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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended May 31, 2011

or

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

For the transition period from ________________
to________________

Commission file number 000-53490

PREAXIA HEALTH CARE PAYMENT SYSTEMS
INC.(Exact name of registrant as specified in its
charter)

|Nevada                          | 20-4395271         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)

#207, 1410  11thAvenue SW Calgary, Alberta T3C OM8(Address of principal executive
offices) (Zip Code)

Registrants telephone number, including area code (403)
850-4120

Securities registered pursuant to Section 12(b) of the Act:

|Title of each class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|None                | N/A                                      

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value
  (Title of class)

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ 
 ]     No [X]

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes
[   ]     No [X]

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

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ii

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [   ]     No [   ]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

|Large accelerated filer [   ] |                                                     | Accelerated
      filer                  
      [   ]
|----------------------------- | --------------------------------------------------- | -----------------------------------------------------
|Non-accelerated filer   [   ] | (Do not check if a smaller
      reporting company) | Smaller reporting company [X]                        

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

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of such
common equity, as of the last business day of the registrants most recently
completed second fiscal quarter.

$7,040,000 based on a price of $1.00 per share multiplied
by 7,040,000 shares of common stock held by non-affiliates as of November 30,
2010.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest practicable date:
16,677,500 shares of common stock as of October 12, 2011

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statement; and (3) Any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980). Not Applicable.

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iii

TABLE OF CONTENTS

|PART I                                                                                                                           | 1 
|-------------------------------------------------------------------------------------------------------------------------------- | --
|                                                                                                                                 |   
|FORWARD-LOOKING
      STATEMENTS.                                                                                                | 1 
|                                                                                                                                 |   
|ITEM 1. BUSINESS                                                                                                                 | 1 
|                                                                                                                                 |   
|ITEM 1A. RISK FACTORS                                                                                                            | 5 
|                                                                                                                                 |   
|ITEM 1B. UNRESOLVED
      STAFF COMMENTS                                                                                         | 11
|                                                                                                                                 |   
|ITEM 2. PROPERTIES                                                                                                               | 11
|                                                                                                                                 |   
|ITEM 3. LEGAL
      PROCEEDINGS                                                                                                  | 11
|                                                                                                                                 |   
|ITEM 4. (REMOVED AND
      RESERVED)                                                                                             | 12
|                                                                                                                                 |   
|PART II                                                                                                                          | 12
|                                                                                                                                 |   
|ITEM 5. MARKET FOR
      REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES | 12
|                                                                                                                                 |   
|ITEM 6. SELECTED
      FINANCIAL DATA                                                                                            | 14
|                                                                                                                                 |   
|ITEM 7. MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION                               | 14
|                                                                                                                                 |   
|ITEM 7A. QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                        | 20
|                                                                                                                                 |   
|ITEM 8. FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA                                                                        | 21
|                                                                                                                                 |   
|ITEM 9. CHANGES IN AND
      DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               | 22
|                                                                                                                                 |   
|ITEM 9A. CONTROLS AND
      PROCEDURES                                                                                           | 22
|                                                                                                                                 |   
|ITEM 9B. OTHER
      INFORMATION                                                                                                 | 23
|                                                                                                                                 |   
|PART III                                                                                                                         | 24
|                                                                                                                                 |   
|ITEM 10. DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                            | 24
|                                                                                                                                 |   
|ITEM 11. EXECUTIVE
      COMPENSATION                                                                                            | 26
|                                                                                                                                 |   
|ITEM 12. SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS              | 28
|                                                                                                                                 |   
|ITEM 13.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                         | 29
|                                                                                                                                 |   
|PART IV                                                                                                                          | 30
|                                                                                                                                 |   
|ITEM 15. EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES                                                                           | 30
|                                                                                                                                 |   
|SIGNATURES                                                                                                                       | 31

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1

PART I

FORWARD-LOOKING STATEMENTS.

This annual report contains forward-looking statements.
Forward-looking statements are projections in respect of future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as may, should, intend, expect, plan,
anticipate, believe, estimate, predict, potential, or continue or
the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, including the risks in
the section entitled Risk Factors commencing on page 5, uncertainties and
other factors, which may cause our or our industrys actual results, levels of
activity or performance to be materially different from any future results,
levels of activity or performance expressed or implied by these forward-looking
statements. These risks and uncertainties include: a continued downturn in
international economic conditions; any adverse occurrence with respect to the
development or marketing of our product; any adverse occurrence with respect to
any of our licensing agreements; our ability to successfully bring products to
market; product development or other initiatives by our competitors;
fluctuations in the availability and cost of materials required to produce our
products; any adverse occurrence with respect to distribution of our products;
potential negative financial impact from claims, lawsuits and other legal
proceedings or challenges; and other factors beyond our control.

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

As used in this annual report, the terms we, us our and
PreAxia mean PreAxia Health Care Payment Systems Inc. and our wholly- owned
subsidiary, PreAxia Health Care Payment System Inc. (formerly H Pay Card Inc.),
unless the context clearly requires otherwise. Unless otherwise stated, $
refers to United States dollars.

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.

General Overview

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

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2

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

Description of Health Spending Account (HSA)

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

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

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

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

- Payment card issuance on behalf of issuing bank partners for
  customer-branded credit cards and Interac payment cards. The cards are
  anticipated to be issued with Canadian and United States access through
  Interac (Canada) and STAR (United States) ATM, as well as inter-bank networks.
- Payment processing and funds allocation on payment accounts through
  financial electronic data interchange, wire transfers, and the automatic
  clearing house (ACH), with a PreAxia connection to a financial institution
  payment gateway and the United States ACH network through a United States
  financial institution.
- Enabling cardholders to select a personal PIN using a PreAxia PIN selection
  and card activation terminal. These functions enable the end user to be issued
  a PreAxia generated payment card at a customers office which is ready for
  immediate use.
- Authorizing transactions based upon the business requirements of PreAxia
  customers.
- Monitoring for unusual transaction activities, fraud and compliance
  violations.
- Providing management reports to customers and payment beneficiaries.
- Customer support center for reporting lost or stolen cards and for
  answering cardholder inquiries.

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3

Distribution Methods and Marketing Strategy

PreAxias overall strategy is to finalize development of and
market its health care payment cards and system. Our company will target
enterprise-sized, public and private sector customers at the provincial and
national levels. We will seek opportunities with lead customers and alliance
partners to establish reference-able, high-profile implementations and
market-leading, early-adopter firms for further developing innovative products
and services. Our company intends to design solutions targeted towards corporate
financial management, financial risk, audit management and cash management and
target product/service management as a support to financial management.

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

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

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

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

- Benefits managers/adjudicators, including insurance, health or outsources
  government benefits processors that manage benefits disbursement
- Issuer banks, including partner banks that enable the issuance of Health
  Cards
- Application providers, including software manufacturers selling into the
  target vertical markets
- Professional services, including consulting, development and implementation
  companies serving the target vertical markets

PreAxia intends to establish several key customer reference
accounts, channel marketing partners and technology alliances. These corporate
relationships are key to advance our companys goals in 2010 and 2011 for
achieving a prime position in the Canadian public sector 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:

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4

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.

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.

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5

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 year ended May 31, 2011, we expended $649,324 on
research and development compared to $355,856 during year ended May 31,
2010.

Employees

PreAxia has one full-time consultant, our President, Mr. Tom
Zapatinas. We entered into an employment agreement effective July 1, 2009 with
Mr. Geneau for the position of chief marketing and privacy officer. Effective
June 30, 2011, this employee resigned. Effective September 1, 2011, an
employment agreement was signed with Mr. Perry Shoom for the position of general
manager. We anticipate that we will hire additional key staff throughout 2011 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.

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.

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6

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.

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

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

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

---

7

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.

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 slow down 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
impact on 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.

---

8

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.

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 suit 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.

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.

---

9

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, either other employment,
other business, or time restrictions placed on them and accordingly, these
directors will only be able to devote part of their time to the affairs of
PreAxia.

PreAxia does not 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.

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.

---

10

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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11

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

We presently lease office space of 712 square feet in Calgary,
Alberta Canada at $1,190.00 USD (($1,333 CDN @ .893) per month. The term of the
lease was for a period of one year with an option to renew the lease at the same
rental rate for a further two (2) terms of one year each. On August 1, 2010, we
exercised our option to renew the lease to the end of July 31, 2011. Effective
August 1, 2011 we exercised our second term option to July 31, 2012. The office
is located at #207, 1410  11th Avenue S.W., Calgary, Alberta.

ITEM 3. LEGAL PROCEEDINGS

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.

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12

ITEM 4. (REMOVED AND RESERVED)

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 not traded on any exchange. Until September
2, 2010, our common stock was quoted on the OTC Bulletin Board, but effective
September 3, 2010, our common stock has not been eligible for quotation on the
OTC Bulleting Board. We cannot assure you that there will be a market for our
common stock in the future.

Following is a report of high and low bid prices for each
quarterly period for the years ended May 31, 2011 and 2010.

Quarter Ended
    High
    Low05/31/2011
    $0.00
    $0.0002/28/2011
    $0.00
    $0.0011/30/2010
    $0.00
    $0.0008/31/2010
    $0.00
    $0.0005/31/2010
    $0.00
    $0.0002/28/2010
    $0.00
    $0.0011/30/2009
    $0.25
    $0.0008/31/2009
    $0.00
    $0.00


Holders of Our Common Stock

As of October 12, 2011, there were 74 holders of record of our
common stock and 16,677,500 shares of common stock outstanding.

Holladay Stock Transfer of 2930 North 67th Place,
Scottsdale, Arizona 85251, Phone: (480) 481-3940, Fax: (480) 481-3991 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.

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,
2011.

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13

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 plansEquity compensation plans approved by
      security holders
    None
    N/A
    2,000,000Equity compensation plans not approved by
      security holders
    None
    N/A
    NoneTotal
    None
    N/A
    2,000,000


Recent Sales of Unregistered Securities

Except as disclosed below, 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, 2011.

We have received funds from a subscriber on May 20, 2010 in the
amount of $20,000 for 20,000 shares of common stock at $1.00 per share. Issuance
of common stock has been made at May 31, 2011. We sold these shares to one
non-U.S. person (as that term is defined in Regulation S of the Securities Act
of 1933) in an offshore transaction relying on the exemptions from the
registration requirements of the Securities Act of 1933 provided for in
Regulation S and/or Section 4(2) of the Securities Act of 1933.

On December 15, 2010, we issued 30,000 shares at $1.00 per
share for total proceeds of $30,000 to one investor. We issued these shares to a
non-U.S. person (as that term is defined in Regulation S of the Securities Act
of 1933) in an offshore transaction relying on Regulation S.

On December 13, 2010, we issued 240,000 shares of common stock
at $1.00 per share for total proceeds of $240,000 to two investors. We issued
these shares to a non-U.S. person (as that term is defined in Regulation S of
the Securities Act of 1933) in an offshore transaction relying on Regulation
S.

On January 3, 2011, we issued 100,000 shares of common stock at
$1.00 per share for total proceeds of $100,000 to one investor. We issued these
shares to a non-U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) in an offshore transaction relying on Regulation S.

On February 3, 2011, we issued 25,000 shares of common stock at
$1.00 per share for total proceeds of $25,000 to one investor. We issued these
shares to a non-U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) in an offshore transaction relying on Regulation S.

On February 14, 2011, we issued 107,500 shares of common stock
at $1.00 per share for total proceeds of $107,500 to four investors. We issued
these shares to a non-U.S. person (as that term is defined in Regulation S of
the Securities Act of 1933) in an offshore transaction relying on Regulation S.

On March 17, 2011, we issued 50,000 shares of common stock at
$1.00 per share for total proceeds of $50,000 to one investor. We issued these
shares to a non-U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933) in an offshore transaction relying on Regulation S.

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

On May 5, 2011, we issued 25,000 shares at $1.00 per share for
total proceeds of $25,000 to one investor. We issued these shares to a non-U.S.
person (as that term is defined in Regulation S of the Securities Act of 1933)
in an offshore transaction relying on Regulation S.

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14

On September 1, 2011, we issued 25,000 shares at $1.00 per
share for total proceeds of $25,000 to one investor. We issued these shares to a
non-U.S. person (as that term is defined in Regulation S of the Securities Act
of 1933) in an offshore transaction relying on Regulation S.

On September 1, 2011, we issued an aggregate of 25,000 shares
at $1.00 per share for total proceeds of $25,000 to one investor. We issued
these shares pursuant to an exemption from registration set out in Section 4(2)
of the Securities Act of 1933.

On September 1, 2011, we issued an aggregate of 10,000 shares
at $1.00 per share for total proceeds of $10,000 to one investor. We issued
these shares pursuant to an exemption from registration set out in Section 4(2)
of the Securities Act of 1933.

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 year ended May 31, 2011.

ITEM 6. SELECTED FINANCIAL DATA

Not Applicable.

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION

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 will grow to over $75 billion in
assets and 25 million consumers by 2015. This coupled with the continued growth
of the Canadian group insurance industry illustrates the emerging opportunity
for innovative health payment services. We intend to initially launch our
products in Canada. We believe that Canadian businesses are embracing a new
healthcare financing vehicle to control costs, increase profitability and get
more return from their investment. We intend to provide them with services to
capture this market opportunity.

Plan of Operation

Over the next twelve months, we plan to:

| | (a) | Raise additional capital to execute our business 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.                                                                                   

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15

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 $2,850,000 to complete our
business plan and pay our existing outstanding debts of approximately
$1,300,000. 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 ExpensesGeneral and Administrative
    $300,000Research and Development
    $450,000Marketing and Education
    $450,000Professional Services
    $350,000Total
    $1,550,000


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

| | 1. | General and AdministrativeWe 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 DevelopmentWe 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 EducationWe 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 ServicesWe anticipate that we may
      spend up to $350,000 in the next twelve months for professional services,
      which includes stock-based compensation, 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, 2011, we had a bank deficit of $19,297, compared
to a cash balance of $4,047 as at May 31, 2010. PreAxia Canada will be required
to raise capital to fund our operations. We had a working capital deficit of
$1,307,545 as of May 31, 2011 compared with a working capital deficit of
$900,374 as of May 31, 2010.

Subsequent to May 31, 2011, we have received an aggregate of
CDN$45,000 loan advances from one of our shareholders, with interest calculated
at six percent per annum, payable on demand, and an aggregate of CDN$40,000 loan
advances from two of our shareholders, which bear no interest and are payable 30
days after demand. In addition, on September 1, 2011 we issued an aggregate of
60,000 shares at $1.00 per share for total proceeds of $60,000 to three
investors.

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16

Our company currently has no 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 development stage with PreAxia Canada. We project that we will
require an estimated additional $2,857,545 over the next twelve month period to
fund our operating cash shortfall calculated as $1,307,545 to cover our working
capital deficit plus $1,550,000 for our projected cash request for the year
ended May 31, 2012. 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.

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, 2011 and May 31, 2010 and
the changes between those periods for the respective items are summarized as
follows:

Working Capital

May 31, 2011
    
    
    May 31, 2010Current Assets
    $
    1,205
    
    $
    5,252Current Liabilities
    $
    1,308,750
    
    $
    905,626Working Capital (deficit)
    $
    (1,307,545
    )
    $
    (900,374
    )


The increase in our working deficit of $407,171 was primarily
due to increases in our bank overdraft and accounts payables related parties, an
increase in additional loans payable at the end of the year and the convertible
debenture.

Cash Flows

|                                                            |   | Year Ended   |   |   | Year Ended   |  
|----------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                            |   | May 31, 2011 |   |   | May 31, 2010 |  
|Net cash used in Operating
      Activities                 | $ | (755,409     | ) | $ | (198,319     | )
|Net cash provided by Investing Activities                   | $ | -            |   | $ | -            |  
|Net cash provided by
      Financing Activities             | $ | 751,362      |   | $ | 178,672      |  
|Effect of exchange rate on cash                             | $ | -            |   | $ | 101          |  
|Change in Cash and Cash
      Equivalents During the Period | $ | (4,047       | ) | $ | (19,546      | )

Cash Used in Operating Activities

During the year ended May 31, 2011, we used net cash in
operating activities in the amount of $755,409 primarily towards general and
administrative expenses, as well as an increase in accounts payable, accrued
liabilities and, interest payable of $22,776 and net change in accounts payable
related parties of $374,374.

Cash Provided by Investing Activities

During the year ended May 31, 2011, no funds were provided by
investing activities.

---

17

Cash from Financing Activities

We received net cash from financing activities during the year
ended May 31, 2011. Net cash generated by financing activities is attributable
to cash received from bank overdraft of $19,282, net loan advances and accrued
interest payable totalling $9,580, and the sale of common stock of $722,500 for
net cash from financing activities totalling $751,362.

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, 2011, which are included herein. Our operating results for the year ended
May 31, 2011 and May 31, 2010 are described below.

Revenue

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

Expenses

Our expenses for the 12 months ended May 31, 2011 and May 31,
2010 were as follows:

|                          |   | Year Ended   |  |   | Year Ended   |  |  |       | 
|------------------------- | - | ------------ |  | - | ------------ |  |  | ----- | 
|                          |   | May 31, 2011 |  |   | May 31, 2010 |  |  | %     | 
|Consulting Fees           | $ | 120,000      |  | $ | 120,000      |  |  | -     | 
|Professional Fees         |   | 126,876      |  |   | 87,808       |  |  | 44.5% | 
|Office and Administration |   | 95,631       |  |   | 60,396       |  |  | 58.4% | 
|Research and Development  |   | 649,324      |  |   | 355,856      |  |  | 82.5% | 
|Wages and Benefits        |   | 102,794      |  |   | 92,468       |  |  | 11.2% | 
|Rent                      |   | 17,841       |  |   | 13,879       |  |  | 28.6% | 
|                          | $ | 1,112,466    |  | $ | 730,407      |  |  |       | 

Operating expenses for the 12 months ended May 31, 2011 were
$1,112,466, which is an increase of $382,059 compared to the year ended May 31,
2010. The increase was due to an increase in professional fees of $39,068,
increase in office and administration of $35,235, increase in research and
development of $293,468, increase in wages and benefits of $10,326 and an
increase in rent of $3,962.

Professional Fees

Professional fees increased by $39,068 in the year ended May
31, 2011 compared to the year ended May 31, 2010, due to an increase in
accounting fees of $5,449 caused by additional volume of transactions, an
increase in our legal fees of $21,039 due to hiring our in-house lawyer, and an
increase in our audit fees of $12,580 due to additional work by our auditors.

Office and Administration

Our office and administration expenses increased by $35,235 in
the year ended May 31, 2011 compared to the year ended May 31, 2010, due to an
increase in travel expenses to Bolivia for an increase of $5,329, an increase in
general and administration expenses of $12,598, an increase in late fees of
$7,772 due to delays in paying our accounts payable on time, a increase in bank
fees of $10,169 caused by opening additional bank accounts and paying mostly by
wire transfers and a decrease in telephone of $633 as we reduced the number of
conference calls during 2011.

Research and development

---

18

Research and development increased by $293,468 for the year
ended May 31, 2011 compared to the year ended May 31, 2010 due to increase in
software lease agreement of $79,478 and an increase in number of computer
programmers for a total of $213,990.

Wages and benefits

Wages and benefits increased by $10,326 for the year ended May
31, 2011 compared to the year ended May 31, 2010 due to wages and benefits paid
for the year ended May 31, 2011 contained twelve (12) months and the year ended
May 31, 2010 only had eleven months as the employee was hired on July 2, 2009
and penalties for late payments on our payroll deductions.

Rent

Rent expense increased by $3,962 for the year ended May 31,
2011 compared to the rent for the year ended May 31, 2010, due to only having to
pay half a months rent in the year ended May 31, 2010, as the lease commenced
on June 15, 2010 and also we were required to pay lump-sum occupancy costs
during the year ended May 31, 2011.

Going Concern

We have historically incurred losses and have incurred a loss
of $2,253,731 from inception to May 31, 2011. 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

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.

---

19

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.

Development Stage Company

Our company is a development stage company as defined in FASC
915-10-05 Development Stage Entity. Our company is devoting substantially all
of its present efforts to establish a new business and none of its planned
principal operations have commenced. All losses accumulated since inception has
been considered as part of our companys development stage activities.

Gain (Loss) Per Share

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

Research and Development Costs

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

Recent Accounting Pronouncements

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

In January 2010, the FASB issued Accounting Standards Update
No. 2010-06, Improving Disclosures about Fair Value Measurements (Topic
820)Fair Value Measurements and Disclosures(ASU 2010-06), to add
additional disclosures about the different classes of assets and liabilities
measured at fair value, the valuation techniques and inputs used, the activity
in Level 3 fair value measurements, and the transfers between Levels 1, 2, and
3. We are currently evaluating the impact of the pending adoption of this
standards update on our consolidated financial statements. The new disclosures
and clarifications of existing disclosure are effective for fiscal years
beginning after December 15, 2009, except for the disclosure requirements
related to the purchases, sales, issuances and settlements in the roll-forward
activity of Level 3 fair value measurements. Those disclosure requirements are
effective for fiscal years ending after December 31, 2010. The adoption of ASU
2010-06 had no material impact on our financial statements.

---

20

In April 2010, the FASB issued Accounting Standards Update No.
2010-17, Revenue RecognitionMilestone Method (Topic 605) Revenue
Recognition(ASU 2010-17). ASU 2010-17 provides guidance on defining the
milestone and determining when the use of the milestone method of revenue
recognition for research or development transactions is appropriate. It provides
criteria for evaluating if the milestone is substantive and clarifies that a
vendor can recognize consideration that is contingent upon achievement of a
milestone as revenue in the period in which the milestone is achieved, if the
milestone meets all the criteria to be considered substantive. ASU 2010-17 is
effective for our company in fiscal 2011 and should be applied prospectively.
Early adoption is permitted. We are currently evaluating the impact of the
pending adoption of ASU 2010-17 on our consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

Not applicable.

---

21

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.

(A Development Stage Company)

CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011 and 2010

(Stated in US Dollars)



---

| | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      To The Board of Directors
      Preaxia Health Care Payment Systems, Inc.
      We have audited the accompanying consolidated balance
      sheets of Preaxia Health Care Payment Systems, Inc. (the Company) and
      subsidiary as of May 31, 2011 and 2010, and the related consolidated
      statements of operations and comprehensive income, statements of
      stockholders deficit, and cash flows for the years then ended. These
      consolidated financial statements are the responsibility of the Companys
      management. Our responsibility is to express an opinion on these
      consolidated financial statements based on our audits.
      We conducted our audits in accordance with the standards
      of the Public Company Accounting Oversight Board (United States of
      America). Those standards require that we plan and perform the audits to
      obtain reasonable assurance about whether the consolidated financial
      statements are free of material misstatement. The Company is not required
      to have, nor were we engaged to perform, an audit of its internal control
      over financial reporting. Our audits included consideration of internal
      control over financial reporting, as a basis for designing audit
      procedures that are appropriate in the circumstances but not for the
      purpose of expressing an opinion on the effectiveness of the Companys
      internal control over financial reporting. Accordingly, we express no such
      opinion. An audit includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the consolidated financial statements. An
      audit also includes assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the
      overall financial statement presentation. We believe that our audits
      provide a reasonable basis for our opinion.
      In our opinion, the consolidated financial statements
      referred to above present fairly, in all material respects, the financial
      position of Preaxia Health Care Payment Systems, Inc. and subsidiary as of
      May 31, 2011 and 2010, and the results of its operations and its cash
      flows for the years then ended, in conformity with accounting principles
      generally accepted in the United States of America.
      The accompanying financial statements have been prepared
      assuming that the Company will continue as a going concern. As discussed
      in Note 2 to the financial statements, the Company has a deficit working
      capital, a retained deficit, and has suffered recurring losses from
      operations. These factors, among others, raise substantial doubt about the
      Company's ability to continue as a going concern. Management's plans in
      regard to these matters are also described in Note 2. The financial
      statements do not include any adjustments that might result from the
      outcome of this uncertainty.
      /s/Child, Van Wagoner, & Bradshaw, LLCSalt Lake
      City, UtahOctober 20, 2011
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

PREAXIAHEALTHCAREPAYMENTSYSTEMSINC.

(A Development Stage Company) CONSOLIDATED BALANCE SHEETS
May 31, 2011 and May 31, 2010

|                                                                                                                                                                                                 |   | May 31,    |   |   | May 31,    |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ---------- | - | - | ---------- | -
|                                                                                                                                                                                                 |   | 2011       |   |   | 2010       |  
|                                                                                                                                                                                                 |   |            |   |   |            |  
|ASSETS                                                                                                                                                                                           |  
|                                                                                                                                                                                                 |   |            |   |   |            |  
|Current assets                                                                                                                                                                                   |   |            |   |   |            |  
|Cash                                                                                                                                                                                             | $ | -          |   | $ | 4,047      |  
|Rent deposit                                                                                                                                                                                     |   | 1,205      |   |   | 1,205      |  
|                                                                                                                                                                                                 |   |            |   |   |            |  
|Total current assets                                                                                                                                                                             | $ | 1,205      |   | $ | 5,252      |  
|                                                                                                                                                                                                 |   |            |   |   |            |  
|LIABILITIES                                                                                                                                                                                      |  
|                                                                                                                                                                                                 |   |            |   |   |            |  
|Current liabilities                                                                                                                                                                              |   |            |   |   |            |  
|Bank overdraft                                                                                                                                                                                   | $ | 19,297     |   | $ | -          |  
|Accounts payable and accrued
      liabilities                                                                                                                                                   |   | 148,401    |   |   | 133,476    |  
|Accounts payable  related party (Note
      3)                                                                                                                                                  |   | 985,808    |   |   | 634,337    |  
|Loan payable  related
      party (Note 3)                                                                                                                                                      |   | 86,494     |   |   | 76,914     |  
|Accrued interest  loans payable                                                                                                                                                                 |   | 9,619      |   |   | 6,418      |  
|Convertible debenture including
      accrued interest, net of discount (Note 4)                                                                                                                 |   | 59,131     |   |   | 54,481     |  
|                                                                                                                                                                                                 |   |            |   |   |            |  
|Total current liabilities                                                                                                                                                                        |   | 1,308,750  |   |   | 905,626    |  
|                                                                                                                                                                                                 |   |            |   |   |            |  
|STOCKHOLDERS DEFICIT                                                                                                                                                                            |  
|                                                                                                                                                                                                 |   |            |   |   |            |  
|Capital stock, $0.001 par value                                                                                                                                                                  |   |            |   |   |            |  
|75,000,000
      common shares authorized               16,617,500
      and 15,870,000 common shares issued and outstanding for              
      May 31, 2011 and May 31, 2010, respectively |   | 16,618     |   |   | 15,870     |  
|Additional paid-in capital                                                                                                                                                                       |   | 932,091    |   |   | 185,339    |  
|Accumulated other comprehensive income                                                                                                                                                           |   | (2,523     | ) |   | (411       | )
|Deficit accumulated during the development
      stage                                                                                                                                           |   | (2,253,731 | ) |   | (1,101,172 | )
|                                                                                                                                                                                                 |   |            |   |   |            |  
|Total stockholders deficit                                                                                                                                                                      |   | (1,307,545 | ) |   | (900,374   | )
|                                                                                                                                                                                                 |   |            |   |   |            |  
|Total liabilities and stockholders deficit                                                                                                                                                      | $ | 1,205      |   | $ | 5,252      |  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

PREAXIAHEALTHCAREPAYMENTSYSTEMSINC.(A Development Stage
Company) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
for the years ended May 31, 2011 and May 31, 2010 and the period from
January 28, 2008 (Date of Inception) through May 31, 2011 
  Stated in U.S. Dollars

|                                                    |   |                    |   |   |                    |   |   | January 28,        |  
|--------------------------------------------------- | - | ------------------ | - | - | ------------------ | - | - | ------------------ | -
|                                                    |   |                    |   |   |                    |   |   | **2008  (Date of** |  
|                                                    |   | For the year ended |   |   | For the year ended |   |   | Inception) to      |  
|                                                    |   | May 31,            |   |   | May 31,            |   |   | May 31,            |  
|                                                    |   | 2011               |   |   | 2010               |   |   | 2011               |  
|                                                    |   |                    |   |   |                    |   |   |                    |  
|Expenses                                            |   |                    |   |   |                    |   |   |                    |  
|Consulting fees                                     |   | 120,000            |   |   | 120,000            |   |   | 443,689            |  
|Professional fees                                   |   | 126,876            |   |   | 87,808             |   |   | 286,216            |  
|Office and administration                           |   | 95,631             |   |   | 60,396             |   |   | 204,528            |  
|Research and
      development                      |   | 649,324            |   |   | 355,856            |   |   | 1,015,950          |  
|Wages and benefits                                  |   | 102,794            |   |   | 92,468             |   |   | 195,262            |  
|Rent                                                |   | 17,841             |   |   | 13,879             |   |   | 31,720             |  
|                                                    |   |                    |   |   |                    |   |   |                    |  
|Operating loss                                      |   | (1,112,466         | ) |   | (730,407           | ) |   | (2,177,365         | )
|                                                    |   |                    |   |   |                    |   |   |                    |  
|Interest income                                     |   | 19                 |   |   | 3                  |   |   | 638                |  
|Interest expense                                    |   | (7,851             | ) |   | (14,537            | ) |   | (46,089            | )
|Foreign currency
      transaction                  |   |                    |   |   |                    |   |   |                    |  
|expense                                             |   | (32,261            | ) |   | 1,749              |   |   | (30,915            | )
|                                                    |   |                    |   |   |                    |   |   |                    |  
|Net loss                                            | $ | (1,152,559         | ) | $ | (743,192           | ) | $ | (2,253,731         | )
|                                                    |   |                    |   |   |                    |   |   |                    |  
|Other comprehensive income:                         |   |                    |   |   |                    |   |   |                    |  
|Foreign currency translation                        |   | (2,112             | ) |   | (896               | ) |   | (2,523             | )
|                                                    |   |                    |   |   |                    |   |   |                    |  
|Comprehensive loss for the year                     | $ | (1,154,671         | ) | $ | (744,088           | ) | $ | (2,256,254         | )
|                                                    |   |                    |   |   |                    |   |   |                    |  
|Basic and diluted loss per share                    |   | (0.07              | ) |   | (0.05              | ) |   |                    |  
|                                                    |   |                    |   |   |                    |   |   |                    |  
|Weighted average number of shares
      outstanding |   | 16,115,014         |   |   | 15,799,534         |   |   |                    |  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS

---

PREAXIAHEALTHCAREPAYMENTSYSTEMSINC. (A Development Stage
Company) CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT from the
period January 28, 2008 (Date of Inception) to May 31, 2011 Stated in
U.S.Dollars

|                                                                     |  |                    |  |   |             |  |   |             |  |   |               |   |   | Deficit     |   |   |            |  
|-------------------------------------------------------------------- |  | ------------------ |  | - | ----------- |  | - | ----------- |  | - | ------------- | - | - | ----------- | - | - | ---------- | -
|                                                                     |  | Common
      Stock |  |   | Accumulated |  |   | Accumulated |  |   |               |  
|                                                                     |  |                    |  |   |             |  |   | Additional  |  |   | Other         |   |   | During the  |   |   |            |  
|                                                                     |  |                    |  |   |             |  |   | Paid-in     |  |   | Comprehensive |   |   | Development |   |   |            |  
|                                                                     |  | Shares             |  |   | Amount      |  |   | Capital     |  |   | Income        |   |   | Stage       |   |   | Total      |  
|                                                                     |  |                    |  |   |             |  |   |             |  |   |               |   |   |             |   |   |            |  
|Balance, January 28, 2008                                            |  | -                  |  | $ | -           |  | $ | -           |  | $ | -             |   | $ | -           |   | $ | -          |  
|Capital stock issued:                                                |  |                    |  |   |             |  |   |             |  |   |               |   |   |             |   |   |            |  
|Common shares issued pursuant to share 
         exchange agreements |  | 12,000,000         |  |   | 12,000      |  |   | -           |  |   | -             |   |   | -           |   |   | 12,000     |  
|Pursuant to recapitalization                                         |  | 3,750,000          |  |   | 3,750       |  |   | 36,964      |  |   | -             |   |   | -           |   |   | 40,714     |  
|Foreign currency translation adjustment                              |  | -                  |  |   | -           |  |   | -           |  |   | (810          | ) |   | -           |   |   | (810       | )
|Net loss for the year                                                |  | -                  |  |   | -           |  |   | -           |  |   | -             |   |   | (23,998     | ) |   | (23,998    | )
|                                                                     |  |                    |  |   |             |  |   |             |  |   |               |   |   |             |   |   |            |  
|Balance, May 31, 2008                                                |  | 15,750,000         |  |   | 15,750      |  |   | 36,964      |  |   | (810          | ) |   | (23,998     | ) |   | 27,906     |  
|                                                                     |  |                    |  |   |             |  |   |             |  |   |               |   |   |             |   |   |            |  
|Warrants issued with convertible debt                                |  | -                  |  |   | -           |  |   | 28,495      |  |   | -             |   |   | -           |   |   | 28,495     |  
|Foreign currency translation adjustment                              |  | -                  |  |   | -           |  |   | -           |  |   | 1,295         |   |   | -           |   |   | 1,295      |  
|Net loss for the year                                                |  | -                  |  |   | -           |  |   | -           |  |   | -             |   |   | (333,982    | ) |   | (333,982   | )
|                                                                     |  |                    |  |   |             |  |   |             |  |   |               |   |   |             |   |   |            |  
|Balance, May 31, 2009                                                |  | 15,750,000         |  |   | 15,750      |  |   | 65,459      |  |   | 485           |   |   | (357,980    | ) |   | (276,286   | )
|                                                                     |  |                    |  |   |             |  |   |             |  |   |               |   |   |             |   |   |            |  
|Common shares issued for cash @ $1.00 per share                      |  | 120,000            |  |   | 120         |  |   | 119,880     |  |   | -             |   |   | -           |   |   | 120,000    |  
|Foreign currency translation adjustment                              |  | -                  |  |   | -           |  |   | -           |  |   | (896          | ) |   | -           |   |   | (896       | )
|Net loss for the period                                              |  | -                  |  |   | -           |  |   | -           |  |   | -             |   |   | (743,192    | ) |   | (743,192   | )
|                                                                     |  |                    |  |   |             |  |   |             |  |   |               |   |   |             |   |   |            |  
|Balance, May 31, 2010                                                |  | 15,870,000         |  |   | 15,870      |  |   | 185,339     |  |   | (411          | ) |   | (1,101,172  | ) |   | (900,374   | )
|                                                                     |  |                    |  |   |             |  |   |             |  |   |               |   |   |             |   |   |            |  
|Common shares issued to reduce debt                                  |  | 25,000             |  |   | 25          |  |   | 24,975      |  |   | -             |   |   | -           |   |   | 25,000     |  
|Common shares issued for cash @ $1.00 per
      share                |  | 722,500            |  |   | 723         |  |   | 721,777     |  |   | -             |   |   | -           |   |   | 722,500    |  
|Foreign currency translation adjustment                              |  | -                  |  |   | -           |  |   | -           |  |   | (2,112        | ) |   | -           |   |   | (2,112     | )
|Net loss for the period                                              |  | -                  |  |   | -           |  |   | -           |  |   | -             |   |   | (1,152,559  | ) |   | (1,152,559 | )
|                                                                     |  |                    |  |   |             |  |   |             |  |   |               |   |   |             |   |   |            |  
|Balance, May 31, 2011                                                |  | 16,617,500         |  | $ | 16,618      |  | $ | 932,091     |  | $ | (2,523        | ) | $ | (2,253,731  | ) | $ | (1,307,545 | )

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

---

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC.(A
Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS for the
years ended May 31, 2011 and May 31, 2010 and for the period from January
28, 2008 (Date of Inception) through to May 31, 2011 Stated in U.S. Dollars

|                                                                                  |   |            |   |   |          |   |   | January 28,       |  
|--------------------------------------------------------------------------------- | - | ---------- | - | - | -------- | - | - | ----------------- | -
|                                                                                  |   |            |   |   |          |   |   | **2008 (Date of** |  
|                                                                                  |   |            |   |   |          |   |   | Inception) to     |  
|                                                                                  |   | May 31,    |   |   | May 31,  |   |   | May 31,           |  
|                                                                                  |   | 2011       |   |   | 2010     |   |   | 2011              |  
|                                                                                  |   |            |   |   |          |   |   |                   |  
|Cash Flows from Operating Activities                                              |   |            |   |   |          |   |   |                   |  
|Net loss                                                                          | $ | (1,152,559 | ) | $ | (743,192 | ) | $ | (2,253,731        | )
|Adjustments to reconcile net loss
      to net cash used in operating activities: |   |            |   |   |          |   |   |                   |  
|Amortization of debt discount                                                     |   | -          |   |   | 8,119    |   |   | 28,495            |  
|Changes in operating assets and
      liabilities:                                |   |            |   |   |          |   |   |                   |  
|Decrease (increase) in tax refund receivable                                      |   | -          |   |   | 682      |   |   | -                 |  
|Decrease
      (increase) in trade receivables                                    |   | -          |   |   | -        |   |   | 4,300             |  
|Decrease (increase) in rent deposit                                               |   | -          |   |   | (1,205   | ) |   | (1,205            | )
|Increase
      (decrease) in accounts payable  related party                     |   | 374,374    |   |   | 446,142  |   |   | 820,516           |  
|Increase (decrease) in accounts payable and accrued                               |   |            |   |   |          |   |   |                   |  
|liabilities                                                                       |   | 14,925     |   |   | 80,066   |   |   | 235,012           |  
|Increase (decrease) in accrued interest                                           |   | 7,851      |   |   | 11,069   |   |   | 22,245            |  
|                                                                                  |   |            |   |   |          |   |   |                   |  
|Cash flows used in operating activities                                           |   | (755,409   | ) |   | (198,319 | ) |   | (1,144,368        | )
|                                                                                  |   |            |   |   |          |   |   |                   |  
|Cash Flows from Investing Activities                                              |   |            |   |   |          |   |   |                   |  
|Cash received from note receivable                                                |   | -          |   |   | -        |   |   | 49,281            |  
|Cash acquired from
      business combination                                     |   | -          |   |   | -        |   |   | 86,692            |  
|                                                                                  |   |            |   |   |          |   |   |                   |  
|Cash flow provided by investing activities                                        |   | -          |   |   | -        |   |   | 135,973           |  
|                                                                                  |   |            |   |   |          |   |   |                   |  
|Cash Flows from Financing Activities                                              |   |            |   |   |          |   |   |                   |  
|Overdraft in bank                                                                 |   | 19,282     |   |   | -        |   |   | 19,282            |  
|Proceeds from loan
      payable  related party                                  |   | 9,580      |   |   | 58,672   |   |   | 112,843           |  
|Repayment of loan payable                                                         |   | -          |   |   | -        |   |   | (25,000           | )
|Proceeds from loan
      payable  convertible debenture                          |   | -          |   |   | -        |   |   | 46,505            |  
|Proceeds from sale of common stock                                                |   | 722,500    |   |   | 120,000  |   |   | 854,542           |  
|                                                                                  |   |            |   |   |          |   |   |                   |  
|Cash flows provided by financing activities                                       |   | 751,362    |   |   | 178,672  |   |   | 1,008,172         |  
|Effect of exchange rate on cash                                                   |   | -          |   |   | 101      |   |   | 223               |  
|Increase (decrease) in cash during the period                                     |   | (4,047     | ) |   | (19,546  | ) |   | -                 |  
|                                                                                  |   |            |   |   |          |   |   |                   |  
|Cash, beginning of period                                                         |   | 4,047      |   |   | 23,593   |   |   | -                 |  
|                                                                                  |   |            |   |   |          |   |   |                   |  
|Cash, end of period                                                               | $ | -          |   | $ | 4,047    |   | $ | -                 |  
|                                                                                  |   |            |   |   |          |   |   |                   |  
|Supplemental disclosure:                                                          |   |            |   |   |          |   |   |                   |  
|Non-cash investing and financing
      transactions:                              |   |            |   |   |          |   |   |                   |  
|Common stock issued for acquisition of subsidiary                                 | $ | -          |   | $ | -        |   | $ | 12,000            |  
|Common stock issued for debt                                                      | $ | 25,000     |   | $ | -        |   | $ | 25,000            |  

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS

---

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. 
  (A Development Stage Company) 
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  May 31, 2011 and 2010

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, 2011 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 is in the development stage and has not yet
realized any revenues from its planned operations.

---

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. 
  (A Development Stage Company) 
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  May 31, 2011

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, 2011, the Company had not yet achieved profitable operations, has
accumulated losses of $2,253,731 since inception, has negative working capital
of $1,307,545 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-5

---

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. 
  (A Development Stage Company) 
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  May 31, 2011 and 2010

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.

Development Stage Company

The Company is devoting substantially all of its present
efforts to establish a new business and none of its planned principal operations
have commenced. All losses accumulated since inception has been considered as
part of the Companys development stage activities.

Gain (Loss) Per Share

Gain (loss) per share of common stock is computed by dividing
the net loss by the weighted average number of common shares outstanding during
the period.

Research and Development Costs

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

Principles of Consolidation

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

Reclassification

The consolidated financial statements for the year ended May
31, 2010 has been reclassified from statements previously presented for
comparative purposes. This includes payables  related parties, comprehensive
income disclosure of foreign currency and several items in statement of cash
flows, which required the removal of the repayment of loan payable  related
party, the removal of proceeds from loan payable, an increase to the proceeds
from loans payable  related party and an increase of accounts payable  related
party.

F-6

---

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. 
  (A Development Stage Company) 
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  May 31, 2011 and 2010

Note 2  Summary of significant accounting policies
(Continued)

New Accounting Standards

Recent Accounting Pronouncements

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

In January 2010, the FASB issued Accounting Standards Update
No. 2010-06, Improving Disclosures about Fair Value Measurements (Topic
820)Fair Value Measurements and Disclosures(ASU 2010-06), to add
additional disclosures about the different classes of assets and liabilities
measured at fair value, the valuation techniques and inputs used, the activity
in Level 3 fair value measurements, and the transfers between Levels 1, 2, and
3. The Company is currently evaluating the impact of the pending adoption of
this standards update on its consolidated financial statements. The new
disclosures and clarifications of existing disclosure are effective for fiscal
years beginning after December 15, 2009, except for the disclosure requirements
related to the purchases, sales, issuances and settlements in the roll-forward
activity of Level 3 fair value measurements. Those disclosure requirements are
effective for fiscal years ending after December 31, 2010. The adoption of ASU
2010-06 had no material impact on the Companys financial statements.

In April 2010, the FASB issued Accounting Standards Update No.
2010-17, Revenue RecognitionMilestone Method (Topic 605) Revenue
Recognition(ASU 2010-17). ASU 2010-17 provides guidance on defining the
milestone and determining when the use of the milestone method of revenue
recognition for research or development transactions is appropriate. It provides
criteria for evaluating if the milestone is substantive and clarifies that a
vendor can recognize consideration that is contingent upon achievement of a
milestone as revenue in the period in which the milestone is achieved, if the
milestone meets all the criteria to be considered substantive. ASU 2010-17 is
effective for the Company in fiscal 2011 and should be applied prospectively.
Early adoption is permitted. The Company is currently evaluating the impact of
the pending adoption of ASU 2010-17 on its consolidated financial statements.

F-7

---

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. 
  (A Development Stage Company) 
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  May 31, 2011 and 2010

Note 2  Summary of significant accounting policies
(Continued)

Other

The Company has selected May 31 as its year-end and the Company
paid no dividends in 2011.

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 ($2,253,731) 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 3Related Party Transactions

Accounts Payable

During the year ended May 31, 2011, the Companys president,
Tom Zapatinas, invoiced $120,000 for management services rendered to the Company
for the period June 1, 2010 to May 31, 2011. As at May 31, 2011, Accounts
payable  related party includes a total of $423,146 due and payable to Mr.
Zapatinas. There are no terms of repayment for this payable.

During the year ended May 31, 2011, Lizée Gauthier, Certified
General Accountants, of which our CFO, Ron Lizée is the sole proprietor,
invoiced $61,759 for accounting services rendered. As at May 31, 2011, Accounts
payable  related party includes a total of $73,809 due and payable to Mr.
Lizée. There are no terms of repayment for this payable.

During the year ended May 31, 2011, shareholders of the Company
advanced the Company $233,695. As of May 31, 2011, the Company owed these
shareholders $488,853. The terms of repayment are 30 days after demand is made
by the shareholder.

Loans Payable

As at May 31, 2011, the Company has loans payable in the amount
of $86,494. The loans payable are due to shareholders of the Company. The loans
bear 6% interest per annum and are payable 30 days after demand is made by the
shareholder.

Note 4  Convertible Debenture

On September 12, 2008, the Company accepted funds in the amount
of $46,505 USD ($50,000 CDN) as a convertible debenture from a stockholder of
the Company. The debenture was for a period of one year and bearing interest at
the rate of 10% per annum and is convertible by the stockholder into common
shares of the Company at $0.50 per share for a period of one year. During the
year ended May 31, 2010, the Company recorded amortization of loan discount in
the amount of $8,119. The discount was fully amortized by November 30, 2009. The
Company is in discussion with the lender regarding either the possible
conversion of the note to shares or the renewal of the note for another year.
The balance on this debenture at May 31, 2011 was $59,131, including accrued
interest in the amount of $4,650.

F-8

---

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. 
  (A Development Stage Company) 
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  May 31, 2011 and 2010

Note 5  Share Issuances

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

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

The Company has received funds from a subscriber on November
18, 2010 in the amount of $15,000 for 15,000 shares of common stock at $1.00 per
share.

The Company also approved on December 13, 2010 the issuance of
shares in the amount of $25,000 for 25,000 shares of common stock at $1.00 per
share, by reducing loan payable  related party in the amount of $25,000. We
have reported in our statement of cash flow non-cash consideration for $25,000.

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

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

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

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

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

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

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

The Company has received funds from a subscriber on March 20,
2011 in the amount of $50,000 for 50,000 shares of common stock at $1.00 per
share. The share certificate was issued on March 17, 2011.

The Company has received funds from a subscriber on May 4, 2011
in the amount of $25,000 for 25,000 shares of common stock at $1.00 per share.
The share certificate was issued on May 5, 2011.

The Company has received funds from a subscriber on May 20,
2011 in the amount of $20,000 for 20,000 shares of common stock at $1.00 per
share. The share certificate has not been issued yet.

F-9

---

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. 
  (A Development Stage Company) 
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  May 31, 2011 and 2010

Note 6  Lease Obligations

Effective August 1, 2009, the Company signed an agreement to
lease office space of 712 square feet in Calgary, Alberta Canada, in the amount
of $1,190.00 USD per month. The term of the lease was for a period of one year
with an option to renew the lease at the same rental rate for a further two (2)
terms of one year each. On August 1, 2010, the Company exercised its option to
renew the lease to the end of July 31, 2011. Effective August 1, 2011 the
Company exercised its second term option to July 31, 2012.

Note 7  Income Taxes

As at May 31, 2011, the Company is in arrears on filing its
statutory income tax returns. The Company has incurred substantial net operating
losses for financial statement purposes in the amount of $2,253,731 since
January 28, 2008 (Date of Inception) or net losses for tax purposes of
$2,138,561.

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:

2011
    
    
    2010Net operating losses  U.S. parent:Amount carried forward from 2008 and 2009
    $
    -
    
    $
    (270,442
    )Net operating losses
    
    (1,121,667
    )
    
    (720,800
    )(1,121,667
    )
    
    (991,242
    )Net operating losses  Canadian subsidiary:Amount carried forward from 2008 and 2009
    
    -
    
    
    (25,406
    )Net operating losses
    
    (246
    )
    
    -(246
    )
    
    (25,406
    )Total
    
    (1,121,913
    )
    
    (1,016,648
    )Less: valuation allowance
    
    1,121,913
    
    
    1,016,648$
    -
    
    $
    -


During the years ended May 31, 2011 and 2010, the change in
valuation allowance was $401,113.

F-10

---

PREAXIA HEALTH CARE PAYMENT SYSTEMS INC. 
  (A Development Stage Company) 
  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

  May 31, 2011 and 2010

Note 8 - Subsequent events

The Company received funds from a subscriber on August 9, 2011
in the amount of $25,000 for 25,000 shares of common stock at $1.00 per share.
The certificate was issued on September 1, 2011.

The Company received funds from a subscriber on August 18, 2011
in the amount of $10,000 for 10,000 shares of common stock at $1.00 per share.
The certificate was issued on September 1, 2011.

The Company received funds from a subscriber on August 22, 2011
in the amount of $25,000 for 25,000 shares of common stock at $1.00 per share.
The certificate was issued on September 1, 2011.

On September 1, 2011, subsequent to May 31, 2011, the Company
signed an employment agreement with an individual to serve as general manager.
The agreement is for a base annual salary of $85,000 and includes a potential
for the employee to receive 30,000 shares only upon completing one year of
service, and a $3,000 annual health spending account.

Subsequent to May 31, 2011, the Company received $46,103
($45,000 CDN) of loan advances from a shareholder. A promissory note with
interest calculated at six percent per annum from the date the funds were
received was issued and payable thirty days after demand from the lender.

Subsequent to May 31, 2011, the Company received $41,261
($40,000 CDN) of loan advances from shareholders. The loan advances bear no
interest and are payable 30 days after demand is made by lender.

On October 13, 2011, the Company received a loan advance from a
new investor in the amount of $25,000 CDN ($24,418 U.S.) The loan bears no
interest and is payable thirty (30) days upon demand from lender.

Other than noted above, the Company does not have any
additional subsequent events as of the date this report was issued.

F-11

---

22

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under supervision and with the participation of
the Chief Executive Officer and the Chief Financial Officer, 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 and Chief Financial Officer concluded that, as of May 31, 2011, 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, 2011. In making the assessment,
management used the criteria issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on its assessment, management concluded that, as of May 31,
2011, 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 and 2011.

We intend to take appropriate and reasonable steps to make the
necessary improvements to remediate these material weaknesses. In particular, we
intend to hire staff with U.S. GAAP expertise if we can obtain additional
financing and hire professionals to prepare and complete the filing of 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 has
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.

---

23

ITEM 9B. OTHER INFORMATION

We received a CDN$30,000 ($30,872 USD) loan advance from a
shareholder on June 1, 2011 and issued a promissory note dated June 1, 2011 to
the shareholder for CDN$30,000 ($30,872 USD) with interest calculated at six
percent per annum, payable on demand. We also received a CDN$15,000 ($15,231
USD) loan advance from the same shareholder on August 5, 2011 and issued a
promissory note dated August 5, 2011 to the shareholder for CDN$15,000 ($15,231
USD) with interest calculated at six percent per annum, payable on demand.

We received a CDN$30,000 ($30,872 USD) loan advance from a
shareholder on June 1, 2011. This loan bears no interest and is payable 30 days
after demand.

We received a CDN$10,000 ($10,389 USD) loan advance from a
shareholder on July 11, 2011. This loan bears no interest and is payable 30 days
after demand.

We received a CDN$25,000 ($24,418 USD) loan advance from a
shareholder on October 13, 2011. This loan bears no interest and is payable 30
days after demand.

Effective August 1, 2009, we signed an agreement to lease
office space of 712 square feet in Calgary, Alberta Canada, in the amount of
$1,190.00 USD per month. The term of the lease was for a period of one year with
an option to renew the lease at the same rental rate for a further two (2) terms
of one year each. On August 1, 2010, we exercised our option to renew the lease
to the end of July 31, 2011. Effective August 1, 2011 we exercised our second
term option to July 31, 2012.

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24

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

Directors and Executive Officers

The following individuals serve as the directors 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
      AppointedTom Zapatinas
    President, Chief Executive Officer, Secretary
      and Director
    56
    Director since January 9, 2007
      Officer since January 25, 2008Ron Lizée
    Chief Financial Officer, Treasurer and Director
    53
    January 25, 2008


Significant Employees

On June 30, 2011, Mr. Geneau resigned as the companys chief
marketing and privacy officer. Effective September 1, 2011, the board signed an
employment contract with Mr. Perry Shoom as general manager. The agreement is
for an annual base salary of $85,000 and includes the potential for the employee
to receive 30,000 shares upon the completion of one year of services, and a
health spending account in the amount of $3,000 per year.

Family Relationships

There are no family relationships between or among our
directors or executive officers.

Business Experience

Tom Zapatinas, President, Secretary, Chief Executive Officer
and a director

Tom Zapatinas has been a director of our company since January
9, 2007 and the president, secretary and chief executive 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.

Ron Lizée, Treasurer, Chief Financial Officer and a director

Mr. Ron Lizée has been the treasurer, chief financial officer
and a director of our company since January 25, 2008. Mr. Lizée is the
owner/operator of Lizée Gauthier, Certified General Accountants where he has
practiced since 1982. Mr. Lizée has over 29 years experience in the fields of
taxation, accounting and auditing. He graduated from the University of
Saskatchewan, Canada in 1981 with a B. Comm., majoring in accounting and gained
his Certified General Accountant (CGA) diploma in 1987, and Certified Financial
Planner (CFP) certificate in 1993. Mr. Lizée has experience in financial
management within public companies having served as a director and Chief
Financial Officer during 1995 to 1999. He is also a Director and CFO of
Acrongenomics, Inc. an OTCBB public company, which he has served since June of
2004. He is the former owner and Chief Executive Officer of a franchise chain
which operated in several Canadian provinces. Mr. Lizée is also the CEO and
President of Gemstar Capital Properties Inc., a private corporation, which is involved in
Land and Property Acquisition and Development Projects.

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25

We believe Mr. Lizée 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 education and business experiences as described above. Mr. Lizée
has gained considerable knowledge with public companies having performed audits
on public companies in the past, as well as prepared accounting and filings for
other public companies.

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 offences);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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 Board of Directors presently does not have an audit
committee. Since there are no independent members of the Board it is not
feasible at this time to have an audit committee. The Board of Directors
performs the same functions as an audit committee. The Board of Directors in
performing its functions as an audit committee has determined that it does not
have an audit committee financial expert as defined in Item 407(d)(5)(ii) of
Regulation S-K. We believe that the board of directors, in acting as our audit
committee, is collectively capable of analyzing and evaluating our financial
statements and understanding internal controls and procedures for financial
reporting. In addition, we believe that retaining an independent director who
would qualify as an audit committee financial expert would be overly costly
and burdensome and is not warranted in our circumstances given the early stages
of our development and the fact that we have generated nominal revenues to
date.

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26

Nomination Procedures For Appointment of
Directors

We had not effected any material changes to the procedures by
which our shareholders may recommend nominees to our board of directors. Our
board of directors does not have a policy with regards to the consideration of
any director candidates recommended by our shareholders. Our board of directors
has determined that it is in the best position to evaluate our companys
requirements as well as the qualifications of each candidate when the board
considers a nominee for a position on our board of directors. If shareholders
wish to recommend candidates directly to our board, they may do so by sending
communications to the president of our company at the address on the cover of
this annual report.

Code of Ethics

We have not yet adopted a code of ethics that applies to our
companys president and secretary (being our principal executive officer) and
our companys treasurer (being our principal financial officer and principal
accounting officer), as well as persons performing similar functions.

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, 2011 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, 2011 and May 31, 2010 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
      2011 
        2010
    $120,000 $120,000
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    $120,000 $120,000Ron Lizée, CFO and Director
      2011 
        2010
    $61,759(1)$56,310(1)
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    $61,759(1)$56,310(1)


1 Ron Lizée is not on a salary. During the fiscal
year ended May 31, 2011, a total of $61,759 (2010  $56,310) in fees were billed
to our company by Lizée Gauthier Certified General Accountants of which our
companys CFO, Mr. Ron Lizée, is the sole proprietor. These fees were invoiced
at the same billable rate as other clients of the firm and remain payable as at
May 31, 2011

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27

Employment Agreements

Effective July 1, 2009, our company signed an employment
agreement for the position of chief marketing and privacy officer with Mr.
Geneau. The agreement was for a base salary and included shares for service,
bonus and stock option plan and a health spending account. As at August 3, 2011,
the board accepted the resignation of our chief marketing and privacy officer.

Effective September 1, 2011, our company signed a new contract
with Perry Shoom to assume the position of general manager. The employment
agreement is for an annual base salary of $85,000 and includes 30,000 shares for
completion of one year of services, stock option plan and a health spending
account.

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, 2011.

OUTSTANDING EQUITY AWARDS AT
        FISCAL YEAR-ENDOPTION AWARDS
      STOCK AWARDSName
      Number
        of Securities Underlying UnexercisedOptions (#) Exercisable
      Number
        of Securities Underlying**Unexercised**Options (#) **Unexercisable**
      Equity
        Incentive Plan Awards: Number
        of Securities **Underlying** **Unexercised**UnearnedOptions (#)
      **Option** **Exercise** Price
        ($)
      Option Expiration Date
      Number
        of Shares or Unitsof StockThat Have Not Vested
        (#)
      MarketValueof Sharesor **Units
        of** **Stock** That Have
        NotVested ($)
      Equity IncentivePlan **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
      NoneRon Lizée
      None
      None
      None
      None
      None
      None
      None
      None
      None


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28

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,
2011.

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, 2011.
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 October 12, 2011, certain
information with respect to the beneficial ownership of our common stock by of
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
October 12, 2011, 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.

Title of Class
      Name and Address of Beneficial Owner
      Amount
        and Nature of Beneficial Ownership(1)
      Percentage
        of Class(2)Common Stock
      Spyros Tsoukalis
      825,000
      Direct
      5.0%Grammatikou MesologiouAitoloakarnaniasGreece T.K. 30015Common Stock
      Elias Tsoukalis
      813,033
      Direct
      4.9%Grammatikou MesologiouAitoloakarnaniasGreece T.K. 30015


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
      54.0%3212  14 Avenue SWCalgary, AB T3C 0X3Common Stock
      Ron Lizée
      100,000
      Indirect (3)
      0.6%202  3550 Taylor Street EastSaskatoon, SK S7H 5H9Common Stock
      All officers and directors as a group (2 persons)
      9,100,000
      
      64.5%


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.

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29

2 Based upon 16,677,500
issued and outstanding shares of common stock as of October 12, 2011
  3 These shares are held by Mr. Lizées wife, Johanne Lizée. Mr.
Lizée disclaims any voting power on beneficial ownership.

Changes in Control

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, 2010,
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, 2011 and the year ended May
      31, 2010, our companys president, Tom Zapatinas, invoiced $120,000 for
      management services rendered to our company for the period June 1, 2010 to
      May 31, 2011 and $120,000 for management services rendered for the period
      June 1, 2009 to May 31, 2010. As at May 31, 2011, accounts payable 
      related party includes a total of $423,146 due and payable to Mr.
      Zapatinas. As at May 31, 2010, accounts payable  related party includes a
      total of $283,211.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|2. | During the year ended May 31, 2011 and the year ended May
      31, 2010, Lizée Gauthier, Certified General Accountants, of which our CFO,
      Ron Lizée is the sole proprietor, invoiced $61,759 for accounting services
      rendered and $56,310 for accounting services during the year ended May 31,
      2010. As at May 31, 2011, accounts payable  related party includes a
      total of $73,809 due and payable to Mr. Lizée. As at May 31, 2010,
      accounts payable  related party includes a total of
  $69,720.                              

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 Child, Van Wagoner & Bradshaw,
PLLC for the completed fiscal periods ended May 31, 2011 and May 31, 2010 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, 2011
    Year Ended May 31, 2010Audit Fees and Audit Related Fees
    $26,988
    $24,000Tax Fees
    -
    -All Other Fees
    -
    -Total
    $26,988
    $24,000


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
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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30

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.

The board of directors has considered the nature and amount of
fees billed by Child, Van Wagoner & Bradshaw and believes that the provision
of services for activities unrelated to the audit is compatible with maintaining
Child, Van Wagoner & Bradshaws independence.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Exhibit Number
      Description3.1
      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 Officer31.2*
      Section
          302 Certification of Principal Financial Officer32.1*
      Certification
          Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906
          of the Sarbanes-Oxley Act of 200232.2*
      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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31

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
ZapatinasBy: Tom Zapatinas, President and Director(Principal Executive
Officer)
Dated: October 21, 2011

/s/Ron
LizéeBy: Ron Lizée, Chief Financial Officer and Director(Principal
Financial Officer and Principal Accounting
Officer)
Dated: October 21, 2011

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
ZapatinasBy: Tom Zapatinas, President and Director (Principal Executive
Officer)
Dated: October 21, 2011

/s/Ron
LizéeBy: Ron Lizée, Chief Financial Officer and Director(Principal
Financial Officer and Principal Accounting
Officer)
Dated: October 21, 2011

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