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 and PreAxia Canada
are both development stage companies. PreAxia Canada is a company which intends to deliver a comprehensive suite of solutions
and services directed at the emerging health payment market, specifically the opportunities tied to the growth of health
spending accounts (“HSA”). There is a rapid shift in healthcare traditional payment models to consumer-directed
healthcare that is creating significant opportunities for financial services and insurance industries to deliver new dynamic
products to this emerging market.
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, 2013,
we expended $102,151 on research and development and capitalized these costs as Intangible Software Costs compared to $240,596
(expensed) during year ended May 31, 2012.
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, 2013 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, 2013 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.