UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedFebruary 28,November 30, 2011

or

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________ to ______________

Commission File Number:000-52365

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
(Exact

 (Exact name of registrant as specified in its charter)

#207, 1410 – 11^thAvenue S.W., Calgary, Alberta T3C OM8

(Address of principal executive offices) (Zip Code)

(403) 850-4120

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes [X]  No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

(Not currently applicable to the registrant)Yes [ ][X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer                      [   ]               Accelerated filer                                [   ]

Non-accelerated filer                         [   ]               Smaller reporting Company              [X]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)  Yes [  ]  No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    

Yes [  ]  No [  ]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

16,522,50017,652,072 common shares outstanding as of April 14, 2011.May 15, 2013.

ii

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

TABLE OF CONTENTS

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PART I – FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 210 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  All such adjustments are of a normal recurring nature.  Operating results for the ninesix month period ended February 28,November 30, 2011, are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2011.2012.  For further information refer to the consolidated financial statements and footnotes thereto included in PreAxia’s Annual Report on Form 10-K for the year ended May 31, 2010.2011.

1

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTSBALANCE SHEETS

February 28,November 30, 2011 and May 31, 2011

(Stated in US Dollars)

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

F-1

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(Stated in U.S. Dollars)

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

F-2

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (UNAUDITED)

For the Cumulative period January 28, 2008 (Date of Inception) through November 30, 2011

(Stated in U.S. Dollars)

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

F-3

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Stated in U.S. Dollars)

SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

F-4

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

November 30, 2011 and May 31, 2011

Note 1 – BasisOrganization and Description of presentationBusiness

The accompanying unaudited consolidated financial statements of

PreAxia Health Care Payment Systems Inc. (formerly Sun World Partners, Inc.) (the “Company”) have been preparedwas incorporated in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not includethe State of Nevada on January 28, 2008. The Company is devoting substantially all of the informationits present efforts to establish a new business and footnotes required by accounting principles generally accepted in the United States for complete financial statements.none of its planned principal operations have commenced. The consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended May 31, 2010.

The interim consolidated financial statements present the balance sheets, statements ofprimary operations and comprehensive loss and cash flows of the Company will eventually be undertaken by PreAxia Canada.  PreAxia Canada is in the process of developing an online access system creating a health savings account that allows card payments and wholly-owned subsidiary Preaxiaprocessing services to third-party administrators, insurance companies and others. PreAxia Canada Inc. (formerly Preaxia Health Care Payment Systemwas incorporated pursuant to the laws of the Province of Alberta on January 28, 2008. PreAxia Canada Inc. and formerly H-Pay Card Ltd.) These consolidated financial statements have been prepared in accordance with accounting principles generally accepted inis a wholly owned subsidiary of the United States.Company.

The interim consolidated financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of February 28, 2011, and the results of operations, and cash flows presented herein have been included in the financial statements. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of operations for the full year.

Note 2 – Summary of significant accounting policiesSignificant Accounting Policies

This summary

Basis of significant accounting policies of PreAxia Health Care Payment Systems Inc. (the “Company”) is presented to assist in understanding thepresentation

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 tohave been prepared in accordance with accounting principles generally accepted in the United States of America and(“U.S. GAAP”).

Reclassification

Certain prior period amounts in the condensed financial statements have been consistently appliedreclassified to conform to current period presentation.

Unaudited Interim Financial Information

The accompanying unaudited consolidated financial statements of PreAxia Health Care Payment Systems Inc. (formerly Sun World Partners, Inc.) (the “Company”) have been prepared in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the preparationUnited States for complete financial statements. The consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended May 31, 2011.

The interim consolidated financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial statements, which are stated in U.S. Dollars.

Natureposition as of November 30, 2011, and Continuancethe results of Operations

The Company isoperations, and cash flows presented herein have been included in the development stageconsolidated financial statements. All such adjustments are of a normal and hasrecurring nature. Interim results are not yet realized any revenues from its planned operations.necessarily indicative of results of operations for the full year.

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

Going Concern

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year.  Realization values may be substantially different from carrying values as shown and these consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

F-5

Note 2 – Summary  As of significant accounting policies (Continued)

Nature and Continuance of Operations (Continued)

At February 28,November 30, 2011, the Company had not yet achieved profitable operations, has accumulated losses of $1,863,670$2,493,769 since inception, has negative working capital of $1,042,434$1,411,330 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,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 in the United States requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

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Note 2 – Summary of significant accounting policies (Continued)

Cash and Cash Equivalents

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

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates include the estimated useful lives of property and equipment.  Actual results could differ from those estimates.

Foreign Currency Translation

The functional currency of the Company is the United States dollar.  The functional currency of PreAxia Canada is the Canadian dollar. Assets and liabilities in the accompanying consolidated financial statements are translated into United States dollars at the exchange rate in effect at the balance sheet date and capital accounts are translated at historical rates.  Income statement accounts are translated at the average rates of exchange prevailing during the period.  Translation adjustments arising from the use of differing exchange rates from period to period are included in the accumulated other comprehensive income (loss) account in stockholders’ deficit.

Transactions undertaken in currencies other than the functional currency of the entity are translated using the exchange rate in effect as of the transaction date.  Any exchange gains and losses are included in the Statement of Operations and Comprehensive Loss.

Development Stage CompanyFair value of financial instruments

The Company is a development stage company as defined in Statementfollows paragraph 825-10-50-10 of Financialthe FASB Accounting Standards No. 7. The Company is devoting substantially allCodification for disclosures about fair value of its present effortsfinancial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to establish a new business and nonemeasure the fair value of its planned principal operations have commenced. All losses accumulated since inception have been considered as partfinancial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

The carrying amount of the Company’s development stage activities.financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate their fair value because of the short maturity of those instruments.The Company’snotes payableapproximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at November 30, 2011.

The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis.

Gain (Loss) Per Share

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

Research and Development Costs

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

F-7

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and PreAxia Canada. All inter-company accounts and transactions have been eliminated in consolidation.

Reclassification

Certain prior period amounts in the condensed financial statements have been reclassified to conform to current period presentation.

Impairment of long-lived assets

The Company follows paragraph 360-10-05-4 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which includes computer equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

The Company determined that there were no impairments of long-lived assets as of November 30, 2011.

Commitments and contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies.  Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Revenue recognition

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company will recognize revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

Income taxes

 The Company follows Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period that includes the enactment date.

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes.  Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.  The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of Section 740-10-25.

Cash flows reporting

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

Subsequent events

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

Development Stage Company

The Company is a development stage company as defined by section 915-10-20 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification.  Although the Company has recognized some nominal amount of revenue since inception, the Company is still devoting substantially all of its efforts on establishing the business and, therefore, still qualifies as a development stage company.  All losses accumulated since inception have been considered as part of the Company’s development stage activities.

Note 23 – Summary of significant accounting policies (Continued)

New Accounting Standards

Recent Accounting Pronouncements

ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.  

This ASU affects all entities that are required to make disclosures about recurring and nonrecurring fair value measurements under FASB ASC Topic 820, originally issued as FASB Statement No. 157,Fair Value Measurements.  The ASU requires certain new disclosures and clarifies two existing disclosure requirements.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

ASU 2011-04,Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs

This ASU supersedes most of the guidance in Topic 820, although many of the changes are clarifications of existing guidance or wording changes to align with IFRS 13.  In addition, certain amendments in ASU 2011-04 change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements.  The amendments in ASU 2011-04 are effective for public entities for interim and annual periods beginning after December 15, 2011.

In June 2009, the FASB established the Accounting Standards Codification (“Codification” or “ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact our consolidated 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

In January 2010, the FASB Statement No. 140”, SFAS No. 167 (ASC Topic 810), “Amendments to FASB Interpretation No. 46(R),” and SFAS No. 168 (ASC Topic 105), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles- a replacement of FASB Statement No. 162” were recently issued. SFAS No. 165, 166, 167, and 168 have no current applicability to the Company or their effect on the financial statements would not have been significant.

issued Accounting Standards Update (“ASU”) ASU No. 2009-05 (ASC Topic2010-06,Improving Disclosures about Fair Value Measurements (Topic 820), which amends—Fair Value Measurements and Disclosures – Overall,(ASU No. 2009-13 (ASC Topic 605)2010-06),Multiple Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985),Certain Revenue Arrangements that include Software Elements, to add additional disclosures about the different classes of assets and various other ASU’s No. 2009-2 through ASU No. 2011-02 which contain technical corrections toliabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3. The Company is currently evaluating the impact of the pending adoption of this standards update on its consolidated financial statements. The new disclosures and clarifications of existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicabilitydisclosure are effective for fiscal years beginning after December 15, 2009, except for the disclosure requirements related to the Company or their effectpurchases, sales, issuances and settlements in the roll-forward activity of Level 3 fair value measurements. Those disclosure requirements are effective for fiscal years ending after December 31, 2010. The adoption of ASU 2010-06 had no material impact on the Company’s financial statements would not have been significant.statements.

F-8

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 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 cumulative net losses of $1,863,670 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.

Note 34– Related Party Transactions

Accounts Payable to Related Parties

The Company has a two year consulting contract with its President, Tom Zapatinas which includes a $10,000 a month fee for services provided to the Company. Since the Company does not have funds to pay these fees, it has accrued the costs as accounts payable to related parties.  At November 30, 2011 and May 31, 2011, the Company had an accounts payable to– related party balance to Mr. Zapatinas in the amounts of $451,381 and $423,147.

During the ninesix months ended February 28, 2011, the Company’s president, Tom Zapatinas, invoiced $90,000 for management services rendered to the Company for the period June 1, 2010 to February 28, 2011. As at February 28, 2011, Accounts payable – related party includes a total of $370,440 due and payable to Mr. Zapatinas.

During the nine months ended February 28,November 30, 2011, Lizée Gauthier, Certified General Accountants, of which our CFO, Ron Lizée is the sole proprietor, invoiced $21,223$14,783 for accounting services rendered. As at February 28,At November 30, 2011 Accounts payable – related party includes a total of $81,043 due and May 31, 2011, the Company had an account payable to Mr. Lizée.related parties balance to Lizee Gauthier in the amounts of $88,591 and $73,809.

During the nine months ended February 28, 2011, shareholders of the Company advanced the Company $258,368.

As of February 28,November 30, 2011 and May 31, 2011, the Company owed these shareholders $488,526.$559,813 and $488,853. The terms of repayment are 30 days after demand is made by the shareholder.

Loans Payable to Related Party

As at February 28, 2011, the

The Company has loansa loan payable in the amount of $86,383. The loans payable are due to shareholdersa shareholder of the Company. The loans bearsare unsecured, bear 6% interest per annum and are payable 30 days after demand is made by the lender.shareholder. At November 30, 2011 and May 31, 2011 the Company had a loan payable to related party balance of $93,014 and $86,494. As of November 30, 2011 and May 31, 2011 the Company had accrued interest on the related party loan in the amounts of $15,016 and $9,619.

Note 45 – Convertible DebentureNote Payable

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 was for a period of one year and bearingbears 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, 2010, the Company recorded amortization of loan discount in the amount of $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 February 28,November 30, 2011 was $57,959,$61,463, including accrued interest in the amount of $11,454.$14,958, which is an increase of $2,332 since the year ended May 31, 2011.

F-9

Note 56 – Share IssuancesStockholders’ Deficit

On February 11, 2010,

Common Stock

In the year ended May 31, 2011, the Company approved the issuance ofissued 722,500 common stock with respect to four subscription agreements it had received in the amount $95,000shares for 95,000 shares of common stock at $1.00 per share.$722,500 cash. The Company paid no commissions on this placement. The share certificates werealso issued on March 22, 2010.25,000 common shares to reduce $25,000 in loan payable to related party debt.

The

During the six months ended November 30, 2011, the Company has received funds from a subscriber on May 14, 2010issued 135,000 common shares for $135,000 cash.

Note 7 – Lease Obligations

Effective August 1, 2009, the Company signed an agreement to lease office space of 712 square feet in Calgary, Alberta Canada, in the amount of $25,000$1,190 USD per month. The term of the lease was for 25,000 sharesa period of common stockone year with an option to renew the lease at $1.00 per share. The share certificate was issued on December 20, 2010.

Thethe same rental rate for a further two (2) terms of one year each. On August 1, 2010, the Company has received funds from a subscriber on June 15, 2010 inexercised its option to renew the amount of $30,000 for 30,000 shares of common stock at $1.00 per share. The share certificate was issued on December 15, 2010.

The Company has received funds from a subscriber on October 28, 2010 in the amount of $200,000 for 200,000 shares of common stock at $1.00 per share. The share certificate was issued on December 13, 2010.

The Company has received funds from a subscriber on November 8, 2010 in the amount of $15,000 for 15,000 shares of common stock at $1.00 per share. The share certificate was issued on December 13, 2010.

The Company approved the transfer of $25,000 funds from a subscription. Accounts payable – Related Party for share issuance of 25,000 shares of common stock at $1.00 per share. The share certificate was issued on December 13, 2010.

The Company has received funds from a subscriber on December 20, 2010 in the amount of $100,000 for 100,000 shares of common stock at $1.00 per share. The share certificate was issued on January 3, 2011.

The Company has received funds from a subscriber on January 25, 2011 in the amount of $25,000 for 25,000 shares of common stock at $1.00 per share. The share certificate was issued on February 3, 2011.

The Company has received funds from a subscriber on February 7, 2011 in the amount of $50,000 for 50,000 shares of common stock at $1.00 per share. The share certificate was issued on February 14, 2011.

The Company has received funds from a subscriber on January 31, 2011 in the amount of $25,000 for 25,000 shares of common stock at $1.00 per share. The share certificate was issued on February 14, 2011.

The Company has received funds from a subscriber on February 10, 2011 in the amount of $12,500 for 12,500 shares of common stock at $1.00 per share. The share certificate was issued on February 14, 2011.

The Company has received funds from a subscriber on January 31, 2011 in the amount of $20,000 for 20,000 shares of common stock at $1.00 per share. The share certificate was issued on February 14, 2011.

The Company has received funds from a subscriber on February 28, 2011 in the amount of $150,000 for 150,000 shares of common stock at $1.00 per share. The share certificate was issued on March 17, 2011.

Note 6 – Comparative financial statements

The comparative balance sheet for ended May 31, 2010 has been reclassified from statements previously presented to conformlease to the presentationend of July 31, 2011. Effective August 1, 2011 the February 28, Company exercised its second term option to July 31, 2012. Minimum future rental payments under the agreement are as follows:

2011 consolidated balance sheet.$ 4,760

2012$ 8,330

Total $ 13,090

Note 7 –8 - Subsequent Eventsevents

Subsequent

Management has evaluated subsequent events pursuant to February 28,the requirements of ASC Topic 855 and has determined that other than listed below, no material subsequent events exist through the date of this filing.

1. On October 13, 2011, the Company received fundsa loan advance from a subscriber on March 10, 2011new investor in the amount of $50,000 for 50,000 shares of common stock at $1.00 per share.$25,000 CDN ($24,418 USD). The share certificate was issued on March 17, 2011.loan bears no interest and is payable thirty (30) days upon demand from lender.

Note 8 – Corporate Tax

The Company has not filed corporate tax returns. The Company has incurred substantial losses over the years and no tax payable is due.

F-10

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This quarterly report contains forward-looking statements relating to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “intends”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

Such factors include, among others, the following: international, national and local general economic and market conditions; demographic changes; the ability of PreAxia to sustain, manage or forecast its growth; the ability of PreAxia to successfully  make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or failure to comply with government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance.  Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Given these uncertainties, readers of this Form 10-Q and investors are cautioned not to place undue reliance on such forward-looking statements.  PreAxia disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments, except as required by applicable law, including the securities laws of the United States.

All dollar amounts stated herein are in US dollars unless otherwise indicated.

The management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements for the year ended May 31, 2010,2011, together with notes thereto.  As used in this quarterly report, the terms “we”, “us”, “our”, “PreAxia” and the “Company” means PreAxia Health Care Payment Systems Inc. and its wholly-owned subsidiary, PreAxia Canada Inc. (“PreAxia Canada”) formerly PreAxia Health Care Payment System Inc. and, before that, H Pay Card Ltd., unless the context clearly requires otherwise.

General Overview

PreAxia is an exciting new company that plans to offer a comprehensive suite of solutions and services directed at the emerging health payment market.

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PreAxia plans to eventually undertake all of ourits operations through ourits wholly-owned subsidiary, PreAxia Canada.  PreAxia intends to deliverhas completed 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’s 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. We intend to take advantage of this shift and the growth potential of HSA.

The technical development of our web-based platform is well underway. We believe that, when launched, ourOur new web-based health-payment transaction solution will be extremelyis fast and able to process numerous transactions and broker applications. Therefore,applications, thereby, reducing

costs. The core beneficiaries of this technology will be third party administrators (“TPA”), brokers, and related parties with a growing interest in HSA.

PreAxia is a transaction processing and account management company positioned to act as a central player between TPA, brokerages, brokers, clinics, practitioners, employers, and employees. PreAxia facilitates the fast, secure, and reliable direct payment, account management, and claims processing required by law to support HSA in Canada and similar markets. It also allows employers to provide their staff with the self-service, control and seamless integrated service they are demanding from their benefits and health spending solution providers.

Planof Operation

Over the next twelve months, we plan to:

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 $2,400,000$1,550,000 in implementing our business plan of development and marketing of health care processing products and services.  We do not expect to generate any revenues this year, therefore we will be required to raise a total of $3,600,000$2,950,000 to complete our business plan and pay our outstanding debts of approximately $1,200,000.$1,400,000.   Our working capital requirements for PreAxia Canada for the next twelve months are estimated at $2,400,000$1,550,000 distributed, as follows:

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Our estimated expenses over the next twelve months are broken down as follows:

Liquidity and Capital Resources

As of February 28,November 30, 2011, PreAxia’s cash balance is $160,574,was $2,970, compared to $4,047a cash deficit of $19,297 as at May 31, 2010.2011.  Our Company will be required to raise capital to fund our operations.  PreAxia’s cash on hand is currently ourits only source of liquidity.  PreAxia had a working capital deficit of $1,042,434$1,411,330 as of February 28,November 30, 2011 compared with a working capital deficit of $900,374$1,307,545 as of May 31, 2010.2011.  Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued issuance of equity to new stockholders, and our ability to achieve and maintain profitable operations.  PreAxia's cash and cash equivalents will not be sufficient to meet 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 development stage.   We project that we will require an estimated additional $2,238,221 (2,400,000 –161,779)$2,950,000 over the next twelve month period to fund our operating cash shortfall.shortfall and to complete our business plan.  Our Companycompany plans to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirements for the next twelve months primarily through the private placement of our equity securities or by way of loans or such other means as PreAxia may determine.  During the yearsix month period ended May 31, 2010, we raised a total of $46,505 ($50,000 CDN) by way of a convertible debenture. The note is for a term of one year with interest at 10% per annum and is convertible at $0.50 per share. During the nine months ended February 28,November 30, 2011, we obtained additional loans from related parties in the amount of $9,469$17,082 and received $652,500$135,000 in respect of tensix subscription agreements for 652,500135,000 shares at $1.00 per share. The sharesThese share issuances were approved by theour board of directors. The issuance of 150,000 shares were still outstanding as at February 28, 2011 and issued on March 17, 2011. There are no assurances that we will be able to obtain funds required for our continued operations.  There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms.  If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease the operation of our business.

There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further long-term financing, successful and sufficient market acceptance of our products and achieving a profitable level of operations.  The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders.  Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

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Our working capital (deficit) as at February 28,November 30, 2011 compared to May 31, 2010 are2011 is summarized as follows:

Working Capital

The increase in our working capital deficit of $142,060$103,785 was primarily due to an increase in our bank balance of $23,472 offset by a decrease in our accounts payable and accrued liabilities of $20,636,$29,168, and increase in our accounts payable and loans from related parties in the amount of $315,141,$147,492 an increase in our convertible loan in the amount of $3,478,$2,332 and an increase in accrued interest of $604 and increase in current assets of $156,527.$5,397.

Off-balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Results of Operations

The following summary of our results of operations should be read in conjunction with our audited financial statements for the year ended May 31, 2010.2011.

For the three month period ended February 28,November 30, 2011 and February 28,November 30, 2010

Our operating results for the three month period ended February 28,November 30, 2011 compared to the three month period ended February 28,November 30, 2010 are described below:

Revenue

We have not earned any revenues since our inception and we do not anticipate earning revenues until such time as we have completed the development of our Health Card software and obtained new customers.

Expenses

Our net operating loss for the three month period ended February 28,November 30, 2011 was $301,574$78,340 compared to $234,157$253,400 for the three month period ended February 28,November, 2010. The increasedecrease in loss of $67,417$175,060 for the three month period ending February 28,November 30, 2011 is due to increasesa decrease in expenses of $43,325$111,794 for research and development, increasea decrease of $1,579$9,813 for wages and benefits, an increase of $190$1,043 for rent, increaseoffset by a decrease in the amount of $4,012$38,542 for interest expenses,professional fees and an increase in the amount of $7,632 for professional fees and increase in the amount of $10,679$9,173 in office and administration fees.

Research and Development

The

Research and Development increasedexpenses decreased by $43,325$111,794 in the three month period ended February 28,November 30, 2011 compared to the three month period ended February 28,November 30, 2010, due to hiring additional programmers and acquisitionthe completion of equipment to complete the development of our software.major project components.

Wages and Benefits

The wages

Wages and benefits increaseddecreased by $1,579$9,813 during the three month period ended February 28,November 30, 2011 compared to February 28,November 30, 2010, due to the period ended February 28, 2011 incurring an increase in payroll deductions compared to the period ended February 28, 2010.employee resigning as at June 30, 2011.

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Office and Administration

The office

Office and administration expenses increased by $10,679 during$9,173 for the period ended February 28,November 30, 2011 compared to February 28, 2010, due to the company incurring additional expenses for travel and telephone during the period ended February 28, 2011.

Professional Fees

The professional fees increased by $7,632 during the three months ended February 28, 2011 compared to February 28,November 30, 2010, due to an increase in additional workload requiredtravel expenses to for audit and accounting fees.meetings with potential clients.

RentProfessional Fees

The rent increased

Professional fees decreased by $190$38,542 during the three months ended February 28,November 30, 2011 compared to February 28,November 30, 2010, becausedue to a decrease in accounting and legal fees.

Rent

Rent increased by $1,043 during the periodthree months ended February 28,November 30, 2011 compared to November 30, 2010 only paid rent for partial month.due to the exchange rate on rent.

For the ninesix month period ended February 28,November 30, 2011 and February 28,November 30, 2010

Our operating results for the ninesix month period ended February 28,November 30, 2011 compared to the ninesix month period ended February 28,November 30, 2010 are described below:

Revenue

We have not earned any revenues since our inception and we do not anticipate earning revenues until such time as we have completed the development of our Health Card software and obtained new customers.

Expenses

Our net operating loss for the ninesix month period ended February 28,November 30, 2011 was $761,149$238,904 compared to $495,924$459,575 for the ninesix month period ended February 28,November 30, 2010. The increasedecrease in loss of $265,225$220,853 for the ninesix month period ending February 28,November 30, 2011 is due to increasesa decrease in expenses of $231,643$149,137 for research and development, increasea decrease of $8,597$25,396 for wages and benefits, increasea decrease of $3,722$756 for rent, increase of $8,364 for interest expenses,a decrease in the amount of $8,119$29,097 for amortization on debt discount,professional fees and an increase in the amount of $17,839 for professional fees and increase in the amount of $3,179$149 in office and administration fees.

Research and Development

The

Research and Development increasedexpenses decreased by $231,643$149,137 in the ninesix month period ended February 28,November 30, 2011 compared to the ninesix month period ended February 28,November 30, 2010, due to hiring additional programmers, acquisitionthe completion of equipment and hiring a technology manager during the period to complete the development of our software.major project components.

Wages and Benefits

The wages

Wages and benefits increaseddecreased by $8,597$25,396 during the ninesix month period ended February 28,November 30, 2011 compared to February 28,November 30, 2010, due to the period ended February 28, 2010 only had expenses for eight months compared to nine months for the period ended February 28, 2011 because thean employee was hired on July 1, 2009.resigning as at June 30, 2011.

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Office and Administration

The office

Office and administration increasedexpenses decreased by $3,179 during$149 for the period ended February 28,November 30, 2011 compared to February 28, 2010, due to additional travel requirements during the period ended February 28, 2011.November 30, 2010.

Professional Fees

The professional

Professional fees increaseddecreased by $17,839$29,097 during the ninesix months ended February 28,November 30, 2011 compared to February 28,November 30, 2010, due to additionala decrease in accounting and legal fees for our in-house lawyer and increase in audit and accounting fees.

Rent

The rent increased

Rent decreased by $3,722$756 during the ninesix months ended February 28,November 30, 2011 compared to February 28, 2010 due to having only 7.5 months of rent for the period ended February 28, 2010.

Amortization of debt discount

The amortization of the debt discount for the nine months ended February 28, 2011 decreased by $8,119, compared to February 28,November 30, 2010 due to the amortization of the convertible loan being finalized during the period ended February 28, 2011.exchange rate on rent.

Critical Accounting Policies

We have identified certain accounting policies, described below, that are the most important to the portrayal of our current financial condition and results of operations.

Revenue recognition

PreAxia recognizes revenue in accordance with the provision of the Securities and Exchange Commission which establishes guidance in applying generally accepted accounting principles to revenue recognition in financial statements.  This provision requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the price to the buyer is fixed and determinable; and (4) collectability is reasonably assured.

Research and development

All costs of research and development activities are expensed as incurred.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES.Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report, being February 28,November 30, 2011. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer.

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Our management does not expect that our disclosure controls or our internal control over financial reporting will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources, and the benefits of a control system must be considered relative to its costs. These limitations also include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of a control. The design of a control system is also based upon certain assumptions about potential future conditions; over time, currently implemented controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Due to the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Based upon thattheir evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as at the end of the period covered by this quarterly report, February 28, 2011.report.

DisclosureOur company determined that our disclosure controls and procedures are controlswere not effective as of November 30, 2011 due to the following two material weaknesses in our internal control over financial reporting that we indentified in our annual report on Form 10-K for the fiscal year ended May 31, 2011: (i) we do not have accounting staff with sufficient technical accounting knowledge relating to accounting for U.S. income taxes and other procedures that are designedcomplex US GAAP matters; and (ii) we failed to ensure that information required to befile our corporate tax returns for 2008, 2009, 2010 and 2011. As we disclosed in our reports filed or submitted underannual report on Form 10-K for the Securities Exchange Actfiscal year ended May 31, 2011, 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 1934 is recorded, processed, summarized and reported, within the applicable time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures which are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure.corporate tax returns.

Changes in Internal Control over Financial reportingReporting

There have been no changes in our internal controlcontrols over financial reporting that occurred during the fiscal quarter ended February 28,November 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We know of no material pending legal proceedings to which our company or subsidiary is a party or of which any of our property is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.

We know of no material proceedings in which any director, officer or affiliate of our company, or any registered or beneficial stockholder of our company, or any associate of any such director, officer, affiliate, or stockholder is a party adverse to our company or subsidiary or has a material interest adverse to our company or subsidiary.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones we face. Any of the following risks could harm our business, financial condition or results of operations. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.

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Risks Associated with our Financial Condition

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.

We incurred a net loss of $1,863,670$2,492,682 for the period from January 28, 2008 (date of inception) to February 28,November 30, 2011. We are in the development stage and are yet to attain profitable operations. In their report on our financial statements for the fiscal year ended May 31, 2010,2011, our independent auditors included an explanatory paragraph regarding the substantial doubt about our ability to continue as a going concern.

Our ability to continue as a going concern is dependingdependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. We have not generated significant revenues since our inception on January 28, 2008. We will, in all likelihood, continue to incur operating expenses without significant revenues for the foreseeable future. We cannot assure that we will be able to generate enough interest in our health payment market products. If we cannot attract a significant customer base, we will not be able to generate any significant revenues or income. In addition, if we are unable to establish and generate significant revenues, or obtain adequate future financing, our business will fail and you may lose some or all of your investment in our commonscommon stock.

We have additional financing requirements.

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

We have negative cash flow and absence of profits.

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

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

Risks Associated with our Business

We have a limited operating history.

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

we accomplish these objectives, we may not generate positive cash flows or the profits we anticipate in the future.

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We hadhave a limited operational history. We are in the early commercialization stage of our business and therefore we will be subject to the risks associated with early stage companies, including uncertainty of revenues, markets and profitability and the need to raise additional funding. We will be committing, and for the foreseeable future will continue to commit, significant financial resources to marketing, product development and research. Our business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stage of development. Such risks include the evolving and unpredictable nature of our business, our ability to anticipate and adapt to a developing market, acceptance by consumers of our products and the ability to identify, attract and retain qualified personnel. There can be no assurance that we will be successful in doing what is necessary to address these risks.

We will require key personnel.

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

We may not be successful in the protection of our intellectual property.

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

We face competition and may not be able to compete successfully.

We may not be able to compete successfully against current and future competitors, and the competitive pressures we faces could harm itsour 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 our 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.

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

We may face implementation delays.

Most of our customers will be in a testing or preliminary stage of utilizing our products and may encounter delays or other problems in the introduction of our products. A decision not to do so, or a delay in implementation, could result in a delay or loss of related revenue or could otherwise harm our 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 our products.

We may get limited customer feedback respecting products.

Our revenue will depend on the number of customers who use our products. Accordingly, the satisfactory design of our product is critical to our business, and any significant product design limitations or deficiencies could harm our business and market acceptance. The feedback we obtain from our customers is critical to our ability to fix any limitations or deficiencies in our product. If we do not obtain adequate feedback from our customers, we may not be able to adequately assess our customers’ requirements. The currently specified features and functionality of our product may not satisfy current or future customer demands. Furthermore, even if we identifiesidentify the feature set required by our customers and potential customers, we may not be able to design and implement products incorporating features in a timely and efficient manner, if at all.

We may face a slow down in developing markets.

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

Our ability to keep current with technological changes impact onimpacts our ongoing business.

The financial services technology industry is susceptible to technological advances and the introduction of new products utilizing new technologies. Further, the financial services technology industry is also subject to customer preferences and to competitive pressures which can, among other things, necessitate revisions in pricing strategies, price reductions and reduced profit margins. The success of PreAxia will depend on our ability to secure technological superiority in our products and maintain such superiority in the face of new products from competitors. No assurances can be given that our products will be commercially viable or that further modification or additional products will not be required in order to meet demands or to make changes necessitated by developments made by competitors which might render our products less competitive, less marketable, or even obsolete over time. The future success of PreAxia will be influenced by our ability to continue to develop new competitive products. There can be no assurance that research and development activities with respect to the development of new products and the improvement of our existing products will prove profitable, or that products or improvements resulting therefrom, if any, will be successfully produced and marketed.

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The financial services technology industry is characterized by technological change, changes in user and customer requirements, new product introductions, new technologies, and the emergence of new industry standards and practices that could render our technology obsolete or have a negative impact on sales margins our product may command. PreAxia's performance will depend, in part, on our ability to enhance our existing product, develop new proprietary technology that addresses the sophisticated and varied needs of its prospective customers, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of technology entails significant technical and business risks. There can be no assurance that we will be successful in using new technologies effectively or adapting itsour product to customer requirements or emerging industry standards.

We require strategic alliances.

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

We may have problems with our resolution of product deficiencies.

Difficulties in product design, performance and reliability could result in lost revenue, delays in customer acceptance of our products, and/or lawsuits, and would be detrimental, perhaps materially, to our market reputation. Serious defects are frequently found during the period immediately following the introduction of new products or enhancements to existing products. Undetected errors or performance problems may be discovered in the future. Moreover, known errors which we considers minor may be considered serious by itsour customers. If our internal quality assurance testing or customer testing reveals performance issues and/or desirable feature enhancements, we may postpone the development and release of updates or enhancements to our current product or the release of new products. We may not be able to successfully complete the development of planned or future products in a timely manner, or to adequately address product defects, which could harm our business and prospects. In addition, product defects may expose us to liability claims, for which we may not have sufficient liability insurance. A successful suit against us could harm our business and financial condition.

We may not be able to effectively manage our growth.

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

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Our directors and officers may face conflicts of interest.

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 areis required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, our directors are required to act honestly, and in good faith, with a view to the best interests of PreAxia, as the case may be. Certain of the directors may have, 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.

We do not have key manpersonnel insurance.

We do not currently have key manpersonnel insurance in place in respect of any of itsour senior officers or personnel.

Acquisitions, investments and other strategic transactions could result in operating difficulties, dilution to our investors and other negative consequences.

It is our current intention to engage in and evaluate a wide array of potential strategic transactions, including acquisitions of companies, businesses, intellectual properties, and other assets. As of the date of filing of this Quarterly Report,quarterly report, we have not yet identified any such strategic transactions. Any of these strategic transactions could be material to our financial condition and results of operations. In our search for opportunities to engage in strategic transactions, we may not be successful in identifying suitable opportunities. We may not be able to consummate potential acquisitions or investments, or an acquisition or investment may not enhance our business or may decrease rather than increase our earnings. In addition, the process of integrating an acquired company or business, or successfully exploiting acquired intellectual property or other assets, could divert a significant amount of our management’s time and focus and may create unforeseen operating difficulties and expenditures.

Additional risks we may face include:

• the need to implement or remediate controls, procedures and policies appropriate for a public company in an acquired company that, prior to the acquisition, lacked these controls, procedures and policies;
• cultural challenges associated with integrating employees from an acquired company or business into our organization;
• retaining key employees from the businesses we acquire, and
• the need to integrate an acquired company’s accounting, management information, human resource and other administrative systems to permit effective management.

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

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Fluctuations in quarterly operating results lead to unpredictability of revenue and earnings.

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

Our disclosure controls and procedures and internal control over financial reporting were not effective, which may cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.

Our management evaluated our disclosure controls and procedures as of November 30, 2011 and concluded that as of that date, our disclosure controls and procedures were not effective. In addition, our management evaluated our internal control over financial reporting as of May 31, 2011 and concluded that that there were material weaknesses in our internal control over financial reporting as of that date and that our internal control over financial reporting was not effective as of that date. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis.

We have not yet remediated this material weakness and we believe that our disclosure controls and procedures and internal control over financial reporting continue to be ineffective. Until these issues are corrected, our ability to report financial results or other information required to be disclosed on a timely and accurate basis may be adversely affected and our financial reporting may continue to be unreliable, which could result in additional misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.

Risks Associated with Our Common Stock

Our common stock is traded on the "Over-the-Counter Bulletin Board," which may make it more difficult for investors to resell their shares due to suitability requirements.

Our common stock is currently quoted for trading on Over the Counter Bulletin Board (“OTCBB”) under the symbol PAXH.OB where we expect it to remain in the foreseeable future. Broker-dealers often decline to trade in OTCBB stocks given the market for such securities areis often limited, the stocks are more volatile, and the risk to investors is greater. These factors may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of their shares. This could cause our stock price to decline.

Because we can issue additional shares of our common stock or preferred stock, purchasers of our common stock may experience dilution in their ownership of our company in the future.

We are authorized to issue up to 75,000,000 shares of common stock. As of April 14,November 30, 2011, there were 16,522,50016,752,500 shares of our common stock issued and outstandingoutstanding. Our board of directors has the authority to cause our company to issue additional shares of common stock without the consent of any of our stockholders. Consequently, our stockholders may experience dilution in their ownership of our company in the future.

We do not intend to pay any dividends on our common stock in the foreseeable future.

We do not currently anticipate declaring and paying dividends to our stockholders in the foreseeable future. It is our current intention to apply net earnings, if any, in the foreseeable future to increasing our working capital. We currently have no material revenues and a history of losses, so there can be no assurance that we will ever have sufficient earnings to declare and pay dividends to the holders of shares of our common stock, and in any event, a decision to declare and pay dividends is at the sole discretion of our board of directors, which currently do not intend to pay any dividends on shares of our common stock for the foreseeable future.

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

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

The Financial Industry Regulatory Authority sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that when recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our common stock and have an adverse effect on the market for shares of our common stock.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 3,A total of 135,000 shares for $135,000 were issued during the nine months ended November 30, 2011 we issued 100,000in support of research and development.

Rahim Investments 25,000 shares of common stock at $1.00 per share for total proceeds of $100,000 to one investor. We issued these$25,000.00

Sharon Bauer 10,000 shares to a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S.at $1.00 for $10,000.00

On February 3, 2011, we issuedJohn Chios 25,000 shares of common stock at $1.00 per share for total proceeds of $25,000 to one investor. We issued these$25,000.00

John Carlos 25,000 shares to a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S.

On February 14, 2011, we issued 50,000 shares of common stock at $1.00 per share for total proceeds of $50,000 to one investor. We issued these shares to a non-U.S. person (as that term is defined in Regulation $25,000.00

S of the Securities Act of 1933) in an offshore transaction relying on Regulation S.

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On February 14, 2011, we issuedZolotas 25,000 shares of common stock at $1.00 per share for total proceeds of $25,000 to one investor. We issued these$25,000.00

C Ortiz 25,000 shares to a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S.

On February 14, 2011, we issued 12,500 shares of common stock at $1.00 per share for total proceeds of $12,500 to one investor. We issued these shares to a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S.$25,000.00

On February 14, 2011, we issued 20,000 shares of common stock at $1.00 per share for total proceeds of $20,000 to one investor. We issued these shares to a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S.

On March 17, 2011, we issued 150,000 shares of common stock at $1.00 per share for total proceeds of $150,000 to one investor. We issued these shares to a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933) in an offshore transaction relying on Regulation S.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. [REMOVED AND RESERVED]MINE SAFETY DISCLOSURES

Not applicable

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.   EXHIBITS

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* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

By:/s/  /s/Tom Zapatinas

Name: Tom Zapatinas

Title:   President and Director

(Principal Executive Officer)

Date: April 14, 2011May 17, 2013

By:/s/ Ron Lizée
Name: Ron Lizée
Title: Treasurer and Director
(Principal Financial Officer and Principal Accounting Officer)
Date: April 14, 2011

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