Tianci International, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Filed March 15, 2018, for the three and six months ended January 31, 2018, the second quarter of the Company’s fiscal year ending July 31, 2018. Tianci reported that it was a shell company with no meaningful assets or operations, no operating revenue, and ongoing efforts to identify and merge with an operating business. Management was in discussions regarding a potential acquisition of an affiliated operating business, but no transaction was assured.
On August 15, 2017, control changed when purchasers acquired approximately 87% of the outstanding common stock for $350,000. New directors and executive officers were appointed following the transaction.
Financial Highlights
| Metric | Three Months Ended January 31 | Six Months Ended January 31 |
|---|---|---|
| Revenue | $0 in 2018 and 2017 | $0 in 2018 and 2017 |
| Operating expenses | $36,509 versus $57,783 | $60,829 versus $102,883 |
| Loss from continuing operations | $(36,509) versus $(57,783) | $(60,829) versus $(102,883) |
| Net income (loss) | $(36,509) versus $(57,783) | $(60,829) versus $97,147 |
| Basic and diluted loss per share | $(0.01) versus $(0.07) | $(0.01) versus $(0.13) |
Operating expenses consisted primarily of professional fees: $34,009 for the quarter and $54,889 for the six-month period. Office and miscellaneous expenses were $2,500 and $5,940, respectively. Because revenue was zero, operating and profit margins were not meaningful.
- Cash and cash equivalents were $6,900 at January 31, 2018, compared with $2,360 at July 31, 2017.
- Total assets were $11,900, including $5,000 of prepaid expenses and other deposits.
- Total liabilities were $64,837, including $56,698 owed to a shareholder and $8,139 of accounts payable.
- Working capital was negative $52,937, compared with negative $9,138 at July 31, 2017.
- Accumulated deficit was $1,180,488, and stockholders’ deficit was $52,937.
- The shareholder advance was non-interest-bearing and due on demand. The filing does not disclose conventional bank debt or interest-bearing debt.
Cash Flow and Liquidity
| Six Months Ended January 31 | 2018 | 2017 |
|---|---|---|
| Net cash used in operating activities | $(69,188) | $(171,921) |
| Net cash provided by investing activities | $0 | $2,000 |
| Net cash provided by financing activities | $73,728 | $188,744 |
| Net increase in cash | $4,540 | $19,321 |
Financing cash flow in 2018 consisted of advances from related parties. A former officer also advanced $17,030 that was subsequently forgiven and recorded as additional paid-in capital. Management stated that cash and expected revenue were insufficient to fund operations for the next twelve months and disclosed substantial doubt about the Company’s ability to continue as a going concern.
Material Changes Versus the Prior Comparable Period
- Quarterly operating expenses declined 37% to $36,509, primarily because professional fees decreased.
- Six-month operating expenses declined 41% to $60,829, but the Company moved from six-month net income of $97,147 to a net loss of $60,829.
- The prior-year six-month result included a $200,528 gain on the sale of the former subsidiary Steampunk Wizards Ltd.; no comparable gain occurred in 2018.
- Cash increased by $4,540 from July 31, 2017, but liabilities increased by $53,339, primarily because of shareholder advances.
- Stockholders’ deficit increased from $9,138 to $52,937.
- Weighted-average shares increased to 5,054,985 from 799,282 for the six-month comparative period, reflecting the impact of the 2017 control transaction and prior share adjustments.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management plans to seek additional equity or debt financing, obtain loans from directors or related parties, improve profitability, and restructure operations. There is no assurance that financing will be available on acceptable terms or at all.
- The Company has a limited operating history, no revenue, substantial accumulated losses, negative working capital, and dependence on related-party funding.
- Failure to raise capital could prevent execution of the business plan or force the Company to cease operations. Equity financing could dilute existing shareholders.
- The Company remains a shell company and any proposed acquisition of an affiliated operating business is uncertain.
- Management concluded that disclosure controls and procedures were not effective as of January 31, 2018. Prior material weaknesses in internal control over financial reporting remained disclosed, with no material changes reported during the quarter.
- The filing reported no material legal proceedings, no unregistered securities sales, no defaults on senior securities, and no material off-balance-sheet arrangements.
- The financial statements were prepared on a going-concern basis and do not include adjustments that could be required if the Company cannot continue operations.
Most Important Facts for Investors to Verify
- Whether the Company obtained sufficient financing after January 31, 2018, to fund operations and satisfy the $56,698 demand obligation to the shareholder.
- Whether the contemplated acquisition or business combination with an affiliated operating company was completed, on what terms, and with what related-party implications.
- Whether the Company generated any revenue or established meaningful operations after the reporting date.
- Whether disclosure controls and internal-control deficiencies were remediated.
- Whether additional equity issuance, related-party loans, or other financing materially diluted shareholders or changed control.
- Whether the going-concern uncertainty was resolved and whether the Company remained able to meet obligations as they became due.