SEC Filing Summary
Filing identity: The supplied filing is for Freedom Petroleum, Inc., not Tianci International, Inc. It is a Form 10-Q for the three months ended October 31, 2014, corresponding to the company’s first fiscal quarter of 2015. The financial statements are unaudited and presented in U.S. dollars.
Business Context and Reporting Period
Freedom Petroleum is a Nevada exploration-stage company focused on oil and gas exploration and development. It has not generated operating revenue since inception. During the quarter, the company entered into an agreement to acquire a 100% working interest and an 87% net revenue interest in approximately 2,304 hectares and a pre-existing well in Alberta, Canada.
The company reported 53,469,477 common shares outstanding as of December 18, 2014. Anton Lin serves as the sole officer and director and is also a majority shareholder.
Financial Performance and Position
| Metric | Three Months Ended October 31, 2014 | Three Months Ended October 31, 2013 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $82,454 | $4,417 |
| Loss from operations | $(82,454) | $(4,417) |
| Net loss | $(82,454) | $(3,517) |
| Basic and diluted loss per share | $(0.00) | $(0.00) |
| Weighted-average shares | 52,833,947 | 52,200,000 |
- Major quarterly expenses included $30,914 of professional fees, $30,000 of related-party consulting fees, $13,708 of general and administrative expenses, and $7,832 of website design costs.
- Cash and cash equivalents declined to $22,935 at October 31, 2014 from $76,108 at July 31, 2014.
- Total assets were $85,552, including $61,299 of oil and gas properties.
- Current liabilities increased to $151,154 from $60,574, consisting primarily of accounts payable and accrued expenses of $78,844 and amounts due to the related party of $72,310.
- Stockholders’ deficit was $65,602 at October 31, 2014, compared with equity of $16,852 at July 31, 2014. Working capital deficiency was $126,901.
- The filing’s cash flow statement reports $90 of cash provided by operating activities, $(61,299) of investing cash flow, $8,036 of related-party financing, and a $53,173 decrease in cash. The MD&A presents inconsistent cash flow figures, including $20,090 of operating cash flow and $(11,964) of financing cash flow; the filing text does not reconcile these differences.
Material Changes Versus the Prior Comparable Period
- Operating expenses increased by $78,037, or approximately 1,767%, primarily because of higher professional and administrative costs, related-party consulting fees, website development, and increased activity associated with evaluating oil and gas properties.
- Net loss increased from $3,517 to $82,454.
- The company acquired and capitalized $61,299 of oil and gas property and maintenance costs, compared with no investing activity in the prior-year quarter.
- Cash decreased by $53,173, compared with a $1,183 increase in the prior-year quarter.
- Common shares outstanding increased from 52,828,852 at July 31, 2014 to 53,297,602 at October 31, 2014. The company issued 468,750 shares for $150,000 of cash proceeds and entered into a subscription for an additional 312,500 shares for $100,000, although only $55,000 was received and 171,875 shares were issued after quarter-end.
- Amounts owed to the sole officer and director increased from $54,274 to $72,310, including unpaid consulting fees and operating advances.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- The company has substantial doubt about its ability to continue as a going concern. Management expects additional financing will be required and plans to rely on director loans and private placements or other equity or debt financing.
- The Alberta property purchase price is scheduled at $400,000, payable in installments through March 6, 2015, subject to administrative conditions. The price may be reduced to $360,000 if a lease continuation application is not approved. Title transfer is contingent on payment of the full purchase price and other conditions.
- Subsequent to quarter-end, the company received $55,000 from the October 20, 2014 share subscription and issued 171,875 shares. The property agreement was later amended to defer a $125,000 payment until January 1, 2015.
- The company states that it does not have sufficient funds to operate for the next 12 months and may cease operations if it cannot obtain financing.
- Risks include exploration and development uncertainty, commodity-price volatility, regulatory and environmental obligations, potential impairment of oil and gas properties, lease-maintenance requirements, dilution from future equity financing, and dependence on the sole officer and director for funding.
- The company reported that disclosure controls and procedures were not effective as of October 31, 2014. No material changes to internal control over financial reporting were reported during the quarter.
- The company has a $516,400 federal net operating loss carryforward, subject to potential annual limitations following an ownership change. No tax benefit was recognized because the deferred tax asset was fully reserved.
- The company reported no material off-balance-sheet arrangements and no recorded asset retirement obligations.
Important Facts for Investors to Verify
- Confirm that the filing belongs to Freedom Petroleum, Inc. rather than Tianci International, Inc.
- Reconcile the conflicting cash flow amounts reported in the financial statements and MD&A.
- Verify completion, funding, title transfer, lease conditions, and remaining payment obligations under the Alberta property agreement.
- Assess the company’s ability to raise sufficient capital given its $126,901 working capital deficiency, $22,935 cash balance, and substantial doubt regarding going-concern status.
- Review related-party advances, unpaid consulting fees, and the terms and potential dilution from outstanding and subsequent equity subscriptions.
- Evaluate the implications of ineffective disclosure controls and the company’s exploration-stage status, including the absence of revenue and uncertainty regarding future production.