ITEM 1. BUSINESS
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.
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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.
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PreAxia’s 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:
Independent brokers that sell, or desire to sell, Health Spending Accounts
Financial advisors who manage funds and advise on tax saving strategies for individuals and corporations
Managing General Agents that provide services and education to the broker community
Accountants and bookkeepers who regularly advise businesses on financial and operational matters
Benefits managers/adjudicators, including insurance, health or outsourced government benefits processors that manage benefits disbursement
Issuer banks, including partner banks that enable the issuance of Health Cards and/or sell insurance products
Application providers, including software manufacturers selling into the target vertical markets
Professional services, including consulting, development and implementation companies serving the target vertical markets
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PreAxia intends to establish several key customer reference accounts, channel marketing partners and technology alliances. These corporate relationships are relevant to advancing our company’s goals in 2016 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:
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 QuickLinxTM, replacing cheque and voucher payments. DirectCash Income Fund offers prepaid debit and credit cards and processes cash card transactions. In addition, DirectCash Income Fund provides ATM and debit terminal transaction processing, sales and maintenance. CardOne Plus Ltd. offers prepaid debit card products designed to support merchant specific programs, including card graphics and merchant account management. These products are certified for acceptance on multiple card scheme and ATM networks. HyperWALLET Systems Inc. offers a product offering “flexible debit card payment solutions” through Alterna Savings, HSBC and the Credit Union Central of British Columbia, Canada. It also offers pre- authorized debit, credit card, EFT and bill payment services. NextWave Wireless Inc. is a joint venture between Money Mart and DataWave Systems Inc., established to provide card issuance solutions including prepaid debit and credit cards. ”Nextwave Titanium” prepaid cards issued by Money Mart support loading from Money Mart transactions, such as cheque cashing, bill payment and ATM cash withdrawal. DataWave Systems Inc. provides prepaid card products for scheme cards as well as prepaid phone cards and prepaid wireless airtime. It offers “instant activation” through retail point of sale (“POS”) terminals. DataWave Systems Inc. is owned by InComm, a global provider of prepaid services. DataWave Systems Inc. also powers the Peoples Trust Company’s card service initiative, “HorizonPlus”, which is the contracted provider of “Titanium” card services.
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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. Comdata Corporation offers “controlled spending solutions”, with enhanced authorization and “real time” transfer of funds to payees, including government program payments. 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. Metavante Corporation is owned by Marshall & Ilsley Corporation and provides a wide range of payments products and services. 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. 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.
Intangible Properties
When negotiating its arrangements with clients, PreAxia intends to ensure that all rights to and ownership of its intellectual property remains with our company. We anticipate that source codes or other proprietary knowledge will be protected through agreements entered into between PreAxia and its employees and contractors, and additional high standards of confidentiality and protection of data are set by clients and regulatory authorities within the industry.
Intellectual Property and Patent Protection
At present, PreAxia does not have any pending or registered patents or any trademarks.
Research and Development
For the years ended May 31, 2016, and 2015, we expended $31,643 and $0 on research and development.
Employees
PreAxia has one full-time consultant, our President, Mr. Tom Zapatinas effective September 1, 2011. We anticipate that we will hire additional key staff throughout 2016/17 in areas of administration/accounting, business development, operations, sales/marketing, and research/development.
ITEM 1A. RISK FACTORS
Risks Related to our Company
We have a limited operating history.
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We are in the early stages of development and face risks associated with a new company in a growth industry. We may not successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire investment. Even if we accomplish these objectives, we may not generate positive cash flows or the profits we anticipate in the future.
PreAxia has a limited operational history. Our company has never paid dividends and has no present intention to pay dividends. Our company is in the early commercialization stage of its business and therefore will be subject to the risks associated with early stage companies, including uncertainty of revenues, markets and profitability and the need to raise additional funding. PreAxia will be committing, and for the foreseeable future will continue to commit, significant financial resources to marketing, product development and research. PreAxia’s business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stage of development. Such risks include the evolving and unpredictable nature of our company’s business, PreAxia’s ability to anticipate and adapt to a developing market, acceptance by consumers of our products and the ability to identify, attract and retain qualified personnel. There can be no assurance that PreAxia will be successful in doing what is necessary to address these risks.
We will need substantial additional financing in the future to continue operations.
Our ability to continue our present operations will be dependent upon our ability to obtain significant external funding. Additional sources of funding have not been established. We are exploring various financing alternatives. There can be no assurance that we will be successful in securing such financing at acceptable terms, if at all. If adequate funds are not available from the foregoing sources, or if we determine it is to otherwise be in our best interests, we may consider additional strategic financing options, including sales of assets.
We will require key personnel.
The financial services technology industry involves a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The success of PreAxia is dependent on the services of its senior management. The experience of these individuals will be a factor contributing to our company’s continued success and growth. The loss of one or more of its key employees could have a material adverse effect on our operations and business prospects. In addition, PreAxia’s future success will depend in large part on its ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. There can be no assurance that our company will be successful in attracting and retaining such personnel and the failure to do so could have a material adverse effect on our company’s business, operating results and financial condition.
We have additional financing requirements.
In order to accelerate PreAxia’s growth objectives, it will need to raise additional funds from lenders and equity markets in the future. There can be no assurance that our company will be able to raise additional capital on commercially reasonable terms to finance its growth objectives. The ability of our company to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as the business performance of our company. There can be no assurance that PreAxia will be successful in its efforts to arrange additional financing on terms satisfactory to our company. If additional financing is raised by the issuance of shares of common stock of our company, control of our company may change and stockholders may suffer additional dilution.
We may not be successful in the protection of intellectual property.
There can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against PreAxia or that any such assertions or prosecutions will not materially adversely affect our company’s business, financial condition or results of operations. Irrespective of the validity or the successful assertion of such claims, our company could incur significant costs and diversion of resources with respect to the defense thereof which could have a material adverse effect on our company’s business, financial condition or results of operations. Our company’s performance and ability to compete are dependent to a significant degree on its proprietary technology. There can be no assurance that the steps taken by our company will prevent misappropriation of its technology or that agreements entered into for that purpose will be enforceable. The laws of other countries may afford our company little or no effective protection of its intellectual property. Our company may in the future also rely on technology licenses from third parties. There can be no assurance that these third party licenses will be, or will continue to be, available to our company on commercially reasonable terms. The loss of, or inability of our company to maintain, any of these technology licenses could result in delays in completing its product enhancements and new developments until equivalent technology could be identified, licensed, or developed and integrated. Any such delays would materially adversely affect PreAxia’s business, results of operations and financial condition.
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Our disclosure controls and procedures and internal control over financial reporting are not effective, which may cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management evaluated our disclosure controls and procedures as of May 31, 2016 and concluded that as of that date, our disclosure controls and procedures were not effective. In addition, our management evaluated our internal control over financial reporting as of May 31, 2016 and concluded that there were material weaknesses in our internal control over financial reporting as of that date and that our internal control over financial reporting was not effective as of that date. A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected on a timely basis.
We have not yet remediated these material weaknesses and we believe that our disclosure controls and procedures and internal control over financial reporting continue to be ineffective. Until these issues are corrected, our ability to report financial results or other information required to be disclosed on a timely and accurate basis may be adversely affected and our financial reporting may continue to be unreliable, which could result in additional misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
Risks Related to our Business
We face competition and may not be able to compete successfully.
PreAxia may not be able to compete successfully against current and future competitors, and the competitive pressures PreAxia faces could harm its business and prospects. Broadly speaking, the market for financial services technology is competitive. There are other providers of components or versions of the Health Card value proposition in the marketplace. Additionally, the level of competition is likely to increase as current competitors improve their product offerings and as new participants enter the market. Many of PreAxia’s current and potential competitors have longer operating histories, larger customer bases, greater name and brand recognition and significantly greater financial, sales, marketing, technical and other resources than PreAxia.
Additionally, these competitors have research and development capabilities that may allow them to develop new or improved products that may compete with products PreAxia markets and distributes. New technologies and the expansion of existing technologies may also increase competitive pressures on PreAxia. Increased competition may result in reduced operating margins as well as loss of market share. This could result in decreased usage of PreAxia’s products and may have a material adverse effect on PreAxia’s business, financial condition and results of operations.
We may face implementation delays.
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Most of PreAxia’s customers will be in a testing or preliminary stage of utilizing PreAxia’s products and may encounter delays or other problems in the introduction of PreAxia’s products. A decision not to do so, or a delay in implementation, could result in a delay or loss of related revenue or could otherwise harm PreAxia’s businesses and prospects. PreAxia will not be able to predict when a customer that is in a testing or a preliminary use phase will adopt a broader use of PreAxia’s products.
We may get limited customer feedback respecting products.
PreAxia’s revenue will depend on the number of customers who use PreAxia’s products. Accordingly, the satisfactory design of PreAxia’s product is critical to PreAxia’s business, and any significant product design limitations or deficiencies could harm PreAxia’s business and market acceptance. This limited feedback may not have resulted in an adequate assessment of customer requirements. Therefore, the currently specified features and functionality of PreAxia’s product may not satisfy current or future customer demands. Furthermore, even if PreAxia identifies the feature set required by customers in PreAxia’s market, it may not be able to design and implement products incorporating features in a timely and efficient manner, if at all.
We may face a slowdown in developing markets.
The market for PreAxia’s product is relatively new and continues to evolve. If the market for PreAxia’s product fails to develop and grow, or if PreAxia’s product does not gain market acceptance, PreAxia’s business and prospects will be harmed.
Our ability to keep current with technological changes will impact our ongoing business.
The financial services technology industry is susceptible to technological advances and the introduction of new products utilizing new technologies. Further, the financial services technology industry is also subject to customer preferences and to competitive pressures which can, among other things, necessitate revisions in pricing strategies, price reductions and reduced profit margins. The success of PreAxia will depend on its ability to secure technological superiority in its product and maintain such superiority in the face of new products. No assurances can be given that the product of PreAxia will be commercially viable or that further modification or additional products will not be required in order to meet demands or to make changes necessitated by developments made by competitors which might render the product of PreAxia less competitive, less marketable, or even obsolete over time. The future success of PreAxia will be influenced by its ability to continue to develop new competitive products. There can be no assurance that research and development activities with respect to the development of new products and the improvement of its existing product will prove profitable, or that products or improvements resulting therefrom, if any, will be successfully produced and marketed.
The financial services technology industry is characterized by technological change, changes in user and customer requirements, new product introductions, new technologies, and the emergence of new industry standards and practices that could render PreAxia’s technology obsolete or have a negative impact on sales margins PreAxia’s product may command. PreAxia’s performance will depend, in part, on its ability to enhance its existing product, develop new proprietary technology that addresses the sophisticated and varied needs of its prospective customers, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of technology entails significant technical and business risks. There can be no assurance that PreAxia will be successful in using new technologies effectively or adapting its product to customer requirements or emerging industry standards.
We require strategic alliances.
PreAxia’s growth and marketing strategies are based, in part, on seeking out and forming strategic alliances and working relationships, as well as the performance of such strategic alliances and working relationships. General criteria to be used to assess potential alliances include the following: industry expertise, reputation and market position, complementary technologies or products, and nature and adequacy of resources.
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We may have problems with our resolution of product deficiencies.
Difficulties in product design, performance and reliability could result in lost revenue, delays in customer acceptance of PreAxias’s products, and/or lawsuits, and would be detrimental, perhaps materially, to PreAxia’s market reputation. Serious defects are frequently found during the period immediately following the introduction of new products or enhancements to existing products. Undetected errors or performance problems may be discovered in the future. Moreover, known errors which PreAxia considers minor may be considered serious by its customers. If PreAxia’s internal quality assurance testing or customer testing reveals performance issues and/or desirable feature enhancements, PreAxia could postpone the development and release of updates or enhancements to its current product or the release of new products. PreAxia may not be able to successfully complete the development of planned or future products in a timely manner, or to adequately address product defects, which could harm PreAxia’s business and prospects. In addition, product defects may expose PreAxia to liability claims, for which PreAxia may not have sufficient liability insurance. A successful lawsuit against PreAxia could harm its business and financial condition.
We may not be able to effectively manage our growth.
PreAxia may be subject to growth-related risks, including capacity constraints and pressure on its internal systems and controls. PreAxia’s ability to manage its growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The inability of PreAxia to deal with this growth could have a material adverse impact on its business, operations and prospects. PreAxia may experience growth in the number of its employees and the scope of its operating and financial systems, resulting in increased responsibilities for PreAxia’s personnel, the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage its current operations and any future growth effectively, PreAxia will also need to continue to implement and improve its operational, financial and management information systems and to hire, train, motivate, manage and retain its employees. There can be no assurance that PreAxia will be able to manage such growth effectively, that its management, personnel or systems will be adequate to support PreAxia’s operations or that PreAxia will be able to achieve the increased levels of revenue commensurate with the increased levels of operating expenses associated with this growth.
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We have negative cash flow and absence of profits.
PreAxia has not earned any profits to date and there is no assurance that it will earn any profits in the future, or that profitability, if achieved, will be sustained. A significant portion of PreAxia’s financial resources will continue to be directed to the development of its products and to marketing activities. The success of PreAxia will ultimately depend on its ability to generate revenues from its product sales, such that the business development and marketing activities may be financed by revenues from operations instead of external financing.
There is no assurance that future revenues will be sufficient to generate the required funds to continue such business development and marketing activities.
Our directors and officers may face conflicts of interest.
Certain directors and officers of PreAxia may become associated with other reporting issuers or other corporations which may give rise to conflicts of interest. Directors who have a material interest or any person who is a party to a material contract or a proposed material contract with PreAxia are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors are required to act honestly, and in good faith, with a view to the best interests of PreAxia, as the case may be.
Certain of the directors may have, other employment, other business, or time restrictions placed on them and accordingly, these directors will only be able to devote part of their time to the affairs of PreAxia.
PreAxia does not have key man insurance.
PreAxia does not currently have key man insurance in place in respect of any of its senior officers or personnel.
Acquisitions, investments and other strategic transactions could result in operating difficulties, dilution to our investors and other negative consequences.
It is our current intention to engage in and evaluate a wide array of potential strategic transactions, including acquisitions of companies, businesses, intellectual properties, and other assets. As of the date of filing of this Annual Report on Form 10-K, we have not yet identified any such strategic transactions. Any of these strategic transactions could be material to our financial condition and results of operations. In our search for opportunities to engage in strategic transactions, we may not be successful in identifying suitable opportunities. We may not be able to consummate potential acquisitions or investments, or an acquisition or investment may not enhance our business or may decrease rather than increase our earnings. In addition, the process of integrating an acquired company or business, or successfully exploiting acquired intellectual property or other assets, could divert a significant amount of our management’s time and focus and may create unforeseen operating difficulties and expenditures.
Additional risks we may face include:
The need to implement or remediate controls, procedures and policies appropriate for a public company in an acquired company that, prior to the acquisition, lacked these controls, procedures and policies; Cultural challenges associated with integrating employees from an acquired company or business into our organization; Retaining key employees from the businesses we acquire, and The need to integrate an acquired company’s accounting, management information, human resource and other administrative systems to permit effective management.
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Future acquisitions and investments could involve the issuance of our equity securities, potentially diluting our existing stockholders, the incurrence of debt, contingent liabilities or amortization expenses, write-offs of goodwill, intangibles, or acquired in-process technology, or other increased expenses, any of which could harm our financial condition. Our stockholders may not have the opportunity to review, vote on or evaluate future acquisitions or investments.
Fluctuations in quarterly operating results lead to unpredictability of revenue and earnings.
The timing of the release of health care payments processing products and services can cause material quarterly revenue and earnings fluctuations. A significant portion of revenue in any quarter may be derived from sales of products and services introduced in that quarter or established in the immediately preceding quarter. If we are unable to begin to generate sales of products and services during the scheduled quarter, our revenue and earnings will be negatively affected in that period. Quarterly operating results also may be materially impacted by factors, including the level of market acceptance, or demand for health payment processing products and services and the level of development and/or promotion expenses for health payment processing products and services. Consequently, if net revenue in a period is below expectations, our operating results and financial position in that period are likely to be negatively affected, as has occurred in the past.
Risks Related to our Common Stock
There is currently no trading market for our common stock.
There is currently no trading market for our common stock. Our common stock is not quoted on any exchange or inter-dealer quotation system. There is no trading market for our common stock and our common stock may never be included for trading on any stock exchange or through any quotation system (including, without limitation, the NASDAQ Stock Market and the OTC Bulletin Board). You may not be able to sell your shares due to the absence of a trading market. Any market that develops for our common stock likely will be illiquid and the price of our common stock could be subject to volatility related or unrelated to our operations.
A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.
Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our shareholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our shareholders will not be able to receive a return on their shares unless they sell them.
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Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Although much of the research and development and the building of our system have been completed, our Calgary office closed during the year and we presently operate out of remote employment sites.
ITEM 3. LEGAL PROCEEDINGS
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We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTCQB under the symbol PAXH.
Following is a report of high and low bid prices for each quarterly period for the years ended May 31, 2016 and 2015.
| Quarter Ended | High | Low |
| 05/31/2016 | $0.00 | $0.00 |
| 02/28/2016 | $0.00 | $0.00 |
| 11/30/2015 | $0.00 | $0.00 |
| 08/31/2015 | $0.00 | $0.00 |
| 05/31/2015 | $0.00 | $0.00 |
| 02/28/2015 | $0.00 | $0.00 |
| 11/30/2014 | $0.00 | $0.00 |
| 08/31/2014 | $0.00 | $0.00 |

Holders of Our Common Stock
As of August 19, 2016, there were 77 holders of record of our common stock and 18,228,882 shares of common stock outstanding.
There is currently only one class of common stock with one vote per share.
Pacific Stock Transfer Company of 6725 Via Austi Parkway, Suite 300, Las Vegas, Nevada 89119, is the registrar and transfer agent for our common shares.
Dividends
We have not declared or paid dividends on shares of our common stock and we do not expect to declare or pay dividends on shares of our common stock for the foreseeable future. We intend to retain earnings, if any, to finance the development and expansion of our business. Our future dividend policy will be subject to the discretion of our board of directors and will depend upon our future earnings, if any, our financial condition, and other factors deemed relevant by the board.
| 16 |

Equity Compensation Plans
We adopted and approved our current stock option plan on January 28, 2010. The following table provides a summary of the number of options granted under our stock option plan, the weighted average exercise price and the number of options remaining available for issuance all as at May 31, 2016.
| Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans |
| Equity compensation plans approved by security holders | None | N/A | 2,000,000 |
| Equity compensation plans not approved by security holders | None | N/A | None |
| Total | None | N/A | 2,000,000 |

Recent Sales of Unregistered Securities
We have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K during the fiscal year ended May 31, 2016.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during our fiscal years ended May 31, 2016 or 2015.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable.
| 17 |

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Overview
Our company undertakes all of its operations through PreAxia Canada, our wholly-owned subsidiary. 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 HSAs. 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 growth conduct, studies suggest that HSA’s 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.
Plan of Operation
Over the next twelve months, we plan to:
| (a) | Raise additional capital to execute our business plans, and; |
| (b) | To penetrate the health payment processing market in Canada, and worldwide, by continuing to develop innovative health payment processing products and services, and; |
| (c) | Build up a network of strategic alliances with several types of health insurance companies, governments and other alliances in various vertical markets, and; |
| (d) | Fill the positions of senior management sales, administrative and engineering positions. |

| 18 |

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 $1,550,000 in implementing our business plan of developing and marketing of health care processing products and services. We do not expect to generate any revenues during the year. Therefore, we will be required to raise a total of $3,222,400 to complete our business plan and pay our existing outstanding debts of approximately $1,672,400. Our working capital requirements for both our company and PreAxia Canada for the next twelve months are estimated at $1,550,000 distributed as follows:
| Estimated Expenses |
| General and Administrative | $300,000 |
| Research and Development | $450,000 |
| Marketing and Education | $450,000 |
| Professional Services | $350,000 |
| Total | $1,550,000 |

Our estimated expenses over the next twelve months are broken down as follows:
| 1. | General and Administrative We anticipate spending approximately $300,000 on general and administration costs in the next twelve months, which will include office rent, office supplies, transfer agents, filing fees, bank service charges, salary for our administrator, interest expense and travel, which includes airfare, meals, car rentals and accommodations. |
| 2. | Research and Development We anticipate that we may spend approximately $450,000 in the next twelve months in the maintenance of our development and additional acquisition of software for our processing services and products. |
| 3. | Marketing and Education We anticipate spending approximately $450,000 on the costs of staff and personnel marketing and promoting our company, our products and services, and educating the public to attract new accounts, including staff and personnel. |
| 4. | Professional Services We anticipate that we may spend up to $350,000 in cash and/or stock based compensation over the next twelve months for professional services, consulting fees, accounting, auditing and legal fees. |

Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Liquidity and Capital Resources
As of May 31, 2016, we had a cash balance of $7,151 compared to $3,062, as at May 31, 2015. PreAxia Canada will be required to raise capital to fund our operations. We had a working capital deficit of $1,665,249 as of May 31, 2016 compared with a working capital deficit of $1,732,715 as of May 31, 2015.
Our company currently has little cash on hand. Our ability to meet our financial liabilities and commitments is primarily dependent upon the continued issuance of equity to new stockholders, and our ability to achieve and maintain profitable operations. Our company’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 start-up stage with PreAxia Canada. We project that we will require an estimated additional $3,215,249 over the next twelve month period to fund our operating cash shortfall calculated as $1,665,249 to cover our working capital deficit plus $1,550,000 for our projected cash request for the year ended May 31, 2016. 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 our company may determine.
| 19 |

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 financial condition as at May 31, 2016 and May 31, 2015 and the changes between those periods for the respective items are summarized as follows:
Working Capital
| May 31, 2016 | May 31, 2015 |
| Current Assets | $ | 7,151 | $ | 3,062 |
| Current Liabilities | $ | 1,672,400 | $ | 1,735,777 |
| Working Capital (deficit) | $ | (1,665,249 | ) | $ | (1,732,715 | ) |

The decrease in our working deficit of $67,466 was primarily due to decrease in related party loans payable.
Cash Flows
| Year Ended | Year Ended |
| May 31, 2016 | May 31, 2015 |
| Net cash used in Operating Activities | $ | (54,692 | ) | $ | (6,762 | ) |
| Net cash provided by Investing Activities | $ | — | $ | — |
| Net provided by Financing Activities | $ | 57,528 | $ | — |
| Effect of exchange rate on cash | $ | 1,253 | $ | 1,292 |
| Change in Cash and Cash Equivalents During the Period | $ | 4,089 | $ | (5,470 | ) |

Cash Used in Operating Activities
During the year ended May 31, 2016, we used net cash in operating activities in the amount of $54,692 mainly due to an increase in activities and services which created a net loss of $265,598 which was offset by accounts payable related party of $127,032, accrued interest of $30,093 and amortization of intangibles for $34,050.
| 20 |

Cash Provided by Investing Activities
During the year ended May 31, 2016, cash was not used in investing activities.
Cash from Financing Activities
During the year ended May 31, 2016, $57,528 in cash was provided from financing activities. An amount of $57,528 was received in cash related to the sale of common stock.
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, 2016, which are included herein. Our operating results for the year ended May 31, 2016 and May 31, 2015 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 expenses for the 12 months ended May 31, 2016 and May 31, 2015 were as follows:
| Year Ended | Year Ended |
| May 31, 2016 | May 31, 2015 | % |
| Consulting Fees | $ | 146,442 | $ | 132,517 | 10.5 | % |
| Professional Fees | 9,010 | 13,500 | (33.2 | )% |
| Office and Administration | 13,573 | 12,082 | 12.3 | % |
| Research and Development | 31,643 | — |
| Amortization | 34,050 | 34,050 | — |
| $ | 234,718 | $ | 192,149 |

Operating expenses for the 12 months ended May 31, 2016 were $234,718 which is an increase of $42,569 compared to the year ended May 31, 2015. The increase was due to an increase in consulting fees of $13,925 a decrease in professional fees of $4,490, increase in office and administration of $1,491, and an increase in research and development of $31,643.
Consulting Fees
Consulting fees increased by $13,925 in the year ended May 31, 2016 compared to the year ended May 31, 2015, due to an increase in services related to financial reporting, research, marketing and financing.
Professional Fees
Professional fees decreased by $4,490 in the year ended May 31, 2016 compared to the year ended May 31, 2015, due to a decrease in accounting and audit fees.
| 21 |

Office and Administration
Our office and administration expenses decreased by $1,491 in the year ended May 31, 2016 compared to the year ended May 31, 2015, due to a decrease in travel expenses and general and administration expenses.
Research and development
Research and Development expenses increased by $31,643 for the year ended May 31, 2016 compared to the year ended May 31, 2015, as a result of software upgrades and other required program updates.
Wages and benefits
There were no wages and benefits for the year ended May 31, 2016 or the year ended May 31, 2015.
Rent
There were no rent expenses for the year ended May 31, 2016 or for the year ended May 31, 2015, as a result of the Calgary office closing.
We have historically incurred losses and have incurred a loss of $3,695,626 from inception to May 31, 2016. Because of these historical losses, we will require additional working capital to develop our business operations. We intend to raise additional working capital through private placements, public offerings, bank financing and/or advances from related parties or shareholder loans.
The continuation of our business is dependent upon obtaining further financing and achieving a break even or profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current or future stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
There are no assurances that we will be able to either (i) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (ii) obtain additional financing through either private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to us. If adequate working capital is not available, we may cease operations.
These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Summary of Significant Accounting Policies
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures of our company. Although these estimates are based on management’s knowledge of current events and actions that our company may undertake in the future, actual results may differ from such estimates.
Use of Estimates in the preparation of the financial statements
| 22 |

The preparation of our company's financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Our 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 our 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 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.
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
The Company accounts for software development costs in accordance with several accounting pronouncements, including FASB ASC 730, Research and Development, FASB ASC 350-40, Internal-Use Software, FASB 985-20, Costs of Computer Software to be Sold, Leased, or Marketed and FASB ASC 350-50, Website Development Costs.
Costs incurred during the period of planning and design, prior to the period determining technological feasibility, for all software developed for use internal and external, has been charged to operations in the period incurred as research and development costs. Additionally, costs incurred after determination of readiness for market have been expensed as research and development.
The Company has capitalized certain costs in the development of our proprietary software (computer software to be sold, leased or licensed) for the period after technological feasibility was determined and prior to our marketing and initial sales.
Website development costs have been capitalized, under the same criteria as our marketed software.
Capitalized software costs are stated at cost. The estimated useful life of costs capitalized is evaluated for each specific project. Intangible software costs are amortized over a three year period starting in June 2014.
Recent Accounting Pronouncements
| 23 |

The Company reviews new accounting standards as issued or updated. No new standards or updates had any material effect on these 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| Page |
| Audited Consolidated Financial Statements |
| Report of Independent Public Accounting Firm | F-1 |
| Consolidated Balance Sheets | F-2 |
| Consolidated Statements of Operations and Comprehensive Loss | F-3 |
| Consolidated Statements of Stockholders’ Deficit | F-4 |
| Consolidated Statements of Cash Flows | F-5 |
| Notes to Consolidated Financial Statements | F-6 to F-12 |

| 24 |

| Heaton & Company, PLLC 240 North East Promontory, Suite 200 Farmington, Utah 84025 |
| Kristofer Heaton, CPA William R. Denney, CPA                                                             240 N. East Promontory Suite 200 Farmington, Utah 84025   (T) 801.218.3523     heatoncpas.com | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     To The Board of Directors and Stockholders of Preaxia Health Care Payment Systems, Inc.   We have audited the accompanying consolidated balance sheets of Preaxia Health Care Payment Systems, Inc., (the Company) as of May 31, 2016 and 2015, and the related statements of operations and comprehensive loss, stockholders’ equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Preaxia Health Care Payment Systems, Inc. as of May 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.   The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit and has suffered recurring losses from operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.     /s/Heaton & Company, PLLC Farmington, Utah September 6, 2016 |

| F-1 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
May 31, 2016 and May 31, 2015
(Stated in US Dollars)
| May 31, 2016 | May 31, 2015 |
| ASSETS |
| Current Assets |
| Cash | $ | 7,151 | $ | 3,062 |
| Total Current Assets | 7,151 | 3,062 |
| Other Assets |
| Intangible Software Costs | 34,050 | 68,101 |
| Total Other Assets | 34,050 | 68,101 |
| Total Assets | $ | 41,201 | $ | 71,163 |
| LIABILITIES |
| Current Liabilities |
| Accounts Payable and Accrued Liabilities | $ | 222,072 | $ | 213,576 |
| Accounts Payable and Accrued Liabilities – Related Party | 960,376 | 1,088,044 |
| Loan Payable | 410,455 | 419,815 |
| Subscription Payable | 35,062 | — |
| Accrued Interest – Loans Payable | 44,435 | 14,342 |
| Total Current Liabilities | 1,672,400 | 1,735,777 |
| STOCKHOLDERS’ DEFICIT |
| Capital Stock, $0.001 par value |
| 75,000,000 Common shares authorized |
| 18,228,882 and 17,652,082 common shares issued and outstanding at May 31, 2016 and May 31, 2015, respectively | 18,229 | 17,652 |
| Additional Paid-in Capital | 1,993,451 | 1,705,628 |
| Accumulated other Comprehensive Income/(Loss) | 52,747 | 42,134 |
| Retained Deficit | (3,695,626 | ) | (3,430,028 | ) |
| Total Stockholders’ Deficit | (1,631,199 | ) | (1,664,614 | ) |
| Total Liabilities and Stockholders’ Deficit | $ | 41,201 | $ | 71,163 |

SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
| F-2 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Stated in U.S. Dollars)
| For the year ended |
| May 31 |
| 2016 | 2015 |
| Operating Expenses |
| Consulting fees | $ | 146,442 | $ | 132,517 |
| Professional fees | 9,010 | 13,500 |
| Office and administration | 13,573 | 12,082 |
| Research and development | 31,643 | — |
| Amortization expense | 34,050 | 34,050 |
| Total Operating Expenses | 234,718 | 192,149 |
| Operating loss | (234,718 | ) | (192,149 | ) |
| Other Income (Expenses) |
| Commission income | — | 48 |
| Interest expense | (30,880 | ) | (7,019 | ) |
| Total Other Income (Expenses) | (30,880 | ) | (6,971 | ) |
| Net loss | $ | (265,598 | ) | $ | (199,120 | ) |
| Other comprehensive income: |
| Foreign currency translation | 10,613 | 27,996 |
| Comprehensive loss for the period | $ | (254,986 | ) | $ | (171,124 | ) |
| Basic and diluted loss per share | (0.01 | ) | (0.01 | ) |
| Weighted average number of shares outstanding | 17,792,342 | 17,652,082 |

SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
| F-3 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Stated in U.S. Dollars)
| Accumulated |
| Additional | Other |
| Common Stock | Paid-in | Comprehensive | Retained |
| Shares | Amount | Capital | Income | Deficit | Total |
| Balance, May 31, 2014 | 17,652,082 | $ | 17,652 | $ | 1,705,628 | $ | 14,138 | (3,230,908 | ) | $ | (1,493,490 | ) |
| Net Loss for Period | (199,120 | ) | (199,120 | ) |
| Foreign currency translation | 27,996 | 27,996 |
| Balance, May 31, 2015 | 17,652,082 | $ | 17,652 | $ | 1,705,628 | 42,134 | $ | (3,430,028 | ) | $ | (1,664,614 | ) |
| Net Loss for Period | (265,598 | ) | (265,598 | ) |
| Foreign currency translation | 10,613 | 10,613 |
| Common Shares Issued | 576,800 | 577 | 287,823 | 288,400 |
| Balance, May 31, 2016 | 18,228,882 | $ | 18,229 | $ | 1,993,451 | $ | 52,747 | $ | (3,695,626 | ) | $ | (1,631,199 | ) |

SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
| F-4 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
| Year ended |
| May 31, |
| 2016 | 2015 |
| Cash Flows from Operating Activities |
| Net loss | $ | (265,598 | ) | $ | (199,120 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: |
| Shares issued for expenses | 11,235 | — |
| Amortization | 34,050 | 34,050 |
| Changes in operating assets and liabilities: |
| Increase (decrease) in accounts payable – related party | 127,032 | 126,603 |
| Increase (decrease) in accounts payable and accrued liabilities | 8,496 | 29,859 |
| Increase (decrease) in accrued interest | 30,093 | 1,846 |
| Cash Flows used in operating activities | (54,692 | ) | (6,762 | ) |
| Cash flows used in investing activities | — | — |
| Cash Flows from Financing Activities |
| Cash Received for common shares | 57,528 | — |
| Cash flows provided by financing activities | 57,528 | — |
| Effect of exchange rate changes on cash | 1,253 | 1,292 |
| Increase (decrease) in cash during the period | 4,089 | (5,470 | ) |
| Cash, beginning of period | 3,062 | 8,532 |
| Cash, end of period | $ | 7,151 | $ | 3,062 |
| Supplemental Disclosure: |
| Cash paid for income taxes | $ | — | $ | — |
| Cash paid for interest | $ | — | $ | — |
| Non-cash investing and financing activities: |
| Accounts payable related party settled with stock | $ | 254,700 | $ | — |

SEE ACCOMPANYING NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS
| F-5 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS May 31, 2016 and 2015
Note 1 – Summary of significant accounting policies
This summary of significant accounting policies of PreAxia Health Care Payment Systems Inc. (the “Company”) is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the consolidated financial statements, which are stated in U.S. Dollars.
Organization
PreAxia Health Care Payment Systems Inc. (the “Company” or “PreAxia”) was incorporated on April 3, 2000 in the State of Nevada. On May 31, 2005 the Company acquired all of the outstanding stock of Tiempo de Mexico Ltd. (“Tiempo”) in exchange for 5,000,000 shares of the common stock of the Company with a par value of $0.001. The Company had no operations prior to the date of the aforementioned acquisition.
On May 30, 2008, the Company finalized the execution of an acquisition agreement dated April 22, 2008 (the “Acquisition Agreement”) between PreAxia, PreAxia Canada (formerly H Pay Card Inc.), Tiempo, Kimberley Coonfer (“Coonfer”), Caribbean Overseas Investments Ltd. (“Caribbean”) and the stockholders of PreAxia Canada (the “PreAxia Canada Stockholders”). Under the terms of the Acquisition Agreement, PreAxia acquired all of the issued and outstanding shares of PreAxia Canada resulting in PreAxia Canada becoming a direct, wholly-owned subsidiary of PreAxia. Upon the acquisition of PreAxia Canada by PreAxia, PreAxia issued the stockholders of PreAxia Canada an aggregate of 12,000,000 shares of the common stock of PreAxia. Pursuant to the terms of the Acquisition Agreement all of the issued and outstanding shares of the Company’s subsidiary, Tiempo (the “Tiempo Shares”) were transferred to Coonfer and Caribbean in exchange for the return of treasury of a total of 5,000,000 common shares of PreAxia (the “Cancellation Shares”). The Cancellation Shares were exchanged for the Tiempo Shares and $100,000 of the intercompany debt between Tiempo and PreAxia was written off on the books of Tiempo and PreAxia, and Tiempo provided a promissory note for the remaining intercompany debt between Tiempo and PreAxia in the amount of $49,281. As of May 30, 2008, Tiempo is no longer a subsidiary of PreAxia, PreAxia Canada Inc. is a wholly-owned subsidiary of PreAxia. PreAxia Canada Inc. Stockholders received an aggregate of 12,000,000 shares of PreAxia’s common stock representing 78.7% of the issued and outstanding shares of the Company. Tom Zapatinas, an Officer and Director of PreAxia Health Care Payment Systems Inc., is also an Officer and Director of PreAxia Canada Inc. He disclosed such information and interest in this transaction to the Board of Directors prior to the conclusion of this transaction.
As a result, the consolidated results of operations presented at May 31, 2016 and 2015 are those of the Company and PreAxia Canada Inc. PreAxia Canada Inc. was incorporated pursuant to the laws of the Province of Alberta on January 28, 2008. Since inception of PreAxia Canada Inc., its business objective has been the development, distribution, marketing and sale of health care payment processing services and products.
Nature and Continuance of Operations
The Company has not yet realized any revenues from its planned operations.
| F-6 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS May 31, 2016
Note 1 – Summary of significant accounting policies (Continued)
Nature and Continuance of Operations (Continued)
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 accounting principles generally accepted in the United States applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At May 31, 2016, the Company had not yet achieved profitable operations, has accumulated losses of $3,695,626 since inception, has negative working capital of $1,665,249 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.
Use of Estimates in the preparation of the consolidated financial statements
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. Actual results could differ from those estimates.
| F-7 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS May 31, 2016 and 2015
Note 1 – Summary of significant accounting policies (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents.
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.
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.
Research and Development Costs
Research and development costs are expensed in the year in which they are incurred.
Intangible Software Costs
Intangible software costs are amortized over a three year period starting June 2014. Amortization for the year ended May 31, 2016 and 2015 was $34,050 and $34,050, respectively.
Impairment of Long-lived Assets
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiary. All inter-company accounts and transactions have been eliminated in consolidation.
| F-8 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS May 31, 2016 and 2015
Note 1 – Summary of significant accounting policies (Continued)
FINANCIAL INSTRUMENTS
The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. Related party balances are not recorded at fair value because they are by nature not arm’s length transactions subject to normal market rates.
Fair Value Estimates
The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Management uses a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
| · | Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities |

| · | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |

| · | Level 3 - Inputs that are both significant to the fair value measurement and unobservable. |

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of May 31, 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
New Accounting Standards
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.
| F-9 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS May 31, 2016 and 2015
Note 1 – Summary of significant accounting policies (Continued)
Other
The Company has selected May 31 as its year-end and the Company paid no dividends in 2016.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, the Company has incurred cumulative net losses of ($3,695,626) since inception, and currently has no sales. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the design, development and commercialization of its health care payment processing services and products. Management has plans to seek additional capital through private placements of its common stock. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Note 2 – Related Party Transactions
Accounts Payable
During the year ended May 31, 2016, the Company’s president, Tom Zapatinas, invoiced $120,000 for management services rendered to the Company for the period June 1, 2015 to May 31, 2016. As at May 31, 2016, Accounts payable – related party includes a total of $960,376 due and payable to Mr. Zapatinas. The balance as at May 31, 2015 was $1,088,044. The decrease of $127,668 was due to the conversion of $248,600 into shares offset by increases for consulting services of $120,000 and travel expenses of $932. There are no terms of repayment for this payable.
As of May 31, 2016, the Company owed loan holders $410,455 compared to $419,815 as at 31 May, 2015. The decrease of $9,360 is due to the change in exchange rate on the loans over the year. The terms of repayment are 30 days after demand is made by the loan holder.
Included in the amount above, the Company had a loan payable to a shareholder of the Company in the amount of $53,438. The loan was unsecured, with 6% interest per annum and was payable 30 days after demand is made by the shareholder. As of May 31, 2016 the Company had accrued interest on the related party loan in the amount of $16,873 compared to $14,342 as at 31 May, 2015. The increase of $2,531 is due to interest accrued for the year of $3,318 offset by the change in exchange rate totalling $787.
| F-10 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS May 31, 2016 and 2015
Note 3 – Income Taxes
As at May 31, 2016, the Company is in arrears on filing its statutory income tax returns. The Company has incurred substantial net operating losses of approximately $3,700,000 since January 28, 2008 (Date of Inception).
It is management’s intention to hire a tax professional to file these tax returns on its behalf.
The Company’s deferred tax assets and liabilities consist primarily of the following:
| 2016 | 2015 |
| Net operating losses – U.S. parent: |
| Amount carried forward from prior years | $ | (1,247,541) | $ | (1,179,840 | ) |
| Net operating losses | (93,271 | ) | (67,701 | ) |
| (1,340,812 | ) | (1,247,541 | ) |
| Net operating losses – Canadian subsidiary: |
| Amount carried forward from prior years | (31,760) | (31,760 | ) |
| Net operating losses | - | - |
| (31,760 | ) | (31,760 | ) |
| Total | (1,372,572 | ) | (1,279,301 | ) |
| Less: valuation allowance | 1,372,572 | 1,279,301 |
| $ | - | $ | - |

During the years ended May 31, 2016 and 2015, the change in valuation allowance was $93,271 and $67,701, respectively.
| F-11 |

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS May 31, 2016 and 2015
Note 4 – Common Stock
The Company is authorized to issue up to 75,000,000 shares of common stock. The shares of common stock are non-assessable, without pre-emption rights, and do not carry cumulative voting rights. Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of our stockholders. Holders of our common stock are entitled to receive dividends if, as and when declared by our Board of Directors.
In the year ended May 31, 2016, the Company issued 576,800 shares of which 509,400 were for the reduction of $254,700 in accounts payable related party, 22,470 shares were for $11,235 in consulting fees, and 44,930 for $22,466 in cash received.
Subscription Payable
On April 21, 2016, the Company recorded the receipt of $19,667 in cash for 39,340 shares to be issued.
On May 9, 2016, the Company recorded the receipt of $15,395 in cash for 30,785 shares to be issued.
Note 5 – Contingencies
From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.
The Company does not have any long term commitments for equipment or leases. The Company does not have any office space commitments as the CEO operates from his residence.
Note 6 - Subsequent events
On 30 June 2016, the Company received $19,218 in cash for 38,435 shares to be issued.
The Company has evaluated all subsequent events through the date these financial statements were issued and no additional subsequent events occurred that required disclosure.
| F-12 |

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 10, 2015, the Company engaged Heaton & Company, PLLC to act as the Company’s independent registered public accountant.
The engagement of Heaton & Company, PLLC and the dismissal of the prior accountants was done by the Chief Executive Officer and member of the Board of the Company, with the knowledge and approval of the other members of the Board of Directors. The Company has an audit committee charged with oversight of financial matters.
Since their engagement and to the date of their dismissal, there have not been, nor are there now, any disagreements between the Company and DKM Certified Public Accountants with respect to any matter of accounting principles, practices, financial statement disclosure, auditing scope or procedure for the reporting and filing completed prior to this date, nor have there been any “reportable events” as defined by Regulation S-K section 304(a)(1)(v) during that same period, other than the reports were modified to contain a going concern opinion.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management, evaluated the effectiveness of our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based upon this evaluation, the Chief Executive Officer concluded that, as of May 31, 2016, the disclosure controls and procedures were not effective. The ineffectiveness of our Company’s disclosure controls and procedures was due to the existence of material weaknesses identified below.
Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in our Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms.
Management’s Report On Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 14d-14(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our company’s internal control over financial reporting as of May 31, 2016. In making the assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO - 2013) in Internal Control-Integrated Framework. Based on its assessment, management concluded that, as of May 31, 2016, our Company’s internal control over financial reporting was not effective.
Management has identified the following material weaknesses:
We do not have accounting staff with sufficient technical accounting knowledge relating to accounting for U.S. income taxes and complex US GAAP matters; and We failed to file our corporate tax returns for 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015 and 2016.
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We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these material weaknesses. In particular, we intend to hire staff with U.S. GAAP expertise if we can obtain additional financing and hire professionals to prepare and complete the filing of our corporate tax returns.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
Mr. Jim Kenney has resigned from the Board of Directors effective February 2, 2015 citing his work schedule would no longer allow him to give the position the necessary time to contribute to the Company.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following individual serves as the director and executive officers of our Company. All directors of our Company hold office until the next annual meeting of our shareholders or until their successors have been elected and qualified. The executive officers of our Company are appointed by our board of directors and hold office until their death, resignation or removal from office.
| Name | Position | Age | Date First Elected or Appointed |
| Tom Zapatinas | President, Chief Executive Officer, Secretary, Chief Financial Officer, Treasurer and Director | 60 | Director since January 9, 2007 Officer since January 25, 2008 |

Significant Employees
There are no family relationships between or among our directors or executive officers.
Business Experience
Tom Zapatinas, President, Secretary, Chief Executive Officer, Chief Financial Officer and a director
Tom Zapatinas has been a director of our Company since January 9, 2007 and the president, secretary, chief executive officer and chief financial officer of our company since January 25, 2008. Mr. Zapatinas has been a self-employed business consultant since August, 1997. In June of 1998, Mr. Zapatinas founded Prolific Smart Card Software Systems Inc. which became a reporting issuer on the TSX Venture Exchange in Canada. Mr. Zapatinas resigned from Prolific in May 29, 2001, to go back to his consulting practice. He brings experience in financing, corporate development and mergers and acquisitions.
Mr. Zapatinas is not an officer or director of any other reporting company that files annual, quarterly or periodic reports with the United States Securities and Exchange Commission.
We believe Mr. Zapatinas is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations, which he gained from working for our company as described above, in addition to his business experiences as described above.
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Involvement in Certain Legal Proceedings
Our directors or executive officers have not been involved in any of the following events during the past ten years:
| 1. | any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
| 2. | any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| 3. | being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
| 4. | being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated. |
| 5. | being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| 6. | being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |

Audit Committee
The Corporation is a “venture issuer” as defined in National Instrument 52-110 and is relying on the exemption contained in Section 6.1 of National Instrument 52-110, which exempts the Corporation from the requirements of Part 3 (Composition of the Audit Committee) and Part 5 (Reporting Obligations) of National Instrument 52-110.
The Audit Committee’s Charter
Mandate
The primary function of the audit committee (the "Committee") is to assist the Board of Directors in fulfilling its financial oversight responsibilities by reviewing the financial reports and other financial information provided by the Corporation to regulatory authorities and shareholders, the Corporation’s systems of internal controls regarding finance and accounting and the Corporation’s auditing, accounting and financial reporting processes. Consistent with this function, the Committee will encourage continuous improvement of, and should foster adherence to, the Corporation’s policies, procedures and practices at all levels. The Committee’s primary duties and responsibilities are to:
| · | Serve as an independent and objective party to monitor the Corporation’s financial reporting and internal control system and review the Corporation’s financial statements. |

| · | Review and appraise the performance of the Corporation’s external auditors. |

| · | Provide an open avenue of communication among the Corporation’s auditors, financial and senior management and the Board of Directors. |

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Composition
The Committee shall be comprised of two directors as determined by the Board of Directors, whom shall be free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of his or her independent judgment as a member of the Committee.
The members of the Committee shall be elected by the Board of Directors at its first meeting following the annual shareholders’ meeting. Unless a Chair is elected by the full Board of Directors, the members of the Committee may designate a Chair by a majority vote of the full Committee membership.
Meetings
The Committee shall meet annually, or more frequently as circumstances dictate. As part of its job to foster open communication, the Committee will meet at least annually with the Chief Financial Officer and the external auditors.
Responsibilities and Duties
To fulfill its responsibilities and duties, the Committee shall:
Documents/Reports Review
| (a) | Review and update this Charter annually. |
| (b) | Review the Corporation’s financial statements, MD & A and any reports or other financial information (including quarterly financial statements), which are submitted to any governmental body, or to the public, including any certification, report, opinion, or review rendered by the external auditors. |

External Auditors
| (a) | Review annually, the performance of the external auditors who shall be ultimately accountable to the Board of Directors and the Committee as representatives of the shareholders of the Corporation. |

| (b) | Obtain annually, a formal written statement of the external auditors setting forth all relationships between the external auditors and the Corporation, consistent with PCAOB Rule 3526. |

| (c) | Review and discuss with the external auditors any disclosed relationships or services that may impact the objectivity and independence of the external auditors. |

| (d) | Take, or recommend that the full Board of Directors take, appropriate action to oversee the independence of the external auditors. |

| (e) | Recommend to the Board of Directors the selection and, where applicable, the replacement of the external auditors nominated annually for shareholder approval. |

| (f) | At each meeting, consult with the external auditors, without the presence of management, about the quality of the Corporation’s accounting principles, internal controls and the completeness and accuracy of the Corporation’s financial statements. |

| (g) | Review with management and the external auditors the audit plan for the year-end financial statements and intended template for such statements. |

| (h) | Review and pre-approve all audit and audit related services and the fees and other compensation related thereto, and any non-audit services, provided by the Corporation’s external auditors. The pre-approval requirement is waived with respect to the provision of non-audit services if: |

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| (i) | the aggregate amount of all such non-audit services provided to the Corporation constitutes not more than five percent of the total amount of revenues paid by the Corporation to its external auditors during the fiscal year in which the non-audit services are provided; |
| (ii) | such services were not recognized by the Corporation at the time of the engagement to be non-audit services; and |

| (iii) | such services are promptly brought to the attention of the Committee by the Corporation and approved prior to the completion of the audit by the Committee or by one or more members of the Committee who are members of the Board of Directors to whom authority to grant such approvals have been delegated by the Committee. |

Provided the pre-approval of the non-audit services is presented to the Committee's first scheduled meeting following such approval such authority may be delegated by the Committee to one or more independent members of the Committee.
Financial Reporting Processes
| (a) | In consultation with the external auditors, review with management the integrity of the Corporation’s financial reporting process, both internal and external. |

| (b) | Consider the external auditors’ judgments about the quality and appropriateness of the Corporation’s accounting principles as applied in its financial reporting. |

| (c) | Consider and approve, if appropriate, changes to the Corporation’s auditing and accounting principles and practices as suggested by the external auditors and management. |

| (d) | Review significant judgments made by management in the preparation of financial statements and the view of the external auditors as to the appropriateness of such judgments. |

| (e) | Following completion of the annual audit, review separately with management and the external auditors any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information. |

| (f) | Review any significant disagreement among management and the external auditors in connection with the preparation of the financial statements. |

| (g) | Review with the external auditors and management the extent to which changes and improvements in financial or accounting practices have been implemented. |

| (h) | Review any complaints or concerns about questionable accounting, internal accounting controls or auditing matters. |

| (i) | Review certification process. |

Other
Review any related-party transactions.
Members of the Audit Committee
| Member | Independence | Financially Literate |
| Tom Zapatinas | Not Independent | Not Financially literate |

CORPORATE GOVERNANCE
Corporate Governance relates to the activities of the Board of Directors. National Policy 58-201 establishes corporate governance guidelines which apply to all public companies. The Corporation has reviewed its own corporate governance practices in light of these guidelines. In certain cases, the Corporation’s practices comply with the guidelines, however, the Board considers that some of the guidelines are not suitable for the Corporation at its current stage of development and therefore these guidelines have not been adopted. National Policy 58-201 mandates disclosure of corporate governance practices which disclosure is set out below. The Board is committed to sound corporate governance practices in the interest of its shareholders and contribute to effective and efficient decision making. The Corporation will continue to review and implement corporate governance guidelines as the business of the Corporation progresses.
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Independence of Members of Board
The Corporation’s Board consists of one director, Tom Zapatinas who is not independent as he is the Chief Executive Officer of the Corporation.
Management Supervision by Board
The size of the Corporation is such that all of the Corporation’s operations are conducted by a small management team which is also represented on the Board. The Board considers that management is effectively supervised by the director on an informal basis as the director is actively and regularly involved in reviewing the operations of the Corporation and has regular and full access to management.
Other Directorships
Tom Zapatinas is not a director of any other reporting issuers.
Orientation and Continuing Education
The Board does not have a formal orientation or education program for its members. New Board members are provided with information respecting the functioning of the Board of Directors, audit committee, access to all of the publicly filed documents of the Corporation and complete access to management and the Corporation’s professional advisors.
Board members are encouraged to communicate with management and the auditors, to keep themselves current with industry trends and developments and changes in legislation with the Corporation’s assistance, to attend industry seminars and to visit the Corporation’s operations. Board members have full access to the Corporation’s records and legal counsel.
Ethical Business Conduct
The Board believes good corporate governance in an integral component to the success of the Corporation and to meet responsibilities to shareholders.
At present the Board has not adopted guidelines or stipulations or a code to encourage and promote a culture of ethical business conduct due to the size of its Board and its limited activities. The Corporation does promote ethical business conduct through the nomination of Board members it considers ethical.
Nomination of Directors
The Board has responsibility for identifying and assessing potential Board candidates. Recruitment of new directors has generally resulted from recommendations made by directors, management and shareholders. The Board assesses potential Board candidates to fill perceived needs on the Board for required skills, expertise, independence and other factors.
Compensation of Directors and the CEO
The directors decide as a Board the compensation for the Corporation’s directors and officers. Compensation payable is determined by considering compensation paid for directors and CEOs of companies of similar size and stage of development in the health care payment industry and determining appropriate compensation reflecting the need to provide incentive and compensation for the time and effort expended by the directors and senior management while taking into account the financial and other resources of the Corporation. In setting the compensation, the performance of the CEO is reviewed in light of the Corporation’s objectives and other factors that may have impacted the success of the Corporation.
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Board Committees
The Corporation has an Audit Committee (see section entitled “Audit Committee”)
The Board is of the view that the size of the Corporation’s operations does not warrant additional committees at this stage of the Corporation’s development.
Assessments
The Board does not consider that formal assessments would be useful at this stage of the Corporation’s development.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended May 31, 2016 all filing requirements applicable to our executive officers, directors and greater than 10% percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation received during the two years ended May 31, 2016 and May 31, 2015 by our principal executive officer and principal financial officer and each of the other most highly compensated executive officers whose total compensation exceeded $100,000 in such fiscal year. These officers are referred to as the Named Executive Officers in this report.
Summary Compensation
The following table provides a summary of the compensation received by the persons set out therein for each of our last two fiscal years:
SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensa- tion Earnings ($) | All Other Compensa -tion ($) | Total ($) |
| Tom Zapatinas, President, CEO and Director | 2016 2015 | $120,000 $120,000 | Nil Nil | Nil Nil | Nil Nil | Nil Nil | Nil Nil | Nil Nil | $120,000 $120,000 |

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Employment Agreements
There are currently no employment agreements in effect.
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We adopted and approved our current stock option plan on January 28, 2010, pursuant to which we may grant stock options to acquire up to 2,000,000 shares of our common stock. Our directors and executive officers may receive stock options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors from time to time.
Termination of Employment and Change in Control Arrangements
We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth for each named executive officer certain information concerning the outstanding equity awards as of May 31, 2016.
| OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END |
| OPTION AWARDS | STOCK AWARDS |
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
| Tom Zapatinas | None | None | None | None | None | None | None | None | None |

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Aggregated Option Exercises
There were no options granted or exercised by any executive officer or director of our company during the twelve month period ended May 31, 2016.
Directors Compensation
We reimburse our directors for expenses incurred in connection with attending board meetings but did not pay director’s fees or other cash compensation for services rendered as a director in the year ended May 31, 2016. We have no present formal plan for compensating our directors for their service in their capacity as directors, although in the future, such directors are expected to receive compensation and options to purchase shares of common stock as awarded by our board of directors or (as to future options) a compensation committee which may be established in the future. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. The board of directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director. Other than indicated in this annual report, no director received and/or accrued any compensation for his or her services as a director, including committee participation and/or special assignments
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security ownership of certain beneficial owners
The following table sets forth, as of August 19, 2016, certain information with respect to the beneficial ownership of our common stock by our current directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of common stock they hold, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. As of August 19, 2016, there were no shareholders known by us to be the beneficial owner of more than 5% of our common stock except as set forth in the following table.
Security ownership of management
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership(1) | Percentage of Class(2) |
| Common Stock | Tom Zapatinas | 9,000,000 | Direct | 50.99% |
| 3212 – 14 Avenue SW |
| Calgary, AB T3C 0X3 |
| Common Stock | All officers and directors as a group (1 person) | 9,000,000 | 50.99% |

1 Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
2 Based upon 18,228,882 issued and outstanding shares of common stock as of August 19, 2016
Changes in Control
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We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Other than as listed below, no director, officer, principal shareholder holding at least 5% of our common shares, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction, since the beginning of our fiscal year ended May 31, 2016, in which the amount involved in the transaction exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years.
| 1. | During the year ended May 31, 2016 and the year ended May 31, 2015, our company’s president, Tom Zapatinas, invoiced $120,000 for management services rendered to our company for the period June 1, 2015 to May 31, 2016 and $120,000 for management services rendered for the period June 1, 2014 to May 31, 2015. As at May 31, 2016, accounts payable – related party includes a total of $960,376 due and payable to Mr. Zapatinas. |
| 2. | During the year ended May 31, 2012 and the year ended May 31, 2011, Lizée Gauthier, Certified General Accountants, of which our CFO at that time, Ron Lizée is the sole proprietor, invoiced $14,783 for accounting services rendered and $61,759 for accounting services during the year ended May 31, 2011. As at May 31, 2016, accounts payable includes a total of $90,000 due and payable to Mr. Lizée. |

Director Independence
We do not currently have any directors that would fit the independence requirements of Rule 5605(a)(2) of the Nasdaq Marketplace Rules.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit fees
The aggregate fees billed by Heaton and Company, PLLC and DKM Certified Public Accountants for the completed fiscal periods ended May 31, 2016 and May 31, 2015 for professional services rendered for the audit of our annual financial statements, quarterly reviews of our interim financial statements and services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
| Year Ended May 31, 2016 | Year Ended May 31, 2015 |
| Audit Fees and Audit Related Fees | $9,010 | $13,500 |
| Tax Fees | - | - |
| All Other Fees | - | - |
| Total | $9,010 | $13,500 |

In the above tables, “audit fees” are fees billed by our company’s external auditor for services provided in auditing our company’s annual financial statements for the subject year. “Audit-related fees” are fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit and review of our company’s financial statements. “Tax fees” are fees billed by the auditor for professional services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the auditor for products and services not included in the foregoing categories.
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Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
The board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors before the respective services were rendered.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| Exhibit Number | Description |
| 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) |
| 3.2 | Certificate of Amendment to Articles of Incorporation (Incorporated by reference to the Exhibits filed with Schedule 14C on November 14, 2008) |
| 3.3 | Bylaws (Incorporated by reference to the Exhibits filed with the Form SB-2 filed with the SEC on March 16, 2006) |
| 3.4 | Amended Bylaws (Incorporated by reference to the Exhibits filed with the Form SB-2 filed with the SEC on March 16, 2006) |
| 10.1 | Share Exchange Agreement dated May 31, 2005 between Kimberley Coonfer, Caribbean Overseas Investments Ltd., Sun World Partners Inc. and Tiempo De Mexico Ltd. (Incorporated by reference to the Exhibits filed with the Form SB-2 filed with the SEC on March 16, 2006) |
| 10.2 | Letter of Intent dated February 22, 2008 between Sun World Partners Inc. and H Pay Card Ltd. (Incorporated by reference to the Exhibits filed with the Form 8-K on March 5, 2008) |
| 10.3 | Acquisition Agreement dated April 22, 2008 (Incorporated by reference to the Exhibits filed with the Form 8-K on May 19, 2008) |
| 10.4 | Promissory note dated June 1, 2011 issued to Macleod Projects Inc. |
| 10.5 | Promissory note dated August 5, 2011 issued to Macleod Projects Inc. |
| 31.1* | Section 302 Certification of Principal Executive Officer |
| 31.2* | Section 302 Certification of Principal Financial Officer |
| 32.1* | Certification Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.
/s/ Tom Zapatinas By: Tom Zapatinas, President and Director (Principal Executive Officer)
Dated: September 7, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Tom Zapatinas By: Tom Zapatinas, President and Director (Principal Executive Officer)
Dated: September 7, 2016
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Question: What is the ratio of the CEO's annual salary to the aggregate amount paid to the Corporation to its external auditors, if that amount is 8 times of the non-audit services provided to the Corporation, where these non-audit services constitute not more than five percent of the total revenues paid to its external auditors (in ratio to 2 decimal places)?

Solution:
def solution():
     #Define variables name and value
    non_audit_services_percent = 0.05
    CEO_annual_salary = 120000

    #Do math calculation to get the answer
    # Calculate total_amount_based_on_non_audit
    total_amount_based_on_non_audit = CEO_annual_salary / (non_audit_services_percent * 8)
    # Calculate ratio
    ratio = CEO_annual_salary / total_amount_based_on_non_audit
    answer = round(ratio, 2)
    return answer


Answer: 0.4