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, 2014
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.) |
PO Box 34072, – 55-1610-37th
Avenue S.W. Calgary, Alberta T3C 3W2
(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)
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. [ ]
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, 2013.
(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:
17,652,082 shares of common
stock as of August 27, 2014
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.
TABLE OF CONTENTS
| PART I |
|
| |
|
| FORWARD-LOOKING STATEMENTS. |
4 |
| |
|
| ITEM 1. BUSINESS |
4 |
| |
|
| ITEM 1A. RISK FACTORS |
8 |
| |
|
| ITEM 1B. UNRESOLVED STAFF COMMENTS |
14 |
| |
|
| ITEM 2. PROPERTIES |
15 |
| |
|
| ITEM 3. LEGAL PROCEEDINGS |
15 |
| |
|
| ITEM 4. MINE SAFETY DISCLOSURES |
15 |
| |
|
| PART II |
|
| |
|
| ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
17 |
| |
|
| ITEM 6. SELECTED FINANCIAL DATA |
17 |
| |
|
| ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
17 |
| |
|
| ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
24 |
| |
|
| ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
24 |
| |
|
| ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
25 |
| |
|
| ITEM 9A. CONTROLS AND PROCEDURES |
25 |
| |
|
| ITEM 9B. OTHER INFORMATION |
26 |
| |
|
| PART III |
|
| |
|
| 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 RELATED STOCKHOLDER MATTERS |
31 |
| |
|
| ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
32 |
| |
|
| PART IV |
|
| |
|
| ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
33 |
| |
|
| SIGNATURES |
34 |
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 System 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 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.
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.
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 2014 and 2015 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:
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 presently 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 a product
offering “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.
Intellectual Property and Patent Protection
At present, PreAxia does not have any pending or registered
patents or any trademarks.
Research and Development
For the year ended May 31, 2014, we expended $39,666
on research and development compared to $0 during year ended May 31, 2013.
Employees
PreAxia has one full-time consultant, our President,
Mr. Tom Zapatinas. 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 hire additional key staff throughout
2014/15 in areas of administration/accounting, business development, operations, sales/marketing, and research/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.
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, 2014 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, 2014 and concluded that that there
were material weaknesses in our 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.
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 impact on 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.
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 of the directors 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:
- 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.
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
As much of the research and development
and building our system has been completed, our Calgary office closed during the year and we presently operate out of remote
employment sites.
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. MINE SAFETY DISCLOSURES
Not applicable.
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, 2014 and 2013.
| Quarter Ended |
High |
Low |
| 05/31/2014 |
$0.00 |
$0.00 |
| 02/28/2014 |
$0.00 |
$0.00 |
| 11/30/2013 |
$0.00 |
$0.00 |
| 08/31/2013 |
$0.00 |
$0.00 |
| 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 |
Holders of Our Common Stock
As of August 27, 2014, there were 71 holders
of record of our common stock and 17,652,082 shares of common stock outstanding.
There is currently only one class of common stock
with one vote per share.
Holladay Stock Transfer of 2930 North 67th
Place, Scottsdale, Arizona 85251, Phone: (480) 481-3940, Fax: (480) 481-3991 is the registrar and transfer agent for our common
shares.
Accumulated Other Comprehensive Income amounts are
related to changes in foreign exchange.
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 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, 2014.
|
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
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, 2014.
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 years ended May 31, 2014 or 2013.
ITEM 6. SELECTED FINANCIAL DATA
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:
| 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.
Liquidity and Capital Resources
As of May 31, 2014, we had a cash balance of $8,532
compared to $13,251, as at May 31, 2013. PreAxia Canada will be required to raise capital to fund our operations. We had a working
capital deficit of $1,595,641 as of May 31, 2014 compared with a working capital deficit of $1,429,313 as of May 31, 2013.
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 $3,145,641over the next twelve month period to fund our operating cash shortfall
calculated as $1,595,641 to cover our working capital deficit plus $1,550,000 for our projected cash request for the year
ended May 31, 2014. 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.
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 financial condition as at May 31, 2014 and May
31, 2013 and the changes between those periods for the respective items are summarized as follows:
Working Capital
| |
|
May 31, 2014 |
|
|
May 31, 2013 |
|
| Current Assets |
$ |
8,532 |
|
$ |
13,251
|
|
| Current Liabilities |
$ |
1,604,173 |
|
$ |
1,442,564 |
|
| Working Capital (deficit) |
$ |
(1,595,641 |
) |
$ |
(1,429,313)
|
|
The increase in our working deficit of $166,328 was
primarily due to increase in in accounts payables and loans payable.
Cash Flows
| |
|
Year Ended |
|
|
Year Ended |
|
| |
|
May 31, 2014 |
|
|
May 31, 2013 |
|
| Net cash used in Operating Activities |
$ |
(31,176 |
) |
$ |
(5,028 |
) |
| Net cash provided by Investing Activities |
$ |
- |
|
$ |
(102,151) |
|
| Net cash provided by Financing Activities |
$ |
11,079 |
|
$ |
111,657 |
|
| Effect of exchange rate on cash |
$ |
15,378 |
|
$ |
305 |
|
| Change in Cash and Cash Equivalents During the Period |
$ |
(4,719) |
|
$ |
4,783 |
|
Cash Used in Operating Activities
During the year ended May 31, 2014, we used net
cash in operating activities in the amount of $31,176 due to increase in accounts payable.
Cash Provided by Investing Activities
During the year ended May 31, 2014, cash was not used in
investing activities.
Cash from Financing Activities
During the year ended May 31, 2014, we generated $11,079
in cash from financing activities. We received $25,000 and paid back $13,921.
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, 2014, which are included herein.
Our operating results for the year ended May 31, 2014 and May 31, 2013 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, 2014
and May 31, 2013 were as follows:
| | |
| Year Ended | | |
| Year Ended | | |
| | |
| | |
| May 31, 2014 | | |
| May 31, 2013 | | |
| % | |
| Consulting Fees | |
$ | 125,500 | | |
$ | 139,185 | | |
| (10 | )% |
| Professional Fees | |
| 28,706 | | |
| 16,251 | | |
| 76.6 | % |
| Office and Administration | |
| 15,419 | | |
| 27,025 | | |
| (50.3 | )% |
| Research and Development | |
| 39,665 | | |
| — | | |
| | |
| Wages and Benefits | |
| — | | |
| 39,260 | | |
| | |
| Rent | |
| — | | |
| 4,392 | | |
| | |
| | |
$ | 209,291 | | |
$ | 226,113 | | |
| | |
Operating expenses for the 12 months ended May 31,
2014 were $209,291 which is a decrease of $16,822 compared to the year ended May 31, 2013. The decrease was due to an increase
in professional fees of $12,455, decrease in office and administration of $12,293, increase in research and development of $39,665,
decrease in wages and benefits of $39,260 and a decrease in rent of $4,392.
Professional Fees
Professional fees increased by $12,455 in the year
ended May 31, 2014 compared to the year ended May 31, 2013, due to an increase in accounting fees, legal fees, and audit fees.
Office and Administration
Our office and administration expenses decreased by
$12,293 in the year ended May 31, 2014 compared to the year ended May 31, 2013, due to a decrease in travel expenses in general
and administration expenses.
Research and development
Research and Development expenses increased by $39,665
for the year ended May 31, 2014 compared to the year ended May 31, 2013, as a result of a software license requirements and other
required program updates.
Wages and benefits
Wages and benefits decreased by $39,260 for the year
ended May 31, 2014 compared to the year ended May 31, 2013 due to an employee resigning.
Rent
Rent expense decreased by $4,392 for the year ended
May 31, 2014 compared to the rent for the year ended May 31, 2013, as a result of the Calgary office closing.
We have historically incurred losses and have incurred
a loss of $3,230,908 from inception to May 31, 2014. 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.
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.
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
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 has capitalized 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 have been capitalized, under
the same criteria as our marketed software.
Capitalized software costs are stated at cost. The
estimated useful life of costs capitalized is evaluated for each specific project. Intangible software costs will only be amortized
against revenues generated by the software over a three year period. It is anticipated that these costs will begin to be amortized
beginning in 2015.
Recent Accounting Pronouncements
The Company reviews new accounting standards
as issued or updated. No new standards or updates had any material effect on these financial statements. The accounting pronouncements
issued subsequent to the date of these 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 and does not anticipate the need for any future
restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements
issued subsequent to December 31, 2012 through the date these financial statements were issued.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
| |
Page |
| Report
of Independent Registered Public Accounting Firm |
F-1 |
| |
|
| Consolidated Balance Sheets |
F-2 |
| |
|
| Audited Consolidated Statements of Operations and Comprehensive Loss |
F-3 |
| |
|
| Audited Consolidated Statements of Stockholders’ Deficit |
F-4 |
| |
|
| Audited Consolidated Statements of Cash Flows |
F-5 |
| |
|
| Notes to Unaudited Consolidated Financial Statements |
F-6 |
| |
|
2451
N. McMullen Booth Road
Suite.308
Clearwater, FL 33759
Toll
fee: 855.334.0934
Fax:
800.581.1908
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders
PreAxia Healthcare Payment Systems, Inc.
We have audited the accompanying
balance sheet of PreAxia Healthcare Payment Systems, Inc. as of May 31, 2014 and 2013, and the related statement of operations,
stockholders’ deficiency, and cash flows for the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the 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 financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of PreAxia Healthcare Payment Systems, Inc.
as of May 31, 2014 and 2013 and for the years then ended, and the results of its operations and its cash flows for the years 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 shown in the accompanying financial statements,
the Company has significant net losses and cash flow deficiencies. Those conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans regarding those matters are described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ DKM Certified Public Accountants
DKM Certified Public Accountants
Clearwater, Florida
August 29, 2014
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
May 31, 2014 and May 31, 2013
(Stated in US Dollars)
| |
May 31,
2014 |
May 31,
2013 |
| |
|
|
| ASSETS |
| |
|
|
| Current Assets |
|
|
| Cash |
$8,532 |
$13,251 |
| Total Current Assets |
8,532 |
13,251 |
| |
|
|
| Other Assets |
|
|
| Intangible Software Costs |
102,151 |
102,151 |
| Total Other Assets |
102,151 |
102,151 |
| |
| Total Assets |
$110,683 |
$115,402 |
| |
| LIABILITIES |
| |
|
|
| Current Liabilities |
|
|
| Accounts Payable and Accrued Liabilities |
$ 183,717 |
$ 156,691 |
| Accounts Payable and Accrued Liabilities – Related Party |
961,441 |
817,094 |
| Loan Payable |
446,519 |
459,786 |
| Accrued Interest – Loans Payable |
12,496 |
8,992 |
| |
|
|
| Total Current Liabilities |
1,604,173 |
1,442,563 |
| |
|
|
| STOCKHOLDERS’ DEFICIT |
| |
|
|
| Capital Stock, $0.001 par value |
|
|
| 75,000,000 |
common shares authorized |
|
|
|
17,652,082 and 17,652,082 common shares issued and outstanding at
May 31, 2014 and May 31, 2013, respectively |
17,652 |
17,652 |
| Additional Paid-in Capital |
1,705,628 |
1,705,628 |
| Accumulated other Comprehensive Income/(Loss) |
14,138 |
(1,240) |
| Accumulated Deficit |
(3,230,908) |
(3,049,201) |
| |
|
|
| Total Stockholders’ Deficit |
(1,493,490) |
(1,327,161) |
| |
|
|
| Total Liabilities and Stockholders’ Deficit |
$110,683 |
$115,402 |
| |
|
|
|
SEE ACCOMPANYING NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Stated in U.S. Dollars)
| |
|
|
| |
For the year ended |
| |
May 31 |
| |
2014 |
2013 |
| |
|
|
| Operating Expenses |
|
|
| Consulting fees |
$ 125,500 |
$ 139,185 |
| Professional fees |
28,706 |
16,251 |
| Office and administration |
15,419 |
27,025 |
| Research and development |
39,665 |
- |
| Wages and benefits |
- |
39,260 |
| Rent |
- |
4,392 |
| Total Operating Expenses |
209,291 |
226,113 |
| |
|
|
| Operating loss |
(209,291) |
(226,113) |
| |
|
|
| Other Income (Expenses) |
|
|
| Commission income |
- |
- |
| Interest income |
1 |
1 |
| Interest expense |
(3,504) |
(3,664) |
| Gain on settlement |
31,090 |
- |
| Foreign currency transaction income (expense) |
-
|
4,072 |
| Total Other Income (Expenses) |
65,854
|
409 |
| |
|
|
| Net loss |
$(181,704)
|
$ (225,704) |
| |
|
|
| Other comprehensive income: |
|
|
| Foreign currency translation |
15,378
|
305 |
| |
|
|
| Comprehensive loss for the period |
$(166,326)
|
$ (225,399) |
| |
|
|
| Basic and diluted loss per share |
(0.01) |
(0.01) |
| |
|
|
| Weighted average number of shares outstanding |
17,652,082 |
17,652,082 |
| |
|
|
SEE ACCOMPANYING NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
DEFICIT
(Stated in U.S. Dollars)
| |
|
|
|
|
|
|
|
| |
Common Stock |
|
Accumulated |
|
|
| |
|
|
Additional |
Stock |
Other |
|
|
| |
|
Paid-in |
Subscription |
Comprehensive |
Retained
Earnings |
|
| |
Shares |
Amount |
Capital |
Receivable |
Income |
|
Total |
| |
|
|
|
|
|
|
|
| Balance, May 31, 2012 |
17,652,082 |
17,652 |
1,620,797 |
(170) |
(1,545) |
(2,823,498) |
(1,186,762) |
| |
|
|
|
|
|
|
|
| Common Shares issued for cash |
170,002 |
170 |
|
|
|
|
|
| Stock Subscription Receivable |
(170,002) |
(170) |
84,831 |
170 |
- |
|
85,001 |
| Foreign Currency Translation Adjustment |
- |
- |
- |
|
305 |
|
305 |
| Net Loss for Period |
- |
- |
- |
- |
- |
(225,705) |
(225,705) |
| Balance, May 31, 2013 |
$17,652,082 |
$ 17,652 |
$1,705,628 |
- |
$ (1,240) |
(3,049,203) |
$(1,327,161) |
| |
|
|
|
|
|
|
|
| Net Loss for Period |
|
|
|
|
15,378 |
(181,704) |
(166,326) |
| |
|
|
|
|
|
|
|
| Balance, May 31, 2014 |
$17,52,082 |
$ 17,652 |
$1,705,628 |
|
14,138 |
$(3,230,908) |
$(1,493,487) |
SEE ACCOMPANYING
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
| |
|
|
| |
|
|
| |
Year ended |
| |
May 31, |
| |
2014 |
2013 |
| |
|
|
| Cash Flows from Operating Activities |
|
|
| Net loss |
$ (181,704) |
$ (225,705) |
| Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
| Gain on settlement |
31,090 |
- |
| Changes in operating assets and liabilities: |
|
|
| |
|
|
| |
|
|
| Increase (decrease) in accounts payable and accrued liabilities |
119,438 |
220,677 |
| |
|
|
| Cash Flows used in operating activities |
(31,176) |
(5,028) |
| |
|
|
| Cash Flows from Investing Activities |
|
|
| Cash to Acquire Software |
- |
(102,151) |
| Cash Received from note receivable |
- |
- |
| Cash Acquired from business combination |
- |
- |
| Cash flows used in investing activities |
- |
(102,151) |
| |
|
|
| Cash Flows from Financing Activities |
|
|
| Overdraft in bank |
- |
- |
| Proceeds from loan payable – related party |
25,000 |
26,656 |
| Repayment of loan payable |
(13,921) |
- |
| Proceeds from loan payable – Convertible Debenture |
- |
- |
| Proceeds from sale of common stock |
- |
85,001 |
| Cash flows provided by financing activities |
11,079 |
111,657 |
| |
|
|
| Effect of exchange rate changes on cash |
15,378 |
305 |
| |
|
|
| Increase (decrease) in cash during the period |
(4,719) |
4,783 |
| |
|
|
| Cash, beginning of period |
13,251 |
8,468 |
| |
|
|
| Cash, end of period |
$ 8,532 |
$ 13,251 |
| |
|
|
| Supplemental Disclosure: |
|
|
| |
|
|
| Cash paid for income taxes |
$ - |
$ - |
| Cash paid for interest |
$
- |
$ - |
| |
|
|
| Non-Cash Investing and Financing Transactions: |
|
|
| Common stock issued for acquisition of subsidiary |
$ - |
$ - |
| Common stock issued for debt |
$
- |
$ - |
SEE ACCOMPANYING NOTES TO THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
PREAXIA HEALTH CARE PAYMENT
SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2014 and 2013
Note 1 – Summary of significant accounting
policies
This summary of significant accounting policies of
PreAxia Health Care Payment Systems Inc. (the “Company”) is presented to assist in understanding the Company’s
consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management
who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted
in the United States of America and have been consistently applied in the preparation of the consolidated financial statements,
which are stated in U.S. Dollars.
Organization
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.
On May 30, 2008, the Company finalized the execution
of an acquisition agreement dated April 22, 2008 (the “Acquisition Agreement”) between PreAxia, PreAxia Canada (formerly
H Pay Card Inc.), Tiempo, Kimberley Coonfer (“Coonfer”), Caribbean Overseas Investments Ltd. (“Caribbean”)
and the stockholders of PreAxia Canada (the “PreAxia Canada Stockholders”). Under the terms of the Acquisition Agreement,
PreAxia acquired all of the issued and outstanding shares of PreAxia Canada resulting in PreAxia Canada becoming a direct, wholly-owned
subsidiary of PreAxia. Upon the acquisition of PreAxia Canada by PreAxia, PreAxia issued the stockholders of PreAxia Canada an
aggregate of 12,000,000 shares of the common stock of PreAxia. Pursuant to the terms of the Acquisition Agreement all of the issued
and outstanding shares of the Company’s subsidiary, Tiempo (the “Tiempo Shares”) were transferred to Coonfer
and Caribbean in exchange for the return of treasury of a total of 5,000,000 common shares of PreAxia (the “Cancellation
Shares”). The Cancellation Shares were exchanged for the Tiempo Shares and $100,000 of the intercompany debt between Tiempo
and PreAxia was written off on the books of Tiempo and PreAxia, and Tiempo provided a promissory note for the remaining intercompany
debt between Tiempo and PreAxia in the amount of $49,281. As of May 30, 2008, Tiempo is no longer a subsidiary of PreAxia, PreAxia
Canada Inc. is a wholly-owned subsidiary of PreAxia. PreAxia Canada Inc. Stockholders received an aggregate of 12,000,000 shares
of PreAxia’s common stock representing 78.7% of the issued and outstanding shares 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 Inc. 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, 2014 are those of the Company and PreAxia Canada Inc. PreAxia Canada Inc. was incorporated pursuant to the
laws of the Province of Alberta on January 28, 2008. Since inception of PreAxia Canada Inc., 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 Company is in the development stage and has not
yet realized any revenues from its planned operations.
PREAXIA HEALTH CARE PAYMENT
SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2014
Note 1 – Summary of significant accounting
policies (Continued)
Nature and Continuance of Operations (Continued)
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.
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. At May 31, 2014, the Company had not yet achieved profitable operations, has accumulated
losses of $3,230,908 since inception, has negative working capital of $1,595,641 and 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.
Use of Estimates in the preparation of the consolidated
financial statements
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. Actual results
could differ from those estimates.
PREAXIA HEALTH CARE PAYMENT
SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2014 and 2013
Note 1 – Summary of significant accounting
policies (Continued)
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.
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.
Development Stage Company
The 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 the 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.
Research and Development Costs
Research and development costs are expensed in the
year in which they are incurred.
Intangible Software Costs
Intangible software costs will only be amortized against
revenues generated by the software over a three year period. It is anticipated that these costs will begin to be amortized beginning
in 2015.
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.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.
PREAXIA HEALTH CARE PAYMENT
SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2014 and 2013
Note 1 – Summary of significant accounting
policies (Continued)
FINANCIAL INSTRUMENTS
The Company’s balance sheet includes certain
financial instruments. 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.
Fair Value Estimates
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 May 31, 2014. The respective carrying value
of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
Recent Accounting
Pronouncements
The Company reviews new accounting standards
as issued or updated. No new standards or updates had any material effect on these financial statements. The accounting pronouncements
issued subsequent to the date of these 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 and does not anticipate the need for any future
restatement of these consolidated financial statements because of the retro-active application of any accounting pronouncements
issued subsequent to December 31, 2012 through the date these financial statements were issued.
Other
The Company has selected May 31 as its year-end and
the Company paid no dividends in 2014.
PREAXIA HEALTH CARE PAYMENT
SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2014 and 2013
Note 2 – Going Concern
The accompanying consolidated financial statements
have been prepared assuming the Company will continue as a going concern. As shown in the accompanying consolidated financial statements,
the Company has incurred cumulative net losses of ($3,230,908) since inception, and currently has no sales. The future of the Company
is dependent upon its ability to obtain financing and upon future profitable operations from the design, development and commercialization
of its health care payment processing services and products. Management has plans to seek additional capital through private placements
of its common stock. The consolidated financial statements do not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot
continue in existence.
Note 3 – Related Party Transactions
Accounts Payable
During the year ended May 31, 2014, the Company’s
president, Tom Zapatinas, invoiced $120,000 for management services rendered to the Company for the period June 1, 2013 to May
31, 2014. As at May 31, 2014, Accounts payable – related party includes a total of $961,441 due and payable to Mr. Zapatinas.
There are no terms of repayment for this payable.
Lizée Gauthier, Certified General Accountants,
as at May 31, 2014, held an accounts payable – related party totalling $84,892 due and payable to Mr. Lizée. There
are no terms of repayment for this payable.
As of May 31, 2013, the Company owed shareholders
$446,519. The terms of repayment are 30 days after demand is made by the shareholder.
Included in the amount above, the
Company had a loan payable to a shareholder of the Company in the amount of $64,414. The loan was unsecured, with 6% interest per
annum and was payable 30 days after demand is made by the shareholder. As of May 31, 2014 the Company had accrued interest on the
related party loan in the amount of $12,496.
PREAXIA HEALTH CARE PAYMENT
SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2014 and 2013
Note 4 – Income Taxes
As at May 31, 2014, the Company is in arrears on filing
its statutory income tax returns. The Company has incurred substantial net operating losses for financial statement purposes in
excess of $3,000,000 since January 28, 2008 (Date of Inception) or net losses for tax purposes of $2,850,000.
It is management’s intention to hire a tax professional
to file these tax returns on its behalf.
The company’s deferred tax assets and liabilities
consist primarily of the following:
| |
|
2014 |
|
|
2013 |
|
| |
|
|
|
|
|
|
| Net operating losses – U.S. parent: |
|
|
|
|
|
|
| Amount carried forward from prior years |
$ |
(1,116,440) |
|
$ |
(1,035,748 |
) |
| Net operating losses |
|
(63,400 |
) |
|
(80,692 |
) |
| |
|
(1,179,840 |
) |
|
(1,116,440 |
) |
| |
|
|
|
|
|
|
| Net operating losses – Canadian subsidiary: |
|
|
|
|
|
|
| Amount carried forward from prior years |
|
(29,260) |
|
|
(25,652 |
) |
| Net operating losses |
|
(2,500 |
) |
|
(3,608 |
) |
| |
|
(31,760 |
) |
|
(29,260 |
) |
| |
|
|
|
|
|
|
| Total |
|
(1,211,600 |
) |
|
(1,145,700 |
) |
| Less: valuation allowance |
|
1,211,600 |
|
|
1,145,700 |
|
| |
$ |
- |
|
$ |
- |
|
Note 5 – Common Stock
The Company is authorized to issue up to 75,000,000
shares of common stock. The shares of common stock are non-assessable, without pre-emption rights, and do not carry cumulative
voting rights. Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of
our stockholders. Holders of our common stock are entitled to receive dividends if, as and when declared by our Board of Directors.
Note 6 – Contingencies
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 any long term commitments
for equipment or leases. The company does not have any office space commitments as the CEO operates from his residence.
During the years ended May 31, 2014 and 2013, the
change in valuation allowance was $ 63,500 and $84,900, respectively.
Note 7 - Subsequent events
The Company does not have any additional subsequent
events as of the date this report was issued.
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, 2014, 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, 2014. 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, 2013, 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, 2012, 2013 and 2014.
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.
ITEM 9B. OTHER INFORMATION
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 January
9, 2014, the Company engaged DKM Certified Public Accountants (DKM) to act as the Company’s independent registered public
accountant.
The engagement
of DKM and the dismissal of the prior accountants 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 or Patrick Rogers, CPA PA. 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.
On May 15, 2014, the Board of
Directors of the Registrant elected James Kenney to serve as a member of the Board of Directors, effective immediately.
Mr. Kenney is founder and current Managing director of Treehouse
Group, a diversified firm that includes a Marketing and Strategy Consultancy as well as investments in a number of start-up companies.
Mr. Kenney has worked with several global clients, including Visa, Royal Bank, CMC Markets, and ADP, providing leadership and industry
expertise in developing and executing strategic plans as well as providing consulting services to numerous successful start-up
companies including Cyence International, Velocity Trade and CaymanOne.
Mr Kenney was Chief Operating Officer
at Canadian Securities Institute, where he drove the development and launch of numerous programs for continuing education, regulatory
licensing and university accreditation. He led the successful migration to online delivery, establishing CSI as the pre-eminent
brand for investor education and distance learning.
Mr. Kenney also served as Vice President
of Marketing and Business Development for Interac Association and was responsible for launching the national debit card program,
building the Interac brand and leading the organization through a period of exponential growth. He also held a number of senior
sales and marketing positions at CIBC and Bell Canada and managed several successful real estate acquisitions and investments.
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 |
President, Chief Executive Officer, Secretary, Chief Financial Officer, Treasurer and Director |
58 |
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 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, President, Secretary, Chief Executive
Officer and a director
Tom Zapatinas has been a director of our company since
January 9, 2007 and the president, secretary and 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. |
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 president 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 president 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, 2014 all filing
requirements applicable to our executive officers, directors and greater than 10% percent beneficial owners were complied
with.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation received
during the two years ended May 31, 2014 and May 31, 2013 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
($) |
All Other
Compensa
-tion
($) |
Total
($) |
Tom
Zapatinas,
President,
CEO and
Director |
2014
2013
|
$120,000
$120,000
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
$120,000
$120,000
|
Ron Lizée,
CFO and
Director |
2013
2012 |
$0
$14,7831) |
Nil
Nil |
Nil
Nil |
Nil
Nil |
Nil
Nil |
Nil
Nil |
Nil
Nil |
$0
$14,783(1) |
1 Ron Lizée is not on a salary.
During the fiscal year ended May 31, 2012, a total of $14,783 (2011 – $61,759) in fees were billed to our company by Lizée
Gauthier Certified General Accountants of which our company’s CFO, Mr. Ron Lizée, is the sole proprietor. These fees
were invoiced at the same billable rate as other clients of the firm and remain payable as at May 31, 2014
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 $85,000 and includes 30,000 shares for completion of one year of services, stock option plan and a health spending account.
As at October 31, 2011, the board accepted the resignation of our general manager.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide
pension, retirement or similar benefits for directors or executive officers. We adopted and approved our current stock option plan
on January 28, 2010, pursuant to which we may grant stock options to acquire up to 2,000,000 shares of our common stock. Our directors
and executive officers may receive stock options at the discretion of our board of directors in the future. We do not have any
material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive
officers, except that stock options may be granted at the discretion of our board of directors from time to time.
Termination of Employment and Change in Control
Arrangements
We have no plans or arrangements in respect of remuneration
received or that may be received by our executive officers to compensate such officers in the event of termination of employment
(as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named executive
officer certain information concerning the outstanding equity awards as of May 31, 2014.
| OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END |
| OPTION AWARDS |
STOCK AWARDS |
Name |
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable |
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable |
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#) |
Option
Exercise
Price
($) |
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 |
None |
None |
None |
None |
None |
None |
None |
None |
None |
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, 2014.
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, 2014. 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 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 August 25,
2014, 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 July 7, 2014, 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 and Address of Beneficial Owner |
Amount and Nature of
Beneficial Ownership(1) |
Percentage
of Class(2) |
| Common Stock |
Spyros Tsoukalis |
825,000 |
Direct |
4.7% |
| |
Grammatikou Mesologiou |
|
|
|
| |
Aitoloakarnanias |
|
|
|
| |
Greece T.K. 30015 |
|
|
|
| Common Stock |
Elias Tsoukalis |
813,033 |
Direct |
4.65% |
| |
Grammatikou Mesologiou |
|
|
|
| |
Aitoloakarnanias |
|
|
|
| |
Greece T.K. 30015 |
|
|
|
Security ownership of management
Title of Class |
Name and Address of Beneficial Owner |
Amount and Nature of
Beneficial Ownership(1) |
Percentage
of Class(2) |
| Common Stock |
Tom Zapatinas |
9,000,000 |
Direct |
51.5% |
| |
3212 – 14 Avenue SW |
|
|
|
| |
Calgary, AB T3C 0X3 |
|
|
|
| Common Stock |
All officers and directors as a group (2 persons) |
9,000,000 |
|
51.5% |
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 17,652,082 issued and outstanding
shares of common stock as of August 25, 2014
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
Other than as listed below, no director, officer,
principal shareholder holding at least 5% of our common shares, or any family member thereof, had any material interest, direct
or indirect, in any transaction, or proposed transaction, since the beginning of our fiscal year ended May 31, 2010, in which the
amount involved in the transaction exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets
at year-end for the last two completed fiscal years.
| 1. |
During the year ended May 31, 2014 and the year ended May 31, 2013, our company’s president, Tom Zapatinas, invoiced $120,000 for management services rendered to our company for the period June 1, 2013 to May 31, 2014 and $120,000 for management services rendered for the period June 1, 2012 to May 31, 2013. As at May 31, 2014, accounts payable – related party includes a total of $961,441 due and payable to Mr. Zapatinas. As at May 31, 2014, accounts payable – related party includes a total of $1,046,332. |
| |
|
| 2. |
During the year ended May 31, 2012 and the year ended May 31, 2011, Lizée Gauthier, Certified General Accountants, of which our CFO, Ron Lizée is the sole proprietor, invoiced $14,783 for accounting services rendered and $61,759 for accounting services during the year ended May 31, 2011. As at May 31, 2012, accounts payable – related party includes a total of $84,895 due and payable to Mr. Lizée. |
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 DKM Certified Public
Accountants and Patrick Rogers, CPA PA for the completed fiscal periods ended May 31, 2014 and May 31, 2013 for professional services
rendered for the audit of our annual financial statements, quarterly reviews of our interim financial statements and services normally
provided by the independent accountant in connection with statutory and regulatory filings or engagements for these fiscal periods
were as follows:
| |
Year Ended May 31, 2014 |
Year Ended May 31, 2013 |
| Audit Fees and Audit Related Fees |
$24,706 |
$16,000 |
| Tax Fees |
- |
- |
| All Other Fees |
- |
- |
| Total |
$24,706 |
$16,000 |
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.
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.
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 and Director
(Principal Executive Officer)
Dated: August 29, 2014
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 and Director
(Principal Executive Officer)
Dated: August 29, 2014
EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Tom Zapatinas, certify that:
1. I
have reviewed this quarterly report on Form 10- K for the year ended May 31, 2014 of
PreAxia Health Care Payment Systems Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The
registrant’s other certifying officer(s) and I are responsible for establishing for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b. Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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,
c. Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d. Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a. All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b. Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
August 29, 2014
| |
|
| |
/s/
Tom Zapatinas |
| |
Tom Zapatinas, President, Chief
Executive Officer and Chief Financial Officer |
| |
|
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Tom Zapatinas, certify that:
1. I
have reviewed this quarterly report on Form 10-K for the year ended May 31, 2014
of PreAxia Health Care Payment Systems Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The
registrant’s other certifying officer(s) and I are responsible for establishing for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b. Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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,
c. Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d. Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The
registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b. Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
August 29, 2014
| |
|
| |
/s/
Tom Zapatinas |
| |
Tom Zapatinas, President, Chief
Executive Officer and Chief Financial Officer |
| |
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the
Annual Report of PreAxia Health Care Payment Systems Inc. (the “Company”) on Form 10-K for the year ended
May 31, 2014 as filed with the Securities and Exchange Commission (the “Report”), I, Tom Zapatinas, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to SS. 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The
information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
| |
|
| |
| August 29, 2014 |
/s/ Tom Zapatinas |
| |
Tom Zapatinas, President, Chief Executive Officer
and Chief Financial Officer
|
A signed original of this written statement
required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed
form within the electronic version of this written statement has been provided to the Company and will be retained by the Company
and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Annual Report of
PreAxia Health Care Payment Systems Inc. (the “Company”) on Form 10-K for the year ended May 31,
2014 as filed with the Securities and Exchange Commission (the “Report”), I, Tom Zapatinas,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to SS. 906 of
the Sarbanes-Oxley Act of 2002, that:
1. The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The
information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
| |
|
| |
| August 29, 2014 |
/s/ Tom Zapatinas |
| |
Tom Zapatinas, President,
Chief Executive Officer and Chief Financial Officer |
A signed original of this written statement
required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed
form within the electronic version of this written statement has been provided to the Company and will be retained by the Company
and furnished to the Securities and Exchange Commission or its staff upon request.
PreAxia Health Care Paym... (PK) (USOTC:PAXH)
Historical Stock Chart
From Feb 2025 to Mar 2025
PreAxia Health Care Paym... (PK) (USOTC:PAXH)
Historical Stock Chart
From Mar 2024 to Mar 2025
