TIAN RUIXIANG(TIRX) - 2024 Q2 - Quarterly Report

Condensed Consolidated Financial Statements This section presents the company's financial position, operational performance, equity changes, and cash flows for the period ended April 30, 2024 Condensed Consolidated Balance Sheets As of April 30, 2024, total assets increased to $38.0 million from $35.5 million at October 31, 2023, primarily driven by a significant rise in cash to $27.5 million and the addition of $1.8 million in intangible assets from an acquisition; total liabilities grew to $5.6 million from $3.1 million, mainly due to a new $1.9 million acquisition payable, while total equity remained relatively stable at $32.3 million Condensed Consolidated Balance Sheet Highlights (in U.S. Dollars) | Account | April 30, 2024 (Unaudited) | October 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $28,255,209 | $27,618,624 | | Cash | $27,456,502 | $2,383 | | Short-term investments | $0 | $26,797,081 | | Total Non-current Assets | $9,712,084 | $7,861,150 | | Intangible assets, net | $1,766,961 | $0 | | Total Assets | $37,967,293 | $35,479,774 | | Total Current Liabilities | $5,584,333 | $3,062,868 | | Acquisition payable | $1,875,002 | $0 | | Total Liabilities | $5,624,205 | $3,062,868 | | Total Equity | $32,343,088 | $32,416,906 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss For the six months ended April 30, 2024, the company reported a significant revenue decline to $178,345 from $724,859 in the prior-year period, with operating expenses increasing to $3.1 million due to higher compensation costs, resulting in a wider loss from operations of $3.0 million and a net loss attributable to shareholders of $2.6 million, or ($2.68) per share, compared to a net loss of $1.5 million, or ($2.50) per share, in the same period last year Statement of Operations Summary (For the Six Months Ended April 30) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Revenues | $178,345 | $724,859 | | Total Operating Expenses | $3,141,175 | $2,652,845 | | Loss from Operations | ($2,962,830) | ($1,927,986) | | Net Loss | ($2,605,349) | ($1,486,253) | | Net Loss Per Share (Basic and Diluted) | ($2.68) | ($2.50) | | Weighted Average Shares Outstanding | 970,721 | 594,901 | Unaudited Condensed Consolidated Statements of Changes in Equity For the six months ended April 30, 2024, total equity decreased slightly from $32.42 million to $32.34 million, primarily due to a net loss of $2.61 million, partially offset by the issuance of ordinary shares for services valued at $2.27 million and a positive foreign currency translation adjustment of $0.26 million - Equity was impacted by the issuance of 698,000 ordinary shares for services, valued at $2,270,015[7] - The net loss for the six-month period reduced equity by $2,605,348[7] - A foreign currency translation adjustment added $261,512 to equity[7] Unaudited Condensed Consolidated Statements of Cash Flows For the six months ended April 30, 2024, the company generated $0.26 million in cash from operating activities, a decrease from $0.76 million in the prior-year period, with a significant cash inflow of $27.4 million from investing activities driven by the sale of short-term investments, while financing activities provided $58 thousand, leading to an overall increase in cash and restricted cash of $27.5 million, ending the period at $28.2 million Cash Flow Summary (For the Six Months Ended April 30) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $258,210 | $761,583 | | Net Cash Provided by Investing Activities | $27,414,831 | $35,115,075 | | Net Cash Provided by Financing Activities | $57,987 | $0 | | Net Increase in Cash and Restricted Cash | $27,461,957 | $35,960,965 | | Cash and Restricted Cash - End of Period | $28,157,032 | $36,656,207 | - The primary source of cash from investing activities was $27.3 million in proceeds from the sale of short-term investments[11] - A significant non-cash adjustment to reconcile net loss was $2.27 million in stock-based compensation[11] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, significant transactions, and financial statement line items Note 1 – Organization and Nature of Operations TIAN RUIXIANG Holdings Ltd is a Cayman Islands holding company that operates as an insurance broker in the PRC through a Variable Interest Entity (VIE), Zhejiang Tianruixiang Insurance Broker Co., Ltd. (TRX ZJ), with a structure including a Hong Kong subsidiary (TRX HK) and a Wholly Foreign-Owned Enterprise (WFOE) in China, and expanded its operations on February 29, 2024, by acquiring Peak Consulting Services Limited, a licensed insurance brokerage in Hong Kong - The company operates in the PRC insurance brokerage market through a VIE structure with TRX ZJ[13][14] - On February 29, 2024, the company acquired 100% of Peak Consulting Services Limited, a Hong Kong-based insurance brokerage, in exchange for 694,445 shares of the company's ordinary stock[14] Note 3 – Summary of Significant Accounting Policies The financial statements are prepared under U.S. GAAP, requiring management estimates for asset valuations and impairments, with revenue from insurance brokerage recognized when a policy becomes effective and the premium is collected, and the company uses a dual-class share structure and accounts for stock-based compensation at fair value, with a one-for-five reverse stock split effected on May 14, 2024, and all share and per-share data retroactively adjusted - Revenue is recognized when an insurance policy is effective and the premium is collected, as collectability is not ensured until receipt of premium[43] - The company effected a one-for-five reverse stock split on May 14, 2024, and all share and per-share data has been retroactively adjusted[55] - The company's functional currencies are the USD (for parent and TRX HK), HKD (for Peak), and RMB (for PRC entities); assets and liabilities are translated at the period-end exchange rate[47] Note 4 – Acquisition On February 29, 2024, the company acquired 100% of Peak Consulting Services Limited for consideration of 694,445 Class A ordinary shares, valued at $2.70 per share for a total purchase price of $1,875,002, with the transaction treated as an asset acquisition as substantially all of the fair value was concentrated in regulatory licenses, and the cost was allocated primarily to $1.8 million in intangible assets (regulatory licenses) and $77,893 in cash - The acquisition of Peak Consulting Services Limited was completed on February 29, 2024, to expand business into Hong Kong[59] Acquisition of Peak Consulting Services Limited (February 29, 2024) | Item | Value | | :--- | :--- | | Consideration (694,445 shares @ $2.70) | $1,875,002 | | Assets Acquired: | | | Cash | $77,893 | | Intangible assets (Regulatory licenses) | $1,797,109 | | Total Assets Acquired | $1,875,002 | - The acquisition was accounted for as an asset acquisition because the fair value was concentrated in a single identifiable asset (regulatory licenses)[60] Note 5 – Intangible Assets As of April 30, 2024, the company's intangible assets consist solely of regulatory licenses valued at $1.8 million, acquired through the Peak acquisition, which are being amortized on a straight-line basis over an estimated useful life of 10 years, with amortization expense for the period from February 29 to April 30, 2024, totaling $30,148 Intangible Assets as of April 30, 2024 | Item | Useful Life | Amount | | :--- | :--- | :--- | | Regulatory licenses | 10 Years | $1,797,109 | | Less: accumulated amortization | | ($30,148) | | Net Intangible Assets | | $1,766,961 | - Future annual amortization expense is projected to be $179,711 for each of the next four fiscal years[63] Note 7 – Note Receivable The company holds a note receivable with a principal amount of $7.8 million, originated on October 31, 2023, with a maturity date of October 31, 2025, and bearing a fixed interest rate of 2.0% per annum, resulting in an outstanding principal of $7.8 million and accrued interest receivable of $78,000 as of April 30, 2024 - A note receivable of $7.8 million was originated on October 31, 2023, with a 2-year term and a 2.0% annual interest rate[65] - Interest income from the note for the six months ended April 30, 2024, was $78,000[65] Note 10 – Related Party Transactions As of April 30, 2024, the company had $1.31 million due to related parties, an increase from $1.17 million at October 31, 2023, representing expenses paid on behalf of the company by its managers, CEO, former CEO, and their relatives, with these amounts being non-interest bearing, unsecured, and repayable on demand, and during the period, the company also borrowed $93,794 from and repaid $35,807 to related parties Due to Related Parties (in U.S. Dollars) | Related Party | April 30, 2024 | October 31, 2023 | | :--- | :--- | :--- | | Baohai Xu (Manager) | $398,213 | $321,385 | | Zhe Wang (Former CEO) | $124,584 | $120,985 | | Sheng Xu (CEO) | $100,443 | $110,362 | | Mufang Gao (Zhe Wang's mother) | $377,298 | $310,771 | | Others | $433,443 | $433,443 | | Total | $1,310,545 | $1,173,510 | - The amounts due to related parties are for expenses they paid on the company's behalf and are short-term, non-interest bearing, and repayable on demand[70] Note 11 – Equity The company has a dual-class share structure where Class B shares have 18 votes each versus one vote for Class A shares, and during the six months ended April 30, 2024, the company issued 698,000 Class A shares for services, recognizing $2.27 million in stock-based compensation, with 131,000 warrants outstanding at an exercise price of $200.00, and PRC regulations restricting the transfer of net assets from the company's PRC entities, totaling $7.8 million - The company has Class A (1 vote/share) and Class B (18 votes/share) ordinary shares; Class B shares are convertible to Class A[71] - Issued 698,000 Class A shares for services, resulting in a share-based compensation expense of $2,270,015 for the six months ended April 30, 2024[72] - As of April 30, 2024, restricted net assets of PRC subsidiaries totaled $7,809,598, limiting their ability to transfer funds to the parent company[79] Note 12 – Commitments and Contingencies The company has operating lease commitments for office space expiring through January 2027, with total future lease payments of $68,866, and while management believes its VIE structure complies with PRC laws, it acknowledges substantial uncertainties regarding the interpretation of these regulations, considering the likelihood of loss related to the VIE structure remote Operating Lease Liabilities as of April 30, 2024 | Description | Amount | | :--- | :--- | | Total lease payments | $68,866 | | Less: Imputed interest | ($4,102) | | Total present value of lease liabilities | $64,764 | | Current portion | $24,892 | | Long-term portion | $39,872 | - Management asserts that the company's VIE structure is compliant with current PRC laws, but notes that there are substantial uncertainties in the interpretation and application of these laws[83][84] Note 13 – Concentrations The company faces significant concentration risks, with a substantial portion of its cash ($27.9 million out of $28.1 million) held in PRC and Hong Kong banks being uninsured, and revenue highly concentrated, with three insurance carriers (A, B, and C) accounting for 49%, 15%, and 15% of total revenue, respectively, for the six months ended April 30, 2024, and one insurance carrier accounting for 85.9% of total accounts receivable as of the same date - As of April 30, 2024, approximately $27.9 million of the company's cash held in PRC banks was not covered by deposit insurance[85] Revenue Concentration by Insurance Carrier (Six Months Ended April 30) | Carrier | 2024 | 2023 | | :--- | :--- | :--- | | Carrier A | 49% | <10% | | Carrier B | 15% | <10% | | Carrier C | 15% | <10% | | Carrier D | <10% | 36% | | Carrier E | <10% | 24% | | Carrier F | <10% | 12% | - One insurance carrier represented 85.9% of total accounts receivable at April 30, 2024[89] Note 14 – Subsequent Events After the balance sheet date, the company executed several key transactions, including a one-for-five reverse stock split on May 14, 2024, the issuance of 694,445 Class A shares on May 7, 2024, to complete the Peak Consulting acquisition, and the issuance of an additional 200,000 Class A shares for services in May and June 2024, valued at $548,550 - A one-for-five reverse stock split of outstanding ordinary shares was effected on May 14, 2024[92] - On May 7, 2024, 694,445 Class A ordinary shares were issued to the former shareholder of Peak Consulting Services Limited as part of the acquisition agreement[94] - In May and June 2024, an additional 200,000 Class A shares were issued for services, valued at $548,550[93]