20-F: Tian Ruixiang Holdings Ltd Files 20-F Report for Fiscal Year Ended October 31, 2024
Sentiment:
Annual Report
Tian Ruixiang Holdings Ltd files its annual report on Form 20-F, detailing its financial performance and operational structure for the fiscal year ended October 31, 2024.
Capital raiseOn November 1, 2024, the Company entered into 20 subscription agreements (the Subscription Agreements) with 20 purchasers (each, a Purchaser, and collectively, the Purchasers), pursuant to Regulation S promulgated by the U.S. Securities and Exchange Commission under the Securities Act of 1933, as amended.The entry into the Subscription Agreements and the transactions contemplated were approved by our board of directors.The closing of the transactions contemplated thereby took place on November 18, 2024.On January 6, 2025, the Company and five related party creditors entered into five agreements pursuant to which the Company settled debts in the aggregate amount of $2,209,575 by issuance of an aggregate of 1,355,568 shares of the Companys Class A Ordinary Share.On January 7, 2025, we entered into a subscription agreement (the Subscription Agreement) with Unitrust Holding Limited (Unitrust).Pursuant to the Subscription Agreement, we agreed to sell to Unitrust, and Unitrust agreed to purchase from us, 1,000,000 Class B ordinary shares (the Shares), at a purchase price of $2.31 per share, for an aggregate purchase price of $2,310,000.
Worse than expectedThe company's net loss increased from $2,453,982 to $3,986,928 year over year.
Summary
- TIAN RUIXIANG Holdings Ltd, a Cayman Islands holding company, conducts its operations through a VIE structure in China.
- The company's operations are conducted in China by Zhejiang Tianruixiang Insurance Broker Co. LTD. (TRX ZJ) and its subsidiaries.
- The VIE Agreements enable the company to consolidate the financial results of the VIE and its subsidiaries.
- The company faces risks associated with the VIE structure and regulatory uncertainties in China.
- Revenue for the year ended October 31, 2024, increased by 158.7% to $3,219,336, primarily due to increased commissions from liability insurance.
- The company reported a net loss of $3,986,928 for the year ended October 31, 2024.
- The company identified material weaknesses in its internal control over financial reporting.
- The company submitted filings to the CSRC in connection with recent share issuances, which are currently under review.
- The company's auditor, RBSM LLP, is subject to PCAOB inspections.
Sentiment
Score: 4
Explanation: The document presents a mixed picture with positive revenue growth offset by a significant net loss and internal control weaknesses. The ongoing regulatory scrutiny and risks associated with the VIE structure add to the uncertainty.
Positives
- Revenue increased by 158.7% to $3,219,336 for the year ended October 31, 2024, driven by increased commissions from liability insurance.
- The company has relationships with over 20 insurance companies in the PRC, allowing it to offer a variety of insurance products.
- The company is taking remedial measures to address identified control deficiencies.
Negatives
- The company reported a net loss of $3,986,928 for the year ended October 31, 2024.
- The company identified material weaknesses in its internal control over financial reporting.
- The equity shares of TRX ZJ have been judicially frozen due to outstanding debts owed by TRX ZJs sole shareholder, which could result in the termination of the VIE Agreements and loss of our control over TRX ZJ, potentially rendering the Companys securities substantially devalued or worthless.
Risks
- The VIE Agreements have not been tested in a court of law and are subject to significant risks.
- The PRC government could disallow the VIE structure, which would likely result in a material change in operations.
- The equity shares of TRX ZJ have been judicially frozen due to outstanding debts owed by TRX ZJs sole shareholder.
- The Chinese government may intervene or influence operations at any time.
- The company may be adversely affected by the complexity, uncertainties and changes in PRC regulation of insurance industry and internet-related businesses and companies.
- The joint statement by the SEC and the PCAOB, rule changes by Nasdaq, and the Holding Foreign Companies Accountable Act and related regulations, all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
Future Outlook
The company expects that its revenue will continue to increase in the near future.
Industry Context
The insurance intermediary industry in China is highly competitive, with competition expected to persist and intensify.
Comparison to Industry Standards
- The professional insurance intermediaries that compete directly with TRX ZJ in the Chinese market include Huize Holding Limited, Fanhua Inc., Minya insurance brokerage Co., Ltd, Marsh & Mclennan Companies, Inc., Aon Corporation, Willis Group Holdings Limited, and Jiangtai Insurance Broker Co., Ltd.
- Although the above companies have operated for a longer period of time than TRX ZJ, with more market shares and greater brand influence, we believe that TRX ZJs entrepreneurial attitude and smaller size, as well as its customer service, enable it to better respond and adapt to fast changing insurance market conditions compared to the larger competitors.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| Chief Executive Officer | Zhe Wang | Sheng Xu | April 5, 2024 | Zhe Wang resigned from his positions of the CEO, director, and the Chairman of the board of directors of the Company on April 5, 2024. |
| Chief Financial Officer | Mingxiu Luan | Yue Wang | August 2, 2024 | Not specified |
| Director | NA | Qiner Zhou | January 20, 2025 | Not specified |
| Independent Director | NA | Ning Xue | January 20, 2025 | Not specified |
Legal Proceedings
- The company is not currently involved in any material legal or administrative proceedings.
Related Party Transactions
- The Company borrowed $95,520 from related parties for working capital needs and repaid $21,727 to such related parties.
- On September 19, 2024, the Company entered into a promissory note receivable with Xian Xu, TRX ZJs manager, for $2,251,945 and received repayments of $892,036 in the year ended October 31, 2024.
- The Company has a due from related party balance of $10,097 with Sheng Xu.
- The Company has a due to related parties balance of $1,703,421.
Stakeholder Impact
- Shareholders face risks related to the VIE structure, regulatory uncertainties, and potential delisting.
- Employees may be affected by changes in labor costs and compliance with PRC regulations.
- Customers may benefit from the company's efforts to expand its distribution network and offer a variety of insurance products.
Next Steps
- The company will continue to monitor the development in the regulatory landscape in the PRC.
- The company intends to pay the outstanding social insurance and housing fund payments upon receipt of notice from the competent PRC authorities.
- The company will take all reasonable measures and actions to comply and to minimize any adverse effect of laws on us.
Key Dates
| Date | Description |
|---|---|
| January 18, 2010 | TRX ZJ (formerly named Anbisheng), the VIE, was formed as a limited company pursuant to PRC law. |
| March 5, 2019 | TRX was established as a holding company under the laws of the Cayman Islands. |
| March 20, 2019 | TRX HK, a Hong Kong company, was formed. |
| April 30, 2019 | WFOE, or TRX BJ, was formed as a wholly foreign owned enterprise pursuant to PRC law. |
| May 20, 2019 | WFOE, TRX ZJ, and TRX ZJs sole shareholder entered into a series of contractual arrangements, also known as the VIE Agreements. |
| January 27, 2021 | Class A Ordinary Shares commenced trading on the Nasdaq Capital Market under the symbol TIRX. |
| January 29, 2021 | The Company completed its initial public offering of 3,000,000 Class A Ordinary Shares at $4.00 per share on a firm commitment basis. |
| February 4, 2021 | The Company closed the sale of 75,000 Class A Ordinary Shares at $4.00 per share under the underwriters over-allotment option. |
| February 12, 2024 | TRX HK and the sole shareholder of Peak Consulting Services Limited entered into a sale and purchase agreement. |
| February 29, 2024 | The Company completed its acquisition of Peak in accordance with the terms of the Peak Agreement. |
| April 5, 2024 | Zhe Wang resigned from his positions of the CEO, director, and the Chairman of the board of directors of the Company. |
| April 25, 2024 | Sheng Xu replaced Zhe Wang as the CEO and the Chairman of the board of directors of the Company. |
| November 22, 2024 | The filing to the CSRC in connection with the issuance of the 5,400,000 Class A ordinary shares to the purchasers pursuant to the Subscription Agreements has been submitted. |
| December 13, 2024 | The filing in connection with the issuance of the 694,445 Class A ordinary shares to Yuefu Company Limited has been submitted to the CSRC. |
| January 6, 2025 | The Company and five related party creditors entered into five agreements pursuant to which the Company settled debts in the aggregate amount of $2,209,575 by issuance of an aggregate of 1,355,568 shares of the Companys Class A Ordinary Share. |
| January 7, 2025 | The Company entered into a subscription agreement with Unitrust Holding Limited to sell 1,000,000 Class B ordinary shares. |
Keywords
insurance brokerage, VIE structure, financial reporting, risk factors, China, TRX ZJ, PCAOB, CSRC, regulation, auditor
Disclaimer:The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.