Preaxia was incorporated in the State of Nevada on April 3, 2000. On December 11, 2008, the Nevada Secretary of State effected a name change and the approval ofwhich had been previously approved by the majority of the stockholders on October 28, 2008. The CompanyPreAxia is currently trading under the symbol PAXH on the Over-the-Counter-Bulletin-Board as the date of this filing.

Our company undertakes all of its operations through its wholly-owned subsidiary, PreAxia Health Care Payment Systems Inc. (“PreAxia Canada”- formerly H Pay Card Inc). PreAxia Canada, prior to being acquired by PreAxia, was a private corporation incorporated pursuant to the Lawslaws of the Province of Alberta on January 28, 2008.

PreAxia and PreAxia Canada are both development stage companies. PreAxia Canada is a company which intends to deliver a comprehensive suite of solutions and services directed at the emerging health payment market, specifically the opportunities tied to the growth of health spending accounts (“HSA”). There is a rapid shift in healthcare traditional payment models to consumer-directed healthcare that is creating significant opportunities for financial services and insurance industries to deliver new dynamic products to this emerging market.

Spawned by the need to address escalating health care costs, changes in the regulatory environment and the growing consumer desire for greater participation in the management of their health benefits, the boundaries between health care and the financial services industries are becoming increasingly blurred. With the trend towards self-directed health payment solutions and the growing demand for faster, easier and more convenient benefit services, the insurance and benefits industries are banking on HSA medical payments being their next big growth conduit. Studies suggest that HSAs in the US will grow to over $75 billion in assets and 25 million consumers by 2015. This coupled with the continued growth of the Canadian group insurance industry illustrates the emerging opportunity for innovative health payment services. We intend to initially launch our products in Canada. We

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believe that Canadian businesses are embracing a new healthcare financing vehicle to control costs, increase profitability and get more return from their investment. We intend to provide them with services to capture this market opportunity.

A HSA can operate like a bank account; plan members start each plan year with a certain number of dollar credits in their HSA; throughout the year, those credits may be used to pay for certain medical, vision and dental expenses. The credits can be used to top up existing group coverage by covering residual amounts on prescription drugs, eyeglasses and hearing aids or to pay for medical, vision and dental expenses that otherwise may not be covered under the group benefit plan. Traditional health plan users pay premiums into a plan but do not see a return on money unless there is an issue with their health. In addition, most plans are established so that monies deposited into a plan by an employee are non-transferable upon the employee’s change of employment.

Services and infrastructure provided by PreAxia will enable insurance companies, governments and corporations to replace cash and cheque payments. The CompanyOur company plans are to provide instant issuing services that enable corporations to issue and fund Pre-Paid Interac or credit card services to beneficiaries in real time. The beneficiary will select a personal identification number (“PIN”) using a PIN and card activation terminal, thus gaining instant access to funds that can be reloaded.

PreAxia is in the process of developing a platform for processing and managing accounts and payment cards, including cardholder and customer account management, reconciliation and financial settlement, and customer reporting.

PreAxia is in the process of developing software systems for the issuing of health payment cards and financial transaction processing services that will be fully managed by a data center. Products and services will include:

PreAxia’s overall strategy is to finalize development of and market its health care payment cards and system. Our Companycompany will target enterprise-sized, public and private sector customers at the provincial and national levels. We will seek opportunities with lead customers and alliance partners to establish referenceable,reference-able, high-profile implementations and market-leading, early-adopter firms for further developing innovative products and services.

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Our Companycompany intends to design solutions targeted towards corporate financial management, financial risk, audit management and cash management and target product/service management as a support to financial management.

Prime targets will be organizations that make a significant number of payments to individuals by way of cheques or serve individuals with limited or no access to bank accounts. PreAxia’s products will replace the usage of cheques for people who prefer electronic delivery of funds through a multi-functional Interac or major credit card and generate cost savings benefits and increased efficiencies for its clients.

PreAxia intends to achieve service volume and the associated economies of scale through marketing directly to select target customers that provide the necessary transaction volumes, and through market specific channel partners. The channel strategy is supported in the solution design, as multiple channel partners will require branding and the Company’sour company’s fee charging/collection capabilities.

It is the Company’sour company’s intention to sell through multi-tiered, value-added resellers. For example, the Health Card solution may be provided by a subcontract to a leading vendor that rebrands and adds value to the solution. The leading vendor in turn may form part of a larger professional services systems integration engagement with the customer. One example of this approach is that a major bank may lead on selling the Company’sour company’s solution to medical insurance companies and the health care industry under our product brand.

PreAxia has identified the following “channels” through which it will target prime end market customers:

PreAxia intends to offer a combination of products and services in its solution. However, there are other providers of components or versions of the Health Card value proposition in the marketplace. Our Companycompany is taking a different approach by providing a high value added and robust capability within specific target markets, rather than the “one size fits all” and mass volume approach of the larger companies in the Canadian and international market. The following are some of the leading providers of products and services that are or may be potential competitors in PreAxia’s target markets:

• Pay Linx Financial Corporation is presently inactive, but was a company offering prepaid debit card payment solutions that integrated into the Interac and MasterCard financial networks in North America. Pay Linx Financial Corporation was presently 27.0% owned by Royal Bank of Canada and provided services to Royal Bank of Canada for Canadian governments throughQuickLinxTM,replacing cheque and voucher payments.

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• DirectCash Income Fund offers prepaid debit and credit cards and processes cash card transactions. In addition, DirectCash Income Fund provides ATM and debit terminal transaction processing, sales and maintenance.

• CardOne Plus Ltd. offers prepaid debit card products designed to support merchant specific programs, including card graphics and merchant account management. These products are certified for acceptance on multiple card scheme and ATM networks.

• HyperWALLET Systems Inc. offers a product offering “flexible debit card payment solutions” through Alterna Savings, HSBC and the Credit Union Central of British Columbia, Canada. It also offers pre- authorized debit, credit card, EFT and bill payment services.

• NextWave Wireless Inc. is a joint venture between Money Mart and DataWave Systems Inc., established to provide card issuance solutions including prepaid debit and credit cards. ”Nextwave Titanium” prepaid cards issued by Money Mart support loading from Money Mart transactions, such as cheque cashing, bill payment and ATM cash withdrawal.

• DataWave Systems Inc. provides prepaid card products for scheme cards as well as prepaid phone cards and prepaid wireless airtime. It offers “instant activation” through retail point of sale (“POS”) terminals. DataWave Systems Inc is owned by InComm, a global provider of prepaid services. DataWave Systems Inc. also powers the Peoples Trust Company’s card service initiative, “HorizonPlus”, which is the contracted provider of “Titanium” card services.

International Market:

When negotiating its arrangements with clients, PreAxia willintends to ensure that all rights to and ownership of its intellectual property remains with our Company.  Sourcecompany. We anticipate that source codes or other proprietary knowledge will be protected through agreements entered into between PreAxia and its employees and contractors, and additional high standards of confidentiality and protection of data are set by clients and regulatory authorities within the industry.

At present, PreAxia does not have any pending or registered patents or any trademarks.

For the year ended May 31, 2009,2010, we have not expended any funds$355,856 on research and development.   For thedevelopment compared to $Nil during year ended May 31, 2008 we had expended $10,770 on Research and Development.

PreAxia has one full-time consultant, our President, Mr. Tom Zapatinas. Subsequent to the May 31, 2009 year end, the Company signed a newWe entered into an employment agreement effective July 1, 2009 with an employee for the position of Chief Marketingchief marketing and Privacy Officer.privacy officer. We anticipate that we will hire additional key staff throughout 20092010 in areas of Administration/Accounting, Business Development, Operations, Sales/Marketing,administration/accounting, business development, operations, sales/marketing, and Research/Development.

We are in the early stages of development and face risks associated with a new company in a growth industry. We may not successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire investment. Even if we accomplish these objectives, we may not generate positive cash flows or the profits we anticipate in the future.

Our ability to continue our present operations will be dependent upon our ability to obtain significant external funding. Additional sources of funding have not been established. We are exploring various financing alternatives. There can be no assurance that we will be successful in securing such financing at acceptable terms, if at all. If adequate funds are not available from the foregoing sources, or if we determine it is to otherwise be in our best interests, we may consider additional strategic financing options, including sales of assets.

The financial services technology industry involves a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The success of PreAxia is dependent on the services of its senior management. The experience of these individuals will be a factor contributing to the Company’sour company’s continued success and growth. The loss of one or more of its key employees could have a material adverse effect on our operations and business prospects. In addition, PreAxia'sPreAxia’s future success will depend in large part on its ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. There can be no assurance that the Companyour company will be successful in attracting and retaining such personnel and the failure to do so could have a material adverse effect on the Company'sour company’s business, operating results and financial condition.

In order to accelerate PreAxia'sPreAxia’s growth objectives, it will need to raise additional funds from lenders and equity markets in the future. There can be no assurance that the Companyour company will be able to raise additional capital on commercially reasonable terms to finance its growth objectives. The ability of the Companyour company to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as the business performance of the Company.our company. There can be no assurance that PreAxia will be successful in its efforts to arrange additional financing on terms satisfactory to our Company.company. If additional financing is raised by the issuance of shares of common stock of the Company,our company, control of the Companyour company may change and stockholders may suffer additional dilution.

There can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against PreAxia or that any such assertions or prosecutions will not materially adversely affect the Company'sour company’s business, financial condition or results of operations. Irrespective of the validity or the successful assertion of such claims, the Companyour company could incur significant costs and diversion of resources with respect to the defense thereof which could have a material adverse effect on the Company'sour company’s business, financial condition or results of operations. The Company'sOur company’s performance and ability to compete are dependent to a significant degree on its proprietary technology. There can be no assurance that the steps taken by the Companyour company will prevent misappropriation of its technology or that agreements entered into for that purpose will be enforceable. The laws of other countries may afford the Companyour company little or no effective protection of its intellectual property. The CompanyOur company may in the future also rely on technology licenses from third parties. There can be no assurance that these third party licenses will be, or will continue to be, available to the Companyour company on commercially reasonable terms. The loss of, or inability of the Companyour company to maintain, any of these technology licenses could result in delays in completing its product enhancements and new developments until equivalent technology could be identified, licensed, or developed and integrated. Any such delays would materially adversely affect PreAxia'sPreAxia’s business, results of operations and financial condition.

PreAxia may not be able to compete successfully against current and future competitors, and the competitive pressures PreAxia faces could harm its business and prospects. Broadly speaking, the market for financial services technology is competitive. There are other providers of components or versions of the Health Card value proposition in the marketplace. Additionally, the level of competition is likely to increase as current competitors improve their product offerings and as new participants enter the market. Many of PreAxia’s current and potential competitors have longer operating histories, larger customer bases, greater name and brand recognition and significantly greater financial, sales, marketing, technical and other resources than PreAxia.

Additionally, these competitors have research and development capabilities that may allow them to develop new or improved products that may compete with products PreAxia markets and distributes. New technologies and the expansion of existing technologies may also increase competitive pressures on PreAxia. Increased competition may result in reduced operating margins as well as loss of market share. This could result in decreased usage of PreAxia'sPreAxia’s products and may have a material adverse effect on PreAxia'sPreAxia’s business, financial condition and results of operations.

Most of PreAxia'sPreAxia’s customers will be in a testing or preliminary stage of utilizing PreAxia'sPreAxia’s products and may encounter delays or other problems in the introduction of PreAxia'sPreAxia’s products. A decision not to do so, or a delay in implementation, could result in a delay or loss of related revenue or could otherwise harm PreAxia'sPreAxia’s businesses and prospects. PreAxia will not be able to predict when a customer that is in a testing or a preliminary use phase will adopt a broader use of PreAxia'sPreAxia’s products.

PreAxia’s revenue will depend on the number of customers who use PreAxia'sPreAxia’s products. Accordingly, the satisfactory design of PreAxia'sPreAxia’s product is critical to PreAxia'sPreAxia’s business, and any significant product design limitations or deficiencies could harm PreAxia'sPreAxia’s business and market acceptance. This limited feedback may not have resulted in an adequate assessment of customer requirements. Therefore, the currently specified features and functionality of PreAxia'sPreAxia’s product may not satisfy current or future customer demands. Furthermore, even if PreAxia identifies the feature set required by customers in PreAxia'sPreAxia’s market, it may not be able to design and implement products incorporating features in a timely and efficient manner, if at all.

The market for PreAxia'sPreAxia’s product is relatively new and continues to evolve. If the market for PreAxia'sPreAxia’s product fails to develop and grow, or if PreAxia'sPreAxia’s product does not gain market acceptance, PreAxia'sPreAxia’s business and prospects will be harmed.

PreAxia’s growth and marketing strategies are based, in part, on seeking out and forming strategic alliances and working relationships, as well as the performance of such strategic alliances and working relationships. General criteria to be used to assess potential alliances include the following: industry expertise, reputation and market position, complementary technologies or products, and nature and adequacy of resources.

Difficulties in product design, performance and reliability could result in lost revenue, delays in customer acceptance of PreAxias'sPreAxias’s products, and/or lawsuits, and would be detrimental, perhaps materially, to PreAxia'sPreAxia’s market reputation. Serious defects are frequently found during the period immediately following the introduction of new products or enhancements to existing products. Undetected errors or performance problems may be discovered in the future. Moreover, known errors which PreAxia considers minor may be considered serious by its customers. If PreAxia'sPreAxia’s internal quality assurance testing or customer testing reveals performance issues and/or desirable

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feature enhancements, PreAxia could postpone the development and release of updates or enhancements to its current product or the release of new products. PreAxia may not be able to successfully complete the development of planned or future products in a timely manner, or to adequately address product defects, which could harm PreAxia'sPreAxia’s business and prospects. In addition, product defects may expose PreAxia to liability claims, for which PreAxia may not have sufficient liability insurance. A successful suit against PreAxia could harm its business and financial condition.

PreAxia may be subject to growth-related risks, including capacity constraints and pressure on its internal systems and controls. PreAxia'sPreAxia’s ability to manage its growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The inability of PreAxia to deal with this growth could have a material adverse impact on its business, operations and prospects. PreAxia may experience growth in the number of its employees and the scope of its operating and financial systems, resulting in increased responsibilities for PreAxia'sPreAxia’s personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage its current operations and any future growth effectively, PreAxia will also need to continue to implement and improve its operational, financial and management information systems and to hire, train, motivate, manage and retain its employees. There can be no assurance that PreAxia will be able to manage such growth effectively, that its management, personnel or systems will be adequate to support PreAxia'sPreAxia’s operations or that PreAxia will be able to achieve the increased levels of revenue commensurate with the increased levels of operating expenses associated with this growth.

PreAxia has not earned any profits to date and there is no assurance that it will earn any profits in the future, or that profitability, if achieved, will be sustained. A significant portion of PreAxia’s financial resources will continue to be directed to the development of its products and to marketing activities. The success of PreAxia will ultimately depend on its ability to generate revenues from its product sales, such that the business development and marketing activities may be financed by revenues from operations instead of external financing.

There is no assurance that future revenues will be sufficient to generate the required funds to continue such business development and marketing activities.

Certain proposed directors and officers of PreAxia may become associated with other reporting issuers or other corporations which may give rise to conflicts of interest. Directors who have a material interest or any person who is a party to a material contract or a proposed material contract with PreAxia are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors are required to act honestly, and in good faith, with a view to the best interests of PreAxia, as the case may be. Certain of the directors may have, either other employment, other business, or time restrictions placed on them and accordingly, these directors will only be able to devote part of their time to the affairs of PreAxia.

PreAxia does not currently have key man insurance in place in respect of any of its senior officers or personnel.

It is our current intention to engage in and evaluate a wide array of potential strategic transactions, including acquisitions of companies, businesses, intellectual properties, and other assets. As of the date of filing of this Annual Report on Form 10-K, we have not yet identified any such strategic transactions. Any of these strategic transactions could be material to our financial condition and results of operations. In our search for opportunities to engage in strategic transactions, we may not be successful in identifying suitable opportunities. We may not be able

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to consummate potential acquisitions or investments, or an acquisition or investment may not enhance our business or may decrease rather than increase our earnings. In addition, the process of integrating an acquired company or business, or successfully exploiting acquired intellectual property or other assets, could divert a significant amount of our management’s time and focus and may create unforeseen operating difficulties and expenditures.

Additional risks we may face include:

• The need to implement or remediate controls, procedures and policies appropriate for a public company in an acquired company that, prior to the acquisition, lacked these controls, procedures and policies;

• Cultural challenges associated with integrating employees from an acquired company or business into our organization;

• Retaining key employees from the businesses we acquire, and

• The need to integrate an acquired company’s accounting, management information, human resource and other administrative systems to permit effective management.

Future acquisitions and investments could involve the issuance of our equity securities, potentially diluting our existing stockholders, the incurrence of debt, contingent liabilities or amortization expenses, write-offs of goodwill, intangibles, or acquired in-process technology, or other increased expenses, any of which could harm our financial condition. Our stockholders may not have the opportunity to review, vote on or evaluate future acquisitions or investments.

The timing of the release of health care payments processing products and services can cause material quarterly revenue and earnings fluctuations. A significant portion of revenue in any quarter may be derived from sales of products and services introduced in that quarter or established in the immediately preceding quarter. If we are unable to begin to generate sales of products and services during the scheduled quarter, our revenue and earnings will be negatively affected in that period. Quarterly operating results also may be materially impacted by factors, including the level of market acceptance, or demand for health payment processing products and services and the level of development and/or promotion expenses for health payment processing products and services. Consequently, if net revenue in a period is below expectations, our operating results and financial position in that period are likely to be negatively affected, as has occurred in the past.

Our common stock is currently quoted for trading on Over the CounterOTC Bulletin Board. Trading in stock quoted on the OTC Bulletin Board (OTCBB) under the symbol PAXH.OB where we expect itis often thin and characterized by wide fluctuations in trading prices, due to remain in the foreseeable future.  Broker-dealers often declinemany factors that may have little to trade in OTCBB stocks givendo with our operations or business prospects. This volatility could depress the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater.  These factors may reduce the potential market forprice of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a stock exchange like NASDAQ or NYSE. Accordingly, shareholders may have difficulty reselling any of the shares.

A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current

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operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.

Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our shareholders will not be able to receive a return on their shares unless they sell them.

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them.

Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the numberlevel of potential investors.  Thistrading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for investors inbroker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell shares to third parties or to otherwise dispose of their shares.  This could cause our stock price to decline.

Our common stock is presentlynot traded on any exchange. Our common stock is quoted on the Over the CounterOTC Bulletin Board (OTCBB) under the trading symbol “PAXH” (formerly “SUWO”)“PAXH.OB”.

OTC Bulletin Board securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTC Bulletin Board securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTC Bulletin Board issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.

Following is a report of high and low bid prices for quarter ended May 31, 2008 and for each quarterly period for the yearyears ended May 31, 2009.

We have not declared or paid any cash dividends on shares of our common stock and have no intention of paying anywe do not expect to declare or pay dividends on the shares of our common stock.  Our current policy isstock for the foreseeable future. We intend to retain earnings, if any, for use in our operationsto finance the development and in the developmentexpansion of our business. Our future dividend policy will be determined from timesubject to timethe discretion of our board of directors and will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by our Board of Directors.

We adopted and approved our current stock option plan on January 28, 2010. The Company does not have any securities authorizedfollowing 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 under equity compensation plans.all as at May 31, 2010.

Not applicable.

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F-2

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Child, Van Wagoner & Bradshaw, PLLC

Certified Public Accountants

5296 S. Commerce Dr. #300

Salt Lake City, Utah 84107

Telephone 801.281.4700

Facsimile 801.281.4701

Report of Independent Registered Public Accounting Firm

To the Board of Directors

PreAxia Health Care Payment Systems  Inc.

We have audited the consolidated  balance sheets of PreAxia Health Care Payment Systems Inc. (the Company) as of May 31, 2009 and 2008, and the related consolidated  statements of operations and comprehensive  loss, stockholders’ equity (deficit) and cash flows for the year ended May 31, 2009 ,  for the period from January 28, 2008 (date of inception) through May 31, 2008, and for the period from January 28, 2008 (date of inception) through May 31, 2009.  These consolidated  financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 31, 2009 and 2008, and the results of its operations and its cash flows for the year ended May 31, 2009,  for the period from January 28, 2008 (date of inception) through May 31, 2008,  and for the period from January 28, 2008 (date of inception) through May 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

The accompanying  consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated  financial statements, the Company has suffered net losses since inception arising from its planned principle operations.  These factors raise substantial doubt about the Company’s ability to meet its obligations and to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1.  The consolidated  financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Child, Van Wagoner & Bradshaw, PLLC

Child, Van Wagoner & Bradshaw, PLLC

September 4, 2009

Salt Lake City, Utah

F-3

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

 (A

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

FINANCIAL STATEMENTS

May 31, 20092010 and 2008

2009

(Stated in U.S. Dollars)

US Dollars)

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		May 31, 2009				May 31, 2008
ASSETS
Current assets
Cash		$	23,593			$	86,574
Other receivable			712				-
Total current assets			24,305				86,574
Loan receivable (Note 5)			-				49,281
Total assets		$	24,305			$	135,855
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities		$	53,410			$	40,353
Accounts payable – related party (Note 6)			161,264				30,000
Loan payable – related party (Note 6)			25,898				12,530
Loans payable  (Note 7)			18,242				25,000
Convertible debenture including accrued interest, net discount (Note 8)			41,711				-
Total liabilities			300,525				107,883
STOCKHOLDERS’ EQUITY (DEFICIT)
Capital stock; $0.001 par value; 75,000,000 common shares authorized; 15,750,000 common shares issued and outstanding for May 31, 2009 and 2008			15,750				15,750
Additional paid-in capital			65,464				36,969
Accumulated other comprehensive income			143				(395	)
Deficit accumulated during the development stage			(357,577	)			(24,352	)
Total stockholders’ equity (deficit)			(276,220	)			27,972
Total liabilities and stockholders’ equity (deficit)		$	24,305			$	135,855

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To The Board of Directors Preaxia Health Care Payment Systems, Inc. Salt Lake City, Utah We have audited the accompanying consolidated balance sheets of Preaxia Health Care Payment Systems, Inc. (the Company) and subsidiary as of May 31, 2010 and 2009, and the related consolidated statements of operations and comprehensive income, statements of stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Preaxia Health Care Payment Systems, Inc. and subsidiary as of May 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a deficit working capital, a retained deficit, and has suffered recurring losses from operations. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Child, Van Wagoner, & Bradshaw, LLC Salt Lake City, Utah September 14, 2010

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

May 31, 2010 and May 31, 2009

		May 31,			May 31,
		2010			2009
ASSETS
Current assets
Cash	$	4,047		$	23,593
Other receivables		-			712
Rent deposit		1,205			-
Total current assets	$	5,252		$	24,305
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities	$	133,476		$	53,410
Accounts payable – related party (Note 3)		352,930			161,264
Loan payable – related party (Note 3)		26,248			25,898
Loans payable (Note 4)		332,073			18,242
Accrued interest – loans payable		6,418			-
Convertible debenture including accrued interest, net of discount (Note 5)		54,481			41,711
Total current liabilities		905,626			300,525
STOCKHOLDERS’ DEFICIT
Capital stock, $0.001 par value
75,000,000 common shares authorized      15,870,000 and 15,750,000 common shares issued and outstanding for       May 31, 2010 and May 31, 2009, respectively		15,870			15,750
Additional paid-in capital		185,344			65,464
Accumulated other comprehensive income		933			143
Deficit accumulated during the development stage		(1,102,521	)		(357,577	)
Total stockholders’ deficit		(900,374	)		(276,220	)
Total liabilities and stockholders’ deficit	$	5,252		$	24,305

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

F-4

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

 (A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

for the Year Ended May 31, 2009 and for the Period from January 28, 2008 (Date of Inception) through May 31, 2008 and the Period from January 28, 2008 (Date of Inception) through May 31, 2009

(Stated in U.S. Dollars)

		For the year ended May 31, 2009				January 28, 2008 (Date of Inception) through May 31, 2008				January 28, 2008 (Date of Inception) Through May 31, 2009
Expenses
Amortization of debt discount		$	20,376			$	-			$	20,376
Consulting fees			203,689				-				203,689
Professional fee			71,532				-				71,532
Office and administration			34,919				13,582				48,501
Research and development			-				10,770				10,770
Operating loss			(330,516	)			(24,352	)			(354,868	)
Interest Income			616				-				616
Interest Expense			(3,325	)			-				(3,325	)
Net loss			(333,225	)			(24,352	)			(357,577	)
Other comprehensive income (loss):
Foreign currency translation adjustment			538				(395	)			143
Comprehensive loss for the period		$	(332,687	)		$	(24,747	)		$	(357,434	)
Basic and diluted loss per share		$	(0.02	)		$	(0.00	)
Weighted average number of shares outstanding			15,750,000				12,030,242

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

for the years ended May 31, 2010 and May 31, 2009 and

the period from January 28, 2008 (Date of Inception) through May 31, 2010

Stated in U.S. Dollars

								January 28,
								2008 (Date of
		For the year ended			For the year ended			Inception) to
		May 31,			May 31,			May 31,
		2010			2009			2010
Expenses
Amortization of debt discount	$	8,119		$	20,376		$	28,495
Consulting fees		120,000			203,689			323,689
Professional fees		87,808			71,532			159,340
Office and administration		60,396			34,919			108,897
Research and development		355,856			-			366,626
Wages and benefits		92,468			-			92,468
Rent		13,879			-			13,879
Operating loss		(738,526	)		(330,516	)		(1,093,394	)
Interest income		-			616			616
Interest expense		(6,418	)		(3,325	)		(9,743	)
Net loss		(744,944	)		(333,225	)		(1,102,521	)
Other comprehensive income:
Foreign currency translation adjustment		790			538			933
Comprehensive loss for the year	$	(744,154	)	$	(332,687	)	$	(1,101,588	)
Basic and diluted loss per share		(0.05	)		(0.02	)
Weighted average number of shares outstanding		15,799,534			15,750,000

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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F-5

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

STATEMENTS OF STOCKHOLDER’S DEFICIT

Consolidated for the period from January 28, 2008 (Date of Inception) to May 31, 2010

Stated in U.S.Dollars

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

 (A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

for the Period from January 28, 2008 (Date of Inception) to May 31, 2009

(Stated in U.S. Dollars)

																																						Deficit
																										Common Stock									Accumulated			Accumulated
																		Deficit														Additional			Other			During the
														Accumulated				Accumulated														Paid-in			Comprehensive			Development
										Additional				Other				During the								Shares			Amount			Capital			Income			Stage			Total
		Common Stock								Paid-in				Comprehensive				Development
		Shares				Amount				Capital				Loss				Stage				Total
Balance, January 28, 2008			-			$	-			$	-			$	-			$	-			$	-			-		$	-		$	-		$	-		$	-		$	-
Capital stock issued:
Common shares issued pursuant to share exchange agreements- at $0.001			12,000,000				12,000				-				-				-				12,000
Pursuant to recapitalization- at $0.001			3,750,000				3,750				36,969				-				-				40,719
Common shares issued pursuant to share exchange agreements																										12,000,000			12,000			-			-			-			12,000
Pursuant to recapitalization																										3,750,000			3,750			36,969			-			-			40,719
Foreign currency translation adjustment			-				-				-				(395	)			-				(395	)		-			-			-			(395	)		-			(395	)
Net loss for the period			-				-				-				-				(24,352	)			(24,352	)
Net loss for the year																										-			-			-			-			(24,352	)		(24,352	)
Balance, May 31, 2008			15,750,000				15,750				36,969				(395	)			(24,352	)			27,972			15,750,000			15,750			36,969			(395	)		(24,352	)		27,972
Warrants issued with convertible debt			-				-				28,495				-				-				28,495			-			-			28,495			-			-			28,495
Foreign currency translation adjustment			-				-				-				538				-				538			-			-			-			538			-			538
Net loss for the year			-				-				-				-				(333,225	)			(333,225	)		-			-			-			-			(333,225	)		(333,225	)
Balance, May 31, 2009			15,750,000			$	15,750			$	65,464			$	143			$	(357,577	)		$	(276,220	)		15,750,000			15,750			65,464			143			(357,577	)		(276,220	)
Common shares issued for cash @ $1.00 per share																										120,000			120			119,880			-			-			120,000
Foreign currency translation adjustment																										-			-			-			790			-			790
Net loss for the period																										-			-			-			-			(744,944	)		(744,944	)
Balance, May 31, 2010																										15,870,000		$	15,870		$	185,344		$	933		$	(1,102,521	)	$	(900,374	)

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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F-6

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

 (A Development Stage Company)

 CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended May 31, 2009 and for the Period from January 28, 2008 (Date of Inception) through May 31, 2008 and for the Period from January 28, 2008 (Date of Inception) through May 31, 2009

(Stated in U.S. Dollars)

		May 31, 2009				January 28, 2008 (Date of Inception) through May 31, 2008				January 28, 2008 (Date of Inception) through May 31, 2009
Cash Flows From Operating Activities
Net loss		$	(333,225	)		$	(24,352	)		$	(357,577	)
Amortization of debt discount			20,376				-				20,376
Accrued interest			3,325				-				3,325
Tax refund receivable			(678	)			-				(678	)
Decrease (increase) in trade receivables			4,300								4,300
Increase (decrease) in accounts payable and accrued liabilities			140,021				-				140,021
Cash flows used in operating activities			(165,881	)			(24,352	)			(190,233	)
Cash Flows from Investing Activities
Cash received from note receivable			49,281				-				49,281
Cash acquired from business combination			-				86,692				86,692
Cash flow provided by investing activities			49,281				86,692				135,973
Cash Flows from Financing Activities
Proceeds from loan payable – related party			32,114				12,477				44,591
Proceeds from loan payable – convertible debenture			46,505				-				46,505
Repayment of loan payable			(25,000	)			-				(25,000	)
Proceeds from sale of common stock			-				12,047				12,047
Cash flows provided by financing activities			53,619				24,524				78,143
Effect of exchange rate on cash			0				(290	)			(290	)
Increase (decrease) in cash during the period			(62,981	)			86,574				23,593
Cash at beginning of period			86,574				-				-
Cash at end of period		$	23,593			$	86,574			$	23,593

Supplemental disclosure:
Non-cash transactions:
Common stock issued for acquisition of subsidiary		$	-			$	12,000		$	12,000

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

for the years ended May 31, 2010 and May 31, 2009 and

for the period from January 28, 2008 (Date of Inception) through to May 31, 2010

Stated in U.S. Dollars

								January 28,
								2008 (Date of
								Inception) to
		May 31,			May 31,			May 31,
		2010			2009			2010
Cash Flows from Operating Activities
Net loss	$	(744,944	)	$	(333,225	)	$	(1,102,521	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount		8,119			20,376			28,495
Accrued interest		11,069			3,325			14,394
Changes in operating assets and liabilities:
Decrease (increase) in tax refund receivable		736			(678	)		-
Decrease (increase) in trade receivables		-			4,300			4,300
Decrease (increase) in prepaid expenses		(1,205	)		-			(1,205	)
Increase in accounts payable – related party		191,666			-			191,666
Increase in accounts payable and accrued liabilities		80,066			140,021			220,087
Cash flows used in operating activities		(454,493	)		(165,881	)		(644,784	)
Cash Flows from Investing Activity
Cash received from note receivable		-			49,281			49,281
Cash acquired from business combination		-			-			86,692
Cash flow provided by investing activities		-			49,281			135,973
								��
Cash Flows from Financing Activities
Repayment of loan payable – related party		(736	)					(736	)
Proceeds from loan payable – related party		-			32,114			44,591
Proceeds from loan payable		313,831			-			313,831
Repayment of loan payable		-			(25,000	)		(25,000	)
Proceeds from loan payable – convertible debenture		-			46,505			46,505
Proceeds from sale of common stock		120,000			-			132,047
Cash flows provided by financing activities		433,095			53,619			511,238
Effect of exchange rate on cash		1,852			-			1,620
Increase (decrease) in cash during the period		(19,546	)		(62,981	)		4,047
Cash, beginning of period		23,593			86,574			-
Cash, end of period	$	4,047		$	23,593		$	4,047
Supplemental disclosure:
Non-cash transactions:
Common stock issued for acquisition of subsidiary	$	-		$	-		$	12,000

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

F-7

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

 (A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2009 and 2008

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2010 and 2009

Note 1-1 – Summary of Significant Accounting Policies

significant accounting policies

This summary of significant accounting policies of PreAxia Health Care Payment Systems Inc. (formerly Sun World Partners, Inc.) (the “Company”) is presented to assist in understanding the Company’s financial statements. The 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 principalsprinciples generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements, which are stated in U.S. Dollars.

Organization

PreAxia Health Care Payment Systems Inc. (the “Company” orOR “PreAxia”) was incorporated on April 3, 2000 in the State of Nevada. On May 31, 2005 the Company acquired all of the outstanding stock of Tiempo de Mexico Ltd. (“Tiempo”) in exchange for 5,000,000 shares of the common stock of the Company with a par value of $0.001. The Company had no operations prior to the date of the aforementioned acquisition.

On May 30, 2008, the Company finalized the execution of an acquisition agreement dated April 22, 2008 (the “Acquisition Agreement”) between PreAxia, PreAxia Canada (formerly H Pay Card Inc.), Tiempo, Kimberley Coonfer (“Coonfer”), Caribbean Overseas Investments Ltd. (“Caribbean”) and the stockholders of PreAxia Canada (the “PreAxia Canada Stockholders”). Under the terms of the Acquisition Agreement, PreAxia acquired all of the issued and outstanding shares of PreAxia Canada resulting in PreAxia Canada becoming a direct, wholly-owned subsidiary of PreAxia. Upon the acquisition of PreAxia Canada by PreAxia, PreAxia issued the stockholders of PreAxia Canada an aggregate of 12,000,000 shares of the common stock of PreAxia. Pursuant to the terms of the Acquisition Agreement all of the issued and outstanding shares of the Company’s subsidiary, Tiempo (the “Tiempo Shares”) were transferred to Coonfer and Caribbean in exchange for the return toof treasury of a total of 5,000,000 common shares of PreAxia (the “Cancellation Shares”). The Cancellation Shares were exchanged for the Tiempo Shares and $100,000 of the intercompany debt between Tiempo and PreAxia was written off on the books of Tiempo and PreAxia, and Tiempo provided a promissory note for the remaining intercompany debt between Tiempo and PreAxia in the amount of $49,281. As of May 30, 2008, Tiempo is no longer a subsidiary of PreAxia, PreAxiaPreAsia Canada is a wholly-owned subsidiary of PreAxia of PreAxia and PreAxia Canada Stockholders received an aggregate of 12,000,000 shares of PreAxia’s common stock representing 78.7% of the issued and outstanding shares of the Company. Tom Zapatinas, an Officer and Director of PreAxia Health Care Payment Systems Inc., is also an Officer and Director of PreAxia Canada. He disclosed such information and interest in this transaction to the Board of Directors prior to the conclusion of this transaction.

As a result, the consolidated results of operations presented at May 31, 20092010 are those of the Company and PreAxia Canada. PreAxia Canada was incorporated pursuant to the laws of the Province of Alberta on January 28, 2008. Since inception of PreAxia Canada, its business objective has been the development, distribution, marketing and sale of health care payment processing services and products.

Nature and Continuance of Operations

The Company is in the development stage and has not yet realized any revenues from its planned operations.

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F-8

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

May 31, 2009 and 2008

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2010

Note 1-1 – Summary of Significant Accounting Policies – Continued

significant accounting policies (Continued)

Nature and Continuance of Operations (Continued)

The primary operations of the Company are presentlywill eventually be undertaken by PreAxia Canada. PreAxia Canada is in the process of developing an online access system creating a health savings account that allows card payments and processing services to third-party administrators, insurance companies and others.

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted accounting principlesin the United States applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At May 31, 2009,2010, the Company had not yet achieved profitable operations, has accumulated losses of $357,577$1,102,521 since inception, has negative working capital of $276,220$900,374 and expects to incur further losses in the development of its business, all of which castsraises 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 considers thatbelieves 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.

Use of Estimates in the preparation of the financial statements

The preparation of the Company's financial statements in conformity with accounting principles generally accepted accounting principlesin the United States requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

F-5

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Depreciation and amortization

Depreciation and amortization have been provided in amounts sufficient to relate the costs

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2010 and 2009

Note 1 – Summary of depreciable assets to operations over their estimated useful lives.  Equipment is depreciated at a rate of 10% per annum and leasehold improvements are depreciated at a rate of 8% per annum.

significant accounting policies (Continued)

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.

Foreign Currency

Translation

The functional currency of the Company is the United States dollar. The functional currency of PreAxia Canada is the Canadian dollar. Assets and liabilities in the accompanying financial statements are translated tointo United States dollars at currentthe exchange ratesrate in effect at the balance sheet date and incomecapital accounts are translated at historical rates. Income statement accounts are translated at the average rates of exchange prevailing during the period. Related translationTranslation adjustments arising from the use of differing exchange rates from period to period are reported asincluded in the accumulated other comprehensive income (loss), a component account in stockholders’ deficit.

Transactions undertaken in currencies other than the functional currency of stockholders’ equity.

F-9

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

May 31, 2009the entity are translated using the exchange rate in effect as of the transaction date. Any exchange gains and 2008

Note 1- Summarylosses are included in the Statement of Significant Accounting Policies – Cont’d

Operations and Comprehensive Loss.

Development Stage Company

The Company is a development stage company as defined in Statement of Financial Accounting Standards No. 7. The Company is devoting substantially all of its present efforts to establish a new business and none of its planned principal operations have commenced. All losses accumulated since inception has been considered as part of the Company’s development stage activities.

Gain (Loss) Per Share

Gain (loss) per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding during the year.period. Fully diluted earnings per share are not presented because they are anti-dilutive.

Fair Value of Financial Instruments

Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 107 (“SFAS 107”), Disclosure About Fair Value of Financial Instruments.  SFAS 107 requires disclosure of fair value information about financial instruments when it is practicable to estimate that value.  The carrying amount of the Company’s cash and cash equivalents, loan receivable, and the current portions of notes payable approximate their estimated fair values due to their short-term maturities.

Income taxes

The Company is subject to United States income taxes.  Its wholly owned subsidiary is subject to Canadian taxes.

Income taxes are accounted for under the asset and liability method.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain.

At May 31, 2009, the Company has net operating loss carry forwards totaling approximately $357,500 (2008 - $24,352). The carry forwards begin to expire as of the current fiscal year. The Company has established a valuation allowance for the full tax benefit of the operating loss carryovers due to the uncertainty regarding realization.

F-10

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

May 31, 2009 and 2008

Note 1- Summary of Significant Accounting Policies – Cont’d

Research and Development Costs

Research and development costs are expensed in the year in which they are incurred.

Stock-based Compensation

The Company has elected to account for stock-based compensation following APB No. 25, Accounting for Stock Issued to Employees, and provide the disclosure required under SFAS No. 123, “Accounting for Stock-based Compensation, as amended by SFAS No. 148, “Accounting for Stock-based Compensation

F-6

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2010 and 2009

Note 2 – Transition and Disclosure, an amendmentSummary of SFAS Statement No. 123.

significant accounting policies (Continued)

New Accounting Standards

Recently Issued

Recent Accounting Pronouncements

In June of 2009, the FinancialFASB established the Accounting Standards Board (FASB) issued Statement No. 168, The FASB Accounting Standards Codification™, and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162.  The Codification will become(“Codification” or “ASC”) as the source of authoritative U.S.accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles (GAAP) to be applied to nongovernmental entities.  The Codification will include only two levels of GAAP, authoritative and non-authoritative.  Authoritative Statements will include FASB Standards and rulesin the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (SEC)(“SEC”) issued under authority of federal securities laws applicable toare also sources of GAAP for SEC registrants. All other non-SEC and non-FASB accounting and reporting literature and standards will become non-authoritativeExisting GAAP was not intended to be changed as a result of the effective dateCodification, and accordingly the change did not impact our financial statements. The ASC does change the way the guidance is organized and presented.

Statement of Financial Accounting Standards (“SFAS”) No. 165 (ASC Topic 855), “Subsequent Events”, SFAS No. 166 (ASC Topic 810), “Accounting for Transfers of Financial Assets-an Amendment of FASB Statement No. 168.  The Codification will hereafter only be modified by Accounting Standards Updates, which will replace Statements, FASB Staff Positions, and Emerging Issues Task Force Abstracts.  Statement No. 168 is effective for interim and annual reporting periods ending after September 15, 2009.  Adoption of this Statement will have no impact on the Company’s financial reporting.

In June of 2009, the FASB issued Statement140”, SFAS No. 167 (ASC Topic 810), “Amendments to FASB Interpretation No. 46 (R)46(R),” and SFAS No. 168 (ASC Topic 105), Consolidation“The FASB Accounting Standards Codification and the Hierarchy of Variable Interest Entities.Generally Accepted Accounting Principles- a replacement of FASB Statement No. 162” were recently issued. SFAS No. 165, 166, 167, expands the scope of Interpretation No. 46(R) to include entities which had been considered qualifying special purpose entities prior to elimination of the concept by Statement No. 166.  Statement No. 167 requires entities to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity.  The enterprise is required to assess, on an ongoing basis, whether it is a primary beneficiary or has an implicit responsibility to ensure that a variable interest entity operates as designed.  Statement No. 167 changes the previous quantitative approach for determining the primary beneficiary to a qualitative approach based on which entity (a) has the power to direct activities of a variable interest entity that most significantly impact economic performance and (b) has the obligation to absorb losses or receive benefits that could be significant to the variable purpose entity. 

Statement No. 167 requires enhanced disclosures that will provide investors with more transparent information about an enterprise’s involvement with a variable interest entity.  Statement No. 167 is effective for each entity’s first annual reporting period that begins after November 15, 2009, and for interim periods within that annual period.  This statement will168 have no impact on the Company’s financial reporting under its current business plan.  

F-11

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

May 31, 2009 and 2008

Note 1- Summary of Significant Accounting Policies – Continued

New Accounting Standards (Continued)

Recently Issued Accounting Pronouncements (Continued)

In June of 2009, the FASB issued Statement No. 166, Accounting for Transfers of Financial Assets, an amendment of Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.  Statement No. 166 removes the concept of a qualifying special-purpose entity.  Therefore, all entities should be evaluated for consolidation in accordance with applicable consolidation guidance.  Statement No. 166 requires identification of any involvements with transferred assets and prevents de-recognition until all requirements for sale accounting have been met.  Enhanced disclosures are required to provide greater transparency about any transferor’s continuing involvement with transferred assets.  Statement No. 166 is effective as of each reporting entity’s first annual reporting period which begins after November 15, 2009 and for all interim periods within that first annual period.  The Company has no current involvement with transferred assets but will comply should the situation arise.

In May of 2009, the FASB issued Statement No. 165, Subsequent Events.  This Statement sets forth the period following the balance sheet date during which management should evaluate subsequent events for disclosure, the circumstances under which events should be recognized for disclosure, and the disclosure which should be made.  Statement No. 165 introduces the concept of a date following the balance sheet date when financial statements are available to be issued.  Thus users of financial statements are put on notice of the date after which subsequent events are not reported.  Statement No. 165 is effective with all interim or annual financial statements for periods ending after June 15, 2009.  The Company will adopt the requirements of Statement No. 165 beginning with its June 30, 2009 interim financial statements.

None of the above new pronouncements has current applicationapplicability to the Company but may be applicableor their effect on the financial statements would not have been significant.

Accounting Standards Update (“ASU”) ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures – Overall, ASU No. 2009-13 (ASC Topic 605), Multiple Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU’s No. 2009-2 through ASU No. 2010-20 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company's futureCompany or their effect on the financial reporting.

statements would not have been significant.

F-7

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2010 and 2009

Note 2 – Summary of significant accounting policies (Continued)

Other

The Company has selected May 31 as its year-end and the Company paid no dividends in 2009 or 2008.

2010.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has incurred acumulative net losslosses of $357,577$(1,102,521) since inception, and currently has no sales. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the design, development and commercialization of its health care payment processing services and products. Management has plans to seek additional capital through private placements of its common stock. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

F-12

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

May 31, 2009 and 2008

Note 2 – Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and have been retroactively restated to include the historical operations of PreAxia Canada, due to an exchange of equity interests consummated on May 30, 2008.  For accounting purposes, the exchange was treated as a reverse acquisition.  The audited consolidated financial information is not necessarily indicative of the actual results of operations or the financial position which may be attained in the future.  All necessary inter-company transactions and balances have been eliminated in consolidation, and all necessary adjustments have been made to present the consolidated financial statements in accordance with US GAAP.  The accompanying consolidated financial statements include the accounts of the Company after the disposition of Tiempo on May 30, 2008, and with the operations of PreAxia Canada since its inception.  PreAxia Canada is the Company’s only subsidiary at May 31, 2009.

Note 3 – Business Combination

On May 30, 2008, PreAxia finalized the execution of an acquisition agreement dated April 22, 2008 (the “Acquisition Agreement”) between PreAxia, PreAxia Canada, Tiempo, Kimberley Coonfer (“Coonfer”), Caribbean Overseas Investments Ltd. (“Caribbean”) and the stockholders of PreAxia Canada  (the “PreAxia Canada Stockholders”).  Under the terms of the Acquisition Agreement, we acquired all of the issued and outstanding shares of PreAxia Canada resulting in PreAxia Canada becoming a direct, wholly-owned subsidiary of PreAxia.  Upon the acquisition of PreAxia Canada by PreAxia, we issued the stockholders of PreAxia Canada  an aggregate of 12,000,000 shares of the common stock of PreAxia.

Pursuant to the terms of  the Acquisition Agreement all of the issued and outstanding shares of our subsidiary, Tiempo (the “Tiempo Shares”) were transferred to Coonfer and Caribbean in exchange for the  return to treasury of a total of 5,000,000 common shares of PreAxia (the “Cancellation Shares”).  The Cancellation Shares were exchanged for the Tiempo Shares and $100,000 of the intercompany debt between Tiempo and PreAxia was written off on the books of Tiempo and PreAxia, and Tiempo provided a promissory note for the remaining intercompany debt between Tiempo and PreAxia in the amount of $49,281.

F-13

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

May 31, 2009 and 2008

Note 3 – Business Combination (Continued)

Tiempo is no longer a subsidiary of PreAxia and PreAxia Canada is a wholly-owned subsidiary of PreAxia and PreAxia Canada Stockholders received an aggregate of 12,000,000 shares of PreAxia’s common stock representing 78.7% of the issued and outstanding shares of the Company.  

As a result of this transaction, the stockholders of PreAxia Canada acquired control of the Company and consequently PreAxia Canada is deemed to be the acquirer.  The acquisition has been accounted for using the purchase method of accounting, as a reverse acquisition and the consolidated financial statements are a continuation of the operations of PreAxia Canada and not the Company.  The operations of the Company are included in the consolidated statement of loss from May 30, 2008, the effective date of the acquisition.

The net monetary assets acquired from the Company are as follows:

Total assets		$	135,974
Total liabilities			(95,255	)
Net monetary assets		$	40,719
Consideration:
12,000,000 common shares of the Company		$	40,719

This transaction is considered to be a capital transaction, that is, the transaction is equivalent to the issuance of common shares by PreAxia Canada for the net monetary assets of the Company, accompanied by a recapitalization.

The consolidated statements of operations and cash flows for the year ended May 31, 2008 do not include the results of operations or cash flows of the Company for the period June 1, 2007 to May 30, 2008, the date of the reverse acquisition transaction.  These results were as follows:

Statement of Operations:
Expenses
Office and administration		$	5,484
Consulting fees			72,100
Professional fees			30,824
			108,408
Loss before discontinued operations		$	(108,408	)
Gain from discontinued operations			14,207
Net (loss)			(94,201	)

F-14

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

May 31, 2009 and 2008

Note 3 – Business Combination (Continued)

Statement of Cash Flows:
Cash Flows from Operating Activities
Net loss for the period		$	(108,408	)
Changes in non-cash working capital items:
Accounts payable			59,745
Cash flows used by operating activities			(48,663	)
Cash Flows from Investing Activities
Loan			(188	)
Cash flows from Investing activities			(188	)
Foreign currency translation adjustment			2,495
Decrease in cash during the period			(46,356	)
Cash, beginning of  the period			133,048
Cash, end of  the period			86,692

Note 4 – Discontinued Operation

The Company has accounted for the operations of its subsidiary Tiempo as discontinued operations. The net assets as of May 30, 2008 of Tiempo were eliminated from consolidation in the Company’s balance sheet.  Details of operations of Tiempo prior to the date it ceased to be a subsidiary are included below:

		From June 1, 2007 to May 30, 2008				Fiscal Year End May 31, 2007
Revenue
Sales (net of returns)		$	239,226			$	253,076
Cost of goods sold		$	95,090			$	110,372
		$	144,136			$	142,704
Expenses
Depreciation and amortization		$	248			$	186
Administrative expense		$	86,922			$	70,499
Professional fees		$	2,781			$	3,248
Salaries and wages		$	38,948			$	50,113
Interest expense		$	1,029			$	8,764
		$	129,928			$	132,810
Net Income		$	14,208			$	9,894

F-15

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

May 31, 2009 and 2008

Note 5 – Loan receivable

Loan receivable consists of a promissory note for the remaining debt between the former wholly-owned subsidiary Tiempo de Mexico Ltd. and the Company in the amount of $49,281. The loan is for a term of one year expiring May 20, 2009 and bears interest at a rate of 5% per annum.   This loan receivable was collected during the quarter ended November 30, 2008.

Note 6 3– Related Party Transactions

Accounts Payable

During the year ended May 31, 20092010, the Company’s president, Tom Zapatinas, invoiced $120,000 for management services rendered to the Company for the twelve (12) month period June 1, 20082009 to May 31, 2009.2010. As at May 31, 2009 accounts2010, Accounts payable – related party includes a total of $142,855 (2008 - $30,000)$283,211 due and payable to Mr. Zapatinas.

During the year ended May 31, 20092010, Lizée Gauthier, Certified General Accountants, of which our CFO, Ron Lizée is the sole proprietor, invoiced $18,409$56,310 for accounting services rendered to the Company for twelve (12) month period ended May 31, 2009.rendered. As at May 31, 2009, accounts2010, Accounts payable – related party includes a total of $18,409 (2008 – nil)$69,720 due and payable to the firm.

Mr. Lizée.

Loan Payable

During the year ended May 31, 20092010, the Company’s president advanced $13,268 for operationsreceived payment of wholly-owned subsidiary PreAxia Canada which amount is included as a$691 against the related party loan payable on the Company’s balance sheet. The related party loan totaled $25,898$26,248 as at May 31, 2009 (2008 - $12,530).

2010.

Note 74 – Loans payable

LoansPayable

As at May 31, 2010, the Company has loans payable totaling $25,000in the amount of $332,073. The loans payable are from arm’s length third parties,due to shareholders of the Company. The loans bear no interest and have no specific terms of repayment.  Duringare payable 30 days after demand is made by the year ended May 31, 2009, this loan payable of $25,000 was paid.

On May 29, 2009 the Company received $18,242 ($20,000 CDN) from an arm’s length third party, the loan bears no interest and has no specific date of repayment.

lender.

Note 85 – Other

Convertible Debenture

On September 12, 2008, the Company accepted funds in the amount of $46,505 USD ($50,000 CDN) as a convertible debenture from a stockholder of the Company. The debenture iswas for a period of one year and bearsbearing interest at the rate of 10% per annum and is convertible by the stockholder into common shares of the Company at $0.50 per share for a period of one year. During the year ended May 31, 20092010, the Company recorded amortization of loan discount in the amount of $20,376.  Unamortized$8,119. The discount was fully amortized by November 30, 2009. The Company is in discussion with the lender regarding either the possible conversion of the note to shares or the renewal of the note for another year. The balance on this debenture at May 31, 2009 is $8,119 which is being amortized over2010 was $54,481, including accrued interest.

F-8

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2010 and 2009

Note 6 – Share Issuances

On February 11, 2010, the remaining three month termCompany approved the issuance of common stock with respect to four subscription agreements it had received in the note.

amount $95,000 for 95,000 shares of common stock at $1.00 per share. The Company paid no commissions on this placement. The share certificates were issued on March 22, 2010.

The Company has received funds from a subscriber on May 14, 2010 in the amount of $25,000 for 25,000 shares of common stock at $1.00 per share. Issuance of common stock has been made at May 31, 2010.

Note 97 – Comparative financial statements

The comparative balance sheet for the fiscal year ended May 31, 20082009 has been reclassified from statements previously presented to conform to the presentation of the May 31, 20092010 consolidated balance sheet.

F-16

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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

May 31, 2009 and 2008

Note 108 – Subsequent Events

i)      Employment Agreement

On July 1, 2009,Event

The Company received funds from a subscriber on June 15, 2010 in the amount of $30,000 for 30,000 shares of common stock at $1.00 per share.

The Company received $106,700 of loan advances from shareholders. The loan advances bear no interest and are payable 30 days after demand is made by lender.

In accordance with ASC 855, management has evaluated the subsequent events through the date the financial statements were issued and has found no additional events to the May 31, 2009 year end, the Company signed an Employment Agreement for a Chief Marketing and Privacy Officer at $100,000 base salary plus various incentives such as bonus, share options, shares for services, health benefits and vacation pay.

ii)      Lease for Office Space

On August 1, 2009, subsequent to the May 31, 2009 year end, the Company signed a one (1) year lease agreement effective August 1, 2009 for approximately 712 sq. ft. at $1,190 ($1,333 CDN) including occupancy costs plus GST.  The lease provides for an option to renew for an additional two (2) years.  The office is located at #207, 1410-11th Avenue S.W., Calgary, AB.

F-17

report.

F-9

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23

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.