Exhibit 99.2
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Condensed Consolidated Balance Sheets
(Expressed in U.S. Dollars, except for the number of shares)
| September 30, 2023 | March 31, 2023 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Loans receivable | ||||||||
| Receivables from customers for trading activities | ||||||||
| Receivables from broker-dealers and clearing organizations | ||||||||
| Receivables from customers | ||||||||
| Receivables from customers – related parties | ||||||||
| Securities owned, at fair value | ||||||||
| Fixed assets, net | ||||||||
| Intangible asset, net | ||||||||
| Right of use assets | ||||||||
| Long-term investment in a joint venture | ||||||||
| Deposit for long-term investment | ||||||||
| Available-for-sale investment | ||||||||
| Income tax recoverable | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and shareholders’ equity | ||||||||
| Payable to customers | $ | $ | ||||||
| Payable to customers – related parties | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Lease liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders’ Equity | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Unaudited Condensed Consolidated Statements of Income and Comprehensive Income
(Expressed in U.S. dollar, except for the number of shares)
| For the Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | ||||||||
| Futures brokerage commissions | $ | $ | ||||||
| Trading solution service revenues | ||||||||
| Other service revenues | ||||||||
| Trading gains | ||||||||
| Interest income and other | ||||||||
| Total revenues | ||||||||
| Expenses | ||||||||
| Commission expenses | ||||||||
| Compensation and benefits | ||||||||
| Communications and technology | ||||||||
| Occupancy | ||||||||
| Travel and business development | ||||||||
| Professional fees | ||||||||
| Other administrative expenses | ||||||||
| Total expenses | ||||||||
| Income before income taxes | ||||||||
| Income tax expense | ||||||||
| Net income | ||||||||
| Other comprehensive income (loss) | ||||||||
| Total foreign currency translation adjustment | ( | ) | ||||||
| Total comprehensive income | $ | $ | ||||||
| Earnings per share: | ||||||||
| $ | $ | |||||||
| Weighted average number of ordinary shares outstanding: | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in U.S. dollar, except for the number of shares)
| Ordinary Shares | Additional Paid-in | Retained | Accumulated Other Comprehensive | |||||||||||||||||||||
| Shares* | Amount | Capital | Earnings | Income (Loss) | Total | |||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||
| Acquisition of a subsidiary | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | $ | |||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of common shares pursuant to initial public offering (“IPO”), net of offering cost of | ||||||||||||||||||||||||
| Issuance of common shares to a service provider for successful IPO | ( | ) | ||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Unaudited Condensed Consolidated Statements of Cash Flows
(Expressed in U.S. dollar)
| For the Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of right of use assets | ||||||||
| Share-based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Receivables from customers | ( | ) | ||||||
| Receivables from customers – related party | ( | ) | ||||||
| Receivables from customers for trading activities | ( | ) | ( | ) | ||||
| Receivables from broker-dealers and clearing organizations | ||||||||
| Securities owned, at fair value | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Payable to customers | ( | ) | ||||||
| Payables to customers – related party | ||||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Income tax recoverable and payable | ( | ) | ( | ) | ||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of fixed assets | ( | ) | ||||||
| Collection of loans from customers holding US stocks | ||||||||
| Collection of loans from a third party | ||||||||
| Loans made to a third party | ( | ) | ||||||
| Payment for acquisition of a subsidiary | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common shares pursuant to IPO, net of issuance cost | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | ( | ) | ||||||
| Net increase in cash, cash equivalents and restricted cash | ||||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets | ||||||||
| September 30, 2023 | March 31, 2023 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
| Non-cash operating, investing and financing activities | ||||||||
| Right of use assets obtained in exchange for operating lease obligations | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes, net of refunds | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
1. Organization and Description of Business
TOP Financial Group Limited (the “Company”, formerly “Zhong Yang Financial Group Limited” and “ZYFGL”) (“ZYFGL”) is a company incorporated in Cayman Islands with limited liability on August 1, 2019. ZYFGL is a parent holding company with no operations. Effective on July 13, 2022, the Company changed its name from “Zhong Yang Financial Group Limited” to “TOP Financial Group Limited” (“Name Change”).
ZYFGL has two wholly-owned subsidiaries, ZYSL (BVI) Limited (“ZYSL (BVI)”) and ZYCL (BVI) Limited (“ZYCL (BVI)”), both which are investment holding entities formed under the laws and regulations of the British Virgin Islands on August 29, 2019.
Zhong Yang Securities Limited
(“ZYSL”), a wholly-owned subsidiary of ZYSL (BVI), was established in accordance with laws and regulations of Hong Kong on
April 22, 2015 with a registered capital of HKD
Zhong Yang Capital Limited
(“ZYCL”), a wholly-owned subsidiary of ZYCL (BVI), was established in accordance with laws and regulations of Hong Kong on
September 29, 2016 with a registered capital of HKD
Eight subsidiaries, ZYAL (BVI) Limited (“ZYAL (BVI)”), ZYTL (BVI) Limited (“ZYTL (BVI)”), ZYNL (BVI) Limited (“ZYNL (BVI)”), WIN100 Tech Limited (“WIN100 TECH”), ZYPL (BVI) Limited (“ZYPL (BVI)”), ZYXL (BVI) Limited (“ZYXL (BVI)”), ZYIL (BVI) Limited (“ZYIL (BVI)”) and ZYFL (BVI) Limited (“ZYFL (BVI)”) were incorporated under the laws of British Virgin Islands on January 7, 2021, January 12, 2021, January 20, 2021, May 14, 2021, July 14, 2022, July 14, 2022, November 11, 2022 and November 11, 2022, respectively. These subsidiaries are dormant as of the date of this report, except for WIN100 TECH, which provides trading solutions for clients trading on the world’s major derivatives and stock exchanges.
On November 28, 2022, ZYPL
established Top Financial Pte. Ltd. (“Top Fin”) in accordance with laws and regulations of Republic of Singapore. On the same
date, ZYXL set up Top Asset Management Pte. Ltd. (“Top AM”) in accordance with laws and regulations. On February 24, 2023,
ZYFL established Winrich Finance Limited in accordance with laws and regulations of Hong Kong. On February 9, 2023, the Company, through
ZYIL, purchased
On April 12, 2023, the Company,
through ZYAL, closed an acquisition of
5
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
1. Organization and Description of Business (Continued)
ZYFGL together with its subsidiaries (collectively, the “Company”) are primarily engaged in providing futures brokerage and other financial services in Hong Kong through a trading platform to its customers. The Company generates brokerage commission income by enabling its customer to trade on multiple exchanges around the world.
On June 3, 2022, the Company
completed its initial public offering on the National Association of Securities Dealers Automated Quotations (“NASDAQ”). In
this offering,
Reorganization
Reorganization of the legal structure of the Company (“Reorganization”) has been completed on March 26, 2020 by carrying out a sequence of contemplated transactions, where the Company became the holding company of all entities discussed above.
Previous
to the reorganization, both ZYSL and ZYCL were held by Zhong Yang Holdings Company (the “Predecessor Parent Company”), a company
incorporated in Hong Kong with limited liability on April 21, 2015. The Predecessor Parent Company was owned
Before and after the Reorganization, the Company, together with its wholly-owned subsidiaries, are ultimately and effectively controlled by the same shareholders. Hence, the Reorganization is considered under common control. The consolidation of the Company and its subsidiaries has been accounted for at historical cost as of the beginning of the first period presented in the accompanying consolidated financial statements.
6
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies
Basis of presentation and principle of consolidation
The interim unaudited condensed consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
The unaudited condensed consolidated balance sheets as of September 30, 2023 and for the unaudited condensed consolidated statement of operations and comprehensive loss for the six months ended September 30, 2023 and 2022 have been prepared without audit, pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 20-F for the fiscal year ended March 31, 2023, which was filed with the SEC on June 30, 2023.
In the opinion of the management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair presentation of financial results for the interim periods presented. The Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements have been prepared using the same accounting policies as used in the preparation of the Company’s unaudited condensed consolidated financial statements for the year ended March 31, 2023. The results of operations for the six months ended September 30, 2023 and 2022 are not necessarily indicative of the results for the full years.
The unaudited condensed consolidated financial statements include the financial statements of parent company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of 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 of 2002, 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 shareholder 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.
7
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies (Continued)
Use of estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U. S. requires the use of estimates and assumptions that affect both the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
Receivables from broker-dealers and clearing organizations
Receivables arise from the
business of dealing in futures or investment securities. 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. The balance of receivables from broker-dealers and clearing organizations represents such receivables
related to the Company’s customer trading activities and proprietary trading activities.
September 30, | March
31, | |||||||
| (unaudited) | ||||||||
| Receivables from broker-dealers and clearing organizations for futures customer accounts | $ | $ | ||||||
| Receivables from broker-dealers and clearing organizations for securities customer accounts | ||||||||
| Receivables from broker-dealers and clearing organizations for securities proprietary trading | ||||||||
| $ | $ | |||||||
8
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies (Continued)
Receivables from customers
Receivables from customers include i) the trading solution services fees and other amounts due from customers once the transactions have been executed and completed, and ii) the amount due from customers whose holdings of US stocks exceeded their deposits in the Company. Receivables from customers are recorded net of allowance for doubtful accounts. Revenues earned from the futures brokerage service are included in futures brokerage commission, and revenues earned from trading solution services are included in trading solution services income.
On April 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), using the modified retrospective transition method. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. Upon adoption, the Company changed the impairment model to utilize a forward-looking current expected credit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost and receivables resulting from the application of ASC 606, including contract assets. The adoption of the guidance had no impact on the allowance for credit losses for accounts receivable.
Prior to the Company’s adoption of ASU 2016-13, receivables from customers are presented net of allowance for doubtful accounts. The Company usually determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the unaudited condensed consolidated statements of operations and comprehensive loss. Delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
After the adoption of ASU 2016-13, The Company maintains an allowance for credit losses and records the allowance for credit losses as an offset to receivables from customers and the estimated credit losses charged to the allowance is classified as operating expenses in the unaudited condensed consolidated statements of operations and comprehensive loss. The Company assesses collectability by reviewing receivables from customers on an individual basis because the Company had limited customers and each of them has difference characteristics, primarily based on business line and geographical area. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status, the age of the balances, credit quality of the Company’s customers based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
For the six months ended September 30, 2023 and 2022, no allowance for doubtful accounts were recorded.
9
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies (Continued)
Investment in a joint venture
The Company accounts for
the investment in a limited partnership in which the Company holds more than minor equity interest (
The Company applies the equity method to account for investment in a limited partnership and other investees, according to ASC 323 “Investments — Equity Method and Joint Ventures”, over which it has significant influence but does not own a controlling financial interest.
Under the equity method, the Company’s share of the post-acquisition profits or losses of the equity investee is recognized in the consolidated statements of operations and comprehensive income. The Company records its share of the results of the equity investees on a one quarter in arrears basis. The excess of the carrying amount of the investment over the underlying equity in net assets of the equity investee generally represents goodwill and intangible assets acquired. When the Company’s share of losses of the equity investee equals or exceeds its interest in the equity investee, the Company does not recognize further losses, unless the Company has incurred obligations or made payments or guarantees on behalf of the equity investee.
The Company continually reviews its investments in equity investees to determine whether a decline in fair value below the carrying value is other-than-temporary. The primary factors the Company considers in its determination include the financial condition, operating performance and the prospects of the equity investee; other company specific information such as recent financing rounds; the geographic region, market and industry in which the equity investee operates; and the length of time that the fair value of the investment is below its carrying value. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the equity investee is written down to fair value. No impairment of was recognized for the six months ended September 30, 2023 and 2022.
10
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies (Continued)
Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment of long-lived assets was recognized for the six months ended September 30, 2023 and 2022.
Operating leases
Under Topic 842, lessees are required to recognize the following for all leases (with the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company leases its office from a third-party lessor since September 2021, before that the Company leased the same office from the Predecessor Parent Company, which is classified as an operating lease in accordance with Topic 842.
At the commencement date of the lease agreement between the Company and the third party lessor, the Company recognizes the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease. The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. There was no impairment for right-of-use lease assets as of September 30, 2023 and March 31, 2023.
The Company also elected the short-term lease recognition exemption and will not recognize right of use assets or lease liabilities for leases with a term less than 12 months.
11
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies (Continued)
Revenue Recognition
| a) | Revenue from Contracts with Customers |
The Company early adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”) on April 1, 2018, using the modified retrospective approach. The adoption of this ASC 606 did not have a material impact on the Company’s consolidated financial statements. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenues and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenues to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. In according with ASC 606, revenues are recognized when the Company satisfies the performance obligations by delivering the promised services to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.
The Company identified each distinct service as a performance obligation. The recognition and measurement of revenues is based on the assessment of individual contract terms. The Company applied a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. The Company has no material incremental costs of obtaining contracts with customers that the Company expects the benefit of those costs to be longer than one year, which need to be recognized as assets.
Futures brokerage commissions
The Company earns fees and commissions from futures brokerage services based on a fixed rate for each transaction, all of which are under the consolidated accounts where the customer information are not disclosed to the third party brokers. When a customer executes a futures transaction through the Company’s platform, futures brokerage commission is recognized upon the completion of this transaction. Only a single performance obligation is identified for each futures trading transaction, and the performance obligation is satisfied on the trade date because that is when the underlying financial instrument is identified, the pricing of brokerage service is agreed upon and the promised services are delivered to customers. All of the Company’s revenues from contracts with customers are recognized at a point in time. The futures brokerage service could not be cancelled once it’s executed and is not refundable, so returns and allowances are not applicable. Commissions are charged for each customer trade order executed and cleared by the third-party brokers. The Company recognizes revenues on a gross basis as the Company is determined to be the primary obligor in fulfilling the trade order initiated by the customer. The Company may offer volume rebate as trading incentive to certain customer. The Company will review the customer’s transaction volume monthly and provide volume rebates on the commission charged to specific customers with large volume transactions. The volume rebate offered to such customer is accounted for as a variable consideration and determined based on most-likely amount method, which is recognized as a reduction of revenues. The Company did not offer the volume rebates offered during the six months ended September 30, 2023 and 2022, respectively.
12
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies (Continued)
Revenue Recognition (continued)
| a) | Revenue from Contracts with Customers (continued) |
Trading solution services fees
The Company provides trading solution services to customers (e.g. individuals, proprietary trading companies or brokerage companies) for their trading on derivatives, equity, CFD and other financial products, through the internally developed proprietary investment management software. The Company’s trading solution provides a variety of functions suitable for front-end transaction executions to back-office settlement operations. The Company implements the initial installation of such software for each customer and provides hosting services for a period of time, generally two years, as agreed in the contracts. The initial installation is considered as a set-up activity, rather than a promised service to customer, which provides no incremental benefit to customer beyond permitting the access and use the hosted application. The Company identifies a single performance obligation from its contracts with customers. The Company charges each customer a fixed amount of initial installation fee and the monthly service fee based on a fixed rate per each transaction executed on the platform with a minimum monthly fee required. The Company recognizes the trading solution services as satisfied over the time.
Structured note subscription fees
The Company earns subscription service fees from customers by assisting customers to identify and subscribe for structured note products, which is calculated at a fixed percentage of investment amount. The Company identifies a single performance obligation for each subscription service, and recognizes subscription fee income when the customers successfully subscribe for the structure note products and underlying contract between the customer and financial institution becomes non-cancellable, which is the point in time when the control of service is completed. The Company recognizes revenue net of discount (if any) on a gross basis as the Company is determined to be the primary obligor in fulfilling the subscription services.
Other service revenues
The Company also provides other
financial services including securities brokerage, consulting services, and currency exchange services, and earns securities brokerage
commissions, consultancy fee income and other revenues, which are recognized when the service is rendered according to the relevant contracts.
For the six months ended September 30, 2023 and 2022, other revenues accounted for
13
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies (Continued)
Revenue Recognition (continued)
| a) | Revenue from Contracts with Customers (continued) |
Sources of revenue
The Company has one revenue
generating reportable geographic segment under ASC Topic 280 “Segment Reporting” and derives its revenues primarily from its
futures brokerage service.
| For the Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Futures brokerage commissions | ||||||||
| Commission on futures broking earned from Hong Kong Exchange | $ | $ | ||||||
| Commission on futures broking from overseas Exchanges | ||||||||
| Trading solution service revenues | ||||||||
| Other service revenues | ||||||||
| Total comprehensive income | $ | $ | ||||||
| b) | Trading gains, interest income and other |
Trading gains and losses along with interest income fall within the scope of ASC Topic 825, Financial Instruments, which is excluded from the scope of ASC Topic 606. Trading gains and losses mainly consist of realized and unrealized gains and losses from the investment in US common stocks, which are included in Securities owned, at fair value. Interest and other income primarily consist of interests earned on bank deposit.
14
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies (Continued)
Income taxes
The Company accounts for income taxes in accordance with the U.S. GAAP. Under the asset and liability method as required by this accounting standard, the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes.
The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis. Deferred tax assets are recognized to the extent that it is probable that taxable income to be utilized with prior net operating loss carried forwards. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
An uncertain tax position is
recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than
Translation of foreign currencies
The functional currency is U.S. dollar for the Company’s Cayman Island operations, Hong Kong dollar for Hong Kong subsidiaries’ operations, and Singapore dollar for Singapore subsidiaries’ operations. The Company’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.
15
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies (Continued)
Translation of foreign currencies (continued)
September 30, | March
31, | |||||||
| HKD exchange rate for balance sheet items, except for equity accounts | ||||||||
| SGD exchange rate for balance sheet items, except for equity accounts | ||||||||
| For the Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| HKD exchange rate for items in the statements of income and comprehensive income, and statements of cash flows | ||||||||
| SGD exchange rate for items in the statements of income and comprehensive income, and statements of cash flows | ||||||||
Fair value of financial instruments
Fair value is defined as 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 three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the fair value hierarchy are described below:
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 1 assets included securities owned, at fair value.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. As of September 30, 2023 and March 31, 2023, and for the six months ended September 30, 2023 and 2022, there was no Level 2 assets owned.
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. As of September 30, 2023 and March 31, 2023, and for the six months ended September 30, 2023 and 2022, there was no Level 3 assets owned.
As of September 30, 2023 and March 31, 2023, financial instruments of the Company comprised primarily current assets and current liabilities including cash and cash equivalents, restricted cash, loans receivable, receivables from customers, both third parties and related party, receivables from broker-dealers and clearing organizations, securities owned, at fair value, and payables to customers. The carrying amount of cash and cash equivalents, restricted cash, loans receivable, receivables from customers, both third parties and related party, receivables from broker-dealers and clearing organizations, and payables to customers approximate their fair values because of the short-term nature of these instruments. Securities owned, at fair value as of September 30, 2023 and March 31, 2023, mainly consist of common stock investments and are based upon quoted market price.
16
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
2. Summary of Significant Accounting Policies (Continued)
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (the “CODM”), which is comprised of certain members of the Company’s management team. Consequently, the Company has determined that it has only one reportable operating segment.
Concentration
For the six months ended September
30, 2023, 3 customers accounted for approximately
For
the six months ended September 30, 2023, 2 brokers accounted for approximately
As
of September 30, 2023, the payable balance due to 2 customers accounted for approximately
17
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
3. Receivables from customers
| September 30, 2023 | March 31, 2023 | |||||||
| Receivable due from trading solution services | $ | $ | ||||||
| $ | $ | |||||||
For the six months ended September 30, 2023 and 2022, no allowance against receivables from customers were recorded.
4. Loans receivable
September 30, | March
31, | |||||||
| Loans receivable (i) | $ | $ | ||||||
| Receivable due customers holding US stocks (ii) | ||||||||
| $ | $ | |||||||
| (i) | In October 2022, the Company and a third party entity entered into a loan agreement, pursuant to which
the Company made a loan of $ |
In August 2023, the Company and another
third party entity entered into a promissory note agreement, pursuant to which the Company made a loan of $
| (ii) |
18
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
5. Employee Benefits
All salaried employees of the
Company in Hong Kong are enrolled in a Mandatory Provident Fund Scheme (“MPF scheme”) scheme under the Hong Kong Mandatory
Provident Fund Schemes Ordinance, within two months of employment. The MPF scheme is a defined contribution retirement plan administered
by an independent trustee. The Company makes regular contributions of
6. Fair Value
The following table present information about the Company’s assets by major category measured at fair value on a recurring basis as of September 30, 2023 and March 31, 2023, and indicates the fair value hierarchy of the valuation technique utilized by the Company to determine such fair value.
| September 30, 2023 | ||||||||||||||||||||
| Carrying | Fair Value | |||||||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Assets: | ||||||||||||||||||||
| Securities owned, at fair value | $ | $ | $ | $ | $ | |||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | $ | |||||||||||||||
| March 31, 2023 | ||||||||||||||||||||
| Carrying | Fair Value | |||||||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Assets: | ||||||||||||||||||||
| Securities owned, at fair value | $ | $ | $ | $ | $ | |||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | $ | |||||||||||||||
There was no transfer between any levels during the six months ended September 30, 2023 and 2022.
19
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
7. Operating lease
As of September 30, 2023, the Company had two non-cancelable office operating lease agreements with two third-party lessors, with lease term of two years and three years, respectively. The lease agreements matured in September 2024 and March 2025, respectively. The Company considers those renewal or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of right of use assets and lease liabilities. Lease expense for lease payment is recognized on a straight-line basis over the lease term.
The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discount lease payments based on an estimate of its incremental borrowing rate.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
September
30, | March
31, | |||||||
| Rights of use lease assets | $ | $ | ||||||
| Operating lease liabilities | $ | $ | ||||||
| September 30, 2023 | March 31, 2023 | |||||||
| Remaining lease term and discount rate | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
During the six months ended
September 30, 2023 and 2022, the Company incurred total operating lease expenses of $
| Twelve months ended March 31, 2024 | $ | |||
| Twelve months ended March 31, 2025 and thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ |
20
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
8. Investment in a joint venture
On June 24, 2022, the Company
entered into a partnership agreement to invest $
9. Share-based compensation
Effective on May 31, 2022,
the Company employed three non-executive directors. As part of compensation expenses, the Company agreed to issue ordinary shares to the
three directors. On quarterly basis, each director would receive ordinary shares with a fair value of $
For the six months ended September
30, 2023, the Company issued an aggregation of
10. Equity
Ordinary shares
The Company’s authorized
share capital is
On
September 9, 2021, the sole shareholder of the Company surrendered
On
April 12, 2023 and July 5, 2023, the Company issued an aggregation of
As of September 30, 2023 and
March 31, 2023, the Company had
21
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
10. Equity (continued)
Cancellation of warrants
In connection with the IPO,
the Company also agreed to sell warrants (the “Underwriters’ Warrants”) to the underwriters, for a nominal consideration
of US$
In February 2023, the
Company and the underwriter entered into an agreement, pursuant to which the underwriter agreed to cancel the warrants in exchange
for cash consideration of $
22
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
11. Related Party Transaction and Balance
| Name | Relationship with the Company | |
| Sunx Global Limited | ||
| Mr. Huaixi Yang | ||
| WSYQR Limited |
b. Related parties transactions
For the six months ended September 30, 2023 and 2022, the Company did not enter into any transactions with related parties.
| Nature | September 30, 2023 | March 31, 2023 | ||||||||
| Mr. Huaixi Yang | Receivable due from customers – related parties | $ | $ | |||||||
| WSYQR Limited | Payable to customers - related parties | $ | $ | |||||||
| Sunx Global Limited | Payable to customers - related parties | $ | $ | |||||||
23
TOP Financial Group Limited
(formerly “Zhong Yang Financial Group Limited”)
Notes to Unaudited Condensed Consolidated Financial Statements
For the Six Months Ended September 30, 2023 and 2022
12. Regulatory Requirements
The following table illustrates the minimum regulatory capital as established by the Hong Kong Securities and Futures Commission that the Company’s subsidiaries were required to maintain as of September 30, 2023 and March 31, 2023, and the actual amounts of capital that were maintained.
| Minimum | ||||||||||||||||
| Regulatory | Capital | Excess | Percent of | |||||||||||||
| Capital | Levels | Net | Requirement | |||||||||||||
| Requirements | Maintained | Capital | Maintained | |||||||||||||
| Zhong Yang Securities Limited | $ | $ | $ | % | ||||||||||||
| Zhong Yang Capital Limited | % | |||||||||||||||
| Total | $ | $ | $ | % | ||||||||||||
Capital requirements as of March 31, 2023
| Minimum | ||||||||||||||||
| Regulatory | Capital | Excess | Percent of | |||||||||||||
| Capital | Levels | Net | Requirement | |||||||||||||
| Requirements | Maintained | Capital | Maintained | |||||||||||||
| Zhong Yang Securities Limited | $ | $ | $ | % | ||||||||||||
| Zhong Yang Capital Limited | % | |||||||||||||||
| Total | $ | $ | $ | % | ||||||||||||
13. Subsequent Events
24