PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. - Quarter Report: 2009 November (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
R
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
quarterly period ended November 30, 2009
or
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£
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from ______
to ________
Commission
File Number: 0000-52365
PREAXIA HEALTH CARE PAYMENT
SYSTEMS INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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20-4395271
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification
No.)
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#207-1410-11th
Avenue S.W., Calgary, Alberta
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T3C 0M8
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(Address
of principal executive offices)
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(Zip
Code)
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(403)
850-4120
(Registrant’s telephone
number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
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.
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(1)
Yes [X] No [ ]
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|
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(2)
Yes [X] No [ ]
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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).
|
(1)
Yes [ ] No
[ ]
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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.
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Large
accelerated filer
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[ ]
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Accelerated
filer
|
[ ]
|
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Non-accelerated
filer
|
[ ]
|
Smaller
reporting company
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[X]
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|
(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).
|
(1)
Yes [ ] No [X]
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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 [ ]
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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.
15,750,000
common shares outstanding as of January 12, 2010
2
PREAXIA
HEALTH CARE PAYMENT SYSTEMS INC.
TABLE
OF CONTENTS
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Page
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PART
I – FINANCIAL INFORMATION
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Item
1. Financial Statements
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3 |
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Item
2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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4 |
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Item
3. Quantitative and Qualitative Disclosures About Market
Risk
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7 |
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Item
4T. Controls and Procedures
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7 |
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PART
II- OTHER INFORMATION
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Item
1. Legal Proceedings
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8 |
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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8 |
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Item
3. Defaults Upon Senior Securities
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8 |
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Item
4. Submission of Matters to a Vote of Security
Holders
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9 |
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Item
5. Other Information
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9 |
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Item
6. Exhibits
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9 |
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Signatures
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10 |
i
PART
I
ITEM
1. FINANCIAL
STATEMENTS
The
accompanying unaudited 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 six month period ended November 30, 2009, are not necessarily indicative
of the results that may be expected for the fiscal year ending May 31,
2010. For further information refer to the financial statements and
footnotes thereto included in the Company’s Annual Report on Form 10-K for the
year ended May31, 2009.
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Page
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Unaudited
Consolidated Financial Statements
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Consolidated
Balance Sheets
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F-1 |
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Unaudited
Consolidated Statements of Operations and Comprehensive
Loss
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F-2 |
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Unaudited
Statements of Cash Flows
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F-3 |
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Notes
to Unaudited Consolidated Financial Statements
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F-4 to F-7 |
3
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PREAXIA
HEALTH CARE PAYMENT SYSTEMS INC.
(A
Development Stage Company)
UNAUDITED
CONSOLIDATED BALANCE SHEETS
November
30, 2009 and May 31, 2009
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||||||||
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November
30, 2009
(Unaudited)
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May
31,
2009
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|||||||
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Current
assets
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||||||||
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Cash
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$ | 25,753 | $ | 23,593 | ||||
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Other
receivables
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- | 712 | ||||||
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Rent
deposit
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1,205 | - | ||||||
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Total
current assets
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$ | 26,958 | $ | 24,305 | ||||
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LIABILITIES
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||||||||
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Current
Liabilities
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||||||||
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Accounts
payable and accrued liabilities
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$ | 84,991 | $ | 53,410 | ||||
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Accounts
payable – related party (Note 3)
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270,253 | 161,264 | ||||||
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Loan
payable – related party (Note 3)
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25,207 | 25,898 | ||||||
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Loans
payable
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134,758 | 18,242 | ||||||
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Convertible
debenture including accrued interest, net
of discount (Note
4)
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51,155 | $ | 41,711 | |||||
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Total
current liabilities
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$ | 566,364 | 300,525 | |||||
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STOCKHOLDERS’
EQUITY (DEFICIT)
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||||||||
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Capital
stock, $0.001 per value
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||||||||
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75,000,000
shares authorized
15,750,000
shares issued and outstanding on November 30, 2009 and
May 31, 2009.
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15,750 | 15,750 | ||||||
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Additional
paid-in capital
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65,464 | 65,464 | ||||||
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Accumulated
other comprehensive income (loss)
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(1,276 | ) | 143 | |||||
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Total
stockholders' equity (deficit)
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(539,406 | ) | (276,220 | ) | ||||
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Total
Liabilities and Stockholders' Equity (Deficit)
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$ | 26,958 | $ | 24,305 | ||||
SEE
ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
F-1
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PREAXIA
HEALTH CARE PAYMENT SYSTEMS INC.
(A
Development Stage Company)
Unaudited
Consolidated Statements of Operations and Comprehensive Loss
For
the three and six month periods ended November 30, 2009 and 2008
and
for
the period from January 28, 2008 (Date of Inception) to November 30,
2009
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||||||||||||||||||||
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For
the three months ended
November
30,
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For
the six months ended
November
30,
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January
28, 2008
(Date
of Inception) to
November
30, 2009
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||||||||||||||||||
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2009
|
2008
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2009
|
2008
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|||||||||||||||||
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Revenues
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$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
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Expenses
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||||||||||||||||||||
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Amortization
of debt discount
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937 | 7,124 | 8,119 | 7,124 | 28,495 | |||||||||||||||
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Consulting fees
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70,188 | 75,213 | 113,263 | 141,105 | 316,952 | |||||||||||||||
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Professional
Fees
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17,141 | 20,892 | 43,221 | 44,609 | 114,753 | |||||||||||||||
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Office
and administration
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26,571 | 9,426 | 49,962 | 21,294 | 95,463 | |||||||||||||||
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Research
and development
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- | - | - | - | 10,770 | |||||||||||||||
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Wages
and benefits
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25,028 | - | 41,374 | - | 41,374 | |||||||||||||||
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Rent
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3,879 | - | 5,729 | - | 5,729 | |||||||||||||||
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Operating
Loss
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(143,744 | ) | (112,655 | ) | (258,668 | ) | (214,132 | ) | (613,536 | ) | ||||||||||
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Interest
income
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- | - | - | 616 | 616 | |||||||||||||||
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Interest
expense
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(1,152 | ) | - | (3,099 | ) | - | (6,424 | ) | ||||||||||||
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Net
loss
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(144,896 | ) | (112,655 | ) | (261,767 | ) | (213,516 | ) | (619,344 | ) | ||||||||||
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Other
comprehensive income (loss):
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||||||||||||||||||||
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Foreign
currency translation adjustment
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(370 | ) | (2,336 | ) | (1,419 | ) | (4,023 | ) | (1,276 | ) | ||||||||||
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Comprehensive
loss for the period
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$ | (145,266 | ) | $ | (114,991 | ) | $ | (263,196 | ) | $ | (217,539 | ) | $ | (620,620 | ) | |||||
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Basic
and diluted loss per share
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$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||||||
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Weighted
Average number of shares outstanding
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15,750,000 | 15,750,000 | 15,750,000 | 15,750,000 | ||||||||||||||||
SEE
ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
F-2
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PREAXIA
HEALTH CARE PAYMENT SYSTEMS INC.
(A
Development Stage Company)
Unaudited
Consolidated Statements of Cash Flows
For
the three and six month periods ended November 30, 2009 and 2008
and
for
the period from January 28, 2008 (Date of Inception) to November 30,
2009
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||||||||||||
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For
the six months ended
November
30,
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January
28, 2008
(Date
of Inception) to
November
30, 2009
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|||||||||||
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2009
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2008
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|||||||||||
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Cash
flows from operating activities:
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||||||||||||
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Net
loss
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$ | (271,767 | ) | $ | (213,516 | ) | $ | (619,344 | ) | |||
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Amortization
of debt discount
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8,119 | 7,124 | 28,495 | |||||||||
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Accrued
interest
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1,325 | 677 | 4,650 | |||||||||
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Tax
refund receivable
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- | - | (678 | ) | ||||||||
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Decrease
(increase) in trade receivables
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703 | (507 | ) | 5,003 | ||||||||
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Decrease
(increase in prepaid expenses
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(1,205 | ) | - | (1,205 | ) | |||||||
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Increase
in accounts payable – related party
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108,989 | 56,360 | 165,349 | |||||||||
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Increase
in accounts payable and accrued liabilities
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31,581 | 38,160 | 115,242 | |||||||||
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Cash
flows used in operating activities
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(112,255 | ) | (111,702 | ) | (302,488 | ) | ||||||
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Cash
Flows from Investing Activity
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||||||||||||
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Cash
received from note receivable
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- | - | 49,281 | |||||||||
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Cash
acquired from business combination
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- | - | 86,692 | |||||||||
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Cash
Flows Provided By Investing Activities
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- | - | 135,973 | |||||||||
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Cash
Flows from Financing Activities
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||||||||||||
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Proceeds
from (repayment of) loan payable – related party
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(703 | ) | 7,663 | 43,888 | ||||||||
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Proceeds
from loan payable
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116,516 | - | 116,516 | |||||||||
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Proceeds
from loan payable –convertible debenture
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- | 46,505 | 46,505 | |||||||||
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Repayment
of loan payable
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- | - | (25,000 | ) | ||||||||
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Proceeds
from sale of common stock
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- | - | 12,047 | |||||||||
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Cash
flows provided by financing activities
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115,813 | 54,168 | 193,956 | |||||||||
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Effect
of exchange rate on cash
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(1,398 | ) | (3,963 | ) | (1,688 | ) | ||||||
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Cash,
beginning of period
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23,593 | 86,574 | - | |||||||||
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Cash,
end of period
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$ | 25,753 | $ | 25,077 | $ | 25,753 | ||||||
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Supplemental
disclosure:
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||||||||||||
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Non-cash
transactions:
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- | |||||||||||
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Common
stock issued for acquisition of subsidiary
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$ | 12,000 | ||||||||||
SEE
ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
F-3
PREAXIA HEALTH CARE PAYMENT SYSTEMS
INC.
(A Development Stage
Company)
NOTES TO
THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the
six months ended November 30, 2009 and the
period
from January 28, 2008 (Date of Inception) through November 30, 2009
Note
1- Basis of presentation
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 United 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, 2009.
The
interim consolidated financial statements present the balance sheets, statements
of operations and comprehensive loss and cash flows of the Company and
wholly-owned subsidiary Preaxia Health Care Payment System Inc. (“Preaxia
Canada”)(formerly H-Pay Card Ltd.) These consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States.
The
interim consolidated financial information is unaudited. In the
opinion of management, all adjustments necessary to present fairly the financial
position as of November 30, 2009, 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 policies
Nature
and Continuance of Operations
The
Company is in the development stage and has not yet realized any revenues from
its planned operations.
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.
These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
assumes that the Company will be able to meet its obligations and continue its
operations for its next fiscal year. Realization values may be
substantially different from carrying values as shown and these financial
statements do not give effect to adjustments that would be necessary to the
carrying values and classification of assets and liabilities should the Company
be unable to continue as a going concern. At November 30, 2009, the
Company had not yet achieved profitable operations, has accumulated losses of
$619,344 since inception, has negative working capital of $539,406 and expects
to incur further losses in the development of its business, all of which raises
substantial doubt about the Company’s ability to continue as a going
concern. The Company’s ability to continue as a going concern is
dependent upon its ability to generate future profitable operations and/or to
obtain the necessary financing to meet its obligations and repay its liabilities
arising from normal business operations when they come
due. Management has no formal plan in place to address this concern
but believes the Company will be able to obtain additional funds by equity
financing and/or related party advances, however there is no assurance of
additional funding being available.
F-4
PREAXIA
HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage
Company)
NOTES TO
THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the
six months ended November 30, 2009 and the
period
from January 28, 2008 (Date of Inception) through November 30, 2009
Note
2 – Summary of significant accounting policies (continued)
Use
of Estimates in the preparation of the financial statements
The
preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in these financial statements and
accompanying notes. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments with an original maturity
of three months or less to be cash equivalents.
Foreign
Currency Translation
The
functional currency of the Company is the United States dollar. The
functional currency of Preaxia Canada is the Canadian dollar. Assets and
liabilities in the accompanying financial statements are translated 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
gain (loss) account in Stockholders’ Equity (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 Company
The
Company is a development stage company as defined in Statement of Financial
Accounting Standards No. 7. The Company is devoting substantially all
of its present efforts to establish a new business and none of its planned
principal operations have commenced. All losses accumulated since
inception has been considered as part of the Company’s development stage
activities.
Gain
(Loss) Per Share
Gain
(loss) per share of common stock is computed by dividing the net loss by the
weighted average number of common shares outstanding during the
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-5
PREAXIA
HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage
Company)
NOTES TO
THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the
six months ended November 30, 2009 and the
period
from January 28, 2008 (Date of Inception) through November 30, 2009
Note
2 – Summary of significant accounting policies (Continued)
Stock-based
Compensation
The
Company has elected to account for stock-based compensation following APB No.
25, Accounting for Stock Issued to Employees, and provide the disclosure
required under SFAS No. 123, “Accounting for Stock-based Compensation, as
amended by SFAS No. 148, “Accounting for Stock-based Compensation – Transition
and Disclosure, an amendment of SFAS Statement No. 123.”
New
Accounting Standards
Recently
Issued Accounting Pronouncements
In June
of 2009, the Financial Accounting Standards Board (FASB) issued Statement No.
168, The FASB Accounting
Standards Codification™, and the Hierarchy of Generally Accepted
Accounting Principles – a replacement of FASB Statement No. 162. The
Codification will become the source of authoritative U.S. generally accepted
accounting principles (GAAP) to be applied to nongovernmental
entities. The Codification will include only two levels of GAAP,
authoritative and non-authoritative. Authoritative Statements will
include FASB Standards and rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws applicable
to SEC registrants. All other non-SEC and non-FASB accounting and
reporting literature and standards will become non-authoritative as of the
effective date of Statement No. 168. The Codification will
hereafter only be modified by Accounting Standards Updates, which will replace
Statements, FASB Staff Positions, and Emerging Issues Task Force
Abstracts. Statement No. 168 is effective for interim and annual
reporting periods ending after September 15, 2009. Adoption of this
Statement will have no impact on the Company’s financial reporting.
Statement
of Financial Accounting Standards (“SFAS”) No. 165 (ASC Topic 855), “Subsequent
Events”, SFAS No. 166 (ASC Topic 810), “Accounting for Transfers of Financial
Assets-an Amendment of FASB Statement No. 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.
Accounting
Standards Update (“ASU”) ASU No. 2009-05 (ASC Topic 820), which amends Fair
Value Measurements and Disclosures – Overall, ASU No. 2009-13 (ASC Topic 605),
Multiple Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985),
Certain Revenue Arrangements that include Software Elements, and various other
ASU’s No. 2009-2 through ASU No. 2009-15 which contain technical corrections to
existing guidance or affect guidance to specialized industries or entities were
recently issued. These updates have no current applicability to the Company or
their effect on the financial statements would not have been
significant.
None of
the above new pronouncements has current application to the Company, but may be
applicable to the Company's future financial reporting.
Other
The
Company has selected May 31 as its year-end and the Company paid no dividends in
2009.
F-6
PREAXIA
HEALTH CARE PAYMENT SYSTEMS INC.
(A Development Stage
Company)
NOTES TO
THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the
six months ended November 30, 2009 and the
period
from January 28, 2008 (Date of Inception) through November 30, 2009
Note
2 – Summary of significant accounting policies (Continued)
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 a net loss of
$619,344 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 cumulative net losses 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 3 – Related Party
Transactions
Accounts
Payable
During
the six month period ended November 30, 2009 the Company’s president, Tom
Zapatinas, invoiced $60,000 for management services rendered to the Company for
the period June 1 to November 30, 2009. As at November 30, 2009
Accounts payable – related party includes a total of $221,099 due and payable to
Mr. Zapatinas.
During
the six month period ended November 30, 2009, Lizée Gauthier, Certified General
Accountants, of which our CFO, Ron Lizée is the sole proprietor, invoiced
$30,744 for accounting services rendered. As at November 30, 2009
Accounts payable – related party includes a total of $49,154 due and payable to
Mr. Lizée.
Loan
Payable
During
the six month period ended November 30, 2009 the Company’s president received
payment of $703 for operating expenses of the wholly-owned subsidiary Preaxia
Canada which amount is included as a related party loan payable on the Company’s
balance sheet. The related party loan totaled $25,207 as at November
30, 2009.
Note
4 – Convertible Debenture
On
September 12, 2008, the Company accepted funds in the amount of $46,505 USD
($50,000 CDN) as a convertible debenture from a stockholder of the
Company. The debenture is for a period of one year and bears
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 six months ended November 30, 2009 the Company
recorded amortization of loan discount in the amount of $8,119. The
discount has been fully amortized as at November 30, 2009. The
Company is in discussion with the lender regarding possible conversion of note
to shares or the renewal of the note for a further
year.
Note
5 – Comparative financial statements
The
comparative balance sheet for the fiscal year ended May 31, 2009 has been
reclassified from statements previously presented to conform to the presentation
of the November 30, 2009 consolidated balance sheet.
Note
6 – Subsequent Events
Subsequent
to November 30, 2009, the Company received $50,000 in loan
advances. The loans are non-interest bearing and have a term of one
year from the date of issuance.
The
Company has evaluated subsequent events from the balance date through January
11, 2009, and determined that there are no other items that require
disclosure.
F-7
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 the
Company to sustain, manage or forecast its growth; the ability of the Company 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. The
Company 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.
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, 2009,
together with notes thereto. As used in this quarterly report, the terms
"we", "us", "our", and the "Company" means PreAxia Health Care Payment
Systems Inc. and its wholly-owned subsidiary, PreAxia Health Care Payment System
Inc. (formerly H Pay Card Ltd..), unless the context clearly requires
otherwise.
General
Overview
The
Company was incorporated on April 3, 2000 in the State of Nevada as SunWorld
Partners Inc. On May 30, 2008, the Company finalized the execution of
an acquisition agreement between the Company and various parties whereby PreAxia
Health Care Payment System Inc. (formerly H Pay Card Inc.)(“PreAxia Canada”)
became a direct, wholly-owned subsidiary of the Company.
On
December 11, 2008 the Company changed its name to PreAxia Health Care Payment
Systems Inc.
PreAxia
Canada was incorporated pursuant to the laws of the Province of Alberta on
January 28, 2008. Since inception of PreAxia Canada, its business
objective has been the development, distribution, marketing and sale of health
care payment processing services and products.
The
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.
4
PreAxia
Canada is a company which intends to deliver a comprehensive suite of solutions
and services directed at the emerging health payment market, specifically the
opportunities tied to the growth of health spending accounts
(“HSA”). There is a rapid shift in healthcare traditional payment
models to consumer-directed healthcare that is creating significant
opportunities for financial services and insurance industries to deliver new
dynamic products to this emerging market.
Spawned
by the need to address escalating health care costs, changes in the regulatory
environment and the growing consumer desire for greater participation in the
management of their health benefits, the boundaries between health care and the
financial services industries are becoming increasingly blurred. With
the trend towards self-directed health payment solutions and the growing demand
for faster, easier and more convenient benefit services, the insurance and
benefits industries are banking on HSA medical payments being their next big
growth conduit. Studies suggest that HSAs in the US will grow
to over $75 billion in assets and 25 million consumers by
2015. This coupled with the continued growth of the Canadian
group insurance industry illustrates the emerging opportunity for innovative
health payment services. We intend to initially launch our products
in Canada. We 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.
Plan of Operation
Over the
next twelve months, we plan to:
(a) Raise
additional capital to execute our business plan;
(b) Penetrate
the health care processing market in Canada, and worldwide, by continuing to
develop innovative health care processing products and services;
(c) Build
up a network of strategic alliances with several types of health insurance
companies, governments and other alliances in various vertical
markets;
(d) Fill
the positions of senior management sales, administrative and
engineering.
Cash
Requirements
After a
further review of business opportunities with industry consultants, for the next
twelve months and given that we meet our forecasted expenses, we plan to spend a
total of approximately $1,840,000 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 $1,840,000 to complete the
year. Our working capital requirements for both the Company and
PreAxia Canada for the next twelve months are estimated at $1,840,000 as
follows:
|
Estimated
Expenses:
|
$ | |||
|
General
and administrative
|
400,000 | |||
|
Research
and development
|
600,000 | |||
|
Marketing
and education
|
600,000 | |||
|
Staff
and Professional Services
|
240,000 | |||
|
Total
|
$ | 1,840,000 |
5
|
1.
|
General and Administrative:
We anticipate spending approximately $400,000 on general and
administration costs in the next twelve months, which will include staff
wages, office rent, office supplies, transfer agents, filing fees, bank
service charges, interest expense and travel, which includes airfare,
meals, car rentals and accommodations.
|
|
|
2.
|
Research and
Development: We anticipate that we may spend
approximately $600,000 in the next twelve months on consulting fees
for programmers and in the development and acquisition of
software for our processing services and products.
|
|
|
3.
|
Marketing and
Education: We anticipate spending approximately $600,000 as
the costs of marketing and promoting our Company, our products and
services, and educating the public to attract new
accounts.
|
|
|
4.
|
Professional
Services: We anticipate that we may spend up to $240,000
in the next twelve months for professional services, which includes,
accounting, auditing and legal fees.
|
|
Liquidity
and Capital Resources
As of
November 30, 2009, the Company’s cash balance is $25,753, compared to $23,593 as
at May 31, 2009. Our Company will be required to raise capital to
fund our operations. The Company’s cash on hand is currently our only
source of liquidity. The Company had a working capital deficit of
$539,406 as of November 30, 2009 compared with a working capital deficit of
$276,220 as of May 31, 2009. 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. The Company's cash and cash equivalents will
not be sufficient to meet our 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 with the
Company. We project that we will require an estimated
additional $1,840,000 over the next twelve month period to fund our operating
cash shortfall. 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 the Company may determine. During the year ended May 31,
2009, 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 six (6)
months ended November 30, 2009, we obtained additional loans in the amount of
$116,516. 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 November 30, 2009 compared to May 31, 2009 are
summarized as follows:
Working
Capital
|
November
30,
2009
|
May
31,
2009
|
|||||||
|
Current
Assets
|
$ | 26,958 | $ | 24,305 | ||||
|
Current
Liabilities
|
566,364 | 300,525 | ||||||
|
Working
Capital (deficit)
|
$ | (539,406 | ) | $ | (276,220 | ) | ||
The
increase in our working deficit of $263,186 was primarily due to increases in
our accounts payable to related parties and loans payable.
6
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,
2009.
Our
operating results for the six months ended November 30, 2009 compared to the six
months ended November 30, 2008 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
loss for the 6 months ended November 30, 2009 was $261,767 compared to $213,516
for the six months ended November 30, 2008. The increase in loss of
$48,251 for the six months ending November 30, 2009 is due to increases in
expenses of $995 for amortization of debt discount, $25,668 for office and
administration, $41,374 for wages and benefits, increase of $5,729 for rent,
$3,715 for interest expenses and a decrease in the amount of $27,842 for
consulting fees and a decrease of $1,388 for professional fees.
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
The
Company recognizes revenue in accordance with the provision of the Securities
and Exchange Commission Staff Accounting Bulletin ("SAB") No. 104 which
establishes guidance in applying generally accepted accounting principles to
revenue recognition in financial statements. SAB No. 104 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.
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 are material to
stockholders.
ITEM
3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
4T.
CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended (Exchange Act), as of August 31, 2009. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective in alerting
them on a timely basis to material information relating to our Company required
to be included in our reports filed or submitted under the Exchange
Act.
7
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to our management, including our principal
executive officer and our principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure.
Management’s
Report On Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined under Exchange Act Rules 13a-15(f)
and 14d-14(f). Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
All
internal control systems, no matter how well designed, have inherent limitations
and may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can only provide reasonable assurance with
respect to financial reporting reliability and financial statement preparation
and presentation. In addition, projections of any evaluation of
effectiveness to future periods are subject to risk that controls become
inadequate because of changes in conditions and that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of November 30, 2009. In making the assessment,
management used the criteria issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on its assessment, management concluded that,
as of November 30, 2009, the Company’s internal control over financial reporting
was effective.
Changes
in Internal Control Over Financial Reporting
As of
November 30, 2009, management assessed the effectiveness of our internal control
over financial reporting and based on that evaluation, they concluded that
during the quarter ended and to date, the internal controls and procedures were
effective. During the course of our evaluation, we did not discover any fraud
involving management or any other personnel who play a significant role in our
disclosure controls and procedures or internal controls over financial
reporting.
This
quarterly report does not include an attestation report of the Company’s
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to the temporary rules of
the Securities and Exchange Commission that permit the Company to provide only
management’s report in this quarterly report.
There
were no changes in our internal control over financial reporting during the
quarter ended November 30, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II – OTHER INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
The
Company is not a party to any legal proceedings and is not aware of any pending
legal proceedings as of the date of this Form 10-Q.
ITEM
2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered
Sales of Equity Securities
There
were no unregistered sales of equity securities during the three month period
ending November 30, 2009.
ITEM
3.
DEFAULTS UPON SENIOR SECURITIES
The
Company does not have any senior securities as of the date of this Form
10-Q.
8
ITEM
4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5.
OTHER INFORMATION
Subsequent
to November 30, 2009, the Company received $50,000 in loan
advances. The loans are non-interest bearing and have a term of one
year from the date of issuance.
ITEM
6.
EXHIBITS
|
3.1
|
Articles
of Incorporation
|
Incorporated
by reference to the Exhibits filed with the Form SB-2 filed with the SEC
on March 16, 2006
|
|
3.1(i)
|
Amended
Articles of Incorporation
|
Incorporated
by reference to the Exhibits filed with Schedule 14C on November 14,
2008
|
|
3.2
|
Bylaws
|
Incorporated
by reference to the Exhibits filed with the Form SB-2 filed with the SEC
on March 16, 2006
|
|
10.1
|
Letter
of Intent, 2008 between the Company and Preaxia Health Care Payment System
Inc. (formerly H-Pay Card Ltd.)
|
Incorporated
by reference to the Exhibits filed with Form 8-K on March 5,
2008
|
|
22.1
|
Notice
of Annual Meeting of Shareholders
|
Incorporated
by reference to our Definitive Schedule 14C filed with the SEC on December
28, 2009
|
|
31.1
|
Section
302 Certification- Principal Executive Officer
|
Filed
herewith
|
|
31.2
|
Section
302 Certification- Principal Financial Officer
|
Filed
herewith
|
|
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
Filed
herewith
|
|
32.2
|
Certification
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
Filed
herewith
|
9
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 Payments Systems Inc.
|
|
|
Date: January
19, 2010
|
/s/Tom
Zapatinas
|
|
Name:
Tom Zapatinas
|
|
|
Title:
Principal Executive Officer
|
|
|
Date: January
19, 2010
|
/s/Ron
Lizee
|
|
Name:
Ron Lizee
|
|
|
Title:
Principal Financial Officer
|
10