FingerMotion, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS - 1 - Table of Contents FINGERMOTION, INC. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the three months ended May 31, 2023 (Unaudited - Expressed in U.S. Dollars) - 2 - Table of Contents FingerMotion, Inc. Condensed Consolidated Balance Sheets May 31, February 28, 2023 2023 ASSETS (Unaudited) Current Assets Cash and cash equivalents $ 5,424,912 $ 9,240,241 Accounts receivable 1,631,729 1,334,884 Prepayment and deposit 3,162,694 4,139,061 Other receivables 4,148,403 2,551,665 Total Current Assets 14,367,738 17,265,851 Non-current Assets Equipment 68,992 78,098 Intangible assets 61,138 73,066 Right-of-use asset 98,636 130,109 Total Non-current Assets 228,766 281,273 TOTAL ASSETS $ 14,596,504 $ 17,547,124 LIABILITIES AND SHAREHOLDER’S DEFICIT Current Liabilities Accounts payable $ 59,021 $ 27,371 Accrual and other payables 453,385 1,096,225 Stock subscription payables — 60,000 Convertible notes payable, current portion — 730,000 Lease liability, current portion 95,289 122,924 Total Current Liabilities 607,695 2,036,520 Non-current Liabilities Convertible notes payable, non-current portion — 2,533,333 Lease liability, non-current portion — 4,971 Total Non-current Liabilities — 2,538,304 TOTAL LIABILITIES $ 607,695 $ 4,574,824 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 51,988,030 shares and 49,432,214 issued and outstanding at May 31, 2023 and February 28, 2023 respectively 5,199 4,943 Additional paid-in capital 39,273,122 37,406,415 Additional paid-in capital - stock options 632,664 632,664 Accumulated deficit ( 25,956,785 ) ( 24,691,314 ) Accumulated other comprehensive income 22,116 ( 391,692 ) Stockholders’ equity before non-controlling interests 13,976,316 12,961,016 Non-controlling interests 12,493 11,284 TOTAL SHAREHOLDERS’ EQUITY 13,988,809 12,972,300 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 14,596,504 $ 17,547,124 - 3 - Table of Contents FingerMotion, Inc. Unaudited Condensed Consolidated Statements of Operations Three Months Ended May 31, May 31, 2023 2022 Revenue $ 12,169,091 $ 4,855,123 Cost of revenue ( 11,506,542 ) ( 4,478,052 ) Gross profit 662,549 377,071 Amortization & depreciation ( 18,342 ) ( 14,172 ) General & administrative expenses ( 1,361,990 ) ( 1,239,550 ) Marketing Cost 6,841 ( 57,191 ) Research & Development ( 172,099 ) ( 211,647 ) Stock compensation expenses ( 296,461 ) ( 289,931 ) Total operating expenses ( 1,842,051 ) ( 1,812,491 ) Net loss from operations ( 1,179,502 ) ( 1,435,420 ) Other income (expense): Interest income 22,865 757 Interest expense ( 121,451 ) ( 14,831 ) Exchange gain (loss) 2 ( 272 ) Other income 13,824 5,098 Total other income (expense) ( 84,760 ) ( 9,248 ) Net loss before income tax $ ( 1,264,262 ) $ ( 1,444,668 ) Income tax expenses — — Net Loss $ ( 1,264,262 ) $ ( 1,444,668 ) Less: Net profit attributable to the non-controlling interest 1,209 ( 545 ) Net loss attributable to the Company’s shareholders $ ( 1,265,471 ) $ ( 1,444,123 ) Other comprehensive income: Foreign currency translation adjustments 413,808 ( 305,370 ) Comprehensive loss $ ( 851,663 ) $ ( 1,749,493 ) Less: comprehensive income (loss) attributable to non-controlling interest ( 48 ) ( 89 ) Comprehensive loss attributable to the Company $ ( 851,615 ) $ ( 1,749,404 ) NET LOSS PER SHARE Loss Per Share - Basic $ ( 0.02 ) $ ( 0.03 ) Loss Per Share - Diluted $ ( 0.02 ) $ ( 0.03 ) NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY Loss Per Share - Basic $ ( 0.02 ) $ ( 0.03 ) Loss Per Share - Diluted $ ( 0.02 ) $ ( 0.03 ) Weighted Average Common Shares Outstanding - Basic 51,479,890 42,693,999 Weighted Average Common Shares Outstanding - Diluted 51,479,890 42,693,999 - 4 - Table of Contents FingerMotion, Inc. Unaudited Condensed Consolidated Statement of Shareholders’ Equity Accumulated Capital Paid Additional Other Common Stock in Excess Paid-in capital Accumulated Comprehensive Stockholders’ Non-controlling Shares Amount of Par Value stock options Deficit Income equity interest Total Balance at March 1, 2023 49,432,214 4,943 37,406,415 632,664 ( 24,691,314 ) ( 391,692 ) 12,961,016 11,284 12,972,300 Common stock issued for cash 20,000 2 59,998 — — — 60,000 — 60,000 Common stock issued for professional service 70,000 7 124,243 — — — 124,250 — 124,250 Execution of convertible notes 2,465,816 247 1,682,466 — — — 1,682,713 1,682,713 Accumulated other comprehensive income — — — — — 413,808 413,808 — 413,808 Net (Loss) — — — — ( 1,265,471 ) — ( 1,265,471 ) 1,209 ( 1,264,262 ) Balance at May 31, 2023 51,988,030 5,199 39,273,122 632,664 ( 25,956,785 ) 22,116 13,976,316 12,493 13,988,809 Accumulated Capital Paid Additional Other Common Stock in Excess Paid-in capital Accumulated Comprehensive Stockholders’ Non-controlling Shares Amount of Par Value stock 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 - 5 - Table of Contents FingerMotion, Inc. Unaudited Condensed Consolidated Statements of Cash Flows Three Months Ended May 31, May 31, 2023 2022 Net (loss) $ ( 1,264,262 ) $ ( 1,444,668 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Share based compensation expenses 365,545 379,013 Amortization and depreciation 18,342 14,172 Change in operating assets and liabilities: (Increase) decrease in accounts receivable ( 322,774 ) 887,094 (Increase) decrease in prepayment and deposit 899,836 326,836 (Increase) decrease in others receivable ( 1,659,906 ) 975 Increase (decrease) in accounts payable 32,328 ( 1,418,270 ) Increase (decrease) in accrual and other payables ( 645,872 ) 832,880 Increase (decrease) in due to lease liability ( 1,188 ) — Net Cash provided by (used in) operating activities ( 2,577,951 ) ( 421,968 ) Cash flows from investing activities Purchase of equipment ( 380 ) — Net cash provided by (used in) investing activities ( 380 ) — Cash flows from financing activities Proceed from convertible note — 730,000 Repayment of convertible note ( 1,135,333 ) — Common stock issued for cash 60,000 — Net cash provided by (used in) financing activities ( 1,075,333 ) 730,000 Effect of exchange rates on cash and cash equivalents ( 161,665 ) 35,583 Net change in cash ( 3,815,329 ) 343,615 Cash at beginning of period 9,240,241 461,933 Cash at end of period $ 5,424,912 $ 805,548 Major non-cash transactions: Conversion of loan payables to shares $ 1,682,713 $ — Supplemental disclosures of cash flow information: Interest paid $ — $ — Taxes paid $ — $ — - 6 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 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 the 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 the mobile phone sales in China. It is 99% owned by JiuGe Technology. On February 5, 2021, JiuGe Technology has 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. Three months ended May 31, 2023 and 2022 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. Three months ended May 31, 2023 and 2022 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 May 31, 2023 and February 28, 2023: Assets and liabilities of the VIE Schedule of variable interest entity May 31, 2023 February 28, 2023 (unaudited) Current assets $ 7,621,345 $ 6,706,994 Non-current assets 58,783 196,477 Total assets $ 7,680,128 $ 6,903,471 Current liabilities $ 11,434,962 $ 11,220,948 Non-current liabilities — 4,971 Total liabilities $ 11,434,962 $ 11,225,919 Assets and liabilities of the VIE Subsidiary May 31, 2023 February 28, 2023 (unaudited) Current assets $ 1,266,826 $ 1,313,056 Non-current assets 6,881 7,304 Total assets $ 1,273,707 $ 1,320,360 Current liabilities $ 82,653 $ 219,724 Non-current liabilities — — Total liabilities $ 82,653 $ 219,724 - 9 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Note 2 - Summary of Principal Accounting Policies (Continued) Operating Result of VIE For the Three Months Ended May 31, 2023 For the Three Months Ended May 31, 2022 (unaudited) (unaudited) Revenue $ 5,715,714 $ 1,438,367 Cost of revenue ( 5,346,244 ) ( 1,149,147 ) Gross profit $ 369,470 $ 289,220 Amortization and depreciation ( 6,497 ) ( 1,719 ) General and administrative expenses ( 564,086 ) ( 582,112 ) Marketing cost 6,793 ( 57,131 ) Research & development ( 91,349 ) ( 111,455 ) Total operating expenses $ ( 655,139 ) $ ( 752,417 ) Loss from operations $ ( 285,669 ) $ ( 463,197 ) Interest income 22,624 705 Other income 13,802 5,098 Total other income $ 36,426 $ 5,803 Tax expense — — Net profit (loss) $ ( 249,243 ) $ ( 457,394 ) Operating Result of VIE Subsidiary For the Three Months Ended May 31, 2023 For the Three Months Ended May 31, 2022 (unaudited) (unaudited) Revenue $ 6,375,251 $ 3,416,755 Cost of revenue ( 6,160,298 ) ( 3,328,904 ) Gross profit $ 214,953 $ 87,851 Amortization and depreciation ( 249 ) ( 266 ) General and administrative expenses ( 73,050 ) ( 119,792 ) Marketing cost 49 ( 59 ) Research & development ( 20,916 ) ( 22,244 ) Total operating expenses $ ( 94,166 ) $ ( 142,361 ) Loss from operations $ 120,787 $ ( 54,510 ) Interest income 117 41 Other income 22 — Total other income $ 139 $ 41 Tax expense — — Net profit (loss) $ 120,926 $ ( 54,469 ) - 10 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 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 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. - 11 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 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 to seven 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. - 12 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 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. - 13 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 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 $ 25,956,785 and $ 24,691,314 as at May 31, 2023 and February 28, 2023 respectively, and had a net loss of $ 1,264,262 and $ 1,444,668 for the three months ended May 31, 2023 and 2022, respectively. The Company’s continuation as a going concern is dependent 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 will be able to 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 $ 12,169,091 and $ 4,855,123 in revenue, respectively, for the three months ended May 31, 2023 and 2022. Schedule of revenue For the three months ended May 31, 2023 May 31, 2022 (unaudited) (unaudited) Telecommunication Products & Services $ 12,011,264 $ 1,516,125 SMS & MMS Business 8,121 3,338,998 Big Data 149,706 — $ 12,169,091 $ 4,855,123 Note 5 – Equipment At May 31, 2023 and February 28, 2023, the company has the following amounts related to tangible assets: Schedule of property, plant and equipment May 31, 2023 February 28, 2023 (unaudited) Equipment $ 118,970 $ 120,996 Less: accumulated depreciation ( 49,978 ) ( 42,898 ) Net equipment $ 68,992 $ 78,098 No significant residual value is estimated for the equipment. Depreciation expense for the three months ended May 31, 2023 and 2022 totaled $ 7,943 and $ 3,079 , respectively. - 14 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Note 6 – Intangible Assets At May 31, 2023 and February 28, 2023, the company has the following amounts related to intangible assets: Schedule of intangible assets May 31, 2023 February 28, 2023 (unaudited) Licenses $ 200,000 $ 200,000 Mobile applications 206,877 212,128 406,877 412,128 Less: accumulated amortization ( 304,694 ) ( 298,017 ) Impairment of intangible assets ( 41,045 ) ( 41,045 ) Net intangible assets $ 61,138 $ 73,066 No significant residual value is estimated for these intangible assets. Amortization expense for the three months ended May 31, 2023 and 2022 totaled $ 10,399 and $ 11,093 , respectively. Note 7 – Prepayment and Deposit Prepaid expenses consist of the deposit pledge to the vendor for stocks credits for resale. Our current vendors are China Unicom and China Mobile for our Telecommunication Products & Services business and our SMS & MMS business. Deposits also 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 May 31, 2023 February 28, 2023 (unaudited) Telecommunication Products & Services Deposit Paid / Prepayment $ 2,830,118 $ 2,492,795 Deposit received — — Net Prepaid expenses for Telecommunication Products & Services $ 2,830,118 $ 2,492,795 Others prepayment 328,631 1,047,631 Prepayment and deposit $ 3,158,749 $ 3,540,426 May 31, 2023 February 28, 2023 (unaudited) SMS & MMS Business Deposit Paid / Prepayment $ 3,945 $ 598,635 Deposit received - - Net Prepaid expenses for SMS $ 3,945 $ 598,635 Others prepayment — — Prepayment and deposit $ 3,945 $ 598,635 - 15 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Note 8 – Other Receivables At May 31, 2023 and February 28, 2023, the company has the following amounts related to other receivables: Schedule of other receivables May 31, 2023 February 28, 2023 (unaudited) Other receivables represent: Advances to suppliers $ 1,471,766 $ 1,082,636 In-transit capital injection for a subsidiary 703,131 720,979 Loan for capital injection for a subsidiary 1,406,262 — Others 567,244 748,050 $ 4,148,403 $ 2,551,665 Note 9 – 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 three months ended May 31, 2023. Information related to the Company’s right-of-use assets and related lease liabilities were as follows: Schedule of operating leases assets and liabilities May 31, 2023 February 28, 2023 Right-of-use asset (unaudited) Right-of-use asset, net $ 98,636 $ 130,109 Lease liability Current lease liability $ 95,289 $ 122,924 Non-current lease liability — 4,971 Total lease liability $ 95,289 $ 127,895 Remaining lease term and discount rate May 31, 2023 Weighted-average remaining lease term 10 months Weighted-average discount rate 4.75 % Commitments The following table summarizes the future minimum lease payments due under the Company’s operating leases as of May 31, 2023: Schedule of future minimum lease payments due 2023 $ 97,281 Thereafter — Less: imputed interest ( 1,992 ) Total lease liability $ 95,289 - 16 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Note 10 - Convertible Note Payable A Note Payable having a Face Value of $ 730,000 at 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. On April 28, 2023, the Company paid the Note Payable of $ 730,000 . 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 “Note”). 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. An event of default under the Note occurred on November 4, 2022 and on November 21, 2022 pursuant to section 2.1(e) of the Note in relation to the closing of our private placements of shares of common stock in the aggregate amount of 2,887,500 shares at a price of $ 4.00 per share for gross proceeds of $ 11,550,000 (the “Private Placement Proceeds”). Section 2.2 of the Note provides for the remedies upon an event of default, which as described in the Note, the holder may at any time at its option declare the Note immediately due and payable at an amount of 110% or 120% of the outstanding principal amount (the “Mandatory Default Amount”) depending on the type of event of default. In addition, upon an event of default, subject to any applicable cure periods, the holder may (a) from time-to-time demand that all or a portion of the outstanding principal amount be converted into shares of our common stock at the lower of (i) the conversion price (currently $2.00 per share) and (ii) 80% of the average of the three (3) lowest daily VWAPs during the twenty (20) days prior to the delivery of the conversion notice, or (b) exercise or otherwise enforce any one or more of the holder’s rights, powers, privileges, remedies and interests under the Note, the Purchase Agreement, the other transaction documents or applicable law. The Mandatory Default Amount for an event of default under Section 2.1(e) of the Note is 110% of the outstanding principal amount of the Note, which is $ 5,280,000 . However, the holder has not declared the Mandatory Default Amount due and payable, which is the trigger for accelerating the Mandatory Default Amount to be due and payable. On February 15, 2023 and February 22, 2023, the Investor provided notice of partial conversion of the Note of 500,000 shares respectively on each date amounting to a total conversion of $ 2,000,000 of principal amount. On March 17, 2023, the Investor again provided notice of conversion of the Note of 2,465,816 shares amounting to a total of conversion of $ 2,128,000 of principal amount. On or about April 6, 2023, the Company paid the full outstanding balance of the Note which also includes the 10% Mandatory Default Amount. In addition, section 5.7 of the Purchase Agreement provides that if we issued any equity interests, other than “Exempted Securities” (as defined in the Purchase Agreement), for aggregate proceeds to us of greater than $10,000,000 during the term of the Purchase Agreement, excluding offering costs and other expenses, unless otherwise waived in writing by and at the discretion of the holder, we will direct 25% of such proceeds from such issuance to repay the Note. We have advised the holder that the aggregate Private Placement Proceeds exceeds $10,000,000 and the holder does not seek to waive or require payment of 25% of the proceeds as repayment of the Note. - 17 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Note 11 - Common Stock The Company issued 1,261,566 shares of common stock for the year ended February 28, 2022 for consideration of $ 5,694,499 , including 125,000 shares of common stock to consultants. The Company issued 2,477,200 shares of common stock during the fiscal year ended February 28, 2022 pursuant to the conversion of promissory notes in the aggregate amount of $ 1,941,000 . The Company cancelled 15,000 shares of common stock during the fiscal year ended February 28, 2022 pursuant to a financial advisory service agreement. 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. 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. On October 19, 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 October 19, 2022, the Company issued 20,000 shares of our common stock at a deemed price of $1.70 per share to one entity pursuant to a consulting agreement. - 18 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Note 11 - Common Stock (continued) On October 19, 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 October 19, 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 October 24, 2022, the Company issued 100,000 shares of our common stock at price of $2.00 per share to two individuals pursuant to the exercise of warrants. On October 24, 2022, the Company issued 70,000 shares of our common stock at price of $3.00 per share to one individual pursuant to the exercise of warrants. On November 3, 2022, the Company issued 20,000 shares of our common stock at price of $3.00 per share to two individuals pursuant to the exercise of warrants. On November 3, 2022, the Company issued 5,000 shares of our common stock at a deemed price of $1.70 per share to one entity pursuant to a consulting agreement. On November 3, 2022, the Company issued 25,000 shares of our common stock at a deemed price of $1.22 per share to one entity pursuant to a consulting agreement. On November 3, 2022, the Company issued 200,000 shares of our common stock at a deemed price of $0.74 per share to one individual pursuant to a consulting agreement. On November 4, 2022, the Company issued an aggregate of 1,887,500 shares of common stock at a price of $4.00 per share to eleven individuals due to the closing of its private placement at $4.00 per share for aggregate gross proceeds of $7,550,000. In connection with the closing of the private placement on November 4, 2022, the Company issued 91,875 shares of common stock at price of $4.00 per share for a total value of $367,500 to one individual as finder’s fees. On November 21, 2022, the Company issued 1,000,000 shares of common stock at a price of $4.00 per share to one entity due to the closing of its private placement at $4.00 per share for aggregate gross proceeds of $4,000,000. On January 19, 2023, the Company issued 5,000 shares of our common stock at a deemed price of $1.70 per share to one entity pursuant to a consulting agreement. On January 19, 2023 , 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 January 19, 2023, the Company issued 125,000 shares of our common stock at a deemed price of $1.44 per share to one entity pursuant to a consulting agreement. On January 19, 2023, the Company issued 16,313 shares of our common stock at a deemed price of $5.19 per share to one entity pursuant to a consulting agreement. On January 19, 2023, the Company issued 40,000 shares of our common stock at a deemed price of $4.15 per share to one entity pursuant to a consulting agreement. On February 7, 2023, the Company issued 1,721,766 shares of common stock at deemed price of $1.75 per share to its primary lender pursuant to the cashless exercise of warrants of the convertible promissory note (the “Note”) issued to the Company’s primary lender on August 9, 2022. - 19 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Note 11 - Common Stock (continued) On February 7, 2023, the Company issued 25,000 shares of our common stock at a deemed price of $1.22 per share to one entity pursuant to a consulting agreement. On February 15, 2023, the Company issued 500,000 shares of common stock at price of $2.00 per share to its primary lender pursuant to the conversion of $ 1,000,000 of principal amount of the convertible promissory note (the “Note”) issued to the Company’s primary lender on August 9, 2022. On February 22, 2023, the Company issued 500,000 shares of common stock at price of $ 2.00 per share to its primary lender pursuant to the conversion of $ 1,000,000 of principal amount of the convertible promissory note (the “Note”) issued to the Company’s primary lender on August 9, 2022 On February 28, 2023, the Company issued 150,000 shares of our common stock at a deemed price of $ 0.74 per share to one individual pursuant to a consulting agreement. On February 28, 2023, the Company issued 7,500 shares of our common stock at a deemed price of $2.47 per share to one entity pursuant to a consulting agreement. On March 17, 2023, we issued 2,465,816 shares of common stock at price of $ 0.863 per share to our primary lender pursuant to the conversion of $ 2,128,000 of principal amount of the Note issued to our primary lender on August 9, 2022. On April 18, 2023, we issued 20,000 shares of common stock at a price of $ 3.00 per share pursuant to the exercise of warrants. On April 24, 2023, we issued 70,000 shares of our common stock at a deemed price of $ 1.64 per share to one entity pursuant to a consulting agreement. As of May 31, 2023 there were 51,988,030 shares of the Company’s common stock issued and outstanding, and none of the preferred shares were issued and outstanding. - 20 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Share Purchase Warrants A continuity schedule of outstanding share purchase warrants as at May 31, 2023, 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 Expired ( 50,000 ) $ 3.00 Issued in Connection with August 2022 Offering 168,000 $ 1.75 Issued in Connection with September 2022 Offering 350,000 $ 5.00 Issued in Connection with November 2022 Offering 28,312 $ 8.22 Issued in Connection with November 2022 Offering 10,000 $ 6.70 Exercised ( 100,000 ) $ 2.00 Exercised ( 90,000 ) $ 3.00 Issued in Connection with October 2022 Offering 125,000 $ 5.00 Cashless Exercised ( 3,478,261 ) $ 1.75 Balance, February 28, 2023 2,287,480 $ 3.32 Exercised ( 20,000 ) $ 3.00 Expired ( 188,500 ) $ 2.00 Balance, May 31, 2023 2,078,980 $ 3.44 During Fiscal 2023 and Fiscal 2022, we received cash proceeds totaling $ 470,000 and $ 539,998 , respectively, from the exercise of stock purchase warrants. On August 9, 2022, the Company entered into a Securities Purchase Agreement with an investor (the “Investor”), pursuant to which the Company issued to the Investor 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. On February 6, 2023, the Investor exercised the Warrant on the cashless exercise basis for all 3,478,261 warrants, resulting in the issuance of 1,721,766 shares of common stock. On October 19, 2022, the Company’s board of directors authorized a six month extension to the expiry date of the common stock purchase warrants that the Company issued on October 19, 2020 which have an expiry date of October 19, 2022 and an exercise price of $2.00 per share (the “October 2020 Warrants”). The new expiry date of the October 2020 Warrants is April 19, 2023. In addition, 50,000 stock purchase warrants at an exercise price of $3.00 per share have expired. On November 3, 2022, the Company issued 350,000 common stock purchase warrants to purchase 350,000 shares of its common stock at a price of $5.00 per share until September 19, 2024 to one individual pursuant to a consulting agreement. On November 29, 2022, the Company issued 168,000 common stock purchase warrants to purchase 168,000 shares of its common stock at a price of $1.75 per share until August 9, 2027 to The Benchmark Company, LLC (“Benchmark”) pursuant to a financial advisory agreement. - 21 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Share Purchase Warrants (continued) On November 29, 2022, the Company issued 28,312 common stock purchase warrants to purchase 28,312 shares of its common stock at a price of $8.22 per share until November 4, 2025, to Benchmark pursuant to a financial advisory agreement. On November 29, 2022, the Company issued 10,000 common stock purchase warrants to purchase 10,000 shares of its common stock at a price of $6.70 per share until November 21, 2025, to Benchmark pursuant to a financial advisory agreement. During the quarter ended November 30, 2022, the Company received $470,000 from the exercise of warrants for the purchase of 100,000 shares of common stock of the Company at a price of $2.00 per share from 2 individuals and the purchase of 90,000 shares of common stock of the Company at a price of $3.00 per shares from 3 individuals. On January 13, 2023, the Company’s board of directors has authorized a six month extension to the expiry date of the common stock purchase warrants that the Company issued on January 13, 2021 which have an expiry date of January 13, 2023 and an exercise price of $3.00 per share (the “January 2021 Warrants”). The new expiry date of the January 2021 Warrants is July 13, 2023. On February 28, 2023, the Company issued 125,000 common stock purchase warrants to purchase 125,000 shares of its common stock at a price of $ 5.00 per share until October 1, 2024 to one entity pursuant to a consulting agreement. On April 18, 2023 , the Company received $ 60,000 from the exercise of warrants for the purchase of 20,000 shares of common stock of the Company at a price of $ 3.00 per share from 1 individual. On April 19, 2023, 188,500 stock purchase warrants at an exercise price of $ 2.00 per share have expired. A summary of share purchase warrants outstanding and exercisable as at May 31, 2023 is as follows: Schedule of share purchase warrants outstanding and exercisable Number of Warrants Remaining Contractual Exercise Price Outstanding Life (Years) Expiry Date $ 3.00 1,397,668 0.12 13-Jul-2023 $ 1.75 168,000 4.19 9-Aug-2027 $ 5.00 350,000 1.30 19-Sep-2024 $ 8.22 28,312 2.43 4-Nov-2025 $ 6.70 10,000 2.48 21-Nov-2025 $ 5.00 125,000 1.34 1-Oct-2024 $ 3.44 2,078,980 - 22 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Stock Options On December 28, 2021, we granted an aggregate of 4,545,000 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 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. At our annual meeting of stockholders held on February 17, 2023, the stockholder approved an amendment to the exercise price of the outstanding stock options from $8.00 to $3.84. 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 May 31, 2023 February 28, 2023 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 May 31, 2023, 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, 2023 2,142,600 $ 3.84 Vested — — Cancelled/Forfeited — — Expired — — Balance, May 31, 2023 2,142,600 $ 3.84 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 May 31, 2023 February 28, 2023 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 $ — $ — - 23 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Stock Options (continued) A continuity schedule of outstanding unvested stock options at May 31, 2023, and the changes during the three months periods, is as follows Schedule of unvested restricted stock Number of Unvested Weighted Average Stock Options Grant Date Fair Value Balance, February 28, 2021 — — Granted 4,545,000 $ 6.46 Vested ( 909,000 ) $ 6.46 Balance, February 28, 2022 3,636,000 $ 6.46 Vested ( 714,200 ) $ 6.46 Cancelled / Forfeited ( 779,200 ) $ 6.46 Balance, February 28, 2023 2,142,600 $ 6.46 Vested — — Cancelled / Forfeited — — Balance, May 31, 2023 2,142,600 $ 6.46 As at May 31, 2023, 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 May 31, 2023 is as follows: Schedule of stock options Options Outstanding Options Exercisable Range of Exercise Prices Outstanding at May 31, 2023 Exercise Price Weighted Average Remaining Contractual Term (Years) Exercisable at May 31, 2023 Exercise Price Weighted Average Remaining Contractual Term (Years) $ 7.00 to $ 9.00 2,142,600 $ 3.84 3.58 1,623,200 $ 3.84 3.58 2,142,600 $ 3.84 3.58 1,623,200 $ 3.84 3.58 Note 12 - 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 three months ended May 31, 2023 May 31, 2022 Numerator - basic and diluted Net Loss $ ( 1,264,262 ) $ ( 1,444,668 ) Denominator Weighted average number of common shares outstanding — basic 51,479,890 42,693,999 Weighted average number of common shares outstanding — diluted 51,479,890 42,693,999 Loss per common share — basic $ ( 0.02 ) $ ( 0.03 ) Loss per common share — diluted $ ( 0.02 ) $ ( 0.03 ) - 24 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Note 13 - 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 three months ended May 31, 2023 and 2022. 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 three months ended May 31, 2023 and 2022. 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 three months ended May 31, 2023 and 2022 are as follows: Schedule of effective income tax rate reconciliation For the three months ended May 31, 2023 May 31, 2022 (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 May 31, 2023 and February 28, 2023, the Company has a deferred tax asset of $ 316,368 and $ 1,884,786 , 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 May 31, 2023 and February 28, 2023, the valuation allowance was $ 316,368 and $ 1,884,786 , respectively. Schedule of deferred tax assets and liabilities May 31, 2023 February 28, 2023 (unaudited) Deferred tax asset from operating losses carry-forwards $ 316,368 $ 1,884,786 Valuation allowance ( 316,368 ) ( 1,884,786 ) Deferred tax asset, net $ — $ — - 25 - Table of Contents FINGERMOTION, INC. Three months ended May 31, 2023 and 2022 Notes to the Condensed Consolidated Financial Statements Note 14 - Commitments and Contingencies Legal proceedings The Company is not aware of any material outstanding claim and litigation against them. Note 15 - 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. - 26 - Table of Contents 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, 2023, and our Annual Report on Form 10-K for the fiscal year ended February 28, 2023, 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, 2023, 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, 2023, our most recently completed year end, to May 31, 2023, and our results of operations for the three months ended May 31, 2023, 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, 2023. 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 111 Somerset Road, Level 3, Singapore 238164, 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. - 27 - Table of Contents The following diagram depicts our corporate structure: Our holding company structure presents unique risks as our investors may never directly hold equity interests in our subsidiaries or the VIE, and will be dependent upon contributions from our subsidiaries and the VIE to finance our cash flow needs. Our subsidiaries and the VIE are currently not required to obtain permission from the Chinese authorities including the China Securities Regulatory Commission (the “ CSRC ”), or Cybersecurity Administration Committee (the “ CAC ”), to operate or to issue securities to foreign investors. However, as of March 31, 2023, pursuant to the Overseas Listing Trial Measures promulgated by the CSRC, we may have to file with the CSRC with respect to a new offering of our securities. The business of our subsidiaries and the VIE until now are not subject to cybersecurity review with the CAC, given that: (i) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities; (ii) we do not possess a large amount of personal information in our business operations. In addition, we are not subject to merger control review by China’s anti-monopoly enforcement agency due to the level of our revenues which provided from us and audited by our auditor and the fact that we currently do not expect to propose or implement any acquisition of control of, or decisive influence over, any company with revenues within China of more than RMB400 million. Currently, these statements and regulatory actions have had no impact on our daily business operations, the ability to accept foreign investments and list our securities on an U.S. or other foreign exchange. However, since these statements and regulatory actions, including the Overseas Listing Trial Measures, are new, it is uncertain what potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list our securities on an U.S. or other foreign exchange. - 28 - Table of Contents To operate, the VIE and Beijing XunLian TianXia Technology Co., Ltd. are required to obtain, and have obtained, a value-added telecommunications business licence from PRC authorities. In connection with our previous issuance of securities to foreign investors, under current PRC laws, regulations and regulatory rules, as of the date of this periodic report on Form 10-Q, we, our PRC subsidiaries and the VIE, (i) are not required to obtain permissions from the CSRC except that as of March 31, 2023 we may have to file with the CSRC with respect to a new offering of our securities, (ii) are not required to go through cybersecurity review by the CAC, and (iii) have received or were not denied such requisite permissions by any PRC authority. If we, our subsidiaries or the VIE (i) do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such permissions or approvals are not required or (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future, we may be subject to government enforcement actions, investigations, penalties, sanctions and fines imposed by the CSRC, the CAC and relevant departments of the State Council. In severe circumstances, the business of our PRC subsidiary may be ordered to suspend and its business qualifications and licences may be revoked. To address challenges resulting from laws, policies and practices that may disfavor foreign-owned entities that operate within industries deemed sensitive by the Chinese government, we use the VIE structure to provide contractual exposure to foreign investment in the PRC-based companies. We own 100% of the equity of a WFOE, Shanghai JiuGe Business Management Co., Ltd. (“ JiuGe Management ”), which has entered into the VIE Agreements with the VIE, which is owned by Ms. Li Li the legal representative and general manager, and also the shareholder of the VIE. The VIE Agreements have not been tested in court. As a result of our use of the VIE structure, you may never directly hold equity interests the VIE. Any securities that we offer will be 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. The VIE Agreements governing the relationship between the VIE and our WFOE enable us to (i) direct the activities of the VIE that most significantly impact the VIE’s economic performance, (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. As a result of the VIE Agreements, the Company is considered the primary beneficiary of the VIE for accounting purposes and is able to consolidate the financial results of the VIE in its consolidated financial statements in accordance with U.S. GAAP. As a result, investors in our Common Shares are not purchasing an equity interest in the VIE but instead are purchasing equity interest in FingerMotion, Inc., a Delaware holding company. 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. - 29 - Table of Contents 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 ”). This agreement was duly signed among the WFOE and the VIE. Under this agreement, the WFOE will provide the following services to the VIE on an exclusive basis: (i) providing a comprehensive solution for all technical issues required for the VIE’s business; (ii) providing training to the professional technicians of the VIE; (iii) assisting the VIE in collecting technical and commercial information and conducting market surveys; (iv) assisting the VIE in procuring business opportunities to obtain contracts awarded by the telecom carries in China and maintaining the commercial relationship with the telecom carries; (v) introducing clients to the VIE and assisting the VIE in developing commercial and cooperative relationship with the clients; (vi) providing suggestions and opinions on establishment and improvement of the VIE’s corporate structure, management system and departmental organization; (vii) assisting the VIE in formulating annual business plans, the draft of which shall be made available to WFOE by the VIE prior to the end of November each year; (viii) granting license to the VIE to use WFOE’s intellectual property necessary for the services; and (ix) providing other consulting and technical services at the request of the VIE. The VIE will pay to the WFOE service fees equivalent to the after-tax net profits distributable by the VIE to its shareholder each year, as set forth in the audited financial statements in accordance with the PRC accounting standards, ensuring all the distributable profits of the VIE will be dispatched to the WFOE. The VIE may not assign any of its rights and obligations under the JiuGe Technology Consulting Services Agreement without prior written consent of the WFOE. This agreement ensures that the WFOE and investors will be able to legally obtain the profits of the VIE, and transfer them to the WFOE more conveniently in the form of “service fee”; ● 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 ”). This agreement was duly signed between the WFOE and Ms. Li Li. Under this agreement, the WFOE loaned RMB 10,000,000 to Ms. Li Li, as the sole shareholder of the VIE, solely for the purpose of the capital contribution of the subscribed capital of the VIE. The WFOE has the right to convert the whole or any part of the outstanding principal amount into the equity interests in the VIE and may demand repayment of any or all of the principal amount/ As security for performance and discharge of Ms. Li Li’s obligations under the JiuGe Technology Loan Agreement, Ms. Li Li pledged 100% equity interests in the VIE, representing the entire registered capital of the VIE, by way of first-ranking security to the WFOE. This agreement could constrain Ms. Li Li to cooperate with WFOE’s instructions and avoid damaging the rights and interests of the WFOE and investors; ● 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 ”). The Power of Attorney Agreement was duly issued by Ms. Li Li to the WFOE. Under the JiuGe Technology Power of Attorney Agreement, the WFOE is the exclusive agent who may exercise, at WFOE’s sole discretion, all the rights and powers in respect of all the 100% equity interests held by Ms. Li Li in the VIE on Ms. LI Li’s behalf, including without limitation to propose to convene, attend and vote at the shareholder’s meeting of the VIE. Ms. Li Li cannot assign her rights and obligations under the JiuGe Technology Power of Attorney Agreement without prior written consent of the WFOE and the WFOE will bear its own costs, expenses and fees in connection with performance of the JiuGe Technology Power of Attorney Agreement. This agreement ensures that the WFOE can replace Ms. LI Li in the operation and management of the VIE, and controlling its assets; - 30 - Table of Contents ● 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 ”). This agreement was duly signed by and among Ms. Li Li, the WFOE and the VIE. Under this agreement, the WFOE has an exclusive, irrevocable and unconditional option to purchase or to designate a third party to purchase 100% equity interests of the VIE at RMB one (1) yuan or the lowest amount of consideration permitted under the laws of PRC at any time, giving the WFOE a sole discretion to exercise such option at any time and in any manner as permitted by the laws of PRC. Pursuant to the JiuGe Technology Call Option Agreement, Ms. Li Li may not, without prior written consent of the WFOE: (i) transfer or dispose of the equity interests in the VIE or the assets of the VIE in any manner; (ii) create any encumbrance of any kind over the equity interests in the VIE, other than the VIE Agreements; and (iii) resolve to or procure the VIE to: (a) change its registered capital; (b) amend its articles of association; (c) change any of its shareholders; (d) appoint, remove or replace its senior management; (e) make or receive investment of any kind or merge or consolidate with any entity; (f) change information filed at the competent authorities in the PRC; (g) make any lending or borrowing or provide security of any kind; (h) pay, make or declare any dividend, charge, fee or other distribution of any kind; (i) incure, create or permit to subsist or have any outstanding financial indebtedness; (j) enter into any agreements that conflict with the JiuGe Technology Call Option Agreement; or (k) do any acts that would adversely impair the VIE’s ability to perform the obligations under the VIE Agreements. Neither Ms. Li Li nor the VIE may assign any of its rights and obligations under the agreement without the prior written consent of WFOE or unilaterally terminate the agreement. This agreement is one of the guarantees for WFOE and investors to ensure that the VIE will not have any potential equity changes that endanger the rights and interests of WFOE and investors; 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 ”). This agreement was duly signed among Ms. Li Li, the WFOE and the VIE. Under this agreement, all the equity interests of the VIE held by Ms. Li Li were pledged to the WFOE, giving the WFOE a right to exercise the share pledge where Ms. Li Li or the VIE violates the VIE Agreements. This measure under this agreement will result in the equity of the VIE being locked, making it impossible for any third party to legally obtain the equity of the VIE without the prior consent of the WFOE. Our PRC counsel has reviewed these agreements and believes that all the VIE Agreements were duly signed and are not in violation of applicable laws of PRC. We are of the opinion that the VIE Agreements are valid and giving the WFOE a full control over the VIE in respect of the current and effective PRC laws and regulations. However, the VIE Agreements have never been challenged or recognized in court for the time being, and the PRC government may determine that the VIE Agreements are not in compliance with applicable PRC laws, rules and regulations compared with direct ownership, there may be less effective in controlling through the VIE structure. 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. - 31 - Table of Contents 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. The English translation version of the JiuGe Technology Share Pledge Agreement was filed as Exhibit 10.6 to our Form S-1/A (Amendment No. 1) filed with the SEC on January 5, 2023, and is incorporated by reference herein. Acquisition of Beijing Technology On March 7, 2019, the Company through JiuGe Technology acquired 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. 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 November 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. - 32 - Table of Contents 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. 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. - 33 - Table of Contents 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 CAC, or any other entity that is required to approve of the operations of the VIE, other than a value-added telecommunications business licence, which has already been obtained. 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 is a mobile data specialist company incorporated in Delaware, USA, with its head office located at 111 Somerset Road, Level 3, Singapore 238164. The Company operates the following lines of business: (i) Telecommunications Products and Services; (ii) Value Added Products and Services (iii) Short Message Services (“ SMS ”) and Multimedia Messaging Services (“ MMS ”); (iv) a Rich Communication Services (“ RCS ”) platform; (v) Big Data Insights; and (vi) a Video Games 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 United Network Communications Group Co., Ltd. (“ China Unicom ”) and China Mobile Communications Corporation (“ 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 Shanghai JiuGe Technology Co., Ltd. (“ JiuGe Technology ”), our contractually controlled affiliate through the entry into the 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. 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. 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. - 34 - Table of Contents 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 a yearly auto-renewal clause, 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. In mid-July 2022, we launched the roll out of the Mobile Device protection product with the roll out of the new mobile phones and 5G phones. 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 SMS and 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. - 35 - Table of Contents Rich Communication Services In March 2020, the Company began the development of an RCS platform, also known as Messaging as a Platform (“ MaaP ”). 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. Recent Developments On or about April 6, 2023, we eliminated our remaining convertible debt with our primary lender as a result of conversions by the primary lender and payment by us to the primary lender. On April 28, 2023, we repaid in full the US$730,000 convertible note that was issued in favor of Dr. Liew Yow Ming on May 1, 2022. - 36 - Table of Contents Results of Operations Three Months Ended May 31, 2023 Compared to Three Months Ended May 31, 2022 The following table sets forth our results of operations for the periods indicated: For the three months ended May 31, 2023 May 31, 2022 Revenue $ 12,169,091 $ 4,855,123 Cost of revenue $ (11,506,542 ) $ (4,478,052 ) Total operating expenses $ (1,842,051 ) $ (1,812,491 ) Total other income (expenses) $ (84,760 ) $ (9,248 ) Net Loss attributable to the Company’s shareholders $ (1,265,471 ) $ (1,444,123 ) Foreign currency translation adjustment $ 413,808 $ (305,370 ) Comprehensive loss attributable to the Company $ (851,615 ) $ (1,749,404 ) Basic Loss Per Share attributable to the Company $ (0.02 ) $ (0.03 ) Diluted Loss Per Share attributable to the Company $ (0.02 ) $ (0.03 ) 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, 2023 May 31, 2022 Change (%) Telecommunication Products & Services $ 12,011,264 $ 1,516,125 692 % SMS & MMS Business $ 8,121 $ 3,338,998 -100 % Big Data $ 149,706 $ — 100 % Total Revenue $ 12,169,091 $ 4,855,123 151 % We recorded $12,169,091 in revenue for the quarter ended May 31, 2023, an increase of $7,313,968 or 151%, compared to the quarter ended May 31, 2022. This increase resulted from an increase in revenue of $10,459,139 and $149,706 from our Telecommunication Products & Services and Big Data business, respectively, offset in part by a decrease in revenue of $3,330,877 from our SMS & MMS business. 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. The increase in this line of business especially in the mobile recharge revenue was evident as we deployed certain funding that we had secured in the last few months to this line of business. We plan to continue to develop our mobile recharge business and expect that revenues would continue to grow further when we continue to deploy more funds. In contrast, our SMS texting service has shown a drop in revenue as compared to last year. Declining revenue was attributed to a shift in our risk management focus. However, we believe this business will still be a major revenue and profit contributor to our overall financial health and ongoing effort are being undertaken to improve this line of business. In FY2021, our Big Data division secured a contract with Pacific Life Re, a global life reinsurance serving the insurance industry with a comprehensive suite of products and services, to develop a holistic multi-faceted risk rating concept, leveraging the Company’s proprietary approach to analytics by drawing data from novel sources and filtering them through advance algorithms with the ultimate goal to apply new insights generated from our predictive model to the traditional insurance industry. Building upon the successful implementation of the initial phase, Pacific Life Re proceeded with Phase 2 in the previous fiscal year. During the last quarter of FY2022, we established a collaborative research alliance with Munich Re in extending behavioural analytics to enhance understanding of morbidity and behavioural patterns in the Chinese market. The objective is to create value for both insurers and the end insurance consumers through technology advancements, improved product offerings and enhanced customer experiences. The collaboration with Munich Re was further extended in the last quarter of FY2023.The revenue recorded during the current quarter in our Big Data division is a result of both the contracts with Pacific Life Re and Munich Re. - 37 - 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, 2023 May 31, 2022 Telecommunication Products & Services $ 11,499,466 $ 1,220,962 SMS & MMS Business $ 7,076 $ 3,257,090 Big Data $ — $ — Total Cost of Revenue $ 11,506,542 $ 4,478,052 We recorded $11,506,542 in costs of revenue for the quarter ended May 31, 2023, an increase of $7,028,490 or 157%, compared to the quarter ended May 31, 2022. 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, 2023 was $662,549, an increase of $285,478 or 76%, compared to the quarter ended May 31, 2022. This increase in gross profit resulted from higher revenue for the period. Amortization & Depreciation We recorded depreciation of $18,342 for fixed assets for the quarter ended May 31, 2023, an increase of $4,170 or 29%, compared to the quarter ended May 31, 2022. 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, 2023 May 31, 2022 Accounting $ 33,086 $ 49,377 Consulting $ 396,033 $ 321,615 Entertainment $ 73,239 $ 46,389 IT $ 43,887 $ 9,091 Rent $ 38,442 $ 33,269 Salaries & Wages $ 489,706 $ 560,323 Technical Fee $ 37,618 $ 23,370 Travelling $ 47,361 $ 7,410 Others $ 202,618 $ 188,706 Total G&A Expenses $ 1,361,990 $ 1,239,550 We recorded $1,361,990 in general and administrative expenses for the quarter ended May 31, 2023, an increase of $122,440 or 10%, compared to the quarter ended May 31, 2022. The key increases, especially for consulting, entertainment, and travelling in the quarter ended May 31, 2023 as compared to the previous quarter ended May 31, 2022, were mainly a result of potential funding activities being undertaken and IT & Technical Fees. As for the IT and Technical Fees, we are putting more resources into the development and enhancement of our platform. - 38 - Table of Contents Marketing Cost The following table sets forth the Company’s marketing cost for the periods indicated: For the three months ended May 31, 2023 May 31, 2022 Marketing Cost $ (6,841 ) $ 57,191 We recorded ($6,841) in marketing cost for the quarter ended May 31, 2023 for our telecommunication products and services business due to overprovision no longer required and now adjusted. 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, 2023 May 31, 2022 Research & Development $ 172,099 $ 211,647 We incurred fees of $172,099 in research & development for the quarter ended May 31, 2023 as compared to $211,647 for the quarter ended May 31, 2022. The decrease of $39,548 or 19% was due to the savings from data access and usage fee charged by telecommunications company. Our Insurtech division 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 the 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. Over the past year, we have deepened the Company’s determined commitment toward working with partners in elucidating consumer insights via big data algorithms and applying behavioral analytics to the fintech sector in sparking new innovations and commercial applications. The following capture the most recent accomplishments and milestones: ● Strengthening partnership network – Signed a new agreement to advance to the next phase of collaboration with Pacific Life Re in Asia. ● Upgrade of the analytic engine – We have enriched the algorithms with more elaborative auxiliary data, which, in conjunction with the existing information system and records, will lend transformational support and capabilities to the analytics, empowering more precise and robust results that are suited for commercial applications. The collaborative research studies with leading industry partners have enhanced and validated our analytic framework and insurance risk rating services platform, which is now ready for deployment to the wide insurance and financial services industry. ● API rollout for market adoption – Our risk rating services platform is built on an application programming interface (API) structure that is integrated with our partners’ core system, linked to an underlying data repertoire and analytic framework that facilitates real-time rating feedback to insurance companies. Regular API upgrades and enhancements enable greater flexibility in tightening service integration and broadening commercial opportunities with our partners. ● Official patent recognition – Over the past two years, Sapientus has been granted eight patents by the National Copyright Administration of China (NCAC) for the abovementioned model algorithms and technological infrastructure as well as insurance-oriented applications, for example, Risk Rating API Design, Insurance Risk Assessment platform and Insurance Fraud Detection System (one other applications is still pending approval). NCAC is the governing body for patent and copyright verification and approval in China. The Company’s successful applications for these patents validate Sapientus’ continuing innovation in data science and its application in the field of insurance, finance, and beyond, demonstrating the Company’s active participation and contributions to the industry. - 39 - Table of Contents 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, 2023 May 31, 2022 Share compensation expenses $ 296,461 $ 289,931 We incurred fees of $296,461 in share issuance for consultants in consideration of the services which have been provided to the company for the quarter ended May 31, 2023 as compared to $289,931 for the quarter ended May 31, 2022. The increase of $6,530 or 2% was due to the engagement of consultants to the Company that were compensated with shares of the company. The rationale for rewarding these consultants and advisors with shares is to minimize the usage of cash by the Company to allow the Company to use the cash to invest in revenue-generating activities. Operating Expenses We recorded $1,842,051 in operating expenses for the quarter ended May 31, 2023, as compared to $1,812,491 in operating expenses for the quarter ended May 31, 2022. The increase of $29,560 or 2%, for the quarter ended May 31, 2023 is as set forth above. Net Loss attributable to the Company’s shareholders The net loss attributable to the Company’s shareholders was $1,265,471 for the quarter ended May 31, 2023 and $1,444,123 for the quarter ended May 31, 2022. The decrease in net loss attributable to the Company’s shareholders of $178,652 or 12% resulted primarily from the higher revenue and gross profit as discussed above. Liquidity and Capital Resources The following table sets out our cash and working capital as of May 31, 2023 and February 28, 2023: As at May 31, 2023 As at February 28, 2023 Cash and cash equivalents $ 5,424,912 $ 9,240,241 Working capital $ 13,760,043 $ 15,229,331 At May 31, 2023, we had cash and cash equivalents of $5,424,912, as compared to cash and cash equivalents of $9,240,241 at February 28, 2023. 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. With the recent funds that we have managed to raise, we have deployed some of these funds into operations to increase our prepayments and deposits with the telecommunication companies and in return able to generate a higher revenue. 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 intend to continue to seek additional capital through public or private sales of our equity or debt securities, or both. We might also enter into financing arrangements with commercial banks or non-traditional lenders. We cannot provide investors with any assurance that we will be able to raise additional funding from the sale of our equity or debt securities, or both, in order to increase our deposits with our telecommunications company clients, or if available, that such funding will be on terms acceptable to us. - 40 - Table of Contents We did, however, raise $60,000 through the sale of shares of our common stock in a private placement transaction exempt from the registration requirements of the Securities Act during the period ended May 31, 2023. Statement of Cashflows The following table provides a summary of cash flows for the periods presented: For the three months ended May 31, 2023 May 31, 2022 Net cash used in operating activities $ (2,577,951 ) $ (421,968 ) Net cash used in investing activities $ (380 ) $ — Net cash provided by financing activities $ (1,075,333 ) $ 730,000 Effect of exchange rates on cash & cash equivalents $ (161,665 ) $ 35,583 Net increase (decrease) in cash and cash equivalents $ (3,815,329 ) $ 343,615 Cash Flow used in Operating Activities Net cash used in operating activities increased by $2,155,983 in the three months ended May 31, 2023 compared to the three months ended May 31, 2022, primarily due to an increase in account receivable of ($322,774) (May 31, 2022: $887,094), increase in other receivable of ($1,659,906) (May 31, 2022: $975), decrease in accrual and other payable of ($645,872) (May 31, 2022: $832,880) and decrease in lease liability of ($1,188) (May 31, 2022: $Nil); offset by decrease in prepayment and deposit of $899,836 (May 31, 2022: $326,836) and increase in accounts payable of $32,328 (May 31, 2022: ($1,418,270)). Cash Flow used in Investing Activities During the quarter ended May 31, 2023, net cash used in investing activities increased by $380 compared to $Nil in the quarter ended May 31, 2022. The increase resulted from the purchase of equipment. Cash Flow provided by Financing Activities During the quarter ended May 31, 2023, net cash provided by financing activities decreased by $1,805,333 compared to $730,000 provided by financing activities in the quarter ended May 31, 2022. The decrease was primarily due to the repayment of convertible notes. 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 We have determined that we do not have any material subsequent events to report. Critical Accounting Policies For a complete summary of all our significant accounting policies refer to Note 2: Summary of Principal Accounting Policies of the Notes to the 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, 2023 filed with the SEC on May 30, 2023. 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, 2023 filed with the SEC on May 30, 2023. - 41 - Table of Contents 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.