Attached files
file | filename |
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EX-32.2 - UPAY | e18463_ex32-2.htm |
EX-32.1 - UPAY | e18463_ex32-1.htm |
EX-31.2 - UPAY | e18463_ex31-2.htm |
EX-31.1 - UPAY | e18463_ex31-1.htm |
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, 2018
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, 12th 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 25,975,310 shares outstanding as of December 13, 2018.
TABLE OF CONTENTS
2 |
PART I – FINANCIAL INFORMATION
UPAY, Inc.
Consolidated Financial Statements
(unaudited)
Table of Contents
F-1 |
UPAY, Inc.
(Expressed in U.S. dollars)
May 31, 2018 |
February 28, 2018 |
|||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 283,368 | $ | 409,803 | ||||
Accounts receivable | 53,516 | 55,135 | ||||||
Prepaid expenses and other current assets | 2,667 | 2,547 | ||||||
Total Current Assets | 339,551 | 467,485 | ||||||
Property and Equipment, Net (Note 3) | 230,743 | 5,821 | ||||||
Total Assets | $ | 570,294 | $ | 473,306 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 305,085 | $ | 424,636 | ||||
Taxes payable | 3,271 | 3,468 | ||||||
Current portion of obligations under finance lease (Note 4) | 3,814 | — | ||||||
Total Current Liabilities | 312,170 | 428,104 | ||||||
Non-Current Liabilities | ||||||||
Obligations Under Finance Lease (Note 4) | 20,534 | — | ||||||
Total Liabilities | 332,704 | 428,104 | ||||||
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; 25,915,310 shares and 23,915,310 shares issued and outstanding at May 31, 2018, and February 28, 2018, respectively | 25,915 | 23,915 | ||||||
Additional Paid in Capital | 370,732 | 172,732 | ||||||
Accumulated Deficit | (147,610 | ) | (142,549 | ) | ||||
Accumulated Other Comprehensive Loss | (11,447 | ) | (8,896 | ) | ||||
Total Stockholders’ Equity | 237,590 | 45,202 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 570,294 | $ | 473,306 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-2 |
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, | |||||||
2018 | 2017 | |||||||
Revenue | $ | 238,374 | $ | 175,336 | ||||
Cost of Revenue | (50,419 | ) | (27,784 | ) | ||||
Gross Profit | 187,955 | 147,552 | ||||||
Expenses | ||||||||
General and administrative | 191,858 | 164,556 | ||||||
Depreciation | 6,015 | 1,597 | ||||||
Total Expenses | 197,873 | 166,153 | ||||||
Net Loss Before Other Expenses and Income Taxes | (9,918 | ) | (18,601 | ) | ||||
Other Income (Expenses) | ||||||||
Gain on sale of equipment | 4,649 | — | ||||||
Interest income | 247 | 370 | ||||||
Interest expense | (39 | ) | — | |||||
Loss Before Income Taxes | (5,061 | ) | (18,231 | ) | ||||
Provision for income taxes | — | — | ||||||
Net Loss | (5,061 | ) | (18,231 | ) | ||||
Other Comprehensive Loss | ||||||||
Foreign currency translation adjustments | (2,551 | ) | (99 | ) | ||||
Comprehensive Loss | $ | (7,612 | ) | $ | (18,330 | ) | ||
Net (Loss) Income Per Share – Basic and Diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||
Weighted-average Common Shares Outstanding - Basic and Diluted | 24,502,267 | 23,915,310 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-3 |
UPAY, Inc.
Consolidated Statements 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, 2017 | 23,915,310 | $ | 23,915 | $ | 172,732 | $ | (48,506 | ) | $ | (6,320 | ) | $ | 141,821 | |||||||||||
Net loss | — | — | — | (18,231 | ) | — | (18,231 | ) | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (99 | ) | (99 | ) | ||||||||||||||||
Balance – May 31, 2017 | 23,915,310 | $ | 23,915 | $ | 172,732 | $ | (66,737 | ) | $ | (6,419 | ) | $ | 123,491 | |||||||||||
Balance – February 28, 2018 | 23,915,310 | $ | 23,915 | $ | 172,732 | $ | (142,549 | ) | $ | (8,896 | ) | $ | 45,202 | |||||||||||
Issuance of shares for Asset Purchase Agreement | 2,000,000 | 2,000 | 198,000 | — | — | 200,000 | ||||||||||||||||||
Net income | — | — | — | (5,061 | ) | — | (5,061 | ) | ||||||||||||||||
Foreign currency translation adjustments | — | — | — | — | (2,551 | ) | (2,551 | ) | ||||||||||||||||
Balance – May 31, 2018 | 25,915,310 | $ | 25,915 | $ | 370,732 | $ | (147,610 | ) | $ | (11,447 | ) | $ | 237,590 |
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)
Three
Months | Three
Months | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (5,061 | ) | $ | (18,231 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 6,015 | 1,597 | ||||||
Gain on sale of equipment | (4,649 | ) | — | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 1,619 | 33,972 | ||||||
Prepaid expenses and other current assets | (120 | ) | 14 | |||||
Accounts payable | (125,688 | ) | (17,379 | ) | ||||
Accrued expenses | 4,000 | 4,000 | ||||||
Net Cash Used in (Provided by) Operating Activities | (123,884 | ) | 3,973 | |||||
Effect of Exchange Rate Changes on Cash | (2,551 | ) | (99 | ) | ||||
Change in Cash and Cash Equivalents | (126,435 | ) | 3,874 | |||||
Cash and Cash Equivalents - Beginning of Period | 409,803 | 262,974 | ||||||
Cash and Cash Equivalents - End of Period | $ | 283,368 | $ | 266,848 | ||||
Supplemental Disclosures of Cash Flow Information: | ||||||||
Interest paid | $ | — | $ | — | ||||
Income taxes paid | $ | — | $ | — | ||||
Non-cash Investing and Financing Activities: | ||||||||
Vehicle Financed through Lease | $ | 24,348 | $ | — | ||||
Common stock issued for intangible asset | $ | 200,000 | $ | — |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-5 |
UPAY, Inc.
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
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 was 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 was 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.
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 28, 2018, 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) | 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.
F-6 |
UPAY, Inc.
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
e) | Revenue Recognition |
The Company derives revenue through licensing its software and by collecting various transaction fees from third party debit orders.
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), to update the financial reporting requirements for revenue recognition. Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance 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. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured. This guidance is effective for annual reporting periods beginning after December 15, 2017, and entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The Company adopted this standard using the modified retrospective approach on March 1, 2018.
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. 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-7 |
UPAY, Inc.
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
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.
f) | 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.
g) | 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, 2018, 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.
F-8 |
UPAY, Inc.
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
h) | Recent Accounting Pronouncements |
In February 2016, Topic 842, “Leases” was issued to replace the leases requirements in Topic 840, “Leases”. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. Topic 842 will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods and is to be retrospectively applied. Earlier application is permitted. The adoption of this standard is not expected to have a significant impact on the Company’s results of operations, financial condition, cash flows, and financial statement disclosures.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Compensation Accounting”, which requires that excess tax benefits are recorded on the income statement as opposed to additional paid-in-capital, and treated as an operating activity on the statement of cash flows. ASU 2016-09 also allows companies to make an accounting policy election to either estimate the number of awards that are expected to vest (current U.S. GAAP) or account for forfeitures when they occur. ASU 2016-09 further requires cash paid by an employer when directly withholding shares for tax-withholding purposes to be classified as a financing activity on the statement of cash flows. The ASU 2016-09 was subsequently updated with ASU 2017-09, issued in May 2017. These standards will become effective for annual periods beginning after December 15, 2017. On March 1, 2018, the Company adopted the new accounting standard Topic 718, Improvements to Employee Share-Based Compensation Accounting, and all of the related amendments. The adoption of this standard did not have a significant financial impact due to prior taxable losses and our net operating loss carry forward.
In August 2016, the FASB issued ASU No. 2016-15 related to the statement of cash flows. This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017, and early adoption is permitted. On March 1, 2018, the Company adopted the new accounting standard. 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.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The new guidance will require that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents is required to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted. The amendment should be adopted retrospectively. On March 1, 2018, the Company adopted the new accounting standard Topic 230, Restricted Cash. The adoption of this standard did not have a material impact on our financial statements.
In July 2017, FASB issued ASU 2017-11 “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)”: (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Management believes that Topics 260 and 480 pertains to the Company and the impact will be immaterial.
In September 2017, FASB issued and update to ASC 606— Revenue from Contracts with Customers. On March 1, 2018, the Company adopted the new accounting standard and all of the related amendments as discussed in the revenue recognition accounting policy description disclosed in Note 2.
F-9 |
UPAY,
Inc.
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
On November 22, 2017 the FASB issued ASU 2017-14 – “Income Statement-Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606)”. This update amends SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, which bring existing guidance into conformity with Topic 606, Revenue from Contracts with Customers. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017. On March 1, 2018, the Company adopted the new accounting standard. 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.
In January 2018, FASB issued Update 2018-01 – Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, which states the amendments in this Update affect the amendments in Update 2016-02, which are not yet effective but may be early adopted, and Example 10 of Subtopic 350- 30. The new guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. An entity that early adopted Topic 842 should apply the amendments in this Update upon issuance.
In February 2018, FASB issued ASU 2018-02 “Income Statement – Reporting Comprehensive Income (Topic 220)”. This ASU deals with the reclassification of certain tax effects from Accumulated Other Comprehensive Income. The new guidance is effective for interim and annual periods beginning after December 15, 2018 and early adoption is permitted. We do not believe that there will be any significant financial impact due to prior taxable losses and our net operating loss carry forward.
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 standard will be effective for us in the first quarter of our fiscal year 2020, although early adoption is permitted (but no sooner than the adoption of Topic 606). The adoption of this standard is not expected to 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, 2018 Net Carrying Value |
February 28, 2018 Net Carrying Value |
|||||||||||||
IT equipment | $ | 4,819 | $ | (2,917 | ) | $ | 1,902 | $ | 2,439 | |||||||
Motor vehicle | 25,076 | (310 | ) | 24,766 | — | |||||||||||
Furniture and fixtures | 9,401 | (2,506 | ) | 6,895 | 961 | |||||||||||
Office equipment | 3,443 | (1,331 | ) | 2,112 | 2,421 | |||||||||||
Computer software | $ | 200,000 | (4,932 | ) | 195,068 | — | ||||||||||
Total | $ | 242,739 | $ | (11,996 | ) | $ | 230,743 | $ | 5,821 |
The motor vehicle above was acquired under a capital lease (see note 4).
During the three months ended May 31, 2018, the Company recorded depreciation expense of $6,015 (2017 - $1,597) and recognized a gain on sale of equipment of $4,649 (2017 - $nil).
On April 16, 2018, the Company entered into an Asset Purchase Agreement with a non-related third party for the acquisition of a non-exclusive right to a software platform “Waypoint” which will be incorporated with the Company’s own software, known as “Theme Studio”. In consideration, the Company issued 2,000,000 shares of common stock at with a fair value of $200,000.
F-10 |
UPAY,
Inc.
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
4. | Obligations Under Finance Lease |
The Company commenced the leasing of motor vehicle on May 23, 2018 for a term of five years. The monthly minimum lease payments are for $533 (R6,658). The motor vehicle lease is classified as a finance lease. The interest rate underlying the obligation in the finance lease is 11.25% per annum.
The following is a schedule by years of future minimum lease payments under the remaining finance lease together with the present value of the net minimum lease payments as of May 31, 2018:
Years ending February 28: | ||||
2019 | $ | 4,801 | ||
2020 | 6,402 | |||
2021 | 6,402 | |||
2022 | 6,402 | |||
2023 | 6,402 | |||
2024 | 1,600 | |||
Net minimum lease payments | 32,009 | |||
Less: amount representing interest payments | (7,661 | ) | ||
Present value of net minimum lease payments | 24,348 | |||
Less: current portion | (3,814 | ) | ||
Long-term portion | $ | 20,534 |
5. | Common Stock |
On May 4, 2018, the Company issued 2,000,000 shares of common stock with a fair value of $200,000 pursuant to an Asset Purchase Agreement (see Note 3).
6. | Warrants |
The following table summarizes the continuity of the Company’s warrants:
Number
of warrants | Weighted average exercise price $ | |||||||
Balance, February 28, 2018 | 2,020,000 | 3.51 | ||||||
Issued | — | — | ||||||
Balance, May 31, 2018 | 2,020,000 | 3.51 |
The following table summarizes information about warrants outstanding and exercisable at May 31, 2018:
Exercise price | Expiry | Warrants | Weighted average remaining contracted life | |||||||
$ | date | outstanding | (years) | |||||||
3.50 | December 6, 2018 | 2,000,000 | 0.52 | |||||||
5.00 | December 6, 2018 | 20,000 | 0.52 | |||||||
2,020,000 | 0.52 |
F-11 |
UPAY,
Inc.
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(unaudited)
7. | Commitments |
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 was $715 (R8,918) in the first year and increased to $786 (R9,809) in the second year of the lease. On April 11, 2018, the Company renewed the lease and increased the amount of office space leased. The term of the renewal agreement is for two years commencing May 1, 2018. The monthly base rate is $1,730 (R21,595) in the first year and increases to $1,864 (R23,264) in the second year of the lease. Lease expense for the three months ended May 31, 2018, was $3,818 (2017 - $3,116).
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 three months ended May 31, 2018, was $2,901 (2017 - $2,686).
As of May 31, 2018, the future lease commitments related to the office spaces under lease are as follows:
Year | Operating Lease Commitments |
|||
2018 | $ | 17,117 | ||
2019 | $ | 24,693 | ||
2020 | $ | 7,456 |
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, 2018, the services and software have not been completed.
8. | Concentrations |
The Company’s accounts receivables and revenues were concentrated among three customers for the three months ended May 31, 2018, and three customers for the three months ended May 31, 2017:
Three Months Ended May 31, 2018 |
||||||||
Customer | Accounts Receivables |
Revenues | ||||||
1 | 22 | % | 35 | % | ||||
2 | 19 | % | 24 | % | ||||
3 | 12 | % | 5 | % |
Three Months Ended May 31, 2017 |
||||||||
Customer | Accounts Receivables |
Revenues | ||||||
1 | 34 | % | 37 | % | ||||
2 | 19 | % | 14 | % | ||||
3 | 13 | % | 13 | % |
9. | Subsequent Events |
The Company has evaluated subsequent events through the date which the consolidated financial statements were available to be issued. All subsequent events requiring recognition as of May 31, 2018, have been incorporated into these consolidated financial statements and there are no subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
F-12 |
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 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 $(147,610) at May 31, 2018 and a net loss of $(5,061) for the 3 months ended May 31, 2018. As of May 31, 2018, 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 in funding our operations through equity financing. .
3 |
Results of Operations: For the 3 months ended May 31, 2018 and May 31, 2017
Revenues
Our revenues for the 3-month period ended May 31, 2018 and 2017 were $238,374 and $175,336, respectively, reflecting increased revenues of $63,038. The $63,038 of increased revenues is primarily attributable to growth in our client base in South Africa.
Net Loss
We had a net comprehensive loss of $(2,612) and a net loss of $5,061 for the 3-month ended May 31, 2018 and 2017, respectively, reflecting a decrease of $2,449, which is primarily attributable to growth in revenue in our South African business.
Operating Expenses
We incurred total operating expenses of $197,873 and $166,153, respectively, for the 3-month period ended May 31, 2018 and 2017, reflecting a $31,720 increase for the 3 months ended May 31, 2018, which is attributable to a $27,302 increase in general and administrative expenses.
Liquidity and Capital Resources
We had working capital of $27,381 at May 31, 2018 and working capital of $39,381 at our fiscal year ended February 28, 2018, representing a decrease of $12,000 in working capital.
Our net cash flows provided by operating activities was $(123,884) for the 3 months ended May 31, 2018 compared to $3,973 for the 3 months ended May 31, 2017, representing a $127,857 increase in cash flows provided by operating activities.
Our net cash used in investing activities were $0 and $0, respectively, for the three months ended May 31, 2018 and 2017, reflecting no change in cash used in investing activities.
Our net cash provided by financing activities was $0 for the 3-month period ended May 31, 2018, compared to $0 for the three months ended May 31, 2017, reflecting no change used 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.
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.
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. |
On May 4, 2018, we issued 2,000,000 common stock shares to a non-related third party at a share valuation of $0.10 per share for aggregate consideration of $200,000. The 2,000,000 shares were issued pursuant to an asset purchase agreement providing for the purchase of software.
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 |
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: December 13, 2018
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) |
7 |