Tianci International, Inc. — Form 10-Q Summary
Business context and reporting period
This filing covers the three months ended October 31, 2018, Tianci’s first fiscal quarter of fiscal 2019. The company is a Nevada corporation, smaller reporting company, emerging growth company, and reports that it is a shell company with no substantive operations or meaningful assets beyond efforts to identify and merge with an operating business. The financial statements are unaudited and presented in U.S. dollars under U.S. GAAP.
On October 29, 2018, the board approved a proposed acquisition of 70% of Ezytronic Sdn. Bhd., a Malaysian computer-equipment and accessories reseller, under a nonbinding term sheet. The proposed transaction involves related parties, including the CEO’s father-in-law and an independent director. The filing states that completion and valuation were not assured.
Financial condition and results
| Metric | Three months ended October 31, 2018 | Comparable period / balance date |
|---|---|---|
| Revenue | $0 | $0 in Q1 2017 |
| Operating expenses | $22,816 | $24,320 in Q1 2017 |
| Net loss | $22,816 | $24,320 in Q1 2017 |
| Loss per share | $0.00 basic and diluted | $0.00 basic and diluted |
| Cash flow from operations | $(15,248) | $(53,188) in Q1 2017 |
| Cash flow from financing | $17,216 | $73,728 in Q1 2017 |
| Ending cash | $3,968 | $22,900 at October 31, 2017 |
| Total assets | $7,343 | $6,000 at July 31, 2018 |
| Total liabilities | $119,014 | $94,855 at July 31, 2018 |
| Stockholders’ deficit | $(111,671) | $(88,855) at July 31, 2018 |
| Accumulated deficit | $(1,239,222) | $(1,216,406) at July 31, 2018 |
Operating expenses consisted primarily of $22,743 of professional fees and $73 of office and miscellaneous expenses. No income taxes, interest payments, or investing cash flows were reported. Gross and operating margins are not meaningful because the company generated no revenue.
Current liabilities included $109,414 owed to a shareholder and $9,600 of accounts payable. The related-party balance is non-interest-bearing and due on demand. Current assets consisted primarily of $3,968 of cash and $3,375 of prepaid expenses, resulting in a working-capital deficit of $111,671.
Material changes versus the prior comparable period
- Revenue remained $0.
- Operating expenses and net loss decreased by $1,504, or approximately 6%, primarily because office and miscellaneous expenses declined from $3,440 to $73.
- Cash used in operating activities improved to $15,248 from $53,188, principally due to changes in prepaid expenses and accounts payable.
- Financing proceeds from related parties declined to $17,216 from $73,728.
- Ending cash declined to $3,968 from $22,900 at October 31, 2017.
- Compared with July 31, 2018, liabilities increased $24,159, or 25%, while stockholders’ deficit increased by $22,816.
- No common shares were issued during the quarter; 5,054,985 common shares were outstanding at October 31, 2018.
Guidance, outlook, risks, contingencies, and unusual items
- Management states that available cash and expected revenue are insufficient to fund operating expenses for the next 12 months, creating substantial doubt about the company’s ability to continue as a going concern.
- Management plans to seek additional working capital through equity or debt financing, loans from directors or related parties, improved profitability, and operational restructuring. There is no assurance that financing will be available on acceptable terms or at all.
- The company has no operating revenue, limited operating history, an accumulated deficit, and dependence on related-party funding. Failure to raise capital could impair its ability to execute its business plan or continue operations.
- The proposed Ezytronic acquisition remains subject to negotiation and is based on a nonbinding term sheet. Because key holders of Ezytronic are related to company management and a director, investors should assess related-party transaction and valuation risks.
- Management reported that disclosure controls and procedures were not effective as of October 31, 2018. The prior Form 10-K identified material weaknesses in internal control over financial reporting, and no material remediation changes were reported during the quarter.
- The filing reports no material legal proceedings, no unregistered equity sales, no defaults upon senior securities, and no material off-balance-sheet arrangements. The filing lists no additional risk factors, although the going-concern uncertainty is significant.
Important facts for investors to verify
- Whether the Ezytronic transaction was completed, on what terms, and whether required related-party disclosures and valuation support were provided.
- Whether the company obtained additional financing after the reporting date and the resulting dilution, interest, repayment, or control implications.
- Whether the company has generated any operating revenue or acquired substantive operations since October 31, 2018.
- The status and remediation of the reported ineffective disclosure controls and material weaknesses in internal control over financial reporting.
- The collectability and classification of prepaid expenses, the timing of repayment of the $109,414 related-party balance, and the company’s ability to meet obligations due on demand.
- The company’s continuing ability to operate given $3,968 of cash, a $111,671 working-capital deficit, recurring losses, and reliance on related-party funding.