,074 |
|
|
|
|
|
|
|
|
Cash flows from discontinued operations: |
|
|
|
|
|
|
Net cash used by operating activities |
| –– |
|
| (39,942 | ) |
Net cash used by discontinued operations |
| –– |
|
| (39,942 | ) |
|
|
|
|
|
|
|
Net increase in cash |
| 11,711 |
|
| 132 |
|
|
|
|
|
|
|
|
Cash - beginning of period |
| 262 |
|
| 183 |
|
|
|
|
|
|
|
|
Cash - end of period | $ | 11,973 |
| $ | 315 |
|
|
|
|
|
|
|
|
NON-CASH ACTIVITIES |
|
|
|
|
|
|
Discounts on long-term liabilities | $ | 19,000 |
| $ | 2,775,000 |
|
Beneficial conversion feature of convertible promissory note | $ | –– |
| $ | 347,457 |
|
Fair value of stock warrants | $ | 335,310 |
| $ | 810,000 |
|
Embedded conversion option of convertible promissory notes | $ | 9,370 |
| $ | 850 |
|
Deemed dividends on preferred stock | $ | –– |
| $ | 283,347 |
|
Dividends paid in kind on preferred stock returned to treasury | $ | 58,232 |
| $ | –– |
|
Conversion of preferred stock to common stock | $ | 69,000 |
| $ | –– |
|
Preferred stock returned to treasury for debt settlement | $ | 100,000 |
| $ | –– |
|
Conversion of accounts payable to convertible note payable | $ | 20,000 |
| $ | 37,500 |
|
Conversion of related party payables to preferred stock | $ | –– |
| $ | 450,000 |
|
Conversion of accounts payable to related party convertible note payable | $ | 20,000 |
| $ | –– |
|
Conversion of convertible notes payable to common stock | $ | 1,093,240 |
| $ | 296,114 |
|
Conversion of related party convertible notes payable to common stock | $ | 1,021,057 |
| $ | –– |
|
Conversion of related party convertible notes payable to non-related party convertible notes payable | $ | –– |
| $ | 576,154 |
|
Conversion of related party payables to non-related party payables | $ | –– |
| $ | 42,356 |
|
Subscriptions receivable | $ | (500,000 | ) | $ | (92 | ) |
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION |
|
|
|
|
|
|
Interest paid |
|
|
|
|
|
|
Continuing operations | $ | 539,476 |
| $ | 798 |
|
Discontinued operations | $ | –– |
| $ | 106 |
|
Income taxes paid | $ | –– |
| $ | –– |
|
The accompanying notes are an integral part of these consolidated financial statements
PARALLAX HEALTH SCIENCES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 20162019
NOTE 1. OVERVIEW AND NATURE OF BUSINESS
Parallax Health Sciences, Inc. (the “Company”) was incorporated in the State of Nevada on July 6, 2005. The Company’s principal focus is on personalized patient care, through the Company’s wholly owned subsidiary, RoxSan Pharmacy, Inc. ("RoxSan"), and through the Company’s wholly owned subsidiary, Parallax Diagnostics Inc., which holds the right, title, and interest in perpetuity to certain point of care diagnostic tests. The Company's diagnostic testing platform is capable of diagnosing and monitoring several health issues.
On August 13, 2015, the Company entered into an agreement with RoxSan Pharmacy, Inc., a California corporation, and its sole shareholder, Shahla Melamed, to purchase 100% of the issued and outstanding shares of RoxSan's common stock and its assets and inventory. As a result, effective August 13, 2015, RoxSan became the Company's wholly owned subsidiary (Note 12). Concurrently, Mrs. Melamed resigned from all positions within RoxSan, and Mr. J. Michael Redmond was appointed RoxSan's President and Chief Executive Officer, and Ms. Calli Bucci its Chief Financial Officer. Mr. Redmond and Ms. Bucci were also appointed as Chairman and member, respectively, of RoxSan’s board of directors.
On July 6, 2017, Mr. J. Michael Redmond was terminated as Chief Executive Officer and President of the Company and resigned as chairman and member of the board of directors, pursuant to his employment agreement. Effective July 7, 2017, Mr. Paul R. Arena was appointed as Chief Executive Officer and President of the Company and elected as a member of the board of directors.
On August 31, 2016, the Company entered into an agreement with QOLPOM, Inc., an Arizona corporation (“QOLPOM”) and its shareholders (the “Seller”) to purchase 100% of the issued and outstanding Shares of QOLPOM’s common stock and its assets, inventory and intellectual property. As a result, effective September 20, 2016, QOLPOM became the Company's wholly owned subsidiary (Note 12) in the remote healthcare monitoring industry (“RCS”). Pursuant to the QOLPOM Agreement, in exchange for 100% of the QOLPOM stock and 100% of QOLPOM’s assets, inventory and intellectual property, among other things, consideration to the Seller included:
1.
5,000,000 shares of the Company’s common stock at $0.001 per share; and
2.
2,500,000 options to purchase shares of the Company's common stock, vesting over three (3) years beginning August 31, 2017, of which 500,000 shares are exercisable at $0.10, 1,000,000 are exercisable at $0.15, and 1,000,000 are exercisable at $0.25; and
3.
10% of revenues generated from the RCS business segment, up to $1,000,000; and 7% thereafter, up to $2,000,000; and
4.
3% of revenues generated from the sale of QOLPOM hardware and monitoring service fees.
On January 20, 2017, the Company changed the name of its wholly owned subsidiary, QOLPOM, Inc., to Parallax Health Management, Inc (“PHM”).
The Company has the following three business segments: Retail Pharmacy Services (RPS), Remote Care Systems (RCS) and Corporate.
Retail Pharmacy Services (RPS)
The RPS provides a full range of pharmacy services including retail, compounding and fertility medications.
The RPS generates net revenues primarily by dispensing prescription drugs, both through local channels by direct delivery as well as mail order. The RPS also sells a wide assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, seasonal merchandise and convenience foods, through the Company’s pharmacy.
The pharmacy is fully licensed and qualified to conduct business in over 40 US States.
Remote Care Systems (RCS)
The RCS provides the health care industry’s first comprehensive remote patient monitoring system, which utilizes proprietary software and technology to bridge clinical behavioral science with technology and logistics across a variety of wellness and clinical devices, including both fitness and clinical applications, for payers, providers and clinical professionals.
The RCS generates net revenues primarily through the licensing, installation and maintenance of its patented QOLPOM Hub, an integrated, secure and scalable platform for collecting, transmitting and analyzing biometric data, as well as the sale of wireless medical devices and home monitoring kits.
Corporate
The Corporate Segment provides management and administrative services to support the Company, and consists of certain aspects of the Company’s executive management, corporate relations, legal, compliance, human resources, and corporate information technology and finance departments. In addition, the Corporate Segment supports the costs and operating expenses related to the continued development and exploitation of the Company's proprietary medical diagnostic and monitoring platform and processes, which remains the Company's primary focus.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that effect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The unaudited interim consolidated financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The unauditedinterim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue as a going concern.
NOTE: The following notes and any further reference made to “the Company”, "we", "us", "our" and "Parallax" shall mean Parallax Health Sciences, Inc., and its wholly-owned subsidiaries, Parallax Diagnostics, Inc., Parallax Health Management, Inc., and Parallax Behavioral Health, Inc. unless otherwise indicated.
Business Overview
The Company’s principal focus is on personalized patient care through remote healthcare services, behavioral health systems, and Point-of-Care (“POC”) diagnostic testing. Parallax’s current family of companies that serve as the foundation for its cross-over business model of operations include:
•Parallax Health Management, Inc. (“PHM”) develops Remote Patient Monitoring (“RPM”) and telehealth market products and services, and commercializes them, including the Fotodigm® proprietary platform which allows for systems integration with a number of third-party services and solutions.
•Parallax Behavioral Health, Inc. (“PBH”) acquired the intellectual property known as REBOOT™, the acronym for Reliable Evidence-Based Outcomes Optimization Technologies, as well as the Intrinsic Code™technology, a software platform specifically designed to improve health treatment outcomes through cloud-based and mobile behavioral technology systems that enable its users and user groups to more effectively achieve goals within a prescribed timeline.
Parallax Care™ is the Company’s technology-enabled digital healthcare system, structured with three separate divisions that can operate independently of one another, or integrate services to meet the various needs of the Company’s clientele: Optimized Outcomes, Connected Health and Smart Data. Each of these divisions target a separate vertical market that are synergistic, compliment, and strengthen each other.
Optimized Outcomes | REBOOT™ / COMPASS™ Behavioral modification |
Connected Health | Fotodigm® platform Remote patient monitoring, telehealth, and POC diagnostic testing |
Smart Data | Intrinsic Code™ technology Actionable insights to behavior modification |
Operating Segments
•Remote Patient Monitoring
The BHS segment commenced with the acquisition of the REBOOT™ and Intrinsic Code™ technologies in April 2017. The BHS segment will generate revenues primarily through licensing and subscription of software and systems. As of September 30, 2019, the BHS segment had not yet begun full operations, generating limited test market sales.
•Diagnostics/Corporate
The Diagnostics/Corporate Segment supports the costs and operating expenses related to the continued development and exploitation of the Company’s proprietary Target System POS diagnostic platform and processes. In addition, the Diagnostics/Corporate Segment provides management and administrative services to support the Company and consists of certain aspects of the Company’s executive management, corporate relations, legal, compliance, human resources, corporate information technology and finance departments.
Going Concern
The Company has incurred losses since inception resulting in an accumulated deficit of $12,841,064$25,649,201, and a working capital deficit of $2,016,787,$5,122,225, and further losses are anticipated. The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, which may not be available at commercially reasonable terms. There can be no assurance that the Company will be able to 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 Company will require additional financing in order to proceed with its plan of operations, including approximately $3,000,000 over the next 12 months to pay for its ongoing expenses. These cash requirements include working capital, general and administrative expenses, the development of the Company’s product line, and the pursuit of acquisitions. These cash requirements are in excess of the Company’s current cash and working capital resources. Accordingly, the Company will require additional financing in order to continue operations and to repay its liabilities. There is no assurance that the financing will be completed as planned or at all. If the Company is unable to secure adequate capital to continue the Company’s planned operations, the Company’s shareholders may lose some or all of their investment and the Company’s business may fail.
NOTE 2. RESTATEMENT
On October 18, 2019, the Company concluded that the previously issued audited consolidated financial statements as of and for the years ended December 31, 2018 and 2017, should no longer be relied upon. The Company reached its conclusion after consultation with its Audit Committee and a joint discussion with the Company’s independent registered public accounting firm.
The Company has restated its audited consolidated financial statements as of and for the years ended December 31, 2018 and 2017, and interim periods, to reflect all adjustments consistingmade in connection with the accounting treatment of normal recurringcertain 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 inare further described below.
Valuation of Convertible Debt and Warrant Liabilities:
The Company reviewed the opinion of management, are necessary for a fair presentationaccounting treatment of the resultsSubject 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 periods shown. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue as a going concern.nine months ended September 30, 2018:
| September 30, 2018 |
| |||||||
| As Previously Reported |
| As Restated |
| Increase (Decrease) | ||||
CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|
|
|
|
|
Notes payable, convertible, net of discount | $ | 1,241,000 |
| $ | 350,081 |
| $ | (890,919 | ) |
Total current liabilities |
| 4,037,238 |
|
| 3,146,319 |
|
| (890,919 | ) |
Total liabilities |
| 6,129,031 |
|
| 5,238,112 |
|
| (890,919 | ) |
Additional paid in capital - preferred |
| 1,415,653 |
|
| 1,699,000 |
|
| 283,347 |
|
Additional paid in capital - common |
| 9,005,599 |
|
| 11,023,303 |
|
| 2,017,704 |
|
Accumulated deficit |
| (15,308,717 | ) |
| (16,718,849 | ) |
| 1,410,132 |
|
Total stockholders' deficit |
| (4,734,466 | ) |
| (3,843,547 | ) |
| (890,919 | ) |
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
|
|
|
|
|
|
|
|
|
General and administrative expenses |
| 5,202,944 |
|
| 5,252,498 |
|
| 49,554 |
|
Operating loss |
| (5,207,702 | ) |
| (5,257,256 | ) |
| 49,554 |
|
Loss on fair value adjustments |
| –– |
|
| (156,300 | ) |
| 156,300 |
|
Interest expense, net of income |
| (950,601 | ) |
| (1,741,726 | ) |
| 791,125 |
|
Total other income (expenses) |
| 24,284,963 |
|
| 23,337,538 |
|
| (947,425 | ) |
Net income (loss) - continuing operations |
| 19,077,261 |
|
| 18,080,282 |
|
| (996,979 | ) |
Net income (loss) |
| 18,252,863 |
|
| 17,255,884 |
|
| (996,979 | ) |
Net income (loss) per common share - continuing operations - basic |
| 0.125 |
|
| 0.124 |
|
| (0.001 | ) |
Net income (loss) per common share - continuing operations - diluted |
| 0.089 |
|
| 0.088 |
|
| (0.001 | ) |
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
Net income |
| 19,077,261 |
|
| 18,080,282 |
|
| (996,979 | ) |
Stock compensation/stock option expense |
| 3,103,390 |
|
| 3,152,943 |
|
| 49,553 |
|
Loss on fair value adjustments |
| –– |
|
| 156,300 |
|
| 156,300 |
|
Debt accretion |
| –– |
|
| 791,125 |
|
| 791,125 |
|
Increase in accounts payable and accrued expenses |
| 2,182,548 |
|
| 1,398,093 |
|
| (784,455 | ) |
Net cash provided by continuing operations |
| 824,530 |
|
| 40,074 |
|
| (784,456 | ) |
Net cash used by operating activities-discontinued operations |
| (824,398 | ) |
| (39,942 | ) |
| 784,456 |
|
Non-Cash Activities: |
|
|
|
|
|
|
|
|
|
Beneficial conversion feature of convertible promissory notes |
| –– |
|
| 347,457 |
|
| 347,457 |
|
Fair value of stock warrants |
| –– |
|
| 810,000 |
|
| 810,000 |
|
Embedded conversion option of convertible promissory notes |
| –– |
|
| 850 |
|
| 850 |
|
Deemed dividends on preferred stock |
| –– |
|
| 283,347 |
|
| 283,347 |
|
NOTE: The following notes and any further reference made to “the Company”, "we", "us", "our" and "Parallax" shall mean Parallax Health Sciences, Inc., and its wholly-owned subsidiaries, Parallax Diagnostics, Inc., Parallax Health Management, Inc. (formerly QOLPOM, Inc.) and RoxSan Pharmacy, Inc., unless otherwise indicated.
NOTE 2.3. 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.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
6
Fair Value Hierarchy
The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2: Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.
Level 3: Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of threenine months or less at the time of issuance to be cash equivalents. As atof September 30, 2016,2019, and December 31, 2015,2018, the Company had no cash equivalents.
Fair Value of Financial Instruments
As of September 30, 2016,2019, and December 31, 2015,2018, respectively, the carrying values of Company’s Level 1 financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and short-term debt approximate fair value. The fair value of Level 3 instruments is calculated as the net present value of expected cash flows based on externally provided or obtained inputs. Certain Level 3 instruments may also be based on sales prices of similar assets. The Company’s fair value calculations take into consideration the credit risk of both the Company and its counterparties as of the date of valuation. See Note 7 and 12 for additional information about long-term debt.
There were no outstanding•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 instrumentsinstruments:
| September 30, 2019 |
| December 31, 2018 |
| ||
Convertible debentures | $ | –– |
| $ | 23,925 |
|
Convertible promissory notes |
| –– |
|
| –– |
|
Warrants |
| 53,920 |
|
| 34,000 |
|
Total derivative liability | $ | 53,920 |
| $ | 57,925 |
|
The following table represents the changes in the Company’s derivative financial instruments:
| September 30, 2019 |
| December 31, 2018 |
| ||
Fair value of derivative liability, beginning | $ | 57,925 |
| $ | –– |
|
Increase in derivative liability-convertible promissory notes |
| 9,370 |
|
| 60,350 |
|
Increase in derivative liability-warrants |
| 105,000 |
|
| 623,900 |
|
Fair value adjustment-debentures |
| (8,296 | ) |
| (2,500 | ) |
Fair value adjustment-convertible promissory notes |
| (9,370 | ) |
| –– |
|
Fair value adjustment-warrants |
| (87,475 | ) |
| 126,375 |
|
Reclassification of warrant carrying value due to reset of exercise price |
| –– |
|
| (750,200 | ) |
Reclassification to gain (loss) upon extinguished debt |
| (13,234 | ) |
| –– |
|
Fair value of derivative liability, ending | $ | 53,920 |
| $ | 57,925 |
|
Investments
The Company held $1 million and $0 million of equity securities without readily determinable fair value as of September 30, 2016,2019 and December 31, 2015.2018, respectively. The Company records these investments at cost, net of impairment. During the nine-month period ended September 30, 2019, there were no events or changes in circumstances that may have had a significant adverse effect on the fair value of these investments and no impairment was recorded.
Accounts Receivable
Accounts receivable are stated net of an allowance for doubtful accounts. The accounts receivable balance primarily includes amounts due from third party providers (e.g., pharmacy benefit managers, insurance companies and governmental agencies), as well as customers, vendors and manufacturers.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 nine months ended September 30, 2016, and the year ended December 31, 2015, is as follows:
| September 30, 2016 |
| December 31, 2015 |
| ||
Beginning balance | $ | 8,412,853 |
| $ | –– |
|
Additions charged to bad debt expense for insurance claims |
| –– |
|
| 34,000 |
|
Allowance for doubtful collection of workers compensation claims |
| 65,776 |
|
| 8,378,853 |
|
Collection of workers compensation claims |
| (41,841 | ) |
|
|
|
Write-offs charged to allowance |
| –– |
|
| –– |
|
Ending balance | $ | 8,436,788 |
| $ | 8,412,853 |
|
Management has determined that the collection of certain revenues relating to workers compensation insurance claims, in the retail value of $8,402,788, cannot be reasonably assured. As a result, an allowance for doubtful collections of workers compensation claims in the amount of $8,402,788 has been established until such time as collection can be reasonably assured.
Inventory
Inventory is stated at the lower of cost or market. Prescription drug inventories are accounted for using the weighted average cost method. Front store inventories are accounted for on a first-in, first-out basis using the retail inventory method. Physical inventory counts are taken on a regular basis and a continuous cycle count process is the primary procedure used to validate the inventory balances on hand to ensure that the amounts reflected in the accompanying financial statements are properly stated.
Property and Equipment
Property and equipment is comprised of office and computer equipment and software, furniture and fixtures, and leasehold improvements, and vehicles, recorded at cost and depreciated using the double declining balance method over the estimated useful lives of 5 to 7 years. Repairs and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated. Application development stage costs for significant internally developed software projects are capitalized and depreciated. See Note 54 for additional information about property and equipment.
Intangible Assets
Product processes, patents and customer lists are amortized on a straight-line basis over their estimated useful lives between 104 and 20 years. Application development stage costs for significant internally developed software projects are capitalized and amortized on a straight-line basis over the useful life, between 2 and 5 years. Costs to extend and maintain patents and trademarks are charged directly to expense as incurred. See Note 6 for additional information about intangible assets.
Goodwill and other Indefinitely-lived assetsOther Indefinitely-Lived Assets
Goodwill and other indefinitely-lived assets are not amortized, but are subject to impairment reviews annually, or more frequently if necessary.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.
The Company currently believes there is no impairmentthat future projected cash flows are sufficient for the recoverability of its long-lived assets.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 of long-lived assets.losses.
Due to the Company’s recurring losses, its long-lived assets were evaluated for impairment and it was determined that future cash flows were sufficient for recoverability of the asset.
Convertible Debt
The Company recognizes the advantageous value of conversion rights attached to convertible debt. Such rights give the debt holder the ability to convert debt into common stock at a price per share that is less than the trading price to the public on the date of the debt. The beneficial value is calculated as the intrinsic value (the market price of the stock at the commitment date in excess of the conversion rate) of the beneficial conversion feature of the debt, and is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized over the remaining outstanding period of related debt using the interest method.
Net Income (Loss)Loss Per Common Share
NetThe computation of basic earnings (loss) per common share ("EPS") is computed by dividing netincome (loss) bybased on the weighted average number of shares that were outstanding during the period, including shares of common stock andthat are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common stock equivalents outstanding during the period.equivalents. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible debt, convertible preferred shares and the exercise of the Company’s stock options and warrants.
Comprehensive Loss
As atof September 30, 2016,2019, and December 31, 2015,2018, the Company has no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
Revenue Recognition
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.
Recognition
The Retail PharmacyCompany recognizes revenue at the time thewhen it satisfies a performance obligation by transferring control over a product or service to a customer. Revenue is measured based on a consideration specified in a contract with a customer, takes possessionand excludes any amounts collected on behalf of the merchandise. Customer returns are not material. Sales taxes are not included in revenue.third parties.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.
7
The Company hasmay have net operating loss carryforwards available to reduce future taxable income. Future tax benefits for these net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that the Company will not realize a future tax benefit, a valuation allowance is established.
As of September 30, 2019, the Company has not yet filed its 2012 through 2018 annual corporate income tax returns. Due to the Company’s recurring losses, it is anticipated that no corporate income taxes are due for these periods.
Stock-Based Compensation
The Company records stock-based compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
Recently Adopted Accounting Standards
The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (“FASB”), the US Securities and Exchange Commission (“SEC”), and the Emerging Issues Task Force (“EITF”), to determine the impact of new pronouncements on US GAAP and the impact on the Company. The Company has recently adopted the following new accounting standards:
Adopted:
In January 2015,July 2017, the FASB issued ASU 2015-01 Income Statement—ExtraordinaryNo. 2017-11 (“ASU 2017-11”), Earnings Per Share (Topic 260),Distinguishing Liabilities from Equity (Topic 480), Derivatives and Unusual Items (Subtopic 225-20): Simplifying Income Statement PresentationHedging (Topic 815). ASU 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. ASU 2017-11 also addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. ASU 2017-11 is effective for the Company for annual periods beginning after December 15, 2018, and interim periods. Early adoption is permitted.
In June 2018, the FASB issued ASU No. 2018-07 (“ASU 2018-07”), Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for the Company for annual periods beginning after December 15, 2018, and interim periods. Early adoption is permitted.
In July 2018, the FASB issued ASU No. 2018-11 (“ASU 2018-11”), Leases (Topic 842), Targeted Improvements. ASU 2018-11 addresses certain issues in implementing ASU 2016-02, Leases, which was issued to increase transparency ad comparability by Eliminatingrecognizing lease assets and liabilities on the Concept of Extraordinary Items. This Update eliminates from GAAPbalance sheet and disclosing key information about leasing transaction. ASU 2018-11 clarifies 1) comparative reporting requirements for initial adoption; and 2) for lessors only, separating lease and non-lease components in a contract and allocating the concept of extraordinary items.consideration in the contract to the separate components. The amendments in this Update arerelated to separating components of a contract affect the amendments in Update 2016-02, which is effective for fiscal years, and interimthe Company for annual periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements.2018, and interim periods. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The effective date is the same for both public business entities and all other entities.permitted.
Not yet adopted:
In April 2015, the FASB issued ASU 2015-03 Interest-Imputation of Interest (Subtopic 835-30: Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 is part of the Simplification Initiative, and its objective of to simplify the presentation of debt issuance costs. This Update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. The amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued.
In July 2015, the FASB issued ASU 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 is part of the Simplification Initiative, and its objective is to simplify the measurement of inventory. This Update applies to inventory that is measured using FIFO or average cost, and requires an entity measure inventory at the lower of cost and net realizable value. The amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The amendments in this Update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.
In September 2015, the FASB issued ASU 2015-16 Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments. ASU 2015-16 is part of the Simplification Initiative, and eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not been issued.
Not Yet Adopted:
In February 2016,August 2018, the FASB issued ASU No. 2016-02, Leases. Under2018-13 (“ASU 2018-13”), Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the new guidance, lessees will be required to recognizeDisclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the following for all leases (withdisclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the exceptionconcepts in the Concepts Statement, including the consideration of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis;costs and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Thebenefits. ASU 2018-13 will be effective for the Company beginning January 1, 2019 with early adoption permitted. The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation. The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this standard are effective for all entities for annual periods, and interim periods within those annual periods beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. ASU 2016-10 clarifies the accounting for licenses of intellectual property as well as the identification of distinct performance obligations in a contract. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 addresses certain issues identified in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance on eight specific cash flow issues, for which specific guidance had not previously been provided, with the objective of reducing the existing diversity in practice. The amendments in this update are effective for fiscal years beginning after December 15, 2017,2019, 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:
NOTE 3. ACCOUNTS RECEIVABLE, NET4. PROPERTY AND EQUIPMENT
Accounts receivable,Property and equipment, net, consists of the following:
| September 30, 2016 |
| December 31, 2015 |
| ||
Insurance claims receivable | $ | 929,010 |
| $ | 999,612 |
|
Workers compensation claims receivable |
| 8,466,691 |
|
| 8,549,073 |
|
Customer receivables |
| 63,392 |
|
| 313,722 |
|
Total accounts receivable |
| 9,457,232 |
|
| 9,862,407 |
|
|
|
|
|
|
|
|
Allowance for doubtful accounts: |
|
|
|
|
|
|
Allowance-insurance claims |
| (34,000 | ) |
| (34,000 | ) |
Allowance-workers compensation claims |
| (8,402,788 | ) |
| (8,378,853 | ) |
Total allowances for doubtful accounts receivable |
| (8,436,788 | ) |
| (8,412,853 | ) |
Accounts receivable, net | $ | 1,020,444 |
| $ | 1,449,554 |
|
| September 30, 2019 |
| December 31, 2018 |
| ||
Computer equipment | $ | 6,615 |
| $ | 3,987 |
|
Medical devices |
| 45,194 |
|
| 45,194 |
|
Property and equipment, gross |
| 51,809 |
|
| 49,181 |
|
Accumulated depreciation |
| (49,401 | ) |
| (49,181 | ) |
Property and equipment, net | $ | 2,408 |
| $ | –– |
|
8
As ofDepreciation expense was $132 and $0 for the three months ended September 30, 2016,2019 and December 31, 2015,2018, respectively, the Company had accounts receivable of $9,457,232 and $9,862,407, consisting of $929,010was $220 and $999,612 in insurance claims, $8,466,691 and $8,549,073 in workers compensation claims, and $63,392 and $313,722 in customer house account charges, for which payment has not yet received.
As of September 30, 2016, and December 31, 2015, respectively, $63,392 and $313,722 was owed from customers receivable, consisting of $24,430 and $33,894 in copayments, and $38,962 and $279,828 in charges for prescriptions and other retail purchases made by certain preferred customers, for which the Company provides monthly invoices to and receives regular payments on.
Management has determined that, as of September 30, 2016, and December 31, 2015, respectively, the collection of certain revenues relating to workers compensation claims, in the retail value of $8,402,788 and $8,378,853, cannot be reasonably assured. As a result, an allowance$0 for the doubtful collectionnine months then ended, respectively.
NOTE 5. OPERATING LEASES
The Company entered into a sub-lease agreement with PearTrack Security Systems, Inc. (“PearTrack”), whose principal is a related party, on December 1, 2017, for its headquarters in Santa Monica, California, with a monthly sub-lease payment of workers compensation claims in$5,600, on a month-to-month basis, consistent with the amountunderlying lease between PearTrack and property owner. Due to the short-term nature of $8,402,788 and $8,378,853 has been established until such time as collection can be reasonably assured. The collectability of workers compensation claims in the amount of $130,300 and $170,220 can be reasonably assured. As a result,sub-lease, the Company has included this amountelected to not recognize the operating lease asset and liability, and will expense the rent as revenues earned on the accompanying income statement.incurred.
An allowanceThe Company entered into a sub-lease agreement with AI Assist, Inc. (“AI Assist”) on May 1, 2019, for doubtful collectioncertain office space located in New York, New York, with a monthly sub-lease payment of insurance claims$8,900 for a term of fourteen (14) months, maturing June 30, 2020. The right-of-use present value of the sub-lease has been established incalculated as $118,585, utilizing an implied interest rate of 8%. The operating lease asset and liability will be amortized over the amount of $34,000.
As of September 30, 2016, and December 31, 2015, respectively, accounts receivable, net of allowances for doubtful accounts, was $1,020,444 and $1,449,554.
NOTE 4. LOANS RECEIVABLE
Loans receivable consists of $477,271 and $176,884, respectively, in monies owed to the Company from former owners of subsidiaries, including $412,948 and $176,884 from the former owner of RoxSan Pharmacy, and $64,323 and $0 from the former owner of Parallax Health Management, Inc. as of September 30, 2016, and December 31, 2015.
Included in these amounts are monies collected by the former owner of RoxSan for revenues earned subsequent to the closing date of August 13, 2015 (the “Closing Date”), less monies collected by the Company for revenues earned prior the Closing Date; and monies advanced by the Company on behalfterm of the former owner for expenses incurred prior to the Closing Date, less monies advanced by the former owner on behalf of the Company for expenses incurred subsequent to the Closing Date. The amount owed to the Company is being disputed by the former owner, and is part of the legal proceedings disclosed in Note 17. The Company is confident that it shall prevail in this matter.lease.
NOTE 5. PROPERTY AND EQUIPMENT
The following are the components of property and equipment:
| September 30, 2016 |
| December 31, 2015 |
| ||
Appliances | $ | 7,160 |
| $ | 3,360 |
|
Computer and office equipment |
| 63,875 |
|
| 32,718 |
|
Furniture and fixtures |
| 38,488 |
|
| 23,453 |
|
Leasehold improvements |
| 104,357 |
|
| 78,881 |
|
Software |
| 6,323 |
|
| 873 |
|
Medical devices and instruments |
| 45,194 |
|
| 45,194 |
|
Sub-total |
| 265,397 |
|
| 184,479 |
|
Less: accumulated depreciation |
| (88,186 | ) |
| (57,793 | ) |
Property and equipment, net, before disposals |
| 177,211 |
|
| 126,686 |
|
Less: disposals, net of depreciation |
| –– |
|
| (10,155 | ) |
Property and equipment, net of disposals | $ | 177,211 |
| $ | 116,531 |
|
During the year ended December 31, 2015, the Company disposed of equipment valued at $0,three months and recognized a loss in the amount of $10,155.
Depreciation expense for the nine months ended September 30, 2016,2019, respectively, the Company recognized $24,819and $41,091in amortization. The present value of future lease payments at September 30, 2019, was $77,494. As of September 30, 2019, the future minimum lease payments are as follows:
| 2019 |
| 2020 |
| Total |
| |||
Operating lease minimum payments | $ | 26,700 |
| $ | 53,400 |
| $ | 80,100 |
|
Less: amount treated as interest |
| 1,382 |
|
| 1,224 |
|
| 2,606 |
|
Present value of minimum lease payments | $ | 25,318 |
| $ | 52,176 |
| $ | 77,484 |
|
The total lease costs are summarized as follows:
| September 30, 2019 |
| December 31, 2018 |
| ||
Operating lease costs | $ | 44,500 |
| $ | –– |
|
Short-term lease costs |
| 51,240 |
|
| 73,351 |
|
Total lease costs | $ | 95,740 |
| $ | 73,351 |
|
Lease costs were $43,780 and 2015, was $30,393$16,800 for the three months ended September 30, 2019 and $3,078,2018, respectively, and were $95,740 and $53,557 for the nine months then ended, respectively.
NOTE 6. INTANGIBLE ASSETS
The following are the components of finite-lived intangible assets:
| September 30, 2016 |
| December 31, 2015 |
| September 30, 2019 |
| December 31, 2018 |
| ||||
Products and processes | $ | 12,500 |
| $ | 12,500 |
| $ | 12,500 |
| $ | 12,500 |
|
Trademarks and patents |
| 2,010,143 |
|
| 12,500 |
| ||||||
Customer list |
| 250,000 |
|
| 250,000 |
| ||||||
Sub-total |
| 2,022,643 |
|
| 275,000 |
| ||||||
Trademarks and patents / technology |
| 150,700 |
|
| 150,700 |
| ||||||
Customer lists / relationships |
| 30,000 |
|
| 30,000 |
| ||||||
Non-compete agreement |
| 30,000 |
|
| 30,000 |
| ||||||
Marketing related |
| 64,000 |
|
| 64,000 |
| ||||||
Software |
| 510,300 |
|
| 510,300 |
| ||||||
Intangible assets, gross |
| 797,500 |
|
| 797,500 |
| ||||||
Accumulated amortization |
| (201,028 | ) |
| (71,244 | ) |
| (308,930 | ) |
| (218,465 | ) |
Intangible assets, net | $ | 2,073,972 |
| $ | 203,756 |
| $ | 488,570 |
| $ | 579,035 |
|
On September 20, 2016, through the acquisition of PHM (Note 12), the Company acquired certain intellectual property, valued at $1,997,643, with a useful life of 18.5 years.
Amortization expense for the three months ended September 30, 2019 and 2018, was $30,155 and $29,821, respectively, and for the nine months ended September 30, 2016,2019 and 2015,2018, was $127,427$90,465 and $832,$90,465, respectively.
NOTE 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
September 30, 2019 | December 31, 2018 | |||||
Accounts payable-vendors | $ | 1,014,668 |
| $ | 830,590 |
|
Credit cards payable |
| 42,552 |
|
| 42,552 |
|
Payroll taxes payable |
| 80,922 |
|
| 78,608 |
|
Accrued interest |
| 229,316 |
|
| 450,187 |
|
Accrued payroll and payroll taxes |
| 540,908 |
|
| 402,053 |
|
Other liabilities |
| 426,148 |
|
| 601,148 |
|
|
| 2,334,514 |
|
| 2,405,138 |
|
Reserve-legal fees |
| 85,000 |
|
| 250,000 |
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses | $ | 2,419,514 |
| $ | 2,655,138 |
|
Payroll taxes payable includes $17,475 and $17,475 in penalties, and $6,516 and $4,202 in interest, related to unpaid payroll taxes as of September 30, 2019, and December 31, 2018, respectively.
Other liabilities consists of certain payroll tax liabilities in the amount of $426,148 and $601,148 owed as of September 30, 2019, and December 31, 2018, respectively, by the bankrupt entity, RoxSan Pharmacy, Inc., that were not discharged under California bankruptcy laws. The Company has retained a tax resolution specialist to aid the Company in resolving the liability with the taxing agencies on behalf of RoxSan.
During the year ended December 31, 2018, accounts payable and accrued expenses was reduced by $341,606, resulting from the extinguishment of debt consisting of accounts payable-vendors in the amount of $284,714 and accrued interest in the amount of $56,892.
In 2018, the Company established a reserve for future legal fees to be incurred in connection with pending legal actions. As of September 30, 2019, and December 31, 2018, respectively, the reserve balance was $85,000 and $250,000.
NOTE 8. NOTES AND LOANS PAYABLE
Notes and loans payable consists of the following:
| September 30, 2016 |
| December 31, 2015 |
| ||
Notes and loans payable, unsecured |
|
|
|
|
|
|
Loans payable | $ | 11,900 |
| $ | 11,900 |
|
Notes payable |
| 84,075 |
|
| 84,075 |
|
Total notes and loans payable, unsecured |
| 95,975 |
|
| 95,975 |
|
|
|
|
|
|
|
|
Convertible notes payable |
| 144,000 |
|
| 144,000 |
|
|
|
|
|
|
|
|
Notes payable, secured, net of unamortized discount |
|
|
|
|
|
|
Note payable-merchant |
| 1,201,316 |
|
| 1,830,401 |
|
|
|
|
|
|
|
|
Note payable-bank |
| 100,000 |
|
| –– |
|
|
|
|
|
|
|
|
Note payable |
| 20,500,000 |
|
| 20,500,000 |
|
Less: unamortized discount |
| (9,520,000 | ) |
| (13,345,000 | ) |
Note payable, net of unamortized discount |
| 10,980,000 |
|
| 7,155,000 |
|
Total notes payable, secured, net of unamortized discount |
| 12,281,316 |
|
| 8,985,401 |
|
|
|
|
|
|
|
|
Total notes and loans payable | $ | 12,521,291 |
| $ | 9,225,376 |
|
September 30, 2019 |
| December 31, 2018 |
| |||
Short-term: |
|
|
|
|
|
|
Debentures, convertible | $ | –– |
| $ | 724,903 |
|
Notes payable |
| 360,000 |
|
| –– |
|
Notes payable, convertible , net of unamortized discount |
| 680,176 |
|
| 296,000 |
|
Total short-term |
| 1,040,176 |
|
| 1,020,903 |
|
|
|
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
Debentures, convertible, net of unamortized discount |
| –– |
|
| 184,870 |
|
Note payable, convertible |
| 576,154 |
|
| 720,154 |
|
Note payable-bank |
| 21,320 |
|
| 28,995 |
|
Total long-term |
| 597,474 |
|
| 934,019 |
|
|
|
|
|
|
|
|
Total notes and loans payable | $ | 1,637,650 |
| $ | 1,954,922 |
|
AsNon-related party convertible debt consists of September 30, 2016, and December 31, 2015, non-related party loans andthe following convertible promissory notes in the aggregate sum of $95,975 are owed by the Company. The loans, made in previous years, were for short-term overhead requirements, and are unsecured and non-interest bearing. The notes bear interest a rate of 8% to 10% per annum, are unsecured, and are payable upon demand. As of September 30, 2016, and December 31, 2015, respectively, no demand has been made. notes:
Holder |
| Principal |
| APR |
| Accrued Interest |
| Conversion Price |
| Term/Due |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender Group A |
| $ | 20,000 |
| 20% |
| $ | 15,840 |
| $0.10 |
| 05/2018 |
|
Lender Group B |
|
| 569,176 |
| 12% |
|
| 36,217 |
| $0.10 to $.12 |
| 09/2019-04/2020 |
|
Investor Group A |
|
| 91,000 |
| 10% |
|
| 18,720 |
| $0.10 |
| 09/2018 |
|
|
|
| 680,176 |
|
|
|
| 70,777 |
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph M. Redmond |
|
| 576,154 |
| 5% |
|
| 141,096 |
| $0.10 |
| 07/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible debt |
| $ | 1,256,330 |
|
|
| $ | 211,873 |
|
|
|
|
|
During the nine months ended September 30, 2016, and2019, the year ended December 31, 2015, respectively, interestCompany issued 12% convertible promissory notes in the amountaggregate principal sum of $5,480 and $7,300$585,000 (“Lender Group B”) for working capital, of which $556,780 in proceeds was expensed. Asdisbursed to the Company after an original issue discount of September 30, 2016, and December 31, 2015, respectively, a total of $42,292 and $36,812 in interest has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheet.
Non-related party convertible$28,220. The notes payable consists of the following:
Note Holder |
| Principal |
| APR |
| Accrued Interest |
| Conversion Price |
| Term/Due | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
The Kasper Group, Ltd. |
| $ | 144,000 |
| 7% |
| $ | 47,887 |
| $0.25 |
| 01/01/2015 |
9
As of September 30, 2016, and December 31, 2015, a non-related party convertible promissory note in the amount of $144,000 is owed by the Company. The unsecured note bearsbear interest at a rate of 7%12% per annum, was due by January 1, 2015,mature six totwelve months from payment of disbursed proceeds, and containscontain a repayment provision to convert the debt into shares of the Company's common stock at conversion rates equal to the lower of 1) between $0.10 to $0.12 per share; or 2) between 65% to 70% of the 2nd lowest trading prices during the twenty (20) trading days preceding the conversion date. In addition, the Company issued warrants to purchase 2,600,000 shares of the Company’s common stock at an exercise price of $0.15 per share for a rateperiod of $0.25five (5) years.The notes were discounted for embedded conversion option of $9,370 and warrant fair value of $105,000, reclassified as derivative liabilities.
As of September 30, 2016,2019, and December 31, 2015,2018, respectively, no demand for payment or conversion has been made.short-term non-related party debt in the amount $1,040,176 and $1,020,903 consists of $0 and $724,903 in convertible debentures; $360,000 and $0 in notes payable; and $680,176 and $296,000 in convertible notes payable. During the nine months ended September 30, 2016, and the year ended September 30, 2019, and December 31, 2015,2018, respectively, notes and debentures in the principal aggregate of $585,000 and $825,000 were issued; principal in the amount of $622,369 and $50,000, along with interest in the amount of $7,567$41,519 and $10,080$608, was repaid in cash; principal in the amount of $395,000 and $620,000, along with interest in the amount of $2,000 and $55,613, was converted to common stock; losses on extinguishment of debt of $220,469 and $105,320 were incurred; and debt accretion in the amount of $126,766 and $1,087,974, and interest in the amount of $164,447 and $270,142 was expensed. As of September 30, 2016,2019, and December 31, 2015,2018, respectively, a total of $47,887$75,069 and $40,320$185,741 in accrued interest has been accrued,remains, and is included as an accrued expense on the accompanying consolidated balance sheet.
On August 13, 2015, the Company issued a secured promissory noteAs of September 30, 2019, and December 31, 2018, respectively, long-term non-related party debt in the amount of $20.5 million$597,474 and $934,019 consists of $0 and $207,500 in connection with the acquisition of RoxSan Pharmacy, Inc. (Note 11). The note bears interest at a rate of 6% per annum, and matures in three (3) years, or August 13, 2018 ("Maturity"). Management has determined that the note issued does not fairly represent the fair market value for the related acquisition at the date of purchase. As a result, aconvertible debentures, less unamortized discount of $15,300,000, representing the difference between the face value$0 and the estimated fair market value$22,630; $576,154 and $720,154 in convertible notes payable, of the note has been recorded.which $576,154 and $576,154 is related to pending litigation with a former executive (see Note 18), and subject to compromise; and $21,320 and $28,995 in notes payable to banks. During the nine months ended September 30, 2016, and the year ended December 31, 2015, the Company expensed $3,825,000 and $1,955,000, respectively, in discount amortization. As of September 30, 2016,2019, and December 31, 2015,2018, respectively, $9,520,000debentures in the principal aggregate of $0 and $13,345,000$225,000 were issued; principal in unamortized discount remains, to be amortized over the next 26 months, to the note's maturity. During the nine months ended September 30, 2016,amount of $219,675 and the year ended December 31, 2015,$9,245, along with interest in the amount of $434,917$1,176 and $101,702, respectively, has been$632 was repaid in cash; principal in the amount of $95,142 and $0 was converted to common stock; losses on extinguishment of debt of $168,159 and $0 were incurred; and debt accretion in the amount of $9,816 and $2,370, and interest in the amount of $74,174 and $739,383 was expensed. As of September 30, 2016,2019, and December 31, 2015,2018, respectively, a total of $536,619$141,603 and $101,702 has been$190,386 in accrued interest remains, and is included as an accrued expense on the accompanying consolidated balance sheets.sheet.
On October 9, 2015, the Company, through its wholly owned subsidiary, RoxSan, entered into a Business Loan and Security Agreement (the "Loan") with American Express, FSB, in the principal sumThe future maturities of $2,000,000. The Loan includes interest in the form of a flat fee of $240,000, or 12% per annum, to be amortized over twenty-four (24) months, to the Loan's maturity. Payments of principal and interestnotes payable are made through collection of merchant funds received by the Company for customer purchases paid with the American Express credit card. During the nine months ended September 30, 2016, and the year ended December 31, 2015, respectively, payments totaling $719,084 and $193,792 have been made, representing $629,084 and $169,599 in principal and $90,000 and $24,193 in interest. As of September 30, 2016, and December 31, 2015, respectively, principal of $1,201,316 and $1,830,401 and unamortized loan fee of $125,807 and $215,806 remains.summarized as follows:
| 2020 |
| 2021 |
| Total | ||||
|
|
|
|
|
|
|
|
|
|
Principal |
| $ | 576,154 |
| $ | 21,320 |
| $ | $597,474 |
During the nine months ended September 30, 2016, and the year ended September 30, 2019, and December 31, 2015,2018, respectively, interest expense on non-related party notes and loans payable in the amount of $447,964$238,601 and $143,275 has been$1,009,525 was expensed. As atof September 30, 2016,2019, and December 31, 2015,2018, respectively, a total of $626,798$216,672 and $203,027$376,127 in interest has been accrued and is included as part of accrued expenses on the accompanying consolidated balance sheets.
NOTE 8.9. RELATED PARTY TRANSACTIONS
Related party transactions consist of the following:
September 30, 2019 |
| December 31, 2018 |
| |||||||||
| September 30, 2016 |
| December 31, 2015 |
| ||||||||
Related party payables |
|
|
|
|
|
| ||||||
Related party payables: |
|
|
|
|
|
| ||||||
Accrued compensation | $ | 98,450 |
| $ | 120,800 |
| $ | 1,000,643 |
| $ | 869,859 |
|
Cash advances |
| 105,000 |
|
| 12,810 |
|
| 473,793 |
|
| 134,861 |
|
Total related party payables |
| 203,450 |
|
| 133,610 |
|
| 1,474,436 |
|
| 1,004,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable |
| 1,107,254 |
|
| 1,107,254 |
| ||||||
Debentures, convertible |
| –– |
|
| 411,006 |
| ||||||
Notes payable, related party |
| 759,446 |
|
| –– |
| ||||||
Notes payable, convertible, related party |
| 20,000 |
|
| 491,100 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Total related party transactions | $ | 1,310,704 |
| $ | 1,240,864 |
| $ | 2,253,882 |
| $ | 1,906,826 |
|
Related party convertible debt consists of the following convertible promissory notes:
Note Holder |
| Principal |
| APR |
| Accrued Interest |
| Conversion Price |
| Term/Due |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Ogden, Director |
| $ | 20,000 |
| 10% |
| $ | 986 |
| $0.10 |
| 12/2019 |
|
As atof September 30, 2016,2019, and December 31, 2015,2018, respectively, related parties are due a total of $1,310,704$2,253,882 and $1,240,864,$1,906,826, consisting of $98,450$1,000,643 and $120,800$869,859 in accrued compensation; $105,000compensation owed to officers; $473,793 and $12,810$134,861 in accrued benefits and cash advances from officers and beneficial owners to the Company for operating expenses; $759,446 and $1,107,254$0 in promissory notes; $0 and $1,107,254$411,006 in convertible debentures; and $20,000 and $491,100 in convertible promissory notes.
On July 25, 2019, related party convertible notes payable.
Related party convertible notes payable consistsdebentures in the principal sum of the following:
Note Holder |
| Principal |
| APR |
| Accrued Interest |
| Conversion Price |
| Term/Due | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph M. Redmond, President (former) |
| $ | 776,154 |
| 5% |
| $ | 76,266 |
| $0.10 |
| 07/31/2017 |
Huntington Chase, Beneficial Owner |
|
| 331,100 |
| 7% |
|
| 55,455 |
| $0.10 |
| 12/31/2015 |
Total |
| $ | 1,107,254 |
|
|
| $ | 131,721 |
|
|
|
|
The Company has issued convertible promissory notes$411,006, plus accrued interest of $42,778, were converted to its principalsSenior Secured Promissory Notes (the “Senior Notes”) in the aggregate sumprincipal of $1,107,254, representing cash loans and unpaid compensation.$759,446. The notesSenior Notes bear interest at a rate of between 5% and 7%8% per annum, mature between andwith payments of $126,152 plus interest accrued thereon due December 31, 20152019; $300,000 due December 31, 2020; and Julythe remaining principal and accrued interest due December 31, 2017,2021. In connection with the exchange, the Company issued the following in favor of the lender, Jorn Gorlach, a related party: 1,380,811 shares of the Company’s restricted Common Stock, valued at $131,315; warrants, valued at $92,150, to purchase 2,528,413 shares of the Company’s Common Stock for a period of five (5) years at an exercise price of $0.10461; and containan increase in principal of $305,662. As a repayment provision to convertresult, the debtCompany recognized a net loss on the exchange in the amount of $526,987, net of $2,140 in derivative liability remaining from the warrants issued with the debentures.
In September 2019, $491,100 in related party convertible promissory notes, along with $98,642 in accrued interest, were converted into 5,897,419 shares of the company’s restricted common stock of the Company at a strikeconversion price of $0.10. $0.10 per share.
During the nine months ended September 30, 2016, and the year ended September 30, 2019, and December 31, 2015,2018, respectively, $1,003,783 and $1,371,446 in related party compensation was accrued, $573,000 and $510,500 was paid, $300,000 and $0 was converted to common stock; and $0 and $450,000 was converted to preferred stock. In June 2019, $575,132 of related party debt was purchased by non-related-parties (the “Proceeds”). The Proceeds were collected on behalf of the related parties by the Company. Of the $396,500 paid to related parties during the current period, $159,500 was Proceeds. The remaining Proceeds of $415,632 were subsequently loaned to the Company by the related parties for operating expenses.
During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, $498,870 and $121,949 in benefits were accrued and cash advances were made to the Company by related parties for overhead requirements, of which $159,938 and $115,384 was paid/repaid to related parties.
During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively; interest in the amount of $46,531$80,003 and $70,646$66,840 was expensed, of which interest payments$0 and $798 was paid to the note holders in the amount of $27,707cash; and $0 were madeand $71,839 was converted to note holders.principal. As of September 30, 2016,2019, and December 31, 2015,2018, respectively, a total of $131,721$12,643 and $107,897$74,060 in accrued interest has been accrued, and is included as an accrued expense on the accompanying consolidated balance sheet.
During the nine months ended September 30, 2016, and the year ended December 31, 2015, respectively, interest on related party notes payable in the amount of $46,531 and $70,646 was expensed. As at September 30, 2016, and December 31, 2015, respectively, a total of $131,721 and $107,897 in interest has been accrued,remains and is included as part of accrued expenses on the accompanying consolidated balance sheets.
In April 2019, the Company entered into an employment agreement with Mr. David Appell to serve as the Company’s Chief Operating Officer. The agreement commenced May 15, 2019, is for an initial term of two (2) years, and provides a base compensation of $250,000 year one, and $275,000 in year two, as well as various performance bonuses, and customary employee benefits. In addition, the agreement includes a grant to purchase 3,000,000 restricted common shares, valued at $201,300, for cash in the amount of $3,000, of which 25% vest immediately, and the remainder vest when certain earnings goals are met; as well as options granted to purchase 3,000,000 shares of the Company's Common Stock at an exercise price of $0.25 per share. The options, valued at $195,600 using the Black-Scholes method, are for a period of five (5) years, and vest annually over the term of the agreement, with an initial vesting of 25%. The assumptions used in valuing the options were: expected term 4.75 years, expected volatility 2.21, risk free interest rate 2.15%, and dividend yield 0%.
NOTE 9:10. COMMITMENTS AND CONTINGENCIES
On August 13, 2015, the Company issued a secured promissory note in the amount of $20,500,000 (the “Promissory Note”) in connection with the acquisition of RoxSan Pharmacy, Inc. (“RoxSan”). The Promissory Note bore interest at a rate of 6% per annum, and matured August 13, 2018 ("Maturity"). In September 2018, as part of the deconsolidation of RoxSan resulting from its Chapter 7 petition filed on May 14, 2018, management reevaluated the characteristics of the Promissory Note. Included in the evaluation were the following considerations: 1) the related asset is no longer a part of the parent financial statements due to a loss of financial control; 2) the Company is currently in litigation as a result of material breaches by the note holder; 3) the Company has claims against the note holder for losses and damages directly related to the Promissory Note and its underlying assets; 4) there is a high likelihood that no obligation exists. After careful consideration, management has determined that the current characteristics of the liability are contingent in nature, and the debt of $20,500,000 and related $2,278,281 in accrued interest was extinguished in 2018, resulting in a gain of $22,778,281.
On August 31, 2016, as part of the Company’s acquisition of 100% of the issued and outstanding shares of Qolpom®’s common stock and its assets, inventory and intellectual property, the agreement provides for, among other things, the seller to receive up to $2,000,000 through a percentage of revenue generated from RPM business segment (“Revenue Share”), as well as a royalty of 3% (“Royalties”) of certain revenues generated from the Qolpom® intellectual property, as defined in the agreement. As of September 30, 2019, and December 31, 2018, respectively, the present value of future Revenue Share was $450,000 and $430,000; and the present value of future Royalties was $309,000 and $310,000; and are included as part of long-term liabilities on the accompanying consolidated balance sheets.
On April 26, 2017, as part of the Company’s acquisition of certain intellectual property (“Intellectual Property”) from ProEventa, Inc (“ProEventa”), the agreement provides for, among other things, ProEventa to receive a revenue sharing cash earn-out of up to $3,000,000 to be derived from certain net revenue generated by the Company; as well as Royalties of 3% of certain revenues generated from the Intellectual Property, ending at such time as the Company has paid ProEventa $25,000,000, as defined in the agreement. As of September 30, 2019, and December 31, 2018, respectively, the present value of future Revenue Share was $1,189,000 and $1,270,000; the present value of future Royalties was $845,000 and $690,000, and $7,258 and $0 in Royalties payable on earned revenues was accrued.
NOTE 11. CONVERTIBLE PREFERRED STOCK
The total number of authorized shares of preferred stock that may be issued by the Company is 10,000,000 with a par value of $0.001 per share.
All preferredOn March 31, 2019, in connection with the settlement agreement with Mr. Dave Engert, 36,339 shares are convertible intoof the Company’s Series A preferred stock held by Mr. Engert, with a book value of $100,000, were returned to treasury. As a result, preferred paid in capital was reduced by $99,964. On April 1, 2019, dividends owed on the Series A preferred stock were paid in kind with the issuance and immediate return to treasury of 21,121 shares of Series A preferred stock, resulting in a total of 57,500 shares of Series A preferred stock held in treasury (the “Treasury Shares”).
On May 15, 2019, the 57,500 Treasury Shares were reissued for cash in the amount of $69,000. Subsequently, the 57,500 shares of Series A preferred stock were converted into 1,150,000 shares of common stock at a rateratio of 20 shares of common stock for each share of preferred share held, and were issued with 100% warrant coverage (Note 11). The number of shares of common stock underlying the warrants and the exercise price are subject to adjustment upon certain events.held.
As of September 30, 2016,2019, and December 31, 2015,2018, respectively, the Company had 823,691977,352 and 1,013,691 shares of preferred stock issued and outstanding.
NOTE 10.12. COMMON STOCK
The total number ofEffective December 24, 2018, pursuant to a majority shareholder consent, the Company increased its authorized shares of common stock that may be issued by the Company isfrom 250,000,000 shares to 500,000,000 shares, with a par value of $0.001 per share. On January 28, 2019, the amended articles of incorporation were filed with the state of Nevada.
On July 28, 2016, 20,000,000During the nine months ended September 30, 2019, 1,150,000 shares of the Company'sCompany’s restricted common stock held by three (3) shareholders were cancelled and returned to treasury.issued in connection with the conversion of 57,500 shares of Series A preferred stock, valued at $69,000. As a result, $20,000$67,850 was recorded as additionalto paid in capital.
During the nine months ended September 30, 2019, 21,987,535 shares of the Company’s restricted common stock were issued in connection with the conversion of non-related party debt in the amount of $1,713,740. As a result, $1,691,753 was recorded to paid in capital.
On JulyDuring the nine months ended September 30, 2016,2019, 5,897,419 shares of the Company’srestricted common stock were issued in connection with certain consulting agreements, the Company issued 250,000conversion of related party debt in the amount of $589,742. As a result, $583,845 was recorded to paid in capital.
During the nine months ended September 30, 2019, 5,679,167 shares of itsthe Company’s restricted common stock for $0.001 per share. Thewere issued in connection with stock awards to non-related parties, valued at $588,548, including 125,000 shares valued at $7,500,$8,388 for cash in the amount of $125. As a result, $582,868 was recorded to paid in capital.
During the nine months ended September 30, 2019, 3,000,000 shares of the Company’s restricted common stock were issued in connection with a stock award to David Appell, the company’s Chief Operating Officer, valued at $201,300 for cash in the amount of $3,000, of which 25% vests immediately, and the remainder vest when certain earnings goals are met. As a result, $198,300 was deferred, to be amortized over the vesting terms, and $198,300 was recorded to paid in capital.
During the nine months ended September 30, 2019, 13,875,000 shares of the Company’s restricted common stock were issued in connection with a Simple Agreement Future Equity (“SAFE”) offering, including 4,500,000 issued to related parties, for cash in the amount of $735,000, services valued at $15,000, and $375,000 in related party accrued compensation. As a result, $1,111,124 was recorded to paid in capital.
During the nine months ended September 30, 2019, 1,875,000 shares of the Company’s restricted common stock were issued, valued at $178,700, in connection with the retirement of 4,550,000 warrants. As a result, $176,825 was recorded to paid in capital.
During the nine months ended September 30, 2019, 1,400,000 shares of the Company’s restricted common stock were issued in connection with services valued at $121,000. As a result, $119,600 was recorded to paid in capital.
During the nine months ended September 30, 2019, 2,810,811 shares of the Company’s common stock were issued in connection with debt and debt service valued at $344,514. As a result, $341,704 was recorded to paid in capital.
During the nine months ended September 30, 2019, in connection with an equity funding, 12,000,000 shares of the Company’s restricted common stock were issued for cash in the amount of $250.$1,000,000, of which $500,000 was recorded to subscription receivable. As a result, $6,500$988,000 was recorded to additional paid in capital.
OnDuring the nine months ended September 23, 2016,30, 2019, in connection with the acquisition of PHM (Note 12), the Company issued 5,000,000an investment in securities, 6,666,667 shares of itsthe Company’s restricted common stock for $0.001 per share. The shares, valued at $225,000, were issued for cash in the amount of $5,000.$0.15 per share, valued at $1,000,000. As a result, $220,000$993,333 was recorded to additional paid in capital.
OnDuring the nine months and the year ended September 25, 2016, in connection with30, 2019, and December 31, 2018, respectively, a certain consulting agreement (Note 13),total of 76,341,599 and 21,358,611 shares of the Company’s common stock were issued. As of September 30, 2019 and December 31, 2018, respectively, the Company had 234,454,740 and 158,113,141 common shares issued 250,000 shares of itsand outstanding.
During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, 3,730,000 and 3,660,000 restricted common stock for $0.001 per share. The shares,awards were granted, valued at $16,000, were issued$254,350 and $434,000; and 1,654,270 and 6,827,368 restricted stock awards vested, for cashwhich $171,555 and $1,095,193 in deferred stock compensation was expensed. As of September 30, 2019 and December 31, 2018, respectively, there remains 7,963,925 and 5,888,195 shares to be vested, and $1,231,604 and $1,148,809 in deferred stock compensation to be expensed over the amount of $250. As a result, $15,750 was recorded to additional paid in capital.next eighteen (18) months.
Restricted Stock Awards Activity | Number of |
| Deferred |
| |
| Shares |
| Compensation |
| |
Outstanding at December 31, 2017 | 9,055,563 |
| $ | 1,810,002 |
|
Granted | 3,660,000 |
|
| 434,000 |
|
Vested | (6,827,368 | ) |
| (1,095,193 | ) |
Outstanding at December 31, 2018 | 5,888,195 |
|
| 1,148,809 |
|
Granted | 3,730,000 |
|
| 254,350 |
|
Vested | (4,095,932 | ) |
| (665,179 | ) |
Forfeited | (675,000 | ) |
| (67,537 | ) |
Outstanding at September 30, 2019 | 5,522,263 |
| $ | 670,443 |
|
NOTE 13. WARRANTS AND OPTIONS
As of September 30, 2016,2019, and December 31, 2015,2018, respectively, the Company had 106,066,77449,435,913 and 120,566,774 common shares issued and outstanding.
10
NOTE 11. WARRANTS AND OPTIONS
As of September 30, 2016, and December 31, 2015, respectively, the Company had 15,262,491 and 15,989,27621,232,500 warrants, and 11,135,00026,685,000 and 9,200,00018,060,000 options, issued and outstanding.
Warrants Outstanding |
| |||||||||
|
| Number of |
| Remaining |
| Exercise Price |
| Weighted |
| |
|
| Common |
| Contractual Life |
| times Number |
| Average |
| |
Exercise Price |
| Shares |
| (in years) |
| of Shares |
| Exercise Price |
| |
|
|
|
|
|
|
|
|
|
|
|
$0.27518 |
| 14,535,706 |
| 0.69 |
| $ | 4,000,000 |
| $0.27518 |
|
$0.41278 |
| 726,785 |
| 0.98 |
|
| 300,000 |
| $0.41278 |
|
|
| 15,262,491 |
|
|
| $ | 4,300,000 |
| $0.41278 |
|
Warrants Outstanding |
|
|
|
|
|
|
|
|
| |
|
| Number of |
| Remaining |
| Exercise Price |
| Weighted |
| |
|
| Common |
| Contractual Life |
| Times Number |
| Average |
| |
Exercise Price |
| Shares |
| (in years) |
| Of Shares |
| Exercise Price |
| |
|
|
|
|
|
| |||||
$0.001 |
| 300,000 |
| 3.75 |
| $ | 300 |
| $0.17 |
|
$0.01 |
| 75,000 |
| 1.25 |
|
| 750 |
| $0.18 |
|
$0.10 |
| 2,528,413 |
| 5.00 |
|
| 252,841 |
| $0.21 |
|
$0.10 |
| 62,500 |
| 3.50 |
|
| 6,250 |
| $0.29 |
|
$0.10 |
| 250,000 |
| 1.75 |
|
| 25,000 |
| $0.19 |
|
$0.10 |
| 4,877,500 |
| 1.50 |
|
| 487,750 |
| $0.21 |
|
$0.10 |
| 250,000 |
| 1.00 |
|
| 25,000 |
| $0.32 |
|
$0.15 |
| 600,000 |
| 4.50 |
|
| 90,000 |
| $0.19 |
|
$0.15 |
| 1,000,000 |
| 1.25 |
|
| 150,000 |
| $0.28 |
|
$0.17 |
| 62,500 |
| 3.50 |
|
| 10,625 |
| $0.29 |
|
$0.18 |
| 62,500 |
| 3.50 |
|
| 11,250 |
| $0.29 |
|
$0.20 |
| 2,600,000 |
| 4.50 |
|
| 520,000 |
| $0.19 |
|
$0.21 |
| 62,500 |
| 3.50 |
|
| 13,125 |
| $0.29 |
|
$0.21 |
| 100,000 |
| 1.00 |
|
| 21,000 |
| $0.34 |
|
$0.25 |
| 5,625,000 |
| 4.50 |
|
| 1,406,250 |
| $0.19 |
|
$0.25 |
| 4,500,000 |
| 3.00 |
|
| 1,125,000 |
| $0.22 |
|
$0.25 |
| 250,000 |
| 2.75 |
|
| 62,500 |
| $0.22 |
|
$0.25 |
| 3,250,000 |
| 2.00 |
|
| 812,500 |
| $0.18 |
|
$0.25 |
| 3,750,000 |
| 1.75 |
|
| 937,500 |
| $0.19 |
|
$0.25 |
| 13,500,000 |
| 1.50 |
|
| 3,375,000 |
| $0.21 |
|
$0.25 |
| 475,000 |
| 1.25 |
|
| 118,750 |
| $0.27 |
|
$0.25 |
| 3,255,000 |
| 1.00 |
|
| 813,750 |
| $0.32 |
|
$0.25 |
| 1,500,000 |
| 0.75 |
|
| 375,000 |
| $0.39 |
|
$0.35 |
| 250,000 |
| 1.00 |
|
| 87,500 |
| $0.32 |
|
$0.60 |
| 250,000 |
| 1.00 |
|
| 150,000 |
| $0.34 |
|
|
| 49,435,913 |
|
|
| $ | 10,877,641 |
| $0.22 |
|
|
|
| Weighted |
| |
Warrant Activity | Number of |
| Average |
| |
| Shares |
| Exercise Price |
| |
Outstanding at December 31, 2018 |
| 21,232,500 |
| $0.18 |
|
Issued |
| 33,353,413 |
| $0.20 |
|
Exercised |
| –– |
| –– |
|
Retired / Cancelled |
| (4,850,000 | ) | $0.22 |
|
Expired / Forfeited |
| (300,000 | ) | $0.18 |
|
Outstanding at September 30, 2019 |
| 49,435,913 |
| $0.22 |
|
During the nine months and the year ended September 30, 2019, and December 31, 2018, respectively, 10,000,000 and 6,000,000 stock options to purchase common shares at $0.05were granted, which vest periodically over a two (2) year period, are exercisable for a period of between 3 to 5 years. The options vest quarterly over a three (3) year period,years at an exercise price of between $0.05 to $0.60 per share, and were valued at $1,610,$900,150 and $833,700 using the Black-Scholes method. The assumptions used in valuing the options were: expected term 5.75 years,between 3.00 to 4.75 years; expected volatility 1.42,between 1.78 to 2.29; risk free interest rate 1.55%,of between 1.69% to 2.78%; and a dividend yield of 0%.
On July 30, 2016, in connection with certain consulting agreements, the Company granted the consultants 1,000,000 options to purchase common shares for a period of 5 years, of which 250,000 each have a strike price of $0.10, $0.25, $0.35 and $0.60. The options vest quarterly over a one (1) year period, and were valued at $17,260, using the Black-Scholes method. The assumptions used in valuing the options were: expected term 3.75 years, expected volatility 1.52, risk free interest rate 1.13%, and dividend yield 0%.
Options Outstanding |
|
|
|
|
|
|
|
|
| |
|
|
|
| Remaining |
| Exercise Price |
| Weighted |
| |
|
| Number of |
| Contractual Life |
| times Number |
| Average |
| |
Exercise Price |
| Shares |
| (in years) |
| of Shares |
| Exercise Price |
| |
|
|
|
|
|
| |||||
$0.05 |
| 90,000 |
| 3.00 |
| $ | 4,500 |
| $0.14 |
|
$0.05 |
| 1,140,000 |
| 2.75 |
|
| 57,000 |
| $0.09 |
|
$0.05 |
| 100,000 |
| 2.25 |
|
| 5,000 |
| $0.08 |
|
$0.05 |
| 60,000 |
| 1.50 |
|
| 3,000 |
| $0.06 |
|
$0.05 |
| 170,000 |
| 1.25 |
|
| 8,500 |
| $0.12 |
|
$0.09 |
| 5,500,000 |
| 3.00 |
|
| 467,500 |
| $0.20 |
|
$0.10 |
| 500,000 |
| 1.25 |
|
| 50,000 |
| $0.14 |
|
$0.15 |
| 1,000,000 |
| 1.25 |
|
| 150,000 |
| $0.14 |
|
$0.25 |
| 3,125,000 |
| 4.75 |
|
| 781,250 |
| $0.22 |
|
$0.25 |
| 1,000,000 |
| 4.50 |
|
| 250,000 |
| $0.20 |
|
$0.25 |
| 5,000,000 |
| 3.75 |
|
| 1,250,000 |
| $0.16 |
|
$0.25 |
| 7,000,000 |
| 3.00 |
|
| 1,750,000 |
| $0.16 |
|
$0.25 |
| 1,000,000 |
| 1.25 |
|
| 250,000 |
| $0.15 |
|
$0.25 |
| 1,000,000 |
| 0.75 |
|
| 250,000 |
| $0.10 |
|
|
| 26,685,000 |
|
|
| $ | 5,276,750 |
| $0.20 |
|
|
|
| Weighted |
| |
Options Activity | Number of |
| Average |
| |
| Shares |
| Exercise Price |
| |
Outstanding at December 31, 2018 |
| 18,060,000 |
| $0.23 |
|
Issued |
| 10,000,000 |
| $0.22 |
|
Exercised |
| –– |
| –– |
|
Expired / Forfeited |
| (1,375,000 | ) | –– |
|
Outstanding at September 30, 2019 |
| 26,685,000 |
| $0.20 |
|
On August 30, 2016, the Company granted a key employee 100,000 options to purchase common shares at $0.05 for a period of 5 years. The options vest quarterly over a three (3) year period, and were valued at $5,970, using the Black-Scholes method. The assumptions used in valuing the options were: expected term 5.75 years, expected volatility 1.69, risk free interest rate 1.18%, and dividend yield 0%.
On September 20, 2016, in connection with a certain consulting agreement, the Company granted the consultant 1,000,000 options to purchase common shares at $0.05 for a period of 2 years. The options vest quarterly over a two (2) year period, and were valued at $40,200, using the Black-Scholes method. The assumptions used in valuing the options were: expected term 3.25 years, expected volatility 1.81, risk free interest rate 1.19%, and dividend yield 0%.
Options Outstanding | ||||||||||
|
|
|
| Remaining |
| Exercise Price |
| Weighted |
| |
|
| Number of |
| Contractual Life |
| times Number |
| Average |
| |
Exercise Price |
| Shares |
| (in years) |
| of Shares |
| Exercise Price |
| |
|
|
|
|
|
|
|
|
|
| |
$0.60 |
| 250,000 |
| 3.00 |
| $ | 150,000 |
| $0.08 |
|
$0.35 |
| 250,000 |
| 3.00 |
|
| 87,500 |
| $0.08 |
|
$0.25 |
| 250,000 |
| 3.00 |
|
| 62,500 |
| $0.08 |
|
$0.10 |
| 1,375,000 |
| 4.25 |
|
| 137,500 |
| $0.10 |
|
$0.10 |
| 250,000 |
| 3.00 |
|
| 25,000 |
| $0.08 |
|
$0.05 |
| 60,000 |
| 4.50 |
|
| 3,000 |
| $0.05 |
|
$0.05 |
| 7,600,000 |
| 4.00 |
|
| 380,000 |
| $0.05 |
|
$0.05 |
| 100,000 |
| 3.00 |
|
| 5,000 |
| $0.08 |
|
$0.05 |
| 1,000,000 |
| 2.00 |
|
| 50,000 |
| $0.08 |
|
|
| 11,135,000 |
|
|
| $ | 900,500 |
| $0.07 |
|
Options Activity |
|
|
|
|
| Number of |
| Weighted Average |
|
| Shares |
| Exercise Price |
|
Outstanding at December 31, 2015 | 9,200,000 |
| $0.05 |
|
Issued | 2,160,000 |
| $0.05 |
|
Exercised | –– |
| –– |
|
Expired / Cancelled | (225,000 | ) | $0.25 |
|
Outstanding at September 30, 2016 | 11,135,000 |
| $0.07 |
|
During the nine months ended September 30, 2016, and the year ended September 30, 2019, and December 31, 2015,2018, respectively, a10,000,000 and 6,000,000 options were issued, 0 and 1,973,189 options were exercised,1,000,000 and 1,000,000 options expired, and 375,000 and 5,641,811 options were forfeited. A total of $65,040$875,700 and $379,910$649,327 in deferred compensation was recorded, and $112,437 and $58,024 in stock option compensation was expensed.recorded, net of forfeitures, and $526,650 and$572,870 was expensed during the nine months and the year ended September 30, 2019, and December 31, 2018, respectively. There remains $274,489$1,744,518 and $321,886$1,395,466 in deferred compensation as of September 30, 2016,2019, and December 31, 2015,2018, respectively, to be expensed over the next 2415 months.
NOTE 12: BUSINESS ACQUISITIONS
RoxSan Pharmacy, Inc.
On August 13, 2015, the Company purchased 100% of the issued and outstanding shares of RoxSan Pharmacy, Inc. common stock and its assets and inventory in exchange for a secured promissory note in the principal sum of $20.5 million (the "Acquisition Agreement"). As part of the Acquisition Agreement, all existing cash and trade receivables, and all existing debt as of August 12, 2015, remained the property/obligation of the seller.
The negotiated purchase price was based upon, among other things, the guarantee of certain revenues being collectible and contracts being in place after closing. It was discovered after closing that, among other things, the revenues were not collectible, and the contracts were not in place. The improper disclosures by the seller during negotiations significantly affected the purchase price and related note payable, and management has determined that the purchase price and related promissory note do not fairly represent the fair market value at the date of purchase. As a result, the company has discounted the promissory note to its estimated fair market value of $5.2 million (Note 7).
The following represent the fair values of the assets acquired by the Company on August 13, 2015:
Inventory | $ | 913,835 |
|
Prepaid insurance |
| 3,108 |
|
Property and equipment |
| 105,368 |
|
Identifiable intangibles |
| 250,000 |
|
Goodwill |
| 3,887,818 |
|
Security deposits |
| 22,000 |
|
Fair market value of assets acquired | $ | 5,200,000 |
|
The fair market value established at August 13, 2015 does not include the effects of any liabilities the seller omitted or caused the Company to incur as a result of the seller and its associates.
The goodwill represents future economic benefits expected to arise from the Company’s expanded presence in the specialty pharmaceuticals market, the assembled workforce acquired, and the expected synergies from combining operations with RoxSan. The goodwill is nondeductible for income tax purposes.
RoxSan’s results of operations are included in the Company’s statements of operations beginning on August 13, 2015 (Note 16). During the year ended December 31, 2015, acquisition costs of $110,000 were expensed and incurred within general and administrative expenses.
11
Parallax Health Management, Inc. (“PHM”) (formerly QOLPOM, Inc.)
On August 31, 2016, the Company entered into an agreement with QOLPOM, Inc., an Arizona corporation (“QOLPOM”) and its shareholders (the “Seller”) to purchase 100% of the issued and outstanding shares of QOLPOM’s common stock and its assets, inventory and intellectual property on the Closing Date in exchange for:
5.
5,000,000 shares of the Company’s common stock at $0.001 per share; and
6.
2,500,000 options to purchase shares of the Company's common stock, vesting over three (3) years beginning August 31, 2017, of which 500,000 shares are exercisable at $0.10, 1,000,000 are exercisable at $0.15, and 1,000,000 are exercisable at $0.25; and
7.
10% of revenues generated from the RCS business segment, up to $1,000,000; and 7% thereafter, up to $2,000,000; and
8.
3% of revenues generated from the sale of QOLPOM hardware and monitoring service fees.
The following represent the fair values of the assets acquired and liabilities assumed by the Company on the Closing Date of September 20, 2016:
Assets: |
|
|
|
Intellectual property | $ | 1,997,643 |
|
Loans receivable |
| 87,008 |
|
Total assets |
| 2,084,651 |
|
|
|
|
|
Liabilities: |
|
|
|
Accounts payable |
| 7,068 |
|
License fee payable |
| 2,000,000 |
|
Total liabilities |
| 2,007,068 |
|
|
|
|
|
Goodwill |
| 142,417 |
|
|
|
|
|
Fair market value of assets acquired | $ | 220,000 |
|
The goodwill represents future economic benefits expected to arise from the Company’s expanded presence in the remote healthcare monitoring market, the assembled workforce acquired, and the expected synergies from combining operations with PHM. The goodwill is nondeductible for income tax purposes.
PHM’s results of operations are included in the Company’s statements of operations beginning on September 20, 2016 (Note 16). During the year ended December 31, 2016, acquisition costs of $10,000 were expensed and incurred within general and administrative expenses.
NOTE 13. COMMITMENTS AND CONTINGENCIES
On August 31, 2016, the Company entered into an agreement with QOLPOM, Inc., an Arizona corporation (“QOLPOM”) and its shareholders (the “Seller”) to purchase 100% of the issued and outstanding Shares of QOLPOM’s common stock and its assets, inventory and intellectual property in exchange for, among other things, 5,000,000 shares of the Company’s restricted common stock, and options to purchase 2,500,000 shares at an exercise price of $0.05 (Note 12). In addition, the agreement provides for, among other thing the Seller to receive up to $2,000,000 through a percentage of revenue generated from the RCS business segment, as well as a 3% royalty on certain revenues generated from the intellectual property, as defined in the agreement.
On September 25, 2016, pursuant to a resolution of the board of directors, the Company entered into an executive agreement for Dr. Robert Burns Arnot to join the Company as its Chief Medical Officer, for an initial term of three (3) years. The executive agreement includes compensation in the amount of $10,000 per month, to be deferred until certain funding goals are met. In addition, Dr. Arnot was granted the right to purchase 250,000 shares of the Company’s restricted common stock at $0.001 per share, and options to purchase 1,000,000 shares of common stock at a strike price of $0.05 per share, of which 250,000 vest immediately, and the remaining vest quarterly over a two (2) year period. Concurrently, the Company entered into a revenue sharing agreement for a term of three (3) years, that provides for Dr. Arnot to receive 10% of Adjusted Gross Revenue (AGR) from certain sales generated by the Company up to $125 million in revenues for any given year, and 5% of AGR thereafter, as defined in the agreement, subject to certain performance criteria.
NOTE 14. LEASESINCOME TAXES
The Company leases office spaceA reconciliation of the expected statutory federal and commercial facilities in Beverly Hills, California. The lease agreement for the office space renews annually at a base rent of $92,880. The commercial facilities are leased under agreements with original terms of twelve (12) years, with one (1) renewal option of twelve (12) years, and contain base monthly rent for premises plus a proportionate share of common area maintenance cost (CAM). The company also sub-leases office space for its administrative offices in Santa Monica, California, for $5,600 per month, on a month-to-month basis.
The future minimum rental payments required under the lease agreements are summarized as follows:
Year |
| Base |
| CAM |
| Total | |||
2016 |
| $ | 153,262 |
| $ | 14,604 |
| $ | 167,866 |
2017 |
|
| 391,556 |
|
| 58,417 |
|
| 449,973 |
2018 |
|
| 400,037 |
|
| 58,417 |
|
| 458,455 |
2019 |
|
| 330,525 |
|
| 42,298 |
|
| 372,822 |
|
| $ | 1,275,379 |
| $ | 173,737 |
| $ | 1,449,116 |
Rent expense for the nine months ended September 30, 2016,state taxes and the year ended December 31, 2015, was $325,747 and $155,713, respectively, including $43,813 and $22,456, respectively, of common area maintenance cost.
NOTE 15. INCOME TAXES
The components of the cumulative net deferredtotal income tax assetexpense (benefit) at September 30, 2016,2019, and December 31, 2015, the statutory tax rate, the effective tax rate and the amount of the valuation allowance are indicated below:2018, was as follows:
| September 30, 2016 |
| December 31, 2015 |
| ||
|
|
|
|
|
|
|
Income (loss) before taxes | $ | (6,126,288 | ) | $ | (3,719,898 | ) |
Statutory rate |
| 34% |
|
| 34% |
|
|
|
|
|
|
|
|
Computed expected tax payable (recovery) | $ | (2,082,900 | ) | $ | (1,264,800 | ) |
Non-deductible expenses |
| 11,200 |
|
| 4,500 |
|
Change in valuation allowance |
| 2,071,700 |
|
| 1,260,300 |
|
Reported income taxes | $ | –– |
| $ | –– |
|
| September 30, 2019 |
| December 31, 2018 |
| ||
|
|
|
|
|
|
|
Income (loss) before taxes | $ | (6,458,278 | ) | $ | 15,608,209 |
|
Statutory rate (Fed & State(s)) |
| 30% |
|
| 30% |
|
|
|
|
|
|
|
|
Computed expected tax payable (recovery) |
| (1,797,800 | ) |
| 4,781,700 |
|
|
|
|
|
|
|
|
Effect of release of net operating loss carryforwards |
| (927,100 | ) |
| (2,417,700 | ) |
|
|
|
|
|
|
|
Tax effect of non-deductible expenses: |
|
|
|
|
|
|
Gain on extinguishment of debt-principal |
| –– |
|
| (6,124,000 | ) |
Stock compensation/amortization of stock options |
| 767,700 |
|
| 1,048,500 |
|
Discount amortization |
| 5,600 |
|
| 837,000 |
|
Other |
| 1,700 |
|
| 1,500 |
|
Total tax effect of non-deductible expenses |
| 775,000 |
|
| (4,237,000 | ) |
|
|
|
|
|
|
|
Change in valuation allowance |
| 1,949,900 |
|
| (1,873,000 | ) |
|
|
|
|
|
|
|
Income tax expense | $ | –– |
| $ | –– |
|
|
|
|
|
|
|
|
Reported income taxes: |
|
|
|
|
|
|
Federal | $ | –– |
| $ | –– |
|
State |
| –– |
|
| –– |
|
Total | $ | –– |
| $ | –– |
|
The significant components of deferred income tax assets and liabilities at September 30, 2016,2019, and December 31, 20152018, are as follows:
| September 30, 2016 |
| December 31, 2015 |
| September 30, 2019 |
| December 31, 2018 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carried forward | $ | 4,349,000 |
| $ | 2,227,300 |
| $ | 1,930,500 |
| $ | –– |
|
|
|
|
|
|
|
| ||||||
Bad debt allowance |
| –– |
|
| –– |
| ||||||
Officers’ accrued compensation |
| 280,000 |
|
| 243,400 |
| ||||||
Accrued related party interest |
| 3,500 |
|
| 20,700 |
| ||||||
Valuation allowance |
| (4,349,000 | ) |
| (2,227,300 | ) |
| (2,214,000 | ) |
| (264,100 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset | $ | –– |
| $ | –– |
| $ | –– |
| $ | –– |
|
During the year ended December 31, 2018, the company realized extinguishment of debt principal in the amount of $20,880,688. Per Internal Revenue Code (“IRC”) Section 108(a) (1) (A) the extinguishment of debt principal is excluded from taxable income for the Company. However, any available tax attributes must be released up and to the amount of the extinguishment. Therefore, net operating loss carryforwards were released for the amount of income excluded from taxable income. The remaining net operating losses available to use toward future taxable income are as follows:
Tax Year |
| Net Operating Loss |
| Expires | |
|
|
|
|
|
|
2016 |
| $ | 442,900 |
| 2036 |
2017 |
|
| 2,115,400 |
| 2037 |
2018 |
|
| 548,900 |
| No Expiration |
2019 to date |
|
| 3,791,500 |
| No Expiration |
|
|
|
|
|
|
Total |
| $ | 6,898,700 |
|
|
As at September 30, 2016, and December 31, 2015, respectively,2019, the Company had approximately $12,791,000 and $6,698,000$6,898,700 of federal net operating losses, of which expire commencing$4,340,400 have no expiration date. The Company is open to examinations for the tax year 2011 through the current tax year.
NOTE 15. DISCONTINUED OPERATIONS
In December 2017, the Company discontinued all operations related to the Retail Pharmacy Segment (RPS) involving the Company’s wholly-owned subsidiary, RoxSan Pharmacy, Inc. (“RoxSan”). On May 14, 2018, pursuant to a unanimous resolution of the Boards of Directors of RoxSan and Parallax Health Sciences, Inc., RoxSan filed a Chapter 7 petition in the year 2026.United States Bankruptcy Court for the Central District of California. Mr. Timothy Yoo was appointed trustee on May 15, 2018. In connection with the filing, RoxSan sought to discharge approximately $5 million of liabilities owed to various parties, and intercompany loans in excess of $1 million owed to the Company. The Chapter 7 bankruptcy proceeding by was fully discharged and the case was closed on March 13, 2019.
Due to, among other things, the reduction in RoxSan’s cash flows during 2016 and 2017, RoxSan became delinquent in its payroll tax depository obligations, resulting in a liability owed to federal and state taxing agencies in the aggregate of $1,148,811, which includes $601,148 in taxes withheld from employees (“Trust Fund Taxes”), employer taxes of $183,172, and penalties and interest of $364,491 through December 31, 2018. The liability was included as part of the Chapter 7 bankruptcy petition, and certain portions of the liability may be discharged. However, in accordance with California bankruptcy laws, federal and state Trust Fund Taxes are not dischargeable. During the nine months ended September 30, 2019, the company has made payments on behalf of RoxSan to the taxing agencies in the amount of $175,000. As of September 30, 2019, $426,148 in Trust Fund Taxes remains outstanding. The Company has retained a tax resolution specialist and is in communications with the taxing agencies in order to resolve RoxSan’s liability (Note 7).
12
As a result of the loss of financial control of RoxSan, the Company derecognized the subsidiary effective May 14, 2018. The derecognition resulted in a gain of $4,478,268. The Company also extinguished $22,778,281 in debt and accrued interest related to the acquisition of RoxSan.
The results of the discontinued operations of RoxSan Pharmacy, Inc. for the three and nine months ending September 30, 2018, are summarized as follows:
| September 30, 2018 |
| ||||
| Three months ended |
| Nine months ended |
| ||
|
|
|
|
|
| |
Revenue | $ | –– |
| $ | –– |
|
Cost of sales |
| –– |
|
| –– |
|
Gross profit |
| –– |
|
| –– |
|
Sales, marketing and pharmacy expenses |
| (24,260 | ) |
| 170,630 |
|
General and administrative expenses |
| (79,006 | ) |
| 586,993 |
|
Operating income (loss) |
| 103,266 |
|
| (757,623 | ) |
Loss on disposal of assets |
| –– |
|
| (10,000 | ) |
Interest expense |
| (9,493 | ) |
| (56,775 | ) |
Net income (loss) from discontinued operations | $ | 93,773 |
| $ | (824,398 | ) |
NOTE 16. SEGMENT REPORTING
The Company has the following three business segments: Retail Pharmacy Services, Remote Care SystemsServices (RCS), Behavioral Health Services (BHS), and Corporate.Diagnostics/Corporate (DCS). See Note 1 and 2 for a description of each segment and related significant accounting policies.
The following table is a reconciliation of the Company’s business segments to the consolidated financial statements:
| Remote Care Segment |
| Behavioral Health Segment |
| Diagnostics/ Corporate Segment |
| Discontinued Operations |
| Consolidated Totals |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ | 1,395 |
| $ | 76,350 |
| $ | –– |
| $ | –– |
| $ | 77,745 |
| |
Gross profit (loss) |
| 75 |
|
| 64,800 |
|
| –– |
|
| –– |
|
| 64,875 |
|
Operating loss |
| (204,145 | ) |
| (97,700 | ) |
| (4,836,369 | ) |
| –– |
|
| (5,138,214 | ) |
Depreciation and amortization |
| 6,897 |
|
| 82,320 |
|
| 1,468 |
|
| –– |
|
| 90,685 |
|
Interest expense |
| 2,315 |
|
| –– |
|
| 455,004 |
|
| –– |
|
| 457,319 |
|
Gain on fair value adjustments |
| –– |
|
| –– |
|
| 105,141 |
|
| –– |
|
| 105,141 |
|
Loss on extinguishment of debt |
| –– |
|
| –– |
|
| (915,615 | ) |
| –– |
|
| (915,615 | ) |
Loss on settlement |
| –– |
|
| –– |
|
| (33,272 | ) |
| –– |
|
| (33,272 | ) |
Discount amortization |
| 19,000 |
|
| –– |
|
| –– |
|
| –– |
|
| 19,000 |
|
Total assets |
| 906,466 |
|
| 357,247 |
|
| 1,109,592 |
|
| –– |
|
| 2,373,305 |
|
Goodwill |
| 785,060 |
|
| –– |
|
| –– |
|
| –– |
|
| 785,060 |
|
Additions to property and equipment |
| –– |
|
| –– |
|
| 2,628 |
|
| –– |
|
| 2,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| 9,399 |
|
| 1,350 |
|
| –– |
|
| –– |
|
| 10,749 |
|
Gross profit (loss) |
| (6,108 | ) |
| 1,350 |
|
| –– |
|
| –– |
|
| (4,758 | ) |
Operating loss |
| (277,261 | ) |
| (144,218 | ) |
| (4,835,777 | ) |
| –– |
|
| (5,257,256 | ) |
Depreciation and amortization |
| 6,897 |
|
| 82,320 |
|
| 1,248 |
|
| –– |
|
| 90,465 |
|
Interest expense |
| 2,206 |
|
| –– |
|
| 1,739,520 |
|
| –– |
|
| 1,741,726 |
|
Gain on disposal of subsidiary |
| –– |
|
| –– |
|
| 5,079,416 |
|
| –– |
|
| 5,079,416 |
|
Gain on extinguishment of debt |
| –– |
|
| –– |
|
| 22,931,148 |
|
| –– |
|
| 22,931,148 |
|
Loss on fair value adjustments |
| –– |
|
| –– |
|
| (156,300 | ) |
| –– |
|
| (156,300 | ) |
Discount amortization |
| (370,000 | ) |
| –– |
|
| 3,145,000 |
|
| –– |
|
| 2,775,000 |
|
Discontinued operations |
| –– |
|
| –– |
|
| –– |
|
| (824,398 | ) |
| (824,398 | ) |
Total assets |
| 915,652 |
|
| 467,007 |
|
| 11,906 |
|
| –– |
|
| 1,394,565 |
|
Goodwill |
| 785,060 |
|
| –– |
|
| –– |
|
| –– |
|
| 785,060 |
|
Additions to property and equipment |
| –– |
|
| –– |
|
| –– |
|
| –– |
|
| –– |
|
| Pharmacy Segment(1) |
| Remote Care Segment(2) |
| Corporate Segment |
| Consolidated Totals |
| |||||
September 30, 2016(2) |
|
|
|
|
|
|
|
|
|
|
|
| |
Revenue | $ | 19,808,910 |
| $ | –– |
| $ | –– |
| $ | 19,808,910 |
| |
Gross profit |
| 2,894,092 |
|
| –– |
|
| –– |
|
| 2,894,092 |
| |
Operating income (loss) |
| (743,437 | ) |
| (23,865 | ) |
| (894,216 | ) |
| (1,661,518 | ) | |
Depreciation and amortization |
| 4,152,022 |
|
| 1,179 |
|
| 4,619 |
|
| 157,820 |
| |
Discount amortization |
| –– |
|
| –– |
|
| 3,825,000 |
|
| 3,825,000 |
| |
Interest expense |
| 145,481 |
|
| –– |
|
| 494,494 |
|
| 639,975 |
| |
Total assets |
| 6,434,763 |
|
| 2,203,203 |
|
| 19,496 |
|
| 8,657,463 |
| |
Goodwill |
| 3,887,818 |
|
| 142,417 |
|
| –– |
|
| 4,030,235 |
| |
Additions to property and equipment |
| 91,073 |
|
| –– |
|
| –– |
|
| 91,073 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
September 30, 2015(1) |
|
|
|
|
|
|
|
|
|
|
|
| |
Revenue |
| 4,717,206 |
|
| –– |
|
| –– |
|
| –– |
| |
Gross profit |
| 1,059,377 |
|
| –– |
|
| –– |
|
| –– |
| |
Operating income (loss) |
| 216,288 |
|
| –– |
|
| (439,875 | ) |
| (223,587 | ) | |
Depreciation and amortization |
| 6,171 |
|
| –– |
|
| 5,865 |
|
| 12,036 |
| |
Discount amortization |
| –– |
|
| –– |
|
| 256,676 |
|
| 256,676 |
| |
Interest expense |
| –– |
|
| –– |
|
| 229,045 |
|
| 229,045 |
| |
Total assets |
| 8,104,577 |
|
| –– |
|
| 22,536 |
|
| 8,127,113 |
| |
Goodwill |
| 3,887,818 |
|
| –– |
|
| –– |
|
| 3,887,818 |
| |
Additions to property and equipment |
| –– |
|
| –– |
|
| –– |
|
| –– |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) | Pharmacy Segment commenced August 13, 2015 |
| |||||||||||
(2) | Remote Care Segment commenced September 20, 2016 |
|
NOTE 17. SUBSEQUENT EVENTSLEGAL MATTERS
On December 2, 2016, the Company issued 1,000,000 shares of its restricted common stockmaterial developments to its attorneys as partial payment for services rendered. The shares, valued at $190,000, were issued for cash in the amountlegal matters other than those disclosed below:
Dispute with Former Owner of $1,000. As a result, $189,000 was recorded to paid in capital.RoxSan
On December 2, 2016, in connection with a certain subscription agreement, the Company issued 10,000 shares of its Series B Preferred Stock at $5.00 per share, for cash in the amount of $50,000. Each Preferred share is convertible into twenty (20) common shares at a price of $0.25 per share, for a total of 200,000 common shares, if converted. The subscription includes 50% warrant coverage for a period of two (2) years, to purchase 100,000 shares of the Company's common stock at a price of $0.75 per share. Dividends are payable semi-annually at a rate of 10% per annum, to be paid in cash or in kind, at the option of the Company.
On December 13, 2016, the Company issued a convertible promissory note to a related party for cash proceeds in the amount of $250,000. The note bears interest at a rate of 12.5% per annum, matures June 13, 2017, and contains a repayment provision to convert the debt into the Company’s common stock at a strike price based upon a thirty (30) day average market price on the date of conversion.
On January 23, 2017, in connection with a certain subscription agreement, the Company issued 30,000 shares of its Series B Preferred Stock at $5.00 per share to a related party, for cash in the amount of $150,000. Each Preferred share is convertible into twenty (20) common shares at a price of $0.25 per share, for a total of 600,000 common shares, if converted. The subscription includes 50% warrant coverage for a period of two (2) years, to purchase 300,000 shares of the Company's common stock at a price of $0.75 per share. Dividends are payable semi-annually at a rate of 10% per annum, to be paid in cash or in kind, at the option of the Company.
On March 16, 2017, in connection with a certain related party convertible debt in the amount of $250,000 and accrued interest of $7,953, the Company issued 1,228,346 shares of its restricted common stock at a conversion rate of $0.21 per share. As a result, $256,724 was recorded to paid in capital.
On March 22, 2017, the Company formed a wholly owned subsidiary, Parallax Behavioral Health, Inc. (“PBH”), a Delaware corporation.
On May 1, 2017, pursuant to a resolution of the board of directors, the Company and its wholly-owned subsidiary, Parallax Behavioral Health, Inc., completed the acquisition of 100% of certain intellectual property from ProEventa Inc., a Virginia Corporation (“ProEventa”), in accordance with the Intellectual Property Purchase Agreement between the Company, PBH and ProEventa (the “ProEventa Agreement”). ProEventa has an expertise in the development of behavioral health technologies, and is the wholly owned subsidiary of Grafton Integrated Health Network, Inc., a non-profit Virginia corporation (“Grafton”), Pursuant to the ProEventa Agreement, in exchange for 100% of that certain intellectual property, among other things, consideration to ProEventa included:
1.
a stock purchase agreement to purchase 2,500,000 shares of the Company’s common stock at $0.001 per share; and
2.
a revenue sharing agreement, providing for a cash earn-out to be paid to the ProEventa shareholders of up to $3,000,000, to be derived from certain net revenue generated by the Company, as defined in the agreement; and
3.
a royalty agreement, providing for a royalty of 3% of the revenues be paid to ProEventa, up to $25,000,000 in revenues, generated from the intellectual property, and
4.
a limited license to ProEventa for the use of certain of the Intellectual Property's technology at Grafton Schools.
On May 1, 2017, in conjunction with the ProEventa Agreement, the Company entered into a consulting agreement with James Gaynor that, among other things, provides for consideration to Mr. Gaynor as follows:
1.
a stock purchase agreement to purchase 500,000 shares of the Company’s common stock at $0.001 per share; and
2.
a grant of options to purchase 1,000,000 shares of the Company's common stock at a price of $0.25 per share, vesting annually over a three (3) year period beginning September 1, 2017.
On May 17, 2017, in connection with the ProEventa Agreement, and related consulting agreement, the Company issued 3,000,000 shares of its restricted common stock. The shares, valued at $720,000, were issued for cash in the amount of $3,000. As a result, $717,000 was recorded to paid in capital.
On May 18, 2017, in connection with a certain related party convertible debt in the amount of $200,000 and accrued interest of $27,781, the Company issued 2,277,808 shares of its restricted common stock at a conversion rate of $0.10 per share. As a result, $225,503 was recorded to paid in capital.
On June 2, 2017, in connection with the exercise of certain employee stock options, the Company issued 237,500 shares of its restricted common stock at a conversion rate of $0.05 per share. The shares were issued on a cashless basis, resulting in a net value of $57,000. As a result, $56,763 was recorded to paid in capital.
On July 1, 2017, in connection with a certain consulting agreement, the Company granted 1,500,000 shares of its restricted common stock to the consultant for services to be provided over a twelve (12) month period. The shares were valued at of $315,000, of which $78,750 was expensed, and $236,250 was deferred, to be amortized over the next twelve (12) months. As a result, $313,500 was recorded to paid in capital,
On July 6, 2017, the Board of the Company caused the departure of Mr. Redmond from his position as President and Chief Executive Officer of the Company and its wholly-owned subsidiary, RoxSan Pharmacy, Inc. Pursuant to the Employment Agreement dated August 1, 2015, Mr. Redmond resigned from the Board of the Company and its wholly-owned subsidiary, RoxSan Pharmacy, Inc.
13
On July 7, 2017, pursuant to a unanimous Board resolution, Mr. Paul Arena was appointed as the Company’s President and Chief Executive Officer, and the Board caused Mr. Arena's election to the Company's Board and the Board of its wholly-owned subsidiary, RoxSan Pharmacy, Inc.
On July 7, 2017, in connection with Mr. Arena’s appointment, the Company entered into an Executive Employment Agreement (the “Agreement”) with Mr. Arena dated July 7, 2017, wherein Mr. Arena’s will serve as President and Chief Executive Officer for a period of three (3) years. As compensation for his services, Mr. Arena will receive a base compensation of $350,000 in year one, of which 30% shall be deferred until certain funding goals are met, $425,000 in year two, and $550,000 in year three, as well as annual bonus compensation equal to 2x base when certain Company earnings are reached. In addition, the Agreement includes a restricted stock award of 10,000,000 common shares, of which 25% vests immediately; 25% vests in one year; 25% vests after two years; and 25% vests when certain funding goals have been met. The Agreement also includes the grant of 5,000,000 stock options at an exercise price of $0.25 per share. The options are for a period of five years, and vest when certain market share prices of the Company’s common stock are met
On July 7, 2017, in connection with the Agreement, Mr. Arena was awarded 10,000,000 shares of the Company’s restricted common stock for services to be provided over a thirty-six (36) month period. The shares were valued at $2,000,000, of which $500,000 was expensed, and $1,500,000 was deferred, to be amortized over the next thirty-six (36) months. As a result, $1,990,000 was recorded to paid in capital,
On July 21, 2017, in connection with a certain consulting agreement, the Company granted 4,000,000 shares of its restricted common stock to the consultant for services to be provided over a twelve (12) month period. The shares were valued at $1,080,000, of which $270,000 was expensed, and $810,000 was deferred, to be amortized over the next twelve (12) months. As a result, $1,076,000 was recorded to paid in capital,
On August 3, 2017, in connection with the exercise of certain employee stock options, the Company issued 44,102 shares of its restricted common stock at a conversion rate of $0.05 per share. The shares were issued on a cashless basis, resulting in a net value of $10,584. As a result, $10,540 was recorded to paid in capital.
On August 9, 2017, in connection with a certain debt settlement, the Company issued 100,000 shares of its restricted common stock to a consultant as partial payment for services rendered. The shares were valued at $15,000. As a result, $14,900 was recorded to paid in capital.
On September 11, 2017, in connection with a certain related party convertible debt in the amount of $40,000, the Company issued 400,000 shares of its restricted common stock at a conversion rate of $0.10 per share. As a result, $39,600 was recorded to paid in capital.
Legal Matters:Action No. SC125702:
Following the Company’s acquisition of RoxSan Pharmacy (the “Pharmacy”), the former owner (“Melamed”) initiated two (2) legal actions against the Companyin the Superior Court of the State of California, County of Los Angeles, West District,Shahla Melamed v. Parallax Health Sciences, Inc., action numbers SC 124873 and SC 125702 (the “Matter”).
In the Matter, action No. SC124873, Melamed sought rescission of the August 13, 2015, Agreement, whereby the Company acquired 100% of the issued and outstanding shares of the Pharmacy and its assets and inventory (the “Purchase Agreement”). Rescission was sought on the basis that, allegedly, in order to acquire the Pharmacy, the Company and its principals had allegedly defrauded Melamed, there had allegedly been a complete failure of consideration, and a unilateral mistake was allegedly made on the part of Melamed.
On March 17, 2017, in the Matter, action No. SC124873, the Court ruled in favor of the Company, and issued that Melamed is not entitled to rescission of the Purchase Agreement. The ruling of the Court stated that no fraud on the part of the Company or its principals had been demonstrated. The Court further ruled that there had been no failure of consideration, and that Melamed’s entry into the Agreement was not a result of a unilateral mistake on the part of Melamed. The Minutes of the Ruling were entered by the County Clerk on March 17, 2017.
The Company has likewise initiated legal action against Melamed and filed an actionSC125702, in the Superior Court of the State of California, County of Los Angeles, West District,Parallax Health Sciences, et al. v. Shahla Melamed, et al., case number SC 124898. The Complaint in that action alleges that Melamed has breached several obligations under the Purchase Agreement, and the Company seeks to reduce the Secured Note due to undisclosed material changes in the business.
Subsequently filed pleadings by the Company and RoxSan in case number SC 124873 allege, among other things, that Melamed misrepresented the true earnings and sourceformer owner of income for the pharmacy business and had engaged in a fraudulent and illegal scheme to ship medications to states where her pharmacy was not licensed prior to the sale of the Pharmacy.
Purchase Price Dispute: Included in the Acquisition Agreement for RoxSan Pharmacy, Inc., and as part of the negotiated purchase price, were representations and warranties made by the former owner involving certain primary revenue streams and related contracts. Shortly after the closing, however, management discovered that these representations were substantially inaccurate and/or completely false. These inaccuracies, and the improper disclosures and/or omissions made by the former owner during negotiations, would have significantly affected the purchase price and related note payable. As a result, among other things, management has initiated legal action against the former owner to seek a reduction in the purchase price.
In addition, management engaged a third-party to perform a valuation of the Pharmacy, utilizing revised inputs that more accurately reflected the Pharmacy's revenue streams as of the date of Acquisition. The valuation performed resulted in a fair market value of $4.7 to $5.2 million. After careful consideration, and based upon these significant differences, management has determined that the purchase price and related promissory note of $20.5 million does not fairly represent the fair market value at the date of purchase. The Company has, therefore, applied a discount to the note of $15.3 million, to reduce the purchase price and related note to its estimated fair market value of $5.2 million, utilizing the higher value on the range as a conservative measure.
The valuation performed does not include the effects of any liabilities the former owner omitted or damages caused to the Company as a result of the former owner and her immediate family members connected to the Pharmacy.
Control of Funds Dispute: For a period of time immediately after the closing of the Acquisition, the former owner would not relinquish control of the Pharmacy's bank accounts, and collected the Pharmacy's incoming cash revenues, refusing to transfer the funds to the new ownership. Furthermore, when the Company attempted to change the corporate records and signatories on the existing bank accounts, the former owner disputed the changes, resulting in approximately $180,000 in corporate funds being frozen and held for adjudication. During this period, the Company was forced to request that the former owner pay the Pharmacy's operating expenses. At no time after the Company opened new accounts did the former owner cooperate with the transference or willingly relinquish control of the Pharmacy's operating cash flow or incoming cash revenues. As a result, an extensive reconciliation was performed to determine what amounts were collected and paid by the former owner, and what amounts were due to the Company. The reconciliation resulted in over $412,000 owed to the Company from the former owner. The reconciliation and underlying documentation went under judicial review, and on July 24, 2017, the Company was notified that the results of the review were in favor of the Company in the amount of $412,948. A judgment is pending for the order of $412,948 owed to the Company from the former owner (See Note 4).
In the Matter, action No. SC125702,Shahla Melamed (“Melamed”), alleges that the Company is in default under the terms of the Purchase Agreement and Secured Note, (Note 7), and the Company’s termination of Melamed’s employment agreement. The Company firmly believes that it had adequate grounds to justify the termination of the employment, that it acted within its rights, and shall prevail in these proceedings. A trial date, previously set for December 2018, is currently set for January 2020.
All aboveAction No. SC 124898:
The Company initiated legal matters areaction against Melamed and filed a complaint, action number SC 124898, in the Superior Court of the State of California, County of Los Angeles, West District, Parallax Health Sciences, et al. v. Shahla Melamed, et al. The Complaint in that action alleges that Melamed has breached several obligations under the Purchase Agreement, and the Company is seeking to reduce the Secured Note due to undisclosed material changes in the business. A trial date, previously set for December 2018, is currently pending.set for January 2020.
Disputes with Former Executives
On or about May 5,March 9, 2017, DavidDave Engert former Executive Chairman and director of the Company filed a lawsuit in Arizona and then on or about May 5, 2017, Mr. Engert, changed the venue and filed suit against the Company and RoxSan Pharmacy, Inc. in the United States District Court, Central District of California for an amount exceeding $75,000. The Company intends to vigorously defend against this action, and onOn 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 or about June 20, 2017, American Express Bank, FSB filed suit against RoxSan Pharmacy, Inc.October 8, 2018, a settlement was reached between Mr. Engert and the Company (the “Settlement”). The Settlement includes, among other things, a cash payment to Mr. Engert in Superior Court of California, County of Los Angeles for anthe amount of $1,015,052. On or about June 27, 2017, American Express Travel Related Services Company, Inc. filed suit against RoxSan Pharmacy, Inc. in Supreme Court$139,000, and the cancellation of New York, Countyall of New YorkMr. Engert’s equity holdings in the amounts of $153,500 and $273,500. On July 31, 2017 and August 16, 2017 respectively,Company, including preferred shares (see Note 11). The Settlement resulted in a net loss to the Company entered intoof $33,272. On April 10, 2019, a stipulation for dismissal was filed, and settlement agreementsthe matter has been fully resolved.
NOTE 18. SUBSEQUENT EVENTS
The Company has evaluated the events and transactions for recognition or disclosure subsequent to September 30, 2019, through the date of these matters to make payments in lieuthe issuance of further litigation at this time.the financial statements, and has determined that there have been no events that would require disclosure.
* * * * *
ITEM 2. MANAGEMENT’SMANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This quarterly report contains forward-looking statements. These statements relate to future events or the Company’s future financial performance. In some cases, youforward-looking statements can identify forward-looking statementsbe identified by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors including the risks in the section entitled "Risk Factors” that may cause the CompanyCompany’s or the Company’s industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
The Company’s unaudited interim consolidated financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. All references to "common shares" refer to the common shares in the Company’s capital stock. The following discussion should be read in conjunction with the Company’s financial statements and the related notes that appear elsewhere in this quarterly report.
InNOTE: The following sections of this quarterly report unless otherwise specified, all dollar amounts are expressed in United States dollars. All referencesand any further reference made to "common shares" refer to the common shares in the Company’s capital stock.
As used in this quarterly report, the terms“the Company”, "we", "us", "our" and "Parallax" means"Parallax " shall mean Parallax Health Sciences, Inc., and its wholly-owned subsidiaries, Parallax Diagnostics, Inc.,Parallax Health Management, Inc. (formerly QOLPOM, Inc.), and RoxSan Pharmacy,Parallax Behavioral Health, Inc., unless otherwise indicated.
Corporate History and OverviewDescription of Business
The Company wasParallax Health Sciences, Inc. (“Parallax”), 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 into2005, is an Agreement and Plan of Merger with Parallax Diagnostics, Inc., a Nevada corporation ("Parallax Diagnostics"), whereby Parallax Diagnostics became a wholly owned subsidiary. On January 9, 2014, the Company changed its name to Parallax Health Sciences, Inc. (“Parallax”). (OTC:PRLX).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 personalized patient care.a single proprietary platform. The Parallax Care™ system being developed provides scalable connected products, services and actionable data integrated on a single interoperable platform. The Company’s principal mission is to deliver solutions that empower patients, reduce costs and improve the quality of care through patented leading-edge technologies.
The Parallax Care™ technology-enabled digital healthcare system is structured with three separate divisions that can operate independently of one another, or integrate services to meet the various needs of the Company’s clientele: Optimized Outcomes, Connected Health and Smart Data. Each of these divisions target a separate vertical market that are synergistic, compliment, and strengthen each other and the Company value proposition as a whole.
Optimized Outcomes | REBOOT™ / COMPASS™ Behavioral modification |
Connected Health | Fotodigm® platform Remote patient monitoring, telehealth, and POC diagnostic testing |
Smart Data | Intrinsic Code™ technology Actionable insights to behavior modification |
Operating Segments
The Company’s subsidiary, Parallax Diagnostics, was founded in 2010,current operations include the following business segments for financial statement presentation: Remote Patient Monitoring (RPM), Behavioral Health Services (BHS), and holds the right, title, and interest in perpetuity to certain Target System Immunoassay point-of-care diagnostic testing system and related FDA-cleared tests in the area of infectious disease. Its primary focus was to commercialize the proprietary testing system and test in a worldwide domain.Corporate.
Parallax Diagnostics is currently pre-revenue, and continues to pursue viable opportunities•Remote Patient Monitoring
The RPM segment generates revenues through fees charged for the commercializationlicense and utilization of its product. proprietary system that provides software integrations of the Fotodigm® platform. Additionally, the RPM segment generates incremental revenues through the delivery of acute, post-acute and chronic health patient management software systems that enable Parallax customers to bill for and collect payments from patients and third-party payers for telemonitoring and remote services that they deliver.
•Behavioral Health Services
The Company has sought to identify strategies that would make its proposition more valuable and competitive. To this end, the Company has pursued the creation of patents around its foundational technology, and developed a novel immune status test targeting the HIV/AIDS and TB markets. Since the inception of Parallax Diagnostics, the novel CD4-CD8 immune status test has been developed, and the Company has been issued patents on elements of its core technology and testing system.
Acquisition of RoxSan Pharmacy, Inc:
In 2013, Parallax identified an opportunity to acquire RoxSan Pharmacy, Inc. ("RoxSan"), a California corporation, and began the due diligence process. The Company's initial interest centered on utilizingBHS segment commenced with the acquisition as a means of accelerating the commercialization of the Parallax Target SystemREBOOT™ and diagnostic platform, as RoxSanIntrinsic Code™ technologies. The BHS segment will generate revenues primarily through licensing and subscription of software and systems. As of September 30, 2019, the BHS segment had access to a nationwide network of doctorsnot yet begun full operations, generating limited test market sales.
•Diagnostics/Corporate
The Diagnostics/Corporate Segment supports the costs and sales representatives. During the due diligence process, the Company became aware of the numerous opportunities that RoxSan and its markets represented.
On March 21, 2013, the Company entered into a Letter of Intent with Shahla Melamed, RoxSan's sole Shareholder, to acquire RoxSan. Between 2013 and 2015, four (4) amendments were also executed.
As part of the acquisition, the Company was required to obtain licensure from the State of California, and on July 31, 2015, the Company received notice that its pharmacy and sterile compounding licenses were issued by the California State Board of Pharmacy.
On August 13, 2015 (the "Closing Date"), pursuant to a resolution of the board of directors, the Company entered into an Agreement to Purchase and Sell One Hundred Percent of the Issued and Outstanding Shares of RoxSan Pharmacy, Inc. ("RoxSan" or the "Pharmacy"), and its Assets and Inventory (the “Purchase Agreement”). Pursuantoperating expenses related to the Purchase Agreement between the Company, RoxSancontinued development and its sole shareholder (the “Seller”), in exchange for 100% of RoxSan's common stock, and its assets and inventory, the Company, among other things, issued the Seller a Secured Promissory Note (the "Note") dated August 13, 2015 in the amount of $20.5 million (the "Acquisition"). The Note bears interest at a rate of 6% per annum, and matures in three (3) years, or August 13, 2018 ("Maturity"). As a result of the Acquisition, effective August 13, 2015, RoxSan Pharmacy, Inc., a California corporation, became the Company's wholly owned subsidiary.
Dispute with former owner of RoxSan
Included in the Acquisition Agreement for RoxSan Pharmacy, Inc., and as part of the negotiated purchase price, were representations and warranties made by the former owner involving certain primary revenue streams and related contracts. Shortly after the closing, however, management discovered that these representations were substantially inaccurate and/or completely false. These inaccuracies, and the improper disclosures and/or omissions made by the former owner during negotiations, would have significantly affected the purchase price and related note payable. As a result, among other things, management has initiated legal action against the former owner to seek a reduction in the purchase price.
Included in the false representations made by the former owner were prescription revenues in excess of $8 million (and $16 million prior to the change in ownership) related to workers compensation claims that the former owner warranted as collectible. The insurance claims related to these prescriptions, which originated from and were provided to the pharmacy by the former owner's direct family members, were investigated by a third-party expert retained by the Company, and the claims were substantially identified as fraudulent. The former owner's family member has been indicted by the Department of Justice for among other things, insurance fraud.
In addition, management engaged a third-party to perform a valuation of the Pharmacy, utilizing revised inputs that more accurately reflected the Pharmacy's revenue streams as of the date of Acquisition. The valuation performed resulted in a fair market value of $4.7 to $5.2 million. After careful consideration, and based upon these significant differences, management has determined that the purchase price and related promissory note of $20.5 million does not fairly represent the fair market value at the date of purchase. The Company has, therefore, applied a discount to the note of $15.3 million, to reduce the purchase price and related note to its estimated fair market value of $5.2 million, utilizing the higher value on the range as a conservative measure.
The valuation performed does not include the effects of any liabilities the former owner omitted or damages caused to the Company as a result of the former owner and her immediate family members connected to the Pharmacy.
Acquisition of Parallax Health Management, Inc. (formerly QOLPOM, Inc.)
On August 31, 2016, the Company entered into an agreement with QOLPOM, Inc., an Arizona corporation (“QOLPOM”) and its shareholders (the “Seller”) to purchase 100% of the issued and outstanding Shares of QOLPOM’s common stock and its assets, inventory and intellectual property. As a result, effective September 20, 2016, QOLPOM became the Company's wholly owned subsidiary in the remote healthcare monitoring industry (“RCS”). Pursuant to the QOLPOM Agreement, in exchange for 100% of the QOLPOM stock and 100% of QOLPOM’s assets, inventory and intellectual property, among other things, consideration to the Seller included:
1.
5,000,000 sharesexploitation of the Company’s common stock at $0.001 per share; and
2.
2,500,000 options to purchase shares of the Company's common stock, vesting over three (3) years beginning August 31, 2017, of which 500,000 shares are exercisable at $0.10, 1,000,000 are exercisable at $0.15, and 1,000,000 are exercisable at $0.25; and
3.
10% of revenues generated from the RCS business segment, up to $1,000,000; and 7% thereafter, up to $2,000,000; and
4.
3% of revenues generated from the sale of QOLPOM hardwareproprietary Target System POS medical diagnostic and monitoring service fees.
15
On January 20, 2017,platform andprocesses. In addition, the Company changed the name of its wholly owned subsidiary, QOLPOM, Inc., to Parallax Health Management, Inc (“PHM”).
On March 22, 2017, the Company formed a wholly owned subsidiary, Parallax Behavioral Health, Inc. (“PBH”), a Delaware corporation.
On May 1, 2017, pursuant to a resolution of the board of directors, the Company and its wholly-owned subsidiary, Parallax Behavioral Health, Inc., completed the acquisition of 100% of certain intellectual property from ProEventa Inc., a Virginia Corporation (“ProEventa”), in accordance with the Intellectual Property Purchase Agreement between the Company, PBH and ProEventa (the “ProEventa Agreement”). ProEventa has an expertise in the development of behavioral health technologies, and is the wholly owned subsidiary of Grafton Integrated Health Network, Inc., a non-profit Virginia corporation (“Grafton”), Pursuant to the ProEventa Agreement, in exchange for 100% of that certain intellectual property, among other things, consideration to ProEventa included:
1.
a stock purchase agreement to purchase 2,500,000 shares of the Company’s common stock at $0.001 per share; and
2.
a revenue sharing agreement, providing for a cash earn-out to be paid to the ProEventa shareholders of up to $3,000,000, to be derived from certain net revenue generated by the Company, as defined in the agreement; and
3.
a royalty agreement, providing for a royalty of 3% of the revenues be paid to ProEventa, up to $25,000,000 in revenues, generated from the intellectual property, and
4.
a limited license to ProEventa for the use of certain of the Intellectual Property's technology at Grafton Schools.
On July 6, 2017, Mr. J. Michael Redmond was terminated as Chief Executive Officer and President of the Company and resigned as chairman and member of the board of directors, pursuant to his employment agreement. Effective July 7, 2017, Mr. Paul R. Arena was appointed as Chief Executive Officer and President of the Company and elected as a member of the board of directors.
Operating Segments
The Company currently has the following three (3) business segments: Retail Pharmacy Services (RPS), Remote Care Systems (RCS) and Corporate.
Retail Pharmacy Services (RPS)
The RPS provides a full range of pharmacy services including retail, compounding and fertility medications.
The RPS generates net revenues primarily by dispensing prescription drugs, both through local channels by direct delivery as well as mail order. The RPS also sells a wide assortment of general merchandise, including over-the-counter drugs, beauty products and cosmetics, seasonal merchandise and convenience foods, through the Company’s pharmacy.
The pharmacy is fully licensed and qualified to conduct business in over 40 US States.
Remote Care Systems (RCS)
The RCS provides the health care industry’s first comprehensive remote patient monitoring system, which utilizes proprietary software and technology to bridge clinical behavioral science with technology and logistics across a variety of wellness and clinical devices, including both fitness and clinical applications, for payers, providers and clinical professionals.
The RCS generates net revenues primarily through the licensing, installation and maintenance of its patented QOLPOM Hub, an integrated, secure and scalable platform for collecting, transmitting and analyzing biometric data, as well as the sale of wireless medical devices and home monitoring kits.
Corporate
The 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.
Effective December 24, 2018, pursuant to a majority shareholder consent, the Company increased its authorized common stock from 250,000,000 shares to 500,000,000 shares, with a par value of $0.001 per share. On January 28, 2019, the amended articles of incorporation were filed with the state of Nevada.
In April 2019, the Company entered into an employment agreement with Mr. David Appell to serve as the Company’s Chief Operating Officer. The agreement commenced May 15, 2019, is for an initial term of two (2) years, and provides a base compensation of $250,000 year one, and $275,000 in year two, as well as various performance bonuses, and customary employee benefits. In addition, the Corporate Segment supportsagreement includes a grant to purchase 3,000,000 restricted common shares, valued at $201,300, for cash in the costsamount of $3,000, of which 25% vest immediately, and operating expenses relatedthe remainder vest when certain earnings goals are met; as well as options granted to the continued development and exploitationpurchase 3,000,000 shares of the Company's proprietary medical diagnosticCommon Stock at an exercise price of $0.25 per share. The options, valued at $195,600 using the Black-Scholes method, are for a period of five (5) years, and monitoring platformvest annually over the term of the agreement, with an initial vesting of 25%. The assumptions used in valuing the options were: expected term 4.75 years, expected volatility 2.21, risk free interest rate 2.15%, and processes, which remainsdividend yield 0%.
In May 2019, the Company's primary focus. Company established a second location at 28 West 36th Street, 8th Floor, New York, NY 10018.
In June 2019, the Company filed a Registration Statement on form S-1 for the registration of 33,361,321 shares of common stock. The following summaryCompany received comments and questions from the SEC in relation to the filing, and on November 13, 2019, the Company filed an amended S-1 and responses to the SEC inquiries. If no further comments are received from the SEC, the Company anticipates receiving an effective date for its registration statement by December 2019.
In June 2019, pursuant to a resolution of the board of directors, the Company adopted the 2019 Stock Incentive Plan (the “2019 Plan”), wherein forty million (40,000,000) shares of the Company’s financial condition shouldrestricted Common Stock were reserved for issuance. The 2019 Plan was intended to assist the Company in securing and retaining key employees, directors and consultants by allowing them to participate in the Company's ownership and growth through the grant of incentive and non-qualified options. The 2019 Plan is currently administered by the Company's Board. Subject to the provisions of the plan, the board will determine who shall receive options, the number of shares of Common Stock that may be read in conjunction withpurchased under the consolidated financial statementsoptions. On June 17, 2019, the Company filed a Registration Statement on form S-1 for the quarter ended September 30, 2016, which are included herein.
Balance Sheetregistration of shares reserved under the 2019 Plan.
As at September 30, 2016,In August 2019, the Company hadamended the private placement equity offering (the “Offering”) previously established in March 2019. The revised Offering is for the purchase of the 31.875,000 shares, or a maximum of $3,000,000, in Common Stock, plus equal Warrants at an exercise price of $0.25 per share for a term of three (3) years (the Common Stock and the Warrants together, the “Units”). The Offering provides for, among other thing, the purchase of the Units at a price of $0.10 per share, with a minimum total assetsOffering of $8,657,463, compared with total assets$2,000,000, and a minimum investment of $8,157,050 at December 31, 2015. The decrease in total assets of $500,413 is attributable to a decrease in cash of $801,072, a decrease in trade and other receivables, net of allowance for doubtful accounts of $429,110, a decrease in rebates receivable of $359,399, a decrease in inventories of $302,949, a decrease in employee advances of $14,894, an increase in prepaid expenses of $34,137, an increase in loans receivable of $300,387, an increase in property and equipment of $91,073, $30,393 of depreciation related to equipment, an increase in intangible assets of $1,997,643, $127,427 of amortization related200,000 shares, or $20,000. Prior to the intangible assets,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 an increaseare not a part of, nor reduce, the $2,000,000 minimum. The initial closing will occur on a date set by the Company in goodwill of $142,417. its discretion. The Company may sell Units in one or more closings.
As at September 30, 2016, the Company had total liabilities of $19,521,356, compared with total liabilities of $13,254,442 at December 31, 2015. The increase in total liabilities of $6,266,914 is attributable to an increase in accounts payable and accrued expenses of $894,277, an increase in pension contribution payable of $6,882, an increase in related party payables of $69,840, an increase in license fees payable of $2,000,000, a decrease in secured notes payable of $529,085, and a decrease in unamortized discount of $3,825,000.
Results of OperationsNOTE
Three and nine months ended September 30, 2016, compared to three and nine months ended September 30, 2015
: The financial information provided includes the accounts of the CompanyParallax Health Sciences, Inc., and its wholly ownedwholly-owned subsidiaries, Parallax Diagnostics, Inc.,Parallax Health Management, Inc. (formerly QOLPOM,, and Parallax Behavioral Health, Inc.) and RoxSan Pharmacy, Inc., is provided below on a consolidated basis.basis, unless otherwise indicated. All significant intercompany accounts and transactions have been eliminated.
| For the three months ended |
| For the nine months ended |
| ||||||||
| September 30, 2016 |
| September 30, 2015 |
| September 30, 2016 |
| September 30, 2015 |
| ||||
Revenue | $ | 5,591,659 |
| $ | 4,717,206 |
| $ | 19,808,910 |
| $ | 4,717,206 |
|
Cost of sales | $ | 4,738,492 |
| $ | 3,657,829 |
| $ | 16,914,818 |
| $ | 3,657,829 |
|
Gross profit (loss) | $ | 853,167 |
| $ | 1,059,377 |
| $ | 2,894,092 |
| $ | 1,059,377 |
|
Sales, marketing, and pharmacy expenses | $ | 472,683 |
| $ | 425,825 |
| $ | 1,461,576 |
| $ | 425,825 |
|
General and administrative expenses | $ | 1,067,314 |
| $ | 566,793 |
| $ | 3,094,034 |
| $ | 857,139 |
|
Operating income (loss) | $ | (686,830 | ) | $ | 66,759 |
| $ | (1,661,518 | ) | $ | (223,587 | ) |
Dividend income | $ | 205 |
| $ | –– |
| $ | 205 |
|
| –– |
|
Discount amortization | $ | (1,275,000 | ) | $ | (49,276 | ) | $ | (3,825,000 | ) | $ | (256,676 | ) |
Interest expense | $ | (251,522 | ) | $ | (185,871 | ) | $ | (639,975 | ) | $ | (229,045 | ) |
Net loss | $ | (2,213,147 | ) | $ | (168,388 | ) | $ | (6,126,288 | ) | $ | (709,038 | ) |
RevenueBalance Sheet
As of September 30, 2019, the Company had total assets of $2,373,305 compared with total assets of $1,364,357 at December 31, 2018. The increase in total assets of $1,008,948 is attributable to an increase in cash of $11,711, an increase in operating lease asset of $77,494, an increase in property and equipment of $2,628, an increase in investments in securities of $1,000,000, $220 of depreciation related to property and equipment, $90,465 of amortization related to intangible assets, and an increase in deposits of $7,800.
As of September 30, 2019, the Company had total liabilities of $7,208,718 compared with total liabilities of $7,314,811 at December 31, 2018. The decrease in total liabilities of $106,093 is attributable to a decrease in accounts payable and accrued expenses of $235,624, an increase in operating lease liability of $77,494, an increase in short-term derivative liability of $29,995, a decrease in short-term debentures of $724,903, a decrease in short-term related party convertible debentures of $411,006, an increase in notes payable of $360,000, an increase in short-term related party notes payable of $126,152,an increase in short-term convertible notes payable,net of unamortized discount, of $384,176, an increase in short-term related party convertible notes payable of $20,000, an increase in related party payables of $469,716, an increase in license fees payable of $20,000, an increase in royalties payable of $6,258, a decrease in long-term derivative liability of $34,000, a decrease in long-term debentures, net of unamortized discount, of $184,870, an increase in long-term related party notes payable of $633,294, and a decrease in long-term convertible notes payable of $144,000, a decrease in long-term related party convertible notes payable of $491,100, and a decrease in notes payable to bank of $7,675.
The three and nine months ended September 30, 2019, compared to the three and nine months ended September 30, 2018.
| For the three months ended |
| For the nine months ended |
| ||||||||
| September 30, 2019 |
| September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 |
| ||||
Revenue | $ | 25,855 |
| $ | 990 |
| $ | 77,745 |
| $ | 10,749 |
|
Cost of sales | $ | 3,899 |
| $ | 5,230 |
| $ | 12,871 |
| $ | 15,507 |
|
Gross profit (loss) | $ | 21,956 |
| $ | (4,240 | ) | $ | 64,874 |
| $ | (4,758 | ) |
General and administrative expenses | $ | 1,937,991 |
| $ | 2,116,821 |
| $ | 5,203,088 |
| $ | 5,252,498 |
|
Operating loss | $ | (1,916,035 | ) | $ | (2,121,061 | ) | $ | (5,138,214 | ) | $ | (5,257,256 | ) |
Gain on disposal of subsidiary | $ | –– |
| $ | 5,079,416 |
| $ | –– |
| $ | 5,079,416 |
|
Gain (loss) on fair value adjustments | $ | 1,253 |
| $ | (93,700 | ) | $ | 105,141 |
| $ | (156,300 | ) |
Gain (loss) on extinguishment of debt | $ | (347,612 | ) | $ | 22,931,148 |
| $ | (915,615 | ) | $ | 22,931,148 |
|
Loss on settlement | $ | –– |
| $ | –– |
| $ | (33,272 | ) | $ | –– |
|
Discount amortization | $ | (48,000 | ) | $ | (155,000 | ) | $ | (19,000 | ) | $ | (2,775,000 | ) |
Interest expense | $ | (149,914 | ) | $ | (660,518 | ) | $ | (457,319 | ) | $ | (1,741,726 | ) |
Net income (loss) – continuing operations | $ | (2,460,308 | ) | $ | 24,980,285 |
| $ | (6,458,279 | ) | $ | 18,080,282 |
|
Net income (loss) – discontinued operations | $ | –– |
| $ | 93,773 |
| $ | –– |
| $ | (824,398 | ) |
Net income (loss) | $ | (2,460,308 | ) | $ | 25,074,058 |
| $ | (6,458,279 | ) | $ | 17,255,884 |
|
Revenue
Revenue in the amount of $25,855 for the three months ended September 30, 2016,2019, consists of fees of $25,000 for sub-licensing related to behavioral health software; and subscription fees related to its behavioral health services in the amount of $5,591,659$855.
Revenue in the amount of $990 for the three months ended September 30, 2018, consists primarily of pharmaceutical salescontract fees related to the Company's pharmacy operations.Company’s remote health care systems in the amount of $990.
Revenue in the amount of $77,745 for the nine months ended September 30, 2016,2019, consists of fees of $75,000 for sub-licensing related to behavioral health software, contract fees related to the Company’s remote health care systems in the amount of $19,808,910$1,890, and subscription fees related to its behavioral health services in the amount of $855.
Revenue in the amount of $10,749 for the nine months ended September 30, 2018, consists primarily of pharmaceuticalcontract fees and equipment sales related to the Company's pharmacy operations.Company’s remote health care systems in the amount of $8,859, and subscription fees related to its behavioral health services in the amount of $1,890.
The Company has not yet fully launched its major business activity, which isthe medical diagnostics and testing.testing activities of the Company’s Connected Health division.
Cost of sales
Costs of sales in the amount of $3,899 for the three months ended September 30, 2016,2019, consists of equipment and other costs related to the Company’s remote health care systems.
Costs of sales in the amount of $4,738,492$5,230 for three months ended September 30, 2018, consists primarily of pharmaceutical drug purchases, direct labor,equipment and indirect pharmacyother costs related to the Company's pharmacy operations. Company’s remote health care systems.
16
Costs of sales in the amount of $12,871 for the nine months ended September 30, 2016,2019, consists of equipment and other costs related to the Company’s remote health care systems.
Costs of sales in the amount of $16,94,818$15,507 for nine months ended September 30, 2018, consists primarily of pharmaceutical drug purchases, direct labor,equipment and indirect pharmacyother costs related to the Company's pharmacy operations.Company’s remote health care systems.
The Company has not yet fully launched its major business activity, which isthe medical diagnostics and testing.testing activities of the Company’s Connected Health division.
General and Administrative Expenses
| For the three months ended |
| For the nine months ended |
| Variance |
| For the three months ended |
| For the nine months ended |
| Variances |
| ||||||||||||||||||||||||
| September 30, 2016 |
| September 30, 2015 |
| September 30, 2016 |
| September 30, 2015 |
| 3-month |
| 9-month |
| September 30, 2019 |
| September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 |
| 3-month |
| 6-month |
| ||||||||||||
Legal, accounting, and management services | $ | 349,155 |
| $ | 227,628 |
| $ | 1,037,233 |
| $ | 384,464 |
| $ | 121,527 |
| $ | 652,769 |
| $ | 485,365 |
| $ | 785,766 |
| $ | 1,560,770 |
| $ | 1,543,900 |
| $ | (300,401 | ) | $ | 16,870 |
|
Stock compensation/stock option amortization |
| 68,703 |
|
| 7,014 |
| 134,687 |
|
| 7,014 |
|
| 61,689 |
|
| 127,673 |
|
| 1,151,504 |
|
| 1,083,669 |
|
| 2,572,741 |
|
| 3,152,943 |
|
| 67,835 |
|
| (580,202 | ) | |
Salaries and fees, and related taxes and benefits |
| 281,615 |
|
| 143,291 |
| 711,856 |
|
| 259,626 |
|
| 138,324 |
|
| 452,228 |
| |||||||||||||||||||
Salaries, fees, taxes and benefits |
| 113,603 |
|
| 137,056 |
|
| 406,535 |
|
| 224,581 |
|
| (23,453 | ) |
| 181,954 |
| ||||||||||||||||||
Depreciation and amortization |
| 54,641 |
|
| 8,126 |
| 157,820 |
|
| 12,036 |
|
| 46,515 |
|
| 145,784 |
|
| 30,287 |
|
| 29,821 |
|
| 90,685 |
|
| 90,465 |
|
| 466 |
|
| 220 |
| |
Rent expense-office |
| 40,020 |
|
| 12,484 |
| 120,060 |
|
| 12,484 |
|
| 27,536 |
|
| 107,576 |
|
| 43,780 |
|
| 16,800 |
|
| 95,740 |
|
| 53,557 |
|
| 26,980 |
|
| 42,183 |
| |
Travel, meals and entertainment |
| 44,591 |
|
| 14,593 |
| 177,304 |
|
| 16,040 |
|
| 29,998 |
|
| 161,266 |
|
| 1,243 |
|
| 15,237 |
|
| 37,433 |
|
| 42,243 |
|
| (13,994 | ) |
| (4,810 | ) | |
Publicity and promotion |
| 47,185 |
|
| 25,863 |
| 242,807 |
|
| 26,162 |
|
| 21,322 |
|
| 216,645 |
| |||||||||||||||||||
Office supplies and miscellaneous expenses |
| 181,404 |
|
| 127,794 |
|
| 512,267 |
|
| 139,313 |
|
| 53,610 |
|
| 372,954 |
|
| 112,209 |
|
| 48,472 |
|
| 439,184 |
|
| 144,809 |
|
| 63,737 |
|
| 294,375 |
|
Total general and administrative expenses | $ | 1,067,314 |
| $ | 566,793 |
| $ | 3,094,034 |
| $ | 857,139 |
| $ | 500,521 |
| $ | 2,236,895 |
| $ | 1,937,991 |
| $ | 2,116,821 |
| $ | 5,203,088 |
| $ | 5,252,498 |
| $ | (178,830 | ) | $ | (49,410 | ) |
DuringGeneral and administrative expenses in the three months ended September 30, 2016, the Company incurred operating expenses totaling $1,067,314, compared with $566,793amount of $1,937,991 for the three months ended September 30, 2015.2019, were comprised of $485,365 in legal, accounting and management fees, $1,151,504 in stock compensation/stock option amortization, $113,603 in salaries, fees and related taxes and benefits, $30,287 in depreciation and amortization, $43,780 in rent expense, $1,243 in travel, meals and entertainment, and $112,209 in office overhead and other general and administrative expenses.
General and administrative expenses in the amount of $2,116,821 for the three months ended September 30, 2018, were comprised of $785,766 in legal, accounting and management fees, $1,083,669 in stock compensation/stock option amortization, $137,056 in salaries, fees and related taxes and benefits, $29,821 in depreciation and amortization, $16,800 in rent expense, $15,237 in travel, meals and entertainment, and $48,472 in office overhead and other general and administrative expenses.
General and administrative expenses of $1,937,991 for the three months ended September 30, 2019 as compared to $2,116,821 for the three months ended September 30, 2018, resulted in a decrease in general and administrative expenses of $178,830. The decrease in in general and administrative expenses of $178,830 was attributable to the following items:
•a decrease in legal, accounting and management fees of $300,401, due to a decrease in legal fees of $327,392; an increase in accounting and audit fees of $29,750; and an increase in management fees of $17,633 primarily resulting from the addition of Chief Operating Officer, as well as director compensation effective January 2019; and a decrease in professional fees of $20,392; and
•an increase in stock compensation/stock option amortization of $67,835 primarily due to a decrease in amortization expense of $75,506 resulting from stock options granted in prior years; amortization expense of $168,327 resulting from stock options granted in the current period; a decrease in deferred stock compensation amortization of $122,280 resulting from stock awards granted in prior years; and a decrease in stock compensation amortization of $14,625 resulting from stock awards granted in the current period; and a decrease in stock compensation expense of $214,823 resulting from stock awards granted in prior years; stock compensation expense of $265,200 for stock awards granted in the current period, and an increase in warrant expense of $43,542; and
•a decrease in salaries and fees, and related taxes and benefits of $23,453, primarily due to a decrease in accrued staff salaries of $65,729, an increase in accrued payroll taxes of $2,776; a decrease in accrued benefits of $18,000; and an increase in miscellaneous fees for outside services in the amount of $57,500 resulting from additional contracted services; and
•an increase in depreciation and amortization of $466, primarily due to additional assets acquired; and
•an increase in rent expense of $26,980 primarily due to additional office space leased in the current period; and
•a decrease in travel, meals and entertainment of $13,994, primarily due to a decrease in travel costs of $8,802; and a decrease in meals and entertainment of $5,192; and
•an increase in office supplies and miscellaneous expenses of $63,737, due to increases in automobile expenses and allowances of $3,374, transfer agent fees of $6,498, insurance expense and allowances of $28,666, marketing and publicity of $29,747, and telephone of $2,680; and decreases in computer and internet expenses of $3,002, and other general office expenses of $4,226.
General and administrative expenses in the amount of $5,203,088 for the nine months ended September 30, 2019, were comprised of $1,560,770 in legal, accounting and management fees, $2,572,741 in stock compensation/stock option amortization, $406,535 in salaries, fees and related taxes and benefits, $90,685 in depreciation and amortization, $95,740 in rent expense, $37,433 in travel, meals and entertainment, and $439,184 in office overhead and other general and administrative expenses.
General and administrative expenses in the amount of $5,252,498 for the nine months ended September 30, 2018, were comprised of $1,543,900 in legal, accounting and management fees, $3,152,943 in stock compensation/stock option amortization, $224,581 in salaries, fees and related taxes and benefits, $90,465 in depreciation and amortization, $53,557 in rent expense, $42,243 in travel, meals and entertainment, and $144,809 in office overhead and other general and administrative expenses.
General and administrative expenses of $5,203,088 for the nine months ended September 30, 2019 as compared to $5,252,498 for the nine months ended September 30, 2018, resulted in a decrease in general and administrative expenses for the current period of $49,410. The increase in operatingin general and administrative expenses of $500,521 is$49,410 was attributable to:to the following items:
·
•an increase in legal, accounting and management fees of 121,527,$16,870, due to an increasea decrease in legal fees of $110,559 primarily related to the RoxSan Pharmacy acquisition; a decrease$267,306; an increase in accounting and audit fees of $79,000 in audit related costs resulting from prior year audit expenses incurred in prior period compared to none in the current period;$24,643; and an increase in outside consultingmanagement fees of $83,968$105,735 primarily resulting from the engagementaddition of additional management support;Chief Operating Officer, as well as director compensation effective January 2019; and
·
an increase in professional fees of $153,798 primarily related to investor relations and private placement due diligence; and
•a decrease in stock compensation/stock option amortization of $61,689,$580,202 primarily due tostockto a decrease in amortization expense of $296,156 resulting from stock options granted in prior years; amortization expense of $339,415 resulting from stock options granted in the current period; a decrease in deferred stock compensation amortization of $395,083 resulting from stock awards granted in prior years; and stock compensation amortization of $85,963 resulting from stock awards granted in the current period; and a decrease in stock compensation expense of $22,250 incurred$1,571,075 resulting from stock awards granted in prior years; stock compensation expense of $1,161,677 for stock awards granted in the current period compared to noneperiod;and an increase in the prior period; and stock option amortizationwarrant expense of $46,453, compared to $7,014 for the same period in the prior year;$95,057; and
·
•an increase in salaries and fees, and related taxes and benefits of $138,324,$181,954, primarily due to a decrease in accrued staff salaries of $57,654, an increase in salaries of $53,347 and relatedaccrued payroll taxes of $11,860$65,428; a decrease in accrued benefits of $39,070 resulting primarily from an increasechanges in officer compensation;benefits; and an increase in miscellaneous fees for outside services of $44,271 compared to none for the same period in the prior year;amount of $213,250 resulting from additional contracted services; and an increase employee benefits of $26,846 resulting primarily from an increase in health insurance premiums; and
·
•an increase in depreciation and amortization of $46,515,$220, primarily due to professional equipment purchased in the current period resulting in an increase in depreciation expense of $3,670;additional assets acquired; and an increase in intangible assets resulting in an increase in amortization expense of $42,845; and
·
•an increase in rent expense of $27,536$42,183 primarily due to additional office space leased;leased in the current period; and
·
an increase•a decrease in travel, meals and entertainment of $29,998,$4,810, primarily due to an increase in travel expensescosts of $14,381$5,632; and an increase meals and entertainment of $15,617;$822; and
·
an increase in publicity and promotion of $21,322, due to an increase in promotion of $14,728, and an increase in fertility video production support of $6,594; and
·
•an increase in office supplies and miscellaneous expenses of $53,610,$294,375, due to an increase in automobile expenses and allowances of $15,974,$62,630, computer and internet expenses of $14,996,$3,651, transfer agent costs of $12,724, insurance expense of $19,026,$50,679, marketing and publicity of $165,269, office supplies and expenses of $6,827, parking expense of $6,812, pension plan administrative costs$4,685, repairs and maintenance of $16,580, pension plan contributions$7,769, royalties of $20,071,$7,258, taxes, licenses and permits of $3,185,$5,976, and telephone expense of $6,725; and decreases in product development and patent costs of $6,111,$4,859, storage and moving of $23,585, and other general and administrativeoffice expenses of $29,706; and a decrease in bad debt expense of $85,678.$4,547.
Net Loss
During the nine months ended September 30, 2016,2019, the Company incurred operating expenses totaling $3,094,034,generated a net loss from continuing operations of $6,458,279, compared with $857,139net income from continuing operations of $18,080,282 for the nine months ended September 30, 2015.2018. The increase in operating expenses of $2,236,895 is attributable to:
·
an increase in legal, accounting and management fees of $652,769, due to an increase in legal fees of $453,531 primarily related to the RoxSan Pharmacy acquisition; a decrease of $67,760 in audit related costs primarily resulting from prior year audit expenses incurred in prior period compared to none in the current period; and an increase in outside consulting fees of $266,999 resulting from the engagement of additional management support; and
·
an increase in stock compensation/stock option amortization of $127,673, primarily due to stock compensation expense of $22,250 incurred in the current period compared to none in the prior period; and stock option amortization expense of $112,437, compared to $7,014 for the same period in the prior year; and
·
an increase in salaries and fees, and related taxes and benefits, of $452,228, due to an increase in salaries of $212,592 and related payroll taxes of $29,593 resulting primarily from an increase in officer compensation; and an increase in outside services of $78,325 compared to none for the same period in the prior year; and an increase in employee benefits of $131,718, resulting primarily from an increase in health insurance premiums; and
·
an increase in depreciation and amortization of $145,784, due to professional equipment purchased in the current period resulting in an increase in depreciation expense of $19,605; and an increase in intangible assets resulting in an increase in amortization expense of $126,179; and
·
an increase in rent expense of $107,576 due to additional office space leased; and
·
an increase in travel, meals and entertainment of $161,266, due to an increase in travel expenses of $97,994 and meals and entertainment of $63,271; and
·
an increase in publicity and promotion of $216,645, due to an increase in promotion of $57,287 and an increase in fertility video production support of $159,358; and
·
an increase in office supplies and miscellaneous expenses of $372,954, due to an increase in automobile expenses of $49,931, computer and internet expenses of $44,345, insurance expense of $61,996, office supplies and expenses of $43,629, parking expense of $34,392, pension plan administrative costs of $53,105, pension plan contributions of $20,071, taxes, licenses and permits of $38,521, telephone costs of $32,341, and other general and administrative expenses of $80,301; and a decrease in bad debt expensenet income from continuing operations of $85,678.
Net Loss
During the three months ended September 30, 2016, the Company incurred a net loss of $2,213,147, compared with a net loss of $168,388 for the three months ended September 30, 2015. The increase in net loss of $2,044,759$24,538,561 is primarily attributable to an increase in revenue of $874,453, an increase$66,996, a decrease in cost of goods sold of $1,080,663, an increase in sales, marketing and pharmacy expenses of $46,858, an increase$2,636, a decrease in general and administrative expenses of $500,521,$49,410, a decrease in the gain from disposal of subsidiary of $5,079,416, an increase in dividend incomethe gain on fair value adjustments of $205,$261,441, a decrease in the gain from extinguished debt of $23,846,763, an increase in the loss on settlement of $33,272, a decrease in discount amortization of $1,225,724,$2,756,000, and an increase in interest expense of $65,651.$1,284,407.
During the nine months ended September 30, 2016, the Company incurred a net loss of $6,126,288, compared with a net loss of $709,308 for the nine months ended September 30, 2015. The increase in net loss of $5,416,980 is primarily attributable to an increase revenue of $15,091,704, an increase in cost of goods sold of $13,256,989, an increase in sales, marketing and pharmacy expenses of $1,035,751, an increase in general and administrative expenses of $2,236,895, an increase in discount amortization of $3,568,324, and an increase in interest expense of $410,930.
Liquidity and Capital Resources
Working Capital |
|
|
|
| Increase |
|
|
|
|
| Increase |
| ||||||
| At September 30, 2016 |
| At December 31, 2015 |
| (Decrease) |
| At September 30, 2019 |
| At December 31, 2018 |
| (Decrease) |
| ||||||
Current Assets | $ | 1,876,024 |
| $ | 3,749,311 |
| $ | (1,873,287 | ) | $ | 89,467 |
| $ | 262 |
| $ | 89,205 |
|
Current Liabilities |
| 2,016,787 |
|
| 2,921,812 |
|
| 970,999 |
|
| 5,211,692 |
|
| 5,115,692 |
|
| 96,000 |
|
Working Capital (Deficit) | $ | (2,016,787 | ) | $ | 827,499 |
| $ | (2,844,286 | ) | $ | (5,122,225 | ) | $ | (5,115,430 | ) | $ | (6,795 | ) |
As atof September 30, 2016,2019, the Company had cash in the amount of $111,327$11,973 compared to $912,399$262 as of December 31, 2015.2018.
17
The Company had a working capital deficit of $2,016,787$5,122,225 as of September 30, 2016,2019, compared to a working capital deficit of $827,499$5,115,430 as of December 31, 2015.2018. The decreaseincrease in working capital deficit of $2,844,286$6,795 is primarily attributable to a decreasean increase in cash of $801,072, a decrease in trade and other receivables, net of allowance, of $429,110, a decrease in rebates receivable of $359,399, a decrease in inventory of $302,949, a decrease in employee advances of $14,894,$11,711, an increase in prepaid expensesoperating lease asset of $34,137, an increase$77,494, a decrease in accounts payable and accruedexpenses of $894,277,$235,624, an increase in pension contribution payableoperating lease liability of $6,882, and$77,494, an increase in short-term derivative liability of $29,995, a decrease in convertible debentures of $724,903, a decrease in related party convertible debentures of $411,006, an increase in notes payable of $360,000, an increase in related party notes payable of $126,152, an increase in convertible notes payable, net of unamortized discount, of $384,176, an increase in related party convertible notes payable of $20,000, and an increase in related party payables of $69,840.$469,716.
For the nine months ended |
| Increase |
| ||||||
| September 30, 2019 |
| September 30, 2018 |
| (Decrease) |
| |||
Net cash used by operating activities | $ | (1,814,529 | ) | $ | (1,070,725 | ) | $ | (743,084 | ) |
Net cash used by investing activities |
| (2,628 | ) |
| –– |
|
| (2,628 | ) |
Net cash provided by financing activities |
| 1,828,868 |
|
| 1,110,799 |
|
| 718,069 |
|
Net cash provided by continuing operations |
| 11,711 |
|
| 40,074 |
|
| (28,363 | ) |
Net cash used by discontinued operations |
| –– |
|
| (39,942 | ) |
| 39,942 |
|
Increase (decrease) in cash | $ | 11,711 |
| $ | 132 |
| $ | 11,579 |
|
Cash Flows | For the nine months ended |
| Increase |
| |||||
| September 30, 2016 |
| September 30, 2015 |
| (Decrease) |
| |||
Net cash provided by (used in) operating activities | $ | (185,914 | ) | $ | 593,227 |
| $ | (779,141 | ) |
Net cash used in investing activities |
| (91,073 | ) |
| (2,227 | ) |
| (88,846 | ) |
Net cash provided by (used in) financing activities |
| (524,085 | ) |
| 37,980 |
|
| (562,065 | ) |
Increase (decrease) in cash | $ | (524,085 | ) | $ | 628,980 |
| $ | (1,430,052 | ) |
Cash Flows from Operating Activities
During the nine months ended September 30, 2016,2019, the Company used $185,914$1,814.529 of cash flow for operating activities compared with $593,227 provided by operating activities$1,070,725 for the nine months ended September 30, 2015.2018. The decreaseincrease in cash providedused by operating activities of $779,141$743,084 is primarily attributable an increaseto a decrease in net lossincome of $5,416,980, an increase$24,538,561; increases in depreciation and amortization expense of $145,784, an increase$220, losses on fair value adjustments of $261,441, a loss on settlement of $33,272, deposits of $7,800, royalties payable of $7,258, and related party payables of $394,027; and decreases in stock compensation/stock option amortization of $127,673, an increase in$580,202, discount amortization of $3,569,324, a decrease in$2,756,000, allowance for bad debt allowance of $7,786,735, a decrease in accruals converted to related party loans$236, gain on disposal of $303,750, a decrease in trade and other receivablessubsidiary of $10,924,391, a decrease in inventories$5,079,416, gain on extinguishment of $302,949, an increase in prepaid expensesdebt of $6,877, an increase in loans$23,846,763, debt accretion of $654,543, accounts receivable of $37,045, a decrease in$3,039, and accounts payable and accrued expenses of $2,340,051, an increase in pension contribution payable of $6,882, and an increase in related party payables of $36,294.$1,302,938.
Cash Flows from Investing Activities
During the nine months ended September 30, 2016,2019, the Company used $91,073$2,628 of cash flow forfrom investing activities compared with $2,227to $0 for the nine months ended September 30, 2015.2018. The increase in cash used forby investing activities of $88,846 is attributable to the purchase of professional equipment.computer equipment in the current period.
Cash Flows from Financing Activities
During the nine months ended September 30, 2016,2019, the Company used $562,065was provided with $1,828,868 of cash flow from financing activities, compared with $37,980 provided by financing activities$1,110,799 for the nine months ended September 30, 2015.2018. The decreaseincrease in cash flows provided by financing activities of $718,069 is attributable to an increase in proceeds from notes payable of $100,000,$220,000, an increase in repaymentrepayments of notes payable of $629,085, and$17,224, a decrease in proceeds from convertible notes payable of $37,980$268,220, an increase in repayments of convertible notes payable of $15,000, an increase in repayments of debentures of $754,369, a decrease in proceeds from the issuance of preferred shares of $231,000, and an increase in proceeds from the issuance of common stock of $1,783,882.
The Company’s principal sources of funds have been from the Company’s sales of its preferred and common stock, loans from related parties and third-party lenders, and net revenues generated from the sale and licensing of common stock.its remote healthcare products and services.
During the nine months ended September 30, 2016,2019, the Company received $5,000$1,825,132 and $69,000 in funds from the issuance of common shares or other equity instruments,and preferred shares, respectively, compared to $37,980 in proceeds$41,250 and $300,000 during the nine months ended September 30, 2015.2018.
As of September 30, 2019, related parties are due a total of $2,253,882 consisting of $1,000,643 in accrued compensation owed to officers and directors; $473,793 in accrued benefits and cash advances from officers and beneficial owners to the Company for operating expenses; $759,446 in promissory notes; and $20,000 in convertible promissory notes.
During the nine months ended September 30, 2019, $1,003,783 in related party compensation was accrued, and $573,000 was paid, and $300,000 was used for the subscription of $3,600,000 shares of the Company’s restricted common stock. In June 2019, $575,132 of related party debt was purchased by non-related-parties (the “Proceeds”). The Proceeds were collected on behalf of the related parties by the Company. Of the $396,500 paid to related parties during the current period, $159,500 was Proceeds. The remaining Proceeds of $415,632 were subsequently loaned to the Company by the related parties for operating expenses.
During the nine months ended September 30, 2019, $498,870 in benefits were accrued and cash advances were made to the Company by related parties for overhead requirements, of which $159,938 was paid/repaid to related parties.
During the nine months ended September 30, 2019, interest on related party debt in the amount of $80,003 was expensed. As of September 30, 2019, a total of $12,643 in accrued interest remains.
The Company has suffered recurring losses from operations. The continuation of the Company’s operations is dependent upon the Company’s attaining and maintaining profitable operations and raising additional capital as needed. The Company anticipates that it will have to raise additional funds through private placements of the Company’s equity securities and/or debt financing to complete its business plan.
The Company will require additional financing in order to proceed with its plan of operations, including approximately $2,000,000$3,000,000 over the next 12 months to pay for its ongoing expenses.expenses. These cash requirements include working capital, general and administrative expenses, the development of the Company’s product line, and the pursuit of acquisitions. These cash requirements are in excess of the Company’s current cash and working capital resources. Accordingly, the Company will require additional financing in order to continue operations and to repay its liabilities.There is no assurance that the financing will be completed as planned or at all. If the Company is unable to secure adequate capital to continue the Company’s planned operations, the Company’s shareholders may lose some or all of their investment and the Company’s business may fail.
In August 2019, the Company amended the private placement equity offering (the “Offering”) previously established in March 2019. The revised Offering is for the purchase of the 31,875,000 shares, or a maximum of $3,000,000, in Common Stock, plus equal Warrants at an exercise price of $0.25 per share for a term of three (3) years (the Common Stock and the Warrants together, the “Units”). The Offering provides for, among other thing, the purchase of the Units at a price of $0.10 per share, with a minimum total Offering of $2,000,000, and a minimum investment of 200,000 shares, or $20,000. Prior to the Offering, the Company sold $1,125,000 in Units through a Simple Agreement Future Equity (“SAFE”) offering, which included an aggregate of $375,000 in SAFE shares to be issued to three of the Company’s executive officers for the reduction of accrued officer compensation. The SAFE Units were sold at a 20% discount of the offering Unit price of $0.10, and are not a part of, nor reduce, the $2,000,000 minimum. The initial closing will occur on a date set by the Company in its discretion. The Company may sell Units in one or more closings.
The Company anticipates continuing to rely on equity sales of its common stock and preferred stock in order to continue to fund its business operations. Issuances of additional shares will result in dilution to the Company’s existing stockholders. There is no assurance that the Company will achieve any additional sales of its equity securities or arrange for debt or other financing to fund its planned business activities.
Contractual Obligations
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.
Going Concern
The Company has incurred losses since inception resulting in an accumulated deficit of $12,841,064,$25,649,201, and further losses are anticipated. The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, which may not be available at commercially reasonable terms There can be no assurance that the Company will be able to continue to raise funds, in which case the Company may be unable to meet its obligations and the Company may cease operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The unaudited interim consolidated unaudited financial statements included with this annualquarterly report have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that the Company’s assets will be realized and liabilities settled in the ordinary course of business. Accordingly, the unaudited interim consolidated unaudited financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
The Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s unaudited interim consolidated unaudited financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. The Company believes that understanding the basis and nature of the estimates and assumptions involved withprovided within the following aspects ofnotes to the Company’s financial statements is criticalare sufficient to an understanding of its consolidated financial statements.
Included in the Acquisition Agreement for RoxSan Pharmacy, Inc., and as part of the negotiated purchase price, were representations and warranties made by the former owner involving certain primary revenue streams and related contracts. Shortly after the closing, however, management discovered that these representations were substantially inaccurate and/or completely false. These inaccuracies, and the improper disclosures and/or omissions made by the former owner during negotiations, would have significantly affected the purchase price and related note payable issued under the Acquisition Agreement. Management engaged a third-party to perform a valuation of the Pharmacy, utilizing revised inputs that more accurately reflected the Pharmacy's revenue streams as of the date of Acquisition. The valuation performed resulted in a fair market value of $4.7 to $5.2 million. After careful consideration, and based upon these significant differences, management has determined that the purchase price and related promissory note of $20,500,000 does not fairly represent the fair market value at the date of purchase. The Company has, therefore, applied a discount to the note of $15.3 million, to reduce the purchase price and related note to its estimated fair market value of $5.2 million, utilizing the higher value on the range as a conservative measure. The discount is being amortized over thirty-six (36) months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.
18
ITEM 4. CONTROLS AND PROCEDURES
Management’s Report on Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under theSecurities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s president, chief executive officer and chief financial officer to allow for timely decisions regarding required disclosure. In designing and evaluating the Company’s disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of September 30, 2016,2019, the end of the Company’s period covered by this quarterly report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s president, chief executive officer and chief financial officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s president, chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.report , to provide reasonable assurance that the information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods specified, and that such information is accumulated and communicated to the Company’s management, including the Company’s president, chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the nine months ended September 30, 2019, the Company instituted changes in its internal control over financial reporting. The changes were made as a result of a material weakness identified at December 31, 2018, relating to the lack of controls over the period-end financial reporting process, and the lack of accounting and financial reporting personnel able to implement formal accounting policies with an appropriate level of accounting knowledge to identify and value complex debt and equity instruments. As a result of the weakness, a misstatement was made of the Company’s financial statements for the years ended December 31, 2018 and 2017.
In response to the material weaknesses described above, during the nine months ended September 30, 2019, the Company implemented and evaluated new internal controls over financial reporting. The new controls include, among other things, engaging qualified third-party service providers to assist with the financial reporting issues related to accounting for derivatives, and establishing internal processes to ensure the appropriate identification and analysis of derivative instruments. In addition, training was conducted related to analysis of debt and equity instruments, effective internal controls, and key accounting policies for derivative instruments.
As of September 30, 2019, the end of the period covered by this quarterly report, management believes that the improved processes remediate the material weaknesses, and has concluded that they are sufficient and operating effectively. Management has and will continue to enhance the risk assessment process, and the design and implementation of internal controls over financial reporting.
There have been no other changes in the Company’s internal controls over financial reporting that occurred during the three-monthnine-month period ended September 30, 2016,2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.reporting , except those disclosed above .
Audit Committee
The Company established an audit committee of the board of directors comprised of John L. Ogden (Chair) and E. William “Bill” Withrow Jr. The audit committee’s duties are to recommend to the Company’s board of directors the engagement of an independent registered public accounting firm to audit the Company’s financial statements and to review the Company’s accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of the Company’s board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
Compensation Committee
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 2015, shortly following
From time to time, the Company's acquisitionCompany may be involved in litigation relating to claims arising out of its operations in the normal course of business. The Company knows of no material, existing or pending legal proceedings against it, nor is the Company involved as a plaintiff in any material proceeding or pending litigation, beyond those defined in the Company’s Annual Report on Form 10-K filed April 1, 2019, with the exception of those updates disclosed below:
Action No. SC125702:
In the Matter, action No. SC124873, Melamed sought rescission of the August 13, 2015 Purchase Agreement. Rescission was sought on the basis that, allegedly, in order to acquire the Pharmacy, the Company and its principals had allegedly defrauded Melamed, there had allegedly been a complete failure of consideration, and a unilateral mistake was allegedly made on the part of Melamed.
On March 17, 2017, the Court ruled in favor of the Company, and issued that Melamed is not entitled to rescission of the Purchase Agreement. The ruling of the Court stated that no fraud on the part of the Company or its principals had been demonstrated. The Court further ruled that there had been no failure of consideration, and that Melamed’s entry into the Agreement was not a result of a unilateral mistake on the part of Melamed. The Minutes of the Ruling were entered by the County Clerk on March 17, 2017.
The Company has likewise initiated legal action against Melamed and filed an actionSC125702, in the Superior Court of the State of California, County of Los Angeles, West District,Parallax Health Sciences, et al. v. Shahla Melamed, et al.,case number SC 124898. The Complaint in that action alleges that Melamed has breached several obligations under the Purchase Agreement, and the Company is seeking to reduce the Secured Note due to undisclosed material changes in the business.
Subsequently filed pleadings by the Company and RoxSan in case number SC 124873 allege, among other things, that Melamed misrepresented the true earnings and source of income for the pharmacy business and had engaged in a fraudulent and illegal scheme to ship medications to states where her pharmacy was not licensed prior to the sale of the Pharmacy.
Purchase Price Dispute
Included in the Acquisition Agreement, and as part of the negotiated purchase price, were representations and warranties made by the former owner involving certain primary revenue streams and related contracts. Shortly after the closing, however, management discovered that these representations were substantially inaccurate and/or completely false. These inaccuracies, and the improper disclosures and/or omissions made by the former owner during negotiations, would have significantly affected the purchase price and related note payable. As a result, among other things, management has initiated legal action against the former owner to seek a reduction in the purchase price.
Included in the false representations made by the former owner were prescription revenues in excess of $8 million (and $16 million prior to the change in ownership) related to workers compensation claims that the former owner warranted as collectible. The insurance claims related to these prescriptions, which originated from and were provided to the pharmacy by the former owner's direct family members, were investigated by a third-party expert retained by the Company, and the claims were substantially identified as fraudulent. The former owner's family member has been indicted by the Department of Justice for among other things, insurance fraud.
In addition, management engaged a third-party to perform a valuation of theRoxSan Pharmacy, utilizing revised inputs that more accurately reflected the Pharmacy's revenue streams as of the date of Acquisition. The valuation performed resulted in a fair market value of $4.7 to $5.2 million. After careful consideration, and based upon these significant differences, management has determined that the purchase price and related promissory note of $20.5 million does not fairly represent the fair market value at the date of purchase. The Company has, therefore, applied a discount to the note of $15.3 million, to reduce the purchase price and related note to its estimated fair market value of $5.2 million, utilizing the higher value on the range as a conservative measure.
The valuation performed does not include the effects of any liabilities the former owner omitted or damages caused to the Company as a result of the former owner and her immediate family members connected to the Pharmacy.
Control of Funds Dispute
For a period of time immediately after the closing of the Acquisition, the former owner would not relinquish control of the Pharmacy's bank accounts, and collected the Pharmacy's incoming cash revenues, refusing to transfer the funds to the new ownership. Furthermore, when the Company attempted to change the corporate records and signatories on the existing bank accounts, the former owner disputed the changes, resulting in approximately $180,000 in corporate funds being frozen and held for adjudication. During this period, the Company was forced to request that the former owner pay the Pharmacy's operating expenses. At no time after the Company opened new accounts did the former owner cooperate with the transference or willingly relinquish control of the Pharmacy's operating cash flow or incoming cash revenues. As a result, an extensive reconciliation was performed to determine what amounts were collected and paid by the former owner, and what amounts were due to the Company. The reconciliation resulted in over $412,000 owed to the Company from the former owner. The reconciliation and underlying documentation went under judicial review, and on July 24, 2017, the Company was notified that the results of the review were in favor of the Company in the amount of $412,948. A judgment is pending for the order of $412,948 owed to the Company from the former owner.
19
In the Matter, action No. SC125702,Inc., Shahla Melamed (“Melamed”), alleges that the Company is in default under the terms of the Purchase Agreement and Secured Note, and the Company’s termination of Melamed’s employment agreement. The Company firmly believes that it had adequate grounds to justify the termination of the employment, that it acted within its rights, and shall prevail in these proceedings. A trial date, previously set for December 2018, is currently set for January 2020.
All aboveAction No. SC 124898:
The Company has initiated legal matters are currently pending.
On September 14, 2015, the US Securitiesaction against Melamed and Exchange Commission and the Justice Department filed a complaint, and an indictmentaction number SC 124898, in the Massachusetts DistrictSuperior Court of the United StatesState of California, County of Los Angeles, West District, Court (the "Cases") against, among others, Edward W. Withrow III,Parallax Health Sciences, et al. v. Shahla Melamed, et al. The Complaint in that action alleges that Melamed has breached several obligations under the co-founder ofPurchase Agreement, and the Company co-inventor ofis seeking to reduce the Company's foundational patents, and one ofSecured Note due to undisclosed material changes in the Company's beneficial shareholders. The Cases allege that the individuals named within the SEC complaint engaged in activities involving the Company's securities to obtain financial benefit, and made false statements during SEC examination. The criminal casebusiness. A trial date, previously set for December 2018, is currently pending and set for trial on December 2, 2017. Mr. Withrow has consistently denied all allegations of wrongdoing against him and he intends to continue to defend the case vigorously.January 2020.
Disputes with Former Executives
Action No. CV2017-052804
On or about May 5,March 9, 2017, DavidDave Engert former Executive Chairman and director of the Company filed a lawsuit in Arizona and then on or about May 5, 2017, Mr. Engert, changed the venue and filed suit against the Company and RoxSan Pharmacy, Inc. in the United States District Court, Central District of California for an amount exceeding $75,000. The Company intends to vigorously defend against this action, and onOn 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 or about June 20, 2017, American Express Bank, FSB filed suit against RoxSan Pharmacy, Inc.October 8, 2018, a settlement was reached between Mr. Engert and the Company (the “Settlement”). The Settlement includes, among other things, a cash payment to Mr. Engert in Superior Court of California, County of Los Angeles for anthe amount of $1,015,052. On or about June 27, 2017, American Express Travel Related Services Company, Inc. filed suit against RoxSan Pharmacy, Inc. in Supreme Court$139,000, and the cancellation of New York, Countyall of New YorkMr. Engert’s equity holdings in the amounts of $153,500 and $273,500. On July 31, 2017 and August 16, 2017 respectively,Company. The Settlement resulted in a net loss to the Company entered intoof $33,272. On April 10, 2019, a stipulation for dismissal was filed, and settlement agreements of these matters to make payments in lieu of further litigation at this time.the matter has been fully resolved.
The Company knows of no other material existing or pending legal proceedings against it, nor is the Company involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to the Company.
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following representsall unregistered securities issued by the registrant during the current period, including sales of reacquired securities, as well as new issues, securities issued in exchange for property, services, or other securities, and new securities resulting from the modification of outstanding securities:
On July 28, 2016, 20,000,000 shares of the Company's common stock held by three (3) shareholders were cancelled and returned to treasury.
On July 30, 2016,January 24, 2019, in connection with a certain consulting agreements,senior secured promissory note, the Company issued 250,000150,000 shares of its restricted common stock for $0.001 per share.to the note holders as a form of interest. The shares were valued at $7,500, were issued for cash in the amount of $250. $15,000.
On September 23, 2016,January 30, 2019, in connection with a certain convertible debenture, the acquisition of Parallax Health Management, Inc. (formerly QOLPOM, Inc.), the Company issued 5,000,000holder elected to convert $175,000 into 1,750,000 shares of its restricted common stock for $0.001at a conversion rate of $0.10 per share. The shares, valued at $225,000, were issued for cash in the amount of $5,000.
On January 31, 2019, in connection with a Simple Agreement Future Equity (“SAFE”) offering, the Company issued 500,000 shares of its restricted common stock at $0.10 per share for $50,000 cash.
On February 6, 2019, in connection with certain convertible debt in the amount of $20,000 and accrued interest in the amount of $2,000, the Company issued 220,000 shares of its restricted common stock at a conversion rate of $0.10 per share.
On February 12, 2019, in connection with a certain senior secured promissory note, the Company issued 40,000 shares of its restricted common stock to the note holders as a form of interest. The shares were valued at $4,000.
On February 25, 2019, in connection with a SAFE offering, the Company issued 3,750,000 shares of its restricted common stock at $0.10 per share for $375,000 cash.
On February 25, 2019, in connection with a certain consulting agreement, the Company issued 25,000 shares of its restricted common stock to the consultant for services valued at $2,500.
On February 27, 2019, in connection with a certain consulting agreement, the Company issued 1,000,000 shares of its restricted common stock to the consultant for services valued at $120,000.
On March 25, 2019, in connection with a certain consulting agreement, the Company issued 25,000 shares of its restricted common stock to the consultant for services valued at $2,500.
On March 25, 2019, in connection with a SAFE offering, the Company issued 750,000 shares of its restricted common stock at $0.10 per share for $75,000 cash.
In April 2019, in connection with a certain convertible debenture, the holder elected to convert $105,000 into 2,340,410 shares of the Company’s restricted common stock.
On April 5, 2019, in connection with a certain services agreement, the Company issued 600,000 shares of its restricted common stock for $0.001 per share. The shares,services valued at $16,000, were$44,160.
On April 15, 2019, the Company issued 400,000 shares of its restricted common stock for services valued at $50,000.
On April 25, 2019, in connection with a certain consulting agreement, the Company issued 25,000 shares of its restricted common stock to the consultant for services valued at $2,500.
On April 25, 2019, in connection with a SAFE offering, the Company issued 2,000,000 shares of its restricted common stock at $0.10 per share for $200,000 cash.
On April 26, 2019, in connection with a certain stock purchase agreement, the Company issued 400,000 shares of its restricted common stock, valued at $28,000, for cash in the amount of $250.$400.
Exemption From Registration.On April 29, 2019, in connection with a certain private placement agent agreement, the Company issued 1,000,000 shares of its restricted common stock to the consultant for services valued at $71,000.
On May 2, 2019, in connection with a SAFE offering, the Company issued 500,000 shares of its restricted common stock at $0.10 per share for $50,000 cash.
On May 6, 2019, in connection with an equity funding, the Company issued 12,000,000 shares of its restricted common stock for cash in the amount of $1,000,000, of which $500,000 is receivable.
On May 8, 2019, in connection with a certain convertible promissory note in the principal sum of $20,000, the Company issued 289,017 shares of its restricted common stock.
On May 12, 2019, in connection with a certain senior secured promissory note, the Company issued 40,000 shares of its restricted common stock to the note holders as a form of interest. The shares were valued at $4,000.
On May 15 2019, in connection with the conversion of 57,500 Series A preferred stock valued at $69,000, the Company issued 1,150,000 shares of its restricted common stock at a conversion ratio of 20 shares of common stock referenced hereinfor each share of Series A preferred stock held.
On May 15, 2019, in connection with the executive employment agreement, the Company issued David Appell, the Chief Operating Officer, 3,000,000 shares of the Company’s restricted common stock for cash in the amount of $3,000. The shares were valued at $201,300, of which 25% vest immediately, and the remaining vest when the Company achieves certain earnings goals.
On May 15, 2019, in connection with an employment agreement, the Company issued 125,000 shares of the Company’s restricted common stock,valued at $8,388, for cash in the amount of $125.
On May 25, 2019, in connection with a certain consulting agreement, the Company issued 37,500 shares of its restricted common stock to the consultant for services valued at $3,750.
On June 11, 2019, in connection with a settlement for the retirement of 3,666,670 warrants (4,401,760 warrants, as adjusted under anti-dilution provisions) , the Company issued 1,000,000 shares of the Company’s restricted common stock, valued at $71,000.
On June 20, 2019, in connection with the cashless exercise of certain warrants, the Company issued 600,000 shares of the Company’s restricted common stock, valued at $63,600.
On June 20, 2019, in connection with a certain consulting agreement, the Company issued 2,000,000 shares of its restricted common stock to the consultant for services valued at $212,000.
On June 25, 2019, in connection with a certain consulting agreement, the Company issued 37,500 shares of its restricted common stock to the consultant for services valued at $3,750.
In June 2019, in connection with certain convertible debentures, the holders elected to convert $80,142 into 2,605,660 shares of the Company’s restricted common stock.
In June 2019, in connection with certain convertible debt in the amount of $256,232, the Company issued 3,902,200 shares of its restricted common stock.
In July 2019, in connection with certain convertible debt in the amount of $354,000, the Company issued 5,900,000 shares of its restricted common stock.
In July 2019, in connection with certain promissory notes in the amount of $220,000, the Company issued 1,200,000 shares of its restricted common stock, valued at $190,200.
In July 2019, in connection with the settlement of certain related party convertible debentures, the Company issued 1,380,811 shares of its restricted common stock, valued at $131,315.
In July 2019, in connection with a certain consulting agreement, the Company issued 37,500 shares of its restricted common stock to the consultant for services valued at $3,750.
In August 2019, in connection with an investment in Global Career Network, Inc., the Company issued 6,666,667 shares of its restricted common stock for $0.15 per share, valued at $1,000,000.
In August 2019, in connection with the SAFE offering, the Company issued 6,375,000 shares of its restricted common stock, including 1,875,000 shares issued to accredited investors, valued at $156,250, and 4,500,000 shares issued to four officers/directors in exchange for the reduction of accrued compensation in the amount of $375,000.
In September 2019, in connection with the conversion of certain convertible debt in the amount of $855,503, the Company issued 8,555,029 shares of its restricted common stock, including 5,897,419 shares issued to Huntington Chase, LLC, a beneficial owner, for convertible debt in the amount of $589,742.
Exemption From Registration. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. Unless otherwise stated, the sales of the above securities re deemed to be exempt from registration under the Securities Act in reliance upon an exemption from registration afforded either underon Section 4(2)4(a)(2) of the Securities Act for(and Regulation D or Regulation S promulgated thereunder) or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving aany public offering or Regulation D promulgated thereunder,pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to, or Regulation S for offerssale 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 outside the U.S.were made without any general solicitation or advertising.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY STANDARDS
20
ITEM 5. OTHER INFORMATION
The following financial information is provided in reference to the Registrant’s merger (the “Merger”) that took place on September 20, 2016, as disclosed in the Registrant’s Current Report filed on Form 8-K September 23, 2016 herewith incorporated by reference.None.
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The audit on the financial statements of Qolpom, Inc. as of December 31, 2015 is currently being performed. The audited financial statements will be filed upon completion of the audit.
The following financial statements reflect the unaudited balance sheet of Qolpom, Inc. (“Qolpom”) as of June 30, 2016 and December 31, 2015, before the Merger occurred on September 20, 2016, and also reflect the unaudited statements of income, stockholders’ equity, and cash flows of Qolpom for the six months ended June 30, 2016 and the four months ended December 31, 2015, before the Merger occurred on September 20, 2016.
QOLPOM, INC. | ||||||
BALANCE SHEET | ||||||
(unaudited) | ||||||
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| June 30, 2016 |
| December 31, 2015 |
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ASSETS |
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Current assets |
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Due from affiliates | $ | 64,492 |
| $ | 24,915 |
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TOTAL ASSETS | $ | 64,492 |
| $ | 24,915 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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|
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Accounts payable | $ | 5,576 |
| $ | –– |
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Total current liabilities |
| 5,576 |
|
| –– |
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Total liabilities |
| 5,576 |
|
| –– |
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Stockholders' equity |
|
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Common stock: 1,000,000 shares authorized, $1 par, 150 issued and outstanding as of June 30, 2016 and December 31, 2015 |
| 150 |
|
| 150 |
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Retained earnings |
| 58,766 |
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| 24,765 |
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Total stockholders' equity |
| 58,916 |
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| 24,915 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 64,492 |
| $ | 24,915 |
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The accompanying notes are an integral part of these consolidated financial statements
QOLPOM, INC. | ||||||
STATEMENT OF OPERATIONS | ||||||
(unaudited) | ||||||
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| For the six months ended |
| For the four months ended |
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| June 30, 2016 |
| December 31, 2015 |
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Revenue | $ | 180,000 |
| $ | 24,930 |
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Cost of sales |
| 5,576 |
|
| –– |
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Gross profit |
| 174,424 |
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| 24,930 |
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General and administrative expenses |
| 140,423 |
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| 165 |
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Net income | $ | 34,001 |
| $ | 24,765 |
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Net (loss) per common share - basic and diluted | $ | 226.67 |
| $ | 165.10 |
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Weighted average common shares outstanding - basic and diluted |
| 150 |
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| 150 |
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The accompanying notes are an integral part of these consolidated financial statements
QOLPOM, INC. | |||||||||||
STATEMENT OF STOCKHOLDERS' EQUITY | |||||||||||
PERIOD FROM SEPTEMBER 16, 2015 TO JUNE 30, 2016 | |||||||||||
(unaudited) | |||||||||||
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| COMMON STOCK |
| RETAINED |
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| SHARES |
| AMOUNT |
| EARNINGS |
| TOTAL |
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Balance, September 16, 2015 (date of inception) | –– |
| $ | –– |
| $ | –– |
| $ | –– |
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Issuance of common stock to officers | 150 |
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| 150 |
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| 150 |
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Net income |
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| 24,765 |
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| 24,765 |
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Balance, December 31, 2015 | 150 |
| $ | 150 |
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| 24,765 |
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| 24,765 |
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Net income |
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|
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| 34,001 |
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| 34,001 |
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Balance, June 30, 2016 | 150 |
| $ | 150 |
| $ | 58,766 |
| $ | 58,766 |
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The accompanying notes are an integral part of these consolidated financial statements
QOLPOM, INC. | ||||||
STATEMENT OF CASH FLOWS | ||||||
(unaudited) | ||||||
| For the six months ended |
| For the four months ended |
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| June 30, 2016 |
| December 31, 2015 |
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Cash flows from operations: |
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Net loss | $ | 34,001 |
| $ | 24,765 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Increase in affiliate receivables |
| (39,577 | ) |
| (24,915 | ) |
Increase in accounts payable |
| 5,576 |
|
| –– |
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Net cash used in operating activities |
| –– |
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| (150 | ) |
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Cash flows from financing activities: |
|
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Proceeds from issuance of common shares |
| –– |
|
| 150 |
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Net cash provided by financing activities |
| –– |
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| 150 |
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|
|
|
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Net increase (decrease) in cash |
| –– |
|
| –– |
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Cash - beginning of period |
| –– |
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| –– |
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Cash - end of period | $ | –– |
| $ | –– |
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NON-CASH ACTIVITIES: | $ | –– |
| $ | –– |
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SUPPLEMENTAL INFORMATION |
|
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Interest paid | $ | –– |
| $ | –– |
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Income taxes paid | $ | –– |
| $ | –– |
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The accompanying notes are an integral part of these consolidated financial statements
21
QOLPOM, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2016 AND DECEMBER 31, 2015
NOTE 1. OVERVIEW AND NATURE OF BUSINESS
The Company was founded in Arizona in September 2015, and on June 20, 2016, QOLPOM, Inc. filed its articles of incorporation with the Secretary of the state of Arizona.
The Company’s primary focus is creating a home health hub to support remote patient monitoring, medication adherence and tele-medicine. The Company’s patent-pending QOLPOM product line includes a personal medication dispensing and remote monitoring system that can capture (through external sensors), monitor, and store patient vital signs along with electronic patient records that gives users access to digital health care and telemedicine.
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and that effect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of significant accounting policies is presented to assist in understanding the Company’s financial statements. These accounting policies conform to accounting principles, generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.
The Company’s fiscal year-end is December 31.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Fair Value Hierarchy
The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2: Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.
Level 3: Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. As of June 30, 2016, and December 31, 2015, the Company had no cash equivalents.
Fair Value of Financial Instruments
As of June 30, 2016, and December 31, 2015, respectively, the carrying values of Company’s Level 1 financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and short-term debt approximate fair value. The fair value of Level 3 instruments is calculated as the net present value of expected cash flows based on externally provided or obtained inputs. Certain Level 3 instruments may also be based on sales prices of similar assets. The Company’s fair value calculations take into consideration the credit risk of both the Company and its counterparties as of the date of valuation.
There were no outstanding derivative financial instruments as of June 30, 2016 and December 31, 2015.
Net Income (Loss) Per Common Share
Net earnings (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible preferred shares and the exercise of the Company’s stock options and warrants. As of June 30, 2016, and December 31, 2015, the Company had no dilutive common stock equivalents.
Comprehensive Loss
As of June 30, 2016, and December 31, 2015, the Company has no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
Revenue Recognition
Revenue is recognized when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured.
Recently Adopted Accounting Standards
The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (“FASB”), the US Securities and Exchange Commission (“SEC”), and the Emerging Issues Task Force (“EITF”), to determine the impact of new pronouncements on US GAAP and the impact on the Company.
Not yet adopted:
In September 2015, the FASB issued ASU 2015-16 Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments. ASU 2015-16 is part of the Simplification Initiative, and eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update with earlier application permitted for financial statements that have not been issued. The Company is evaluating the effect, if any, adoption of ASU No. 2015-16 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The ASU will be effective for the Company beginning January 1, 2019 with early adoption permitted. The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation. The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this standard are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.
In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. ASU 2016-10 clarifies the accounting for licenses of intellectual property as well as the identification of distinct performance obligations in a contract. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and
22
any other Topic amended by Update 2014-09). The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.
In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 addresses certain issues identified in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). The Company is currently evaluating the impact of the application of this accounting standard update on its financial statements and related disclosures.
Recently Issued Accounting Standards Updates:
There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.
NOTE 3. COMMON STOCK
The total number of authorized shares of common stock that may be issued by the Company is 1,000,000 with a par value of $1.00 per share.
The Company issued 150 shares of the Company's common stock to its founders at $1.00 per share, for cash in the amount of $150.
As of June 30, 2016, and December 31, 2015, the Company had 150 common shares issued and outstanding.
NOTE 4. SUBSEQUENT EVENTS
The Company has evaluated the events and transactions for recognition or disclosure subsequent to December 31, 2015, and has determined that there have been no events that would require disclosure, except for the following:
On August 25, 2016, the Company entered into an Assignment Agreement with La Frontera Community Solutions Inc., an Arizona nonprofit corporation (the “Assignor”), for all rights, title and interest in certain intellectual property, including the QOLPOM patents and trademarks. Consideration for the assignment of rights includes:
1.
a royalty fee of $2,000,000, to be paid through revenues generated by the Company from the QOLPOM hardware and monitoring service, payable in full by August 25, 2021; and
2.
a royalty of 3% of the revenue generated from the QOLPOM hardware and monitoring service, in perpetuity.
On August 29, 2016, the Company entered into a License Agreement with La Frontera Community Solutions Inc., (the “Assignor”), for the license of certain intellectual property for a term of twenty (20) years. Consideration for the assignment of rights includes:
1.
a royalty fee of $1,500; and
2.
a royalty of 3% of the revenue generated from the licensed property, in perpetuity.
On September 20, 2016 (the “Closing”), the Company and its shareholders (the “Seller"), entered into an Agreement to Purchase/Sell One Hundred Percent of the Issued and Outstanding Shares of QOLPOM, Inc. and its Assets, Inventory and Intellectual Property (the “Purchase Agreement”) with Parallax Health Sciences, Inc., a Nevada corporation (“PRLX”). Pursuant to the Purchase Agreement, in exchange for 100% of the QOLPOM stock and 100% of QOLPOM’s assets, inventory and intellectual property, among other things, consideration to the Seller includes:
1.
stock purchase agreements for the Seller to purchase an aggregate of 5,000,000 shares of PRLX common stock at $0.001 per share; and
2.
a cash earn-out of $2,000,000, to be paid through revenues generated from the QOLPOM business segment; and
3.
a royalty of 3% of the revenue generated by QOLPOM from its technology to a third-party non-profit organization located in Arizona; and
4.
options granted to the Sellers to purchase 2,500,000 shares of PRLX common stock, to vest quarterly over three (3) years beginning one (1) year after Closing, with the following terms:
a.
500,000 common stock options priced at $0.10.
b.
1,000,000 common stock options priced at $0.15.
c.
1,000,000 common stock options priced at $0.25.
On September 23, 2016, pursuant to the terms and conditions of the Purchase Agreement, 5,000,000 shares of PRLX restricted common stock were issued to the Seller. The shares, valued at $225,000, were issued for cash in the amount of $5,000.
On January 20, 2017, the Company changed its name of its wholly owned subsidiary, QOLPOM, Inc., to Parallax Health Management, Inc.
* * * * *
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The following financial information reflects the unaudited condensed consolidated pro forma income statement of Parallax Health Sciences, Inc. ("Parallax") for the nine months ended September 30, 2016, as if the Merger had occurred on January 1, 2016, and the unaudited condensed consolidated pro forma income statement of Parallax for the year ended December 31, 2015, as if the Merger had occurred on January 1, 2015.
The pro forma adjustments are preliminary and have been made solely for purposes of developing the pro forma financial information for illustrative purposes necessary to comply with the requirements of the SEC. The actual results reported in periods following the transactions may differ significantly from that reflected in these pro forma consolidated income statements for a number of reasons, including differences between the assumptions used to prepare these pro forma consolidated income statements and actual amounts and cost savings from operating efficiencies. In addition, no adjustments have been made to the unaudited pro forma consolidated income statements for non-recurring items related to the transactions. As a result, the pro forma financial information does not purport to be indicative of what the results of operations would have been had the transactions been completed on the applicable dates of this pro forma financial information. The pro forma consolidated income statements are based upon the historical financial statements of Parallax and do not purport to project future results of operations after giving effect to the transactions.
PARALLAX HEALTH SCIENCES INC. | |||||||||||||
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS | |||||||||||||
As of and for the nine months ended September 30, 2016 ** | |||||||||||||
(unaudited) |
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| Parallax |
| Qolpom |
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| Pro Forma |
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| Consolidation |
| Pro Forma |
| Consolidated |
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| 9/30/2016 |
| 9/30/2016 |
| Adjustments |
| 9/30/2016 |
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Revenue | $ | 19,808,910 |
| $ | 292,821 |
| $ | –– |
| $ | 20,101,731 |
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Cost of revenues |
| 16,914,818 |
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| 16,931 |
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| –– |
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| 16,931,749 |
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Gross profit |
| 2,894,092 |
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| 275,890 |
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| –– |
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| 3,169,982 |
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Sales, marketing, and pharmacy expenses |
| 1,461,576 |
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| –– |
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| –– |
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| 1,461,576 |
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General and administrative expenses |
| 3,070,169 |
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| 249,196 |
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| –– |
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| 3,319,365 |
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Operating loss |
| (1,637,653 | ) |
| 26,694 |
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| –– |
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| (1,610,959 | ) | |
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Other income (expense) |
| (4,464,770 | ) |
| –– |
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| –– |
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| (4,464,770 | ) | |
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| Net income (loss) | $ | (6,102,423 | ) | $ | 26,694 |
| $ | –– |
| $ | (6,075,729 | ) |
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Net (loss) per common share - basic and diluted | $ | (0.05 | ) |
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| $ | (0.05 | ) | |
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Weighted average common shares outstanding - basic and diluted |
| 116,143,416 |
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| 116,143,416 |
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** | As if the transaction took place January 1, 2016 |
PARALLAX HEALTH SCIENCES INC. | |||||||||||||
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS | |||||||||||||
As of and for the year ended December 31, 2015 ** | |||||||||||||
(unaudited) |
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| Parallax |
| Qolpom |
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| Pro Forma |
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| Historical |
| Consolidation |
| Pro Forma |
| Consolidated |
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| 12/31/2015 |
| 12/31/2015 |
| Adjustments |
| 12/31/2015 |
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Revenue | $ | 11,579,720 |
| $ | 24,930 |
| $ | –– |
| $ | 11,604,650 |
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Cost of revenues |
| 9,874,244 |
|
| –– |
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| –– |
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| 9,874,244 |
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Gross profit |
| 1,705,476 |
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| 24,930 |
|
| –– |
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| 1,730,406 |
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Sales, marketing, and pharmacy expenses |
| 1,061,069 |
|
| –– |
|
| –– |
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| 1,061,069 |
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General and administrative expenses |
| 1,906,488 |
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| 165 |
|
| –– |
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| 1,906,653 |
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Operating loss |
| (1,262,081 | ) |
| 24,765 |
|
| –– |
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| (1,237,316 | ) | |
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Other income (expense) |
| (2,457,817 | ) |
| –– |
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| –– |
|
| (2,457,817 | ) | |
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| Net income (loss) | $ | (3,719,898 | ) | $ | 24,765 |
| $ | –– |
| $ | (3,695,133 | ) |
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Net (loss) per common share - basic and diluted | $ | (0.03 | ) |
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| $ | (0.03 | ) | |
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Weighted average common shares outstanding - basic and diluted |
| 131,734,518 |
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| 131,734,518 |
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** | As if the transaction took place January 1, 2015 |
24
ITEM 6. EXHIBITS
Exhibits required by Item 601 of Regulation S-B
Exhibit Number | Description of Exhibit | Filing Reference |
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(3) | Articles of Incorporation and Bylaws | |
3.1 | Filed with the SEC on March 5, 2007 as part of the Company’s Registration Statement on Form SB-2. | |
3.1(a) | Filed with the SEC on May 17, 2010 as part of the Company’s Annual Report on Form 10-K. | |
3.1(b) | Filed with the SEC on April 1, 2019, as part of the Company's Annual Report on Form 10-K. | |
3.2 | Filed with the SEC on March 5, 2007 as part of the Company’s Registration Statement on Form SB-2. | |
3.2(a) | Filed with the SEC on May 17, 2010 as part of the Company’s Annual Report on Form 10-K. | |
3.3 | Filed with the SEC on November 15, 2012 as part of the Company’s Current Report on Form 8-K. | |
3.4 | Certificate of Amendment filed with the Secretary of State of Nevada on January 9, 2014 | Filed with the SEC on April |
3.5 | Certificate of Designation effective June 17, 2011-Series A Preferred Stock | Filed with the SEC on March 19, 2019 as part of the Company's Current Report on Form 8-K |
3.6 | Certificate of Designation effective December 2, 2016-Series B Preferred Stock | Filed with the SEC on March 19, 2019 as part of the Company's Current Report on Form 8-K |
3.7 | Certificate of Designation effective August 10, 2018-Series C Preferred Stock | Filed with the SEC on March 19, 2019 as part of the Company's Current Report on Form 8-K |
(4) | Instruments Defining the Rights of Security Holders, Including Indentures | |
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(10) | Material Contracts | |
10.1 | Employment Agreement between Parallax Health Sciences, Inc. and David Appell dated April 19, 2019 | Filed with the SEC on October 23, 2019, as part of the Company’s Quarterly Report on Form 10-Q. |
| Filed with the SEC on October | |
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Parallax Health Management, Inc. | ||
Parallax Behavioral Health, Inc. | ||
Parallax Diagnostics, Inc. | ||
Parallax Communications, Inc. | ||
(31) | Section 302 Certifications | |
31.1* | ||
31.2* | ||
(32) | Section 906 Certifications | |
32.1* | ||
32.2* | ||
(99) | Additional Exhibits | |
99.1 | Parallax Health Sciences, Inc. Investor Presentation dated March 29, 2019 | |
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(100) | XBRL Related Documents | |
101.INS** | XBRL Instance Document | Filed herewith. |
101.SCH** | XBRL Taxonomy Extension Schema Document | Filed herewith. |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith. |
101.LAB** | XBRL Taxonomy Extension Labels Linkbase Document | Filed herewith. |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith. |
101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith. |
*
Filed herewith.
**
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PARALLAX HEALTH SCIENCES, INC. | ||
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| Dated: | /s/ Paul R. Arena | |
Paul R. Arena | |||
Chief Executive Officer | |||
Dated: December 12, 2019 | /s/ Calli R. Bucci | ||
| Calli R. Bucci | ||
| Chief Financial Officer | ||
36
26