UPAY - Quarter Report: 2017 August (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended August 31, 2017

or

For the transition period from ____to .

Commission File Number

UPAY, Inc.

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

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  ¨

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 ¨

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.

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 ¨  No x

The Company has 25,915,310 shares outstanding as of 08/6/2018.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

UPAY, Inc.

Consolidated Financial Statements

(unaudited)

UPAY, Inc.

Consolidated Balance Sheets

(Expressed in U.S. dollars)

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)

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)

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

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.

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.

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, 2017, have been omitted.

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.

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.

The Company derives revenue through licensing its software and by collecting various transaction fees from third party debit orders.

The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable and collectability is reasonably assured.

The company has several revenue streams and they are recognized as below:

Branch Setup Fees

This is a once off cost that the company charges when a customer is onboarded. The billing occurs in the same month that the debit order is collected. This results in no accounts receivable at the end of the month.

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 and when transactions begin to occur. 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 rental fees are payable in advance, are invoiced prior to the end of the month and is also collected prior to the end of each month due to debit order mandate signed by the customer. We record this as deferred revenue and recognize the revenue during the month of service. These deferred revenues are held in the customer control account, which is included in the AP section of our financial statements.

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 agreed on a price per hour for development with these clients. 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 a client needs to pay invoices before we continue with the next development increment. Payments are due upon invoicing but at times it can take up to 30 days. Any 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 client (lenders) creates 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. 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 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 CTC that still needs to be recognized at an end of a period, it will be 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 the point and work out the commission payable based on the premiums received. The insurance company will then pay all commissions earned by us and our clients. Commissions are not earned until collection of the premiums from the consumers and the remittance of the premiums to the insurance company and when the insurance company did their final calculations. We distribute the commission amounts due to our customers within two days of receiving such payments from the insurance company.

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.

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, 2017, 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.

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.

Property and equipment, net, consists of the following:

During the six months ended August 31, 2017, the Company recorded depreciation expense of $3,206 (2016 - $2,629).

There were no common stock transactions during the six months ended August 31, 2017.

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

On November 11, 2015, the Company entered into a lease agreement for renting office space in South Africa. The term of the lease is for two years commencing March 1, 2016. The monthly base rate is $685 (R8,918) in the first year and increases to $753 (R9,809) in the second year of the lease. Lease expense for the six months ended August 31, 2017 was $6,459 (2016 - $3,049).

On April 18, 2016, the Company entered into a lease agreement for renting office space in Dallas, Texas. The term of the lease is for one year commencing May 1, 2016, renews annually, and the monthly base rate is $715. Lease expense for the six months ended August 31, 2017 was $5,457 (2016 - $5,018).

As of August 31, 2017, the future lease commitments are as follows:

On June 1, 2015 the Company entered into Consultancy Agreements with two consultants whereby the consultants will assist the Company with the filing of the S-1 Registration Statement of the Company. In consideration for these services the Company will issue to each consultant 10,000 cashless warrants within ten days of the Company receiving an effectiveness notice of the S-1 filing from the Securities and Exchange Commission. The warrants have an exercise price of $5.00 and are exercisable for a two-year period following their issuance. During the six months ended August 31, 2017, the Company each consultant 10,000 cashless warrants pursuant to the agreements.

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 August 31, 2017, the services and software have not been completed.

On June 3, 2016, the Company entered into a Consultancy Agreement for business advisory services in consideration for 300,000 restricted shares of common stock and 2,000,000 cashless warrants that have an exercise price of $3.50 and an exercise period of two years following the effectiveness notice of the S-1 filing from the Securities and Exchange Commission. On June 15, 2016, the Company issued 300,000 restricted shares of common stock with a fair value of $30,000 pursuant to the agreement. On May 29, 2017, the Company issued 2,000,000 cashless warrants pursuant to the agreement.

The Company’s revenues were concentrated among three customers for the six months ended August 31, 2017 and two customers for the six months ended August 31, 2016:

The Company has evaluated subsequent events through the date which the financial statements were available to be issued. All subsequent events requiring recognition as of August 31, 2017, have been incorporated into these financial statements and there are no subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”

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:

Trends and Uncertainties

Our business is subject to the following trends and uncertainties:

Going Concern

Our financial statements have been prepared on a going concern basis which assumes that we will be able to realize our assets and discharge its liabilities and commitments in the normal course of business for the foreseeable future. We had an accumulated deficit of $(100,441) at August 31, 2017 and a net loss of $51,935 for the 6 months ended August 31, 2017. As of August 31, 2017, we do not have revenues sufficient to execute our business plan. We intend to fund operations through equity financing arrangements; however, there is no assurance that we will be successful.

Results of Operations: For the 3 months ended August 31, 2017 and August 31, 2016

Revenues

Our revenues for the 3-month period ended August 31, 2017 and 2016 were $227,885 and $138,132, respectively, reflecting increased revenues of $89,753. The $89,753 of increased revenues is primarily attributable to growth in transactional revenue in our South African operations.

Net Loss

We had a net loss of $33,704 and $25,624 for the 3-months ended August 31, 2017 and 2016, respectively, reflecting an increased net loss of $8,080, which is primarily attributable to increase in operational expenses

Operating Expenses

We incurred total operating expenses of $234,700 and $148,713, respectively, for the 3-month period ended August 31, 2017 and 2016, reflecting a $85,987 increase for the 3 months ended August 31, 2017, which is attributable to an increase in general and administrative expenses.

Results of Operations: For the 6 months ended August 31, 2017 and August 31, 2016

Revenues

Our revenues for the 6-month period ended August 31, 2017 and 2016 were $403,221 and $192,345, respectively, reflecting increased revenues of $210,876. The $210,876of increased revenues is primarily attributable to growth in our transactional revenue in our South African operations.

Net Loss

We had a net loss of $51,935 and 86,914 for the 6-months ended August 31, 2017 and 2016, respectively, reflecting a decreased net loss of $37,979, which is primarily attributable to growth in our transactional revenue in our South African operations

Operating Expenses

We incurred total operating expenses of $400,853 and $252,232, respectively, for the 6-month period ended August 31, 2017 and 2016, reflecting a $148,621 increase for the 6 months ended August 31, 2017, which is attributable to a $148,621 increase in general and administrative expenses.

Liquidity and Capital Resources

We had surplus working capital of $83,811 at August 31, 2017 and surplus working capital of $132,894 at our fiscal year ended February 28, 2017, representing a decrease of $49,083 in working capital.

Our net cash used in operating activities was $(15,554) for the 6 months ended August 31, 2017 compared to $(11,786) for the 6 months ended August 31, 2016, representing an $3,768 increase in cash flows used in operating activities.

Our net cash used in investing activities were $(349) and $(5,703), respectively, for the six months ended August 31, 2017 and 2016, reflecting a $5,354 decrease in cash used in investing activities.

Our net cash provided by financing activities was $0 for the 6-month period ended August 31, 2017, compared to $60,407 for the six months ended August 31, 2016 reflecting a decrease in financing activities of 60,407, which resulted primarily from our initial private placement offering coming to a close.

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; however, you may review risk factors in our S-1 Registration Statement beginning at page 7, at the following link: https://www.sec.gov/Archives/edgar/data/1677897/000114420416136124/v453709_s1a.htm

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

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: August 7, 2018