FINGERMOTION, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The terms the "Registrant", "we", "us", "our", "FingerMotion" and the "Company"
mean
consolidated subsidiaries and contractually controlled companies.
Cautionary Note Regarding Forward-Looking Statements
The following management's discussion and analysis of the Company's financial
condition and results of operations (the "MD&A") contains forward-looking
statements that involve risks, uncertainties and assumptions including, among
others, statements regarding our capital needs, business plans and expectations.
In evaluating these statements, you should consider various factors, including
the risks, uncertainties and assumptions set forth in reports and other
documents we have filed with or furnished to the
limitation, this Quarterly Report on Form 10-Q for the six months ended
notes contained therein. These factors, or any one of them, may cause our actual
results or actions in the future to differ materially from any forward-looking
statement made in this document. Refer to "Cautionary Note Regarding
Forward-looking Statements" as disclosed in our Annual Report on Form 10-K for
the fiscal year ended
II - Other Information of this Quarterly Report.
Introduction
This MD&A is focused on material changes in our financial condition from
our results of operations for the six months ended
be read in conjunction with Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations as contained in our Annual Report
on Form 10-K for the fiscal year ended
Corporate Information
The Company was initially incorporated as
America
On
a 1-for-4 reverse stock split of the Company's outstanding common stock, to
increase the authorized shares of common stock to 200,000,000 shares and to
change the name of the Company from "
to "
amended certificate of incorporation became effective on
Our principal executive offices are located at
10036, and our telephone number at that address is (347) 349-5339.
We are a holding company incorporated in
incorporated in
holding company, we conduct a significant part of our operations through our
subsidiaries and through the VIE Agreements with the VIE based in
address challenges resulting from laws, policies and practices that may disfavor
foreign-owned entities that operate within industries deemed sensitive by the
Chinese government, we use the VIE structure to replicate foreign investment in
the PRC-based companies. We own 100% of the equity of a WFOE,
Business Management Co., Ltd.
the VIE, which is owned by Ms.
manager, and also the shareholder of the VIE. As a result of our use of the VIE
structure, you may never directly hold equity interests the VIE. The securities
offered pursuant to this prospectus are securities of the Company, the
holding company, not of the VIE.
We fund the registered capital and operating expenses of the VIE by extending
loans to the shareholders of the VIE. We believe that we are the primary
beneficiary of the VIE because the VIE Agreements governing the relationship
between the VIE and our WFOE, which include a consulting services agreement, a
loan agreement, a power of attorney agreement, a call option agreement, and a
share pledge agreement, enable us to (i) exercise effective control over the
VIE, (ii) receive substantially all of the economic benefits of the VIE, and
(iii) have an exclusive call option to purchase, at any time, all or part of the
equity interests in and/or assets of the VIE to the extent permitted by Chinese
laws.
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Share Exchange Agreement
Effective
Agreement (the "Share Exchange Agreement") by and among the Company,
Motion Company Limited
shareholders of FMCL (the "FMCL Shareholders"). FMCL, a
was formed on
specializes in operating and publishing mobile games. Pursuant to the Share
Exchange Agreement, the Company agreed to exchange the outstanding equity stock
of FMCL held by the FMCL Shareholders for shares of common stock of the Company.
On the closing date of the Share Exchange Agreement, the Company issued
12,000,000 shares of common stock to the FMCL shareholders. In addition, the
Company issued 600,000 shares to consultants in connection with the transactions
contemplated by the Share Exchange Agreement, and 2,562,500 additional shares to
accredited investors, which was a concurrent financing but not a condition of
closing the Share Exchange Agreement.
As a result of the Share Exchange Agreement and the other transactions
contemplated thereunder, FMCL became a wholly owned subsidiary of the Company.
The Company operates its video game division through FMCL. However, in
saw the opportunity in the telecommunication business and have since refocused
into this business.
This description of the Share Exchange Agreement does not purport to be complete
and is qualified in its entirety by reference to the terms of the Share Exchange
Agreement, which was filed as an exhibit to our Current Report on Form 8-K filed
with the
VIE Agreements
On
a series of agreements known as variable interest agreements (the "VIE
Agreements") pursuant to which
("JiuGe Technology") became our contractually controlled affiliate. The use of
VIE agreements is a common structure used to acquire PRC corporations,
particularly in certain industries in which foreign investment is restricted or
forbidden by the PRC government. The VIE Agreements include a Consulting
Services Agreement, a Loan Agreement, a Power of Attorney Agreement, a Call
Option Agreement, and a Share Pledge Agreement in order to secure the connection
and commitments of the JiuGe Technology. We operate our mobile payment platform
business through JiuGe Technology.
The VIE Agreements included:
? a consulting services agreement through which JiuGe Management is mainly
engaged in data marketing, technical services, technical consulting and
business consultancy to JiuGe Technology (the "JiuGe Technology Consulting
Services Agreement");
? a loan agreement through which JiuGe Management grants a loan to the Legal
Representative of JiuGe Technology for the purpose of capital contribution
(the "JiuGe Technology Loan Agreement");
? a power of attorney agreement under which the owner of JiuGe Technology has
vested their collective voting control over JiuGe Technology to JiuGe
Management and will only transfer their equity interests in JiuGe Technology
to JiuGe Management or its designee(s) (the "JiuGe Technology Power of
Attorney Agreement");
? a call option agreement under which the owner of JiuGe Technology has granted
to JiuGe Management the irrevocable and unconditional right and option to
acquire all of their equity interests in JiuGe Technology or transfer these
rights to a third party (the "JiuGe Technology Call Option Agreement"); and
? a share pledge agreement under which the owner of JiuGe Technology has pledged
all of their rights, titles and interests in JiuGe Technology to JiuGe
Management to guarantee JiuGe Technology's performance of its obligations
under the JiuGe Technology Consulting Services Agreement (the "JiuGe
Technology Share Pledge Agreement").
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In the first half of 2018, JiuGe Technology secured contracts with China Unicom
and China Mobile to distribute mobile data for businesses and corporations in 9
provinces/municipalities, namely
Zhuhai,
In
and recharge services to businesses for China Unicom. The JiuGe Technology
mobile payment and recharge platform enables the seamless delivery of real-time
payment and recharge services to third-party channels and businesses. We earn a
negotiated rebate amount from each of China Unicom and China Mobile for all
monies paid by consumers to China Unicom and China Mobile that we process. To
encourage consumers to utilize our portal instead of using our competitors'
platforms or paying China Unicom or China Mobile directly, we offer mobile data
and talk time at a rate discounted from these companies' stated rates, which are
also the rates we must pay to them to purchase the mobile data and talk time
provided to consumers through the use of our platform. Accordingly, we earn
income on the rebates we receive from the telecommunications companies, reduced
by the amounts by which we discount the mobile data and talk time sold through
our platform.
In
contracts that established partnerships for data analysis, that could unlock
potential value-added services.
This description of the VIE Agreements discussed above do not purport to be
complete and are qualified in their entirety by reference to the terms of the
VIE Agreements, which were filed as exhibits to our Current Report on Form 8-K
filed with the
herein.
Acquisition of Beijing Technology
On
TianXia Technology Co., Ltd.
of providing mass SMS text services to businesses looking to communicate with
large numbers of their customers and prospective customers. Through Beijing
Technology, the Company entered into the business of mass SMS text message
service as a compliment to its mobile payment and recharge business. The mass
SMS text message service offers bulk SMS services to end consumers with
competitive pricing. Currently, the Company's SMS integrated platform is
processing more than 150 million SMS text messages per month. Beijing Technology
retains a license from the
operate SMS and MMS business in the PRC. Similar to the mobile recharge
business, Beijing Technology is required to make a deposit or bulk purchase in
advance and has secured business customers that will utilize Beijing
Technology's SMS integrated platform to send bulk SMS text messages monthly.
Beijing Technology has the capability to manage and track the entire process,
including to assist the Company's clients to fulfill the government guidelines,
until the SMS messages have been delivered successfully.
China Unicom Cooperation Agreement
On
Electronic Sales Platform Construction
"Cooperation Agreement") with China United Network Communications Limited
Branch
Technology is responsible for constructing and operating
electronic sales platform through which consumers can purchase various goods and
services from China Unicom Yunnan, including mobile telephones, mobile telephone
service, broadband data services, terminals, "smart" devices and related
financial insurance. The Cooperation Agreement provides that JiuGe Technology is
required to construct and operate the platform's webpage in accordance with
all expenses in connection therewith. As consideration for the services it
provides under the Cooperation Agreement, JiuGe Technology receives a percentage
of the revenue received from all sales it processes for China Unicom Yunnan on
the platform.
The Cooperation Agreement expires three years from the date of its signature
with a yearly auto-renewal clause, but it may be terminated by (i) JiuGe
Technology upon three months' written notice or (ii) by China Unicom Yunnan
unilaterally. The Cooperation Agreement contains customary representations from
each party regarding such party's authority to enter into and perform under the
Cooperation Agreement, and provides customary events of default, including for
various types of failure to perform. Any disputes arising between the parties
under the Cooperation Agreement will be adjudicated in Chinese courts.
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This description of the Cooperation Agreement does not purport to be complete
and is qualified in its entirety by reference to the terms of the Cooperation
Agreement, which was filed as an exhibit to our Current Report on Form 8-K filed
with the
In
Co., Ltd.
Technology Co., Ltd.
launch the Device Protection program for mobile phones and the new 5G phones.
Intercorporate Relationships
The following is a list of all of our subsidiaries and the corresponding date of
jurisdiction of incorporation or organization and the ownership interest of each
entity. All of our subsidiaries are directly or indirectly owned or controlled
by us:
Place of
Incorporation / Ownership
Name of Entity Formation Interest
Finger Motion Company Limited (1) Hong Kong 100%
Finger Motion (CN) Global Limited (2) Samoa 100%
Finger Motion (CN) Limited (3) Hong Kong 100%
Shanghai JiuGe Business Management Co., PRC 100%
Ltd.(4)
Shanghai JiuGe Information Technology PRC Contractually Co., Ltd.(5) controlled (5) Beijing XunLian TianXia Technology Co., PRC Contractually Ltd.(6) controlled Finger Motion Financial Group Limited (7) Samoa 100% Finger Motion Financial Company Limited Hong Kong 100%
(8)
Shanghai TengLian JiuJiu Information PRC Contractually Communication Technology Co., Ltd.(9) controlled Notes:
(1)
Inc.
(2)
FingerMotion, Inc.
(3) Finger Motion (CN) Limited is a wholly-owned subsidiary of Finger Motion (CN)
Global Limited .
(4) Shanghai JiuGe Business Management Co., Ltd. is a wholly-owned subsidiary of
Finger Motion (CN) Limited .
(5) Shanghai JiuGe Information Technology Co., Ltd. is a variable interest entity
that is contractually controlled by
Ltd.
(6)
(7)
FingerMotion, Inc.
(8) Finger Motion Financial Company Limited is a wholly-owned subsidiary of
Finger Motion Financial Group Limited .
(9) Shanghai TengLian JiuJiu Information Communication Technology Co., Ltd. is a
99% owned subsidiary of Shanghai JiuGe Information Technology Co., Ltd.
Because we do not directly hold equity interests in the VIE, we are subject to
risks and uncertainties of the interpretations and applications of Chinese laws
and regulations, including but not limited to, the validity and enforcement of
the VIE Agreements among the WFOE, the VIE and the shareholder of the VIE. We
are also subject to the risks and uncertainties about any future actions of the
Chinese government in this regard that could disallow the VIE structure, which
would likely result in a material change in our operations and may cause the
value of our Common Shares to depreciate significantly or become worthless.
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The VIE Agreements may not be as effective as direct ownership in providing
operational control. For instance, the VIE and its shareholders could breach
their contractual arrangements with us by, among other things, failing to
conduct their operations in an acceptable manner or taking other actions that
are detrimental to our interests. The shareholder of the VIE may not act in the
best interests of our Company or may not perform their obligations under the VIE
Agreements. Such risks exist throughout the period in which we intend to operate
certain portions of our business through the VIE Agreements with the VIE. In the
event that the VIE or its shareholder fail to perform their respective
obligations under the VIE Agreements, we may have to incur substantial costs and
expend additional resources to enforce such arrangements. In addition, even if
legal actions are taken to enforce the VIE Agreements, there is uncertainty as
to whether Chinese courts would recognize or enforce judgments of
against us or such persons predicated upon the civil liability provisions of the
securities laws of
Related to the VIE Agreements". We rely on the VIE Agreements with the VIE and
its shareholder for a significant portion of our business operations. The VIE
Agreements may not be as effective as direct ownership in providing operational
control. Any failure by the VIE or its shareholder to perform their obligations
under such contractual arrangements would have a material and adverse effect on
our business.
As of the date of this periodic report on Form 10-Q, we and the VIE are not
required to seek permissions from the CSRC, the
China
operations of the VIE. Nevertheless, Chinese regulatory authorities may in the
future promulgate laws, regulations or implement rules that require us, our
subsidiaries or the VIEs to obtain permissions from such regulatory authorities
to approve the operations of the VIE or any securities listing.
Overview
The Company operates the following lines of business: (i) Telecommunications
Products and Services; (ii) Value Added Product and Services; (iii) SMS and MMS
Services; (iv) a Rich Communication Services (RCS) platform; (v) Big Data
Insights; and (vi) a Video Game Division (inactive).
Telecommunications Products and Services
The Company's current product mix consisting of payment and recharge services,
data plans, subscription plans, mobile phones, loyalty points redemption and
other products bundles (i.e. mobile protection plans). Chinese mobile phone
consumers often utilize third-party e-marketing websites to pay their phone
bills. If the consumer connected directly to the telecommunications provider to
pay his or her bill, the consumer would miss out on any benefits or marketing
discounts that e-marketers provide. Thus, consumers log on to these e-marketer's
websites, click into their respective phone provider's store, and "top up," or
pay, their telecommunications provider for additional mobile data and talk time.
To connect to the respective mobile telecommunications providers, these
e-marketers must utilize a portal licensed by the applicable telecommunication
company that processes the payment. We have been granted one of these licenses
by China Unicom and China Mobile, each of which is a major telecommunications
provider in
recharge services to customers of China Unicom and China Mobile.
We conduct our mobile payment business through JiuGe Technology, our
contractually controlled affiliate through the entry into a series of agreements
known as VIE Agreements in
Technology secured contracts with China Unicom and China Mobile to distribute
mobile data for businesses and corporations in nine provinces/municipalities,
namely
launched and commercialized mobile payment and recharge services to businesses
for China Unicom. In
with China Mobile Fujian to offer recharge services to the
we have launched and commercialized in
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.
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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
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
("JD"). The Company is planning to further expand its universal exchange
platform by setting up B2C stores on several other major e-commerce platforms in
loyalty redemption partner where we will be providing the services for their
customers via our platform.
Additionally, as previously disclosed, on
contractually controlled affiliate, entered into that certain
Electronic Sales Platform Construction
"Cooperation Agreement") with China Unicom's Yunnan subsidiary. Under the
Cooperation Agreement, JiuGe Technology is responsible for constructing and
operating China Unicom's electronic sales platform through which consumers can
purchase various goods and services from China Unicom, including mobile
telephones, mobile telephone service, broadband data services, terminals,
"smart" devices and related financial insurance. The Cooperation Agreement
provides that JiuGe Technology is required to construct and operate the
platform's webpage in accordance with China Unicom's specifications and
policies, and applicable law, and bear all expenses in connection therewith. As
consideration for the service it provides under the Cooperation Agreement, JiuGe
Technology receives a percentage of the revenue received from all sales it
processes for China Unicom on the platform. The Cooperation Agreement expires
three years from the date of its signature with yearly auto-renewal terms, but
it may be terminated by (i) JiuGe Technology upon three months' written notice
or (ii) by China Unicom unilaterally.
During the recent fiscal year, the Company expanded its offering under their
telecommunication product and services by increasing their product line revenue
streams. In
and China Unicom to acquire new users to take up the respective subscription
plans.
In
our platforms. This business will continue to contribute to the overall revenue
for the group as part of our offering to our customers.
Value Added Product and Services
These are new product and services that the Company expects to secure and work
with the telecommunication provider and all our e-commerce platform partners to
market. The current and upcoming value-added product is the Mobile Protection
programs which we plan to launch soon. In
controlled subsidiary, JiuGe Technology, through its 99% own subsidiary TengLian
signed an agreement with both China Unicom and China Mobile to co-operate to
roll out the Mobile Device protection product which is incorporated into the
Telecommunication subscription plans in line with their roll out of new mobile
phones and new 5G phones. In
Mobile Device protection product with the roll out of the new mobile phones and
5G phones.
SMS and MMS Services
On
TianXia Technology Co., Ltd.
of providing mass SMS text services to businesses looking to communicate with
large numbers of their customers and prospective customers. With this
acquisition, the Company expanded into a second partnership with the telecom
companies by acquiring bulk Short Message Service ("SMS") and Multimedia
Messaging Service ("MMS") bundles at reduced prices and offering bulk SMS
services to end consumers with competitive pricing.
Beijing Technology, retains a license from the
Information Technology
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.
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Rich Communication Services
In
MaaP (Messaging as a Platform). This RCS platform will be a proprietary business
messaging platform that enables businesses and brands to communicate and service
their customers on the 5G infrastructure, delivering a better and more efficient
user experience at a lower cost. For example, with the new 5G RCS message
service, consumers will have the ability to list available flights by sending a
message regarding a holiday and will also be able to book and buy flights by
sending messages. This will allow telecommunication providers like China Unicom
and China Mobile to retain users on their systems, without having to utilize
third party apps or log onto the internet, which will increase their user
retention. We expect this to open up a new marketing channel for the Company's
current and prospective business partners.
Big Data Insights
In
"Sapientus" as its big data insights arm to deliver data-driven solutions and
insights for businesses within the insurance, healthcare, and financial services
industries. The Company applies its vast experience in the insurance and
financial services industry and capabilities in technology and data analytics to
develop revolutionary solutions targeted towards insurance and financial
consumers. Integrating diverse publicly available information, insurance and
financial based data with technology and finally registering them into the
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
Motion Financial Company Limited's
entered into a services agreement with Pacific Life Re, a global life reinsurer
serving the insurance industry with a comprehensive suite of products and
services.
In
research alliance with Munich Re in extending behavioral analytics to enhance
understanding of morbidity and behavioral patterns in
goal of creating value for both insurers and the end insurance consumers through
better technology, product offerings and customer experience.
Our Video Game Division
The video game industry covers multiple sectors and is currently experiencing a
move away from physical games towards digital software. Advances in technology
and streaming now allow users to download games rather than visiting retailers.
Video game publishers are expanding their direct-to-consumer channels with
mobile gaming, the current growth leader, and eSports and virtual reality
gaining momentum as the next big sectors. In
its publishing and operating plans for existing games, and the Company's board
of directors decided to re-focus the company's resources into new business
opportunities in
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Results of Operations
Three Months Ended
2021
The following table sets forth our results of operations for the periods
indicated:
For the
three months ended
August 31, August 31,
2022 2021
Revenue $ 4,982,957 $ 5,386,914
Cost of revenue $ (4,565,173 ) $ (4,690,058 )
Total operating expenses $ (1,911,375 ) $ (2,084,511 )
Total other income (expenses) $ (44,504 ) $ (66,962 )
Net Loss attributable to the Company's shareholders
Foreign currency translation adjustment
$ (223,793 ) $ (87,538 )
Comprehensive loss attributable to the Company
Basic Loss Per Share attributable to the Company
Diluted Loss Per Share attributable to the Company
Revenue
The following table sets forth the Company's revenue from its three lines of
business for the periods indicated:
For the
three months ended
August 31, August 31,
2022 2021 Change (%)
Telecommunication Products & Services $ 2,810,498 $ 1,711,295 64 %
SMS & MMS Business $ 2,109,959 $ 3,642,917 -42 %
Big Data $ 62,500 $ 32,702 91 %
Total Revenue $ 4,982,957 $ 5,386,914 -7 %
We recorded
decrease of
This decrease resulted from a decrease in revenue of
MMS business, offset in part by an increase in revenue of
from our Telecommunication Products & Services and Big Data business,
respectively. The Big Data business started recording revenue as it has recently
secured a new contract with Pacific Life Re in
of collaboration. The recent outbreak of Covid-19 in
parts of
revenues. However, all operations are beginning to resume back to normal. We
principally earn revenue by providing mobile payment and recharge services to
customers of telecommunications companies in
negotiated rebate amount from the telecommunications companies for all monies
paid by consumers to those companies that we process. As we continue to develop
our mobile recharge business, we expect that revenues will continue to grow
especially with the recent new funding that we secured in August, we foresee a
higher revenue from this business. Our SMS texting service however shown a drop
as compared to the previous quarter. The current lower margin contribution from
this service led to the Company redistributing our resources to other higher
margin services. However, our on-going plans to secure more corporate clientele
is expected to help boost our margins moving forward. We also earned revenue
during the most recently completed fiscal year from our new venture on
subscription plan acquisition and mobile phone sales. The Company expects and
hopes that these new product offerings will continue to provide additional
revenue for the Company in the future.
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Cost of Revenue
The following table sets forth the Company's cost of revenue for the periods
indicated:
For the
three months ended
August 31, August 31,
2022 2021
Telecommunication Products & Services $ 2,512,626 $ 1,215,767
SMS & MMS Business $ 2,052,547 $ 3,384,291
Big Data $ - $ 90,000
Total Cost of Revenue $ 4,565,173 $ 4,690,058
We recorded
2022
providing mobile payment and recharge services to customers of
telecommunications companies, subscription plans, and mobile phone sales in
customer acquisition costs, including discounts to our customers and promotional
expenses, which is reflected in our cost of revenue.
Gross profit
Our gross profit for the three months ended
decrease of
This decrease in gross profit resulted from lower revenue and lower margin for
the period.
Amortization & Depreciation
We recorded depreciation of
been fully depreciated.
General & Administrative Expenses
The following table sets forth the Company's general and administrative expenses
for the periods indicated:
For the
three months ended
August 31, August 31,
2022 2021
Accounting $ 48,451 $ 57,134
Consulting $ 359,708 $ 557,570
Entertainment $ 46,385 $ 41,561
IT $ 27,437 $ 22,412
Rent $ 36,336 $ 27,010
Salaries & Wages $ 479,711 $ 626,789
Technical Fee $ 28,229 $ 32,522
Travelling $ 34,895 $ 23,303
Others $ 214,717 $ 56,613
Total G&A Expenses $ 1,275,869 $ 1,444,914
We recorded
months ended
three months ended
expenses was principally a result of lower consulting expenses and lower
salaries and wages expenses, which was slightly offset by the increase in rent,
travelling expenses and other expenses for the three months ended
2022
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Marketing Cost
The following table sets forth the Company's marketing cost for the periods
indicated:
For the
three months ended
August 31, August 31,
2022 2021
Marketing Cost $ 169,389 $ 59,075
We recorded
2022
represent the costs of promoting our product offerings through all our
platforms.
Research & Development
The following table sets forth the Company's research & development for the
periods indicated:
For the
three months ended
August 31, August 31,
2022 2021
Research & Development $ 198,104 $ 144,549
We incurred fees of
ended
access and usage fees charged by telecommunications companies.
The Insurtech division of
extraction for the purpose of risk assessment. Insights are mined from a
multitude of data sources, harmonized with the objectives of our various
business partners. The initial phase of business application is to focus on
insurance industry particularly in the area of underwriting risk rating,
complementary claims adjudication and assessment, and risk segmentation & market
penetration.
This division comprises of experienced actuaries, data scientists and computer
programmers.
The expenses for research & development include associated wages and salaries,
data access fees and IT infrastructure.
Over the past year, we have deepened the Company's determined commitment toward
working with partners in elucidating consumer insights via big data algorithms
and applying behavioral analytics to the fintech sector in sparking new
innovations and commercial applications. The following capture the most recent
accomplishments and milestones:
? Strengthening partnership network - Signed a new agreement to advance to the
next phase of collaboration with Pacific Life Re in Asia .
? Upgrade of the analytic engine - Has enriched its algorithms with more
elaborative auxiliary data, which, in conjunction with its existing
information system and records, will lend transformational support and
capabilities to its analytics, empowering more precise and robust results that
are suited for commercial applications. The collaborative research studies
with leading industry partners have enhanced and validated the Company's
analytic framework and insurance risk rating services platform, which is now
ready for deployment to the wide insurance and financial services industry.
? API rollout for market adoption - The Company's risk rating services platform
is built on an application programming interface (API) structure that is
integrated with its partners' core system, linked to an underlying data
repertoire and analytic framework that facilitates real-time rating feedback
to insurance companies. Regular API upgrades and enhancements enable greater
flexibility in tightening service integration and broadening commercial
opportunities with the Company's partners.
? Official patent recognition - Over the past two years, Sapientus has been
granted seven patents by the National Copyright Administration of China (NCAC)
for the abovementioned model algorithms and technological infrastructure as
well as insurance-oriented applications, for example, Risk Rating API Design,
Insurance Risk Assessment platform and Insurance Fraud Detection System (two
other applications are still pending approval). NCAC is the governing body for
patent and copyright verification and approval in China . The Company's
successful applications for these patents validate Sapientus' continuing
innovation in data science and its application in the field of insurance,
finance, and beyond, demonstrating the Company's active participation and
contributions to the industry.
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Share Compensation Expenses
The following table sets forth the Company's share compensation expenses for the
periods indicated:
For the
three months ended
August 31 , August 31,
2022 2021
Share compensation expenses
We incurred fees of
of the services which have been provided to the Company for the three months
ended
month period ended
associated with the Company's up-listing process as compared to such consulting
services during the three month period ended
rewarding these consultants and advisors with shares is to minimize the usage of
cash by the Company to allow the Company to use the cash to invest in
revenue-generating activities.
Operating Expenses
We recorded
months ended
months ended
Net Loss attributable to the Company's shareholders
The net loss attributable to the Company's shareholders was
three months ended
shareholders of
gross profit as discussed above.
Six Months Ended
The following table sets forth our results of operations for the periods
indicated:
For the
six months ended
August 31, August 31,
2022 2021
Revenue $ 9,838,080 $ 11,383,403
Cost of revenue $ (9,043,225 ) $ (10,066,850 )
Total operating expenses $ (3,723,866 ) $ (3,560,090 )
Total other income (expenses) $ (53,752 ) $ (120,586 )
Net Loss attributable to the Company's shareholders
Foreign currency translation adjustment
$ (529,163 ) $ (27,354 )
Comprehensive loss attributable to the Company
Basic Loss Per Share attributable to the Company
Diluted Loss Per Share attributable to the Company
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Revenue
The following table sets forth the Company's revenue from its three lines of
business for the periods indicated:
For the
six months ended
August 31, August 31,
2022 2021 Change (%)
Telecommunication Products & Services $ 4,326,623 $ 3,448,375 25 %
SMS & MMS Business $ 5,448,957 $ 7,803,610 -30 %
Big Data $ 62,500 $ 131,418 -52 %
Total Revenue $ 9,838,080 $ 11,383,403 -14 %
We recorded
decrease of
This decrease resulted from decrease in revenue of
our SMS & MMS business and Big Data business, respectively, offset in part by an
increase in revenue of
The current outbreak of Covid-19 in
have slightly affected our operation, thus seeing the drop in the revenues. As
of the date of this report, all operations are slowly moving back to
pre-lockdown period. We principally earn revenue by providing mobile payment and
recharge services to customers of telecommunications companies in
Specifically, we earn a negotiated rebate amount from the telecommunications
companies for all monies paid by consumers to those companies that we process.
As we continue to develop our mobile recharge business, we expect that revenues
will continue to grow. Our SMS texting service has however showed a drop as
compared to last year. The current lower margin contribution from this service
led to the Company redistributing our resources to other higher margin services.
However, our on-going plans to secure more corporate clientele is expected to
help boost our margins moving forward. We also earned revenue during the most
recently completed fiscal year from our new venture on subscription plan
acquisition and mobile phone sales. The Company expects and hopes that these new
product offerings will continue to provide additional revenue for the Company in
the future. During the first half year of the current fiscal year, our Big Data
division secured a contract with Pacific Life Re, a global life reinsurance
serving the insurance industry with a comprehensive suite of products and
services, to develop a holistic multi-faceted risk rating concept, leveraging
the Company's proprietary approach to analytics by drawing data from novel
sources and filtering them through advance algorithms with the ultimate goal to
apply new insights generated from our
traditional insurance industry. In
Pacific Life Re in
phase of collaboration. We expect additional revenue from this division in the
future.
Cost of Revenue
The following table sets forth the Company's cost of revenue for the periods
indicated:
For the
six months ended
August 31, August 31,
2022 2021
Telecommunication Products & Services $ 3,733,588 $ 2,689,970
SMS & MMS Business $ 5,309,637 $ 7,196,880
Big Data $ - $ 180,000
Total Cost of Revenue $ 9,043,225 $ 10,066,850
We recorded
2022
providing mobile payment and recharge services to customers of
telecommunications companies, subscription plans and mobile phone sales in
acquisition costs, including discounts to our customers and promotional
expenses, which is reflected in our cost of revenue.
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Gross profit
Our gross profit for the six months ended
decrease of
This decrease in gross profit resulted from lower revenue and lower margin for
the period.
Amortization & Depreciation
We recorded depreciation of
been fully depreciated.
General & Administrative Expenses
The following table sets forth the Company's general and administrative expenses
for the periods indicated:
For the
six months ended
August 31, August 31,
2022 2021
Accounting $ 97,828 $ 96,877
Consulting $ 681,323 $ 913,413
Entertainment $ 92,774 $ 81,068
IT $ 36,528 $ 36,679
Rent $ 69,605 $ 52,145
Salaries & Wages $ 1,040,034 $ 1,215,216
Technical Fee $ 51,599 $ 55,636
Travelling $ 42,305 $ 50,892
Others $ 403,423 $ 122,735
Total G&A Expenses $ 2,515,419 $ 2,624,661
We recorded
ended
ended
primarily a result of lower consulting expenses and lower salaries and wages
expenses, which was partially offset by the increase in entertainment expenses,
rent and other expenses for the six months ended
six months ended
Marketing Cost
The following table sets forth the Company's marketing cost for the periods
indicated:
For the
six months ended
August 31, August 31,
2022 2021
Marketing Cost $ 226,580 $ 144,082
We recorded
for our telecommunication products and services business. Marketing costs
represent the costs of promoting our product offerings through all our
platforms.
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Research & Development
The following table sets forth the Company's research & development for the
periods indicated:
For the
six months ended
August 31, August 31,
2022 2021
Research & Development $ 409,751 $ 279,978
We incurred fees of
2021
usage fees charged by telecommunications companies.
The Insurtech division of
extraction for the purpose of risk assessment. Insights are mined from a
multitude of data sources, harmonized with the objectives of our various
business partners. The initial phase of business application is to focus on
insurance industry particularly in the area of underwriting risk rating,
complementary claims adjudication and assessment, and risk segmentation & market
penetration.
This division comprises of experienced actuaries, data scientists and computer
programmers.
The expenses for research & development include associated wages and salaries,
data access fees and IT infrastructure.
Over the past year, we have deepened the Company's determined commitment toward
working with partners in elucidating consumer insights via big data algorithms
and applying behavioral analytics to the fintech sector in sparking new
innovations and commercial applications. The following capture the most recent
accomplishments and milestones:
? Strengthening partnership network - Signed a new agreement to advance to the
next phase of collaboration with Pacific Life Re in Asia .
? Upgrade of the analytic engine - Has enriched its algorithms with more
elaborative auxiliary data, which, in conjunction with its existing
information system and records, will lend transformational support and
capabilities to its analytics, empowering more precise and robust results that
are suited for commercial applications. The collaborative research studies
with leading industry partners have enhanced and validated the Company's
analytic framework and insurance risk rating services platform, which is now
ready for deployment to the wide insurance and financial services industry.
? API rollout for market adoption - The Company's risk rating services platform
is built on an application programming interface (API) structure that is
integrated with its partners' core system, linked to an underlying data
repertoire and analytic framework that facilitates real-time rating feedback
to insurance companies. Regular API upgrades and enhancements enable greater
flexibility in tightening service integration and broadening commercial
opportunities with the Company's partners.
? Official patent recognition - Over the past two years, Sapientus has been
granted seven patents by the National Copyright Administration of China (NCAC)
for the abovementioned model algorithms and technological infrastructure as
well as insurance-oriented applications, for example, Risk Rating API Design,
Insurance Risk Assessment platform and Insurance Fraud Detection System (two
other applications are still pending approval). NCAC is the governing body for
patent and copyright verification and approval in China . The Company's
successful applications for these patents validate Sapientus' continuing
innovation in data science and its application in the field of insurance,
finance, and beyond, demonstrating the Company's active participation and
contributions to the industry.
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Share Compensation Expenses
The following table sets forth the Company's share compensation expenses for the
periods indicated:
For the
six months ended
August 31 , August 31,
2022 2021
Share compensation expenses
We incurred fees of
of the services which have been provided to the company for the six months ended
2021
consultants to the Company that were compensated with shares of the Company. The
rationale is to minimize the usage of cash by the Company to allow the Company
to use the cash to invest in revenue-generating activities.
Operating Expenses
We recorded
2022
Net Loss attributable to the Company's shareholders
The net loss attributable to the Company's shareholders was
six months ended
shareholders of
margin and increase in total operating expenses as discussed above.
Liquidity and Capital Resources
The following table sets out our cash and working capital as ofAugust 31, 2022 andFebruary 28, 2022 : As at As at August 31, February 28, 2022 2022 Cash reserves$ 1,984,562 $ 461,933 Working capital$ 6,728,711 $ 4,930,441
At
to cash and cash equivalents of
to continue to operate our mobile payment business, we must deposit funds with
our telecommunication companies from time to time in order to obtain access to
the mobile data and talk-time we make available to consumers on our portal.
Accordingly, the amount of cash we have on hand fluctuates significantly from
period to period as explained above to ensure our cash is being used efficiently
by our operations to generate revenues. The Company otherwise does not have any
planned capital expenditures and has historically funded its operations from
revenues and sales of securities, including convertible debt securities. We
believe that our cash on hand, cash equivalents, and short-term investments,
along with our revenues from operations, will fund our projected operating
requirements, fund our current operations and repay our outstanding
indebtedness, in each case, for at least the next 12 months. However, to grow
our business substantially, we will need to increase the amount of funds we have
deposited with the telecommunications companies for which we process mobile
recharge payments. On
interest-free convertible promissory note with a principal amount of
representing a funded amount of
received were used as working capital and deposited to the telecommunication
companies for prepaid inventories. The Company will continue to seek additional
capital through public or private sales of our equity or debt securities, or
both. We might also enter into financing arrangements with commercial banks or
non-traditional lenders. However, we cannot provide investors with any assurance
that we will be able to raise additional funding from the sale of our equity or
debt securities, or both, in order to increase our deposits with our
telecommunications company clients, or if available, that such funding will be
on terms acceptable to us.
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Statement of Cash flows
The following table provides a summary of cash flows for the periods presented:
For the
six months ended
August 31, August 31,
2022 2021
Net cash used in operating activities $ (3,785,843 ) $ (3,513,630 )
Net cash used in investing activities $ (4,120 ) $ (12,625 )
Net cash provided by financing activities $ 5,530,000 $ 3,581,291
Effect of exchange rates on cash & cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash Flow used in Operating Activities
Net cash used in operating activities increased by
ended
primarily due to an increase in prepayment and deposit of (
2021
2021
(
(
2021
Cash Flow used in Investing Activities
During the six months ended
Cash Flow provided by Financing Activities
During the six months ended
due to the issuance of convertible notes.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Critical Accounting Policies
For a complete summary of all of our significant accounting policies refer to
Note 2: Summary of Principal Accounting Policies of the Notes to the Condensed
Consolidated Financial Statements as presented under Item 8, Financial
Statements and Supplementary Data in our Annual Report on Form 10-K for our
fiscal year ended
Refer to "Critical Accounting Policies" under Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations in our Annual
Report on Form 10-K for our fiscal year ended
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.
-40-
Table of Contents
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