ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such
adjustments are of a normal recurring nature. Operating results for the nine month period ended February 28, 2019 are
not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2019. For further
information refer to the consolidated financial statements and footnotes thereto included in Preaxia’s Annual Report on Form
10-K for the year ended May 31, 2018.
|
|
Page
|
|
|
|
|
Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
|
Condensed Consolidated Balance Sheets as of February 28, 2019 and May 31,
2018 (Unaudited)
|
F-1
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended February 28, 2019 and February 28, 2018
|
F-2
|
|
|
|
|
Unaudited Condensed Consolidated Statement of Stockholders’ Deficit for the nine months ended February 28, 2019
|
F-3
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended February 28, 2019 and February 28, 2018
|
F-4
|
|
|
|
|
Notes to Unaudited Condensed Consolidated Financial Statements
|
F-5
|
|
|
|
|
PREAXIA HEALTHCARE PAYMENT SYSTEMS INC.
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
28,
2019
|
|
|
|
May
31,
2018
|
|
|
ASSETS
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
191
|
|
|
$
|
7,608
|
|
|
Total current assets
|
|
|
191
|
|
|
|
7,608
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
191
|
|
|
$
|
7,608
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
137,359
|
|
|
$
|
142,859
|
|
|
Accounts payable and accrued liabilities -
related party
|
|
|
216,810
|
|
|
|
119,121
|
|
|
Loans payable - shareholders
|
|
|
138,841
|
|
|
|
87,064
|
|
|
Convertible note payable
- related party
|
|
|
1,058,760
|
|
|
|
1,058,760
|
|
|
Total current liabilities
|
|
|
1,551,770
|
|
|
|
1,407,804
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,551,770
|
|
|
|
1,407,804
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock, $0.001 par value, 75,000,000
shares of common stock authorized
|
|
|
|
|
|
|
|
|
19,667,698 common shares issued and outstanding
at February 28, 2019 and May 31, 2018, respectively
|
|
|
19,668
|
|
|
|
19,668
|
|
|
Additional paid-in capital
|
|
|
2,682,303
|
|
|
|
2,682,303
|
|
|
Accumulated other comprehensive income
|
|
|
57,197
|
|
|
|
57,197
|
|
|
Accumulated deficit
|
|
|
(4,310,747
|
)
|
|
|
(4,159,364
|
)
|
|
Total stockholders' deficit
|
|
|
(1,551,579
|
)
|
|
|
(1,400,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
191
|
|
|
$
|
7,608
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
PREAXIA HEALTHCARE PAYMENT SYSTEMS INC.
|
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
February 28,
|
|
|
|
Nine months ended
February 28,
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
|
|
|
33,814
|
|
|
|
31,912
|
|
|
|
95,726
|
|
|
|
96,446
|
|
|
Professional
|
|
|
3,084
|
|
|
|
1,589
|
|
|
|
13,208
|
|
|
|
5,082
|
|
|
Office and administration
|
|
|
4,293
|
|
|
|
7,111
|
|
|
|
21,745
|
|
|
|
19,287
|
|
|
Research and development
|
|
|
6,736
|
|
|
|
9,461
|
|
|
|
20,704
|
|
|
|
22,097
|
|
|
Total expenses
|
|
|
47,927
|
|
|
|
50,073
|
|
|
|
151,383
|
|
|
|
142,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(47,927
|
)
|
|
|
(50,073
|
)
|
|
|
(151,383
|
)
|
|
|
(142,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total other income (expense)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss
|
|
$
|
(47,927
|
)
|
|
$
|
(50,073
|
)
|
|
$
|
(151,383
|
)
|
|
$
|
(142,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted
|
|
|
19,667,698
|
|
|
|
19,667,698
|
|
|
|
19,667,698
|
|
|
|
19,667,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
PREAXIA HEALTHCARE PAYMENT SYSTEMS INC.
|
|
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
Additional
Paid-in
|
|
|
|
Accumulated Other
Comprehensive
|
|
|
|
Accumulated
|
|
|
|
Total
Stockholders’
|
|
|
|
|
|
Shares
|
|
|
|
Amount
|
|
|
|
Capital
|
|
|
|
Income
|
|
|
|
Deficit
|
|
|
|
Deficit
|
|
Balance,
May 31, 2018
|
|
|
19,667,698
|
|
|
$
|
19,668
|
|
|
$
|
2,682,303
|
|
|
$
|
57,197
|
|
|
$
|
(4,159,364
|
)
|
|
$
|
(1,400,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(151,383
|
)
|
|
|
(151,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28, 2019
|
|
|
19,667,698
|
|
|
$
|
19,668
|
|
|
$
|
2,682,303
|
|
|
$
|
57,197
|
|
|
$
|
(4,310,747
|
)
|
|
$
|
(1,551,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
PREAXIA HEALTHCARE PAYMENT SYSTEMS INC.
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
February 28,
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(151,383
|
)
|
|
$
|
(142,912
|
)
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
Increase in accounts payable - related party
|
|
|
90,000
|
|
|
|
81,585
|
|
|
Decrease in accounts payable and accrued liabilities
|
|
|
(5,500
|
)
|
|
|
—
|
|
|
Cash flows used in operating activities
|
|
|
(66,883
|
)
|
|
|
(61,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
Advances - related party
|
|
|
24,471
|
|
|
|
—
|
|
|
Repayment of advances - related party
|
|
|
(16,782
|
)
|
|
|
—
|
|
|
Proceeds from loans payable - shareholder
|
|
|
51,777
|
|
|
|
54,238
|
|
|
Net cash provided by financing activities
|
|
|
59,466
|
|
|
|
54,238
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(7,417
|
)
|
|
|
(7,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of the period
|
|
|
7,608
|
|
|
|
8,779
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of the period
|
|
$
|
191
|
|
|
$
|
1,690
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure:
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
|
PREAXIA HEALTH CARE PAYMENT SYSTEMS
INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
February 28, 2019
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 31,
2005 the Company acquired all of the outstanding stock of Tiempo de Mexico Ltd. (“Tiempo”) in exchange for 5,000,000
shares of the common stock of the Company with a par value of $0.001. The Company had no operations prior to the date of the aforementioned
acquisition.
The business objective of the Company
is the development, distribution, marketing and sale of health care payment processing services and products.
The Company has not yet realized any
revenues from its planned operations.
The operations of the Company are expected
be primarily undertaken by PreAxia Health Care Payment Ltd. (“PreAxia Payment”), incorporated pursuant to the laws
of the Province of Alberta on November 26, 2015.
PreAxia Payment is in the process of developing
an online access system creating a health spending 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 unaudited condensed consolidated financial
statements of the Company for the three and nine months ended February 28, 2019 and 2018 have been prepared in accordance with
accounting principles generally accepted in the United States of America for interim financial information and pursuant to the
requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United States of America for complete financial statements. However,
such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management,
necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods
are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of May 31,
2018 was derived from the audited financial statements included in the Company's financial statements as of and for the fiscal
year ended May 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission
(the “SEC”) on September 13, 2018. These financial statements should be read in conjunction with that report.
Principles of Consolidation
The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries (i) PreAxia Health Care Payment Systems Inc., incorporated
pursuant to the laws of the Province of Alberta on January 28, 2008 (ii) PreAxia Canada Inc., incorporated pursuant to the laws
of the Province of Alberta on January 28, 2008 and (iii) PreAxia Health Care Payment Ltd., incorporated pursuant to the laws of
the Province of Alberta on November 26, 2015 (collectively, the “Subsidiaries”) All inter-company accounts and transactions
have been eliminated in consolidation.
Going Concern
The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. During the nine months ended February 28, 2019, the
Company incurred a net loss of $151,383 and used cash in operating activities of $66,883, and at February 28, 2019, had a
stockholders’ deficit of $1,551,579. These factors, among others, raise substantial doubt about the Company’s
ability to continue as a going concern within one year of the date that the consolidated financial statements are issued. The
Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty should we be unable to continue as a going concern.
The Company’s ability to continue as
a going concern is dependent upon its ability to develop additional sources of capital and to ultimately achieve profitable operations.
Currently, the Company does not have significant cash or other material assets, nor does it have operations or a source of revenue
sufficient to cover its operating costs and allow it to continue as a going concern. The Company’s officers or principal
shareholders have committed to making advances or loans to pay for certain legal, accounting, and administrative costs.
The Company hopes to be able to attract suitable
investors for our business plan, which will not require us to use our cash. No assurance can be given that any future financing
will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able
to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial
dilution for our stockholders, in case or equity financing.
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 the Company's consolidated
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 consolidated financial statements and accompanying notes. Although
these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future,
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 the Subsidiaries 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.
The Company's reporting currency is
the U.S. dollar. All transactions initiated in Canadian Dollars are translated into U.S. dollars in accordance with Accounting
Standards Codification ("ASC") 830-30, "Translation of Financial Statements," as follows:
i) assets
and liabilities are translated at the closing rate at the date of the balance sheet of 1.00 US Dollar=1.3164 Canadian Dollars (February
28, 2019), 1.00 USD Dollar=0.7526 GBP, and 1.00 US Dollar = 1.2958 Canadian Dollars (May 31, 2018);
ii) income
and expenses are translated at average exchange rates for nine months ended February 28, 2019 of 1.00 US Dollar = 1.3321 Canadian
Dollars and 1.00 US Dollar = 1.2668 Canadian Dollars (February 28, 2018);
iii) all
resulting exchange differences are recognized as other comprehensive income, a separate component of equity. The exchange differences
during the period ended February 28, 2019 were insignificant and no amounts have been recorded.
Fair Value of Financial Instruments
The Company defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. Management uses
a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained
from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists
of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described
below:
|
|
·
|
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
·
|
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
|
·
|
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
|
Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to management as of February 28, 2019. The carrying amounts
of current assets and current liabilities approximate their fair value because of the relatively short period of time between the
origination of these instruments and their expected realization.
Net income (Loss) Per Share
Net income (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. The Company
has 10,587,600 and 10,587,600 shares of potential common stock equivalents for convertible note payable – related party outstanding
as of February 28, 2019 and 2018, respectively. At February 28, 2019 and 2018, we excluded the common stock issuable upon conversion
of convertible promissory notes of 10,587,600 shares and 10,587,600 shares, respectively, as their effect would have been anti-dilutive.
Research and Development Costs
For the nine months ended February 28,
2019, and 2018, we expended $20,704 and $22,097 on research and development.
Software Development Costs
The Company accounts for software development
costs in accordance with several accounting pronouncements, including FASB ASC 730, Research and Development, FASB ASC 350-40,
Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed and FASB ASC 350-50, Website Development
Costs
.
Costs incurred during the period of
planning and design, prior to the period determining technological feasibility, for all software developed for use internal and
external, has been charged to operations in the period incurred as research and development costs. Additionally, costs incurred
after determination of readiness for market have been expensed as research and development.
The Company will capitalize certain
costs in the development of our proprietary software (computer software to be sold, leased or licensed) for the period after technological
feasibility was determined and prior to our marketing and initial sales.
Website development costs are capitalized,
under the same criteria as our marketed software.
Impairment of Long-lived Assets
Long-lived assets such as property,
equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying
value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on
the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar
assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not
recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and
fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future
cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize
any impairment losses for any periods presented.
Commitments and Contingencies
The Company follows subtopic 450-20 of the
FASB Accounting Standards Codification to report accounting for contingencies. Liabilities for loss contingencies arising
from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has
been incurred and the amount of the assessment can be reasonably estimated.
Revenue Recognition
In accordance with ASC 606, revenue is recognized
when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which
we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process
by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment
to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1)
identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction
price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as,
we satisfy the performance obligation.
Income Taxes
The Company follows Section 740-10-30 of the
FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets
are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be
realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period
that includes the enactment date.
The Company adopted section 740-10-25 of the
FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertain income tax positions. Section
740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded
in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.
Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting
in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized
income tax benefits according to the provisions of Section 740-10-25.
Note 3 – Recent Accounting Pronouncements
The Company reviews new accounting standards
as issued or updated. No new standards or updates had any material effect on these consolidated financial statements. The accounting
pronouncements issued subsequent to the date of these consolidated financial statements that were considered significant by management
were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent
pronouncements will have a material effect on these consolidated financial statements as presented.
Note 4
–
Related Party Transactions
Accounts Payable and Accrued Liabilities
- Related Parties
During the nine months ended February 28,
2019 and 2018, Tom Zapatinas, the Chief Executive Officer and Director of the Company, earned $90,000 and $90,000,
respectively, for consulting services provided to the Company. Unpaid consulting services is included in accounts payable and
accrued liabilities - related party on the condensed consolidated balance sheets.
During the nine months ended February 28, 2019,
Tom Zapatinas, the Chief Executive Officer and a Director of the Company, advanced the Company $24,471 in cash and was repaid $16,782.
As at February 28, 2019 and May 31, 2018, accounts
payable and accrued liabilities – related party of $216,810 and $119,121, respectively, is due to Tom Zapatinas, the Chief
Executive Officer and a Director of the Company.
Convertible Note Payable – Related
Party
As at February 28, 2019 and May 31, 2018, convertible
note payable - related party of $1,058,760 and $1,058,760, respectively is due to Tom Zapatinas, the Chief Executive Officer and
a Director of the Company. The Note is non-interest bearing, unsecured, payable on demand and convertible in whole or in part into
shares of common stock of the Company at a conversion price of $0.10 per share.
Loans Payable – Shareholders
As of February 28, 2019 and May 31, 2018, loans
payable - shareholders are $138,841 and $87,064, respectively. Loans payable – shareholders are unsecured, non-interest bearing
and due on demand. During the nine months ended February 28, 2019 the Company was advanced $51,777 by shareholders.
Note 5 – Stockholders’ Deficit
Common Stock
Common Stock, par value of $0.001 per share;
75,000,000 shares authorized: 19,667,698 and 19,667,698 shares issued and outstanding at February 28, 2019 and May 31, 2018, respectively.
Holders of Common Stock have one vote per share of Common Stock held.
Note 6 – Contingencies
and Commitments
From time to time the Company may be a party
to litigation matters involving claims against the Company. Management believes that there are no current matters that would
have a material effect on the Company’s financial position or results of operations.
The Company does not have long-term commitments
for equipment purchases or leases. The Company does not lease office space as the CEO operates the business from his personal residence.
Note 7 – Subsequent Events
The Company has evaluated all subsequent events
through the date these financial statements were issued and no subsequent events occurred that required disclosure.
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report contains forward-looking
statements relating to future events or our future financial performance. In some cases, you can identify forward-looking
statements by terminology such as “may”, “should”, “intends”, “expects”, “plans”,
“anticipates”, “believes”, “estimates”, “predicts”, “potential”, or
“continue” or the negative of these terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors 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.
Such factors include, among others, the following:
international, national and local general economic and market conditions; demographic changes; the ability of PreAxia to sustain,
manage or forecast its growth; the ability of PreAxia to successfully make and integrate acquisitions; raw material costs
and availability; new product development and introduction; existing government regulations and changes in, or failure to comply
with government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty
in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract
and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.
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.
Given these uncertainties, readers of this
Form 10-Q and investors are cautioned not to place undue reliance on such forward-looking statements. PreAxia disclaims
any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments, except as required by applicable law, including the securities laws
of the United States.
All amounts stated herein are in US dollars
unless otherwise indicated.
The management’s discussion and analysis
of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The
following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated
financial statements for the year ended May 31, 2018, together with notes thereto. As used in this quarterly report, the
terms “we”, “us”, “our”, “PreAxia” and the “Company” means PreAxia
Health Care Payment Systems Inc. and its wholly-owned subsidiaries, unless the context clearly requires otherwise.
General Overview
Corporate Overview
PreAxia Health Care Payment Systems
Inc. (the “Company” or “PreAxia”) was incorporated on April 3, 2000 in the State of Nevada.
The Company primarily undertakes its
operations through its wholly-owned subsidiary, PreAxia Health Care Payment Limited (“PreAxia Payment”). PreAxia Payment
was incorporated pursuant to the laws of the Province of Alberta on November 15, 2015.
General Overview
PreAxia Payment 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.
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 reached $37.0 billion in assets and 18.17 million consumers in 2016, an increase of more than 20% of
assets over the prior year. The Canadian market for health benefits is estimated at more than $30 Billion of which HSAs are estimated
to have gain a 10% share. 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 provide greater value to employees, 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”)
An HSA is a uniquely designed account established
exclusively and specifically for the purpose of health care spending. An employer deposits funds into a special account for the
employee. These funds can be used to pay for eligible medical and related health care expenses for the employee and their dependents.
HSAs provide employers and employees with greater control in both the amount of funds invested and how these funds are used.
Services and infrastructure provided by PreAxia
enable organizations and individuals to eliminate all paper involved in the management of these accounts and benefit through savings
in time and money.
The PreAxia platform for processing and managing
accounts, including cardholder and customer account management, reconciliation and financial settlement, and customer reporting
is fully operational.
Over time, the company will evaluate opportunities
for forms of virtual banking and PayPal-type services. One opportunity seen as particularly relevant to the health care market
is to offer instant issuing services that enable corporations to issue and fund Pre-Paid Interac or credit card services to beneficiaries
in real time. If implemented, the beneficiary will most likely select a personal identification number (“PIN”) using
a PIN and card activation terminal, thus gaining instant access to funds that can be reloaded. This consideration would require
development of software systems for the issuing of health payment cards and financial transaction processing services that would
be fully managed by a data center.
Matching of consumers in need of health
care products or services with providers is another area PreAxia intends to evaluate. Consumers managing their health care dollars
through an online system will find convenience in seeking out health care professionals and services through the same system
.
Distribution Methods and Marketing
Strategy
PreAxia operates on a Cloud Computing
Platform that makes it accessible to anyone with a personal computer and Internet access. The preliminary market for PreAxia’s
HSA Management Solution is small and medium sized companies that are not currently well served by the current group benefits model.
The financial benefits of the PreAxia business model, however, are also relevant to larger employers and we believe that these
larger employers will migrate to the PreAxia product over time.
PreAxia’s marketing strategy
is to promote its existing platform direct to consumers and businesses, and to the groups that most need access to it; independent
brokers, financial advisors and small to medium sized businesses. Brokers should see PreAxia as a superior method of promoting
and supporting HSAs that allow them to earn above average commission rates on invested funds. Financial advisors should see PreAxia
in a similar way as brokers except that there is the additional benefit of tax reduction. Small to medium sized businesses, which
are expected to drive the growth in business, should see PreAxia as offering financial savings to the company and to employees
by offering personal health care benefits through an HSA, along with the same conveniences they have come to expect from other
services they currently utilize over the Internet. It is expected that the group benefits market will subsequently follow as they
too realize the advantages of PreAxia over their current HSA offerings. PreAxia has begun and will continue to 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. The company intends to design solutions targeted towards corporate
financial management, financial risk, audit management and cash management while targeting product/service management as a support
to financial management.
We anticipate that the prime target
for services will be small to medium sized organizations that are not adequately served by the current insurance and group benefits
offerings. These organizations should realize significant benefits in both cost and time savings by utilization of PreAxia technology
while providing their employees with an increased level of benefits.
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, through market specific channel partners and through an education based public relations strategy geared to the small
to mid-sized employers including the brokers and financial advisors utilized by these businesses. The channel strategy is supported
in the solution design, as multiple channel partners may require custom pricing and compensation.
It is our company’s intention
that brokers and financial advisors will aggressively promote their PreAxia supported HSA offerings due to the quality of product,
higher margins and because of the non-competitive relationship with PreAxia.
PreAxia has identified the following
“channels” through which it will target prime end market customers:
|
|
·
|
Independent brokers that sell, or desire to sell, Health Spending Accounts
|
|
|
·
|
Financial advisors who manage funds and advise on tax saving strategies for individuals and corporations
|
|
|
·
|
Accountants and bookkeepers who regularly advise businesses on financial and operational matters
|
|
|
·
|
Benefits managers/adjudicators, including insurance, health or outsourced government benefits processors that manage benefits disbursement
|
|
|
·
|
Issuer banks, including partner banks that enable the issuance of Health Cards and/or sell insurance products
|
|
|
·
|
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 relevant to advancing
our company’s goals in 2019 and beyond for achieving a prime position in the Canadian marketplace 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 Spending Accounts in the
marketplace. Our approach is to provide 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. This
is consistent with the PreAxia platform which has been designed for expansion in the United States and internationally. The following
are some of the leading providers of products and services that are or may be potential competitors in PreAxia’s target markets:
|
|
·
|
Benecaid has become a leading provider of Health Spending Accounts in Canada by offering an easy
to understand product through brokers and also directly through the company.
|
|
|
·
|
Olympia Benefits has become a leading provider of Health Spending Accounts in Canada by offering
a “Cost Plus” version of HSAs that has become popular in the marketplace.
|
|
|
·
|
QuickCard is a provider of Health Spending Accounts and group insurance products. They are partially
differentiated from competitors by virtue of a “credit type card” that is used to pay for qualified health products
and services.
|
|
|
|
|
|
|
·
|
League,
which operates in Canada and the US, offers a range of health benefit services including
Health Spending Accounts.
|
|
|
·
|
Most major insurance companies offer some version of HSAs to their customers.
|
|
|
·
|
Many brokers have created HSA products for their clients.
|
|
|
·
|
Many accounting and financial services firms have created their own HSA products to offer to
their clients.
|
US and International Markets
|
|
·
|
HealthEquity, a publicly listed company offering HSAs in the USA, manages over $1.7 billion in
deposits. It is one of the largest dedicated health account custodians in the USA and serves more than 1.4 million accounts owned
by individuals at more than 24,000 companies across the country.
|
|
|
·
|
HSA Bank, a division of Webster Bank, offers Health Spending Accounts and related offerings to
the consumer-directed healthcare industry.
|
|
|
·
|
Fidelity Investments offers a Health Spending Account to businesses as a means of controlling
costs while providing employee health benefits.
|
Intellectual Property and Patent Protection
At present, PreAxia does not have any
pending or registered patents or any trademarks.
Plan of Operation
Over the next twelve months, we plan to:
|
|
(a)
|
Raise additional capital to execute our business plans;
|
|
|
|
|
|
|
(b)
|
Penetrate the health care processing markets in Canada, the United States and worldwide, by continuing to develop innovative health care processing products and services;
|
|
|
|
|
|
|
(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.
|
Liquidity and Capital Resources
As of February 28, 2019, PreAxia’s cash
balance was $191 compared to $7,608 as at May 31, 2018. Our Company will be required to raise capital to fund our operations. PreAxia’s
cash on hand is currently its only source of liquidity. PreAxia had a working capital deficit of $1,551,579 as of February
28, 2019 compared with a working capital deficit of $1,400,196 as of May 31, 2018.
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. PreAxia's cash and cash equivalents will not be sufficient to meet its 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 startup stage. We project that we will require an estimated $2,900,000 over the next twelve-month
period to fund our working capital deficit of approximately $1,450,000 plus an additional $1,450,000 to complete our business plan. The
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 PreAxia 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.
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.
Our working capital (deficit) as at February
28, 2019 compared to May 31, 2018 is summarized as follows:
Working Capital
|
|
|
February 28,
2019
|
|
May 31,
2018
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
191
|
|
|
$
|
7,608
|
|
|
Current Liabilities
|
|
|
(1,551,770
|
)
|
|
|
(1,407,804
|
)
|
|
Working Capital (deficit)
|
|
$
|
(1,551,579
|
)
|
|
$
|
(1,400,196
|
)
|
The increase in our working capital deficit
of $151,383 was primarily due to an increase in our accounts payable - related party and an increase in loans payable - shareholders.
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 – Three Months
Ended February 28, 2019 and 2018
The following summary of our results of operations
should be read in conjunction with our unaudited condensed consolidated financial statements for the three months ended February
28, 2019.
For the three month period ended February
28, 2019 and 2018
Our operating results for the three month period
ended February 28, 2019 compared to the three month period ended February 28, 2018 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 operating loss for the three months period
ended February 28, 2019 was $47,927 compared to $50,073 for the three months period ended February 28, 2018. The decrease in loss
of $2,146 for the three month period ending February 28, 2019 is due to an increase in consulting fees of $1,902, an increase in
professional fees of $1,495, a decrease in research and development of $2,725 and a decrease of $2,818 in office and administration
fees.
Consulting Fees
During the three months ended February 28,
2019 and 2018, Tom Zapatinas, the Chief Executive Officer and Director of the Company, earned $30,000 and $30,000, respectively,
for consulting services provided to the Company.
Research and Development
Research and development expenses during the
three month period ended February 28, 2108 decreased by $2,725 as web updates and platform development were being completed in
the current quarter.
Wages and Benefits
There were no wages and benefits during the
three months period ended February 28, 2019 or February 28, 2018.
Office and Administration
Office and administration
expenses decreased by $2,818
for the period ended
February 28, 2019 due to a decrease in travel expenses.
Professional Fees
Professional fees during the three months ended
February 28, 2019 increased by $1,495 due to the timing of our annual audit.
Interest Expense
Interest expense is $0 for the three months
ended February 28, 2019 and 2018 because accounts payable and accrued liabilities – related party, convertible note payable
– related party and loans payable – shareholders are non-interest bearing.
Results of Operations – Nine months
Ended February 28, 2019 and 2018
The following summary of our results of operations
should be read in conjunction with our unaudited condensed consolidated financial statements for the nine months ended February
28, 2019.
For the nine month period ended February
28, 2019 and 2018
Our operating results for the nine month period
ended February 28, 2019 compared to the nine month period ended February 28, 2018 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 operating loss for the nine months period
ended February 28, 2019 was $151,383 compared to $142,912 for the nine months period ended February 28, 2018. The increase in loss
of $8,471 for the nine month period ending February 28, 2019 is due to a decrease in consulting fees of $720, an increase in professional
fees of $8,126, a decrease in research and development of $1,393 and an increase of $2,458 in office and administration fees.
Consulting Fees
During the nine months ended February 28, 2019
and 2018, Tom Zapatinas, the Chief Executive Officer and Director of the Company, earned $90,000 and $90,000, respectively, for
consulting services provided to the Company.
Consulting fees during the nine month period
ended February 28, 2019 decreased by $720 due to the completion of certain marketing strategies.
Research and Development
Research and development expenses during the
nine month period ended February 28, 2019 decreased by $1,393 as web updates and platform development were being completed in the
current quarter.
Wages and Benefits
There were no wages and benefits during the
nine months period ended February 28, 2019 or February 28, 2018.
Office and Administration
Office and administration
expenses increased by $2,458
for the period ended
February 28, 2019 due to an increase in travel expenses.
Professional Fees
Professional fees during the nine months ended
February 28, 2019 increased by $8,126 due to the timing of our annual audit.
Interest Expense
Interest expense is $0 for the nine months
ended February 28, 2019 and 2018 because accounts payable and accrued liabilities – related party, convertible note payable
– related party and loans payable – shareholders are non-interest bearing.
Critical Accounting Policies
We have identified certain accounting policies,
described below, that are the most important to the portrayal of our current financial condition and results of operations.
Revenue recognition
In accordance with ASC 606, revenue is recognized
when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which
we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process
by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment
to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1)
identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction
price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as,
we satisfy the performance obligation.
Software Development Costs
The Company accounts for software development
costs in accordance with several accounting pronouncements, including FASB ASC 730, Research and Development, FASB ASC 350-40,
Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed and FASB ASC 350-50, Website Development
Costs
.
Costs incurred during the period of planning
and design, prior to the period determining technological feasibility, for all software developed for use internal and external,
has been charged to operations in the period incurred as research and development costs. Additionally, costs incurred after
determination of readiness for market have been expensed as research and development.