FingerMotion(US:FNGR)2020-07-13 21:29Financial Performance - FingerMotion's gross transaction volume (GTV) for the fiscal year ended February 29, 2020, was US$483,820,491, with a monthly GTV of US$12,465,506 for February 2020[21]. - The company's revenue from mobile payment and recharge services for the fiscal year ended February 29, 2020, was US$1,822,081, and US$130,868 for February 2020 alone[21]. - The company reported net losses of approximately $3.0 million, $2.9 million, and $1.8 million for the years ended February 28, 2020, 2019, and 2018, respectively, with an accumulated deficit of $7.8 million as of February 28, 2020[65]. - The company has not achieved profitability and may not generate sufficient revenue to achieve profitability in the future, as expenses are expected to increase with new offerings and market expansion[65]. Market and Growth Opportunities - The top-up market's GTV in China is estimated to grow from US$153 billion in 2019 to US$165 billion by 2024[21]. - FingerMotion aims to enhance its mobile payment system to meet market demands and consumer requirements[49]. - The gross transaction volume (GTV) in the mobile phone payment market is estimated to increase from US$153 billion in 2019 to US$165 billion by 2024[83]. - The company has initiated other revenue streams, including bulk SMS bundles, which are expected to provide greater profits at lower volumes[24]. Partnerships and Contracts - FingerMotion has secured contracts with China Unicom and China Mobile to distribute mobile data across nine provinces, enhancing its market presence[39]. - The company has established partnerships with China Unicom and China Mobile for data analysis, potentially unlocking value-added services[41]. - The company relies heavily on revenue from two telecommunications companies, China Unicom and China Mobile, which account for substantially all of its revenue from processing payments for mobile data and talk time[71]. Regulatory and Compliance Risks - The company is subject to evolving regulations in the payments industry, which could impact its operations and financial condition[50]. - The company is subject to various regulatory requirements, including anti-money laundering laws and data protection regulations, which may impact its operations and compliance costs[54][55]. - The company may face legal and regulatory proceedings that could adversely affect its business and financial condition[81]. - The effectiveness of the company's disclosure controls and internal control over financial reporting is critical for compliance with SEC regulations[93]. Operational Challenges - The company has a limited operating history, making it difficult to predict future performance and results[63]. - The COVID-19 pandemic has created significant uncertainty regarding its impact on the company's operations and consumer demand, which could adversely affect financial performance[68]. - The company has not experienced any system failures or interruptions that affected the availability of its offerings, but acknowledges that such events could adversely impact its business and financial condition[78]. - The company faces risks related to attracting and retaining key personnel, which is critical for achieving its strategic goals[69]. Cybersecurity and Data Protection - The company is exposed to potential cybersecurity threats that could harm its operations and reputation, despite having systems in place to protect user data[72][73]. Capital and Funding Needs - The company may need to raise additional capital to increase deposits with telecoms, which are crucial for processing GTV[83]. - The company may require additional funding to support its growth and respond to business challenges, which may not be available on favorable terms[83]. - The company has not declared or paid cash dividends and intends to retain future earnings for business operations and expansion[88]. VIE Structure and Control Risks - FingerMotion's mobile payment platform operates under a variable interest entity (VIE) structure, allowing it to navigate restrictions on foreign investment in China[36]. - The company relies on VIE Agreements for its operations in China, which may not provide the same level of control as direct ownership[102]. - The VIE Agreements may not effectively provide control over the necessary licenses for business operations, risking severe harm to the company's operations and reputation[108]. - The company generates revenues through payments under the VIE Agreements, which may face challenges from PRC tax authorities if deemed not based on arm's length negotiations[104]. Intellectual Property and Legal Risks - There are risks associated with potential claims of intellectual property infringement, which could lead to substantial costs and operational disruptions[84]. - Potential conflicts of interest exist with JiuGe Technology's CEO and shareholder, Li Li, which could adversely affect the company's operating performance and future growth[105]. - The company relies on licenses held by JiuGe Management and JiuGe Technology, and any deterioration in their relationship could materially impact business operations[107]. - JiuGe Management holds a purchase option over JiuGe Technology's share capital, which could adversely affect the company's financial position if exercised[109]. Economic and Regulatory Environment - The PRC government exerts substantial influence over business activities, and changes in laws and regulations could harm the company's operations[115]. - Future inflation in China may lead to government controls that inhibit economic activity, potentially harming the market for the company's products[118]. - Restrictions on currency exchange may limit the company's ability to utilize revenues effectively for business activities outside China[119]. - PRC regulations restrict the ability of the company's subsidiary to make dividends and other payments, which could limit growth and investment opportunities[124]. - The company has advised PRC resident shareholders to register with SAFE as required by Circular 75, but cannot assure full compliance with all necessary amendments[126]. - Under the New EIT Law effective January 1, 2008, the company may be classified as a "resident enterprise," potentially subjecting it to a 25% enterprise income tax on worldwide income[128]. - If deemed a "resident enterprise," the company could face a 10% withholding tax on dividends paid to non-PRC shareholders[130]. - The company may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, which could adversely affect its business[133]. - Establishing adequate management, legal, and financial controls in the PRC may pose challenges, impacting compliance with U.S. securities laws[134]. - The company is subject to fines and penalties under PRC laws for non-compliance with Circular 75, which could restrict its ability to distribute profits[125]. - The classification as a "resident enterprise" could lead to unfavorable tax consequences for both the company and its non-PRC shareholders[130]. - The company faces uncertainty regarding the interpretation and implementation of Circular 75, which may affect its business operations[126]. - The PRC tax authorities may determine the company to be a "resident enterprise," leading to dual taxation in the U.S. and China[131]. - The company has limited control over the registration procedures of its PRC resident beneficial holders, which could impact its investment activities[126].