UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedMay 31, 20172021
or
[ ]
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to________________
Commission file number000-53490
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(Exact name of registrant as specified in its charter)
Nevada | 20-4395271 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
3212 14th Ave
PO Box 34075 Westbrook PO, 1610-37th Street S.W., Calgary, AB T3C 0X3(Address3W2
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code(403) 850-4120
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | None | N/A |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ]☐ No [X]☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ]☐ No [X]☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]☑ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ]☑ No [ X ]☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X ]☑
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer | |||||
Non-accelerated filer ☑ | Smaller reporting company | |||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ]☐ No [X]☑
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Approximately $4,241,035$0 on November 30, 2016.2020.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
19,667,698
19,767,698 shares of common stock as of August 29, 2017September 8, 2021
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable.
TABLE OF CONTENTS
TABLE OF CONTENTS
PART I | 4 |
FORWARD-LOOKING STATEMENTS. | 4 |
ITEM 1. BUSINESS | 4 |
ITEM 1A. RISK FACTORS | 6 |
ITEM 1B. UNRESOLVED STAFF COMMENTS | 7 |
ITEM 2. PROPERTIES | 7 |
ITEM 3. LEGAL PROCEEDINGS | 7 |
ITEM 4. MINE SAFETY DISCLOSURES | 7 |
PART II | 7 |
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 7 |
ITEM 6. SELECTED FINANCIAL DATA | 8 |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 8 |
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 10 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 11 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 12 |
ITEM 9A. CONTROLS AND PROCEDURES | 12 |
ITEM 9B. OTHER INFORMATION | 12 |
PART III | 13 |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 13 |
ITEM 11. EXECUTIVE COMPENSATION | 17 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 18 |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 19 |
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES | 19 |
PART IV | 20 |
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES | 20 |
ITEM 16. FORM 10-K SUMMARY | 20 |
SIGNATURES | 21 |
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PART I
PART I
FORWARD-LOOKING STATEMENTS.
This annual report contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”“may,” “should,” “intend,” “expect,”, “should”, “intend”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential”,“plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, including the risks in the section entitled “Risk Factors” commencing on page 5, uncertainties and other factors, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These risks and uncertainties include: a continued downturn in international economic conditions; any adverse occurrence with respect to the development or marketing of our product; any adverse occurrence with respect to any of our licensing agreements; our ability to successfully bring products to market; product development or other initiatives by our competitors; fluctuations in the availability and cost of materials required to produce our products; any adverse occurrence with respect to distribution of our products; potential negative financial impact from claims, lawsuits and other legal proceedings or challenges; and other factors beyond our control.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
As used in this annual report, the terms “we”, “us” “our”“we,” “us,” “our,” the “Corporation”“Corporation,” and “PreAxia” mean PreAxia Health Care Payment Systems Inc. and our wholly-and its wholly owned subsidiary,subsidiaries (i) PreAxia Health Care Payment SystemSystems Inc. (formerly H Pay Card, incorporated pursuant to the laws of the Province of Alberta on January 28, 2008 (ii) PreAxia Canada Inc., incorporated pursuant to the laws of the Province of Alberta on January 28, 2008 and (iii) PreAxia Health Care Payment Ltd., incorporated pursuant to the laws of the Province of Alberta on November 26, 2015 (collectively, the “Subsidiaries”), unless the context clearly requires otherwise. Unless otherwise stated, “$” refers to United States dollars.
ITEM 1. BUSINESS
Corporate Overview
Preaxia
PreAxia Health Care Payment Systems Inc. (the “Company” or “PreAxia”) was incorporated on April 3, 2000 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.Nevada.
Our company
The Company primarily undertakes all of its operations through its wholly-owned subsidiary, PreAxia Health Care Payment Systems Inc.Limited (“PreAxia Canada”- formerly H Pay Card Inc)Payment”). PreAxia Canada, prior to being acquired by PreAxia,Payment was a private corporation incorporated pursuant to the laws of the Province of Alberta on January 28, 2008.November 26, 2015.
General Overview
PreAxia CanadaPayment is a company which intends to deliver a comprehensive suite of solutions and services directed at the emerging health payment market, specifically the opportunities tied to the growth of health spending accounts (“HSA”). There is a rapid shift in healthcare traditional payment models to consumer-directed healthcare that is creating significant opportunities for financial services and insurance industries to deliver new dynamic products to this emerging market.
Spawned by the need to address escalating health care costs, changes in the regulatory environment and the growing consumer desire for greater participation in the management of their health benefits, the boundaries between health care and the financial services industries are becoming increasingly blurred. With the trend towards self-directed health payment solutions and the growing demand for faster, easier and more convenient benefit services, the insurance and benefits industries are banking on HSA medical payments being their next big growth conduit. Studies suggest that HSAs in the US reached $30$88.2 billion in assets in 2021 and 16.730.0 million consumers in 2015,2020, an increase of more than 20% of assets over the prior year.period. The Canadian market for health benefits is estimated at more than $30 Billion of which HSAs are estimated to have gain a 10% share. This coupled with the continued growth of the Canadian group insurance industry illustrates the emerging opportunity for innovative health payment services. We intend to initially launch our products in Canada. We believe that Canadian businesses are embracing a new healthcare financing vehicle to control costs,provide greater value to employees, increase profitability and get more return from their investment. We intend to provide them with services to capture this market opportunity.
Description of Health Spending Account (“HSA”)
An HSA is a uniquely designed bank account established exclusively and specifically for the purpose of health care spending. An employer deposits funds into a special account for the employee. These funds can be used to pay for eligible medical and related health care expenses for the employee and their dependents. HSAs provide employers and employees with greater control in both the amount of funds invested and how these funds are used.
Services and infrastructure provided by PreAxia enable organizations and individuals to eliminate all paper involved in the management of these accounts and benefit through savings in time and money.
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The PreAxia platform for processing and managing accounts, including cardholder and customer account management, reconciliation and financial settlement, and customer reporting is fully operational.
Over time, the companyCompany will evaluate opportunities for forms of virtual banking and PayPal-type services. One opportunity seen as particularly relevant to the health care market is to offer instant issuing services that enable corporations to issue and fund Pre-Paid Interac or credit card services to beneficiaries in real time. If implemented, the beneficiary will most likely select a personal identification number (“PIN”) using a PIN and card activation terminal, thus gaining instant access to funds that can be reloaded. This consideration would require development of software systems for the issuing of health payment cards and financial transaction processing services that would be fully managed by a data center.
Matching of consumers in need of health care products or services with providers is another area PreAxia intends to evaluate. Consumers managing their health care dollars through an online system will find convenience in seeking out health care professionals and services through the same system.system.
Distribution Methods and Marketing Strategy
PreAxia operates on a Cloud Computing Platform that makes it accessible to anyone with a personal computer and Internetinternet access. The preliminary market for PreAxia’s HSA Management Solution is small and medium sized companies that are not currently well served by the current group benefits model. The financial benefits of the PreAxia business model, however, are also relevant to larger employers and we believe that these larger employers will migrate to the PreAxia product over time.
PreAxia’s s marketing strategy is to promote its existing platform direct to consumers and businesses, and to the groups that most need access to it. Specifically,it; independent brokers, financial advisors and small to medium sized businesses need access.businesses. Brokers should see PreAxia as a superior method of promoting and supporting HSAs that allow them to earn above average commission rates on invested funds. Financial advisors should see PreAxia in a similar way as brokers except that there is the additional benefit of tax reduction. Small to medium sized businesses, which are expected to drive the growth in business, should see PreAxia as offering financial savings to the company and to employees by offering personal health care benefits through an HSA, along with the same conveniences they have come to expect from other services they currently utilize over the Internet.nternet. It is expected that the group benefits market will subsequently follow as they too realize the advantages of PreAxia over their current HSA offerings. PreAxia has begun and will continue to seek opportunities with lead customers and alliance partners to establish reference-able, high-profile implementations and market-leading, early-adopter firms for further developing innovative products and services. The companyCompany intends to design solutions targeted towards corporate financial management, financial risk, audit management and cash management while targeting product/service management as a support to financial management.
We anticipate that the prime target for services will be small to medium sized organizations that are not adequately served by the current insurance and group benefits offerings. These organizations should realize significant benefits in both cost and time savings by utilization of PreAxia technology while providing their employees with an increased level of benefits.
PreAxia intends to achieve service volume and the associated economies of scale through marketing directly to select target customers that provide the necessary transaction volumes, through market specific channel partners and through an education based public relations strategy geared to the small to mid-sized employers including the brokers and financial advisors utilized by these businesses. The channel strategy is supported in the solution design, as multiple channel partners willmay require brandingcustom pricing and our company’s fee charging/collection capabilities.compensation.
It is our company’sCompany’s intention that brokers and financial advisors will aggressively promote their PreAxia supported HSA offerings due to the quality of product, higher margins and because of the non-competitive relationship with PreAxia.
PreAxia has identified the following “channels” through which it will target prime end market customers:
Independent brokers that sell, or desire to sell, Health Spending Accounts |
Financial advisors who manage funds and advise on tax saving strategies for individuals and corporations |
Accountants and bookkeepers who regularly advise businesses on financial and operational matters |
Benefits managers/adjudicators, including insurance, health or outsourced government benefits processors that manage benefits disbursement |
Issuer banks, including partner banks that enable the issuance of Health Cards and/or sell insurance products |
Application providers, including software manufacturers selling into the target vertical markets |
Professional services, including consulting, development and implementation companies serving the target vertical markets |
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PreAxia intends to establish several key customer reference accounts, channel marketing partners and technology alliances. These corporate relationships are relevant to advancing our company’s goals in 20172021 and beyond for achieving a prime position in the Canadian marketplace and establishing a solid service foundation.
Competitive Business Conditions and our Company’s Competitive Position in the Industry and Methods of Competition
PreAxia intends to offer a combination of products and services in its solution. However, there are other providers of components or versions of the Health Card value propositionSpending Accounts in the marketplace. Our companyapproach is taking a different approach by providingto provide a high value added and robust capability within specific target markets, rather than the “one size fits all” and mass volume approach of the larger companies in the Canadian and international market. This is consistent with the PreAxia platform which has been designed for expansion in the United States and internationally. The following are some of the leading providers of products and services that are or may be potential competitors in PreAxia’s target markets:
Canadian Market:
· Benecaid has become a leading provider of Health Spending Accounts in Canada by offering an easy to understand product through brokers and also directly through the company. · Olympia Benefits has become a leading provider of Health Spending Accounts in Canada by offering a “Cost Plus” version of HSAs that has become popular in the marketplace. · QuickCard is a provider of Health Spending Accounts and group insurance products. They are partially differentiated from competitors by virtue of a “credit type card” that is used to pay for qualified health products and services. · League, which operates in Canada and the US, offers a range of health benefit services including Health Spending Accounts. · Most major insurance companies offer some version of HSAs to their customers. · Many brokers have created HSA products for their clients. · Many accounting and financial services firms have created their own HSA products to offer to their clients. US and |
International Market:
Intangible PropertiesMarkets
When negotiating its arrangements with clients, PreAxia intends
· HealthEquity, a publicly listed company offering HSAs in the USA, manages over $15 billion in deposits. It is one of the largest dedicated health account custodians in the USA and serves more than 12 million accounts owned by individuals at more than 24,000 companies across the country.
· HSA Bank, a division of Webster Bank, offers Health Spending Accounts and related offerings to ensure that all rights to and ownership of its intellectual property remains with our company. We anticipate that source codes or other proprietary knowledge will be protected through agreements entered into between PreAxia and its employees and contractors, and additional high standards of confidentiality and protection of data are set by clients and regulatory authorities within the consumer-directed healthcare industry.
· Fidelity Investments offers a Health Spending Account to businesses as a means of controlling costs while providing employee health benefits.
Intellectual Property and Patent Protection
At present, PreAxia does not have any pending or registered patents or any trademarks.
Research and Development
For the years ended May 31, 2017,2021 and 2016,2020, we expended $54,743incurred $8,219 and $31,643 on$11,614, respectively, in research and development.development expenses.
Employees
PreAxia has one full-time consultant, our President, Mr. Tom Zapatinas effective September 1, 2011. We anticipate that we will hire additional key staff throughout 2017/182021 and 2022 in areas of administration/accounting, business development, operations, sales/marketing and research/development.
ITEM 1A. RISK FACTORS
Risks Related
Not applicable to our Companysmaller reporting companies.
We have a limited operating history.
We are in the early stages of development and face risks associated with a new company in a growth industry. We may not successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire investment. Even if we accomplish these objectives, we may not generate positive cash flows or the profits we anticipate in the future.
PreAxia has a limited operational history. Our company has never paid dividends and has no present intention to pay dividends. Our company is in the early commercialization stage of its business and therefore will be subject to the risks associated with early stage companies, including uncertainty of revenues, markets and profitability and the need to raise additional funding. PreAxia will be committing, and for the foreseeable future will continue to commit, significant financial resources to marketing, product development and research. PreAxia’s business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stage of development. Such risks include the evolving and unpredictable nature of our company’s business, PreAxia’s ability to anticipate and adapt to a developing market, acceptance by consumers of our products and the ability to identify, attract and retain qualified personnel. There can be no assurance that PreAxia will be successful in doing what is necessary to address these risks.
We will need substantial additional financing in the future to continue operations.
Our ability to continue our present operations will be dependent upon our ability to obtain significant external funding. Additional sources of funding have not been established. We are exploring various financing alternatives. There can be no assurance that we will be successful in securing such financing at acceptable terms, if at all. If adequate funds are not available from the foregoing sources, or if we determine it is to otherwise be in our best interests, we may consider additional strategic financing options, including sales of assets.
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We will require key personnel.
The financial services technology industry involves a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The success of PreAxia is dependent on the services of its senior management. The experience of these individuals will be a factor contributing to our company’s continued success and growth. The loss of one or more of its key employees could have a material adverse effect on our operations and business prospects. In addition, PreAxia’s future success will depend in large part on its ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. There can be no assurance that our company will be successful in attracting and retaining such personnel and the failure to do so could have a material adverse effect on our company’s business, operating results and financial condition.
We have additional financing requirements.
In order to accelerate PreAxia’s growth objectives, it will need to raise additional funds from lenders and equity markets in the future. There can be no assurance that our company will be able to raise additional capital on commercially reasonable terms to finance its growth objectives. The ability of our company to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as the business performance of our company. There can be no assurance that PreAxia will be successful in its efforts to arrange additional financing on terms satisfactory to our company. If additional financing is raised by the issuance of shares of common stock of our company, control of our company may change and stockholders may suffer additional dilution.
We may not be successful in the protection of intellectual property.
There can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against PreAxia or that any such assertions or prosecutions will not materially adversely affect our company’s business, financial condition or results of operations. Irrespective of the validity or the successful assertion of such claims, our company could incur significant costs and diversion of resources with respect to the defense thereof which could have a material adverse effect on our company’s business, financial condition or results of operations. Our company’s performance and ability to compete are dependent to a significant degree on its proprietary technology. There can be no assurance that the steps taken by our company will prevent misappropriation of its technology or that agreements entered into for that purpose will be enforceable. The laws of other countries may afford our company little or no effective protection of its intellectual property. Our company may in the future also rely on technology licenses from third parties. There can be no assurance that these third party licenses will be, or will continue to be, available to our company on commercially reasonable terms. The loss of, or inability of our company to maintain, any of these technology licenses could result in delays in completing its product enhancements and new developments until equivalent technology could be identified, licensed, or developed and integrated. Any such delays would materially adversely affect PreAxia’s business, results of operations and financial condition.
Our disclosure controls and procedures and internal control over financial reporting are not effective, which may cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management evaluated our disclosure controls and procedures as of May 31, 2017 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, 2017 and concluded 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 these material weaknesses and we believe that our disclosure controls and procedures and internal control over financial reporting continue to be ineffective. Until these issues are corrected, our ability to report financial results or other information required to be disclosed on a timely and accurate basis may be adversely affected and our financial reporting may continue to be unreliable, which could result in additional misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
Risks Related to our Business
We face competition and may not be able to compete successfully.
PreAxia may not be able to compete successfully against current and future competitors, and the competitive pressures PreAxia faces could harm its business and prospects. Broadly speaking, the market for financial services technology is competitive. There are other providers of components or versions of the Health Card value proposition in the marketplace. Additionally, the level of competition is likely to increase as current competitors improve their product offerings and as new participants enter the market. Many of PreAxia’s current and potential competitors have longer operating histories, larger customer bases, greater name and brand recognition and significantly greater financial, sales, marketing, technical and other resources than PreAxia.
Additionally, these competitors have research and development capabilities that may allow them to develop new or improved products that may compete with products PreAxia markets and distributes. New technologies and the expansion of existing technologies may also increase competitive pressures on PreAxia. Increased competition may result in reduced operating margins as well as loss of market share. This could result in decreased usage of PreAxia’s products and may have a material adverse effect on PreAxia’s business, financial condition and results of operations.
We may face implementation delays.
Most of PreAxia’s customers will be in a testing or preliminary stage of utilizing PreAxia’s products and may encounter delays or other problems in the introduction of PreAxia’s products. A decision not to do so, or a delay in implementation, could result in a delay or loss of related revenue or could otherwise harm PreAxia’s businesses and prospects. PreAxia will not be able to predict when a customer that is in a testing or a preliminary use phase will adopt a broader use of PreAxia’s products.
We may get limited customer feedback respecting products.
PreAxia’s revenue will depend on the number of customers who use PreAxia’s products. Accordingly, the satisfactory design of PreAxia’s product is critical to PreAxia’s business, and any significant product design limitations or deficiencies could harm PreAxia’s business and market acceptance. This limited feedback may not have resulted in an adequate assessment of customer requirements. Therefore, the currently specified features and functionality of PreAxia’s product may not satisfy current or future customer demands. Furthermore, even if PreAxia identifies the feature set required by customers in PreAxia’s market, it may not be able to design and implement products incorporating features in a timely and efficient manner, if at all.
We may face a slowdown in developing markets.
The market for PreAxia’s product is relatively new and continues to evolve. If the market for PreAxia’s product fails to develop and grow, or if PreAxia’s product does not gain market acceptance, PreAxia’s business and prospects will be harmed.
Our ability to keep current with technological changes will impact our ongoing business.
The financial services technology industry is susceptible to technological advances and the introduction of new products utilizing new technologies. Further, the financial services technology industry is also subject to customer preferences and to competitive pressures which can, among other things, necessitate revisions in pricing strategies, price reductions and reduced profit margins. The success of PreAxia will depend on its ability to secure technological superiority in its product and maintain such superiority in the face of new products. No assurances can be given that the product of PreAxia will be commercially viable or that further modification or additional products will not be required in order to meet demands or to make changes necessitated by developments made by competitors which might render the product of PreAxia less competitive, less marketable, or even obsolete over time. The future success of PreAxia will be influenced by its ability to continue to develop new competitive products. There can be no assurance that research and development activities with respect to the development of new products and the improvement of its existing product will prove profitable, or that products or improvements resulting therefrom, if any, will be successfully produced and marketed.
The financial services technology industry is characterized by technological change, changes in user and customer requirements, new product introductions, new technologies, and the emergence of new industry standards and practices that could render PreAxia’s technology obsolete or have a negative impact on sales margins PreAxia’s product may command. PreAxia’s performance will depend, in part, on its ability to enhance its existing product, develop new proprietary technology that addresses the sophisticated and varied needs of its prospective customers, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of technology entails significant technical and business risks. There can be no assurance that PreAxia will be successful in using new technologies effectively or adapting its product to customer requirements or emerging industry standards.
We require strategic alliances.
PreAxia’s growth and marketing strategies are based, in part, on seeking out and forming strategic alliances and working relationships, as well as the performance of such strategic alliances and working relationships. General criteria to be used to assess potential alliances include the following: industry expertise, reputation and market position, complementary technologies or products, and nature and adequacy of resources.
We may have problems with our resolution of product deficiencies.
Difficulties in product design, performance and reliability could result in lost revenue, delays in customer acceptance of PreAxias’s products, and/or lawsuits, and would be detrimental, perhaps materially, to PreAxia’s market reputation. Serious defects are frequently found during the period immediately following the introduction of new products or enhancements to existing products. Undetected errors or performance problems may be discovered in the future. Moreover, known errors which PreAxia considers minor may be considered serious by its customers. If PreAxia’s internal quality assurance testing or customer testing reveals performance issues and/or desirable feature enhancements, PreAxia could postpone the development and release of updates or enhancements to its current product or the release of new products. PreAxia may not be able to successfully complete the development of planned or future products in a timely manner, or to adequately address product defects, which could harm PreAxia’s business and prospects. In addition, product defects may expose PreAxia to liability claims, for which PreAxia may not have sufficient liability insurance. A successful lawsuit against PreAxia could harm its business and financial condition.
We may not be able to effectively manage our growth.
PreAxia may be subject to growth-related risks, including capacity constraints and pressure on its internal systems and controls. PreAxia’s ability to manage its growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The inability of PreAxia to deal with this growth could have a material adverse impact on its business, operations and prospects. PreAxia may experience growth in the number of its employees and the scope of its operating and financial systems, resulting in increased responsibilities for PreAxia’s personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage its current operations and any future growth effectively, PreAxia will also need to continue to implement and improve its operational, financial and management information systems and to hire, train, motivate, manage and retain its employees. There can be no assurance that PreAxia will be able to manage such growth effectively, that its management, personnel or systems will be adequate to support PreAxia’s operations or that PreAxia will be able to achieve the increased levels of revenue commensurate with the increased levels of operating expenses associated with this growth.
We have negative cash flow and absence of profits.
PreAxia has not earned any profits to date and there is no assurance that it will earn any profits in the future, or that profitability, if achieved, will be sustained. A significant portion of PreAxia’s financial resources will continue to be directed to the development of its products and to marketing activities. The success of PreAxia will ultimately depend on its ability to generate revenues from its product sales, such that the business development and marketing activities may be financed by revenues from operations instead of external financing.
There is no assurance that future revenues will be sufficient to generate the required funds to continue such business development and marketing activities.
Our directors and officers may face conflicts of interest.
Certain directors and officers of PreAxia may become associated with other reporting issuers or other corporations which may give rise to conflicts of interest. Directors who have a material interest or any person who is a party to a material contract or a proposed material contract with PreAxia are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors are required to act honestly, and in good faith, with a view to the best interests of PreAxia, as the case may be.
Certain of the directors may have other employment, other business, or time restrictions placed on them and accordingly, these directors will only be able to devote part of their time to the affairs of PreAxia.
PreAxia does not have key man insurance.
PreAxia does not currently have key man insurance in place in respect of any of its senior officers or personnel.
Acquisitions, investments and other strategic transactions could result in operating difficulties, dilution to our investors and other negative consequences.
It is our current intention to engage in and evaluate a wide array of potential strategic transactions, including acquisitions of companies, businesses, intellectual properties, and other assets. As of the date of filing of this Annual Report on Form 10-K, we have not yet identified any such strategic transactions. Any of these strategic transactions could be material to our financial condition and results of operations. In our search for opportunities to engage in strategic transactions, we may not be successful in identifying suitable opportunities. We may not be able to consummate potential acquisitions or investments, or an acquisition or investment may not enhance our business or may decrease rather than increase our earnings. In addition, the process of integrating an acquired company or business, or successfully exploiting acquired intellectual property or other assets, could divert a significant amount of our management’s time and focus and may create unforeseen operating difficulties and expenditures.
Additional risks we may face include:
Future acquisitions and investments could involve the issuance of our equity securities, potentially diluting our existing stockholders, the incurrence of debt, contingent liabilities or amortization expenses, write-offs of goodwill, intangibles, or acquired in-process technology, or other increased expenses, any of which could harm our financial condition. Our stockholders may not have the opportunity to review, vote on or evaluate future acquisitions or investments.
Fluctuations in quarterly operating results lead to unpredictability of revenue and earnings.
The timing of the release of health care payments processing products and services can cause material quarterly revenue and earnings fluctuations. A significant portion of revenue in any quarter may be derived from sales of products and services introduced in that quarter or established in the immediately preceding quarter. If we are unable to begin to generate sales of products and services during the scheduled quarter, our revenue and earnings will be negatively affected in that period. Quarterly operating results also may be materially impacted by factors, including the level of market acceptance, or demand for health payment processing products and services and the level of development and/or promotion expenses for health payment processing products and services. Consequently, if net revenue in a period is below expectations, our operating results and financial position in that period are likely to be negatively affected, as has occurred in the past.
Risks Related to our Common Stock
There is currently no trading market for our common stock.
There is currently no trading market for our common stock. Our common stock is not quoted on any exchange or inter-dealer quotation system. There is no trading market for our common stock on any stock exchange or through any quotation system (including, without limitation, the NASDAQ Stock Market), however our common stock is quoted and traded on the OTC Markets Pink Sheets.
A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.
Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our shareholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them.
Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Although much of the research and development and the building of our system have been completed, our Calgary office closed during the 2017 fiscal year and we presently operate out of remote employment sites.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTC Markets Pink Sheets under the symbol PAXH.
Following is a report of high and low bid prices for each quarterly period for the years ended May 31, 20172021 and 2016.2020.
Quarter Ended | High | Low |
05/31/2017 | $0.00 | $0.00 |
02/28/2017 | $0.00 | $0.00 |
11/30/2016 | $0.00 | $0.00 |
08/31/2016 | $0.00 | $0.00 |
05/31/2016 | $0.00 | $0.00 |
02/28/2016 | $0.00 | $0.00 |
11/30/2015 | $0.00 | $0.00 |
08/31/2015 | $0.00 | $0.00 |
Quarter Ended | High | Low |
05/31/2021 | $0.00 | $0.00 |
02/28/2021 | $0.00 | $0.00 |
11/30/2020 | $0.00 | $0.00 |
08/31/2020 | $0.00 | $0.00 |
05/31/2020 | $0.00 | $0.00 |
02/28/2020 | $0.00 | $0.00 |
11/30/2019 | $0.00 | $0.00 |
08/31/2019 | $0.00 | $0.00 |
Holders of Our Common Stock
As of August 29, 2017,2021, there were 7783 holders of record of our common stock and 19,667,69819,767,698 shares of common stock outstanding.
There is currently only one class of common stock with one vote per share.
Pacific Stock Transfer Company of 6725 Via Austin Parkway, Suite 300, Las Vegas, Nevada 89119, is the registrar and transfer agent for our common shares.
Dividends
We have not declared or paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock for the foreseeable future. We intend to retain earnings, if any, to finance the development and expansion of our business. Our future dividend policy will be subject to the discretion of our board of directors and will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by the board.
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Equity Compensation Plans
We adopted and approved our current stock option plan on January 28, 2010. The following table provides a summary of the number of options granted under our stock option plan, the weighted average exercise price and the number of options remaining available for issuance all as atof May 31, 2017.2021.
be issued upon exercise of outstanding options, warrants and rights |
exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | |
Equity compensation plans approved by security holders | None | N/A | 2,000,000 |
Equity compensation plans not approved by security holders | None | N/A | None |
Total | None | N/A | 2,000,000 |
Recent Sales of Unregistered Securities
We have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K during the fiscal year ended May 31, 2017.2021.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during our fiscal years ended May 31, 20172021 or 2016.2020.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Overview
Our company
Corporate Overview
PreAxia Health Care Payment Systems Inc. (the “Company” or “PreAxia”) was incorporated on April 3, 2000 in the State of Nevada.
The Company primarily undertakes all of its operations through its wholly-owned subsidiary, PreAxia Canada, our wholly-owned subsidiary. Health Care Payment Limited (“PreAxia CanadaPayment”). PreAxia Payment was incorporated pursuant to the laws of the Province of Alberta on November 26, 2015.
General Overview
PreAxia Payment is a company which intends to deliver a comprehensive suite of solutions and services directed at the emerging health payment market, specifically the opportunities tied to the growth of HSAs.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 conduct, studiesconduit. Studies suggest that HSA’sHSAs in the US reached $30$88.2 billion in assets in 2021 and 16.730 million consumers in 2015,2020, an increase of more than 20% of assets over the prior year. The Canadian market for health benefits is estimated at more than $30 Billion of which HSAs are estimated to have gain a 10% share. This coupled with the continued growth of the Canadian group insurance industry illustrates the emerging opportunity for innovative health payment services. We intend to initially launch our products in Canada. We believe that Canadian businesses are embracing a new healthcare financing vehicle to control costs,provide greater value to employees, increase profitability and get more return from their investment. We intend to provide them with services to capture this market opportunity.
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Plan of Operation
Over the next twelve months, we plan to:
(a) | Raise additional capital to execute our business | |
(b) | Penetrate the health | |
(c) | Build up a network of strategic alliances with several types of health insurance companies, governments and other alliances in various vertical markets, and; | |
(d) | Fill the positions of senior management sales, administrative and engineering positions. |
Cash Requirements
After a further review of business opportunities with industry consultants, for the next twelve months and given that we meet our forecasted expenses, we plan to spend a total of approximately $1,550,000 in implementing our business plan of developing and marketing of health care processing products and services. We expect to generate revenues during the coming year. Therefore, we will be required to raise a total of $2,757,259 to complete our business plan and pay our existing outstanding debts of approximately $1,207,259. Our working capital requirements for both our company and PreAxia Canada for the next twelve months are estimated at $1,550,000 distributed as follows:
Our estimated expenses over the next twelve months are broken down as follows:
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Liquidity and Capital Resources
As of May 31, 2017, we had a2021, PreAxia’s cash balance of $8,779was $40 compared to $7,151,$46 as atof May 31, 2016. PreAxia Canada2020. Our Company will be required to raise capital to fund our operations. WePreAxia’s cash on hand is currently its only source of liquidity. PreAxia had a working capital deficit of $1,198,480$1,959,821 as of May 31, 20172021 compared with a working capital deficit of $1,665,249$1,796,628 as of May 31, 2016.2020.
Our company currently has little cash on hand.
Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued issuance of equity to new stockholders and our ability to achieve and maintain profitable operations. Our company’sPreAxia's cash and cash equivalents will not be sufficient to meet ourits working capital requirements for the next twelve monthtwelve-month period. We will not initially have any cash flow from operating activities as we are in the start-up stage with PreAxia Canada.startup stage. We project that we will require an estimated additional $2,757,259$1,000,000 over the next twelve monthtwelve-month period to fund our operating cash shortfall calculated as $1,198,480 to cover our working capital deficit of approximately $400,000 plus $1,550,000 foran additional $600,000 to complete our projected cash request for the year ended May 31, 2017. Our companybusiness plan. The Company plans to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirements for the next twelve months primarily through the private placement of our equity securities or by way of loans or such other means as our companyPreAxia 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 Company hopes to be able to attract suitable investors for our business plan, which will not require us to use our cash. There can be no assurance that the Company will be successful in this situation. The Company is unable to predict the effect, if any, that the coronavirus COVID-19 global pandemic may have on its access to the financing markets. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Our financial conditionworking capital (deficit) as atof May 31, 20172021 and May 31, 2016 and the changes between those periods for the respective items are2020 is summarized as follows:
Working Capital
|
| May 31, 2021 |
|
| May 31, 2020 |
| ||||||||||
May 31, 2017 | May 31, 2016 |
|
|
|
|
| ||||||||||
Current Assets | $ | 8,779 | $ | 7,151 |
| $ | 40 |
| $ | 46 |
| |||||
Current Liabilities | $ | 1,207,259 | $ | 1,672,400 |
|
| (1,959,861 | ) |
|
| (1,796,674 | ) | ||||
Working Capital (deficit) | $ | (1,198,480 | ) | $ | (1,665,249 | ) |
| $ | (1,959,821 | ) |
| $ | (1,796,628 | ) |
The decreaseincrease in our working capital deficit of $466,769$163,193 was primarily due to the conversion of loans payable to shares.
Cash Flows
Year Ended | Year Ended | |||||||
May 31, 2017 | May 31, 2016 | |||||||
Net cash used in Operating Activities | $ | (118,385 | ) | $ | (54,692 | ) | ||
Net cash provided by Investing Activities | $ | — | $ | — | ||||
Net provided by Financing Activities | $ | 121,941 | $ | 57,528 | ||||
Effect of exchange rate on cash | $ | (1,928 | ) | $ | 1,253 | |||
Change in Cash and Cash Equivalents During the Period | $ | 1,628 | $ | 4,089 |
Cash Used in Operating Activities
During the year ended May 31, 2017, we used net cash in operating activities in the amount of $118,385 mainly due to an increase in activities and services which created a net loss of $262,022 which was offset byour accounts payable - related party and an increase in accounts payable and accrued liabilities.
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 $98,384, accrued interestoperations, liquidity, capital expenditures or capital resources that is material to stockholders.
Results of $12,056 and amortization of intangibles for $34,050.
Cash Provided by Investing Activities
During the yearOperations – Years ended May 31, 2017, cash was not used in investing activities.2021 and 2020
Cash from Financing Activities
During the year ended May 31, 2017, $121,941 in cash was provided from financing activities. An amount of $120,785 was received in cash related to the sale of common stock.
Results of Operations
The following summary of our results of operations should be read in conjunction with our audited consolidated financial statements for the year ended May 31, 2017, which are included herein. 2021.
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For the years ended May 31, 2021 and 2020
Our operating results for the year ended May 31, 2017 and May 31, 2016 are described below.
Revenue
We have not earned any revenues since our inception and we do not anticipate earning revenues until such time as we have completed the development of our Health Card software and obtained new customers.
Expenses
Our expenses for the 12 months ended May 31, 2017 and May 31, 2016 were as follows:
Year Ended | Year Ended | |||||||||||
May 31, 2017 | May 31, 2016 | % | ||||||||||
Consulting Fees | $ | 126,741 | $ | 146,442 | (14.5 | )% | ||||||
Professional Fees | 8,990 | 9,010 | (.2 | )% | ||||||||
Office and Administration | 24,901 | 13,573 | 83.5 | % | ||||||||
Research and Development | 54,743 | 31,643 | 82.5 | % | ||||||||
Amortization | 34,050 | 34,050 | — | |||||||||
$ | 249,425 | $ | 234,718 | 6.1 | % |
Operating expenses for the 12 months ended May 31, 2017 were $249,425 which is an increase of $14,7072021 compared to the year ended May 31, 2016.2020 are described below:
Revenue
During the year ended May 31, 2021 and 2020, the Company had revenue of $411 and $0, respectively. The increaseCompany earns a 10% commission on amounts reimbursed for eligible expenses.
Expenses
Our operating expenses for the year ended May 31, 2021 was $163,604 compared to $171,666 for the year ended May 31, 2020. The decrease in expenses of $8,062 for the year ending May 31, 2021 is due to a decrease in consulting fees of $19,701$5,605, a decrease in professional fees of $20, increase in office and administration of $11,328, and an increase$539, a decrease in research and development of $23,100.$3,395 and an increase of $1,477 in office and administration fees.
Consulting Fees
Consulting fees decreased by $19,701 in
During the year ended May 31, 2017 compared2021 and 2020, Tom Zapatinas, the Chief Executive Officer and Director of the Company, earned $120,000 and $120,000, respectively, for consulting services provided to the Company.
Consulting fees during the year ended May 31, 2016,2021 decreased by $5,605 due to a decrease in services related to financial reporting, research, marketingprogramming and financing.system administration costs.
Professional Fees
Professional fees decreased by $20 inResearch and Development
Research and development expenses during the year ended May 31, 2017 compared to the year ended May 31, 2016.
Office2021 decreased by $3,395 as web updates and Administration
Our office and administration expenses increased by $11,328platform development were being completed in the year ended May 31, 2017 compared to the year ended May 31, 2016, due to an increase in travel expenses and general and administration expenses.current year.
Research and development
Research and Development expenses increased by $23,100 for the year ended May 31, 2017 compared to the year ended May 31, 2016, as a result of platform and software upgrades.
Wages and benefitsBenefits
There were no wages and benefits during the year ended May 31, 2021 or May 31, 2020.
Office and Administration
Office and administration expenses increased by $1,477 for the year ended May 31, 2017 or2021 due to an increase in travel expenses.
Professional Fees
Professional fees during the year ended May 31, 2016.2021 decreased by $539 due to decrease in accounting costs..
Rent
There were no rent expensesInterest Expense
Interest expense is $0 for the yearyears ended May 31, 2017 or for the year ended May 31, 2016, as a result of the Calgary office closing.2021 and 2020 because accounts payable and accrued liabilities – related party, convertible note payable – related party and loans payable – shareholders are non-interest bearing.
Critical Accounting Policies
We have historically incurred losses and have incurred a loss of $3,957,648 from inceptionidentified certain accounting policies, described below, that are the most important to May 31, 2017. Because of these historical losses, we will require additional working capital to develop our business operations. We intend to raise additional working capital through private placements, public offerings, bank financing and/or advances from related parties or shareholder loans.
The continuation of our business is dependent upon obtaining further financing and achieving a break even or profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interestsportrayal of our current or future stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilitiesfinancial condition and future cash commitments.
There are no assurances that we will be ableresults of operations. Please refer to either (i) achieve a levelNote 2 of revenues adequate to generate sufficient cash flow from operations; or (ii) obtain additional financing through either private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. If adequate working capital is not available, we may cease operations.
These conditions raise substantial doubt about our ability to continue as a going concern. Theaccompanying consolidated financial statements do not include any adjustments relating to the recoverabilityfor a full and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Summary of Critical Accounting Policies
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosurescomplete disclosure of our company. Although these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future, actual results may differ from such estimates.accounting policies.
Use of Estimates in the preparation of the financial statements
The preparation of our company's financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Our company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
Foreign Currency Translation
The functional currency of our company is the United States dollar. The functional currency of PreAxia Canada is the Canadian dollar. Assets and liabilities in the accompanying financial statements are translated into United States dollars at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in the accumulated other comprehensive income (loss) account in stockholders’ deficit.
Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any exchange gains and losses are included in the Statement of Operations and Comprehensive Loss.
Gain (Loss) Per Share
Gain (loss) per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Fully diluted earnings per share are not presented because they are anti-dilutive.
Research andSoftware Development Costs
The Company accounts for software development costs in accordance with several accounting pronouncements, including FASB ASC 730, Research and Development, FASB ASC 350-40, Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed and FASB ASC 350-50, Website Development Costs.
Costs incurred during the period of planning and design, prior to the period determining technological feasibility, for all software developed for use internal and external, has been charged to operations in the period incurred as research and development costs. Additionally, costs incurred after determination of readiness for market have been expensed as research and development.
The Company has capitalized certain costs in the development of our proprietary software (computer software to be sold, leased or licensed) for the period after technological feasibility was determined and prior to our marketing and initial sales.
Website development costs have been capitalized, under the same criteria as our marketed software.
Capitalized software costs are stated at cost. The estimated useful life of costs capitalized is evaluated for each specific project. Intangible software costs are amortized over a three year period starting in June 2014.
Recent Accounting Pronouncements
The Company reviews new accounting standards as issued or updated. No new standards or updates had any material effect on these financial statements. The accounting pronouncements issued subsequent to the date of these 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
10 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page | ||
Report of Independent Public Accounting Firm | F-1 | |
Audited Consolidated Financial Statements | ||
Consolidated Balance Sheets | F-2 | |
Consolidated Statements of Operations and Comprehensive Loss | F-3 | |
Consolidated Statements of Changes in Stockholders’ Deficit | F-4 | |
Consolidated Statements of Cash Flows | F-5 | |
Notes to Consolidated Financial Statements | F-6 to |
Heaton & Company, PLLC
240 North East Promontory, Suite 200
Farmington, Utah 84025
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Preaxia Healthcare Payment Systems Inc. Calgary, Alberta CA Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Preaxia Healthcare Payment Systems Inc. (the Company) as of May 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with
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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
May 31, 2017 and May 31, 2016
(Stated in US Dollars)
May 31, 2017 | May 31, 2016 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 8,779 | $ | 7,151 | ||||
Total Current Assets | 8,779 | 7,151 | ||||||
Other Assets | ||||||||
Intangible Software Costs | — | 34,050 | ||||||
Total Other Assets | — | 34,050 | ||||||
Total Assets | $ | 8,779 | $ | 41,201 | ||||
LIABILITIES | ||||||||
Current Liabilities | ||||||||
Accounts Payable and Accrued Liabilities | $ | 131,219 | $ | 222,072 | ||||
Accounts Payable and Accrued Liabilities – Related Party | — | 960,376 | ||||||
Loans Payable | 17,280 | 410,455 | ||||||
Loan Payable - Related Party | 1,058,760 | — | ||||||
Subscription Payable | — | 35,062 | ||||||
Accrued Interest – Loans Payable | — | 44,435 | ||||||
Total Current Liabilities | 1,207,259 | 1,672,400 | ||||||
STOCKHOLDERS’ DEFICIT | ||||||||
Capital Stock, $0.001 par value, 75,000,000 Common shares authorized, 19,667,698 and 18,228,882 common shares issued and outstanding at May 31, 2017 and May 31, 2016, respectively | 19,668 | 18,229 | ||||||
Additional Paid-in Capital | 2,682,303 | 1,993,451 | ||||||
Accumulated other Comprehensive Income/(Loss) | 57,197 | 52,747 | ||||||
Retained Deficit | (3,957,648 | ) | (3,695,626 | ) | ||||
Total Stockholders’ Deficit | (1,198,480 | ) | (1,631,199 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 8,779 | $ | 41,201 | ||||
SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Stated in U.S. Dollars)
For the year ended | ||||||||
May 31 | ||||||||
2017 | 2016 | |||||||
Operating Expenses | ||||||||
Consulting fees | $ | 126,741 | $ | 146,442 | ||||
Professional fees | 8,990 | 9,010 | ||||||
Office and administration | 24,901 | 13,573 | ||||||
Research and development | 54,743 | 31,643 | ||||||
Amortization expense | 34,050 | 34,050 | ||||||
Total Operating Expenses | 249,425 | 234,718 | ||||||
Operating loss | (249,425 | ) | (234,718 | ) | ||||
Other Income (Expenses) | ||||||||
Commission income | — | — | ||||||
Interest expense | (12,597 | ) | (30,880 | ) | ||||
Total Other Income (Expenses) | (12,597 | ) | (30,880 | ) | ||||
Net loss | $ | (262,022 | ) | $ | (265,598 | ) | ||
Other comprehensive income: | ||||||||
Foreign currency translation | 4,450 | 10,613 | ||||||
Comprehensive loss for the period | $ | (257,572 | ) | $ | (254,985 | ) | ||
Basic and diluted loss per share | (0.01 | ) | (0.01 | ) | ||||
Weighted average number of shares outstanding | 18,095,485 | 17,792,342 | ||||||
SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Stated in U.S. Dollars)
Common Stock | Additional | Accumulated Other | ||||||||||||||||||||||
Shares | Amount | Paid-in Capital | Comprehensive Income | Retained Deficit | Total | |||||||||||||||||||
Balance, May 31, 2015 | 17,652,082 | $ | 17,652 | $ | 1,705,628 | $ | 42,134 | (3,430,028 | ) | $ | (1,664,614 | ) | ||||||||||||
Net Loss for Period | (265,598 | ) | (265,598 | ) | ||||||||||||||||||||
Foreign currency translation | 10,613 | 10,613 | ||||||||||||||||||||||
Common Shares Issued | 576,800 | 577 | 287,823 | 288,400 | ||||||||||||||||||||
Balance, May 31, 2016 | 18,228,882 | $ | 18,229 | $ | 1,993,451 | 52,747 | $ | (3,695,626 | ) | $ | (1,631,199 | ) | ||||||||||||
Net Loss for Period | (262,022 | ) | (262,022 | ) | ||||||||||||||||||||
Foreign currency translation | 4,450 | 4,450 | ||||||||||||||||||||||
Forgiveness of Interest | 19,524 | 19,524 | ||||||||||||||||||||||
Common shares Issued for Debt | 875,908 | 876 | 514,045 | 514,921 | ||||||||||||||||||||
Common Shares Issued | 562,908 | 563 | 155,283 | 155,846 | ||||||||||||||||||||
Balance, May 31, 2017 | 19,667,698 | $ | 19,668 | $ | 2,682,303 | $ | 57,197 | $ | (3,957,648 | ) | $ | (1,198,480 | ) |
SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
Year ended | ||||||||
May 31, | ||||||||
2017 | 2016 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (262,022 | ) | $ | (265,598 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Shares issued for expenses | — | 11,235 | ||||||
Amortization | 34,050 | 34,050 | ||||||
Changes in operating assets and liabilities: | ||||||||
Increase (decrease) in accounts payable – related party | 98,384 | 127,032 | ||||||
Increase (decrease) in accounts payable and accrued liabilities | (853 | ) | 8,496 | |||||
Increase (decrease) in accrued interest | 12,056 | 30,093 | ||||||
Cash Flows used in operating activities | (118,385 | ) | (54,692 | ) | ||||
Cash flows used in investing activities | — | — | ||||||
Cash Flows from Financing Activities | ||||||||
Cash Received for common shares | 121,941 | 57,528 | ||||||
Cash flows provided by financing activities | 121,941 | 57,528 | ||||||
Effect of exchange rate changes on cash | (1,928 | ) | 1,253 | |||||
Increase (decrease) in cash during the period | 1,628 | 4,089 | ||||||
Cash, beginning of period | 7,151 | 3,062 | ||||||
Cash, end of period | $ | 8,779 | $ | 7,151 | ||||
Supplemental Disclosure: | ||||||||
Non-cash investing and financing activities: | ||||||||
Cash paid for income taxes | $ | — | $ | — | ||||
Cash paid for interest | $ | — | $ | — | ||||
Accounts payable related party converted to loan payable | $ | 1,058,760 | $ | — | ||||
Shares issued for stock subscriptions | $ | 35,062 | $ | — | ||||
Common stock Issued for Debt including interest | $ | 513,764 | $ | — | ||||
Forgiveness of Interest | $ | 19,524 | $ | — |
SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2017 and 2016
Note 1 – Summary of significant accounting policies
This summary of significant accounting policies of PreAxia Health Care Payment Systems Inc. (the “Company”) is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America andAmerica.
Going Concern Considerations
The accompanying financial statements have been consistently appliedprepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses since inception, has a working capital deficit, and has not achieved profitable operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the preparationfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Going Concern – Disclosure
The financial statements of the Company are statedprepared on a going concern basis, which assumes that the Company will continue in U.S. Dollars.operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations. As noted in “Going Concern Considerations” above, the Company has a history of recurring net losses, a significant accumulated deficit and currently has net working capital deficit. At May 31, 2021, the Company had an accumulated deficit of $1,959,821. The Company has contractual obligations such as commitments for repayments of accounts and notes payable and accrued interest (collectively “obligations”). Currently management’s forecasts and related assumptions illustrate their ability to meet the obligations through management of expenditures, obtaining additional debt financing, loans from related and unrelated parties, and private placements of capital stock for additional funding to meet its operating needs. Should there be constraints on the ability to access financing through stock issuances, the Company will continue to manage cash outflows and meet the obligations through related and unrelated party loans.
We identified management’s assessment of the Company’s ability to continue as a going concern as a critical audit matter. Management made judgments to conclude that it is probable that the Company’s plans will be effectively implemented and will provide the necessary cash flows to fund the Company’s obligations as they become due. Specifically, the judgments with the highest degree of impact and subjectivity in determining it is probable that the Company’s plans will be effectively implemented include its ability to manage expenditures, its ability to access funding from the capital market, and its ability to obtain loans from related and unrelated parties. Auditing the judgments made by management required a high degree of auditor judgment and an increased extent of audit effort.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included the following, among others: (i) evaluating the probability that the Company will be able to access funding from the capital market; (ii) evaluating the probability that the Company will be able to manage expenditures, and (iii) evaluating the probability that the Company will be able to obtain loans from related and unrelated parties.
/s/ Pinnacle Accountancy Group of Utah
Pinnacle Accountancy Group of Utah a dba of Heaton & Company, PLLC
We have served as the Company’s auditor since 2018.
Pinnacle Accountancy Group of Utah
Farmington, Utah
September 8, 2021
F-1 |
PREAXIA HEALTHCARE PAYMENT SYSTEMS INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
|
|
|
|
|
|
| ||
|
| May 31, 2021 |
|
| May 31, 2020 |
| ||
ASSETS |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 40 |
|
| $ | 46 |
|
Total current assets |
|
| 40 |
|
|
| 46 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 40 |
|
| $ | 46 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 163,027 |
|
| $ | 155,551 |
|
Accounts payable and accrued liabilities - related party |
|
| 429,121 |
|
|
| 309,121 |
|
Advances - related party |
|
| 37,696 |
|
|
| 9,810 |
|
Loans payable - shareholders |
|
| 136,465 |
|
|
| 136,465 |
|
Liability for unissued shares |
|
| 134,792 |
|
|
| 126,967 |
|
Convertible note payable - related party |
|
| 1,058,760 |
|
|
| 1,058,760 |
|
Total current liabilities |
|
| 1,959,861 |
|
|
| 1,796,674 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 1,959,861 |
|
|
| 1,796,674 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $0.001 par value, 75,000,000 shares authorized |
|
|
|
|
|
|
|
|
19,767,698 shares issued and outstanding |
|
| 19,768 |
|
|
| 19,768 |
|
Additional paid-in capital |
|
| 2,655,236 |
|
|
| 2,655,236 |
|
Accumulated other comprehensive income |
|
| 57,197 |
|
|
| 57,197 |
|
Accumulated deficit |
|
| (4,692,022 | ) |
|
| (4,528,829 | ) |
Total stockholders' deficit |
|
| (1,959,821 | ) |
|
| (1,796,628 | ) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit |
| $ | 40 |
|
| $ | 46 |
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements |
F-2 |
PREAXIA HEALTHCARE PAYMENT SYSTEMS INC. | ||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | ||||||||
|
|
|
|
|
|
| ||
|
| Year ended |
| |||||
|
| May 31, 2021 |
|
| May 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 411 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Consulting |
|
| 120,628 |
|
|
| 126,233 |
|
Professional |
|
| 18,160 |
|
|
| 18,699 |
|
Office and administration |
|
| 16,597 |
|
|
| 15,120 |
|
Research and development |
|
| 8,219 |
|
|
| 11,614 |
|
Total expenses |
|
| 163,604 |
|
|
| 171,666 |
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (163,193 | ) |
|
| (171,666 | ) |
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss |
| $ | (163,193 | ) |
| $ | (171,666 | ) |
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and diluted |
|
| 19,767,698 |
|
|
| 19,726,441 |
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements |
F-3 |
PREAXIA HEALTHCARE PAYMENT SYSTEMS INC. |
|
|
| |||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT |
|
|
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
| ||||||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Shares |
|
| Amount |
|
| Additional Paid-in Capital |
|
| Accumulated Other Comprehensive Income |
|
| Accumulated Deficit |
|
| Total Stockholders' Deficit |
| ||||||
Balance, May 31, 2020 |
|
| 19,767,698 |
|
| $ | 19,768 |
|
| $ | 2,655,236 |
|
| $ | 57,197 |
|
| $ | (4,528,829 | ) |
| $ | (1,796,628 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (163,193 | ) |
|
| (163,193 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2021 |
|
| 19,767,698 |
|
| $ | 19,768 |
|
| $ | 2,655,236 |
|
| $ | 57,197 |
|
| $ | (4,692,022 | ) |
| $ | (1,959,821 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Shares |
|
| Amount |
|
| Additional Paid-in Capital |
|
| Accumulated Other Comprehensive Income |
|
| Accumulated Deficit |
|
| Total Stockholders' Deficit |
| ||||||
Balance, May 31, 2019 |
|
| 19,667,698 |
|
| $ | 19,668 |
|
| $ | 2,605,336 |
|
| $ | 57,197 |
|
| $ | (4,357,163 | ) |
| $ | (1,674,962 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares to settle accounts payable and accrued liabilities - related party |
|
| 100,000 |
|
|
| 100 |
|
|
| 49,900 |
|
|
| 0 |
|
|
| 0 |
|
|
| 50,000 |
|
Net loss and comprehensive loss |
|
| - |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (171,666 | ) |
|
| (171,666 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2020 |
|
| 19,767,698 |
|
| $ | 19,768 |
|
| $ | 2,655,236 |
|
| $ | 57,197 |
|
| $ | (4,528,829 | ) |
| $ | (1,796,628 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Consolidated Financial Statements |
F-4 |
PREAXIA HEALTHCARE PAYMENT SYSTEMS INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
|
|
|
|
|
|
| ||
|
| Year ended |
| |||||
|
| May 31, 2021 |
|
| May 31, 2020 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (163,193 | ) |
| $ | (171,666 | ) |
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
Increase in accounts payable and accrued liabilities - related party |
|
| 120,000 |
|
|
| 120,000 |
|
Increase in accounts payable and accrued liabilities |
|
| 7,476 |
|
|
| 21,115 |
|
Cash flows used in operating activities |
|
| (35,717 | ) |
|
| (30,551 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Advances - related party |
|
| 29,433 |
|
|
| 18,901 |
|
Repayment of advances - related party |
|
| (1,547 | ) |
|
| (9,806 | ) |
Proceeds from the issuance of liability for unissued shares |
|
| 7,825 |
|
|
| 0 |
|
Proceeds from loans payable - shareholders |
|
| 0 |
|
|
| 3,563 |
|
Net cash provided by financing activities |
|
| 35,711 |
|
|
| 12,658 |
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
| (6 | ) |
|
| (17,893 | ) |
|
|
|
|
|
|
|
|
|
Cash, beginning of the period |
|
| 46 |
|
|
| 17,939 |
|
|
|
|
|
|
|
|
|
|
Cash, end of the period |
| $ | 40 |
|
| $ | 46 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | 0 |
|
| $ | 0 |
|
Cash paid for interest |
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Issue shares to settle accounts payable and accrued liabilities - related party |
| $ | 0 |
|
| $ | 50,000 |
|
See Accompanying Notes to the Consolidated Financial Statements |
F-5 |
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2021 and 2020
Note 1 – Organization and Description of Business
PreAxia Health Care Payment Systems Inc. (the “Company” or “PreAxia”) was incorporated on April 3, 2000 in the State of Nevada. On May 31, 2005 the Company acquired all of the outstanding stock of Tiempo de Mexico Ltd. (“Tiempo”) in exchange for 5,000,000 shares of the common stock of the Company with a par value of $0.001. The Company had no operations prior to the date of the aforementioned acquisition.
On May 30, 2008, the Company finalized the execution of an acquisition agreement dated April 22, 2008 (the “Acquisition Agreement”) between PreAxia, PreAxia Canada (formerly H Pay Card Inc.), Tiempo, Kimberley Coonfer (“Coonfer”), Caribbean Overseas Investments Ltd. (“Caribbean”) and the stockholders of PreAxia Canada (the “PreAxia Canada Stockholders”). Under the terms of the Acquisition Agreement, PreAxia acquired all of the issued and outstanding shares of PreAxia Canada resulting in PreAxia Canada becoming a direct, wholly-owned subsidiary of PreAxia. Upon the acquisition of PreAxia Canada by PreAxia, PreAxia issued the stockholders of PreAxia Canada an aggregate of 12,000,000 shares of the common stock of PreAxia. Pursuant to the terms of the Acquisition Agreement all of the issued and outstanding shares of the Company’s subsidiary, Tiempo (the “Tiempo Shares”) were transferred to Coonfer and Caribbean in exchange for the return of treasury of a total of 5,000,000 common shares of PreAxia (the “Cancellation Shares”).
The Cancellation Shares were exchanged for the Tiempo Shares and $100,000 of the intercompany debt between Tiempo and PreAxia was written off on the books of Tiempo and PreAxia, and Tiempo provided a promissory note for the remaining intercompany debt between Tiempo and PreAxia in the amount of $49,281. As of May 30, 2008, Tiempo is no longer a subsidiary of PreAxia, PreAxia Canada Inc. is a wholly-owned subsidiary of PreAxia. PreAxia Canada Inc. Stockholders received an aggregate of 12,000,000 shares of PreAxia’s common stock representing 78.7% of the issued and outstanding shares of the Company. Tom Zapatinas, an Officer and Director of PreAxia Health Care Payment Systems Inc., is also an Officer and Director of PreAxia Canada Inc. He disclosed such information and interest in this transaction to the Board of Directors prior to the conclusion of this transaction.
As a result, the consolidated results of operations presented at May 31, 2017 and 2016 are thosebusiness objective of the Company and PreAxia Canada Inc. PreAxia Canada Inc. was incorporated pursuant to the laws of the Province of Alberta on January 28, 2008. Since inception of PreAxia Canada Inc., its business objective has beenis the development, distribution, marketing and sale of health care payment processing services and products.
Nature and Continuance of Operations
The Company has not yet realized any revenues from its planned operations.
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2017
Note 1 – Summary of significant accounting policies (Continued)
Nature and Continuance of Operations (Continued)
The primary operations of the Company will eventuallyare expected to be primarily undertaken by PreAxia Canada. Health Care Payment Ltd. (“PreAxia CanadaPayment”), incorporated pursuant to the laws of the Province of Alberta on November 26, 2015.
PreAxia Payment is in the process of developing an online access system creating a health savingsspending account that allowswill facilitate card paymentspayment and processing services to third-party administrators, insurance companies and others.
COVID-19
The recent outbreak of the coronavirus COVID-19 has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures have had and will continue to have a material adverse impact on global economic conditions as well as on the Company's business activities. The extent to which COVID-19 may impact the Company's business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in the Canada, United States and other countries to contain and treat the disease. These events are highly uncertain and, as such, the Company cannot determine their financial impact at this time. No adjustments have been made to the amounts reported in these consolidated financial statements have been preparedas a result of this matter.
Note 2 – Summary of Significant Accounting Policies
This summary of significant accounting policies of the Company are presented to assist in accordance withunderstanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States applicableof America and have been consistently applied in the preparation of the consolidated financial statements, which are stated in U.S. Dollars.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries (i) PreAxia Health Care Payment Systems Inc., incorporated pursuant to the laws of the Province of Alberta on January 28, 2008 (ii) PreAxia Canada Inc., incorporated pursuant to the laws of the Province of Alberta on January 28, 2008 and (iii) PreAxia Health Care Payment Ltd., incorporated pursuant to the laws of the Province of Alberta on November 26, 2015 (collectively, the “Subsidiaries”). All inter-company accounts and transactions have been eliminated in consolidation.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which assumes thatcontemplates 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 classificationrealization of assets and satisfaction of liabilities shouldin the normal course of business. During the year ended May 31, 2021, the Company be unable to continue asincurred a going concern. Atnet loss of $163,193 and used cash in operating activities of $35,717, and at May 31, 2017, the Company2021, had not yet achieved profitable operations, has accumulated lossesa stockholders’ deficit of $3,957,648 since inception, has negative working capital of $1,286,555 and expects to incur further losses in the development of its business, all of which raises$1,959,821. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the consolidated financial statements are issued. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty should we be unable to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon its ability to generate futuredevelop additional sources of capital and to ultimately achieve profitable operations. Currently, the Company does not have significant cash or other material assets, nor does it have operations and/or a source of revenue sufficient to obtain the necessary financingcover its operating costs and allow it to meet its obligationscontinue as a going concern. The Company’s officers or principal shareholders have committed to making advances or loans to pay for certain legal, accounting, and repay its liabilities arising from normaladministrative costs.
The Company hopes to be able to attract suitable investors for our business operations when they come due. Management hasplan, which will not require us to use our cash. There can be no formal plan in place to address this concern but believesassurance that the Company will be successful in this situation. The Company is unable to predict the effect, if any, that the coronavirus COVID-19 global pandemic may have on its access to the financing markets. Even if the Company is able to obtain additional funds byfinancing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in the case of equity financing and/financing.
F-6 |
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original maturity of three months or related party advances, however there is no assurance of additional funding being available.less to be cash equivalents.
Use of Estimates in the preparation of the consolidated financial statements
The preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. ActualAlthough these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future, actual results could differ from those estimates.
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2017 and 2016
Note 1 – Summary of significant accounting policies (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
Foreign Currency Translation
The functional currency of the Company is the United States dollar. The functional currency of PreAxia Canadathe Subsidiaries is the Canadian dollar. Assets and liabilities in the accompanying consolidated financial statements are translated into United States dollars at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in the accumulated other comprehensive income (loss) account in stockholders’ deficit.
Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date. Any transaction exchange gains and losses are included in the Statementstatement of Operationsoperations and Comprehensive Loss.comprehensive loss.
Gain
The Company's reporting currency is the U.S. dollar. All transactions initiated in Canadian Dollars are translated into U.S. dollars in accordance with Accounting Standards Codification ("ASC") 830-30, "Translation of Financial Statements," as follows:
i) assets and liabilities are translated at the closing rate at the date of the balance sheet of 1.00 US Dollar=1.2067 Canadian Dollars (May 31, 2021), 1.00 USD Dollar=0.7039 GBP, and 1.00 US Dollar = 1.3772 Canadian Dollars (May 31, 2020);
ii) income and expenses are translated at average exchange rates for year ended May 31, 2021 of 1.00 US Dollar = 1.2398 Canadian Dollars and 1.00 US Dollar = 1.3992 Canadian Dollars (May 31, 2020);
iii) all resulting exchange differences are recognized as other comprehensive income, a separate component of equity. The exchange differences during the years ended May 31, 2021 and 2020 were insignificant and no amounts have been recorded.
Fair Value of Financial Instruments
The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Management uses a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
Level 3 - Inputs that are both significant to the fair value measurement and unobservable. |
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of May 31, 2021 and 2020. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
Net Income (Loss) Per Share
Gain
Net income (loss) per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company has 10,587,600 and 0 shares of potential common stock equivalents for convertible note payable – related party outstanding as of May 31, 20172021 and 2016, respectively. A separate computation of diluted earnings (loss)2020, which have been excluded from the loss per share is not presented since the Company hascomputation as their effect would have been anti-dilutive due to net losses as the effects would be anti-dilutive.losses.
F-7 |
Research and Development Costs
During the years ended May 31, 2021 and 2020, we incurred $8,219 and $11,614, respectively, in research and development expenses.
Software Development Costs
The Company accounts for software development costs in accordance with several accounting pronouncements, including FASB ASC 730, Research and Development, FASB ASC 350-40, Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed and FASB ASC 350-50, Website Development Costs.
Costs incurred during the period of planning and design, prior to the period determining technological feasibility, for all software developed for use internal and external, has been charged to operations in the period incurred as research and development costs. Additionally, costs incurred after determination of readiness for market have been expensed as research and development.
The Company will capitalize certain costs in the development of our proprietary software (computer software to be sold, leased or licensed) for the period after technological feasibility was determined and prior to our marketing and initial sales.
Website development costs are expensed incapitalized under the year in which they are incurred.same criteria as our marketed software.
Intangible Software Costs
Intangible software costs are amortized over a three year period starting June 2014. Amortization for the year ended May 31, 2017 and 2016 was $34,050 and $34,050, respectively.
Impairment of Long-lived Assets
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
Principles of Consolidation
The consolidated financial statements include the accounts of the CompanyCommitments and its subsidiary. All inter-company accounts and transactions have been eliminated in consolidation.Contingencies
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2017 and 2016
Note 1 – Summary of significant accounting policies (Continued)
FINANCIAL INSTRUMENTS
The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. Related party balances are not recorded at fair value because they are by nature not arm’s length transactions subject to normal market rates.
Fair Value Estimates
The Company defines fair value asfollows subtopic 450-20 of the exchange priceFASB 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 would be received for an asset or paid to transfer a liability (an exit price)has been incurred and the amount of the assessment can be reasonably estimated.
Revenue Recognition
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the principalcontract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or most advantageous marketas, we satisfy the performance obligation.
Income Taxes
The Company follows Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the assetexpected future tax consequences of events that have been included in the financial statements or liability in an orderly transaction between market participants on the measurement date. Management uses a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs)tax returns. Under this method, deferred tax assets and (2) an entity’s own assumptions about market participant assumptions developedliabilities are based on the best information availabledifferences 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 circumstances (unobservable inputs).fiscal years in which those temporary differences are expected to be recovered or settled. The fair value hierarchy consistseffect on deferred tax assets and liabilities of three broad levels, which givesa change in tax rates is recognized in the highest priority to unadjusted quoted pricesStatements of Income and Comprehensive Income in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). period that includes the enactment date.
The three levelsCompany adopted section 740-10-25 of the fair value hierarchy are described below:
Fair value estimates discussed herein areFASB 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 certain market assumptionsultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and pertinent information availablepenalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to management as of May 31, 2017. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values dueits liabilities for unrecognized income tax benefits according to the short-term natureprovisions of these instruments.Section 740-10-25.
New Accounting Standards
F-8 |
Note 3 – Recent Accounting Pronouncements
The Company reviews new accounting standards as issued or updated. No new standards or updates had any material effect on these consolidated financial statements. The accounting pronouncements issued subsequent to the date of these consolidated financial statements that were considered significant by management were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent pronouncements will have a material effect on these consolidated financial statements as presented.
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Related Party Transactions
Accounts Payable and Accrued Liabilities - Related Parties
As of May 31, 20172021 and 2016
Note 12020, accounts payable and accrued liabilities – Summary of significant accounting policies (Continued)
Other
The Company has selectedrelated party due to Tom Zapatinas totaled $429,121 and $309,121, respectively. During the years ended May 31, as its year-end2021 and 2020, Tom Zapatinas, the Company paid no dividends in 2017.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has incurred cumulative net losses of ($3,957,648) since inception,Chief Executive Officer and currently has no sales. The futureDirector of the Company, is dependent upon its ability to obtain financingearned $120,000 and upon future profitable operations from the design, development and commercialization of its health care payment processing$120,000, respectively, for consulting services and products. Management has plans to seek additional capital through private placements of its common stock. The consolidated financial statements do not include any adjustments relatingprovided to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the eventCompany. On October 29, 2019, the Company cannot continue in existence.issued 100,000 shares of common stock of the Company to settle accounts payable and accrued liabilities– related party with a carrying value of $50,000 (Note 6).
Note 2
Advances –Related Party Transactions
Accounts Payable
As of May 31, 2021 and 2020, advances payable due to Tom Zapatinas totaled $37,696 and $9,810, respectively. During the yearyears ended May 31, 2017, the Company’s president,2021 and 2020, Tom Zapatinas, invoiced $120,000 for management services rendered tothe Chief Executive Officer and a Director of the Company, foradvanced the period June 1, 2016 toCompany $29,433 and $18,901, respectively, in cash and was repaid $1,547 and $9,806, respectively, in cash.
Loans Payable – Shareholders
As of May 31, 2017. As at2021 and 2020, loans payable - shareholders are $136,465 and $136,465, respectively. Loans payable – shareholders are unsecured, non-interest bearing and due on demand or due within one year after the issuance date. During the years ended May 31, 2017, Accounts2021 and 2020, the Company was advanced $0 and $3,563, respectively, in cash and was repaid $0 and $0, respectively, in cash.
Convertible Note Payable – Related Party
As of May 31, 2021 and 2020, convertible note payable –- related party includes a total of $1,058,760 is due to Tom Zapatinas, the Chief Executive Officer and payable to Mr. Zapatinas. The balance as at May 31, 2016 was $960,376 representing an increasea Director of $98,384 over the prior year.
The Accounts Payable Related Party was converted to a Loan Payable Related Party in the amount of $1,058,760 on May 31, 2017.Company. The Note is noninterestnon-interest bearing, and isunsecured, payable on demand and can be convertedconvertible in whole or in part into shares of common sharesstock of the Company at a conversion price of $0.10 per share.share, which equates to 10,587,600 shares.
Note 5 – Income Taxes
As of May 31, 2017, the Company owed loan holders $17,280 compared to $410,455 as at May 31, 2016 a decrease of $393,175. During the year ended May 31, 2017, the Company issued 775,908 shares of common stock to retire $387,954 of debt.
Included in the amount above, the Company had a loan payable to a shareholder of the Company in the amount of $51,849. The loan was unsecured, with 6% interest per annum and was payable 30 days after demand is made by the shareholder. As of May 31, 2017, the Company had accrued interest on the related party loan in the amount of $19,524 compared to $16,873 as at May 31, 2016.
As at May 31, 2017, the above loan in the amount of $51,849 was converted to 103,698 shares of common stock while the interest on the loan in the amount of $19,524 was forgiven by the holder.
As at May 31, 2017, the accounts payable to Mr. Ron Lizee in the amount of $90,000 and the accrued interest of $36,967 were converted to 100,000 shares of common stock.
Included in accounts payable is a payable in the amount of $14,933 to a creditor, which is disputed by the Company and the Company believes the debt will be settled for an amount significantly less than the amount reported in the accounts.
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2017 and 2016
Note 3 – Income Taxes
As at May 31, 2017,2021, the Company is in arrears on filing its statutory income tax returns. Tax years 2008 through 2020 are open for examination by taxing authorities. The Company has incurred substantial net operating losses of approximately $4,000,000$4,090,000 since January 28, 2008 (Date of Inception).
It is management’s intention to hire a tax professional to file these tax returns on its behalf.
The Company’s deferred tax assets and liabilities consist primarily of the following:
2017 | 2016 |
| 2021 |
|
| 2020 |
| |||||||
|
|
|
|
| ||||||||||
Net operating losses – U.S. parent: |
|
|
|
|
| |||||||||
Amount carried forward from prior years | $ | (1,340,812) | $ | (1,247,541 | ) |
| $ | (850,254 | ) |
| $ | (839,404 | ) | |
Net operating losses | (142,061 | ) | (93,271 | ) | ||||||||||
Net operating losses (21% tax rate) |
| (34,270 | ) |
| (36,050 | ) | ||||||||
Accrued management compensation |
| 25,200 |
| 25,200 |
| |||||||||
Total |
| (859,324 | ) |
| (850,254 | ) | ||||||||
(1,482,873 | ) | (1,340,812 | ) |
|
|
|
|
| ||||||
Deferred taxes – U.S. Parent |
| (859,324 | ) |
| (850,254 | ) | ||||||||
Net operating losses – Canadian subsidiary: |
|
|
|
|
| |||||||||
Amount carried forward from prior years | (31,760) | (31,760 | ) |
| (31,760 | ) |
| (31,760 | ) | |||||
Net operating losses | - | - |
| 0 |
| 0 |
| |||||||
Deferred taxes – Canadian subsidiary |
| (31,760 | ) |
| (31,760 | ) | ||||||||
(31,760 | ) | (31,760 | ) |
|
|
|
|
| ||||||
Total | (1,514,633 | ) | (1,372,572 | ) | ||||||||||
Total deferred tax assets |
| (891,084 | ) |
| (882,014 | ) | ||||||||
Less: valuation allowance | 1,514,633 | 1,372,572 |
| 891,084 |
| 882,014 |
| |||||||
$ | - | $ | - | |||||||||||
Total net deferred tax assets |
| $ | 0 |
| $ | 0 |
|
During the years ended May 31, 20172021 and 2016,2020, the change in valuation allowance was $142,061an increase of $9,070 in 2021 and $93,271, respectively.an increase of $10,850 in 2020.
F-9 |
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2017 and 2016
Note 4 – Common Stock
The Company has no tax positions at May 31, 2021 and 2020 for which the ultimate deductibility is authorizedhighly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to issue up tounrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at May 31, 2021 and 2020.
Note 6 – Stockholders’ Deficit
Common Stock
Common Stock, par value of $0.001 per share; 75,000,000 shares authorized: 19,767,698 shares issued and outstanding at May 31, 2021 and 2020. Holders of common stock. TheCommon Stock have one vote per share of Common Stock held.
On October 29, 2019, the Company issued 100,000 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.
During the period ended May 31, 2017 the Company issued 1,438,816 shares of which 875,908 were for the reduction ofto settle accounts payable and accrued liabilities– related party and notes payable, and 562,908 for $155,846 in cash received,with a carrying value of which $35,062 was received in the prior year and recorded as subscription payable.$50,000.
Note 57 – Contingencies and Commitments
From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.
The Company does not have any long termlong-term commitments for equipment purchases or leases. The Company does not have any office space commitments as the CEOpresently operates from his residence.remote employment sites.
Note 6 -8 – Subsequent eventsEvents
The Company has evaluated all subsequent events through the date these financial statements were issued and no additional subsequent events occurred that required disclosure.
F-10 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 10, 2015, the Company engaged Heaton & Company, PLLC to act as the Company’s independent registered public accountant.
The engagement of Heaton & Company, PLLC and the dismissal of the prior accountants was done by the Chief Executive Officer and member of the Board of the Company, with the knowledge and approval of the other members of the Board of Directors. The Company has an audit committee charged with oversight of financial matters.None.
Since their engagement and to the date of their dismissal, there have not been, nor are there now, any disagreements between the Company and DKM Certified Public Accountants with respect to any matter of accounting principles, practices, financial statement disclosure, auditing scope or procedure for the reporting and filing completed prior to this date, nor have there been any “reportable events” as defined by Regulation S-K section 304(a)(1)(v) during that same period, other than the reports were modified to contain a going concern opinion.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based upon this evaluation, the Chief Executive Officer concluded that, as of May 31, 2017,2021, the disclosure controls and procedures were not effective. The ineffectiveness of our Company’s disclosure controls and procedures was due to the existence of material weaknesses identified below.
Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in our Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms.
Management’s Report On Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 14d-14(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our company’s internal control over financial reporting as of May 31, 2017.2021. In making the assessment, management used the criteria issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO - 2013) in Internal Control-Integrated Framework. Based on its assessment, management concluded that, as of May 31, 2017,2021, our Company’s internal control over financial reporting was not effective.
Management has identified the following material weaknesses:
·We do not have accounting staff with sufficient technical accounting knowledge relating to accounting for U.S. income taxes and complex US GAAP matters; and
·We failed to file our corporate tax returns for 2008 through 2017.
We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these material weaknesses. In particular, we intend to hire staff with U.S. GAAP expertise if we can obtain additional financing and hire professionals to prepare and complete the filing of our corporate tax returns.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
12 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following individual serves as the director and executive officers of our Company. All directors of our Company hold office until the next annual meeting of our shareholders or until their successors have been elected and qualified. The executive officers of our Company are appointed by our board of directors and hold office until their death, resignation or removal from office.
Name | Position | Age | Date First Elected or Appointed |
Tom Zapatinas | President, Chief Executive Officer, Secretary, Chief Financial Officer, Treasurer and Director | 64 | Director since January 9, 2007 Officer since January 25, 2008 |
Paul Verberne | Director | 57 | Director since June 1, 2018 |
Significant Employees
There are no family relationships between or among our directors or executive officers.
Business Experience
Tom Zapatinas, President, Secretary, Chief Executive Officer, Chief Financial Officer and a director
Tom Zapatinas has been a director of our Company since January 9, 2007 and the president, secretary, chief executive officer and chief financial officer of our company since January 25, 2008. Mr. Zapatinas has been a self-employed business consultant since August 1997. In June of 1998, Mr. Zapatinas founded Prolific Smart Card Software Systems Inc. which became a reporting issuer on the TSX Venture Exchange in Canada. Mr. Zapatinas resigned from Prolific in May 29, 2001, to go back to his consulting practice. He brings experience in financing, corporate development and mergers and acquisitions.
Mr. Zapatinas is not an officer or director of any other reporting company that files annual, quarterly or periodic reports with the United States Securities and Exchange Commission.
We believe Mr. Zapatinas is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations, which he gained from working for our company as described above, in addition to his business experiences as described above.
Paul Verberne, member of the Board of Directors
Mr. Verberne has been involved in the Healthcare Spending Account (HSA) industry since 2004, when he became counsel for HSA Bank (a division of Webster Bank). He provided legal and business expertise focused on tax favoured benefit accounts, helping HSA Bank grow from $8 million in HSA deposits to over $800 million in six years. HSA Bank is now a leading HSA provider in the USA with over $5 billion in assets. Mr. Verberne was also general counsel to the American Banker's Association HSA Council and Tango Health, a leading benefits optimization solutions provider. He is currently a principal in HSA Consulting Services, LLC, which provides training and expertise to the HSA industry, and a partner in Verberne & Maldonado LLP in Houston, a law firm concentrating in business law. He received his B.A. in Liberal Arts (Economics/Psychology) from the University of Texas (Austin) and a Juris Doctorate from University of Houston Law Center. Mr. Verberne will be providing strategic advice and guidance to PreAxia as it develops, rolls out and expands its HSA Management Solution throughout Canada and the USA.
Involvement in Certain Legal Proceedings
Our directors or executive officers have not been involved in any of the following events during the past ten years:
1. | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; | |
2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor | |
3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or | |
4. | being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. | |
5. | being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
6. | being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
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Audit Committee
The Corporation is a “venture issuer” as defined in National Instrument 52-110 and is relying on the exemption contained in Section 6.1 of National Instrument 52-110, which exempts the Corporation from the requirements of Part 3 (Composition of the Audit Committee) and Part 5 (Reporting Obligations) of National Instrument 52-110.
The Audit Committee’s Charter
Mandate
Mandate
The primary function of the audit committee (the "Committee") is to assist the Board of Directors in fulfilling its financial oversight responsibilities by reviewing the financial reports and other financial information provided by the Corporation to regulatory authorities and shareholders, the Corporation’s systems of internal controls regarding finance and accountingand the Corporation’s auditing, accounting and financialreporting processes. Consistent with this function, the Committee will encourage continuous improvement of, and should foster adherence to, the Corporation’s policies, procedures and practices at all levels. The Committee’s primary duties and responsibilities are to:
· | Serve as an independent and objective party to monitor the Corporation’s financial reporting and internal control system and review the Corporation’s financial statements. |
· | Review and appraise the performance of the Corporation’s external auditors. |
· | Provide an open avenue of communication among the Corporation’s auditors, financial and senior management and the Board of Directors. |
Composition
The Committee shall be comprised of two directors as determined by the Board of Directors,whom shall be free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of his or her independent judgment as a member of the Committee.
The members of the Committee shall be elected by the Board of Directors at its first meeting following the annual shareholders’ meeting. Unless a Chair is elected by the full Board of Directors, the members ofthe Committee may designate a Chair by a majorityvote of the full Committee membership.
Meetings
The Committee shall meet annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the Committee will meet at least annually with the Chief Financial Officer and the external auditors.
Responsibilities and Duties
To fulfill its responsibilities and duties, the Committee shall:
Documents/Reports Review
(a) | Review and update this Charter annually. | |
(b) | Review the Corporation’s financial statements, MD |
External Auditors
(a) | Review annually, the performance of the external auditors who shall be ultimately accountable to the Board of Directors and the Committee as representatives of the shareholders of the Corporation. |
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