Business Context and Reporting Period
This Form 8-K, dated March 1, 2023, reports a material definitive agreement and the completion of a reverse acquisition by Tianci International, Inc. ("Tianci"). On March 3, 2023, Tianci acquired RQS United Group Limited ("RQS United"), a Seychelles holding company that owns 90% of Roshing International Co., Ltd. ("Roshing"). Roshing, based in Hong Kong, operates in electronic device hardware component distribution, software development, and technical consulting. The transaction is accounted for as a reverse acquisition, meaning RQS United is the accounting acquirer, and Tianci is treated as the acquired entity for financial reporting purposes. Consequently, Tianci is no longer classified as a shell company.
Key Financial Metrics
The financial data presented below reflects the historical operations of RQS United/Roshing, which now constitute the ongoing operations of the combined entity.
| Metric | Year Ended July 31, 2022 | Three Months Ended Oct 31, 2022 |
|---|---|---|
| Revenue | $752,839 | $124,370 |
| Cost of Revenues | $478,521 | $108,555 |
| Gross Profit | $274,318 | $15,815 |
| Gross Margin | 36.4% | 12.7% |
| Net Income (Loss) | $160,166 | ($1,132) |
| Cash and Cash Equivalents | $21,237 (as of July 31, 2022) | $42,770 (as of Oct 31, 2022) |
| Working Capital | $103,320 (as of July 31, 2022) | $101,277 (as of Oct 31, 2022) |
| Accounts Receivable | $737,663 (as of July 31, 2022) | $849,412 (as of Oct 31, 2022) |
| Accounts Payable | $444,944 (as of July 31, 2022) | $543,145 (as of Oct 31, 2022) |
| Related Party Debt | $194,794 (as of July 31, 2022) | $280,262 (as of Oct 31, 2022) |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 1,855% year-over-year for the fiscal year ended July 31, 2022, driven by a significant expansion in hardware sales and the launch of international logistics software. For the three months ended October 31, 2022, revenue increased 1,315% compared to the same period in 2021.
- Profitability: The company transitioned from a net loss of $23,450 in FY2021 to a net income of $160,166 in FY2022. However, the three months ended October 31, 2022, resulted in a net loss of $1,132, primarily due to a decline in software service margins caused by increased outsourcing costs.
- Margin Volatility: While the FY2022 gross margin improved to 36.4%, the Q3 2022 gross margin dropped to 12.7%. This was attributed to a shift in revenue mix toward hardware (25.3% margin) and a negative margin (-34.1%) on software services due to third-party development costs.
- Liquidity Position: Cash on hand increased from $21,237 to $42,770 between July and October 2022. However, the company relies heavily on related party advances and long payment terms (6 months) with customers to manage cash flow.
Guidance, Outlook, and Risks
Outlook and Strategy: Management plans to expand into the glass distribution industry for real estate construction in Hong Kong, Singapore, and Australia in 2023. The company intends to pursue strategic acquisitions and investments in technologies where senior management has experience. Growth is dependent on retaining existing customers and expanding the customer base, as the company currently relies heavily on a small group of clients.
Capital Structure Changes:
- Tianci issued 1,500,000 shares and paid $350,000 cash to acquire RQS United.
- Tianci issued 700,000 shares to Roshing employees/affiliates as an inducement for continued service.
- Tianci completed a private placement of 1,253,333 shares at $0.30 per share, raising approximately $376,000.
- Post-transaction, there are 5,903,481 shares of common stock outstanding.
Risks and Contingencies:
- Customer Concentration: Five customers accounted for over 95% of revenue in FY2022. The loss of any major customer could materially harm the business.
- Liquidity and Related Party Dependence: The company owes significant amounts to related parties (primarily CEO Ying Deng) and relies on them for working capital advances and rent payments. Future financing may be required for the glass distribution expansion.
- Regulatory Risk: Operations are primarily in Hong Kong. The company faces risks related to PRC government oversight, potential changes in laws, and trade disputes between the U.S. and China.
- Insurance: The company does not maintain fire, theft, or product liability insurance, exposing it to significant economic risk from property loss or third-party claims.
- Stock Liquidity: The stock trades on the OTC Pink Market and is subject to "penny stock" rules, which may limit trading activity and liquidity for investors.
Investor Verification Checklist
- Customer Concentration: Verify the stability of the top five customers who generated 95% of FY2022 revenue and confirm the status of follow-on orders.
- Accounts Receivable Quality: Assess the collectability of $849,412 in accounts receivable (as of Oct 31, 2022), given the 6-month payment terms offered to customers.
- Related Party Transactions: Review the terms of the $280,262 owed to related parties and the sustainability of relying on shareholder advances for operations.
- Reverse Acquisition Accounting: Confirm that the financial statements reflect the historical operations of RQS United/Roshing and that no goodwill was recorded.
- Insurance Coverage: Determine if the lack of property and liability insurance poses an existential threat to the business.
- Capital for Expansion: Evaluate the company's ability to fund the planned entry into the glass distribution industry without further dilution or debt.