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
17
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.
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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 | $ | $ | $ | % | ||||||||||||
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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 | $ | $ | $ | $ | $ | |||||||||||||||
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| 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