This quarterly report contains forward-looking statements relating to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as “may,” “should,” “intends,”
“expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential,” or “continue” or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors which may cause our or our industry’s
actual results, levels of activity or performance to be materially different
from any future results, levels of activity or performance expressed or implied
by these forward-looking statements.
Such factors include, among others, the following: international, national and
local general economic and market conditions; demographic changes; the ability
of PreAxia to sustain, manage or forecast its growth; the ability of PreAxia to
successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or failure to comply with government regulations;
adverse publicity; competition; the loss of significant customers or suppliers;
fluctuations and difficulty in forecasting operating results; changes in
business strategy or development plans; business disruptions; the ability to
attract and retain qualified personnel; the ability to protect technology; and
other factors referenced in this and previous filings.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity or performance. Except as required by applicable law, including the
securities laws of
forward-looking statements to conform these statements to actual results.
Given these uncertainties, readers of this Form 10-Q and investors are cautioned
not to place undue reliance on such forward-looking statements. PreAxia
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments, except as required by
applicable law, including the securities laws of
All amounts stated herein are in US dollars unless otherwise indicated.
The management’s discussion and analysis of our financial condition and results
of operations are based upon our condensed consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in
our financial condition and results of operations should be read in conjunction
with our audited consolidated financial statements for the year ended
2022
“we,” “us,” “our,” “PreAxia” and the “Company” means
Systems Inc.
requires otherwise.
General Overview Corporate Overview
incorporated on
The Company primarily undertakes its operations through its wholly-owned
subsidiary,
Payment was incorporated pursuant to the laws of the Province of
5 General Overview
PreAxia Payment is a company which intends to deliver a comprehensive suite of
solutions and services directed at the emerging health payment market,
specifically the opportunities tied to the growth of health spending accounts
(“HSA”). There is a rapid shift in healthcare traditional payment models to
consumer-directed healthcare that is creating significant opportunities for
financial services and insurance industries to deliver new dynamic products to
this emerging market.
Spawned by the need to address escalating health care costs, changes in the
regulatory environment and the growing consumer desire for greater participation
in the management of their health benefits, the boundaries between health care
and the financial services industries are becoming increasingly blurred. With
the trend towards self-directed health payment solutions and the growing demand
for faster, easier and more convenient benefit services, the insurance and
benefits industries are banking on HSA medical payments being their next big
growth conduit. Studies suggest that HSAs in the US reached
assets in 2022 and 33.4 million consumers in 2021, an increase of 11% of assets
over the prior period. The Canadian market for health benefits is estimated at
more than
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
Canadian businesses are embracing a new healthcare financing vehicle to provide
greater value to employees, increase profitability and get more return from
their investment. We intend to provide them with services to capture this market
opportunity.
Description of Health Spending Account (“HSA”)
An HSA is a uniquely designed account established exclusively and specifically
for the purpose of health care spending. An employer deposits funds into a
special account for the employee. These funds can be used to pay for eligible
medical and related health care expenses for the employee and their dependents.
HSAs provide employers and employees with greater control in both the amount of
funds invested and how these funds are used.
Services and infrastructure provided by PreAxia enable organizations and
individuals to eliminate all paper involved in the management of these accounts
and benefit through savings in time and money.
The PreAxia platform for processing and managing accounts, including cardholder
and customer account management, reconciliation and financial settlement, and
customer reporting is fully operational.
Over time, the Company will evaluate opportunities for forms of virtual banking
and PayPal-type services. One opportunity seen as particularly relevant to the
health care market is to offer instant issuing services that enable corporations
to issue and fund Pre-Paid Interac or credit card services to beneficiaries in
real time. If implemented, the beneficiary will most likely select a personal
identification number (“PIN”) using a PIN and card activation terminal, thus
gaining instant access to funds that can be reloaded. This consideration would
require development of software systems for the issuing of health payment cards
and financial transaction processing services that would be fully managed by a
data center.
Matching of consumers in need of health care products or services with providers
is another area PreAxia intends to evaluate. Consumers managing their health
care dollars through an online system will find convenience in seeking out
health care professionals and services through the same system.
Distribution Methods and Marketing Strategy
PreAxia operates on a Cloud Computing Platform that makes it accessible to
anyone with a personal computer and Internet access. The preliminary market for
PreAxia’s HSA Management Solution is small and medium sized companies that are
not currently well served by the current group benefits model. The financial
benefits of the PreAxia business model, however, are also relevant to larger
employers and we believe that these larger employers will migrate to the PreAxia
product over time.
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PreAxia’s marketing strategy is to promote its existing platform direct to
consumers and businesses, and to the groups that most need access to it;
independent brokers, financial advisors and small to medium sized businesses.
Brokers should see PreAxia as a superior method of promoting and supporting HSAs
that allow them to earn above average commission rates on invested funds.
Financial advisors should see PreAxia in a similar way as brokers except that
there is the additional benefit of tax reduction. Small to medium sized
businesses, which are expected to drive the growth in business, should see
PreAxia as offering financial savings to the company and to employees by
offering personal health care benefits through an HSA, along with the same
conveniences they have come to expect from other services they currently utilize
over the Internet. It is expected that the group benefits market will
subsequently follow as they too realize the advantages of PreAxia over their
current HSA offerings. PreAxia has begun and will continue to seek opportunities
with lead customers and alliance partners to establish reference-able,
high-profile implementations and market-leading, early-adopter firms for further
developing innovative products and services. The Company intends to design
solutions targeted towards corporate financial management, financial risk, audit
management and cash management while targeting product/service management as a
support to financial management.
We anticipate that the prime target for services will be small to medium sized
organizations that are not adequately served by the current insurance and group
benefits offerings. These organizations should realize significant benefits in
both cost and time savings by utilization of PreAxia technology while providing
their employees with an increased level of benefits.
PreAxia intends to achieve service volume and the associated economies of scale
through marketing directly to select target customers that provide the necessary
transaction volumes, through market specific channel partners and through an
education based public relations strategy geared to the small to mid-sized
employers including the brokers and financial advisors utilized by these
businesses. The channel strategy is supported in the solution design, as
multiple channel partners may require custom pricing and compensation.
It is our Company’s intention that brokers and financial advisors will
aggressively promote their PreAxia supported HSA offerings due to the quality of
product, higher margins and because of the non-competitive relationship with
PreAxia.
PreAxia has identified the following “channels” through which it will target
prime end market customers:
· Independent brokers that sell, or desire to sell, Health Spending Accounts
· Financial advisors who manage funds and advise on tax saving strategies for
individuals and corporations
· Accountants and bookkeepers who regularly advise businesses on financial
and operational matters
· Benefits managers/adjudicators, including insurance, health or outsourced
government benefits processors that manage benefits disbursement
· Issuer banks, including partner banks that enable the issuance of Health
Cards and/or sell insurance products
· Application providers, including software manufacturers selling into the
target vertical markets
· Professional services, including consulting, development and implementation
companies serving the target vertical markets
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PreAxia intends to establish several key customer reference accounts, channel
marketing partners and technology alliances. These corporate relationships are
relevant to advancing our company’s goals in 2021 and beyond for achieving a
prime position in the Canadian marketplace and establishing a solid service
foundation.
Competitive Business Conditions and our Company’s Competitive Position in the
Industry and Methods of Competition
PreAxia intends to offer a combination of products and services in its solution.
However, there are other providers of components or versions of the Health
Spending Accounts in the marketplace. Our approach is to provide 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. This is consistent with the PreAxia platform which has
been designed for expansion in
following are some of the leading providers of products and services that are or
may be potential competitors in PreAxia’s target markets:
· Benecaid has become a leading provider of Health Spending Accounts in
offering an easy to understand product through brokers and also directly through the company.
· Olympia Benefits has become a leading provider of Health Spending Accounts in
Canada by offering a "Cost Plus" version of HSAs that has become popular in the marketplace.
· QuickCard is a provider of Health Spending Accounts and group insurance
products. They are partially differentiated from competitors by virtue of a
“credit type card” that is used to pay for qualified health products and
services.
· League, which operates in
benefit services including Health Spending Accounts.
· Most major insurance companies offer some version of HSAs to their customers.
· Many brokers have created HSA products for their clients.
· Many accounting and financial services firms have created their own HSA
products to offer to their clients.
US and International Markets
· HealthEquity, a publicly listed company offering HSAs in the
$15 billion in deposits. It is one of the largest dedicated health account custodians in theUSA and serves more than 12 million accounts owned by individuals at more than 24,000 companies across the country.
·
related offerings to the consumer-directed healthcare industry.
·
of controlling costs while providing employee health benefits.
Intellectual Property and Patent Protection
At present, PreAxia does not have any pending or registered patents or any
trademarks.
Research and Development
For the six months ended
8 Employees
PreAxia has one full-time consultant, our President, Mr.
effective
staff throughout 2023 in areas of administration/accounting, business
development, operations, sales/marketing and research/development.
Plan of Operation
Over the next twelve months, we plan to:
(a) Raise additional capital to execute our business plans;
(b) Penetrate the health care processing markets in Canada , the United
States and worldwide, by continuing to develop innovative health care
processing products and services;
(c) Build up a network of strategic alliances with several types of health
insurance companies, governments and other alliances in various
vertical markets, and;
(d) Fill the positions of senior management sales, administrative and
engineering positions.
Liquidity and Capital Resources
As of
operations. PreAxia had a working capital deficit of
30, 2022
2022
Our ability to meet our financial liabilities and commitments is primarily
dependent upon the continued issuance of equity to new stockholders and our
ability to achieve and maintain profitable operations. PreAxia’s cash and cash
equivalents will not be sufficient to meet its working capital requirements for
the next twelve-month period. We will not initially have any cash flow from
operating activities as we are in the startup stage. We project that we will
require an estimated
working capital deficit of approximately
to complete our business plan. The Company plans to raise the capital required
to satisfy our immediate short-term needs and additional capital required to
meet our estimated funding requirements for the next twelve months primarily
through the private placement of our equity securities or by way of loans or
such other means as PreAxia may determine.
There are no assurances that we will be able to obtain funds required for our
continued operations. There can be no assurance that additional financing will
be available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will not be able to meet our other obligations
as they become due and we will be forced to scale down or perhaps even cease the
operation of our business.
There is substantial doubt about our ability to continue as a going concern as
the continuation of our business is dependent upon obtaining further long-term
financing, successful and sufficient market acceptance of our products and
achieving a profitable level of operations. The Company hopes to be able to
attract suitable investors for our business plan, which will not require us to
use our cash. There can be no assurance that the Company will be successful in
this situation. The Company is unable to predict the effect, if any, that the
coronavirus COVID-19 global pandemic may have on its access to the financing
markets. The issuance of additional equity securities by us could result in a
significant dilution in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments.
Our working capital (deficit) as ofNovember 30, 2022 andMay 31, 2022 is summarized as follows: 9 Working Capital November 30, May 31, 2022 2022 Current Assets$ 175 $ 259 Current Liabilities (2,223,078 ) (2,140,723 ) Working Capital (Deficit)$ (2,222,903 ) $ (2,140,464 )
The increase in our working capital deficit of
increases in accrued liabilities – related party of
related party of
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to stockholders.
Results of Operations – Three months ended
The following summary of our results of operations should be read in conjunction
with our unaudited condensed consolidated financial statements for the three
months ended
For the three months ended
Our operating results for the three months ended
the three months ended
Revenue
During the three months ended
revenue of
amounts reimbursed for eligible expenses.
Expenses
Our total expenses for the three months ended
compared to
in total expenses of
to an increase in professional fees of
development of
Consulting Fees
During each of the three months ended
the Chief Executive Officer and Director of the Company, earned
consulting services provided to the Company, which is included in accounts
payable and accrued liabilities – related party.
Research and Development
Research and development expenses during the three months ended
2022
ended
Wages and Benefits
There were no wages and benefits during the three months ended
and 2021.
Office and Administration
Office and administration expenses decreased by
ended
fees.
10 Professional Fees
Professional fees during the three months ended
30, 2021
audit being completed in
Interest Expense
Interest expense is
because accounts payable and accrued liabilities – related party, convertible
note payable – related party and loans payable – shareholders are non-interest
bearing.
Results of Operations – Six months ended
The following summary of our results of operations should be read in conjunction
with our unaudited condensed consolidated financial statements for the six
months ended
For the six months ended
Our operating results for the six months ended
six months ended
Revenue
During the six months ended
of
reimbursed for eligible expenses.
Expenses
Our total expenses for the six months ended
compared to
total expenses of
an increase in research and development of
of
Consulting Fees
During each of the six months ended
the Chief Executive Officer and Director of the Company, earned
consulting services provided to the Company, which is included in accounts
payable and accrued liabilities – related party.
Research and Development
Research and development expenses during the six months ended
increased by
Wages and Benefits
There were no wages and benefits during the six months ended
and 2021.
Office and Administration
Office and administration expenses decreased by
Professional Fees
Professional fees during the six months ended
30, 2021
11 Interest Expense
Interest expense is
because accounts payable and accrued liabilities – related party, convertible
note payable – related party and loans payable – shareholders are non-interest
bearing.
Critical Accounting Policies
We have identified certain accounting policies, described below, that are the
most important to the portrayal of our current financial condition and results
of operations. Please refer to Note 2 of the accompanying unaudited consolidated
financial statements for a full and complete disclosure of our accounting
policies.
Revenue Recognition
In accordance with ASC 606, “Revenue from Contracts with Customers,” revenue is
recognized when a customer obtains control of promised goods or services. The
amount of revenue recognized reflects the consideration to which we expect to be
entitled to receive in exchange for these goods or services. ASC 606 requires us
to apply the following steps: (1) identify the contract with the customer; (2)
identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to the performance
obligations in the contract; and (5) recognize revenue when, or as, we satisfy
the performance obligation.
Gross Versus Net Revenue
ASC 606 provides guidance on proper recognition of principal versus agent
considerations which is used to determine gross versus net revenue recognition.
Under ASC 606, the core objective of the guidance on gross versus net revenue
recognition is to help determine whether an entity is a principal or an agent in
a transaction. In general, the primary difference between these two is the
performance obligation being satisfied. The principal has a performance
obligation to provide the desired goods or services to the end customer, whereas
the agent arranges for the principal to provide the desired goods or services.
Additionally, a fundamental characteristic of a principal in a transaction is
control. A principal substantively controls the goods and services before they
are transferred to the customer as well as controls the price of the good or
service being provided. An agent normally receives a commission or fee for these
activities. In addition to control, the level at which an entity controls the
price of the good or service being transferred determines principal versus agent
status. The more discretion over setting price a company has in providing the
good or service, the more likely they are considered a principal rather than an
agent. Under the guidance when another party is involved in providing a good or
service to a customer, an entity is a principal if the entity obtains control of
the asset or right to a service performed by the other party.
The Company provides administrative services for Health Spending Accounts
sponsored by employers (the “customer”). The Company does not take possession of
goods or control the services provided as the employees of customer are free to
determine their health care provider. As such, the Company records revenue net
of reimbursements to employees. The Company’s services to the customer consist
of reviewing medical costs for eligibility and reimbursing employees for
eligible costs.
Software Development Costs
The Company accounts for software development costs in accordance with several
accounting pronouncements, including FASB ASC 730, “Research and Development,”
FASB ASC 350-40, “
Software
Development Costs.”
Costs incurred during the period of planning and design, prior to the period
determining technological feasibility, for all software developed for use
internal and external, has been charged to operations in the period incurred as
research and development costs. Additionally, costs incurred after
determination of readiness for market have been expensed as research and
development.
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