FingerMotion, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended November 30, 2021. Financial statements are unaudited and presented in U.S. dollars. FingerMotion’s principal activities include telecommunications products and services, SMS/MMS, and big-data analytics; its video-game division is inactive. Most operations are in China, including through contractually controlled VIEs.
Financial results and liquidity
| Metric | Three months ended Nov. 30, 2021 | Three months ended Nov. 30, 2020 | Nine months ended Nov. 30, 2021 | Nine months ended Nov. 30, 2020 |
|---|---|---|---|---|
| Revenue | $5.90 million | $4.88 million | $17.29 million | $11.25 million |
| Gross profit | $0.97 million | $0.62 million | $2.28 million | $1.17 million |
| Gross margin | 16.4% | 12.7% | 13.2% | 10.4% |
| Operating loss | $1.06 million | $0.68 million | $3.31 million | $2.15 million |
| Net loss attributable to company shareholders | $1.04 million | $0.71 million | $3.40 million | $2.25 million |
| Basic and diluted loss per share | $0.02 | $0.02 | $0.08 | $0.07 |
For the nine months, operating expenses rose 68% to $5.59 million; general and administrative costs increased 74% to $4.15 million, and share-based compensation more than doubled to $0.58 million. No income tax expense was reported.
- Cash flow: Operating activities used $5.12 million in the nine months, versus $4.13 million used in the comparable period. Investing activities used $13,776; financing activities provided $5.36 million. Cash increased $265,731 to $1.12 million.
- Balance sheet at Nov. 30: Total assets were $9.95 million, current liabilities $4.28 million, and working capital $5.49 million. Total liabilities were $4.28 million. No loan payable remained on the consolidated balance sheet; related-party loans were converted into shares during the period. Current lease liabilities were $12,526.
- Equity and financing: The company raised $4.67 million from common-stock sales during the nine months and reported 42,482,260 shares outstanding at Nov. 30. It also reported $390,000 in stock-subscription payables.
Material changes versus comparable periods
- Nine-month revenue increased 54%, with telecommunications products and services rising to $6.73 million from $1.58 million, SMS/MMS increasing 8% to $10.42 million, and big data contributing $131,418 versus none reported a year earlier.
- Quarterly revenue rose 21%, but the mix shifted: telecommunications revenue increased to $3.28 million from $0.48 million, while SMS/MMS revenue fell 40% to $2.62 million. Big-data revenue was zero for the quarter.
- Nine-month gross profit increased 95% and gross margin improved, but higher operating expenses drove the net loss attributable to shareholders up 51%. Quarterly net loss attributable to shareholders increased 46%.
- Prepayments and deposits rose to $3.15 million from $646,377 at fiscal year-end, primarily reflecting deposits for telecommunications products and services and SMS/MMS operations. Management says deposits with telecom providers support access to products used in recharge transactions.
Outlook, commentary, and risks
- Management expects mobile-recharge revenue to grow, citing the China Mobile Fujian collaboration launched in November 2021. It also expects newer offerings, including subscription plans, phone sales, and big data, to contribute revenue. These are expectations, not quantified financial guidance.
- Management reported completion of the first prototype stage for its insurtech analytics work and targeted commercialization by mid-2022. The big-data division had a services agreement with Pacific Life Re and recorded nine-month revenue.
- The company states it believes cash, operating revenue, and available resources can fund operations and repay indebtedness for at least 12 months. It also says substantial growth will require additional capital, particularly to increase telecom deposits; further financing is not assured and may dilute shareholders or carry restrictive terms.
- The filing identifies a going-concern dependence on obtaining financing and achieving profitability. The company had a $15.61 million accumulated deficit and a $3.40 million nine-month net loss.
- Key exposures include reliance on China Unicom and China Mobile, PRC regulatory and political risks, and dependence on VIE agreements to control significant China operations. The filing cautions that PRC authorities or courts could challenge the VIE structure and that enforcement may be uncertain.
- Management concluded disclosure controls were not completely effective because of continuing material weaknesses: insufficient written control documentation and limited segregation of duties and oversight in finance and accounting. Remediation was underway but not yet deemed complete.
- No material pending legal proceedings were reported. Subsequent events included the Dec. 28, 2021 Nasdaq Capital Market listing and grants of 4,545,500 options at an $8 exercise price, vesting over five years.
Important facts for investors to verify
- Whether reported revenue growth converts into improved operating results, given continuing losses and rising overhead.
- Cash needs and operating cash burn, including the size, timing, recoverability, and use of telecom-provider deposits and other prepayments.
- Availability and terms of future financing, and the potential dilution from equity issuance, options, warrants, and subscriptions.
- Revenue concentration and contract terms with China Unicom and China Mobile, including the Fujian launch and renewal or termination provisions.
- The legal enforceability and practical effectiveness of the VIE arrangements, and the related PRC regulatory, tax, and capital-transfer risks.
- Progress in remediating internal-control weaknesses and whether the controls are tested and operating effectively.