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, 20182021
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 AvePO 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 $13,767,388$0 on November 30, 2017.2020.
(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:
19,667,69819,767,698 shares of common stock as of September 13, 20188, 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 companyThe 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 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 20182021 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:
· Olympia Benefits has become a leading provider of “Titanium” card services.
International Market:
· QuickCard is a provider of the “gift card mall”, which can beHealth Spending Accounts and group insurance products. They are partially differentiated from competitors by virtue of a “credit type card” that is used at participating merchants only. These cards are Visa, MasterCard or American Express brandedto pay for qualified health products and are activated at the POS.
services.
Intangible Properties· League, which operates in Canada and the US, offers a range of health benefit services including Health Spending Accounts.
When negotiating its arrangements with clients, PreAxia intends
· Most major insurance companies offer some version of HSAs to ensure that all rightstheir 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 ownershipInternational Markets
· HealthEquity, a publicly listed company offering HSAs in the USA, manages over $15 billion in deposits. It is one 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 PreAxiathe largest dedicated health account custodians in the USA and its employeesserves 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 contractors, and additional high standards of confidentiality and protection of data are set by clients and regulatory authorities withinrelated offerings to 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, 2018,2021 and 2017,2020, we expended $38,067incurred $8,219 and $54,743 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 20182021 and 20192022 in areas of administration/accounting, business development, operations, sales/marketing and research/development.
ITEM 1A. RISK FACTORS
Not applicable to smaller reporting companies.
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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, 20182021 and 2017.2020.
Quarter Ended | High | Low |
05/31/2018 | $0.00 | $0.00 |
02/28/2018 | $0.00 | $0.00 |
11/30/2017 | $0.00 | $0.00 |
08/31/2017 | $0.00 | $0.00 |
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 |
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 September 13, 2018,August 29, 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, 2018.2021.
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, 2018.2021.
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, 20182021 or 2017.2020.
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 $1,450,000 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 $2,850,196 to complete our business plan and pay our existing outstanding debts of approximately $1,407,804. Our working capital requirements for both our company and PreAxia Canada for the next twelve months are estimated at $1,450,000 distributed as follows:
Estimated Expenses | ||||
General and Administrative | $ | 300,000 | ||
Research and Development | $ | 200,000 | ||
Marketing and Education | $ | 850,000 | ||
Professional Services | $ | 100,000 | ||
Total | $ | 1,450,000 |
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, 2018, we had a2021, PreAxia’s cash balance of $7,608was $40 compared to $8,779,$46 as atof May 31, 2017. 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 $1,400,196$1,959,821 as of May 31, 20182021 compared with a working capital deficit of $1,198,480$1,796,628 as of May 31, 2017.2020.
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-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 $2,850,196$1,000,000 over the next twelve-month period to fund our operating cash shortfall calculated as $1,400,196 to cover our working capital deficit of approximately $400,000 plus $1,450,000 foran additional $600,000 to complete our projected cash request for the upcoming year ended May 31, 2019. 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, 20182021 and May 31, 2017 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, 2018 | May 31, 2017 |
|
|
|
|
| ||||||||||
Current Assets | $ | 7,608 | $ | 8,779 |
| $ | 40 |
| $ | 46 |
| |||||
Current Liabilities | $ | 1,407,804 | $ | 1,207,259 |
|
| (1,959,861 | ) |
|
| (1,796,674 | ) | ||||
Working Capital (Deficit) | $ | (1,400,196 | ) | $ | (1,198,480 | ) | ||||||||||
Working Capital (deficit) |
| $ | (1,959,821 | ) |
| $ | (1,796,628 | ) |
The increase in our working capital deficit of $201,716$163,193 was primarily due to the increase in the short term debt, which resulted from an operating loss of $201,716.
Cash Flows
Year Ended | Year Ended | |||||||
May 31, 2018 | May 31, 2017 | |||||||
Net cash used in Operating Activities | $ | (70,955 | ) | $ | (118,385 | ) | ||
Net provided by Financing Activities | $ | 69,784 | $ | 121,941 | ||||
Effect of exchange rate on cash | $ | — | $ | (1,928 | ) | |||
Change in Cash and Cash Equivalents During the Period | $ | (1,171 | ) | $ | 1,628 |
Cash Used in Operating Activities
During the year ended May 31, 2018, we used net cash in operating activities in the amount of $70,955 mainly due to an increase in activitiesour accounts payable - related party and services which created a net loss of $201,716 which was offset byan increase in accounts payable and accrued liabilities - related partyliabilities.
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 $119,121 and accounts payable and accrued liabilitiesoperations, liquidity, capital expenditures or capital resources that is material to stockholders.
Results of $11,640.
Cash Provided by Investing Activities
During the yearOperations – Years ended May 31, 2018, cash was not used in investing activities.2021 and 2020
Cash from Financing Activities
During the year ended May 31, 2018, $69,784 in cash was provided from financing activities.
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, 2018, 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, 2018 and May 31, 2017 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 Care software and obtained new customers.
Expenses
Our expenses for the 12 months ended May 31, 2018 and May 31, 2017 were as follows:
Year Ended | Year Ended | |||||||||||
May 31, 2018 | May 31, 2017 | % | ||||||||||
Consulting Fees | $ | 128,000 | $ | 126,741 | 0.01 | % | ||||||
Professional Fees | 9,082 | 8,990 | 0.01 | % | ||||||||
Office and Administration | 26,567 | 24,900 | 6.7 | % | ||||||||
Research and Development | 38,067 | 54,743 | (30.5 | )% | ||||||||
Amortization | — | 34,050 | (100.0 | )% | ||||||||
Total | $ | 201,716 | $ | 249,424 | (19.1 | )% |
Operating expenses for the 12 months ended May 31, 2018 were $201,716 which is a decrease of $47,7082021 compared to the year ended May 31, 2017.2020 are described below:
Revenue
During the year ended May 31, 2021 and 2020, the Company had revenue of $411 and $0, respectively. The Company 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 wasin expenses of $8,062 for the year ending May 31, 2021 is due to an increasea decrease in consulting fees of $1,259, an increase$5,605, a decrease in professional fees of $92, an increase in office and administration of $1,667,$539, a decrease in research and development of $16,676$3,395 and a decreasean increase of $34,050$1,477 in amortization.office and administration fees.
Consulting Fees
Consulting fees increased by $1,259 in
During the year ended May 31, 2018 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, 2017,2021 decreased by $5,605 due to a modest increase in services related to financial reporting, research, marketingprogramming and financing.system administration costs.
Professional Fees
Professional fees increased by $92 inResearch and Development
Research and development expenses during the year ended May 31, 2018 compared to the year ended May 31, 2017.
Office2021 decreased by $3,395 as web updates and Administration
Our office and administration expenses increased by $1,667platform development were being completed in the year ended May 31, 2018 compared to the year ended May 31, 2017, due to an increase in travel expenses offset by a decrease in other general and administration expenses.
Research and developmentcurrent year.
Research and Development expenses decreased by $16,676 for the year ended May 31, 2018 compared to the year ended May 31, 2017, as a result of a reduction in research and development activities.
Amortization
Amortization decreased by $34,050 in the year ended May 31, 2018 as a result of the assets related to the amortization were fully amortized in the year ended May 31, 2017.
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, 2018 or2021 due to an increase in travel expenses.
Professional Fees
Professional fees during the year ended May 31, 2017.2021 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, 2018 or for the year ended May 31, 2017, 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 $4,159,364 from inceptionidentified certain accounting policies, described below, that are the most important to May 31, 2018. 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.
Critical Accounting Policies
Use of Estimates in the preparation of the financial statements
The preparationcomplete disclosure 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. Although 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.policies.
Software Development Costs
The Company accounts for software development costs in accordance with several accounting pronouncements, including FASB ASC 730, Research and Development, FASB ASC 350-40, Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed and FASB ASC 350-50, Website Development Costs.
Costs incurred during the period of planning and design, prior to the period determining technological feasibility, for all software developed for use internal and external, has been charged to operations in the period incurred as research and development costs. Additionally, costs incurred after determination of readiness for market have been expensed as research and development.
The Company has capitalized certain costs in the development of our proprietary software (computer software to be sold, leased or licensed) for the period after technological feasibility was determined and prior to our marketing and initial sales.
Website development costs have been capitalized, under the same criteria as our marketed software.
Capitalized software costs are stated at cost. The estimated useful life of costs capitalized is evaluated for each specific project. Intangible software costs were amortized over a three-year period starting in June 2014.
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 |
11 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Thethe Board of Directors and Stockholders of
PreAxia Health CarePreaxia Healthcare Payment Systems Inc.
Calgary, Alberta CA
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of PreAxia Health CarePreaxia Healthcare Payment Systems Inc. (the “Company”)Company) as of May 31, 20182021 and 2017,2020, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit),deficit, and cash flows for each of the years in the two-year periodthen ended, May 31, 2018 and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the years in the two-year periodthen ended, May 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Considerations
The accompanying financial statements have been prepared 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 consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 auditaudits to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated financial 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The accompanying consolidatedcritical audit matter communicated below is a matter arising from the current period audit of the financial statements have beenthat 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 prepared assumingon a going concern basis, which assumes that the Company will continue as a going concern.in 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 discussednoted in Note 1 to the consolidated financial statements,“Going Concern Considerations” above, the Company has not establisheda history of recurring net losses, a significant accumulated deficit and currently has net working capital deficit. At May 31, 2021, the Company had an ongoing sourceaccumulated deficit of revenues sufficient$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 covermeet 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 expenses. This factor, among others, raises substantial doubt aboutneeds. 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. The consolidated financial statements do notconcern 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 any adjustments that might resultits ability to manage expenditures, its ability to access funding from the outcomecapital market, and its ability to obtain loans from related and unrelated parties. Auditing the judgments made by management required a high degree of this uncertainty.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 20152018.
Pinnacle Accountancy Group of Utah
Farmington, Utah
September 13, 2018 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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| ||||||
|
| Common Stock |
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|
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|
|
|
|
|
|
|
|
|
| |||||||||
|
| 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 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
| 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.
CONSOLIDATED BALANCE SHEETS
May 31, 2018 and May 31, 2017
(Stated in US Dollars)
May 31, 2018 | May 31, 2017 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 7,608 | $ | 8,779 | ||||
Total Current Assets | 7,608 | 8,779 | ||||||
Total Assets | $ | 7,608 | $ | 8,779 | ||||
LIABILITIES | ||||||||
Current Liabilities | ||||||||
Accounts Payable and Accrued Liabilities | $ | 142,859 | $ | 131,219 | ||||
Accounts Payable and Accrued Liabilities – Related Party | 119,121 | — | ||||||
Loans Payable | 87,064 | 17,280 | ||||||
Note Payable - Related Party | 1,058,760 | 1,058,760 | ||||||
Total Current Liabilities | 1,407,804 | 1,207,259 | ||||||
STOCKHOLDERS’ DEFICIT | ||||||||
Capital Stock, $0.001 par value, 75,000,000 Common shares authorized | ||||||||
19,667,698 common shares issued and outstanding at May 31, 2018 and May 31, 2017, respectively | 19,668 | 19,668 | ||||||
Additional Paid-in Capital | 2,682,303 | 2,682,303 | ||||||
Accumulated other Comprehensive Income/(Loss) | 57,197 | 57,197 | ||||||
Retained Deficit | (4,159,364 | ) | (3,957,648 | ) | ||||
Total Stockholders’ Deficit | (1,400,196 | ) | (1,198,480 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 7,608 | $ | 8,779 | ||||
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 years ended | ||||||||
May 31, | ||||||||
2018 | 2017 | |||||||
Operating Expenses | ||||||||
Consulting fees | $ | 128,000 | $ | 126,741 | ||||
Professional fees | 9,082 | 8,990 | ||||||
Office and administration | 26,567 | 24,901 | ||||||
Research and development | 38,067 | 54,743 | ||||||
Amortization expense | — | 34,050 | ||||||
Total Operating Expenses | 201,716 | 249,425 | ||||||
Operating loss | (201,716 | ) | (249,425 | ) | ||||
Other Income (Expenses) | ||||||||
Interest expense | — | (12,597 | ) | |||||
Total Other Income (Expenses) | — | (12,597 | ) | |||||
Net loss | $ | (201,716 | ) | $ | (262,022 | ) | ||
Other comprehensive income: | ||||||||
Foreign currency translation | — | 4,450 | ||||||
Comprehensive loss for the period | $ | (201,716 | ) | $ | (257,572 | ) | ||
Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.01 | ) | ||
Weighted average number of shares outstanding | 19,667,698 | 18,905,485 |
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)
Accumulated | ||||||||||||||||||||||||
Common Stock | Additional Paid-in | Other Comprehensive | Retained | |||||||||||||||||||||
Shares | Amount | Capital | Income | Deficit | Total | |||||||||||||||||||
Balance, May 31, 2016 | 18,228,882 | $ | 18,229 | $ | 1,993,451 | $ | 52,747 | (3,695,626 | ) | $ | (1,631,199 | ) | ||||||||||||
Net Loss for the Year | (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 | ) | |||||||||||
Net Loss for the Year | (201,716 | ) | (201,716 | ) | ||||||||||||||||||||
Balance, May 31, 2018 | 19,667,698 | $ | 19,668 | $ | 2,682,303 | $ | 57,197 | $ | (4,159,364 | ) | $ | (1,400,196 | ) |
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, | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (201,716 | ) | $ | (262,022 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Amortization | — | 34,050 | ||||||
Changes in operating assets and liabilities: | ||||||||
Increase (decrease) in accounts payable and accrued liabilities – related party | 119,121 | 98,384 | ||||||
Increase (decrease) in accounts payable and accrued liabilities | 11,640 | (853 | ) | |||||
Increase (decrease) in accrued interest | — | 12,056 | ||||||
Cash Flows used in operating activities | (70,955 | ) | (118,385 | ) | ||||
Cash flows used in investing activities | — | — | ||||||
Cash Flows from Financing Activities | ||||||||
Cash from Loans Payable | 69,784 | — | ||||||
Cash Received for common shares | — | 121,941 | ||||||
Cash flows provided by financing activities | 69,784 | 121,941 | ||||||
Effect of exchange rate changes on cash | — | (1,928 | ) | |||||
Increase (decrease) in cash during the year | (1,171 | ) | 1,628 | |||||
Cash, beginning of year | 8,779 | 7,151 | ||||||
Cash, end of year | $ | 7,608 | $ | 8,779 | ||||
Supplemental Disclosure: | ||||||||
Cash paid for income taxes | $ | — | $ | — | ||||
Cash paid for interest | $ | — | $ | — | ||||
Non-cash investing and financing activities: | ||||||||
Accounts payable related party converted to loan | $ | — | $ | 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
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
May 31, 20182021 and 20172020
Note 1 – SummaryOrganization and Description of significant accounting policiesBusiness
This summary of significant accounting policies of PreAxia Health Care Payment Systems Inc. (the “Company”) is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements, which are stated in U.S. Dollars.
Organization
PreAxia Health Care Payment Systems Inc. (the “Company” or “PreAxia”) was incorporated on April 3, 2000 in the State of Nevada. On May 31, 2005 the Company acquired all of the outstanding stock of Tiempo de Mexico Ltd. (“Tiempo”) in exchange for 5,000,000 shares of the common stock of the Company with a par value of $0.001. The Company had no operations prior to the date of the aforementioned acquisition.
As a result, the consolidated results of operations presented at May 31, 2018 and 2017 are those
The business 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, 2018 and 2017
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.
UseCOVID-19
The recent outbreak of Estimatesthe 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 as 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 understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements, which are stated in U.S. Dollars.
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 contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the year ended May 31, 2021, the Company incurred a net loss of $163,193 and used cash in operating activities of $35,717, and at May 31, 2021, had a stockholders’ deficit of $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 develop 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 or a source of revenue sufficient to cover its operating costs and allow it to continue 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 administrative costs.
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. Even if the Company is able to obtain additional financing, 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.
F-6 |
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
Use of Estimates
The preparation of 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. Although 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.
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.
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:
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2018 and 2017
Foreign Currency Translation(continued)
i) assets and liabilities are translated at the closing rate at the date of the balance sheet or 1USof 1.00 US Dollar=1.29581.2067 Canadian Dollars (May 31, 2018)2021), and;
1US1.00 USD Dollar=1.34950.7039 GBP, and 1.00 US Dollar = 1.3772 Canadian Dollars (May 31, 2017)2020);
ii) income and expenses are translated at average exchange rates for twelve monthsyear ended May 31, or
1US Dollar=1.28512021 of 1.00 US Dollar = 1.2398 Canadian Dollars and 1.00 US Dollar = 1.3992 Canadian Dollars (May 31, 2018), and;2020);
1US Dollar=1.2973 Canadian Dollars (May 31, 2017);
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.
Gain
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 10,587,600 shares of potential common stock equivalents for convertible note payable – related party outstanding as of May 31, 20182021 and 2017, 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
For
During the years ended May 31, 2018,2021 and 2017,2020, we expended $38,067incurred $8,219 and $54,743 on$11,614, respectively, in research and development.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 has capitalizedwill 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 have beenare capitalized under the same criteria as our marketed software.
Intangible software costs were amortized over a three year period starting June 2014. Amortization for the years ended May 31, 2018 and 2017 was $ nil and $34,050, respectively.
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2018 and 2017
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
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, 2018. 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.
F-8 | |
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2018 and 2017
New Accounting Standards
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.
OtherNote 4 – Related Party Transactions
The Company has selected
Accounts Payable and Accrued Liabilities - Related Parties
As of May 31, as its year-end2021 and the Company paid no dividends in 2018.
Going Concern
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern, which assumes that the Company will be able to meet its obligations2020, accounts payable and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets andaccrued liabilities should the Company be unable to continue as a going concern. At May 31, 2018, the Company had not yet achieved profitable operations, has accumulated losses of $4,159,364 since inception, has negative working capital of $1,400,196 and expects to incur further losses in the development of its business, all of which raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but believes the Company will be able to obtain additional funds by equity financing and/or– related party advances, however there is no assurance of additional funding being available.
Note 2–Related Party Transactions
Accounts Payable
due to Tom Zapatinas totaled $429,121 and $309,121, respectively. During the yearyears ended May 31, 2018, the Company’s president,2021 and 2020, Tom Zapatinas, invoicedthe Chief Executive Officer and Director of the Company, earned $120,000 and $120,000, respectively, for managementconsulting services renderedprovided to the Company. On October 29, 2019, the Company forissued 100,000 shares of common stock of the period June 1, 2017Company to settle accounts payable and accrued liabilities– related party with a carrying value of $50,000 (Note 6).
Advances – Related Party
As of May 31, 2018. As at2021 and 2020, advances payable due to Tom Zapatinas totaled $37,696 and $9,810, respectively. During the years ended May 31, 2018, Accounts2021 and 2020, Tom Zapatinas, the Chief Executive Officer and a Director of the Company, advanced the Company $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, 2021 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, 2021 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 off $119,121 due and payable to Mr. Zapatinas. The balance as at May 31, 2017 was $ nil representing an increase of $119,121 over the prior year.
The Accounts Payable Related Party was converted to a Note Payable Related Party in the amount of $1,058,760 on May 31, 2017.is due to Tom Zapatinas, the Chief Executive Officer and a Director of the 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, 2018, the Company owed loan holders $87,064 compared to $17,280 as at May 31, 2017. During the year ended May 31, 2017, the Company issued 775,908 shares of common stock to retire $387,954 of debt.
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2018 and 2017
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, 2018 and 2017, the Company had accrued interest on the related party loan in the amount of $0 and $19,524, respectively.
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.
Note 3 – Income Taxes
As at May 31, 2018,2021, the Company is in arrears on filing its statutory income tax returns. Tax years 2008 through 20182020 are open for examination by taxing authorities. The Company has incurred substantial net operating losses of approximately $3,919,000$4,090,000 since January 28, 2008 (Date of Inception).
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. We have remeasured our U.S. deferred tax assets at a statutory income tax rate of 21%. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of any transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax positions. We expect to complete our analysis within the measurement period in accordance with SAB 118, and no later than fiscal year end May 31, 2019.
The Company’s deferred tax assets and liabilities consist primarily of the following:
2018 | 2017 | |||||||
Net operating losses – U.S. parent: | ||||||||
Amount carried forward from prior years | $ | (1,389,099 | ) | $ | (1,340,812 | ) | ||
Net operating losses (34% tax rate) | (68,583 | ) | (89,087 | ) | ||||
Accrued management compensation | 40,800 | 40,800 | ||||||
Total | (1,416,883 | ) | (1,389,099 | ) | ||||
Change in effective tax rates (from 34% to 21%) | 593,817 | — | ||||||
Deferred taxes – U.S. Parent | (823,066 | ) | (1,389,099 | ) | ||||
Net operating losses – Canadian subsidiary: | ||||||||
Amount carried forward from prior years | (31,760 | ) | (31,760 | ) | ||||
Net operating losses | — | — | ||||||
Deferred taxes – Canadian subsidiary | (31,760 | ) | (31,760 | ) | ||||
Total deferred tax assets | (854,826 | ) | (1,420,859 | ) | ||||
Less: valuation allowance | 854,826 | 1,420,859 | ||||||
Total net deferred tax assets | $ | — | $ | — |
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Net operating losses – U.S. parent: |
|
|
|
|
|
| ||
Amount carried forward from prior years |
| $ | (850,254 | ) |
| $ | (839,404 | ) |
Net operating losses (21% tax rate) |
|
| (34,270 | ) |
|
| (36,050 | ) |
Accrued management compensation |
|
| 25,200 |
|
|
| 25,200 |
|
Total |
|
| (859,324 | ) |
|
| (850,254 | ) |
|
|
|
|
|
|
|
|
|
Deferred taxes – U.S. Parent |
|
| (859,324 | ) |
|
| (850,254 | ) |
Net operating losses – Canadian subsidiary: |
|
|
|
|
|
|
|
|
Amount carried forward from prior years |
|
| (31,760 | ) |
|
| (31,760 | ) |
Net operating losses |
|
| 0 |
|
|
| 0 |
|
Deferred taxes – Canadian subsidiary |
|
| (31,760 | ) |
|
| (31,760 | ) |
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
| (891,084 | ) |
|
| (882,014 | ) |
Less: valuation allowance |
|
| 891,084 |
|
|
| 882,014 |
|
Total net deferred tax assets |
| $ | 0 |
|
| $ | 0 |
|
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2018 and 2017
During the years ended May 31, 20182021 and 2017,2020, the change in valuation allowance was a decreasean increase of $566,033$9,070 in 20182021 and an increase of $257,571$10,850 in 2017, respectively.2020.
F-9 |
The Company has no tax positions at May 31, 20182021 and 20172020 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company recognizes interest accrued related to unrecognized 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, 20182021 and 2017.2020.
Note 46 – Stockholders’ Deficit
Common Stock
The Company is authorized to issue up to
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 year ended May 31, 2017 the Company issued 1,438,816 shares of which 875,908 shares were for the reduction ofto settle accounts payable and accrued liabilities– related party and notes payable, in the amountwith a carrying value of $514,921 and 562,908 shares for $155,846 in cash received, 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-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.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based upon this evaluation, the Chief Executive Officer concluded that, as of May 31, 2018,2021, 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, 2018.2021. 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, 2018,2021, 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 2018.
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.
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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 offences); | |
3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or | |
4. | being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. | |
5. | being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
6. | being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a) (26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a) (29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
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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
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 accounting and the Corporation’s auditing, accounting and financial reporting 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 of the Committee may designate a Chair by a majority vote 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&A and any reports or other financial information (including quarterly financial statements), which are submitted to any governmental body, or to the public, including any certification, report, opinion, or review rendered by the external |
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. |
(b) | Obtain annually, a formal written statement of the external auditors setting forth all relationships between the external auditors and the Corporation, consistent with PCAOB Rule 3526. |
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