FingerMotion, Inc. 10-Q

ITEM 1 – FINANCIAL STATEMENTS 3 FINGERMOTION, INC. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For the three months ended May 31, 2024 (Unaudited - Expressed in U.S. Dollars) 4 FingerMotion, Inc. Condensed Consolidated Balance Sheets May 31, February 29, 2024 2024 ASSETS (Unaudited) Current Assets Cash and cash equivalents $ 1,064,124 $ 1,517,232 Accounts receivable 16,850,105 9,153,692 Prepayment and deposit 5,475,833 5,538,401 Other receivables 2,647,225 2,515,593 Total Current Assets 26,037,287 18,724,918 Non-current Assets Equipment 38,512 45,706 Intangible assets 25,125 30,456 Right-of-use asset 208,924 13,734 Total Non-current Assets 272,561 89,896 TOTAL ASSETS $ 26,309,848 $ 18,814,814 LIABILITIES AND SHAREHOLDER’S DEFICIT Current Liabilities Accounts payable $ 11,999,742 $ 5,153,359 Accrual and other payables 2,417,041 1,595,760 Stock subscription payables 775,000 — Lease liability, current portion 113,381 4,796 Total Current Liabilities 15,305,164 6,753,915 Non-current Liabilities Lease liability, non-current portion 98,678 — Total Non-current Liabilities 98,678 — TOTAL LIABILITIES $ 15,403,842 $ 6,753,915 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 52,712,850 shares and 52,545,350 issued and outstanding at May 31, 2024 and February 29, 2024 respectively 5,271 5,254 Additional paid-in capital 40,662,355 40,292,778 Additional paid-in capital - stock options 1,233,620 1,037,276 Accumulated deficit ( 30,104,737 ) ( 28,448,833 ) Accumulated other comprehensive income ( 847,361 ) ( 782,362 ) Stockholders’ equity before non-controlling interests 10,949,148 12,104,113 Non-controlling interests ( 43,142 ) ( 43,214 ) TOTAL SHAREHOLDERS’ EQUITY 10,906,006 12,060,899 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 26,309,848 $ 18,814,814 5 FingerMotion, Inc. Unaudited Condensed Consolidated Statements of Operations Three Months Ended May 31, May 31, 2024 2023 Revenue $ 8,373,983 $ 12,169,091 Cost of revenue ( 7,692,094 ) ( 11,506,542 ) Gross profit 681,889 662,549 Amortization & depreciation ( 12,014 ) ( 18,342 ) General & administrative expenses ( 1,881,777 ) ( 1,361,990 ) Marketing Cost ( 62,524 ) 6,841 Research & Development ( 178,993 ) ( 172,099 ) Stock compensation expenses ( 222,670 ) ( 296,461 ) Total operating expenses ( 2,357,978 ) ( 1,842,051 ) Net loss from operations ( 1,676,089 ) ( 1,179,502 ) Other income (expense): Interest income 20,013 22,865 Interest expense — ( 121,451 ) Exchange gain (loss) 243 2 Other income 1 13,824 Total other income (expense) 20,257 ( 84,760 ) Net loss before income tax $ ( 1,655,832 ) $ ( 1,264,262 ) Income tax expenses — — Net Loss $ ( 1,655,832 ) $ ( 1,264,262 ) Less: Net profit attributable to the non-controlling interest 72 1,209 Net loss attributable to the Company’s shareholders $ ( 1,655,904 ) $ ( 1,265,471 ) Other comprehensive income: Foreign currency translation adjustments ( 64,999 ) 413,808 Comprehensive loss $ ( 1,720,903 ) $ ( 851,663 ) Less: comprehensive income (loss) attributable to non-controlling interest ( 1,066 ) ( 48 ) Comprehensive loss attributable to the Company $ ( 1,719,837 ) $ ( 851,615 ) NET LOSS PER SHARE Loss Per Share - Basic $ ( 0.03 ) $ ( 0.02 ) Loss Per Share - Diluted $ ( 0.03 ) $ ( 0.02 ) NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY Loss Per Share - Basic $ ( 0.03 ) $ ( 0.02 ) Loss Per Share - Diluted $ ( 0.03 ) $ ( 0.02 ) Weighted Average Common Shares Outstanding - Basic 52,660,051 51,479,890 Weighted Average Common Shares Outstanding - Diluted 52,660,051 51,479,890 6 FingerMotion, Inc. Unaudited Condensed Consolidated Statement of Shareholders’ Equity Accumulated Common Stock Capital Paid in Excess Additional Paid-in capital Accumulated Other Comprehensive Stockholders’ Non-controlling Shares Amount of Par Value stock options Deficit Income equity interest Total Balance at March 1, 2024 52,545,350 5,254 40,292,778 1,037,276 ( 28,448,833 ) ( 782,362 ) 12,104,113 ( 43,214 ) 12,060,899 Common stock issued for professional service 167,500 17 369,577 — — — 369,594 — 369,594 Additional paid-in capital – stock options — — — 196,344 — — 196,344 — 196,344 Accumulated other comprehensive income — — — — — ( 64,999 ) ( 64,999 ) — ( 64,999 ) Net (Loss) — — — — ( 1,655,904 ) — ( 1,655,904 ) 72 ( 1,655,832 ) Balance at May 31, 2024 52,712,850 5,271 40,662,355 1,233,620 ( 30,104,737 ) ( 847,361 ) 10,949,148 ( 43,142 ) 10,906,006 Accumulated Common Stock Capital Paid in Excess Additional Paid-in capital Accumulated Other 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 7 FingerMotion, Inc. Unaudited Condensed Consolidated Statements of Cash Flows Three Months Ended May 31, May 31, 2024 2023 Net (loss) $ ( 1,655,832 ) $ ( 1,264,262 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Share based compensation expenses 392,527 365,545 Amortization and depreciation 12,014 18,342 Change in operating assets and liabilities: (Increase) decrease in accounts receivable ( 7,762,176 ) ( 322,774 ) (Increase) decrease in prepayment and deposit 24,000 899,836 (Increase) decrease in others receivable ( 150,316 ) ( 1,659,906 ) Increase (decrease) in accounts payable 6,884,661 32,328 Increase (decrease) in accrual and other payables 833,177 ( 645,872 ) Increase (decrease) in due to lease liability 12,006 ( 1,188 ) Net Cash provided by (used in) operating activities ( 1,409,939 ) ( 2,577,951 ) Cash flows from investing activities Purchase of equipment — ( 380 ) Net cash provided by (used in) investing activities — ( 380 ) Cash flows from financing activities Advance from stock subscription payable 775,000 — Repayment of convertible note — ( 1,135,333 ) Common stock issued for cash — 60,000 Net cash provided by (used in) financing activities 775,000 ( 1,075,333 ) Effect of exchange rates on cash and cash equivalents 181,831 ( 161,665 ) Net change in cash ( 453,108 ) ( 3,815,329 ) Cash at beginning of period 1,517,232 9,240,241 Cash at end of period $ 1,064,124 $ 5,424,912 Major non-cash transactions: Conversion of loan payables to shares $ — $ 1,682,713 Supplemental disclosures of cash flow information: Interest paid $ — $ — Taxes paid $ — $ — 8 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 Notes to the Condensed Consolidated Financial Statements Note 1 – Nature of Business and basis of Presentation FingerMotion, Inc. fka Property Management Corporation of America (the “Company”) was incorporated on January 23, 2014, under the laws of the State of Delaware. The Company then offered management and consulting services to residential and commercial real estate property owners who rent or lease their property to third-party tenants. The Company changed its name to FingerMotion, Inc. on July 13, 2017, after a change in control. In July 2017 the Company acquired all of the outstanding shares of Finger Motion Company Limited (“FMCL”), a Hong Kong corporation that is an information technology company which specialize in operating and publishing mobile games. Pursuant to the Share Exchange Agreement with FMCL, effective July 13, 2017 (the “Share Exchange Agreement”, the Company agreed to exchange the outstanding equity stock of FMCL held by the FMCL Shareholders for shares of common stock of the Company. At the Closing Date, the Company issued 12,000,000 shares of common stock to the FMCL shareholders. In addition, the Company issued 600,000 shares to other consultants in connection with the transactions contemplated by the Share Exchange Agreement. The transaction was accounted for as a “reverse acquisition” since, immediately following completion of the transaction, the shareholders of FMCL effectuated control of the post-combination Company. For accounting purposes, FMCL was deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of FMCL (i.e., a capital transaction involving the issuance of shares by the Company for the shares of FMCL). Accordingly, the consolidated assets, liabilities, and results of operations of FMCL became the historical financial statements of FingerMotion, Inc. and its subsidiaries, and the Company’s assets, liabilities and results of operations were consolidated with FMCL beginning on the acquisition date. No step-up in basis or intangible assets or goodwill were recorded in this transaction. As a result of the Share Exchange Agreement and the other transactions contemplated thereunder, FMCL became a wholly owned subsidiary of the Company. FMCL, a Hong Kong corporation, was formed in April 6, 2016. On October 16, 2018, the Company through its indirect wholly-owned subsidiary, Shanghai JiuGe Business Management Co., Ltd. (“JiuGe Management”), entered into a series of agreements known as variable interest agreements (the “VIE Agreements”) pursuant to which Shanghai JiuGe Information Technology Co., Ltd. (“JiuGe Technology”) became JiuGe Management’s contractually controlled affiliate. The use of VIE agreements is a common structure used to acquire PRC corporations, particularly in certain industries in which foreign investment is restricted or forbidden by the PRC government. The VIE Agreements include a Consulting Services Agreement, a Loan Agreement, a Power of Attorney Agreement, a Call Option Agreement, and a Share Pledge Agreement in order to secure the connection and commitments of JiuGe Technology. On March 7, 2019, JiuGe Technology also acquired 99% of the equity interest of Beijing XunLian (“BX”), a subsidiary that provides bulk distribution of SMS messages for JiuGe customers at discounted rates. Finger Motion Financial Company Limited was incorporated on January 24, 2020, and is 100% owned by FingerMotion, Inc. The company has been activated for the insurtech business during the last quarter of the fiscal year where the Big Data division secured its first contract and recorded revenue. Shanghai TengLian JiuJiu Information Communication Technology Co., Ltd. was incorporated on December 23, 2020, for the purpose of venturing into mobile phone sales in China. It is 99% owned by JiuGe Technology. On February 5, 2021, JiuGe Technology disposed of its 99% owned subsidiary, Suzhou BuGuNiao Digital Technology Co., Ltd which was established to venture into R&D projects. 9 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 Notes to the Condensed Consolidated Financial Statements Note 1 – Nature of Business and basis of Presentation (continued) Shanghai KeShunXiang Automobile Service Co., Ltd. was incorporated on April 10, 2024 for the purpose of venturing into the communication and streaming services in China. It is 99% owned by JiuGe Technology. Note 2 - Summary of Principal Accounting Policies Principles of Consolidation and Presentation The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The 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. 10 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 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, 2024 and February 29, 2024: Assets and liabilities of the VIE Schedule of variable interest entity May 31, 2024 February 29, 2024 (unaudited) Current assets $ 11,370,972 $ 10,578,657 Non-current assets 241,953 53,109 Total assets $ 11,612,925 $ 10,631,766 Current liabilities $ 11,004,071 $ 9,654,896 Non-current liabilities 98,678 — Total liabilities $ 11,102,749 $ 9,654,896 Assets and liabilities of the VIE’s Subsidiaries May 31, 2024 February 29, 2024 (unaudited) Current assets $ 11,746,830 $ 4,826,781 Non-current assets 5,805 6,088 Total assets $ 11,752,635 $ 4,832,869 Current liabilities $ 16,062,022 $ 9,181,719 Non-current liabilities — — Total liabilities $ 16,062,022 $ 9,181,719 11 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 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, 2024 For the Three Months Ended May 31, 2023 (unaudited) (unaudited) Revenue $ 209,726 $ 5,715,714 Cost of revenue ( 64,059 ) ( 5,346,244 ) Gross profit $ 145,667 $ 369,470 Amortization and depreciation ( 6,068 ) ( 6,497 ) General and administrative expenses ( 513,885 ) ( 564,086 ) Marketing cost ( 8,528 ) 6,793 Research & development ( 97,708 ) ( 91,349 ) Total operating expenses $ ( 626,189 ) $ ( 655,139 ) Loss from operations $ ( 480,522 ) $ ( 285,669 ) Interest income 19,988 22,624 Other income — 13,802 Total other income $ 19,988 $ 36,426 Tax expense — — Net profit (loss) $ ( 460,534 ) $ ( 249,243 ) Operating Result of VIE’s Subsidiaries For the Three Months Ended May 31, 2024 For the Three Months Ended May 31, 2023 (unaudited) (unaudited) Revenue $ 8,164,257 $ 6,375,251 Cost of revenue ( 7,628,034 ) ( 6,160,298 ) Gross profit $ 536,223 $ 214,953 Amortization and depreciation ( 239 ) ( 249 ) General and administrative expenses ( 453,187 ) ( 73,050 ) Marketing cost ( 53,996 ) 49 Research & development ( 21,631 ) ( 20,916 ) Total operating expenses $ ( 529,053 ) $ ( 94,166 ) Loss from operations $ 7,170 $ 120,787 Interest income 5 117 Other income 1 22 Total other income $ 6 $ 139 Tax expense — — Net profit (loss) $ 7,176 $ 120,926 12 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 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. 13 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 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. 14 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 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. 15 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 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 $ 30,104,737 and $ 28,448,833 as at May 31, 2024 and February 29, 2024 respectively, and had a net loss of $ 1,655,832 and $ 1,264,262 for the three months ended May 31, 2024 and 2023, 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 $ 8,373,983 and $ 12,169,091 in revenue, respectively, for the three months ended May 31, 2024 and 2023. Schedule of revenue For the three months ended May 31, 2024 May 31, 2023 (unaudited) (unaudited) Telecommunication Products & Services $ 210,189 $ 12,011,264 SMS & MMS Business 8,163,794 8,121 Big Data — 149,706 $ 8,373,983 $ 12,169,091 Note 5 – Equipment At May 31, 2024 and February 29, 2024, the company has the following amounts related to tangible assets: Schedule of property, plant and equipment May 31, 2024 February 29, 2024 (unaudited) Equipment $ 117,262 $ 117,961 Less: accumulated depreciation ( 78,750 ) ( 72,255 ) Net equipment $ 38,512 $ 45,706 No significant residual value is estimated for the equipment. Depreciation expenses for the three months ended May 31, 2024 and 2023 totaled $ 6,898 and $ 7,943 , respectively. 16 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 Notes to the Condensed Consolidated Financial Statements Note 6 – Intangible Assets At May 31, 2024 and February 29, 2024, the company has the following amounts related to intangible assets: Schedule of intangible assets May 31, 2024 February 29, 2024 (unaudited) Licenses $ 200,000 $ 200,000 Mobile applications 203,163 204,684 403,163 404,684 Less: accumulated amortization ( 298,017 ) ( 298,017 ) Impairment of intangible assets ( 80,021 ) ( 76,211 ) Net intangible assets $ 25,125 $ 30,456 No significant residual value is estimated for these intangible assets. Amortization expenses for the three months ended May 31, 2024 and 2023 totaled $ 5,116 and $ 10,399 , respectively. Note 7 – Prepayment and Deposit Prepaid expenses consist of the deposit pledge to the vendor for stock credits for resale. Our current vendors are China Unicom and China Mobile for our Telecommunication Products & Services business and our SMS & MMS business. Deposits also include 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, 2024 February 29, 2024 (unaudited) Telecommunication Products & Services Deposit Paid / Prepayment $ 4,490,793 $ 5,062,728 Others prepayment 290,775 345,868 $ 4,781,568 $ 5,408,596 May 31, 2024 February 29, 2024 (unaudited) SMS & MMS Business Deposit Paid / Prepayment $ 694,265 $ 129,805 $ 694,265 $ 129,805 Note 8 – Other Receivables At May 31, 2024 and February 29, 2024, the company has the following amounts related to other receivables: Schedule of other receivables May 31, 2024 February 29, 2024 (unaudited) Other receivables represent: Advances to suppliers $ 1,495,354 $ 1,491,348 Security deposit 899,862 1,015,489 Others 252,008 8,756 Other receivables $ 2,647,225 $ 2,515,593 17 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 Notes to the Condensed Consolidated Financial Statements 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, 2024. 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, 2024 February 29, 2024 Right-of-use asset (unaudited) Right-of-use asset, net $ 208,924 $ 13,734 Lease liability Current lease liability $ 113,381 $ 4,796 Non-current lease liability 98,678 — Total lease liability $ 212,059 $ 4,796 Remaining lease term and discount rate May 31, 2024 Weighted-average remaining lease term 23 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, 2024: Schedule of future minimum lease payments due 2024 $ 121,007 Thereafter 100,839 Less: imputed interest ( 9,787 ) $ 212,059 18 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 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 . Note 11 - Common Stock 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. On July 17, 2023, the Company issued 121,422 shares of our common stock at a deemed price of $ 1.75 per share to The Benchmark Company, LLC (“Benchmark”) pursuant to the cashless exercise of warrants. On August 3, 2023, the Company issued 260,000 shares of our common stock at a price of $ 3.00 per share to three individuals pursuant to the exercise of warrants. On August 3, 2023, the Company issued 12,500 shares of our common stock at a deemed price of $ 2.47 per share to one entity pursuant to a consulting agreement. On September 5, 2023, the Company issued 2,500 shares of our common stock at a deemed price of $ 2.47 per share to one entity pursuant to a consulting agreement and 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. On September 14, 2023, two officers of the Company exercised an aggregate of 180,400 stock options on a deemed net-stock exercise basis resulting in the issuance of an aggregate of 90,898 shares of our common stock and the forfeiture of 89,502 stock options to the Company. On March 29, 2024, the Company issued 17,500 shares of our common stock at a deemed price of $ 2.80 per share to one entity pursuant to consulting agreements, dated February 27, 2023 and February 24, 2024. On March 29, 2024, the Company issued 150,000 shares of our common stock under its 2023 Stock Incentive Plan at a deemed price of $ 2.15 per share to two individuals pursuant to consulting agreements. As of May 28, 2024, the Company has received $ 775,000 in subscription proceeds to purchase 310,000 shares of its common stock at $ 2.50 per share on a private placement basis. As of May 31, 2024 there were 52,712,850 shares of the Company’s common stock issued and outstanding, and none of the preferred shares were issued and outstanding. 19 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 Notes to the Condensed Consolidated Financial Statements Share Purchase Warrants A continuity schedule of outstanding share purchase warrants as at May 31, 2024, 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, 2023 2,287,480 $ 3.32 Exercised ( 20,000 ) $ 3.00 Expired ( 188,500 ) $ 2.00 Exercised ( 260,000 ) $ 3.00 Expired ( 1,137,668 ) $ 3.00 Cashless Exercised ( 168,000 ) $ 1.75 Balance, May 31, 2024 513,312 $ 5.21 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 having an exercise price of $ 2.00 per share expired. On July 13, 2023, the Company received $ 780,000 from the exercise of warrants for the purchase of 260,000 shares of common stock of the Company at a price of $ 3.00 per share from three individuals. On July 13, 2023, 1,137,668 stock purchase warrants having an exercise price of $ 3.00 per share expired. On July 17, 2023, Benchmark exercised 168,000 warrants on the cashless exercise basis resulting in the issuance of 121,422 shares of common stock. A summary of share purchase warrants outstanding and exercisable as at May 31, 2024 is as follows: Schedule of share purchase warrants outstanding and exercisable Number of Warrants Remaining Contractual Exercise Price Outstanding Life (Years) Expiry Date $ 5.00 350,000 0.30 September 19, 2024 $ 8.22 28,312 1.43 November 4, 2025 $ 6.70 10,000 1.48 November 21, 2025 $ 5.00 125,000 0.34 October 1,2024 $ 5.21 513,312 20 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 Notes to the Condensed Consolidated Financial Statements Stock Options On December 28, 2021, the Company granted an aggregate of 4,545,000 stock options pursuant to the Company’s 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 strike price adjustment did not affect the fair value. 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, 2024 February 29, 2024 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 On July 28, 2023, the Company granted an aggregate of 2,648,500 stock options pursuant to the Company’s 2023 Stock Incentive Plan having an exercise price of $ 4.62 per share and an expiry date of five years from the date of grant to 22 individuals who were employees and consultants of the Company’s subsidiaries and contractually controlled affiliate. The stock options are all subject to vesting provisions of 20% on the date of grant and 20% on each of the first, second, third and fourth anniversary of the date of grant. The fair value of these stock options was estimated at the date of grant, using the Black-Scholes Option Valuation Model, with the following weighted average assumptions: Schedule of valuation assumptions May 31, 2024 February 29, 2024 Expected Risk-Free Interest Rate 5.37 % 5.37 % Expected Volatility 25.48 % 25.48 % Expected Life in Years 5.0 5.0 Expected Dividend Yield — — Weighted-Average Grant Date Fair Value $ 4.58 $ 4.58 A continuity schedule of outstanding stock options as at May 31, 2024, and the changes during the period, is as follows: Schedule of stock option activity Number of Stock Options Exercise Price Balance, February 28, 2022 4,545,000 $ 3.84 Cancelled/Forfeited ( 974,000 ) 3.84 Balance, February 28, 2023 3,571,000 $ 3.84 Stock Options Grant - July 28, 2023 2,648,500 4.62 Exercised ( 180,400 ) 3.84 Balance, May 31, 2024 6,039,100 $ 4.18 21 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 Notes to the Condensed Consolidated Financial Statements Stock Options (continued) 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, 2024 February 29, 2024 Number of Options Exercised on Forfeiture Basis — 89,502 Number of Options Exercised on Cash Basis — — Total Number of Options Exercised — 89,502 Number of Shares Issued on Cash Exercise — — Number of Shares Issued on Forfeiture Basis — 90,898 Total Number of Shares Issued Upon Exercise of Options — 90,898 Cash Received from Exercise of Stock Options $ — $ — Total Intrinsic Value of Options Exercised $ — $ — A continuity schedule of outstanding unvested stock options at May 31, 2024, and the changes during the three months periods, is as follows: Schedule of unvested restricted stock Number of Weighted Average Unvested Stock Options Grant Date Fair Value Balance, February 28, 2023 2,142,600 $ 6.46 Stock Options Grant - July 28, 2023 2,648,500 $ 4.58 Vested – July 28, 2023 ( 529,700 ) $ 4.58 Vested – December 28, 2023 ( 714,200 ) $ 6.46 Balance, May 31, 2024 3,547,200 $ 5.34 As at May 31, 2024, the aggregate intrinsic value of the outstanding stock options granted on December 28, 2021 was estimated at $0 as the current price as of May 31, 2024 is $3.14 which is lower than the strike price while the aggregate intrinsic value of the outstanding stock options granted on July 28, 2023 is $0 as the current price as of May 31, 2024 is lower than the strike price. A summary of stock options outstanding and exercisable as at May 31, 2024 is as follows: Schedule of stock options Options Outstanding Options Exercisable Range of Exercise Prices Outstanding at May 31, 2024 Exercise Price Weighted Average Remaining Contractual Term (Years) Exercisable at May 31, 2024 Exercise Price Weighted Average Remaining Contractual Term (Years) $ 7.00 to $ 9.00 3,390,600 $ 3.84 1.58 1,962,200 $ 3.84 1.58 $ 4.00 to $ 5.00 2,648,500 $ 4.62 3.16 529,700 $ 4.62 3.16 6,039,100 2,491,900 22 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 Notes to the Condensed Consolidated Financial Statements 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, 2024 May 31, 2023 Numerator - basic and diluted Net Loss $ ( 1,655,832 ) $ ( 1,264,262 ) Denominator Weighted average number of common shares outstanding —basic 52,660,051 51,479,890 Weighted average number of common shares outstanding —diluted 52,660,051 51,479,890 Loss per common share — basic $ ( 0.03 ) $ ( 0.02 ) Loss per common share — diluted $ ( 0.03 ) $ ( 0.02 ) 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, 2024 and 2023. 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, 2024 and 2023. 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, 2024 and 2023 are as follows: Schedule of effective income tax rate reconciliation For the three months ended May 31, 2024 May 31, 2023 (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 % 23 FINGERMOTION, INC. Three months ended May 31, 2024 and 2023 Notes to the Condensed Consolidated Financial Statements Note 13 – Income Taxes (continued) At May 31, 2024 and February 29, 2024, the Company has a deferred tax asset of $ 413,976 and $ 939,380 , 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, 2024 and February 29, 2024, the valuation allowance was $ 413,976 and $ 939,380 , respectively. Schedule of deferred tax assets and liabilities May 31, 2024 February 29, 2024 (unaudited) Deferred tax asset from operating losses carry-forwards $ 413,976 $ 939,380 Valuation allowance ( 413,976 ) ( 939,380 ) Deferred tax asset, net $ — $ — Note 14 - Commitments and Contingencies Legal proceedings The Company is not aware of any material outstanding claim and litigation against it. Note 15 - Subsequent Events On June 1, 2024, the Company’s wholly owned subsidiary, Finger Motion Company Limited (the “ Borrower ”), entered into a loan agreement with Dr. Liew Yow Ming (the “ Lender ”) whereby the Lender agreed to advance a short-term loan facility of SGD$370,000 (the “ Loan ”) to the Borrower for working capital purposes. As of the date hereof, the full amount of the Loan has been drawn upon by the Borrower. Each drawdown portion of the Loan is due one (1) year from the date of the drawdown, unless extended by the Lender. If the Lender agrees, the Borrower may prepay the whole or any part of the Loan by providing the Lender not less than three (3) business days prior written notice and subject to payment of interest accrued thereon. Any prepayment of the Loan shall be in an amount of SGD$50,000 or multiples thereof. The Loan shall bear interest at the rate of 1.67% per month, any such interest to accrue from day to day and to be calculated based on a 365-day year, and is payable on a monthly basis on or before the last day of each successive month. 24