Tianci International, Inc. — Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended July 31, 2019, rather than a standalone calendar fourth quarter. Tianci is a Nevada-incorporated shell or blank-check company with no meaningful assets, employees, revenues, or substantive operations. Its principal objective is to identify and complete a business combination. As of the filing date, it had only a nonbinding term sheet and ongoing discussions regarding potential acquisitions, including with affiliates of its executive officers; no binding acquisition agreement had been executed.
The company’s common stock is quoted on the OTCQB under the symbol CIIT. As of September 23, 2019, 5,054,985 common shares were outstanding, with executive officers and directors beneficially owning approximately 87% in aggregate.
Financial performance, liquidity, and capital structure
| US$ | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | 0 | 0 | No change |
| Operating expenses | 88,023 | 96,747 | Down 9.0% |
| Net loss | (88,023) | (96,747) | Loss narrowed 9.0% |
| Loss per share | (0.02) | (0.02) | No change |
| Cash flow from operations | (91,539) | (109,588) | Use decreased |
| Cash flow from financing | 93,507 | 109,228 | Down 14.4% |
| Cash and cash equivalents | 3,968 | 2,000 | Up 98.4% |
| Total assets | 15,998 | 6,000 | Up 166.6% |
| Total liabilities | 192,876 | 94,855 | Up 103.4% |
| Working capital deficit | (176,878) | (88,855) | Deficit increased 99.1% |
Operating expenses primarily comprised professional fees of $75,622 and office and miscellaneous expenses of $12,401. No income tax expense or benefit was recorded. Because the company generated no revenue, gross and operating margins are not meaningful.
Financing cash inflows consisted entirely of advances from related parties. Amounts due to a shareholder totaled $185,705 at July 31, 2019, were non-interest-bearing, and were due on demand. The filing does not identify conventional bank debt or other interest-bearing debt. There were no investing cash flows and no off-balance-sheet arrangements considered material.
Material changes versus the prior comparable period
- Revenue remained zero and the company continued to have no operating business.
- Operating expenses and net loss declined by $8,724, primarily because of lower professional fees and general and administrative expenses.
- Operating cash use improved by $18,049, but the company remained dependent on related-party funding.
- Related-party obligations increased by $93,507 to $185,705, while total liabilities more than doubled.
- Cash increased by $1,968 to $3,968, but the working capital deficit nearly doubled to $176,878.
- No common or preferred shares were issued during fiscal 2019, and no equity securities were repurchased.
Guidance, outlook, risks, contingencies, and unusual items
Management did not provide quantitative revenue, earnings, or operating guidance. It stated that it intends to pursue a business combination and expects expenses to increase if an operating company is acquired. There is no assurance that the nonbinding term sheet or any other potential acquisition will result in a transaction.
The auditor and management reported substantial doubt about the company’s ability to continue as a going concern. The company has no recurring revenue, only $3,968 of cash, a $176,878 working capital deficit, and an accumulated deficit of $1,304,429. Management expects to fund operations through additional loans from directors or related parties and private placements, but acknowledged that financing may not be available on acceptable terms, or at all. Failure to obtain funding could force the company to curtail or cease operations.
Disclosure controls and internal control over financial reporting were deemed ineffective due to material weaknesses involving limited resources, inadequate segregation of duties, absence of an audit committee financial expert, and insufficient formal review procedures for significant accounting transactions. The company is exempt from an external auditor attestation report on internal controls as a smaller reporting company.
Related-party financing is a significant dependency and concentration risk. The company has no employees, does not own property, and uses office space provided at no cost by its CFO. It reported no material pending litigation, commitments, contingencies, or subsequent events requiring disclosure. Yeow Yuen Kai resigned from the board effective August 31, 2019.
Most important facts for investors to verify
- Whether the company can obtain sufficient financing to fund operations over the next 12 months and on what dilution or repayment terms.
- The status, terms, independence, and closing conditions of any proposed acquisition or nonbinding term sheet.
- The nature, repayment expectations, and potential related-party implications of the $185,705 due to a shareholder.
- Whether management has remediated the disclosed material weaknesses in internal control and disclosure controls.
- Whether the company develops recurring operations or revenue, since it reported zero revenue in both fiscal 2019 and fiscal 2018.
- The liquidity and trading risks associated with the OTCQB quotation, limited public market, concentrated ownership, and lack of dividends.
- The potential usability of approximately $2.21 million of U.S. net operating losses, including limitations under Internal Revenue Code Section 382; the filing states that a change of ownership may restrict utilization.