10-Q: UPAY Reports Continued Losses Amid Revenue Decline, Raises Going Concern Doubts

UPAY, Inc. reported a net loss of $141,986 for the quarter ended May 31, 2025, on reduced revenues, and disclosed substantial doubt about its ability to continue as a going concern.

Summary

• Net loss for the three months ended May 31, 2025, was $141,986, an improvement from the $150,677 net loss in the same period last year.
• Revenue decreased by $86,835 to $170,414 for the quarter ended May 31, 2025, down from $257,249 in the prior year, primarily due to a decrease in transactional revenue in South African operations.
• Gross profit increased to $127,830 for the current quarter, up from $122,916 in the prior year, despite lower revenue, indicating a more significant reduction in cost of revenue.
• Total operating expenses decreased by $8,482 to $258,432 for the quarter, mainly attributable to a reduction in general and administrative expenses in South African operations.
• The company had an accumulated deficit of $2,305,237 as of May 31, 2025.
• Negative working capital improved slightly to $374,905 at May 31, 2025, from $386,487 at February 28, 2025.
• Net cash used in operating activities significantly decreased to $130,676 for the current quarter, compared to $425,730 in the prior year, reflecting improved cash burn from operations.
• Net cash provided by financing activities was $120,000 for the current quarter, compared to $0 in the prior year, primarily from proceeds from notes payable to related parties.
• Cash and cash equivalents stood at $43,621 as of May 31, 2025, down from $55,362 at February 28, 2025.
• The company acquired the remaining 49% non-controlling interest in Huntpal LLC on June 13, 2024, increasing its ownership to 100%.
• A controlling interest in AML Go (Pty) Ltd was acquired on May 28, 2024.

Sentiment

Score: 2

Explanation: The sentiment is highly negative due to significant revenue decline, persistent net losses, negative working capital, and explicit disclosure of substantial doubt about the company's ability to continue as a going concern. While cash burn from operations improved and some related party financing was secured, these are overshadowed by fundamental financial instability and internal control deficiencies.

Positives

• Net loss decreased by $8,691, indicating a slight improvement in profitability compared to the prior year's quarter.
• Gross profit increased by $4,914 despite a revenue decline, suggesting better cost of revenue management.
• Total operating expenses decreased by $8,482, driven by reductions in general and administrative costs in South Africa.
• Net cash used in operating activities significantly reduced by $295,054, indicating a substantial improvement in operational cash burn.
• The company secured $120,000 in financing activities, primarily from related party notes, providing necessary liquidity.

Negatives

• Revenue declined by $86,835, or approximately 33.7%, for the quarter ended May 31, 2025, compared to the prior year.
• The company continues to operate at a net loss and has an accumulated deficit of $2,305,237.
• Working capital remains negative at $374,905, indicating a persistent liquidity challenge.
• A substantial portion of liabilities are due to related parties, with many promissory notes past their maturity dates.
• The company's revenues are highly concentrated among a few customers, with four customers accounting for 49% of revenue in the current quarter and two customers for 57% in the prior year.
• Receivables are also concentrated, with two customers accounting for 60% of receivables as of May 31, 2025.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to insufficient revenues to execute its business plan.
• There is no assurance that the company's intended equity financing arrangements will be successful.
• Disclosure controls and procedures were deemed not effective due to insufficient segregation of duties and the absence of an audit committee.
• Uncertainty exists regarding the adaptability of the company's software system to U.S. market needs and the development of interest in the U.S.
• The level of activity of credit facilities and their need for the company's software could impact future performance.
• Reliance on related party financing poses a risk to financial independence and stability.

Future Outlook

The company intends to focus its sales efforts in Southern Africa, with potential expansion opportunities in the U.S. being explored by the Chief Operating Officer. Future operations are dependent on successful equity financing arrangements, for which there is no assurance.

Management Comments

• We intend to fund operations through equity financing arrangements; however, there is no assurance that we will be successful.
• 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.
• 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, due to insufficient segregation of duties and the absence of an audit committee.

Industry Context

UPAY operates in the financial technology sector, specifically providing loan administration software (ACPAS), anti-money laundering (AML) solutions, and a 'Hunt Now Pay Later' platform. The company's primary market is South Africa, with a paused and uncertain U.S. presence. The decline in transactional revenue suggests challenges within its core South African credit provider industry services, while the expansion into AML and hunting tourism indicates diversification efforts. The 'Hunt Now Pay Later' model taps into niche tourism financing, which may offer growth but also introduces new market risks.

Comparison to Industry Standards

• The company's negative working capital and accumulated deficit are significantly below industry standards for healthy, growing software or fintech companies, which typically aim for positive working capital and profitability.
• The high customer concentration (49% from top four customers) is a significant risk compared to diversified industry players, making the company highly vulnerable to changes in these key relationships.
• The disclosed ineffectiveness of disclosure controls and procedures due to lack of segregation of duties and an audit committee falls short of corporate governance best practices and regulatory expectations for publicly traded companies, regardless of their 'smaller reporting company' status.
• The reliance on related party financing for ongoing operations is not a sustainable long-term financing strategy compared to companies that can access broader capital markets or generate sufficient operating cash flow.

Management Changes

Corporate Governance

Related Party Transactions

• Promissory notes totaling $251,000 in principal outstanding as of May 31, 2025, are due to related parties (CEO and companies controlled by significant shareholders), with significant accrued interest.
• Several related party promissory notes are past their maturity dates, including $10,000 (matured March 24, 2022), $10,000 (matured March 7, 2022), $20,000 (matured February 11, 2023), $26,000 (matured October 13, 2023), $130,000 (matured February 11, 2023), $25,000 (matured March 2, 2023), and $15,000 (matured September 9, 2023).
• The company owes $604 to officers for unsecured, non-interest bearing advances due on demand.
• Salary expenses of $27,058 were incurred to the CEO during the quarter.
• Directors fees of $34,250 were incurred to a Director, and $815 to another Director.
• Common stock issuable for services to Directors amounted to 34,250 shares with a fair value of $34,250 during the quarter.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from potential equity financing and continued losses. The 'going concern' warning indicates a high risk of value erosion or even total loss of investment. The ineffectiveness of disclosure controls also poses a governance risk.
• **Creditors**: Related party creditors bear substantial risk due to the company's financial distress and the default status of several notes. Other creditors face elevated risk given the negative working capital and going concern issues.
• **Employees**: The company's financial instability and focus on cost reduction in South Africa could impact job security and future compensation.
• **Customers**: The company's financial health could impact its ability to provide consistent service and support for its software platforms (ACPAS, AML GO) and hunting services (Huntpal).

Next Steps

• Focus sales efforts on expanding in Southern Africa.
• Explore potential expansion opportunities in the U.S. under the leadership of the Chief Operating Officer.
• Seek equity financing arrangements to fund operations and address going concern issues.
• Address deficiencies in disclosure controls and procedures, including developing segregation of duties and establishing an audit committee.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by persistent net losses, negative working capital, and an explicit 'going concern' warning. Revenue decline indicates a shrinking core business, and while cash burn improved, it's not sustainable without external funding. The reliance on related party financing and significant internal control deficiencies (lack of segregation of duties, no audit committee) further compound the risk. For a seasoned investor, these factors present an extremely high-risk profile with a strong likelihood of further share price depreciation and potential for significant capital loss. The company's future is highly uncertain and dependent on speculative equity financing.

Keywords

Software as a Service, SaaS, Credit Provider Software, Loan Administration, Fintech, AML, Anti-Money Laundering, KYC, Know Your Customer, Hunt Now Pay Later, Hunting Tourism, South Africa, Financial Technology, SEC Filing, Quarterly Report, Going Concern, Related Party Transactions