Tianci International, Inc. — Form 10-Q Summary
Reporting period: Three months ended October 31, 2016, corresponding to the company’s fiscal 2017 first quarter. The filing was dated January 27, 2017. The condensed financial statements are unaudited and, contrary to SEC review requirements stated in the filing, were not reviewed by an independent public accountant.
Business context and reporting period
- The company was formerly named Steampunk Wizards, Inc. and changed its name to Tianci International, Inc. on November 9, 2016.
- On October 13, 2016, the company spun off its wholly owned Malta subsidiary, Steampunk Wizards Ltd., to a former director-controlled buyer for $2,000. The subsidiary is presented as discontinued operations, and the company reported no continuing involvement.
- The filing states that the report was submitted to satisfy a FINRA corporate-action requirement.
- As of January 12, 2017, 49,853,280 common shares were outstanding.
Financial results and key metrics
| Metric | Three months ended October 31, 2016 | Three months ended October 31, 2015 |
|---|
| Revenue | $0 | $0 |
| Operating expenses | $45,100 | $108,257 |
| Loss from continuing operations | $(45,100) | $(108,257) |
| Gain from discontinued operations, net | $200,030 | $(151,285) |
| Net income (loss) | $154,930 | $(259,542) |
| Comprehensive income (loss) | $157,531 | $(261,334) |
| Basic and diluted earnings (loss) per share | $0.01 | $(0.01) |
| Weighted-average shares | 28,738,592 | 27,216,778 |
- The $200,528 gain on sale of investment primarily drove the reported net profit; it was a non-recurring item associated with the Steampunk spin-off.
- Operating expenses declined 58%, principally because of lower management fees, advertising, rent, and professional fees. No revenue or operating margin was generated.
- Cash and cash equivalents were $1,500 at October 31, 2016, compared with $0 at July 31, 2016.
- Current assets were $1,500 and current liabilities were $11,824, resulting in a working-capital deficiency of $10,324.
- Total assets were $1,500 and total stockholders’ deficit was $10,324 at October 31, 2016.
- The company had an accumulated deficit of $1,002,608.
- The filing does not report conventional bank debt at October 31, 2016. Amounts due to related parties were $11,824, non-interest-bearing and due on demand. A former CEO’s $120,000 salary and expense obligation was converted into 2,553,191 common shares.
Cash flow and liquidity
| Cash flow item | Three months ended October 31, 2016 | Three months ended October 31, 2015 |
|---|
| Cash used in continuing operating activities | $(119,140) | $(143,698) |
| Cash used in discontinued operating activities | $(498) | $(108,919) |
| Cash provided by continuing investing activities | $2,000 | $0 |
| Cash provided by continuing financing activities | $118,640 | $320,522 |
| Net increase in cash | $1,500 | $54,223 |
- Operating cash usage remained substantial despite lower expenses. Financing cash inflow primarily reflected related-party funding and forgiveness of $118,640 of related-party obligations, which was recorded as contributed capital.
- The company stated that its cash balance and revenues were insufficient and could not be projected to cover operating expenses for the following twelve months.
- Management planned to seek additional equity or debt financing, obtain loans from directors, improve profitability, and restructure operations. There is no assurance that funding will be available on acceptable terms.
Material changes versus the prior comparable period
- Net results improved by $414,472, from a $259,542 loss to $154,930 income, primarily because of the $200,528 spin-off gain and the prior-year discontinued-operation loss.
- Continuing operating expenses fell by $63,157, or 58%, while revenue remained zero.
- Continuing operating cash use improved by $24,558, but the company still generated no operating cash flow.
- Total liabilities declined from $458,590 to $11,824, largely because the spun-off subsidiary’s liabilities were removed and the former CEO obligation was converted into equity.
- Common shares issued and outstanding increased from 27,767,269 at July 31, 2016 to 30,320,460 at October 31, 2016.
- On January 4, 2017, after quarter-end, the company issued 19,532,820 shares in a private placement at $0.005 per share for gross proceeds of approximately $97,660.
Outlook, risks, contingencies, and unusual items
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no adjustments that might be required if the company cannot continue operations.
- The company has not generated significant revenue, has incurred losses since inception, and anticipates further losses while developing its business.
- No formal revenue, earnings, or operating guidance was provided.
- The spin-off and related $200,528 gain are unusual and non-recurring. The transaction involved a buyer owned by a former director, creating a related-party context that investors should review.
- The company reported no material pending or threatened legal proceedings and no material off-balance-sheet arrangements.
- Forward-looking statements are subject to risks described in the filing and in the company’s Form 10-K for the year ended July 31, 2016.
Important facts for investors to verify
- Verify the terms, accounting treatment, and related-party aspects of the Steampunk spin-off and the $200,528 gain.
- Verify the company’s ability to obtain additional financing and the effect of the January 2017 private placement on ownership dilution.
- Review the $11,824 due to related parties, its repayment terms, and any subsequent related-party funding.
- Confirm the company’s actual operating plan, since the filing reports zero revenue and continuing operating cash burn.
- Reconcile the filing’s MD&A cash-change table, which cites a $339 change in cash, with the financial statements showing cash increasing from $0 to $1,500.
- Assess the implications of the financial statements not having been reviewed by an independent public accountant.
