UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended May 31, 2012

or

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

For the transition period from ________________ to________________

Commission file number 000-53490

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(Exact name of registrant as specified in its charter)

Nevada 20-4395271
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

#207, 1410 – 11 th Avenue SW Calgary, Alberta T3C OM8
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (403) 850-4120

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
None N/A

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value
(Title of class)

 

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [   ]     No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [   ]     No [X]

 

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.

Yes [X]     No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [   ]     No [ X ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller 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   [   ] (Do not check if a smaller reporting company) Smaller reporting company [X]

 

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


Yes [   ]     No [X]

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Approximately $4,241,035 on November 30, 2011.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

 

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


17,552,082 shares of common stock outstanding as of August 28, 2013

 

DOCUMENTS INCORPORATED BY REFERENCE

 

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).


Not Applicable.

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TABLE OF CONTENTS
     
PART I   4
FORWARD-LOOKING STATEMENTS   4
ITEM 1. BUSINESS   4
ITEM 1A. RISK FACTORS   4
ITEM 1B. UNRESOLVED STAFF COMMENTS   14
ITEM 2. PROPERTIES   14
ITEM 3. LEGAL PROCEEDINGS   15
ITEM 4. (REMOVED AND RESERVED)   15
PART II   15
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS 15
AND ISSUER PURCHASES OF EQUITY SECURITIES    
ITEM 6. SELECTED FINANCIAL DATA   16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND    
RESULTS OF OPERATIONS   17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK   23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA   24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND   25
FINANCIAL DISCLOSURE    
ITEM 9A. CONTROLS AND PROCEDURES   25
ITEM 9B. OTHER INFORMATION   26
PART III   26
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   26
ITEM 11. EXECUTIVE COMPENSATION   29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND 31
RELATED STOCKHOLDER MATTERS    
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR   31
INDEPENDENCE    
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES   32
PART IV   33
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES   33
SIGNATURES   34

 

 

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PART I

FORWARD-LOOKING STATEMENTS.

This annual report contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, including the risks in the section entitled “Risk Factors” commencing on page 5, uncertainties and other factors, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These risks and uncertainties include: a continued downturn in international economic conditions; any adverse occurrence with respect to the development or marketing of our product; any adverse occurrence with respect to any of our licensing agreements; our ability to successfully bring products to market; product development or other initiatives by our competitors; fluctuations in the availability and cost of materials required to produce our products; any adverse occurrence with respect to distribution of our products; potential negative financial impact from claims, lawsuits and other legal proceedings or challenges; and other factors beyond our control.

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

As used in this annual report, the terms “we,” “us,” “our,” and “PreAxia” mean PreAxia Health Care Payment Systems Inc. and our wholly- owned subsidiary, PreAxia Health Care Payment Systems, Inc. (formerly H Pay Card Inc.), unless the context clearly requires otherwise. Unless otherwise stated, “$” refers to United States dollars.

ITEM 1. BUSINESS

Corporate Overview

Preaxia was incorporated in the State of Nevada on April 3, 2000. On December 11, 2008, the Nevada Secretary of State effected a name change which had been previously approved by the majority of the stockholders on October 28, 2008.

Our company undertakes all of its operations through its wholly-owned subsidiary, PreAxia Health Care Payment Systems, Inc. (“PreAxia Canada”- formerly H Pay Card Inc.). PreAxia Canada, prior to being acquired by PreAxia, was a private corporation incorporated pursuant to the laws of the Province of Alberta on January 28, 2008.

General Overview

PreAxia and PreAxia Canada are both development stage companies. PreAxia Canada is a company which intends to deliver a comprehensive suite of solutions and services directed at the emerging health payment market, specifically the opportunities tied to the growth of health spending accounts (“HSA”). There is a rapid shift in healthcare traditional payment models to consumer-directed healthcare that is creating significant opportunities for financial services and insurance industries to deliver new dynamic products to this emerging market.

 

 

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Spawned by the need to address escalating health care costs, changes in the regulatory environment, and the growing consumer desire for greater participation in the management of their health benefits, the boundaries between health care and the financial services industries are becoming increasingly blurred. With the trend towards self-directed health payment solutions and the growing demand for faster, easier and more convenient benefit services, the insurance and benefits industries are banking on HSA medical payments being their next big growth conduit. Studies suggest that HSAs in the US will grow to over $75 billion in assets and 25 million consumers by 2015. This coupled with the continued growth of the Canadian group insurance industry illustrates the emerging opportunity for innovative health payment services. We intend to initially launch our products in Canada. We believe that Canadian businesses are embracing a new healthcare financing vehicle to control costs, increase profitability and get more return from their investment. We intend to provide them with services to capture this market opportunity.

Description of Health Spending Account (“HSA”)

A HSA can operate like a bank account; plan members start each plan year with a certain number of dollar credits in their HSA; throughout the year, those credits may be used to pay for certain medical, vision and dental expenses. The credits can be used to top up existing group coverage by covering residual amounts on prescription drugs, eyeglasses and hearing aids or to pay for medical, vision and dental expenses that otherwise may not be covered under the group benefit plan. Traditional health plan users pay premiums into a plan but do not see a return on money unless there is an issue with their health. In addition, most plans are established so that monies deposited into a plan by an employee are non-transferable upon the employee’s change of employment.

Services and infrastructure provided by PreAxia will enable insurance companies, governments and corporations to replace cash and cheque payments. Our company plans are to provide instant issuing services that enable corporations to issue and fund Pre-Paid Interac or credit card services to beneficiaries in real time. The beneficiary will select a personal identification number (“PIN”) using a PIN and card activation terminal, thus gaining instant access to funds that can be reloaded.

PreAxia is in the process of developing a platform for processing and managing accounts and payment cards, including cardholder and customer account management, reconciliation and financial settlement, and customer reporting.

PreAxia is in the process of developing software systems for the issuing of health payment cards and financial transaction processing services that will be fully managed by a data center. Products and services are anticipated to include:

  • Payment card issuance on behalf of issuing bank partners for customer-branded credit cards and Interac payment cards. The cards are anticipated to be issued with Canadian and United States access through Interac (Canada) and STAR (United States) ATM, as well as inter-bank networks.
  • Payment processing and funds allocation on payment accounts through financial electronic data interchange, wire transfers, and the automatic clearing house (“ACH”), with a PreAxia connection to a financial institution payment gateway and the United States ACH network through a United States financial institution.
  • Enabling cardholders to select a personal PIN using a PreAxia PIN selection and card activation terminal. These functions enable the end user to be issued a PreAxia generated payment card at a customer’s office which is ready for immediate use.
  • Authorizing transactions based upon the business requirements of PreAxia customers.
  • Monitoring for unusual transaction activities, fraud and compliance violations.
  • Providing management reports to customers and payment beneficiaries.
  • Customer support center for reporting lost or stolen cards and for answering cardholder inquiries.

 

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Distribution Methods and Marketing Strategy

PreAxia’s overall strategy is to finalize development of and market its health care payment cards and system. Our company will target enterprise-sized, public and private sector customers at the provincial and national levels. We will seek opportunities with lead customers and alliance partners to establish reference-able, high-profile implementations and market-leading, early-adopter firms for further developing innovative products and services. Our company intends to design solutions targeted towards corporate financial management, financial risk, audit management and cash management and target product/service management as a support to financial management.

We anticipate that prime targets will be organizations that make a significant number of payments to individuals by way of cheques or serve individuals with limited or no access to bank accounts. We anticipate that PreAxia’s products will replace the usage of cheques for people who prefer electronic delivery of funds through a multi-functional Interac or major credit card and generate cost savings benefits and increased efficiencies for its clients.

PreAxia intends to achieve service volume and the associated economies of scale through marketing directly to select target customers that provide the necessary transaction volumes, and through market specific channel partners. The channel strategy is supported in the solution design, as multiple channel partners will require branding and our company’s fee charging/collection capabilities.

It is our company’s intention to sell through multi-tiered, value-added resellers. For example, the Health Card solution may be provided by a subcontract to a leading vendor that rebrands and adds value to the solution. The leading vendor in turn may form part of a larger professional services systems integration engagement with the customer. One example of this approach is that a major bank may lead on selling our company’s solution to medical insurance companies and the health care industry under our product brand.

PreAxia has identified the following channels through which it will target prime end market customers:

  • Benefits managers/adjudicators, including insurance, health or outsources government benefits processors that manage benefits disbursement
  • Issuer banks, including partner banks that enable the issuance of Health Cards
  • Application providers, including software manufacturers selling into the target vertical markets
  • Professional services, including consulting, development and implementation companies serving the target vertical markets

PreAxia intends to establish several key customer reference accounts, channel marketing partners and technology alliances. These corporate relationships are key to advance our company’s goals in 2012 and 2013, for achieving a prime position in the Canadian public sector and establishing a solid service foundation.

Competitive Business Conditions and our Company’s Competitive Position in the Industry and Methods of Competition

PreAxia intends to offer a combination of products and services in its solution. However, there are other providers of components or versions of the Health Card value proposition in the marketplace. Our company is taking a different approach by providing a high value added and robust capability within specific target markets, rather than the one size fits all and mass volume approach of the larger companies in the Canadian and international market. The following are some of the leading providers of products and services that are or may be potential competitors in PreAxia’s target markets:

 

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Canadian Market:

  • Pay Linx Financial Corporation is presently inactive, but was a company offering prepaid debit card payment solutions that integrated into the Interac and MasterCard financial networks in North America. Pay Linx Financial Corporation was 27.0% owned by Royal Bank of Canada and provided services to Royal Bank of Canada for Canadian governments through QuickLinxTM, replacing cheque and voucher payments.
  • DirectCash Income Fund offers prepaid debit and credit cards and processes cash card transactions. In addition, DirectCash Income Fund provides ATM and debit terminal transaction processing, sales and maintenance.
  • CardOne Plus Ltd. offers prepaid debit card products designed to support merchant specific programs, including card graphics and merchant account management. These products are certified for acceptance on multiple card scheme and ATM networks.
  • HyperWALLET Systems Inc. offers flexible debit card payment solutions through Alterna Savings, HSBC and the Credit Union Central of British Columbia, Canada. It also offers pre- authorized debit, credit card, EFT and bill payment services.
  • NextWave Wireless Inc. is a joint venture between Money Mart and DataWave Systems Inc., established to provide card issuance solutions including prepaid debit and credit cards. Nextwave Titanium prepaid cards issued by Money Mart support loading from Money Mart transactions, such as cheque cashing, bill payment and ATM cash withdrawal.
  • DataWave Systems Inc. provides prepaid card products for scheme cards as well as prepaid phone cards and prepaid wireless airtime. It offers instant activation through retail point of sale (“POS”) terminals. DataWave Systems Inc. is owned by InComm, a global provider of prepaid services. DataWave Systems Inc. also powers the Peoples Trust Company’s card service initiative, HorizonPlus, which is the contracted provider of Titanium card services.

International Market:

  • Orbiscom Inc. is in an alliance with MasterCard to offer custom use cards that can be issued by MasterCard banks and provides for restricted authorizations (by merchant, merchant type or geography) as well as instant issuance.
  • Comdata Corporation offers controlled spending solutions, with enhanced authorization and real time transfer of funds to payees, including government program payments.
  • Affiliated Computer Services Inc. (ACS) is penetrating the U.S. government benefits card issuance marketplace through MasterCard prepaid cards that support no fee ATM cash withdrawals through participating ATM networks. ACS provides these services for a range of governmental benefits programs.
  • Metavante Corporation is owned by Marshall & Ilsley Corporation and provides a wide range of payments products and services.
  • Blackhawk Network is owned by Safeway and is a provider of the gift card mall, which can be used at participating merchants only. These cards are Visa, MasterCard or American Express branded and are activated at the POS.
  • InComm is expanding its prepaid card services network, Fastcard, through an arrangement with Green Dot Corporation, which is a leading network of reloadable debit cards and processes for the MasterCard repower POS-based load network for prepaid cards.

Intangible Properties

When negotiating its arrangements with clients, PreAxia intends to ensure that all rights to and ownership of its intellectual property remains with our company. We anticipate that source codes or other proprietary knowledge will be protected through agreements entered into between PreAxia and its employees and contractors, and additional high standards of confidentiality and protection of data are set by clients and regulatory authorities within the industry.

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Intellectual Property and Patent Protection

At present, PreAxia does not have any pending or registered patents or trademarks.

Research and Development

For the year ended May 31, 2012, we expended $240,596 on research and development compared to $649,324 during year ended May 31, 2011.

Employees

PreAxia has no employees. It has one full-time consultant, our Chief Executive Officer, Mr. Tom Zapatinas. We entered into an employment agreement effective July 1, 2009 with Mr. Geneau for the position of chief marketing and privacy officer. Effective June 30, 2011, this employee resigned. Effective September 1, 2011, an employment agreement was signed with Mr. Perry Shoom for the position of general manager; this position was terminated at the end of October 2012. We anticipate that we will need to hire additional key staff in areas of administration, accounting, business development, operations, sales and marketing, and research and development.

ITEM 1A. RISK FACTORS

Risks Related to our Company

We have a limited operating history.

We are in the early stages of development and face risks associated with a new company in a growth industry. We may not successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire investment. Even if we accomplish these objectives, we may not generate positive cash flows or the profits we anticipate in the future.

PreAxia has a limited operational history. Our company has never paid dividends and has no present intention to pay dividends. Our company is in the early commercialization stage of its business and therefore will be subject to the risks associated with early stage companies, including uncertainty of revenues, markets and profitability, and the need to raise additional funding. PreAxia will be committing, and for the foreseeable future will continue to commit, significant financial resources to marketing, product development and research. PreAxia’s business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stage of development. Such risks include the evolving and unpredictable nature of our company’s business,

PreAxia’s ability to anticipate and adapt to a developing market, acceptance by consumers of our products and the ability to identify, attract and retain qualified personnel. There can be no assurance that PreAxia will be successful in doing what is necessary to address these risks.

 

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We will need substantial additional financing in the future to continue operations.

Our ability to continue our present operations will be dependent upon our ability to obtain significant external funding. Additional sources of funding have not been established. We are exploring various financing alternatives. There can be no assurance that we will be successful in securing such financing at acceptable terms, if at all. If adequate funds are not available from the foregoing sources, or if we determine it is to otherwise be in our best interests, we may consider additional strategic financing options, including sales of assets.

We will require key personnel.

The financial services technology industry involves a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The success of PreAxia is dependent on the services of its senior management. The experience of these individuals will be a factor contributing to our company’s continued success and growth. The loss of one or more of its key employees could have a material adverse effect on our operations and business prospects. In addition, PreAxia’s future success will depend in large part on its ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. There can be no assurance that our company will be successful in attracting and retaining such personnel and the failure to do so could have a material adverse effect on our company’s business, operating results and financial condition.

We have additional financing requirements.

In order to accelerate PreAxia’s growth objectives, it will need to raise additional funds from lenders and equity markets in the future. There can be no assurance that our company will be able to raise additional capital on commercially reasonable terms to finance its growth objectives. The ability of our company to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as the business performance of our company. There can be no assurance that PreAxia will be successful in its efforts to arrange additional financing on terms satisfactory to our company. If additional financing is raised by the issuance of shares of common stock of our company, control of our company may change and stockholders may suffer additional dilution.

We may not be successful in the protection of intellectual property.

There can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against PreAxia or that any such assertions or prosecutions will not materially adversely affect our company’s business, financial condition or results of operations. Irrespective of the validity or the successful assertion of such claims, our company could incur significant costs and diversion of resources with respect to the defense thereof which could have a material adverse effect on our company’s business, financial condition or results of operations. Our company’s performance and ability to compete are dependent to a significant degree on its proprietary technology. There can be no assurance that the steps taken by our company will prevent misappropriation of its technology or that agreements entered into for that purpose will be enforceable. The laws of other countries may afford our company little or no effective protection of its intellectual property. Our company may in the future also rely on technology licenses from third parties. There can be no assurance that these third party licenses will be, or will continue to be, available to our company on commercially reasonable terms. The loss of, or inability of our company to maintain, any of these technology licenses could result in delays in completing its product enhancements and new developments until equivalent technology could be identified, licensed, or developed and integrated. Any such delays would materially adversely affect PreAxia’s business, results of operations and financial condition.

Our disclosure controls and procedures and internal control over financial reporting were not effective, which may cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.

Our management evaluated our disclosure controls and procedures as of May 31, 2012 and concluded that as of that date, our disclosure controls and procedures were not effective. In addition, our management evaluated our internal control over financial reporting as of May 31, 2012 and concluded that that there were material weaknesses in our

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internal control over financial reporting as of that date and that our internal control over financial reporting was not effective as of that date. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis.

We have not yet remediated this material weakness and we believe that our disclosure controls and procedures and internal control over financial reporting continue to be ineffective. Until these issues are corrected, our ability to report financial results or other information required to be disclosed on a timely and accurate basis may be adversely affected and our financial reporting may continue to be unreliable, which could result in additional misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.

Risks Related to our Business

We face competition and may not be able to compete successfully.

PreAxia may not be able to compete successfully against current and future competitors, and the competitive pressures PreAxia faces could harm its business and prospects. Broadly speaking, the market for financial services technology is competitive. There are other providers of components or versions of the Health Card value proposition in the marketplace. Additionally, the level of competition is likely to increase as current competitors improve their product offerings and as new participants enter the market. Many of PreAxia’s current and potential competitors have longer operating histories, larger customer bases, greater name and brand recognition and significantly greater financial, sales, marketing, technical and other resources than PreAxia.

Additionally, these competitors have research and development capabilities that may allow them to develop new or improved products that may compete with products PreAxia markets and distributes. New technologies and the expansion of existing technologies may also increase competitive pressures on PreAxia. Increased competition may result in reduced operating margins as well as loss of market share. This could result in decreased usage of PreAxia’s products and may have a material adverse effect on PreAxia’s business, financial condition and results of operations.

We may face implementation delays.

Most of PreAxia’s customers will be in a testing or preliminary stage of utilizing PreAxia’s products and may encounter delays or other problems in the introduction of PreAxia’s products. A decision not to do so, or a delay in implementation, could result in a delay or loss of related revenue or could otherwise harm PreAxia’s businesses and prospects. PreAxia will not be able to predict when a customer that is in a testing or a preliminary use phase will adopt a broader use of PreAxia’s products.

We may get limited customer feedback respecting products.

PreAxia’s revenue will depend on the number of customers who use PreAxia’s products. Accordingly, the satisfactory design of PreAxia’s product is critical to PreAxia’s business, and any significant product design limitations or deficiencies could harm PreAxia’s business and market acceptance. This limited feedback may not have resulted in an adequate assessment of customer requirements. Therefore, the currently specified features and functionality of PreAxia’s product may not satisfy current or future customer demands. Furthermore, even if PreAxia identifies the feature set required by customers in PreAxia’s market, it may not be able to design and implement products incorporating features in a timely and efficient manner, if at all.

We may face a slowdown in developing markets.

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The market for PreAxia’s product is relatively new and continues to evolve. If the market for PreAxia’s product fails to develop and grow, or if PreAxia’s product does not gain market acceptance, PreAxia’s business and prospects will be harmed.

Our ability to keep current with technological changes can impact our ongoing business.

The financial services technology industry is susceptible to technological advances and the introduction of new products utilizing new technologies. Further, the financial services technology industry is also subject to customer preferences and to competitive pressures which can, among other things, necessitate revisions in pricing strategies, price reductions and reduced profit margins. The success of PreAxia will depend on its ability to secure technological superiority in its product and maintain such superiority in the face of new products. No assurances can be given that the product of PreAxia will be commercially viable or that further modification or additional products will not be required in order to meet demands or to make changes necessitated by developments made by competitors which might render the product of PreAxia less competitive, less marketable, or even obsolete over time. The future success of PreAxia will be influenced by its ability to continue to develop new competitive products. There can be no assurance that research and development activities with respect to the development of new products and the improvement of its existing product will prove profitable, or that products or improvements resulting therefrom, if any, will be successfully produced and marketed.

The financial services technology industry is characterized by technological change, changes in user and customer requirements, new product introductions, new technologies, and the emergence of new industry standards and practices that could render PreAxia’s technology obsolete or have a negative impact on sales margins PreAxia’s product may command. PreAxia’s performance will depend, in part, on its ability to enhance its existing product, develop new proprietary technology that addresses the sophisticated and varied needs of its prospective customers, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of technology entails significant technical and business risks. There can be no assurance that PreAxia will be successful in using new technologies effectively or adapting its product to customer requirements or emerging industry standards.

We require strategic alliances.

PreAxia’s growth and marketing strategies are based, in part, on seeking out and forming strategic alliances and working relationships, as well as the performance of such strategic alliances and working relationships. General criteria to be used to assess potential alliances include the following: industry expertise, reputation and market position, complementary technologies or products, and nature and adequacy of resources.

We may have problems with our resolution of product deficiencies .

Difficulties in product design, performance and reliability could result in lost revenue, delays in customer acceptance of PreAxias’s products, and/or lawsuits, and would be detrimental, perhaps materially, to PreAxia’s market reputation. Serious defects are frequently found during the period immediately following the introduction of new products or enhancements to existing products. Undetected errors or performance problems may be discovered in the future. Moreover, known errors which PreAxia considers minor may be considered serious by its customers. If PreAxia’s internal quality assurance testing or customer testing reveals performance issues and/or desirable feature enhancements, PreAxia could postpone the development and release of updates or enhancements to its current product or the release of new products. PreAxia may not be able to successfully complete the development of planned or future products in a timely manner, or to adequately address product defects, which could harm PreAxia’s business and prospects. In addition, product defects may expose PreAxia to liability claims, for which PreAxia may not have sufficient liability insurance. A successful suit against PreAxia could harm its business and financial condition.

We may not be able to effectively manage our growth.

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PreAxia may be subject to growth-related risks, including capacity constraints and pressure on its internal systems and controls. PreAxia’s ability to manage its growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The inability of PreAxia to deal with this growth could have a material adverse impact on its business, operations and prospects. PreAxia may experience growth in the number of its employees and the scope of its operating and financial systems, resulting in increased responsibilities for PreAxia’s personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage its current operations and any future growth effectively, PreAxia will also need to continue to implement and improve its operational, financial and management information systems and to hire, train, motivate, manage and retain its employees. There can be no assurance that PreAxia will be able to manage such growth effectively, that its management, personnel or systems will be adequate to support PreAxia’s operations or that PreAxia will be able to achieve the increased levels of revenue commensurate with the increased levels of operating expenses associated with this growth.

We have negative cash flow and absence of profits.

PreAxia has not earned any profits to date and there is no assurance that it will earn any profits in the future, or that profitability, if achieved, will be sustained. A significant portion of PreAxia’s financial resources will continue to be directed to the development of its products and to marketing activities. The success of PreAxia will ultimately depend on its ability to generate revenues from its product sales, such that the business development and marketing activities may be financed by revenues from operations instead of external financing.

There is no assurance that future revenues will be sufficient to generate the required funds to continue such business development and marketing activities.

Our directors and officers may face conflicts of interest.

Certain directors and officers of PreAxia may become associated with other reporting issuers or other corporations which may give rise to conflicts of interest. Directors who have a material interest or any person who is a party to a material contract or a proposed material contract with PreAxia are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors are required to act honestly, and in good faith, with a view to the best interests of PreAxia, as the case may be.

Certain directors and officers of Preaxia may have, either other employment, other business, or time restrictions placed on them and accordingly, these directors will only be able to devote part of their time to the affairs of PreAxia.

PreAxia does not have key man insurance.

PreAxia does not currently have key man insurance in place in respect of any of its senior officers or personnel.

Acquisitions, investments and other strategic transactions could result in operating difficulties, dilution to our investors and other negative consequences.

It is our current intention to engage in and evaluate a wide array of potential strategic transactions, including acquisitions of companies, businesses, intellectual properties, and other assets. As of the date of filing of this Annual Report on Form 10-K, we have not yet identified any such strategic transactions. Any of these strategic transactions could be material to our financial condition and results of operations. In our search for opportunities to engage in strategic transactions, we may not be successful in identifying suitable opportunities. We may not be able to consummate potential acquisitions or investments, or an acquisition or investment may not enhance our business or may decrease rather than increase our earnings. In addition, the process of integrating an acquired company or business, or successfully exploiting acquired intellectual property or other assets, could divert a significant amount of our management’s time and focus and may create unforeseen operating difficulties and expenditures.

Additional risks we may face include:

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  • The need to implement or remediate controls, procedures and policies appropriate for a public company in an acquired company that, prior to the acquisition, lacked these controls, procedures and policies;
  • Cultural challenges associated with integrating employees from an acquired company or business into our organization;
  • Retaining key employees from the businesses we acquire, and
  • The need to integrate an acquired company’s accounting, management information, human resource and other administrative systems to permit effective management.

Future acquisitions and investments could involve the issuance of our equity securities, potentially diluting our existing stockholders, the incurrence of debt, contingent liabilities or amortization expenses, write-offs of goodwill, intangibles, or acquired in-process technology, or other increased expenses, any of which could harm our financial condition. Our stockholders may not have the opportunity to review, vote on or evaluate future acquisitions or investments.

Fluctuations in quarterly operating results lead to unpredictability of revenue and earnings.

The timing of the release of health care payments processing products and services can cause material quarterly revenue and earnings fluctuations. A significant portion of revenue in any quarter may be derived from sales of products and services introduced in that quarter or established in the immediately preceding quarter. If we are unable to begin to generate sales of products and services during the scheduled quarter, our revenue and earnings will be negatively affected in that period. Quarterly operating results also may be materially impacted by factors, including the level of market acceptance, or demand for health payment processing products and services and the level of development and/or promotion expenses for health payment processing products and services. Consequently, if net revenue in a period is below expectations, our operating results and financial position in that period are likely to be negatively affected, as has occurred in the past.

Risks Related to our Common Stock

There is currently no trading market for our common stock.

There is currently no trading market for our common stock. Our common stock is not quoted on any exchange or inter-dealer quotation system. There is no trading market for our common stock and our common stock may never be included for trading on any stock exchange or through any quotation system (including, without limitation, the NASDAQ Stock Market and the OTC Bulletin Board). You may not be able to sell your shares due to the absence of a trading market. Any market that develops for our common stock likely will be illiquid and the price of our common stock could be subject to volatility related or unrelated to our operations.

A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.

Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our shareholders will not be able to receive a return on their shares unless they sell them.

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We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.

In addition to the penny stock rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

We presently lease office space of 712 square feet in Calgary, Alberta Canada at $1,696.00 USD ($1,713.00 CDN at .9903) per month. On August 1, 2010, we exercised our option to renew the lease to the end of July 31, 2011.

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Effective August 1, 2011 we exercised our second term option to July 31, 2012. The office is located at #207, 1410 – 11 th Avenue S.W., Calgary, Alberta.

ITEM 3. LEGAL PROCEEDINGS

We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

ITEM 4. (REMOVED AND RESERVED)

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is not traded on any exchange. Until September 2, 2010, our common stock was quoted on the OTC Bulletin Board, but effective September 3, 2010, our common stock has not been eligible for quotation on the OTC Bulletin Board. We cannot assure you that there will be a market for our common stock in the future.

Following is a report of high and low bid prices for each quarterly period for the years ended May 31, 2012 and 2011.

Quarter Ended High Low
05/31/2012 $0.00 $0.00
02/28/2012 $0.00 $0.00
11/30/2011 $0.00 $0.00
08/31/2011 $0.00 $0.00
05/31/2011 $0.00 $0.00
02/28/2011 $0.00 $0.00
11/30/2010 $0.00 $0.00
08/31/2010 $0.00 $0.00

Holders of Our Common Stock

As of June 15, 2013, there were 71 holders of record of our common stock and 17,552,082 shares of common stock outstanding.

Holladay Stock Transfer of 2930 North 67 th Place, Scottsdale, Arizona 85251, Phone: (480) 481-3940, Fax: (480) 481-3991 is the registrar and transfer agent for our common shares.

Dividends

We have not declared or paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock for the foreseeable future. We intend to retain earnings, if any, to finance

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the development and expansion of our business. Our future dividend policy will be subject to the discretion of our board of directors and will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by the board.

Equity Compensation Plans

We adopted and approved our current stock option plan on January 28, 2010. The following table provides a summary of the number of options granted under our stock option plan, the weighted average exercise price and the number of options remaining available for issuance all as at May 31, 2012. 





Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights 		Number of securities
remaining available for
future issuance under
equity compensation
plans
Equity compensation plans approved by security holders None N/A 2,000,000
Equity compensation plans not approved by security holders None N/A None
Total None N/A 2,000,000

 

Recent Sales of Unregistered Securities

 

Except as disclosed below, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K during the fiscal year ended May 31, 2012.

 

In the year ended May 31, 2011, the Company issued 722,500 shares of common stock for $722,500 cash.

 

In the year ended May 31, 2012, the Company issued 420,000 shares of common stock for $345,000 cash.

 

On April 16, 2012, we issued 50,000 shares of common stock at $.50 per share for total proceeds of $25,000 to one investor. We issued these shares to a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S.

 

On May 3, 2012, we issued 50,000 shares of common stock at $.50 per share for total proceeds of $25,000 to one investor. We issued these shares to a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

We did not purchase any of our shares of common stock or other securities during our fiscal year ended May 31, 2012.

 

Conversion of Debt to Equity

 

On February 29, 2012, we issued 344,570 shares for the conversion of debt and interest totalling $344,570.

 

ITEM 6. SELECTED FINANCIAL DATA

 

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Not Applicable.

 

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

 

RESULTS OF OPERATION

 

General Overview

 

Our company undertakes all of its operations through PreAxia Canada, our wholly-owned subsidiary. PreAxia Canada is a company which intends to deliver a comprehensive suite of solutions and services directed at the emerging health payment market, specifically the opportunities tied to the growth of HSAs. There is a rapid shift in healthcare traditional payment models to consumer-directed healthcare that is creating significant opportunities for financial services and insurance industries to deliver new dynamic products to this emerging market.

 

Spawned by the need to address escalating health care costs, changes in the regulatory environment and the growing consumer desire for greater participation in the management of their health benefits, the boundaries between health care and the financial services industries are becoming increasingly blurred. With the trend towards self-directed health payment solutions and the growing demand for faster, easier and more convenient growth conduct, studies suggest that HSA’s in the US will grow to over $75 billion in assets and 25 million consumers by 2015. This coupled with the continued growth of the Canadian group insurance industry illustrates the emerging opportunity for innovative health payment services. We intend to initially launch our products in Canada. We believe that Canadian businesses are embracing a new healthcare financing vehicle to control costs, increase profitability and get more return from their investment. We intend to provide them with services to capture this market opportunity.

 

Plan of Operation

 

Over the next twelve months, we plan to:

 

  (a) Raise additional capital to execute our business plans, and;
     
  (b) To penetrate the health payment processing market in Canada, and worldwide, by continuing to develop innovative health payment processing products and services, and;
     
  (c) Build up a network of strategic alliances with several types of health insurance companies, governments and other alliances in various vertical markets, and;
     
  (d) Fill the positions of senior management sales, administrative and engineering positions.

 

Cash Requirements

 

After a further review of business opportunities with industry consultants, for the next twelve months and given that we meet our forecasted expenses, we plan to spend a total of approximately $1,550,000 in implementing our business plan of developing and marketing of health care processing products and services. We do not expect to generate any revenues during the year. Therefore, we will be required to raise a total of $2,850,000 to complete our business plan and pay our existing outstanding debts of approximately $1,300,000. Our working capital requirements for both our company and PreAxia Canada for the next twelve months are estimated at $1,550,000 distributed as follows:

 

 

 

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Estimated Expenses  
General and Administrative $300,000
Research and Development $450,000
Marketing and Education $450,000
Professional Services $350,000
Total $1,550,000

 

 

 

Our estimated expenses over the next twelve months are broken down as follows:

 

  1. General and Administrative We anticipate spending approximately $300,000 on general and administration costs in the next twelve months, which will include office rent, office supplies, transfer agents, filing fees, bank service charges, salary for our administrator, interest expense and travel, which includes airfare, meals, car rentals and accommodations.
     
  2. Research and Development We anticipate that we may spend approximately $450,000 in the next twelve months in the maintenance of our development and additional acquisition of software for our processing services and products.
     
  3. Marketing and Education We anticipate spending approximately $450,000 on the costs of staff and personnel marketing and promoting our company, our products and services, and educating the public to attract new accounts, including staff and personnel.
     
  4. Professional Services We anticipate that we may spend up to $350,000 in the next twelve months for professional services, which includes stock-based compensation, consulting fees, accounting, auditing and legal fees.

 

Off-balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

Results of Operations

 

The following summary of our results of operations should be read in conjunction with our audited financial statements for the year ended May 31, 2012, which are included herein. Our operating results for the year ended May 31, 2012 and May 31, 2011 are described below.

 

Revenue

 

We have not earned any revenues since our inception and we do not anticipate earning revenues until such time as we have completed the development of our Health Card software and obtained new customers.

 

Expenses

 

Our expenses for the 12 months ended May 31, 2012 and May 31, 2011 were as follows:

 

 

 

 

 

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  Year Ended        
  2012   2011   Difference   %
               
Consulting fees  $     120,000    $     120,000    $                  -   0%
Professional fees            36,331            126,876            (90,545)   -71%
Office and administrative            78,134              95,631            (17,497)   -18%
Research and development          240,596            649,324          (408,728)   -63%
Wages and benefits            65,282            102,794            (37,512)   -36%
Rent            18,541              17,841                   700   4%
               
   $     558,884    $  1,112,466    $   (553,582)    

 

 

Operating expenses for the year ended May 31, 2012 were $558,884 compared to $1,112,466 for the year ended May 31, 2011, resulting in a decrease of $553,582. The decrease was due to a decrease in professional fees of $90,545, a decrease in office and administration of $17,497, a decrease in research and development of $408,728, a decrease in wages and benefits of $37,512, and offset by an increase in rent of $700.

 

Professional Fees

 

Professional fees were $36,331 for the year ended May 31, 2012 compared to $126,876 for the year ended May 31, 2011, resulting in a decrease of $90,545. The decrease was from less accounting, legal, and audit fees.

 

Office and Administration

 

Our office and administration expenses were $78,134 for the year ended May 31, 2012 compared to $95,631 for the year ended May 31, 2011, resulting in a decrease of $17,497. The decrease was due to less travel expenses to Bolivia and a decrease in general and administration expenses.

 

Research and development

 

Research and development expenses were $240,596 for year ended May 31, 2012 compared to $649,324 for the year ended May 31, 2011, resulting in a decrease of $408,728. The decrease was due to the completion of major program components.

 

Wages and benefits

 

Wages and benefits were $65,282 for the year ended May 31, 2012 compared to $102,794 for the year ended May 31, 2011, resulting in a decrease of $37,512. The decrease was due to an employee resigning.

 

Rent

 

Rent expense was $18,541 for the year ended May 31, 2012 compared to $17,841 for the year ended May 31, 2011, resulting in an increase of $700. The increase was due to effects of foreign exchange rates.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate adequate amounts of cash to meet its needs for cash.  The following table provides certain selected balance sheet comparisons between May 31, 2012 and May 31, 2011: 

 

 

 

 

 

 

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  2012   2011   $ change   % change
Working capital  $    (1,184,050)    $ (1,308,750)    $   124,700   -9.5%
Cash  $           11,182    $                  -    $     11,182   Over 100%
Total current assets  $           11,182    $                  -    $     11,182   Over 100%
Total assets  $           12,657    $          1,205    $     11,452   Over 100%
Accounts payable and accrued liabilities  $      1,189,904    $   1,153,506    $     36,398   3.2%
Loan payable related party  $                     -    $        86,494    $   (86,494)   Over 100%
Accrued interest  $             5,328    $          9,619    $     (4,291)   -44.6%
Convertible notes payable  $                     -    $        59,131    $   (59,131)   Over 100%
Total current liabilities  $      1,195,232    $   1,308,750    $ (113,518)   -8.7%
Total liabilities  $      1,195,232    $   1,308,750    $ (113,518)   -8.7%

 

As of May 31, 2012, we had a cash balance of $11,182 compared to a bank deficit of $19,297 at May 31, 2011. PreAxia Canada will be required to raise capital to fund our operations. We had a working capital deficit of $1,184,050 as of May 31, 2012 compared with a working capital deficit of $1,308,750 as of May 31, 2011. The decrease in our working deficit of $123,494 was primarily due to increase in bank account, decreases in accounts payables, loans payable and convertible debenture offset by an increase in accounts payable related party.

 

Cash Flows

 

  Year Ended  
  Thursday, May 31, 2012   Tuesday, May 31, 2011
Net cash used in operating activities  $                     (328,300)    $                      (75,409)
Net cash provided by investing activities  $                                   -    $                                  -
Net cash provided by financing activities  $                       332,673    $                      751,362
Effect of exchange rate on cash  $                                   -    $                                  -
Change in cash and cash equivalents during period  $                         11,182    $                        (4,047)
       
         

Cash Used in Operating Activities

 

Net cash used for continuing operating activities for the year ended May 31, 2012 was $328,300 as compared to $755,409 for the year ended May 31, 2011. Non-cash items totaling approximately $237,277 contributing to the net cash used in continuing operating activities for fiscal 2012 include:

 

·         $271 increase in rent deposit

·         $243,999 increase in accounts payable to related parties; representing working capital loans to shareholders

·         $19,153 decrease in accounts payable and accrued liabilities

·         $12,701 increase in accrued interest

 

Net cash used for continuing operating activities for the year ended May 31, 2011 was $755,409. Non-cash items totaling approximately $397,150 contributing to the net cash used in continuing operating activities for the year ended May 31, 2011 include:

 

·           $374,374 increase in accounts payable to related parties; representing working capital loans to shareholders

· $14,925 increase in accounts payable and accrued liabilities
· $7,851 increase in accrued interest

 

Cash Provided by Investing Activities

 

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During the years ended May 31, 2012 and 2011, no funds were used or provided by investing activities.

 

Cash from Financing Activities

 

Net cash provided by financing activities was $332,673 for the year ended May 31, 2012 as compared to $751,362 for the year ended May 31, 2011. During the year ended May 31, 2012 we generated $344,999 from the sale of common stock, $6,960 in proceeds from related parties, and paid $19,286 in bank overdraft.

 

During the year ended May 31, 2011 we generated $722,500 from the sale of our common stock, $9,580 in proceeds from related parties, and $19,282 in bank overdraft.

 

Our company currently has little cash on hand. Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued issuance of equity to new stockholders, and our ability to achieve and maintain profitable operations. Our company’s cash and cash equivalents will not be sufficient to meet our working capital requirements for the next twelve month period. We will not initially have any cash flow from operating activities as we are in the development stage with PreAxia Canada. We project that we will require an estimated additional $2,734,051 over the next twelve month period to fund our operating cash shortfall calculated as $1,184,051 to cover our working capital deficit plus $1,550,000 for our projected cash request for the year ended May 31, 2013. Our company plans to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirements for the next twelve months primarily through the private placement of our equity securities or by way of loans or such other means as our company may determine.

 

There are no assurances that we will be able to obtain funds required for our continued operations. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease the operation of our business.

 

Going Concern

 

There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further long-term financing, successful and sufficient market acceptance of our products and achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

We have historically incurred losses and have incurred a loss of $2,819,309 from inception to May 31, 2012. Because of these historical losses, we will require additional working capital to develop our business operations. We intend to raise additional working capital through private placements, public offerings, bank financing and/or advances from related parties or shareholder loans.

 

The continuation of our business is dependent upon obtaining further financing and achieving a break even or profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current or future stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

There are no assurances that we will be able to either (i) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (ii) obtain additional financing through either private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. If adequate working capital is not available, we may cease operations.

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These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Summary of Significant Accounting Policies

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures of our company. Although these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future, actual results may differ from such estimates.

Use of Estimates in the preparation of the financial statements

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

Cash and Cash Equivalents

Our company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.

Foreign Currency Translation

The functional currency of our company is the United States dollar. The functional currency of PreAxia Canada is the Canadian dollar. Assets and liabilities in the accompanying financial statements are translated into United States dollars at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in the accumulated other comprehensive income (loss) account in stockholders’ deficit.

Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any exchange gains and losses are included in the Statement of Operations and Comprehensive Loss.

Development Stage Company

Our company is a development stage company as defined in FASC 915-10-05 Development Stage Entity . Our company is devoting substantially all of its present efforts to establish a new business and none of its planned principal operations have commenced. All losses accumulated since inception has been considered as part of our company’s development stage activities.

Gain (Loss) Per Share

Gain (loss) per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Fully diluted earnings per share are not presented because they are anti-dilutive.

Research and Development Costs

Research and development costs are expensed in the year in which they are incurred.

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Recent Accounting Pronouncements

The Company has adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”), which was formerly known as SFAS 168. ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the Securities and Exchange Commission (the "SEC") under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants.  All guidance contained in the Codification carries an equal level of authority.  The Codification superseded all existing non-SEC accounting and reporting standards and all other non-grandfathered, non-SEC accounting literature not included in the Positions or Emerging Issues Task Force Abstracts.  Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right.  ASUs will serve only to update the Codification, provide background information about the guidance and provide the basis of conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

 

In May 2011, the Financial Accounting Standards Board (FASB) issued authoritative guidance regarding Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which resulted in common requirements for measuring fair value and for disclosing information about fair value measurement under both U.S. GAAP and International Financial Reporting Standards (IFRS), including a consistent definition of the term "fair value." The amendments were effective beginning in the first quarter of 2012, and did not have a material effect on our consolidated financial statements.

 

In June 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income . This update amended the provisions of FASB ASC 220-10 by eliminating the option of reporting other comprehensive income in the statement of changes in stockholders’ equity. Companies will have the option of presenting net income and other comprehensive income in a single, continuous statement of comprehensive income or presenting two separate but consecutive statements of net income and comprehensive income. The new presentation requirements are effective for interim and annual periods beginning after December 15, 2011. The adoption of this standard is not anticipated to have a material impact on our financial statements.

 

In September 2011, the FASB issued Accounting Standards Update 2011-08, Testing Goodwill for Impairment . This update amended the provisions of FASB ASC 350-20-35 by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this standard is not anticipated to have a material impact on our financial statements.

 

The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows.  Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

 

 

23
 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Table of Contents
     
    Page
     
Report of Independent Registered Accounting Firm   F-1
     
Report of Independent Registered Accounting Firm   F-2
     
Consolidated Balance Sheets as of May 31, 2012 and 2011   F-3
     
Consolidated Statements of Operations for the years ended May 31, 2012 and 2011   F-4
     
Consolidated Statements of Stockholders' Deficit for the years ended May 2012 and 2011   F-5
     
Consolidated statements of cash flows for the years ended May 31, 2012 and 2011   F-6
     
Notes to Consolidated Financial Statements   F-7 - F-13

 

 

 

 

 

 

24
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To The Board of Directors

Preaxia Health Care Payment Systems, Inc.

Calgary, Alberta

 

We have audited the accompanying consolidated balance sheet of Preaxia Health Care Payment Systems, Inc.

and its subsidiary (the “Company”) as of May 31, 2012 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year ended May 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for my opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of May 31, 2012 and the consolidated results of its operations and its cash flows for the year ended May 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 of the accompanying consolidated financial statements, the Company has incurred losses since inception, has a negative working capital balance at December 31, 2012, and has a retained deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Patrick Rodgers, CPA, PA

Altamonte Springs, Florida

June 20, 2013

 

 

 

 

 

 

F- 1
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To The Board of Directors

Preaxia Health Care Payment Systems, Inc.

 

We have audited the accompanying consolidated balance sheet of Preaxia Health Care Payment Systems, Inc. (the Company) and subsidiary as of May 31, 2011, and the related consolidated statements of operations and comprehensive income, statements of stockholders’ deficit, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Preaxia Health Care Payment Systems, Inc. and subsidiary as of May 31, 2011, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a deficit working capital, a retained deficit, and has suffered recurring losses from operations. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/Child, Van Wagoner & Bradshaw, PLLC, CPA

Salt Lake City, Utah

October 20, 2011

 

 

 

F- 2
 

 

 

 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
May 31, 2012 and May 31, 2011
(Stated in US Dollars)
       
   2012    2011
ASSETS
       
Current assets      
 Cash  $          11,182    $                     -
       
 Total current assets              11,182                           -
       
 Other assets      
    Deposits                1,475                  1,205
 Total other assets                1,475                  1,205
       
 Total assets  $          12,657    $            1,205
 
 LIABILITIES
       
 Current liabilities      
 Bank overdraft  $                     -    $          19,297
 Accounts payable and accrued liabilities            129,249              148,401
 Accounts payable – related party           1,060,655              985,808
 Loan payable – related party                         -                   86,494
 Accrued interest – loans payable                5,328                  9,619
 Convertible note payable - including accrued interest, net of discount                         -                   59,131
       
 Total current liabilities         1,195,232           1,308,750
       
 STOCKHOLDERS’ DEFICIT
       
 Common stock, $0.001 par value; 75,000,000  shares authorized      
 17,552,082 and 16,617,500 common shares issued and        
 outstanding at May 31, 2012 and 2011              17,552                16,618
 Additional paid-in capital           1,620,897              932,091
 Stock subscription receivable                  (170)                         -   
 Accumulated other comprehensive loss              (1,545)                (2,523)
 Deficit accumulated during the development stage       (2,819,309)         (2,253,731)
       
 Total stockholders’ deficit       (1,182,575)         (1,307,545)
       
 Total liabilities and stockholders’ deficit  $          12,657    $            1,205
       
The accompanying notes are an integral part of these financial statements.

 

 

F- 3
 

 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 (Stated in U.S. Dollars)
           
          January 28,
          2008 (Date of
  For the year ended   Inception) to
  May 31,   May 31,
  2012   2011   2012
           
Expenses          
Consulting fees  $        120,000    $        120,000    $        563,689
Professional fees              36,331              126,876              322,547
Office and administration              78,134                95,631              282,664
Research and development            240,596              649,324           1,256,546
Wages and benefits              65,282              102,794              260,545
Rent              18,541                17,841                50,261
           
Total expenses            558,884           1,112,466           2,736,251
           
Operating loss          (558,884)         (1,112,466)         (2,736,251)
           
Commission income                      47                         -                           47
Interest income                        1                        19                      639
Interest expense            (12,701)                (7,851)              (58,789)
Foreign currency transaction  income (expense)                5,959              (32,261)              (24,956)
           
Net loss  $      (565,578)    $  (1,152,559)    $  (2,819,309)
           
Other comprehensive income:          
Foreign currency translation                    978                (2,112)                (1,545)
           
Comprehensive loss for the period  $      (564,600)    $  (1,154,671)    $  (2,820,854)
           
Basic and diluted loss per share  $            (0.03)    $            (0.07)    
           
Weighted average number of shares outstanding      17,153,247        16,115,014    
           
The accompanying notes are an integral part of these financial statements.

 

 

 

 

 

F- 4
 

 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the Cumulative period January 28, 2008 (Date of Inception) through May 31, 2012

(Stated in U.S. Dollars)

                                                         
                                              Deficit          
                                      Accumulated       Accumulated          
                      Additional       Stock       Other       During the          
      Common Stock               Paid-in       Subscription       Comprehensive       Development          
      Shares       Amount       Capital       Receivable       Income       Stage       Total  
                                                         
Balance, January 28, 2008     —       $ —       $ —       $ —       $ —       $ —       $ —    
Common shares issued pursuant to share exchange agreements     12,000,000       12,000       —         —         —         —         12,000  
Pursuant to recapitalization     3,750,000       3,750       36,964       —         —         —         40,714  
Foreign currency translation adjustment     —         —         —         —         (810 )     —         (810 )
Net loss for the year     —         —         —         —         —         (23,998 )     (23,998 )
                                                         
Balance, May 31, 2008     15,750,000       15,750       36,964       —         (810 )     (23,998 )     27,906  
                                                         
Warrants issued with convertible debt     —         —         28,495       —         —         —         28,495  
Foreign currency translation adjustment     —         —         —         —         1,295       —         1,295  
Net loss for the year     —         —         —         —         —         (333,982 )     (333,982 )
                                                         
Balance, May 31, 2009     15,750,000       15,750       65,459       —         485       (357,980 )     (276,286 )
                                                         
Common shares issued for cash at $1.00 per share     120,000       120       119,880       —         —         —         120,000  
Foreign currency translation adjustment     —         —         —         —         (896 )     —         (896 )
Net loss for the period     —         —         —         —         —         (743,192 )     (743,192 )
                                                         
Balance, May 31, 2010     15,870,000       15,870       185,339       —         (411 )     (1,101,172 )     (900,374 )
                                                         
Common shares issued to reduce debt     25,000       25       24,975       —         —         —         25,000  
Common shares issued for cash at $1.00 per share     722,500       723       721,777       —         —         —         722,500  
Foreign currency translation adjustment     —         —         —         —         (2,112 )     —         (2,112 )
Net loss for the period     —         —         —         —         —         (1,152,559 )     (1,152,559 )
                                                         
Balance, May 31, 2011     16,617,500       16,618       932,091       —         (2,523 )     (2,253,731 )     (1,307,545 )
                                                         
Common shares issued for cash     420,000       420       344,580       —         —         —         345,000  
Common shares issued for debt conversion at $1.00 per share     344,580       344       344,226       —         —         —         344,570  
Stock subscriptions receivable     170,002       170       —         (170 )     —         —            
Foreign currency translation adjustment     —         —         —         —         978       —         978  
Net loss for the period     —         —         —         —         —         (565,578 )     (565,578 )
                                                         
Balance, May 31, 2012     17,552,082     $ 17,552     $ 1,620,897     $ (170 )   $ (1,545 )   $ (2,819,309 )   $ (1,182,575 )
                                                         
                                                         
The accompanying notes are an integral part of these financial statements.      
F- 5
 

 

 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Stated in U.S. Dollars)
           
          January 28,
          2008 (Date of
  For Year Ended     Inception) to
  May 31,       May 31,
  2012   2011   2012
           
Cash Flows from Operating Activities          
Net loss  $      (565,578)    $  (1,152,559)    $  (2,819,309)
Adjustments to reconcile net loss to net cash used in operating activities:        
Amortization of debt discount                         -    -                28,495
Changes in operating assets and liabilities:          
Trade receivables                         -    -                  4,300
Rent deposit                  (271)    -                (1,476)
Accounts payable – related party            243,999              374,374           1,064,515
Accounts payable and accrued  liabilities            (19,153)                14,925              215,859
Accrued interest              12,702                  7,851                34,947
Cash flows used in operating activities          (328,300)            (755,409)         (1,472,668)
           
Cash Flows from Investing Activities          
Cash received from note receivable  -    -                49,281
Cash acquired from business combination  -    -                86,692
Cash flow provided by investing activities  -    -              135,973
           
Cash Flows from Financing Activities          
Overdraft in bank            (19,286)                19,282                        (4)
Proceeds from loan payable – related party                6,960                  9,580              119,803
Repayment of loan payable                         -    -              (25,000)
Proceeds from loan payable – convertible debenture                         -    -                46,505
Proceeds from sale of common stock            344,999              722,500           1,199,541
Cash flows provided by financing activities            332,673              751,362           1,340,845
           
Effect of exchange rate changes on cash                6,808                           -                  7,031
Increase (decrease) in cash during the period              11,182                (4,047)                11,182
Cash, beginning of period                         -                  4,047                           -
           
Cash, end of period  $          11,182    $                     -    $          11,182
           
Supplemental Disclosure :          
Non-Cash Investing and Financing Transactions:          
Common stock issued for acquisition of subsidiary  $                     -    $                     -    $          12,000
Common stock issued for debt  $        344,570    $          25,000    $        369,570
           
The accompanying notes are an integral part of these financial statements.
F- 6
 

 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2012 and 2011

 

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

PreAxia Health Care Payment Systems Inc. (the “Company” OR “PreAxia”) was incorporated on April 3, 2000 in the State of Nevada. On May 30, 2008, the Company finalized the execution of an acquisition agreement dated April 22, 2008 between the Company and PreAxia Canada (formerly H Pay Card Inc.). Under the terms of the Acquisition Agreement, the Company acquired all the issued and outstanding shares of PreAxia Canada in exchange for 12,000,000 newly issued shares, representing approximately 78.7% of the issued and outstanding shares of the Company. The result was PreAxia Canada becoming a direct, wholly-owned subsidiary of the Company. Tom Zapatinas, an officer and director of PreAxia Health Care Payment Systems Inc., is also an officer and director of PreAxia Canada. He disclosed such information and interest in this transaction to the board of directors prior to the conclusion of this transaction.

 

As a result, the consolidated results of operations presented at May 31, 2012 are those of the Company and PreAxia Canada Inc. PreAxia Canada. was incorporated pursuant to the laws of the Province of Alberta on January 28, 2008. Since inception of PreAxia Canada., its business objective has been the development, distribution, marketing and sale of health care payment processing services and products.

 

Nature and Continuance of Operations

 

The primary operations of the Company will eventually be undertaken by PreAxia Canada. PreAxia Canada is in the process of developing an online access system creating a health savings account that allows card payments and processing services to third-party administrators, insurance companies and others.

 

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

   

Development Stage Company

 

The Company is currently a development stage enterprise reporting under the provisions of FASB ASC Topic 915 , Development Stage Entity. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include all of the accounts of the Company and its wholly owned subsidiary Preaxia Canada as of May 31, 2012 and 2011 for the period then ended, and for the period from January 28, 2008 (inception) through May 31, 2012. All intercompany balances and transactions have been eliminated.

 

Reclassification

 

Certain prior period amounts in the condensed financial statements have been reclassified to conform to current period presentation.

 

 

F- 7
 

 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2012 and 2011

 

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Going Concern

 

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year.  Realization values may be substantially different from carrying values as shown and these consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.  As of May 31, 2012, the Company had not yet achieved profitable operations and has an accumulated loss of $2,819,309 since inception. The Company expects to incur further losses in the development of its business, all of which raises substantial doubt about the Company’s ability to continue as a going concern.  The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.  

 

Management has no formal plan in place to address this concern but believes the Company will be able to obtain additional funds by equity financing and/or related party advances; however there is no assurance of additional funding being available.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles 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 the reported amounts of revenues and expenses during the reporting period.  Significant estimates include the estimated useful lives of property and equipment.  Actual results could differ from those estimates.

 

Foreign Currency Translation

 

The functional currency of the Company is the United States dollar.  The functional currency of PreAxia Canada is the Canadian dollar. Assets and liabilities in the accompanying consolidated financial statements are translated into United States dollars at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates.  Income statement accounts are translated at the average rates of exchange prevailing during the period.  Translation adjustments arising from the use of differing exchange rates from period to period are included in the accumulated other comprehensive income (loss) account in stockholders’ deficit.

 

Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date.  Any exchange gains and losses are included in the Statement of Operations and Comprehensive Loss.

 

 

 

 

 

F- 8
 

 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2012 and 2011

 

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Fair value of financial instruments

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

     
Level 1   Quoted market prices available in active markets for identical assets or liabilities as of the reporting period date.
    period.
     
Level 2   Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
Level 3   Pricing inputs that are generally observable inputs and not corroborated by market data.

 

The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments. The Company’s notes payable approximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at May 31 , 2012 .

 

The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis.

 

Gain (Loss) Per Share

 

Gain (loss) per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding during the period.

 

Research and Development Costs

 

Research and development costs are expensed in the year in which they are incurred.

 

 

 

 

 

 

 

 

 

 

F- 9
 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2012 and 2011

 

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Recently Issued Accounting Standards

 

The Company has adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”), which was formerly known as SFAS 168. ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the Securities and Exchange Commission (the "SEC") under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants.  All guidance contained in the Codification carries an equal level of authority.  The Codification superseded all existing non-SEC accounting and reporting standards and all other non-grandfathered, non-SEC accounting literature not included in the Positions or Emerging Issues Task Force Abstracts.  Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right.  ASUs will serve only to update the Codification, provide background information about the guidance and provide the basis of conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

 

In May 2011, the Financial Accounting Standards Board (FASB) issued authoritative guidance regarding Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which resulted in common requirements for measuring fair value and for disclosing information

about fair value measurement under both U.S. GAAP and International Financial Reporting Standards (IFRS), including a consistent definition of the term "fair value." The amendments were effective beginning in the first quarter of 2012, and did not have a material effect on our consolidated financial statements.

 

In June 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income . This update amended the provisions of FASB ASC 220-10 by eliminating the option of reporting other comprehensive income in the statement of changes in stockholders’ equity. Companies will have the option of presenting net income and other comprehensive income in a single, continuous statement of comprehensive income or presenting two separate but consecutive statements of net income and comprehensive income. The new presentation requirements are effective for interim and annual periods beginning after December 15, 2011. The adoption of this standard is not anticipated to have a material impact on our financial statements.

 

In September 2011, the FASB issued Accounting Standards Update 2011-08, Testing Goodwill for Impairment . This update amended the provisions of FASB ASC 350-20-35 by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this standard is not anticipated to have a material impact on our financial statements.

 

The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows.  Based on that review, the Company believes that none of these pronouncements will have a significant effect on its consolidated financial statements.

 

F- 10
 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2012 and 2011

 

NOTE 3 – RELATED PARTY TRANSACTIONS

 

Accounts Payable

 

During the year ended May 31, 2012, the Company’s Chief Executive Officer, Tom Zapatinas, invoiced $120,000 for management services rendered to the Company for the period June 1, 2011 to May 31, 2012. As at May 31, 2012, Accounts payable – related party includes a total of $515,211 due and payable to Mr. Zapatinas. There are no terms of repayment for this payable.

 

During the year ended May 31, 2012, Lizée Gauthier, Certified General Accountants, of which our former CFO, Ron Lizée is the sole proprietor, invoiced $14,783 for accounting services rendered. As at May 31, 2012, Accounts payable – related party includes a total of $84,892 due and payable to Mr. Lizée. There are no terms of repayment for this payable.

 

During the year ended May 31, 2012, the company converted accounts payable in the amount of $173,859 into 173,859 common shares. As of May 31, 2012, the Company owed these shareholders $408,105. The terms of repayment are 30 days after demand is made by the shareholder.

 

Loans Payable

 

The Company had a loan payable to a shareholder of the Company. The loan was unsecured, with 6% interest per annum and was payable 30 days after demand is made by the shareholder. At February 29, 2012 the Company had a loan payable to related party balance of $93,454. As of February 29, 2012 the Company had accrued interest on the related party loan in the amount of $17,561. The loan including accumulated interest was converted into 109,488 shares on February 29, 2012 .

 

NOTE 4 – CONVERTIBLE NOTE PAYABLE

 

On September 12, 2008, the Company accepted funds in the amount of $46,505 USD ($50,000 CDN) as a convertible debenture from a stockholder of the Company.   The debenture was for a period of one year and bears interest at the rate of 10% per annum and is convertible by the stockholder into common shares of the Company at $1.00 per share for a period of one year.  During the year ended May 31, 2010, the Company recorded amortization of loan discount in the amount of $8,119.  The discount was fully amortized by November 30, 2009. At February 29, 2012 the balance on the convertible note was $62,622, including accrued interest in the amount of $16,117. On February 29, 2012, the note holder converted the entire note balance including accumulated interest for 61,223 common shares. At May 31, 2012 and 2011 the Company had a convertible note payable balance $0 and $59,131 which include accrued interest.

 

NOTE 5 – STOCKHOLDERS’ EQUITY

 

The Company is authorized to issue 75,000,000 shares of common stock.

 

In the year ended May 31, 2011, the Company issued 722,500 common shares for $722,500 cash. The Company also issued 25,000 common shares for the reduction of $25,000 in debt.

 

 

 

 

F- 11
 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2012 and 2011

 

NOTE 5 – STOCKHOLDERS’ EQUITY (continued)

 

In the year ended May 31, 2012, the Company issued 934,582 common shares, of which 420,000 were for $345,000 cash, 344,580 shares were for the reduction of $344,570 in debt, and 170,002 shares were for $85,001 cash that was received after May 31, 2012.

 

NOTE 6 – LEASE OBLIGATIONS

 

Effective August 1, 2009, the Company signed an agreement to lease office space of 712 square feet in Calgary, Alberta Canada, in the amount of $1,190.00 USD per month. The term of the lease was for a period of one year with an option to renew the lease at the same rental rate for a further two (2) terms of one year each. On August 1, 2010, the Company exercised its option to renew the lease to the end of July 31, 2011. Effective August 1, 2011 the Company exercised its second term option to July 31, 2012.

 

NOTE 7 – INCOME TAXES

 

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

Net deferred tax assets consist of the following components as of May 31, 2012 and 2011:

 

    2012   2011
Deferred tax assets - non-current                
                 
NOL carryover   $ 958,565     $ 766,269  
Less valuation allowance     (958,565 )     (766,269 )
                 
Deferred tax assets, net of valuation allowance   $ —       $ —    
                 

 

Reconciliation between the statutory rate and the effective tax rate is as follows at May 31:

 

    2012   2011
                 
Federal statutory tax rate     (34.0 )%     (34.0 )%
State tax, net of federal benefit     (0.0 )     (0.0 )
Permanent differences and other including surtax exemption     0.0       0.0  
Valuation allowance     34.0       34.0  
Effective tax rate     0 %     0 %

 

At May 31, 2012, the Company had net operating loss carryforwards of approximately $2,819,309 that may be offset against future taxable income from the year 2012 to 2032. No tax benefit has been reported in the May 31, 2012 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

 

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal Income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.

 

F- 12
 

 

 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2012 and 2011

 

NOTE 8 – SUBSEQUENT EVENTS

 

Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that other than listed below, no material subsequent events exist through the date of this filing.

 

1. The Company received funds from a subscriber on August 17, 2012 in the amount of $25,000 for 50,000 shares of common stock at $.50 per share. The shares were issued on May 3, 2012 and therefore recorded as a stock subscription receivable.

 

2. The Company received funds from a subscriber on September 10, 2012 in the amount of $10,001 for 20,002 shares of common stock at $.50 per share. The shares were issued on May 3, 2012 and therefore recorded as a stock subscription receivable.

 

3. The Company received funds from a subscriber on September 7, 2012 in the amount of $25,000 for 50,000 shares of common stock at $.50 per share. The shares were issued on May 3, 2012 and therefore recorded as a stock subscription receivable.

 

4. The Company received funds from a subscriber on October 30, 2012 in the amount of $25,000 for 50,000 shares of common stock at $.50 per share. The shares were issued on May 3, 2012 and therefore recorded as a stock subscription receivable.

 

5. Effective August 1, 2012 the Company exercised its third term option to July 31, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F- 13
 

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Management, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based upon this evaluation, the Chief executive officer concluded that, as of May 31, 2012, the disclosure controls and procedures were not effective. The ineffectiveness of our company’s disclosure controls and procedures was due to the existence of material weaknesses identified below.

 

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in our company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 14d-14(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our company’s internal control over financial reporting as of May 31, 2012. In making the assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework . Based on its assessment, management concluded that, as of May 31, 2012, our company’s internal control over financial reporting was not effective.

 

Management has identified the following material weaknesses:

 

  • We do not have accounting staff with sufficient technical accounting knowledge relating to accounting for U.S. income taxes and complex US GAAP matters; and
  • We failed to file our corporate tax returns for 2008, 2009, 2010, 2011 and 2012.

 

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these material weaknesses. In particular, we intend to hire staff with U.S. GAAP expertise if we can obtain additional financing and hire professionals to prepare and complete the filing of our corporate tax returns.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal controls over financial reporting that occurred during our fourth fiscal quarter that has materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 

25
 

 

ITEM 9B. OTHER INFORMATION

 

Effective August 1, 2009, we signed an agreement to lease office space of 712 square feet in Calgary, Alberta Canada, in the amount of $1,190.00 USD per month. The term of the lease was for a period of one year with an option to renew the lease at the same rental rate for a further two (2) terms of one year each. On August 1, 2010, we exercised our option to renew the lease to the end of July 31, 2011. Effective August 1, 2011 we exercised our second term option to July 31, 2012.

 

Effective November 24, 2011, the Chief Financial Officer, Treasurer and Director – Mr Ron Lizee tendered his resignation from the Company. His resignation has been accepted and Mr Tom Zapatinas has assumed the roles as chief financial officer and treasurer.

 

On April 30, 2013, the Company board of directors, acting through the chief executive officer, dismissed Child, Van Wagoner & Bradshaw, PLLC from their engagement to be the independent certifying accountant for the Company.

 

On May 1, 2013, the Company engaged Patrick Rodgers CPA, PA to act as the Company’s independent registered public accountant.

 

The engagement of Patrick Rodgers CPA, PA and the dismissal of the prior accountant was done by the chief executive officer and member of the board of the Company, with the knowledge and approval of the other members of the board of directors.  The Company does not have an audit committee or any other committee charged with oversight of financial matters, and has entrusted this responsibility in its chief executive officer acting as the Company’s Chief financial officer.

 

Since their engagement and to the date of their dismissal, there have not been, nor are there now, any disagreements between the Company and Child, Van Wagoner & Bradshaw, PLLC. with respect to any matter of accounting principles, practices, financial statement disclosure, auditing scope or procedure for the reporting and filing completed prior to this date, nor have there been any “reportable events” as defined by Regulation S-K section 304(a)(1)(v) during that same period, other than the reports were modified to contain a going concern opinion.

 

The general manager Mr Perry Shoom has resigned from the company effective October 31, 2012.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

The following individual serves as the director and executive officers of our company. All directors of our company hold office until the next annual meeting of our shareholders or until their successors have been elected and qualified. The executive officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office.

 

Name Position Age Date First Elected or Appointed
Tom Zapatinas Chief Executive Officer, Chief Financial Officer and Director 56 Director since January 9, 2007
Officer since January 25, 2008

 

Significant Employees

 

On June 30, 2011, Mr. Geneau resigned as the company’s chief marketing and privacy officer. Effective September 1, 2011, the board signed an employment contract with Mr. Perry Shoom as general manager. The agreement is for an annual base salary of $85,000 and includes the potential for the employee to receive 30,000 shares upon the

26
 

completion of one year of services, and a health spending account in the amount of $3,000 per year. Mr Shoom resigned on October 31, 2012.

 

Family Relationships

 

There are no family relationships between or among our directors or executive officers.

 

Business Experience

 

Tom Zapatinas, Chief Executive Officer , Chief Financial Officer and a Director

 

Tom Zapatinas has been a director of our company since January 9, 2007 and the chief executive officer of our company since January 25, 2008. Mr. Zapatinas has been a self-employed business consultant since August, 1997. In June of 1998, Mr. Zapatinas founded Prolific Smart Card Software Systems Inc. which became a reporting issuer on the TSX Venture Exchange in Canada. Mr. Zapatinas resigned from Prolific in May 29, 2001, to go back to his consulting practice. He brings experience in financing, corporate development and mergers and acquisitions.

 

Mr. Zapatinas is not an officer or director of any other reporting company that files annual, quarterly or periodic reports with the United States Securities and Exchange Commission.

 

We believe Mr. Zapatinas is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations, which he gained from working for our company as described above, in addition to his business experiences as described above.

 

Involvement in Certain Legal Proceedings

 

Our directors or executive officers have not been involved in any of the following events during the past ten years:

 

  1. any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
     
  2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
     
  3. being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
     
  4. being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
     
  5. being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
     
  6. being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
27
 

 

Audit Committee

 

The board of directors presently does not have an audit committee. Since there are no independent members of the board it is not feasible at this time to have an audit committee. The board of directors performs the same functions as an audit committee. The board of directors in performing its functions as an audit committee has determined that it does not have an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. We believe that the board of directors, in acting as our audit committee, is collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have generated nominal revenues to date.

 

Nomination Procedures For Appointment of Directors

 

We had not effected any material changes to the procedures by which our shareholders may recommend nominees to our board of directors. Our board of directors does not have a policy with regards to the consideration of any director candidates recommended by our shareholders. Our board of directors has determined that it is in the best position to evaluate our company’s requirements as well as the qualifications of each candidate when the board considers a nominee for a position on our board of directors. If shareholders wish to recommend candidates directly to our board, they may do so by sending communications to the chief executive officer of our company at the address on the cover of this annual report.

 

Code of Ethics

 

We have not yet adopted a code of ethics that applies to our company’s chief executive officer and secretary (being our principal executive officer) and our company’s treasurer (being our principal financial officer and principal accounting officer), as well as persons performing similar functions.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended May 31, 2012 all filing requirements applicable to our executive officers, directors and greater than 10% percent beneficial owners were complied with.

 

 

 

 

 

28
 

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following table sets forth all compensation received during the two years ended May 31, 2012 and May 31, 2011 by our principal executive officer and principal financial officer and each of the other most highly compensated executive officers whose total compensation exceeded $100,000 in such fiscal year. These officers are referred to as the Named Executive Officers in this report.

 

Summary Compensation

 

The following table provides a summary of the compensation received by the persons set out therein for each of our last two fiscal years:

SUMMARY COMPENSATION TABLE






Name and
Principal
Position






Year





Salary
($)





Bonus
($)




Stock
Awards
($)




Option
Awards
($)



Non-Equity
Incentive Plan
Compensation
($) 		Change in
Pension
Value and
Nonqualified
Deferred
Compensa-
tion Earnings
($)



All Other
Compensa
-tion
      ($) (1)





Total
($)
Tom
Zapatinas,

CEO, CFO and
Director 		2012
2011

-
-

-
-

-  
-

-
-

-
-

-
-

-
8,411

-
-

Ron Lizée,
former CFO and
Director 		2012
2011 		-
- 		-
-   		-
- 		-
- 		-
- 		-
- 		3,700
57,700   		-
-

 

(1.) During the year ended May 31, 2012 and the year ended May 31, 2011, our company’s chief executive officer, Tom Zapatinas, invoiced $120,000 for management services rendered to our company for the period June 1, 2011 to May 31, 2012 and $120,000 for management services rendered for the period June 1, 2010 to May 31, 2011. At May 31, 2012, accounts payable to related party balance of $1,060,655 was made up of $515,211 payable to Mr. Zapatinas. For the years ended May 31, 2012 and 2011, Mr. Zapatinas was paid $-0- and $8,411 in accrued management service fees.
   
  During the year ended May 31, 2012 and 2011, Lizée Gauthier, Certified General Accountants, of which our former CFO, Ron Lizée is the sole proprietor, invoiced $14,783 and $61,759 for accounting services rendered. As May 31, 2012, accounts payable to related parties balance includes a total of $84,895 due and payable to Lizée Gauthier, Certified General Accountants.  For the years ended May 31, 2012 and 2011, Lizée Gauthier, Certified General Accountants were paid $3,700 and $57,700 for accounting services rendered to the Company.

 

Employment Agreements

 

Effective July 1, 2009, our company signed an employment agreement for the position of chief marketing and privacy officer with Mr. Geneau. The agreement was for a base salary and included shares for service, bonus and stock option plan and a health spending account. As at August 3, 2011, the board accepted the resignation of our chief marketing and privacy officer.

 

Effective September 1, 2011, our company signed a new contract with Perry Shoom to assume the position of general manager. The employment agreement is for an annual base salary of $85,000 and includes 30,000 shares for

29
 

completion of one year of services, stock option plan and a health spending account. As at October 31, 2011, the board accepted the resignation of our general manager.

 

Pension, Retirement or Similar Benefit Plans

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We adopted and approved our current stock option plan on January 28, 2010, pursuant to which we may grant stock options to acquire up to 2,000,000 shares of our common stock. Our directors and executive officers may receive stock options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors from time to time.

 

Termination of Employment and Change in Control Arrangements

 

We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth for each named executive officer certain information concerning the outstanding equity awards as of May 31, 2012.

 

   OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END   
OPTION AWARDS STOCK AWARDS
















Name









Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable









Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable





Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)












Option
Exercise
Price
($)













Option
Expiration
Date






Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)




Market
Value
of
Shares
or
Units of
Stock
That
Have
Not
Vested
($)

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested
(#) 		Equity
Incentive
Plan
Awards:
Market or
Payout
Value
of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested
(#)
Tom Zapatinas - - - - - - - - -

 

 

Aggregated Option Exercises

 

There were no options granted or exercised by any executive officer or director of our company during the twelve month period ended May 31, 2012.

 

Directors Compensation

 

We reimburse our directors for expenses incurred in connection with attending board meetings but did not pay director’s fees or other cash compensation for services rendered as a director in the year ended May 31, 2012. We have no present formal plan for compensating our directors for their service in their capacity as directors, although in the future, such directors are expected to receive compensation and options to purchase shares of common stock

30
 

as awarded by our board of directors or (as to future options) a compensation committee which may be established in the future. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. The board of directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director. Other than indicated in this annual report, no director received and/or accrued any compensation for his or her services as a director, including committee participation and/or special assignments

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Security ownership of certain beneficial owners

 

The following table sets forth, as of July 1, 2013, certain information with respect to the beneficial ownership of our common stock by of our current directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of common stock they hold, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. As of June 15, 2013, there were no shareholders known by us to be the beneficial owner of more than 5% of our common stock except as set forth in the following table.

 


Title of Class
Name of Beneficial Owner 		Amount and Nature of
Beneficial Ownership (1) 		Percentage
of Class (2)
Common Stock Tom Zapatinas (2) 9,000,000 Direct 51.28%
         
  All Directors and Officers as a Group 9,000,000   51.28%

 

 

(1) Percent of Class is based on 17,552,082 shares issued and outstanding as of July 1, 2013.
(2) Tom Zapatinas, 3212 – 14 Ave SW, Calgary, AB T3C 0X3. Mr Zapatinas is the Company’s CEO

 

(1) Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
(2) Based upon 17,552,082 issued and outstanding shares of common stock as of July 1, 2013

Changes in Control

 

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our company.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

1. During the year ended May 31, 2012 and the year ended May 31, 2011, our company’s Chief Executive Officer, Tom Zapatinas, invoiced $120,000 for management services rendered to our company for the period June 1, 2011 to May 31, 2012 and $120,000 for management services rendered for the period June 1, 2010 to May 31, 2011. At May 31, 2012, accounts payable to related party balance of $1,060,655 was made up of $515,211 payable to Mr. Zapatinas. For the years ended May 31, 2012 and 2011, Mr. Zapatinas was paid $-0- and $8,411 in accrued management service fees.
   
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2. During the year ended May 31, 2012 and 2011, Lizée Gauthier, Certified General Accountants, of which our fomer CFO, Ron Lizée is the sole proprietor, invoiced $14,783 and $61,759 for accounting services rendered. As May 31, 2012, accounts payable to related parties balance includes a total of $84,895 due and payable to Lizée Gauthier, Certified General Accountants.  For the years ended May 31, 2012 and 2011, Lizée Gauthier, Certified General Accountants were paid $3,700 and $57,700 for accounting services rendered to the Company.

 

Director Independence

 

We do not currently have any directors that would fit the independence requirements of Rule 5605(a)(2) of the Nasdaq Marketplace Rules.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit fees

 

The aggregate fees billed by our current independent auditors Patrick Rodgers, CPA for the fiscal period ended May 31, 2012 are summarized in the table below. The aggregate fees billed by our previous independent auditors Child, Van Wagoner & Bradshaw, PLLC for the fiscal period ended May 31, 2011 are summarized in the table below as follows:

 

  Year Ended May 31, 2012 Year Ended May 31, 2011
Audit Fees and Audit Related Fees $5,000 $26,988
Tax Fees - -
All Other Fees - -
Total $5,000 $26,988

 

In the above tables, “audit fees” are fees billed by our company’s external auditor for services provided in auditing our company’s annual financial statements for the subject year. “Audit-related fees” are fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit review of our company’s financial statements. “Tax fees” are fees billed by the auditor for professional services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the auditor for products and services not included in the foregoing categories.

 

Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors

 

The board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors before the respective services were rendered.

 

The board of directors has considered the nature and amount of fees billed by Child, Van Wagoner & Bradshaw and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Child, Van Wagoner & Bradshaw’s independence.

 

On April 30, 2013, the Company board of directors, acting through the Chief executive officer, dismissed Child, Van Wagoner & Bradshaw, PLLC from their engagement to be the independent certifying accountant for the Company.

 

On May 1, 2013, the Company engaged Patrick Rodgers CPA, PA to act as the Company’s independent registered public accountant.

 

 

 

 

 

 

 

 

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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Exhibit Number Description
3.1 Articles of Incorporation (Incorporated by reference to the Exhibits filed with the Form SB-2 filed with the SEC on March 16, 2006)
3.2 Certificate of Amendment to Articles of Incorporation (Incorporated by reference to the Exhibits filed with Schedule 14C on November 14, 2008)
3.3 Bylaws (Incorporated by reference to the Exhibits filed with the Form SB-2 filed with the SEC on March 16, 2006)
3.4 Amended Bylaws (Incorporated by reference to the Exhibits filed with the Form SB-2 filed with the SEC on March 16, 2006)
10.1 Share Exchange Agreement dated May 31, 2005 between Kimberley Coonfer, Caribbean Overseas Investments Ltd., Sun World Partners Inc. and Tiempo De Mexico Ltd. (Incorporated by reference to the Exhibits filed with the Form SB-2 filed with the SEC on March 16, 2006)
10.2 Letter of Intent dated February 22, 2008 between Sun World Partners Inc. and H Pay Card Ltd. (Incorporated by reference to the Exhibits filed with the Form 8-K on March 5, 2008)
10.3 Acquisition Agreement dated April 22, 2008 (Incorporated by reference to the Exhibits filed with the Form 8-K on May 19, 2008)
10.4 Promissory note dated June 1, 2011 issued to Macleod Projects Inc.
10.5 Promissory note dated August 5, 2011 issued to Macleod Projects Inc.
31.1* Section 302 Certification of Principal Executive Officer
31.2* Section 302 Certification of Principal Financial Officer
32.1* Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2* Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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.

 

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

 

 

/s/ Tom Zapatinas
By: Tom Zapatinas, President, Chief Executive Officer, Chief Financial Officer and Director
(Principal Executive Officer)
Dated:  August 28, 2013

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

/s/ Tom Zapatinas 
By: Tom Zapatinas, President, Chief Executive Officer, Chief Financial Officer and Director
(Principal Executive Officer)
Dated:  August 28, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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