Tianci International, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended October 31, 2020, for the fiscal year ending July 31, 2021. The filing was signed December 9, 2020. The interim financial statements are unaudited and presented under U.S. GAAP.
Business Context
Tianci is a Nevada holding company and reports that it is a shell company with no meaningful assets or substantive operations. It has generated no operating revenue and is seeking to identify and potentially merge with or acquire an operating business. Management disclosed active discussions regarding a potential acquisition of an operating business affiliated with the executive officers, but provided no assurance that a transaction will be completed.
The company had 2,450,148 common shares outstanding as of October 31, 2020 and December 7, 2020. In August 2020, executives cancelled an aggregate of 2,301,570 shares, reducing shares outstanding from 4,751,718 at July 31, 2020.
Financial Metrics
| Metric | Three Months Ended October 31, 2020 | Three Months Ended October 31, 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $14,811 | $22,707 |
| Loss from operations | $14,811 | $22,707 |
| Net loss | $14,811 | $22,707 |
| Basic and diluted loss per share | $0.01 loss | $0.00 loss |
| Net cash used in operating activities | $11,088 | $12,668 |
| Net cash provided by financing activities | $11,088 | $12,668 |
The company reported no investing cash flows, no interest paid, and no income taxes paid. Cash remained $3,968 at October 31, 2020, unchanged from July 31, 2020. Prepaid expenses were $9,000, total assets were $12,968, and total liabilities were $278,505.
Amounts due to related parties were $270,023 at October 31, 2020, compared with $258,935 at July 31, 2020. These advances were made by a shareholder for working capital, are non-interest bearing, and are due on demand. Total shareholders’ deficit was $265,537, including an accumulated deficit of $1,393,088.
Material Changes Versus the Prior Comparable Period
- Revenue remained zero.
- Operating expenses and net loss declined by $7,896, or approximately 35%, primarily because of lower professional fees.
- Operating cash use declined by $1,580, while related-party financing declined by the same amount.
- Total assets decreased by $3,000, reflecting a decrease in prepaid expenses.
- Total liabilities increased by $11,811, principally due to higher amounts owed to related parties.
- The working capital deficit increased from $250,726 at July 31, 2020 to $265,537 at October 31, 2020.
- Common shares outstanding decreased by 2,301,570 shares due to cancellations by related parties and executive officers.
Outlook, Liquidity, Risks, and Unusual Items
Management stated that existing cash and revenue generation are insufficient to fund operating expenses for the next twelve months. The filing therefore identifies substantial doubt about the company’s ability to continue as a going concern. Management plans to seek additional working capital through director or related-party loans, equity or debt financing, improved profitability, and possible operating restructuring. There is no assurance that financing will be available on acceptable terms or at all.
The company’s principal risks include its lack of operations and revenue, limited cash resources, reliance on related-party funding, the potential inability to complete an acquisition, dilution from future equity financing, and the possibility that it may be unable to continue operations.
Management concluded that disclosure controls and procedures were not effective as of October 31, 2020. Reported material weaknesses included limited information-processing controls, inadequate segregation of duties, the absence of an audit committee financial expert, and insufficient formal procedures for reviewing significant accounting transactions. Management stated that no material changes to internal control over financial reporting occurred during the quarter.
No pending material legal proceedings, unregistered securities sales, defaults on senior securities, or material off-balance-sheet arrangements were reported. The company stated that there were no subsequent events requiring disclosure.
Investor Verification Items
- Verify the status, terms, and feasibility of the proposed acquisition discussions.
- Assess the company’s ability to obtain near-term financing and the terms of any future related-party, debt, or equity funding.
- Review the $270,023 related-party balance, including demand repayment provisions and the company’s ability to satisfy it.
- Evaluate the going-concern disclosure, $3,968 cash balance, and $265,537 working capital deficit.
- Confirm the share cancellations, current ownership structure, and potential dilution from future financings or transactions.
- Review remediation of the disclosed internal-control material weaknesses.