ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions
for Form 10-Q and Article 210 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal
recurring nature. Operating results for the nine month period ended February 29, 2016 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.
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Page
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Unaudited Consolidated Financial Statements
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Consolidated Balance Sheets as of February 29, 2016 (Unaudited) and May 31, 2015
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F-1
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Unaudited Consolidated Statements of Operations and Comprehensive Loss for the nine months ended February 29, 2016 and February 28, 2015
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F-2
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Unaudited Consolidated Statements of Cash Flows for the nine months ended February 29, 2016 and February 28, 2015
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F-3
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Notes to Unaudited Consolidated Financial Statements
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F-4
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PREAXIA HEALTH CARE PAYMENT SYSTEMS
INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
February 29, 2016
(Stated in US Dollars)
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
February 29, 2016 and May 31, 2015
(Stated in US Dollars)
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(Unaudited)
February 29,
2016
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May 31,
2015
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ASSETS
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Current Assets
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Cash
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$ 1,982
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$ 3,062
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Total Current Assets
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1,982
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3,062
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Other Assets
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Intangible Software Costs
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102,151
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102,151
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Amortization Software Costs
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(59,588)
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(34,050)
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Total Other Assets
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42,563
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68,101
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Total Assets
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$ 44,545
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$ 71,163
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LIABILITIES
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Current Liabilities
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Accounts Payable and Accrued Liabilities
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220,830
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213,576
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Accounts Payable – Related Party (Note 3)
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1,177,922
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1,088,044
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Loans Payable
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404,842
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419,815
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Liability for unissued shares
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22,467
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-
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Accrued Interest – Loans Payable
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39,313
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14,342
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Total Current Liabilities
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1,865,374
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1,735,777
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STOCKHOLDERS’ DEFICIT
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Capital Stock, $0.001 par value 75,000,000 common shares authorized
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17,652,082 and 17,652,082 common shares issued and outstanding at
February 29, 2016 and May 31, 2015, respectively
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17,652
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17,652
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Additional Paid-in Capital
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1,705,628
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1,705,628
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Accumulated other Comprehensive Loss
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59,259
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42,134
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Deficit Accumulated
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(3,603,368)
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(3,430,028)
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Total Stockholders’ Deficit
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(1,820,829)
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(1,664,614)
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Total Liabilities and Stockholders’ Deficit
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$ 44,545
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$ 71,163
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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)
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Three months ended
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Nine months ended
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February 29, 2016
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February 28, 2015
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February 29,
2016
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February 28, 2015
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Expenses
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Consulting fees
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$ 41,408
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$ 30,000
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$ 101,408
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$ 90,000
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Professional Fees
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1,510
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-
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7,510
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-
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Office and administration
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2,102
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2,159
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6,510
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8,080
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Research and Development
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6,103
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-
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6,103
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-
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Amortization of Software
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8,513
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8,512
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25,538
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25,538
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Total Operating Loss
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59,636
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40,671
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147,069
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123,618
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Operating loss
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(59,636)
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(40,671)
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(147,069)
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(123,618)
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Other Income (Expenses)
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Other income
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-
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-
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-
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48
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Interest expense
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(24,556)
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654
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(26,271)
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(906)
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Total Other Income (Expenses)
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(24,556)
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654
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(26,271)
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(858)
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Net loss
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$ (84,192)
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$ (40,017)
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$ (173,340)
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$ (124,476)
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Other comprehensive income:
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Foreign Currency transaction
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-
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-
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-
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-
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Foreign currency translation
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3,703
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23,959
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17,125
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30,146
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Comprehensive loss for period
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$ (80,489)
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$ (16,058)
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$ (156,215)
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$ (94,330)
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Basic and diluted loss per share
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(0.00)
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(0.00)
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(0.01)
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(0.01)
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Weighted average number of shares outstanding
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17,652,082
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17,652,082
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17,652,082
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17,652,082
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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)
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Nine months ended
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February 29, 2016
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February 28, 2015
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Cash Flows from Operating Activities
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Net loss
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$ (173,340)
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$ (124,476)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Amortization of Software
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25,538
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25,538
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Changes in operating assets and liabilities:
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Increase (decrease) in accounts payable – related party
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89,878
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95,896
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Increase (decrease) in accounts payable and accrued liabilities
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7,254
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(3,475)
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Increase (decrease) in accrued interest
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24,971
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906
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Cash Flows used in operating activities
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(25,699)
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(5,611)
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Cash Flow from Investing Activities
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Cash flows used in investing activities
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-
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-
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Cash Flows from Financing Activities
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Repayment of loan payable
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-
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(30,087)
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Proceeds from sale of common stock
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22,467
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-
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Cash flows provided by financing activities
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22,467
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(30,087)
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Effect of exchange rate changes on cash
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2,152
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30,146
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Increase (decrease) in cash during the period
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(1,080)
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(5,552)
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Cash, beginning of period
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3,062
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8,532
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Cash, end of period
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$ 1,982
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$ 2,980
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Supplemental Disclosure
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Cash paid for income taxes
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$ -
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$ -
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Cash paid for interest
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$
-
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$
-
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SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
PREAXIA HEALTH
CARE PAYMENT SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
February 29, 2016 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 unaudited consolidated
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 February 29,
2016, 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 unaudited 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 unaudited 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 February 29, 2016, the Company had not yet achieved profitable operations, has accumulated
losses of $3,603,368, has negative working capital of $1,863,392 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 unaudited 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:
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Level 1
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Quoted market prices available in active markets for identical assets
or liabilities as of the reporting
date.
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Level 2
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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.
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Level 3
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Pricing inputs that are generally observable inputs and not corroborated by market data.
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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 February 29, 2016.
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 February 29, 2016.
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.
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 3
–
Related Party Transactions
Accounts Payable to Related Parties
During the nine months ended February 29, 2016,
the Company’s President/Chief Executive Officer, Tom Zapatinas, invoiced $90,000 for management services rendered to the
Company. As of February 29, 2016, Accounts payable – related party includes a total of $1,177,922 due and payable to Mr.
Zapatinas. There are no terms of repayment for this payable.
As of February 29, 2016 and May 31, 2015, the
Company owed other shareholders $404,842 and $419,815, respectively. The terms of repayment are 30 days after demand is made by
the shareholder.
Note 4 – 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. A
subscription for shares in the amount $22,467 has been received during the period and is recorded as liability for unissued shares
on the balance sheet. Shares will be issued during the next period.
Note 5 – 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 6 - 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 2016. 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 $3,413,392 to complete our business
plan and pay our outstanding debts of approximately $1,865,374. 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 February 29, 2016, PreAxia’s cash
balance was $1,982 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 $1,863,392 as of February 29, 2016 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 $3,413,392 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 February 29, 2016 compared to
May 31, 2015 is summarized as follows:
Working Capital
|
|
February 29, 2016
|
|
May 31,2015
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
$
|
1,982
|
|
|
$
|
3,062
|
|
Current Liabilities
|
|
|
1,865,374
|
|
|
|
1,735,777
|
|
Working Capital (deficit)
|
|
$
|
(1,863,392
|
)
|
|
$
|
(1,732,715
|
)
|
The increase in our working capital deficit of $130,677 was primarily
due to an increase in our accounts payable.
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 February 29, 2016 and February
28, 2015
Our operating results for the three month period ended February
29, 2016 compared to the three month period ended February 28, 2015 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 February 29,
2016 was $59,636 compared to $40,671 for the three month period ended February 28, 2015. The increase in loss of $18,965 for the
three month period ending February 29, 2016 is due to an increase in expenses of $1,510 in professional fees, an increase in consulting
fees of $11,408, an increase in research and development expenses of $6,103 and a decrease of $57 in office and administration
fees.
Research and Development
Research and Development expenses increased by $6,103 during the
three month period ended February 29, 2016 compared to the three month period ended February 28, 2015, as updates were required
for some project components.
Wages and Benefits
There were no wages and benefits during the three month period ended
February 29, 2016 or February 28, 2015.
Office and Administration
Office and administration expenses decreased by $57 for the period
ended February 29, 2016 compared to February 28, 2015, due to a decrease in travel expenses.
Professional Fees
Professional fees during the three months ended February 29, 2016
totaled $1,510 compared to $0 for February 28, 2015, as there was a requirement for audit fees.
Rent
There were no rent expenses during the three months ended February
29, 2016 or February 28, 2015 due to the closure of the Calgary main office.
Consulting Fees
Consulting fees increased by $11,408 during the three month period
ended February 29, 2016 compared to the three month period ended February 28, 2015, due to a requirement for accounting and management
services.
For the nine month period ended February 29, 2016 and February
28, 2015
Our operating results for the nine month period ended February 29,
2016 compared to the nine month period ended February 28, 2015 are described below:
Revenue
We have not earned any revenues since our inception and we do not
anticipate earning revenues until such time as we have completed the development of our Health Card software and obtained new customers.
Expenses
Our operating loss for the nine month period ended February 29,
2016 was $147,069 compared to $123,618 for the nine month period ended February 28, 2015. The increase in loss of $23,451 for the
nine month period ending February 29, 2016 is due to an increase in expenses of $7,510 in professional fees, an increase in consulting
fees of $11,408, an increase in research and development expenses of $6,103 and a decrease of $1,570 in office and administration
fees.
Research and Development
Research and Development expenses increased by $6,103 during the
nine month period ended February 29, 2016 compared to the nine month period ended February 28, 2015, as updates were required for
some project components.
Wages and Benefits
There were no wages and benefits during the nine month period ended
February 29, 2016 or February 28, 2015.
Office and Administration
Office and administration expenses decreased by $1,570 for the period
ended February 29, 2016 compared to February 28, 2015, due to a decrease in travel and other expenses.
Professional Fees
Professional fees during the nine months ended February 29, 2016
totaled $7,510 compared to $0 for February 28, 2015, as there was a requirement for audit fees.
Rent
There were no rent expenses during the nine months ended February
29, 2016 or February 28, 2015 due to the closure of the Calgary main office.
Consulting Fees
Consulting fees increased by $11,408 during the nine month period
ended February 29, 2016 compared to the nine month period ended February 28, 2015, due to a requirement for accounting and management
services.
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.