FingerMotion(FNGR) - 2022 Q2 - Quarterly Report

PART 1. FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated interim financial statements detail the company's financial position and performance for the six months ended August 31, 2021 Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | August 31, 2021 ($) | February 28, 2021 ($) | | :--- | :--- | :--- | | Total Assets | 9,380,717 | 7,341,504 | | Total Current Assets | 9,189,263 | 7,104,527 | | Total Liabilities | 4,151,730 | 5,226,538 | | Total Current Liabilities | 4,151,730 | 4,112,295 | | Total Shareholders' Equity | 5,228,987 | 2,114,966 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended Aug 31, 2021 ($) | Six Months Ended Aug 31, 2021 ($) | | :--- | :--- | :--- | | Revenue | 5,386,914 | 11,383,403 | | Gross Profit | 696,856 | 1,316,553 | | Net Loss | (1,454,617) | (2,364,123) | | Net Loss Per Share (Basic & Diluted) | (0.04) | (0.06) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Six Months Ended Aug 31, 2021 ($) | Six Months Ended Aug 31, 2020 ($) | | :--- | :--- | :--- | | Net Cash used in Operating Activities | (3,513,630) | (1,218,461) | | Net Cash used in Investing Activities | (12,625) | (115,239) | | Net Cash provided by Financing Activities | 3,581,291 | 1,639,207 | | Net Change in Cash | 27,368 | 316,788 | - The company operates in China through a Variable Interest Entity (VIE) structure with Shanghai JiuGe Information Technology Co, Ltd to comply with PRC regulations[20][24] - The financial statements raise going concern issues, citing an accumulated deficit of $14.6 million and a net loss of $2.4 million for the six months ended August 31, 2021[53][54] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition, operational results, liquidity, and corporate structure for the periods ended August 31, 2021 - The company operates five lines of business: (i) telecommunications products and services, (ii) SMS and MMS service, (iii) a rich communication services (RCS) platform, (iv) big data insights, and (v) an inactive video game division[125] - The business model relies on key cooperation agreements with major Chinese telecommunication providers, China Unicom and China Mobile, for its mobile payment, recharge, and data services[117][120][127] - The Big Data division, branded "Sapientus," launched in July 2020 and secured its first services agreement with Pacific Life Re in January 2021 to develop data-driven risk assessment solutions[135][137] Three Months Ended August 31, 2021 Compared to Three Months Ended August 31, 2020 Revenue grew 49% to $5.4 million, but net loss widened 51% to $1.46 million due to an 81% increase in operating expenses Revenue by Business Line (Three Months Ended) | Business Line | Aug 31, 2021 ($) | Aug 31, 2020 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Telecommunication Products & Services | 1,711,295 | 707,094 | 142% | | SMS & MMS Business | 3,642,917 | 2,913,060 | 25% | | Big Data | 32,702 | — | 100% | | Total Revenue | 5,386,914 | 3,621,054 | 49% | - Gross profit increased by 170% to $696,856 from $258,391 in the prior-year period, driven by higher revenue[143] - General & Administrative expenses rose 71% to $1.44 million, mainly due to increased consulting fees ($557,570 vs $290,053) and salaries ($626,789 vs $327,511)[145] - Share-based compensation expenses increased significantly by 743% to $421,571, as more consultants were compensated with company shares[150] Six Months Ended August 31, 2021 Compared to Six Months Ended August 31, 2020 Revenue grew 79% to $11.4 million, while net loss increased 54% to $2.37 million due to a 76% surge in operating expenses Revenue by Business Line (Six Months Ended) | Business Line | Aug 31, 2021 ($) | Aug 31, 2020 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Telecommunication Products & Services | 3,448,375 | 1,100,886 | 213% | | SMS & MMS Business | 7,803,610 | 5,263,102 | 48% | | Big Data | 131,418 | — | 100% | | Total Revenue | 11,383,403 | 6,363,988 | 79% | - Gross profit increased by 138% to $1,316,553 from $552,830 in the prior-year period[157] - General & Administrative expenses increased by 66% to $2.62 million, driven by higher consulting and salary costs associated with building the business lines[159] - The net loss attributable to shareholders widened to $2,367,654 from $1,539,100 in the prior-year period, an increase of 54%[167] Liquidity and Capital Resources The company held $0.88 million in cash and $5.0 million in working capital, believing it sufficient for the next 12 months of operations Cash and Working Capital | Metric | As at Aug 31, 2021 ($) | As at Feb 28, 2021 ($) | | :--- | :--- | :--- | | Cash reserves | 878,085 | 850,717 | | Working capital | 5,037,533 | 2,992,232 | - The company raised $3,294,499 through the sale of common stock in private placements during the six months ended August 31, 2021[169] - Net cash used in operating activities was $(3.5) million, while net cash provided by financing activities was $3.6 million for the six months ended August 31, 2021[170] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide disclosures for this item Controls and Procedures Management concluded disclosure controls were ineffective as of August 31, 2021, due to material weaknesses in internal control policies - Management concluded that disclosure controls and procedures were not completely effective as of August 31, 2021[180] - Identified material weaknesses include: (1) lack of written documentation of internal control policies and procedures, and (2) limited segregation of duties in finance and accounting functions[181] - Remediation efforts include finalizing corporate governance policies and a comprehensive Code of Conduct to align with Sarbanes-Oxley Act requirements[182] PART II – OTHER INFORMATION Legal Proceedings The company is not a party to any pending legal proceedings nor is it aware of any such proceedings Risk Factors The company faces material risks related to its operating history, partner dependency, VIE structure, and PRC regulations - The company has a history of net losses, including approximately $2.4 million for the six months ended August 31, 2021, and an accumulated deficit of $14.6 million[189] - A substantial amount of total revenue is derived from contracts with China Unicom and China Mobile, creating a concentration risk[193] - The PRC government may determine that the VIE Agreements are non-compliant, which could result in penalties, operational restrictions, or the voiding of the agreements[217][218] - The company may be classified as a "resident enterprise" of China, which could result in unfavorable tax consequences, such as a 25% enterprise income tax on worldwide income[243][246] Unregistered Sales of Equity Securities and Use of Proceeds The company conducted several unregistered sales of equity securities for services, private placements, and note conversions - On July 13, 2021, the company issued 568,900 shares at $5.00 per share in a private placement to non-U.S. persons, relying on the Regulation S exemption[251] - In August 2021, the company issued a total of 2,477,200 shares of common stock to one individual upon the conversion of promissory notes, relying on the Regulation S exemption[257][258] Defaults Upon Senior Securities The company reports no defaults upon senior securities Mine Safety Disclosures This section is not applicable to the company's operations Other Information The company reports no other material information for the period Exhibits This section lists exhibits filed with the report, including CEO/CFO certifications and XBRL data files