FingerMotion, Inc. 10-Q

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The terms the “Registrant”, “we”, “us”, “our”, “FingerMotion” and the “Company” mean FingerMotion, Inc. or as the context requires, collectively with its consolidated subsidiaries and contractually controlled companies. Cautionary Note Regarding Forward-Looking Statements 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, 2022, and our Annual Report on Form 10-K for the fiscal year ended February 28, 2022, 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 28, 2022, and Item 1A, Risk Factors, under Part II - Other Information of this Quarterly Report. Introduction This MD&A is focused on material changes in our financial condition from February 28, 2022, our most recently completed year end, to May 31, 2022, and our results of operations for the three months ended May 31, 2022, 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 28, 2022. Corporate Information The Company was initially incorporated as Property Management Corporation of America on January 23, 2014 in the State of Delaware. On June 21, 2017, the Company amended its certificate of incorporation to effect a 1-for-4 reverse stock split of the Company’s outstanding common stock, to increase the authorized shares of common stock to 200,000,000 shares and to change the name of the Company from “Property Management Corporation of America” to “FingerMotion, Inc.” (the “ Corporate Actions ”). The Corporate Actions and the amended certificate of incorporation became effective on June 21, 2017. Our principal executive offices are located at 1460 Broadway, New York, New York 10036, and our telephone number at that address is (347) 349-5339. We are a holding company incorporated in Delaware and not an operating company incorporated in the People’s Republic of China (the “PRC” or “China”). As a holding company, we conduct a significant part of our operations through our subsidiaries and through the VIE Agreements with the VIE based in China. 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 replicate foreign investment in the PRC-based companies. We own 100% of the equity of a WFOE, Shanghai JiuGe Business Management Co., Ltd., 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. As a result of our use of the VIE structure, you may never directly hold equity interests the VIE. The securities offered pursuant to this prospectus are securities of the Company, the Delaware holding company, not of the VIE. We fund the registered capital and operating expenses of the VIE by extending loans to the shareholders of the VIE. We believe that we are the primary beneficiary of the VIE because the VIE Agreements governing the relationship between the VIE and our WFOE, which include a consulting services agreement, a loan agreement, a power of attorney agreement, a call option agreement, and a share pledge agreement, enable us to (i) exercise effective control over the VIE, (ii) receive substantially all of the economic benefits of the VIE, and (iii) have an exclusive call option to purchase, at any time, all or part of the equity interests in and/or assets of the VIE to the extent permitted by Chinese laws. - 24 - Table of Contents Share Exchange Agreement Effective July 13, 2017, the Company entered into that certain Share Exchange Agreement (the “ Share Exchange Agreement ”) by and among the Company, Finger Motion Company Limited, a Hong Kong corporation (“ FMCL ”) and certain shareholders of FMCL (the “ FMCL Shareholders ”). FMCL, a Hong Kong corporation, was formed on April 6, 2016 and is an information technology company that specializes in operating and publishing mobile games. Pursuant to the Share Exchange Agreement, the Company agreed to exchange the outstanding equity stock of FMCL held by the FMCL Shareholders for shares of common stock of the Company. On the closing date of the Share Exchange Agreement, the Company issued 12,000,000 shares of common stock to the FMCL shareholders. In addition, the Company issued 600,000 shares to consultants in connection with the transactions contemplated by the Share Exchange Agreement, and 2,562,500 additional shares to accredited investors, which was a concurrent financing but not a condition of closing the Share Exchange Agreement. As a result of the Share Exchange Agreement and the other transactions contemplated thereunder, FMCL became a wholly owned subsidiary of the Company. The Company operates its video game division through FMCL. However, in June 2018, the Company decided to pause the operation of the game division as it saw the opportunity in the telecommunication business and have since refocused into this business. This description of the Share Exchange Agreement does not purport to be complete and is qualified in its entirety by reference to the terms of the Share Exchange Agreement, which was filed as an exhibit to our Current Report on Form 8-K filed with the SEC on July 20, 2017 and incorporated by reference herein. VIE Agreements On October 16, 2018, the Company, through its indirect wholly owned subsidiary, Shanghai JiuGe Business Management Co., Ltd. (“ JiuGe Management ”), entered into a series of agreements known as variable interest agreements (the “ VIE Agreements ”) pursuant to which Shanghai JiuGe Information Technology Co., Ltd. (“ JiuGe Technology ”) became our contractually controlled affiliate. The use of VIE agreements is a common structure used to acquire PRC corporations, particularly in certain industries in which foreign investment is restricted or forbidden by the PRC government. The VIE Agreements include a Consulting Services Agreement, a Loan Agreement, a Power of Attorney Agreement, a Call Option Agreement, and a Share Pledge Agreement in order to secure the connection and commitments of the JiuGe Technology. We operate our mobile payment platform business through JiuGe Technology. The VIE Agreements included: ● a consulting services agreement through which JiuGe Management is mainly engaged in data marketing, technical services, technical consulting and business consultancy to JiuGe Technology (the “ JiuGe Technology Consulting Services Agreement ”); ● a loan agreement through which JiuGe Management grants a loan to the Legal Representative of JiuGe Technology for the purpose of capital contribution (the “ JiuGe Technology Loan Agreement ”); ● a power of attorney agreement under which the owner of JiuGe Technology has vested their collective voting control over JiuGe Technology to JiuGe Management and will only transfer their equity interests in JiuGe Technology to JiuGe Management or its designee(s) (the “ JiuGe Technology Power of Attorney Agreement ”); ● a call option agreement under which the owner of JiuGe Technology has granted to JiuGe Management the irrevocable and unconditional right and option to acquire all of their equity interests in JiuGe Technology or transfer these rights to a third party (the “ JiuGe Technology Call Option Agreement ”); and ● a share pledge agreement under which the owner of JiuGe Technology has pledged all of their rights, titles and interests in JiuGe Technology to JiuGe Management to guarantee JiuGe Technology’s performance of its obligations under the JiuGe Technology Consulting Services Agreement (the “ JiuGe Technology Share Pledge Agreement ”). - 25 - Table of Contents In the first half of 2018, JiuGe Technology secured contracts with China Unicom and China Mobile to distribute mobile data for businesses and corporations in 9 provinces/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 negotiated rebate amount from each of China Unicom and China Mobile for all monies paid by consumers to China Unicom and China Mobile that 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 the telecommunications companies, reduced by the amounts by which we discount the mobile data and talk time sold through our platform. In October 2018, China Unicom and China Mobile awarded JiuGe Technology with contracts that established partnerships for data analysis, that could unlock potential value-added services. This description of the VIE Agreements discussed above do not purport to be complete and are qualified in their entirety by reference to the terms of the VIE Agreements, which were filed as exhibits to our Current Report on Form 8-K filed with the SEC on December 27, 2018 and are incorporated by reference herein. Acquisition of Beijing Technology On March 7, 2019, the Company through JiuGe Technology acquired Beijing XunLian TianXia Technology Co., Ltd. (“ Beijing Technology ”), 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. Through Beijing Technology, the Company entered into the business of mass SMS text message service as a compliment to its mobile payment and recharge business. The mass SMS text message service offers bulk SMS services to end consumers with competitive pricing. Currently, the Company’s SMS integrated platform is processing more than 150 million SMS text messages per month. Beijing Technology retains a license from the Ministry of Industry and Information Technology to operate SMS and MMS business in the PRC. Similar to the mobile recharge business, Beijing Technology is required to make a deposit or bulk purchase in advance and has secured business customers that will utilize Beijing Technology’s SMS integrated platform to send bulk SMS text messages monthly. Beijing Technology has the capability to manage and track the entire process, including to assist the Company’s clients to fulfill the government guidelines, until the SMS messages have been delivered successfully. China Unicom Cooperation Agreement On July 7, 2019, JiuGe Technology entered into that certain Yunnan Unicom Electronic Sales Platform Construction and Operation Cooperation Agreement (the “ Cooperation Agreement ”) with China United Network Communications Limited Yunnan Branch (“ China Unicom Yunnan ”). Under the Cooperation Agreement, JiuGe Technology is responsible for constructing and operating China Unicom Yunnan’s electronic sales platform through which consumers can purchase various goods and services from China Unicom Yunnan, 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 Yunnan’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 Yunnan on the platform. - 26 - Table of Contents The Cooperation Agreement expires three years from the date of its signature with a yearly auto-renewal clause, but it may be terminated by (i) JiuGe Technology upon three months’ written notice or (ii) by China Unicom Yunnan unilaterally. The Cooperation Agreement contains customary representations from each party regarding such party’s authority to enter into and perform under the Cooperation Agreement, and provides customary events of default, including for various types of failure to perform. Any disputes arising between the parties under the Cooperation Agreement will be adjudicated in Chinese courts. This description of the Cooperation Agreement does not purport to be complete and is qualified in its entirety by reference to the terms of the Cooperation Agreement, which was filed as an exhibit to our Current Report on Form 8-K filed with the SEC on August 9, 2019 and is incorporated by reference herein. In January 2022, Shanghai TengLian JiuJiu Information Communication Technology Co., Ltd. (“ TengLian ”) (a 99% owned subsidiary of Shanghai JiuGe Information Technology Co., Ltd.) signed a co-operation agreement with China Unicom to launch the Device Protection program for mobile phones and the new 5G phones. Intercorporate Relationships The following is a list of all of our subsidiaries and the corresponding date of jurisdiction of incorporation or organization and the ownership interest of each entity. All of our subsidiaries are directly or indirectly owned or controlled by us: Name of Entity Place of Incorporation / Formation Ownership Interest Finger Motion Company Limited (1) Hong Kong 100% Finger Motion (CN) Global Limited (2) Samoa 100% Finger Motion (CN) Limited (3) Hong Kong 100% Shanghai JiuGe Business Management Co., Ltd. (4) PRC 100% Shanghai JiuGe Information Technology Co., Ltd. (5) PRC Contractually controlled (5) Beijing XunLian TianXia Technology Co., Ltd. (6) PRC Contractually controlled Finger Motion Financial Group Limited (7) Samoa 100% Finger Motion Financial Company Limited (8) Hong Kong 100% Shanghai TengLian JiuJiu Information Communication Technology Co., Ltd. (9) PRC Contractually controlled Notes : (1) Finger Motion Company Limited is a wholly-owned subsidiary of FingerMotion, Inc. (2) Finger Motion (CN) Global Limited is a wholly-owned subsidiary of FingerMotion, Inc. (3) Finger Motion (CN) Limited is a wholly-owned subsidiary of Finger Motion (CN) Global Limited. (4) Shanghai JiuGe Business Management Co., Ltd. is a wholly-owned subsidiary of Finger Motion (CN) Limited. (5) Shanghai JiuGe Information Technology Co., Ltd. is a variable interest entity that is contractually controlled by Shanghai JiuGe Business Management Co., Ltd. (6) Beijing XunLian TianXia Technology Co., Ltd. is a 99% owned subsidiary of Shanghai JiuGe Information Technology Co., Ltd. (7) Finger Motion Financial Group Limited is a wholly-owned subsidiary of FingerMotion, Inc. (8) Finger Motion Financial Company Limited is a wholly-owned subsidiary of Finger Motion Financial Group Limited. (9) Shanghai TengLian JiuJiu Information Communication Technology Co., Ltd. is a 99% owned subsidiary of Shanghai JiuGe Information Technology Co., Ltd. Because we do not directly hold equity interests in the VIE, we are subject to risks and uncertainties of the interpretations and applications of Chinese laws and regulations, including but not limited to, the validity and enforcement of the VIE Agreements among the WFOE, the VIE and the shareholder of the VIE. We are also subject to the risks and uncertainties about any future actions of the Chinese government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations and may cause the value of our Common Shares to depreciate significantly or become worthless. - 27 - Table of Contents The VIE Agreements may not be as effective as direct ownership in providing operational control. For instance, the VIE and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations in an acceptable manner or taking other actions that are detrimental to our interests. The shareholder of the VIE may not act in the best interests of our Company or may not perform their obligations under the VIE Agreements. Such risks exist throughout the period in which we intend to operate certain portions of our business through the VIE Agreements with the VIE. In the event that the VIE or its shareholder fail to perform their respective obligations under the VIE Agreements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. In addition, even if legal actions are taken to enforce the VIE Agreements, there is uncertainty as to whether Chinese courts would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. See “Risk Factors—Risks Related to the VIE Agreements”. We rely on the VIE Agreements with the VIE and its shareholder for a significant portion of our business operations. The VIE Agreements may not be as effective as direct ownership in providing operational control. Any failure by the VIE or its shareholder to perform their obligations under such contractual arrangements would have a material and adverse effect on our business. As of the date of this periodic report on Form 10-Q, we and the VIE are not required to seek permissions from the CSRC, the Cyberspace Administration of China (the “CAC”), or any other entity that is required to approve of the operations of the VIE. Nevertheless, Chinese regulatory authorities may in the future promulgate laws, regulations or implement rules that require us, our subsidiaries or the VIEs to obtain permissions from such regulatory authorities to approve the operations of the VIE or any securities listing. Overview The Company operates the following lines of business: (i) Telecommunications Products and Services; (ii) Value Added Product and Services; (iii) SMS and MMS Services; (iv) a Rich Communication Services (RCS) platform; (v) Big Data Insights; and (vi) a Video Game Division (inactive). Telecommunications Products and Services The Company’s current product mix consisting of payment and recharge services, data plans, subscription plans, mobile phones, loyalty points redemption and other products bundles (i.e. mobile protection plans). Chinese mobile phone consumers often utilize third-party e-marketing websites to pay their phone bills. If the consumer connected directly to the telecommunications provider to pay his or her bill, the consumer would miss out on any benefits or marketing discounts that e-marketers provide. Thus, consumers log on to these e-marketer’s websites, click into their respective phone provider’s store, and “top up,” or pay, their telecommunications provider for additional mobile data and talk time. To connect to the respective mobile telecommunications providers, these e-marketers must utilize a portal licensed by the applicable telecommunication company that processes the payment. We have been granted one of these licenses by China Unicom and China Mobile, each of which is a major telecommunications provider in China. We principally earn revenue by providing mobile payment and recharge services to customers of China Unicom and China Mobile. We conduct our mobile payment business through JiuGe Technology, our contractually controlled affiliate through the entry into a series of agreements known as VIE Agreements in October 2018. In the first half of 2018, JiuGe Technology secured contracts with China Unicom and China Mobile to distribute mobile data for businesses and corporations in nine provinces/municipalities, namely Chengdu, Jiangxi, Jiangsu, Chongqing, Shanghai, Zhuhai, Zhejiang, Shaanxi, Inner Mongolia, Henan and Fujian. In September 2018, JiuGe Technology launched and commercialized mobile payment and recharge services to businesses for China Unicom. In May 2021, JiuGe Technology signed a volume-based agreement with China Mobile Fujian to offer recharge services to the Fujian province which we have launched and commercialized in November 2021. 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. - 28 - Table of Contents FingerMotion started and commercialized its “Business to Business” (“ B2B ”) model by integrating with various e-commerce platforms to provide its mobile payment and recharge services to subscribers or end consumers. In the first quarter of 2019 FingerMotion expanded its business by commercializing its first “Business to Consumer” (“ B2C ”) model, offering the telecommunication providers’ products and services, including data plans, subscription plans, mobile phones, and loyalty points redemption, directly to subscribers or customers of the e-commerce companies, such as PinDuoDuo (“ PDD ”), TMall (“ TMALL ”) and JD.Com (“ JD ”). The Company is planning to further expand its universal exchange platform by setting up B2C stores on several other major e-commerce platforms in China. In addition to that, we have been assigned as one of China’s Mobile’s loyalty redemption partner where we will be providing the services for their customers via our platform. 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 service 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 with yearly auto-renewal terms, but it may be terminated by (i) JiuGe Technology upon three months’ written notice or (ii) by China Unicom unilaterally. During the recent fiscal year, the Company expanded its offering under their telecommunication product and services by increasing their product line revenue streams. In March 2020, FingerMotion secured a contract with both China Mobile and China Unicom to acquire new users to take up the respective subscription plans. In February 2021, we increased the mobile phones sales to end users using all of our platforms. This business will continue to contribute to the overall revenue for the group as part of our offering to our customers. Value Added Product and Services These are new product and services that the Company expects to secure and work with the telecommunication provider and all our e-commerce platform partners to market. The current and upcoming value-added product is the Mobile Protection programs which we plan to launch soon. In February 2022, our contractually controlled subsidiary, JiuGe Technology, through its 99% own subsidiary TengLian signed an agreement with both China Unicom and China Mobile to co-operate to roll out the Mobile Device protection product which is incorporated into the Telecommunication subscription plans in line with their roll out of new mobile phones and new 5G phones. The estimated roll out is expected to be in the second quarter of FY2023. SMS and MMS Services On March 7, 2019, the Company through JiuGe Technology acquired Beijing XunLian TianXia Technology Co., Ltd. ( “Beijing Technology” ), 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. With this acquisition, the Company expanded into a second partnership with the telecom companies by acquiring bulk Short Message Service (“SMS ”) and Multimedia Messaging Service ( “MMS” ) bundles at reduced prices and offering bulk SMS services to end consumers with competitive pricing. FingerMotion’s subsidiary, Beijing Technology, retains a license from the Ministry of Industry and Information Technology (“MIIT”) to operate the SMS and MMS business in the PRC. Similar to the mobile payment and recharge business, Beijing Technology is required to make a deposit or bulk purchase in advance and has secured business customers, including premium car manufacturers, hotel chains, airlines and e-commerce companies, that utilize Beijing Technology’s SMS integrated platform to send bulk SMS text messages monthly. Beijing Technology has the capability to manage and track the entire process, including guiding the Company’s customer to meet MIIT’s guidelines on messages composed, until the SMS messages have been delivered successfully. - 29 - Table of Contents Rich Communication Services In March 2020, the Company began development of an RCS platform, also known as MaaP (Messaging as a Platform). This RCS platform will be a proprietary business messaging platform that enables businesses and brands to communicate and service their customers on the 5G infrastructure, delivering a better and more efficient user experience at a lower cost. For example, with the new 5G RCS message service, consumers will have the ability to list available flights by sending a message regarding a holiday and will also be able to book and buy flights by sending messages. This will allow telecommunication providers like China Unicom and China Mobile to retain users on their systems, without having to utilize third party apps or log onto the internet, which will increase their user retention. We expect this to open up a new marketing channel for the Company’s current and prospective business partners. Big Data Insights In July 2020, the Company launched its proprietary technology platform “Sapientus” as its big data insights arm to deliver data-driven solutions and insights for businesses within the insurance, healthcare, and financial services industries. The Company applies its vast experience in the insurance and financial services industry and capabilities in technology and data analytics to develop revolutionary solutions targeted towards insurance and financial consumers. Integrating diverse publicly available information, insurance and financial based data with technology and finally registering them into the FingerMotion telecommunications and insurance ecosystem, the Company would be able to provide functional insights and facilitate the transformation of key components of the insurance value chain, including driving more effective and efficient underwriting, enabling fraud evaluation and management, empowering channel expansion and market penetration through novel product innovation, and more. The ultimate objective is to promote, enhance and deliver better value to our partners and customers. The Company’s proprietary risk assessment engine offers standard and customized scoring and appraisal services based on multi-dimensional factors. The Company has the ability to provide potential customers and partners with insights-driven and technology-enabled solutions and applications including preferred risk selection, precision marketing, product customization, and claims management (e.g., fraud detection). The Company’s mission is to deliver the next generation of data-driven solutions in the financial services, healthcare, and insurance industries that result in more accurate risk assessments, more efficient processes, and a more delightful user experience. On or around January 25, 2021, the Company’s wholly owned subsidiary, Finger Motion Financial Company Limited’s, big data analytic arm branded “Sapientus,” entered into a services agreement with Pacific Life Re, a global life reinsurer serving the insurance industry with a comprehensive suite of products and services. In December 2021, the Company through JiuGe Technology formed a collaborative research alliance with Munich Re in extending behavioral analytics to enhance understanding of morbidity and behavioral patterns in China market, with the goal of creating value for both insurers and the end insurance consumers through better technology, product offerings and customer experience. Our Video Game Division 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. - 30 - Table of Contents Results of Operations Three Months Ended May 31, 2022 Compared to Three Months Ended May 31, 2021 The following table sets forth our results of operations for the periods indicated: For the three months ended May 31, 2022 May 31, 2021 Revenue $ 4,855,123 $ 5,996,489 Cost of revenue $ (4,478,052 ) $ (5,376,792 ) Total operating expenses $ (1,812,491 ) $ (1,475,579 ) Total other income (expenses) $ (9,248 ) $ (53,624 ) Net Loss attributable to the Company’s shareholders $ (1,444,123 ) $ (911,890 ) Foreign currency translation adjustment $ (305,370 ) $ 60,184 Comprehensive loss attributable to the Company $ (1,749,404 ) $ (851,870 ) Basic Loss Per Share attributable to the Company $ (0.03 ) $ (0.02 ) Diluted Loss Per Share attributable to the Company $ (0.03 ) $ (0.02 ) Revenue The following table sets forth the Company’s revenue from its three lines of business for the periods indicated: For the three months ended May 31, 2022 May 31, 2021 Change (%) Telecommunication Products & Services $ 1,516,125 $ 1,737,080 -13 % SMS & MMS Business $ 3,338,998 $ 4,160,694 -20 % Big Data $ — $ 98,715 -100 % Total Revenue $ 4,855,123 $ 5,996,489 -19 % We recorded $4,855,123 in revenue for the quarter ended May 31, 2022, a decrease of $1,141,366 or 19%, compared to the quarter ended May 31, 2021. This decrease resulted from decrease in revenue of $220,955, $821,696 and $98,715 from our Telecommunication Products & Services, SMS & MMS business and Big Data business, respectively. The current outbreak of Covid-19 in China and the “lockdown’ in parts of China have slightly affected our operation, thus seeing the drop in the revenues. As of the date of this report, all operations are slowly moving back to pre-lockdown period. 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. Our SMS texting service has grown substantially compared to last year. The growth is expected to flourish further with the Company continuing to make prepayments to purchase large bulks of inventories to be resold to our increasing corporate clientele. We also earned revenue during the most recently completed fiscal year from our new venture on subscription plan acquisition and mobile phone sales. The Company expects and hopes that these new product offerings will continue to provide additional revenue for the Company in the future. During the last quarter of the fiscal year, our Big Data division secured a contract with Pacific Life Re, a global life reinsurance serving the insurance industry with 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 FingerMotion’s predictive model to the traditional insurance industry. This division has since recorded revenue and we expect additional revenue from this division in the future. - 31 - Table of Contents Cost of Revenue The following table sets forth the Company’s cost of revenue for the periods indicated: For the three months ended May 31, 2022 May 31, 2021 Telecommunication Products & Services $ 1,220,962 $ 1,474,203 SMS & MMS Business $ 3,257,090 $ 3,812,589 Big Data $ — $ 90,000 Total Cost of Revenue $ 4,478,052 $ 5,376,792 We recorded $4,478,052 in costs of revenue for the quarter ended May 31, 2022, a decrease of $898,740 or 17%, compared to the quarter ended May 31, 2021. 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. Gross profit Our gross profit for the quarter ended May 31, 2022 was $377,071, a decrease of $242,626 or 39%, compared to the quarter ended May 31, 2021. This decrease in gross profit resulted from lower revenue for the period. Amortization & Depreciation We recorded depreciation of $14,172 for fixed assets for the quarter ended May 31, 2022, a decrease of $249 or 2%, compared to the quarter ended May 31, 2021 General & Administrative Expenses The following table sets forth the Company’s general and administrative expenses for the periods indicated: For the three months ended May 31, 2022 May 31, 2021 Accounting $ 49,377 $ 39,743 Consulting $ 321,615 $ 355,843 Entertainment $ 46,389 $ 39,507 IT $ 9,091 $ 14,267 Rent $ 33,269 $ 25,135 Salaries & Wages $ 560,323 $ 588,427 Technical Fee $ 23,370 $ 23,114 Travelling $ 7,410 $ 27,589 Others $ 188,706 $ 66,122 Total G&A Expenses $ 1,239,550 $ 1,179,747 We recorded $1,239,550 in general and administrative expenses for the quarter ended May 31, 2022, an increase of $59,803 or 5%, compared to the quarter ended May 31, 2021. The increase is principally the result of the commencement and building of our five lines of businesses. Marketing Cost The following table sets forth the Company’s marketing cost for the periods indicated: For the three months ended May 31, 2022 May 31, 2021 Marketing Cost $ 57,191 $ 85,007 - 32 - Table of Contents We recorded $57,191 in marketing cost for the quarter ended May 31, 2022 for our telecommunication products and services business. Marketing costs represent the costs of promoting our product offerings through all our platforms. Research & Development The following table sets forth the Company’s research & development for the periods indicated: For the three months ended May 31, 2022 May 31, 2021 Research & Development $ 211,647 $ 135,429 We incurred fees of $211,647 in research & development for the quarter ended May 31, 2022 as compared to $135,429 for the quarter ended May 31, 2021. The increase of $76,218 or 56% was due to increase in headcount for the Research & Development team and higher data access and usage fees charged by telecommunications companies. The Insurtech division of FingerMotion focuses on consumer behavioral insights extraction for the purpose of risk assessment. Insights are mined from a multitude of data sources, harmonized with the objectives of our various business partners. The initial phase of business application is to focus on insurance industry particularly in the area of underwriting risk rating, complementary claims adjudication and assessment, and risk segmentation & market penetration. This division comprises of experienced actuaries, data scientists and computer programmers. The expenses for research & development include associated wages and salaries, data access fees and IT infrastructure. The 1 st stage of prototyping on Phase 1 - analytical framework and business applications have been completed and target to commercialize by the second quarter this year. Share Compensation Expenses The following table sets forth the Company’s share compensation expenses for the periods indicated: For the three months ended May 31, 2022 May 31, 2021 Share compensation expenses $ 289,931 $ 60,975 We incurred fees of $289,931 in share issuance for consultants in consideration of the services which have been provided to the company for the quarter ended May 31, 2022 as compared to $60,975 for the quarter ended May 31, 2021. The increase of $228,956 or 375% was due to the engagement of consultants to the Company that were compensated with shares of the Company. The rationale is to minimize the usage of cash by the Company for the Company to invest in revenue generating activities. Operating Expenses We recorded $1,812,491 in operating expenses for the quarter ended May 31, 2022, as compared to $1,475,579 in operating expenses for the quarter ended May 31, 2021. The increase of $336,912 or 23%, for the quarter ended May 31, 2022 is as set forth above. Net Loss attributable to the Company’s shareholders The net loss attributable to the Company’s shareholders was $1,444,123 for the quarter ended May 31, 2022 and $911,890 for the quarter ended May 31, 2021. The increase in net loss attributable to the Company’s shareholders of $532,233 or 58% resulted primarily from the lower revenue and the increase in total operating expenses as discussed above. - 33 - Table of Contents Liquidity and Capital Resources The following table sets out our cash and working capital as of May 31, 2022 and February 28, 2022: As at May 31, 2022 As at February 28, 2022 Cash reserves $ 805,548 $ 461,933 Working capital $ 3,515,768 $ 4,930,441 At May 31, 2022, we had cash and cash equivalents of $805,548, as compared to cash and cash equivalents of $461,933 at February 28, 2022. In order for us to continue to operate our mobile payment business, we must deposit funds with our telecommunication companies 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 as explained above to ensure our cash is being used efficiently by our operations to generate revenues. 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 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. Statement of Cashflows The following table provides a summary of cash flows for the periods presented: For the three months ended May 31, 2022 May 31, 2021 Net cash used in operating activities $ (421,968 ) $ (1,941,180 ) Net cash used in investing activities $ — $ (4,401 ) Net cash provided by financing activities $ 730,000 $ 1,826,694 Effect of exchange rates on cash & cash equivalents $ 35,583 $ 57,922 Net increase (decrease) in cash and cash equivalents $ 343,615 $ (60,965 ) Cash Flow used in Operating Activities Net cash used in operating activities decreased by $1,519,212 in the three months ended May 31, 2022 compared to the three months ended May 31, 2021, primarily due to a decrease in account receivable of $887,094 (May 31, 2021: $1,415,203), decrease in prepayment and deposit of $326,836 (May 31, 2021: ($2,812,004)), decrease in other receivable of $975 (May 31, 2021: ($10,307)) and increase in accrual and other payable of $832,880 (May 31, 2011: $473,587); offset by a decrease in accounts payable of ($1,418,270) (May 31, 2021: ($170,474)). Cash Flow used in Investing Activities During the quarter ended May 31, 2022, investing activities decreased by $4,401 compared to quarter ended May 31, 2021. Cash Flow provided by Financing Activities During the quarter ended May 31, 2022, financing activities decreased by $1,096,694 compared to the quarter ended May 31, 2021. - 34 - Table of Contents Off-Balance Sheet Arrangements There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Subsequent Events On July 5, 2022, we issued 5,000 shares of our common stock at a deemed price of $5.00 per share to one entity pursuant to a consulting agreement. On July 5, 2022, we issued an aggregate of 25,000 shares of our common stock at a deemed price of $2.70 per share to two individuals and one entity pursuant to consulting agreements. Critical Accounting Policies For a complete summary of all of our significant accounting policies refer to Note 2: Summary of Principal Accounting Policies of the Notes to the Condensed Consolidated Financial Statements as presented under Item 8, Financial Statements and Supplementary Data in our Annual Report on Form 10-K for our fiscal year ended February 28, 2022. Refer to “Critical Accounting Policies” under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for our fiscal year ended February 28, 2022. Recently Issued Accounting Pronouncements The Company does not believe recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company as defined in Rule 12b-2 under the Exchange Act, the Company is not required to provide the information required by this item.