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
SECand, including, without limitation, this Annual Report on Form 10-K filing for the fiscal year ended February 28, 2022, 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, 2022and February 28, 2021and our financial condition as at February 28, 2022and February 28, 2021, with a particular emphasis on fiscal 2022, our most recently completed fiscal year. 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. -38- Table of Contents 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
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 contractually controlled affiliate through the entry into a series of agreements known as VIE Agreements in October 2018. In the first half of 2018, JiuGe Technology secured contracts with China Unicom and China Mobile to distribute mobile data for businesses and corporations in nine provinces/municipalities, namely Chengdu, Jiangxi, Jiangsu, Chongqing, Shanghai, Zhuhai, Zhejiang, Shaanxi, Inner Mongolia, Henanand 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 Fujianprovince which we have launched and commercialized in November 2021. The JiuGe Technology mobile payment and recharge platform enables the seamless delivery of real-time payment and recharge services to third-party channels and businesses. We earn a rebate from each telecommunications company on the funds paid by consumers to the telecommunications companies we process. To encourage consumers to utilize our portal instead of using our competitors' platforms or paying China Unicom or China Mobile directly, we offer mobile data and talk time at a rate discounted from these companies' stated rates, which are also the rates we must pay to them to purchase the mobile data and talk time provided to consumers through the use of our platform. Accordingly, we earn income on the rebates we receive from China Unicom and China Mobile, reduced by the amounts by which we discount the mobile data and talk time sold through our platform. FingerMotionstarted 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 FingerMotionexpanded its business by commercializing its first "Business to Consumer" ("B2C") model, offering the telecommunication providers' products and services, including data plans, subscription plans, mobile phones, and loyalty points redemption, directly to subscribers or customers of the e-commerce companies, such as PinDuoDuo("PDD"), TMall ("TMALL") and JD.Com ("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 China. In addition to that, we have been assigned as one of China'sMobile's loyalty redemption partner where we will be providing the services for their customers via our platform. Additionally, as previously disclosed, on July 7, 2019, JiuGe Technology, our contractually controlled affiliate, entered into that certain Yunnan Unicom Electronic Sales Platform Constructionand Operation Cooperation Agreement (the "Cooperation Agreement") with China Unicom's Yunnansubsidiary. 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 March 2020, FingerMotionsecured a contract with both China Mobile and China Unicom to acquire new users to take up the respective subscription plans. Recently, 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.
Products and services with added value
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. On
February 2022, our contractually controlled subsidiary, JiuGe Technology, through its 99% own subsidiary Shanghai Tenglian JiuJiu Information Communication Technology Co., Ltd.("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. The estimated roll out is expected to be in the second quarter of FY2023. -39- Table of Contents SMS and MMS Services On March 7, 2019, the Company through JiuGe Technology acquired Beijing XunLian TianXia Technology Co., Ltd.("Beijing Technology"), a company in the business of providing mass SMS text services to businesses looking to communicate with large numbers of their customers and prospective customers. With this acquisition, the Company expanded into a second partnership with the telecom companies by acquiring bulk Short Message Service ("SMS") and Multimedia Messaging Service ("MMS") bundles at reduced prices and offering bulk SMS services to end consumers with competitive pricing. FingerMotion'ssubsidiary, Beijing Technology, retains a license from the Ministry of Industry and Information Technology("MIIT") to operate the SMS and MMS business in the PRC. Similar to the mobile payment and recharge business, Beijing Technology is required to make a deposit or bulk purchase in advance and has secured business customers, including premium car manufacturers, hotel chains, airlines and e-commerce companies, that utilize Beijing Technology's SMS integrated platform to send bulk SMS text messages monthly. Beijing Technology has the capability to manage and track the entire process, including guiding the Company's customer to meet MIIT's guidelines on messages composed, until the SMS messages have been delivered successfully. Rich Communication Services
March 2020, the Company began development of an RCS platform, also known as 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 July 2020, the Company launched its proprietary technology platform "Sapientus" as its big data insights arm to deliver data-driven solutions and insights for businesses within the insurance, healthcare, and financial services industries. The Company applies its vast experience in the insurance and financial services industry and capabilities in technology and data analytics to develop revolutionary solutions targeted towards insurance and financial consumers. Integrating diverse publicly available information, insurance and financial based data with technology and finally registering them into the FingerMotiontelecommunications and insurance ecosystem, the Company would be able to provide functional insights and facilitate the transformation of key components of the insurance value chain, including driving more effective and efficient underwriting, enabling fraud evaluation and management, empowering channel expansion and market penetration through novel product innovation, and more. The ultimate objective is to promote, enhance and deliver better value to our partners and customers. The Company's proprietary risk assessment engine offers standard and customized scoring and appraisal services based on multi-dimensional factors. The Company has the ability to provide potential customers and partners with insights-driven and technology-enabled solutions and applications including preferred risk selection, precision marketing, product customization, and claims management (e.g., fraud detection). The Company's mission is to deliver the next generation of data-driven solutions in the financial services, healthcare, and insurance industries that result in more accurate risk assessments, more efficient processes, and a more delightful user experience. On or around January 25, 2021, the Company's wholly owned subsidiary, Finger Motion Financial Company Limited's, big data analytic arm branded "Sapientus," entered into a services agreement with Pacific Life Re, a global life reinsurer serving the insurance industry with a comprehensive suite of products and services. On or around December 2021, the Company through JiuGe Technology formed a collaborative research alliance with Munich Re in extending behavioral analytics to enhance understanding of morbidity and behavioral patterns in Chinamarket, with the goal of creating value for both insurers and the end insurance consumers through better technology, product offerings and customer experience. Our Video Game Division The video game industry covers multiple sectors and is currently experiencing a move away from physical games towards digital software. Advances in technology and streaming now allow users to download games rather than visiting retailers. Video game publishers are expanding their direct-to-consumer channels with mobile gaming, the current growth leader, and eSports and virtual reality gaining momentum as the next big sectors. In June 2018, we temporarily paused its publishing and operating plans for existing games, and the Company's board of directors decided to re-focus the company's resources into new business opportunities in China, particularly the mobile phone payment and data business. -40- Table of Contents Recent Developments
On or around
December 2021, our contractually controlled subsidiary, JiuGe Technology formed a collaborative Research lab with Munich Re in extending behavioral analytics to enhance understanding of morbidity and behavioral patterns in Chinamarket, with the goal of creating value for both insurers and the end insurance consumers through better technology, product offerings and customer experience.
the current trading symbol of “FNGR”.
February 2022, our contractually controlled subsidiary, JiuGe Technology through its 99% owned 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. Results of Operations
The table below shows our results of operations for the fiscal years
Year Ended Year Ended February 28, 2022 February 28, 2021 Revenue
$ 22,927,415 $ 16,683,570Cost of revenue $ (20,113,294 ) $ (15,036,876 )Total operating expenses $ (7,681,356 ) $ (5,871,877 )Total other income (expenses) $ (73,313 ) $ (152,891 ) Net Loss attributable to the Company's shareholders $ (4,943,444 ) $ (4,381,974 )Foreign currency translation adjustment $ (2,995 ) $ 136,942 Comprehensive loss attributable to the Company $ (4,946,696 ) $ (4,245,567 )Basic Loss Per Share attributable to the Company (0.12 ) (0.13 ) Diluted Loss Per Share attributable to the Company
(0.12 ) (0.13 ) -41- Table of Contents Revenues
The table below shows the company’s earnings from its three divisions
Business for the periods indicated:
Year Ended Year Ended February 28, 2022 February 28, 2021 Change (%)
Telecommunication Products & Services $ 8,657,277
$ 3,211,103 170 % SMS & MMS Business
$ 14,138,720 $ 13,439,3905 % Big Data $ 131,418 $ 33,077 297 % Total Revenue $ 22,927,415 $ 16,683,57037 %
$22,927,415in revenue for the year ended February 28, 2022, an increase of $6,243,845or 37%, compared to the year ended February 28, 2021. This increase resulted from an increase in revenue of $5,446,174, $699,330and $98,341from our Telecommunication Products & Services, SMS & MMS business and Big Data business, 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. As we continue to develop our mobile recharge business, we expect that revenues will continue to grow especially on the new collaboration with China Mobile on Fujianprovince. Subscription plans and mobile phone sales are other revenues that contributed to the Telecommunication Products & Services revenue. Our SMS texting service saw a slight improvement compared to last year as we are redistributing our resources to expand the Telecommunication Products & Services as opportunity arises. This trend will continue to better manage our resources to enable a healthier overall profit margin. The Company expects and hopes that these new product offerings will continue to provide additional revenue for the Company in the future. During the last quarter of FY2021, our Big Data division secured a contract with Pacific Life Re, a global life reinsurance serving the insurance industry with 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 FingerMotion'spredictive model to the traditional insurance industry. The revenue recorded flowed into the current year and 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: Year Ended Year Ended February 28, 2022 February 28, 2021 Telecommunication Products & Services $ 6,517,568 $ 2,412,178 SMS & MMS Business $ 13,235,726 $ 12,624,698Big Data $ 360,000 $ - Total Cost of Revenue $ 20,113,294 $ 15,036,876
$20,113,294in costs of revenue for the year ended February 28, 2022, an increase of $5,076,418or 34%, compared to the year ended February 28, 2021. As previously mentioned, we principally earn revenue by providing mobile payment and recharge services to customers of telecommunications companies, subscription plans and mobile phone sales in China. To earn this revenue, we incur cost of the product, certain customer acquisition costs, including discounts to our customers and promotional expenses, which is reflected in
our cost of revenue. Gross profit Our gross profit for the year ended
February 28, 2022was $2,814,121, an increase of $1,167,427or 71%, compared to the year ended February 28, 2021. This increase in gross profit resulted from higher revenue for the period as well as an improved margin. The gross profit margin for the fiscal year ended February 28, 2022is 12.27% compared to a gross margin of 9.87% for the fiscal year ended February 28, 2021. Amortization & Depreciation We recorded depreciation of $57,894for fixed assets for the year ended February 28, 2022, an increase of $30,839or 114%, compared to the year ended February 28, 2021. This increase resulted from the purchase of equipment. -42-
Table of Contents
General and administrative expenses
The following table shows the Company’s general and administrative expenses
for the periods indicated:
Year Ended Year Ended February 28, 2022 February 28, 2021 Accounting $ 195,948 $ 147,614 Consulting $ 2,022,397 $ 1,673,925 Entertainment $ 212,584 $ 152,290 IT $ 101,470 $ 71,369 Rent $ 111,690 $ 107,730 Salaries & Wages $ 2,116,307 $ 1,687,977 Technical Fee $ 127,487 $ 44,316 Travelling $ 103,405 $ 101,027 Others $ 289,294 $ 260,632 Total G&A Expenses $ 5,280,582 $ 4,246,880
$5,280,582in general and administrative expenses for the year ended February 28, 2022, an increase of $1,033,702or 24%, compared to the year ended February 28, 2021. The increased consulting and staff salaries are principally the result of the commencement and building of our three lines of businesses. Costs have also increased due to our up-listing process which includes some engagement of consultants to assist the Company in the process. Marketing Cost The following table sets forth the Company's marketing cost for the periods indicated: Year Ended Year Ended February 28, 2022 February 28, 2021 Marketing Cost $ 641,917 $ 364,160
$641,917in marketing cost for the year ended February 28, 2022for our telecommunication products and services business. Marketing costs represent the costs of promoting our product offerings through all our platforms. Research & Development The following table sets forth the Company's research & development for the periods indicated: Year Ended Year Ended February 28, 2022 February 28, 2021 Research & Development - Big Data $ 923,387 $ 552,343
$923,387in research & development for the year ended February 28, 2022, as compared to $552,343for the year ended February 28, 2021. The increase of $371,044or 67% was due to increase in headcount for the Research & Development team and higher data access and usage fee charged by telecommunications company. The Insurtech division of FingerMotionfocuses on consumer behavioral insights extraction for the purpose of risk assessment. Insights are derived from various data sources with the primary sources being the telecommunication data. 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 department consists of experienced actuaries, data scientists and computers
Research & Development expenses include related wages and salaries,
Data access fees and IT infrastructure.
The 1st phase of prototyping in phase 1 – analytical framework and business
Applications have been completed and are expected to be commercialized by mid-year
-43- Table of Contents Share Compensation Expenses The following table sets forth the Company's share compensation expenses for the periods indicated: Year Ended Year Ended February 28, 2022 February 28, 2021 Share compensation expenses $ 777,576 $ 640,394 We incurred fees of
$777,576in share issuance for consultants in consideration of the services which have been provided to the company for the year ended February 28, 2022as compared to $640,394for the year ended February 28, 2021. The increase of $137,182or 21% was due to more consultants being compensated with shares of the Company. The rationale is to minimize the usage of cash by the Company in order for the Company to invest in revenue generating activities. Operating Expenses We recorded $7,681,356in operating expenses for the year ended February 28, 2022as compared to $5,871,877in operating expenses for the year ended February 28, 2021. The increase of $1,809,479or 31% for the year ended February 28,
2022 is as set forth above.
Net loss attributable to shareholders of the company
The net loss attributable to the Company's shareholders was
$4,943,444for the year ended February 28, 2022and $4,381,974for the year ended February 28, 2021. The increase in net loss attributable to the Company's shareholders of $561,470or 13% resulted primarily from the increase in total operating expenses as discussed above.
liquidity and capital resources
The table below shows our cash and working capital as of today
As at February 28, 2022 As at February 28, 2021 Cash reserves $ 461,933 $ 850,717 Working capital $ 4,930,441 $ 2,992,232 At
February 28, 2022, we had cash and cash equivalents of $461,933as compared to cash and cash equivalents of $850,717at February 28, 2021. In order for us to continue to operate our mobile payment business, we must deposit funds with our telecommunication companies from time to time in order to obtain access to the mobile data and talk-time we make available to consumers on our portal. Accordingly, the amount of cash we have on hand fluctuates significantly from period to period as explained above to ensure our cash is being used efficiently by our operations to generate revenues. The Company otherwise does not have any planned capital expenditures and has historically funded its operations from revenues and sales of securities, including convertible debt securities. We believe that our cash on hand, cash equivalents and short-term investments, along with our revenues from operations, will fund our projected operating requirements, fund our current operations and repay our outstanding indebtedness, in each case, for at least the next 12 months. However, to grow our business substantially, we will need to increase the amount of funds we have deposited with the telecommunications companies for which we process mobile recharge payments. Accordingly, we expect to seek additional capital through public or private sales of our equity or debt securities, or both. We might also enter into financing arrangements with commercial banks or non-traditional lenders. We cannot provide investors with any assurance that we will be able to raise additional funding from the sale of our equity or debt securities, or both, in order to increase our deposits with our telecommunications company clients, or if available, that such funding will be on terms acceptable to us. We did, however, raise $5,114,499through the sale of shares of our common stock in private placement transactions exempt from the registration requirements of the Securities Act during the year ended February 28, 2022. -44- Table of Contents Statement of Cashflows The following table provides a summary of cash flows for the periods presented: Year Ended Year Ended February 28, 2022 February 28, 2021 Net cash used in operating activities $ (5,847,862 ) $ (4,271,618 )Net cash used in investing activities $ (26,072 ) $ (238,485 ) Net cash provided by financing activities $ 5,414,194 $ 5,174,600 Effect of exchange rates on cash & cash equivalents $ 70,956 $ 83,301 Net increase (decrease) in cash and cash equivalents $ (388,784 ) $ 747,798
Cash flow used for operational activities
Net cash used in operating activities increased by
$1,576,244in the year ended February 28, 2022compared to the year ended February 28, 2021, primarily due to an increase in accounts receivable of ( $775,837) (2021: ( $1,437,329)), increase in prepayment and deposit of ( $2,684,965) (2021: $1,975,673), increase in other receivable of ( $32,545) (2021: ( $906,265)), increase in inventories of ( $6) (2021:( $1,401))and decrease in lease liability of ( $3,191) (2021: $3,191) offset by an increase in accounts payable of $1,114,653(2021: ( $230,118))and increase in accrual and other payables of $639,107(2021: $2,509). The increase of prepayment and deposits were the key reasons for the higher cash flow used in operating activities which were crucial for the Company to continue to commit more deposits into the telcos to improve our revenue streams as noticeable in the current financial year.
Cash flow used in investing activities
During the year ended
February 28, 2022, investing activities decreased by $212,413compared to the year ended February 28, 2021. The decreased was due to the completed amortization of intangibles in the previous year. There were no new acquisition for the current financial year.
Cash flow from financing activities
During the year ended
February 28, 2022, financing activities provided cash of $5,414,194compared to $5,174,600during the year ended February 28, 2021. The increase of $239,594in the year ended February 28, 2022was primarily due to loan from non-controlling stockholder and proceeds from issuance of shares
of our common stock.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Subsequent Events
We have determined that we have no significant subsequent events to report.
Outstanding Share Data
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. -45- Table of Contents 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.
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 amortized over 3-10 years
Years. Similar to tangible assets, the company regularly
assesses identifiable intangible assets for impairment whenever events or occurrences occur
Changes in circumstances indicate that the book value may not increase
Impairment of long-lived assets
The Company classifies its long-lived assets into: (i) Computers and Office
Gear; (ii) furniture and fixtures, (iii) leasehold improvements, and (iv)
finally – lived intangible assets.
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. It is possible that these assets could become impaired as a result of technology, economy or other industry changes. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, relief from royalty income approach, quoted market values and third-party independent appraisals, as considered necessary. The Company makes various assumptions and estimates regarding estimated future cash flows and other factors in determining the fair values of the respective assets. The assumptions and estimates used to determine future values and remaining useful lives of long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as the Company's business strategy and its forecasts for specific market expansion.
Claims and Risk Concentration
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. -46- Table of Contents Lease Operating and finance lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the future lease payments over the lease term. When the rate implicit to the lease cannot be readily determined, the Company utilizes its incremental borrowing rate in determining the present value of the future lease payments. The incremental borrowing rate is derived from information available at the lease commencement date and represents the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The right-of-use asset includes any lease payments made and lease incentives received prior to the commencement date. Operating lease right-of-use assets also include any cumulative prepaid or accrued rent when the lease payments are uneven throughout the lease term. The right-of-use assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Cash and Cash Equivalents Cash and cash equivalents represent cash on hand, demand deposits, and other short-term highly liquid investments placed with banks, which have original maturities of three months or less and are readily convertible to known amounts of cash. Property and Equipment Property and equipment are stated at cost. Depreciation of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the estimated useful lives of the assets. Estimated useful lives range from three to seven years. Land is classified as held for sale when management has the ability and intent to sell, in accordance with
ASC Topic 360-45. Earnings Per Share
Basic (loss) earnings per share are based on the weighted average number of
common shares outstanding during the period while the impact of the potential
common shares outstanding during the period are included in diluted earnings as of
FASB Accounting Standard Codification Topic 260 ("ASC 260"), "Earnings Per Share," requires that employee equity share options, non-vested shares and similar equity instruments granted to employees be treated as potential common shares in computing diluted earnings per share. Diluted earnings per share should be based on the actual number of options or shares granted and not yet forfeited, unless doing so would be anti-dilutive. The Company uses the "treasury stock" method for equity instruments granted in share-based payment transactions provided in ASC 260 to determine diluted earnings per share. Antidilutive securities represent potentially dilutive securities which are excluded from the computation of diluted earnings or loss per share as their impact was antidilutive. Revenue Recognition The Company adopted ASC 606, Revenue from Contracts with Customers ("ASC 606") beginning on
January 1, 2018using 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. -47- Table of Contents Income Taxes The Company uses the asset and liability method of accounting for income taxes in accordance with Accounting Standards Codification ("ASC") 740, "Income Taxes" ("ASC 740"). Under this method, income tax expense is recognized as the amount of: (i) taxes payable or refundable for the current year and (ii) future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax assets will not be realized. Non-controlling interest
Non-controlling interests held 1% of the shares of two of our subsidiaries are recorded as a component of our equity, separate from the Company's equity. Purchase or sales of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.
Recently issued accounting pronouncements
The Company does not anticipate that the recently issued, but not yet effective, accounting will occur
Standards, if currently adopted, would have a significant impact on the
consolidated financial position, income and cash flow statement.