FingerMotion Inc

Previous wording

The following management’s discussion and analysis of the Company’s financial condition and results of operations (the “MD&A”) contains forward-looking statements that involve risks, uncertainties and assumptions including, among others, statements regarding our capital needs, business plans and expectations. In evaluating these statements, you should consider various factors, including the risks, uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the SEC and, including, without limitation, this Quarterly Report on Form 10-Q for the three months ended May 31, 2024, and our Annual Report on Form 10-K for the fiscal year ended February 29, 2024, including the consolidated financial statements and related notes contained therein. These factors, or any one of them, may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this document. Refer to “Cautionary Note Regarding Forward-looking Statements” as disclosed in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024, and Item 1A - Risk Factors, under Part II - Other Information of this Quarterly Report.

Current wording

The following management’s discussion and analysis of the Company’s financial condition and results of operations (the “MD&A”) contains forward-looking statements that involve risks, uncertainties and assumptions including, among others, statements regarding our capital needs, business plans and expectations. In evaluating these statements, you should consider various factors, including the risks, uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the SEC and, including, without limitation, this Quarterly Report on Form 10-Q for the six months ended August 31, 2024, and our Annual Report on Form 10-K for the fiscal year ended February 29, 2024, including the consolidated financial statements and related notes contained therein. These factors, or any one of them, may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this document. Refer to “Cautionary Note Regarding Forward-looking Statements” as disclosed in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024, and Item 1A - Risk Factors, under Part II - Other Information of this Quarterly Report.

Previous wording

This MD&A is focused on material changes in our financial condition from February 29, 2024, our most recently completed year end, to May 31, 2024, and our results of operations for the three months ended May 31, 2024, and should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as contained in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024.

Current wording

This MD&A is focused on material changes in our financial condition from February 29, 2024, our most recently completed year end, to August 31, 2024, and our results of operations for the three and six months ended August 31, 2024, and should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as contained in our Annual Report on Form 10-K for the fiscal year ended February 29, 2024.

Previous wording

To address challenges resulting from laws, policies and practices that may disfavors foreign-owned entities that operate within industries deemed sensitive by the Chinese government, we use the VIE structure to provide contractual exposure to foreign investment in the PRC-based companies. We own 100% of the equity of a WFOE, Shanghai JiuGe Business Management Co., Ltd. (“JiuGe Management”), which has entered into the VIE Agreements with the VIE, which is owned by Ms. Li Li the legal representative and general manager, and also the shareholder of the VIE. The VIE Agreements have not been tested in court. As a result of our use of the VIE structure, you may never directly hold equity interests in the VIE. Any securities that we offer will be securities of the Company, the Delaware holding company, not of the VIE.

Current wording

To address challenges resulting from laws, policies and practices that may disfavor foreign-owned entities that operate within industries deemed sensitive by the Chinese government, we use the VIE structure to provide contractual exposure to foreign investment in the PRC-based companies. We own 100% of the equity of a WFOE, Shanghai JiuGe Business Management Co., Ltd. (“JiuGe Management”), which has entered into the VIE Agreements with the VIE, which is owned by Ms. Li Li the legal representative and general manager, and also the shareholder of the VIE. The VIE Agreements have not been tested in court. As a result of our use of the VIE structure, you may never directly hold equity interests in the VIE. Any securities that we offer will be securities of the Company, the Delaware holding company, not of the VIE.

Previous wording

The video game industry covers multiple sectors and is currently experiencing a move away from physical games 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. In June 2018, we temporarily paused its publishing and operating plans for existing games, and the Company’s Board of Directors decided to re-focus the Company’s resources into new business opportunities in China, particularly the mobile phone payment and data business.

Current wording

The video game industry covers multiple sectors and is currently experiencing a move away from physical games 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 Company’s Board of Directors decided to re-focus the Company’s resources into new business opportunities in China, particularly the mobile phone payment and data business.

Previous wording

We recorded $7,692,094 in costs of revenue for the three months ended May 31, 2024, a decrease of $3,814,448 or 33%, compared to the three months ended May 31, 2023. As previously mentioned, we principally earn revenue by providing mobile payment and recharge services to customers of telecommunications companies, subscription plans and mobile phone sales in China. To earn this revenue, we incur cost of the product, certain customer acquisition costs, including discounts to our customers and promotional expenses, which is reflected in our cost of revenue.

Current wording

We recorded $8,157,735 in costs of revenue for the three months ended August 31, 2024, an increase of $720,103 or 10%, compared to the three months ended August 31, 2023. As previously mentioned, we principally earn revenue by providing mobile payment and recharge services to customers of telecommunications companies, subscription plans and mobile phone sales in China. To earn this revenue, we incur cost of the product, certain customer acquisition costs, including discounts to our customers and promotional expenses, which is reflected in our cost of revenue.

Previous wording

We recorded depreciation of $12,014 for fixed assets for the three months ended May 31, 2024, a decrease of $6,328 or 35%, compared to the three months ended May 31, 2023.

Current wording

We recorded depreciation of $11,740 for fixed assets for the three months ended August 31, 2024, a decrease of $5,931 or 34%, compared to the three months ended August 31, 2023.

Previous wording

We recorded $62,524 in marketing cost for the three months ended May 31, 2024, being an increase of $69,365 or 1,014%, compared to the three months ended May 31, 2023. These marketing costs were incurred across our various business segments including promoting our newly launched DaGe platform. Marketing costs represent the costs of promoting our product offerings through all our platforms.

Current wording

We recorded $71,582 in marketing cost for the three months ended August 31, 2024, being an increase of $13,145 or 22%, compared to the three months ended August 31, 2023. The majority of these marketing costs were incurred in promoting our newly launched Da Ge App platform.

Previous wording

We incurred fees of $178,993 in research & development for the three months ended May 31, 2024 as compared to $172,099 for the three months ended May 31, 2023. The increase of $6,894 or 4% was due to the data access and usage fees charged by telecommunications company.

Current wording

We incurred fees of $180,273 in research & development for the three months ended August 31, 2024 as compared to $176,956 for the three months ended August 31, 2023. The increase of $3,317 or 2% was due to the data access and usage fee charged by telecommunications companies.

Previous wording

We incurred fees of $222,670 in share issuance for consultants in consideration of the services which have been provided to the Company for the three months ended May 31, 2024 as compared to $296,461 for the three months ended May 31, 2023. The decrease of $73,791 or 25% was due to the reduced engagement of consultants to the Company that were compensated with shares of our common stock, which highlights our effort to minimize equity issuances as part of our broader financial strategy to optimize equity issuances. However, we will continue to employ equity compensation for consultants selectively, aligning with our strategic and financial objectives.

Current wording

We incurred fees of $180,563 in share issuance for consultants in consideration of the services which have been provided to the Company for the three months ended August 31, 2024, as compared to $154,418 for the three months ended August 31, 2023. The increase of $26,145 or 17% was due to the engagement of consultants to the Company that were compensated with shares of our common stock. The rationale for compensating these consultants and advisors with shares is to minimize the usage of cash by the Company to allow the Company to use the cash to invest in revenue-generating activities.

Previous wording

We recorded $2,357,978 in operating expenses for the three months ended May 31, 2024, as compared to $1,842,051 in operating expenses for the three months ended May 31, 2023. The increase of $515,927 or 28%, for the three months ended May 31, 2024 is as set forth above.

Current wording

We recorded $1,992,194 in operating expenses for the three months ended August 31, 2024, as compared to $2,041,838 in operating expenses for the three months ended August 31, 2023. The decrease of $49,644 or 2%, for the three months ended August 31, 2024, is as set forth above.

Previous wording

The net loss attributable to the Company’s shareholders was $1,655,904 for the three months ended May 31, 2024 and $1,265,471 for the three months ended May 31, 2023. The increase in net loss attributable to the Company’s shareholders of $390,433 or 31% resulted primarily from the higher general & administrative expenses as discussed above.

Current wording

The net loss attributable to the Company’s shareholders was $1,688,229 for the three months ended August 31, 2024, and $134,081 for the three months ended August 31, 2023. The increase in net loss attributable to the Company’s shareholders of $1,554,148 or 1,159% resulted primarily from the reduced revenue and gross profit as discussed above.

Previous wording

We recorded $8,373,983 in revenue for the three months ended May 31, 2024, a decrease of $3,795,108 or 31%, compared to the three months ended May 31, 2023. This decrease resulted from an increase in revenue of $8,155,673 from our SMS & MMS business, offset by decreases in revenue of $11,801,075 and $149,706 from our Telecommunication Products & Services and Big Data businesses, respectively. 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. For the three months ended May 31, 2024, our SMS & MMS business saw a significant revenue increase due to the strategic reallocation of resources to this segment, allowing us to capitalize on higher margins and improved profitability. This strategic shift reflects our focus on optimizing our business portfolio by prioritizing higher-margin segments, which has resulted in a corresponding decrease in revenue from our Telecommunication Product & Services. In shifting focus to our Big Data business in FY2021, we forged a valuable alliance with Pacific Life Re, a global life reinsurance serving the insurance industry with a comprehensive suite of products and services, to develop a holistic multi-faceted risk rating concept, leveraging the Company’s proprietary approach to analytics by drawing data from novel sources and filtering them through advance algorithms with the ultimate goal to apply new insights generated from our predictive model to the traditional insurance industry. Building upon the successful implementation of the initial phase, Pacific Life Re proceeded with Phase 2 in the previous fiscal year. During the last quarter of FY2022, we established a collaborative research alliance with Munich Re in extending behavioral analytics to enhance understanding of morbidity and behavioral patterns in the Chinese market. The objective is to create value for both insurers and the end insurance consumers through technology advancements, improved product offerings and enhanced customer experiences. Following the successful execution of our joint initiatives with Munich Re, we are now in active discussion to develop a new partnership arrangement.

Current wording

We recorded $16,832,746 in revenue for the six months ended August 31, 2024, a decrease of $4,615,511 or 22%, compared to the six months ended August 31, 2023. This decrease resulted from increases in revenue of $8,151,251 and $28,730 from our SMS & MMS and Command & Communication businesses, respectively, offset by decreases in revenue of $12,569,040 and $226,452 from our Telecommunication Products & Services and Big Data businesses, respectively. 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. For the three months ended August 31, 2024, our SMS & MMS business saw a significant revenue increase compensating for a shortfall from the recharge services. The Company is constantly reallocating its resources when needed, reflecting our focus on optimizing our business portfolio by prioritizing higher-margin segments, which during the six months ended August 31, 2024, resulted in a corresponding decrease in revenue from our Telecommunication Products & Services. However, this shift could not compensate for the higher revenue generated from recharge services in the previous six months ended August 31, 2023. In shifting focus to our Big Data business, since FY2021, we forged an alliance and collaborative partnerships with two key reinsurance companies, Pacific Life Re and Munich Re, which enabled us to develop a holistic multi-faceted risk rating concept, leveraging the Company’s proprietary approach to analytics by drawing data from novel sources and filtering them through advance algorithms with the ultimate goal to apply new insights generated from our predictive model to the traditional insurance industry and extending behavioral analytics to enhance understanding of morbidity and behavioral patterns in the Chinese market. Our goal is to create value for both insurers and end consumers by driving technological advancements, improving product offerings, and enhancing customer experiences. After successfully executing joint initiatives with Munich Re, we are now actively working on promoting our data capabilities to customers.

Previous wording

At May 31, 2024, we had cash and cash equivalents of $1,064,124, as compared to cash and cash equivalents of $1,517,232 at February 29, 2024. Our mobile payment business model necessitates periodic fund deposits with our telecommunication companies to obtain access to the mobile data and talk time we make available to consumers on our portal. Additionally, our expansion into the cloud-based business, which features a longer collection cycle, has led to an increase in accounts receivable and consequently, a greater strain on our liquidity. To manage these operational demands effectively, we have had to carefully monitor and manage our cash flows. 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 and cash equivalents, coupled with our operating revenues, will sufficiently cover our projected operational needs and address our outstanding liabilities for the next 12 months. For more expansive growth, further enhancing our deposits with telecommunication entities will be crucial. In line with this, we intend to continue 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 non-traditional lenders. We cannot provide investors with any assurance that we will be able to raise additional funding from the sale of our equity or debt securities, or both, in order to increase our deposits with our telecommunications company clients, or if available, that such funding will be on terms acceptable to us.

Current wording

At August 31, 2024, we had cash and cash equivalents of $810,284, as compared to cash and cash equivalents of $1,517,232 at February 29, 2024. Our mobile payment business model necessitates periodic fund deposits with our telecommunication companies to obtain access to the mobile data and talk time we make available to consumers on our portal. Additionally, our expansion into the cloud-based business, which features a longer collection cycle, has led to an increase in accounts receivable and consequently, a greater strain on our liquidity. To manage these operational demands effectively, we have had to carefully monitor and manage our cash flows. We believe that our cash on hand and cash equivalents, along with our revenues from operations, will fund our core operations and repay our outstanding indebtedness for at least the next 12 months. However, we anticipate the need for additional capital to support the rollout of our Command & Communication business as well for more continued growth, increasing our deposits with telecommunication entities will be crucial. To support all these, we intend to continue to seek additional capital through public or private sales of our equity or debt securities, or both. We may also explore entering into financing arrangements with commercial banks or non-traditional lenders. We cannot provide investors with any assurance that we will be able to raise additional funding from the sale of our equity or debt securities, or both, in order to support the rollout of our Command & Communication business and increase our deposits with our telecommunications company clients, or if available, that such funding will be on terms acceptable to us.

Previous wording

We did, however, as of May 28, 2024, receive $775,000 in subscription proceeds to purchase 310,000 shares of our common stock at $2.50 per share on a private placement basis. When we issue the shares pursuant to the subscription agreements, we intend to rely upon the exemption from the registration requirements of the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) provided by Rule 903 of Regulation S promulgated under the U.S. Securities Act.

Current wording

We did, however, as of August 31, 2024, receive $1,605,000 in subscription proceeds to purchase 1,070,000 shares of our common stock at $1.50 per share on a private placement basis. When we issue the shares pursuant to the subscription agreements, we intend to rely upon the exemption from the registration requirements of the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) provided by Rule 903 of Regulation S promulgated under the U.S. Securities Act.

Previous wording

Net cash used in operating activities decreased by $1,168,012 in the three months ended May 31, 2024 compared to the three months ended May 31, 2023, primarily due to an increase in account receivable of ($7,762,176) (May 31, 2023: ($322,774)), increase in other receivable of ($150,316) (May 31, 2023: ($1,659,906)); offset by decrease in prepayment and deposit of $24,000 (May 31, 2023: $899,836), increase in accounts payable of $6,884,661 (May 31, 2023: $32,328), increase in accrual and other payable of $833,177 (May 31, 2023: ($645,872)) and increase in lease liability of $12,006 (May 31, 2023: ($1,188)).

Current wording

Net cash used in operating activities decreased by $1,969,990 in the six months ended August 31, 2024 compared to the six months ended August 31, 2023, primarily due to an increase in account receivable of ($12,209,223) (August 31, 2023: ($7,292,931)) and increase in prepayment and deposit of ($22,226) (August 31, 2023: $329,727); offset by decrease in other receivable of $527,972 (August 31, 2023: ($2,067,397)), increase in accounts payable of $10,002,702 (August 31, 2023: $5,327,561), increase in accrual and other payable of $1,369,869 (August 31, 2023: ($434,852)) and increase in lease liability of $11,448 (August 31, 2023: ($2,673)).

Previous wording

During the three months ended May 31, 2024, net cash used in investing activities decreased by $380 compared to $380 in the three months ended May 31, 2023.

Current wording

During the six months ended August 31, 2024, net cash used in investing activities increased by $1,369 compared to $372 in the six months ended August 31, 2023.

Previous wording

During the three months ended May 31, 2024, net cash provided by financing activities was $775,000 compared to net cash used by financing activities during the three months ended May 31, 2023 of $1,075,333. The increase was due to the receipt of subscription proceeds to purchase 310,000 shares of our common stock at $2.50 per share on a private placement basis.

Current wording

During the six months ended August 31, 2024, net cash provided by financing activities was $2,629,688 compared to net cash used by financing activities during the six months ended August 31, 2023 of $295,333. The increase was due to the receipt of subscription proceeds to purchase 1,070,000 shares of our common stock at $1.50 per share on a private placement basis and short-term loan facility of SGD$1,370,000.