TIAN RUIXIANG(TIRX) - 2023 Q2 - Quarterly Report

Condensed Consolidated Financial Statements This section presents the company's financial position, operating results, equity changes, and cash flows for the interim periods, providing a comprehensive overview of its financial performance Condensed Consolidated Balance Sheets As of April 30, 2023, the company's total assets increased to $37,002,816 from $35,030,828 on October 31, 2022, driven by cash and restricted cash, while short-term investments were liquidated Condensed Consolidated Balance Sheets (USD) | Indicator | April 30, 2023 (USD) | October 31, 2022 (USD) | | :------------------------- | :------------------- | :--------------------- | | Assets | | | | Cash | 35,923,605 | 2,508 | | Restricted Cash | 732,602 | 692,734 | | Short-term Investments | — | 26,179,662 | | Accounts Receivable, Net | 114,489 | 51,202 | | Total Current Assets | 36,892,085 | 34,858,624 | | Total Non-current Assets | 110,731 | 172,204 | | Total Assets | 37,002,816 | 35,030,828 | | Liabilities | | | | Taxes Payable | 517,035 | 466,878 | | Payroll Payable | 643,043 | 424,987 | | Amounts Due to Related Parties | 810,725 | 126,530 | | Total Current Liabilities | 2,436,529 | 1,494,088 | | Total Non-current Liabilities | 16,540 | 54,718 | | Total Liabilities | 2,453,069 | 1,548,806 | | Equity | | | | Share Capital | 16,374 | 13,886 | | Additional Paid-in Capital | 43,728,524 | 42,663,012 | | Accumulated Deficit | (7,287,070) | (5,800,817) | | Accumulated Other Comprehensive Loss | (2,134,757) | (3,620,712) | | Total Equity | 34,549,747 | 33,482,022 | | Total Liabilities and Equity | 37,002,816 | 35,030,828 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss For the six months ended April 30, 2023, revenue decreased to $724,859, while operating and net losses narrowed, and comprehensive loss significantly reduced due to foreign currency translation gains Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss (USD) | Indicator | Six Months Ended April 30, 2023 (USD) | Six Months Ended April 30, 2022 (USD) | | :--------------------------------------------- | :------------------------------------ | :------------------------------------ | | Revenue | 724,859 | 945,645 | | Selling and Marketing Expenses | 1,564,353 | 1,113,896 | | General and Administrative Expenses - Professional Services | 735,314 | 930,873 | | General and Administrative Expenses - Compensation and Related Benefits | 290,810 | 2,346,067 | | Total Operating Expenses | 2,652,845 | 4,826,069 | | Operating Loss | (1,927,986) | (3,880,424) | | Interest Income | 468,200 | 368,498 | | Net Loss | (1,486,253) | (3,503,727) | | Net Loss Attributable to TIAN RUIXIANG HOLDINGS LTD Common Stockholders | (1,486,253) | (3,503,707) | | Unrealized Foreign Currency Translation Gain (Loss) | 1,485,978 | (947,912) | | Comprehensive Loss | (275) | (4,451,639) | | Comprehensive Loss Attributable to TIAN RUIXIANG HOLDINGS LTD Common Stockholders | (298) | (4,451,605) | | Net Loss Per Share (Basic and Diluted) | (0.50) | (1.42) | | Weighted Average Common Shares Outstanding (Basic and Diluted) | 2,974,507 | 2,459,786 | Unaudited Condensed Consolidated Statements of Changes in Equity For the six months ended April 30, 2023, total equity increased to $34,549,747, driven by common stock issuance for services and foreign currency translation adjustments Equity Changes for the Six Months Ended April 30, 2023 (USD) | Indicator | October 31, 2022 Balance (USD) | April 30, 2023 Balance (USD) | | :-------------------------------------- | :----------------------------- | :--------------------------- | | Class A Common Shares Outstanding | 2,527,200 | 3,024,745 | | Class A Common Share Amount | 12,636 | 15,124 | | Additional Paid-in Capital | 42,663,012 | 43,728,524 | | Accumulated Deficit | (5,800,817) | (7,287,070) | | Accumulated Other Comprehensive Loss | (3,620,712) | (2,134,757) | | Total Equity | 33,482,022 | 34,549,747 | Key Changes: * Issuance of 490,000 Class A common shares for services, valued at $1,068,000[92] * Foreign currency translation adjustment resulted in a gain of $1,485,978[92] Equity Changes for the Six Months Ended April 30, 2022 (USD) | Indicator | October 31, 2021 Balance (USD) | April 30, 2022 Balance (USD) | | :-------------------------------------- | :----------------------------- | :--------------------------- | | Class A Common Shares Outstanding | 2,020,000 | 2,447,200 | | Class A Common Share Amount | 10,100 | 12,236 | | Additional Paid-in Capital | 39,776,761 | 42,363,453 | | Accumulated Deficit | (1,090,060) | (4,593,767) | | Accumulated Other Comprehensive Income (Loss) | 96,709 | (851,189) | | Total Equity | 38,994,902 | 37,132,091 | Key Changes: * Issuance of 427,200 common shares for services, valued at $2,588,828[11] * Net loss of $(3,503,727)[11] * Foreign currency translation adjustment resulted in a loss of $(947,912)[11] Unaudited Condensed Consolidated Statements of Cash Flows For the six months ended April 30, 2023, operating cash flow turned positive at $761,583, and investing cash flow significantly increased to $35,115,075, primarily from note and short-term investment recoveries Unaudited Condensed Consolidated Statements of Cash Flows (USD) | Indicator | Six Months Ended April 30, 2023 (USD) | Six Months Ended April 30, 2022 (USD) | | :--------------------------------------------- | :------------------------------------ | :------------------------------------ | | Net Loss | (1,486,253) | (3,503,727) | | Stock-based Compensation and Service Fees | 1,068,000 | 2,588,828 | | Net Cash Provided by Operating Activities | 761,583 | (75,608) | | Collection of Notes Receivable | 7,500,000 | — | | Proceeds from Sale of Short-term Investments | 27,615,075 | — | | Net Cash Provided by Investing Activities | 35,115,075 | (2,436) | | Net Cash Provided by Financing Activities | — | — | | Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | 84,307 | (955,185) | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | 35,960,965 | (1,033,229) | | Cash, Cash Equivalents, and Restricted Cash at End of Period | 36,656,207 | 29,810,412 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures regarding the company's accounting policies, financial instruments, related party transactions, and other significant financial information NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS TRX, a Cayman Islands holding company, provides insurance brokerage services in China through its Variable Interest Entity (VIE), TRX ZJ, consolidated via contractual arrangements - TRX is a Cayman Islands-registered holding company that provides insurance brokerage services in China through its VIE, Zhejiang Tianruixiang Insurance Broker Co., Ltd (TRX ZJ)[17] - The company consolidates TRX ZJ by obtaining control and becoming its primary beneficiary through a series of contractual agreements (VIE agreements) with TRX ZJ and its sole equity holder, in accordance with U.S. GAAP[18][19] Company Structure Overview | Entity Name | Type | Ownership/Relationship | | :----------------- | :--------------------------------- | :--------------------- | | TRX HK | Hong Kong Company | 100% Owned by TRX | | TRX BJ | Wholly Foreign-Owned Enterprise in China | 100% Owned by TRX HK | | TRX ZJ | Limited Liability Company in China | VIE | | NDB Technology | Limited Liability Company in China | 100% Owned by TRX ZJ | | TYDW Technology | Limited Liability Company in China | 100% Owned by TRX ZJ | | Hengbang Insurance | Limited Liability Company in China | 99.8% Owned by TRX ZJ | NOTE 2 – BASIS OF PRESENTATION These unaudited condensed consolidated financial statements are prepared under U.S. GAAP and SEC rules, covering the company, its subsidiaries, and VIEs, with intercompany transactions eliminated - These interim condensed consolidated financial statements are unaudited and prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and U.S. GAAP[22][23] - The statements include the accounts of the company, its wholly-owned subsidiaries, and its VIEs and their subsidiaries, with all intercompany accounts and transactions eliminated[23] - These condensed consolidated financial statements should be read in conjunction with the company's annual report on Form 20-F for the year ended October 31, 2022, filed with the SEC[24] NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's significant accounting policies, including fair value, cash, restricted cash, revenue recognition, and foreign currency translation, with no material changes as of April 30, 2023 - The company's significant accounting policies as of April 30, 2023, have not materially changed from those described in the 2022 annual report on Form 20-F, which would significantly impact the company's financial position and operating results[25] - The company applies ASC 820 for fair value measurements, categorizing inputs into three levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs) As of April 30, 2023, the company had no short-term investments; as of October 31, 2022, short-term investments totaled $26,179,662 and were classified as Level 2[28][31][33] Cash Balances by Geographic Region (USD) | Country | April 30, 2023 (USD) | Percentage | October 31, 2022 (USD) | Percentage | | :------ | :------------------- | :--------- | :--------------------- | :--------- | | China | 28,123,605 | 78.3 % | 1,917 | 76.4 % | | Hong Kong | 7,800,000 | 21.7 % | 591 | 23.6 % | | Total | 35,923,605 | 100.0 % | 2,508 | 100.0 % | - Restricted cash primarily includes unremitted premiums collected as an insurance broker and 10% of registered capital required by the China Insurance Regulatory Commission (CIRC) As of April 30, 2023, and October 31, 2022, restricted cash amounted to $732,602 and $692,734, respectively[37] - Revenue from insurance brokerage services is recognized when insurance policies become effective and premiums are collected, as collectability cannot be assured prior to that point Commission adjustments related to policy cancellations accounted for 0.6% and 0.8% of total commission revenue for the six months ended April 30, 2023, and 2022, respectively[53][54] - The company implemented a one-for-five reverse stock split on November 16, 2022, with all share and per-share information retroactively adjusted to reflect this split[70] Fair Value of Financial Instruments and Fair Value Measurements The company applies ASC 820 for fair value measurements, categorizing inputs into three levels, with no short-term investments as of April 30, 2023 - The company applies ASC 820 guidance for fair value measurements, classifying inputs into three levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[28][31] - As of April 30, 2023, the company had no short-term investments As of October 31, 2022, short-term investments totaled $26,179,662 and were classified as Level 2[32][33] Cash and Cash Equivalents Cash balances are primarily held in China and Hong Kong, with $35,923,605 as of April 30, 2023, and no cash equivalents reported Cash Balances by Geographic Region (USD) | Country | April 30, 2023 (USD) | Percentage | October 31, 2022 (USD) | Percentage | | :------ | :------------------- | :--------- | :--------------------- | :--------- | | China | 28,123,605 | 78.3 % | 1,917 | 76.4 % | | Hong Kong | 7,800,000 | 21.7 % | 591 | 23.6 % | | Total | 35,923,605 | 100.0 % | 2,508 | 100.0 % | - As of April 30, 2023, and October 31, 2022, the company had no cash equivalents[36] Restricted Cash Restricted cash includes unremitted premiums and 10% of registered capital mandated by CIRC, totaling $732,602 as of April 30, 2023 - Restricted cash includes unremitted premiums collected as an insurance broker and 10% of registered capital required by the China Insurance Regulatory Commission (CIRC)[37] Restricted Cash Balances (USD) | Date | Amount (USD) | | :--------------- | :----------- | | April 30, 2023 | 732,602 | | October 31, 2022 | 692,734 | Concentration of Credit Risk and Uncertainties The company faces significant uninsured cash balances in Chinese state-owned banks and operational risks tied to China's political, economic, and legal environment - Cash balances held in state-owned banks in China exceeding RMB 500,000 (approximately $72,000) per bank are not covered by insurance As of April 30, 2023, approximately $28,675,000 of cash balances in China were uninsured[41] - The company's operations are primarily conducted in China, and its business, financial condition, and operating results may be affected by changes in China's political, economic, and legal environment[42] Revenue Recognition Revenue from insurance brokerage services is recognized when policies are effective and premiums collected, adhering to ASC Topic 606, with minimal impact from cancellations - The company recognizes revenue in accordance with ASC Topic 606, "Revenue from Contracts with Customers," with the core principle being to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring promised goods or services to customers[49] - Revenue from insurance brokerage services is recognized when insurance policies become effective and premiums are collected, as collectability cannot be assured prior to that point[53] - Commission adjustments related to policy cancellations accounted for 0.6% and 0.8% of total commission revenue for the six months ended April 30, 2023, and 2022, respectively, indicating a negligible impact[54] Foreign Currency Translation and Transaction The company's reporting currency is USD, while its Chinese subsidiaries and VIEs use RMB as their functional currency, with specific exchange rates applied - The company's reporting currency is the U.S. dollar The functional currency of the parent company, TRX, and TRX HK is the U.S. dollar, while the functional currency of TRX BJ, TRX ZJ, and its subsidiaries is the Renminbi (RMB)[59] Exchange Rate Information | Date/Period | Exchange Rate (RMB to 1 USD) | | :---------------------------------------- | :--------------------------- | | April 30, 2023 (Balance Sheet) | 6.9122 | | October 31, 2022 (Balance Sheet) | 7.3029 | | Six Months Ended April 30, 2023 (Operations/Cash Flow) | 6.9233 | | Six Months Ended April 30, 2022 (Operations/Cash Flow) | 6.3721 | Per Share Data Basic net loss per share is calculated by dividing net loss by weighted average common shares, with 709,000 anti-dilutive warrants outstanding - Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period Diluted net loss per share reflects the potential dilution that could occur[63][64] Anti-Dilutive Securities (Stock Warrants) | Indicator | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | | Stock Warrants | 709,000 | 709,000 | | Total Potentially Dilutive Securities | 709,000 | 709,000 | Reverse Stock Split The company executed a one-for-five reverse stock split on November 16, 2022, with all share and per-share data retroactively adjusted - The company implemented a one-for-five reverse stock split on November 16, 2022 All share and per-share information has been retroactively adjusted to reflect this split[70] NOTE 4 – OTHER CURRENT AND NON-CURRENT ASSETS As of April 30, 2023, other current and non-current assets totaled $142,602, a decrease from $189,035, primarily comprising prepaid professional services, recoverable VAT, and deposits Other Current and Non-Current Assets Composition (USD) | Item | April 30, 2023 (USD) | October 31, 2022 (USD) | | :----------------------- | :------------------- | :--------------------- | | Prepaid Professional Service Fees | 54,004 | 108,345 | | Recoverable VAT | 41,377 | 33,553 | | Deposits | 21,213 | 24,251 | | Other | 26,008 | 22,886 | | Total | 142,602 | 189,035 | | Current Portion | 121,389 | 168,957 | | Non-current Portion | 21,213 | 20,078 | - Prepaid professional service fees primarily relate to advance payments for consulting and advisory services, which are recognized as expenses over the period the services are rendered[75] NOTE 5 – NOTE RECEIVABLE A $7.5 million note receivable issued on January 29, 2021, was fully collected upon maturity on January 29, 2023, resulting in zero principal and accrued interest balances as of April 30, 2023 - The company issued a $7.5 million note receivable to a third party on January 29, 2021, bearing an annual interest rate of 2.0%, which matured and was collected on January 29, 2023[76] Note Receivable and Accrued Interest Balances (USD) | Item | April 30, 2023 (USD) | October 31, 2022 (USD) | | :----------------------- | :------------------- | :--------------------- | | Note Receivable Principal Balance | 0 | 7,500,000 | | Accrued Interest Balance | 0 | 262,192 | Note Receivable Interest Income (USD) | Period | Amount (USD) | | :------------------------------------ | :----------- | | Six Months Ended April 30, 2023 | 37,808 | | Six Months Ended April 30, 2022 | 73,973 | NOTE 6 – TAXES PAYABLE As of April 30, 2023, total taxes payable increased to $517,035 from $466,878, primarily driven by income taxes payable Taxes Payable Composition (USD) | Item | April 30, 2023 (USD) | October 31, 2022 (USD) | | :------------- | :------------------- | :--------------------- | | Income Tax Payable | 515,494 | 465,291 | | VAT Payable | — | 458 | | Other | 1,541 | 1,129 | | Total | 517,035 | 466,878 | NOTE 7 – ACCRUED LIABILITIES AND OTHER PAYABLES As of April 30, 2023, accrued liabilities and other payables totaled $382,895, remaining stable compared to $384,893 on October 31, 2022, primarily due to accrued professional service fees Accrued Liabilities and Other Payables Composition (USD) | Item | April 30, 2023 (USD) | October 31, 2022 (USD) | | :----------------------- | :------------------- | :--------------------- | | Accrued Professional Service Fees | 311,417 | 310,476 | | Other | 71,478 | 74,417 | | Total | 382,895 | 384,893 | NOTE 8 – RELATED PARTY TRANSACTIONS For the six months ended April 30, 2023, no related party leases or borrowings occurred, but payables to related parties significantly increased to $810,725 for expenses advanced on the company's behalf - For the six months ended April 30, 2023, the company did not lease office space from related parties[83] - For the six months ended April 30, 2023, there were no related party borrowings[84] Amounts Due to Related Parties (USD) | Related Party Name | April 30, 2023 (USD) | October 31, 2022 (USD) | | :----------------------- | :------------------- | :--------------------- | | Baohai Xu | 232,582 | 105,500 | | Feng'e Feng | 186,571 | — | | Mingxiu Luan | 125,027 | — | | Sheng Xu | 105,500 | — | | Mufang Gao | 79,870 | — | | Zhe Wang | 68,958 | — | | WDZG Consulting | 9,983 | 9,449 | | Liwei Song | 1,855 | — | | Fan Shen | 329 | 578 | | Kui Che | 50 | 48 | | Xiangchun Ruan | — | 10,955 | | Total | 810,725 | 126,530 | - Amounts due to related parties represent expenses paid by related parties on behalf of the company, which are short-term, non-interest bearing, and repayable on demand[90] NOTE 9 – EQUITY Equity comprises Class A and B common shares, with Class B having 18x voting rights and convertibility to Class A; $1,068,000 in stock-based compensation was recognized for 490,000 Class A shares issued for services - The company's share capital consists of Class A and Class B common shares Class B common shareholders possess 18 votes on all matters and are convertible into Class A common shares at the holder's option at any time, while Class A common shares are not convertible into Class B common shares[91] - For the six months ended April 30, 2023, the company issued 490,000 Class A common shares for services, valued at $1,068,000, and recognized corresponding stock-based compensation expenses[92] Warrant Activity and Details | Indicator | October 31, 2022 | April 30, 2023 | | :-------------------------------------- | :--------------- | :------------- | | Number of Warrants (End of Period) | 709,000 | 709,000 | | Weighted Average Exercise Price (End of Period, USD) | 38.86 | 38.86 | | Number of Exercisable Warrants (End of Period) | 709,000 | 709,000 | | Intrinsic Value of Warrants (End of Period) | None | None | | Remaining Contractual Term (Years) | - | 2.94 | - As of April 30, 2023, and October 31, 2022, a total of $226,253 of the net assets of the company's Chinese subsidiaries, VIEs, and their subsidiaries were restricted from transfer to the company under Chinese laws and regulations[102] NOTE 10 – COMMITMENTS AND CONTINGENCIES The company faces potential legal actions and regulatory uncertainties regarding its VIE structure, while operating lease expenses for the six months ended April 30, 2023, were $49,000 - The company may be subject to legal proceedings and claims in the ordinary course of business, but management believes these actions will not, in the aggregate, have a material adverse effect on the company's financial position, results of operations, or liquidity[105] Operating Lease Expenses (USD) | Period | Amount (USD) | | :------------------------------------ | :----------- | | Six Months Ended April 30, 2023 | 49,000 | | Six Months Ended April 30, 2022 | 212,000 | Operating Lease Liability Maturities as of April 30, 2023 (USD) | Period | Amount (USD) | | :----------------------------------- | :----------- | | Twelve Months Ending April 30, 2024 | 85,578 | | Twelve Months Ending April 30, 2025 | 16,618 | | Thereafter | — | | Total Lease Payments | 102,196 | | Amount Representing Interest on Lease Payments | (2,825) | | Total Present Value of Operating Lease Liabilities | 99,371 | | Current Portion | 82,831 | | Long-term Portion | 16,540 | - Management believes the company's VIE structure complies with existing Chinese laws and regulations, and the VIE agreements are valid and binding However, there are significant uncertainties regarding the interpretation and application of Chinese laws and regulations, and the company cannot guarantee that regulatory agencies will not take a contrary view[111][112] NOTE 11 – CONCENTRATIONS The company faces significant concentration risks in uninsured cash balances in Chinese state-owned banks and high dependency on a few insurance companies for revenue and accounts receivable - As of April 30, 2023, the company's cash, cash equivalents, and restricted cash balances in state-owned banks in China totaled $28,856,207, of which $28,675,232 were uninsured, posing a concentration of credit risk[113] Revenue Concentration (10% or More of Total Revenue) | Insurance Company | Six Months Ended April 30, 2023 | Six Months Ended April 30, 2022 | | :---------------- | :------------------------------ | :------------------------------ | | A | 36 % | < 10% | | B | 24 % | < 10% | | C | < 10% | 14 % | | D | 12 % | 11 % | | E | < 10% | 11 % | - As of April 30, 2023, four insurance companies accounted for 86.1% of the company's total outstanding accounts receivable As of October 31, 2022, two insurance companies accounted for 77.5% of the company's total outstanding accounts receivable[115][116] - For the six months ended April 30, 2023, and 2022, no single supplier accounted for 10% or more of the company's total purchases[117] NOTE 12 – SUBSEQUENT EVENTS Management has evaluated subsequent events up to the report submission date and found no material events requiring adjustment or disclosure in the financial statements - Management has evaluated subsequent events up to the date of this report's submission and has not identified any events that would require adjustment to or disclosure in the financial statements[119]