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 shares outstanding as of January 20, 2023.
1
UPAY,
Inc.
Consolidated Financial Statements
(unaudited)
F-1
UPAY, Inc.
Consolidated
Balance Sheets
(Expressed in U.S. dollars)
| November 30, 2022 | February 28, 2022 | |||||||
| (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) | ||||||||
| Deposit (Note 12) | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable and Accrued Liabilities | $ | $ | ||||||
| Due to Related Parties (Note 6) | ||||||||
| Taxes Payable | ||||||||
| Current Portion of Notes Payable – Related Party (Note 6) | ||||||||
| 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 – Related Party (Note 6) | ||||||||
| Notes Payable (Note 7) | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred Stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Common Stock, $ par value, shares authorized; shares and shares issued and outstanding, respectively. | ||||||||
| Common Stock Issuable | ||||||||
| Additional Paid-in Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Accumulated Other Comprehensive Loss | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
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, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| 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 on settlement of lease (Note 8) | ||||||||||||||||
| Gain on disposal of equipment | ( | ) | ||||||||||||||
| Gain 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 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Net Income (Loss) Per Share – 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 (Deficit) and Accumulated Other Comprehensive Loss
(Expressed in U.S. dollars)
(unaudited)
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Common | Common | Other | |||||||||||||||||||||||||||||
| Common Stock | Paid-in | Stock | Stock | Accumulated | Comprehensive | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Issuable | Subscribed | Deficit | Loss | Total | |||||||||||||||||||||||||
| 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 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance – February 28, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| Acquisition of Miway Finance Inc. | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Cancellation of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Common stock issuable for services | — | |||||||||||||||||||||||||||||||
| Settlement of related party note payable | — | |||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance – November 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
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, 2022 | Nine Months Ended November 30, 2021 | |||||||
| 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 issuable for services | ||||||||
| Depreciation | ||||||||
| Gain on disposal of equipment | ( | ) | ||||||
| Gain on equity method investment | ( | ) | ||||||
| Gain on settlement of lease | ( | ) | ||||||
| Interest expense on lease liability | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Accounts payable – related party | ||||||||
| Net Cash (Used in) Provided by Operating Activities | ( | ) | ||||||
| Cash Flows from Investing Activities | ||||||||
| Proceeds on disposal of property and equipment | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| 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 | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Return and cancellation of common stock | $ | |||||||
| Settlement of related party note payable | $ | |||||||
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. On March 2, 2022, the Company acquired a controlling interest in Miway Finance Inc. (“Miway”), which was determined to be a transaction between entities under common control (Note 3).
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, 2022, 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.
F-6
| 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, 2022, the Company has recognized an allowance for doubtful accounts of $
| 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 | |
| Vehicles | |
| 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, 2022, and February 28, 2022.
| 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, 2022, and February 28, 2022.
| 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, due to related parties, taxes payable and notes payable. There were no transfers into or out of “Level 3” during the nine months ended November 30, 2022, or 2021. 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.
| 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.
F-7
| 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.
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.
F-8
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 their 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, which is sent to the employers. We also assist lenders to capture payments received from employers on our software in bulk, where requested. 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 are 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, 2022 and 2021, the only item that represents comprehensive income (loss) was foreign currency translation.
F-9
| 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, 2022, 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.
| 3. | Acquisition of Miway Finance Inc. |
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, representing a
Pursuant
to the Share Purchase and Separation Agreement described in Note 11, the Company received 3,700,000 shares of common stock of MiWay Finance,
Inc. from the former CEO on March 2, 2022, increasing the Company’s ownership interest to
Assets acquired and liabilities assumed are reported at their historical carrying amounts and any difference between the proceeds transferred is recognized in additional paid-in capital.
These consolidated financial statements include the accounts of Miway since the date of acquisition and the historical accounts of the Company since inception. The assets and liabilities of Miway acquired are as follows:
| March 2, 2022 $ | ||||
| Due from related party | ||||
| Accounts payable | ( | ) | ||
| Net assets assumed | ||||
At
the time of acquisition, the Company had paid a total of $
Effective
May 31, 2022, the Company’s ownership interest in Miway decreased to
Pursuant to ASC 250-10 and ASC 805-50, the transaction resulted in a change in the reporting entity and was recognized retrospectively for all periods during which the entities were under common control. For common-control transactions that result in a change in the reporting entity and for which both receiving entity and the transferring entity were not under common control during the entire reporting period, it is necessary to determine which entity is the predecessor. The predecessor is the reporting entity deemed to be the receiving entity for accounting purposes in a common-control transaction. The predecessor is not always the entity that legally receives the net assets or equity interests transferred. Comparative financial information shall only be adjusted for periods during which the entities were under common control. Since common control between the Company and Miway did not occur until the current period, the comparative information does not need to be combined. Accordingly, for periods in which the combining entities were not under common control, the comparative financial statements presented are those of the entity that is determined to be the predecessor up to the date at which the entities became under common control. The Company was determined to be the predecessor entity and, therefore, was deemed to be the receiving entity for accounting purposes. Since the entities were consolidated immediately prior to the change of control, there was no impact from the common control transaction.
F-10
| 4. | Property and Equipment, Net |
Property and equipment, net, consists of the following:
| Cost | Accumulated Depreciation | November 30, 2022 Net Carrying Value | February 28, 2022 Net Carrying Value | |||||||||||||
| Computer equipment | $ | $ | ( | ) | $ | $ | ||||||||||
| Computer software | ( | ) | ||||||||||||||
| Furniture and fixtures | ( | ) | ||||||||||||||
| Motor vehicle | ( | ) | ||||||||||||||
| Office equipment | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ||||||||||
During
the nine months ended November 30, 2022, 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, 2022 Net Carrying Value | February 28, 2022 Net Carrying Value | |||||||||||||
| Right-of-use building (operating lease) | $ | $ | ( | ) | $ | $ | ||||||||||
| Right-of-use vehicles (finance lease) | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | ||||||||||
During
the nine months ended November 30, 2022, the Company recorded rent expense of $
| 6. | Due to Related Parties |
| a) | On
March 24, 2021, the Company entered into a promissory note with the Chief Executive Officer
(“CEO”) of the Company for $ |
| b) | On
September 7, 2021, the Company entered into a promissory note with the former CEO of the
Company for $ |
| c) | As
at November 30, 2022, the Company owed $nil (February 28, 2022 – $ |
| d) | On
September 7, 2021, the Company entered into a promissory note with the CEO of the Company
for $ |
| e) | On
February 11, 2022, the Company entered into a promissory note with the CEO of the Company
for $ |
| f) | As at November 30, 2022, the Company was owed $3,700 (February 28, 2022 – $nil) from the CEO of the Company, which is unsecured, non-interest bearing, due on demand and is included in due to related parties. |
F-11
| g) | On
April 14, 2021, the Company entered into a promissory note with a company controlled by a
Director of the Company for $ |
| h) | On
February 11, 2022, the Company entered into a promissory note with a company controlled by
a Director of the Company for $ |
| i) | During the year ended February 28, 2022, a third-party lender purchased from a company controlled by a Director of the Company a promissory note in the amount of $15,000, which is unsecured, bears interest of 10% per annum and had an original maturity date of October 13, 2021. The maturity date was amended to October 13, 2023 during the year ended February 28, 2022. As at November 30, 2022, the outstanding principal is $15,000 (February 28, 2022 – $15,000) and the Company has recognized accrued interest of $2,445 (February 28, 2022 – $1,315), which is included in accounts payable and accrued liabilities. |
| j) | On
May 2, 2022, the Company entered into a promissory note with a company controlled by a Director
of the Company for $ |
| k) | On
September 9, 2022, the Company entered into a promissory note with a company controlled by
a Director of the Company for $ |
| l) | During
the nine months ended November 30, 2022, the Company incurred salary expenses of $nil (2021
– $ |
| m) | During
the nine months ended November 30, 2022, the Company incurred salary expenses of $ |
| n) | During
the nine months ended November 30, 2022, the Company incurred directors’ fees of $ |
| 7. | Notes Payable |
| a) | On
May 20, 2020, the Company entered into a promissory note with a third-party lender for $ |
| b) | On
May 27, 2020, the Company entered into a promissory note with the U.S. Small Business Administration
for $ |
| c) | On
October 22, 2021, the Company entered into a promissory note with a third-party lender for
$ |
| 8. | Lease Liabilities |
The
Company commenced the leasing of two motor vehicles on May 23, 2018, and October 10, 2018, for a term of five years each. The monthly
minimum lease payments are for $
On
November 14, 2022, the Company settled one of the motor vehicle finance leases for a settlement fee of $2,880 (R47,351) resulting in
a gain on settlement 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 $
F-12
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, 2022:
| Years ending February 28: | Building Lease | Vehicle Leases | Total | |||||||||
| 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 March 2, 2022, the Company repurchased and cancelled shares of common stock from the former CEO of the Company, pursuant to the Share Purchase and Separation Agreement described in Note 11.
| 10. | Concentrations |
The Company’s revenues were concentrated among four customers for the nine months ended November 30, 2022, and three customers for the nine months ended November 30, 2021
| Customer | Nine
Months |
| 1 | |
| 2 | |
| 3 | |
| 4 | |
| Customer | Nine
Months |
| 1 | |
| 2 | |
| 3 |
The Company’s receivables were concentrated among three customers as at November 30, 2022, and February 28, 2022:
| Customer | November
30, |
| 1 | |
| 2 | |
| 3 | |
| Customer | February
28, |
| 1 | |
| 2 | |
| 3 | |
| 4 |
| 11. | Commitments and Contingencies |
On February 3, 2022 (the “Effective Date”), the former CEO of the Company and the Company entered into a Share Purchase and Separation Agreement with the following terms: (a) former CEO sells the Company 7,125,000 shares of common stock of the Company and 3,700,000 shares of common stock of MiWay Finance, Inc., for $240,000, payable with a $150,000 cash payment within 10 days of the Effective Date (“closing date”); and (b) $10,000 per month for 9 consecutive months commencing April 1, 2022; (c) the Company will pay the former CEO current salary through February 2022; (d) former CEO shall retain ownership of 2,000,000 shares of the Company’s common stock subject to a lockup/leak out whereby the former CEO is prohibited from selling any of the 2,000,000 Shares for a period of 18 months and thereafter, shall be permitted to sell no more than 5,000 shares per month. In addition, the former CEO agreed to forgive the $10,000 promissory note and accrued interest entered on September 7, 2021 (Note 6(b)) with the Company, as well as $1,170 in expenses incurred on behalf of the Company (Note 6(c)). As of February 28, 2022, the Company received 7,025,000 of the 7,125,000 shares of common stock of the Company. The transaction closed on March 2, 2022, and the Company received the remaining 100,000 shares of common stock of the Company and 3,700,000 shares of common stock of Miway Finance Inc.
F-13
On September 1, 2022, the Company entered into an agreement with a new director for a term of 12 months. In consideration for the services to be provided, the Company agreed to pay the director 100,000 restricted shares of common stock that will vest bi-monthly over the 12 months. In addition, the Company agreed to reimburse the director for all reasonable business expenses incurred during the term in accordance with the Company’s expense reimbursement guidelines. As at November 30, 2022, the Company recognized shares issuable of $20,000.
On October 8, 2022, the Company signed an addendum to add temporary office space to their current lease of 92 Jean Avenue. The base rental rate is $365 (R6,000) per month and is due at the beginning of each month. The rental term commences on November 1, 2022 and expires on January 31, 2023.
Management has evaluated commitments and contingencies and is unaware of any legal matters or other contingencies requiring disclosure through period-end.
| 12. | Deposit |
On
October 15, 2021, the Company paid a $
| 13. | Subsequent Event |
Management has evaluated subsequent events through the date that these financial statements were issued, and none were identified.
F-14
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 needs of enterprises located in other countries |
| ● | Whether we will develop interest in our software system in enterprises of located in other countries |
| ● | The level of activity of credit facilities and their need for our software |
2
|
The Covid-19 Pandemic has and continues to have a material impact upon our business and results of operations, as follows:
COVID-19 RELATED RISKS
The outbreak of the coronavirus may negatively impact sourcing and manufacturing of our products that we sell as well as consumer spending, which could adversely affect our business, results of operations and financial condition.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. The significant outbreak of COVID-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and could adversely affect our business, results of operations and financial condition.
The outbreak of the COVID-19 may adversely affect our supply chain.
The worldwide outbreak of corona virus could adversely affect our business, results of operations and financial condition. The coronavirus outbreak may materially impact sourcing and manufacturing of our products in other countries and materials for our products that are sourced in other countries by overseas manufacturers and in other affected regions. Travel within and into other overseas countries may be restricted, which may impact our manufacturers’ ability to obtain necessary materials and inhibit travel of manufacturers and material suppliers. Additionally, there are potential factory closures, inability to obtain materials, disruptions in the supply chain and potential disruption of transportation of goods produced other countries adversely impacted by the coronavirus outbreak, or threat or perceived threat of such outbreak. As a result, these conditions could adversely affect our business, results of operations and financial condition.
The outbreak of the COVID-19 may adversely affect our customers.
Further, such risks as described above could also adversely affect our customers’ financial condition, resulting in reduced consumer spending for our products and services we sell. Risks related to an epidemic, pandemic, or other health crisis, such as COVID-19, could also lead to the complete or partial closure of one or more of our facilities or operations of our sourcing partners. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic, or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition, and results of operations. |
Results of Operations: For the 3 months ended November 30, 2022 and November 30, 2021
Revenues
Our revenues for the 3-month period ended November 30, 2022 and 2021 were $325,345 and $388,118, respectively, reflecting decreased revenues of $62,773. The $62,773 of decreased revenues is primarily attributable to the difference in the exchange rate between Dollar and Rand between the two years.
Net Loss/Profit
We had a net profit of $1,092 and $16,820 for the 3-months ended November 30, 2022 and 2021, respectively, reflecting an decreased net profit of $15,728, which is primarily attributable to the decrease in revenues.
3
Expenses
We incurred total expenses of $170,923 and $251,049, respectively, for the 3-month period ended November 30, 2022 and 2021, reflecting decreased expenses of $80,126, which is primarily attributable to a decrease in general administrative expenses.
Results of Operations: For the 9 months ended November 30, 2022 and November 30, 2021
Revenues
Our revenues for the 9-month period ended November 30, 2022 and 2021 were $1,021,969 and $1,081,624, respectively, reflecting decreased revenues of $59,655. The $59,655 of decreased revenues is primarily attributable to the difference in the exchange rate between Dollar and Rand between the two years.
Net Loss/Profit
We had a net loss of $73,173 and $314,381 for the 9-months ended November 30, 2022 and 2021, respectively, reflecting an decreased net loss of $241,208, which is primarily attributable to a decrease in expenses.
Expenses
We incurred total expenses of $654,949 and $1,023,303, respectively, for the 9-month period ended November 30, 2022 and 2021, reflecting decreased total expenses of $368,354, which is primarily attributable to a decrease in general administrative expenses.
Liquidity and Capital Resources
We had a working capital deficit of $344,916 on November 30, 2022 and a working capital deficit of $244,094 at our fiscal year end of February 28, 2022, representing increased working capital deficit of $100,822.
Our net cash used by operating activities was $(540,275) for the 9 months ended November 30, 2022 compared to cash provided by operating activities of $189,927 for the 9 months ended November 30, 2021, reflecting increased net cash used by operating activities of $730,202.
Our net cash used in investing activities were $(4,253) and $(3,383) respectively, for the 9 months ended November 30, 2022 and 2021, reflecting increased net cash used in investing activities of $870.
Our net cash provided by financing activities was $31,177 and $88,668 for the 9-month period ended November 30, 2022 and 2021, respectively, reflecting decreased net cash provided by financing activities of $57,491.
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.
4
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; however, we have disclosed in footnote 1 to our financial statements on page F-1 that we are and have been subject to Covid-19 risks.
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
Item 5. Other information.
None.
5
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 |
6
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 20, 2023
| UPAY, INC. | |
| By: /s/ Jacob C. Folscher | |
| Jacob C. Folscher | |
| 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) |
7