Tianci International, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended July 31, 2016. The filing is an annual report, not a standalone fourth-quarter report; separate Q4 financial results are not provided. The company was formerly Steampunk Wizards, Inc. and was a development-stage shell company with limited operations.
Business Context
Before October 13, 2016, the company primarily pursued computer-game development through its Malta subsidiary, including the Bungee Mummy mobile-game franchise. Subsequent to year-end, the company sold the subsidiary for $2,000, underwent a change in control, changed its name to Tianci International, Inc., and began seeking a business combination. As of the filing date, it had not entered into an agreement with an acquisition target.
The company reported two employees, no owned property, no office lease, and no meaningful operating assets or revenue-producing business. It identified itself as a shell and blank-check company.
Financial Metrics
| Metric | FY 2016 | Comparable period / FY 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $315,576 | $0 for the comparable post-inception period presented |
| Loss from continuing operations | $315,576 | $0 |
| Loss from discontinued operations | $367,925 | $474,037 |
| Net loss | $683,501 | $474,037 |
| Comprehensive loss | $689,476 | $491,149 |
| Loss per share, basic and diluted | $0.02 total; $0.01 from continuing operations and $0.01 from discontinued operations | $0.03 from discontinued operations |
| Weighted-average common shares | 26,886,255 | 13,909,309 |
| Total assets | $31,609 | $78,231 |
| Total liabilities | $458,590 | $298,643 |
| Stockholders’ deficit | $426,981 | $220,412 |
| Accumulated deficit | $1,157,538 | $474,037 |
Cash and cash equivalents were $339 at July 31, 2016, compared with $53,472 at July 31, 2015. The working-capital deficiency was $426,981, compared with $220,412. The filing does not present conventional operating margins because revenue was zero.
Cash Flow, Debt and Liquidity
- Cash used in continuing operating activities was $190,230; cash used in discontinued operating activities was $350,017.
- Cash provided by continuing financing activities was $398,695, including $440,579 from common-stock issuance, $16,822 from related-party borrowing, and $57,917 of repayment to the former CEO.
- Current liabilities included $74,040 of accounts payable, $131,824 due to related parties, and $252,726 of liabilities held for sale.
- Liabilities held for sale included $138,757 of short-term loans. Of the $97,448 owed to Deep Blue Trading, $52,773 was in default at July 31, 2016; the loans bore 7% annual interest.
- The company had no cash balance available for operations and stated that it did not have sufficient funds to operate for the next 12 months without additional financing.
Material Changes and Subsequent Events
- Operating expenses increased by $315,576, while net loss increased by $209,464 from the comparable period presented.
- Assets declined 60% and liabilities increased 54%, resulting in a 94% increase in stockholders’ deficit.
- On October 13, 2016, the company sold its Malta subsidiary for $2,000 and transferred approximately 65.1% of its common shares in a change-of-control transaction for an aggregate purchase price of $150,000.
- On September 27, 2016, $120,000 owed to the former officer and director was converted into 2,553,191 common shares.
- On January 4, 2017, the company issued 19,532,820 common shares at $0.005 per share for gross proceeds of $97,664.10.
Outlook, Risks and Unusual Items
Management stated that it intends to identify and complete a business combination rather than generate near-term operating earnings. No target had been identified as of the filing. Management expected to fund operations through director loans and additional equity or debt financing.
- The auditor reported substantial doubt about the company’s ability to continue as a going concern because of recurring losses, a $426,981 working-capital deficiency, and a $1,157,538 accumulated deficit.
- The financial statements were prepared on a going-concern basis and do not include adjustments that could result if the company cannot continue operating.
- Management reported that disclosure controls and internal control over financial reporting were ineffective as of July 31, 2016 due to material weaknesses, including limited resources, inadequate segregation of duties, lack of a formal audit committee financial expert, and insufficient formal accounting-review procedures.
- The company is subject to shell-company, blank-check, penny-stock, liquidity, dilution, acquisition, financing, and potential Rule 144 resale restrictions.
- The filing states that there were no material pending legal proceedings and no material off-balance-sheet arrangements.
Key Facts for Investors to Verify
- Confirm the post-year-end sale of the Malta subsidiary and whether the company retained any related assets, liabilities, intellectual property, or operating obligations.
- Reconcile the company’s post-transaction share count, ownership concentration, and dilution from the January 2017 private placement and the debt-to-equity conversion.
- Review the defaulted short-term debt, related-party balances, and any liabilities assumed, forgiven, or reclassified after July 31, 2016.
- Assess whether subsequent financing was sufficient to address the going-concern uncertainty and fund operations.
- Evaluate remediation of the reported material weaknesses in internal control and the company’s ability to identify and complete a viable business combination.