TIAN RUIXIANG(TIRX) - 2024 Q4 - Annual Report

PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS This section is not applicable as stated in the report - The report states that this item is not applicable[22] ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE This section is not applicable as stated in the report - The report states that this item is not applicable[23] ITEM 3. KEY INFORMATION This section introduces the company's Cayman Islands holding structure, its operations via a Variable Interest Entity (VIE) in China, and key risks including PRC regulations and HFCAA, alongside selected condensed consolidating financial data for fiscal years 2022-2024 - The company is a Cayman Islands holding company, not a Chinese operating company, conducting all operations in China through a VIE, Zhejiang Tianruixiang Insurance Broker Co. LTD. (TRX ZJ), controlled via contractual agreements[10][24][25] - The VIE structure poses unique risks, as the contractual agreements have not been tested in a Chinese court, and the PRC government could disallow this structure, materially harming the company's operations and share value[25] - The company is subject to risks from PRC regulatory actions, including those related to cybersecurity and overseas listings, which as of the report date have not materially impacted the business, but future interpretations remain uncertain[26][30] - The company's auditor, RBSM LLP, is a U.S.-based firm regularly inspected by the PCAOB, making it currently compliant with the Holding Foreign Companies Accountable Act (HFCAA), though future inability to inspect the auditor could lead to delisting[27] Selected Condensed Consolidating Balance Sheet as of October 31, 2024 (in USD) | Account | TRX (Cayman Islands) | Subsidiary (Hong Kong) | WFOE (PRC) | VIE and its Subsidiaries (PRC) | Consolidated Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | $36,585,985 | $16,202,577 | $875,274 | $31,895,377 | $39,979,194 | | Total Liabilities | $2,695,855 | $9,385,097 | $524,893 | $4,221,235 | $6,089,064 | | Total Equity | $33,890,130 | $6,817,480 | $350,381 | $27,674,142 | $33,890,130 | Selected Condensed Consolidating Statement of Operations for the Year Ended October 31, 2024 (in USD) | Account | TRX (Cayman Islands) | Subsidiary (Hong Kong) | WFOE (PRC) | VIE and its Subsidiaries (PRC) | Consolidated Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $0 | $0 | $0 | $3,219,336 | $3,219,336 | | Net (Loss) Income | $(3,986,928) | $49,841 | $1,698,626 | $0 | $(3,986,928) | | Comprehensive (Loss) Income | $(3,986,928) | $50,366 | $1,685,144 | $2,495,068 | $(3,220,343) | Risk Factors This subsection details significant business, corporate structure, China-specific, and share-related risks, including intense competition, regulatory changes, VIE instability, and the dilutive dual-class share structure - Business & Industry Risks: The company faces risks from its limited operating history, intense competition, reliance on commission rates set by insurance companies, and a highly regulated environment in China, with the failure of its online platform, Needbao, also posing a risk to future growth[47][57][62] - Corporate Structure Risks: The VIE agreements that provide control over PRC operations have not been tested in court and may be unenforceable, with a critical risk being the judicial freezing of the VIE (TRX ZJ) equity shares due to debts of its sole shareholder, potentially leading to a loss of control and rendering the company's securities worthless[48][77][87] - Risks of Doing Business in China: The company is subject to substantial PRC government influence, potential regulatory crackdowns on overseas-listed companies, currency conversion controls, and uncertainties regarding the application of PRC laws, where the legal system's opaqueness could impede the enforcement of its rights[50][117][128] - Share & Market Risks: The dual-class share structure gives Mufang Gao, through Unitrust Holdings Limited, control of 98.66% of the voting power, significantly limiting the influence of Class A shareholders, with other risks including market volatility, the lack of a dividend policy, and potential delisting under the HFCAA if the auditor becomes un-inspectable[52][97][174] ITEM 4. INFORMATION ON THE COMPANY This section provides a comprehensive overview of the company's history, insurance brokerage business model in China via its VIE, organizational structure, and property, detailing the contractual VIE agreements History and Development of the Company This subsection outlines the company's corporate history, from the VIE's formation in 2010 and its acquisition, to the establishment of the current holding structure and its Nasdaq IPO in January 2021 - The VIE entity, TRX ZJ, was formed in 2010, and the current holding company, TIAN RUIXIANG Holdings Ltd (TRX), was established in the Cayman Islands in 2019[198][201] - The company's Class A Ordinary Shares began trading on the Nasdaq Capital Market under the symbol "TIRX" on January 27, 2021[201] Business Overview The company operates as an insurance broker in China via its VIE, earning commissions from property & casualty and other insurance products, with high revenue concentration from top partners and the discontinuation of its Needbao platform - The company distributes property and casualty insurance (commercial property, liability, accidental, auto) and other insurance (health, life), does not assume underwriting risks, and earns revenue from commissions[208][209] Revenue Trend (in USD) | Fiscal Year Ended | Revenue | YoY Change | | :--- | :--- | :--- | | Oct 31, 2024 | $3,219,336 | +158.7% | | Oct 31, 2023 | $1,244,247 | -8.0% | | Oct 31, 2022 | $1,351,909 | -51.6% | Commission Revenue Breakdown by Product (FY 2024) | Insurance Product | Commissions (USD) | % of Total | | :--- | :--- | :--- | | Liability Insurance | $2,197,113 | 68.2% | | Commercial Property Insurance | $536,071 | 16.6% | | Accidental Insurance | $437,308 | 13.6% | | Automobile Insurance | $42,788 | 1.4% | | Other Insurance | $6,056 | 0.2% | | Total | $3,219,336 | 100.0% | - The company has a high concentration of revenue from its top insurance partners, with the top five partners accounting for 90.7% of total revenues in fiscal year 2024, and China Pacific Property Insurance Co., Ltd. alone contributing 51.9%[210][236] - The company's online insurance platform, Needbao, was discontinued due to the negative impact of the COVID-19 pandemic, resulting in an impairment loss of $0.12 million in fiscal year 2022[62][228] Organizational Structure This subsection details the company's corporate structure, comprising its Cayman holding company, Hong Kong subsidiary, PRC WFOE, and VIE, explaining the four key contractual arrangements that enable WFOE control and financial consolidation - The company controls its PRC operating entity, TRX ZJ, through a series of VIE agreements between its WFOE and TRX ZJ's sole shareholder, WDZG Consulting[304][305] - The VIE Agreements consist of four key contracts designed to provide effective control and transfer economic benefits: - Exclusive Business Cooperation and Service Agreement: WFOE provides exclusive services to TRX ZJ in exchange for service fees equal to TRX ZJ's net income - Equity Interest Pledge Agreement: TRX ZJ's shareholder pledges all its equity to WFOE to guarantee performance - Share Disposal and Exclusive Option to Purchase Agreement: WFOE has the exclusive right to purchase all equity in TRX ZJ - Proxy Agreement: TRX ZJ's shareholder grants WFOE its voting rights[307][310][313][316] Property, Plants and Equipment The company operates from leased office spaces, reporting total rental expenses of approximately $0.04 million, $0.08 million, and $0.32 million for fiscal years 2024, 2023, and 2022 respectively - The company leases all its office spaces, with total rental expenses amounting to approximately $0.04 million in fiscal year 2024, a significant decrease from $0.32 million in fiscal year 2022[318] ITEM 4A. UNRESOLVED STAFF COMMENTS The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[319] ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section analyzes the company's financial condition and operations for fiscal years 2022-2024, noting FY2024 revenue growth to $3.22 million, a widened net loss of $3.99 million due to increased expenses and impairment, and liquidity supported by cash and investments despite currency risks Consolidated Results of Operations (FY2024 vs. FY2023) | Account | FY 2024 (USD) | FY 2023 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $3,219,336 | $1,244,247 | 158.7% | | Loss from Operations | $(4,645,247) | $(3,016,326) | 54.0% | | Net Loss | $(3,986,928) | $(2,453,982) | 62.5% | - The 158.7% revenue increase in FY2024 was driven by significant growth in commissions from liability insurance (approx. +$1.22 million), accidental insurance (approx. +$0.42 million), and commercial property insurance (approx. +$0.39 million)[362] - General and administrative expenses increased by 146.5% in FY2024, primarily due to a $1.68 million impairment loss on intangible assets related to the Peak acquisition and a $1.24 million increase in compensation and benefits, largely from stock-based compensation[368][369][370] Summary of Cash Flows (FY2024 vs. FY2023) | Cash Flow Activity | FY 2024 (USD) | FY 2023 (USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $897,894 | $994,304 | | Net cash used in investing activities | $(1,821,085) | $(992,717) | | Net cash provided by (used in) financing activities | $1,188,823 | $(283) | - The company acquired Peak Consulting Services Limited in February 2024, treating the acquisition as an asset purchase, with the $1.8 million excess purchase price allocated to intangible assets (regulatory licenses) which were subsequently fully impaired in October 2024[429][430][720] ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section provides information on the company's directors, executive officers, and employees, including compensation, share incentive plans, board structure, and a significant decrease in employee count to 8 as of October 31, 2024 - As of the report date, the board consists of five directors: Sheng Xu (Chairman & CEO), Qin'er Zhou, Ning Xue (Independent), Yu He (Independent), and Jingyu Li (Independent)[438][470] Executive Compensation Summary (FY 2024) | Name and Principal Position | Salary (USD) | Total (USD) | | :--- | :--- | :--- | | Sheng Xu (CEO, Chairman) | $87,050 | $87,050 | | Yue Wang (CFO) | $20,071 | $20,988 | | Zhe Wang (former CEO) | $64,799 | $64,799 | | Mingxiu Luan (former CFO) | $69,167 | $69,167 | - The company has two active share incentive plans: the 2021 Plan (0.20 million Class A shares authorized) and the 2023 Plan (1.00 million Class A shares authorized), with nearly all authorized shares under both plans granted as of the report date[452][461][453][462] - Employee count has decreased significantly, from 22 as of October 31, 2022, to 8 as of October 31, 2024, attributed to the negative impact of the COVID-19 pandemic[483] - Unitrust Holdings Limited, controlled by Mufang Gao, holds 100% of Class B Ordinary Shares and 6.25% of Class A Ordinary Shares, giving it 98.66% of the total voting power[487] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section details major shareholders and related party transactions, primarily the VIE contractual arrangements, alongside borrowings, a significant note receivable, and amounts due to/from executive team family members - The contractual VIE arrangements with TRX ZJ and its shareholder, WDZG Consulting, constitute the most significant related party transactions[490] - On September 19, 2024, the company entered into a promissory note receivable with Xian Xu, TRX ZJ's manager, with an outstanding balance of $1.37 million as of October 31, 2024[494][793] Due to Related Parties (as of Oct 31, 2024) | Name of Related Party | Amount (USD) | | :--- | :--- | | Mufang Gao (Mother of former CEO) | $768,506 | | Baohai Xu (Manager) | $503,713 | | Feng'e Feng (Mother of CEO) | $186,571 | | Mingxiu Luan (Former CFO) | $123,436 | | Zhe Wang (Former CEO) | $121,195 | | Total | $1,703,421 | ITEM 8. FINANCIAL INFORMATION This section confirms the appended consolidated financial statements, states no material legal proceedings, and outlines the company's policy of retaining earnings for expansion, with future dividends dependent on PRC subsidiary distributions and regulations - The company has no present plan to pay any cash dividends and intends to retain future earnings for business operations and expansion[504] - As a holding company, its ability to pay dividends relies on distributions from its PRC subsidiary, which are subject to PRC regulations and profit availability[505] - The company is not currently involved in any material legal or administrative proceedings[503] ITEM 9. THE OFFER AND LISTING This section details the trading market for the company's Class A Ordinary Shares, which have been listed on the Nasdaq Capital Market under the symbol "TIRX" since January 27, 2021 - The company's Class A Ordinary Shares are listed on the Nasdaq Capital Market under the symbol "TIRX"[508][509] ITEM 10. ADDITIONAL INFORMATION This section provides additional information on corporate governance, including the dual-class share structure, recent material contracts like the Peak Consulting acquisition and financing agreements, and tax implications in the Cayman Islands, PRC, and U.S - The company has a dual-class share structure, where each Class A Ordinary Share has one vote, while each Class B Ordinary Share has 600 votes[520] - Class B Ordinary Shares are convertible into Class A Ordinary Shares on a one-to-one basis at the holder's option, while Class A shares are not convertible[522] - Material contracts include the February 2024 acquisition of Peak Consulting, November 2024 subscription agreements for a $10 million private placement, and January 2025 debt conversion agreements to settle $2.2 million in debt[552][554][556] - The company is an exempted company in the Cayman Islands and is not subject to income, gains, or withholding taxes there, but in the PRC, its entities are subject to a 25% Enterprise Income Tax, with a risk that the holding company could be classified as a PRC "resident enterprise," leading to unfavorable tax consequences for non-PRC shareholders[567][569][570] ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses the company's exposure to market risks, including credit risk from receivables, liquidity risk, and foreign exchange risk due to RMB operations reported in USD, noting no hedging activities are currently employed - The company is exposed to foreign exchange risk as its revenues and expenses are denominated in RMB, while its reporting currency is the U.S. dollar, meaning RMB depreciation against the USD would negatively impact reported financial results[600] - Credit risk is managed through credit approvals and monitoring of customers, with concentration risk in trade accounts receivable being limited due to short-term payment terms[598][420] - The company faces liquidity risk, which it manages through financial position analysis and may seek short-term funding from financial institutions or related parties if necessary[599] ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES This section is not applicable as the company has not issued securities other than equity securities - The report states that this item is not applicable[601] PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES The company reports no defaults, dividend arrearages, or delinquencies - The company has no defaults, dividend arrearages, or delinquencies to report[606] ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS This section confirms no material modifications to security holder rights and details the use of proceeds from the January 2021 IPO and unspent proceeds from the June 2021 follow-on offerings - There have been no material modifications to the rights of security holders[607] - From its January 2021 IPO, the company received net proceeds of approximately $10.01 million and has used $2.33 million for general operating purposes as of the report date[608] - From its June 2021 follow-on offerings, the company received net proceeds of approximately $22.2 million, which have not yet been spent as of the report date[609] ITEM 15. CONTROLS AND PROCEDURES Management concluded that disclosure controls were effective as of October 31, 2024, but internal control over financial reporting was not effective due to material weaknesses, including a lack of U.S. GAAP expertise and inadequate accounting manual, with remedial measures outlined - Management concluded that disclosure controls and procedures were effective as of October 31, 2024[611] - Management concluded that internal control over financial reporting was not effective as of October 31, 2024[617] - Identified material weaknesses include: - Lack of qualified accounting personnel with U.S. GAAP and SEC reporting expertise - Absence of a comprehensive accounting policies and procedures manual - Deficiencies in formal disclosure controls and procedures[615] - The company has taken several remedial measures, including developing an accounting manual, implementing formal controls, establishing a risk assessment process, and enhancing its governance framework[616] ITEM 16. CORPORATE GOVERNANCE AND OTHER ITEMS This section covers corporate governance, identifying the audit committee financial expert, detailing principal accountant fees, explaining differences in governance practices as a foreign private issuer, and outlining cybersecurity risk management processes - The board has determined that Jingyu Li, chairman of the audit committee, is an audit committee financial expert[621] Principal Accountant Fees (RBSM LLP) | Service | FY 2024 (USD) | FY 2023 (USD) | | :--- | :--- | :--- | | Audit Fees | $365,000 | $365,000 | | Other Fees | $10,000 | $10,000 | | Total | $375,000 | $375,000 | - As a foreign private issuer, the company follows Cayman Islands corporate governance practices, which do not require shareholder approval for certain security issuances that would typically require it under Nasdaq rules for U.S. domestic companies[630] - The company has established a cybersecurity risk management process and reports that no incidents have materially affected its business, operations, or financial condition to date[635] PART III ITEM 17. FINANCIAL STATEMENTS The company has elected to provide financial statements pursuant to Item 18 - The company has elected to provide financial statements as required under Item 18[637] ITEM 18. FINANCIAL STATEMENTS This section presents the company's audited consolidated financial statements for fiscal years ended October 31, 2024, 2023, and 2022, prepared in accordance with U.S. GAAP, including balance sheets, statements of operations, equity changes, and cash flows Consolidated Balance Sheet Highlights (as of Oct 31) | Account (USD) | 2024 | 2023 | | :--- | :--- | :--- | | Total Assets | $39,979,194 | $35,479,774 | | Cash & Restricted Cash | $996,237 | $695,075 | | Short-term Investments | $28,090,382 | $26,797,081 | | Total Liabilities | $6,089,064 | $3,062,868 | | Total Equity | $33,890,130 | $32,416,906 | Consolidated Statement of Operations Highlights (Year Ended Oct 31) | Account (USD) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Total Revenues | $3,219,336 | $1,244,247 | $1,351,909 | | Total Operating Expenses | $7,864,583 | $4,260,573 | $6,420,823 | | Net Loss | $(3,986,928) | $(2,453,982) | $(4,684,189) | | Net Loss Per Share (Basic & Diluted) | $(2.42) | $(3.87) | $(9.03) | - Subsequent to the fiscal year-end, the company raised $10 million in cash through a private placement in November 2024, issued shares to settle $2.2 million in debt in January 2025, and sold 1.00 million Class B shares to a related party for $2.31 million in January 2025[850][853][854] ITEM 19. EXHIBITS This section lists all exhibits filed with the annual report, including articles of association, securities descriptions, material contracts like VIE and financing agreements, and CEO/CFO certifications - Key exhibits filed include the Amended and Restated Memorandum and Articles of Association, the VIE Agreements (Exclusive Service, Equity Pledge, Option to Purchase, Proxy), and recent material contracts like the Peak acquisition SPA and various subscription and debt conversion agreements[640][641]