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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended November 30, 2022

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to _______________

 

Commission File Number: 001-41187

 

FINGERMOTION, INC.
(Exact name of registrant as specified in its charter)

 

Delaware   20-0077155
(State or other jurisdiction of organization)   (I.R.S. employer identification no.)

 

1460 Broadway

New York, New York

  10036
(Address of principal executive offices)   (Zip code)

 

(347) 349-5339

(Registrant’s telephone number, including area code)

 

None

(Former name, former address, and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which
registered
Common Stock, $0.0001 par value   FNGR   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

 

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 was required to submit such files). Yes ☒ No ☐

 

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. 

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 46,316,635 shares of common stock outstanding as of January 13, 2023.

 

 

 

 

Table of Contents 

FINGERMOTION, INC.

FORM 10-Q

 

TABLE OF CONTENTS

 

PART 1. FINANCIAL INFORMATION   1
     
ITEM 1. FINANCIAL STATEMENTS   1
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   26
Three Months Ended November 30, 2022 Compared to Three Months Ended November 30, 2021   33
Nine Months Ended November 30, 2022 Compared to Nine Months Ended November 30, 2021   36
Liquidity and Capital Resources   40
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   41
ITEM 4 – CONTROLS AND PROCEDURES   41
Evaluation of Disclosure Controls and Procedures   41
Changes in Internal Control over Financial Reporting   42
     
PART II – OTHER INFORMATION    42
     
ITEM 1 – LEGAL PROCEEDINGS   42
ITEM 1A. RISK FACTORS   43
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   64
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES   66
ITEM 4 – MINE SAFETY DISCLOSURES   66
ITEM 5 – OTHER INFORMATION   66
ITEM 6 – EXHIBITS   66

 

-i-

Table of Contents

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

-1-

Table of Contents

FINGERMOTION, INC.

 

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

For the nine months ended November 30, 2022

 

(Unaudited - Expressed in U.S. Dollars)

 

-2-

Table of Contents

FingerMotion, Inc.
Condensed Consolidated Balance Sheets

 

           
   November 30,    February 28,  
   2022    2022  
ASSETS   (Unaudited)      
Current Assets          
Cash and cash equivalents  $11,870,526   $461,933 
Accounts receivable   3,784,178    4,875,149 
Inventories       1,407 
Prepayment and deposit   4,701,668    3,331,342 
Other receivables   1,229,096    1,539,265 
Total Current Assets   21,585,468    10,209,096 
Non-current Assets          
Equipment   78,753    26,808 
Intangible assets   81,647    125,932 
Right-of-use asset   155,657    5,069 
Total Non-current Assets   316,057    157,809 
           
TOTAL ASSETS  $21,901,525   $10,366,905 
           
LIABILITIES AND SHAREHOLDER’S DEFICIT          
Current Liabilities          
Accounts payable  $1,322,620   $3,588,289 
Accrual and other payables   2,700,584    1,685,297 
Convertible notes payable, current portion   730,000     
Lease liability, current portion   118,864    5,069 
Total Current Liabilities   4,872,068    5,278,655 
Non-current Liabilities          
Convertible notes payable, non-current portion   4,800,000     
Lease liability, non-current portion   35,471     
Total Non-current Liabilities   4,835,471     
           
TOTAL LIABILITIES  $9,707,539   $5,278,655 
           
SHAREHOLDERS’ EQUITY          
Preferred stock, par value $.0001 per share; Authorized 1,000,000 shares; issued and outstanding -0- shares.        
           
Common Stock, par value $.0001 per share; Authorized 200,000,000 shares; issued and outstanding 46,316,635 shares and 42,627,260 issued and outstanding at November 30, 2022 and February 28, 2022 respectively   4,632    4,263 
           
Additional paid-in capital   35,052,222    21,730,941 
           
Additional paid-in capital - stock options   356,328    356,328 
           
Accumulated deficit   (22,655,652)   (17,152,172)
           
Accumulated other comprehensive income   (573,522)   137,911 
           
Stockholders’ equity before non-controlling interests   12,184,008    5,077,271 
           
Non-controlling interests   9,978    10,979 
           
TOTAL SHAREHOLDERS’ EQUITY   12,193,986    5,088,250 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $21,901,525   $10,366,905 

 

-3-

Table of Contents

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  $11,402,935   $5,901,899   $21,241,015   $17,285,302 
Cost of revenue   (10,544,321)   (4,934,824)   (19,587,546)   (15,001,674)
                     
Gross profit   858,614    967,075    1,653,469    2,283,628 
                     
Amortization & Depreciation   (17,016)   (14,721)   (44,654)   (43,544)
General & administrative expenses   (1,635,800)   (1,521,114)   (4,151,219)   (4,145,775)
Marketing Cost   (64,012)   (240,299)   (290,592)   (384,381)
Research & Development   (180,158)   (158,055)   (589,909)   (438,033)
Stock compensation expenses   (823,431)   (96,891)   (1,367,909)   (579,437)
                     
Total operating expenses   (2,720,417)   (2,031,080)   (6,444,283)   (5,591,170)
                     
Net loss from operations   (1,861,803)   (1,064,005)   (4,790,814)   (3,307,542)
                     
Other income (expense):                    
Interest income   1,791    955    3,248    2,672 
Interest expense   (195,730)       (300,207)   (172,813)
Exchange gain (loss)   (174)   (619)   (792)   (2,298)
Other income   (465,802)   26,497    (415,916)   78,686 
Total other income (expense)   (659,915)   26,833    (713,667)   (93,753)
                     
Net loss before income tax  $(2,521,718)  $(1,037,172)  $(5,504,481)  $(3,401,295)
Income tax expenses                
Net Loss  $(2,521,718)  $(1,037,172)  $(5,504,481)  $(3,401,295)
                     
Less: Net profit attributable to the non-controlling interest   274    (553)   (1,001)   2,978 
                     
Net loss attributable to the Company’s shareholders  $(2,521,992)  $(1,036,619)  $(5,503,480)  $(3,404,273)
                     
Other comprehensive income:                    
Foreign currency translation adjustments   (182,270)   85,965    (711,433)   58,611 
Comprehensive loss  $(2,704,262)  $(950,654)  $(6,214,913)  $(3,345,662)
Less: comprehensive income (loss) attributable to non-controlling interest   (307)   171    (714)   168 
Comprehensive loss attributable to the Company  $(2,703,955)  $(950,825)  $(6,214,199)  $(3,345,830)
                     
NET LOSS PER SHARE                    
Loss Per Share - Basic  $(0.06)  $(0.02)  $(0.13)  $(0.08)
Loss Per Share - Diluted  $(0.06)  $(0.02)  $(0.13)  $(0.08)
                     
NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY                    
Loss Per Share - Basic  $(0.06)  $(0.02)  $(0.13)  $(0.08)
Loss Per Share - Diluted  $(0.06)  $(0.02)  $(0.13)  $(0.08)
                     
Weighted Average Common Shares Outstanding - Basic   43,692,686    42,281,985    43,063,637    40,280,409 
Weighted Average Common Shares Outstanding - Diluted   43,692,686    42,281,985    43,063,637    40,280,409 

 

-4-

Table of Contents

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   42,627,260    4,263    21,730,941    356,328    (17,152,172)   137,911    5,077,271    10,979    5,088,250 
                                              
Common stock issued for cash                                    
Common stock issued for professional service   150,000    15    435,235                435,250        435,250 
Accumulated other comprehensive income                       (305,370)   (305,370)       (305,370)
Net (Loss)                   (1,444,123)       (1,444,123)   (545)   (1,444,668)
                                              
Balance at May 31, 2022   42,777,260    4,278    22,166,176    356,328    (18,596,295)   (167,459)   3,763,028    10,434    3,773,462 
                                              
Common stock issued for cash                                    
Common stock issued for professional service   80,000    8    157,242                157,250        157,250 
Accumulated other comprehensive income                       (223,793)   (223,793)       (223,793)
Net (Loss)                   (1,537,365)       (1,537,365)   (730)   (1,538,095)
                                              
Balance at August 31, 2022   42,857,260    4,286    22,323,418    356,328    (20,133,660)   (391,252)   2,159,120    9,704    2,168,824 
                                              
Common stock issued for cash   3,077,500    308    12,019,692                12,020,000        12,020,000 
Common stock issued for professional service   381,875    38    709,112                709,150        709,150 
Accumulated other comprehensive income                       (182,270)   (182,270)       (182,270)
Net (Loss)                   (2,521,992)       (2,521,992)   274    (2,521,718)
                                              
Balance at November 30, 2022   46,316,635    4,632    35,052,222    356,328    (22,655,652)   (573,522)   12,184,008    9,978    12,193,986 

 

   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   38,903,494    3,890    14,170,815        (12,208,728)   140,906    2,106,883    8,083    2,114,966 
                                              
Common stock issued for cash   86,666    9    179,990                179,999        179,999 
Common stock issued for professional service   5,000    1    9,999                10,000        10,000 
Accumulated other comprehensive income                       60,184    60,184        60,184 
Net (Loss)                   (911,890)       (911,890)   2,384    (909,506)
                                              
Balance at May 30, 2021   38,995,160    3,900    14,360,804        (13,120,618)   201,090    1,445,176    10,467    1,455,643 
                                              
Common stock issued for cash   673,900    67    3,114,432                3,114,499        3,114,499 
Common stock issued for professional service   55,000    5    259,995                260,000        260,000 
Execution of convertible notes   2,477,200    248    1,940,752                1,941,000        1,941,000 
Accumulated other comprehensive income                       (87,538)   (87,538)       (87,538)
Net (Loss)                   (1,455,764)       (1,455,764)   1,147    (1,454,617)
                                              
Balance at August 31, 2021   42,201,260    4,220    19,675,983        (14,576,382)   113,552    5,217,373    11,614    5,228,987 
                                              
Common stock issued for cash   276,000    28    1,379,972                1,380,000        1,380,000 
Common stock issued for professional service   5,000        10,000                10,000        10,000 
Accumulated other comprehensive income                       85,965    85,965        85,965 
Net (Loss)                   (1,036,619)       (1,036,619)   (553)   (1,037,172)
                                              
Balance at November 30, 2021   42,482,260    4,248    21,065,955        (15,613,001)   199,517    5,656,719    11,061    5,667,780 

 

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Table of Contents

FingerMotion, Inc.  

Unaudited Condensed Consolidated Statements of Cash Flows

 

           
   Nine Months Ended  
   November 30,    November 30,  
   2022    2021  
Net (loss)  $(5,504,481)  $(3,401,295)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Share based compensation expenses   1,635,155    579,437 
Amortization and depreciation   44,654    43,544 
 Impairment of fixed assets   1,261     
           
Change in operating assets and liabilities:          
(Increase) decrease in accounts receivable   555,729    760,120 
(Increase) decrease in prepayment and deposit   (1,695,534)   (2,798,735)
(Increase) decrease in others receivable   141,173    (646,529)
(Increase) decrease in inventories   1,253    (14,508)
Increase (decrease) in accounts payable   (1,871,709)   (798,171)
Increase (decrease) in accrual and other payables   1,093,377    1,156,637 
Increase (decrease) in due to lease liability   (1,322)   (3,191)
Net Cash provided by (used in) operating activities   (5,600,444)   (5,122,691)
           
Cash flows from investing activities          
Purchase of equipment   (67,761)   (13,776)
Net cash provided by (used in) investing activities   (67,761)   (13,776)
           
Cash flows from financing activities          
Proceed from convertible note   5,530,000     
Proceed from loan payable       299,695 
Advances from stock subscription payables       390,000 
Common stock issued for cash   12,020,000    4,674,498 
Net cash provided by (used in) financing activities   17,550,000    5,364,193 
           
Effect of exchange rates on cash and cash equivalents   (473,202)   38,005 
           
Net change in cash   11,408,593    265,731 
           
Cash at beginning of period   461,933    850,717 
           
Cash at end of period  $11,870,526   $1,116,448 
           
Major non-cash transactions:          
Conversion of loan payables to shares  $   $1,941,000 
           
Supplemental disclosures of cash flow information:          
Interest paid  $   $ 
Taxes paid  $   $ 

 

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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 12,000,000 shares of common stock to the FMCL shareholders. In addition, the Company issued 600,000 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.

 

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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.

 

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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  $6,860,956   $4,503,346 
Non-current assets   222,356    21,042 
Total assets  $7,083,312   $4,524,388 
           
Current liabilities  $11,613,194   $8,556,844 
Non-current liabilities   35,471     
Total liabilities  $11,648,665   $8,556,844 

Assets and liabilities of the VIE’s Subsidiaries

 

   November 30, 2022   February 28, 2022 
   (unaudited)     
Current assets  $4,303,806   $5,330,206 
Non-current assets   7,390    9,121 
Total assets  $4,311,196   $5,339,327 
           
Current liabilities  $3,359,261   $4,162,414 
Non-current liabilities        
Total liabilities  $3,359,261   $4,162,414 

 

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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  $11,632,351   $2,412,523 
Cost of revenue   (10,492,448)   (727,879)
Gross profit (loss)  $1,139,903   $1,684,644 
           
Amortization and depreciation   (8,626)   (5,961)
General and administrative expenses   (1,664,299)   (1,702,284)
Marketing cost   (258,256)   (321,846)
Research & development   (295,527)   (438,033)
Total operating expenses  $(2,226,708)  $(2,468,124)
           
Profit (loss) from operations  $(1,086,805)  $(783,480)
           
Interest income   3,122    2,569 
Other income   64,086    13,996 
Total other income (expense)  $67,208   $16,565 
           
Tax expense        
           
Net profit (loss)  $(1,019,597)  $(766,915)

 

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  $9,358,664   $14,741,361 
Cost of revenue   (9,095,097)   (14,003,795)
Gross profit (loss)  $263,567   $737,566 
           
Amortization and depreciation   (763)   (719)
General and administrative expenses   (269,281)   (441,202)
Marketing cost   (32,336)   (62,535)
Research & development   (61,365)    
Total operating expenses  $(363,745)  $(504,456)
           
Profit (loss) from operations  $(100,178)  $233,110 
           
Interest income   95    41 
Other income   1    64,690 
Total other income (expense)  $96   $64,731 
           
Tax expense        
           
Net profit (loss)  $(100,082)  $297,841 

 

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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 3-10 years. Similar to tangible property and equipment, the Company periodically evaluates identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

 

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.

 

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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.

 

Earnings Per Share

 

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.

 

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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.

 

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Table of Contents

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 $22,655,652 and $17,152,172 as at November 30, 2022 and February 28, 2022 respectively, and had a net loss of $5,504,481 and $3,401,295 for the nine months ended November 30, 2022 and 2021, respectively.

 

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 $21,241,015 and $17,285,302 in revenue, respectively, for the nine months ended November 30, 2022 and 2021.

 

          
   For the nine months ended 
   November 30,
2022
   November 30,
2021
 
   (unaudited)   (unaudited) 
Telecommunication Products & Services  $14,673,364   $6,730,108 
SMS & MMS Business   6,317,651    10,423,776 
Big Data   250,000    131,418 
   $21,241,015   $17,285,302 

 

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  $113,310   $62,347 
Less: accumulated depreciation   (34,557)   (35,539)
Net equipment  $78,753   $26,808 

 

No significant residual value is estimated for the equipment. Depreciation expenses for the nine months ended November 30, 2022 and 2021 totaled $12,823 and $10,618, respectively.

 

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Table of Contents

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  $200,000   $200,000 
Mobile applications   207,567    233,167 
    407,567    433,167 
Less: accumulated amortization   (284,875)   (266,190)
Impairment of intangible assets   (41,045)   (41,045)
Net intangible assets  $81,647   $125,932 

 

No significant residual value is estimated for these intangible assets. Amortization expenses for the nine months ended November 30, 2022 and 2021 totaled $31,831 and $32,926, respectively.

 

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  $2,610,008   $2,396,550 
Deposit received        
Net Prepaid expenses for Telecommunication Products & Services  $2,610,008   $2,396,550 
Others prepayment   1,470,009    369,256 
Prepayment and deposit  $4,080,017   $2,765,806 

 

   November 30,
2022
   February 28,
2022
 
   (unaudited)     
SMS & MMS Business          
Deposit Paid / Prepayment  $621,651   $565,536 
Deposit received          
Net Prepaid expenses for SMS  $621,651   $565,536 
Others prepayment        
Prepayment and deposit  $621,651   $565,536 

 

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Table of Contents

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  $155,657   $5,069 
           
Lease liability          
Current lease liability   $118,864   $5,069 
Non-current lease liability   35,471     
Total lease liability  $154,335   $5,069 

 

Remaining lease term and discount rate       November 30,
2022
 
Weighted-average remaining lease term        17 months 
Weighted-average discount rate        4.75%

 

Commitments

 

The following table summarizes the future minimum lease payments due under the Company’s operating leases as of November 30, 2022:

 

     
2023  $123,629 
Thereafter   35,791 
Less: imputed interest   (5,085)
Total lease liability  $154,335 

 

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Table of Contents

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 $730,000 on May 1, 2022 and accruing interest at 20% is due on April 30, 2023. The note is convertible anytime from the date of issuance into $0.0001 par value Common Stock at $4.00 per share.

 

A secured, two-year, interest-free convertible promissory note with a principal amount of $4,800,000 was issued on August 9, 2022 representing a funded amount of $4,000,000 and a coupon of 20% (the “Note”). The principal amount is payable commencing 180 days after the issuance in 18 consecutive monthly payments, at the option of the Company, to be made in either cash, shares of common stock of the Company, or a combination of cash and shares of the common stock of the Company. The note shall be available to be converted by the holder any time after the earlier of 6 months from the date of issuance or the date of effectiveness of the registration statement covering the applicable conversion shares into $0.0001 par value Common stock at $2.00 per share subject to adjustment as provided therein.

 

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 2,887,500 shares at a price of $4.00 per share for gross proceeds of $11,550,000 (the “Private Placement Proceeds”).

 

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 $5,280,000. However, the holder has not declared the Mandatory Default Amount due and payable, which is the trigger for accelerating the Mandatory Default Amount to be due and payable.

 

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 12,705,541 shares of common stock for the year ended February 28, 2021 for consideration of $5,665,533, including 8,858,207 shares of common stock to consultants.

 

The Company issued 500,000 shares of common stock at a deemed price of $2.00 per share during the fiscal year ended February 28, 2021 pursuant to the conversion of promissory notes in the aggregate amount of $1,000,000.

 

The Company cancelled 150,000 shares of common stock during the fiscal year ended February 28, 2021 pursuant to a financial advisory service agreement.

 

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Table of Contents

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.

 

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Table of Contents

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.

 

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Table of Contents

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   488,500   $2.10 
Issued in Connection with January 2021 Offering   1,604,334   $3.00 
Exercised   (25,000)  $2.00 
Balance, February 28, 2021   2,067,834   $2.80 
Exercised   (221,666)  $2.44 
Balance, February 28, 2022   1,846,168   $2.84 
    Issued in Connection with August 2022 Offering   3,478,261   $1.75 
    Issued in Connection with August 2022 Offering   168,000   $1.75 
    Issued in Connection with September 2022 Offering   350,000   $5.00 
    Issued in Connection with November 2022 Offering   28,312   $8.22 
    Issued in Connection with November 2022 Offering   10,000   $6.70 
    Expired   (50,000)  $3.00 
    Exercised   (100,000)  $2.00 
    Exercised   (90,000)  $3.00 
Balance, November 30, 2022   5,640,741   $2.32 

 

During Fiscal 2022 and Fiscal 2021, we received cash proceeds totaling $539,998 and $50,000, respectively, from the exercise of stock purchase warrants.

 

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.

 

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Table of Contents

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
$2.00    188,500    0.38   19-Apr-2023
$3.00    1,417,668    0.12   13-Jan-2023
$1.75    3,646,261    4.69   9-Aug-2027
$5.00    350,000    1.80   19-Sep-2024
$8.22    28,312    2.93   4-Nov-2025
$6.70    10,000    2.98   21-Nov-2025
$2.32    5,640,741         

 

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.

 

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Table of Contents

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   1.06%   1.06%
Expected Volatility   15.27%   15.27%
Expected Life in Years   5.0    5.0 
Expected Dividend Yield        
Weighted-Average Grant Date Fair Value  $6.46   $6.46 

 

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   4,545,000   $8.00 
Granted        
Cancelled/Forfeited   (974,000)   8.00 
Expired        
Balance, November 30, 2022   3,571,000   $8.00 

 

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   4,545,000   $6.46 
Vested   (909,000)  $6.46 
Balance, February 28, 2022   3,636,000   $6.46 
Granted        
Vested        
Cancel / Forfeited   (779,200)   6.46 
Balance, November 30, 2022   2,856,800   $6.46 

 

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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 $0 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)

 
$7.00 to $9.00     2,856,800   $8.00    4.08    714,200   $8.00    4.08 
                                 
      2,856,800   $8.00    4.08    714,200   $8.00    4.08 

 

Note 11 - Earnings Per Share

 

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  $(5,504,481)  $(3,401,295)
Denominator          
Weighted average number of common shares outstanding —basic   43,063,637    40,280,409 
Weighted average number of common shares outstanding —diluted   43,063,637    40,280,409 
Loss per common share — basic  $(0.13)  $(0.08)
Loss per common share — diluted  $(0.13)  $(0.08)

 

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 21%. The Company generated a taxable loss for the nine months ended November 30, 2022 and 2021.

 

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Table of Contents

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 16.5%. Finger Motion Company Limited did not earn any income that was derived in Hong Kong for the nine months ended November 30, 2022 and 2021.

 

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 25%.

 

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   21.0%   21.0%
Foreign income not registered in the U.S.   (21.0%)   (21.0%)
PRC profit tax rate   25.0%   25.0%
Changes in valuation allowance and others   (25.0%)   (25.0%)
Effective tax rate   0.0%   0.0%

 

At November 30, 2022 and February 28, 2022, the Company has a deferred tax asset of $1,375,870 and $1,235,861, resulting from certain net operating losses in U.S., respectively. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those net operating losses are available. The Company considers projected future taxable income and tax planning strategies in making its assessment. At present, the Company concludes that it is more-likely-than-not that the Company will be able to realize all of its tax benefits in the near future and therefore a valuation allowance has been provided for the full value of the deferred tax asset. A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation allowance. At November 30, 2022 and February 28, 2022, the valuation allowance was $1,375,870 and $1,235,861, respectively.

 

        
   November 30,
2022
   February 28,
2022
 
   (unaudited)     
Deferred tax asset from operating losses carry-forwards  $1,375,870   $1,235,861 
Valuation allowance   (1,375,870)   (1,235,861)
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 $4,800,000 and the Warrant to acquire 3,478,261 shares of common stock of the Company (each, a “Warrant Share”). A total of $4,000,000 was funded under the Note (representing the principal amount less a coupon of 20%). The conversion price of the Note is equal to $2.00, subject to customary adjustments, however, if new securities, other than exempted securities, are issued by the Company at a price less than the conversion price, the conversion price shall be reduced to such price.

 

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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 2,887,500 shares at a price of $4.00 per share for gross proceeds of $11,550,000 (the “Private Placement Proceeds”).

 

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 $5,280,000. However, the holder has not declared the Mandatory Default Amount due and payable, which is the trigger for accelerating the Mandatory Default Amount to be due and payable.

 

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