Business Context and Reporting Period
Tianci International, Inc. filed an unaudited Form 10-Q for the quarter and six months ended January 31, 2021. The company is a Nevada holding company and shell company with no substantive operations or meaningful assets, seeking to identify and merge with an operating business. Its fiscal year ends July 31. The financial statements are prepared under U.S. GAAP and presented in U.S. dollars.
As of March 1, 2021, 2,450,148 common shares were outstanding. The company reported that it had filed required Exchange Act reports and is classified as a non-accelerated filer and smaller reporting company.
Financial Highlights
| Metric | Three Months Ended January 31, 2021 | Six Months Ended January 31, 2021 | Comparable Prior Period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $12,308 | $27,119 | $14,548 and $37,255, respectively |
| Loss from operations | $(12,308) | $(27,119) | $(14,548) and $(37,255), respectively |
| Other expense | $11,381 | $11,381 | $0 |
| Net loss | $(23,689) | $(38,500) | $(14,548) and $(37,255), respectively |
| Loss per common share | $(0.01) | $(0.02) | $(0.00) and $(0.01), respectively |
There was no revenue or gross margin to report. Professional fees and general administrative expenses comprised operating expenses. Other expense consisted of an $11,381 income tax penalty.
- Cash was $3,968 at January 31, 2021, unchanged from July 31, 2020.
- Total assets were $9,968, down from $15,968, primarily because prepaid expenses declined by $6,000.
- Total liabilities were $299,194, up from $266,694. Amounts due to related parties were $298,496 and were non-interest-bearing and due on demand.
- Shareholders’ deficit was $289,226, compared with $250,726 at July 31, 2020. Accumulated deficit was $1,416,777.
- Working capital deficit was $289,226, compared with $250,726 at July 31, 2020.
- Net cash used in operating activities for the six months was $39,561, funded by $39,561 of advances from related parties. There was no investing cash flow, and ending cash was unchanged.
- No interest or income tax cash payments were reported during the six-month periods.
Material Changes Versus Prior Comparable Period
- Quarterly operating expenses decreased by $2,240, or approximately 15%, to $12,308, primarily because of lower professional fees.
- Six-month operating expenses decreased by $10,136, or approximately 27%, to $27,119, also primarily because of lower professional fees.
- Quarterly and six-month net losses increased to $23,689 and $38,500, respectively, because the current periods included an $11,381 income tax penalty that was absent in the prior periods.
- Related-party advances increased to $39,561 for the six months from $34,947 in the prior comparable period, while the related-party balance increased by $39,561 from July 31, 2020.
- On August 4, 2020, the CEO cancelled 301,570 shares and the CFO cancelled 2,000,000 shares. Outstanding shares declined from 4,751,718 at July 31, 2020 to 2,450,148 at January 31, 2021.
Outlook, Risks, Contingencies, and Unusual Items
Management stated that cash and expected revenues are insufficient to fund operating expenses for the next twelve months, creating substantial doubt about the company’s ability to continue as a going concern. Management plans to improve profitability, restructure operations, obtain additional working capital through equity or debt financing, and rely on loans from directors and/or private placements. The filing provides no assurance that financing will be available on acceptable terms or at all.
The company is actively discussing a potential acquisition of an operating business affiliated with its executive officers, but there is no assurance that an acquisition will occur. Operating expenses are expected to increase if an operating company is identified and acquired.
The company reported no pending material litigation and no material off-balance-sheet arrangements. It also stated that no subsequent events requiring disclosure occurred through the date the financial statements were available for issuance.
Management concluded that disclosure controls and procedures were not effective as of January 31, 2021 because of material weaknesses, including limited information-processing controls, inadequate segregation of duties, lack of an audit committee financial expert, and absence of formal procedures for reviewing significant accounting transactions. No material changes to internal control over financial reporting were identified during the quarter.
Important Facts for Investors to Verify
- Whether the company can obtain sufficient financing to address its $289,226 working capital deficit and continue as a going concern.
- The terms, repayment status, and enforceability of the $298,496 non-interest-bearing, due-on-demand related-party balance.
- Whether the proposed acquisition of an affiliated operating business will occur and whether it would generate meaningful revenue.
- The source and basis of the $11,381 income tax penalty and whether additional penalties or tax liabilities may arise.
- Progress in remediating the disclosed material weaknesses in internal controls and financial reporting oversight.
- The effect of the 2,301,570-share cancellation on ownership, future financings, potential dilution, and prospective corporate transactions.