FingerMotion, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS - 1 - Table of Contents FINGERMOTION, INC. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the six months ended August 31, 2022 (Unaudited - Expressed in U.S. Dollars) - 2 - Table of Contents FingerMotion, Inc. Condensed Consolidated Balance Sheets August 31, February 28, 2022 2022 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 1,984,562 $ 461,933 Accounts receivable 2,777,946 4,875,149 Inventories — 1,407 Prepayment and deposit 3,973,914 3,331,342 Other receivables 1,394,674 1,539,265 Current Assets 10,131,096 10,209,096 Non-current Assets Equipment 22,274 26,808 Intangible assets 94,426 125,932 Right-of-use asset 207,406 5,069 Non-current Assets 324,106 157,809 TOTAL ASSETS $ 10,455,202 $ 10,366,905 LIABILITIES AND SHAREHOLDER’S DEFICIT Current Liabilities Accounts payable $ 1,506,771 $ 3,588,289 Accrual and other payables 1,042,201 1,685,297 Convertible notes payable, current portion 730,000 — Lease liability, current portion 123,413 5,069 Current Liabilities 3,402,385 5,278,655 Non-current Liabilities Convertible notes payable, non-current portion 4,800,000 — Lease liability, non-current portion 83,993 — Non-current Liabilities 4,883,993 — TOTAL LIABILITIES $ 8,286,378 $ 5,278,655 SHAREHOLDERS’ EQUITY Preferred stock, par value $ .0001 per share; Authorized 1,000,000 shares; issued and outstanding - 0 - shares. — — Common Stock, par value $ .0001 per share; Authorized 200,000,000 shares; issued and outstanding 42,857,260 shares and 42,627,260 issued and outstanding at August 31, 2022 and February 28, 2022 respectively 4,286 4,263 Additional paid-in capital 22,323,418 21,730,941 Additional paid-in capital - stock options 356,328 356,328 Accumulated deficit ( 20,133,660 ) ( 17,152,172 ) Accumulated other comprehensive income ( 391,252 ) 137,911 Stockholders’ equity before non-controlling interests 2,159,120 5,077,271 Non-controlling interests 9,704 10,979 TOTAL SHAREHOLDERS’ EQUITY 2,168,824 5,088,250 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 10,455,202 $ 10,366,905 - 3 - Table of Contents FingerMotion, Inc. Unaudited Condensed Consolidated Statements of Operations Three Months Ended Six Months Ended August 31, August 31, August 31, August 31, 2022 2021 2022 2021 Revenue $ 4,982,957 $ 5,386,914 $ 9,838,080 $ 11,383,403 Cost of revenue ( 4,565,173 ) ( 4,690,058 ) ( 9,043,225 ) ( 10,066,850 ) Gross profit 417,784 696,856 794,855 1,316,553 Amortization & Depreciation ( 13,466 ) ( 14,402 ) ( 27,638 ) ( 28,823 ) General & administrative expenses ( 1,275,869 ) ( 1,444,914 ) ( 2,515,419 ) ( 2,624,661 ) Marketing Cost ( 169,389 ) ( 59,075 ) ( 226,580 ) ( 144,082 ) Research & Development ( 198,104 ) ( 144,549 ) ( 409,751 ) ( 279,978 ) Stock compensation expenses ( 254,547 ) ( 421,571 ) ( 544,478 ) ( 482,546 ) Total operating expenses ( 1,911,375 ) ( 2,084,511 ) ( 3,723,866 ) ( 3,560,090 ) Net loss from operations ( 1,493,591 ) ( 1,387,655 ) ( 2,929,011 ) ( 2,243,537 ) Other income (expense): Interest income 700 447 1,457 1,717 Interest expense ( 89,646 ) ( 80,247 ) ( 104,477 ) ( 172,813 ) Exchange gain (loss) ( 346 ) ( 2,354 ) ( 618 ) ( 1,679 ) Other income 44,788 15,192 49,886 52,189 Total other income (expense) ( 44,504 ) ( 66,962 ) ( 53,752 ) ( 120,586 ) Net loss before income tax $ ( 1,538,095 ) $ ( 1,454,617 ) $ ( 2,982,763 ) $ ( 2,364,123 ) Income tax expenses — — — — Net Loss $ ( 1,538,095 ) $ ( 1,454,617 ) $ ( 2,982,763 ) $ ( 2,364,123 ) Less: Net profit attributable to the non-controlling interest ( 730 ) 1,147 ( 1,275 ) 3,531 Net loss attributable to the Company’s shareholders $ ( 1,537,365 ) $ ( 1,455,764 ) $ ( 2,981,488 ) $ ( 2,367,654 ) Other comprehensive income: Foreign currency translation adjustments ( 223,793 ) ( 87,538 ) ( 529,163 ) ( 27,354 ) Comprehensive loss $ ( 1,761,158 ) $ ( 1,543,302 ) $ ( 3,510,651 ) $ ( 2,395,008 ) Less: comprehensive income (loss) attributable to non-controlling interest ( 318 ) ( 167 ) ( 407 ) ( 3 ) Comprehensive loss attributable to the Company $ ( 1,760,840 ) $ ( 1,543,135 ) $ ( 3,510,244 ) $ ( 2,395,005 ) NET LOSS PER SHARE Loss Per Share - Basic $ ( 0.04 ) $ ( 0.04 ) $ ( 0.07 ) $ ( 0.06 ) Loss Per Share - Diluted $ ( 0.04 ) $ ( 0.04 ) $ ( 0.07 ) $ ( 0.06 ) NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY Loss Per Share - Basic $ ( 0.04 ) $ ( 0.04 ) $ ( 0.07 ) $ ( 0.06 ) Loss Per Share - Diluted $ ( 0.04 ) $ ( 0.04 ) $ ( 0.07 ) $ ( 0.06 ) Weighted Average Common Shares Outstanding - Basic 42,811,064 39,647,106 42,752,532 39,290,499 Weighted Average Common Shares Outstanding - Diluted 42,811,064 39,647,106 42,752,532 39,290,499 - 4 - Table of Contents FingerMotion, Inc. Unaudited Condensed Consolidated Statement of Shareholders’ Equity Common Stock Capital Paid in Excess of Additional Paid-in Shares to be Stock Capital- Accumulated Other Comprehensive Stockholders’ Non-controlling Shares Amount Par Value options Deficit Income equity interest Total Balance at March 1, 2022 42,627,260 4,263 21,730,941 356,328 ( 17,152,172 ) 137,911 5,077,271 10,979 5,088,250 Common stock issued for cash — — — — — — — — — Common stock issued for professional service 150,000 15 435,235 — — — 435,250 — 435,250 Accumulated other comprehensive income — — — — — ( 305,370 ) ( 305,370 ) — ( 305,370 ) Net (Loss) — — — — ( 1,444,123 ) — ( 1,444,123 ) ( 545 ) ( 1,444,668 ) Balance at May 31, 2022 42,777,260 4,278 22,166,176 356,328 ( 18,596,295 ) ( 167,459 ) 3,763,028 10,434 3,773,462 Common stock issued for cash — — — — — — — — — Common stock issued for professional service 80,000 8 157,242 — — — 157,250 — 157,250 Accumulated other comprehensive income — — — — — ( 223,793 ) ( 223,793 ) — ( 223,793 ) Net (Loss) — — — — ( 1,537,365 ) — ( 1,537,365 ) ( 730 ) ( 1,538,095 ) Balance at August 31, 2022 42,857,260 4,286 22,323,418 356,328 ( 20,133,660 ) ( 391,252 ) 2,159,120 9,704 2,168,824 Common Stock Capital Paid in Excess of Additional Paid-in Capital- Stock Accumulated Accumulated Other Comprehensive Stockholders’ Non-controlling Shares Amount Par Value options Deficit Income equity interest Total Balance at March 1, 2021 38,903,494 3,890 14,170,815 — ( 12,208,728 ) 140,906 2,106,883 8,083 2,114,966 Common stock issued for cash 86,666 9 179,990 — — — 179,999 — 179,999 Common stock issued for professional service 5,000 1 9,999 — — — 10,000 — 10,000 Accumulated other comprehensive income — — — — — 60,184 60,184 — 60,184 Net (Loss) — — — — ( 911,890 ) — ( 911,890 ) 2,384 ( 909,506 ) Balance at May 31, 2021 38,995,160 3,900 14,360,804 — ( 13,120,618 ) 201,090 1,445,176 10,467 1,455,643 Common stock issued for cash 673,900 67 3,114,432 — — — 3,114,499 — 3,114,499 Common stock issued for professional service 55,000 5 259,995 — — — 260,000 — 260,000 Execution of convertible notes 2,477,200 248 1,940,752 — — — 1,941,000 — 1,941,000 Accumulated other comprehensive income — — — — — ( 87,538 ) ( 87,538 ) — ( 87,538 ) Net (Loss) — — — — ( 1,455,764 ) — ( 1,455,764 ) 1,147 ( 1,454,617 ) Balance at August 31, 2021 42,201,260 4,220 19,675,983 — ( 14,576,382 ) 113,552 5,217,373 11,614 5,228,987 - 5 - Table of Contents FingerMotion, Inc. Unaudited Condensed Consolidated Statements of Cash Flows Six Months Ended August 31, August 31, 2022 2021 Net (loss) $ ( 2,982,763 ) $ ( 2,364,123 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Share based compensation expenses 722,642 482,546 Amortization and depreciation 27,638 28,823 Impairment of fixed assets 1,293 Change in operating assets and liabilities: (Increase) decrease in accounts receivable 1,686,094 409,212 (Increase) decrease in prepayment and deposit ( 892,358 ) ( 2,014,573 ) (Increase) decrease in others receivable 14,789 ( 663,370 ) (Increase) decrease in inventories 1,289 ( 1,184 ) Increase (decrease) in accounts payable ( 1,778,928 ) ( 86,230 ) Increase (decrease) in accrual and other payables ( 585,539 ) 698,460 Increase (decrease) in due to lease liability — ( 3,191 ) Net Cash provided by (used in) operating activities ( 3,785,843 ) ( 3,513,630 ) Cash flows from investing activities Purchase of equipment ( 4,120 ) ( 12,625 ) Net cash provided by (used in) investing activities ( 4,120 ) ( 12,625 ) Cash flows from financing activities Proceed from convertible note 5,530,000 — Execution of convertible note — 1,941,000 Proceed from loan payable — ( 1,654,207 ) Common stock issued for cash — 3,294,498 Net cash provided by (used in) financing activities 5,530,000 3,581,291 Effect of exchange rates on cash and cash equivalents ( 217,408 ) ( 27,668 ) Net change in cash 1,522,629 27,368 Cash at beginning of period 461,933 850,717 Cash at end of period $ 1,984,562 $ 878,085 Major non-cash transactions: Conversion of loan payables to shares $ — $ — Supplemental disclosures of cash flow information: Interest paid $ — $ — Taxes paid $ — $ — - 6 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 1 – Nature of Business and Basis of Presentation FingerMotion, Inc. fka Property Management Corporation of America (the “Company”) was incorporated on January 23, 2014, under the laws of the State of Delaware. The Company then offered management and consulting services to residential and commercial real estate property owners who rent or lease their property to third-party tenants. The Company changed its name to FingerMotion, Inc. on July 13, 2017, after a change in control. In July 2017 the Company acquired all of the outstanding shares of Finger Motion Company Limited (“FMCL”), a Hong Kong corporation that is an information technology company which specialize in operating and publishing mobile games. Pursuant to the Share Exchange Agreement with FMCL, effective July 13, 2017 (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. At the Closing Date, the Company issued 12,000,000 shares of common stock to the FMCL shareholders. In addition, the Company issued 600,000 shares to other consultants in connection with the transactions contemplated by the Share Exchange Agreement. The transaction was accounted for as a “reverse acquisition” since, immediately following completion of the transaction, the shareholders of FMCL effectuated control of the post-combination Company. For accounting purposes, FMCL was deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of FMCL (i.e., a capital transaction involving the issuance of shares by the Company for the shares of FMCL). Accordingly, the consolidated assets, liabilities, and results of operations of FMCL became the historical financial statements of FingerMotion, Inc. and its subsidiaries, and the Company’s assets, liabilities and results of operations were consolidated with FMCL beginning on the acquisition date. No step-up in basis or intangible assets or goodwill were recorded in this transaction. As a result of the Share Exchange Agreement and the other transactions contemplated thereunder, FMCL became a wholly owned subsidiary of the Company. FMCL, a Hong Kong corporation, was formed in April 6, 2016. 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 JiuGe Management’s 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 JiuGe Technology. On March 7, 2019, JiuGe Technology also acquired 99% of the equity interest of Beijing XunLian (“BX”), a subsidiary that provides bulk distribution of SMS messages for JiuGe customers at discounted rates. Finger Motion Financial Company Limited was incorporated on January 24, 2020, and is 100% owned by FingerMotion, Inc. The company has been activated for the insurtech business during the last quarter of the fiscal year where the Big Data division secured its first contract and recorded revenue. Shanghai TengLian JiuJiu Information Communication Technology Co., Ltd. was incorporated on December 23, 2020, for the purpose of venturing into mobile phone sales in China. It is 99% owned by JiuGe Technology. On February 5, 2021, JiuGe Technology disposed of its 99% owned subsidiary, Suzhou BuGuNiao Digital Technology Co., Ltd which was established to venture into R&D projects. - 7 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Principal Accounting Policies Principles of Consolidation and Presentation The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The condensed consolidated financial statements include the financial statements of the Company, and its wholly-owned subsidiaries. All intercompany accounts, transactions, and profits have been eliminated upon consolidation. Variable interest entity Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, “Consolidation” (“ASC 810”), the Company is required to include in its consolidated financial statements, the financial statements of its variable interest entities (“VIEs”). ASC 810 requires a VIE to be consolidated if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards normally associated with ownership of the entity, and therefore the company is the primary beneficiary of the entity. Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The reporting entity’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de - facto agents, have the unilateral ability to exercise those rights. JiuGe Technology’s actual stockholders do not hold any kick-out rights that affect the consolidation determination. Through the VIE agreements disclosed in Note 1, the Company is deemed the primary beneficiary of JiuGe Technology. Accordingly, the results of JiuGe Technology have been included in the accompanying consolidated financial statements. JiuGe Technology has no assets that are collateral for or restricted solely to settle their obligations. The creditors of JiuGe Technology do not have recourse to the Company’s general credit. - 8 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Principal Accounting Policies (Continued) The following assets and liabilities of the VIE and VIE’s subsidiaries are included in the accompanying condensed consolidated financial statements of the Company as of August 31, 2022 and February 28, 2022: Assets and liabilities of the VIE Schedule of variable interest entity August 31, 2022 February 28, 2022 (unaudited) Current assets $ 5,580,248 $ 4,503,346 Non-current assets 219,490 21,042 Total assets $ 5,799,738 $ 4,524,388 Current liabilities $ 10,298,188 $ 8,556,844 Non-current liabilities 83,993 — Total liabilities $ 10,382,181 $ 8,556,844 Assets and liabilities of the VIE’s Subsidiaries August 31, 2022 February 28, 2022 (unaudited) Current assets $ 2,765,533 $ 5,330,206 Non-current assets 7,852 9,121 Total assets $ 2,773,385 $ 5,339,327 Current liabilities $ 1,818,069 $ 4,162,414 Non-current liabilities — — Total liabilities $ 1,818,069 $ 4,162,414 - 9 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Principal Accounting Policies (Continued) Operating Result of VIE For the Six Months Ended August 31, 2022 For the Six Months Ended August 31, 2021 (unaudited) (unaudited) Revenue $ 4,235,851 $ 1,387,156 Cost of revenue ( 3,653,565 ) ( 627,520 ) Gross profit (loss) $ 582,286 $ 759,636 Amortization and depreciation ( 3,094 ) ( 3,906 ) General and administrative expenses ( 1,154,029 ) ( 1,111,044 ) Marketing cost ( 193,776 ) ( 110,074 ) Research & development ( 209,915 ) ( 279,978 ) Total operating expenses $ ( 1,560,814 ) $ ( 1,505,002 ) Profit (loss) from operations $ ( 978,528 ) $ ( 745,366 ) Interest income 1,375 1,644 Other income 49,886 9,043 Total other income (expense) $ 51,261 $ 10,687 Tax expense — — Net profit (loss) $ ( 927,267 ) $ ( 734,679 ) - 10 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Principal Accounting Policies (Continued) Operating Result of VIE’s Subsidiaries For the Six Months Ended August 31, 2022 For the Six Months Ended August 31, 2021 (unaudited) (unaudited) Revenue $ 5,539,728 $ 9,864,829 Cost of revenue ( 5,389,660 ) ( 9,259,330 ) Gross profit (loss) $ 150,068 $ 605,499 Amortization and depreciation ( 521 ) ( 451 ) General and administrative expenses ( 200,341 ) ( 261,123 ) Marketing cost ( 32,803 ) ( 34,007 ) Research & development ( 43,943 ) — Total operating expenses $ ( 277,608 ) $ ( 295,581 ) Profit (loss) from operations $ ( 127,540 ) $ 309,918 Interest income 70 22 Other income — 43,146 Total other income (expense) $ 70 $ 43,168 Tax expense — — Net profit (loss) $ ( 127,470 ) $ 353,086 - 11 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Principal Accounting Policies (Continued) Use of Estimates The preparation of the Company’s financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Actual results could differ from those estimates. Certain Risks and Uncertainties The Company relies on cloud-based hosting through a global accredited hosting provider. Management believes that alternate sources are available; however, disruption or termination of this relationship could adversely affect our operating results in the near term. Identifiable Intangible Assets Identifiable intangible assets are recorded at cost and are amortized over 3 - 10 years. Similar to tangible property and equipment, the Company periodically evaluates identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment of Long-Lived Assets The Company classifies its long-lived assets into: (i) computer and office equipment; (ii) furniture and fixtures, (iii) leasehold improvements, and (iv) finite–lived intangible assets. Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. It is possible that these assets could become impaired as a result of technology, economy, or other industry changes. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, relief from royalty income approach, quoted market values and third-party independent appraisals, as considered necessary. The Company makes various assumptions and estimates regarding estimated future cash flows and other factors in determining the fair values of the respective assets. The assumptions and estimates used to determine future values and the remaining useful lives of long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as the Company’s business strategy and its forecasts for specific market expansion. Accounts Receivable and Concentration of Risk Accounts receivable, net is stated at the amount the Company expects to collect, or the net realizable value. The Company provides a provision for allowances that includes returns, allowances, and doubtful accounts equal to the estimated uncollectible amounts. The Company estimates its provision for allowances based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the provision for allowances will change. - 12 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Principal Accounting Policies (Continued) Lease Operating and finance lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. When the rate implicit to the lease cannot be readily determined, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is derived from information available at the lease commencement date and represents the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The right-of-use asset includes any lease payments made and lease incentives received prior to the commencement date. Operating lease right-of-use assets also include any cumulative prepaid or accrued rent when the lease payments are uneven throughout the lease term. The right-of-use assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Cash and Cash Equivalents Cash and cash equivalents represent cash on hand, demand deposits, and other short-term highly liquid investments placed with banks, which have original maturities of three months or less and are readily convertible to known amounts of cash. Property and Equipment Property and equipment are stated at cost. Depreciation of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the estimated useful lives of the assets. Estimated useful lives range from three 3 to seven 7 years. Land is classified as held for sale when management has the ability and intent to sell, in accordance with ASC Topic 360-45. Earnings Per Share Basic (loss) earnings per share is based on the weighted average number of common shares outstanding during the period while the effects of potential common shares outstanding during the period are included in diluted earnings per share. FASB Accounting Standard Codification Topic 260 (“ASC 260”), “Earnings Per Share,” requires that employee equity share options, non-vested shares and similar equity instruments granted to employees be treated as potential common shares in computing diluted earnings per share. Diluted earnings per share should be based on the actual number of options or shares granted and not yet forfeited, unless doing so would be anti-dilutive. The Company uses the “treasury stock” method for equity instruments granted in share-based payment transactions provided in ASC 260 to determine diluted earnings per share. Antidilutive securities represent potentially dilutive securities which are excluded from the computation of diluted earnings or loss per share as their impact was antidilutive. - 13 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 2 – Summary of Principal Accounting Policies (Continued) Revenue Recognition The Company adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”) beginning on January 1, 2018 using the modified retrospective approach. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The Company has assessed the impact of the guidance by reviewing its existing customer contracts and current accounting policies and practices to identify differences that will result from applying the new requirements, including the evaluation of its performance obligations, transaction price, customer payments, transfer of control and principal versus agent considerations. Based on the assessment, the Company concluded that there was no change to the timing and pattern of revenue recognition for its current revenue streams in scope of ASC 606 and therefore there was no material changes to the Company’s consolidated financial statements upon adoption of ASC 606. The Company recognizes revenue from providing hosting and integration services and licensing the use of its technology platform to its customers. The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service has been provided to the customer (for licensing, revenue is recognized when the Company’s technology is used to provide hosting and integration services); (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of fees is probable. We account for our multi-element arrangements, such as instances where we design a custom website and separately offer other services such as hosting, which are recognized over the period for when services are performed. Income Taxes The Company uses the asset and liability method of accounting for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes” (“ASC 740”). Under this method, income tax expense is recognized as the amount of: (i) taxes payable or refundable for the current year and (ii) future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax assets will not be realized. Non-controlling interest Non-controlling interests held 1% of the shares of two of our subsidiaries are recorded as a component of our equity, separate from the Company’s equity. Purchase or sales of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings. 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. - 14 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 3 – Going Concern The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $ 20,133,660 and $ 17,152,172 as at August 31, 2022 and February 28, 2022 respectively, and had a net loss of $ 2,929,011 and $ 2,243,537 for the six months ended August 31, 2022 and 2021, respectively. The Company’s continuation as a going concern depends on its ability to obtain additional financing to fund operations, implement its business model, and ultimately, attain profitable operations. The Company will need to secure additional funds through various means, including equity and debt financing or any similar financing. There can be no assurance that the Company can obtain additional equity or debt financing, if and when needed, on terms acceptable to the Company, or at all. Any additional equity or debt financing may involve substantial dilution to the Company’s stockholders, restrictive covenants, or high interest costs. The Company’s long-term liquidity also depends upon its ability to generate revenues and achieve profitability. Note 4 – Revenue We recorded $9,838,080 and $11,383,403 in revenue, respectively, for the six months ended August 31, 2022 and 2021. Schedule of Revenue For the six months ended August 31, 2022 August 31, 2021 (unaudited) (unaudited) Telecommunication Products & Services $ 4,326,623 $ 3,448,375 SMS & MMS Business 5,448,957 7,803,610 Big Data 62,500 131,418 $ 9,838,080 $ 11,383,403 Note 5 – Equipment At August 31, 2022 and February 28, 2022, the Company has the following amounts related to tangible assets: Schedule of property, plant and equipment August 31, 2022 February 28, 2022 (unaudited) Equipment $ 50,489 $ 62,347 Less: accumulated depreciation ( 28,215 ) ( 35,539 ) Net equipment $ 22,274 $ 26,808 No significant residual value is estimated for the equipment. Depreciation expenses for the six months ended August 31, 2022 and 2021 totaled $ 5,878 and $ 6,929 , respectively. - 15 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 6 – Intangible Assets At August 31, 2022 and February 28, 2022, the Company has the following amounts related to intangible assets: Schedule of intangible assets August 31, 2022 February 28, 2022 (unaudited) Licenses $ 200,000 $ 200,000 Mobile applications 213,504 233,167 413,504 433,167 Less: accumulated amortization ( 278,033 ) ( 266,190 ) Impairment of intangible assets ( 41,045 ) ( 41,045 ) Net intangible assets $ 94,426 $ 125,932 No significant residual value is estimated for these intangible assets. Amortization expenses for the six months ended August 31, 2022 and 2021 totaled $ 21,760 and $ 21,894 , respectively. Note 7 – Prepayment and Deposit Prepaid expenses consist of the deposit pledge to the vendor for stock credits for resale. Our current vendors are China Unicom and China Mobile for our Telecommunication Products & Services business and our SMS & MMS business. Deposits includes payments placed into the e-commerce platforms where we offer our products and services. The platforms are PinDuoDuo, Tmall, and JD.com. Schedule of prepaid expense August 31, 2022 February 28, 2022 (unaudited) Telecommunication Products & Services Deposit Paid / Prepayment $ 2,336,880 $ 2,396,550 Deposit received — — Net Prepaid expenses for Telecommunication Products & Services $ 2,336,880 $ 2,396,550 Others prepayment 1,575,699 369,256 Prepayment and deposit $ 3,912,579 $ 2,765,806 August 31, 2022 February 28, 2022 (unaudited) SMS & MMS Business Deposit Paid / Prepayment $ 61,335 $ 565,536 Deposit received Net Prepaid expenses for SMS $ 61,335 $ 565,536 Others prepayment — — Prepayment and deposit $ 61,335 $ 565,536 - 16 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 8 – Right-of-use Asset and Lease Liability The Company has entered into lease agreements with various third parties. The terms of operating leases are one to two years. These operating leases are included in “Right-of-use Asset” on the Company’s Condensed Consolidated Balance Sheet and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are included in “Lease liability” on the Company’s Condensed Consolidated Balance Sheet. Additionally, the Company has entered into various short-term operating leases with an initial term of twelve months or less. These leases are not recorded on the Company’s Condensed Consolidated Balance Sheet. All operating lease expense is recognized on a straight-line basis over the lease term in the six months ended August 31, 2022. Information related to the Company’s right-of-use assets and related lease liabilities were as follows: Schedule of Operating Leases assets and liabilities August 31, 2022 February 28, 2022 (unaudited) Right-of-use asset Right-of-use asset, net $ 207,406 $ 5,069 Lease liability Current lease liability $ 123,413 $ 5,069 Non-current lease liability 83,993 — Total lease liability $ 207,406 $ 5,069 August 31, 2022 Remaining lease term and discount rate Weighted-average remaining lease term 20 months Weighted-average discount rate 2.48 % Commitments The following table summarizes the future minimum lease payments due under the Company’s operating leases as of August 31, 2022: Schedule of future minimum lease payments due 2023 $ 127,166 Thereafter 84,777 Less: imputed interest ( 4,537 ) $ 207,406 - 17 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 9 – Convertible Note Payable A Note Payable having a Face Value of $ 730,000 on May 1, 2022 and accruing interest at 20 % is due on April 30, 2023 . The note is convertible anytime from the date of issuance into $ 0.0001 par value Common Stock at $ 4.00 per share. A secured, two-year, interest-free convertible promissory note with a principal amount of $ 4,800,000 was issued on August 9, 2022 representing a funded amount of $4,000,000 and a coupon of 20%. The principal amount is payable commencing 180 days after the issuance in 18 consecutive monthly payments, at the option of the Company, to be made in either cash, shares of common stock of the Company, or a combination of cash and shares of the common stock of the Company. The note shall be available to be converted by the holder any time after the earlier of 6 months from the date of issuance or the date of effectiveness of the registration statement covering the applicable conversion shares into $ 0.0001 par value Common stock at $ 2.00 per share subject to adjustment as provided therein. Note 10 – Common Stock The Company issued 12,705,541 shares of common stock for the year ended February 28, 2021 for consideration of $ 5,665,533 , including 8,858,207 shares of common stock to consultants. The Company issued 500,000 shares of common stock at a deemed price of $ 2.00 per share during the fiscal year ended February 28, 2021 pursuant to the conversion of promissory notes in the aggregate amount of $ 1,000,000 . The Company cancelled 150,000 shares of common stock during the fiscal year ended February 28, 2021 pursuant to a financial advisory service agreement. On March 29, 2021, the Company issued 10,000 shares of our common stock at $2.00 per share to one individual pursuant to the exercise of warrants. On April 14, 2021, the Company issued 5,000 shares of our common stock at price of $2.00 per share to one individual pursuant to a consulting agreement. On May 7, 2021, the Company issued (i) 70,000 shares of our common stock at $2.00 per share to 2 individuals and one entity pursuant to the exercise of warrants, and (ii) 6,666 shares of our common stock at $3.00 to one entity pursuant to the exercise of warrants. On June 1, 2021, the Company issued 25,000 shares of our common stock at a deemed price of $5.00 per shares to one individual pursuant to a consulting agreement. On July 13, 2021, the Company issued (i) 568,900 shares of our common stock at price of $5.00 per share to 17 individuals and 2 entities (ii) 45,000 shares of our common stock at $2.00 per share to 2 individuals pursuant to the exercise of warrants, (iii) 60,000 shares of our common stock at $3.00 per share to one individual pursuant to the exercise of warrants, (iv) 5,000 shares of our common stock at deemed price of $2.00 per share to one individual pursuant to a consulting agreement, and (v) 25,000 shares of our common stock at a deemed price of $5.00 per share to one individual pursuant to a consulting agreement. On August 16, 2021, the Company issued 218,000 shares of common stock at $2.50 per share and 700,000 shares of common stock at $0.50 per share to one individual pursuant to the conversion of promissory notes. On August 27, 2021, the Company issued 1,500,000 shares of common stock at $0.50 per share and 59,200 shares of common stock at $5.00 per share to one individual pursuant to the conversion of promissory notes. On October 28, 2021, the Company issued 5,000 shares of our common stock at deemed price of $2.00 per share to one individual pursuant to a consulting agreement. - 18 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 10 – Common Stock (Continued) On November 5, 2021, the Company issued 276,000 shares of our common stock at price of $5.00 per share to 4 individuals. On December 7, 2021, the Company issued 30,000 shares of our common stock at price of $3.00 per share to 2 individuals pursuant to the exercise of warrants. On January 7, 2022, the Company issued 55,000 shares of our common stock at deemed price of $5.00 per share to two entities pursuant to a consulting agreement. On January 12, 2022, the company cancelled 15,000 shares of our common stock issued to 1 individual pursuant to a consulting agreement. On February 4, 2022, the Company issued 5,000 shares of our common stock at deemed price of $5.00 per share to one entity pursuant to a consulting agreement. On February 7, 2022, the Company issued 70,000 shares of our common stock at price of $5.00 per share to 4 individuals On March 7, 2022 the Company issued 5,000 shares of our common stock at deemed price of $5.00 per share to one entity pursuant to a consulting agreement. On March 23, 2022, the Company issued 10,000 shares of our common stock at a deemed price of $3.66 per share to one individual pursuant to a consulting agreement. On March 23, 2022, the Company issued an aggregate of 25,000 shares of our common stock at a deemed price of $2.85 per share to two individuals and one entity pursuant to consulting agreements. On April 14, 2022, the Company 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 April 28, 2022, the Company issued 50,000 shares of our common stock at a deemed price of $2.61 per share to one entity pursuant to a consulting agreement. On April 28, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $2.56 per share to one entity pursuant to a consulting agreement. On April 28, 2022, the Company issued 20,000 shares of our common stock at a deemed price of $2.51 per share to one individual pursuant to a consulting agreement. On May 10, 2022, the Company 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 May 10, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $3.66 per share to one individual pursuant to a consulting agreement. On May 12, 2022, the Company issued 20,000 shares of our common stock at a deemed price of $2.03 per share to one entity pursuant to a consulting agreement as amended. On July 5, 2022, the Company 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. - 19 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 10 – Common Stock (Continued) On July 5, 2022, the Company issued an aggregate of 25,000 shares of our common stock at a deemed price of $2.85 per share to two individuals and one entity pursuant to consulting agreements. On August 3, 2022, the Company issued 50,000 shares of our common stock at a deemed price of $1.22 per share to one entity pursuant to a consulting agreement. Share Purchase Warrants A continuity schedule of outstanding share purchase warrants as at August 31, 2022, and the changes during the periods, is as follows: Schedule of outstanding share purchase warrants Number of Warrants Weighted Average Exercise Price Balance, February 28, 2020 — $ — Issued in Connection with October 2020 Offering 488,500 $ 2.10 Issued in connection with January 2021 Offering 1,604,334 $ 3.00 Exercised ( 25,000 ) $ 2.00 Balance, February 28, 2021 2,067,834 $ 2.80 Exercised ( 221,666 ) $ 2.44 Balance, February 28, 2022 1,846,168 $ 2.84 Issued in Connection with August 2022 Offering 3,478,261 1.75 Exercised — — Balance, August 31, 2022 5,324,429 $ 2.13 During Fiscal 2022 and Fiscal 2021, we received cash proceeds totaling $ 539,998 and $ 50,000 , respectively, from the exercise of share purchase warrants. On August 9, 2022, the Company entered into a Securities Purchase Agreement with Lind Global Fund II LP (the “Investor”), pursuant to which the Company issued to the Investor a secured, two-year, interest free convertible promissory note in the principal amount of $4,800,000 (the “Note”) and a common stock purchase warrant (the “Warrant”) to acquire 3,478,261 shares of common stock of the Company, which is subject to reduction by 50% upon effectiveness of the registration statement covering the underlying shares. A summary of share purchase warrants outstanding and exercisable as at August 31, 2022 is as follows: Schedule of Summary of share purchase warrants outstanding and exercisable Number of Warrants Remaining Contractual Exercise Price Outstanding Life (Years) Expiry Date $ 2.00 288,500 0.13 18-Oct-22 $ 3.00 50,000 0.13 18-Oct-22 $ 3.00 1,507,668 0.37 12-Jan-23 $ 1.75 3,478,261 5.00 8-Aug-27 $ 2.13 5,324,429 - 20 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 10 – Common Stock (Continued) Stock Options On December 28, 2021, we granted an aggregate of 4,545,500 stock options pursuant to our 2021 Stock Incentive Plan having an exercise price of $8.00 per share and an expiry date of five years from the date of grant to 40 individuals who were directors, officers, employees and consultants of the Company. We relied upon the exemption from registration under the U.S. Securities Act provided by Rule 903 of Regulation S promulgated under the U.S. Securities Act for the grant of stock options to the individuals who are non-U.S. persons, and upon the exemption from registration under Section 4(a)(2) of the U.S. Securities Act for two individuals who are U.S. persons. The stock options are all subject to vesting provisions of 20% on the date of grant and 20% on each of the first, second, third and fourth anniversary of the date of grant. The fair value of these stock options was estimated at the date of grant, using the Black-Scholes Option Valuation Model, with the following weighted average assumptions: Schedule of valuation assumptions August 31, 2022 February 28, 2022 Expected Risk Free Interest Rate 1.06 % 1.06 % Expected Volatility 15.27 % 15.27 % Expected Life in Years 5.0 5.0 Expected Dividend Yield — — Weighted-Average Grant Date Fair Value $ 6.46 $ 6.46 A continuity schedule of outstanding stock options as at August 31, 2022, and the changes during the three months periods, is as follows: Schedule of stock option activity Number of Stock Options Exercise Price Balance, February 28, 2022 4,545,500 $ 8.00 Granted — — Cancelled/Forfeited — — Expired — — Balance, August 31, 2022 4,545,500 $ 8.00 The table below sets forth the number of issued shares and cash received upon exercise of stock options: Schedule of number of issued shares and cash received upon exercise of stock options August 31, 2022 February 28, 2022 Number of Options Exercised on Forfeiture Basis — — Number of Options Exercised on Cash Basis — — Total Number of Options Exercised — — Number of Shares Issued on Cash Exercise — — Number of Shares Issued on Forfeiture Basis — — Total Number of Shares Issued Upon Exercise of Options — — Cash Received from Exercise of Stock Options $ — $ — Total Intrinsic Value of Options Exercised $ — $ — - 21 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 10 – Common Stock (Continued) A continuity schedule of outstanding unvested stock options at August 31, 2022, and the changes during the six months period, is as follows: Schedule of unvested restricted stock Number of Unvested Stock Options Weighted Average Grant Date Fair Value Balance, February 28, 2021 — — Granted 4,545,500 $ 6.46 Vested ( 909,000 ) $ 6.46 Balance, February 28, 2022 3,636,500 $ 6.46 Granted — — Vested — — Balance, August 31, 2022 3,636,500 $ 6.46 As at August 31, 2022, the aggregate intrinsic value of all outstanding stock options granted was estimated at $ 0 as the current price is lower than the strike price. A summary of stock options outstanding and exercisable as at August 31, 2022 is as follows: Schedule of Stock Options Options Outstanding Options Exercisable Range of Exercise Prices Outstanding at August 31, 2022 Exercise Price Weighted Average Remaining Contractual Term (Years) Exercisable at August 31, 2022 Exercise Price Weighted Average Remaining Contractual Term (Years) $ 7.00 to $ 9.00 4,545,500 $ 8.00 4.58 909,000 $ 8.00 4.58 4,545,500 $ 8.00 4.58 909,000 $ 8.00 4.58 Note 11 – Earnings Per Share The following table sets forth the computation of basic and diluted earnings per common share: Schedule of basic and diluted earnings per common share For the six months ended August 31, 2022 August 31, 2021 Numerator - basic and diluted Net Loss $ ( 2,982,763 ) $ ( 2,364,123 ) Denominator Weighted average number of common shares outstanding — basic 42,752,532 39,290,499 Weighted average number of common shares outstanding — diluted 42,752,532 39,290,499 Loss per common share — basic $ ( 0.07 ) $ ( 0.06 ) Loss per common share — diluted $ ( 0.07 ) $ ( 0.06 ) - 22 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 12 – Income Taxes The Company and its subsidiaries file separate income tax returns. The United States of America FingerMotion, Inc. is incorporated in the State of Delaware in the U.S. and is subject to a U.S. federal corporate income tax of 21 %. The Company generated a taxable loss for the six months ended August 31, 2022 and 2021. Hong Kong Finger Motion Company Limited is incorporated in Hong Kong and Hong Kong’s profits tax rate is 16.5 %. Finger Motion Company Limited did not earn any income that was derived in Hong Kong for the six months ended August 31, 2022 and 2021. The People’s Republic of China (PRC) JiuGe Management, JiuGe Technology, Beijing XunLian and Shanghai TengLian JiuJiu were incorporated in the People’s Republic of China and subject to PRC income tax at 25 %. Income tax mainly consists of foreign income tax at statutory rates and the effects of permanent and temporary differences. The Company’s effective income tax rates for the six months ended August 31, 2022 and 2021 are as follows: Schedule of effective income tax rate reconciliation For the six months ended August 31, 2022 August 31, 2021 (unaudited) (unaudited) U.S. statutory tax rate 21.0 % 21.0 % Foreign income not registered in the U.S. ( 21.0 )% ( 21.0 )% PRC profit tax rate 25.0 % 25.0 % Changes in valuation allowance and others ( 25.0 )% ( 25.0 )% Effective tax rate 0.0 % 0.0 % At August 31, 2022 and February 28, 2022, the Company has a deferred tax asset of $ 745,372 and $ 1,235,861 , resulting from certain net operating losses in U.S., respectively. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those net operating losses are available. The Company considers projected future taxable income and tax planning strategies in making its assessment. At present, the Company concludes that it is more-likely-than-not that the Company will be able to realize all of its tax benefits in the near future and therefore a valuation allowance has been provided for the full value of the deferred tax asset. A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of any portion or all of the valuation allowance. At August 31, 2022 and February 28, 2022, the valuation allowance was $ 745,372 and $ 1,235,861 , respectively. Schedule of deferred tax assets and liabilities August 31, 2022 February 28, 2022 (unaudited) Deferred tax asset from operating losses carry-forwards $ 745,372 $ 1,235,861 Valuation allowance ( 745,372 ) ( 1,235,861 ) Deferred tax asset, net $ — $ — - 23 - Table of Contents FINGERMOTION, INC. Six months ended August 31, 2022 and 2021 Notes to the Condensed Consolidated Financial Statements Note 13 – Commitments and Contingencies Legal proceedings The Company is not aware of any material outstanding claim and litigation against them. Note 14 – Subsequent Events Except for the above, the Company has determined that it does not have any material subsequent events to disclose in these consolidated financial statements. - 24 - Table of Contents