Tianci International, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended July 31, 2022. The filing is an annual report, not a standalone fourth-quarter filing. 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, employees, revenues, or substantive operations. Its primary objective is to identify and complete a merger, acquisition, or other combination with an operating business. As of the filing date, it had no binding acquisition agreement, although management reported discussions with potential operating businesses.
Silver Glory Group Limited acquired approximately 73.18% of the company’s common stock on August 26, 2021. Zhigang Pei became CEO, CFO, secretary, and director, and new directors were appointed. Silver Glory’s controlling shareholder is identified as Mr. Pei.
Key Financial Metrics
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | None |
| Operating expenses | $247,743 | $63,003 | +$184,740 |
| Loss from operations | $247,743 | $63,003 | +$184,740 |
| Other expense | $0 | $11,381 | -$11,381 |
| Net loss | $247,743 | $74,384 | +$173,359 |
| Basic and diluted loss per share | $0.10 | $0.03 | Higher loss per share |
| Cash from operating activities | $(206,390) | $(74,248) | Greater cash use |
| Cash from financing activities | $211,439 | $74,231 | +$137,208 |
| Cash at period-end | $9,000 | $3,951 | +$5,049 |
Operating expenses primarily comprised general and administrative expenses of $174,331 and professional fees of $73,412. The filing does not provide a meaningful gross margin or operating margin because the company generated no revenue.
At July 31, 2022, total assets were $22,250, total liabilities were $245,387, and shareholders’ deficit was $223,137. Current liabilities included $50,499 of accounts payable and accrued liabilities and $194,888 due to related parties. The related-party loan is non-interest bearing, unsecured, and due on demand.
Management reported a working-capital deficiency of approximately $223,137, while another discussion in the filing refers to $222,887; investors should reconcile this discrepancy to the audited balance sheet. The company had no investing cash flows and no material off-balance-sheet arrangements.
Material Changes Versus the Prior Period
- Revenue remained at zero.
- Operating expenses increased approximately 293%, from $63,003 to $247,743, primarily because of higher professional fees and executive compensation.
- Net loss increased from $74,384 to $247,743.
- Operating cash usage increased from $74,248 to $206,390.
- Financing cash inflows increased substantially, primarily because of advances from related parties.
- Former officers and directors forgave $349,716 of amounts owed by the company in connection with the 2021 change in control. The forgiveness was recorded as additional paid-in capital, not operating income.
- The company accrued $168,300 of compensation for its CEO and five directors and paid $126,500 to five directors. It reported $41,800 of unpaid CEO compensation and $11,500 of prepaid compensation for directors at year-end.
Liquidity, Outlook, and Risks
The auditor and management expressed substantial doubt about the company’s ability to continue as a going concern. The company has not established an ongoing source of revenue, does not believe existing funds are sufficient for the next 12 months, and expects to rely on director or related-party loans, private placements, equity financing, or debt financing. There is no assurance that financing will be available on acceptable terms or at all.
Management’s strategy is to identify and acquire an operating business and improve profitability, but no definitive transaction had been executed as of the filing. Failure to complete a business combination or obtain additional capital could require the company to curtail or cease operations. Any equity financing could dilute existing shareholders.
The company reported material weaknesses in internal control over financial reporting and ineffective disclosure controls. Cited weaknesses included limited information-processing controls, inadequate segregation of duties, lack of an audit committee financial expert and formal audit committee oversight, and insufficient formal procedures for reviewing significant accounting transactions. The company is exempt from an auditor attestation report on internal controls because it is a smaller reporting company.
The company has U.S. net operating losses of $2,604,680, with a full valuation allowance against the related deferred tax asset. Management has not completed its evaluation of potential limitations under Internal Revenue Code Section 382 following the change in ownership.
Other Important Items
- There were 2,450,148 common shares outstanding as of October 24, 2022; Silver Glory Group Limited held approximately 73.18%.
- The common stock is quoted on the OTCQB under “CIIT,” but the company states that there is no established public trading market and that quotations may not reflect actual transactions.
- No dividends were paid or currently planned.
- The company reported no pending legal proceeding expected to have a material adverse effect and no commitments or contingencies as of July 31, 2022.
- The audit firm issued an unqualified opinion on the financial statements but included a going-concern emphasis. No critical audit matters were identified.
Investor Verification Items
- Reconcile the reported working-capital deficiency of $223,137 with the separate $222,887 amount in the filing.
- Reconcile the $194,888 related-party balance in the audited balance sheet with the $236,688 amount stated elsewhere in the filing.
- Verify the nature, maturity, and repayment expectations of related-party advances and the company’s ability to obtain additional funding.
- Assess whether management can identify and complete a bona fide operating-business acquisition, since no binding agreement existed at filing.
- Review the material weaknesses and determine whether any remediation, audit committee formation, or staffing improvements have occurred after July 31, 2022.
- Evaluate the concentration of voting control in Silver Glory Group Limited and the related governance and dilution risks.