FingerMotion, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Three and six months ended August 31, 2021; comparative periods ended August 31, 2020. Financial statements are unaudited. FingerMotion operates primarily in China through telecommunications products and services, SMS/MMS, and a developing big-data business. Its video-game division is inactive.
Financial performance and position
| Metric | Three months ended Aug. 31, 2021 | Six months ended Aug. 31, 2021 |
|---|---|---|
| Revenue | $5.39 million, up 49% | $11.38 million, up 79% |
| Gross profit | $696,856; margin 12.9% | $1.32 million; margin 11.6% |
| Operating loss | $1.39 million | $2.24 million |
| Net loss attributable to shareholders | $1.46 million; $0.04 per share | $2.37 million; $0.06 per share |
| Operating cash flow | Not separately stated | $(3.51) million |
| Cash and cash equivalents, Aug. 31 | $878,085 | |
| Working capital | $5.04 million | |
| Loans payable, Aug. 31 | None reported; related-party loans were converted into shares |
At August 31, total assets were $9.38 million and total liabilities were $4.15 million. The accumulated deficit was $14.58 million. Gross margin improved from approximately 7.1% to 12.9% for the quarter and from 8.7% to 11.6% for the six-month period. No income tax expense was recorded.
Material changes versus the prior comparable periods
- Six-month revenue increased $5.02 million: telecommunications products and services contributed $3.45 million, SMS/MMS $7.80 million, and big data $131,418. The company reported that big-data revenue began under its Pacific Life Re services agreement.
- For the six months, cost of revenue rose 73% to $10.07 million, while gross profit rose 138% to $1.32 million.
- Six-month operating expenses increased 76% to $3.56 million. General and administrative expense rose 66% to $2.62 million; share-based compensation increased to $482,546 from $71,710.
- Six-month shareholder net loss widened 54% to $2.37 million. Higher operating expenses more than offset gross-profit growth.
- Cash used in operations increased to $3.51 million from $1.22 million. Prepayments and deposits increased, including vendor deposits for telecommunications credits and SMS inventory.
- Cash was nearly unchanged from fiscal year-end, at $878,085 versus $850,717. Financing provided $3.58 million, including $3.29 million from common-stock issuances and $1.94 million from convertible-note conversions; operating cash use absorbed most of the inflow.
- Shares outstanding increased from 38.90 million at February 28 to 42.20 million at August 31. Related-party lender Liew Yow Ming converted approximately $1.94 million of notes into shares; the loans carried a stated 20% annual interest rate.
Outlook, risks, contingencies, and unusual items
- Management said cash, revenues, and available resources were expected to fund projected requirements and repay indebtedness for at least 12 months, but also stated that growth—particularly larger deposits with telecom providers—would likely require additional capital. The filing gives no quantified revenue or earnings guidance.
- The company acknowledged substantial doubt-related factors: accumulated losses, continued net losses, and dependence on additional financing to fund operations and pursue profitability. Financing may not be available on acceptable terms and could dilute shareholders or add restrictive covenants.
- Management targeted commercialization of the first phase of its big-data analytical framework by the end of calendar 2021 and expected further revenue from the division; these are forward-looking expectations, not assurances.
- China Unicom and China Mobile are key commercial relationships and the company identifies revenue concentration in these providers as a material risk. Its business relies substantially on PRC variable-interest-entity arrangements; regulatory or contractual challenges could impair control or access to the operating business.
- Other disclosed risks include PRC regulatory and political changes, currency and cash-transfer restrictions, cybersecurity and service interruptions, COVID-19 uncertainty, and limited operating history and continuing losses.
- Disclosure controls were not completely effective at August 31 because of previously identified material weaknesses: missing written internal-control documentation and limited segregation of duties and oversight. Remediation was in progress; management did not consider the weaknesses remediated.
- The company reported no material pending legal proceedings, no material off-balance-sheet arrangements, and no material subsequent events requiring disclosure in the financial statements.
Important facts for investors to verify
- Whether operating cash burn and the large increases in prepayments and other receivables are sustainable, and when those balances convert to cash or usable inventory.
- Whether the stated 12-month funding expectation is supported by actual liquidity and access to new financing, given ongoing losses and cash used in operations.
- The economics and durability of telecom relationships, revenue concentration, and required deposits or advance purchases.
- Whether the Pacific Life Re engagement and big-data business can generate meaningful revenue relative to development and operating costs.
- Progress in remediating internal-control material weaknesses and the potential for further share issuance or dilution.
- The enforceability and practical effectiveness of the PRC VIE structure, including applicable regulatory, licensing, and cash-transfer risks.