SEC Form 6-K/A filed by Lion Group Holding Ltd. (Amendment)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Amendment No. 1)
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of February 2024
Commission File Number:
Not Applicable
(Translation of registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
3 Phillip Street, #15-04 Royal Group Building
Singapore 048693
(Address of principal executive office)
Registrant’s phone number, including area code
+65 8877 3871
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
EXPLANATORY NOTE
This Report of Foreign Private Issuer on Form 6-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or Lion Group Holding Ltd.’s (the “Company”) future financial performance. The Company has attempted to identify forward-looking statements by terminology including “anticipates”, “believes”, “expects”, “can”, “continue”, “could”, “estimates”, “intends”, “may”, “plans”, “potential”, “predict”, “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions, uncertainties and other factors may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. The information in this Report on Form 6-K is not intended to project future performance of the Company. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company does not guarantee future results, levels of activity, performance or achievements. The Company’s expectations are as of the date this Report on Form 6-K is filed, and the Company does not intend to update any of the forward-looking statements after the date this Report on Form 6-K is filed to confirm these statements to actual results, unless required by law.
The forward-looking statements included in this Report on Form 6-K are subject to risks, uncertainties and assumptions about the Company’s businesses and business environments. These statements reflect the Company’s current views with respect to future events and are not a guarantee of future performance. Actual results of the Company’s operations may differ materially from information contained in the forward-looking statements as a result of risk factors some of which include, among other things: the Company’s goals and strategies; our ability to retain and increase the number of users, members and advertising customers, and expand its service offerings; Lion’s future business development, financial condition and results of operations; expected changes in Lion’s revenues, costs or expenditures; competition in the industry; relevant government policies and regulations relating to our industry; general economic and business conditions globally and in China; and assumptions underlying or related to any of the foregoing; the Company’s ability to effectively manage its growth, including implementing effective controls and procedures and attracting and retaining key management and personnel; changing interpretations of generally accepted accounting principles; the availability of capital resources, including in the form of capital markets financing opportunities, as well as general economic conditions; and other relevant risks detailed in the Company’s filings with the Securities and Exchange Commission.
This Amendment No. 1 (the “Amendment”) to the Report of Foreign Private Issuer on Form 6-K (the “Original 6-K”), originally furnished by the Company to the Securities and Exchange Commission on December 6, 2023, amends the original 6-K to include an unaudited condensed consolidated statement of changes in equity, an unaudited condensed consolidated statements of cash flows, and notes to the unaudited condensed consolidated financial statements of the Company. In addition, the Amendment includes the interactive data file as Exhibit 101, which provides the unaudited condensed consolidated financial statements of the Company formatted in XBRL (eXtensible business reporting language).
No other changes have been made to the Original 6-K. This Amendment does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way the disclosures made in the Original 6-K.
This Amendment and each of the exhibits to this Amendment are hereby incorporated by reference into the registration statements on Form F-3 (No. 333-269333) and Form S-8 (No. 333-275597) of the Company.
1
LION GROUP HOLDING LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in dollar amount)
| June 30, 2023 | December 31, 2022 | ||||||||
| (unaudited) | |||||||||
| 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 and Stockholders’ Equity | |||||||||
| Liabilities | |||||||||
| Current Liabilities | |||||||||
| Payables to customers | $ | $ | |||||||
| Payables to broker-dealers and clearing organizations | |||||||||
| Accrued expenses and other payables | |||||||||
| Embedded derivative liabilities | |||||||||
| Short-term borrowings | |||||||||
| Lease liability - current | |||||||||
| Due to director | |||||||||
| Total current liabilities | |||||||||
| Lease liability - noncurrent | |||||||||
| Convertible debentures | |||||||||
| Warrant liabilities | |||||||||
| Total Liabilities | |||||||||
| Commitments and Contingencies | |||||||||
| Stockholders’ Equity | |||||||||
| 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 and Shareholders’ Equity | $ | $ | |||||||
(i)
2
LION GROUP HOLDING LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in dollar amount)
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | ||||||||
| Insurance brokerage commissions | $ | $ | ||||||
| Securities brokerage commissions and fees | ||||||||
| Market making commissions and fees | ||||||||
| Interest income | ||||||||
| Trading gains (loss) | ( | ) | ||||||
| Other income | ||||||||
| ( | ) | |||||||
| Expenses and others (ii) | ||||||||
| Commissions and fees | ||||||||
| Compensation and benefits | ||||||||
| Occupancy | ||||||||
| Communication and technology | ||||||||
| General and administrative | ||||||||
| Professional fees | ||||||||
| Research and development | ||||||||
| Services fees | ||||||||
| Interest | ||||||||
| Depreciation and amortization | ||||||||
| Marketing | ||||||||
| Impairment of fixed assets | ||||||||
| Impairment of cryptocurrencies | ||||||||
| Change in fair value of warrant liabilities and embedded derivative liabilities | ( | ) | ( | ) | ||||
| Other operating expenses (income) | ( | ) | ||||||
| Income (loss) before income taxes | ( | ) | ||||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net Income (loss) | $ | $ | ( | ) | ||||
| Net loss attributable to non-controlling interests | ( | ) | ( | ) | ||||
| Net Income (loss) attributable to LGHL | $ | $ | ( | ) | ||||
| Deemed dividend on the effect of the warrant modification | ( | ) | - | |||||
| Dividends and deemed dividends on preferred shares | - | ( | ) | |||||
| Net loss attributable to LGHL ordinary shareholders | $ | ( | ) | $ | ( | ) | ||
| Loss per share for both Class A and Class B | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| Loss per ADS | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| Weighted average Class A ordinary shares outstanding | ||||||||
| Weighted average Class B ordinary shares outstanding | ||||||||
(i)
(ii)
3
LION GROUP HOLDING LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in dollar amount)
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Other comprehensive income (loss) | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Comprehensive income (loss) | $ | $ | ( | ) | ||||
4
LION GROUP HOLDING LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in dollar amount)
| 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, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Conversion of August 2022 Convertible Debenture and the payment of make-whole interest by shares(1) | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Repayment to noncontrolling shareholder | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net Income (loss) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
(1)
| 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 loss | - | - | - | ( | ) | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
5
LION GROUP HOLDING LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in dollar amount)
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock based compensation expense (1) | ||||||||
| Impairment of fixed assets | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
| Change in fair value of option liability | ( | ) | ||||||
| Change in fair value of embedded derivative liability | ||||||||
| Amortization of right-of-use assets | ||||||||
| Impairment on cryptocurrencies | ||||||||
| Amortization of debt discounts | ||||||||
| Depreciation and amortization | ||||||||
| (Increase) decrease in operating assets | ||||||||
| Securities owned | ( | ) | ||||||
| Receivables from broker-dealers and clearing organizations | ||||||||
| Prepaids, deposits and other assets | ( | ) | ||||||
| Intangible assets | ( | ) | ||||||
| Increase (decrease) in operating liabilities | ||||||||
| Payables to customers | ( | ) | ||||||
| Payables to broker-dealers and clearing organizations | ( | ) | ||||||
| Accrued expenses and other payables | ( | ) | ||||||
| Lease liabilities | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities | ||||||||
| Purchases of fixed assets | ( | ) | ||||||
| Short term loans receivable | ( | ) | ||||||
| Collection of short term loan | - | |||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from issuance of convertible debenture | ||||||||
| Repayment to and contribution from noncontrolling shareholder | ( | ) | ||||||
| Net cash (used in) 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 Period | ||||||||
| Cash, Cash Equivalents, and Restricted Cash - End of Period | $ | $ | ||||||
| Noncash Investing and Financing Activities | ||||||||
| Decrease in receivable for acquisition of long term assets | $ | $ | ||||||
| Conversion of August 2022 Convertible Debenture and the payment of make-whole interest by shares | $ | $ | ||||||
| Effect of early adoption of ASU 2020-06 | $ | $ | ||||||
| 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 | $ | $ | ||||||
(1)
6
LION GROUP HOLDING LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2023
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,
total return swap trading services, and market maker trading services. As a result of the consummation of a business combination with
Proficient Alpha Acquisition Corp., a Nevada corporation (“PAAC”) which was accounted for as a reverse recapitalization, 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 represented
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.
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.
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.
7
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 of a normal recurring nature and 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 thereto included in the Company’s Annual Report on Form 20-F for the year ended December 31, 2022, which was filed with the SEC on April 28, 2023.
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.
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).
Significant Accounting Policies
The Company’s significant accounting policies are included in Note 2 –Significant Accounting Policies in the Company’s 2022 Form 20-F. During the six months ended June 30, 2023, there were no significant changes made to the Company’s significant accounting policies.
New Accounting Standards Adopted
On January 1, 2023, the Group adopted FASB ASC Topic 326 – “Financial Instruments – Credit Losses” (“ASC Topic 326”) which replaces the incurred loss methodology with the current expected credit loss (“CECL”) methodology. The guidance applies to financial assets measured at amortized cost, held-to-maturity debt securities and off-balance sheet credit exposures. For on-balance sheet assets, an allowance must be recognized at the origination or purchase of in-scope assets and represents the expected credit losses over the contractual life of those assets.
The Group adopted ASC Topic 326 using the modified retrospective approach for all in-scope assets, which did not result in an adjustment to the opening balance in retained earnings. The impact to the current period is not material since the Group’s in-scope assets are primarily receivables from broker-dealers and clearing organizations, the management considers that these receivables have a low risk of default and the counterparties have a strong capacity to meet their contractual obligation.
An allowance for credit losses on other financial assets, including receivables from clients (commission receivables), other receivable and various deposits due from vendors which were included in prepaids, deposits and other and other assets, is estimated based on the aging of these financial assets. The settlement periods of commission receivables are usually short and within one month, the credit risk arising from receivables from clients is considered low. Other receivables and the deposits with various vendors were not material to the consolidated financial statements taken as a whole and historically the Group has not recorded an allowance for credit losses on their deposits. As a result, the allowance for credit losses for other financial assets were immaterial for current period.
8
Recent Accounting Pronouncements
In June 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this update clarify the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual sale restrictions and introduce new disclosure requirements related to such equity securities. The amendments are effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Group does not expect the adoption to have a material impact on the consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This guidance will be effective for the annual periods beginning the year ended December 31, 2024, and for interim periods beginning January 1, 2025. Early adoption is permitted. Upon adoption, the guidance should be applied retrospectively to all prior periods presented in the financial statements. The Group does not expect the adoption to have a material impact on the consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, which addresses the accounting and disclosure requirements for certain crypto assets. The new guidance requires entities to subsequently measure certain crypto assets at fair value, with changes in fair value recorded in net income in each reporting period. In addition, entities are required to provide additional disclosures about the holdings of certain crypto assets. The amendments are effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those years. Early adoption is permitted. An entity that early adopts the amendments would be required to apply the entire ASU, including the presentation and disclosure provisions, not just the measurement guidance. An entity that adopts the amendments in an interim period must adopt them as of the beginning of the fiscal year that includes that interim period. The Group does not expect the adoption to have a material impact on the consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning the year ended December 31, 2025. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Group does not expect the adoption to have a material impact on the consolidated financial statements.
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.
9
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.
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Insurance brokerage commissions | $ | $ | ||||||
| Securities brokerage commissions | ||||||||
| Market making commissions and fees | ||||||||
| Sale of NFTs | ||||||||
| 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.
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.
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| CFD trading gains/(losses) | $ | $ | ( | ) | ||||
| TRS trading gains/(losses) | ( | ) | ||||||
| Other trading gains/(losses) | ( | ) | ||||||
| Total | $ | $ | ( | ) | ||||
10
| Trading Revenue | ||||||||
| Type of Instrument | 2023 | 2022 | ||||||
| Foreign Currency | $ | - | $ | ( | ) | |||
| Stock Indices | ( | ) | ||||||
| Commodities | ( | ) | ( | ) | ||||
| Equity | ( | ) | ( | ) | ||||
| $ | $ | ( | ) | |||||
| Trading Revenue | ||||||||
| Line Item in Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) | 2023 | 2022 | ||||||
| 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.
Note 4 — 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. |
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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 fair 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.
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.
| June
30, 2023 | ||||
| Stock price | $ | |||
| Exercise price | $ | |||
| Expected term in years | ||||
| Expected dividend yield | % | |||
| Volatility | % | |||
| Risk-free interest Rate | % | |||
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At June 30, 2023
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant
Unobservable Inputs (Level 3) | Total | |||||||||||||
| Assets | ||||||||||||||||
| Listed equity securities | $ | $ | $ | $ | ||||||||||||
| Option assets(ii) | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities | ||||||||||||||||
| Embedded derivative liabilities | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Option liabilities(i)(ii) | ( | ) | ( | ) | ||||||||||||
| Warrant liabilities | ( | ) | ( | ) | ( | ) | ||||||||||
| $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||
| (i) |
| (ii) |
At December 31, 2022
| Quoted Prices in Active Markets for Identical Assets | Significant Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| Assets | ||||||||||||||||
| Listed equity securities | $ | $ | $ | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Liabilities | ||||||||||||||||
| Embedded derivative liabilities | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Warrant liabilities | ( | ) | ( | ) | ( | ) | ||||||||||
| $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||
There were no transfers between level 1, level 2, and level 3 during either period.
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At June 30, 2023
| Quoted Prices | ||||||||||||||||||||
| in Active | ||||||||||||||||||||
| Markets for | Significant | Significant | ||||||||||||||||||
| Total | Identical | Observable | Unobservable | |||||||||||||||||
| Carrying | Assets | Inputs | 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 | ||||||||||||||||||||
| Lease liability - noncurrent | ||||||||||||||||||||
| Due to director | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
At December 31, 2022
| Quoted Prices | ||||||||||||||||||||
| in Active | ||||||||||||||||||||
| Markets for | Significant | Significant | ||||||||||||||||||
| Total Carrying | Identical Assets | Observable Inputs | 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 | ||||||||||||||||||||
| Lease liability - noncurrent | ||||||||||||||||||||
| Due to director | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
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Note 5 — Short-term Loans Receivable
During the year ended December 31, 2022, the Group
issued notes receivable in an aggregate of approximately $
On April 6, 2023, the Group entered into an asset
acquisition agreement with Hangzhou Lanlian Technology Co., Ltd. (“Lanlian”), to acquire various software systems for its
trading service, which includes Real-time High Performance Risk Management System, Intelligent Dynamic Order Distribution System, and
Margin-based Securities Trading System. The acquisition was closed in November 2023 upon which Lanlian conveyed and delivered to the Group
the software systems. The aggregate purchase price for the software systems was $
Note 6 — Fixed Assets, Net
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Mining Machines | $ | $ | ||||||
| Software | ||||||||
| Leasehold improvement | ||||||||
| Office and equipment | ||||||||
| Total cost of fixed assets | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Less: impairment of mining machines | ( | ) | ||||||
| Fixed assets, net | $ | $ | ||||||
Depreciation expense was $
The Group recorded $-
Note 7 — 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.
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 one customer can be used to naturally hedge and 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 hedge and offset the trades of its customer.
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 were $
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| Fair Value | Fair Value | Net | ||||||||||
| Description | of Asset | of Liability | Amount | |||||||||
| Stock Indices OTC option contracts | $ | $ | ( | ) | $ | |||||||
| $ | $ | ( | ) | $ | ||||||||
| Description | Fair Value of Asset | Fair Value of Liability | Net Amount | |||||||||
| 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.
Offsetting Arrangements
Financial assets and financial liabilities are offset and the net amount is reported in the 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.
Note 8 — Stockholders’ Equity
Ordinary Shares and Preferred Shares
The Company was authorized to issue (i)
An aggregate of
The shareholders of Class A and Class B
ordinary shares have the same rights except for the voting and conversion rights.
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As of June 30, 2023 and December 31, 2022, there
was an aggregate of
Note 9 — 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
On March 3, 2022,
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Communication and technology | $ | $ | ||||||
| Marketing | ||||||||
| Professional fees | ||||||||
| General and administrative | ||||||||
| Total | $ | $ | ||||||
As of June 30, 2023 and December 31, 2022, approximately
$
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Note 10 — Income Taxes
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Current | $ | $ | ||||||
| Deferred | ||||||||
| $ | $ | |||||||
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Income tax expense (benefit) at applicable statutory rate (1) | $ | $ | ( | ) | ||||
| Nondeductible expenses | ||||||||
| Impact of foreign tax rate differential (2) | ( | ) | ||||||
| Current year change in valuation allowance | ( | ) | ||||||
| Adjustments in respect of current income tax of previous year | ||||||||
| Other | ( | ) | ( | ) | ||||
| Reported income taxes | $ | $ | ||||||
| (1) |
| (2) |
| June
30, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Deferred tax asset | ||||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
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 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.
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Note 11 — 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.
In
accordance with ASC 260-10-45, the
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, 2023 and 2022, 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.
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| SPAC Warrants | ||||||||
| August 2020 PIPE Warrants | ||||||||
| January 2021 Call Options | ||||||||
| Series A Convertible Preferred Shares | ||||||||
| February 2021 Warrants | ||||||||
| Series B Convertible Preferred Shares | ||||||||
| December 2021 Warrants | ||||||||
| May 2022 Convertible Debenture | ||||||||
|
August 2022 and December 2022 Convertible Debentures | ||||||||
Subsequently,
an aggregate of approximately
Note 12 — 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.
19
The
Group has
| Futures | ||||||||||||||||||||
| and securities | ||||||||||||||||||||
| brokerage | CFD | TRS | ||||||||||||||||||
| services | trading | trading | Other | Total | ||||||||||||||||
| Six Months Ended June 30, 2023 | ||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | |||||||||||||||
20
| Futures | ||||||||||||||||||||
| and securities | ||||||||||||||||||||
| brokerage | CFD | TRS | ||||||||||||||||||
| services | trading | 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 | $ | $ | $ | $ | $ | |||||||||||||||
Note 13 — Subsequent Events
Subsequently,
in July and August 2023, the remaining outstanding August 2022 Convertible Debenture along with the Make-Whole interest of $
On September 2, 2023, the Company entered into
a letter agreement (“September 2023 Letter Agreement”) with an accredited investor, wherein the investor agreed to exercise
its purchase option to purchase an additional $
Subsequently,
in September 2023, the Company received an aggregate of net proceeds of $
On
September 28, 2023, Lion Wealth Limited (“LWL”) entered into a Share Transfer Agreement with a third party, pursuant to which
LWL sold its
21
On
October 6, 2023, the Company held the 2023 Annual Meeting of Shareholders (the “2023 Annual Meeting”). The 2023 Annual Meeting
approved and adopted the Company’s 2023 Equity Incentive Plan, pursuant to which an aggregate of
The
2023 Annual Meeting also approved the increase of the Company’s authorized share capital from US$
On January 23, 2024, the Company entered into
a second letter agreement (“January 2024 Letter Agreement”) with the accredited investor, wherein the investor agreed to exercise
its purchase option to purchase an additional $
Other Events
On December 6, 2023, the Company issued a press release announcing preliminary unaudited condensed consolidated financial results for six months ended June 30, 2023. A copy of the press release is attached as Exhibit 99.1.
Exhibits
| Exhibit No. | Description | |
| 99.1* | Press Release, dated December 6, 2023 | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Previously filed. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Lion Group Holding Ltd. | |||
| By: | /s/ Chunning Wang | ||
| Name: | Chunning Wang | ||
| Title: | Chief Executive Officer | ||
Date: February 27, 2024
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