FingerMotion, Inc. — Form 10-Q Summary
Reporting period: Three months ended May 31, 2018. The request metadata says “2017 Q1,” but the filing itself covers 2018 Q1 (the three months ended May 31, 2018), with comparison to the three months ended May 31, 2017. The statements are unaudited.
Business context
Following its July 2017 reverse acquisition of Hong Kong-based Finger Motion Company Limited, the company’s focus shifted from property-management consulting to mobile-game operations and publishing. Management described three game licenses and plans to launch games into worldwide markets, excluding China. The filing attributes higher revenue to a game launched in August 2017.
Financial performance and position
| Metric | Three months ended May 31, 2018 | Prior-year period |
|---|---|---|
| Revenue | $183,130 | $13,432 |
| Cost of revenue | $152,507 | $7,066 |
| Gross profit | $30,623 | $6,366 |
| Operating expenses per financial statements | $326,031 | $57,225 |
| Net loss | $292,284 | $50,859 |
| Basic and diluted loss per share | $0.02 | $0.00 |
| Cash used in operating activities | $497,044 | $12,918 |
| Cash at period end | $9,508 | $557 |
Gross margin was approximately 16.7%, down from approximately 47.4% in the prior-year period. Revenue grew substantially, but gross profit remained modest relative to operating costs. The filing does not report an explicit operating or net margin.
At May 31, 2018, total assets were $830,222, total liabilities were $1,045,146, and shareholders’ deficit was $214,924, versus a $102,641 deficit at February 28, 2018. Liabilities included $300,000 of convertible notes and a $66,000 non-interest-bearing note due in 2021. The convertible notes bear 10% interest, mature in 2019, and have conversion prices of $1.00 to $2.50 per share. Cash from financing activities was $496,001, including $316,000 of note proceeds and $180,001 from stock subscriptions.
Changes, outlook, and risks
- Revenue increased from $13,432 to $183,130 year over year, while net loss rose from $50,859 to $292,284. Management cited game-launch-related activity, hosting and marketing costs, and consulting and contract labor associated with operations and financing.
- Management said it planned to progressively launch its games over the following six months. The filing gives no quantified revenue, earnings, or cash-flow guidance.
- The company disclosed substantial doubt about its ability to continue as a going concern, citing losses, operating cash use, accumulated deficit of $2,201,798, and dependence on additional financing and future profitability. Financing may not be available on acceptable terms and could dilute shareholders or impose restrictive terms or high interest costs.
- Management concluded disclosure controls and procedures were not effective due to a previously disclosed control weakness. It reported no material change in internal control during the quarter.
- Other disclosed risks include reliance on a cloud-hosting provider, possible impairment of long-lived assets, and exposure to economic, competitive, regulatory, execution, and currency risks. The company reported no material litigation, operating leases, off-balance-sheet arrangements, or significant subsequent events.
Important facts for investors to verify
- Operating expenses conflict: the financial statements show $326,031, consistent with the listed expense components, while MD&A states $362,031.
- Share issuance disclosures differ: the equity statement shows 275,000 shares issued in the quarter, while Part II says approximately 10,000 were issued and approximately 265,000 contracted but not yet issued. Confirm issuance status and consideration.
- The tax note says the company considers its deferred tax benefits more likely than not realizable, yet also reports a full valuation allowance against the $61,380 deferred tax asset. Clarify the intended conclusion and accounting.
- Assess near-term cash needs, financing availability, debt conversion and dilution terms, game-launch execution, and collections on the $345,259 of accounts receivable.
- Confirm the reporting-period labeling: the filing covers the quarter ended May 31, 2018, notwithstanding the request metadata’s 2017 Q1 label.