UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November
30, 2015
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ______________
Commission File Number: 000-52365
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(Exact name of registrant
as specified in its charter)
Nevada |
20-4395271 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
PO Box 34072, 55-1610-37th
Street S.W., Calgary, Alberta T3C 3W2
(Address of principal executive offices) (Zip
Code)
(403) 850-4120
(Registrant’s telephone number, including
area code)
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 [X] No [ ]
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 [ ] Smaller
reporting Company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act.) Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant
filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent
to the distribution of securities under a plan confirmed by a court. Yes [ ] No
[X ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of
each of the issuer’s classes of common stock, as of the latest practicable date.
17,652,082 common shares outstanding as of January 10, 2016
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION |
|
ITEM 1. FINANCIAL STATEMENTS |
4 |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
6 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK |
14 |
Item 4. Controls and Procedures |
14 |
PART II – OTHER INFORMATION |
|
ITEM 1. LEGAL PROCEEDINGS |
15 |
ITEM 1A. RISK FACTORS |
15 |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS |
22 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES |
22 |
ITEM 4. MINE SAFETY DISCLOSURES |
22 |
ITEM 5. OTHER INFORMATION |
22 |
ITEM 6. EXHIBITS |
22 |
SIGNATURES |
23 |
|
|
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions
for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal
recurring nature. Operating results for the six month period ended November 30, 2015 are not necessarily indicative
of the results that may be expected for the fiscal year ending May 31, 2016. For further information refer to the consolidated
financial statements and footnotes thereto included in Preaxia’s Annual Report on Form 10-K for the year ended May 31, 2015.
|
Page |
Unaudited Consolidated Financial Statements |
|
|
|
Consolidated Balance Sheets as of November 30, 2015 (Unaudited) and May 31, 2015 |
F-1 |
|
|
Unaudited Consolidated Statements of Operations and Comprehensive Loss for the six months ended November 30, 2015 and 2014 |
F-2 |
|
|
Unaudited Consolidated Statements of Cash Flows for the six months ended November 30, 2015 and 2014 |
F-3 |
|
|
Notes to Unaudited Consolidated Financial Statements |
F-4 |
PREAXIA HEALTH CARE PAYMENT SYSTEMS
INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2015
(Stated in US Dollars)
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
November 30, 2015 and May 31, 2015
(Stated in US Dollars)
| |
(Unaudited) November 30, 2015 | |
May 31, 2015 |
| |
| |
|
ASSETS |
| |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash | |
$ | 2,656 | | |
$ | 3,062 | |
| |
| | | |
| | |
Total Current Assets | |
| 2,656 | | |
| 3,062 | |
| |
| | | |
| | |
Other Assets | |
| | | |
| | |
| |
| | | |
| | |
Intangible Software Costs | |
| 102,151 | | |
| 102,151 | |
Amortization Software Costs | |
| (51,075 | ) | |
| (34,050 | ) |
Total Other Assets | |
| 51,076 | | |
| 68,101 | |
|
Total Assets | |
$ | 53,732 | | |
$ | 71,163 | |
|
LIABILITIES |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts Payable and Accrued Liabilities | |
| 213,070 | | |
| 213,576 | |
Accounts Payable – Related Party (Note 4) | |
| 1,157,825 | | |
| 1,088,044 | |
Loan Payable | |
| 407,120 | | |
| 419,815 | |
Accrued Interest – Loans Payable | |
| 16,057 | | |
| 14,342 | |
| |
| | | |
| | |
Total Current Liabilities | |
| 1,794,072 | | |
| 1,735,777 | |
| |
| | | |
| | |
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 November 30, 2015 and May 31, 2015, respectively | |
| 17,652 | | |
| 17,652 | |
Additional Paid-in Capital | |
| 1,705,628 | | |
| 1,705,628 | |
Accumulated other Comprehensive Loss | |
| 55,557 | | |
| 42,134 | |
Deficit Accumulated | |
| (3,519,177 | ) | |
| (3,430,028 | ) |
| |
| | | |
| | |
Total Stockholders’ Deficit | |
| (1,740,340 | ) | |
| (1,664,614 | ) |
| |
| | | |
| | |
Total Liabilities and Stockholders’ Deficit | |
$ | 53,732 | | |
$ | 71,163 | |
| |
| | | |
| | |
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS (UNAUDITED)
(Stated in U.S. Dollars)
| |
| |
| |
| |
|
| |
| |
| |
| |
|
| |
Three months ended | |
Six months ended |
| |
November 30, | |
November 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
| |
| |
| |
|
Expenses | |
| | | |
| | | |
| | | |
| | |
Consulting fees | |
$ | 30,000 | | |
$ | 30,000 | | |
$ | 60,000 | | |
$ | 60,000 | |
Professional Fees | |
| 6,000 | | |
| — | | |
| 6,000 | | |
| — | |
Office and administration | |
| 3,743 | | |
| 2,171 | | |
| 4,408 | | |
| 5,922 | |
Amortization of Software | |
| 8,512 | | |
| 8,512 | | |
| 17,025 | | |
| 17,025 | |
Total Operating Loss | |
| 48,255 | | |
| 40,683 | | |
| 87,433 | | |
| 82,947 | |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (48,255 | ) | |
| (40,683 | ) | |
| (87,433 | ) | |
| (82,947 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other Income (Expenses) | |
| | | |
| | | |
| | | |
| | |
Other income | |
| — | | |
| — | | |
| — | | |
| 48 | |
Interest expense | |
| (853 | ) | |
| (580 | ) | |
| (1,716 | ) | |
| (1,559 | ) |
Total Other Income (Expenses) | |
| (853 | ) | |
| (580 | ) | |
| (1,716 | ) | |
| (1,511 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (49,108 | ) | |
$ | (41,263 | ) | |
$ | (89,149 | ) | |
$ | (84,458 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income: | |
| | | |
| | | |
| | | |
| | |
Foreign Currency transaction | |
| — | | |
| 5,424 | | |
| — | | |
| — | |
Foreign currency translation | |
| 2,525 | | |
| 871 | | |
| 13,423 | | |
| 6,187 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive loss for period | |
$ | (46,583 | ) | |
$ | (34,968 | ) | |
$ | (75,726 | ) | |
$ | (78,271 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss per share | |
| (0.00 | ) | |
| (0.00 | ) | |
| (0.00 | ) | |
| (0.00 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of shares outstanding | |
| 17,652,082 | | |
| 17,652,082 | | |
| 17,652,082 | | |
| 17,652,082 | |
| |
| | | |
| | | |
| | | |
| | |
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in U.S. Dollars)
| |
| |
|
| |
| |
|
| |
Six months ended |
| |
November 30, |
| |
2015 | |
2014 |
| |
| |
|
Cash Flows from Operating Activities | |
| | | |
| | |
Net loss | |
$ | (89,149 | ) | |
$ | (84,458 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Amortization of Software | |
| 17,025 | | |
| 17,025 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Increase (decrease) in accounts payable – related party | |
| 69,781 | | |
| 64,397 | |
Increase (decrease) in accounts payable and accrued liabilities | |
| (506 | ) | |
| (2,921 | ) |
Increase (decrease) in accrued interest | |
| 1,715 | | |
| 1,559 | |
Cash Flows used in operating activities | |
| (1,134 | ) | |
| (4,398 | ) |
| |
| | | |
| | |
Cash Flow from Investing Activities | |
| | | |
| | |
Cash flows used in investing activities | |
| — | | |
| — | |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Repayment of loan payable | |
| — | | |
| (5,913 | ) |
Cash flows provided by financing activities | |
| — | | |
| (5,913 | ) |
| |
| | | |
| | |
Effect of exchange rate changes on cash | |
| 728 | | |
| 6,187 | |
| |
| | | |
| | |
Increase (decrease) in cash during the period | |
| (406 | ) | |
| (4,124 | ) |
| |
| | | |
| | |
Cash, beginning of period | |
| 3,062 | | |
| 8,532 | |
| |
| | | |
| | |
Cash, end of period | |
$ | 2,656 | | |
$ | 4,408 | |
| |
| | | |
| | |
Supplemental Disclosure: | |
| | | |
| | |
Cash paid for income taxes | |
$ | — | | |
$ | — | |
Cash paid for interest | |
$ | — | | |
$ | — | |
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
PREAXIA HEALTH
CARE PAYMENT SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 2015 and May 31, 2015
Note 1 – Organization and Description
of Business
PreAxia Health Care Payment Systems Inc. (the
“Company”) was incorporated in the State of Nevada on April 3, 2000. The Company is devoting substantially all of its
present efforts to establish a new business and none of its planned principal operations have commenced. 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. PreAxia Canada Inc. was incorporated pursuant to the laws of the Province of Alberta on January
28, 2008. PreAxia Canada Inc. is a wholly owned subsidiary of the Company.
Note 2 – Summary of Significant Accounting
Policies
Basis of presentation
The Company’s financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Reclassification
Certain prior period amounts in the condensed financial statements
have been reclassified to conform to current period presentation.
Unaudited Interim Financial Information
The accompanying unaudited consolidated financial
statements of PreAxia Health Care Payment Systems Inc. (the “Company”) have been prepared in accordance with Securities
and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United States for complete financial statements. The consolidated
financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year
ended May 31, 2015.
The interim consolidated financial information
is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of November 30,
2015, and the results of operations, and cash flows presented herein have been included in the consolidated financial statements.
All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of operations
for the full year.
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and PreAxia Canada. All inter-company accounts and transactions have been eliminated in consolidation.
Going Concern
These consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going
concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal
year. Realization values may be substantially different from carrying values as shown and these consolidated
financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of
assets and liabilities should the Company be unable to continue as a going concern. As of November 30, 2015, the
Company had not yet achieved profitable operations, has accumulated losses of $3,519,177, has negative working capital of
$1,791,416 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.
Cash and Cash Equivalents
The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash equivalents.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates include the estimated useful lives of property
and equipment. Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Company is the
United States dollar. The functional currency of PreAxia Canada is the Canadian dollar. Assets and liabilities in the
accompanying consolidated financial statements are translated into United States dollars at the exchange rate in effect at the
balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the
average rates of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange
rates from period to period are included in the accumulated other comprehensive income (loss) account in stockholders’ deficit.
Transactions undertaken in currencies other
than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any
exchange gains and losses are included in the Statement of Operations and Comprehensive Loss.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting
Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting
Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph
820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States
of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair
value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs
to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1 |
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
|
|
Level 2 |
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
|
Level 3 |
|
Pricing inputs that are generally observable inputs and not corroborated by market data. |
The carrying amount of the Company’s financial assets and
liabilities, such as cash and accrued expenses approximate their fair value because of the short maturity of those instruments.
The Company’s notes payable approximate the fair value of such instruments based upon management’s best estimate of
interest rates that would be available to the Company for similar financial arrangements at November 30, 2015.
The Company does not have any assets or liabilities measured at
fair value on a recurring or a non-recurring basis.
Gain (Loss) Per Share
Gain (loss) per share of common stock is computed
by dividing the net loss by the weighted average number of common shares outstanding during the period.
Research and Development Costs
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. The software is being amortized over three years starting
June 2014.
Impairment of long-lived assets
The Company follows paragraph 360-10-05-4 of the FASB Accounting
Standards Codification for its long-lived assets. The Company’s long-lived assets, which includes computer equipment is reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
The Company assesses the recoverability of its long-lived
assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of
long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any,
is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined
using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived
assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than
originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining
estimated useful lives.
The Company determined that there were no impairments of long-lived
assets as of November 30, 2015.
Commitments and contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards
Codification to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount
of the assessment can be reasonably estimated.
Revenue recognition
The Company follows paragraph 605-10-S99-1 of the FASB Accounting
Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and
earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii)
the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Income taxes
The Company follows Section 740-10-30 of the FASB Accounting Standards
Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities
are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in
effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation
allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting Standards
Codification (“Section 740-10-25”) with regards to uncertain income tax positions. Section 740-10-25 addresses
the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial
statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits
of the position. The tax benefits recognized in the financial statements from such a position should be measured based on
the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section
740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim
periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income
tax benefits according to the provisions of Section 740-10-25. All tax years remain open for examination by taxing authorities.
Cash flows reporting
The Company adopted paragraph 230-10-45-24 of the FASB
Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they
stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or
reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards
Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from
operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all
accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do
not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign
currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on
cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash
and cash equivalents and separately provides information about investing and financing activities not resulting in cash
receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.
Subsequent events
The Company follows the guidance in Section 855-10-50 of the FASB
Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through
the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification,
the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through
filing them on EDGAR.
Note 3 – Recent Accounting Pronouncements
The Company reviews new accounting standards as issued or updated.
No new standards or updates had any material effect on these consolidated financial statements. The accounting pronouncements issued
subsequent to the date of these consolidated financial statements that were considered significant by management were evaluated
for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements
will have a material effect on these consolidated financial statements.
Note 4 – Related Party Transactions
Accounts Payable to Related Parties
During the six months ended November 30, 2015,
the Company’s President/Chief Executive Officer, Tom Zapatinas, invoiced $60,000 for management services rendered to the
Company. As of November 30, 2015, Accounts payable – related party includes a total of $1,157,825 due and payable to Mr.
Zapatinas. There are no terms of repayment for this payable.
As of November 30, 2015 and May 31, 2015,
the Company owed other shareholders $407,120 and $419,815, respectively. The terms of repayment are 30 days after demand is made
by the shareholder.
Note 5 – Stockholders’ Deficit
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.
No shares were issued during the period.
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.
Note 7 - Subsequent events
The Company has evaluated subsequent events
through the date these financial statements were issued pursuant to the requirements of ASC Topic 855 and has determined that no
material subsequent events occurred that require disclosure.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report contains forward-looking statements relating
to future events or our future financial performance. In some cases, you can identify forward-looking statements by
terminology such as “may”, “should”, “intends”, “expects”, “plans”,
“anticipates”, “believes”, “estimates”, “predicts”, “potential”, or
“continue” or the negative of these terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels
of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied
by these forward-looking statements.
Such factors include, among others, the following: international,
national and local general economic and market conditions; demographic changes; the ability of PreAxia to sustain, manage or forecast
its growth; the ability of PreAxia to successfully make and integrate acquisitions; raw material costs and availability;
new product development and introduction; existing government regulations and changes in, or failure to comply with government
regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting
operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified
personnel; the ability to protect technology; and other factors referenced in this and previous filings.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required
by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements
to conform these statements to actual results.
Given these uncertainties, readers of this Form 10-Q and investors
are cautioned not to place undue reliance on such forward-looking statements. PreAxia disclaims any obligation to update
any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein
to reflect future events or developments, except as required by applicable law, including the securities laws of the United States.
All dollar amounts stated herein are in US dollars unless otherwise
indicated.
The management’s discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America (“GAAP”). The following discussion
of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements
for the year ended May 31, 2015, together with notes thereto. As used in this quarterly report, the terms “we”,
“us”, “our”, “PreAxia” and the “Company” means PreAxia Health Care Payment
Systems Inc. and its wholly-owned subsidiary, PreAxia Canada Inc. (“PreAxia Canada”) formerly PreAxia Health Care Payment
System Inc. and, before that, H Pay Card Ltd., unless the context clearly requires otherwise.
General Overview
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”)
An 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’s
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 2016 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 the 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 has two trademarks pending. One is for the company
name (PreAxia) and another is for the company logo design.
Plan of Operation
Over the next twelve months, we plan to:
|
(a) |
Raise additional capital to execute our business plans; |
|
|
|
|
(b) |
Penetrate the health care processing market in Canada, and worldwide, by continuing to develop innovative health care processing products and services; |
|
|
|
|
(c) |
Build up a network of strategic alliances with several types of health insurance companies, governments and other alliances in various vertical markets; and |
|
|
|
|
(d) |
Fill the positions of senior management sales, administrative and engineering positions. |
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 development and marketing of health care processing products and services. We do
not expect to generate any revenues this year, therefore we will be required to raise a total of $3,344,000 to complete our business
plan and pay our outstanding debts of approximately $1,794,000. Our working capital requirements for 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 staff fees, office rent, office supplies, transfer agents, filing fees, bank service charges, salaries for our administration, 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 development and acquisition of software for our processing services and products. |
|
|
|
|
3. |
Marketing and Education. We anticipate spending approximately $450,000 as the costs of staff and personnel, marketing and promoting our Company, our products and services, and educating the public to attract new accounts. |
|
|
|
|
4. |
Professional Services. We anticipate that we may spend up to $350,000 in the next twelve months for professional services, which includes, accounting, auditing, legal fees and investor relations. |
|
|
|
Liquidity and Capital Resources
As of November 30, 2015, PreAxia’s cash
balance was $2,656 compared to $3,062 as at May 31, 2015. Our Company will be required to raise capital to fund our
operations. PreAxia’s cash on hand is currently its only source of liquidity. PreAxia had a working
capital deficit of $1,791,416 as of November 30, 2015 compared with a working capital deficit of $1,732,715 as of May 31, 2015.
Our ability to meet our financial liabilities
and commitments is primarily dependent upon the continued issuance of equity to new stockholders, and our ability to achieve and
maintain profitable operations. PreAxia's cash and cash equivalents will not be sufficient to meet its working capital
requirements for the next twelve month period. We will not initially have any cash flow from operating activities
as we are in the development stage. We project that we will require an estimated additional $3,344,000 over the
next twelve month period to fund our operating cash shortfall and to complete our business plan. 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 PreAxia may determine.
There are no assurances that we will be able
to obtain funds required for our continued operations. There can be no assurance that additional financing will be available
to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to
obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we
will be forced to scale down or perhaps even cease the operation of our business.
There is substantial doubt about our ability to continue as a going
concern as the continuation of our business is dependent upon obtaining further long-term financing, successful and sufficient
market acceptance of our products and achieving a profitable level of operations. The issuance of additional equity
securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining
commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Our working capital (deficit) as at November 30, 2015 compared to
May 31, 2015 is summarized as follows:
Working Capital
| |
November 30,
2015 | |
May 31,
2015 |
| |
| | | |
| | |
Current Assets | |
$ | 2,656 | | |
$ | 3,062 | |
Current Liabilities | |
| 1,794,072 | | |
| 1,735,777 | |
Working Capital (deficit) | |
$ | (1,791,416 | ) | |
$ | (1,732,715 | ) |
The increase in our working capital deficit of $58,701 was primarily
due to an increase in our accounts payable related party.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Results of Operations
The following summary of our results of operations should be read
in conjunction with our audited financial statements for the year ended May 31, 2015.
For the three month period ended November 30, 2015 and November
30, 2014
Our operating results for the three month period ended November
30, 2015 compared to the three month period ended November 30, 2014 are described below:
Revenue
We have not earned any revenues since our inception and we do not
anticipate earning revenues until such time as we have completed the development of our Health Card software and obtained new customers.
Expenses
Our operating loss for the three month period ended November 30,
2015 was $48,254 compared to $40,683 for the three month period ended November 30, 2014. The increase in loss of $7,571 for the
three month period ending November 30, 2015 is due to an increase in expenses of $6,000 in professional fees and an increase of
$1,571 in office and administration fees.
Research and Development
There were no Research and Development expenses during the three
month period ended November 30, 2015 or for the three month period ended November 30, 2014, as most of the major project components
were completed.
Wages and Benefits
There were no wages and benefits during the three month period ended
November 30, 2015 or November 30, 2014.
Office and Administration
Office and administration expenses increased by $1,572 for the period
ended November 30, 2015 compared to November 30, 2014, due to an increase in filing expenses.
Professional Fees
Professional fees during the three months ended November 30, 2015
totaled $6,000 compared to $0 for November 30, 2014, as there was a requirement for audit fees.
Rent
There were no rent expenses during the three months ended November
30, 2015 or November 30, 2014 due to the closure of the Calgary main office.
Amortization of Software
Amortization of software expenses of $8,512 remained the same for
the three months ended November 30, 2015 and the three months ended November 30, 2014.
For the six month period ended November 30, 2015 and November
30, 2014
Our operating results for the six month period ended November 30,
2015 compared to the six month period ended November 30, 2014 are described below:
Revenue
We have not earned any revenues since our inception and we do not
anticipate earning revenues until such time as we have completed the development of our Health Card software and obtained new customers.
Expenses
Our operating loss for the six month period ended November 30, 2015
was $87,433 compared to $82,947 for the six month period ended November 30, 2014. The increase in loss of $4,936 for the six month
period ending November 30, 2015 is due to an increase in expenses of $6,000 in professional fees and a decrease in office and administration
fees of $1,514.
Research and Development
There were no Research and Development expenses during the six month
period ended November 30, 2015 or for the six month period ended November 30, 2014, as most of the major project components were
completed.
Wages and Benefits
There were no wages and benefits during the six month period ended
November 30, 2015 or November 30, 2014.
Office and Administration
Office and administration expenses decreased by $1,514 for the period
ended November 30, 2015 compared to November 30, 2014, due to a decrease in expenses.
Professional Fees
Professional fees during the six months ended November 30, 2015
totaled $6,000 compared to $0 for November 30, 2014, as there was a requirement for audit fees.
Rent
There were no rent expenses during the six months ended November
30, 2015 or November 30, 2014 due to the closure of the Calgary main office.
Amortization of Software
Amortization of software expenses of $17,025 remained the same for
the six months ended November 30, 2015 and the six months ended November 30, 2014.
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, 2015.
Critical Accounting Policies
We have identified certain accounting policies, described below,
that are the most important to the portrayal of our current financial condition and results of operations.
Revenue recognition
PreAxia recognizes revenue in accordance with the provision of the
Securities and Exchange Commission which establishes guidance in applying generally accepted accounting principles to revenue recognition
in financial statements. This provision requires that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the price to the buyer is
fixed and determinable; and (4) collectability is reasonably assured.
Research and development
Software Development Costs
The Company accounts for software development costs in accordance
with several accounting pronouncements, including FASB ASC 730, Research and Development, FASB ASC 350-40, Internal-Use Software,
FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed and FASB ASC 350-50, Website Development Costs.
Costs incurred during the period of planning and design, prior to
the period determining technological feasibility, for all software developed for use internal and external, has been charged to
operations in the period incurred as research and development costs. Additionally, costs incurred after determination of
readiness for market have been expensed as research and development.
The Company 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. The software is being amortized over three years starting
June 2014.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
Item 4. Controls and
Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 or 15d-15 under the Securities Exchange
Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of
the period covered by this quarterly report, being November 30, 2015. This evaluation was carried out under the supervision and
with the participation of our management, including our principal executive officer and principal financial officer.
Our management does not expect that our disclosure controls
or our internal control over financial reporting will prevent all error and fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are
met. Further, any control system reflects limitations on resources, and the benefits of a control system must be considered
relative to its costs. These limitations also include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people or by management override of a control. The design of a control system is
also based upon certain assumptions about potential future conditions; over time, currently implemented controls may become
inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Due
to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be
detected.
Based upon their evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and procedures were not effective as at the end of the period
covered by this quarterly report.
Our company determined that our disclosure controls and procedures
were not effective as of November 30, 2015 due to the following two material weaknesses in our internal control over financial
reporting that we indentified in our annual report on Form 10-K for the fiscal year ended May 31, 2015: (i) 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 (ii) we failed to file our corporate tax returns for 2008, 2009, 2010, 2011, 2012, 2013 or 2014. As we disclosed in our annual
report on Form 10-K for the fiscal year ended May 31, 2015, 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 the fiscal quarter ended November 30, 2015 that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material pending legal proceedings to which our company
or subsidiary is a party or of which any of our property is the subject. In addition, we do not know of any such proceedings contemplated
by any governmental authorities.
We know of no material proceedings in which any director, officer
or affiliate of our company, or any registered or beneficial stockholder of our company, or any associate of any such director,
officer, affiliate, or stockholder is a party adverse to our company or subsidiary or has a material interest adverse to our company
or subsidiary.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below are not the only ones we face. Any of the following risks could
harm our business, financial condition or results of operations. In such case, the trading price of our common stock could decline,
and you may lose all or part of your investment.
Risks Associated with our Financial Condition
Our independent auditors have expressed
substantial doubt about our ability to continue as a going concern.
We incurred a net loss of $3,519,177 for the period from April
3, 2000 (date of inception) to November 30, 2015. We are yet to attain profitable operations. In their report on our
financial statements for the fiscal year ended May 31, 2015, our independent auditors included an explanatory paragraph
regarding the substantial doubt about our ability to continue as a going concern.
Our ability to continue as a going concern is dependent upon
our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and
repay our liabilities arising from normal business operations when they come due. We have not generated significant revenues
since our inception on April 3, 2000. We will, in all likelihood, continue to incur operating expenses without
significant revenues for the foreseeable future. We cannot assure that we will be able to generate enough interest in our
health payment market products. If we cannot attract a significant customer base, we will not be able to generate any
significant revenues or income. In addition, if we are unable to establish and generate significant revenues, or obtain
adequate future financing, our business will fail and you may lose some or all of your investment in our common stock.
We have additional financing requirements.
In order to accelerate PreAxia's growth objectives, we will need
to raise additional funds from lenders and equity markets in the future. There can be no assurance that we will be able to raise
additional capital on commercially reasonable terms to finance our growth objectives. The ability of PreAxia to arrange such financing
in the future will depend in part upon the prevailing capital market conditions as well as the business performance of PreAxia.
There can be no assurance that we will be successful in our efforts to arrange additional financing on terms satisfactory to us.
If additional financing is raised by the issuance of shares of common stock of PreAxia, control of PreAxia may change and stockholders
may suffer additional dilution of their ownership interest in PreAxia.
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 our
financial resources will continue to be directed to the development of our products and to marketing activities. Our success will
ultimately depend on our ability to generate revenues from our 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.
Risks Associated with our Business
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.
We have a limited operational history. We are in the early commercialization
stage of our business and therefore we 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. We will be committing, and for the foreseeable
future will continue to commit, significant financial resources to marketing, product development and research. Our 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 business, our 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 we will be successful in doing what is necessary to address these risks.
We will require key personnel.
The financial
services technology industry, and HSA marketplace, involves a high degree of risk, which even a combination of experience, knowledge
and careful evaluation may not be able to overcome. Our success is dependent on the services of our senior management. The loss
of one or more of our key employees could have a material adverse effect on our operations and business prospects. In addition,
our future success will depend in large part on our ability to attract and retain additional highly skilled technical, management,
sales and marketing personnel. There can be no assurance that we will be successful in attracting and retaining such personnel
and the failure to do so could have a material adverse effect on our business, operating results and financial condition.
We may not be successful in the protection
of our 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 us or that any such
assertions or prosecutions will not materially adversely affect our business, financial condition or results of operations. Irrespective
of the validity or the successful assertion of such claims, we could incur significant costs and diversion of resources with respect
to the defense thereof which could have a material adverse effect on our business, financial condition or results of operations.
Our performance and ability to compete are dependent to a significant degree on our proprietary technology. There can be no assurance
that the steps taken by us will prevent misappropriation of our technology or that agreements entered into for that purpose will
be enforceable. The laws of other countries may afford us little or no effective protection of our intellectual property. We 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 us on commercially reasonable terms. The loss of, or inability of PreAxia 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 our business,
results of operations and financial condition.
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 HSAs and for financial services technology is competitive. There are other providers of components or versions of both
HSAs and 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 these markets. 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 our company 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 our products and
may have a material adverse effect on our business, financial condition and results of operations.
We may face implementation delays.
Most of our customers will be in a testing or preliminary stage
of utilizing our products and may encounter delays or other problems in the introduction of our 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 our business 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
our products.
We may get limited customer feedback
respecting products.
Our revenue will depend on the number of customers who use
our products. Accordingly, the satisfactory design of our product is critical to our business, and any significant product
design limitations or deficiencies could harm our business and market acceptance. The feedback we obtain from our customers
is critical to our ability to fix any limitations or deficiencies in our product. If we do not obtain adequate feedback from
our customers, we may not be able to adequately assess our customers’ requirements. The currently specified features
and functionality of our product may not satisfy current or future customer demands. Furthermore, even if we identify the
feature set required by our customers and potential customers, we may not be able to design and implement products
incorporating features in a timely and efficient manner, if at all.
We may face a slow down in developing
markets.
The market for our products is relatively new and continues to evolve.
If the market for our product fails to develop and grow, or if our product does not gain market acceptance, our business and prospects
will be harmed.
Our ability to keep current with technological
changes can impact our ongoing business.
The HSA
and financial services technology industries are susceptible to technological advances and the introduction of new products utilizing
new technologies. Further, the HSA and financial services technology industries are 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 our ability to secure technological superiority in our products and maintain such superiority in the face of new
products from competitors. No assurances can be given that our products 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 our products less competitive, less marketable, or even obsolete over time. The future success of PreAxia will
be influenced by our 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 our existing products will prove profitable,
or that products or improvements resulting therefrom, if any, will be successfully produced and marketed.
The HSA
and financial services technology industries are 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 our technology obsolete or have a negative impact on sales margins our
product may command. PreAxia's performance will depend, in part, on our ability to enhance our 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 we will be successful in using new technologies effectively or adapting
our product to customer requirements or emerging industry standards.
We require strategic alliances.
Our 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 PreAxia’s products, and/or lawsuits, and would be
detrimental, perhaps materially, to our 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 we consider minor may be considered serious by our customers.
If our internal quality assurance testing or customer testing reveals performance issues and/or desirable feature
enhancements, we may postpone the development and release of updates or enhancements to our current product or the release of
new products. We 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 our business and prospects. In addition, product defects may
expose us to liability claims, for which we may not have sufficient liability insurance. A successful suit against us could
harm our business and financial condition.
We may not be able to effectively manage
our growth.
We may be subject to growth-related risks, including capacity constraints
and pressure on our internal systems and controls. Our ability to manage our growth effectively will require us to continue to
implement and improve our operational and financial systems and to expand, train and manage our employee base. The inability of
PreAxia to deal with this growth could have a material adverse impact on our business, operations and prospects. We may experience
growth in the number of our employees and the scope of our operating and financial systems, resulting in increased responsibilities
for our personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage
our current operations and any future growth effectively, we will also need to continue to implement and improve our operational,
financial and management information systems and to hire, train, motivate, manage and retain our employees. There can be no assurance
that we will be able to manage such growth effectively, that our management, personnel or systems will be adequate to support our
operations or that we will be able to achieve the increased levels of revenue proportional with the increased levels of operating
expenses associated with this growth.
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 is required, subject
to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In
addition, our 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, 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.
Certain directors and officers may have 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.
We do not have key personnel insurance.
We do not currently have key personnel insurance in place in respect
of any of our 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 quarterly report, 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 the ownership interest in our company of 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.
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 November 30, 2015 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, 2015 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 Associated with Our Common Stock
Our common stock is traded on the "Over-the-Counter
Bulletin Board," which may make it more difficult for investors to resell their shares due to suitability requirements.
Our common stock is currently quoted for trading on Over the Counter
Bulletin Board (“OTCBB”) under the symbol PAXH.OB where we expect it to remain in the foreseeable future. Broker-dealers
often decline to trade in OTCBB stocks given the market for such securities is often limited, the stocks are more volatile, and
the risk to investors is greater. These factors may reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise
dispose of their shares. This could cause our stock price to decline.
Because we can issue additional shares
of our common stock or preferred stock, purchasers of our common stock may experience dilution in their ownership of our company
in the future.
We are authorized to issue up to 75,000,000 shares of common
stock. As of January 10, 2016, there were 17,652,082 shares of our common stock issued and outstanding. Our board of
directors has the authority to cause our company to issue additional shares of common stock without the consent of any of our
stockholders. Consequently, our stockholders may experience dilution in their ownership of our company in the future.
We do not intend to pay any dividends
on our common stock in the foreseeable future.
We do not currently anticipate declaring and paying dividends to
our stockholders in the foreseeable future. It is our current intention to apply net earnings, if any, in the foreseeable future
to increasing our working capital. We currently have no material revenues and a history of losses, so there can be no assurance
that we will ever have sufficient earnings to declare and pay dividends to the holders of shares of our common stock, and in any
event, a decision to declare and pay dividends is at the sole discretion of our board of directors, which currently do not intend
to pay any dividends on shares of our common stock for the foreseeable future.
Our stock is a penny stock. Trading of our stock may be restricted
by the Securities and Exchange Commission’s penny stock regulations which may limit a stockholder’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 Securities and Exchange Commission 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.
The Financial Industry Regulatory Authority
sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above,
the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that when 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. The 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 common stock and have an adverse effect on the
market for shares of our common stock.
ITEM 2. UNREGISTERED SALES
OF EQUITY SECURITIES AND USE OF PROCEEDS
No new shares
were issued in the six months ended November 30, 2015.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
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) |
10.3 |
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. (Incorporated by reference to the Exhibits filed with the annual report on Form 10-K for the year ended May 31, 2011 filed with the SEC on October 21, 2011) |
10.5 |
Promissory note dated August 5, 2011 issued to Macleod Projects Inc. (Incorporated by reference to the Exhibits filed with the annual report on Form 10-K for the year ended May 31, 2011 filed with the SEC on October 21, 2011) |
31.1* |
Section 302 Certification of Principal Executive 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 |
101.INS* |
XBRL INSTANCE DOCUMENT |
101.SCH* |
XBRL TAXONOMY EXTENSION SCHEMA |
101.CAL* |
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE |
101.DEF* |
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE |
101.LAB* |
XBRL TAXONOMY EXTENSION LABEL LINKBASE |
101.PRE* |
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE |
* Filed herewith.
SIGNATURES
Pursuant to the requirements 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.
By: /s/Tom Zapatinas
Name: Tom Zapatinas
Title: President, Chief Executive Officers and
Chief Financial Officers
(Principal Executive Officer)
Date: January 13, 2016
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-Q for the quarter ended November 30, 2015 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.
January 13, 2016
|
|
|
/s/
Tom Zapatinas |
|
Tom Zapatinas, Chief Executive Officer |
|
(Principal Executive 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-Q for the quarter ended November 30, 2015 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.
January 13, 2016
|
|
|
/s/
Tom Zapatinas |
|
Tom Zapatinas, Chief Financial Officer |
|
(Principal Financial and Accounting 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 Quarterly
Report of PreAxia Health Care Payment Systems Inc. (the “Company”) on Form 10-Q for the quarter ended
November 30, 2015 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.
|
|
|
January 13, 2016 |
/s/ Tom Zapatinas |
|
Tom Zapatinas, Chief Executive Officer
(Principal Executive 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 Quarterly
Report of PreAxia Health Care Payment Systems Inc. (the “Company”) on Form 10-Q for the quarter ended
November 30, 2015 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.
|
|
|
January 13, 2016 |
/s/ Tom Zapatinas |
|
Tom Zapatinas, Chief Financial
Officer and
(Principal Financial and Accounting
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.
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v3.3.1.900
Balance Sheets - USD ($)
|
Nov. 30, 2015 |
May. 31, 2015 |
Current Assets |
|
|
Cash |
$ 2,656
|
$ 3,062
|
Total Current Assets |
2,656
|
3,062
|
Other Assets |
|
|
Intangible Software Costs |
102,151
|
102,151
|
Amortization Software Costs |
(51,075)
|
(34,050)
|
Total Other Assets |
51,076
|
68,101
|
Total Assets |
53,732
|
71,163
|
Current Liabilities |
|
|
Accounts Payable and Accrued Liabilities |
213,070
|
213,576
|
Accounts Payable – Related Party |
1,157,825
|
1,088,044
|
Loan Payable |
407,120
|
419,815
|
Accrued Interest – Loans Payable |
16,057
|
14,342
|
Total Current Liabilities |
1,794,072
|
1,735,777
|
STOCKHOLDERS’ DEFICIT |
|
|
Common Stock |
17,652
|
17,652
|
Additional Paid-in Capital |
1,705,628
|
1,705,628
|
Accumulated other Comprehensive Loss |
55,557
|
42,134
|
Deficit Accumulated |
(3,519,177)
|
(3,430,028)
|
Total Stockholders’ Deficit |
(1,740,340)
|
(1,664,614)
|
Total Liabilities and Stockholders’ Deficit |
$ 53,732
|
$ 71,163
|
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v3.3.1.900
Balance Sheets (Parenthetical) - $ / shares
|
Nov. 30, 2015 |
May. 31, 2015 |
Statement of Financial Position [Abstract] |
|
|
Common stock, par value |
$ 0.001
|
$ 0.001
|
Common stock, shares authorized |
75,000,000
|
75,000,000
|
Common stock, shares issued |
17,652,082
|
17,652,082
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X |
- DefinitionFace amount or stated value per share of common stock.
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v3.3.1.900
Statements of Operations - USD ($)
|
3 Months Ended |
6 Months Ended |
Nov. 30, 2015 |
Nov. 30, 2014 |
Nov. 30, 2015 |
Nov. 30, 2014 |
Expenses |
|
|
|
|
Consulting fees |
$ 30,000
|
$ 30,000
|
$ 60,000
|
$ 60,000
|
Professional fees |
6,000
|
0
|
6,000
|
0
|
Office and administration |
3,743
|
2,171
|
4,408
|
5,922
|
Amortization Software |
8,512
|
8,512
|
17,025
|
17,025
|
Total Operating Loss |
48,255
|
40,683
|
87,433
|
82,947
|
Operating loss |
(48,255)
|
(40,683)
|
(87,433)
|
(82,947)
|
Other Income (Expenses) |
|
|
|
|
Other income |
0
|
0
|
0
|
48
|
Interest expense |
(853)
|
(580)
|
(1,716)
|
(1,559)
|
Total Other Income (Expenses) |
(853)
|
(580)
|
(1,716)
|
(1,511)
|
Net loss |
(49,108)
|
(41,263)
|
(89,149)
|
(84,458)
|
Other comprehensive income: |
|
|
|
|
Foreign currency transaction |
0
|
5,424
|
0
|
0
|
Foreign currency translation |
2,525
|
871
|
13,423
|
6,187
|
Comprehensive loss for period |
$ (46,583)
|
$ (34,968)
|
$ (75,726)
|
$ (78,271)
|
Basic and diluted loss per share |
$ (0.00)
|
$ 0.00
|
$ 0.00
|
$ 0.00
|
Weighted average number of shares outstanding |
17,652,082
|
17,652,082
|
17,652,082
|
17,652,082
|
X |
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v3.3.1.900
Statements of Cash Flows - USD ($)
|
6 Months Ended |
Nov. 30, 2015 |
Nov. 30, 2014 |
Cash Flows from Operating Activities |
|
|
Net loss |
$ (89,149)
|
$ (84,458)
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
Amortization of Software |
17,025
|
17,025
|
Changes in operating assets and liabilities: |
|
|
Decrease (increase) in trade receivables |
0
|
0
|
Decrease (increase) in rent deposit |
0
|
0
|
Increase (decrease) in accounts payable – related party |
69,781
|
64,397
|
Increase (decrease) in accounts payable and accrued liabilities |
(506)
|
(2,921)
|
Increase (decrease) in accrued interest |
1,715
|
1,559
|
Cash Flows used in operating activities |
(1,134)
|
(4,398)
|
Cash Flow from Investing Activities |
|
|
Cash flows used in investing activities |
0
|
0
|
Cash Flows from Financing Activities |
|
|
Repayment of loan payable |
0
|
(5,913)
|
Cash flows provided by financing activities |
0
|
(5,913)
|
Effect of exchange rate changes on cash |
728
|
6,187
|
Increase (decrease) in cash during the period |
(406)
|
(4,124)
|
Cash, beginning of period |
3,062
|
8,532
|
Cash, end of period |
2,656
|
4,408
|
Supplemental Disclosure: |
|
|
Cash paid for income taxes |
0
|
0
|
Cash paid for interest |
$ 0
|
$ 0
|
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v3.3.1.900
Organization and Description of Business
|
6 Months Ended |
Nov. 30, 2015 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
|
Organization and Description of Business |
Note 1 Organization and Description
of Business
PreAxia Health Care Payment Systems Inc. (the
Company) was incorporated in the State of Nevada on January 28, 2008. The Company is devoting substantially all of
its present efforts to establish a new business and none of its planned principal operations have commenced. 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. PreAxia Canada Inc. was incorporated pursuant to the laws of the Province of Alberta on January
28, 2008. PreAxia Canada Inc. is a wholly owned subsidiary of the Company.
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v3.3.1.900
Summary of Significant Accounting Policies
|
6 Months Ended |
Nov. 30, 2015 |
Accounting Policies [Abstract] |
|
Summary of Significant Accounting Policies |
Note 2 – Summary of Significant Accounting
Policies
Basis of presentation
The Company’s financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Reclassification
Certain prior period amounts in the condensed financial statements
have been reclassified to conform to current period presentation.
Unaudited Interim Financial Information
The accompanying unaudited consolidated financial
statements of PreAxia Health Care Payment Systems Inc. (the “Company”) have been prepared in accordance with Securities
and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United States for complete financial statements. The consolidated
financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year
ended May 31, 2015.
The interim consolidated financial information
is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of November 30,
2015, and the results of operations, and cash flows presented herein have been included in the consolidated financial statements.
All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of operations
for the full year.
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and PreAxia Canada. All inter-company accounts and transactions have been eliminated in consolidation.
Going Concern
These consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going
concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal
year. Realization values may be substantially different from carrying values as shown and these consolidated
financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of
assets and liabilities should the Company be unable to continue as a going concern. As of November 30, 2015, the
Company had not yet achieved profitable operations, has accumulated losses of $3,519,177, has negative working capital of
$1,791,416 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.
Cash and Cash Equivalents
The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash equivalents.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates include the estimated useful lives of property
and equipment. Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Company is the
United States dollar. The functional currency of PreAxia Canada is the Canadian dollar. Assets and liabilities in the
accompanying consolidated financial statements are translated into United States dollars at the exchange rate in effect at the
balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the
average rates of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange
rates from period to period are included in the accumulated other comprehensive income (loss) account in stockholders’ deficit.
Transactions undertaken in currencies other
than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any
exchange gains and losses are included in the Statement of Operations and Comprehensive Loss.
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting
Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting
Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph
820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States
of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair
value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs
to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1 |
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
|
|
Level 2 |
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
|
Level 3 |
|
Pricing inputs that are generally observable inputs and not corroborated by market data. |
The carrying amount of the Company’s financial assets and
liabilities, such as cash and accrued expenses approximate their fair value because of the short maturity of those instruments.
The Company’s notes payable approximate the fair value of such instruments based upon management’s best estimate of
interest rates that would be available to the Company for similar financial arrangements at November 30, 2015.
The Company does not have any assets or liabilities measured at
fair value on a recurring or a non-recurring basis.
Gain (Loss) Per Share
Gain (loss) per share of common stock is computed
by dividing the net loss by the weighted average number of common shares outstanding during the period.
Research and Development Costs
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. The software is being amortized over three years starting
June 2014.
Impairment of long-lived assets
The Company follows paragraph 360-10-05-4 of the FASB Accounting
Standards Codification for its long-lived assets. The Company’s long-lived assets, which includes computer equipment is reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
The Company assesses the recoverability of its long-lived
assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of
long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any,
is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined
using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived
assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than
originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining
estimated useful lives.
The Company determined that there were no impairments of long-lived
assets as of November 30, 2015.
Commitments and contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards
Codification to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount
of the assessment can be reasonably estimated.
Revenue recognition
The Company follows paragraph 605-10-S99-1 of the FASB Accounting
Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and
earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii)
the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Income taxes
The Company follows Section 740-10-30 of the FASB Accounting Standards
Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities
are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in
effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation
allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting Standards
Codification (“Section 740-10-25”) with regards to uncertain income tax positions. Section 740-10-25 addresses
the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial
statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits
of the position. The tax benefits recognized in the financial statements from such a position should be measured based on
the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section
740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim
periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income
tax benefits according to the provisions of Section 740-10-25. All tax years remain open for examination by taxing authorities.
Cash flows reporting
The Company adopted paragraph 230-10-45-24 of the FASB
Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they
stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or
reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards
Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from
operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all
accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do
not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign
currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on
cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash
and cash equivalents and separately provides information about investing and financing activities not resulting in cash
receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.
Subsequent events
The Company follows the guidance in Section 855-10-50 of the FASB
Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through
the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification,
the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through
filing them on EDGAR.
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v3.3.1.900
Recent Accounting Pronouncements
|
6 Months Ended |
Nov. 30, 2015 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
|
Recent Accounting Pronouncements |
Note 3 – Recent Accounting Pronouncements
The Company reviews new accounting standards as issued or updated.
No new standards or updates had any material effect on these consolidated financial statements. The accounting pronouncements issued
subsequent to the date of these consolidated financial statements that were considered significant by management were evaluated
for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements
will have a material effect on these consolidated financial statements.
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v3.3.1.900
Related Party Transactions
|
6 Months Ended |
Nov. 30, 2015 |
Related Party Transactions [Abstract] |
|
Related Party Transactions |
Note 4 – Related Party Transactions
Accounts Payable to Related Parties
During the six months ended November 30, 2015,
the Company’s President/Chief Executive Officer, Tom Zapatinas, invoiced $60,000 for management services rendered to the
Company. As of November 30, 2015, Accounts payable – related party includes a total of $1,157,825 due and payable to Mr.
Zapatinas. There are no terms of repayment for this payable.
As of November 30, 2015 and May 31, 2015,
the Company owed other shareholders $407,120 and $419,815, respectively. The terms of repayment are 30 days after demand is made
by the shareholder.
|
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Stockholders' Deficit
|
6 Months Ended |
Nov. 30, 2015 |
Equity [Abstract] |
|
Stockholders' Deficit |
Note 5 – Stockholders’ Deficit
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.
No shares were issued during the period.
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- DefinitionThe entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.
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Contingencies
|
6 Months Ended |
Nov. 30, 2015 |
Commitments and Contingencies Disclosure [Abstract] |
|
Contingencies |
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.
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Subsequent events
|
6 Months Ended |
Nov. 30, 2015 |
Subsequent Events [Abstract] |
|
Subsequent events |
Note 7 - Subsequent events
The Company has evaluated subsequent events
through the date these financial statements were issued pursuant to the requirements of ASC Topic 855 and has determined that no
material subsequent events occurred that require disclosure.
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v3.3.1.900
Summary of Significant Accounting Policies (Policies)
|
6 Months Ended |
Nov. 30, 2015 |
Accounting Policies [Abstract] |
|
Basis of presentation |
Basis of presentation
The Company’s financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
|
Reclassification |
Reclassification
Certain prior period amounts in the condensed financial statements
have been reclassified to conform to current period presentation.
|
Principles of Consolidation |
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and PreAxia Canada. All inter-company accounts and transactions have been eliminated in consolidation.
|
Going Concern |
Going Concern
These consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going
concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal
year. Realization values may be substantially different from carrying values as shown and these consolidated
financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of
assets and liabilities should the Company be unable to continue as a going concern. As of November 30, 2015, the
Company had not yet achieved profitable operations, has accumulated losses of $3,519,177, has negative working capital of
$1,791,416 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.
|
Cash and Cash Equivalents |
Cash and Cash Equivalents
The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash equivalents.
|
Use of estimates |
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates include the estimated useful lives of property
and equipment. Actual results could differ from those estimates.
|
Foreign Currency Translation |
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.
|
Fair value of financial instruments |
Fair value of financial instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting
Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting
Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph
820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States
of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair
value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs
to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1 |
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
|
|
Level 2 |
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
|
Level 3 |
|
Pricing inputs that are generally observable inputs and not corroborated by market data. |
The carrying amount of the Company’s financial assets and
liabilities, such as cash and accrued expenses approximate their fair value because of the short maturity of those instruments.
The Company’s notes payable approximate the fair value of such instruments based upon management’s best estimate of
interest rates that would be available to the Company for similar financial arrangements at November 30, 2015.
The Company does not have any assets or liabilities measured at
fair value on a recurring or a non-recurring basis.
|
Gain (Loss) Per Share |
Gain (Loss) Per Share
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
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. The software is being amortized over three years starting
June 2014.
|
Impairment of long-lived assets |
Impairment of long-lived assets
The Company follows paragraph 360-10-05-4 of the FASB Accounting
Standards Codification for its long-lived assets. The Company’s long-lived assets, which includes computer equipment is reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
The Company assesses the recoverability of its long-lived
assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of
long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any,
is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined
using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived
assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than
originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining
estimated useful lives.
The Company determined that there were no impairments of long-lived
assets as of November 30, 2015.
|
Commitments and contingencies |
Commitments and contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards
Codification to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount
of the assessment can be reasonably estimated.
|
Revenue recognition |
Revenue recognition
The Company follows paragraph 605-10-S99-1 of the FASB Accounting
Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and
earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive
evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii)
the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
|
Income taxes |
Income taxes
The Company follows Section 740-10-30 of the FASB Accounting Standards
Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities
are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in
effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation
allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.
The Company adopted section 740-10-25 of the FASB Accounting Standards
Codification (“Section 740-10-25”) with regards to uncertain income tax positions. Section 740-10-25 addresses
the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial
statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits
of the position. The tax benefits recognized in the financial statements from such a position should be measured based on
the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section
740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim
periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income
tax benefits according to the provisions of Section 740-10-25. All tax years remain open for examination by taxing authorities.
|
Subsequent events |
Subsequent events
The Company follows the guidance in Section 855-10-50 of the FASB
Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through
the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification,
the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through
filing them on EDGAR.
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