10-K: UPAY, Inc. Faces Going Concern Doubts Amidst Steep Revenue Decline and Increased Cash Burn in Fiscal Year 2025

UPAY, Inc. reported a significant 48.5% drop in revenues for the fiscal year ended February 28, 2025, alongside an increased working capital deficit and substantial cash used in operations, leading auditors to express substantial doubt about the company's ability to continue as a going concern.

Summary

• UPAY, Inc. (UPYY) reported revenues of $715,269 for the fiscal year ended February 28, 2025, a substantial decrease of $679,139 or 48.7% from $1,394,408 in the prior fiscal year.
• The company experienced a net loss of $540,062 for fiscal year 2025, an improvement from a net loss of $726,191 in fiscal year 2024, primarily due to reduced operating expenses and cost-control measures.
• Working capital deficit worsened to ($386,487) as of February 28, 2025, compared to ($229,865) in the previous year, attributed to funding product development and marketing campaigns for HUNTPAL and AML GO.
• Net cash used in operating activities significantly increased to ($764,674) in fiscal year 2025 from ($145,611) in fiscal year 2024, indicating a higher cash burn.
• Cash and cash equivalents plummeted to $55,362 as of February 28, 2025, down from $642,846 at the end of the prior fiscal year.
• The company's independent auditors expressed substantial doubt about UPAY's ability to continue as a going concern due to recurring net losses and insufficient revenues.
• UPAY completed the acquisition of controlling interest in AML GO (Pty) Ltd and full ownership of Huntpal LLC in June 2024, expanding its compliance software and adventure travel segments.
• AML GO launched its next-generation web-based AML screening portal in October 2024 and onboarded over 30 new financial institution clients in South Africa by April 2025.
• The company plans to focus U.S. operations on scaling HUNTPAL LLC and introducing AML GO into the U.S. market, leveraging its Dallas office.
• Estimated monthly cash needs for the next 12 months from June 2025 are approximately $31,000, excluding significant SEC reporting costs of $70,000.
• The company's disclosure controls and procedures, as well as internal control over financial reporting, were deemed ineffective as of February 28, 2025, with a material weakness identified in the lack of a formal control process for identifying related party transactions.
• As of May 31, 2025, Jacob C. Folscher, CEO/CFO, beneficially owns 54.4% of the common stock, while Twin Harbor Web Solutions Inc. and Emerging Markets Consulting each own over 12%.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to a drastic revenue decline, increased cash burn, a worsening working capital deficit, and an explicit 'going concern' warning from auditors. While there are strategic acquisitions and a reduced net loss (due to cost cuts), these are overshadowed by severe financial instability and control deficiencies. The company's reliance on future equity financing with no assurances further compounds the negative outlook.

Positives

• Net loss decreased by $186,129 in fiscal year 2025 compared to the prior year, primarily due to reduced operating expenses and effective cost-control measures.
• Completed strategic acquisitions of AML GO (Pty) Ltd and full ownership of Huntpal LLC, diversifying and expanding the company's service offerings in compliance software and adventure travel.
• AML GO successfully launched its next-generation web-based AML screening portal and rapidly onboarded over 30 new financial institution clients in South Africa, demonstrating strong market demand.
• The company's South African subsidiary, Rent Pay (Pty) Ltd, secured a new one-year lease with renewal options for its headquarters, supporting continued growth in the region.
• Management is actively engaged in overseeing cybersecurity risks and plans to implement policies, programs, and controls to strengthen systems.

Negatives

• Revenues decreased significantly by $679,139 (48.7%) from $1,394,408 in fiscal year 2024 to $715,269 in fiscal year 2025, primarily due to the loss of a large customer.
• The company's working capital deficit increased to ($386,487) in fiscal year 2025 from ($229,865) in fiscal year 2024, indicating a deteriorating liquidity position.
• Net cash used in operating activities increased substantially by $619,063, from ($145,611) in fiscal year 2024 to ($764,674) in fiscal year 2025, reflecting a higher cash burn.
• Cash and cash equivalents decreased dramatically from $642,846 to $55,362, raising concerns about short-term liquidity.
• The independent auditor's report explicitly states 'substantial doubt about its ability to continue as a going concern' due to continuing losses and insufficient revenues.
• Management concluded that disclosure controls and procedures were ineffective, and internal controls over financial reporting were ineffective as of February 28, 2025.
• A material weakness in internal controls was identified due to the lack of a formal control process for identifying related party transactions.
• The company has significant competitive disadvantages, including greater resources of South African competitors, limited U.S. operations (apart from Huntpal), and untested U.S. marketing/product strategies.
• Several promissory notes to the CEO and companies controlled by significant shareholders are past due or in default, indicating potential financial strain and reliance on related party funding.

Risks

• The company's ability to continue as a going concern is in substantial doubt due to recurring net losses and insufficient revenues, requiring additional funding.
• Future financial condition and results are vulnerable to economic conditions and the company's ability to raise adequate working capital.
• Loss of customers or sales weakness could further adversely impact financial performance.
• Inability to achieve projected sales levels or other operating results poses a significant risk.
• The unavailability of funds for capital expenditures could hinder growth and operational efficiency.
• Operational inefficiencies could negatively affect the company's performance.
• Increased competitive pressures from existing competitors and new market entrants, particularly given competitors' greater resources.
• Substantial development of business and software programs is required to adapt to various U.S. state regulations, posing a risk to U.S. expansion.
• The company's marketing and products in the U.S. market are untested, introducing uncertainty regarding market acceptance and success.
• The company's disclosure controls and procedures and internal control over financial reporting were deemed ineffective, increasing the risk of material misstatements not being prevented or detected.
• A material weakness exists in the lack of a formal control process for identifying related party transactions, which could lead to undisclosed conflicts of interest or financial irregularities.
• The company relies on trade-secret practices for proprietary technology, which may be less protective than patents.
• The company's revenues were concentrated among a few customers (two in 2025, three in 2024), making it vulnerable to the loss of any single major customer.

Future Outlook

UPAY, Inc. plans to concentrate its sales efforts in Southern Africa while exploring potential U.S. expansion opportunities under the leadership of its COO, Randall Greene. The primary U.S. focus will be on scaling HUNTPAL LLC, leveraging the Dallas office to drive growth of the 'Hunt Now-Pay Later' marketplace. Additionally, the company is preparing to introduce AML GO's advanced compliance and risk-management platform into the U.S. market in the near term, positioning its Dallas hub as a coordination center for both Huntpal's financing operations and AML GO's U.S. rollout. The company estimates monthly cash needs of $31,000 over the next 12 months and plans to meet these needs through its current cash position and existing South African business, though it provides no assurances of generating sufficient revenues.

Management Comments

• "Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report." Jacob C. Folscher, CEO/CFO
• "Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report." Jacob C. Folscher, CEO/CFO
• "We will focus most of our sales effort in Southern Africa, first to expand in Southern Africa. We are currently also looking at potential expansion opportunities in the US by Randall Greene, our Chief Operating Officer/Director."
• "Going forward, our primary U.S. focus will be on scaling HUNTPAL LLC, leveraging our Texas office to drive growth of the Hunt Now-Pay Later marketplace across key American states. At the same time, we will maintain momentum in Africa through HUNTPAL (Pty) Ltd and continue our broader Southern Africa expansion."
• "Additionally, we are preparing to introduce AML GOs advanced compliance and risk-management platform into the U.S. market in the near term, positioning our Dallas hub as the coordination center for both Huntpals financing operations and AML GOs upcoming U.S. rollout."
• "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."
• "The decreased net loss is primarily attributable to reduced operating expenses and cost-control measures implemented during the period."
• "The ($386,487) of working capital deficit in the fiscal year ended February 28, 2025 is primarily attributable to the funding of product development, marketing campaigns (e.g., U.S. launch of HUNTPAL and expansion of AML GO)."
• "Our management is responsible for establishing and maintaining adequate internal control over financial reporting... Based on the results of this assessment, management has concluded that our internal controls over financial reporting were ineffective as of February 28, 2025."

Industry Context

UPAY, Inc. operates in the fintech sector, specifically targeting the credit provider industry with loan administration software (ACPAS) and anti-money laundering (AML) compliance solutions (AML GO), primarily in South Africa. The company is also expanding into the adventure travel industry with its 'Hunt Now-Pay Later' platform (HUNTPAL). The U.S. check-cashing and payday-loan services industry generated an estimated $21.4 billion in revenue in 2023, while South Africa's unsecured credit market saw R 24.76 billion in new agreements and short-term credit agreements rose to R 3.31 billion in Q4 2023. UPAY's significant revenue decline, despite industry growth proxies, suggests company-specific challenges, such as customer concentration and operational inefficiencies, rather than broad industry downturns. The expansion into AML compliance and adventure travel indicates a diversification strategy to capture new market opportunities beyond its core lending software, particularly in the growing compliance demands across Southern Africa and the niche 'buy now, pay later' trend in specialized travel.

Comparison to Industry Standards

• UPAY's revenue decline of 48.7% stands in stark contrast to the estimated $21.4 billion revenue generated by the U.S. check-cashing and payday-loan services industry in 2023, suggesting a significant underperformance relative to the broader market it aims to serve.
• While the South African unsecured credit market showed growth (R 24.76 billion in new agreements in Q4 2023), UPAY's overall revenue contraction indicates it is not effectively capitalizing on this market expansion, unlike more robust competitors such as Compuloan, Delter, and Mycomax, which possess greater operational, financial, and personnel resources.
• The company's substantial cash burn from operations ($764,674 in FY2025) and a worsening working capital deficit are concerning when compared to established fintech companies that typically demonstrate stronger cash flow generation or more controlled burn rates during growth phases.
• The auditor's going concern warning and the identified material weaknesses in internal controls over financial reporting are critical deviations from best practices for publicly traded companies, indicating a higher risk profile compared to industry peers with robust governance and financial controls.
• The reliance on a few key customers (two in FY2025) is a significant concentration risk, which is generally avoided by larger, more diversified industry players who spread their customer base to mitigate revenue volatility.

Management Changes

Corporate Governance

Legal Proceedings

• The company is currently not involved in any litigation that it believes could have a material adverse effect on its financial condition or results of operations.

Related Party Transactions

• Promissory notes totaling $40,000 in principal outstanding to CEO Jacob C. Folscher, with accrued interest of $13,515 as of February 28, 2025.
• Promissory notes totaling $196,000 in principal outstanding to companies controlled by significant shareholders, with accrued interest of $66,333 as of February 28, 2025.
• A new promissory note for $50,000 was entered into with a company controlled by a significant shareholder on January 31, 2025, maturing January 31, 2027.
• Advances totaling $600 were owed to officers as of February 28, 2025.
• Salary expenses of $108,028 were incurred to CEO Jacob C. Folscher in fiscal year 2025 ($126,511 in fiscal year 2024).
• Director fees of $91,875 were incurred to Pieter A. Swanepoel in fiscal year 2025 ($65,000 in fiscal year 2024).
• Director fees of $4,928 were incurred to another Director in fiscal year 2025.
• Management fees of $0 were incurred to Randall F. Greene in fiscal year 2025 ($174,998 in fiscal year 2024), and director fees of $70,000 ($75,000 in fiscal year 2024).
• Twin Harbor Web Solutions, Inc., a beneficial owner of over 5% of common stock, acquired Theme Studio software from the company for 2,000,000 common shares and has a service level agreement for development and hosting solutions.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from potential future equity financing, substantial uncertainty regarding the company's ability to continue as a going concern, and a significant decline in market value of non-affiliate common equity. The ineffectiveness of internal controls also poses a risk to financial transparency and reliability.
• **Employees**: The company's financial instability and reliance on future funding could impact job security and future compensation, despite plans to hire additional staff contingent on revenues and financing.
• **Customers**: The loss of a large customer indicates potential issues with customer retention or service, which could affect other customers' confidence. However, the expansion of AML GO and HUNTPAL aims to serve new customer segments.
• **Suppliers/Creditors**: Promissory notes to related parties being past due or in default indicates potential payment risks for other creditors. The company's weak cash position and going concern warning suggest increased credit risk.
• **Management**: Faces significant pressure to secure funding, improve financial performance, and remediate internal control deficiencies, with compensation potentially tied to available funds and performance-based bonuses.

Next Steps

• Focus sales efforts in Southern Africa to expand market presence.
• Explore potential U.S. expansion opportunities under the leadership of COO Randall Greene.
• Scale HUNTPAL LLC operations in the U.S., leveraging the Dallas office.
• Introduce AML GO's advanced compliance and risk-management platform into the U.S. market.
• Implement policies, programs, and controls to strengthen cybersecurity systems.
• Address and remediate identified material weaknesses in internal control over financial reporting, particularly the lack of a formal process for identifying related party transactions.
• Seek equity financing arrangements to secure adequate working capital and fund ongoing operations.

Key Dates

Recommendation

Keywords

Fintech, Loan Administration Software, Credit Provider Software, AML Compliance, Anti-Money Laundering, Hunt Now-Pay Later, SaaS, Software as a Service, South Africa, United States, SEC Filing, 10-K, Financial Technology, Credit Risk Management, Corporate Governance