Lion Group Holding Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone Q4 filing. Financial statements are prepared under U.S. GAAP; amounts below are in U.S. dollars unless noted.
Business context
Lion operates an online financial-services and trading platform focused largely on Chinese investors. Its businesses include CFD trading and market making, total return swaps (TRS), futures and securities brokerage, insurance brokerage, and asset management. The Cayman Islands holding company conducts operations mainly through subsidiaries in Hong Kong, Singapore, and the Cayman Islands; it says it does not use a China VIE structure. Bitcoin mining began in May 2021 and was suspended at the end of October. The NFT platform launched in January 2022, after the reporting year.
Financial performance
| Metric | FY2021 | FY2020, restated |
|---|---|---|
| Revenue | $27.06 million | $10.23 million |
| Expenses | $27.83 million | $12.80 million |
| Loss before tax | $0.77 million | $2.57 million |
| Consolidated net loss | $0.83 million | $2.58 million |
| Net income (loss) attributable to Lion Group Holding Ltd. | $22,782 | ($2.58 million) |
| Operating cash flow | ($20.48 million) | $0.11 million |
| Investing cash flow | ($12.10 million) | ($6.55 million) |
| Financing cash flow | $43.58 million | $2.64 million |
Revenue increased 164.5% year over year, while the consolidated net loss narrowed. The 2021 net margin was approximately -3.1%, versus -25.2% in 2020. Revenue growth was heavily influenced by TRS: TRS services generated $13.13 million, or 48.5% of revenue, compared with $0.21 million in 2020. CFD revenue was $8.70 million (32.1%); futures and securities brokerage revenue was $2.80 million (10.4%). Trading gains totaled $15.44 million, including $10.52 million in TRS trading gains. The business remains exposed to trading results and a small number of key clients.
Expenses rose 117.4%. Notable 2021 items included $3.84 million of professional fees, $3.57 million of service fees, $1.92 million of unrealized losses on equity securities, $1.61 million of interest expense, and $1.16 million of crypto-mining costs. The $1.92 million equity-security loss related to shares of Grandshores. Management’s non-GAAP measure showed $2.95 million of income attributable to the parent before specified adjustments; it excludes, among other items, stock compensation, debt-discount amortization, depreciation, and warrant-liability fair-value changes, and should not be treated as GAAP earnings.
Balance sheet, liquidity and capital
- At year-end, total assets were $148.92 million, total liabilities $93.45 million, and stockholders’ equity $54.24 million. Current assets were $128.40 million and current liabilities $91.51 million.
- Cash and cash equivalents were $15.10 million; an additional $0.65 million was restricted cash held for customers. Listed securities were $15.90 million. Receivables from broker-dealers and clearing organizations reached $87.94 million, a substantial share of current assets and a key liquidity consideration.
- Operating cash flow was negative $20.48 million, chiefly reflecting increased broker/clearing receivables and securities owned, partly offset by higher customer and broker payables. Financing provided $43.58 million, including proceeds from warrant and option exercises and preferred-share and warrant issuances.
- Year-end short-term borrowings were $110,000; the 2020 convertible debenture had been converted into shares in January 2021. The balance sheet also included $1.94 million of warrant liabilities, $0.55 million of option liabilities, and $1.22 million of Series B convertible preferred shares classified as mezzanine equity. Operating lease obligations totaled $1.53 million, including $0.66 million due within one year.
- All operating subsidiaries were reported in compliance with regulatory-capital requirements at December 31, 2021. Aggregate minimum capital requirements were $7.36 million and capital maintained was $23.52 million. The company reported no shareholder dividends in 2021 and no established dividend policy.
Material changes and unusual items
- Revenue rebounded from the pandemic-affected 2020 comparison period. TRS was the principal growth driver; futures and securities brokerage also increased, while insurance brokerage commissions continued to decline.
- CFD trading gains increased, but market-making commissions fell to $4.32 million from $4.94 million. Management cited fewer new accounts from online advertising restrictions in China, delayed Southeast Asia expansion, and competition from cryptocurrency trading.
- Cash flow and the balance sheet expanded substantially alongside customer/broker settlement balances and securities positions. New financing and share issuance materially increased the Class A share count; preferred securities and warrants also carry conversion or exercise features that may dilute shareholders.
- The 2020 financial statements were restated for warrant accounting. The 2021 filing reports a $6.35 million deemed dividend related to down-round features and $1.81 million of preferred dividends/deemed dividends; consequently, the loss attributable to ordinary shareholders was $8.14 million, despite $22,782 of income attributable to the parent before those preferred-share deductions.
- The filing reports a $314,000 Cayman Islands CIMA administrative fine notice received on February 18, 2022, for a 2019 compliance failure; it was accrued at December 31, 2021. The company also described recommended CIMA operational improvements following a 2021 inspection.
- Bitcoin mining generated reported 2021 revenue, but operations stopped in October in response to higher electricity costs and China’s restrictions. Lion says it may resume mining outside China if it finds suitable low-cost power and a stable regulatory setting. It held no Bitcoin or USDT at year-end.
Outlook, risks and controls
Management said existing cash, cash equivalents, and short-term investments were expected to cover anticipated needs for the next 12 months, while noting that additional financing may be needed depending on growth and spending. The company had not begun Singapore operations despite receiving a capital-markets license in October 2021. It planned to develop its TRS, technology, NFT, and SPAC-sponsorship activities; it stated an intention to sponsor at least one additional SPAC by the end of 2022. The filing provides no quantified earnings or revenue guidance.
Principal risks include volatile trading and TRS results, market-making exposures, revenue concentration, client and counterparty balances, regulatory-capital obligations, competition, technology and cybersecurity, and dependence on third-party liquidity providers. Further risks include evolving PRC data, cybersecurity, overseas-listing and foreign-exchange rules; the company says its apps are available in China and most users are PRC citizens. It also discloses HFCA Act/PCAOB inspection concerns, although its auditor, UHY LLP, was headquartered in New York and was not on the PCAOB’s December 2021 identified-firm list. Digital-asset and NFT activity carries additional legal, custody, market, and regulatory uncertainty.
The auditor issued an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor did not provide an ICFR attestation because Lion was an emerging growth company. Prior financial statements were restated, making the company’s accounting controls and subsequent remediation worth monitoring.
Most important facts for investors to verify
- Reconcile the reported 2021 mining revenue: the revenue table gives $1.71 million, while the audited income statement reports $1.73 million.
- Assess the collectability, settlement timing, and liquidity implications of the $87.94 million in broker-dealer and clearing receivables, alongside customer and broker payables.
- Review the sustainability and risk profile of TRS results, including the $10.52 million of TRS trading gains and the $1.07 billion reported TRS trading volume.
- Confirm the status and financial impact of the CIMA fine and any outstanding remediation, and monitor compliance with applicable PRC data and overseas-listing requirements.
- Evaluate dilution and potential claims on cash from preferred shares, warrants, options, and other equity-linked securities; confirm the post-year-end share count and terms.
- Track operating cash use, financing needs, and whether Singapore, mining, NFT, and SPAC initiatives produce revenue sufficient to offset their costs.