UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
or
For the transition period from ______________ to _______________
Commission
File Number:
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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
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Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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
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Indicate by check mark whether the registrant is a large-accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
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| ☒ | Smaller reporting company | ||
| Emerging growth company |
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FINGERMOTION, INC.
FORM 10-Q
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-1-
FINGERMOTION, INC.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the nine months ended November 30, 2022
(Unaudited - Expressed in U.S. Dollars)
-2-
| FingerMotion, Inc. |
| Condensed Consolidated Balance Sheets |
| November 30, | February 28, | |||||||
| 2022 | 2022 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepayment and deposit | ||||||||
| Other receivables | ||||||||
| Total Current Assets | ||||||||
| Non-current Assets | ||||||||
| Equipment | ||||||||
| Intangible assets | ||||||||
| Right-of-use asset | ||||||||
| Total Non-current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDER’S DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrual and other payables | ||||||||
| Convertible notes payable, current portion | ||||||||
| Lease liability, current portion | ||||||||
| Total Current Liabilities | ||||||||
| Non-current Liabilities | ||||||||
| Convertible notes payable, non-current portion | ||||||||
| Lease liability, non-current portion | ||||||||
| Total Non-current Liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock, par value $ per share; Authorized shares; issued and outstanding -- shares. | ||||||||
| Common Stock, par value $ per share; Authorized shares; issued and outstanding shares and issued and outstanding at November 30, 2022 and February 28, 2022 respectively | ||||||||
| Additional paid-in capital | ||||||||
| Additional paid-in capital - stock options | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ( | ) | ||||||
| Stockholders’ equity before non-controlling interests | ||||||||
| Non-controlling interests | ||||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
-3-
FingerMotion, Inc.
Unaudited Condensed Consolidated Statements of Operations
| Three Months Ended | Nine Months Ended | |||||||||||||||
| November 30, | November 30, | November 30, | November 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||||||
| Amortization & Depreciation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General & administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Marketing Cost | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Research & Development | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Stock compensation expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Exchange gain (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss before income tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Income tax expenses | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: Net profit attributable to the non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to the Company’s shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: comprehensive income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss attributable to the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER SHARE | ||||||||||||||||
| Loss Per Share - Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss Per Share - Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY | ||||||||||||||||
| Loss Per Share - Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss Per Share - Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Common Shares Outstanding - Basic | ||||||||||||||||
| Weighted Average Common Shares Outstanding - Diluted | ||||||||||||||||
-4-
FingerMotion, Inc.
Unaudited Condensed Consolidated Statement of Shareholders’ Equity
| Common Stock | Capital Paid in Excess of | Additional Paid-in Capital - Stock | Accumulated | Accumulated Other Comprehensive | Stockholders’ | Non-controlling | ||||||||||||||||||||||||||||||
| Shares | Amount | Par Value | options | Deficit | Income | equity | interest | Total | ||||||||||||||||||||||||||||
| Balance at March 1, 2022 | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued for cash | — | |||||||||||||||||||||||||||||||||||
| Common stock issued for professional service | ||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net (Loss) | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at May 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Common stock issued for cash | — | |||||||||||||||||||||||||||||||||||
| Common stock issued for professional service | ||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net (Loss) | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at August 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||||||||||
| Common stock issued for professional service | ||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net (Loss) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at November 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Common Stock | Capital Paid in Excess of | Additional Paid-in Capital - Stock | Accumulated | Accumulated Other Comprehensive | Stockholders’ | Non-controlling | ||||||||||||||||||||||||||||||
| Shares | Amount | Par Value | options | Deficit | Income | equity | interest | Total | ||||||||||||||||||||||||||||
| Balance at March 1, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||||||||||
| Common stock issued for professional service | ||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income | — | |||||||||||||||||||||||||||||||||||
| Net (Loss) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at May 30, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||||||||||
| Common stock issued for professional service | ||||||||||||||||||||||||||||||||||||
| Execution of convertible notes | ||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net (Loss) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Balance at August 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||
| Common stock issued for cash | ||||||||||||||||||||||||||||||||||||
| Common stock issued for professional service | ||||||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income | — | |||||||||||||||||||||||||||||||||||
| Net (Loss) | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at November 30, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||
-5-
FingerMotion, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
| Nine Months Ended | ||||||||
| November 30, | November 30, | |||||||
| 2022 | 2021 | |||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Share based compensation expenses | ||||||||
| Amortization and depreciation | ||||||||
| Impairment of fixed assets | ||||||||
| Change in operating assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | ||||||||
| (Increase) decrease in prepayment and deposit | ( | ) | ( | ) | ||||
| (Increase) decrease in others receivable | ( | ) | ||||||
| (Increase) decrease in inventories | ( | ) | ||||||
| Increase (decrease) in accounts payable | ( | ) | ( | ) | ||||
| Increase (decrease) in accrual and other payables | ||||||||
| Increase (decrease) in due to lease liability | ( | ) | ( | ) | ||||
| Net Cash provided by (used in) operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceed from convertible note | ||||||||
| Proceed from loan payable | ||||||||
| Advances from stock subscription payables | ||||||||
| Common stock issued for cash | ||||||||
| Net cash provided by (used in) financing activities | ||||||||
| Effect of exchange rates on cash and cash equivalents | ( | ) | ||||||
| Net change in cash | ||||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Major non-cash transactions: | ||||||||
| Conversion of loan payables to shares | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Taxes paid | $ | $ | ||||||
-6-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 1 –Nature of Business and Basis of Presentation
FingerMotion, Inc. fka Property Management Corporation of America (the “Company”) was incorporated on January 23, 2014, under the laws of the State of Delaware. The Company then offered management and consulting services to residential and commercial real estate property owners who rent or lease their property to third-party tenants.
The Company changed its name to FingerMotion, Inc. on July 13, 2017, after a change in control. In July 2017 the Company acquired all of the outstanding shares of Finger Motion Company Limited (“FMCL”), a Hong Kong corporation that is an information technology company which specialize in operating and publishing mobile games.
Pursuant to the Share Exchange Agreement with FMCL, effective July 13, 2017 (the “Share Exchange Agreement”, the Company agreed to exchange the outstanding equity stock of FMCL held by the FMCL Shareholders for shares of common stock of the Company. At the Closing Date, the Company issued shares of common stock to the FMCL shareholders. In addition, the Company issued shares to other consultants in connection with the transactions contemplated by the Share Exchange Agreement.
The transaction was accounted for as a “reverse acquisition” since, immediately following completion of the transaction, the shareholders of FMCL effectuated control of the post-combination Company. For accounting purposes, FMCL was deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of FMCL (i.e., a capital transaction involving the issuance of shares by the Company for the shares of FMCL). Accordingly, the consolidated assets, liabilities, and results of operations of FMCL became the historical financial statements of FingerMotion, Inc. and its subsidiaries, and the Company’s assets, liabilities and results of operations were consolidated with FMCL beginning on the acquisition date. No step-up in basis or intangible assets or goodwill were recorded in this transaction.
As a result of the Share Exchange Agreement and the other transactions contemplated thereunder, FMCL became a wholly owned subsidiary of the Company. FMCL, a Hong Kong corporation, was formed in April 6, 2016.
On October 16, 2018, the Company through its indirect wholly-owned subsidiary, Shanghai JiuGe Business Management Co., Ltd. (“JiuGe Management”), entered into a series of agreements known as variable interest agreements (the “VIE Agreements”) pursuant to which Shanghai JiuGe Information Technology Co., Ltd. (“JiuGe Technology”) became JiuGe Management’s contractually controlled affiliate. The use of VIE agreements is a common structure used to acquire PRC corporations, particularly in certain industries in which foreign investment is restricted or forbidden by the PRC government. The VIE Agreements include a Consulting Services Agreement, a Loan Agreement, a Power of Attorney Agreement, a Call Option Agreement, and a Share Pledge Agreement in order to secure the connection and commitments of JiuGe Technology.
On March 7, 2019, JiuGe Technology also acquired 99% of the equity interest of Beijing XunLian (“BX”), a subsidiary that provides bulk distribution of SMS messages for JiuGe customers at discounted rates.
Finger Motion Financial Company Limited was incorporated on January 24, 2020, and is 100% owned by FingerMotion, Inc. The company has been activated for the insurtech business during the last quarter of the fiscal year where the Big Data division secured its first contract and recorded revenue.
Shanghai TengLian JiuJiu Information Communication Technology Co., Ltd. was incorporated on December 23, 2020, for the purpose of venturing into mobile phone sales in China. It is 99% owned by JiuGe Technology.
On February 5, 2021, JiuGe Technology disposed of its 99% owned subsidiary, Suzhou BuGuNiao Digital Technology Co., Ltd which was established to venture into R&D projects.
-7-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 2 - Summary of Principal Accounting Policies
Principles of Consolidation and Presentation
The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The condensed consolidated financial statements include the financial statements of the Company, and its wholly-owned subsidiaries. All intercompany accounts, transactions, and profits have been eliminated upon consolidation.
Variable interest entity
Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements, the financial statements of its variable interest entities (“VIEs”). ASC 810 requires a VIE to be consolidated if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity.
Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The reporting entity’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de - facto agents, have the unilateral ability to exercise those rights. JiuGe Technology’s actual stockholders do not hold any kick-out rights that affect the consolidation determination.
Through the VIE agreements disclosed in Note 1, the Company is deemed the primary beneficiary of JiuGe Technology. Accordingly, the results of JiuGe Technology have been included in the accompanying consolidated financial statements. JiuGe Technology has no assets that are collateral for or restricted solely to settle their obligations. The creditors of JiuGe Technology do not have recourse to the Company’s general credit.
-8-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 2 - Summary of Principal Accounting Policies (Continued)
The following assets and liabilities of the VIE and VIE’s subsidiaries are included in the accompanying condensed consolidated financial statements of the Company as of November 30, 2022 and February 28, 2022:
Assets and liabilities of the VIE
| November 30, 2022 | February 28, 2022 | |||||||
| (unaudited) | ||||||||
| Current assets | $ | $ | ||||||
| Non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Non-current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
Assets and liabilities of the VIE’s Subsidiaries
| November 30, 2022 | February 28, 2022 | |||||||
| (unaudited) | ||||||||
| Current assets | $ | $ | ||||||
| Non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities | $ | $ | ||||||
| Non-current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
-9-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 2 - Summary of Principal Accounting Policies (Continued)
Operating Result of VIE
| For the nine months Ended November 30, 2022 | For the nine months Ended November 30, 2021 | |||||||
| (unaudited) | (unaudited) | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ( | ) | ( | ) | ||||
| Gross profit (loss) | $ | $ | ||||||
| Amortization and depreciation | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Marketing cost | ( | ) | ( | ) | ||||
| Research & development | ( | ) | ( | ) | ||||
| Total operating expenses | $ | ( | ) | $ | ( | ) | ||
| Profit (loss) from operations | $ | ( | ) | $ | ( | ) | ||
| Interest income | ||||||||
| Other income | ||||||||
| Total other income (expense) | $ | $ | ||||||
| Tax expense | ||||||||
| Net profit (loss) | $ | ( | ) | $ | ( | ) | ||
Operating Result of VIE’s Subsidiaries
| For the nine months Ended November 30, 2022 | For the nine months Ended November 30, 2021 | |||||||
| (unaudited) | (unaudited) | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ( | ) | ( | ) | ||||
| Gross profit (loss) | $ | $ | ||||||
| Amortization and depreciation | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Marketing cost | ( | ) | ( | ) | ||||
| Research & development | ( | ) | ||||||
| Total operating expenses | $ | ( | ) | $ | ( | ) | ||
| Profit (loss) from operations | $ | ( | ) | $ | ||||
| Interest income | ||||||||
| Other income | ||||||||
| Total other income (expense) | $ | $ | ||||||
| Tax expense | ||||||||
| Net profit (loss) | $ | ( | ) | $ | ||||
-10-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 2 - Summary of Principal Accounting Policies (Continued)
Use of Estimates
The preparation of the Company’s financial statements in conformity with generally accepted accounting principles of the United States of America 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Actual results could differ from those estimates.
Certain Risks and Uncertainties
The Company relies on cloud-based hosting through a global accredited hosting provider. Management believes that alternate sources are available; however, disruption or termination of this relationship could adversely affect our operating results in the near term.
Identifiable Intangible Assets
Identifiable
intangible assets are recorded at cost and are amortized over
Impairment of Long-Lived Assets
The Company classifies its long-lived assets into: (i) computer and office equipment; (ii) furniture and fixtures, (iii) leasehold improvements, and (iv) finite–lived intangible assets.
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. It is possible that these assets could become impaired as a result of technology, economy, or other industry changes. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, relief from royalty income approach, quoted market values and third-party independent appraisals, as considered necessary.
The Company makes various assumptions and estimates regarding estimated future cash flows and other factors in determining the fair values of the respective assets. The assumptions and estimates used to determine future values and the remaining useful lives of long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as the Company’s business strategy and its forecasts for specific market expansion.
Accounts Receivable and Concentration of Risk
Accounts receivable, net is stated at the amount the Company expects to collect, or the net realizable value. The Company provides a provision for allowances that includes returns, allowances, and doubtful accounts equal to the estimated uncollectible amounts. The Company estimates its provision for allowances based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the provision for allowances will change.
-11-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 2 - Summary of Principal Accounting Policies (Continued)
Lease
Operating and finance lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. When the rate implicit to the lease cannot be readily determined, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is derived from information available at the lease commencement date and represents the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The right-of-use asset includes any lease payments made and lease incentives received prior to the commencement date. Operating lease right-of-use assets also include any cumulative prepaid or accrued rent when the lease payments are uneven throughout the lease term. The right-of-use assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Cash and Cash Equivalents
Cash and cash equivalents represent cash on hand, demand deposits, and other short-term highly liquid investments placed with banks, which have original maturities of three months or less and are readily convertible to known amounts of cash.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the estimated useful lives of the assets. Estimated useful lives range from three to seven years. Land is classified as held for sale when management has the ability and intent to sell, in accordance with ASC Topic 360-45.
Basic (loss) earnings per share is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per share.
FASB Accounting Standard Codification Topic 260 (“ASC 260”), “Earnings Per Share,” requires that employee equity share options, non-vested shares and similar equity instruments granted to employees be treated as potential common shares in computing diluted earnings per share. Diluted earnings per share should be based on the actual number of options or shares granted and not yet forfeited, unless doing so would be anti-dilutive. The Company uses the “treasury stock” method for equity instruments granted in share-based payment transactions provided in ASC 260 to determine diluted earnings per share. Antidilutive securities represent potentially dilutive securities which are excluded from the computation of diluted earnings or loss per share as their impact was antidilutive.
-12-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 2 - Summary of Principal Accounting Policies (Continued)
Revenue Recognition
The Company adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”) beginning on January 1, 2018 using the modified retrospective approach. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
The Company has assessed the impact of the guidance by reviewing its existing customer contracts and current accounting policies and practices to identify differences that will result from applying the new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control and principal versus agent considerations. Based on the assessment, the Company concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of ASC 606 and therefore there was no material changes to the Company’s consolidated financial statements upon adoption of ASC 606.
The Company recognizes revenue from providing hosting and integration services and licensing the use of its technology platform to its customers. The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer (for licensing, revenue is recognized when the Company’s technology is used to provide hosting and integration services); (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of fees is probable. We account for our multi-element arrangements, such as instances where we design a custom website and separately offer other services such as hosting, which are recognized over the period for when services are performed.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes” (“ASC 740”). Under this method, income tax expense is recognized as the amount of: (i) taxes payable or refundable for the current year and (ii) future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Non-controlling interest
Non-controlling interests held 1% of the shares of two of our subsidiaries are recorded as a component of our equity, separate from the Company’s equity. Purchase or sales of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.
Recently Issued Accounting Pronouncements
The Company does not believe recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.
-13-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 3 - Going Concern
The
accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which
contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company
had an accumulated deficit of $
The Company’s continuation as a going concern depends on its ability to obtain additional financing to fund operations, implement its business model, and ultimately, attain profitable operations. The Company will need to secure additional funds through various means, including equity and debt financing or any similar financing. There can be no assurance that the Company can obtain additional equity or debt financing, if and when needed, on terms acceptable to the Company, or at all. Any additional equity or debt financing may involve substantial dilution to the Company’s stockholders, restrictive covenants, or high interest costs. The Company’s long-term liquidity also depends upon its ability to generate revenues and achieve profitability.
Note 4 - Revenue
We
recorded $
| For the nine months ended | ||||||||
| November 30, 2022 | November 30, 2021 | |||||||
| (unaudited) | (unaudited) | |||||||
| Telecommunication Products & Services | $ | $ | ||||||
| SMS & MMS Business | ||||||||
| Big Data | ||||||||
| $ | $ | |||||||
Note 5 – Equipment
At November 30, 2022 and February 28, 2022, the Company has the following amounts related to tangible assets:
| November 30, 2022 | February 28, 2022 | |||||||
| (unaudited) | ||||||||
| Equipment | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Net equipment | $ | $ | ||||||
No
significant residual value is estimated for the equipment. Depreciation expenses for the nine months ended November 30, 2022 and 2021
totaled $
-14-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 6 – Intangible Assets
At November 30, 2022 and February 28, 2022, the Company has the following amounts related to intangible assets:
| November 30, 2022 | February 28, 2022 | |||||||
| (unaudited) | ||||||||
| Licenses | $ | $ | ||||||
| Mobile applications | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Impairment of intangible assets | ( | ) | ( | ) | ||||
| Net intangible assets | $ | $ | ||||||
No
significant residual value is estimated for these intangible assets. Amortization expenses for the nine months ended November 30, 2022
and 2021 totaled $
Note 7 – Prepayment and Deposit
Prepaid expenses consist of the deposit pledge to the vendor for stock credits for resale. Our current vendors are China Unicom and China Mobile for our Telecommunication Products & Services business and our SMS & MMS business. Deposits include payments placed into the e-commerce platforms where we offer our products and services. The platforms are PinDuoDuo, Tmall, and JD.com.
| November 30, 2022 | February 28, 2022 | |||||||
| (unaudited) | ||||||||
| Telecommunication Products & Services | ||||||||
| Deposit Paid / Prepayment | $ | $ | ||||||
| Deposit received | ||||||||
| Net Prepaid expenses for Telecommunication Products & Services | $ | $ | ||||||
| Others prepayment | ||||||||
| Prepayment and deposit | $ | $ | ||||||
| November 30, 2022 | February 28, 2022 | |||||||
| (unaudited) | ||||||||
| SMS & MMS Business | ||||||||
| Deposit Paid / Prepayment | $ | $ | ||||||
| Deposit received | ||||||||
| Net Prepaid expenses for SMS | $ | $ | ||||||
| Others prepayment | ||||||||
| Prepayment and deposit | $ | $ | ||||||
-15-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 8 – Right-of-use Asset and Lease Liability
The Company has entered into lease agreements with various third parties. The terms of operating leases are one to two years. These operating leases are included in "Right-of-use Asset" on the Company's Condensed Consolidated Balance Sheet and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligations to make lease payments are included in "Lease liability" on the Company's Condensed Consolidated Balance Sheet. Additionally, the Company has entered into various short-term operating leases with an initial term of twelve months or less. These leases are not recorded on the Company's Condensed Consolidated Balance Sheet. All operating lease expense is recognized on a straight-line basis over the lease term in the nine months ended November 30, 2022.
Information related to the Company's right-of-use assets and related lease liabilities were as follows:
| November 30, 2022 | February 28, 2022 | |||||||
| Right-of-use asset | (unaudited) | |||||||
| Right-of-use asset, net | $ | $ | ||||||
| Lease liability | ||||||||
| Current lease liability | $ | $ | ||||||
| Non-current lease liability | ||||||||
| Total lease liability | $ | $ | ||||||
| Remaining lease term and discount rate | November 30, 2022 | |||||||
| Weighted-average remaining lease term | ||||||||
| Weighted-average discount rate | % | |||||||
Commitments
The following table summarizes the future minimum lease payments due under the Company’s operating leases as of November 30, 2022:
| 2023 | $ | |||
| Thereafter | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liability | $ |
-16-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 9 - Convertible Notes Payable
A
Note Payable having a Face Value of $
A
secured, two-year, interest-free convertible promissory note with a principal amount of $
An
event of default under the Note occurred on November 4, 2022 and on November 21, 2022 pursuant to section 2.1(e) of the Note in relation
to the closing of our private placements of shares of common stock in the aggregate amount of shares at a price of $ per
share for gross proceeds of $
Section 2.2 of the Note provides for the remedies upon an event of default, which as described in the Note, the holder may at any time at its option declare the Note immediately due and payable at an amount of 110% or 120% of the outstanding principal amount (the “Mandatory Default Amount”) depending on the type of event of default. In addition, upon an event of default, subject to any applicable cure periods, the holder may (a) from time-to-time demand that all or a portion of the outstanding principal amount be converted into shares of our common stock at the lower of (i) the conversion price (currently $2.00 per share) and (ii) 80% of the average of the three (3) lowest daily VWAPs during the twenty (20) days prior to the delivery of the conversion notice, or (b) exercise or otherwise enforce any one or more of the holder’s rights, powers, privileges, remedies and interests under the Note, the Purchase Agreement, the other transaction documents or applicable law.
The
Mandatory Default Amount for an event of default under Section 2.1(e) of the Note is 110% of the outstanding principal amount of the
Note, which is $
In addition, section 5.7 of the Purchase Agreement provides that if we issued any equity interests, other than “Exempted Securities” (as defined in the Purchase Agreement), for aggregate proceeds to us of greater than $10,000,000 during the term of the Purchase Agreement, excluding offering costs and other expenses, unless otherwise waived in writing by and at the discretion of the holder, we will direct 25% of such proceeds from such issuance to repay the Note. We have advised the holder that the aggregate Private Placement Proceeds exceeds $10,000,000 and the holder does not seek to waive or require payment of 25% of the proceeds as repayment of the Note.
Note 10 - Common Stock
The
Company issued shares of common stock for the year ended February 28, 2021 for consideration of $
The
Company issued shares of common stock at a deemed price of $
The Company cancelled shares of common stock during the fiscal year ended February 28, 2021 pursuant to a financial advisory service agreement.
-17-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 10 - Common Stock (Continued)
On March 29, 2021, the Company issued 10,000 shares of our common stock at $2.00 per share to one individual pursuant to the exercise of warrants.
On April 14, 2021, the Company issued 5,000 shares of our common stock at price of $2.00 per share to one individual pursuant to a consulting agreement.
On May 7, 2021, the Company issued (i) 70,000 shares of our common stock at $2.00 per share to 2 individuals and one entity pursuant to the exercise of warrants, and (ii) 6,666 shares of our common stock at $3.00 to one entity pursuant to the exercise of warrants.
On June 1, 2021, the Company issued 25,000 shares of our common stock at a deemed price of $5.00 per shares to one individual pursuant to a consulting agreement.
On July 13, 2021, the Company issued (i) 568,900 shares of our common stock at price of $5.00 per share to 17 individuals and 2 entities (ii) 45,000 shares of our common stock at $2.00 per share to 2 individuals pursuant to the exercise of warrants, (iii) 60,000 shares of our common stock at $3.00 per share to one individual pursuant to the exercise of warrants, (iv) 5,000 shares of our common stock at deemed price of $2.00 per share to one individual pursuant to a consulting agreement, and (v) 25,000 shares of our common stock at a deemed price of $5.00 per share to one individual pursuant to a consulting agreement.
On November 16, 2021, the Company issued 218,000 shares of common stock at $2.50 per share and 700,000 shares of common stock at $0.50 per share to one individual pursuant to the conversion of promissory notes.
On November 27, 2021, the Company issued 1,500,000 shares of common stock at $0.50 per share and 59,200 shares of common stock at $5.00 per share to one individual pursuant to the conversion of promissory notes.
On October 28, 2021, the Company issued 5,000 shares of our common stock at a deemed price of $2.00 per share to one individual pursuant to a consulting agreement.
On November 5, 2021, the Company issued 276,000 shares of our common stock at price of $5.00 per share to 4 individuals.
On December 7, 2021, the Company issued 30,000 shares of our common stock at price of $3.00 per share to 2 individuals pursuant to the exercise of warrants.
On January 7, 2022, the Company issued 55,000 shares of our common stock at a deemed price of $5.00 per share to two entities pursuant to a consulting agreement.
On January 12, 2022, the company cancelled 15,000 shares of our common stock issued to 1 individual pursuant to a consulting agreement.
On February 4, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $5.00 per share to one entity pursuant to a consulting agreement.
On February 7, 2022, the Company issued 70,000 shares of our common stock at price of $5.00 per share to 4 individuals
On March 7, 2022 the Company issued 5,000 shares of our common stock at a deemed price of $5.00 per share to one entity pursuant to a consulting agreement.
On March 23, 2022, the Company issued 10,000 shares of our common stock at a deemed price of $3.66 per share to one individual pursuant to a consulting agreement.
-18-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 10 - Common Stock (Continued)
On March 23, 2022, the Company issued an aggregate of 25,000 shares of our common stock at a deemed price of $2.85 per share to two individuals and one entity pursuant to consulting agreements.
On April 14, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $5.00 per share to one entity pursuant to a consulting agreement.
On April 28, 2022, the Company issued 50,000 shares of our common stock at a deemed price of $2.61 per share to one entity pursuant to a consulting agreement.
On April 28, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $2.56 per share to one entity pursuant to a consulting agreement.
On April 28, 2022, the Company issued 20,000 shares of our common stock at a deemed price of $2.51 per share to one individual pursuant to a consulting agreement.
On May 10, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $5.00 per share to one entity pursuant to a consulting agreement.
On May 10, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $3.66 per share to one individual pursuant to a consulting agreement.
On May 12, 2022, the Company issued 20,000 shares of our common stock at a deemed price of $2.03 per share to one entity pursuant to a consulting agreement as amended.
On July 5, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $5.00 per share to one entity pursuant to a consulting agreement.
On July 5, 2022, the Company issued an aggregate of 25,000 shares of our common stock at a deemed price of $2.85 per share to two individuals and one entity pursuant to consulting agreements.
On August 3, 2022, the Company issued 50,000 shares of our common stock at a deemed price of $1.22 per share to one entity pursuant to a consulting agreement.
On October 19, 2022, the Company issued an aggregate of 25,000 shares of our common stock at a deemed price of $2.85 per share to two individuals and one entity pursuant to consulting agreements.
On October 19, 2022, the Company issued 20,000 shares of our common stock at a deemed price of $1.70 per share to one entity pursuant to a consulting agreement.
On October 19, 2022, the Company issued 10,000 shares of our common stock at a deemed price of $3.66 per share to one individual pursuant to a consulting agreement.
On October 19, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $2.56 per share to one entity pursuant to a consulting agreement.
On October 24, 2022, the Company issued 100,000 shares of our common stock at price of $2.00 per share to 2 individuals pursuant to the exercise of warrants.
On October 24, 2022, the Company issued 70,000 shares of our common stock at price of $3.00 per share to one individual pursuant to the exercise of warrants.
-19-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 10 - Common Stock (Continued)
On November 3, 2022, the Company issued 20,000 shares of our common stock at price of $3.00 per share to 2 individuals pursuant to the exercise of warrants.
On November 3, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $1.70 per share to one entity pursuant to a consulting agreement.
On November 3, 2022, the Company issued 25,000 shares of our common stock at a deemed price of $1.22 per share to one entity pursuant to a consulting agreement.
On November 3, 2022, the Company issued 200,000 shares of our common stock at a deemed price of $0.74 per share to one individual pursuant to a consulting agreement.
On November 4, 2022, the Company issued an aggregate of 1,887,500 shares of common stock at a price of $4.00 per share to eleven individuals due to the closing of its private placement at $4.00 per share for aggregate gross proceeds of $7,550,000.
In connection with the closing of the private placement on November 4, 2022, the Company issued 91,875 shares of common stock at price of $4.00 per share for a total value of $367,500 to one individual as finder’s fees.
On November 21, 2022, the Company issued 1,000,000 shares of common stock at a price of $4.00 per share to one entity due to the closing of its private placement at $4.00 per share for aggregate gross proceeds of $4,000,000.
Stock Purchase Warrants
A continuity schedule of outstanding stock purchase warrants as of November 30, 2022, and the changes during the periods, is as follows:
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Balance, February 28, 2020 | $ | |||||||
| Issued in Connection with October 2020 Offering | $ | |||||||
| Issued in Connection with January 2021 Offering | $ | |||||||
| Exercised | ( | ) | $ | |||||
| Balance, February 28, 2021 | $ | |||||||
| Exercised | ( | ) | $ | |||||
| Balance, February 28, 2022 | $ | |||||||
| Issued in Connection with August 2022 Offering | $ | |||||||
| Issued in Connection with August 2022 Offering | $ | |||||||
| Issued in Connection with September 2022 Offering | $ | |||||||
| Issued in Connection with November 2022 Offering | $ | |||||||
| Issued in Connection with November 2022 Offering | $ | |||||||
| Expired | ( | ) | $ | |||||
| Exercised | ( | ) | $ | |||||
| Exercised | ( | ) | $ | |||||
| Balance, November 30, 2022 | $ | |||||||
During
Fiscal 2022 and Fiscal 2021, we received cash proceeds totaling $
On August 9, 2022, the Company entered into a Securities Purchase Agreement with an investor (the “Investor”), pursuant to which the Company issued to the Investor a common stock purchase warrant (the “Warrant”) to acquire 3,478,261 shares of common stock of the Company, which is subject to reduction by 50% upon effectiveness of the registration statement covering the underlying shares.
-20-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Stock Purchase Warrants (continued)
On October 19, 2022, the Company’s board of directors authorized a six month extension to the expiry date of the common stock purchase warrants that the Company issued on October 19, 2020 which have an expiry date of October 19, 2022 and an exercise price of $2.00 per share (the “October 2020 Warrants”). The new expiry date of the October 2020 Warrants is April 19, 2023. In addition, 50,000 stock purchase warrants at an exercise price of $3.00 per share have expired.
During the quarter ended November 30, 2022, the Company received $470,000 from the exercise of warrants for the purchase of 100,000 shares of common stock of the Company at a price of $2.00 per share from 2 individuals and the purchase of 90,000 shares of common stock of the Company at a price of $3.00 per shares from 3 individuals.
On November 29, 2022, the Company issued 168,000 common stock purchase warrants to purchase 168,000 shares of its common stock at a price of $1.75 per share until August 9, 2027 to The Benchmark Company, LLC (“Benchmark”) pursuant to a financial advisory agreement.
On November 29, 2022, the Company issued 28,312 common stock purchase warrants to purchase 28,312 shares of its common stock at a price of $8.22 per share until November 4, 2025, to Benchmark pursuant to a financial advisory agreement.
On November 29, 2022, the Company issued 10,000 common stock purchase warrants to purchase 10,000 shares of its common stock at a price of $6.70 per share until November 21, 2025, to Benchmark pursuant to a financial advisory agreement.
A summary of stock purchase warrants outstanding and exercisable as of November 30, 2022 is as follows:
| Number of Warrants | Remaining Contractual | |||||||||||
| Exercise Price | Outstanding | Life (Years) | Expiry Date | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
Stock Options
On December 28, 2021, we granted an aggregate of 4,545,000 stock options pursuant to our 2021 Stock Incentive Plan having an exercise price of $8.00 per share and an expiry date of five years from the date of grant to 40 individuals who were directors, officers, employees and consultants of the Company. We relied upon the exemption from registration under the U.S. Securities Act provided by Rule 903 of Regulation S promulgated under the U.S. Securities Act for the grant of stock options to individuals who are non-U.S. persons and upon the exemption from registration under Section 4(a)(2) of the U.S. Securities Act for two individuals who are U.S. persons. The stock options are all subject to vesting provisions of 20% on the date of grant and 20% on each of the first, second, third, and fourth anniversary of the date of grant.
-21-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Stock Purchase Warrants (continued)
The fair value of these stock options was estimated at the date of grant, using the Black-Scholes Option Valuation Model, with the following weighted average assumptions:
| November 30, 2022 | February 28, 2022 | |||||||
| Expected Risk-Free Interest Rate | % | % | ||||||
| Expected Volatility | % | % | ||||||
| Expected Life in Years | ||||||||
| Expected Dividend Yield | ||||||||
| Weighted-Average Grant Date Fair Value | $ | $ | ||||||
A continuity schedule of outstanding stock options as of November 30, 2022, and the changes during the nine months periods, is as follows:
| Number of Stock Options | Exercise Price | |||||||
| Balance, February 28, 2022 | $ | |||||||
| Granted | ||||||||
| Cancelled/Forfeited | ( | ) | ||||||
| Expired | ||||||||
| Balance, November 30, 2022 | $ | |||||||
Stock Options (continued)
The table below sets forth the number of issued shares and cash received upon exercise of stock options:
| November 30, 2022 | February 28, 2022 | |||||||
| Number of Options Exercised on Forfeiture Basis | ||||||||
| Number of Options Exercised on Cash Basis | ||||||||
| Total Number of Options Exercised | ||||||||
| Number of Shares Issued on Cash Exercise | ||||||||
| Number of Shares Issued on Forfeiture Basis | ||||||||
| Total Number of Shares Issued Upon Exercise of Options | ||||||||
| Cash Received from Exercise of Stock Options | $ | $ | ||||||
| Total Intrinsic Value of Options Exercised | $ | $ | ||||||
A continuity schedule of outstanding unvested stock options at November 30, 2022, and the changes during the nine months period, is as follows:
| Number of Unvested | Weighted Average | |||||||
| Stock Options | Grant Date Fair Value | |||||||
| Balance, February 28, 2021 | ||||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Balance, February 28, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Cancel / Forfeited | ( | ) | ||||||
| Balance, November 30, 2022 | $ | |||||||
-22-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
As of November 30, 2022, the aggregate intrinsic value of all outstanding stock options granted was estimated at $ as the current price is lower than the strike price.
A summary of stock options outstanding and exercisable as of November 30, 2022 is as follows:
| Options Outstanding | Options Exercisable | ||||||||||||||||||||||||
Range of Exercise Prices |
Outstanding at November 30, 2022 | Exercise Price | Weighted Average Remaining Contractual Term (Years) | Exercisable at November 30, 2022 | Exercise Price | Weighted Average Remaining Contractual Term (Years) | |||||||||||||||||||
| $ to $ | $ | $ | |||||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||||
The following table sets forth the computation of basic and diluted earnings per common share:
| For the nine months ended | ||||||||
| November 30, 2022 | November 30, 2021 | |||||||
| Numerator - basic and diluted | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Denominator | ||||||||
| Weighted average number of common shares outstanding —basic | ||||||||
| Weighted average number of common shares outstanding —diluted | ||||||||
| Loss per common share — basic | $ | ( | ) | $ | ( | ) | ||
| Loss per common share — diluted | $ | ( | ) | $ | ( | ) | ||
Note 12 - Income Taxes
The Company and its subsidiaries file separate income tax returns.
The United States of America
FingerMotion,
Inc. is incorporated in the State of Delaware in the U.S. and is subject to a U.S. federal corporate income tax of
-23-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
Note 12 - Income Taxes (continued)
Hong Kong
Finger
Motion Company Limited is incorporated in Hong Kong and Hong Kong’s profits tax rate is
The People’s Republic of China (PRC)
JiuGe
Management, JiuGe Technology, Beijing XunLian and Shanghai TengLian JiuJiu were incorporated in the People’s Republic of China
and subject to PRC income tax at
Income tax mainly consists of foreign income tax at statutory rates and the effects of permanent and temporary differences. The Company’s effective income tax rates for the nine months ended November 30, 2022 and 2021 are as follows:
| For the nine months ended | ||||||||
| November 30, 2022 | November 30, 2021 | |||||||
| (unaudited) | (unaudited) | |||||||
| U.S. statutory tax rate | % | % | ||||||
| Foreign income not registered in the U.S. | ( | %) | ( | %) | ||||
| PRC profit tax rate | % | % | ||||||
| Changes in valuation allowance and others | ( | %) | ( | %) | ||||
| Effective tax rate | % | % | ||||||
At
November 30, 2022 and February 28, 2022, the Company has a deferred tax asset of $
| November 30, 2022 | February 28, 2022 | |||||||
| (unaudited) | ||||||||
| Deferred tax asset from operating losses carry-forwards | $ | $ | ||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax asset, net | $ | $ | ||||||
Note 13 - Commitments and Contingencies
On
August 9, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the Investor, pursuant
to which the Company issued to the Investor the Note in the principal amount of $
-24-
FINGERMOTION, INC.
Nine months ended November 30, 2022 and 2021
Notes to the Condensed Consolidated Financial Statements
An
event of default under the Note occurred on November 4, 2022 and on November 21, 2022 pursuant to section 2.1(e) of the Note in relation
to the closing of our private placements of shares of common stock in the aggregate amount of shares at a price of $ per
share for gross proceeds of $
Section 2.2 of the Note provides for the remedies upon an event of default, which as described in the Note, the holder may at any time at its option declare the Note immediately due and payable at an amount of 110% or 120% of the outstanding principal amount (the “Mandatory Default Amount”) depending on the type of event of default. In addition, upon an event of default, subject to any applicable cure periods, the holder may (a) from time-to-time demand that all or a portion of the outstanding principal amount be converted into shares of our common stock at the lower of (i) the conversion price (currently $2.00 per share) and (ii) 80% of the average of the three (3) lowest daily VWAPs during the twenty (20) days prior to the delivery of the conversion notice, or (b) exercise or otherwise enforce any one or more of the holder’s rights, powers, privileges, remedies and interests under the Note, the Purchase Agreement, the other transaction documents or applicable law.
The
Mandatory Default Amount for an event of default under Section 2.1(e) of the Note is 110% of the outstanding principal amount of the
Note, which is $
In addition, section 5.7 of the Purchase Agreement provides that if we issued any equity interests, other than “Exempted Securities” (as defined in the Purchase Agreement), for aggregate proceeds to us of greater than $10,000,000 during the term of the Purchase Agreement, excluding offering costs and other expenses, unless otherwise waived in writing by and at the discretion of the holder, we will direct 25% of such proceeds from such issuance to repay the Note. We have advised the holder that the aggregate Private Placement Proceeds exceeds $10,000,000 and the holder does not seek to waive or require payment of 25% of the proceeds as repayment of the Note.
Legal proceedings
The Company is not aware of any material outstanding claim and litigation against them.
Note 14 - Subsequent Events
Except for the above, the Company has determined that it does not have any material subsequent events to disclose in these consolidated financial statements.
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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The terms the “Registrant”, “we”, “us”, “our”, “FingerMotion” and the “Company” mean FingerMotion, Inc. or as the context requires, collectively with its consolidated subsidiaries and contractually controlled companies.
Cautionary Note Regarding Forward-Looking Statements
The following management’s discussion and analysis of the Company’s financial condition and results of operations (the “MD&A”) contains forward-looking statements that involve risks, uncertainties and assumptions including, among others, statements regarding our capital needs, business plans and expectations. In evaluating these statements, you should consider various factors, including the risks, uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the SEC and, including, without limitation, this Quarterly Report on Form 10-Q for the nine months ended November 30, 2022, and our Annual Report on Form 10-K for the fiscal year ended February 28, 2022, including the consolidated financial statements and related notes contained therein. These factors, or any one of them, may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this document. Refer to “Cautionary Note Regarding Forward-looking Statements” as disclosed in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022, and Item 1A, Risk Factors, under Part II - Other Information of this Quarterly Report.
Introduction
This MD&A is focused on material changes in our financial condition from February 28, 2022, our most recently completed year end, to November 30, 2022, and our results of operations for the three months and nine months ended November 30, 2022, and should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022.
Corporate Information
The Company was initially incorporated as Property Management Corporation of America on January 23, 2014 in the State of Delaware.
On June 21, 2017, the Company amended its certificate of incorporation to effect a 1-for-4 reverse stock split of the Company’s outstanding common stock, to increase the authorized shares of common stock to 200,000,000 shares and to change the name of the Company from “Property Management Corporation of America” to “FingerMotion, Inc.” (the “Corporate Actions”). The Corporate Actions and the amended certificate of incorporation became effective on June 21, 2017.
Our principal executive offices are located at 1460 Broadway, New York, New York 10036, and our telephone number at that address is (347) 349-5339.
We are a holding company incorporated in Delaware and not an operating company incorporated in the People’s Republic of China (the “PRC” or “China”). As a holding company, we conduct a significant part of our operations through our subsidiaries and through the VIE Agreements with the VIE based in China. To address challenges resulting from laws, policies and practices that may disfavor foreign-owned entities that operate within industries deemed sensitive by the Chinese government, we use the VIE structure to provide contractual exposure to foreign investment in the PRC-based companies. We own 100% of the equity of a WFOE, Shanghai JiuGe Business Management Co., Ltd., which has entered into the VIE Agreements with the VIE, which is owned by Ms. Li Li the legal representative and general manager, and also the shareholder of the VIE. The VIE Agreements have not been tested in court. As a result of our use of the VIE structure, you may never directly hold equity interests the VIE. The securities offered pursuant to this prospectus are securities of the Company, the Delaware holding company, not of the VIE.
We fund the registered capital and operating expenses of the VIE by extending loans to the shareholders of the VIE. The VIE Agreements governing the relationship between the VIE and our WFOE enable us to (i) direct the activities of the VIE that most significantly impact the VIE’s economic performance, (ii) receive substantially all of the economic benefits of the VIE, and (iii) have an exclusive call option to purchase, at any time, all or part of the equity interests in and/or assets of the VIE to the extent permitted by Chinese laws. As a result of the VIE Agreements, the Company is considered the primary beneficiary of the VIE for accounting purposes and is able to consolidate the financial results of the VIE in its consolidated financial statements in accordance with U.S. GAAP.
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Share Exchange Agreement
Effective July 13, 2017, the Company entered into that certain Share Exchange Agreement (the “Share Exchange Agreement”) by and among the Company, Finger Motion Company Limited, a Hong Kong corporation (“FMCL”) and certain shareholders of FMCL (the “FMCL Shareholders”). FMCL, a Hong Kong corporation, was formed on April 6, 2016 and is an information technology company that specializes in operating and publishing mobile games. Pursuant to the Share Exchange Agreement, the Company agreed to exchange the outstanding equity stock of FMCL held by the FMCL Shareholders for shares of common stock of the Company. On the closing date of the Share Exchange Agreement, the Company issued 12,000,000 shares of common stock to the FMCL Shareholders. In addition, the Company issued 600,000 shares to consultants in connection with the transactions contemplated by the Share Exchange Agreement, and 2,562,500 additional shares to accredited investors, which was a concurrent financing but not a condition of closing the Share Exchange Agreement.
As a result of the Share Exchange Agreement and the other transactions contemplated thereunder, FMCL became a wholly owned subsidiary of the Company. The Company operates its video game division through FMCL. However, in June 2018, the Company decided to pause the operation of the game division as it saw the opportunity in the telecommunication business and have since refocused into this business.
This description of the Share Exchange Agreement does not purport to be complete and is qualified in its entirety by reference to the terms of the Share Exchange Agreement, which was filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 20, 2017 and incorporated by reference herein.
VIE Agreements
On October 16, 2018, the Company, through its indirect wholly owned subsidiary, Shanghai JiuGe Business Management Co., Ltd. (“JiuGe Management”), entered into a series of agreements known as variable interest agreements (the “VIE Agreements”) pursuant to which Shanghai JiuGe Information Technology Co., Ltd. (“JiuGe Technology”) became our contractually controlled affiliate. The use of VIE agreements is a common structure used to acquire PRC corporations, particularly in certain industries in which foreign investment is restricted or forbidden by the PRC government. The VIE Agreements include a Consulting Services Agreement, a Loan Agreement, a Power of Attorney Agreement, a Call Option Agreement, and a Share Pledge Agreement in order to secure the connection and commitments of the JiuGe Technology. We operate our mobile payment platform business through JiuGe Technology.
The VIE Agreements included:
| ● | a consulting services agreement through which JiuGe Management is mainly engaged in data marketing, technical services, technical consulting and business consultancy to JiuGe Technology (the “JiuGe Technology Consulting Services Agreement”); | |
| ● | a loan agreement through which JiuGe Management grants a loan to the Legal Representative of JiuGe Technology for the purpose of capital contribution (the “JiuGe Technology Loan Agreement”); | |
| ● | a power of attorney agreement under which the owner of JiuGe Technology has vested their collective voting control over JiuGe Technology to JiuGe Management and will only transfer their equity interests in JiuGe Technology to JiuGe Management or its designee(s) (the “JiuGe Technology Power of Attorney Agreement”); | |
| ● | a call option agreement under which the owner of JiuGe Technology has granted to JiuGe Management the irrevocable and unconditional right and option to acquire all of their equity interests in JiuGe Technology or transfer these rights to a third party (the “JiuGe Technology Call Option Agreement”); and | |
| ● | a share pledge agreement under which the owner of JiuGe Technology has pledged all of their rights, titles and interests in JiuGe Technology to JiuGe Management to guarantee JiuGe Technology’s performance of its obligations under the JiuGe Technology Consulting Services Agreement (the “JiuGe Technology Share Pledge Agreement”). |
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In the first half of 2018, JiuGe Technology secured contracts with China Unicom and China Mobile to distribute mobile data for businesses and corporations in 9 provinces/municipalities, namely Chengdu, Jiangxi, Jiangsu, Chongqing, Shanghai, Zhuhai, Zhejiang, Shaanxi and Inner Mongolia.
In September 2018, JiuGe Technology launched and commercialized mobile payment and recharge services to businesses for China Unicom. The JiuGe Technology mobile payment and recharge platform enables the seamless delivery of real-time payment and recharge services to third-party channels and businesses. We earn a negotiated rebate amount from each of China Unicom and China Mobile for all monies paid by consumers to China Unicom and China Mobile that we process. To encourage consumers to utilize our portal instead of using our competitors’ platforms or paying China Unicom or China Mobile directly, we offer mobile data and talk time at a rate discounted from these companies’ stated rates, which are also the rates we must pay to them to purchase the mobile data and talk time provided to consumers through the use of our platform. Accordingly, we earn income on the rebates we receive from the telecommunications companies, reduced by the amounts by which we discount the mobile data and talk time sold through our platform.
In October 2018, China Unicom and China Mobile awarded JiuGe Technology with contracts that established partnerships for data analysis, that could unlock potential value-added services.
This description of the VIE Agreements discussed above do not purport to be complete and are qualified in their entirety by reference to the terms of the VIE Agreements, which were filed as exhibits to our Current Report on Form 8-K filed with the SEC on December 27, 2018 and are incorporated by reference herein. The English translation version of the JiuGe Technology Share Pledge Agreement was filed as Exhibit 10.6 to our Form S-1/A (Amendment No. 1) filed with the SEC on January 5, 2023, and is incorporated by reference herein.
Acquisition of Beijing Technology
On March 7, 2019, the Company through JiuGe Technology acquired Beijing XunLian TianXia Technology Co., Ltd. (“Beijing Technology”), a company in the business of providing mass SMS text services to businesses looking to communicate with large numbers of their customers and prospective customers. Through Beijing Technology, the Company entered into the business of mass SMS text message service as a compliment to its mobile payment and recharge business. The mass SMS text message service offers bulk SMS services to end consumers with competitive pricing. Currently, the Company’s SMS integrated platform is processing more than 150 million SMS text messages per month. Beijing Technology retains a license from the Ministry of Industry and Information Technology to operate SMS and MMS business in the PRC. Similar to the mobile recharge business, Beijing Technology is required to make a deposit or bulk purchase in advance and has secured business customers that will utilize Beijing Technology’s SMS integrated platform to send bulk SMS text messages monthly. Beijing Technology has the capability to manage and track the entire process, including to assist the Company’s clients to fulfill the government guidelines, until the SMS messages have been delivered successfully.
China Unicom Cooperation Agreement
On July 7, 2019, JiuGe Technology entered into that certain Yunnan Unicom Electronic Sales Platform Construction and Operation Cooperation Agreement (the “Cooperation Agreement”) with China United Network Communications Limited Yunnan Branch (“China Unicom Yunnan”). Under the Cooperation Agreement, JiuGe Technology is responsible for constructing and operating China Unicom Yunnan’s electronic sales platform through which consumers can purchase various goods and services from China Unicom Yunnan, including mobile telephones, mobile telephone service, broadband data services, terminals, “smart” devices and related financial insurance. The Cooperation Agreement provides that JiuGe Technology is required to construct and operate the platform’s webpage in accordance with China Unicom Yunnan’s specifications and policies, and applicable law, and bear all expenses in connection therewith. As consideration for the services it provides under the Cooperation Agreement, JiuGe Technology receives a percentage of the revenue received from all sales it processes for China Unicom Yunnan on the platform.
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The Cooperation Agreement expires three years from the date of its signature with a yearly auto-renewal clause, but it may be terminated by (i) JiuGe Technology upon three months’ written notice or (ii) by China Unicom Yunnan unilaterally. The Cooperation Agreement contains customary representations from each party regarding such party’s authority to enter into and perform under the Cooperation Agreement, and provides customary events of default, including for various types of failure to perform. Any disputes arising between the parties under the Cooperation Agreement will be adjudicated in Chinese courts.
This description of the Cooperation Agreement does not purport to be complete and is qualified in its entirety by reference to the terms of the Cooperation Agreement, which was filed as an exhibit to our Current Report on Form 8-K filed with the SEC on November 9, 2019 and is incorporated by reference herein.
In January 2022, Shanghai TengLian JiuJiu Information Communication Technology Co., Ltd. (“TengLian”) (a 99% owned subsidiary of Shanghai JiuGe Information Technology Co., Ltd.) signed a co-operation agreement with China Unicom to launch the Device Protection program for mobile phones and the new 5G phones.
Intercorporate Relationships
The following is a list of all of our subsidiaries and the corresponding date of jurisdiction of incorporation or organization and the ownership interest of each entity. All of our subsidiaries are directly or indirectly owned or controlled by us:
| Name of Entity | Place
of Incorporation / Formation |
Ownership Interest | ||
| Finger Motion Company Limited (1) | Hong Kong | 100% | ||
| Finger Motion (CN) Global Limited (2) | Samoa | 100% | ||
| Finger Motion (CN) Limited (3) | Hong Kong | 100% | ||
| Shanghai JiuGe Business Management Co., Ltd.(4) | PRC | 100% | ||
| Shanghai JiuGe Information Technology Co., Ltd.(5) | PRC | Contractually controlled (5) | ||
| Beijing XunLian TianXia Technology Co., Ltd.(6) | PRC | Contractually controlled | ||
| Finger Motion Financial Group Limited (7) | Samoa | 100% | ||
| Finger Motion Financial Company Limited (8) | Hong Kong | 100% | ||
| Shanghai TengLian JiuJiu Information Communication Technology Co., Ltd.(9) | PRC | Contractually controlled |
Notes:
| (1) | Finger Motion Company Limited is a wholly-owned subsidiary of FingerMotion, Inc. |
| (2) | Finger Motion (CN) Global Limited is a wholly-owned subsidiary of FingerMotion, Inc. |
| (3) | Finger Motion (CN) Limited is a wholly-owned subsidiary of Finger Motion (CN) Global Limited. |
| (4) | Shanghai JiuGe Business Management Co., Ltd. is a wholly-owned subsidiary of Finger Motion (CN) Limited. |
| (5) | Shanghai JiuGe Information Technology Co., Ltd. is a variable interest entity that is contractually controlled by Shanghai JiuGe Business Management Co., Ltd. |
| (6) | Beijing XunLian TianXia Technology Co., Ltd. is a 99% owned subsidiary of Shanghai JiuGe Information Technology Co., Ltd. |
| (7) | Finger Motion Financial Group Limited is a wholly-owned subsidiary of FingerMotion, Inc. |
| (8) | Finger Motion Financial Company Limited is a wholly-owned subsidiary of Finger Motion Financial Group Limited. |
| (9) | Shanghai TengLian JiuJiu Information Communication Technology Co., Ltd. is a 99% owned subsidiary of Shanghai JiuGe Information Technology Co., Ltd. |
Because we do not directly hold equity interests in the VIE, we are subject to risks and uncertainties of the interpretations and applications of Chinese laws and regulations, including but not limited to, the validity and enforcement of the VIE Agreements among the WFOE, the VIE and the shareholder of the VIE. We are also subject to the risks and uncertainties about any future actions of the Chinese government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations and may cause the value of our Common Shares to depreciate significantly or become worthless.
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The VIE Agreements may not be as effective as direct ownership in providing operational control. For instance, the VIE and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. The shareholder of the VIE may not act in the best interests of our Company or may not perform their obligations under the VIE Agreements. Such risks exist throughout the period in which we intend to operate certain portions of our business through the VIE Agreements with the VIE. In the event that the VIE or its shareholder fail to perform their respective obligations under the VIE Agreements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. In addition, even if legal actions are taken to enforce the VIE Agreements, there is uncertainty as to whether Chinese courts would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. See “Risk Factors—Risks Related to the VIE Agreements”. We rely on the VIE Agreements with the VIE and its shareholder for a significant portion of our business operations. The VIE Agreements may not be as effective as direct ownership in providing operational control. Any failure by the VIE or its shareholder to perform their obligations under such contractual arrangements would have a material and adverse effect on our business.
As of the date of this periodic report on Form 10-Q, we and the VIE are not required to seek permissions from the CSRC, the Cyberspace Administration of China (the “CAC”), or any other entity that is required to approve of the operations of the VIE, other than a value-added telecommunications business licence, which has already been obtained. Nevertheless, Chinese regulatory authorities may in the future promulgate laws, regulations or implement rules that require us, our subsidiaries or the VIEs to obtain permissions from such regulatory authorities to approve the operations of the VIE or any securities listing.
Overview
The Company is a mobile data specialist company that operates the following lines of business: (i) Telecommunications Products and Services; (ii) Value Added Product and Services; (iii) Short Message Services (“SMS”) and Multimedia Messaging Services (“MMS”); (iv) a Rich Communication Services (“RCS”) platform; (v) Big Data Insights; and (vi) a Video Game Division (inactive).
Telecommunications Products and Services
The Company’s current product mix consisting of payment and recharge services, data plans, subscription plans, mobile phones, loyalty points redemption and other products bundles (i.e. mobile protection plans). Chinese mobile phone consumers often utilize third-party e-marketing websites to pay their phone bills. If the consumer connected directly to the telecommunications provider to pay his or her bill, the consumer would miss out on any benefits or marketing discounts that e-marketers provide. Thus, consumers log on to these e-marketer’s websites, click into their respective phone provider’s store, and “top up,” or pay, their telecommunications provider for additional mobile data and talk time.
To connect to the respective mobile telecommunications providers, these e-marketers must utilize a portal licensed by the applicable telecommunication company that processes the payment. We have been granted one of these licenses by China Unicom and China Mobile, each of which is a major telecommunications provider in China. We principally earn revenue by providing mobile payment and recharge services to customers of China Unicom and China Mobile.
We conduct our mobile payment business through JiuGe Technology, our contractually controlled affiliate through the entry into a series of agreements known as VIE Agreements in October 2018. In the first half of 2018, JiuGe Technology secured contracts with China Unicom and China Mobile to distribute mobile data for businesses and corporations in nine provinces/municipalities, namely Chengdu, Jiangxi, Jiangsu, Chongqing, Shanghai, Zhuhai, Zhejiang, Shaanxi, Inner Mongolia, Henan and Fujian. In September 2018, JiuGe Technology launched and commercialized mobile payment and recharge services to businesses for China Unicom. In May 2021, JiuGe Technology signed a volume-based agreement with China Mobile Fujian to offer recharge services to the Fujian province which we have launched and commercialized in November 2021.
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The JiuGe Technology mobile payment and recharge platform enables the seamless delivery of real-time payment and recharge services to third-party channels and businesses. We earn a rebate from each telecommunications company on the funds paid by consumers to the telecommunications companies we process. To encourage consumers to utilize our portal instead of using our competitors’ platforms or paying China Unicom or China Mobile directly, we offer mobile data and talk time at a rate discounted from these companies’ stated rates, which are also the rates we must pay to them to purchase the mobile data and talk time provided to consumers through the use of our platform. Accordingly, we earn income on the rebates we receive from China Unicom and China Mobile, reduced by the amounts by which we discount the mobile data and talk time sold through our platform.
FingerMotion started and commercialized its “Business to Business” (“B2B”) model by integrating with various e-commerce platforms to provide its mobile payment and recharge services to subscribers or end consumers. In the first quarter of 2019 FingerMotion expanded its business by commercializing its first “Business to Consumer” (“B2C”) model, offering the telecommunication providers’ products and services, including data plans, subscription plans, mobile phones, and loyalty points redemption, directly to subscribers or customers of the e-commerce companies, such as PinDuoDuo (“PDD”), TMall (“TMALL”) and JD.Com (“JD”). The Company is planning to further expand its universal exchange platform by setting up B2C stores on several other major e-commerce platforms in China. In addition to that, we have been assigned as one of China’s Mobile’s loyalty redemption partner where we will be providing the services for their customers via our platform.
Additionally, as previously disclosed, on July 7, 2019, JiuGe Technology, our contractually controlled affiliate, entered into that certain Yunnan Unicom Electronic Sales Platform Construction and Operation Cooperation Agreement (the “Cooperation Agreement”) with China Unicom’s Yunnan subsidiary. Under the Cooperation Agreement, JiuGe Technology is responsible for constructing and operating China Unicom’s electronic sales platform through which consumers can purchase various goods and services from China Unicom, including mobile telephones, mobile telephone service, broadband data services, terminals, “smart” devices and related financial insurance. The Cooperation Agreement provides that JiuGe Technology is required to construct and operate the platform’s webpage in accordance with China Unicom’s specifications and policies, and applicable law, and bear all expenses in connection therewith. As consideration for the service it provides under the Cooperation Agreement, JiuGe Technology receives a percentage of the revenue received from all sales it processes for China Unicom on the platform. The Cooperation Agreement expires three years from the date of its signature with yearly auto-renewal terms, but it may be terminated by (i) JiuGe Technology upon three months’ written notice or (ii) by China Unicom unilaterally.
During the recent fiscal year, the Company expanded its offering under their telecommunication product and services by increasing their product line revenue streams. In March 2020, FingerMotion secured a contract with both China Mobile and China Unicom to acquire new users to take up the respective subscription plans.
In February 2021, we increased the mobile phones sales to end users using all of our platforms. This business will continue to contribute to the overall revenue for the group as part of our offering to our customers.
Value Added Product and Services
These are new product and services that the Company expects to secure and work with the telecommunication provider and all our e-commerce platform partners to market. The current and upcoming value-added product is the Mobile Protection programs which we plan to launch soon. In February 2022, our contractually controlled subsidiary, JiuGe Technology, through its 99% own subsidiary TengLian signed an agreement with both China Unicom and China Mobile to co-operate to roll out the Mobile Device Protection product which is incorporated into the Telecommunication subscription plans in line with their roll out of new mobile phones and new 5G phones. In mid-July 2022, we launched the roll out of the Mobile Device protection product with the roll out of the new mobile phones and 5G phones.
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SMS and MMS Services
On March 7, 2019, the Company through JiuGe Technology acquired Beijing XunLian TianXia Technology Co., Ltd. (“Beijing Technology”), a company in the business of providing mass SMS text services to businesses looking to communicate with large numbers of their customers and prospective customers. With this acquisition, the Company expanded into a second partnership with the telecom companies by acquiring bulk SMS and MMS bundles at reduced prices and offering bulk SMS services to end consumers with competitive pricing. FingerMotion’s subsidiary, Beijing Technology, retains a license from the Ministry of Industry and Information Technology (“MIIT”) to operate the SMS and MMS business in the PRC. Similar to the mobile payment and recharge business, Beijing Technology is required to make a deposit or bulk purchase in advance and has secured business customers, including premium car manufacturers, hotel chains, airlines and e-commerce companies, that utilize Beijing Technology’s SMS integrated platform to send bulk SMS text messages monthly. Beijing Technology has the capability to manage and track the entire process, including guiding the Company’s customer to meet MIIT’s guidelines on messages composed, until the SMS messages have been delivered successfully.
Rich Communication Services
In March 2020, the Company began the development of an RCS platform, also known as Messaging as a Platform (“MaaP”). This RCS platform will be a proprietary business messaging platform that enables businesses and brands to communicate and service their customers on the 5G infrastructure, delivering a better and more efficient user experience at a lower cost. For example, with the new 5G RCS message service, consumers will have the ability to list available flights by sending a message regarding a holiday and will also be able to book and buy flights by sending messages. This will allow telecommunication providers like China Unicom and China Mobile to retain users on their systems, without having to utilize third party apps or log onto the Internet, which will increase their user retention. We expect this to open up a new marketing channel for the Company’s current and prospective business partners.
Big Data Insights
In July 2020, the Company launched its proprietary technology platform “Sapientus” as its big data insights arm to deliver data-driven solutions and insights for businesses within the insurance, healthcare, and financial services industries. The Company applies its vast experience in the insurance and financial services industry and capabilities in technology and data analytics to develop revolutionary solutions targeted towards insurance and financial consumers. Integrating diverse publicly available information, insurance and financial based data with technology and finally registering them into the FingerMotion telecommunications and insurance ecosystem, the Company would be able to provide functional insights and facilitate the transformation of key components of the insurance value chain, including driving more effective and efficient underwriting, enabling fraud evaluation and management, empowering channel expansion and market penetration through novel product innovation, and more. The ultimate objective is to promote, enhance and deliver better value to our partners and customers.
The Company’s proprietary risk assessment engine offers standard and customized scoring and appraisal services based on multi-dimensional factors. The Company has the ability to provide potential customers and partners with insights-driven and technology-enabled solutions and applications including preferred risk selection, precision marketing, product customization, and claims management (e.g., fraud detection). The Company’s mission is to deliver the next generation of data-driven solutions in the financial services, healthcare, and insurance industries that result in more accurate risk assessments, more efficient processes, and a more delightful user experience.
On or around January 25, 2021, the Company’s wholly owned subsidiary, Finger Motion Financial Company Limited’s, big data analytic arm branded “Sapientus,” entered into a services agreement with Pacific Life Re, a global life reinsurer serving the insurance industry with a comprehensive suite of products and services.
In December 2021, the Company through JiuGe Technology formed a collaborative research alliance with Munich Re in extending behavioral analytics to enhance understanding of morbidity and behavioral patterns in China market, with the goal of creating value for both insurers and the end insurance consumers through better technology, product offerings and customer experience.
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Our Video Game Division
The video game industry covers multiple sectors and is currently experiencing a move away from physical games towards digital software. Advances in technology and streaming now allow users to download games rather than visiting retailers. Video game publishers are expanding their direct-to-consumer channels with mobile gaming, the current growth leader, and eSports and virtual reality gaining momentum as the next big sectors. In June 2018, we temporarily paused its publishing and operating plans for existing games, and the Company’s Board of Directors decided to re-focus the company’s resources into new business opportunities in China, particularly the mobile phone payment and data business.
Results of Operations
Three Months Ended November 30, 2022 Compared to Three Months Ended November 30, 2021
The following table sets forth our results of operations for the periods indicated:
| For the three months ended | ||||||||
| November 30, 2022 | November 30, 2021 | |||||||
| Revenue | $ | 11,402,935 | $ | 5,901,899 | ||||
| Cost of revenue | $ | (10,544,321 | ) | $ | (4,934,824 | ) | ||
| Total operating expenses | $ | (2,720,417 | ) | $ | (2,031,080 | ) | ||
| Total other income (expenses) | $ | (659,915 | ) | $ | 26,833 | |||
| Net Loss attributable to the Company’s shareholders | $ | (2,521,992 | ) | $ | (1,036,619 | ) | ||
| Foreign currency translation adjustment | $ | (182,270 | ) | $ | 85,965 | |||
| Comprehensive loss attributable to the Company | $ | (2,703,955 | ) | $ | (950,825 | ) | ||
| Basic Loss Per Share attributable to the Company | $ | (0.06 | ) | $ | (0.02 | ) | ||
| Diluted Loss Per Share attributable to the Company | $ | (0.06 | ) | $ | (0.02 | ) | ||
Revenue
The following table sets forth the Company’s revenue from its three lines of business for the periods indicated:
| For the three months ended | Change | |||||||||||
| November 30, 2022 | November 30, 2021 | (%) | ||||||||||
| Telecommunication Products & Services | $ | 10,346,741 | $ | 3,281,733 | 215 | % | ||||||
| SMS & MMS Business | $ | 868,694 | $ | 2,620,166 | -67 | % | ||||||
| Big Data | $ | 187,500 | $ | — | 100 | % | ||||||
| Total Revenue | $ | 11,402,935 | $ | 5,901,899 | 93 | % | ||||||
We recorded $11,402,935 in revenue for the three months ended November 30, 2022, an increase of $5,501,036 or 93%, compared to the three months ended November 30, 2021. This increase resulted from an increase in revenue of $7,065,008 and $187,500 from our Telecommunication Products & Services and Big Data business, respectively, offset in part by a decrease in revenue of $1,751,472 from our SMS & MMS business. We principally earn revenue by providing mobile payment and recharge services to customers of telecommunications companies in China. Specifically, we earn a negotiated rebate amount from the telecommunications companies for all monies paid by consumers to those companies that we process. An increase in this line of business was evident especially on the mobile recharge revenue as we had deployed certain funding that we had secured in the last few months to this line of business. We plan to continue to develop this mobile recharge business and expect that revenues would continue to grow when we continue to deploy more funds. In contrast, our SMS texting service has shown a drop in revenue as compared to the previous quarter. We are facing some challenges in this line of business due to the ongoing Covid outbreak in China. As for Big Data business, the revenue is ongoing with the contract secured in August 2022 with Pacific Life Re in Asia to advance to the next phase of collaboration expected to be completed by third quarter of our next financial year. The development with other re-insurance companies is in progress.
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Cost of Revenue
The following table sets forth the Company’s cost of revenue for the periods indicated:
| For the three months ended | ||||||||
| November 30, 2022 | November 30, 2021 | |||||||
| Telecommunication Products & Services | $ | 9,668,146 | $ | 2,315,308 | ||||
| SMS & MMS Business | $ | 876,175 | $ | 2,529,516 | ||||
| Big Data | $ | — | $ | 90,000 | ||||
| Total Cost of Revenue | $ | 10,544,321 | $ | 4,934,824 | ||||
We recorded $10,544,321 in costs of revenue for the three months ended November 30, 2022, an increase of $5,609,497 or 114%, compared to the three months ended November 30, 2021. As previously mentioned, we principally earn revenue by providing mobile payment and recharge services to customers of telecommunications companies, subscription plans, and mobile phone sales in China. To earn this revenue, we incur the cost of the product, and certain customer acquisition costs, including discounts to our customers and promotional expenses, which is reflected in our cost of revenue.
Gross profit
Our gross profit for the three months ended November 30, 2022 was $858,614, a decrease of $108,461 or 11%, compared to the three months ended November 30, 2021. This decrease in gross profit resulted from lower profit margin for the period.
Amortization & Depreciation
We recorded depreciation of $17,016 for fixed assets for the three months ended November 30, 2022, an increase of $2,295 or 16%, compared to the three months ended November 30, 2021. This increase resulted from the purchase of equipment.
General & Administrative Expenses
The following table sets forth the Company’s general and administrative expenses for the periods indicated:
| For the three months ended | ||||||||
| November 30, 2022 | November 30, 2021 | |||||||
| Accounting | $ | — | $ | 47,041 | ||||
| Consulting | $ | 737,083 | $ | 556,071 | ||||
| Entertainment | $ | 60,676 | $ | 53,091 | ||||
| IT | $ | 12,923 | $ | 38,005 | ||||
| Rent | $ | 24,897 | $ | 27,915 | ||||
| Salaries & Wages | $ | 474,512 | $ | 655,589 | ||||
| Technical Fee | $ | 21,653 | $ | 41,328 | ||||
| Travelling | $ | 82,255 | $ | 18,712 | ||||
| Others | ||||||||