UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended May 31, 2020

 

or

 

o	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

 

UPAY, Inc.

(Exact name of small business issuer as specified in its charter)

 

NEVADA		37-1793622
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

3010 LBJ Freeway, 12^th Floor

Dallas, Texas 75234

(Address of principal executive offices)

 

(972) 888-6052

(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.  Yes x  No  o

 

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

 

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
	Non-accelerated filer	o	Smaller reporting company	x
	Emerging Growth Company	x

 

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. o

 

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

 

The Company has 23,255,310 shares outstanding as of July 17, 2020.

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	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	15
Item 4.	Controls and Procedures	15
	PART II — Other Information	16
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	16
	Signatures	17

Item 1. Financial Statements

 

UPAY, Inc.

Consolidated Financial Statements

(unaudited)

 

	Index
Table of Contents
Consolidated Balance Sheets (unaudited)	F-2
Consolidated Statements of Operations and Comprehensive Loss (unaudited)	F-3
Consolidated Statements of Stockholders’ Equity and Accumulated Other Comprehensive Loss (unaudited)	F-4
Consolidated Statements of Cash Flows (unaudited)	F-5
Notes to the Consolidated Financial Statements (unaudited)	F-6

UPAY, Inc.

Consolidated Balance Sheets

(Expressed in U.S. dollars)

 

		May 31, 2020				February 29, 2020
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	198,784			$	287,425
Accounts receivable, net of allowance			49,254				94,992
Prepaid expenses and other current assets			3,160				3,437
Total Current Assets			251,198				385,854
Property and Equipment, Net (Note 3)			126,764				136,868
Right-of-use Assets, Net (Note 4)			28,649				37,487
Total Assets		$	406,611			$	560,209
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities		$	226,024			$	329,294
Taxes payable			4,775				5,365
Current portion of lease liabilities (Note 5)			8,070				11,755
Total Current Liabilities			238,869				346,414
Non-Current Liabilities
Lease Liabilities (Note 5)			21,740				26,810
Total Liabilities			260,609				373,224
Stockholders’ Equity
Preferred Stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding			—				—
Common Stock, $0.001 par value, 100,000,000 shares authorized; 23,255,310 shares issued and outstanding			23,255				23,255
Additional Paid-in Capital			393,142				393,142
Accumulated Deficit			(245,230	)			(203,117	)
Accumulated Other Comprehensive Loss			(25,165	)			(26,295	)
Total Stockholders’ Equity			146,002				186,985
Total Liabilities and Stockholders’ Equity		$	406,611			$	560,209

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

UPAY, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(Expressed in U.S. dollars)

(unaudited)

		Three Months				Three Months
		Ended				Ended
		May 31,				May 31,
		2020				2019
Revenue		$	248,632				357,875
Cost of Revenue			(70,976	)			(87,511	)
Gross Profit			177,656				270,364
Expenses
Amortization of right-of-use assets (Note 4)			2,234				2,757
Depreciation (Note 3)			21,479				10,996
General and administrative			195,831				238,871
Total Expenses			219,544				252,624
Income (Loss) Before Other Income (Expenses) and Income Taxes			(41,888	)			17,740
Other Income (Expenses)
Interest income			716				2,173
Interest expense			(941	)			(2,540	)
Income (Loss) Before Income Taxes			(42,113	)			17,373
Provision for income taxes			—				—
Net Income (Loss)			(42,113	)			17,373
Other Comprehensive Income (Loss)
Foreign currency translation adjustments			1,130				2,250
Comprehensive Income (Loss)		$	(40,983	)		$	19,623
Net Loss Per Share – Basic		$	(0.00	)		$	(0.00	)
Net Loss Per Share – Diluted		$	(0.00	)		$	(0.00	)
Weighted-average Common Shares Outstanding – Basic			23,255,310				26,010,582
Weighted-average Common Shares Outstanding – Diluted			23,255,310				26,010,582

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

UPAY, Inc.

Consolidated Statement of Stockholders’ Equity and Accumulated Other Comprehensive Loss

(Expressed in U.S. dollars)

(unaudited)

 

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Accumulated				Comprehensive
		Shares				Amount				Capital				Deficit				Loss				Total
Balance – February 28, 2019			25,975,310			$	25,975			$	376,672			$	(182,415	)		$	(22,840	)		$	197,392
Issuance of units for cash			40,000				40				9,960				—				—				10,000
Issuance of shares pursuant to Employee Stock Compensation Agreement			15,000				15				3,735				—				—				3,750
Net Income			—				—				—				17,373				—				17,373
Foreign currency translation adjustments			—				—				—				—				2,250				2,250
Balance – May 31, 2019			26,030,310			$	26,030			$	390,367			$	(165,042	)		$	(20,590	)		$	230,765
Balance – February 29, 2020			23,255,310			$	23,255			$	393,142			$	(203,117	)		$	(26,295	)		$	186,985
Net loss			—				—				—				(42,113	)			—				(42,113	)
Foreign currency translation adjustments			—				—				—				—				1,130				1,130
Balance – May 31, 2020			23,255,310			$	23,255			$	393,142			$	(245,230	)		$	(25,165	)		$	146,002

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

UPAY, Inc.

Consolidated Statements of Cash Flows

(Expressed in U.S. dollars)

(unaudited)

 

		Three Months Ended May 31, 2020				Three Months Ended May 31, 2019
Cash Flows from Operating Activities
Net Income (Loss)		$	(42,113	)		$	17,373
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Amortization of right-of-use assets			2,234				2,757
Depreciation			21,479				10,996
Stock-based compensation			—				3,750
Changes in operating assets and liabilities:
Accounts receivable			45,738				23,282
Prepaid expenses and other current assets			277				2,214
Accounts payable			(103,860	)			(239,898	)
Net lease liabilities			(155	)			392
Net Cash Used in Operating Activities			(76,400	)			(179,134	)
Cash Flows from Investing Activities
Purchase of property and equipment			(1,600	)			(730	)
Net Cash Used in Investing Activities			(1,600	)			(730	)
Cash Flows from Financing Activities
Proceeds from sale of stock			—				10,000
Repayment of lease liabilities			(2,734	)			(2,093	)
Net Cash Provided by (Used in) Financing Activities			(2,734	)			7,907
Effect of Exchange Rate Changes on Cash			(7,907	)			2,250
Change in Cash and Cash Equivalents			(88,641	)			(169,707	)
Cash and Cash Equivalents - Beginning of Period			287,425				691,217
Cash and Cash Equivalents - End of Period		$	198,784			$	521,510
Supplemental Disclosures of Cash Flow Information:
Interest paid		$	941			$	2,540
Income taxes paid		$	908			$	2,034

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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 on 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 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 29, 2020, 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 of May 31, 2020, the Company has recognized an allowance for doubtful accounts of $216 (2020 - $7,133).

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:

IT equipment			3 years
Computer software			5 years
Office equipment			5 years
Furniture and fixtures			6 years

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 on May 31, 2020, and February 29, 2020.

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			5 years

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 on May 31, 2020, and February 29, 2020.

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, accounts payable, and taxes payable. There were no transfers into or out of “Level 3” during the three months ended May 31, 2020, or 2019. 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.

j)

Leases

The Company adopted ASC 842, “Leases”, and its amendments and applied the transition provisions as of March 1, 2019, which included recognizing a cumulative-effect adjustment through opening retained earnings as of that date. Prior year amounts were not recast under this transition approach and, therefore, prior year amounts are excluded from the leased properties footnote. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward its historical assessments of: (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company did not elect the hindsight practical expedient to determine the reasonably certain lease term for existing leases. The Company elected a policy of not recording leases on its consolidated balance sheets when the leases have a term of 12 months or less and the Company is not reasonably certain to elect an option to purchase the leased asset. The Company recognizes payments on these leases within general and administrative expenses on a straight-line basis over the lease term.

For contracts entered into before March 1, 2019, the Company determined whether the arrangement contained a lease under Topic 840. Prior to the adoption of ASC 842, these leases were classified as operating or finance leases based on an assessment of whether the lease transferred significantly all the risks and rewards of ownership of the underlying asset. The Company leases office space and vehicles.

On transition, the Company elected to apply the practical expedient to grandfather the determination of which contract is or contains a lease and applied ASC 842 to those contracts that were previously identified as leases. Upon transition to the new standard, right-of-use assets and lease liabilities were measured at the present value of the remaining lease payments discounted by the Company’s incremental borrowing rate as of March 1, 2019. The non-cash adjustment has been excluded from the consolidated statement of cash flows. The weighted average incremental borrowing rate applied to lease liabilities recognized under ASC 842 was 10.25%.

Adoption of ASC 842 had the following impact on the financial position as of March 1, 2019:

		(As Previously Reported Under ASC 842)
		February 28, 2019				ASC 842 Effects				March 1, 2019
Assets
Property and equipment, net		$	224,126			$	(50,185	)		$	173,941
Right-of-use assets, net			—				71,086				71,086
Total Assets			1,022,946				20,901				1,043,847
Liabilities
Obligations under finance leases			48,702				(48,702	)			—
Lease liabilities			—				69,619				69,619
Total Liabilities			825,554				20,917				846,471
Accumulated Other Comprehensive Loss		$	(22,840	)		$	(16	)		$	(22,856	)

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.

 

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.

 

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 of May 31, 2020, and 2019, 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 May 31, 2020, 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

In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The adoption of this standard did not have a significant impact on the Company’s results of operations, financial condition, cash flows, and financial statement disclosures.

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its 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.

Property and Equipment, Net

Property and equipment, net, consists of the following:

		Cost				Accumulated Depreciation				May 31, 2020 Net Carrying Value				February 29, 2020 Net Carrying Value
IT equipment		$	6,508			$	(4,903	)		$	1,605			$	1,942
Furniture and fixtures			6,905				(4,022	)			2,883				3,563
Office equipment			3,612				(2,081	)			1,531				1,923
Computer software			206,000				(85,255	)			120,745				129,440
Total		$	223,025			$	(96,261	)		$	126,764			$	136,868

 

During the three months ended May 31, 2020, the Company recorded depreciation expense of $21,479 (2019 - $10,996).

 

During the three months ended May 31, 2020, the Company acquired computer software of $1,600.

 

4.

Right-Of-Use Assets, Net

Right-of-use assets, net, consist of the following:

		Cost				Accumulated Amortization				May 31, 2020 Net Carrying Value				February 29, 2020 Net Carrying Value
Right-of-use building (operating lease)		$	—			$	—			$	—			$	2,767
Right-of-use vehicles (finance lease)			45,021				(16,372	)			28,649				34,720
Total		$	63,388			$	(35,739	)		$	28,649			$	37,487

 

During the three months ended May 31, 2020, the Company recorded rent expense of $4,730 (2019 - $4,524) related to Company’s right-of-use building and amortization expense of $2,234 (2019 - $2,757) related to the Company’s right-of-use vehicles.

5.

Lease Liabilities

On April 11, 2018, the Company renewed its lease agreement for office space in South Africa and increased the amount of office space leased. The term of the renewal agreement was for two years commencing May 1, 2018. The monthly base rate was $1,383 (R21,595) in the first year and increased to $1,490 (R23,264) in the second year of the lease. The office space lease was classified as an operating lease. The interest rate underlying the obligation in the lease was 10.25% per annum. On April 30, 2020, the lease expired, and the Company and the landlord agreed to continue on a month to month rental basis.

 

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 $377 (R6,658) and $535 (R9,456). The motor vehicle leases are classified as finance leases. The interest rate underlying the obligation in the leases are both 11.25% per annum. During the three months ended May 31, 2020, the Company paid a total of $2,598 in principal payments on the two motor vehicle leases.

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 May 31, 2020:

 

Years ending February 28:		Vehicle Leases
2021		$	8,265
2022			11,019
2023			11,019
2024			5,449
Net minimum lease payments			35,752
Less: amount representing interest payments			(5,942	)
Present value of net minimum lease payments			29,810
Less: current portion			(8,070	)
Long-term portion		$	21,740

6.

Warrants

The following table summarizes the continuity of the Company’s warrants:

 

		Number of warrants				Weighted average exercise price $
Balance, February 29, 2020			2,020,000				3.50
Issued			—				—
Expired			(20,000	)			0.40
Balance, May 31, 2020			2,000,000				3.50

 

* On November 19, 2019, the Company extended the expiry date of 2,000,000 warrants, which originally had an expiry date of December 5, 2018. The amended warrants have an exercise price of $3.50 and expire on December 6, 2020. The Company estimated the fair value of the modified warrants using the Black-Scholes option pricing model and determined that the incremental fair value of the modification was immaterial.

 

The following table summarizes information about warrants outstanding and exercisable on May 31, 2020:

 

Exercise price

Expiry

Warrants

Weighted average remaining contracted life

$

date

outstanding

(years)

3.50

December 6, 2020

2,000,000

0.52

7.

Commitments

On February 1, 2020, the Company entered into a lease agreement for renting office space in Dallas, Texas. The term of the lease is for one year and the monthly base rate is $920, with the first month provided at no cost. Lease expense related to this office space for the three months ended May 31, 2020, was $nil. The Company paid a deposit of $920, which is included in prepaid expenses and other current assets.

On April 30, 2020, a lease agreement for renting office space in South Africa expired. Although a new agreement has yet to be determined, the Company decided to continue renting the office space on a month to month basis, at a rate of $1,344 (R23,761) per month.

As of May 31, 2020, the future lease commitments are as follows:

Year		Operating Lease Commitments
2021		$	10,120
2021			12,097

On January 18, 2016, the Company entered into a Software Services Agreement whereby a company will provide services to develop software in consideration for 1,800,000 restricted shares of common stock to be issued within ten days of the completion of the software development. As of May 31, 2020, the services and software have not been completed.

 

8.

Concentrations

The Company’s revenues were concentrated among two customers for the three months ended May 31, 2020, and three customers for the three months ended May 31, 2019:

 

Customer		Three Months Ended May 31, 2020
1		31%
2		18%

 

Customer		Three Months Ended May 31, 2019
1		34%
2		16%
3		8%

The Company’s receivables were concentrated among four customers as of May 31, 2020, and three customers as of May 31, 2019:

Customer		May 31, 2020
1		13%
2		12%
3		11%
4		11%

 

Customer		May 31, 2019
1		21%
2		14%
3		11%

9.

Subsequent Events

a)

On May 20, 2020, the Company entered into a promissory note agreement with the Dr. Stefan Kiesz for $25,000, which bears interest of 10% annually. Any remaining principal and accrued interest is due and payable on May 20, 2021. Subsequently, the Company received the proceeds of the note on June 10, 2020.

b)

On May 27, 2020, the Company entered into a promissory note agreement with the U.S. Small Business Association for $77,500, which bears interest of 3.75% annually. Any remaining principal and accrued interest is due and payable on May 20, 2050. Subsequently, the Company received the proceeds of the note on June 1, 2020.

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 US needs

 

·

Whether we will develop interest in our software system in the US

 

·

The level of activity of credit facilities and their need for our software

 

Going Concern

 

Our accompanying consolidated financial statements have been prepared assuming that we 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, 2019, we do not have revenues sufficient to execute its business plan.

 

Results of Operations: For the 3 months ended May 31, 2020 and May 31, 2019

 

Revenues

 

Our revenues for the 3-month period ended May 31, 2020 and 2019 were $248,632 and 357,875, respectively, reflecting decreased revenues of $109,243. The $109,243 of decreased revenues is primarily attributable to the effect of the slowdown in economic activity by our customers due to the global Covid 19 pandemic and lockdown declared in South Africa during this period.

Net Loss/Profit

 

We had a net loss of $42,113 and a net loss of $17,373 for the 3-months ended May 31, 2020 and 2019, respectively, reflecting an increase of $24,740, which is primarily attributable to the economic slowdown by our customers due to the global Covid 19 pandemic and lockdown in South Africa during this period.

 

Operating Expenses

 

We incurred total operating expenses of $219,544 and $252,624, respectively, for the 3-month period ended May 31 2020 and 2019, reflecting a $33,080 decrease of total operating expenses for the 3 months ended November 30, 2018, which is attributable to cost of sales and other expenses that were reduced as a result of the global Covid 19 pandemic and lockdown in South Africa during this period.

 

Liquidity and Capital Resources

 

We had working capital of $12,329 on May 31, 2020 and working capital of $39,440 at our fiscal year ended February 29, 2020, representing a decrease of $27,111 working capital.

 

Our net cash used in operating activities was $76,400 for the 3 months ended May 31, 2020 compared to $394,841 at our fiscal year ended February 29, 2020, representing a $318,441 decrease in cash used in operating activities of $42,113 cash flows used in operating activities.

 

Our net cash used in investing activities were $1,600 and $8,052, respectively, for 3 months ended May 31, 2020 and our fiscal year ended February 29, 2020, reflecting a $6.452 in net cash used in investing activities.

 

Our net cash provided by financing activities was $2,734 for the 3-month period ended May 31, 2020 compared to $1,551 for the fiscal year ended February 29, 2020, reflecting an increase of $1,183 in financing activities.

 

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.

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

 

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

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: July 17, 2020

 

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)