Lion Group Holding Ltd 6-K, filed Dec 2, 2022
Lion Group Holding Ltd (LGHL)
About this 6-K
Lion Group Holding Ltd filed this 6-K on December 2, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of December 2022
Commission File Number:
Not Applicable
(Translation of Registrant’s Name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
3 Phillip Street, #15-04 Royal Group Building
Singapore 048693
(Address of principal executive offices)
+65 8877 3871
(Registrant’s phone number, including area code)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Other Information
Attached hereto as Exhibit 99.1 is a press release dated December 2, 2022, announcing the Company’s unaudited financial and operating results for the six months ended June 30, 2022; attached hereto as Exhibit 99.2 are the unaudited condensed consolidated financial statements of the Company as of June 30, 2022 and for the six months ended June 30, 2022 and 2021; and attached hereto as Exhibit 99.3 is the management’s discussion and analysis of financial condition and results of operations of the Company.
Exhibits
| 99.1 | Press Release, dated December 2, 2022 | |
| 99.2 | Unaudited Condensed Consolidated Financial Statements as of June 30, 2022 and for the six months ended June 30, 2022 and 2021 | |
| 99.3 | Lion’s Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Lion Group Holding Ltd. | |||
| By: | /s/ Chunning Wang | ||
| Name: | Chunning Wang | ||
| Title: | Chief Executive Officer | ||
Date: December 2, 2022
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Exhibit 99.1
Lion Announces Unaudited First Half 2022 Financial Results
Hong Kong, December 2, 2022 /PRNewswire/ -- Lion Group Holding Ltd. (“Lion” or “the Company”) (NASDAQ: LGHL), operator of an all-in-one trading platform that offers a wide spectrum of products and services and developer of new growth products that include SPAC sponsorship, NFT, and metaverse-related initiatives, today announced its unaudited financial results for the six months ended June 30, 2022.
Mr. Chunning (Wilson) Wang, CEO of Lion, commented, “Our various business lines continued to be negatively impacted by persisting headwinds in 2022, especially the sudden and rapid decline in economic activity, triggering volatile global financial markets combined with the continued effects of COVID-19. We suffered losses in CFD (contract for difference) and TRS (total return swap) trading business due to unpredictable market events, including China’s stringent zero-Covid policy, the Russia and Ukraine conflict, the energy crisis, and tense China-US relations. On the positive side, our futures and securities brokerage services expanded during this period, as a result of an increase in the number of executed futures contracts.”
“TRS and CFD trading are major focus areas for Lion, and given the nature of TRS and CFD trading, we understand our business can benefit from gains in good times and risk losses during more difficult times. At the same time, we are prudently managing resources, while focusing on risk management, strategically reducing costs, and trimming less meaningful business areas to help mitigate the impacts of the more difficult business environment. On the other hand, we are pleased to say that given current visibility and assuming no major macroeconomic surprises, we believe that we have seen the bottom in the first half and are seeing positive signs of improvement in our TRS and CFD income for the remainder of the year.
As we focus on our core business, we are also being responsive to changing business conditions by working closely with our customers, while remaining laser-focused on our strategy and long-term opportunities. We have evolved to incorporate NFT and Metaverse into our core business, and we are pleased to see revenue from the sale of MetaWords NFTs achieve US$0.4 million in the first half of 2022. In addition, we aim to secure new cooperation agreement in our TRS trading business in the second half of 2022, which can bring in new customers as a result of new synergies.
We have also added 83 ETFs to the basket of securities eligible for customers to trade.”
FINANCIAL RESULTS
For the Six Months Ended June 30, 2022
Revenues
Total revenue for the six months ended June 30, 2022 was severely affected by trading losses in CFD and TRS trading services, resulting in negative revenues of US$(4.3) million, compared to total revenues of US$3.6 million for the six months ended June 30, 2021. Total number of revenue-generating customer accounts decreased to 4,522 as of June 30, 2022, from 5,261 as of December 31, 2021 due to the decline in Lion’s insurance business.
| ● | CFD Trading Services Income (Losses). Loss generated from CFD trading services increased by US$5.8 million from a loss of US$(1.1) million for the six months ended June 30, 2021 to a loss of US$(6.9) million for the six months ended June 30, 2022, primarily attributable to an increase of US$5.4 million in trading losses and a decrease of US$0.4 million in commission income. The Company has suffered losses from CFD trades in the first half of 2022 as a result of fluctuation and volatility in the global financial markets in reaction to a series of unpredictable events, such as the Russia and Ukraine conflict, Europe’s energy crisis, surging inflation and interest rate hikes in the U.S. and Europe, China’s housing market slump, etc., which impacted the major stock indexes, commodity markets including crude oil and metals, and the foreign exchange market. Market making commission income decreased from US$1.0 million for the six months ended June 30, 2021 to US$0.7 million for the six months ended June 30, 2022, which was mainly attributable to China’s tightened restrictions on promotion and advertisement related to online financial products and services, leading to the decreased number of new accounts opened through online advertising. Total revenue-generating CFD trading client accounts slightly decreased to 2,819 as of June 30, 2022, from 2,866 as of December 31, 2021. CFD trading volume slightly decreased to 110,526 lots for the six months ended June 30, 2022, from 116,726 lots for the six months ended June 30, 2021. |
| ● | TRS Trading Services Income (Losses). Revenues generated from TRS trading services decreased by US$4.4 million from an income of US$3.6 million for the six months ended June 30, 2021 to a loss of US$(0.8) million for the six months ended June 30, 2022, due to the trading gains/(losses) from the Company’s proprietary TRS trading activities decreased by US$6.2 million from an income of US$3.2 million to a loss of US$(3.0) million, partially offset by an increase of US$1.5 million in interest income earned on loans provided to TRS trading customers and an increase of US$0.3 million in commissions and other income. The Company’s proprietary TRS trading activities were significantly negatively impacted by the highly volatile Chinese stock markets in the first half of 2022 caused by China’s dismal economic outlook, lock-downs in cities across China, and heightened geopolitical tensions, etc. TRS trading volume was US$293 million and US$248 million for the six months ended June 30, 2022 and 2021, respectively. |
| ● | Futures and Securities Brokerage Services. Revenues from futures and securities brokerage services increased from US$1.2 million for the six months ended June 30, 2021 to US$2.0 million for the six months ended June 30, 2022 as a result of an increase in the number of executed futures contracts, primarily due to Hong Kong’s rapid economic rebound as the pandemic subsided domestically in 2021 and sophisticated investors wanting to take advantage of the volatile markets increased allocations to speculative trading. Futures brokerage trading volume increased by 76.8% to 795,559 lots from 449,986 lots. |
| ● | Others. Other income (loss) increased by US$1.5 million from a loss of US$(0.1) million for the six months ended June 30, 2021, to US$1.4 million for the six months ended June 30, 2022. The increase in other income was primarily attributed to trading gains realized from OTC call options of US$0.9 million, sale of MetaWords NFTs of US$0.4 million and interest, other income of US$0.2 million and the decrease of trading loss on equity securities of US$0.2 million generated in the first half of 2022, offset by the decrease of US$0.2 million in Bitcoin mining income as the Bitcoin mining operation has ceased since October 2021. |
| Six months ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| US$ | % | US$ | % | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Revenues | ||||||||||||||||
| CFD trading services income (losses) | (6,911,887 | ) | 158.9 | (1,079,106 | ) | (29.9 | ) | |||||||||
| TRS trading services income (losses) | (798,522 | ) | 18.3 | 3,607,526 | 100.1 | |||||||||||
| Futures and securities brokerage services | 1,979,384 | (45.5 | ) | 1,212,222 | 33.6 | |||||||||||
| Others | 1,381,294 | (31.7 | ) | (140,345 | ) | (3.8 | ) | |||||||||
| Total | (4,349,731 | ) | 100.0 | 3,600,297 | 100.0 | |||||||||||
Expenses
Total expenses were US$18.0 million for the six months ended June 30, 2022, representing an increase of 31.9% yoy from US$13.7 million in the first half of 2021, primarily due to increases in commission expenses, professional fees, research and development, depreciation and impairment of mining equipment, partially offset by the decrease in service fees, change in fair value of option liabilities, change in warrants liabilities, and compensation expenses.
| ● | Commission and fees expenses increased by 77.9% to US$2.1 million from US$1.2 million in the prior year period, primarily due to an increase in futures brokerage commission expenses of US$0.6 million and an increase in TRS trading and insurance brokerage commission expenses of US$0.3 million, which is in line with the overall trench of such businesses. |
| ● | Compensation expenses decreased by 19.3% to US$1.9 million from US$2.4 million in the prior year period, primarily due to the discretionary bonus paid out in 2021. |
| ● | Occupancy expenses increased to US$372,628 from US$347,660 in the prior year period, primarily due to the new office space rented for the Company’s subsidiary in Singapore, partially offset by the rental reduction for subsidiaries in Hong Kong as a result of COVID-19. |
| ● | Communication and technology expenses decreased to US$930,518 from US$947,292 in the prior year period, remaining comparable to the corresponding period in 2021. |
| ● | Cost of crypto mining was US$0.2 million for the six months ended June 30, 2021. There was no crypto mining operation since October 2021. |
| ● | General and administrative expenses increased by 8.2% to US$0.7 million from US$0.6 million in the prior year period. |
| ● | Professional fees increased to US$3.0 million from US$1.0 million in the prior year period, primarily due to the investor relations and consulting service fees we incurred as the Company became a public company and expanded into new business lines such as TRS trading and NFT. |
| ● | Research and development expenses were US$4.1 million, which were incurred in connection with developing and enhancing the Company’s Metaverse project. |
| ● | Service fees decreased by 56.7% to US$1.1 million from US$2.5 million in the prior year period, due to a one-off special incentive scheme for the six months ended June 30, 2021. |
| ● | Interest expenses increased by 8.4% to US$1.0 million from US$0.9 million in the prior year period, mainly attributable to an increase of US$0.8 million in the interest the Company paid for loans borrowed from its TRS trading service business partners, offset by a decrease of US0.7 million in the interest and the amortization of debt discounts from convertible debentures. |
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| ● | Depreciation expenses increased to US$1.2 million from US$0.3 million in the prior year period, mainly attributable to the depreciation of acquired copyrighted trading software programs related to CFD and TRS trading services in 2021. |
| ● | Marketing expenses slightly decreased by 29.4% to US$0.4 million from US$0.6 million in the prior year period. |
| ● | Other expenses were US$(25,689), compared to US$312,104 in the prior year period. |
Income Tax Expenses
Income tax expenses decreased from US$54,367 for the six months ended June 30, 2021 to US$3,071 for the six months ended June 30, 2022, primarily due to the taxes paid in 2021 as a result of IRS examination of Proficient Alpha Acquisition Corp.’s tax return for the period ended September 30, 2019.
Net (loss) income
As a result of the above, net loss was US$22.4 million in the first half of 2022, compared to net loss of US$10.1 million in the first half of 2021. Diluted net loss per ADS was US$0.52 in the first half of 2022, compared to US$0.47 in the first half of 2021.
In the first half of 2022, the Company’s weighted average number of ADSs used in calculating diluted net loss per ADS, was 40,384,040, compared to 26,732,397 in the prior year period.
Non-GAAP financial results
Non-GAAP net loss, which excludes change in fair value of warrant liabilities, stock-based compensation expenses and amortization of debt discounts, was US$19.5 million in the first half of 2022, compared to non-GAAP net loss of US$6.5 million1 in the first half of 2021. Non-GAAP diluted net loss per ADS was US$0.48, compared to non-GAAP diluted net loss per ADS of US$0.332 in the first half of 2021.
Liquidity
As of June 30, 2022, the Company’s cash and restricted cash were US$14.8 million, compared to US$15.8 million as of December 31, 2021 and US$15.7 million as of June 30, 2021. Net cash used in operating activities was US$0.9 million. Net cash used in investing activities was US$3.6 million. Net cash provided by financing activities was US$3.7 million.
Lion commentary on recent challenges in crypto sector
During the months of May through November 2022, market volatility in the prices of digital assets has been elevated due to a variety of factors, including, but not limited to, the macroeconomic environment (high inflation and rising interest rates) as well as the ‘crypto credit crisis’ brought on by the collapse and bankruptcy of a number of key players in the sector (cryptocurrency Luna collapse, hedge fund Three Arrows Capital default on loans and filing for bankruptcy, crypto-lending platform Celsius freezing all withdraws, cryptocurrency lender Voyager Digital filing for bankruptcy, crypto platform FTX filing for bankruptcy, crypto platform BlockFi filing for bankruptcy among others). The Company does not have counterparty exposure to any of the foregoing firms affected by the recent crypto credit crisis nor have its plans for NFT business operation been materially adversely impacted.
Non-GAAP Financial Measures
This press release includes reconciliations of the most comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”) to non-GAAP financial measures. The Company’s calculation of Non-GAAP (loss) income (net loss or income before change in fair value of warrant liabilities, stock-based compensation, amortization of debt discounts, depreciation expenses and impairment of fixed assets) and Non-GAAP EPS differs from EPS based on net (loss) income because it does not include change in fair value of warrant liabilities, stock-based compensation, amortization of debt discounts, depreciation expenses and impairment of fixed assets, which are non-cash charges. The Company believes that these measures help the management identify underlying trends in the Company’s business that could otherwise be distorted by the effect of certain expenses that the Company includes in net loss. The Company believes that these measures provide useful information about its operating results, enhance the overall understanding of its past performance and future prospects, and allow for greater comparability with respect to key metrics used by its management in its financial and operational decision-making.
For more information on the non-GAAP financial measures, please see the table, titled “Unaudited Reconciliations of Non-GAAP and GAAP Financial Results,” set forth at the end of this press release.
| 1 | Numbers for the first half of 2021 were restated due to depreciation expenses included in the calculation of non-GAAP measures in order to keep consistent and comparable with the first half of 2022. |
| 2 | Numbers for the first half of 2021 were restated due to depreciation expenses included in the calculation of non-GAAP measures in order to keep consistent and comparable with the first half of 2022. |
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About Lion
Lion Group Holding Ltd. (Nasdaq: LGHL) operates an all-in-one, state-of-the-art trading platform that offers a wide spectrum of products and services, including (i) total return service (TRS) trading, (ii) contract-for-difference (CFD) trading, (iii) insurance brokerage, and (iv) futures and securities brokerage. In addition, Lion owns a professional and experienced SPAC sponsorship team to become a leader in the SPAC arena, helping guide private companies through their listing journey while creating value for Lion itself. Lion is also fully committed to building the world’s top one-stop, cross-chain, high-expansion non-fungible token (NFT) marketplace and entering metaverse space through blockchain technology. Additional information may be found at http://ir.liongrouphl.com.
Forward-Looking Statements
This press release contains, “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Lion’s actual results may differ from their expectations, estimates and projections and consequently, you should not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “might” and “continues,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, but are not limited to, statements about: Lion’s goals and strategies; our ability to retain and increase the number of users, members and advertising customers, and expand its service offerings; Lion’s future business development, financial condition and results of operations; expected changes in Lion’s revenues, costs or expenditures; the impact of the COVID-19 pandemic; competition in the industry; relevant government policies and regulations relating to our industry; general economic and business conditions globally and in China; and assumptions underlying or related to any of the foregoing. Lion cautions that the foregoing list of factors is not exclusive. Lion cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Lion does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based, subject to applicable law. Additional information concerning these and other factors that may impact our expectations and projections can be found in Lion’s periodic filings with the SEC, including Lion’s Annual Report on Form 20-F for the fiscal year ended December 31, 2021. Lion’s SEC filings are available publicly on the SEC’s website at www.sec.gov.
Contacts
Lion Group Holding
Tel: +852 2820 9011
Email: ir@liongrouphl.com
ICR, LLC
William Zima
Tel: +1 203 682 8233
Email: ir@liongrouphl.com
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LION GROUP HOLDING LTD
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(LOSS)
(in dollar amount)
| Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
| Revenues | ||||||||
| Insurance brokerage commissions | $ | 340,218 | $ | 295,343 | ||||
| Securities brokerage commissions and fees | 2,130,975 | 1,178,062 | ||||||
| Market making commissions and fees | 677,338 | 1,069,656 | ||||||
| Interest income | 1,894,170 | 304,406 | ||||||
| Trading (loss) gains | (10,175,033 | ) | 369,484 | |||||
| Other income (loss) | 782,601 | 383,346 | ||||||
| (4,349,731 | ) | 3,600,297 | ||||||
| Expenses and others | ||||||||
| Commissions and fees | 2,116,021 | 1,189,243 | ||||||
| Compensation and benefits | 1,923,259 | 2,383,547 | ||||||
| Occupancy | 372,628 | 347,660 | ||||||
| Communication and technology | 930,518 | 947,292 | ||||||
| Cost of crypto mining | - | 219,662 | ||||||
| General and administrative | 681,860 | 630,059 | ||||||
| Professional fees | 2,982,570 | 990,011 | ||||||
| Research and development | 4,160,033 | - | ||||||
| Services fees | 1,070,887 | 2,474,122 | ||||||
| Interest | 1,021,773 | 942,264 | ||||||
| Depreciation | 1,198,122 | 279,680 | ||||||
| Marketing | 391,211 | 553,758 | ||||||
| Payment service charge | (2,361 | ) | 292,630 | |||||
| Impairment of fixed assets | 1,691,079 | - | ||||||
| Impairment of cryptocurrencies | 293,619 | - | ||||||
| Change in fair value of warrant liabilities | (759,375 | ) | 2,411,429 | |||||
| Other operating | (23,328 | ) | 19,474 | |||||
| 18,048,516 | 13,680,831 | |||||||
| Loss before income taxes | (22,398,247 | ) | (10,080,534 | ) | ||||
| Income tax expense | (3,071 | ) | (54,367 | ) | ||||
| Net loss | $ | (22,401,318 | ) | $ | (10,134,901 | ) | ||
| Net loss attributable to non-controlling interests | (2,124,600 | ) | (36,227 | ) | ||||
| Net loss attributable to LGHL | $ | (20,276,718 | ) | $ | (10,098,674 | ) | ||
| Deemed dividend on the effect of the down round features | - | (1,021,500 | ) | |||||
| Dividends and deemed dividends on preferred shares | (546,141 | ) | (1,562,905 | ) | ||||
| Net loss attributable to LGHL ordinary shareholders | $ | (20,822,859 | ) | $ | (12,683,079 | ) | ||
| Loss per share for both Class A and Class B - basic and diluted | $ | (0.52 | ) | $ | (0.47 | ) | ||
| Weighted average Class A ordinary shares outstanding - basic and diluted | 35,295,167 | 22,690,522 | ||||||
| Weighted average Class B ordinary shares outstanding - basic and diluted | 5,088,873 | 4,041,875 | ||||||
| 40,384,040 | 26,732,397 | |||||||
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LION GROUP HOLDING LTD
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in dollar amount)
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 11,868,738 | $ | 15,098,151 | ||||
| Restricted cash-bank balances held on behalf of customers | 2,942,560 | 653,324 | ||||||
| Securities owned, at fair value | 11,547,039 | 15,900,369 | ||||||
| Receivables from broker-dealers and clearing organizations | 50,775,530 | 87,938,377 | ||||||
| Short-term loans receivable | 3,578,046 | - | ||||||
| Other receivables | 118,506 | 67,352 | ||||||
| Prepaids, deposits and other | 3,616,933 | 8,741,735 | ||||||
| Total current assets | 84,447,352 | 128,399,308 | ||||||
| Long term investment | 1,492,582 | 1,550,314 | ||||||
| Fixed assets, net | 14,611,365 | 17,507,742 | ||||||
| Right-of-use assets | 1,279,030 | - | ||||||
| Other assets | 1,404,791 | 1,459,467 | ||||||
| Total Assets | $ | 103,235,120 | $ | 148,916,831 | ||||
| Liabilities, Mezzanine Equity and Stockholders’ Equity | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Payables to customers | $ | 28,613,350 | $ | 35,959,925 | ||||
| Payables to broker-dealers and clearing organizations | 31,578,383 | 53,101,820 | ||||||
| Accrued expenses and other payables | 1,813,313 | 1,623,354 | ||||||
| Derivative liabilities, at fair value | - | 554,710 | ||||||
| Short-term borrowings | 110,000 | 110,000 | ||||||
| Lease liability - current | 535,228 | - | ||||||
| Due to director | 154,697 | 161,044 | ||||||
| Total current liabilities | 62,804,971 | 91,510,853 | ||||||
| Lease liability - noncurrent | 819,161 | - | ||||||
| Convertible debentures | 105,000 | - | ||||||
| Warrant liabilities | 1,181,250 | 1,940,625 | ||||||
| Total Liabilities | 64,910,382 | 93,451,478 | ||||||
| Commitments and Contingencies | ||||||||
| Mezzanine Equity | ||||||||
| Series B Convertible Preferred Shares - 4,000 shares authorized, stated value of $1,000 per share, 4,000 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 2,980,188 | 1,222,771 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred shares, $0.0001 par value, 50,000,000 shares authorized Series A Convertible Preferred Shares - 345,000 shares authorized, stated value of $1,000 per share, 150 and 6,500 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 90,674 | 3,929,206 | ||||||
| Class A ordinary shares, $0.0001 par value, 300,000,000 shares authorized, 40,194,722 and 29,677,969 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 4,020 | 2,968 | ||||||
| Class B ordinary shares, $0.0001 par value, 150,000,000 shares authorized, 9,843,096 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 984 | 984 | ||||||
| Additional paid in capital | 59,864,908 | 54,057,211 | ||||||
| Accumulated deficit | (23,206,298 | ) | (2,929,580 | ) | ||||
| Accumulated other comprehensive losses | (238,238 | ) | (57,532 | ) | ||||
| Total LGHL shareholders’ equity | 36,516,050 | 55,003,257 | ||||||
| Non-controlling interest | (1,171,500 | ) | (760,675 | ) | ||||
| Total shareholders’ equity | 35,344,550 | 54,242,582 | ||||||
| Total Liabilities, Mezzanine Equity and Shareholders’ Equity | $ | 103,235,120 | $ | 148,916,831 | ||||
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LION GROUP HOLDING LTD
UNAUDITED SUMMARY OF CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS DATA
(in dollar amount)
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (904,809 | ) | $ | (24,342,405 | ) | ||
| Net cash used in investing activities | (3,587,440 | ) | (4,468,824 | ) | ||||
| Net cash provided by financing activities | 3,668,775 | 39,736,327 | ||||||
| Effect of exchange rate changes on cash | (116,703 | ) | (21,628 | ) | ||||
| Net increase in cash and restricted cash | (940,177 | ) | 10,903,470 | |||||
| Cash and restricted cash at beginning of period | 15,751,475 | 4,794,097 | ||||||
| Cash and restricted cash at end of period | $ | 14,811,298 | $ | 15,697,567 | ||||
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LION GROUP HOLDING LTD
UNAUDITED RECONCILIATIONS OF NON-GAAP AND GAAP FINANCIAL RESULTS
(in dollar amount)
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| US$ | US$ | |||||||
| Net income (loss) attributable to LGHL | (22,401,318 | ) | (10,134,901 | ) | ||||
| Stock-based compensation | 650,275 | 190,900 | ||||||
| Amortization of debt discounts | 105,000 | 783,994 | ||||||
| Depreciation expenses | 1,198,122 | 279,680 | ||||||
| Impairment of fixed assets | 1,691,079 | - | ||||||
| Change in fair value of warrant liabilities | (759,375 | ) | 2,411,429 | |||||
| Non-GAAP income (loss) attributable to LGHL before change in fair value of warrant liabilities, stock-based compensation, amortization of debt discounts, depreciation expenses and impairment of fixed assets | (19,516,217 | ) | (6,468,898 | ) | ||||
| Non-GAAP earnings (losses) per share for both Class A and Class B - basic and diluted | (0.48 | ) | (0.33 | ) | ||||
| Weighted average Class A ordinary shares outstanding - basic and diluted | 35,295,167 | 22,690,522 | ||||||
| Weighted average Class B ordinary shares outstanding - basic and diluted | 5,088,873 | 4,041,875 | ||||||
| Six months ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Basic | Fully Diluted | Basic | Fully Diluted | |||||||||||||
| Earnings (Loss) attributable to LGHL per share for both Class A and Class B | (0.55 | ) | (0.55 | ) | (0.47 | ) | (0.47 | ) | ||||||||
| Stock-based compensation | 0.02 | 0.02 | 0.01 | 0.01 | ||||||||||||
| Amortization of debt discounts | 0.00 | 0.00 | 0.03 | 0.03 | ||||||||||||
| Depreciation expenses | 0.03 | 0.03 | 0.01 | 0.01 | ||||||||||||
| Impairment of fixed assets | 0.04 | 0.04 | - | - | ||||||||||||
| Change in fair value of warrant liabilities | (0.02 | ) | (0.02 | ) | 0.09 | 0.09 | ||||||||||
| Non-GAAP earnings (losses) per share for both Class A and Class B (before change in fair value of warrant liabilities, stock-based compensation, amortization of debt discounts, depreciation expenses and impairment of fixed assets) | (0.48 | ) | (0.48 | ) | (0.33 | ) | (0.33 | ) | ||||||||
8
Exhibit 99.2
LION GROUP HOLDING LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash-bank balances held on behalf of customers | ||||||||
| Securities owned, at fair value | ||||||||
| Receivables from broker-dealers and clearing organizations | ||||||||
| Short-term loans receivable | ||||||||
| Other receivables | ||||||||
| Prepaids,deposits and other | ||||||||
| Total current assets | ||||||||
| Long term investment | ||||||||
| Fixed assets, net | ||||||||
| Right-of-use assets | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Mezzanine Equity and Stockholders’ Equity | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Payables to customers | $ | $ | ||||||
| Payables to broker-dealers and clearing organizations | ||||||||
| Accrued expenses and other payables | ||||||||
| Derivative liabilities, at fair value | ||||||||
| Short-term borrowings | ||||||||
| Lease liability - current | - | |||||||
| Due to director | ||||||||
| Total current liabilities | ||||||||
| Lease liability - noncurrent | ||||||||
| Convertible debentures | ||||||||
| Warrant liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Mezzanine Equity | ||||||||
| Series B Convertible Preferred Shares - | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred shares, $ | ||||||||
| Class A ordinary shares, $ | ||||||||
| Class B ordinary shares, $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive losses | ( | ) | ( | ) | ||||
| Total LGHL shareholders’ equity | ||||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total Liabilities, Mezzanine Equity and Shareholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
1
LION GROUP HOLDING LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | ||||||||
| Insurance brokerage commissions | $ | |||||||
| Securities brokerage commissions and fees | ||||||||
| Market making commissions and fees | ||||||||
| Interest income | ||||||||
| Trading (loss) gains | ( | ) | ||||||
| Other income (loss) | ||||||||
| ( | ) | |||||||
| Expenses and others | ||||||||
| Commissions and fees | ||||||||
| Compensation and benefits | ||||||||
| Occupancy | ||||||||
| Communication and technology | ||||||||
| Cost of crypto mining | - | |||||||
| General and administrative | ||||||||
| Professional fees | ||||||||
| Research and development | - | |||||||
| Services fees | ||||||||
| Interest | ||||||||
| Depreciation | ||||||||
| Marketing | ||||||||
| Payment service charge | ( | ) | ||||||
| Impairment of fixed assets | - | |||||||
| Impairment of cryptocurrencies | - | |||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Other operating | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to non-controlling interests | ( | ) | ( | ) | ||||
| Net loss attributable to LGHL | $ | ( | ) | $ | ( | ) | ||
| Deemed dividend on the effect of the down round features | - | ( | ) | |||||
| Dividends and deemed dividends on preferred shares | ( | ) | ( | ) | ||||
| Net loss attributable to LGHL ordinary shareholders | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
2
LION GROUP HOLDING LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
LION GROUP HOLDING LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Series A Convertible | Class A | Class B | Additional | Other | Non- | |||||||||||||||||||||||||||||||||||||||
| Preferred Shares | Ordinary Shares | Ordinary Shares | Paid in | Accumulated | Comprehensive | Controlling | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | (Loss) Income | Interest | Total | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Effect of early adoption of ASU 2020-06 | - | - | - | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Conversion of Series A Convertible Preferred Shares and accrued dividends | ( | ) | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||
| Accrued dividends on Series A Convertible Preferred Shares | - | - | - | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Deemed dividend on Series B Convertible Preferred Shares in connection with accretion of discounts | - | - | - | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Accrued dividends on Series B Convertible Preferred Shares | - | - | - | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares to nonemployees in connection with 2020 Share Incentive Plan | $ | |||||||||||||||||||||||||||||||||||||||||||
| Effect of a modification of the existing warrants as debt issuance costs (ASU 2021-04) | - | - | - | $ | ||||||||||||||||||||||||||||||||||||||||
| Contribution from noncontrolling shareholder | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net Income (loss) | ( | ) | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | - | - | - | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
4
| Series A Convertible | Class A | Class B | Additional | Accumulated Other | Non- | |||||||||||||||||||||||||||||||||||||||
| Preferred Shares | Ordinary Shares (i) | Ordinary Shares (i) | Paid in | Accumulated | Comprehensive | Controlling | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital (i) | Deficit | (Loss) Income | Interest | Total | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 (as restated) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||||||||||||||||
| Issuance of January 2021 Call Options for service | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of Debenture into ordinary shares | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of December 2020 Warrants | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of August 2020 PIPE Warrants | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series A Convertible Preferred Shares and detachable February 2021 Warrants, net of costs | ||||||||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature in connection with Series A Convertible Preferred Shares | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares in connection with 2020 Share Incentive Plan | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares to Yun Tian | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of January 2021 Call Options | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| (i) |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5
LION GROUP HOLDING LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation expense | ||||||||
| Impairment of fixed assets | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Change in fair value of option liability | ( | ) | ||||||
| Amortization of right-of-use assets | ||||||||
| Impairment on cryptocurrencies | ||||||||
| Amortization of debt discounts | ||||||||
| Depreciation | ||||||||
| Deferred taxes | ( | ) | ||||||
| (Increase) decrease in operating assets | ||||||||
| Securities owned | ( | ) | ||||||
| Receivables from broker-dealers and clearing organizations | ( | ) | ||||||
| Prepaids, deposits and other assets | ( | ) | ||||||
| Crypto currencies | ( | ) | ( | ) | ||||
| Increase (decrease) in operating liabilities | ||||||||
| Payables to customers | ( | ) | ||||||
| Payables to broker-dealers and clearing organizations | ( | ) | ||||||
| Accrued expenses and other payables | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchases of fixed assets | ( | ) | ||||||
| Investment in investment funds | - | ( | ) | |||||
| Short term loans receivable | ( | ) | ( | ) | ||||
| Collection of short term loan | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from the exercise of December 2020 warrants | ||||||||
| Proceeds from the exercise of August 2020 PIPE Warrants | ||||||||
| Proceeds from the exercise of January 2021 Call Options | ||||||||
| Proceeds from issuance Series A Convertible Preferred Shares and detachable warrants, net of issuance costs | ||||||||
| Proceeds from issuance of ordinary shares to Yuntian | ||||||||
| Proceeds from issuance of convertible debenture | ||||||||
| Contribution from noncontrolling shareholder | ||||||||
| Repayment of Short-term borrowings | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of Exchange Rate Changes on Cash, Cash Equivalents, and Restricted Cash | ( | ) | ( | ) | ||||
| Net Change in Cash, Cash Equivalents, and Restricted Cash | ( | ) | ||||||
| Cash, Cash Equivalents, and Restricted Cash - Beginning of Year | ||||||||
| Cash, Cash Equivalents, and Restricted Cash - End of Year | $ | $ | ||||||
| Noncash Investing and Financing Activities | ||||||||
| Transfer from other assets to intangible assets | $ | $ | ||||||
| Value of January 2021 Call Options issued for service | $ | $ | ||||||
| Issuance of ordinary shares in connection with 2020 Share Incentive Plan | $ | $ | ||||||
| Effect of early adoption of ASU 2020-06 | $ | $ | ||||||
| Conversion of Debenture into ordinary shares | $ | $ | ||||||
| Conversion of Series A Convertible Preferred Shares and accrued dividends | $ | $ | ||||||
| Accrued dividends on Series A and Series B Convertible Preferred Shares | $ | $ | ||||||
| Deemed dividend on Series A and Series B Convertible Preferred Shares | $ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
6
LION GROUP HOLDING LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
Note 1 — Organization and Principal Activities
Lion Group Holding Ltd. (the “Company”, “Lion” or “LGHL”) is a company with limited liability registered as an exempted company in the Cayman Islands.
The Company and its subsidiaries (collectively referred to as the “Group”) provide securities, futures and derivatives brokerage services, insurance brokerage services and market maker trading services. As a result of the transaction described below, the Company’s ordinary shares and warrants started to be traded on the NASDAQ Capital Market under the ticker symbols LGHL and LGHLW, respectively on June 17, 2020. Each American Depositary Shares (“ADSs”) of the Company represents one Class A ordinary share.
Reverse Recapitalization
The Company was incorporated on February 11, 2020
for the sole purpose of consummating the business combination described further below. A business combination agreement dated March 10,
2020, as amended and restated on May 12, 2020 (the “Business Combination Agreement”), was entered into by and among the Company,
Proficient Alpha Acquisition Corp., a Nevada corporation (“PAAC”), Lion MergerCo I, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company (the “Merger Sub”), Lion Financial Group Limited, a corporation organized under the laws of the
British Virgin Islands (“LFGL”), each of the holders of LFGL’s outstanding capital shares (collectively, the “Sellers”)
and the other parties thereto (collectively, the “Business Combination”). The exchange consideration was approximately $
On June 16, 2020, the Company consummated the Business Combination (the “Closing”) and each of PAAC and LFGL became a wholly-owned subsidiary of the Company and the Company became a new public company owned by the prior stockholders of PAAC and the prior shareholders of LFGL, where each outstanding share of PAAC common stock has been exchanged for one Class A ordinary share of the Company, each outstanding warrant of PAAC has been exchanged for one warrant of the Company and each outstanding right of PAAC has been exchanged for one-tenth of one Class A ordinary share of the Company, resulting in 4,507,574 Class A ordinary shares and 17,795,000 warrants being issued to PAAC stockholders; and where the Company acquired all of the issued and outstanding shares of LFGL, i.e. 50,000 ordinary shares of LFGL from each of LFGL shareholders, in exchange for 12,891,602 ordinary shares (including 3,140,388 Class A and 9,751,214 Class B, “Exchange Shares”) of the Company, valued at a price per share equal to the price at which each share of PAAC common stock was redeemed, i.e. $10.185 per share.
The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles. Under this method of accounting, LGHL and PAAC are treated as the “acquired” company for financial reporting purpose. This determination was primarily based on LFGL comprising the ongoing operations of the combined company, LFGL’s senior management comprising the senior management of the combined company, and LFGL’s stockholders having a majority of the voting power of the combined company. Accordingly, for accounting purposes, LFGL is deemed the accounting acquirer in the transaction. The transaction is not a business combination because neither PAAC nor LGHL was a business under ASC 805. Consequently, the transaction is treated as the equivalent of LFGL issuing stock for the net monetary assets of PAAC, accompanied by a recapitalization of LFGL. Accordingly, the consolidated assets, liabilities and results of operations of LFGL are the historical financial statements of the combined company, and LGHL and PAAC’s assets, liabilities and results of operations are consolidated with LFGL beginning on June 16, 2020.
The consolidated financial statements are prepared
as a continuation of the financial statements of LFGL, the acquirer and predecessor, with retrospective adjustments to give effect of
the reverse recapitalization.
7
| Cash | $ | |||
| Prepaid expenses and other current assets | ||||
| Warrant liabilities | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Net assets acquired by LGHL as of June 16, 2020 | $ |
During the year ended December 31, 2020, the Group
incurred approximately $
1,933,740 Class B ordinary shares being 15% of the Exchange Shares (“Indemnity Escrow Shares”) otherwise issuable to LFGL shareholders are set aside in escrow for a period of 24 months after the closing to satisfy any post-closing purchase price adjustment and indemnification claims prescribed in the Business Combination Agreement. Additionally, 3,876,481 Class B ordinary shares being 30% of the Exchange Shares (the “Earnout Escrow Shares”, together with any dividends, distributions or other income on the Earnout Escrow Shares, the “Earnout Escrow Property”) otherwise issuable to LFGL shareholders are set aside in escrow until released upon the satisfaction of certain financial milestones below:
| ● | In the event that the net income for the calendar year ended December 31, 2021 (the “2021 Net Income”), as set forth in LGHL’s audited financial statements, is equal to or greater than $19,000,000 (the “First Net Income Target”), then, the Class B Sellers’ rights to 50% of the Earnout Escrow Property (the “First Half Earnout Property”) shall vest and shall no longer be subject to forfeiture. If the 2021 Net Income is less than the First Net Income Target, but is equal to or greater than $9,500,000, then the Sellers’ rights to 50% of the First Half Earnout Property shall vest and shall no longer be subject to forfeiture. In all other cases, the First Half Earnout Property will be forfeited. |
| ● | In the event that the net income for the calendar year ended December 31, 2022 (the “2022 Net Income”), as set forth in LGHL’s audited financial statements, is equal to or greater than $21,850,000 (the “Second Net Income Target”), then the Class B Sellers’ rights to the remaining Earnout Escrow Property (after giving effect to any forfeitures for the 2021 calendar year, the “Second Half Earnout Property”) shall vest and shall no longer be subject to forfeiture. If the 2022 Net Income is less than the Second Net Income Target, but is equal to or greater than $10,925,000, then the Class B Sellers’ rights to 50% of the Second Half Earnout Property shall vest and shall no longer be subject to forfeiture. In all other cases, the Second Half Earnout Property will be forfeited. |
Principal Activities
The Group generates commission revenues by enabling its customers to trade in securities, futures and derivative markets throughout the world. The Group’s trading customers consist of corporate clients, individual traders and retail investors primarily located in People’s Republic of China (“PRC”) and Southeast Asia, although its trading platform allows it to serve customers worldwide.
The Group also generates commission revenues by providing insurance brokerage services to high-net-worth individuals primarily located in the PRC.
8
In May 2019, the Group began to serve as the counterparty to its customers in derivative transactions. This predominantly occurs when a customer utilizes a contract for difference (CFD). CFDs allow for the exchange of the difference in value of a particular asset such as a currency pair between the time at which a contract is opened and the time at which it is closed. If the trades of one customer can be used to naturally offset the trades of another customer, the Group will act as the market maker to offer liquidity and pricing to both customers. When such an offsetting is not available, the Group may choose to use its own trades to offset the trades of its customer, and the Group may also act as a broker in arranging trades between the customer and third-party market makers.
The Group officially began offering total return swap (TRS) trading services to customers in July 2020. The Group has entered into International Swaps and Derivatives Association (ISDA) master agreements and related supplementary agreements with two of the top five swap traders in China. The Group is currently offering A-shares (shares that are denominated in Renminbi and traded in the Shanghai Stock Exchange and Shenzhen Stock Exchange) and Hong Kong stock basket linked TRS, which provides international investors seeking to invest in the China stock market with higher leverage compared with buying A-share stocks directly. The Group earns income from the spread on interest rate loans provided to TRS trading customers and loans borrowed from its business partners. In addition, the Group also receives commissions and fees from customers for trades made through the TRS trading service.
For the
six months ended June 30, 2022 and 2021, the Group had three trading customers accounted for more than
For the six months ended June 30, 2022 and 2021, the Group placed 79% (less than 10% of the total revenue for the six months of 2022) and 82% (less than 10% of total revenue for the first six months of 2021) of its insurance brokerage sales with one insurance provider.
The Group commenced bitcoin mining operations in late May 2021 and voluntarily ceased the operation since October 2021 as a result of the hiked electricity cost as well as the change in the regulatory environment in the PRC.
In January 2022, the Group launched the non-fungible token, or NFT, business through Flying Lion Limited, including (i) issuance of MetaWords character NFTs and MetaWords work NFTs (collectively, the “MetaWords NFTs”), and (ii) the establishment of the NFT trading platform, namely the Lion NFT platform (f/k/a/ Meta World). The Group created and minted the MetaWords NFTs by converting Xu Bing’s characters in his artwork Book from the Ground and sold MetaWords NFTs to the NFT collectors.
The sales were conducted through an online auction or blind boxes direct sell on the Lion NFT platform.
The subsidiaries of the Company include a participant of the Stock Exchange of Hong Kong Limited (“SEHK”) and Hong Kong Securities Clearing Company Limited (“HKSCC”), remote trading member of Singapore Exchange Limited (“SGX”), and member of the Professional Insurance Brokers Association Limited (“PIBA”); possess the licenses issued by Hong Kong Securities and Futures Commission (“HKSFC”) to carry out regulated activities including Type 1 Dealing in Securities, Type 2 Dealing in Futures Contracts, Type 4 Advising on Securities, Type 5 Advising on Futures Contracts, and Type 9 Asset Management, the full license issued by Cayman Islands Monetary Authority (“CIMA”) to carry out securities investment business including Broker Dealer and Market Maker, and the Capital Markets Service License (“CMS License”) issued by the Monetary Authority of Singapore.
COVID-19
In December 2019, COVID-19 emerged and has subsequently spread worldwide. In March 2020, the World Health Organization declared COVID-19 as a pandemic. In the fiscal year of 2021, some instances of COVID-19 infections emerged in various regions worldwide. Governments around the globe have taken measures to contain the spread of the COVID-19 virus, including quarantining individuals infected with or suspected of having COVID-19, prohibiting residents from free travel, encouraging employees of enterprises to work remotely from home and cancelling public activities, among others. COVID-19 has also resulted in temporary closure of many corporate offices and factories around the world. In addition, as the outbreak continues to threaten global economies, it may continue to cause significant market volatility and declines in general economic activities. Since December 2021, there has been a recurrence of COVID-19 outbreaks in China and Hong Kong due to the Delta and Omicron variants. Like most companies, the Group’s various business lines have been adversely impacted by COVID-19. CFD trading volume and futures contract volumes decreased significantly compared to prior year, which was mainly attributable to economic and financial impact brought about by COVID-19 on the Group’s customers, causing a decrease in both their willingness to trade and make investments as well as their disposable income allocated making such transactions. Furthermore, customers’ concerns about future unpredictability also caused their trading activity to decline, impacting the Group’s CFD trading business in particular. In addition, travel restrictions in Hong Kong caused cancellations and prevented management from attending branding, business promotion, and exhibition activities, which limited the opportunities to acquire new customers. Meanwhile, the Group’s futures and insurance brokerage businesses were negatively affected as new or existing customers may not be able to travel to Hong Kong to open new futures trading accounts or purchase insurance products. No impairments were recorded as of the condensed consolidated balance sheet date, as the carrying amounts of the Group’s assets are expected to be recoverable; however, due to significant uncertainty surrounding the situation, management’s judgment regarding this could change in the future. In addition, the Group cannot reasonably estimate the related financial impact to the Group’s future financial results given the uncertainties surrounding the duration of the outbreak. The Group continues to monitor the impact of the COVID-19 outbreak closely.
9
Details of the Company’s subsidiaries as of June 30, 2022 are as follows:
| Company name | Date of Incorporation or acquisition |
Place of incorporation or establishment |
Ownership interest |
Principal activities | ||||
| Lion Financial Group Limited | ||||||||
| Lion Wealth Management Limited | ||||||||
| Lion International Securities Group Limited | ||||||||
| Lion Futures Limited | ||||||||
| Lion Investment (Hong Kong) Limited (F/K/A Lion Foreign Exchange Limited) | ||||||||
| Lion Asset Management Limited (F/K/A Lion Capital Management Limited) | ||||||||
| BC Wealth Management Limited | ||||||||
| Lion Wealth Limited | ||||||||
| Lion Brokers Limited | ||||||||
| Lion Investment Fund SPC | ||||||||
| Lion International Financial (Singapore) Pte. LTD. | ||||||||
| Lion Group North America Corp. (F/K/A Proficient Alpha Acquisition Corp.) | ||||||||
| Lion Fintech Group Limited | ||||||||
| Royal Lion Investment Limited |
10
| Royal Lion Middle East DMCC | ||||||||
| Lion NFT Limited | ||||||||
| Flying Lion Limited | ||||||||
| Lion Group (Hangzhou) Investment Limited | ||||||||
| Aquarius Sponsor Ltd. | ||||||||
| Aquarius II Sponsor Ltd/ | ||||||||
| Aquarius I Acquisition Corp. | ||||||||
| Aquarius II Acquisition Corp. | ||||||||
| Lion Metaverse Limited | ||||||||
| Lion Multi-Series Fund SPC | ||||||||
| Lion Silver Capital Limited |
11
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to fairly present the financial statements for the interim periods. The condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been prepared in accordance with the regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Results for the interim periods are not necessarily indicative of results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes as of and for the year ended December 31, 2021.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and its subsidiaries in which it has a controlling financial interest. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in consolidation. The Group consolidates the loss of the subsidiaries and subtracts the net loss that is attributable to the non-controlling interest holders in calculating the net income (loss) that is attributable to the Group.
Translation of Foreign Currencies
The functional currency is the U.S. dollar for the Group’s Cayman Island operations and the Hong Kong dollar for all other Group operations. The Group’s reporting currency is the U.S. dollar. Assets and liabilities denominated in foreign currencies are translated at year-end exchange rates, income statement accounts are translated at average rates of exchange for the year and equity is translated at historical exchange rates. Any translation gains or losses are recorded in other comprehensive income (loss). Gains or losses resulting from foreign currency transactions are included in net income.
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Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements as well as the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of deposits with banks and all highly liquid investments, with maturities of three months or less, that are not segregated and deposited for regulatory purposes. The Group does not have any cash equivalents as of June 30, 2022 and December 31, 2021.
The Group maintains its cash in bank deposit accounts which at times may exceed insured limits. The Group has not experienced any losses in such accounts. Management believes that the Group is not exposed to any significant credit risk on cash and cash equivalents.
Restricted Cash — Bank Balances Held on Behalf of Customers
The Group maintains segregated trust accounts with licensed banks or payment platform to hold customer funds in accordance with the relevant legislation. The Group has classified customer funds as bank balances held on behalf of customers with a corresponding payable to customers in the liabilities section of the condensed consolidated balance sheets.
Securities Owned and Derivatives
The Group’s proprietary trading securities transactions are recorded on the trade date, as if they had settled.
Securities, futures and derivative positions are recorded at fair value in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurements and Disclosures” (“ASC 820”).
Receivables
Receivables arise from the business of dealing in investment securities, futures and derivatives and include the amounts due on brokerage transactions on a trade-date basis. Broker-dealers will require balances to be placed with them in order to cover the positions taken by its customers. Clearing house receivables typically represent proceeds receivable on trades that have yet to settle and are usually collected within two days.
Receivables from broker-dealers and clearing organizations as presented in the condensed consolidated balance sheets represent such receivables related to the Group’s customer trading activities, including customers’ cash deposits, receivables arising from unsettled trades in securities, futures and CFD trading service, and receivables arising from the Group’s TRS trading service in an amount generally equal to the market value of A-shares. Receivables from broker-dealers and clearing organizations include such receivables arising from the Group’s proprietary trading activities as well.
Commissions receivable represent commissions due
from trading activities and from insurance providers once referrals have been made and the transactions have been executed under the terms
of the relevant insurance policy or subscription agreement. As of June 30, 2022 and December 31, 2021, commissions receivable amounted
to $
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Crypto Currencies
The following table presents the activities of the crypto currencies for the six months ended June 30, 2022 and 2021:
| BNB and WBNB | ||||
| Crypto currencies at January 1, 2022 | $ | |||
| Additions of crypto currencies(1) | ||||
| Realized gain on sale of crypto currencies | ||||
| Impairment of crypto currencies | ( | ) | ||
| Sale of crypto currencies | ||||
| Crypto currencies at June 30, 2022(4) | $ | |||
| Bitcoins | ||||
| Crypto currencies at January 1, 2021 | $ | |||
| Additions of crypto currencies(2) | ||||
| Realized gain on sale of crypto currencies | ||||
| Impairment of crypto currencies(3) | ||||
| Sale of crypto currencies | ||||
| Crypto currencies at June 30, 2021(4) | $ | |||
| (1) |
| (2) |
| (3) |
| (4) |
Crypto Currency Machines
Management has assessed the basis of depreciation of the Group’s crypto currency machines used to verify crypto currency transactions and generate crypto currencies and believes they should be depreciated over a 3-year period. The rate at which the Group generates digital assets and, therefore, consumes the economic benefits of its transaction verification servers are influenced by a number of factors including the following:
| ● | the complexity of the transaction verification process which is driven by the algorithms contained within the bitcoin open source software; |
| ● | the general availability of appropriate computer processing capacity on a global basis (commonly referred to in the industry as hashing capacity which is measured in Petahash units); and |
| ● | technological obsolescence reflecting rapid development in the transaction verification server industry such that more recently developed hardware is more economically efficient to run in terms of digital assets generated as a function of operating costs, primarily power costs i.e. the speed of hardware evolution in the industry is such that later hardware models generally have faster processing capacity combined with lower operating costs and a lower cost of purchase. |
The Group operates in an emerging industry for which limited data is available to make estimates of the useful economic lives of specialized equipment. Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. This assessment takes into consideration the management’s expectations regarding the direction of the industry including potential changes in technology.
To the extent that any of the assumptions underlying
management’s estimate of useful life of its transaction verification servers are subject to revision in a future reporting period
either as a result of changes in circumstances or through the availability of greater quantities of data then the estimated useful life
could change and have a prospective impact on depreciation expense and the carrying amounts of these assets. For the six months ended
June 30, 2022, the Company fully impaired and disposed of the mining equipment in an amount of approximately $
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NFT - Intangible assets
Due to the lack of physical substance, the Group considers MetaWords NFTs that the Group created meet the definition of intangible assets and would generally be accounted for under ASC 350 Intangibles — Goodwill and Other. The useful life is indefinite according to ASC 350-30-35-4. The Group understands that there is no clear guidance either authoritative or nonauthoritative on the accounting treatment of NFTs yet. In the cases in which the Group shall account for the initial recognition of NFTs on balance sheet, it considers the following applicable guidance:
ASC 350-30, General Intangibles Other Than Goodwill
ASC 985-20, Software to be sold, leased, or otherwise marketed
By analogy to the guidance above, capitalization of the costs commences on the establishment of technological feasibility (i.e. the completion of a working model) and ceases when the NFTs are made available for release to customers. Indefinite-lived intangible assets are not amortized. Instead, they are tested for impairment annually or upon a triggering event that indicates it is more likely than not that the asset is impaired. The impairment test under ASC 350 is a one-step test that compares the fair value of the intangible asset with its carrying value. If the fair value is less than the carrying value, an impairment is recorded. Once the intangible asset is impaired, the impairment loss is not reversed if the fair value subsequently increases.
As of June 30, 2022, the Group considers the value
of the NFTs held on hand is immaterial to the consolidated financial statements taken as a whole. In accordance with the accounting policies
mentioned above, the Group initially capitalized the costs of NFTs in intangible assets which primarily included the gas fees, the blockchain
transaction fee paid to network validators for their services, in an aggregate of less than $
For NFTs held by users, the Group does not provide custody services either directly or indirectly, and neither it has control of these digital assets nor does it have any related liability. They are off-balance sheet in the Group’s financial statements.
Fixed Assets, Net
Furniture, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis using estimated useful lives of three to ten years. Leasehold improvements are amortized over the lesser of the economic useful life of the improvement or the term of the lease.
Payables
Payables arise from the business of dealing in investment securities, futures and derivatives. Payables to customers as presented in the condensed consolidated balance sheets represent such payables related to the Group’s customer trading activities as well as the cash balances held on behalf of customers.
The Group borrows loans from business partners at benchmark interest rate plus a fixed spread, and immediately lent to TRS trading service customers. Net loans borrowed from TRS business partners are included in the line item “payables to broker-dealers and clearing organizations”. As of June 30, 2022 and December 31, 2021, the balance of payables to broker-dealers and clearing organizations was primarily comprised of such net loans.
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Commissions payable mainly represent amounts owed
to referral sources of insurance brokerage business outside of the Group for transactions referred based on the terms of the underlying
agreements. As of June 30, 2022 and December 31, 2021, commissions payable amounted to $
Revenue Recognition
See Note 3 for details.
Commissions and Fees
Commissions and fees related to securities, derivative and TRS trading transactions are recorded on a trade date basis. Commissions expense on insurance products are recognized on the closing date of a transaction as determined by the terms of the relevant contract and insurance policy.
Convertible Securities, Warrants and Derivative Instruments
The accounting treatment of warrants and convertible securities issued is determined pursuant to the guidance provided by ASC 470, Debt, ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging (“ASC 815”), as applicable. Each feature of freestanding financial instruments including, without limitation, any rights relating to subsequent dilutive issuances, equity sales, rights offerings, conversions, optional redemptions and dividends are assessed with determinations made regarding the proper classification in the Company’s consolidated financial statements.
The Company evaluates all of its equity-linked financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity and whether embedded derivative shall be bifurcated from the host instrument and separately accounted for as a derivative, is reassessed at the end of each reporting period. Derivative assets and liabilities are recorded at fair value at inception and re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations.
On January 1, 2022, the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06)”. The new ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, the guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company early adopted ASU 2020-06 in the first interim period of 2022 using the modified retrospective method which resulted in a reclassification of the unamortized portion of the beneficial conversion feature from additional paid-in capital to Series B Preferred shares on the condensed consolidated balance sheet.
Earnings (Loss) per Ordinary Share
The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share”, which requires earnings per share for each class of stock (ordinary shares and participating securities) to be calculated using the two-class method. The two-class method is an allocation of earnings between the holders of ordinary shares and a company’s participating security holders. Under the two-class method, earnings for the reporting period are allocated between ordinary shareholders and other security holders based on their respective participation rights in undistributed earnings. As the Company’s two classes of ordinary shares have the same dividend rights, earnings (loss) per share for each class of ordinary shares have the same results.
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Basic earnings (loss) per ordinary share is computed by dividing net income or loss available to ordinary shareholders by the weighted average number of ordinary shares issued and outstanding for the periods. For the six months ended June 30, 2021, the December 2020 Convertible Debenture (as discussed in Note 14) which was fully converted into the Company’s Class A ordinary shares, as represented by ADSs in the first half of 2021 and the December 2020 Series A Warrant (as discussed in Note 14) which was exercised into the Company’s Class A ordinary shares, as represented by ADSs in the first half of 2021, have the same dividend rights as the ordinary shares on an as-converted and as-exercised basis, and therefore qualify as participating securities for the period they were outstanding in accordance with ASC 260. The holders of Convertible Debenture and Series A Warrant do not have a contractual obligation to share in the Company’s losses, therefore participating securities are excluded from the calculation of earnings (loss) per share for the six months ended June 30, 2021 in which there were losses available to ordinary shareholders.
In accordance with ASC 260-10-45,
For purposes of determining diluted earnings (loss) per ordinary share, basic earnings (loss) per ordinary share is further adjusted to include the effect of potential dilutive ordinary shares outstanding during the period. Potential ordinary shares consist of the incremental ordinary shares upon exercise of warrants using the treasury stock method and upon conversion of convertible debt using the if-converted method.
For the six months ended June 30, 2022 and 2021 (on a retroactively adjusted basis), the following potential dilutive securities denominated in ordinary shares equivalents were excluded for the periods they were outstanding from the computation of diluted earnings (loss) per share because to do so would have been antidilutive. As a result, diluted earnings (loss) per ordinary share is the same as basic earnings (loss) per ordinary share for all periods presented.
| Six Months Ended June 30, | ||||||||||
| 2022 | 2021 | |||||||||
| SPAC Warrants | ||||||||||
| August 2020 PIPE Warrants | See Note 13 | |||||||||
| December 2020 Convertible Debenture | See Note 12 | |||||||||
| December 2020 Warrants | See Note 12 | |||||||||
| January 2021 Call Options | See Note 13 | |||||||||
| Series A Convertible Preferred Shares | See Note 12 | |||||||||
| February 2021 Warrants | See Note 12 | |||||||||
| Series B Convertible Preferred Shares | See Note 12 | |||||||||
| December 2021 Warrants | See Note 12 | |||||||||
| May 2022 Convertible Debenture | See Note 12 | |||||||||
Subsequently, an aggregate of approximately
Non-controlling Interests
The non-controlling interests are presented in
the consolidated balance sheets, separately from equity attributable to the shareholders of the Group. Income attributable to non-controlling
interests’ holders is presented on the consolidated statements of operations and the consolidated statements of comprehensive income
(loss) as an allocation of the total income for the periods between non-controlling interests holders and the shareholders of the Group.
Under ASC 810-10-15-10(a), Consolidation, all majority-owned subsidiaries (i.e., all companies in which a parent has a controlling financial
interest through direct or indirect ownership of a majority voting interest) must be consolidated unless control does not rest with
the majority owner. The Group owns
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On May 7, 2021, Lion NFT Limited (“LNFT”)
was formed by Lion Financial Group Limited (“LFGL”) and three other shareholders in British Virgin Islands. LFGL owned
Reclassification
Certain prior periods amounts have been reclassified to be comparable to the current period presentation. The reclassification has no effect on previously reported net assets or net income (loss).
Stock-based Compensation
The Company applies ASC No. 718, “Compensation-Stock Compensation”, which requires that share-based payment transactions with employees and nonemployees upon adoption of ASU 2018-07, be measured based on the grant date fair value of the equity instrument and recognized as compensation expense over the requisite service period, with a corresponding addition to equity. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period.
The fair value of the Company’s ordinary shares underlying stock-based awards is determined to be based on the closing price of the Company’s shares as reported by Nasdaq on the date of grant. The Company values its stock options or warrants that have service vesting requirements or performance-based awards with or without market conditions using the Binomial Option Pricing Model.
Research and Development Expenses
Research and development expenses are expensed in the period when incurred. These costs primarily consist of designing, coding, project management, and other IT services related to developing and enhancing the project.
Income Taxes
The amount of current taxes payable or refundable is recognized as of the date of the consolidated financial statements, utilizing currently enacted tax laws and rates of the relevant authorities. Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and tax credits based on applicable tax rates. Deferred tax assets are reduced by a valuation allowance when management determines that it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax expenses or benefits are recognized in the consolidated financial statements for the changes in deferred tax liabilities or assets between years.
The Group recognizes the effect of income tax
positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest
amount that is greater than
Leases
On January 1, 2022, the Group adopted FASB ASC Topic 842, “Leases,” (“ASC Topic 842”) which requires that a lessee recognize in the condensed consolidated balance sheet a lease liability and a corresponding right-of-use asset, including for those leases that the Group currently classifies as operating leases. The right-of-use asset and the lease liability was initially measured using the present value of the remaining lease payments. ASC Topic 842 was implemented using a modified retrospective approach which resulted in no cumulative-effect adjustment in the opening balance of retained earnings as of January 1, 2022. As a result, the condensed consolidated balance sheet prior to January 1, 2022 was not restated and continues to be reported under FASB ASC Topic 840, “Leases,” (“ASC Topic 840”), which did not require the recognition of a right-of-use asset or lease liability for operating leases.
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The Group reviews all relevant contracts to determine if the contract contains a lease at its inception date. A contract contains a lease if the contract conveys to the Group the right to control the use of an underlying asset for a period of time in exchange for consideration. If the Group determines that a contract contains a lease, it recognizes, in the condensed consolidated balance sheets, a lease liability and a corresponding right-of-use asset on the commencement date of the lease. The lease liability is initially measured at the present value of the future lease payments over the lease term using the rate implicit in the lease or, if not readily determinable, the Group’s secured incremental borrowing rate. An operating lease right-of-use asset is initially measured at the value of the lease liability minus any lease incentives and initial direct costs incurred plus any prepaid rent.
Each lease liability is measured using the Group’s secured incremental borrowing rate. The Group’s leases have remaining terms of two to three years, and some of which include options to terminate the lease upon notice. The Group considers these options when determining the lease term used to calculate the right-of-use asset and the lease liability when the Group is reasonably certain it will exercise such option.
The Group’s operating leases contain both lease components and non-lease components. Non-lease components are distinct elements of a contract that are not related to securing the use of the underlying assets, such as common area maintenance and other management costs. The Company elected to measure the lease liability by combining the lease and non-lease components as a single lease component. As such, the Company includes the fixed payments and any payments that depend on a rate or index that relate to the lease and non-lease components in the measurement of the lease liability. Some of the non-lease components are variable in nature and not based on an index or rate, and as a result, are not included in the measurement of the operating lease right-of-use assets or operating lease liability.
Operating lease expense is recognized on a straight-line basis over the lease term and is included in occupancy expenses in the Group’s condensed consolidated statements of comprehensive income.
Recent Accounting Pronouncements
In June 2016, FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual rights to receive cash. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For private companies, the ASU on credit losses will take effect for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. All entities may adopt the amendments in this ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). In May 2019, FASB issued ASU 2019-05, Financial instrument — Credit Losses (Topic 326), Targeted Transition Relief, which provides an irrevocably fair value option to elect for eligible instruments. In November 2019, FASB issued ASU 2019-11 Codification Improvements to Topic 326, Financial Instruments — Credit Losses, which clarified and improved various aspects of ASU 2016-13. In November 2019, FASB issued ASU 2019-10 to amend private companies, not-for-profit organizations, and certain small public companies effective date on its credit losses (CECL) standards to fiscal years beginning after December 15, 2022 and interim periods therein. The Group has evaluated the effect of the adoption of this ASU and does not expect there will be significant impact on its consolidated financial statements from the adoption of the new guidance.
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Note 3 — Revenue Recognition
Under ASC Topic 606 Revenue from Contracts with Customers, revenues are recognized when control of the promised goods or services is transferred to customers in exchange for an amount that reflects the consideration the Group expects to be entitled to and in return for transferring those goods or services.
Significant Judgments
Revenue from contracts with customers include commission income from securities, futures and derivative brokerage, market making trading and insurance brokerage. The recognition and measurement of revenue is based on the assessment of individual contract terms. Significant judgment is required to determine whether performance obligations are satisfied at a point in time or over time; how to allocate transaction prices where multiple performance obligations are identified; when to recognize revenue based on the appropriate measure of progress under the contract; whether revenue should be presented gross or net of certain costs; and whether constraints on variable consideration should be applied due to uncertain future events.
Commissions and Fees
The Group earns fees and commissions from securities, futures and derivatives brokerage services (including commissions and fees related to TRS trading business) and CFD trading services when the Group acts as a market maker. Each time a customer executes a securities, futures, derivative or CFD transaction, commissions and fees are earned. Commissions and related clearing fees and expenses are recorded on the trade date. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon and the risks and rewards of ownership have been transferred to/from the customer. The Group charges securities brokerage commissions and market making commissions based on amount of transaction volume, or the number of shares, lots of contracts executed in each order, which generally vary in accordance with the type of products or services the Group offers.
The Group also earns commission income arising from insurance brokerage services which are recognized at a point in time when the performance obligation has been satisfied by successfully referring an insurance client to an insurer in accordance with the relevant broker contract. The commission earned is equal to a percentage of the premium paid to the insurance provider.
The following table presents revenue from contracts with customers, in accordance with ASC Topic 606, by major source and geographic region:
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Insurance brokerage commissions | $ | $ | ||||||
| Securities brokerage commissions | ||||||||
| Market making commissions and fees | ||||||||
| Sale of NFTs | ||||||||
| Cryptocurrency mining | ||||||||
| Total revenue from contracts with customers | $ | $ | ||||||
| Hong Kong | $ | $ | ||||||
| Cayman Islands | ||||||||
| $ | $ | |||||||
All of the Group’s revenues from contracts with customers are recognized at a point in time.
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Trading Gains (Losses)
Trading gains and losses along with interest revenue fall within the scope of ASC Topic 825, Financial Instruments.
Trading gains (losses) consist of realized and unrealized gains (losses) derived from (i) managed portfolio trading positions where the Group acts as counterparty to customers’ trades, and (ii) marking up the bid/offer spreads on customers’ CFD transactions, and (iii) trading gains/(losses) from proprietary TRS trading activities. Trading gains/(losses) is recorded on a trade date basis. The following table represents trading gain (loss) breakdown:
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| CFD trading losses | $ | ( | ) | $ | ( | ) | ||
| TRS trading gains/(losses) | ( | ) | ||||||
| Other trading gains | ( | ) | ||||||
| Total | $ | ( | ) | $ | ||||
The following table represents the effect of trading activities on the condensed consolidated statements of operations and comprehensive income (loss):
| Trading Revenue | ||||||||
| Type of Instrument | 2022 | 2021 | ||||||
| Foreign Currency | $ | ( | ) | $ | ( | ) | ||
| Stock Indices | ( | ) | ( | ) | ||||
| Commodities | ( | ) | ( | ) | ||||
| Equity | ( | ) | ||||||
| $ | ( | ) | $ | |||||
| Trading Revenue | ||||||||
| Line Item in Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) | 2022 | 2021 | ||||||
| Trading gains (losses) | $ | ( | ) | $ | ||||
The revenue related to each category includes realized and unrealized gains and losses on both derivative instruments and nonderivative instruments.
Interest Income and Other
Interest income primarily consist of interests earned on bank deposits and short-term loans the Group extends to unrelated third parties, interest rate difference between currency pairs the Group hold resulting from rolling over currency positions and interest earned from loans provided to TRS trading customers, which are recorded on an accrual basis. Interest income is recognized as it accrues using the effective interest method.
Other income primarily consists of the dividends income, transaction fee, advisory service fee, government subsidy and other miscellaneous charges from customers etc.
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NFT Sales
The Group determines revenue recognition generated in the Group’s NFT business through the following steps in accordance with ASC 606-10-05-4:
| ● | Step 1 - Identify the contract, or contracts, with the customer |
A contract exists between the Group and platform user customers. When the users log in their accounts with the platform, users sign on the agreement which governs, among others, the purchase of digital assets. When the users submit the purchase order and sign the transaction in their digital wallet, they agree to enter the transaction and to pay the price listed. Collectability is probable because the transaction can only be completed when the available Wrapped Binance Coin or Binance Coin balance in their digital wallet is greater than the sale price.
| ● | Step 2 - Identify the performance obligations in the contract |
There are two performance obligations including the transfer of MetaWords character NFTs and the transfer of a license of symbolic intellectual property (“IP”) associated with MetaWords to user customers. The Group considers itself the principal in the transfer of MetaWords character NFTs as it controls the MetaWords NFTs in advance of transferring to customers, and revenue is recognized on a gross basis.
| ● | Step 3 - Determine the transaction price |
In exchange for transferring certain MetaWords NFTs to customers, the Group is entitled for a fixed number of WBNB/BNB tokens, net of the incentive consideration payable to customers which were noncash consideration that the Group measures at the fair value of the tokens on the date received and accounted for as a reduction of the transaction price in accordance with the guidance in ASC 606-10-32-25. Fair value of the WBNB/BNB tokens received is determined using the quoted price of the related cryptocurrency at the time of receipt, which is not materially different from the fair value at contract inception.
In exchange for a license of IP, the Group is entitled to consideration in the form of sales-based royalties (i.e. authorization fee and licensing fee when applicable), and recognizes revenue as the subsequent sales occur in accordance with ASC 606-10-55-65.
| ● | Step 4 - Allocate the transaction price to performance obligations in the contract; and |
As a result of applying the sales- or usage-based royalty exception, the allocation of the transaction price in the sale of Company’s MetaWords NFTs by the Group is not necessary.
| ● | Step 5 - Recognize revenue when, or as, the Group satisfies performance obligations by transferring the promised good or services. |
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Revenue in exchange for transferring MetaWords NFTs is recognized for each sale at the point when the NFT transfers to the user customer’s digital wallet. Revenue in exchange for license of IP is recognized as the subsequent sales occur.
In addition, as the marketplace the Group earns revenue as transaction fee when NFTs are exchanged on the Group's platform. The Group considers itself the agent in the MetaWords Resale as it doesn’t control the MetaWords NFTs in advance of transferring to buyers, and revenue is recognized on a net basis as a specific percentage of the gross sale value. The revenue is recognized for each exchange when the NFT transfers to the buyer. The transaction fees abovementioned to such MetaWords Resale were de minimis as of June 30, 2022.
Crypto Currencies Mining
The Group recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| ● | Step 1: Identify the contract with the customer | |
| ● | Step 2: Identify the performance obligations in the contract |
| ● | Step 3: Determine the transaction price | |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract | |
| ● | Step 5: Recognize revenue when the Company satisfies a performance obligation |
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
23
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
| ● | Variable consideration | |
| ● | Constraining estimates of variable consideration | |
| ● | The existence of a significant financing component in the contract | |
| ● | Noncash consideration | |
| ● | Consideration payable to a customer |
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
Providing computing power in digital asset transaction verification services is an output of the Group’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Group’s contracts with mining pool operators. The transaction consideration the Group receives, if any, is noncash consideration, which the Group measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Group has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Group receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.
Fair value of the cryptocurrency award received is determined using the quoted closing price of the related cryptocurrency at the date of receipt. There is currently no specific definitive guidance under GAAP or alternative accounting framework for the accounting for cryptocurrencies recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment.
Note 4 — Cash and Restricted Cash
The following table provides a reconciliation of cash and restricted cash reported within the condensed consolidated balance sheets and statements of cash flows.
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash | $ | $ | ||||||
| Restricted Cash | ||||||||
| Total cash and restricted cash presented in the condensed consolidated statement of cash flows | $ | $ | ||||||
Restricted cash includes cash balances held on behalf of customers (see Note 2 for further information).
24
Note 5 — Fair Value
Fair Value Hierarchy
FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and establishes a hierarchy of fair value inputs. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach, as specified by FASB ASC 820, are used to measure fair value.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
| ● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date. |
| ● | Level 2 are inputs other than quoted prices included within level 1 that are observable for the assets or liabilities either directly or indirectly. |
| ● | Level 3 inputs are unobservable inputs for the assets or liabilities. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fbuair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
A description of the valuation techniques applied to the Group’s major categories of assets and liabilities measured at fair value on a recurring basis follows.
Exchange-traded equity securities and futures are generally valued based on quoted prices at the close of trading on the period end date. To the extent these securities and futures are actively traded, valuation adjustments are not applied, and they are categorized in level 1 of the fair value hierarchy; otherwise, they are categorized in level 2 or level 3 of the fair value hierarchy.
Listed derivatives that are actively traded are valued based on quoted prices at the close of trading on the period end date and are categorized in level 1 of the fair value hierarchy. Listed derivatives that are not actively traded are valued using the same approaches as those applied to over-the-counter (“OTC”) derivatives; they are generally categorized in level 2 of the fair value hierarchy.
25
Depending on the product and the terms of the transaction, the fair value of OTC derivative products can be either observed or modeled using a series of techniques and model inputs from comparable benchmarks. Substantially all of the Group’s OTC derivatives were carried at fair value based on spot exchange rates broadly distributed in active markets, or amounts approximating fair value. Such values are categorized as level 2 of the fair value hierarchy.
The significant assumptions which the Company used to value the options in the Monte-Carlo Simulation model are as below. There were not outstanding options as of June 30, 2022.
| December 31, 2021 | ||||
| Stock price | $ | |||
| Exercise price | $ | |||
| Expected term in years | ||||
| Expected dividend yield | % | |||
| Volatility | % | |||
| Risk-free interest Rate | % | |||
Public Warrants are classified as level 1 financial instruments, as their value is derived using quoted market prices as of the measurement date. Private Warrants are classified as level 2, which are valued using a Black-Sholes-Merton pricing model at of the measurement date.
The significant assumptions which the Company used in the model are:
June 30, 2022 | December 31, 2021 | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Expected term in years | ||||||||
| Expected dividend yield | % | % | ||||||
| Volatility | % | % | ||||||
| Risk-free interest Rate | % | % | ||||||
26
The following table presents the Group’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021:
At June 30, 2022
| Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Assets | ||||||||||||||||
| Fair value measurement: | ||||||||||||||||
| Listed equity securities | $ | $ | $ | |||||||||||||
| NAV practical expedient: | ||||||||||||||||
| Long term investment | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liabilities | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||
At December 31, 2021
| Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Assets | ||||||||||||||||
| Fair value measurement: | ||||||||||||||||
| Listed equity securities | $ | $ | $ | |||||||||||||
| NAV practical expedient: | ||||||||||||||||
| Long term investment | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities | ||||||||||||||||
| Option liabilities(1) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Warrant liabilities | ( | ) | ( | ) | ( | ) | ||||||||||
| $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||
| (1) | No collateral received or pledged for derivative contracts. |
There were no transfers between level 1, level 2, and level 3 during either year.
27
The following table presents the carrying values and estimated fair values of financial assets and liabilities, excluding financial instruments that are carried at fair value on a recurring basis, and information is provided on their classification within the fair value hierarchy.
At June 30, 2022
| Total Carrying | Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs | Significant Unobservable Inputs | Estimated | ||||||||||||||||
| Value | (Level 1) | (Level 2) | (Level 3) | Fair Value | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Bank balances held on behalf of customers | ||||||||||||||||||||
| Receivables from broker-dealers and clearing organizations | ||||||||||||||||||||
| Short-term loans receivable | ||||||||||||||||||||
| Other receivables | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Payables to customers | $ | $ | $ | $ | $ | |||||||||||||||
| Payables to broker-dealers and clearing organizations | ||||||||||||||||||||
| Accrued expenses and other payables | ||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Lease liability - current | ||||||||||||||||||||
| Due to director | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
28
At December 31, 2021
| Total Carrying | Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs | Significant Unobservable Inputs | Estimated | ||||||||||||||||
| Value | (Level 1) | (Level 2) | (Level 3) | Fair Value | ||||||||||||||||
| Assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Bank balances held on behalf of customers | ||||||||||||||||||||
| Receivables from broker-dealers and clearing organizations | ||||||||||||||||||||
| Other receivables | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Liabilities | ||||||||||||||||||||
| Payables to customers | $ | $ | $ | $ | $ | |||||||||||||||
| Payables to broker-dealers and clearing organizations | ||||||||||||||||||||
| Accrued expenses and other payables | ||||||||||||||||||||
| Short-term borrowings | ||||||||||||||||||||
| Due to director | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
Note 6 — Short-term Loans Receivable
On April 8, 2022, the Group issued notes
receivable in an aggregate of approximately $
Note 7 — Long-term Investment
In May 2021, the Group formed Lion Group
(Hangzhou) Investment Limited and invested RMB
FASB ASC 820-10-35-59, Fair Value Measurements and Disclosures, indicates that investments in certain funds that do not have a readily determinable fair value qualify for the use of the net asset value (NAV) practical expedient. The Group classified the investment to long term investment and elects to use the NAV practical expedient. As of December 31, 2021 and June 30, 2022, no unrealized gain or loss is recognized.
29
Note 8 — Fixed Assets, Net
Fixed assets consisted of the following as of June 30, 2022 and December, 2021:
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Mining Machines | $ | $ | ||||||
| Software | ||||||||
| Leasehold improvement | ||||||||
| Office and equipment | ||||||||
| Total cost of fixed assets | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Less: impairment of mining machines | ( | ) | ||||||
| Fixed assets, net | $ | $ | ||||||
On April 19, 2021, Lion Wealth Limited (the
“Transferee”), a wholly-owned subsidiary of the Group, entered into an antminer transfer and maintenance agreement (the “Antminer
Transfer and Maintenance Agreement”) with Shanghai ITHELP Network Technology Co., Ltd, (the “Transferor”), in a single
transaction, to acquire the Bitmain Antminers S9 Hydro computer model equipment from the Transferor and the maintenance of the mining
machines by Shanghai Minebaba Network Technology Co., Ltd (“Minebaba”). The acquisition was closed in May 2021, upon
onsite inspection and acceptance and payment, with the Transferee acquiring five thousand brand new units of mining machines. The aggregate
purchase price for the mining machines was approximately RMB
Depreciation expense, excluding depreciation expense
of the mining machines during the operation was $
The Group recorded $
Note 9 — Short-term Borrowings
As of June 30, 2022 and December 31, 2021, total
short-term borrowings outstanding was $
In October 2021, Lion Wealth Management Limited
(“LWML”) and Dawa Future Graphic Technology Co., Ltd (“DAWA”) formed Lion Metaverse Limited to develop the Group’s
newly launched Metaverse project “Lion World”. LWML and DAWA each hold
Note 10 — Derivatives
Derivative financial instruments used for trading purposes are carried at fair value. Fair values for exchange-traded derivatives, principally futures and certain options, are based on quoted market prices. Fair values for OTC derivative financial instruments, principally CFDs are based on spot exchange rates broadly distributed in active markets, OTC option contracts are based on stock price and stock volatility.
30
Factors taken into consideration in estimating the fair value of OTC derivatives include market liquidity, concentrations, and funding and administrative costs incurred.
The Group does not apply hedge accounting as defined in ASC 815, because all financial instruments are recorded at fair value with changes in fair values reflected in earnings. Therefore, certain of the disclosures required under ASC 815 are generally not applicable with respect to these financial instruments.
As discussed in Note 1, the Group’s derivative
trading activity primarily relates to situations where it assumes the role of a market maker or a counter party in its customers’
CFD and options transactions. If the trades of
The contractual amounts related to CFDs reflect
the volume and activity and generally do not reflect the amounts at risk. The fair value of the asset or liability is the best indicator
of the Group’s risk. The credit risk for the CFDs and option contracts is limited to the unrealized fair value gains (losses) recorded
in the balance sheets. Market risk is substantially dependent upon the value of the underlying assets and is affected by market forces
such as volatility and changes in interest and foreign exchange rates. The Group’s open derivative positions at June 30, 2022 were
derivative assets of $
A summary of the Group’s open positions at June 30, 2022 is as follows:
| Description | Fair Value of Asset | Fair Value of Liability | Net Amount | |||||||||
| Stock Indices CFDs | | | ||||||||||
| $ | $ | $ | ||||||||||
A summary of the Group’s open positions at December 31, 2021 is as follows:
| Description | Fair Value of Asset | Fair Value of Liability | Net Amount | |||||||||
| Stock Indices OTC option contracts | $ | $ | $ | |||||||||
| Foreign Currency CFDs | ||||||||||||
| Stock Indices CFDs | ||||||||||||
| $ | $ | $ | ||||||||||
The Group elects the alternative disclosure for gains and losses on derivative instrument included in its trading activities, and discloses gains and losses on its trading activities (including both derivative instruments and nonderivative instruments) separately by major type of items as required by ASC 815-10-50-4F, see Note 2 above.
Offsetting Arrangements
Financial assets and financial liabilities are offset and the net amount is reported in the condensed consolidated balance sheets if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
Concentrations of Credit Risk
The Group is engaged in various trading and brokerage activities in which counterparties primarily include broker-dealers, individuals, and other financial institutions. In the event counterparties do not fulfil their obligations, the Group may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty or issuer of the instrument. It is the Group’s policy to review, as necessary, the credit standing of each counterparty.
31
Note 11 — Related Parties
During the six months ended June 30, 2022, no
advances were received or repaid from/to the individual shareholder. Due to director in an amount of approximately $
As of June 30, 2022 and December 31, 2021, LML
recorded payable to DAWA for research and development expenses in the amount of approximately $
Note 12 — Convertible Securities and Attached Warrants
December 2020 Convertible Debenture and Warrants
On December 14, 2020, the Company completed
a private placement with net proceeds of $
The Company follows Accounting for Certain Financial Instruments with Down Round Features. The detachable December 2020 Warrants issued to the holder are considered to be indexed to the Company’s own stock and classified in stockholders’ equity and therefore they meet the scope exception prescribed in ASC 815-10-15. The fair value of December 2020 Warrants is measured by using Binomial Option Pricing Model and Black-Scholes Merton Valuation Model with the assumptions below on the date of issuance, with no subsequent adjustment of fair value in accordance with ASC 815.
| Series A | Series B | Series C | ||||||||||
| Expected term in years | ||||||||||||
| Stock price | $ | $ | $ | |||||||||
| Expected dividend yield | % | % | % | |||||||||
| Volatility | % | % | % | |||||||||
| Risk-free interest Rate | % | % | % | |||||||||
| Initial fair value per share | $ | $ | $ | |||||||||
In accordance with ASC 470-20, Debt with
Conversion and Other Options, the net proceeds of $
32
For the holder of the Debenture, conversion price
results in BCF that is separated as an equity component and assigned a value of approximately $
The issuance costs are allocated in the same proportion
as the proceeds are allocated to the debt and warrants. Issuance costs allocated to the equity-classified warrants in an aggregate of
$
The Debenture is recognized initially at fair
value, net of debt discounts including original issue discount of $
On January 29, 2021, the Debenture along
with accrued interest of $
As a result of January 2021 Call Options
as discussed in Note 13, exercise price of Series A and Series C Warrants was adjusted from $
During the year ended December 31, 2021,
as a result of full exercise of December 2020 Warrants, the Company received the proceeds of $
February 2021 Series A Convertible Preferred Shares and Warrants
On February 15, 2021, the Company entered
into a Securities Purchase Agreement (the “Securities Purchase Agreement-February”) with one third party investor (the “Purchaser”),
pursuant to which the Company received $
The number of Series A Convertible Preferred
Shares is
Series A Convertible Preferred Shares are classified as equity and carried at the amount recorded at inception, without amortization. The discount to the redemption amount shall be recognized as a dividend upon redemption.
33
The detachable February 2021 Warrants issued to the holder are considered to be indexed to the Company’s own stock and classified in stockholders’ equity and therefore they meet the scope exception prescribed in ASC 815-10-15. The fair value of February 2021 Warrants is measured by using Binomial Option Pricing Model and Black-Scholes Merton Valuation Model with the assumptions below on the date of issuance, with no subsequent adjustment of fair value in accordance with ASC 815.
| Series D | Series E | Series F | ||||||||||
| Expected term in years | ||||||||||||
| Stock price | $ | $ | $ | |||||||||
| Expected dividend yield | % | % | % | |||||||||
| Volatility | % | % | % | |||||||||
| Risk-free interest Rate | % | % | % | |||||||||
| Initial fair value per share | $ | $ | $ | |||||||||
In accordance with ASC 470-20, Debt with
Conversion and Other Options, the Company allocated the net proceeds to Series A Convertible Preferred Shares, the detachable Series D,
E and F February 2021 Warrants on their relative fair value basis, in the amount of approximately $
The issuance costs are allocated in the same proportion
as the proceeds are allocated to the preferred stock and warrants. Issuance costs allocated to the equity-classified warrants in an aggregate
of $
The Series A Convertible Preferred Shares
are recognized initially at fair value, net of discounts including original issue discount of $
During the year ended December 31, 2021,
34
As a result of early adoption of ASU 2020-06 on
January 1, 2022 using the modified retrospective method, no cumulative effect was recognized with regards to Series A Preferred Shares.
The Company recognized cumulative dividend of approximately $
December 2021 Series B Convertible Preferred Shares and Warrants
On December 13, 2021, the Company entered
into a Securities Purchase Agreement (the “Securities Purchase Agreement-December”) with the same third party investor (the
“Purchaser”), pursuant to which the Company received net proceeds of $
The number of Series B Convertible Preferred
Shares is
The detachable December 2021 Warrants issued
to the holder are considered to be indexed to the Company’s own stock and classified in stockholders’ equity and therefore
they meet the scope exception prescribed in ASC 815-10-15.
In accordance with applicable accounting standards,
Series B Convertible Preferred Shares qualified as redeemable securities and are classified as mezzanine equity; the net proceeds
were allocated to the Series B Convertible Preferred Shares and the detachable Series G Warrant on their relative basis, in
the amount of approximately $
The issuance costs are allocated in the same proportion
as the proceeds are allocated to the preferred stock and warrants. Issuance costs allocated to the equity-classified warrants in an aggregate
of $
The Series B Convertible Preferred Shares
are recognized initially at fair value, net of debt discounts including original issue discount of $
As a result of early adoption of ASU 2020-06 on
January 1, 2022 using the modified retrospective method, a reclassification of the unamortized portion of the BCF in the amount of $
35
The Company recognized cumulative dividend of
approximately $
May 2022 Convertible Debenture
On May 17, 2022, the Company entered into a Securities
Purchase Agreement (the “Securities Purchase Agreement”) with ATW Opportunities Master Fund, L.P. (the “Purchaser”),
pursuant to which the Company received net proceeds of $
The Debenture and include a full ratchet anti-dilution
provision, and contain a beneficial ownership limitation on such conversion. As part of consideration of entering into the Securities
Purchase Agreement, the Company agreed to extend the February 2021 and December 2021 Warrants termination dates as follows: (i) the termination
date for the Series D American Depositary Shares Purchase Warrant shall be extended to February 18, 2028; (ii) the termination date for
the Series E American Depositary Shares Purchase Warrant shall be extended to February 18, 2025; (iii) the termination date for the Series
F American Depositary Shares Purchase Warrant shall be extended to February 18, 2028; and (iv) the termination date for the Series G American
Depositary Shares Purchase Warrant shall be extended to December 13, 2028. Pursuant to the adoption of ASU 2021-04, the Company considered
the guidance in in ASC 815-40-35-16 through ASC 815-40-35-18 regarding the modification or exchange of a freestanding equity-classified
written call option, and recognized the incremental fair value of the warrants aforementioned as a debt discount or debt issuance cost
in accordance with paragraph 815-40-35-17(b), in an amount of $
The Company early adopted ASU 2020-06 on January
1, 2022. As a result, the Debenture was accounted for as a liability in its entirety, equal to the proceeds received of $
Note 13 — Stockholders’ Equity
Ordinary Shares and Preferred Shares
The Company is authorized to issue (i)
36
The shareholders of Class A and Class B
ordinary shares have the same rights except for the voting and conversion rights.
A total of
As of June 30, 2022 and December 31, 2021,
there was an aggregate of
As of June 30, 2022 and December 31, 2021,
there was an aggregate of
August 2020 Private Placement
On August 1, 2020, the Company entered into a securities purchase agreement (as amended on September 29, 2020, and later amended and restated on October 19, 2020) with three investors (collectively, the “Investors”). Two tranches of transactions contemplated under the agreement were closed on August 3 and November 13, 2020, respectively. As a result, an aggregate of 1,500,000 ADSs and 1,500,000 warrants to purchase an aggregate of 1,500,000 of the Company’s ADS at US$3.00 per ADS (the “August 2020 PIPE Warrants”) were issued at US$2.00 per ADS for an aggregate purchase price of US$3 million, and an aggregate of 150,000 ADSs were issued as origination fee. Issuance costs of approximately $469,000 were recorded as a charge to additional paid-in capital, including legal and accounting fees. In accordance with ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity, warrants are classified within stockholders’ equity as “additional paid in capital” upon their issuance. The proceeds were allocated to ordinary shares and private investment in public equity warrants (“PIPE Warrants”) on the relative fair value of the securities in accordance with ASC 470-20-30. In aggregate, the net proceeds to the Company were approximately $2,531,000 classified within stockholders’ equity, including a subscription receivable of $508,750 classified in the other receivables in the condensed consolidated balance sheets as of December 31, 2020 which was received in January 2021.
Such warrants shall be exercisable for a period of years from the issuance date. Exercise price is subject to adjustments in case of reorganization, consolidation, merger etc. and in case of stock purchase rights in the subsequent two-year period at a price per share less than the exercise price as stated in the securities purchase agreement.
The exercise price of PIPE Warrants was adjusted
to $
For the year ended December 31, 2021,
37
Share Subscription Agreement with Yun Tian
On December 19, 2020, the Company entered
into a private placement share subscription agreement (the “Share Subscription Agreement”) with Yun Tian Investment Limited
(“Yun Tian”). Yun Tian subscribes for an aggregate of not more than
For the six months ended June 30, 2021,
the Company received subscription price in an aggregate of $
January 2021 Call Options
On January 6, 2021, the Company entered into a binding strategic cooperation framework agreement (the “Strategic Cooperation Agreement”) with Mr. Yao Yongjie (“Mr. Yao”) and engaged Mr. Yao as the chief technical adviser to provide technical advice and consultancy service in blockchain industry. The Company grants to Mr. Yao options (the “Call Options”) to subscribe for 6 million Class A ordinary shares, represented by ADSs at a price fixed at US$2 per share. Within 24 months of the signing of the Strategic Cooperation Agreement, Mr. Yao may exercise the right to subscribe for such shares by tranches if the following conditions are met:
| (i) | if the closing price of the shares in the Company exceeds US$3 per share for 3 consecutive trading days, Mr. Yao may exercise 2 million call options; |
| (ii) | if the closing price of the shares in the Company exceeds US$5 per share for 3 consecutive trading days, Mr. Yao may exercise 2 million call options; |
| (iii) | if the closing price of the shares in the Company exceeds US$7.50 per share for 3 consecutive trading days, Mr. Yao may exercise 2 million call options. |
The Company estimated the fair value of the call
options at $
For the periods ended June 30, 2022 and 2021,
an aggregate of $
Note 14 — Stock-Based Compensation
2020 Share Incentive Plan
In June 2020, in connection with the Business
Combination, the Company’s board approved the 2020 Share Incentive Plan (the “2020 Plan”) and reserved
38
On March 3, 2022,
| Professional fees | $ | |||
| Communication and technology | ||||
| General and administrative | ||||
| Marketing | ||||
| Total stock-based compensation | $ |
Note 15 — Income Taxes
The current and deferred portions of the income tax expense included in the consolidated statements of operations and comprehensive income (loss) as determined in accordance with ASC 740, Income Taxes, are as follows:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Current | $ | $ | ||||||
| Deferred | ||||||||
| $ | $ | |||||||
A reconciliation of the difference between the expected income tax expense or benefit computed at applicable statutory income tax rates and the Group’s income tax expense is shown in the following table:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Income tax expense (benefit) at applicable statutory rate (1) | $ | ( | ) | $ | ( | ) | ||
| Nondeductible expenses | ( | ) | ||||||
| (Income) not subject to tax | ( | ) | ||||||
| Impact of foreign tax rate differential (2) | ||||||||
| Current year change in valuation allowance | ||||||||
| Other | ( | ) | ||||||
| Reported income taxes | $ | $ | ||||||
| (1) |
| (2) |
39
Significant components of the Group’s deferred tax assets (liabilities) are presented below:
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Deferred tax asset | ||||||||
| Others | $ | $ | ||||||
| Fixed assets | ||||||||
| Net operating loss carryforwards | ||||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
| Deferred tax liability | ||||||||
| Accrued employee benefits | $ | $ | ||||||
| Fixed assets | ||||||||
| Deferred tax liability, net | $ | $ | ||||||
Management has applied a valuation allowance to the total amount of deferred tax assets based on the determination that it is more likely than not that some portion of the deferred tax asset will not be realized. This determination was based on the historic and estimated future profitability of the entities to which the deferred tax assets relate. The tax rules in Hong Kong do not allow the Group to file on a consolidated basis.
Note 16 —Lease
All of the Group’s leases are classified as operating leases
and primarily consist of real estate leases for corporate offices and other facilities. As of June 30, 2022, the weighted-average remaining
lease term on these leases is approximately
The following table presents balances reported in the consolidated balance sheets related to the Group’s leases:
| As at | ||||
| June 30, 2022 | ||||
| Operating lease right-of-use assets | $ | |||
| Operating lease liabilities | $ | |||
The following table presents operating lease cost reported in occupancy expenses on the consolidated statements of comprehensive (loss)/income related to the Group’s leases:
| Period ended | ||||
| June 30, 2022 | ||||
| Operating lease cost | $ | |||
40
The following table reconciles the undiscounted cash flows of the Group’s leases as of June 30, 2022 to the present value of its operating lease payments:
| 12-Month Period ended June 30, | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total undiscounted operating lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | ||||
The Group’s minimum annual lease commitments as of December 31, 2021, in accordance with ASC Topic 840, were as follows:
| December 31, 2021 | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Thereafter | ||||
| $ | ||||
Note 17 — Regulatory Requirements
The following table illustrates the minimum regulatory capital as established by the Hong Kong Securities and Futures Commission, the Insurance Authority (Hong Kong), Monetary Authority of Singapore, and the Cayman Islands Monetary Authority (CIMA) that the Company’s subsidiaries were required to maintain as of June 30, 2022 and the actual amounts of capital that were maintained.
| Entity Name | Minimum Regulatory Capital Requirements | Capital Levels Maintained | Excess Net Capital | Percent of requirement Maintained | ||||||||||||
| Lion International Securities Group Limited | $ | $ | $ | % | ||||||||||||
| Lion Futures Limited | % | |||||||||||||||
| Lion Asset Management Limited | % | |||||||||||||||
| BC Wealth Management Limited | % | |||||||||||||||
| Lion International Financial (Singapore) Pte. Ltd. | % | |||||||||||||||
| Lion Broker Limited (Cayman) | % | |||||||||||||||
| Total | $ | $ | $ | % | ||||||||||||
41
Note 18 — Segment Reporting
ASC 280, Disclosures about Segments of an Enterprise
and Related Information, establishes standards for reporting information about operating segments. Operating segments are defined as components
of an enterprise which engage in business activities from which they may earn revenues and incur expenses, and about which separate financial
information is available that is evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how
to allocate resources and in assessing performance.
The Group has
| Futures and securities brokerage services | CFD trading | TRS trading | Other | Total | ||||||||||||||||
| Six months ended June 30, 2022 | ||||||||||||||||||||
| Revenue | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||
| Commissions and fees | ||||||||||||||||||||
| Compensation and benefits | ||||||||||||||||||||
| Occupancy | ||||||||||||||||||||
| Communication and technology | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Crypto currencies | ||||||||||||||||||||
| Professional fees | ||||||||||||||||||||
| Research and development | ||||||||||||||||||||
| Service fees | ||||||||||||||||||||
| Interest | ||||||||||||||||||||
| Depreciation | ||||||||||||||||||||
| Marketing | ||||||||||||||||||||
| Payment service charge | ( | ) | ( | ) | ||||||||||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||||||||||||||
| Impairment of fixed assets | ||||||||||||||||||||
| Impairment of cryptocurrencies | ||||||||||||||||||||
| Other operating expenses | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Total segment assets | $ | $ | $ | $ | $ | |||||||||||||||
42
| Futures and securities brokerage services | CFD trading | TRS trading | Other | Total | ||||||||||||||||
| Six months ended June 30, 2021 | ||||||||||||||||||||
| Revenue | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||
| Commissions and fees | ||||||||||||||||||||
| Compensation and benefits | ||||||||||||||||||||
| Occupancy | ||||||||||||||||||||
| Communication and technology | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Crypto currencies | ||||||||||||||||||||
| Professional fees | ||||||||||||||||||||
| Service fees | ||||||||||||||||||||
| Interest | ||||||||||||||||||||
| Depreciation | ||||||||||||||||||||
| Marketing | ||||||||||||||||||||
| Payment service charge | ||||||||||||||||||||
| Other operating expenses | ||||||||||||||||||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||
| Total segment assets | $ | $ | $ | $ | $ | |||||||||||||||
Note 19 — Subsequent Events
Entry into a Material Agreement and Unregistered Sale of Equity Securities
On August 9, 2022, the Group entered into a Securities
Purchase Agreement (the “Securities Purchase Agreement”) with ATW Opportunities Master Fund II, L.P. (the “Purchaser”),
pursuant to which the Group received net proceeds of $
The transactions contemplated under the Securities Purchase Agreement closed on August 10, 2022 (“First Closing Date”). The Group intends to use the proceeds from the issuance of the Debenture for working capital purposes.
The Debenture matures on
The Group granted the Purchaser the right to purchase
a pro-rata share (based on the original subscription amount as to the first closing) of an additional $
The Group has also granted the Purchaser a 24-month right to participate
in specified future financings, up to a level of
43
Exhibit 99.3
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with our accompanying unaudited consolidated financial statements and the related notes included elsewhere in this report on Form 6-K and with the discussion and analysis of our financial condition and results of operations contained in our annual report on Form 20-F for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on April 22, 2022. In addition to historical information, the following discussion contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity and capital resources that involve risks, uncertainties and assumptions that could cause actual results to differ materially from those contained in or implied by any forward-looking statements.
Overview
We are one of the few Chinese investor-focused trading platforms that offer a wide spectrum of products and services. Currently, our business lines include (i) total return swap (TRS) trading business, (ii) contracts for difference (CFD) trading services, (iii) futures and securities brokerage services, and (iv) insurance brokerage and other services. We provide these services through our all-in-one Lion Brokers Pro app and a variety of other apps available on iOS, Android, PC and Mac platforms. Our clients are mostly well-educated and affluent Chinese investors residing both inside and outside the PRC (excluding the United States), as well as institutional clients in Hong Kong that use our futures trading service.
Our trading platform allows users to trade more than 100 futures products on major futures exchanges worldwide (excluding the PRC), including the Chicago Mercantile Exchange (CME), Singapore Exchange (SGX), the Hong Kong Futures Exchange (HKFE) and Eurex Exchange (Eurex), as well as stocks listed on the New York Stock Exchange (NYSE), Nasdaq and Hong Kong Stock Exchange (HKSE), and PRC stocks listed on the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) that are eligible for the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs (together, the “Stock Connect”). Our customers may also use our platform to trade various financial products, such as stock indices, commodities, futures, forex, ETFs, warrants and callable bull/bear contracts, on global exchanges or OTC markets.
Additionally, Lion has developed a professional, experienced SPAC sponsorship team to help guide private companies through their listing journey while creating value for Lion and its shareholders. Lion is also committed to building the world’s leading one-stop, cross-chain, high-expansion non-fungible token (NFT) marketplace and entering the metaverse space through blockchain technology.
Key Components of Results of Operations
Revenue
Our revenues consist of commissions, trading gains (losses), interest income and others. The following table sets forth the breakdown of our revenues by nature in dollar amount and as percentages of total revenues for the periods indicated.
| Six months ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| US$ | % | US$ | % | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Commissions | ||||||||||||||||
| Market making commissions and fees | 677,338 | (15.5 | ) | 1,069,656 | 29.7 | |||||||||||
| Futures and securities brokerage commissions | 2,130,975 | (48.9 | ) | 1,178,062 | 32.7 | |||||||||||
| Insurance brokerage commissions | 340,218 | (7.8 | ) | 295,343 | 8.2 | |||||||||||
| Trading gains/(losses) | (10,175,033 | ) | 233.9 | 369,484 | 10.4 | |||||||||||
| Interest income | 1,894,170 | (43.8 | ) | 304,406 | 8.4 | |||||||||||
| Other income | 782,601 | (17.9 | ) | 383,346 | 10.6 | |||||||||||
| Total | (4,349,731 | ) | 100.0 | 3,600,297 | 100.0 | |||||||||||
Commissions
We earn commissions from our (i) CFD trading services when we act as market maker, (ii) securities and futures brokerage services (including commissions from TRS trading services) and (iii) insurance brokerage services. We receive commissions from the insurance companies based on a percentage of the premium paid by insurance purchasers. Unlike commissions from insurance brokerage services, we charge securities brokerage commissions and market making commissions based on amount of transaction volume, or the number of shares, lots of contracts executed in each order, which generally vary in accordance with the type of products or services we offer, eligibility for discounts and other factors.
Trading gains/(losses)
Trading gains, offset by losses, are derived as showed in the following table. The line of CFD trading gains/(losses) is derived from (i) our managed flow portfolio trading positions where we act as counterparty to our clients’ trades from our CFD trading services, and (ii) our dealing bid/offer spreads on our clients’ CFD transactions. The line of TRS trading gains/(losses) is derived from our proprietary TRS trading activities on our own accounts. The line of Other trading gains/(losses) is derived from other business; for the six months ended June 30, 2022 it included trading gains of US$926,000 from OTC call options we sold to our customers, offset by trading losses of US$(497,000) from exchange traded stock; for the six months ended June 30, 2021 it included trading losses of US$(676,000) from exchange-traded stock, respectively. Trading gains/(losses) is recorded on a trade date basis.
| Six Months Ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| US$ | % | US$ | % | |||||||||||||
| CFD trading gains/(losses) | (7,589,240 | ) | 74.5 | (2,149,068 | ) | (581.6 | ) | |||||||||
| TRS trading gains/(losses) | (3,014,475 | ) | 29.6 | 3,194,836 | 864.6 | |||||||||||
| Other trading gains/(losses) | 428,682 | (4.1 | ) | (676,284 | ) | (183.0 | ) | |||||||||
| Total | (10,175,033 | ) | 100.0 | 369,484 | 100.0 | |||||||||||
Interest income
Interest income primarily consist of interest income earned on loans provided to TRS trading customers, interests earned on short-term loans we extend to unrelated third parties and bank deposit, and also include interest rate difference between currency pairs we hold resulting from rolling over foreign exchange positions from CFD trading services.
2
Other income
Other income primarily includes sale of MetaWords NFTs, bitcoin mining income, order processing charges, and dividend income etc.
Our revenues are generated from our main business lines, TRS trading business, CFD trading services, futures and securities brokerage services and others. Insurance brokerage services was combined in others from 2021 as it is not a material operating segment, and the prior periods were revised to be comparable. The following table sets forth the breakdown of our revenues by business lines in absolute amounts and as percentages of total revenues for the periods indicated.
| Six months ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| US$ | % | US$ | % | |||||||||||||
| CFD trading services income (losses) | (6,911,887 | ) | 158.9 | (1,079,106 | ) | (29.9 | ) | |||||||||
| TRS trading services income (losses) | (798,522 | ) | 18.3 | 3,607,526 | 100.1 | |||||||||||
| Futures and securities brokerage services | 1,979,384 | (45.5 | ) | 1,212,222 | 33.6 | |||||||||||
| Others | 1,381,294 | (31.7 | ) | (140,345 | ) | (3.8 | ) | |||||||||
| Total | (4,349,731 | ) | 100.0 | 3,600,297 | 100.0 | |||||||||||
CFD trading services income
Revenues generated from CFD trading services are trading gains and losses from our market making activities where we serve as the counterparty to our clients in CFD transactions. It primarily consists of (i) commissions we charge our clients based on amount of transaction volume, or the number of shares, lots of contracts executed in each order, which generally vary in accordance with the type of products we offer, eligibility for discounts and other factors, (ii) dealing bid/offer spreads on our clients’ CFD transactions , and trading gains/(losses) derived from our managed flow portfolio trading positions where we act as counterparty to our clients’ trades, and (iii) interest rate difference between currency pairs we hold resulting from our rolling over forex positions.
Our CFD trading income consisting of (i) commissions, (ii) bid/offer spreads and trading gains/(losses), and (iii) difference in interest rates, were US$0.7 million, US$(7.6) million, and nil, respectively for the six months ended June 30, 2022, and were US$1.0 million, US$(2.1) million, and US$0.1 million, respectively for the six months ended June 30, 2021. Our total CFD products trading volume was 110,526 lots, and 116,726 lots for the six months ended June 30, 2022 and 2021, respectively.
TRS trading services income
We officially began offering total return swap (TRS) trading services to customers in July 2020. Revenue generated from TRS trading services includes (i) trading gains/(losses) from our proprietary TRS trading activities; (ii) interest income earned on loans provided to TRS trading customers and (iii) commissions, order processing charges and other income resulting from TRS trading services.
Our TRS trading income consisting of (i) trading gains/(losses) from our proprietary TRS trading activities, (ii) interest income earned on loans provided to TRS trading customers, and (iii) commissions and other income resulting from TRS trading services, were US$(3.0) million, US$1.8 million and US$0.4 million, respectively for the six months ended June 30, 2022, and were US$3.2 million, US$0.3 million and US$0.1 million, respectively for the six months ended June 30, 2021. Our TRS trading volume was US$293 million and US$248 million for the six months ended June 30, 2022 and 2021, respectively.
Futures and securities brokerage income
We charge commissions for our futures and securities brokerage services when using our trading platform, which is based on the trading volume of securities or the number of futures contracts executed. Our total number of executed futures contracts was 795,559 lots, and 449,986 lots for the six months ended June 30, 2022 and 2021, respectively.
3
Others
Others include the revenue generated from insurance brokerage services, sale of MetaWords NFTs, Bitcoin mining operations, trading gains (losses) from OTC call options we sold to our customers and interests earned on short-term loans we extend to unrelated third parties and bank deposit etc.
Our others income consisted of insurance brokerage commission of US$0.3 million, sale of MetaWords NFTs of US$0.4 million, trading gains from OTC call options of US$0.9 million and interest and other income of US$0.2 million, offset by trading losses of US$497,000 from exchange traded stock for the six months ended June 30, 2022, compared to in the corresponding period last year, it primarily consisted of insurance brokerage commission of US$0.3 million, Bitcoin mining income of US$0.2 million and trading losses from exchange-traded stock of US$(0.7) million,.
Expenses
The following table sets forth the breakdown of our expenses in dollar amounts and as percentages of total revenues for the periods indicated:
| Six months ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| US$ | % | US$ | % | |||||||||||||
| Commission and fees expenses | 2,116,021 | (48.6 | ) | 1,189,243 | 33.0 | |||||||||||
| Compensation expenses | 1,923,259 | (44.2 | ) | 2,383,547 | 66.2 | |||||||||||
| Communication and technology expenses | 930,518 | (21.3 | ) | 947,292 | 26.3 | |||||||||||
| Cost of crypto mining | - | 0.0 | 219,662 | 6.1 | ||||||||||||
| General and administrative expenses | 681,860 | (15.6 | ) | 630,059 | 17.5 | |||||||||||
| Professional fees | 2,982,570 | (68.5 | ) | 990,011 | 27.4 | |||||||||||
| Services fees | 1,070,887 | (24.6 | ) | 2,474,122 | 68.7 | |||||||||||
| Research and development | 4,160,033 | (95.6 | ) | - | - | |||||||||||
| Occupancy expenses | 372,628 | (8.5 | ) | 347,660 | 9.6 | |||||||||||
| Interest expense | 1,021,773 | (23.4 | ) | 942,264 | 26.1 | |||||||||||
| Depreciation | 1,198,122 | (27.5 | ) | 279,680 | 7.7 | |||||||||||
| Marketing | 391,211 | (8.9 | ) | 553,758 | 15.3 | |||||||||||
| Impairment of fixed assets | 1,691,079 | (38.8 | ) | - | - | |||||||||||
| Impairment of cryptocurrencies | 293,619 | (6.7 | ) | - | - | |||||||||||
| Change in fair value of warrant liabilities | (759,375 | ) | 17.4 | 2,411,429 | 66.9 | |||||||||||
| Other expenses | (25,689 | ) | 0.5 | 312,104 | 8.6 | |||||||||||
| Total | 18,048,516 | (414.3 | ) | 13,680,831 | 379.4 | |||||||||||
Commission and fees expenses
Our commission expenses consist of (i) the commissions and fees we paid to third-party market makers in certain CFD and TRS trading transactions, (ii) referral fees we paid to our insurance referral agents, and (iii) the commissions and fees we paid to prime brokers and clearing houses in certain futures and securities trading transactions. Commission expenses accounted for (48.6)% and 33.0% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Compensation expenses
Our compensation expenses include salaries, wages, bonuses, medical insurance expenses, contribution to employee retirement plans and other benefits as well as share-based compensation for our employees. Compensation expenses accounted for (44.2)% and 66.2% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Communication and technology expenses
Our communication and technology expenses primarily consist of subscription fees and system fees we paid to stock exchanges and third parties trading system vendors, to subscribe for trading systems, market data and news, as well as bandwidth fees and other expenses relating to the telecommunication infrastructure. Communication and technology expenses accounted for (21.3)% and 26.3% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
4
Cost of crypto mining
Our cost of crypto mining consists primarily of direct costs of earning bitcoins related to mining operations, including electric power costs and other service charges, also including depreciation of mining equipment. Cost of crypto mining accounted for 6.1% of our revenues for the six months ended June 30, 2021. Mining operation has ceased since October 2021.
General and administrative expenses
Our general and administrative expenses mainly consist of license and registration fees, insurance expenses, utility expenses, travel expenses and bank charges, which accounted for (15.6)% and 17.5% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Professional fees
Our professional fees primarily consist of service fees for legal, accounting, consulting, and other professional services which are needed during the ordinary course of our businesses, representing (68.5)% and 27.4% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Service fees
Our service fees primarily consist of service fees charged by independent contractors and outside consultants we hired in our normal business course, accounting for (24.6)% and 68.7% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Research and development
Research and development expenses consist primarily of designing, coding, project management, and other IT services related to developing and enhancing our Metaverse project. The R&D services were provided by third parties, representing (95.6)% and nil of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Occupancy expenses
Our occupancy expenses mainly consist of office rental expenses, which accounted for (8.5)% and 9.6% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Interest expenses
Our interest expenses primarily consist of interest and amortization of convertible debenture discounts, interest relating to our one-time bridge loans facilitated by us to unrelated third parties, as well as interest we paid for loans borrowed from our TRS trading service business partners, accounting for (23.4)% and 26.1% of our revenue for the six months ended June 30, 2022 and 2021, respectively.
Depreciation expenses
Our depreciation primarily consists of the depreciation of copyrighted trading software programs which were acquired in 2021, and other miscellaneous depreciation of office furniture and computers, accounting for (27.5)% and 7.7% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
5
Marketing expenses
Our marketing expenses mainly consist of expenses spent in branding, promoting our business, which accounted for (8.9)% and 15.3% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Impairment of fixed assets
Impairment of fixed assets represents the impairment charges of the mining equipment, accounting for (38.8)% and nil of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Impairment of cryptocurrencies
Impairment of cryptocurrencies represents the impairment charges of the BNB and wBNB tokens held as a result of sale of MetaWords NFTs in the first half of 2022.
Change in fair value of warrant liabilities
Change in fair value of warrant liabilities represents the mark-to-market fair value adjustments to the outstanding Public Warrants and Private Warrants issued in connection with the IPO of PAAC, accounting for 17.4% and 66.9% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Other expenses
Our other expenses primarily consist of payment service charge by external payment service providers, foreign currency transaction gains and losses, and other miscellaneous expenses. Our other expenses accounted for 0.5% and 8.6% of our revenues for the six months ended June 30, 2022 and 2021, respectively.
Taxation
Cayman Islands and British Virgin Islands
Under the current laws of the Cayman Islands and British Virgin Islands, we are not subject to tax on income or capital gains. Neither Cayman Islands nor British Virgin Islands withholding tax will be imposed upon payments of dividends from Lion to its shareholders.
Hong Kong
Our wholly-owned Hong Kong subsidiaries are subject to Hong Kong profit tax on their activities conducted in Hong Kong. Effective for tax years ending on or after December 31, 2018, the applicable tax rate was 8.25% on the first HK$2 million (US$0.3 million) of assessable profits and 16.5% on any assessable profits above that threshold. In addition, the 8.25% tax rate can only be utilized by one entity in a controlled group, whereas all other entities in the controlled group utilize the 16.5% tax rate. Dividends from our Hong Kong subsidiaries to Lion are exempt from Hong Kong withholding tax.
Singapore
Our wholly-owned Singapore subsidiary is subject to a corporate tax rate of 17.0%. It has not generated revenue yet since establishment.
United States
Our wholly-owned U.S. subsidiary is subject to a federal tax rate of 21.0%. It has been dormant since we acquired it in June 2020.
6
Results of Operations
The following table sets forth a summary of our unaudited condensed consolidated results of operations for the periods indicated, both in absolute amount and as a percentage of our revenues for the periods indicated. This information should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this current report. Our limited operating history makes it difficult to predict our future operating results. We believe that the period-to-period comparison of operating results should not be relied upon as being indicative of our future performance.
| Six months ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| US$ | % | US$ | % | |||||||||||||
| Revenues | ||||||||||||||||
| CFD trading services income (losses) | (6,911,887 | ) | 158.9 | (1,079,106 | ) | (29.9 | ) | |||||||||
| TRS trading services income (losses) | (798,522 | ) | 18.3 | 3,607,526 | 100.1 | |||||||||||
| Futures and securities brokerage services | 1,979,384 | (45.5 | ) | 1,212,222 | 33.6 | |||||||||||
| Others | 1,381,294 | (31.7 | ) | (140,345 | ) | (3.8 | ) | |||||||||
| Total revenues | (4,349,731 | ) | 100.0 | 3,600,297 | 100.0 | |||||||||||
| Expenses | ||||||||||||||||
| Commission and fees expenses | (2,116,021 | ) | 48.6 | (1,189,243 | ) | (33.0 | ) | |||||||||
| Compensation expenses | (1,923,259 | ) | 44.2 | (2,383,547 | ) | (66.2 | ) | |||||||||
| Communication and technology expenses | (930,518 | ) | 21.3 | (947,292 | ) | (26.3 | ) | |||||||||
| Cost of crypto mining | - | - | (219,662 | ) | (6.1 | ) | ||||||||||
| General and administrative expenses | (681,860 | ) | 15.6 | (630,059 | ) | (17.5 | ) | |||||||||
| Professional fees | (2,982,570 | ) | 68.5 | (990,011 | ) | (27.4 | ) | |||||||||
| Service fees | (1,070,887 | ) | 24.6 | (2,474,122 | ) | (68.7 | ) | |||||||||
| Research and development | (4,160,033 | ) | 95.6 | - | - | |||||||||||
| Interest expenses | (1,021,773 | ) | 23.4 | (942,264 | ) | (26.1 | ) | |||||||||
| Occupancy expenses | (372,628 | ) | 8.5 | (347,660 | ) | (9.6 | ) | |||||||||
| Marketing | (391,211 | ) | 8.9 | (553,758 | ) | (15.3 | ) | |||||||||
| Depreciation | (1,198,122 | ) | 27.5 | (279,680 | ) | (7.7 | ) | |||||||||
| Impairment of fixed assets | (1,691,079 | ) | 38.8 | - | - | |||||||||||
| Impairment of cryptocurrencies | (293,619 | ) | 6.7 | - | - | |||||||||||
| Change in fair value of warrant liabilities | 759,375 | (17.4 | ) | (2,411,429 | ) | (66.9 | ) | |||||||||
| Other expenses | 25,689 | (0.5 | ) | (312,104 | ) | (8.6 | ) | |||||||||
| Total expenses | (18,048,516 | ) | 414.3 | (13,680,831 | ) | (379.4 | ) | |||||||||
| Loss before income taxes | (22,398,247 | ) | 514.3 | (10,080,534 | ) | (279.4 | ) | |||||||||
| Income tax expenses | (3,071 | ) | 0.1 | (54,367 | ) | (0.1 | ) | |||||||||
| Net loss | (22,401,318 | ) | 514.4 | (10,134,901 | ) | (279.5 | ) | |||||||||
| Non-controlling interests | ||||||||||||||||
| Net loss attributable to non-controlling interests | (2,124,600 | ) | 48.8 | (36,227 | ) | (1.0 | ) | |||||||||
| Net loss attributable to LGHL | (20,276,718 | ) | 465.5 | (10,098,674 | ) | (278.5 | ) | |||||||||
7
Non-GAAP Financial Results
The following Non-GAAP financial results, both in absolute amount and as a percentage of our revenues for the periods indicated, are used by management to evaluate our financial performance prior to the deduction of change in fair value of warrant liabilities, stock-based compensation expenses, amortization of debt discounts, depreciation expenses and impairment of fixed assets (see “Non-GAAP Financial Measures” below).
| Six months ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| US$ | % | US$ | % | |||||||||||||
| Non-GAAP income (loss) attributable to LGHL before change in fair value of warrant liabilities, stock-based compensation, amortization of debt discounts, depreciation expenses and impairment of fixed assets | (19,516,217 | ) | 448.7 | (6,468,898 | ) | (179.7 | ) | |||||||||
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Revenues
Our total revenues decreased by US$8.0 million from an income of US$3.6 million for the six months ended June 30, 2021 to a loss of US$(4.3) million for the six months ended June 30, 2022, primarily due to the trading losses in CFD and TRS trading services.
Our total revenue-generating client accounts increased from 1,722 as of December 31, 2017 to 5,261 as of December 31, 2021, and decreased to 4,522 as of June 30, 2022. The decrease in the first half of 2022 was primarily due to the number of clients in our insurance brokerage business. As of December 31, 2021, the total 5,261 active revenue-generating accounts included 149 accounts for futures trading, 96 accounts for securities trading, 2,866 accounts for CFD trading, 180 accounts for TRS trading and 1,970 accounts for insurance products. And as of June 30, 2022, the total 4,522 active revenue-generating accounts included 164 accounts for futures trading, 97 accounts for securities trading, 2,819 accounts for CFD trading, 210 accounts for TRS trading and 1,232 accounts for insurance products.
TRS Trading Services Income. We officially began offering TRS trading services to customers in July 2020. Revenue generated from TRS trading services decreased by US$4.4 million from an income of US$3.6 million for the six months ended June 30, 2021 to a loss of US$(0.8) million for the six months ended June 30, 2022, due to the trading gains/(losses) from our proprietary TRS trading activities decreased by US$6.2 million from an income of US$3.2 million to a loss of US$(3.0) million, partially offset by an increase of US$1.5 million in interest income earned on loans provided to TRS trading customers and an increase of US$0.3 million in commissions and other income. Our proprietary TRS trading activities suffered significant losses from Chinese stock markets’ high fluctuations in the first half of 2022, which was caused by China’s dismal economic outlook, renewed lock-downs in cities across China resulted from stringent zero-Covid policy, heightened geopolitical tensions such as U.S.-China relation, an escalation of tensions over Taiwan Strait, and unpredictable regional military conflict worldwide etc.
8
CFD Trading Services Income. Lion derives a substantial portion of income from CFD trading services from a small number of key clients. As a result, earnings generated from our CFD trading services have demonstrated high volatility historically. Revenue generated from CFD trading services decreased by US$5.8 million from a loss of US$(1.1) million for the six months ended June 30, 2021 to a loss of US$(6.9) million for the six months ended June 30, 2022, primarily attributable to an increase of US$5.4 million in trading losses and a decrease of US$0.4 million in commission income. CFD trading losses increased from US$(2.1) million for the six months ended June 30, 2021 to US$(7.6) million for the six months ended June 30, 2022. We suffered significant losses from acting as counterparty to our clients’ CFD trades in the first half of 2022 as a result of fluctuation and volatility that the global financial markets reacted a series of unpredictable events with, such as Russia and Ukraine conflict and Europe’s energy crisis, surging inflation and hiking interest rates in the U.S. and Europe, China’s housing market slump etc., which impacted the major stock indexes, commodity market including crude oil and metal, and foreign exchange market. Market making commission income decreased from $1.0 million for the six months ended June 30, 2021 to $0.7 million for the six months ended June 30, 2022, which was mainly attributable to China’s strengthened restrictions on the promotion and advertisements related to internet financial products and services, leading to a significant decrease in the number of new accounts opened through online advertising.
Futures and Securities Brokerage Income. Revenues from futures and securities brokerage services increased from US$1.2 million for the six months ended June 30, 2021 to US$2.0 million for the six months ended June 30, 2022 as a result of an increase in the number of executed futures contracts, primarily due to Hong Kong’s economy rebounded rapidly as the local pandemic subsided since 2021 and sophisticated investors wanted to take advantage of the volatile markets and allocated more into speculation trading.
Others. Other income (loss) increased by US$1.5 million from a loss of US$(0.1) million for the six months ended June 30, 2021, to US$1.4 million for the six months ended June 30, 2022. The increase in other income was primarily attributed to trading gains from OTC call options of US$0.9 million, sale of MetaWords NFTs of US$0.4 million and interest, other income of US$0.2 million generated in the first half of 2022, and the decrease of US$0.2 million in trading losses from exchange-traded stock, offset by the decrease of US$0.2 million in Bitcoin mining income as the Bitcoin mining operation has ceased since October 2021.
Expenses
Our total expenses increased by 31.9% from US$13.7 million for the six months ended June 30, 2021 to US$18.0 million for the six months ended June 30, 2022, primarily due to increases in commission expenses, professional fees, research and development, depreciation and impairment of mining equipment, partially offset by the decrease in service fees, change in fair value of option liabilities, change in fair value of warrants liabilities, and compensation expenses.
Commission Expenses. Our commission expenses increased by 77.9% from US$1.2 million for the six months ended June 30, 2021 to US$2.1 million for the six months ended June 30, 2022, primarily due to an increase in our futures brokerage commission expenses of US$0.6 million and an increase in TRS trading and insurance brokerage commission expenses by US$0.3 million, which is in line with the overall trench of such businesses.
Compensation Expenses. Our compensation expenses decreased by 19.3% from US$2.4 million for the six months ended June 30, 2021 to US$1.9 million for the six months ended June 30, 2022, primarily due to the discretionary bonus paid out in 2021.
Communication and Technology Expenses. Our communication and technology expenses remained comparable to the corresponding period in 2021.
9
Cost of crypto mining. Our cost of Bitcoin mining was US$0.2 million for the six months ended June 30, 2021. There was no crypto mining operation since October 2021.
General and Administrative Expenses. Our general and administrative expenses slightly increased by 8.2% from US$0.6 million for the six months ended June 30, 2021 to US$0.7 million for the six months ended June 30, 2022.
Professional Fees. Our professional fees increased from US$1.0 million for the six months ended June 30, 2021 to US$3.0 million for the six months ended June 30, 2022, primarily due to the investor relations, and consulting services fees we additionally incurred as we became a public company and expanded into new business lines such as TRS trading and NFT.
Services Fees. Our services fees for independent contractors and consultants decreased by 56.7% from US$2.5 million for the six months ended June 30, 2021 to US$1.1 million for the six months ended June 30, 2022, due to a one-off special inventive scheme for the six months ended June 30, 2021.
Research and Development. We incurred R&D expenses of US$4.1 million in connection with developing and enhancing our Metaverse project for the six months ended June 30, 2022.
Interest Expenses. Our interest expenses increased slightly from US$0.9 million for the six months ended June 30, 2021 to US$1.0 million for the six months ended June 30, 2022, mainly attributable to an increase of US$0.8 million in the interest we paid for loans borrowed from our TRS trading service business partners, offset by a decrease of US0.7 million in the interest and the amortization of debt discounts from convertible debentures.
Occupancy Expenses. Our occupancy expenses slightly increased from US$0.3 million for the six months ended June 30, 2021 to US$0.4 million for the six months ended June 30, 2022, primarily due to the new office spaces we rented for our subsidiary in Singapore, partially offset by the rental reduction for our subsidiaries in Hong Kong as a result of COVID-19.
Marketing Expenses. Marketing expenses slightly decreased from US$0.6 million for the six months ended June 30, 2021 to US$0.4 million for the six months ended June 30, 2022.
Depreciation. Our depreciation expenses increased from US$0.3 million for the six months ended June 30, 2021 to US$1.2 million for the six months ended June 30, 2022, mainly attributable to the depreciation of acquired copyrighted trading software programs related to CFD and TRS trading services in 2021.
Impairment of fixed assets. The mining equipment was fully impaired in the six months ended June 30, 2022 in an amount of US$1.7 million.
Impairment of cryptocurrencies. The impairment charges of the BNB and wBNB tokens held from the sale of MetaWords NFTs in the six months ended June 30, 2022 was US$0.3 million.
Change in fair value of warrant liabilities. The change in fair value of the outstanding Public and Private Warrants for the six months ended June 30, 2022 was a gain of US$0.8 million, compared to a loss of $2.4 million in the corresponding period of 2021. The change in fair value is the result of changes in market prices deriving the value of the financial instruments.
Other Expenses. Other expenses decreased from an expense of US$0.3 million for the six months ended June 30, 2021 to an income of US$26,000 for the six months ended June 30, 2022.
Income Tax Expenses
Our income tax expenses decreased from US$54,000 for the six months ended June 30, 2021 to US$3,000 for the six months ended June 30, 2022, primarily due to the taxes paid in 2021 as a result of IRS examination of PAAC’s tax return for the period ended September 30, 2019.
10
Net Loss
As a result of the foregoing, we had net losses of US$22.4 million for the six months ended June 30, 2022 compared to a net loss of US$10.1 million for the six months ended June 30, 2021.
Net Loss attributable to LGHL
After allocating net loss to non-controlling interest, net loss attributable to parent company was US$20.3 million for the six months ended June 30, 2022, compared to US$10.1 million for the six months ended June 30, 2021.
Non-GAAP Financial Measures
Our calculation of Non-GAAP income (loss) (net income (loss) before change in fair value of warrant liabilities, stock-based compensation, amortization of debt discounts, depreciation expenses and impairment of fixed assets) and Non-GAAP EPS differs from EPS based on net (loss) income because it does not include change in fair value of warrant liabilities, stock-based compensation, amortization of debt discounts, depreciation expenses and impairment of fixed assets. We use this information internally in evaluating our operations and believe this information is important to investors because it provides users of our financial information with additional useful information in evaluating operating performance for the periods and is more consistently comparable to the prior periods. Notwithstanding the foregoing, Non-GAAP income (loss) and Non-GAAP EPS should not be considered an alternative to, or more meaningful than, net income (loss) and EPS as determined in accordance with GAAP. The following is a reconciliation of our net (loss) income to Non-GAAP income (loss) and GAAP EPS to our Non-GAAP EPS:
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| US$ | US$ | |||||||
| Net income (loss) attributable to LGHL | (22,401,318 | ) | (10,134,901 | ) | ||||
| Stock-based compensation | 650,275 | 190,900 | ||||||
| Amortization of debt discounts | 105,000 | 783,994 | ||||||
| Depreciation expenses | 1,198,122 | 279,680 | ||||||
| Impairment of fixed assets | 1,691,079 | - | ||||||
| Change in fair value of warrant liabilities | (759,375 | ) | 2,411,429 | |||||
| Non-GAAP income (loss) attributable to LGHL before change in fair value of warrant liabilities, stock-based compensation, amortization of debt discounts, depreciation expenses and impairment of fixed assets | (19,516,217 | ) | (6,468,898 | ) | ||||
| Non-GAAP earnings (losses) per share for both Class A and Class B - basic and diluted | (0.48 | ) | (0.33 | ) | ||||
| Weighted average Class A ordinary shares outstanding - basic and diluted | 35,295,167 | 22,690,522 | ||||||
| Weighted average Class B ordinary shares outstanding - basic and diluted | 5,088,873 | 4,041,875 | ||||||
| Six months ended June 30, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Basic | Fully Diluted | Basic | Fully Diluted | |||||||||||||
| Earnings (Loss) attributable to LGHL per share for both Class A and Class B | (0.55 | ) | (0.55 | ) | (0.47 | ) | (0.47 | ) | ||||||||
| Stock-based compensation | 0.02 | 0.02 | 0.01 | 0.01 | ||||||||||||
| Amortization of debt discounts | 0.00 | 0.00 | 0.03 | 0.03 | ||||||||||||
| Depreciation expenses | 0.03 | 0.03 | 0.01 | 0.01 | ||||||||||||
| Impairment of fixed assets | 0.04 | 0.04 | - | - | ||||||||||||
| Change in fair value of warrant liabilities | (0.02 | ) | (0.02 | ) | 0.09 | 0.09 | ||||||||||
| Non-GAAP earnings (losses) per share for both Class A and Class B (before change in fair value of warrant liabilities, stock-based compensation, amortization of debt discounts, depreciation expenses and impairment of fixed assets) | (0.48 | ) | (0.48 | ) | (0.33 | ) | (0.33 | ) | ||||||||
11
Liquidity and Capital Resources
To date, our principal sources of liquidity have been cash generated from our operations, capital injections by our shareholder, and debt or equity financing activities. The following table presents the Company’s unrestricted cash and short-term investments as of the six months ended June 30, 2022 and 2021. Our unrestricted cash primarily consist of cash on hand and cash deposited with banks which are unrestricted for withdrawal or use. The short-term investments we held are mainly equity securities listed on Shanghai/Shenzhen Stock Exchange and Hong Kong Stock Exchange. The Company did not have available and unused external source of liquidity as of the periods ended June 30, 2022 and 2021.
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| US$ | US$ | |||||||
| Unrestricted cash | $ | 11,868,738 | $ | 14,888,644 | ||||
| Short-term investments | 11,547,039 | 30,325,800 | ||||||
| $ | 23,415,777 | $ | 45,214,444 | |||||
We have been able to meet our working capital needs in the past, and based on our current operating plan, we expect that our existing unrestricted cash and short-term investments and our anticipated cash flows from operations will be sufficient to meet our anticipated cash needs for the next 12 months. In the long term, our working capital needs will depend on many factors, including the rate of our business and revenue growth, the timing of our various expenditures and cash provided by and used in operating, investing and financing activities and capital expenditures.
To the extent our unrestricted cash, short-term investments and cash flow from operating activities are insufficient to satisfy its liquidity needs in accordance with our strategic plan in the future, we may determine to raise additional funds through the sale of equity or convertible debt securities. If additional funding is necessary or desirable, however, we may not be able to effect an equity or debt financing in amounts or on terms acceptable to us or at all. If we are unable to raise additional capital when needed, its results of operations and financial condition would be materially and adversely impacted.
The following table presents our cash and cash equivalents held in various currencies as of the periods ended June 30, 2022 and 2021. We closely monitor our cash balance and future payments obligations by preparing monthly cash balance and fund requirement reports to provide a timely overview of our overall cash position and liquidity and risk control measurements. Such reports are reviewed by our chief financial officer and chief executive officer.
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| US$ | US$ | |||||||
| Held in USD | $ | 9,379,801 | $ | 13,332,791 | ||||
| Held in HKD | 2,321,401 | 1,415,622 | ||||||
| Held in RMB | 11,557 | 12,274 | ||||||
| Held in SGD and other currencies | 155,979 | 127,957 | ||||||
| Total cash and cash equivalents | $ | 11,868,738 | $ | 14,888,644 | ||||
As of June 30, 2022 and 2021, 0.09% and 0.07% of our cash and cash equivalents were held in China, respectively.
12
Transfers of Cash from Our Subsidiaries to the Company
Lion Group Holding Ltd. is incorporated in Cayman Islands on February 11, 2020, to be the ultimate parent company of the Group upon the consummation of a business combination on June 16, 2020. As a holding company with no material operations of our own, we conduct our substantial operations through our subsidiaries in Hong Kong and the Cayman Islands and our apps are available to download in the app stores of China and most of our users are PRC citizens, which may subject us to certain laws and regulations in China. Lion Group Holding Ltd is permitted under the laws of Cayman Islands to provide funding to our subsidiaries in Hong Kong and Cayman Islands through loans or capital contributions without restrictions on the amount of the funds. Lion Group Holding Ltd. can distribute earnings from its businesses, including subsidiaries, to the U.S. investors. Our operations in Hong Kong and the Cayman Islands were in loss position since the second half of 2020, and the Company has raised capital through a series of financing transactions and provided funding to our operations in Hong Kong and the Cayman Islands.
Our operating subsidiaries are permitted under the laws of Hong Kong, Cayman Islands, Singapore, and British Virgin Islands, respectively, to provide funding to Lion Group Holding Ltd, the holding company incorporated in the Cayman Islands through dividend distributions, loans or advances. Our Group currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. We currently do not have any dividend policy, any future determination will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments.
Currently, we conduct our substantial operations through our subsidiaries in Hong Kong and the Cayman Islands. We do not have or intend to set up any subsidiary or enter into any contractual arrangements to establish a VIE structure with any entity in China. Since Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law, providing Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems”. We are dependent on our customers in the PRC, the laws and regulations of the PRC currently have restrictions on currency conversion, cross-border remittance and offshore investment for PRC citizens. However, the laws and regulations of the PRC do not currently have any material impact on transfer of cash from the Company to our Cayman Islands and Hong Kong subsidiaries to or from Cayman Islands and Hong Kong subsidiaries to the Company and the investors in the U.S.. As a result, cash can be transferred freely between the Company and its operating subsidiaries, across borders, and to U.S. investors.
Subject to the Companies Act and our Amended and Restated Memorandum and Articles of Association, our board of directors may authorize and declare a dividend to shareholders from time to time out of the profits from the Company, realized or unrealized, or out of the share premium account, provided that the Company will remain solvent, meaning the Company is able to pay its debts as they come due in the ordinary course of business. There is no further Cayman Islands statutory restriction on the amount of funds which may be distributed by us in the form of dividends.
13
The following are the aggregate transfers from its subsidiaries to the Company for the periods indicated:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| US$ | US$ | |||||||
| Subsidiaries | ||||||||
| Lion Broker Limited | 12,059,986 | - | ||||||
| Lion Wealth Limited | 6,500,000 | - | ||||||
| Total | 18,559,986 | - | ||||||
For the periods ended June 30, 2022 and 2021, we did not pay any dividends to our shareholders. If we determine to pay dividends on any of our ADSs in the future, as a holding company, we will be dependent on receipt of funds from our operating subsidiaries in Hong Kong and Cayman Islands. Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us, and under the current laws of the Cayman Islands, we are also not subject to tax on income or capital gains and withholding tax is not imposed upon payments of dividends from the Company to its shareholders.
There are no restrictions or limitations under the laws of Hong Kong imposed on the conversion of HK dollar into foreign currencies and the remittance of currencies out of Hong Kong, nor is there any restriction on any foreign exchange to transfer cash between the Company and its subsidiaries, across borders and to investors outside of PRC, nor is there any restrictions and limitations to distribute earnings from the subsidiaries, to the Company and investors outside of PRC and amounts owed. There are no exchange controls in Cayman Islands.
Regulatory Capital Requirements
We are required to hold sufficient regulatory capital at both group and individual entity level to cover our risk exposures, among other financial obligations imposed by regulatory authorities in the multiple jurisdictions where our subsidiaries operate. The following table illustrates the minimum regulatory capital as established by the HKSFC, the Insurance Association (Hong Kong), the CIMA and MAS that our subsidiaries were required to maintain as of June 30, 2022 and 2021 and the actual amounts of capital that were maintained.
| As of June 30, 2021 | As of June 30, 2022 | |||||||||||||||||||||||
| Minimum Regulatory Capital Requirements | Capital Levels Maintained | Minimum Regulatory Capital Requirements | Capital Levels Maintained | Excess Net Capital | Percent of Requirement Maintained | |||||||||||||||||||
| Operating Subsidiaries | ||||||||||||||||||||||||
| Lion International Securities Group Limited | $ | 386,292 | $ | 1,171,495 | $ | 382,361 | 1,231,249 | 848,888 | 322 | % | ||||||||||||||
| Lion Futures Limited | 386,292 | 1,039,855 | 382,361 | 1,384,723 | 1,002,362 | 362 | % | |||||||||||||||||
| Lion Asset Management Limited | 12,876 | 43,415 | 12,745 | 111,125 | 98,380 | 872 | % | |||||||||||||||||
| BC Wealth Management Limited | 12,876 | 177,081 | 12,745 | 248,811 | 236,066 | 1952 | % | |||||||||||||||||
| Lion International Financial (Singapore) Pte. Ltd. | - | - | 718,061 | 855,969 | 137,909 | 119 | % | |||||||||||||||||
| Lion Brokers Limited | 9,704,983 | 12,495,487 | 4,655,785 | 15,820,338 | 11,164,552 | 340 | % | |||||||||||||||||
| Total | $ | 10,503,319 | $ | 14,927,333 | $ | 6,164,058 | $ | 19,652,215 | $ | 13,488,157 | 319 | % | ||||||||||||
14
Lion International Securities Group Limited (“LISGL”), Lion’s Hong Kong subsidiary, is licensed by the HKSFC to carry out regulated activities of Type 1, dealing in securities, and it provides securities margin financing, and Type 4, advising on securities, and it is not subject to specified licensing condition. LISGL is subject to the requirements of section 145 of the Security and Future Ordinance (Cap.571) (“SFO”). Under the rule, LISGL is required to maintain a minimum liquid capital of approximately US$386,000 (HK$3 million).
Lion Futures Limited (“LFL”), Lion’s Hong Kong subsidiary, is licensed by the HKSFC to carry out regulated activities of Type 2, dealing in future contracts, and Type 5, advising on futures contracts, and it is not subject to specified licensing condition. LFL is subject to the requirements of section 145 of the SFO. Under the rule, LFL is required to maintain a minimum liquid capital of approximately US$386,000 (HK$3 million).
Lion Asset Management Limited (“LAML”), Lion’s Hong Kong subsidiary, is licensed by the HKSFC to carry out regulated activities of Type 4, advising on securities, and it is subject to specified licensing condition, and Type 9, assets management and it is subject to specified licensing condition. LCML is subject to the requirements of section 145 of the SFO. Under the rule, LAML is required to maintain a minimum liquid capital of approximately US$13,000 (HK$100,000).
BC Wealth Management Limited (“BCWML”), Lion’s Hong Kong subsidiary, is a member of the Professional Insurance Brokers Association Limited (“PIBA”) and is engaged in the business of insurance brokerage services. BCWML is subject to the minimum requirements specified by the Insurance Authority (“IA”) under section 70(2) of the Ordinance. Under the rule, BCWML is required to maintain a minimum capital and net assets of approximately US$13,000 (HK$100,000).
Lion International Financial (Singapore) Pte. LTD. (“LIFSL”), Lion’s Singapore subsidiary, is licensed by the MAS to conduct the regulated activities of dealing in capital markets products and it is subject to specified licensing condition. LIFSL is subject to the requirements of Securities and Futures Act (Cap. 289) (“SFA”). Under the rule, LIFSL is required to maintain a minimum liquid capital of approximately US$740,000 (SGP 1,000,000).
Lion Broker Limited (“LBL”), Lion’s Cayman Island subsidiary, is registered Securities-Full license holder with the CIMA including Broker-dealer and Market Maker. LBL is subject to the requirements of the SIBL. Under the rule, LBL is required to maintain a capital level in excess of the financial resources’ requirement, which is defined as the sum of (i) counterparty requirement, (ii) position risk requirement, and (iii) the base requirement, which is the greater of (a) one quarter of relevant annual expenditure or (b) approximately US$120,000 (CI$100,000).
As of June 30, 2022 and 2021, all of our operating subsidiaries were in compliance with their respective regulatory capital requirements.
The following table sets forth a summary of our cash flows for the periods indicated:
| Six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (904,809 | ) | $ | (24,342,405 | ) | ||
| Net cash used in investing activities | (3,587,440 | ) | (4,468,824 | ) | ||||
| Net cash provided by financing activities | 3,668,775 | 39,736,327 | ||||||
| Effect of exchange rate changes on cash | (116,703 | ) | (21,628 | ) | ||||
| Net increase in cash and restricted cash | (940,177 | ) | 10,903,470 | |||||
| Cash and restricted cash at beginning of period | 15,751,475 | 4,794,097 | ||||||
| Cash and restricted cash at end of period | $ | 14,811,298 | $ | 15,697,567 | ||||
15
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2022 was US$0.9 million, primarily attributable to our net losses of US$22.4 million, as adjusted by (i) change in fair value of warrant liabilities and option liabilities in total of US$1.3 million, (ii) a decrease of US$7.3 million in payables to customers and (iii) a decrease of US$21.5 million in payables to broker-dealers and clearing organizations. These were partially offset by (i) share based compensation of US$0.7 million, impairment of fixed assets of US$1.7 million and the depreciation expenses of US$1.2 million, (ii) a decrease of US$37.2 million in receivables from broker-dealers and clearing organizations, (iii) a decrease of US$4.4 million in securities owned and (iv) a decrease of US$6.5 million in prepaid and other assets.
Net cash used in operating activities for the six months ended June 30, 2021 was US$24.3 million, primarily attributable to our net losses of US$10.1 million, as adjusted by (i) an increase of US$15.6 million in receivables from broker-dealers and clearing organizations including customer accounts, and (ii) an increase of US$30.3 million in securities owned. These were partially offset by (i) an increase of US$9.1 million in payables to customers and (ii) an increase of US$20.4 million in payables to broker-dealers and clearing organizations.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2022 was US$3.6 million, primarily attributable to short-term loans receivable to unrelated parties in an aggregate of US$5.1 million, partially offset by US$1.5 million of collection of such loans.
Net cash used in investing activities for the six months ended June 30, 2021 was US$4.5 million, primarily attributable to (i) US$2.6 million paid for acquisition of mining machines, (ii) US$1.5 million of investment in private equity and (iii) short-term loans receivable to an unrelated party in an aggregate of US$1 million, partially offset by US$0.7 million of collection of such loans.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2022 was US$3.7 million, primarily attributable to (i) net proceeds of US$2.0 million from convertible debenture and (ii) capital contribution of US$1.7 million from noncontrolling shareholder.
Net cash provided by financing activities for the six months ended June 30, 2021 was US$40.0 million, primarily attributable to (i) US$33.0 million of proceeds from the exercise of warrants and options, (ii) US$6.3 million of proceeds from issuance of preferred shares and warrants, and (iii) US$0.8 million of proceeds from issuance of ordinary shares, partially offset by US$0.3 million of repayment of short term loans.
16
Financing Arrangements
The following is a summary of our borrowings and redeemable securities as of June 30, 2022 and 2021, which were obtained for working capital purpose.
| Six Months Ended June 30, | Interest rate | Maturity Date or | ||||||||||||||
| 2022 | 2021 | Orignal | or Dividend | Redemption | ||||||||||||
| Outstanding principal amount | US$ | US$ | Currency | Rate | Date | |||||||||||
| Minority shareholder loan | $ | 110,000 | $ | - | USD | 0 | % | None | ||||||||
| May 2022 Convertible debenture (1) | 2,100,000 | - | USD | 9 | % | November 2024 | ||||||||||
| Series B Convertible Preferred Shares (1) | 4,000,000 | - | USD | 8 | % | December 2024 | ||||||||||
| $ | 6,210,000 | $ | - | |||||||||||||
| (1) | The securities are convertible into ADSs since the issuance at the holder’s election. |
Operating Lease Commitments
The following table sets forth our operating lease commitments as of June 30, 2022. Our lease obligations primarily comprise future aggregate minimum lease payments in respect of office premises under non-cancellable lease agreements.
| Payments Due by Period | ||||||||||||
| Total | Short-term less than 1 Year | Long-term over 1 year | ||||||||||
| Operating lease obligations | $ | 1,414,576 | $ | 569,125 | $ | 845,451 | ||||||
Other than the Financing Arrangements and Operating Lease Commitments above, we did not have any significant capital and other commitments, long-term obligations, or guarantees as of June 30, 2022.
Capital Expenditures
Our capital expenditures are primarily incurred for purchase of property, equipment and copyrighted trading software programs. Although we did not have significant commitments for capital expenditures as of June 30, 2022 and subsequently, we will continue to make capital expenditures to meet the growth of our business when needed. We intend to fund our future capital expenditures with our existing cash balance and proceeds from our debt or equity financing activities.
17
Recent Operational and Financial Developments in Digital Assets
Bitcoin Mining Operations
We commenced Bitcoin mining operations in late May 2021 and have ceased our Bitcoin mining operations and all related operations at the end of October 2021 as a result of the hiked electricity cost as well as the change in the regulatory environment in the PRC. As of December 31, 2021, we have liquidated all the Bitcoins and USDT and held no Bitcoins and USDT on hand. As of June 30, 2022, we have fully impaired and disposed of the mining equipment due to the technological obsolescence of the miners, the stumbled Bitcoin price and the change in the regulatory environment in PRC.
NFT Platform Operation
In January 2022, we launched our NFT business through Flying Lion Limited, including (i) issuance of MetaWords character NFTs and MetaWords work NFTs (collectively, the “MetaWords NFTs”), and (ii) the establishment of our NFT trading platform, namely the Lion NFT platform. The Lion NFT platform is an online marketplace where user customers can mint, buy, and sell their own NFT assets. Our platform does not provide digital wallet services or NFT assets storage services to its users, but the Lion NFT platform allows the users to connect and link their own digital cryptocurrency wallets, such as Metamask, to the Lion NFT platform. Therefore, for NFTs held by users, we do not provide custody services either directly or indirectly, and neither we have control of these digital assets nor do we have any related liability. They are off-balance sheet to our financial statements.
In January 2022, we created and minted the MetaWords NFTs by converting Xu Bing’s characters in his artwork Book from the Ground and sold MetaWords NFTs to the NFT collectors. The sales were conducted through an online auction and blind boxes direct sell on the Lion NFT platform. The sale price was received in the form of wrapped BNB and BNB tokens. We sold in an aggregate of six MetaWords NFTs created by us by the auction in the amount of 197 wrapped BNB, and 2,742 blind-boxes which includes MetaWords NFTs at 0.40 BNB per unit for a total amount of 749 BNB, net of the consideration paid to customers of 348 BNB in form of incentive rewards. We recorded revenue on a gross basis of the sale price, net of considerations paid to the users as the incentive, and collected in an aggregate of approximately US$438,000 at the spot token price upon the completion of the sale of character NFTs and blind boxes. As of June 30, 2022, we held 197 wrapped BNB and 749 BNB on hand, and recorded an impairment charge of approximately US$294,000 for the six months ended June 30, 2022.
We did not have additional sale of NFTs since January 2022. The fees we are entitled to the resale of MetaWord NFTs were de minimis and there were no other NFTs transactions on Lion NFT platform than MetaWords as of the date of this current report. As of June 30, 2022, we held 3,700 pieces of NFTs minted by us on hand. We consider the value of the NFTs is immaterial to our consolidated financial statements taken as a whole. In accordance with our accounting policies, we initially capitalized the costs of NFTs in intangible assets which primarily included the gas fees in an aggregate of less than $1,000, and subsequently determined to fully impair. Gas fees were paid by BNB tokens and measured at the fair value of the tokens on the date paid. Aa a result, as of June 30, 2022 the carrying value of NFTs included in intangible assets was zero.
As of the date of this current report, besides the ceased Bitcoin mining operations and NFTs, we do not have other revenue-generating activities in digital assets.
During the months of May through November 2022, market volatility in the prices of digital assets has been elevated due to a variety of factors, including, but not limited to, the macroeconomic environment (high inflation and rising interest rates) as well as the ‘crypto credit crisis’ brought on by the collapse and bankruptcy of a number of key players in the sector (cryptocurrency Luna collapse, hedge fund Three Arrows Capital default on loans and filing for bankruptcy, crypto-lending platform Celsius freezing all withdraws, cryptocurrency lender Voyager Digital filing for bankruptcy, crypto platform FTX filing for bankruptcy, crypto platform BlockFi filing for bankruptcy among others). We do not have counterparty exposure to any of the foregoing firms affected by the recent crypto credit crisis nor have our plans for NFT business operation been materially adversely impacted.
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