Tianci International, Inc. — Form 10-K Summary
Business Context and Reporting Period
The filing covers the fiscal year ended July 31, 2020, including the fourth quarter. Tianci is a Nevada-incorporated shell or blank-check company with no meaningful operating assets, employees, or revenue-generating operations. Its principal objective is to identify and complete a merger, acquisition, or other combination with an operating business. Management reported active discussions with an operating business affiliated with its executive officers, but no binding agreement had been signed.
The company’s common stock trades on the OTCQB under the symbol CIIT, although management stated that there was no established public trading market. As of September 28, 2020, 2,450,148 common shares were outstanding, with Chuah Su Mei beneficially owning 1,793,000 shares, or 73.18%.
Financial Performance, Liquidity, and Capitalization
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $73,848 | $88,023 | $(14,175) |
| Net loss | $73,848 | $88,023 | $(14,175) |
| Cash used in operating activities | $(73,230) | $(91,539) | $18,309 improvement |
| Cash provided by financing activities | $73,230 | $93,507 | $(20,277) |
| Cash balance | $3,968 | $3,968 | $0 |
| Total assets | $15,968 | $15,998 | $(30) |
| Total liabilities | $266,694 | $192,876 | $73,818 |
| Working capital deficit | $(250,726) | $(176,878) | $(73,848) |
| Accumulated deficit | $(1,378,277) | $(1,304,429) | $(73,848) |
Operating expenses primarily consisted of professional fees of $73,356 and office and miscellaneous expenses of $492. The company had no interest expense, income tax expense, investing cash flows, or reported operating margins because it generated no revenue. Basic and diluted loss per share was $0.01 for 2020 versus $0.02 for 2019.
Current liabilities included $258,935 due to a shareholder and $7,759 of accounts payable. The related-party balance is non-interest-bearing and due on demand. The company financed its 2020 operating cash needs principally through $73,230 of advances from a shareholder.
Material Changes Versus the Prior Comparable Period
- Operating expenses and net loss declined by $14,175, or approximately 16%, primarily because of lower office and miscellaneous expenses.
- Operating cash use decreased from $91,539 to $73,230, while related-party financing declined from $93,507 to $73,230.
- Cash remained unchanged at $3,968, but total liabilities increased by $73,818, substantially reflecting higher amounts due to related parties.
- Working capital deficit increased from $176,878 to $250,726.
- Accumulated deficit increased to $1,378,277.
- During 2020, 303,267 common shares were cancelled. The filing states that, in August 2020, Chuah Su Chen cancelled all of her shares and Chuah Su Mei cancelled 604,837 shares to increase shares available for potential future financings and acquisitions. The financial statements show 4,751,718 shares outstanding at July 31, 2020, while the filing reports 2,450,148 shares outstanding as of September 28, 2020.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management provided no quantitative revenue or earnings guidance. It expects expenses to increase if an operating company is identified and acquired, but there is no assurance that an acquisition will occur or that any discussions will lead to a definitive transaction.
The auditor issued an unqualified opinion but included an emphasis regarding substantial doubt about the company’s ability to continue as a going concern. As of July 31, 2020, the company had only $3,968 of cash, a $250,726 working capital deficit, no revenue, and insufficient projected resources to fund operations for the next twelve months. Management expects to seek director loans, equity or debt financing, and private placements. Financing may not be available on acceptable terms, and equity financing could dilute existing shareholders.
- The company is dependent on related-party funding and currently has no independent source of operating revenue.
- The company is a shell company competing with better-capitalized entities for acquisition opportunities and may be unable to complete a suitable transaction.
- Due diligence on a target may be limited by the company’s lack of funds, personnel, and operating resources.
- Management concluded that disclosure controls and internal control over financial reporting were not effective because of limited resources, inadequate segregation of duties, lack of an audit committee financial expert, and insufficient formal accounting review procedures.
- The company has approximately $2.3 million of U.S. net operating losses, but recorded a full valuation allowance and has not completed its analysis of potential Section 382 limitations following ownership changes.
- No material litigation, commitments, contingencies, or off-balance-sheet arrangements were reported.
Most Important Facts for Investors to Verify
- Verify the company’s current share count, ownership concentration, and the effect and timing of the reported share cancellations.
- Confirm the terms, maturity, and enforceability of the $258,935 related-party balance due on demand.
- Assess whether the company has obtained financing after the filing date and whether it has adequate liquidity to continue as a going concern.
- Determine whether discussions with any affiliated operating business have resulted in a binding acquisition agreement.
- Review the material weaknesses in internal controls and whether management has implemented remediation.
- Evaluate the liquidity and trading risks associated with the OTCQB quotation and the filing’s statement that no established public market exists.