FingerMotion: A Serial Case of Stock Promotion That Will End In Shareholder Dilution. $1 Target.
FingerMotion actively participates in extensive stock promotion efforts, and has been flagged by OTC Markets in the past.
The company's $300 million Shelf Registration and $25 million ATM agreement are likely triggers for significant shareholder dilution.
We believe FingerMotion relies on accounting gimmicks to portray large revenue growth
FingerMotion’s balance sheet is deteriorating with eroding gross margins, and concurrently, its cash burn is on the rise. This combination paints a concerning picture of the company's financial health.
FingerMotion has given out millions of shares to repay debt investors. Most of these shares have not been sold yet.
Insiders have begun selling shares with millions more to go
Disclosure: We hold a short position in shares of $FNGR and believe the stock price is headed lower, as the promotional campaign ends and share dilution begins.
Dummy Summary - Why We Believe it is a Good Short
- FingerMotion has been the subject of a recent promotional campaign targeting retail investors on social media platforms.
- This promotional campaign coincided with a 350% run-up in the stock price.
- FingerMotion is low on cash and has an effective Shelf Registration for $300m including a $25m ATM.
- Insiders have recently been selling shares.
- Millions of shares are registered by PIPE investors from a low cost-basis and can be sold at any time.
- "True" revenue is likely a fraction of what is reported.
We don’t think it’s a coincidence that the promotional campaign is happening just as the company files to sell shares ATM (effective and able for use). Nor do we think it’s a coincidence that insiders have been selling into the recent run-up in the stock price.
This is a very similar setup to our prior short report on Knightscope ($KSCP) whose shares fell 50% within a month of our report, as the company diluted shares into the promotional campaign.
Table of Contents
Dilution
Other
Summary
Disclaimer
Introduction
FingerMotion, Inc. (FNGR) is a company that beckons caution and scrutiny from investors. The company's financial performance has raised red flags, as it appears to rely on accounting gimmicks to project strong revenue growth, while the true profitability of the company is quite bleak. Moreover, the company operates in a climate of political risk, underscored by the introduction of new Chinese anti-espionage laws that may impact its operations. To compound these concerns, FNGR makes a large number of share issuances to “consultants”, a practice harkening back to its OTC history and was flagged by OTC Markets. But the main kicker is that the company has recently entered into an $25m At-The-Market agreement with Univest to issue more shares. Given its poor financial position and cash on hand, we believe shareholders will be heavily diluted as the company sells shares to raise capital.
FingerMotion Overview
FingerMotion went public via an RTO with “Property Management Corporation of America”, a company that was listed on the OTCQB marketplace. Its primary business was offering management and consulting services to real estate property owners.
FingerMotion’s business model is overly complicated, deeply flawed, and generates little-to-no margin. The Company claims most of its revenue from providing mobile payment and recharge (top-up) services. FingerMotion sits between a telecom company and its existing customers. Those customers can purchase minutes & data directly from the telecom co, or they can purchase them through FingerMotion. FingerMotion buys the minutes & data from the telecom companies and pays the same price as retail customers. When FingerMotion then sells those minutes & data, they claim to receive a rebate from the telecom company.
Furthermore, as a telecom business incorporated in Delaware but primarily operating in China and Hong Kong, they face several potential risks and challenges stemming from China's recent anti-espionage law. Moreover, its status as a U.S.-incorporated company operating in China could necessitate significant investments in legal and compliance resources to ensure a delicate balance between regulatory compliance and international data privacy expectations.
No clear path to profitability
FingerMotion has three main sources of income: 1. Telecommunications Products & Services
2. SMS & MMS Business
3. The Big Data Segment
More on these individual segments in the next section.
Throughout their PRs and stock promotion, the main focus always seems to rely on their revenue growth, which at a first glance looks impressive:
Reported annual revenue of $34.05 million which was an increase of $11.12 million or 49% compared to FY 2022 (includes SMS & MMS, Telecommunications Products & Services businesses, and Big Data);
However, we believe the company is using accounting practices to report misleading numbers that don’t reflect the true economics of the business.
“We principally earn revenue by providing mobile payment and recharge services to customers of telecommunications companies in China. Specifically, we earn a negotiated rebate amount from the telecommunications companies for all monies paid by consumers to those companies that we process.”
FingerMotion is an intermediary, using client funds to procure products from telecom providers, and earning rebates on the sale of the product. We believe they record the total transaction amount as its revenue even though most of it doesn’t remain in their possession, instead going towards buying the product from telecommunications companies like China Unicom.
The “true” revenue is likely a fraction of what is reported. This is a common accounting practice in China, and we’re not surprised considering they use a Chinese CPA. While there is nothing illegal about this accounting practice, it presents misleading financials that can easily fool unsophisticated investors.
On top of that, even though the Company reports YoY revenue growth, the gross margins for FY 2023 actually dropped from 12.27% to 6.8% compared with FY 2022.
Even with the issuance of an extra 9 million shares the balance sheet has deteriorated. Net cash used in operating activities has also been increasing and it’s clear to us that FingerMotion has a cash flow problem. To stay afloat, they’ll need to further dilute their stock, more on this later in the report.
Here is a look at their revenue per segment along with its margins.
FY 2023 vs FY 2022
2024Q1vs 2023Q1
Telecom Segment
This segment is managed by JiuGe Technology, primarily serving the Chinese mobile consumer market. The company has established licensing agreements with major telecom providers such as China Unicom and China Mobile. JiuGe Technology earns rebates from these telecom giants by processing payments made by consumers for mobile data and talk time.
To incentivize consumers to use its platform over competitors or pay telecom providers directly, the company offers discounted rates. Their range of telecom products and services includes data plans, subscription plans, mobile phones, and loyalty points redemption.
Furthermore, they have integrated with e-commerce platforms to offer mobile payment services, catering to both consumers (B2C) and businesses (B2B). JiuGe Technology operates an electronic sales platform for China Unicom's Yunnan subsidiary, through which it receives a percentage of the revenue generated from all sales it facilitates for China Unicom. These sales encompass a wide array of goods and services, including mobile telephones, broadband data, and various smart devices.
Below we included a screenshot taking a look at one of FingerMotions stores it runs for China Unicom’s Yunnan subsidiary on Taobao. The agreement is initially set for a three-year term with automatic renewal provisions. We have tried contacting China Unicom to confirm the legitimacy of this but have received no response on multiple occasions. We question what the need is for China Unicom to use a middleman such as FingerMotion to sell their services, as setting up a store on Taobao is akin to making a seller account on Ebay.
The telecom segment accounted for 98% of Company revenue in Q1 FY 2024. However, margins are thin and declining at ~4% that revenue growth would need to increase dramatically for them to get on a path to profitability. We believe this to be a flawed business model and suspect its main benefit to FingerMotion is not the prospect of generating income but rather to report inflated revenues.
SMS & MMS Business
This segment operates through its Beijing XuaLian subsidiary. It operates in a similar fashion to the one described above, by acquiring bulk SMS and MMS bundles from telecom companies at discounted rates, then reselling these services to customers. They hold a license to operate this service in the PRC. The margins on this are also low ~12% for FY 2023 but not much better. However with only reporting $8,121 in revenue for Q1 2023, clearly there is no future for this side of the business either. What doesn’t make sense to us is how revenue can drop so much, and their only explanation is a “shift in our risk management focus.” At the same time, the Company asserts it can “still be a major revenue and profit contributor.” This business as per their 10-K only has 4 employees. Employees Table
Big Data
The company generates revenue through its platform, "Sapientus," which is tailored to deliver data-driven solutions to businesses operating in the insurance, healthcare, and financial services sectors. Sapientus leverages publicly available information and integrates insurance and financial data into the FingerMotion telecom and insurance ecosystem. This platform offers a spectrum of services, including both standardized and personalized risk scoring and appraisal services.
This business segment reported revenue of $149k for 2024 Q1. We believe this business segment has little chance of producing profits and is instead an attempt to reframe the company as a high-growth tech co and get investors to apply a much higher PE premium.
Promotional Activities
The recent surge in FingerMotion's stock performance appears to be primarily attributed to extensive stock promotion efforts, rather than substantial underlying developments. Notably, there have been no significant news releases or events that could reasonably explain this surge in stock value and volume. FingerMotion has previously been flagged by the OTC Markets for its promotional activities and we believe they even “paid” for a $5 price target issued by The Benchmark Company.
Issuance of shares to “Consultants”
A consistent pattern of issuing shares to “consultants” may not be inherently unusual for OTC-listed companies, but it raises major red flags now that the company has moved to the NASDAQ. In Q1 2024 alone, FingerMotion allocated a substantial sum, over $296,461 (in share issuance), to compensate consultants with shares. This practice not only dilutes existing shareholders' equity but also poses questions about the transparency and legitimacy of these consultant arrangements. There is never any mention of who these “consultants” are and we can only rely on the 8-K back in 2021 to get an idea of who they might be.
Here is a table showcasing the continuous compensation given to “consultants,” as disclosed in their 10-Q 10-Q Filing Edgar
Social Media Promoters
We believe a large ring of social media promoters have been hired for coverage and constant promotion of FingerMotions stock. Promotion is primarily done through Twitter and Youtube, but is also present in many Discord chat rooms, emails and more. We also believe one of the crews promoting it were involved in $GTII and $MMTLP, two stocks that ended terribly for uninformed investors. As we mentioned earlier, it is very likely this whole run is as a result of its extensive promotion. This section will cover who we believe to be some of the different promoters and clear targeting of uninformed investors.
Potential Promoters
Important to mention with no certainty that the above mentioned people are actually receiving compensation by FingerMotion or other parties relating to the active promotion of $FNGR. .
For more clarity on why we believe some of these users were involved in promotion, here is a chart showcasing when above listed members began coverage, or started aggressively mentioning $FNGR multiple times a day.
Along with this, we looked at the amount of tweets per day on x.com which involved $FNGR. As you can see in the chart below, it directly coincides with the start of the move and it is important to note that most of the tweets involved the people mentioned above. Tie this in with no news releases by FingerMotion and it becomes clear as day this whole move on $FNGR is likely the result of stock promotion.
In this section, we'll briefly touch upon a few individuals whom we believe to be among FingerMotion's promoters. However, we'll keep it concise, as the content presented here reflects what can only be described as a striking lack of competence.
Avid Trader
“Avid Trader” Avid Trader YT motives are clear: to keep publishing videos, tweets and content promoting FingerMotion.
Avid Trader receives compensation from its clients in the form of cash and restricted securities for consulting services. Exact compensation is disclosed in client companies filings.
It is also clear that his target audience is uninformed investors. The biggest red flag to us is that he tries to spin-off getting “Effectiveness” on their shelf registration as being bullish. Failing to clarify/explain how dilution works. More on this in the Dilution section.
He also spreads misinformation claiming they were the underwriters for $TOP’s shelf registration. However, what he fails to mention is that $TOP has a low float and the shelf registration was filed after the big move, so not a good comparison with $FNGR.
HAMShortKiller and WilliamPFarran1
In our eyes, these are the main promoters for $FNGR. These two post multiple tweets a day, host twitter spaces, live youtube videos, they do it all.
HAMShortKiller and William P Farran, both like to claim that there are 160 million shares short (over 6x the float) and their source is Buyins.net. Funnily enough, the creator of Buyins.net Thomas Ronk has been charged by the SEC for fraudulent promotional efforts and is barred from trading anything under $5. SEC Litigation Thomas Carter Ronk
Thomas Ronk is likely a friend/partner with this crew as his name is consistently brought up in youtube videos YT Video and twitter spaces. We recommend against spending time watching these videos unless you want to lose brain cells.
A common theme throughout most of these promoters, specifically these two, is their constant mention of $MMTLP and $GTII. It is likely that they were also partially behind the promotion for those two tickers, as their style of tweeting/content covering these names were very similar.
Here is a look at how both of these stocks ended:
Chart of $MMTLP and $GTII
Also, they keep putting out billboards mentioning either $FNGR, $MMTLP or $GTII in front of the SEC, potentially to make the cult-like group inspired that they are trying to do the right thing against the Naked Shorties!
Arcabulls
Arcabulls promotes on youtube and twitter as well as in his discord room.
The majority of his videos are focused on $FNGR and he started consistently promoting the name in the beginning of the run.
According to a user on Stocktwits, ARCA bulls is paid by FingerMotion to post ~4 videos a week.
Which is what he seems to be doing, as shown in the above picture.
Ace Indy Biz
Ace also appears to be on the same page as HAMShortKiller and William Farrand, consistently putting out the same type of tweets and content claiming the same high short float narrative etc.
StockAlertzzzz
This user mentioned $FNGR + Univest together on twitter 46 times in the past 20 days.
Univest never represented HKD as an underwriter
Using incomparable examples again, similar to Avid trader, and Daniel Borders
RRR1
Big GTII MMTLP promoter once again, tweets nearly daily regarding short float/interest on $FNGR.
RRR1 praising Univest, and referring to a pathetic article published regarding FNGR and its S-3 that recently was filed (declared effective), with Univest acting as sales agent. InsiderFinancial FNGR
A website which clearly aims at promoting stocks on misleading information and what seems to be very untrustworthy allegations. AvidTrader was even referenced.
In the disclaimer section, it is mentioned that they receive compensation for spreading this information.
Disclaimer: “Our reports/releases are commercial advertisements and are for general information purposes ONLY. We are engaged in the business of marketing and advertising companies for monetary compensation.” https://insiderfinancial.com/disclaimer/
Daniel Borders
This user is consistently hopping over to the next trend. Whilst likely not a promoter, and instead looking for views and likes, he just about sums up the retail investor targetted by FingerMotion. Just on Friday the 29th, Borders was consistently tweeting about $NVOS, a name which clearly put out a fake PR. Both Nate Anderson from Hindbenburg Research, and White Diamond Research commented on this:
He clearly is tweeting in a way to make readers of his tweets believe that Univest will start buying up $FNGR. ‘’Univest comes in starting today”
Putting out outrageous targets.
And best one yet hinting to his followers that by them uniting together (i.e. manipulating), that they would be able to take the stock higher on their own. This clearly ties in with this criminal record posted below, and is a good way to summarize the type of people behind FingerMotions promotion.
Multiple Criminal Offenses
OTC Markets Flag + SEC
FingerMotions promotional activity has actually been flagged in the past by OTC Markets.
FingerMotion, Inc. (the “Company”) issued a news release to announce that it has been requested by the OTC Markets Group Inc. (“OTC Markets”) to comment on recent promotional activity concerning its shares of common stock.
Excerpt within the 8-K of some of the “consultants” aka promoters that FingerMotion has used in the past.
The Company has engaged the following third-party service providers to provide investor relations services, public relations services, marketing, or other related service within the last twelve months: Zacks Investment Research (August 2020); Hybrid Financial Ltd. (September 2020); TD Media, LLC d/b/a Life Water Media (December 2020); Investor Brand Network (March 2021); and Greg Bergman (June 2021, who was also paid shares for his services).
Naked Shorting Angle
If anyone has been following the market for the last couple of years, the new big thing in promoting small caps is mentioning “Naked Shorting,” and to no surprise FingerMotion has done just that: FingerMotion News
TikTok Promotion
Back in 2021, Finger Motion even paid content creators on TikTok to promote the stock.
Current Estimated Cash Position
The Company’s continuation as a going concern is dependent on its ability to obtain additional financing to fund operations, implement its business model, and ultimately, attain profitable operations. The Company will need to secure additional funds through various means, including equity and debt financing or any similar financing.
As of $FNGR’s 10-Q filed on 7/13/23 for the quarterly period ending May 31st, 2023,
Cash and cash equivalents were $5,424,912.
FingerMotion’s quarterly cash burn comes in at around $2.58 million (as seen in table below).
This comes out to around $860k per month. And as of 9/31/23 it has been 4 months since this quarterly report, totaling around $3,400,000, leaving $FNGR with around $1 million in cash (based on the same continuous cash burn levels), which would last them just over another months.
However, historically, Q2 and Q3 for $FNGR have recorded higher cash burn so we expect the company is likely on the brink of running out of cash and will need to dilute the stock in order to continue operating.
Dilution
(Chart from DilutionTracker)
As was discussed earlier, FingerMotion continuously dilutes shares whether it’s via compensation, issuing to “consultants' ' (promoters) or financing deals etc.
We believe this trend will not stop and is bound to get more aggressive following its shelf re
S-3 (shelf registration) filed on September 11th, which is now effective.
This allows $FNGR to raise up to $300 million through offerings. But most importantly, included in the prospectus is also a $25 million At-The-Market agreement with Univest Securities. An At-The-Market agreement will allow the company to issue shares directly to the open market. In our prior short report on Knightscope ($KSCP), we mentioned how they would have to use their At-The-Market facility to raise cash to continue operations. We believe this is the most likely scenario and the best way for them to benefit from all the promotion they have been doing for the stock.
Lind Global Partners Agreement
On 8/9/22, FingerMotion entered into an investment agreement with Lind Global Partners II LLC for a principal amount of $4.8 million in addition to a warrant purchase agreement to acquire 3.48mln shares. Starting 3/10/23, the company would be responsible for 18 consecutive monthly payments of ~$267k. The conversion of these notes is $2 with a 90% of VWAP clause and floor price of $0.86! The warrants have an exercise price of $1.75, a similar toxic conversion and a cashless option (basically free). These securities can be sold on an effective registration statement or 6 months from the date of issuance.
What do you know, almost immediately after the 6 month term, these guys begin to sell. Shows how much of "investors" they actually are of FingerMotion. On 2/7/23, they issued 1.7 mln shares at a deemed price of $1.75 through a cashless exercise of the warrants.
On 2/26/23 and 2/22/23, they issued 500k shares at a price of $2 to the conversion of $1mln respectively off the principal amount. Not to mention, they had a shareholder vote on 2/21/23 in which they attempted to reduce the floor price of this note to $0.5 from $0.86 as well as trying to issue in excess of 20% shares to help pay the loan. Both were voted against.
Shortly after on 3/17/23, FingerMotion issued ~2.46mln shares at $0.86 per share to raise $2.1mln. They soon after put out a PR saying they eliminated this debt.
Liew Yow Ming
Liew Yow Ming is a non controlling stockholder. He essentially provides loans for the company at a 20% rate.
As of 2/28/21 - The company has $1.6mln outstanding and has paid hundreds of thousands to Liew over the past few years.
As of 5/31/21 - The outstanding debt to Liew was $1.95mln
Between 7/28/21 and 8/27/21 - Liew sent multiple conversion notices to FingerMotion in which they had to convert 2.4mln shares with 1.7mln at $.50 and the rest at $2.50 and $5 (micro amounts). The balance thereafter was 0.
Shortly after, the company accepted another note on 5/1/22 for $730k. This note was paid in full to Liew on 4/28/23.
Clearly once again, the company can only afford to pay off debt via issuances of their stock at a massive discount to the current market price.
In summary, it’s very clear the company has given out millions upon millions of shares to either promote or pay down debt either on OTC or NSDQ exchange. Clearly the timeline of this shows this company truly doesn't have any real investors, and since they have no cash, are forced to dilute shareholders.
The following charts hopefully make it crystal clear the incentives and true hands of FingerMotion.
OTC Listed
Nasdaq Listed
Stock incentive plan
In November 2021, the 2021 Stock Incentive plan was approved. Plan provides for a maximum of 7mln shares to be issued.
In December, the following board members/management received stock options:
Following this, the company put out a PR saying they granted 4.5mln shares at $8 to 40 individuals. These “individuals’ are directors/officers/employees or consultants.
On 12/22/22 - The Board approved 9mln shares comprised of 3.57mln to awards granted in the 2021 plan, 3.43mln shares available for issuance under the same plan, and 2mln shares which may be issued to awards under the 2023 plan.
In February of 2023, the company had an annual meeting in which the 2023 incentive plan was approved as well as the reduction of the cost basis of the 2021 incentive plan shares from $8 to $3.84.
Shortly after, an S-8 was filed to register those 3.57mln shares from the 2021 plan at $3.84 and to register the remaining off the 2021 plan along with the additional 2mln for a total of 5.4mln at $2.04.
On 3/1/23, Choe Yang Yeat was given 96k.
7/28/23- Granted 2.6mln shares at $4.62 to 22 people
Then on 9/14/23 - Lee Yew Hon and Shen Martin Chung-Wen sold 88.4k and 92k respectively.
So in summary, the company has once again issued millions of shares at a massive discount to the market that are already registered and we are recently seeing signs that management is selling these so-called “Incentive” shares.
Other
Offices are not real
FingerMotion, Inc. (FNGR) claims to have offices in Singapore, Hong Kong, and New York. However, there are significant doubts about the legitimacy of these locations. The Singapore office address, "111 Somerset Road, Level 3, Singapore 238164," leads to a co-working space that doesn't list FNGR as a client. The Hong Kong address, "Unit 912, 9/F., Two Harbourfront, 22 Tak Fung Street, HungHom, Kowloon," seems more like an incorporation service address than an operational office. As for the New York office, located at "1460 Broadway, New York, NY 10036," it's worth noting that this is a WeWork co-working space.These discrepancies raise concerns about FNGR's transparency and its actual presence in these locations, which should be taken into account by potential investors.
CPA - Centurion ZD
FingerMotions’s accounting firm, Centurion ZD which is based in Hong Kong, was reprimanded by the AFRC for serious breaches of professional standards.The firm was fined penalties totalling HK$700,000 and the practicing certificate for one of its partners was canceled.
Summary
It is evident that FingerMotion is operating with a fundamentally flawed business model that deviates from the path to profitability. We believe the sole driving force behind the stock's recent surge is an aggressive and pervasive promotional campaign. FingerMotion is in a precarious financial position, marked by severe cash problems. Inevitably, the company will resort to diluting its stock through the execution of its shelf registration, whether through its ATM agreement, secondary offerings, or large amounts of shares held by insiders with negative intentions to shareholders. Ultimately, the losers in this situation will be the unsuspecting investors who become ensnared in this investment trap. As a result, we iterate a $1 price target.
Disclosure
Information provided in this report represents our subjective opinions and analysis. Readers are advised to consider this bias when evaluating the content, and it should not be taken as financial advice. Prior to making any investment decisions concerning FingerMotion, individuals should conduct their own research and seek guidance from a qualified financial advisor.