FingerMotion, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended November 30, 2020; filed January 14, 2021. Financial statements are unaudited. FingerMotion operates mobile payment/recharge, bulk SMS/MMS, and video game businesses, primarily through China-based subsidiaries and a contractually controlled variable interest entity (VIE). SMS/MMS and telecommunications services generated the reported revenue; the video game operation had been paused.
Financial performance and position
| Metric | Three months ended Nov. 30, 2020 | Three months ended Nov. 30, 2019 | Nine months ended Nov. 30, 2020 | Nine months ended Nov. 30, 2019 |
|---|---|---|---|---|
| Revenue | $4.88 million | $2.69 million | $11.25 million | $5.67 million |
| Gross profit | $621 thousand | $437 thousand | $1.17 million | $726 thousand |
| Gross margin | 12.7% | 16.2% | 10.4% | 12.8% |
| Operating expenses | $1.30 million | $1.00 million | $3.32 million | $3.08 million |
| Net loss attributable to company shareholders | $708 thousand | $497 thousand | $2.25 million | $2.28 million |
| Loss per share, basic and diluted | $0.02 | $0.02 | $0.07 | $0.09 |
- Revenue mix: Nine-month SMS/MMS revenue was $9.66 million, up 147%; telecommunications products and services revenue was $1.58 million, down 10%. For the quarter, the respective businesses grew 81% and 84%.
- Cash flow: Nine-month operating cash use was $4.13 million, versus $1.58 million in the prior-year period. Investing cash use was $321 thousand; financing provided $5.23 million. Cash increased by $886 thousand to $989 thousand.
- Liquidity and balance sheet: At November 30, cash was $989 thousand, accounts receivable $4.04 million, and current assets $9.42 million. Current liabilities were $8.61 million; total liabilities were $9.80 million, exceeding total assets of $9.42 million. Shareholders’ deficit was $386 thousand. The approximate current ratio was 1.06.
- Debt and obligations: The balance sheet included a $1.0 million convertible note, $1.65 million in loans payable, and a $66 thousand note payable. Loans from a non-controlling shareholder carry 20% annual interest; nine-month interest expense on those loans was $154 thousand. The $1.0 million convertible note bore 5% interest and was extended to January 9, 2021; subsequent to quarter-end it was converted into 500,000 shares at $2 per share.
Changes versus prior comparable periods
- Quarterly revenue rose 81%, but cost of revenue increased 89%; gross margin declined to 12.7% from 16.2%. The company’s attributable quarterly net loss widened to $708 thousand from $497 thousand, with higher operating costs and interest expense among the factors.
- Nine-month revenue nearly doubled, principally reflecting SMS/MMS business included following its 2019 acquisition. Gross profit increased 62%, while operating expenses rose 8%. The attributable net loss improved modestly, from $2.28 million to $2.25 million; loss per share improved from $0.09 to $0.07.
- Accounts receivable rose from $2.66 million at February 29, 2020 to $4.04 million, and other receivables rose from $600 thousand to $1.88 million. These working-capital movements contributed to cash used in operations.
- Common shares outstanding increased from 25.85 million at February 29 to 36.20 million at November 30, including shares issued for services and private placements. Additional subscribed securities had not yet been issued at quarter-end.
Outlook, risks, and unusual items
- Management said it expects operating cash and revenue to fund requirements and repay outstanding indebtedness for at least 12 months, but also said business expansion will require additional capital, including increased deposits with telecommunications partners. The financial statements disclose dependence on further financing and uncertainty about obtaining it; the company has an accumulated deficit of $10.07 million and a history of losses.
- Management reported COVID-19’s impact as minimal at the time of filing, while warning that a worsening outbreak could affect growth. It expected business improvement as China reopened.
- Management said the first prototype stage for its insurtech/data analytics initiative was complete and targeted commercialization by mid-2021. This is a target, not a reported result or firm guidance. Suzhou BuGuNiao, formed in July 2020 for research and development, was to have a fuller plan presented for board approval.
- Subsequent to quarter-end, the company reported private placements generating $2.41 million from units and $1.07 million from shares, as well as the conversion of the $1.0 million note. These transactions increased or may increase share count; the units included warrants exercisable at $3 per share.
- Material risks include reliance on China Unicom and China Mobile, VIE enforceability and PRC regulatory risks, cybersecurity and service continuity, access to capital, and foreign currency and cross-border fund-transfer restrictions. The company reported no material pending legal proceedings.
- Disclosure controls were not completely effective due to previously identified material weaknesses: inadequate written control documentation, limited segregation of duties and oversight, and insufficient documentation of certain controls. Remediation efforts were underway; management had not concluded the weaknesses were remediated.
Most important facts for investors to verify
- Whether operating cash use, receivables, and other receivables can be controlled and collected as revenue expands.
- The terms, timing, and dilution effects of private placements, unissued subscriptions, warrants, and subsequent share issuances.
- Whether the company can sustain financing and liquidity, given its going-concern dependence, negative equity, and high-interest related-party borrowing.
- Revenue concentration and contract economics across SMS/MMS and telecommunications partners, including gross margins and customer or supplier concentration.
- Progress toward insurtech commercialization and whether VIE arrangements, PRC licenses, and internal-control remediation remain effective and compliant.