Business Context and Reporting Period
The provided filing is a Form 10-K for Steampunk Wizards, Inc. (formerly Freedom Petroleum, Inc.), not Tianci International, Inc. It covers the fiscal year ended July 31, 2015 and was filed November 12, 2015. The company is a Nevada smaller reporting company quoted on OTCQB under “SPWZ.”
During fiscal 2015, the company discontinued its oil and gas exploration plan, changed its name, completed a 1-for-2.5 reverse stock split, and pursued a reverse acquisition of Steampunk Wizards Ltd., a Malta-based mobile-games company. The acquisition closed August 21, 2015, after the fiscal year-end, so the historical financial statements primarily reflect the pre-acquisition public company.
Financial Results and Key Metrics
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Net loss | $1,019,346 | $355,436 |
| Loss from continuing operations | $90,429 | $0 |
| Loss from discontinued operations | $928,917 | $355,436 |
| Net loss per share | $0.05 | $0.02 |
| Cash flow used in operating activities | $225,734 | $151,854 |
| Cash flow used in investing activities | $226,029 | $0 |
| Cash flow from financing activities | $377,126 | $226,288 |
| Cash and cash equivalents | $1,471 | $76,108 |
| Total assets | $182,511 | $77,426 |
| Total liabilities | $100,005 | $60,574 |
| Stockholders’ equity | $82,506 | $16,852 |
| Accumulated deficit | $1,453,292 | $433,946 |
There were no operating revenues, and margin analysis is not meaningful. The company reported $90,429 of continuing-operation expenses, comprising general and administrative, related-party consulting, and professional fees. The discontinued oil and gas business generated a $928,917 loss, including $625,000 of stock-based compensation and a $61,299 write-down of oil and gas properties.
Liquidity was extremely limited at year-end. Cash declined by $74,637 during the year to $1,471. Current assets of $182,511 included approximately $181,040 of deposits, primarily an advance related to the Malta acquisition, rather than readily available cash. Current liabilities included $91,400 owed to director Anton Lin under an unsecured, non-interest-bearing arrangement with no specified repayment terms.
Material Changes Versus the Prior Comparable Period
- Net loss increased to $1.02 million from $355,436, primarily because of higher stock-based compensation and the write-down and other costs associated with discontinued oil and gas activities.
- Operating cash use increased to $225,734 from $151,854, while investing cash use increased to $226,029 because of the $164,730 acquisition deposit and the $61,299 oil and gas property write-off.
- Financing proceeds increased to $377,126 from $226,288, including $460,000 from common-stock issuances, partly offset by repayments to a related party.
- Cash fell substantially from $76,108 to $1,471 despite the financing activity.
- Total assets increased by $105,085, largely due to acquisition-related deposits. Total liabilities increased by $39,431, primarily from higher related-party debt.
- The company issued 809,926 shares for $610,000 of cash proceeds, issued 400,000 shares valued at $625,000 as compensation to Mr. Lin, and issued 4,812,209 shares as a deposit toward the Malta acquisition.
- The August 2015 share exchange transferred control to the former Malta Co. shareholders, who collectively owned approximately 55% of the post-exchange common stock. Malta Co. became the wholly owned subsidiary and accounting acquirer.
Guidance, Outlook, Risks, and Unusual Items
Management stated that the company had not generated operating revenue, did not have sufficient funds to operate for the next 12 months, and expected to require additional financing. Management planned to rely on director loans and private placements of common stock, but the director’s funding commitment was verbal, unenforceable, and could be withdrawn at any time.
The post-acquisition business develops mobile games, applications, and merchandise incorporating 3D-printable rewards. Bungee Mummy: Challenges launched in August 2015, and management planned to release Bungee Mummy: King’s Escape later in 2015, along with additional games and potential acquisitions. The filing does not provide formal revenue, bookings, profitability, or launch-date guidance.
- Going concern: The auditor identified substantial doubt regarding the company’s ability to continue as a going concern because of recurring losses, cash-flow deficiencies, and dependence on additional financing.
- Early-stage operating risk: Malta Co. began operations in 2014 and was described as pre-revenue, with limited operating history and no assurance that games would achieve commercial success.
- Monetization and competition: The free-to-play model depends on in-app purchases, advertising, and offers. Consumer preferences, competing games, launch delays, weak retention, and failure to monetize could materially impair results.
- Platform and technology risk: The business depends on Apple and Google distribution platforms, third-party payment systems, software engines, and compatibility across fragmented mobile devices.
- Capital and dilution risk: Additional equity or debt financing may be unavailable or unfavorable and could dilute existing holders.
- Internal controls: Management concluded that disclosure controls and internal control over financial reporting were not effective as of July 31, 2015 due to limited resources, inadequate segregation of duties, lack of a formal audit committee financial expert, and insufficient formal review procedures.
- Unusual transaction items: The filing includes a reverse acquisition, acquisition-related deposits, substantial stock-based compensation, a discontinued-business write-off, related-party loans, and a 10% royalty obligation associated with certain acquired game assets.
Most Important Facts to Verify
- Confirm the issuer identity: the supplied filing names Steampunk Wizards, Inc., whereas the request identifies Tianci International, Inc.
- Verify the August 21, 2015 Malta Co. closing and the resulting ownership, control, and accounting treatment as a reverse acquisition.
- Review post-year-end consolidated financial statements, since the July 31, 2015 historical statements do not reflect a full year of the gaming business.
- Assess available cash after the acquisition, outstanding related-party obligations, and the company’s ability to obtain financing.
- Evaluate whether Bungee Mummy and subsequent titles generated material revenue, bookings, user growth, retention, or advertising income after launch.
- Review the material weaknesses in internal controls and any remediation completed after July 31, 2015.
- Reconcile share counts, the reverse stock split, acquisition shares, post-exchange ownership, and subsequent equity issuances.
- Review the terms and enforceability of related-party funding, management compensation, acquired intellectual property, and the associated royalty obligation.