Tianci International, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended July 31, 2017. The filing is an annual report, not a standalone fourth-quarter report. Financial statements are presented in U.S. dollars under U.S. GAAP.
Business Context
Tianci describes itself as a shell or blank-check company with no meaningful assets or operating business. It has not generated operating revenue and is seeking a merger or acquisition with an operating company. Management reported active discussions with a business affiliated with its executive officers, but no acquisition agreement had been entered into as of the filing date.
The company discontinued its prior gaming subsidiary through a spin-off in October 2016 for $2,000. A 1-for-40 reverse stock split became effective April 6, 2017. On August 15, 2017, after the fiscal year-end, Chuah Su Mei and Chuah Su Chen acquired approximately 87% of the company and replaced the prior sole officer and director. The purchasers are siblings.
Financial Results and Key Metrics
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $162,151 | $315,576 |
| Loss from continuing operations | $(162,151) | $(315,576) |
| Gain from discontinued operations | $200,030 | $(367,925) |
| Net income (loss) | $37,879 | $(683,501) |
| Comprehensive income (loss) | $40,480 | $(689,476) |
| Basic and diluted EPS from continuing operations | $(0.13) | $(0.47) |
| Cash and cash equivalents at year-end | $2,360 | $0 |
| Total assets | $2,360 | $31,609 |
| Current liabilities | $11,498 | $458,590 |
| Working capital | $(9,138) | $(426,981) |
| Accumulated deficit | $(1,119,659) | $(1,157,538) |
Operating expenses consisted primarily of $161,443 in professional fees and $708 in office and miscellaneous expenses. The FY2017 net income was driven by a $200,528 gain on the sale of the former gaming investment; continuing operations remained loss-making.
Net cash used in continuing operating activities was $224,693, compared with $190,230 in FY2016. Investing activities provided $2,000 from the sale of the former investment. Financing activities provided $225,053, consisting of $106,413 from common-stock issuance and $118,640 from related parties. Year-end cash was only $2,360.
The company had no debt due to related parties at July 31, 2017, compared with $131,824 in the prior year. This improvement reflected debt conversion into common stock and forgiveness of related-party obligations. No material off-balance-sheet arrangements were reported.
Material Changes Versus the Prior Comparable Period
- Revenue remained zero, and the company continued to have no meaningful operating business.
- Operating expenses declined 49% to $162,151, primarily because office and miscellaneous expenses fell substantially.
- Net results improved from a $683,501 loss to $37,879 of income, almost entirely because of the gain from disposing of the former subsidiary.
- Cash increased from zero to $2,360, while total assets declined because the former subsidiary and its associated assets were spun off.
- Current liabilities declined from $458,590 to $11,498, and the working-capital deficit narrowed from $426,981 to $9,138.
- Shares outstanding increased to 5,054,985 from 694,182, after issuances for cash, debt conversion and other transactions, with all share data retroactively adjusted for the reverse split.
Outlook, Risks and Unusual Items
The auditor and management expressed substantial doubt about the company’s ability to continue as a going concern. The company reported limited operations, an accumulated deficit of $1.12 million, a working-capital deficit, anticipated future losses and insufficient funds to operate for the next 12 months. Management expects to rely on loans from directors and/or additional private placements of common stock.
Future financing may be unavailable or available only on unfavorable terms, and equity financing could dilute existing shareholders. The company’s ability to execute its business plan depends on identifying and completing an acquisition, which is uncertain and subject to significant competition and limited resources.
Management determined that disclosure controls and internal control over financial reporting were not effective as of July 31, 2017. Reported material weaknesses included limited information-processing controls, inadequate segregation of duties, no formal audit committee at year-end and insufficient formal procedures for reviewing significant accounting transactions. An audit committee was established on August 30, 2017.
The August 2017 change in control, new management team and proposed acquisition discussions occurred after the fiscal year-end and should not be treated as FY2017 operating results. The filing reports no pending legal proceedings expected to have a material adverse effect and no other commitments or contingencies as of July 31, 2017.
Important Facts for Investors to Verify
- Whether the company has entered into, or will complete, an acquisition with the business affiliated with its new executive officers.
- How the company will fund operations given $2,360 of year-end cash and the going-concern uncertainty.
- The terms, timing and potential dilution of future equity issuances or director loans.
- The effect of the August 2017 change in control and related-party relationships involving the new management team.
- Whether the reported internal-control material weaknesses have been remediated.
- The sustainability of the reported profit, which was principally attributable to a one-time $200,528 disposal gain rather than operating revenue.
- The company’s continuing shell-company status, lack of revenue and absence of a completed acquisition agreement.