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 three month period ended August 31, 2018 are
not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2019. 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, 2018.
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Page
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Unaudited Condensed Consolidated Financial Statements
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Condensed Consolidated Balance Sheets as of August 31, 2018 (Unaudited) and May 31, 2018
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F-1
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Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended August 31, 2018 and August 31, 2017
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F-2
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Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended August 31, 2018 and August 31, 2017
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F-3
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Notes to Unaudited Condensed Consolidated Financial Statements
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F-4
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PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, 2018 and May 31, 2018
(Stated in US Dollars)
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August 31,
2018
(Unaudited)
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May 31,
2018
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ASSETS
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Current assets
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Cash
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$
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3,051
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$
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7,608
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Total current assets
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3,051
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7,608
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Total assets
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$
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3,051
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$
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7,608
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LIABILITIES
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Current Liabilities
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Accounts payable and accrued liabilities
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$
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139,412
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$
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142,859
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Accounts payable and accrued liabilities – related party
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148,111
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119,121
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Loans payable – shareholders
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112,308
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87,064
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Convertible note payable - related party
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1,058,760
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1,058,760
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Total current liabilities
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1,458,591
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1,407,804
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STOCKHOLDERS’ DEFICIT
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Capital Stock, $0.001 par value, 75,000,000 shares of
common stock authorized 19,667,698 common shares issued and outstanding at
August 31, 2018 and May 31, 2018,
respectively
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19,668
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19,668
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Additional paid-in capital
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2,682,303
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2,682,303
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Accumulated other comprehensive income/(loss)
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57,197
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57,197
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Accumulated deficit
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(4,214,708
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(4,159,364
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Total stockholders’ deficit
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(1,455,540
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(1,400,196
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)
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Total liabilities and stockholders’ deficit
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$
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3,051
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$
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7,608
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See Accompanying Notes to the Unaudited Condensed
Consolidated Financial Statements
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
(Stated in U.S. Dollars)
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For the Three
Months Ended
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August 31,
2018
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August 31,
2017
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Revenue
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$
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—
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$
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—
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Operating costs:
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Consulting
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31,144
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33,738
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Professional
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7,014
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3,493
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Office and administration
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9,538
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6,463
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Research and development
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7,648
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6,420
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Total operating loss
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55,344
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50,114
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Loss from operations
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(55,344
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(50,114
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Other income (expense):
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Interest
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—
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—
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Total other income (expense)
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—
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—
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Net loss and comprehensive loss
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$
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(55,344
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$
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(50,114
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)
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Net loss per share – basic and diluted
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$
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(0.00
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$
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(0.00
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Weighted average number of common shares outstanding – basic and diluted
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19,667,698
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19,667,698
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See Accompanying Notes to the Unaudited Condensed
Consolidated Financial Statements
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Stated in U.S. Dollars)
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For the Three
Months Ended
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August 31,
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August 31,
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2018
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2017
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Cash flows from operating activities
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Net loss
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$
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(55,344
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$
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(50,114
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Changes in operating assets and liabilities:
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Increase in accounts payable – related party
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30,000
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24,530
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Decrease in accounts payable and accrued liabilities
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(3,447
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—
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Cash flows used in operating activities
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(28,791
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(25,584
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Cash flows provided by (used in) investing activities
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—
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—
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Cash flows from financing activities
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Advances – related party
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5,762
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—
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Repayment of advances – related party
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(6,772
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—
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Proceeds from loans payable – shareholder
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25,244
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23,280
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Cash flows provided by financing activities
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24,234
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23,280
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Decrease in cash
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(4,557
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(2,304
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Cash, beginning of period
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7,608
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8,779
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Cash, end of period
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$
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3,051
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$
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6,475
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Supplemental Disclosure:
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Cash paid for income taxes
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$
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—
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$
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—
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Cash paid for interest
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$
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—
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$
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—
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Non-cash investing and financing activities
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Shares issued for common stock subscription payable
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$
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—
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$
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35,062
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Accounts payable - related party settled with shares of common stock
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$
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—
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$
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82,802
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See Accompanying Notes to the Unaudited Condensed
Consolidated Financial Statements
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
August 31, 2018
Note 1 – Organization and Description
of Business
PreAxia Health Care Payment Systems
Inc. (the “Company” or “PreAxia”) was incorporated on April 3, 2000 in the State of Nevada. On May 31,
2005 the Company acquired all of the outstanding stock of Tiempo de Mexico Ltd. (“Tiempo”) in exchange for 5,000,000
shares of the common stock of the Company with a par value of $0.001. The Company had no operations prior to the date of the aforementioned
acquisition.
As a result, the condensed consolidated
results of operations presented for the three months ended August 31, 2018 and 2017 are those of the Company and PreAxia Canada
Inc. (“PreAxia Canada”). PreAxia Canada was incorporated pursuant to the laws of the Province of Alberta on January
28, 2008. Since inception of PreAxia Canada, the business objective of the Company has been the development, distribution, marketing
and sale of health care payment processing services and products.
The Company has not yet realized any
revenues from its planned operations.
The primary operations of the Company are expected
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.
Note 2 – Summary of Significant Accounting
Policies
Basis of Presentation
The Company’s consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”).
Basis of presentation
The unaudited condensed consolidated financial
statements of the Company for the three months ended August 31, 2018 and 2017 have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim financial information and pursuant to the requirements
for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by accounting
principles generally accepted in the United States of America for complete financial statements. However, such information reflects
all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the
fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily
indicative of the results to be obtained for a full fiscal year. The balance sheet information as of August 31, 2018 was derived
from the audited financial statements included in the Company's financial statements as of and for the fiscal year ended August
31, 2018 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”)
on September 13, 2018. These financial statements should be read in conjunction with that report.
Principles of Consolidation
The consolidated financial statements
include the accounts of the Company and its subsidiary. All inter-company accounts and transactions have been eliminated in consolidation.
Going Concern
The accompanying consolidated financial statements
have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. During the three months ended August 31, 2018, the Company incurred a net loss
of $55,344 and used cash in operating activities of $28,791, and at August 31, 2018, had a stockholders’ deficit of $4,214,708.
These factors, among others, raise substantial doubt about
the Company’s ability to continue as a going concern within one year of the date that the consolidated financial statements
are issued. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty should we be unable to continue as a going concern.
The Company’s ability to continue as
a going concern is dependent upon its ability to develop additional sources of capital and to ultimately achieve profitable operations.
Currently, the Company does not have significant cash or other material assets, nor does it have operations or a source of revenue
sufficient to cover its operating costs and allow it to continue as a going concern. The Company’s officers or principal
shareholders have committed to making advances or loans to pay for certain legal, accounting, and administrative costs.
The Company hopes to be able to attract suitable
investors for our business plan, which will not require us to use our cash. No assurance can be given that any future financing
will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able
to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial
dilution for our stockholders, in case or equity financing.
Cash and Cash Equivalents
The Company considers all highly liquid
debt instruments with an original maturity of three months or less to be cash equivalents.
Use of Estimates
The preparation of the Company's consolidated
financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Although
these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future,
actual results could differ from those estimates.
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.
The Company's reporting currency is
the U.S. dollar. All transactions initiated in Canadian Dollars are translated into U.S. dollars in accordance with Accounting
Standards Codification ("ASC") 830-30, "Translation of Financial Statements," as follows:
i) assets
and liabilities are translated at the closing rate at the date of the balance sheet or 1US Dollar=1.3032 Canadian Dollars (August
31, 2018), and;
1US Dollar = 1.2958 Canadian Dollars
(May 31, 2018);
ii) income
and expenses are translated at average exchange rates for three months ended August 31, 2018, or
1US Dollar = 1.3098 Canadian Dollars
(August 31, 2018), and;
1US Dollar = 1.2865 Canadian Dollars (August 31, 2017);
iii) all
resulting exchange differences are recognized as other comprehensive income, a separate component of equity. The exchange differences
during the period ended August 31, 2018 were insignificant and no amounts have been recorded.
Fair Value of Financial Instruments
The Company defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. Management uses
a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained
from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions
developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists
of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described
below:
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Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
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·
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Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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·
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Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
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Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to management as of August 31, 2018. The carrying amounts of
current assets and current liabilities approximate their fair value because of the relatively short period of time between the
origination of these instruments and their expected realization. Related party balances are not recorded at fair value because
they are by nature not arm’s length transactions subject to normal market rates.
Net income (Loss) Per Share
Net income (loss)
per share of common stock is computed by dividing the net loss by the weighted average number of common shares outstanding during
the period. The Company has 10,587,600 and 10,587,600 shares of potential common stock equivalents for convertible note payable
– related party outstanding as of August 31, 2018 and 2017, respectively. A separate computation of diluted earnings (loss)
per share is not presented since the Company has net losses as the effects would be anti-dilutive
.
Research and
Development Costs
For the three months ended August 31,
2018, and 2017, we expended $7,648 and $6,420 on research and development.
Software Development Costs
The Company
accounts for software development costs in accordance with several accounting pronouncements, including FASB ASC 730, Research
and Development, FASB ASC 350-40, Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed
and FASB ASC 350-50, Website Development Costs
.
Costs incurred during the period of
planning and design, prior to the period determining technological feasibility, for all software developed for use internal and
external, has been charged to operations in the period incurred as research and development costs. Additionally, costs incurred
after determination of readiness for market have been expensed as research and development.
The Company capitalizes certain costs
in the development of our proprietary software (computer software to be sold, leased or licensed) for the period after technological
feasibility was determined and prior to our marketing and initial sales.
Website development costs are capitalized,
under the same criteria as our marketed software.
Impairment of Long-lived Assets
Long-lived assets such as property,
equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying
value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on
the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar
assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not
recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and
fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future
cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize
any impairment losses for any periods presented.
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
In accordance with ASC 606, revenue is recognized
when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which
we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process
by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment
to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1)
identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction
price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as,
we satisfy the performance obligation.
Income Taxes
The Company follows Section 740-10-30 of the
FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse. Deferred tax assets
are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be
realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the Statements of Income and Comprehensive Income in the period
that includes the enactment date.
The Company adopted section 740-10-25 of the
FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertain income tax positions. Section
740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded
in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.
Section 740-10-25 also provides guidance on
de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions
of Section 740-10-25.
Note 3 – Recent Accounting Pronouncements
The Company reviews new accounting standards
as issued or updated. No new standards or updates had any material effect on these consolidated financial statements. The accounting
pronouncements issued subsequent to the date of these consolidated financial statements that were considered significant by management
were evaluated for the potential effect on these consolidated financial statements. Management does not believe any of the subsequent
pronouncements will have a material effect on these consolidated financial statements as presented.
Note 4
–
Related Party Transactions
Accounts Payable - Related Parties
During the three months ended August 31, 2018
and 2017, Tom Zapatinas, the Chief Executive Officer and Director of the Company, earned $30,000 and $30,000, respectively, for
consulting services provided to the Company.
As at August 31, 2018 and May 31, 2018, accounts
payable – related party of $148,111 and $119,121, respectively, is due to Tom Zapatinas, the Chief Executive Officer and
a Director of the Company. During the quarter ended August 31, 2018, Tom Zapatinas advanced the Company $6,772 and was repaid $5,762.
Convertible Note Payable – Related
Party
As at August 31, 2018 and May 31, 2018, note
payable - related party of $1,058,760 and $1,058,760, respectively is due to Tom Zapatinas, the Chief Executive Officer and a Director
of the Company. The Note is noninterest bearing, unsecured, payable on demand and convertible in whole or in part into shares of
common stock of the Company at a conversion price of $0.10 per share.
Loans Payable – Shareholders
As of August 31, 2018 and May 31, 2018, loans
payable - shareholders are $112,308 and $87,064, respectively. Loans payable – shareholders are unsecured, non-interest bearing
and due on demand. During the quarter ended August 31. 2018 the Company was advanced $25,244 by a shareholder.
Note 5 – Stockholders’ Deficit
Common Stock
Common Stock, par value of $0.001 per share;
75,000,000 shares authorized: 19,667,698 and 19,667,698 shares issued and outstanding at August 31, 2018 and May 31, 2018, respectively.
Holders of Common Stock have one vote per share of Common Stock held.
Note 6 – Contingencies
and Commitments
From time to time the Company may be a party
to litigation matters involving claims against the Company. Management believes that there are no current matters that would
have a material effect on the Company’s financial position or results of operations.
The Company does not have long-term commitments
for equipment purchases or leases. The Company does not lease office space as the CEO operates the business from his personal residence.
Note 7 – Subsequent Events
The Company has evaluated all subsequent events
through the date these financial statements were issued and no subsequent events occurred that required disclosure.
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report contains forward-looking
statements relating to future events or our future financial performance. In some cases, you can identify forward-looking
statements by terminology such as “may”, “should”, “intends”, “expects”, “plans”,
“anticipates”, “believes”, “estimates”, “predicts”, “potential”, or
“continue” or the negative of these terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors which may cause our or our industry's actual results, levels
of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied
by these forward-looking statements.
Such factors include, among others, the following:
international, national and local general economic and market conditions; demographic changes; the ability of PreAxia to sustain,
manage or forecast its growth; the ability of PreAxia to successfully make and integrate acquisitions; raw material costs
and availability; new product development and introduction; existing government regulations and changes in, or failure to comply
with government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty
in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract
and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.
Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except
as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Given these uncertainties, readers of this
Form 10-Q and investors are cautioned not to place undue reliance on such forward-looking statements. PreAxia disclaims
any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments, except as required by applicable law, including the securities laws
of the United States.
All 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 condensed 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, 2018, together with notes thereto. As used in this quarterly report, the
terms “we”, “us”, “our”, “PreAxia” and the “Company” means PreAxia
Health Care Payment Systems Inc. and its wholly-owned subsidiary, PreAxia Canada Inc. (“PreAxia Canada”) formerly PreAxia
Health Care Payment System Inc. and, before that, H Pay Card Ltd., unless the context clearly requires otherwise.
General Overview
Corporate Overview
Preaxia was incorporated in the State
of Nevada on April 3, 2000. On December 11, 2008, the Nevada Secretary of State effected a name change which had been previously
approved by the majority of the stockholders on October 28, 2008.
Our company undertakes all of its operations
through its wholly-owned subsidiary, PreAxia Health Care Payment Systems Inc. (“PreAxia Canada”- formerly H Pay Card
Inc). PreAxia Canada, prior to being acquired by PreAxia, was a private corporation incorporated pursuant to the laws of the Province
of Alberta on January 28, 2008.
General Overview
PreAxia Canada is a company which intends
to deliver a comprehensive suite of solutions and services directed at the emerging health payment market, specifically the opportunities
tied to the growth of health spending accounts (“HSA”). There is a rapid
shift in healthcare traditional payment models to consumer-directed healthcare that is creating significant opportunities for financial
services and insurance industries to deliver new dynamic products to this emerging market.
Spawned by the need to address escalating
health care costs, changes in the regulatory environment and the growing consumer desire for greater participation in the management
of their health benefits, the boundaries between health care and the financial services industries are becoming increasingly blurred.
With the trend towards self-directed health payment solutions and the growing demand for faster, easier and more convenient benefit
services, the insurance and benefits industries are banking on HSA medical payments being their next big growth conduit. Studies
suggest that HSAs in the US reached $30 billion in assets and 16.7 million consumers in 2015, an increase of more than 20% over
the prior year. This coupled with the continued growth of the Canadian group insurance industry illustrates the emerging opportunity
for innovative health payment services. We intend to initially launch our products in Canada. We believe that Canadian businesses
are embracing a new healthcare financing vehicle to control costs, increase profitability and get more return from their investment.
We intend to provide them with services to capture this market opportunity.
Description of Health Spending Account
(“HSA”)
An HSA is a uniquely designed bank account
established exclusively and specifically for the purpose of health care spending. An employer deposits funds into a special account
for the employee. These funds can be used to pay for eligible medical and related health care expenses for the employee and their
dependents. HSAs provide employers and employees with greater control in both the amount of funds invested and how these funds
are used.
Services and infrastructure provided by PreAxia
enable organizations and individuals to eliminate all paper involved in the management of these accounts and benefit through savings
in time and money.
The PreAxia platform for processing and managing
accounts, including cardholder and customer account management, reconciliation and financial settlement, and customer reporting
is fully operational.
Over time, the company will evaluate opportunities
for forms of virtual banking and PayPal-type services. One opportunity seen as particularly relevant to the health care market
is to offer instant issuing services that enable corporations to issue and fund Pre-Paid Interac or credit card services to beneficiaries
in real time. If implemented, the beneficiary will most likely select a personal identification number (“PIN”) using
a PIN and card activation terminal, thus gaining instant access to funds that can be reloaded. This consideration would require
development of software systems for the issuing of health payment cards and financial transaction processing services that would
be fully managed by a data center.
Matching of consumers in need of health
care products or services with providers is another area PreAxia intends to evaluate. Consumers managing their health care dollars
through an online system will find convenience in seeking out health care professionals and services through the same system
.
Distribution Methods and Marketing
Strategy
PreAxia operates on a Cloud Computing
Platform that makes it accessible to anyone with a personal computer and Internet access. The preliminary market for PreAxia’s
HSA Management Solution is small and medium sized companies that are not currently well served by the current group benefits model.
The financial benefits of the PreAxia business model, however, are also relevant to larger employers and we believe that these
larger employers will migrate to the PreAxia product over time.
PreAxia’s marketing strategy is
to promote its existing platform direct to consumers and businesses, and to the groups that most need access to it. Specifically,
independent brokers, financial advisors and small to medium sized businesses need access. Brokers should see PreAxia as a superior
method of promoting and supporting HSAs that allow them to earn above average commission rates on invested funds. Financial advisors
should see PreAxia in a similar way as brokers except that there is the additional benefit of tax reduction. Small to medium sized
businesses, which are expected to drive the growth in business, should see PreAxia as offering financial savings to the company
and to employees by offering personal health care benefits through an HSA, along with the same conveniences they have come to expect from other services they
currently utilize over the Internet. It is expected that the group benefits market will subsequently follow as they too realize
the advantages of PreAxia over their current HSA offerings. PreAxia has begun and will continue to seek opportunities with lead
customers and alliance partners to establish reference-able, high-profile implementations and market-leading, early-adopter firms
for further developing innovative products and services. The company intends to design solutions targeted towards corporate financial
management, financial risk, audit management and cash management while targeting product/service management as a support to financial
management.
We anticipate that the prime target
for services will be small to medium sized organizations that are not adequately served by the current insurance and group benefits
offerings. These organizations should realize significant benefits in both cost and time savings by utilization of PreAxia technology
while providing their employees with an increased level of benefits.
PreAxia intends to achieve service volume
and the associated economies of scale through marketing directly to select target customers that provide the necessary transaction
volumes, through market specific channel partners and through an education based public relations strategy geared to the small
to mid-sized employers including the brokers and financial advisors utilized by these businesses. The channel strategy is supported
in the solution design, as multiple channel partners will require branding and our company’s fee charging/collection capabilities.
It is our company’s intention
that brokers and financial advisors will aggressively promote their PreAxia supported HSA offerings due to the quality of product,
higher margins and because of the non-competitive relationship with PreAxia.
PreAxia has identified the following
“channels” through which it will target prime end market customers:
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Independent brokers that sell, or desire to sell, Health Spending Accounts
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Financial advisors who manage funds and advise on tax saving strategies for individuals and corporations
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Accountants and bookkeepers who regularly advise businesses on financial and operational matters
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Benefits managers/adjudicators, including insurance, health or outsourced government benefits processors that manage benefits disbursement
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Issuer banks, including partner banks that enable the issuance of Health Cards and/or sell insurance products
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Application providers, including software manufacturers selling into the target vertical markets
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Professional services, including consulting, development and implementation companies serving the target vertical markets
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PreAxia intends to establish several
key customer reference accounts, channel marketing partners and technology alliances. These corporate relationships are relevant
to advancing our company’s goals in 2018 and beyond for achieving a prime position in the Canadian marketplace and establishing
a solid service foundation.
Competitive Business Conditions and
our Company’s Competitive Position in the Industry and Methods of Competition
PreAxia intends to offer a combination of products
and services in its solution. However, there are other providers of components or versions of the Health Card value proposition
in the marketplace. Our company is taking a different approach by providing a high value added and robust capability within specific
target markets, rather than the “one size fits all” and mass volume approach of the larger companies in the Canadian
and international market. The following are some of the leading providers of products and services that are or may be potential
competitors in PreAxia’s target markets:
Canadian Market:
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Pay Linx Financial Corporation is presently inactive, but was
a company offering prepaid debit card payment solutions that integrated into the Interac and MasterCard financial networks in North
America. Pay Linx Financial Corporation was presently 27.0% owned by Royal Bank of Canada and provided services to Royal Bank of
Canada for Canadian governments through
Quick Linx TM,
replacing cheque and voucher payments.
-
Direct Cash Income Fund offers prepaid debit and credit cards
and processes cash card transactions. In addition, Direct Cash Income Fund provides ATM and debit terminal transaction processing,
sales and maintenance.
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Card One 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.
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Hyper WALLET 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.
-
Next Wave Wireless Inc. is a joint venture between Money Mart
and Data Wave Systems Inc., established to provide card issuance solutions including prepaid debit and credit cards. ”Next
Wave Titanium” prepaid cards issued by Money Mart support loading from Money Mart transactions, such as cheque cashing, bill
payment and ATM cash withdrawal.
-
Data Wave 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. Data Wave Systems Inc. is owned by InComm, a global provider of prepaid services. Data Wave
Systems Inc. also powers the Peoples Trust Company’s card service initiative, “Horizon Plus”, which is the contracted
provider of “Titanium” card services.
International Market:
-
Orbiscom Inc. is in an alliance with MasterCard to offer “custom
use cards” that can be issued by MasterCard banks and provides for restricted authorizations (by merchant, merchant type
or geography) as well as instant issuance.
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Comdata Corporation offers “controlled spending solutions”,
with enhanced authorization and “real time” transfer of funds to payees, including government program payments.
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Affiliated Computer Services Inc. (ACS) is penetrating the U.S.
government benefits card issuance marketplace through MasterCard prepaid cards that support “no fee” ATM cash withdrawals
through participating ATM networks. ACS provides these services for a range of governmental benefits programs.
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Metavante Corporation is owned by Marshall & Ilsley Corporation
and provides a wide range of payments products and services.
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Blackhawk Network is owned by Safeway and is a provider of the
“gift card mall”, which can be used at participating merchants only. These cards are Visa, MasterCard or American Express
branded and are activated at the POS.
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InComm is expanding its prepaid card services network “Fastcard”
through an arrangement with Green Dot Corporation, which is a leading network of reloadable debit cards and processes for the MasterCard
“repower” POS-based load network for prepaid cards.
Intellectual Property and Patent Protection
At present, PreAxia does not have any
pending or registered patents or any trademarks.
Plan of Operation
Over the next twelve months, we plan to:
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(a)
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Raise additional capital to execute our business plans;
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(b)
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Penetrate the health care processing markets in Canada, the United States and worldwide, by continuing to develop innovative health care processing products and services;
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(c)
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Build up a network of strategic alliances with several types of health insurance companies, governments and other alliances in various vertical markets; and
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(d)
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Fill the positions of senior management sales, administrative and engineering positions.
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Liquidity and Capital Resources
As of August 31, 2018, PreAxia’s cash
balance was $3,051 compared to $7,608 as at May 31, 2018. Our Company will be required to raise capital to fund our
operations. PreAxia’s cash on hand is currently its only source of liquidity. PreAxia had a working
capital deficit of $1,455,540 as of August 31, 2018 compared with a working capital deficit of $1,400,196 as of May 31, 2018.
Our ability to meet our financial liabilities
and commitments is primarily dependent upon the continued issuance of equity to new stockholders and our ability to achieve and
maintain profitable operations. PreAxia's cash and cash equivalents will not be sufficient to meet its working capital
requirements for the next twelve-month period. We will not initially have any cash flow from operating activities
as we are in the startup stage. We project that we will require an estimated $2,900,000 over the next twelve-month
period to fund our working capital deficit of approximately $1,450,000 plus an additional $1,450,000 to complete our business plan. Our
company plans to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our
estimated funding requirements for the next twelve months primarily through the private placement of our equity securities or by
way of loans or such other means as PreAxia may determine.
There are no assurances that we will be able
to obtain funds required for our continued operations. There can be no assurance that additional financing will be available
to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to
obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we
will be forced to scale down or perhaps even cease the operation of our business.
There is substantial doubt about our ability
to continue as a going concern as the continuation of our business is dependent upon obtaining further long-term financing, successful
and sufficient market acceptance of our products and achieving a profitable level of operations. The issuance of additional
equity securities by us could result in a significant dilution in the equity interests
of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our
liabilities and future cash commitments.
Our working capital (deficit) as at August
31, 2018 compared to May 31, 2018 is summarized as follows:
Working Capital
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August 31,
2018
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May 31,
2018
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Current Assets
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$
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3,051
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$
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7,608
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Current Liabilities
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(1,458,591
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)
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(1,407,804
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)
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Working Capital (deficit)
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$
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(1,455,540
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)
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$
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(1,400,196
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)
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The increase in our working capital deficit
of $55,344 was primarily due to an increase in our accounts payable - related party and an increase in loans payable - shareholders.
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 unaudited condensed consolidated financial statements for the three months ended August
31, 2018.
For the three month period ended August
31, 2018 and August 31, 2017
Our operating results for the three month period
ended August 31, 2018 compared to the three month period ended August 31, 2017 are described below:
Revenue
We have not earned any revenues since our inception
and we do not anticipate earning revenues until such time as we have completed the development of our Health Card software and
obtained new customers.
Expenses
Our operating loss for the three months period
ended August 31, 2018 was $55,344 compared to $50,114 for the three months period ended August 31, 2017. The increase in loss of
$5,230 for the three month period ending August 31, 2018 is due to a decrease in consulting fees of $2,594, an increase in professional
fees of $3,521, an increase in research and development of $1,228 and an increase of $3,075 in office and administration fees.
Consulting Fees
During the three months ended August 31, 2018
and 2017, Tom Zapatinas, the Chief Executive Officer and Director of the Company, earned $30,000 and $30,000, respectively, for
consulting services provided to the Company.
Consulting fees during the three month period
ended August 31, 2018 decreased by $2,594 due to the completion of certain marketing strategies.
Research and Development
Research and development expenses during the
three month period ended August 31, 2108 increased by $1,228 as web updates and platform development were being completed in the
current quarter.
Wages and Benefits
There were no wages and benefits during the
three months period ended August 31, 2018 or August 31, 2017.
Office and Administration
Office and administration
expenses increased by $3,075
for the period ended
August 31, 2018 due to an increase in travel expenses.
Professional Fees
Professional fees during the three months ended
August 31, 2018 increased by $3,521 due to the timing of our annual audit.
Interest Expense
Interest expense is $0 for the three months
ended August 31, 2018 and 2017 because accounts payable and accrued liabilities – related party, convertible note payable
– related party and loans payable – shareholders are non-interest bearing.
Critical Accounting Policies
We have 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
In accordance with ASC 606, revenue is recognized
when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which
we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process
by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment
to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1)
identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction
price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as,
we satisfy the performance obligation.
Software Development Costs
The Company accounts for software development
costs in accordance with several accounting pronouncements, including FASB ASC 730, Research and Development, FASB ASC 350-40,
Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed and FASB ASC 350-50, Website Development
Costs
.
Costs incurred during the period of planning
and design, prior to the period determining technological feasibility, for all software developed for use internal and external,
has been charged to operations in the period incurred as research and development costs. Additionally, costs incurred after
determination of readiness for market have been expensed as research and development.