Tianci International, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended January 31, 2017; fiscal year-end is July 31. The financial statements are unaudited and prepared under U.S. GAAP. The company identified itself as a smaller reporting company and a shell company.
Business Context
In October 2016, the company agreed to spin off Steampunk Wizards Ltd., its wholly owned Malta subsidiary, to a former director-related buyer for $2,000. The transaction closed during the six months ended January 31, 2017, and Steampunk’s results were presented as discontinued operations. In November 2016, the company changed its name to Tianci International, Inc.
Financial Metrics
| Metric | Three Months Ended January 31, 2017 | Six Months Ended January 31, 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $57,783 | $102,883 |
| Loss from continuing operations | $(57,783) | $(102,883) |
| Discontinued operations | $0 | $200,030 gain |
| Net income (loss) | $(57,783) | $97,147 |
| Cash flow from continuing operations | Not separately provided for the quarter | $(171,423) |
At January 31, 2017, cash and cash equivalents were $19,321, total assets were $19,321, total liabilities were $17,324, and stockholders’ equity was $1,997. The company had accounts payable of $5,500 and amounts due to related parties of $11,824. No interest or income taxes were paid during the six-month period.
The accumulated deficit was $1,060,391. The filing does not report interest-bearing debt remaining at January 31, 2017, although the company had related-party obligations due on demand.
Material Changes Versus Prior Comparable Period
- Quarterly operating expenses declined 54% to $57,783 from $126,452, primarily because office and miscellaneous expenses and management fees decreased.
- Six-month operating expenses declined 56% to $102,883 from $234,709.
- Quarterly net loss improved to $(57,783) from $(270,513), while six-month net income was $97,147 versus a $(492,277) loss. The six-month improvement was primarily attributable to the $200,528 gain on the spin-off transaction and lower discontinued-operation losses.
- Cash used in continuing operating activities improved to $(171,423) from $(187,947), but remained substantial relative to the company’s cash balance.
- Total liabilities declined 96% from $458,590 at July 31, 2016, largely reflecting the spin-off and related-party debt changes. Working capital improved from a $426,981 deficiency to positive working capital of $1,997.
- The company issued 19,532,820 common shares in a private placement for approximately $70,104 in cash and $27,560 of subscriptions receivable. It also issued 2,553,191 shares to convert $120,000 of former CEO-related debt.
Liquidity, Outlook, Risks, and Unusual Items
Management stated that cash and anticipated revenues are insufficient to fund operating expenses for the next twelve months, raising substantial doubt about the company’s ability to continue as a going concern. Management plans to seek additional equity or debt financing, obtain loans from directors, improve profitability, and restructure operations; there is no assurance that financing will be available on acceptable terms.
The six-month net income was not indicative of operating profitability because it included the $200,528 gain from the discontinued-operation transaction. The company continued to generate no revenue and reported a loss from continuing operations.
The company disclosed no material off-balance-sheet arrangements and no material pending legal proceedings. RBSM LLP resigned as independent auditor on February 14, 2017, and KCCW Accountancy Corp. was approved as successor auditor effective March 2, 2017. Management reported no disagreements or reportable events related to the auditor change.
Investor Verification Points
- Verify the company’s ability to raise sufficient capital given $19,321 of cash, ongoing operating cash burn, no revenue, and the disclosed going-concern uncertainty.
- Separate recurring operating performance from the $200,528 nonrecurring gain on the spin-off.
- Review the terms, collectability, and potential dilution associated with the $27,560 stock subscription receivable and the January 2017 private placement.
- Confirm the implications of the 22.1 million common-share increase during the six months and the resulting 49,853,280 shares outstanding.
- Review the auditor resignation and successor appointment in subsequent SEC filings.
- Assess the company’s status as a shell company and the lack of disclosed operating revenue or established business operations.