The following information should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and the Notes thereto appearing
elsewhere in the Quarterly Report on Form 10-Q. Statements in this Management's
Discussion and Analysis and Results of Operation and elsewhere in this Quarterly
Report on Form 10-Q that are not statements of historical or current fact
constitute "forward-looking statements." See "Cautionary Note Regarding
Forward-Looking Statements."
General
FingerMotion Inc. (the "Company," "we," "us," "our" or "FingerMotion") is a US
fintech company incorporated in Delaware, USA, with its corporate offices in New
York, NY. We operate three principal lines of business, a video game division, a
mobile payment platform and a mass SMS text message service. We operate our
video game platform through Finger Motion Company Limited, a Hong Kong
corporation ("FMCL"), which became an indirect, wholly owned subsidiary of the
Company on July 13, 2017 pursuant to that certain Share Exchange Agreement
entered into among the Company, FMCL and FMCL's former shareholders.
The video game industry covers multiple sectors and is currently experiencing a
move away from physical games and towards digital software. Advances in
technology and streaming now allow users to download games rather than visiting
retailers. Video game publishers are expanding their direct-to-consumer
channels, with mobile gaming the current growth leader and eSports and virtual
reality gaining momentum as the next big sectors. This industry is FMCL's
business focus.
In June 2018, FMCL temporarily paused its publishing and operating plans for
existing games and other projects. The Company's board of directors decided to
re-focus the Company's resources on new business opportunities in China,
particularly in the field of mobile data.
We conduct our mobile payment business through Shanghai JiuGe Technology Co.,
Ltd. ("JiuGe Techology"), which became our contractually controlled affiliate
through the entry into a series of agreements known as variable interest
agreements (the "VIE Agreements") in October 2018. The use of VIE agreements is
a common structure used to acquire corporations in China, particularly in
certain industries in which foreign investment is restricted or forbidden by the
government of the Peoples' Republic of China.
In first half of 2018, JiuGe Technology secured contracts with China United
Network Communications Group Co., Ltd. ("China Unicom") and China Mobile
Communications Corporation ("China Mobile") to distribute mobile data for
businesses and corporations in nine provinces and/or municipalities, namely
Chengdu, Jiangxi, Jiangsu, Chongqing, Shanghai, Zhuhai, Zhejiang, Shaanxi and
Inner Mongolia. In September 2018, JiuGe Technology launched and commercialized
mobile payment and recharge services to businesses for China Unicom. The JiuGe
Technology mobile payment and recharge platform enables the seamless delivery of
real-time payment and recharge services to third-party channels and businesses.
We earn a rebate from each telecommunications company on the funds paid by
consumers to the telecommunications companies we process. To encourage consumers
to utilize our portal instead of using our competitors' platforms or paying
China Unicom or China Mobile directly, we offer mobile data and talk time at a
rate discounted from these companies' stated rates, which are also the rates we
must pay to them to purchase the mobile data and talk time provided to consumers
through the use of our platform. Accordingly, we earn income on the rebates we
receive from China Unicom and China Mobile, reduced by the amounts by which we
discount the mobile data and talk time sold through our platform.
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Recent Developments
On March 7, 2019, the Company acquired Beijing XunLian, a company in the
business of providing mass SMS text services to businesses looking to
communicate with large numbers of their customers and prospective customers. The
Company sees this business as additive to the Company's core business of
processing mobile recharge and top-up payments.
Additionally, as previously disclosed, on July 7, 2019, JiuGe Technology, our
contractually controlled affiliate, entered into that certain Yunnan Unicom
Electronic Sales Platform Construction and Operation Cooperation Agreement (the
"Cooperation Agreement") with China Unicom's Yunnan subsidiary. Under the
Cooperation Agreement, JiuGe Technology is responsible for constructing and
operating China Unicom's electronic sales platform through which consumers can
purchase various goods and services from China Unicom, including mobile
telephones, mobile telephone service, broadband data services, terminals,
"smart" devices and related financial insurance. The Cooperation Agreement
provides that JiuGe Technology is required to construct and operate the
platform's webpage in accordance with China Unicom's specifications and
policies, and applicable law, and bear all expenses in connection therewith. As
consideration for the services it provides under the Cooperation Agreement,
JiuGe Technology receives a percentage of the revenue received from all sales it
processes for China Unicom on the platform. The Cooperation Agreement expires
three years from the date of its signature, but it may be terminated by (i)
JiuGe Technology upon three months' written notice or (ii) by China Unicom
unilaterally.
Critical Accounting Policies and Significant Estimates
Our critical accounting policies and significant estimates are detailed in our
Annual Report on Form 10-K for the year ended February 28, 2019. Other than as
set forth below, our critical accounting policies and significant estimates have
not changed substantially from those previously disclosed in our Annual Report
on Form 10-K for the year ended February 28, 2019.
Results of Operations
Nine Months Ended November 30, 2019 Compared to Nine Months Ended November 30,
2018
Revenue
The following table sets forth the Company's revenue from its three lines of
business for the periods indicated:
Nine Months Ended
November 30, 2019 November 30, 2018 Change (%)
Gaming - $ 314,157 (100 %)
Mobile Recharge $ 1,754,793 $ 469,685 73 %
SMS* $ 3,910,686 - 100 %
Total Revenue $ 5,665,479 $ 783,842 86 %
* Reflects results from March 7, 2019 through November 30, 2019.
We recorded $5,665,479 in revenue for the quarter ended November 30, 2019, an
increase of $4,881,637 or 86%, compared to the quarter ended November 30, 2018.
This increase resulted from an increase in revenue of $1,285,108 and $3,910,686
from our mobile recharge business and SMS business, offset in part by a decrease
of $314,157 from our gaming business. As previously disclosed, in June 2018, we
paused our publishing and operating plans for existing games other projects and
decided to re-focus the Company's resources on the mobile data business, which
has produced higher levels of revenue for the Company. We principally earn
revenue by providing mobile payment and recharge services to customers of
telecommunications companies in China. Specifically, we earn a negotiated rebate
amount from the telecommunications companies for all monies paid by consumers to
those companies that we process. As we continue to develop our mobile recharge
business, we expect that revenues will continue to grow. We also earned revenue
during the most recently completed fiscal quarter from our newly acquired SMS
texting service, which business only recently became a part of the Company. The
Company expects and hopes that the SMS texting service business will continue to
provide solid revenue for the Company in the future.
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Cost of Revenue
The following table sets forth the Company's costs of revenue for the periods
indicated:
Nine Months Ended
November 30, 2019 November 30, 2018
Cost of Revenue - Gaming
Royalties - $ 85,809
Channel Costs - $ 92,180
Internet Data Center Costs - $ 35,689
Other - $ 5,642
Cost of Revenue - Mobile Recharge $ 1,513,799 $ 420,177
Cost of Revenue - SMS $ 3,425,865 $ -
Total Cost of Revenue $ 4,939,664 $ 639,497
We recorded $4,939,664 in costs of revenue for the quarter ended November 30,
2019, an increase of $4,300,167 or 87%, compared to the quarter ended November
30, 2018. As previously mentioned, we principally earn revenue by providing
mobile payment and recharge services to customers of telecommunications
companies in China. To earn this revenue, we incur certain customer acquisition
costs, including discounts to our customers and promotional expenses, which is
reflected in our cost of revenue.
Gross profit (loss)
Our gross profit for the quarter ended November 30, 2019 was $725,815, an
increase of $581,470 or 80%, compared to the quarter ended November 30, 2018.
This increase in gross profit resulted from higher revenue for the period.
Amortization & Depreciation
We recorded $34,200 in amortization and depreciation, of which $4,851 was for
fixed assets and $29,349 was for right-of-use assets, for the quarter ended
November 30, 2019, a decrease of $51,478 or 151%, compared to the quarter ended
November 30, 2018. This decrease resulted as a portion of our intangible assets
have been fully amortized.
General & Administrative Expenses
The following table sets forth the Company's general and administrative expenses
for the periods indicated:
Nine Months Ended
November 30, 2019 November 30, 2018
Accounting $ 115,368 $ 31,200
Advertising $ - $ 51,274
Contract Labor $ - $ 201,460
Consulting $ 702,951 $ 231,791
Consulting (non-cash) $ 817,232 $ -
Entertainment $ 193,516 $ 648
Legal $ - $ 15,841
Salaries and Wages $ 832,366 $ -
Travel $ 187,956 $ 6,228
Others $ 197,311 $ 54,411
Total $ 3,046,701 $ 592,853
We recorded $3,046,701 in general and administrative expenses for the quarter
ended November 30, 2019, an increase of $2,453,848 or 81%, compared to the
quarter ended November 30, 2018. A significant portion of the increase,
$817,232, resulted from the current period's value of our non-cash share
issuances. We also incurred fees of $702,951 in consulting and professional fees
and $832,366 in increased staff salaries for the period. The foregoing increases
in general and administrative expenses are principally the result of the
commencement and building of our mobile recharge and SMS businesses.
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Operating Expenses
We recorded $3,080,900 in operating expenses for the quarter ended November 30,
2019, an increase of $2,402,369 or 78%, compared to the quarter ended November
30, 2018. The primary explanation for the variance is as stated in the General
and Administrative expenses, noted above.
Net Loss
As a result of the foregoing, we recorded $2,275,868 in net loss of revenue for
the quarter ended November 30, 2019, an increase in net loss of $1,339,546 or
59%, compared to the quarter ended November 30, 2018.
Liquidity and Capital Resources
At November 30, 2019, we had cash and cash equivalents of $643,346 as compared
to cash and cash equivalents of $1,337,245 at February 28, 2019. In order for us
to continue to operate our mobile recharge business, we must deposit funds with
our telecommunication company clients from time to time in order to obtain
access to the mobile data and talk-time we make available to consumers on our
portal. Accordingly, the amount of cash we have on hand fluctuates significantly
from period to period. The significant cash reduction reflected on our balance
sheet as of November 30, 2019, when compared to the period ended February 28,
2019, is the result of our making large deposits with our telecommunications
company clients. The Company otherwise does not have any planned capital
expenditures and has historically funded its operations from revenues and sales
of securities, including convertible debt securities. We believe that our cash
on hand, cash equivalents and short-term investments, along with our revenues
from operations, will fund our projected operating requirements, fund our
current operations and repay our outstanding indebtedness, in each case, for at
least the next 12 months. However, to grow our business substantially, we will
need to increase the amount of funds we have deposited with the
telecommunications companies for which we process mobile recharge payments.
Accordingly, we expect to seek additional capital through public or private
sales of our equity or debt securities, or both. We might also enter into
financing arrangements with commercial banks or nontraditional lenders.
We currently do not have any financing arrangements in place. We did, however,
raise $910,729 through the sale of shares of our common stock in private
placement transactions exempt from the registration requirements of the
Securities Act of 1933 during the nine months ended November 30, 2019.
The following table provides a summary of cash flows for the periods presented:
Nine Months Ended
November 30, 2019 November 30, 2018
Net cash used in operating activities $ (1,581,076 ) $ (1,214,677 )
Net cash used in investing activities $ (16,291 ) (11,298 )
Net cash provided by financing activities $ 910,729 $ 1,868,500
Effect of exchange rates on cash & cash
equivalents $ (7,261 ) $ 32,117
Net decrease in cash and cash equivalents $ (693,899 ) $ 674,642
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Operating
Cash flows provided by operating activities decreased $366,399 in the nine
months ended November 30, 2019 compared to the nine months ended November 30,
2018, primarily due to the deposit made with our telecommunication company
clients in connection with our mobile recharge business.
Investing
Cash flows provided by investing activities decreased $4,993 in the nine months
ended November 30, 2019 compared to the nine months ended November 30, 2018,
primarily due to a purchase of equipment.
Financing
Cash flows provided by financing activities decreased $957,771 in the nine
months ended November 30, 2019 compared to the nine months ended November 30,
2018.
Off-Balance Sheet Arrangements
The Company does not currently have and has not had during the fiscal quarter
ended November 30, 2019, any off-balance sheet assets, liabilities or
arrangements.
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FINGERMOTION, INC. 
