Filing Summary
Entity and period: The supplied Form 10-Q identifies the registrant as Freedom Petroleum, Inc., not Tianci International, Inc. It covers the quarter and nine months ended April 30, 2015, with a July 31 fiscal year-end. The financial statements are unaudited and presented under U.S. GAAP.
Business Context
The company discontinued its oil and gas operations in April 2015 after terminating its agreement with Shalex Corporation. It is exploring opportunities in the computer gaming and application industry but had not signed definitive operating or acquisition agreements as of April 30, 2015.
Key Financial Metrics
| Metric | Three months ended April 30, 2015 | Nine months ended April 30, 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Net loss | $(118,099) | $(296,667) |
| Loss per share, basic and diluted | $(0.00) | $(0.01) |
| Cash flow from operating activities | Not provided for the quarter | $(195,121) |
| Cash flow from investing activities | Not provided for the quarter | $(61,299) |
| Cash flow from financing activities | Not provided for the quarter | $215,726 |
| Balance-sheet metric | April 30, 2015 | July 31, 2014 |
|---|---|---|
| Cash and cash equivalents | $35,414 | $76,108 |
| Total assets | $35,414 | $77,426 |
| Current liabilities | $75,229 | $60,574 |
| Stockholders’ equity (deficit) | $(39,815) | $16,852 |
| Working capital | $(39,815) | $16,852 |
There were no continuing-operation revenues or operating expenses reported. The nine-month loss consisted of discontinued-operation expenses, including $61,299 for the write-off of oil and gas properties, $90,000 of related-party consulting fees, $80,211 of professional fees, $42,469 of general and administrative expenses, and $22,688 of website development costs. No income tax provision was recorded because the deferred tax asset was fully offset by a valuation allowance.
Material Changes Versus Prior Comparable Period
- Quarterly net loss improved to $118,099 from $238,512, primarily because the prior-year quarter included $175,000 of stock-based compensation.
- Nine-month net loss increased to $296,667 from $287,282, largely reflecting the $61,299 oil and gas property write-off and higher consulting and website costs, partly offset by the absence of $175,000 of stock-based compensation.
- Cash declined by $40,694 during the nine months, compared with a $1,534 decline in the prior-year period.
- Financing provided $215,726, including $240,000 from common-stock issuance, $49,807 of related-party advances, and $74,081 of repayments to related parties.
- Common shares outstanding increased to 53,469,477 from 52,828,852 at July 31, 2014. The company also reported $185,000 of common-stock subscriptions at April 30, 2015.
- Working capital changed from a surplus of $16,852 to a deficit of $39,815, and accumulated deficit increased to $730,613.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that substantial doubt exists regarding the company’s ability to continue as a going concern. Continued operations depend on profitable operations and/or additional financing.
- Management expects to fund the next twelve months through director loans and private placements of common stock. The filing states that the company does not believe it has sufficient funds to operate for the next twelve months, and financing may be unavailable or dilutive.
- The company terminated the Shalex oil and gas agreement on April 28, 2015 and wrote off all $61,299 of related capitalized costs.
- On May 20, 2015, two non-U.S. investors agreed to purchase 984,375 shares for $315,000 at $0.32 per share; $70,000 was received in May. On May 27, 2015, the company issued 1,000,000 shares to its CEO under his employment agreement.
- The company signed a non-binding letter of intent to acquire Steampunk Wizards Ltd. A May 2015 deposit of $84,861 was paid, but audits and definitive agreements remained outstanding, and the acquisition might not close.
- Management and majority shareholders approved a proposed name change to Steampunk Wizards, Inc. and a 1-for-2.5 reverse stock split, expected on or about July 2, 2015, subject to the stated conditions.
- Related-party obligations included $61,067 of unpaid consulting fees to the sole officer and director at April 30, 2015. The filing also states that operating advances were repaid during the period, so the composition of the related-party balance should be reviewed.
- Disclosure controls and procedures were concluded to be ineffective as of April 30, 2015. No material changes to internal control over financial reporting were reported during the period.
- The filing reports no commitments or contingencies, although the note dates this disclosure as of January 31, 2015.
Investor Verification Items
- Confirm whether this filing belongs to Freedom Petroleum, Inc. rather than Tianci International, Inc.
- Verify the going-concern disclosures, available cash, unpaid related-party compensation, and the company’s ability to obtain additional funding.
- Review the termination and write-off of the Shalex oil and gas transaction.
- Determine whether the Steampunk acquisition, $84,861 deposit, name change, and reverse stock split were completed after the filing date.
- Reconcile the reported common-stock subscriptions, subsequent share issuances, and expected dilution.
- Review the ineffective disclosure controls and any remediation or subsequent control improvements.