FingerMotion, Inc. — Form 10-Q Summary
Business context and reporting period
Reports the unaudited three months ended May 31, 2017, compared with the three months ended May 31, 2016. The company was transitioning from providing real estate property-management services to mobile gaming. In April 2017, control changed hands; the company entered a software license agreement for mobile games on April 28. The acquisition of Hong Kong-based Finger Motion Company Limited (FMCL), which made it a wholly owned subsidiary, closed on July 13, 2017, after the reporting period.
Financial results and liquidity
| Metric | Quarter ended May 31, 2017 | Quarter ended May 31, 2016 |
|---|---|---|
| Revenue | $0 | $3,474 |
| Cost of revenue | $0 | $1,564 |
| Gross margin | Not applicable | $1,910 |
| Operating expenses | $2,194 | $8,039 |
| Operating income (loss) | $(2,194) | $(6,129) |
| Net income (loss) | $2,847 | $(6,233) |
| Cash used in operations | $22,374 | $1,680 |
2017 net income included $5,076 of debt-forgiveness income, offsetting the operating loss; it did not reflect revenue from the new gaming business. Cash fell from $1,316 to $1. At May 31, total assets were $1, total liabilities were reported as zero, and shareholders’ equity was $1. The company reported zero working capital. It received a $48,559 capital contribution from its controlling shareholder and repaid a related-party note and accrued interest totaling $28,557 during the quarter. No financial guidance was provided.
Material changes, outlook, and risks
- Revenue fell to zero from $3,474; the prior-period revenue came entirely from property-management services for properties affiliated with former officers. The company said that revenue stream had ended.
- Management described plans to market and publish mobile games, with three game licenses and worldwide distribution rights except in China. It expected to launch games progressively within six months; Dragon Samurai was described as expected to launch within two months. These are forward-looking expectations, not reported results.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing the operating loss and operating cash use. Continued operations depend on raising additional capital and implementing the business plan; management said it expected to seek debt or private-placement financing, with no assurance of success or acceptable terms.
- After quarter-end, the company issued approximately 12 million shares to acquire FMCL, issued 600,000 shares to consultants, and disclosed up to 2,562,500 additional shares in connection with the transactions. It also reported other share issuances and approvals after the quarter, creating potential dilution.
- Disclosure controls and procedures were reported as ineffective because of a previously disclosed control weakness. Management said there was no material change in internal control over financial reporting during the quarter.
- The company reported no legal proceedings or off-balance-sheet arrangements. It identified no current market-risk exposure, though it may face interest-rate and foreign-currency risks in future periods.
Important facts for investors to verify
- Reconcile share counts: the filing reports 2,576,750 shares issued and outstanding on the May 31 balance sheet, but the cover page gives 16,089,253 shares as of September 1, 2016; the reported weighted-average share count is 10,307,000. The filing also says share amounts were retroactively adjusted for a 1-for-4 reverse split.
- Clarify the $5,076 debt-forgiveness income, including the creditor and terms, and how it relates to the disclosed repayment of the former related-party note.
- Review post-quarter financing, share issuances, acquisition consideration, and resulting ownership dilution.
- Assess available funding and cash needs for the game-launch plan in light of $1 reported cash and the going-concern warning.
- Note the filing reports $1,057 of interest paid in its cash-flow disclosures while the income statement reports $35 of interest expense; the filing text does not explain the difference.