UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly
period ended
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
(Exact name of small business issuer as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Company’s telephone number, including area code)
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | |
| o | Smaller reporting company | |||
| Emerging Growth Company |
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
The Company has common stock shares outstanding as of January 10, 2022
TABLE OF CONTENTS
| Page | ||
| PART I — Financial Information | F-1 | |
| Item 1. | Consolidated Financial Statements (unaudited) | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 17 |
| Item 4. | Controls and Procedures | 17 |
| PART II — Other Information | 18 | |
| Item 1. | Legal Proceedings | 18 |
| Item 1A. | Risk Factors | 18 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 18 |
| Item 3. | Defaults Upon Senior Securities | 18 |
| Item 4. | Mine Safety Disclosures | 18 |
| Item 5. | Other Information | 19 |
| Item 6. | Exhibits | 19 |
| Signatures | 20 |
UPAY, Inc.
Consolidated Financial Statements
(unaudited)
| F-1 |
UPAY, Inc.
Consolidated Balance Sheets
(Expressed in U.S. dollars)
| November 30, 2021 | February 28, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowance | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Equity Method Investment (Note 3) | ||||||||
| Property and Equipment, Net (Note 4) | ||||||||
| Right-of-use Assets, Net (Note 5) | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Due to related parties (Note 6) | ||||||||
| Taxes payable | ||||||||
| Current portion of notes payable (Note 7) | ||||||||
| Current portion of lease liabilities (Note 8) | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Lease Liabilities (Note 8) | ||||||||
| Notes Payable (Note 7) | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred Stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Common Stock, $ par value, shares authorized; shares and shares issued and outstanding, respectively | ||||||||
| Additional Paid-in Capital | ||||||||
| Common Stock Subscribed | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Accumulated Other Comprehensive Loss | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-2 |
UPAY, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Expressed in U.S. dollars)
(unaudited)
| Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| November 30, | November 30, | November 30, | November 30, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of Revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross Profit | ||||||||||||||||
| Expenses | ||||||||||||||||
| Amortization of right-of-use assets (Note 5) | ||||||||||||||||
| Depreciation (Note 4) | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total Expenses | ||||||||||||||||
| Income (Loss) Before Other Income (Expenses) and Income Taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Other Income (Expenses) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain (Loss) on equity method investment (Note 3) | ( | ) | ( | ) | ||||||||||||
| Income (Loss) Before Income Taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for income taxes | ||||||||||||||||
| Net Income (Loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other Comprehensive Income (Loss) | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive Income (Loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net Income (Loss) Per Share – Basic and Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted-average Common Shares Outstanding – Basic and Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-3 |
UPAY, Inc.
Consolidated Statement of Stockholders’ Equity and Accumulated Other Comprehensive Loss
(Expressed in U.S. dollars)
(unaudited)
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Common | Other | ||||||||||||||||||||||||||
| Common Stock | Paid-in | Stock | Accumulated | Comprehensive | ||||||||||||||||||||||||
| Shares | Amount | Capital | Subscribed | Deficit | Loss | Total | ||||||||||||||||||||||
| Balance – February 29, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustments | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance – November 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Balance – February 28, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Issuance of common stock for cash | ( | ) | ||||||||||||||||||||||||||
| Issuance of common stock for cash and services | ( | ) | ||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustments | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance – November 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-4 |
UPAY, Inc.
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
(unaudited)
| Nine
Months Ended November 30, 2021 | Nine
Months Ended November 30, 2020 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of right-of-use assets | ||||||||
| Common stock issued for services | ||||||||
| Depreciation | ||||||||
| Interest expense on lease liability | ||||||||
| (Gain) loss on equity method investment | ( | ) | ||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accounts payable – related party | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net Cash Provided by Operating Activities | ||||||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Cash paid for purchase of shares | ( | ) | ||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from shareholder promissory note | ||||||||
| Proceeds from promissory notes | ||||||||
| Repayment of lease liabilities | ( | ) | ( | ) | ||||
| Net Cash Provided by Financing Activities | ||||||||
| Effect of Exchange Rate Changes on Cash | ( | ) | ||||||
| Change in Cash and Cash Equivalents | ||||||||
| Cash and Cash Equivalents - Beginning of Period | ||||||||
| Cash and Cash Equivalents - End of Period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-5 |
| 1. | Nature of Operations and Continuance of Business |
UPAY, Inc. (the “Company”) was incorporated in the State of Nevada on July 8, 2015. By a Share Exchange Agreement dated November 4, 2015, the Company agreed to acquire all of the issued and outstanding shares of Rent Pay (Pty) Ltd (“Rent Pay”), in exchange for 200,000 shares of the Company’s common stock. The acquisition is a capital transaction in substance and therefore has been accounted for as a recapitalization. Rent Pay was incorporated in South Africa on February 1, 2012. Because Rent Pay is deemed to be the acquirer for accounting purposes, the consolidated financial statements are presented as a continuation of Rent Pay and include the results of operations of Rent Pay since incorporation on February 1, 2012, and the results of operations of the Company since the date of acquisition on November 4, 2015.
Rent Pay operates principally in South Africa and engages in software development and licensing and provides services to the credit provider industry.
The recent outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies, disruptions of financial markets, and created uncertainty regarding potential impacts to the Company’s supply chain, operations, and customer demand. The COVID-19 pandemic has impacted and could further impact the Company’s operations and the operations of the Company’s suppliers and vendors as a result of quarantines, facility closures, and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on the Company’s customers, suppliers, and vendors and the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and operating conditions can resume. The management team is closely following the progression of COVID-19 and its potential impact on the Company. Even after the COVID-19 pandemic has subsided, the Company may experience adverse impacts to its business as a result of any economic recession or depression that has occurred or may occur in the future. Therefore, the Company cannot reasonably estimate the impact at this time our business, liquidity, capital resources and financial results.
| 2. | Summary of Significant Accounting Policies |
| a) | Basis of Presentation |
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s fiscal year end is February 28. The consolidated financial statements include the accounts of the Company and its subsidiary Rent Pay. All significant intercompany transactions and accounts have been eliminated in consolidation.
| b) | Interim Financial Statements |
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year end February 28, 2021, have been omitted.
| c) | Use of Estimates |
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to useful life and recoverability of long-lived assets, and deferred income tax asset valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
| d) | Cash and Cash Equivalents |
Cash includes cash on hand and cash held with banks. The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
| e) | Accounts Receivable |
Trade accounts receivable are recorded at net invoice value and such receivables are non-interest bearing. Receivables are considered past due based on the contractual payment terms. Receivables are reviewed and specific amounts are reserved if collectability is no longer reasonably assured.
As at November 30,
2021, the Company has recognized an allowance for doubtful accounts of $
| F-6 |
| f) | Property and Equipment |
Property and equipment are stated at cost, less accumulated depreciation, and any impairment in value. Depreciation is computed using the straight-line method over the following estimated lives of the assets:
| Computer equipment | ||||
| Computer software | ||||
| Office equipment | ||||
| Furniture and fixtures |
The Company periodically performs impairment testing on its long-lived assets either annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360. All property and equipment assets were deemed recoverable at November 30, 2021, and February 28, 2021.
| g) | Right-of-use Assets |
Right-of-use assets are stated at cost, less accumulated amortization and any impairment in value. Amortization is computed using the straight-line method over the following estimated lives of the assets:
| Right-of-use building | Term of lease | |||
| Right-of-use vehicles |
The Company periodically performs impairment testing on its long-lived assets either annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360. All right-of-use assets were deemed recoverable at November 30, 2021, and February 28, 2021.
| h) | Value of Financial Instruments |
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy in accordance with ASC 820, “Fair Value Measurements and Disclosures”. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available.
The three-level hierarchy is defined as follows:
Level 1 – quoted prices for identical instruments in active markets.
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets.
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Financial instruments consist principally of cash and cash equivalents, accounts receivable, equity method investment, accounts payable, taxes payable and notes payable. There were no transfers into or out of “Level 3” during the nine months ended November 30, 2021, or 2020. The recorded values of all financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
| F-7 |
| i) | Foreign Currency Translation |
Management has adopted ASC 830, “Foreign Currency Translation Matters”, as the functional currency of the Company is the South African rand and the reporting currency is U.S. dollars. Assets and liabilities are translated into U.S. dollars at rates of exchange in effect at the balance sheet date. Average rates for the period are used to translate revenues and expenses. The cumulative translation adjustment is reported as a component of accumulated other comprehensive loss.
| j) | Leases |
Effective March 1, 2019, the Company adopted FASB ASC Topic 842, Leases (“ASC 842”). This standard requires lessees to recognize in the statement of financial position a liability to make lease payments and a right-of-use (“ROU”) asset representing the Company’s right to use the underlying asset for the lease term. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances within the arrangement. A lease is identified where an arrangement conveys the right to control the use of identified property, plant, and equipment for a period of time in exchange for consideration. Leases which are identified within the scope of ASC 842 and which have a term greater than one year are recognized on the Company’s balance sheet as ROU assets and lease liabilities. Operating lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected remaining lease term. The lease term includes any renewal options and termination options that are reasonably certain to be exercised. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses it’s incremental borrowing rate. The incremental borrowing rate is determined based on the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment. The interest rate implicit in lease contracts to calculate the present value is typically not readily determinable. As such, significant management judgment is required to estimate the incremental borrowing rate.
| k) | Revenue Recognition |
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The guidance under ASC 606 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Under ASC 606, the Company recognizes revenue by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
The Company derives revenue through licensing its software and by collecting various transaction fees from third party debit orders.
The Company has several revenue streams and they are recognized as below:
Branch Setup Fees
This is a once off, non-refundable cost that the company charges when a customer is onboarded. Revenue is recognized immediately and is collected in the same month. This results in no accounts receivable at the end of the month as revenue is recognized and collected immediately.
Data Migration Fees
This only applies to a customer applying to migrate client data from a previous system to our system. We invoice for this service as soon as data is successfully transferred, imported and verified by our customer. Revenue is recognized upon invoicing and payment is collected within two days due to debit order mandates signed by the customer as part of the agreement. This results in no outstanding accounts receivable as of the end of each month.
| F-8 |
Monthly Rental Fees
Our software is made available on a web-based software platform and is offered as software as a service. Our agreement is an evergreen agreement (auto-renewed) and if not terminated by a customer, remains intact. Termination may occur by either party at any point with 30 days’ notice. The monthly software rental fee is payable every month per branch. Monthly software rental fees are payable in the beginning of each month. The monthly rental fees are invoiced during the first few days of a month and is recognized over the period of the month. Payments are collected via debit order a few days later, prior to the end of that month, due to debit order mandate signed by the customer. This results in no accounts receivable as invoicing and payment happens within the same month.
Development Service Fee
We have some clients that we do custom software development for, on some versions of our software. Here we adopt a scrum methodology with 2-week development sprints. We agree on a price per hour for development with these clients, typically through email communication. We send an invoice for the work completed and usually get paid within the same month. On this revenue stream we do not run a debit order, but clients need to pay invoices before we continue with the next development increment. Payments are due and revenue is recognized upon invoicing. At times collecting payment can take up to 30 days. Unpaid invoices, if any, are recorded to accounts receivable at the end of each month, but invoicing and payment usually happen within the same month.
Transactional Fees
We offer an integrated debit order facility built into our software. When our clients (lenders) create loans with consumers, the consumer contracts directly with us on a separate agreement. We then act as a third-party payment provider, to facilitate the repayment of loans from the consumer to the lender by debit order. We are registered as a third-party payment provider and all payments collected on this stream are settled by the bank directly into our bank account. We only charge a fee on successful debit order collections and retain that fee when we distribute funds collected on behalf of consumers. The transaction fees charged for these transactions are called CTC and they are displayed on the signed agreement that the consumer signs with us. The CTC fees are paid by the consumer, in addition to the loan installment collected. The loan installment and CTC are collected as one amount, but the CTC is retained by us upon distribution of funds to lenders. Revenue is recognized as each new order is processed and the transaction fee is charged. Our software system counts and accounts for each individual transaction and its amount and this is generated on a report on our Acpas software. We use this report to confirm the revenue recognition in our billing system. If there are any CTC that has yet to be collected at an end of a period, it is recorded as accounts receivable.
Credit Protection Insurance Commission
Some insurance companies offer insurance products on loans that cover the consumer for the full repayment of his debt to the lender, in case of unforeseen events. There is an insurance product from one of our suppliers (an insurance company) that we make available for the insurance company on our software program. In return for making this product available the insurance company would pay us monthly commission on premiums they received. This is a product offered by the insurance company directly to the consumer and we only make it available on our software platform. If this option is selected when a loan is created, an additional fee is added to the loan repayment amount. The software system calculates the insurance premiums and all premiums for a given month are paid by lenders to the insurance company, or lenders use our payment service and instruct us to manage the payments on their behalf. After receiving the premiums and supporting reports, the insurance company will then calculate and verify the premiums paid and premium claw back to this point and work out the commission payable based on the premiums received. Upon collection of the premiums, the insurance company will complete their final calculations and the insurance company will then pay all commissions earned by us and the lenders. We distribute the commission amounts due to the lenders within two days of receiving such payments from the insurance company. Revenue is recognized upon collection of the premiums from the consumers.
Credit Bureau transactions
Some credit bureaus like XDS or VeriCred, offer consumer screening products, that we make available on our software platform as integration. Lenders can sign up for these service and access credit information of consumers that they would like to screen, directly from our software platform. In return for making these products available on a seamless integration, we charge a fee on the products.
The Company enters into an agreement with the credit bureau and lender to the agreed fees. The agreement with the credit bureau determines the commission fee paid or the markup to be charged on transactions by the company, as reseller. If there are any credit bureau fees that has yet to be collected at an end of a period, it is recorded as accounts receivable.
Payroll transactions
Some of our client (lenders) have arrangements with employers where these employers deduct loan installments payable to the lender from the payroll of that employer, on behalf of the lender. The deduction is made from employees that have taken loans from the lender. We provide these payroll lenders with adequate reporting in our software, that can be used to help identify the amounts to be deducted from each individual consumer, with unique identifiers, that is sent to the employers. We also assist lenders to capture payments received from employers on our software in bulk, where requested.
| F-9 |
We charge a payroll transaction fee to the lender, for each successful payment made in a month on the system. The fee is charged as a combined amount for the payments received on payroll for that month. The payroll transaction fees is set out and agreed to with the lender on the signed agreement they have with us. Our software system counts and accounts for each individual payment receipted and this is generated on a payment report on our Acpas software. We use this report for revenue recognition in our billing system. Revenue is recorded as a lump sum based on this report at the end of each month. If there are any payroll transaction fees, that still needs to be recognized at an end of a period, it is recorded as accounts receivable.
| l) | Stock-based Compensation |
The Company records stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation” and ASC 505, “Equity Based Payments to Non-Employees”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
| m) | Comprehensive Income (Loss) |
ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive income (loss) and its components in the financial statements. As at November 30, 2021 and 2020, the only item that represents comprehensive income (loss) was foreign currency translation.
| n) | Earnings (Loss) Per Share |
The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share on the face of the statement of operations. EPS is calculated using the weighted-average number of common shares outstanding during the period. Diluted EPS if applicable is calculated by dividing net income available to common stockholders for the period by the diluted weighted-average number of common shares outstanding during the period. Diluted EPS would reflect the potential dilution from common shares issuable through stock options, performance-based restricted stock units that have satisfied their performance factor and restricted stock units using the treasury stock method.
| o) | Going Concern |
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of November 30, 2021, the Company does not have revenues sufficient to execute its business plan. The Company intends to fund operations through equity financing arrangements. There is no assurance that this will be successful. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| p) | Recent Accounting Pronouncements |
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| F-10 |
| 3. | Equity Method Investment |
On June 10, 2020, the Company purchased shares of Miway Finance Inc. (“Miway”) at $0.001 per share for a purchase price of $20,000, which comprises approximately 48.66% of Miway’s issued and outstanding shares of common stock.
| Ownership Interest | $ | |||||||
| Net carrying value, February 28, 2021 | % | |||||||
| Equity income in Miway | — | |||||||
| Net carrying value, November 30, 2021 | % | |||||||
| 4. | Property and Equipment, Net |
Property and equipment, net, consists of the following:
| Cost | Accumulated Depreciation | November 30, 2021 Net Carrying Value | February 28, 2021 Net Carrying Value | |||||||||||||
| Computer equipment | $ | $ | ( | ) | $ | $ | ||||||||||
| Computer software | ( | ) | ||||||||||||||
| Furniture and fixtures | ( | ) | ||||||||||||||
| Office equipment | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ||||||||||
During the nine months
ended November 30, 2021, the Company recorded depreciation expense of $
| 5. | Right-Of-Use Assets, Net |
Right-of-use assets, net, consist of the following:
| Cost | Accumulated Amortization | November 30, 2021 Net Carrying Value | February 28, 2021 Net Carrying Value | |||||||||||||
| Right-of-use building (operating lease) | $ | $ | ( | ) | $ | $ | ||||||||||
| Right-of-use vehicles (finance lease) | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ||||||||||
During the nine months
ended November 30, 2021, the Company recorded rent expense of $
| F-11 |
| 6. | Due to Related Parties |
| a) | On
March 24, 2021, the Company entered into a promissory note with the Chief Financial Officer
(“CFO”) of the Company for $ |
| b) | On
April 14, 2021, the Company entered into a promissory note with a third-party lender, who became a Director of the Company on October
11, 2021, for $ |
| c) | On
September 7, 2021, the Company entered into a promissory note with the CEO of the Company
for $ |
| d) | On
September 7, 2021, the Company entered into a promissory note with the CFO of the Company for $ |
| e) | As
at November 30, 2021, the Company owed $ |
| f) | During
the nine months ended November 30, 2021, the Company incurred salary expenses of $ |
| g) | During
the nine months ended November 30, 2021, the Company incurred salary expenses of $ |
| h) | During
the nine months ended November 30, 2021, the Company incurred directors’ fees of
$ |
| 7. | Notes Payable |
| a) | On
May 27, 2020, the Company entered into a promissory note with the U.S. Small Business
Administration for $ |
| b) | On
May 20, 2020, the Company entered into a promissory note with a third-party lender for
$ |
| c) | On
April 14, 2021, the Company entered into a promissory note with a third-party lender
for $ |
| d) | On
October 22, 2021, the Company entered into a promissory note with a third-party lender
for $ |
| F-12 |
| 8. | Lease Liabilities |
The Company commenced
the leasing of two motor vehicles on May 23, 2018, and October 10, 2018, for a term of
On February 1, 2021,
the Company entered a two-year lease with a renewal option for office space in South Africa. The term of the renewal agreement
is for an additional two years and commences on January 1, 2023. Rental payments are due at the beginning of each month and increase
at an annual rate of 7%. The base rental rate is $
The following is a schedule by years of future minimum lease payments under the remaining finance leases together with the present value of the net minimum lease payments as of November 30, 2021:
| Years ending February 28: | Building Lease | Vehicle Leases | Total | |||||||||
| 2022 | $ | $ | $ | |||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| Net minimum lease payments | ||||||||||||
| Less: amount representing interest payments | ( | ) | ( | ) | ( | ) | ||||||
| Present value of net minimum lease payments | ||||||||||||
| Less: current portion | ( | ) | ( | ) | ( | ) | ||||||
| Long-term portion | $ | $ | $ | |||||||||
| 9. | Common Stock |
On April 15, 2021,
the Company issued a total of shares of common stock at $ per share for proceeds of $
On April 15, 2021,
the Company issued shares of common stock at $0.35 per share pursuant to a share purchase and service agreement for
cash proceeds of $
| 10. | Concentrations |
The Company’s revenues were concentrated among three customers for the nine months ended November 30, 2021, and three customers for the nine months ended November 30, 2020
| Customer | Nine Months Ended November 30, 2021 | |
| 1 | ||
| 2 | ||
| 3 |
| Customer | Nine Months Ended November 30, 2020 | |
| 1 | ||
| 2 | ||
| 3 |
| F-13 |
The Company’s receivables were concentrated among three customers as at November 30, 2021, and February 28, 2021:
| Customer | November 30, 2021 | |
| 1 | ||
| 2 | ||
| 3 |
| Customer | February 28, 2021 | |
| 1 | ||
| 2 | ||
| 3 |
| 11. | Commitments and Contingencies |
Management has evaluated commitments and contingencies, and is unaware of any legal matters or other contingencies requiring disclosure through period-end.
| 12. | Subsequent Events |
Management has evaluated subsequent events through the date that these financial statements were issued, and none were identified.
| F-14 |
UPAY, Inc.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements”. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.
Although we believe that the expectations reflected in any of our forward- looking statements are reasonable, actual results could differ materially from those projected or assumed in any or our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:
| · | Our results are vulnerable to economic conditions; |
| · | Our ability to raise adequate working capital; |
| · | Loss of customers or sales weakness; |
| · | Inability to achieve sales levels or other operating results; |
| · | The unavailability of funds for expansion purposes; |
| · | Operational inefficiencies; |
| · | Increased competitive pressures from existing competitors and new entrants. |
Trends and Uncertainties
Our business is subject to the following trends and uncertainties:
| · | Whether our system will be adaptable to the company’s needs and the country in which they are located |
| · | Whether we will develop interest in our software system in the countries that we plan on conducting our business |
| · | The level of activity of credit facilities and their need for our software |
Termination of Planned US Operations
As of December /2021 we discontinued our plan to pursue US operations for the following reasons: (a) increased state regulation and related increased transaction costs, which will lead to difficulties in conforming to various state regulations and increased costs; (b) pending and potential legislation that would significantly impede our ability to operate successfully in the U.S.; and (c) the negative impact of Covid-19 upon our business and upon the US economy.
We plan to expand our business by growing organically our South Africa operations and potentially expand our business into other Africa countries.
| 15 |
Results of Operations: For the 3 months ended November 30, 2021 and November 30, 2020
Revenues
Our revenues for the 3-month period ended November 30, 2021 and November 30, 2020 were $388,118 and $289,662, respectively, reflecting increased revenues of $98,456. The $98,456 of increased revenues is primarily attributable to the successful implementation of a new transaction type, DebiCheck, in South Africa resulting in growth in our South Africa transactional revenues.
DebiCheck is a new debit order transaction type built into our Loan Management Software and is our new revenue stream that assists consumers to make payments to lenders more effectively. DebiCheck was introduced by the Reserve Bank of South Africa and was brought in as a complete and compulsory replacement for the previous transaction types in the industry, namely AEDO and NAEDO, that we used before. We have a markup on the transaction fees of DebiCheck that we offer to clients and charge these fees per transaction processed.
Net Loss/Profit
We had a net profit of $16,820 and a net loss of $19,171 for the 3-months ended November 30, 2021 and November 30, 2020 , respectively, reflecting a decreased net loss of $35,991, which is primarily attributable to the growth of our South Africa business operations.
Expenses
We incurred total expenses of $251,049 and $235,059, respectively, for the 3-month period ended November 30, 2021 and 2020, reflecting increased expenses of $15,990, which is primarily attributable to an increase in general operational expenses due to growth in our South Africa operations..
Results of Operations: For the 9 months ended November 30, 2021 and November 30, 2020
Revenues
Our revenues for the 9-month period ended November 30, 2021 and 2020 were $1,081,624 and $733,640, respectively, reflecting increased revenues of $347,984. The $347,984 of increased revenues is primarily attributable to an increase in revenue in our South Africa operations due the successful implementation of DebiCheck.
| 16 |
Net Loss/Profit
We had a net loss of $314,381 and a net loss of $133,368 for the 9-months ended November 30, 2021 and 2020, respectively, reflecting an increased net loss of $181,013, which is primarily attributable to an increase in general operational expenses in our US operations.
Expenses
We incurred total expenses of $1,023,303 and $660,792, respectively, for the 9-month period ended November 30, 2021 and 2020, reflecting increased total expenses of $362,511, which is primarily attributable to an increase in general operational expenses in our US operations.
Liquidity and Capital Resources
We had working capital of $1,148 on November 30, 2021 and working capital of $8,172 at our fiscal year end of February 28, 2021, representing decreased working capital of $7,024.
Our net cash provided by operating activities was $189,927 and $2,586 for the 9 months ended November 30, 2021 and 2020 reflecting increased net cash provided by operating activities of $187,341.
Our net cash used in investing activities were $(3,383) and $(23,420) respectively, for the 9 months ended November 30, 2021 and 2020, reflecting decreased net cash used in investing activities of $20,037.
Our net cash provided by financing activities was $88,668 and $94,244 for the 9-month period ended November 30, 2021 and 2020, respectively, reflecting decreased net cash provided by financing activities of $5,576.
Off-Balance sheet arrangements
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer/Chief Accounting Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in providing reasonable assurance in the reliability of our report as of the end of the period covered by this report. This is because we have not sufficiently developed our segregation of duties and we do not have an audit committee.
| 17 |
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We will continue to evaluate the effectiveness of internal controls and procedures on an on-going basis.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer/Chief Accounting Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in providing reasonable assurance in the reliability of our report as of the end of the period covered by this report. This is because we have not sufficiently developed our segregation of duties and we do not have an audit committee.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We will continue to evaluate the effectiveness of internal controls and procedures on an on-going basis.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
We know of no material pending legal proceedings to which our company or our subsidiary is a party or of which any of our properties, or the properties of our subsidiary, is the subject. In addition, we do not know of any such proceedings contemplated by any governmental authorities.
We know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to our company or our subsidiary or has a material interest adverse to our company or our subsidiary.
Item 1A. Risk Factors
As a smaller reporting company, we are not required to provide risk factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures.
None
| 18 |
Item 5. Other information
None.
Item 6. Exhibits.
EXHIBIT INDEX
| Exhibit Number |
Description | |
| 31.1 | Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 19 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: January 10, 2022
| UPAY, INC. | |
| By: /s/ Wouter A. Fouche | |
| Wouter A. Fouche | |
| Chief Executive Officer | |
| (Principal Executive Officer & Chief Executive Officer) | |
| By: /s/ Jacob C. Folscher | |
| Jacob C. Folscher | |
| Chief Financial Officer | |
| (Chief Financial Officer/Chief Accounting Officer) |
| 20 |