Tianci International, Inc. — Form 10-Q Summary
Business Context and Reporting Period
This third-quarter report covers the three and nine months ended April 30, 2021, for the fiscal year ending July 31, 2021. The company is a Nevada holding company and self-identified shell company with no substantive operations, meaningful assets, or operating revenue. It is seeking to identify and potentially acquire or merge with an operating business affiliated with its executive officers, but no transaction is assured.
The unaudited financial statements are prepared under U.S. GAAP and presented in U.S. dollars. The company had 2,450,148 common shares outstanding as of June 11, 2021.
Key Financial Metrics
| Metric | Three Months Ended Apr. 30, 2021 | Nine Months Ended Apr. 30, 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $14,455 | $41,574 |
| Loss from operations | $14,455 | $41,574 |
| Other expense | $0 | $11,381 |
| Net loss | $14,455 | $52,955 |
| Basic and diluted loss per share | $0.01 | $0.02 |
Because revenue was zero, gross and operating margins are not meaningful. Professional fees represented the majority of operating expenses. The nine-month other expense was identified by management as an income tax penalty.
| Balance Sheet Metric | Apr. 30, 2021 | July 31, 2020 |
|---|---|---|
| Cash | $3,951 | $3,968 |
| Total assets | $6,951 | $15,968 |
| Total liabilities | $310,632 | $266,694 |
| Working capital | $(303,681) | $(250,726) |
| Shareholders’ deficit | $(303,681) | $(250,726) |
| Due to related parties | $308,175 | $258,935 |
The related-party balance is a non-interest-bearing amount owed to a shareholder and is due on demand. The filing does not report conventional bank debt. The company had no investing cash flows and no cash paid for interest or income taxes.
Cash Flow and Liquidity
For the nine months ended April 30, 2021, operating activities used $49,257, compared with $46,769 in the prior-year period. Financing activities provided $49,240, consisting of advances from related parties, compared with $46,769 in the prior year. Net cash decreased by $17 to $3,951.
Management states that existing cash and revenues are insufficient and cannot be projected to cover operating expenses for the twelve months following the filing. The company relies on additional director or related-party loans and potential private placements or other equity and debt financing.
Material Changes Versus the Prior Comparable Period
- Quarterly operating expenses declined by $626, or approximately 4%, to $14,455, primarily because of lower professional fees.
- Nine-month operating expenses declined by $10,762, or approximately 21%, to $41,574.
- Nine-month net loss increased by $619 to $52,955 because the current period included an $11,381 income tax penalty.
- Total liabilities increased by $43,938, primarily reflecting increased amounts due to related parties.
- Cash remained essentially unchanged, declining by $17, while total assets decreased by $9,017.
- In August 2020, officers cancelled an aggregate of 2,301,570 common shares, reducing shares outstanding from 4,751,718 at July 31, 2020 to 2,450,148 at April 30, 2021.
Outlook, Risks, Contingencies, and Unusual Items
- The financial statements include a substantial doubt regarding the company’s ability to continue as a going concern. No financial statement adjustments were recorded for this uncertainty.
- Management plans to improve profitability, restructure operations, obtain financing, and pursue a potential acquisition or merger, but there is no assurance that these plans will succeed or that financing will be available on acceptable terms.
- The company has no operating revenue, limited operating history, minimal cash, an accumulated deficit of $1,431,232, and a working capital deficit of $303,681.
- Equity financing could dilute existing shareholders; failure to obtain financing could force the company to curtail or cease operations.
- Management reported that disclosure controls and procedures were not effective as of April 30, 2021 because of limited information-processing controls, inadequate segregation of duties, lack of an audit committee financial expert, and insufficient formal review procedures for significant accounting transactions.
- The company reported no pending material litigation, no material off-balance-sheet arrangements, and no subsequent events requiring disclosure.
Investor Verification Items
- Verify whether the proposed acquisition or merger with an affiliated operating business has progressed, and review the terms, related-party implications, and financing structure of any transaction.
- Confirm the source, terms, repayment expectations, and demand status of the $308,175 related-party balance.
- Assess the company’s ability to obtain sufficient funding given $3,951 of cash, no revenue, and substantial going-concern uncertainty.
- Review the $11,381 income tax penalty and determine whether additional tax liabilities or penalties may arise.
- Evaluate the impact of the 2,301,570-share cancellation and any future equity financing on ownership dilution and control.
- Review remediation of the disclosed material weaknesses in disclosure controls and internal control over financial reporting.