Fingermotion, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended August 31, 2018; filed October 19, 2018. The supplied request metadata says “2017 Q2,” but the filing itself reports 2018 results. Financial statements are unaudited.
Business context
FingerMotion became a mobile-game and information-technology business following its 2017 acquisition of Hong Kong-based Finger Motion Company Limited in a reverse acquisition. Management describes three licensed games, with worldwide distribution rights excluding China, and planned launches over the following six months. The filing also describes hosting, integration, licensing, and management-service revenue.
Financial results and liquidity
| Metric | Three months ended Aug. 31, 2018 | Six months ended Aug. 31, 2018 |
|---|---|---|
| Revenue | $76,287 | $259,417 |
| Gross profit | $24,741 | $55,364 |
| Gross margin | 32.4% | 21.3% |
| Operating expenses | $221,681 | $547,712 |
| Operating loss | $(196,940) | $(492,348) |
| Net loss | $(206,468) | $(498,752) |
| Loss per share, basic and diluted | $(0.01) | $(0.03) |
For the six-month period, operating cash use was $630,374; financing provided $638,500, leaving cash of $18,677, versus $864,549 a year earlier. At August 31, total assets were $927,120, liabilities $1,276,013, and shareholders’ deficit $348,893. Liabilities included $370,000 of convertible notes and a $66,000 note payable. Accounts receivable were $417,920 and prepaid expenses $478,022.
Changes versus prior comparable periods
- Quarterly revenue rose to $76,287 from $57,006; six-month revenue increased to $259,417 from $70,438.
- Quarterly gross profit improved from a $62,886 loss to $24,741 profit; six-month gross profit improved from a $56,520 loss to $55,364 profit. Management attributes lower quarterly cost of revenue partly to reduced initial marketing and support costs after a game launch in August 2017.
- Quarterly net loss narrowed to $206,468 from $354,471, while six-month net loss widened to $498,752 from $405,330.
- Operating cash use increased from $398,220 to $630,374 for the six months. Cash fell sharply year over year, while financing in the 2018 period relied on notes and stock issuance.
Outlook, risks, and notable disclosures
- Management planned to launch three mobile games progressively within six months and described a strategic alliance with a Chinese game-development studio. No quantified revenue or earnings guidance was provided.
- The filing states that continued operations depend on obtaining additional financing and achieving profitable operations. It warns that financing may be unavailable or involve dilution, restrictive covenants, or high interest costs.
- Convertible notes carry 10% interest, mature from February through May 2019, and are convertible at stated prices of $1.00 to $2.50 per share. The separate $66,000 note carries no interest and is due May 2021.
- Disclosure controls and procedures were reported ineffective because of a previously disclosed control weakness; management said no material control changes occurred during the quarter.
- The company reported no material outstanding litigation, operating leases, off-balance-sheet arrangements, or significant subsequent events. It cited dependence on a cloud-hosting provider and general business, competition, regulatory, and execution risks.
Important facts for investors to verify
- Confirm the intended reporting period: the filing covers the quarter ended August 31, 2018, despite the request metadata’s 2017 label.
- Reconcile the MD&A statement that the six-month net loss was $206,468 with the financial statements, which report $206,468 for the quarter and $498,752 for six months.
- Assess cash runway, financing needs, note repayment or conversion terms, and potential dilution given $18,677 in cash and substantial operating cash use.
- Verify game launch status, licensing and distribution rights, customer revenue sources, and whether the planned releases generate meaningful recurring revenue.
- Review the control weakness and the steps and timing needed to remediate it; also reconcile share issuance figures across the filing.