FingerMotion, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management’s discussion and analysis of the Company’s financial condition and results of operations contain 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 Annual Report on Form 10-K filing for the fiscal year ended February 28, 2025, including the consolidated financial statements and related notes contained herein. 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” and Item 1A. Risk Factors. Introduction The following discussion summarizes the results of operations for each of our fiscal years ended February 28, 2025 and February 29, 2024 and our financial condition as at February 28, 2025 and February 29, 2024, with a particular emphasis on fiscal 2025, our most recently completed fiscal year. 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. As described elsewhere in this Annual Report, our Company has been organized as a holding company and conducts a significant part of our operations through our subsidiaries and through contractual arrangements with JiuGe Technology, a VIE based in China. We indirectly own 100% of the equity of JiuGe Management, a WFOE that has entered into the VIE Agreements which gives us operational control over JiuGe Technology. 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 JiuGe Technology, our VIE. 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. - 41 - Table of Contents 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.com, TMall.com 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, we have been designated as one of China’s Mobile’s loyalty redemption partners, which allows us to provide such services for their customers via our platform. Additionally, as previously disclosed, on July 7, 2019, JiuGe Technology, our VIE, entered into that certain Cooperation Agreement with China Unicom Yunnan, whereby 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 JiuGe Technology provides under the Cooperation Agreement, it 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, which is currently in an auto-renewal period, 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. 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 in the introduction of 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 Mobile Device protection product with the roll out of the new mobile phones and 5G phones. Complementing our hardware protection services, we have introduced cloud services designed to offer corporate customers robust data storage, processing capabilities, and databases accessible via the internet. SMS and MMS Services On March 7, 2019, the Company, acting through JiuGe Technology, acquired operational control of 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. Beijing Technology retains a license from 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. - 42 - 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. Currently, the deployment of this RCS platform is under review, with discussion ongoing among government bodies, major service providers, and telecommunication companies. These deliberations aim to assess the potential market impacts and establish the necessary consents before the launch, considering the significant changes the platform may introduce to user interactions with existing services. The discussion seeks to ensure that all stakeholders’ concerns are addressed comprehensively. Once these issues are resolved and the necessary approval is obtained, we anticipate a substantial enhancement in our service offerings and an expansion of our market reach. 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, acting primarily through its indirect wholly-owned subsidiary, Finger Motion Financial Company Limited (“ FMFC ”) 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, FMFC entered into a Sapientus 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 acting 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. While publishers are expanding their direct-to-consumer models through mobile gaming, eSports and virtual, the Company has exited the video game business and re-directed its resources towards new business opportunities in China, particularly the mobile phone payment and data business. Smart Mobility Solution The C2 Platform, FingerMotion’s Advanced Mobile Integrated Command and Communication solution, saw considerable advancements during the fiscal year. Designed to support mission-critical mobile communications for public safety agencies, emergency response teams, and industrial sectors, the C2 Platform is built on FingerMotion’s telecommunications infrastructure, leveraging 5G connectivity and cloud-based technology to offer real-time data sharing, geospatial mapping, and situational awareness. - 43 - Table of Contents During the year, we expanded the deployment of the C2 Platform into pilot regions, establishing partnerships with automotive manufacturers and industrial partners. These partnerships enabled us to showcase the platform's capabilities, including mobile video feeds, real-time GPS tracking, and AI-driven analytics for improving public safety operations. Our C2 Platform is positioned to serve both public sector agencies and private sector enterprises in high-risk areas such as disaster management, fleet operations, and emergency response missions. We expect these deployments to scale in the upcoming fiscal year, with further geographic expansion planned for key markets in China. These developments are expected to drive revenue growth from enterprise sales, government contracts, and strategic partnerships. DaGe Platform The DaGe platform, FingerMotion’s integrated marketplace for automotive products and services, continued its expansion in the fiscal year. The platform offers a range of services, such as vehicle maintenance, repair, tire replacement, and EV charging, catering to the growing EV market. With the increasing adoption of EVs, the demand for EV charging stations and related services has been a significant growth driver for DaGe. During the year, we expanded our network of service providers, onboarded additional automotive maintenance providers, and onboarded more EV charging stations into the platform. We also enhanced user experience by offering location-based, proximity recommendations, real-time pricing, and seamless transaction processing, all within the mobile app. The increase in user engagement on the DaGe platform resulted in higher transaction volumes, which directly contributed to revenue growth in this segment. Additionally, we leveraged our existing telecommunications infrastructure to expand the platform’s reach, capitalizing on cross-promotion opportunities within our mobile services business. The introduction of loyalty programs and seasonal promotions helped retain users and drive repeat business, further strengthening the platform’s position in the market. As we look ahead, we plan to continue expanding DaGe’s offerings by targeting new markets and forming strategic partnerships with both local and national service providers. Recent Developments On September 10, 2024, we appointed CT International LLP as our new independent registered public accounting firm, succeeding our previous auditors, Centurion ZD CPA & Co. On November 29, 2024, Michael Chan resigned as a director of the Company. On December 3, 2024, following the resignation of Mr. Chan as a director of the Company creating a vacancy on each of the Board’s audit committee and the compensation committee, the Board appointed Hsien Loong Wong as a member of the audit committee of the Board and appointed Yew Poh Leong as the chair of the audit committee of the Board. In addition, the Board appointed Eng Ho Ng as a member of the compensation committee of the Board. On December 16, 2024, the Company and Univest Securities, LLC mutually agreed to terminate the At-the-Market Issuance Sales Agreement, dated September 11, 2023, between the Company and Univest, effective December 16, 2024. On December 20, 2024, the Company entered into a securities purchase agreement (the “ Purchase Agreement ”) with certain institutional investors (the “ Purchasers ”), which provided for the issuance and sale, in a registered direct offering by the Company of (i) 3,333,336 shares of its common stock, par value $0.0001 per share (the “ Common Stock ”) and (ii) warrants (the “ Common Warrants ”) to purchase up to an aggregate of 5,000,004 shares of its common stock (the “ Offering ”) at a combined purchase price of $1.50 per share and one and one-half Common Warrants. Each share of Common Stock was offered together with one and one-half Common Warrants, with each whole Common Warrant to purchase one share of Common Stock. The Common Warrants have an exercise price of $1.50 per share of Common Stock. The Common Warrants are exercisable upon issuance and expire five years from the date of issuance. The exercise price of the Common Warrants is subject to adjustment for share dividend, share splits, share combinations and similar capital transactions, as further described in the Common Warrants. In addition, the exercise price of the Common Warrants is subject to reduction in the event of certain Common Stock and Common Stock equivalent issuances, other than certain agreed exempt issuances, at a price lower than the exercise price of the Common Warrants then in effect. Furthermore, if at any time on or after the date of issuance there occurs any share split, share dividend, share combination recapitalization or other similar transaction involving our common stock (each, a “ Share Combination Event ”) and the lowest daily volume weighted average price during the period commencing five consecutive trading days immediately preceding and ending immediately after the five consecutive trading days beginning on the date of such Share Combination Event, is less than the exercise price of the Common Warrants then in effect, then the exercise price of the Common Warrants will be reduced to the lowest daily volume weighted average price during such period. - 44 - Table of Contents The Purchase Agreement contains customary representations and warranties and agreements of the Company and the Purchasers, and customary indemnification rights and obligations of the parties. In addition, the Purchase Agreement includes a participation right in favour of the Purchasers under which the Purchasers will be entitled, for a period of one year following closing, to participate in future equity financings of the Company up to a participation rate of a maximum of 40% of such offering. The Company has agreed not to enter into or complete certain equity financings, subject to certain agreed exemptions, for a 60-day period from the date of closing of the Offering. In addition, the Company has agreed not to enter into any “Variable Rate Transactions”, as defined in the Purchase Agreement, for a period of six months following closing of the Offering, provided that the Company is entitled to proceed with an “at-the-market offering” after the expiry of the initial 60-day period following closing. Certain directors, officers and 10% stockholders of the Company also entered into lock-up agreements in connection with the Offering under which they have agreed not to sell or transfer any of their equity securities in the Company for a period of 60 days, subject to certain customary exceptions. In connection with the Offering, the Company entered into a Placement Agency Agreement (the “ Placement Agency Agreement ”) on December 20, 2024 with Roth Capital Partners, LLC (the “ Placement Agent ”), as the exclusive placement agent in connection with the Offering. As compensation to the Placement Agent, the Company paid the Placement Agent a cash fee of 7.0% of the aggregate gross proceeds raised in the Offering and issued to the Placement Agent a placement agent warrant to purchase up to 250,000 shares of Common Stock at an exercise price of $1.88 per share (the “ Placement Agent Warrant ”) for a term of five years from the date of commencement of sales in the Offering. The Placement Agent Warrant includes adjustment provisions equivalent to the adjustment provisions provided to the Purchasers under the Common Warrants, as described above. In addition, the Company has agreed to pay the Placement Agent up to $110,000 for its expenses. The shares of Common Stock, the Common Warrants and the Placement Agent Warrants described above and the shares of Common Stock underlying each of the Common Warrants and the Placement Agent Warrant were offered and sold pursuant to the Registration Statement on Form S-3 (File No. 333-274456), which was declared effective by the Securities and Exchange Commission on September 29, 2023 (the “ Registration Statement ”). The Company filed a prospectus supplement to the base prospectus incorporated in the Registration Statement with the SEC on December 23, 2024 in connection with the Offering, which closed on December 23, 2024. The Company received net proceeds of approximately $4.44 million from the Offering, after deducting the estimated offering expenses payable by the Company, including the fees and expenses of the Placement Agent. Results of Operations Year Ended February 28, 2025 Compared to Year Ended February 29, 2024 The following table sets forth our results of operations for the fiscal years ended February 28, 2025 and February 29, 2024: Year Ended February 28, 2025 Year Ended February 29, 2024 Revenue $ 35,607,614 $ 35,791,685 Cost of revenue $ (32,843,907 ) $ (31,929,967 ) Total operating expenses $ (8,712,708 ) $ (7,679,407 ) Total other income (expenses) $ (39,462 ) $ 5,672 Net Loss attributable to the Company’s stockholders $ (5,112,804 ) $ (3,811,503 ) Foreign currency translation adjustment $ (176,265 ) $ (375,319 ) Comprehensive loss attributable to the Company $ (5,288,467 ) $ (4,187,272 ) Basic Loss Per Share attributable to the Company (0.09 ) (0.07 ) Diluted Loss Per Share attributable to the Company (0.09 ) (0.07 ) - 45 - Table of Contents Revenues The following table sets forth the Company’s revenue from its three lines of business for the periods indicated: Year Ended February 28, 2025 Year Ended February 29, 2024 Change (%) Telecommunication Products & Services $ 27,205,347 $ 32,790,946 -17 % SMS & MMS $ 8,191,308 $ 2,672,826 206 % DaGe Platform $ 80,592 $ — 100 % Command & Communication $ 188,576 $ — 100 % Big Data $ (58,209 ) $ 327,913 -118 % Total Revenue $ 35,607,614 $ 35,791,685 -1 % We recorded $35,607,614 in revenue for the year ended February 28, 2025, a decrease of $184,071 or 1%, compared to the year ended February 29, 2024. This decrease resulted from increases in revenue of $5,518,482, $80,592 and $188,576 from our SMS & MMS, DaGe Platform and Command & Communication businesses, respectively, offset by decreases in revenue of $5,585,599 and $386,122 from our Telecommunication Products & Services and Big Data businesses, respectively. We principally earn revenue by providing mobile payment and recharge services to customers of telecommunications companies in China. Specifically, we earn a negotiated rebate amount from the telecommunications companies for all monies paid by consumers to those companies that we process. For the year ended February 28, 2025, our revenue remained primarily driven by our Telecommunication Products & Services segment, despite a decrease compared to the same period in 2024. The SMS & MMS business experienced a notable increase during this period. Importantly, the DaGe Platform, launched in 2024, recorded its first revenue contributions during the year. While still in the early stages of development, this segment marks a strategic advancement in our diversification efforts, offering car-related services through a growing digital ecosystem that includes car wash, maintenance, and EV charging. Although the platform remains under active development, we have already begun generating revenue, reflecting initial market traction. With increasing user adoption and continued integration of EV charging station networks, we expect the DaGe Platform to deliver stronger returns in future periods. The Command and Communication business also made its initial contribution during the year, supporting our long-term growth plans. However, the overall revenue from recharge services for the year ended February 28 2025 was lower than prior corresponding period, it continues to be the primary contributor to our overall performance. In the Big Data business segment, although revenue decline during the year, we remain committed to advancing out analytical capabilities and commercial applications. Since FY2021, we have established foundational partnerships with major reinsurance companies including Pacific Life Re and Munich Re, which enabled us to co-develop predictive analytics models designed to enhance risks assessment across the insurance value chain. These initiatives have laid the foundation for the next phase of development of our advanced data analytics capabilities and shaped the future direction of Sapientus. Looking ahead, we are aligning the Big Data business with our broader strategic objectives of diversification, innovation, and scalability. Our ongoing efforts are focused on expanding into new industry verticals, pursuing opportunities for geographic growth globally, and further enhancing our technological platforms. Through these initiatives, we aim to position Sapientus as a leading provider of data-driven solutions, supporting a wide range of industries while strengthening our role as a trusted analytics partner worldwide. Cost of Revenue The following table sets forth the Company’s cost of revenue for the periods indicated: Year Ended February 28, 2025 Year Ended February 29, 2024 Telecommunication Products & Services $ 24,861,246 $ 29,384,841 SMS & MMS $ 7,671,635 $ 2,545,126 DaGe Platform $ 151,065 $ — Command & Communication $ 159,961 $ — Total Cost of Revenue $ 32,843,907 $ 31,929,967 - 46 - Table of Contents We recorded $32,843,907 in costs of revenue for the year ended February 28, 2025, an increase of $913,940 or 3%, compared to the year ended February 29, 2024. 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, promotion and marketing initiatives to support user growth and vendor participation, particularly for new business segments which are reflected in our cost of revenue. Gross Profit Our gross profit for the year ended February 28, 2025 was $2,763,707, a decrease of $1,098,011 or 28%, compared to the year ended February 29, 2024. The significant decline in gross profit was primarily due to the higher margin product mix in the Telecommunication Product & Services segment during the prior period, particularly from our cloud business. In contrast, there were no contributions from the cloud business during the current year, which typically generates higher margin . Amortization & Depreciation We recorded depreciation of $156,497 for fixed assets for the year ended February 28, 2025, an increase of $85,888 or 121%, compared to the year ended February 29, 2024. The increase was due to the amortization of right-of-use assets. General and Administrative Expenses The following table sets forth the Company’s general and administrative expenses for the periods indicated: Year Ended February 28, 2025 Year Ended February 29, 2024 Accounting $ 330,021 $ 160,402 Consulting $ 1,768,516 $ 1,953,170 Entertainment $ 321,404 $ 283,046 IT $ 64,945 $ 98,979 Rent $ 22,746 $ 142,033 Salaries & Wages $ 2,452,796 $ 2,044,348 Stock Option Compensation Expenses $ 376,699 $ 544,803 Technical Fee $ 144,202 $ 131,886 Travelling $ 386,408 $ 305,331 Others $ 578,034 $ 919,483 Total G&A Expenses $ 6,445,771 $ 6,583,481 We recorded $6,445,771 in general and administrative expenses for the year ended February 28, 2025, a slight decrease of $137,710 or 2%, compared to the year ended February 29, 2024 The decrease reflects certain minor reclassifications made during the year to align expense recognition with the appropriate reporting periods. These adjustments were reflected through retained earnings and did not have a material impact on the current year’s financial results. Our general and administrative expenses primarily consists of personnel-related costs, professional and accounting services, and general office and operational expenses necessary to support our business growth and regulatory compliance. These expenses include ongoing costs associated with corporate governance, audit and regulatory filings, consulting and advisory services, and operational support across our business segment. Marketing Costs The following table sets forth the Company’s marketing costs for the periods indicated: Year Ended February 28, 2025 Year Ended February 29, 2024 Marketing Costs $ 276,258 $ 140,052 We recorded $276,258 in marketing costs for the year ended February 28, 2025, an increase $136,206 or 97% compared to the year ended February 29, 2024. The majority of these marketing costs were incurred in promoting our newly launched Da Ge App platform. - 47 - Table of Contents Research & Development The following table sets forth the Company’s research & development for the periods indicated: Year Ended February 28, 2025 Year Ended February 29, 2024 Research & Development $ 632,767 $ 699,559 We recorded $632,767 in research & development for the year ended February 28, 2025, as compared to $699,559 for the year ended February 29, 2024. The decrease of $66,792 or 10% was due to the savings from data access and usage fees 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 course of 2023, Sapientus has made great strides on several fronts: market implementation, analytical advancement, and network engagement. These developments proceed in parallel with continued efforts to enrich our portfolio line-up towards fulfilling our commercialization potential and value creation objectives: ● Deployment of an analytic engine within the leading reinsurer’s risk assessment and selection system. - Our rating models have been onboarded onto our partner’s innovative digital solutions platform as an embedded component of their underwriting engine. Through this pilot adoption, we brought forward both integrative as well as complementary value through injecting new data-driven insights and risk-scoring capabilities into our partner’s system. We believe this arrangement strategically positions Sapientus for further market recognition and partnership opportunities. - Currently, our rating models are being used by more than 20 major insurance companies, with increasing reach in terms of user base and business coverage as our reinsurer partner continues to actively engage more insurance clients and apply our model results across wider spectrums of product lines including medical and Critical Illness (CI) portfolios. ● Model enhancement through calibration against empirical data - We have deepened our analytic capabilities in generating risk insights and behavioral understanding through sharpening our proprietary modelling tools with empirical insurance claims data, in conjunction with our partner’s medical as well as non-medical underwriting guidelines. The elevated intelligence of our system could empower our partners with a greater latitude of risk and value segmentation abilities critical for successful portfolio management. ● Strengthening of existing strategic collaboration arrangements and broadening into new engagements - We continue to leverage our vast analytical assets and reinvent our capabilities to better serve existing partners as well as recruit new collaboration parties. As part of our new business and collaboration strategy, we have been actively developing and promoting new value propositions, such as offering proprietary analytic tools and insights that facilitate more effective sales profiling and creative product innovations, capturing a wider commercial audience. ● Official patent recognition – Over the past four years, FMFCL has been granted eight patents by the National Copyright Administration of China (NCAC) in relation to Sapientus for the abovementioned model algorithms and technological infrastructure as well as insurance-oriented applications, for example, Risk Rating API Design, and Insurance Risk Assessment platform and Insurance Fraud Detection System. NCAC is the governing body for patent and copyright verification and approval in China. The Company’s successful applications for these patents validate Sapientus’s 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. Looking ahead, we are executing a deliberate strategy to expand the Sapientus brand beyond China, with an emphasis on building scalable, adaptable, and low-capital data-driven solutions that can serve diverse markets and industries globally. Our expansion efforts are designed to gradually strengthen our presence internationally while maintaining a flexible approach to market opportunities as they arise. - 48 - Table of Contents Research and development remains fundamental to our technology-oriented operations. We continue to invest consistently in innovation, recognizing that data science and advanced analytics are core to our long-term competitiveness. Through Sapientus, we are committed to reinforcing our technological leadership and enhancing our ability to deliver impactful solutions for our clients both within China and internationally. Credit Impairment Loss The following table sets forth the Company’s credit impairment loss for the periods indicated: Year Ended February 28, 2025 Year Ended February 29, 2024 Credit impairment loss $ 439,613 $ — We recorded $439,613 in credit impairment loss for the year ended February 28, 2025, an increase $439,613 or 100% compared to the year ended February 29, 2024, reflecting a prudent assessment of expected credit loss based on updated evaluations of customer credit risk and overall credit exposure. Share Compensation Expenses The following table sets forth the Company’s share compensation expenses for the periods indicated: Year Ended February 28, 2025 Year Ended February 29, 2024 Share compensation expenses $ 761,802 $ 185,406 We incurred fees of $761,802 in share issuance for consultants in consideration of the services which have been provided to the Company for the year ended February 28, 2025 as compared to $185,406 for the year ended February 29, 2024. The increase of $576,396 or 311% was due to the engagement of consultants to the Company that were compensated with shares of our common stock, the rationale for rewarding these consultants and advisors with shares is to minimize the usage of cash by the Company. However, we will continue to employ equity compensation for consultants selectively, aligning with our strategic and financial objectives. Operating Expenses We recorded $8,712,708 in operating expenses for the year ended February 28, 2025 as compared to $7,679,407 in operating expenses for the year ended February 29, 2024. The increase of $1,033,301 or 13% for the year ended February 28, 2025 is as set forth above. Net Loss attributable to the Company’s shareholders The net loss attributable to the Company’s shareholders was $5,112,804 for the year ended February 28, 2025 and $3,811,503 for the year ended February 29, 2024. The increase in net loss attributable to the Company’s shareholders of $1,301,301 or 34% resulted primarily from the significant decline in gross profit which due to the higher margin product mix in the Telecommunication Product & Services segment during the prior period, particularly from our cloud business and some increases from the various expenses as discussed above. Liquidity and Capital Resources The following table sets out our cash and working capital as of February 28, 2025 and February 29, 2024: As at February 28, 2025 As at February 29, 2024 Cash reserves $ 1,128,135 $ 1,517,232 Working capital $ 6,902,805 $ 11,602,192 At February 28, 2025, we had cash and cash equivalents of $1,128,135 as compared to cash and cash equivalents of $1,517,232 at February 29, 2024. - 49 - Table of Contents Our business model, particularly in mobile payment, requires periodic fund deposits with our telecommunication companies to obtain access to the mobile data and talk time we make available to consumers on our portal. Additionally, the expansion into areas such as cloud-based business, which features a longer collection cycle, as well as investments in other growth initiatives, has increased our accounts receivable and placed added pressure on our liquidity. To manage these operational demands effectively, we have had to carefully monitor and manage our cash flows. We anticipate our cash on hand and cash equivalents, along with our revenues from operations, will support our ongoing operations and repayment of outstanding indebtedness in the near term. However, to sustain our growth and support strategic initiatives, including the rollout of our Command & Communication business and increase deposits with telecommunication companies, we will require additional capital. To support all these, we intend to continue to seek additional capital through public or private sales of our equity or debt securities, or both. We may also explore entering into financing arrangements with commercial banks or non-traditional lenders. We cannot provide investors with any assurance that we will be able to raise additional funding from the sale of our equity and/or debt securities on terms acceptable to us, or at all, in order to support the rollout of our Command & Communication business and increase our deposits with our telecommunications company client . We did, however, raise $6,642,504 through a closing of a private placement of 1,095,000 shares of our common stock at a price of $1.50 per share and entered into a securities purchase agreement with certain institutional investors, which provided for the issuance and sale, in a registered direct offering by the Company of 3,333,336 shares of our common stock at a price of $1.50 per share, during the year ended February 28, 2025. In addition to these equity financings, we also obtained loan financing comprising approximately $1.59 million denominated in SGD, which provided additional working capital to support our operational and strategic initiatives. Statement of Cashflows The following table provides a summary of cash flows for the periods presented: Year Ended February 28, 2025 Year Ended February 29, 2024 Net cash used in operating activities $ (8,179,304 ) $ (7,327,320 ) Net cash used in investing activities $ (4,115 ) $ (376 ) Net cash provided by financing activities $ 7,776,249 $ (295,333 ) Effect of exchange rates on cash & cash equivalents $ 18,073 $ (99,980 ) Net increase (decrease) in cash and cash equivalents $ (389,097 ) $ (7,723,009 ) Cash Flow used in Operating Activities Net cash used in operating activities increased by $851,984 in the year ended February 28, 2025 compared to the year ended February 29, 2024, primarily due to increase in accounts receivable of ($24,860,498) (2024: ($7,919,533)), increase in prepayment and deposit of ($1,365,105) (2024: ($1,525,857)), increase in inventories of ($137,354) (2024: nil) and decrease in lease liability of ($100,668) (2024: ($6,857)) offset by, decrease in other receivable of $1,399,140 (2024: ($65,266)), increase in accounts payable of $19,665,662 (2024: $5,168,763) and increase in accrual and other payables of $7,788,318 (2024: $499,252). Cash Flow used in Investing Activities During the year ended February 28, 2025, investing activities increased by $3,739 compared to the year ended February 29, 2024. Cash Flow provided by Financing Activities During the year ended February 28, 2025, net cash provided by financing activities was $7,776,249 compared to net cash used by financing activities of $295,333 during the year ended February 29, 2024. The increase was due to the receipt of subscription proceeds to purchase 1,095,000 shares of our common stock at $1.50 per share on a private placement basis and a registered direct offering by the Company of 3,333,336 shares of our common stock at $1.50 per share. The Company received some short-term loan facilities of an aggregate of SGD$2,120,000 . On February 14, 2025, the Company repaid 2 short-term loans of SGD$370,000 and SGD$250,000. 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. - 50 - Table of Contents Subsequent Events On March 3, 2025, we issued 27,500 shares of our common stock at a deemed price of $1.86 per share to one entity pursuant to a consulting agreement. On May 28, 2025, we issued an aggregate of 940,000 shares of our common stock at a price of $2.50 per share to eight individuals due to the closing of a private placement for aggregate gross proceeds of $2,350,000. The proceeds from the private placement offering will be used for general corporate and working capital purposes. In connection with the closing of the private placement on May 28, 2025, we paid cash finder’s fees of $235,000 to one non-U.S. individual. Outstanding Share Data At May 23, 2025, we have 57,581,186 issued and outstanding shares of common stock. Critical Accounting Policies 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. In connection with the preparation of our consolidated financial statements for the year ended February 28, 2025, we identified accounting errors related to revenue and stock options. The accumulated deficit as of February 28, 2023, Consolidated Balance Sheet as of February 29, 2024, and the related Consolidated Statements of Operations, Stockholders’ Equity and Cash Flows for the fiscal year ended February 29, 2024, have been restated to correct the errors. We evaluated the materiality of the errors and determined that the impacts were not material, individually or in the aggregate, to our previously issued consolidated financial statements for any of the prior quarters or annual periods in which they occurred. See Note 16 of the notes to our consolidated financial statements for further discussion. 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. - 51 - Table of Contents Use of Estimates The preparation of the Company’s financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Actual results could differ from those estimates. Certain Risks and Uncertainties The Company relies on cloud-based hosting through a global accredited hosting provider. Management believes that alternate sources are available; however, disruption or termination of this relationship could adversely affect our operating results in the near term. Identifiable Intangible Assets Identifiable intangible assets are recorded at cost and are amortized over 3-10 years. Similar to tangible property and equipment, the Company periodically evaluates identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment of Long-Lived Assets The Company classifies its long-lived assets into: (i) computer and office equipment; (ii) furniture and fixtures, (iii) leasehold improvements, and (iv) finite–lived intangible assets. Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. It is possible that these assets could become impaired as a result of technology, economy, or other industry changes. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, relief from royalty income approach, quoted market values and third-party independent appraisals, as considered necessary. The Company makes various assumptions and estimates regarding estimated future cash flows and other factors in determining the fair values of the respective assets. The assumptions and estimates used to determine future values and the remaining useful lives of long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as the Company’s business strategy and its forecasts for specific market expansion. Accounts Receivable and Concentration of Risk Accounts receivable, net is stated at the amount the Company expects to collect, or the net realizable value. The Company provides a provision for allowances that includes returns, allowances, and doubtful accounts equal to the estimated uncollectible amounts. The Company estimates its provision for allowances based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the provision for allowances will change. 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. - 52 - Table of Contents 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. ASC 260, Earnings Per Share (“ASC 260”), 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. 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 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. - 53 - Table of Contents Recent 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 7A. 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.