RISK
FACTORS
An
investment in our securities involves a high degree of risk. Before you invest in our securities you should carefully consider those
risk factors hereunder and those risk factors that may be included in any applicable prospectus supplement, together with all of the
other information included in this prospectus and any prospectus supplement, in evaluating an investment in our securities. Our business,
prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known
to us or that we currently consider immaterial. The trading price of our securities could decline due to any of these risks, and, as
a result, you may lose all or part of your investment. Before deciding whether to invest in our securities, you should also refer to
the other information contained in this prospectus, including the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
Risks
Related to Our Business and Industry
Eqonex
has a limited operating history and has incurred operating losses since its inception as it has been investing in the build out of its
business lines. Its business lines are nascent, unproven and subject to material legal, regulatory, operational, reputational, tax and
other risks in every jurisdiction and are not assured to be profitable.
Eqonex
has a limited operating history on which an investor might evaluate its performance. It is therefore subject to many of the risks common
to early-stage enterprises, including under-capitalization, cash shortages, limitations with respect to personnel and financing sources
and lack of revenues, any of which could have a material adverse effect on Eqonex and may force it to reduce or curtail its operations.
Eqonex is not currently profitable and has incurred operating losses of $64.6 million, $42.5 million and $17.9 million for the years
ended March 31, 2021, 2020 and 2019 respectively. There is no assurance that Eqonex will achieve a return on shareholders’ investments
and the likelihood of success must be considered in light of the early stage of its operations. Even if Eqonex accomplishes its objectives,
it may not generate positive cash flows or profits.
Furthermore,
Eqonex’s business lines are nascent, unproven and subject to material legal, regulatory, operational, reputational, tax and other
risks in every jurisdiction, including those applicable due to its use of distributed ledger technology, and are not assured to be profitable.
In the year ended March 31, 2021, the business generated revenue, though not at a material level. Eqonex may fail to develop its business
lines or produce a return for its investors. It is possible that some of Eqonex’s business lines may be difficult to enter and/or
it may become evident that a particular business line is not a productive use of capital or time. This could result in Eqonex modifying
its business and focus away from such business lines. For Eqonex’s business lines that have access to client or counterparty assets,
the regulatory requirements associated with shutting down such businesses may be costly and expose Eqonex to inquiries, investigations,
lawsuits and proceedings by clients, counterparties, other third parties and regulatory and other governmental agencies.
From
time to time, Eqonex has and may continue to launch new business lines, offer new products and services within existing business lines
or undertake other strategic projects. For example, Eqonex is currently working to launch the investment products business (the “Investment
Products Business”). There are substantial risks and uncertainties associated with these efforts and Eqonex could invest significant
capital and resources into such efforts. Regulatory requirements can affect whether initiatives are able to be brought to market in a
manner that is timely and attractive to Eqonex’s customers. Initial timetables for the development and introduction of new business
lines or new products or services and price and profitability targets may not be met. New products or services may need to be initially
launched on a limited basis prior to their full launch. In addition, Eqonex’s revenues and costs may fluctuate because new business
lines, products and services generally require startup costs while revenues take time to develop, which may adversely impact Eqonex’s
results of operations.
If
Eqonex is unable to successfully build its business while controlling expenses, its ability to continue in business could depend on the
ability to raise sufficient additional capital, obtain sufficient financing and monetize assets. There can be no guarantee that Eqonex
will be able to raise funding in sufficient quantity or at acceptable terms to fund the continued development of its business lines.
The
occurrence of any of the foregoing risks would have a material adverse effect on Eqonex’s business, financial condition and results
of operations.
Our
operating results have and will significantly fluctuate due to the highly volatile nature of Digital Assets.
All
of our sources of revenue are dependent on Digital Assets and the broader decentralized ledger ecosystem. Due to the highly volatile
nature of the decentralized ledger economy and the prices of Digital Assets, our operating results have, and will continue to, fluctuate
significantly from quarter to quarter in accordance with market sentiments and movements of the prices of Digital Assets.
Our
operating results will continue to fluctuate significantly as a result of a variety of factors, many of which are unpredictable and in
certain instances are outside of our control, including without limitation:
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our
dependence on offerings that are dependent on Digital Assets asset trading activity, including trading volume and the prevailing
trading prices for Digital Assets, whose trading prices and volume can be highly volatile;
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our
ability to attract, maintain, and grow our customer base and engage our customers;
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changes
in the legislative or regulatory environment, or actions by governments or regulators, including fines, orders, or consent decrees;
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regulatory
changes that impact our ability to offer certain products or services;
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our
ability to diversify and grow our subscription and services revenue;
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pricing
for our products and services;
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investments
we make in the development of products and services as well as technology offered to our ecosystem partners, international expansion,
and sales and marketing;
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adding
and removing of Digital Assets on our platform;
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macroeconomic
conditions;
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adverse
legal proceedings or regulatory enforcement actions, judgments, settlements, or other legal proceeding and enforcement-related costs;
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the
development and introduction of existing and new products and services by us or our competitors;
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increases
in operating expenses that we expect to incur to grow and expand our operations and to remain competitive;
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system
failure or outages, including with respect to our Digital Assets platform and third-party Digital Asset networks;
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breaches
of security or privacy;
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inaccessibility
of our platform due to our or third-party actions;
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our
ability to attract and retain talent; and
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our
ability to compete with our competitors.
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As
a result of these factors, it is difficult for us to forecast growth trends accurately and our business and future prospects are difficult
to evaluate, particularly in the short term. In view of the rapidly evolving nature of our business and the distributed ledger technologies,
period-to-period comparisons of our operating results may not be meaningful, and you should not rely upon them as an indication of future
performance. Quarterly and annual expenses reflected in our financial statements may be significantly different from historical or projected
rates. Our operating results in one or more future quarters may fall below the expectations of securities analysts and investors. As
a result, the trading price of our common stock may increase or decrease significantly.
Our
net revenue is substantially dependent on the prices of Digital Assets and volume of transactions conducted on our platform. If such
price or volume declines, our business, operating results, and financial condition would be adversely affected.
We
generate a large portion of our net revenue from transaction fees on our Exchange in connection with the purchase, sale, and trading
of Digital Assets by our customers. Transaction revenue is based on transaction fees that are either a flat fee or a percentage of the
value of each transaction. For our retail brokerage product, we also charge a spread to ensure that we are able to settle purchases and
sales at the price we quote to customers. We also generate net revenue from our subscription products and services and, while revenue
from these products and services have not been significant to date, most of this revenue will also fluctuate based on the price of Digital
Assets. As such, any declines in the volume of Digital Asset transactions, the price of Digital Assets, or market liquidity for Digital
Assets generally may result in lower net revenue to us.
The
price of Digital Assets and associated demand for buying, selling, and trading Digital Assets has historically been subject to significant
volatility. The price and trading volume of any Digital Assets is subject to significant uncertainty and volatility, depending on a number
of factors, including without limitation:
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market
conditions across the Digital Assets ecosystem;
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changes
in liquidity, market-making volume, and trading activities;
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trading
activities on other Digital Asset platforms worldwide, many of which may be unregulated, and may include manipulative activities;
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investment
and trading activities of highly active retail and institutional users, speculators, miners, and investors;
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the
speed and rate at which Digital Assets is able to gain adoption as a medium of exchange, utility, store of value, consumption asset,
security instrument, or other financial assets worldwide, if at all;
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decreased
user and investor confidence in Digital Assets and Digital Asset platforms;
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negative
publicity and events relating to the Digital Assets ecosystem;
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unpredictable
social media coverage or “trending” of Digital Assets;
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the
ability for Digital Assets to meet user and investor demands;
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the
functionality and utility of Digital Assets and their associated ecosystems and networks, including Digital Assets designed for use
in various applications;
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consumer
preferences and perceived value of Digital Assets and Digital Asset markets;
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increased
competition from other payment services or other Digital Assets that exhibit better speed, security, scalability, or other characteristics;
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regulatory
or legislative changes and updates affecting the Digital Assets economy;
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the
characterization of Digital Assets under the laws of various jurisdictions around the world;
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the
maintenance, troubleshooting, and development of the blockchain networks underlying Digital Assets, including by miners, validators,
and developers worldwide;
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the
ability for Digital Asset networks to attract and retain miners or validators to secure and confirm transactions accurately and efficiently;
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ongoing
technological viability and security of Digital Assets and their associated smart contracts, applications and networks, including
vulnerabilities against hacks and scalability;
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fees
and speed associated with processing Digital Asset transactions, including on the underlying blockchain networks and on Digital Asset
platforms;
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financial
strength of market participants;
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the
availability and cost of funding and capital;
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the
liquidity of Digital Asset platforms;
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interruptions
in service from or failures of major Digital Asset platforms;
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availability
of an active derivatives market for various Digital Assets;
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availability
of banking and payment services to support Digital Asset-related projects;
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level
of interest rates and inflation;
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monetary
policies of governments, trade restrictions, and fiat currency devaluations; and
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national
and international economic and political conditions.
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There
is no assurance that any supported Digital Asset will maintain its value or that there will be meaningful levels of trading activities.
In the event that the price of Digital Assets or the demand for trading Digital Assets decline, our business, operating results, and
financial condition would be adversely affected.
The
future development and growth of Digital Assets is subject to a variety of factors that are difficult to predict and evaluate. If Digital
Assets do not grow as we expect, our business, operating results, and financial condition could be adversely affected.
Virtual
Currencies built on blockchain technology were only introduced in 2008 and remain in the early stages of development. In addition, different
Digital Assets are designed for different purposes. Bitcoin, for instance, was designed to serve as a peer-to-peer electronic cash system,
while Ethereum was designed to be a smart contract and decentralized application platform. Many other Digital Asset networks—ranging
from cloud computing to tokenized securities networks—have only recently been established. The further growth and development of
any Digital Assets and their underlying networks and other cryptographic and algorithmic protocols governing the creation, transfer,
and usage of Digital Assets represent a new and evolving paradigm that is subject to a variety of factors that are difficult to evaluate,
including, without limitation:
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Many
Digital Asset networks have limited operating histories, have not been validated in production, and are still in the process of developing
and making significant decisions that will affect the design, supply, issuance, functionality, and governance of their respective
Digital Assets and underlying blockchain networks, any of which could adversely affect their respective Digital Assets.
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Many
Digital Asset networks are in the process of implementing software upgrades and other changes to their protocols, which could introduce
bugs, security risks, or adversely affect the respective Digital Asset networks.
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Several
large networks, including Bitcoin and Ethereum, are developing new features to address fundamental speed, scalability, and
energy usage issues. If these issues are not successfully addressed, or are unable to receive widespread adoption, it could adversely
affect the underlying Digital Assets.
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Security
issues, bugs, and software errors have been identified with many Digital Assets and their underlying blockchain networks, some of
which have been exploited by malicious actors. There are also inherent security weaknesses in some Digital Assets, such as when creators
of certain Digital Asset networks use procedures that could allow hackers to counterfeit tokens. Any weaknesses identified with a
Digital Asset could adversely affect its price, security, liquidity, and adoption. If a malicious actor or botnet (a volunteer or
hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of
the compute or staking power on a Digital Asset network, as has happened in the past, it may be able to manipulate transactions,
which could cause financial losses to holders, damage the network’s reputation and security, and adversely affect its value.
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The
development of new technologies for mining, such as improved application-specific integrated circuits (commonly referred to as ASICs),
or changes in industry patterns, such as the consolidation of mining power in a small number of large mining farms, could reduce
the security of blockchain networks, lead to increased liquid supply of Digital Assets, and reduce a Digital Asset’s price
and attractiveness.
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If
rewards and transaction fees for miners or validators on any particular Digital Asset network are not sufficiently high to attract
and retain miners, a Digital Asset network’s security and speed may be adversely affected, increasing the likelihood of a malicious
attack.
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Many
Digital Assets have concentrated ownership or an “admin key”, allowing a small group of holders to have significant unilateral
control and influence over key decisions relating to their Digital Asset networks, such as governance decisions and protocol changes,
as well as the market price of such Digital Assets.
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The
governance of many decentralized blockchain networks is by voluntary consensus and open competition, and many developers are not
directly compensated for their contributions. As a result, there may be a lack of consensus or clarity on the governance of any particular
Digital Asset network, a lack of incentives for developers to maintain or develop the network, and other unforeseen issues, any of
which could result in unexpected or undesirable errors, bugs, or changes, or stymie such network’s utility and ability to respond
to challenges and grow.
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Many
Digital Asset networks are in the early stages of developing partnerships and collaborations, all of which may not succeed and adversely
affect the usability and adoption of the respective Digital Assets.
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Various
other technical issues have also been uncovered from time to time that resulted in disabled functionalities, exposure of certain
users’ personal information, theft of users’ assets, and other negative consequences, and which required resolution with
the attention and efforts of their global miner, user, and development communities. If any such risks or other risks materialize,
and in particular if they are not resolved, the development and growth of Digital Asset may be significantly affected and, as a result,
our business, operating results, and financial condition could be adversely affected.
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Cyberattacks
and security breaches of our platform, or those impacting our customers or third parties, could adversely impact our brand and reputation
and our business, operating results, and financial condition.
Our
business involves the collection, storage, processing, and transmission of confidential information, customer, employee, service provider,
and other personal data, as well as information required to access customer assets. We have built our reputation on the premise that
our platform offers customers a secure way to purchase, store, and transact in Digital Assets. As a result, any actual or perceived security
breach of us or our third-party partners may, among others:
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harm
our reputation and brand;
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result
in our systems or services being unavailable and interrupt our operations;
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result
in improper disclosure of data and violations of applicable privacy and other laws;
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result
in significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, and financial exposure;
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cause
us to incur significant remediation costs;
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lead
to theft or irretrievable loss of our or our customers’ fiat currencies or Digital Assets;
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reduce
customer confidence in, or decreased use of, our products and services;
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divert
the attention of management from the operation of our business;
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result
in significant compensation or contractual penalties from us to our customers or third parties as a result of losses to them or claims
by them; and
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adversely
affect our business and operating results.
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Further,
any actual or perceived breach or cybersecurity attack directed at other financial institutions or Digital Asset companies, whether or
not we are directly impacted, could lead to a general loss of customer confidence in the Digital Assets economy or in the use of technology
to conduct financial transactions, which could negatively impact us, including the market perception of the effectiveness of our security
measures and technology infrastructure.
An
increasing number of organizations, including large merchants, businesses, technology companies, and financial institutions, as well
as government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated
and highly targeted attacks, including on their websites, mobile applications, and infrastructure.
Attacks
upon systems across a variety of industries, including the Digital Asset industry, are increasing in their frequency, persistence, and
sophistication, and, in many cases, are being conducted by sophisticated, well-funded, and organized groups and individuals, including
state actors. The techniques used to obtain unauthorized, improper, or illegal access to systems and information (including customers’
personal data and Digital Assets), disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect
quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on our
systems or those of our third-party service providers or partners. Certain types of cyberattacks could harm us even if our systems are
left undisturbed. For example, attacks may be designed to deceive employees and service providers into releasing control of our systems
to a hacker, while others may aim to introduce computer viruses or malware into our systems with a view to stealing confidential or proprietary
data. Additionally, certain threats are designed to remain dormant or undetectable until launched against a target and we may not be
able to implement adequate preventative measures.
Although
we have developed systems and processes designed to protect the data we manage, prevent data loss and other security breaches, effectively
respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, there can
be no assurance that these security measures will provide absolute security or prevent breaches or attacks. We have experienced from
time to time, and may experience in the future, breaches of our security measures due to human error, malfeasance, insider threats, system
errors or vulnerabilities, or other irregularities. Unauthorized parties have attempted, and we expect that they will continue to attempt,
to gain access to our systems and facilities, as well as those of our customers, partners, and third-party service providers, through
various means, including hacking, social engineering, phishing, and attempting to fraudulently induce individuals (including employees,
service providers, and our customers) into disclosing usernames, passwords, payment card information, or other sensitive information,
which may in turn be used to access our information technology systems and customers’ Digital Assets. Threats can come from a variety
of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. Certain threat actors
may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. Further,
there has been an increase in such activities as a result of the novel coronavirus, or COVID-19, pandemic. As a result, our costs and
the resources we devote to protecting against these advanced threats and their consequences may continue to increase over time.
Although
we maintain insurance coverage that we believe is adequate for the current stage of development of our business, it may be insufficient
to protect us against all losses and costs stemming from system failures, security breaches, cyberattacks, and other types of unlawful
activity, or any resulting disruptions from such events. Outages and disruptions of our platform, including any caused by cyberattacks,
may harm our reputation and our business, operating results, and financial condition.
Risks
Related to Eqonex’s Business Lines and Industry
One
or more of Eqonex’s business lines may not produce sufficient cash flows to fund the capital requirements and expenditures necessary
to run the business.
There
can be no guarantee that Eqonex’s business lines, individually or together with our other business lines will be able to produce
sufficient cash flows to fund the capital requirements and expenditures necessary to run the business. Furthermore, Eqonex may not have
or may not be able to obtain the technical skills, expertise, or regulatory approvals needed to successfully or fully develop its business
lines. While Eqonex has sought to retain and continues to competitively recruit experts, there may, from time to time, be a scarcity
of management, technical, scientific, research and marketing personnel with appropriate training to develop and maintain development
of its business lines. In addition, there are significant legal and regulatory considerations that will need to be addressed in order
to develop and maintain its business lines and addressing such considerations will require significant time and resources. If Eqonex
is not successful in its efforts to fully develop one or more of its business lines in a way that is compliant with all regulatory and
legal requirements, and demonstrate to users the utility and value of such business, or there is not sufficient demand for the business
line to be commercially viable, one or more business line may not be viable, which could have an adverse effect on the Eqonex’s
overall business, financial condition and results of operations.
Digital
Assets and distributed ledger technology may not be widely adopted.
Digital
Assets are a new asset class that, as of yet, have not been widely adopted, particularly by institutional investors and corporate securities
issuers. The majority of Eqonex’s business lines rely, or will rely, on the acceptance and use by such investors and issuers of
Digital Assets at a scale to create demand for Eqonex’s products and services sufficient to make Eqonex’s business lines
commercially viable. Though Eqonex believes that the anticipated benefits of Digital Assets will create such demand, there can be no
assurance that this will occur, or if it does occur that it will be in the near term.
Furthermore,
the growth of the distributed ledger industry in general, as well as the protocol technology on which Eqonex will rely, is subject to
a high degree of uncertainty. The factors affecting the further development of these protocols and, therefore, Digital Assets, include,
without limitation:
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worldwide
growth in the adoption and use of Digital Assets and distributed ledger technology and its associated protocols;
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government
and quasi-government regulation of Digital Assets and distributed ledger technology and their use, or restrictions on or regulation
of access to and operation of distributed ledger technology or similar systems;
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the
maintenance and development of the open-source software protocol of smart contracts;
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banking
restrictions on companies operating in this industry;
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changes
in consumer demographics and public tastes and preferences;
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the
availability and popularity of other forms or methods of buying and selling goods and services, or trading assets including new means
of using government-backed currencies or existing networks;
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general
economic conditions and the regulatory environment relating to Digital Assets; and
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a
decline in the popularity or acceptance of Digital Assets.
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The
distributed ledger industry as a whole has been characterized by rapid changes and innovations and is constantly evolving. Although it
has experienced significant growth in recent years, the slowing or stopping of the development, general acceptance and adoption and usage
of distributed ledger technology and Digital Assets may have a materially adverse effect on Eqonex’s business plans.
Eqonex’s
business lines may require regulatory licenses and qualifications that Eqonex does not currently have and that may be costly and time-consuming
to obtain and, even if obtained, may subsequently be revoked.
Eqonex’s
business lines involve certain activities which require regulatory licenses and qualifications such as custody services, broker-dealer
services, securities trading, asset management and capital market activities. These activities are subject to material, costly and constraining
financial regulation in jurisdictions worldwide. The process of acquiring and maintaining these licenses and qualifications will be costly
and time-consuming, will occupy material management attention and is not certain to be successful. Eqonex may not meet the requirements
for such licenses or qualifications, including, for example, minimum capital requirements, or may fail to secure discretionary approval
of relevant regulatory bodies. A failure or delay in receiving approval for a license or qualification, or approval that is more limited
in scope than initially requested, or subsequently limited or rescinded, could have a significant and negative effect on Eqonex, including
the risk that a competitor gains a first-mover advantage. The time with which it takes to receive regulatory approval may also be negatively
impacted by COVID-19 due to its impact on regulator’s resources and the limited ability for in-person meetings.
In
particular, Eqonex is or will be seeking the below licenses.
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Singapore:
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Exchange
Business
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Major
Payment Institution license pursuant to the Payment Services Act
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Exchange
Business
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Recognized
Market Operator license pursuant to the Securities and Futures Act
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Digivault
and Capital Markets
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Capital
Market Services License pursuant to the Securities and Futures Act
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Hong
Kong:
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Capital
Markets Business
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Type
1 Dealing in Securities License pursuant to the Securities and Futures Ordinance
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United
Kingdom:
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Digivault
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Safeguarding
and Administering Investments license pursuant to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
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Dubai:
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Capital
Markets Business
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Category
4 Investment Advisor license pursuant to Regulatory Law 2004
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The
law and regulation surrounding the operation of Eqonex’s businesses with respect to Digital Assets is unclear, uncertain, rapidly
evolving and not assured to develop in a way that is favorable to Eqonex. The anticipated business activities of Eqonex may cause regulatory
bodies to delay, or refuse to issue, licenses and qualifications to Eqonex that it would otherwise receive. For example, a regulatory
authority may delay or refuse to issue a broker-dealer license to Eqonex due to concerns about its focus on digital securities as opposed
to more traditional securities. There is a risk that Eqonex’s business could be outlawed in jurisdictions in which it seeks to
do business, which could materially affect Eqonex’s ability to expand its business and become profitable.
When
a decision to enter a jurisdiction is made, Eqonex may utilize local law firms to ensure it is informed of the local regulatory requirements
needed to operate therein. Eqonex also maintains regular communications with the regulators in the jurisdictions in which it holds or
wishes to seek licenses. In addition, to ensure that Eqonex maintains regulatory compliance, Eqonex has built internal capabilities to
monitor regulatory changes as well as obtaining supplementary support from external experts. Eqonex’s business lines have developed
a regulatory roadmap to identify additional relevant licenses and qualifications they will need to operate; however, this has been done
for only a small number of jurisdictions and significant further investment will be needed. This may result in unplanned costs and/or
delayed or cancelled launches into particular jurisdictions.
Eqonex’s
senior management originate from multi-jurisdictional regulated financial service institutions. As such, Eqonex’s senior management
have accumulated experience in operating within a regulated environment and understand the importance of compliance with regulations,
including securities. However, Eqonex’s senior management do not have previous direct experience of dealing with regulatory requirements
in relation to Digital Assets.
Eqonex
may be unable to establish or maintain partnerships with entities to satisfy regulatory requirements.
To
the extent it is unable or not cost-effective to procure the necessary licenses or qualifications to conduct its business in jurisdictions
any of Eqonex’s business lines seek to enter, Eqonex plans to partner with existing entities that have such licenses or qualifications
to enable it to offer its products and services. However, there can be no assurance that it will be able to do so, or that it will be
able to do so now, in the future or at an acceptable price. Prospective partners may (i) not exist, (ii) be unwilling or unable to engage
in activities involving distributed ledger technology, (iii) not offer terms that are acceptable to Eqonex, (iv) have a conflict of interest
with one or more of Eqonex’s business lines that makes such a partnership impermissible, (v) be otherwise unable or unwilling to
partner with Eqonex, or (vi) terminate their relationship with Eqonex. If Eqonex is not able to establish and maintain such partnerships,
it may be unable to pursue its business in certain jurisdictions which could have a material adverse effect on its business, financial
condition and results of operations.
Where
Eqonex does not obtain licenses, and seeks to build partnerships with regulated firms such as Starmark Investment Management Limited
in the United Kingdom, which provides regulatory coverage for the Capital Markets Business through an umbrella licensing scheme, a risk
exists that a partner may lose its own regulatory status for reasons beyond Eqonex’s control, or a partner may choose to exit from
a partnership that it establishes with Eqonex, either of which may leave Eqonex without regulatory cover to provide services within the
market the partner supports.
Changes
in law or regulation could subject Eqonex to further material, costly and constraining regulation, licensing qualifications and other
requirements.
Legal
or regulatory changes or interpretations of Eqonex’s existing and planned activities could require the licensing or qualification
of Eqonex, or impose costly and contradictory regulatory burdens on Eqonex, outside of management’s current expectations. In addition,
jurisdictions that do not currently require licensing or qualifications to conduct Eqonex’s existing and planned activities may
adopt regulatory regimes that do require them. For example, in June 2019, the Financial Action Task Force adopted new guidance on the
registration and licensing requirements that should be applicable to Digital Assets and entities that provide services for the holders
and issuers of Digital Assets, and in November 2020, the Hong Kong Securities and Finance Commission issued a consultation paper regarding
the proposed mandatory licensing for spot trading of Digital Assets. Among other things, this guidance urges countries which do not yet
have regulatory systems in place to mitigate the issues presented by the potential misuse of Digital Assets to create them rapidly using
a risk-based approach. Such additional requirements could cause Eqonex to incur additional expenses, which could materially and adversely
affect its business, financial condition and results of operations. In addition, even where activities have been approved and obtained
necessary licenses, a change in the legal framework may render such activities illegal or no longer economically sustainable.
Eqonex
faces substantial litigation and regulatory risks.
As
an enterprise whose material business lines include financial services, Eqonex depends to a significant extent on its relationships with
its clients and its reputation for integrity and high-caliber professional services. As a result, if a client is not satisfied with Eqonex’s
services or if there are allegations of improper conduct, including improper conduct by any of Eqonex’s partners, by private litigants
or regulators, whether the ultimate outcome is favorable or unfavorable to Eqonex, or if there is negative publicity and press speculation
about Eqonex, whether or not valid, it may harm Eqonex’s reputation and may be more damaging to Eqonex than to businesses in other,
non-financial industries.
Many
of Eqonex’s business lines are subject to significant regulation and oversight, including periodic examination by regulatory authorities.
Eqonex could be the subject of inquiries, investigations, sanctions, cease and desist orders, terminations of licenses or qualifications,
lawsuits and proceedings by counterparties, clients, other third parties and regulatory and other governmental agencies, which could
lead to increased expenses or reputational damage. Responding to inquiries, investigations, audits, lawsuits and proceedings, regardless
of the ultimate outcome of the matter, is time-consuming and expensive and can divert the attention of senior management. The outcome
of such proceedings may be difficult to predict or estimate until late in the proceedings, which may last a number of years.
The
risks described above may be greater for companies in the distributed ledger industry as it is relatively new and clients, counterparties
and regulators are expected to need significant education to understand the mechanics of products and services that rely on distributed
ledger technology.
Furthermore,
while Eqonex maintains insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential
liabilities and is subject to various exclusions as well as caps on amounts refundable. Even if Eqonex believes a claim is covered by
insurance, insurers may dispute Eqonex’s entitlement for a variety of different reasons, which may affect the timing and, if the
insurers prevail, the amount of Eqonex’s recovery. Any claims or litigation, even if fully indemnified or insured, could damage
Eqonex’s reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.
If
Eqonex and/or any governmental agency believe that it has accepted capital contributions by, or is otherwise holdings assets of, any
person or entity that is acting directly or indirectly in violation of any money laundering or corruption laws, rules, regulations, treaties,
sanctions or other restrictions, or on behalf of any suspected terrorist or terrorist organization, suspected drug trafficker or senior
foreign political figure(s) suspected in engaging in foreign corruption, Eqonex and/or such governmental agency may “freeze the
assets” of such person or entity. Eqonex may also be required to report and remit or transfer those assets to a governmental agency.
Any such action may harm Eqonex’s reputation and materially and adversely affect its business, financial condition and results
of operations.
Some
market participants may oppose the development of distributed ledger-based technology products and services like those
central to Eqonex’s business lines, which could adversely affect Eqonex’s ability to do business.
Many
participants in the financial industry (including certain regulators) and other industries may oppose the development of products and
services that utilize distributed ledger technology. The market participants who may oppose such products and services may include entities
with significantly greater resources, including financial resources and political influence, than Eqonex has. The ability of Eqonex to
operate and achieve its commercial goals could be adversely affected by any actions of any such market participants that result in additional
regulatory requirements or other activities that make it more difficult for Eqonex to operate.
Eqonex
may not successfully develop technology to service its business lines.
Eqonex
relies heavily on the use of technology that it has created or plans to create by itself or with other third-parties as much of the existing
technology for the financial services business was not built to service Digital Assets, which require a unique set of considerations.
If Eqonex’s technology solutions do not work as planned, or do not meet or continue to meet the level of quality required by Eqonex,
its clients or its regulators, it may make transacting business less efficient, more expensive and potentially prone to errors, thereby
reducing the positive effects Eqonex seeks to make available to its clients through the adoption of distributed ledger technology.
Eqonex
may not be able to keep pace with rapidly changing technology and client or regulatory requirements.
Eqonex’s
success depends on its ability to develop new products and services for its business lines, while improving the performance and cost-effectiveness
of its existing products and services, in each case in ways that address current and anticipated client and regulatory requirements.
Such success is dependent upon several factors, including functionality, competitive pricing, licensing and integration with existing
and emerging technologies. The distributed ledger industry is characterized by rapid technological change, and new technologies could
emerge that might enable Eqonex’s competitors to offer products and services with better combinations of price and performance,
or that better address client requirements, than Eqonex’s products and services. Competitors may be able to respond more quickly
and effectively than Eqonex can to new or changing opportunities, technologies, standards or client requirements.
Due
to the significant lead time involved in bringing a new product or service to market, Eqonex is required to make a number of assumptions
and estimates regarding the commercial feasibility of new products and services. As a result, it is possible that Eqonex may introduce
a new product or service that uses technologies that have been displaced by the time of launch, addresses a market that no longer exists
or is smaller than previously thought or otherwise is not competitive at the time of launch. The expenses or losses associated with an
unsuccessful product or service development or launch, or a lack of market acceptance of Eqonex’s new products and services, could
adversely affect Eqonex’s business, financial condition or results of operations.
Eqonex’s
ability to attract new clients and increase revenue from existing clients also depends on its ability to deliver any enhanced or new
products and services to its clients in a format where they can be easily and consistently deployed by most or all clients without significant
client service. If Eqonex’s clients believe that deploying its products and services would be overly time-consuming, confusing
or technically challenging, then Eqonex’s ability to grow its business would be substantially harmed.
Cybersecurity
incidents and other systems and technology problems may materially and adversely affect Eqonex.
Cybersecurity
incidents and cyber-attacks have been occurring globally at a more frequent and severe level and will likely continue to increase in
frequency in the future. The distributed ledger industry is a particular target for cybersecurity incidents, which may occur through
intentional or unintentional acts by individuals or groups having authorized or unauthorized access to Eqonex’s systems or Eqonex’s
clients’ or counterparties’ information, or exchanges on which Eqonex trades, all of which may include confidential information.
These individuals or groups include employees, third-party service providers, customers and hackers. The information and technology systems
used by Eqonex and its service providers are vulnerable to unauthorized access, damage or interruption from, among other things: hacking,
ransomware, malware and other computer viruses; denial of service attacks; network failures; computer and telecommunication failures;
phishing attacks; infiltration by unauthorized persons; fraud; security breaches; usage errors by their respective professionals; power
outages; terrorism; and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes. Recently, the virtual currency
exchange industry has become a significant target for fraud. To date, Eqonex has only experienced phishing incidents, none of which have
been material. While Eqonex will deploy a range of defenses, it is possible Eqonex could suffer an impact or disruption that could materially
and adversely affect Eqonex. The security of the information and technology systems used by Eqonex and its service providers may continue
to be subjected to cybersecurity threats that could result in material failures or disruptions in Eqonex’s business. If these systems
are compromised, become inoperable for extended periods of time or cease to function properly, Eqonex or a service provider may have
to make a significant investment to fix or replace them. As a company whose material business lines include financial services, Eqonex
has and will continue to have access to sensitive, confidential information of clients and counterparties and, in certain business lines,
access to such clients and counterparties’ assets, which makes the cybersecurity risks identified above more important than they
may be to other non-financial services companies.
Concerns
about Eqonex’s practices with regard to the collection use, disclosure, or safekeeping of confidential information, personal data,
and assets, even if unfounded, could adversely affect its operating results. Furthermore, failures of Eqonex’s cybersecurity system
could harm Eqonex’s reputation, subject it to legal claims and otherwise materially and adversely affect Eqonex’s business,
financial condition and results of operations.
Eqonex
may face the risk that one or more competitors have or will obtain patents covering technology critical to the operation of one or more
of its business lines and that it may infringe on the intellectual property rights of others.
If
one or more other persons, companies or organizations has or obtains a valid patent covering technology critical to the operation of
one or more of Eqonex’s business lines, there can be no guarantee that such an entity would be willing to license such technology
at acceptable prices or at all, which could have a material adverse effect on Eqonex’s business, financial condition and results
of operations. Moreover, if for any reason Eqonex were to fail to comply with its obligations under an applicable agreement, it may be
unable to operate, which would also have a material adverse effect on Eqonex’s business, financial condition and results of operations.
Due
to the fundamentally open-source nature of distributed ledger technology, Eqonex may not always be able to determine that it is using
or accessing protected information or software. For example, there could be issued patents of which Eqonex is not aware that its products
infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries
in scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made
and patent applications were filed. Because patents can take many years to issue, there may currently be pending applications of which
Eqonex is unaware that may later result in issued patents that its products infringe.
Eqonex
could expend significant resources defending against patent infringement and other intellectual property right claims, which could require
it to divert resources away from operations. Any damages Eqonex is required to pay or injunctions against its continued use of such intellectual
property in resolution of such claims may cause a material adverse effect to its business, financial condition and results of operations.
Managing
different business lines could present conflicts of interest.
Eqonex
has built and continues to develop an ecosystem of products and services. While Eqonex will take steps to prevent or mitigate conflicts
of interests, there are certain inherent and potential conflicts of interest in managing different business lines. Due to the broad scope
of Eqonex’s current and anticipated business lines, potential conflicts of interest include situations where its services to a
particular client, or Eqonex’s own investments or other interests, conflict, or are perceived to conflict, with the interests of
another client, as well as situations where one or more of Eqonex’s business lines have access to material non-public information
that may not be shared with its other business lines and situations where Eqonex may be an investor in an entity with which it also has
an advisory or other relationship. Furthermore, the allocation of investment opportunities among its investors could also present a conflict
of interest. In managing these different conflicts, fiduciary duty obligations may require Eqonex to resolve conflicts in favor of clients
over itself or other third parties. Employees and executives may also have conflicts of interest in allocating their time and activity
between the business lines. Appropriately identifying and dealing with conflicts of interest is complex and difficult, and Eqonex’s
reputation could be damaged and the willingness of clients to enter into transactions with Eqonex may be affected if Eqonex fails, or
appears to fail, to identify, disclose and deal appropriately with conflicts of interest. In addition, potential or perceived conflicts
could give rise to litigation or regulatory enforcement actions. As a result, failures to appropriately identify and address potential
conflicts of interest could materially adversely affect Eqonex’s business, financial condition and results of operations.
The
regulation of Digital Assets and distributed ledger technology continues to evolve in every jurisdiction, and regulatory changes or actions
may restrict the use of Digital Assets, the operation of distributed ledger technology that supports such Digital Assets and platforms
that facilitate the trading of such Digital Assets.
As
distributed ledger technology and Digital Assets have grown in popularity and in market size, governments, regulators and self-regulators
(including law enforcement and national security agencies) around the world are examining the operations of distributed ledger technology
and Digital Assets issuers, users, investors and platforms. To the extent that any government or quasi-governmental agency exerts regulatory
authority over the Digital Asset industry in general, the issuance of Digital Assets, and trading and ownership of and transactions involving
the purchase and sale or pledge of such Digital Assets, may be adversely affected, which could materially and adversely affect Eqonex’s
business, financial condition and results of operations.
The
prices of Digital Assets are extremely volatile. Fluctuations in the price of Digital Assets could materially and adversely affect Eqonex’s
business.
The
prices of Virtual Currencies, such as bitcoin and Ether, and other Digital Assets have historically been subject to dramatic
fluctuations and are highly volatile. A decrease in the price of a single Digital Asset may cause volatility in the entire Digital Asset
industry. For example, a security breach that affects purchaser or user confidence in bitcoin or ether may affect the industry
as a whole. This volatility may adversely affect interest in and demand for the products and services Eqonex currently operates and seeks
to offer, which would materially and adversely affect Eqonex’s business, financial condition and results of operations.
Distributed
ledger networks, Digital Assets and the exchanges on which such assets are traded are dependent on internet infrastructure and susceptible
to system failures, security risks and rapid technological change.
The
success of distributed ledger technology-based products and services will depend on the continued development of a stable infrastructure,
with the necessary speed, data capacity and security, and complementary products such as high-speed networking equipment for providing
reliable internet access and services. Digital Assets have experienced, and are expected to continue to experience, significant growth
in the number of users and amount of content. There is no assurance that the relevant public infrastructure will continue to be able
to support the demands placed on it by this continued growth or that the performance or reliability of distributed ledger technology
will not be adversely affected by this continued growth. There is also no assurance that the infrastructure or complementary products
or services necessary to make Digital Assets a viable product for their intended use will be developed in a timely manner, or that such
development will not result in the requirement of incurring substantial costs to adapt to changing technologies. The failure of these
technologies or platforms or their development could materially and adversely affect Eqonex’s business, financial condition and
results of operation.
Furthermore,
Digital Assets are created, issued, transmitted, and stored according to protocols run by nodes within the blockchain network. It is
possible these protocols have undiscovered flaws or could be subject to network scale attacks which could result in losses to Eqonex.
Finally, advancements in quantum computing could break the cryptographic rules of protocols which support certain Digital Assets.
Malicious
actors could manipulate distributed ledger networks and smart contract technology upon which Digital Assets rely and increase the vulnerability
of the distributed ledger networks.
If
a malicious actor, including a state-sponsored actor, is able to hack or otherwise exert unilateral control over a particular distributed
ledger network, or the Digital Assets on such a network, that actor could attempt to divert assets from that distributed ledger or otherwise
prevent the confirmation of transactions recorded on that distributed ledger. Such an event could materially and adversely affect Eqonex’s
business. Digital Assets have been the subject of attempted manipulation by hackers to use them for malicious purposes. For example,
misuses could occur if a malicious actor obtains a majority of the processing power controlling the Digital Asset validating activities
and altering the distributed ledger on which Digital Asset transactions rely. Moreover, if the award for solving transaction blocks for
a particular Digital Asset declines, and transaction fees are not sufficiently high, the incentive to continue validating distributed
ledger transactions would decrease and could lead to a stoppage of validation activities. The collective processing power of that distributed
ledger would be reduced, which would adversely affect the confirmation process for transactions by decreasing the speed of the adaptation
and adjustment in the difficulty for transaction block solutions. Such slower adjustments would make the distributed ledger network more
vulnerable to malicious actors’ obtaining control of the processing power over distributed ledger network processing.
The
network contributors for certain Digital Assets could propose amendments to the network protocols and software for Digital Assets that,
if accepted and authorized by the network for the Digital Assets, could adversely affect Eqonex.
The
networks for certain Digital Assets are based on a protocol governing the peer-to-peer interactions between computers connected to each
other within that network. The development team for a network (if any) might propose and implement amendments to a network’s source
code through software upgrades altering the original protocol, including fundamental ideas such as the irreversibility of transactions
and limitations on the validation of blockchain software distributed ledgers. Such changes to original protocols and software could materially
and adversely affect Eqonex’s business.
Banks
or other third-party services providers may decline to provide services to companies engaged in distributed ledger-related businesses,
including Eqonex.
A
number of companies that provide distributed ledger technology-related products and services have been unable to find banks that are
willing to provide them with bank accounts and banking services. Similarly, a number of such companies have had their existing bank accounts
closed by their banks. Banks may refuse to provide bank accounts and other banking services to distributed ledger technology-related
companies, including Eqonex, for a number of reasons, such as perceived compliance risks or costs. Similarly, continued general banking
difficulties may decrease the utility or value of Digital Assets or harm public perception of those assets. In addition to banks, other
third-party service providers including accountants, lawyers and insurance providers may also decline to provide services to companies
engaged in distributed ledger technology-related businesses because of the perceived risk profile associated with such businesses or
the lack of regulatory certainty. The failure of distributed ledger technology-related businesses to be banked or obtain services could
materially and adversely affect Eqonex’s business, financial condition and results of operation.
The
extent to which Digital Assets are used to fund criminal or terrorist enterprises or launder the proceeds of illegal activities could
materially impact Eqonex’s business.
The
potential, or perceived potential, for anonymity in transfers of Digital Assets, as well as the decentralized nature of distributed ledger
networks, has led some terrorist groups and other criminals to solicit certain Digital Assets for capital raising purposes. As Digital
Assets have grown in both popularity and market size, government authorities have been examining the operations of distributed ledger
technology and Digital Assets, their users, investors and exchanges, concerning the use of Digital Assets for the purpose of laundering
the proceeds of illegal activities or funding criminal or terrorist enterprises. In addition to the current market, new distributed ledger
networks or similar technologies may be developed to provide more anonymity and less traceability.
The
use of Digital Assets for illegal purposes, or the perception of such use, even if such use does not involve Eqonex’s services
or products, could result in significant damage to Eqonex’s reputation, damage to the reputation of Digital Assets and a loss of
confidence in the services provided by the distributed ledger technology community as a whole.
Political
or economic crises may motivate large-scale sales of Digital Assets, which would result in a reduction in values and materially and adversely
affect Eqonex.
As
an alternative to fiat currencies that are backed by central governments, Virtual Currencies, which are relatively new, are subject to
supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services,
and it is unclear how such supply and demand will be impacted by geopolitical events. For example, political or economic crises could
motivate large-scale acquisitions or sales of Digital Assets either globally, regionally or locally. Large-scale sales of certain Digital
Assets could result in a reduction in their value and could materially and adversely affect Eqonex’s business, financial condition
and results of operations.
Economic,
political and market conditions, both in Hong Kong, Singapore and worldwide, can adversely affect Eqonex’s business, results of
operations and financial condition.
Eqonex’s
business is influenced by a range of factors that are beyond its control and that it has no comparative advantage in forecasting. These
include, among others:
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economic and business conditions;
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demand for Eqonex’s products and services; and
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legal, regulatory, and political developments.
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Macroeconomic
developments, including the impact of the United Kingdom’s vote to exit the European Union, known as Brexit, evolving trade policies
between the U.S. and international trade partners, including the People’s Republic of China (the “PRC”) or the occurrence
of similar events in other countries that lead to uncertainty or instability in economic, political or market conditions could negatively
affect Eqonex’s business, operating results and financial conditions and/or any of its third-party service providers. Furthermore,
any general weakening of, and related declining confidence in, the global economy or the curtailment of government or corporate spending
could cause potential clients to delay, decrease or cancel purchases of Eqonex’s products and services and the adoption of distributed
ledger technology in general.
While
Eqonex shifted its incorporation from Hong Kong to Singapore in connection with the Business Combination, a material element of Eqonex’s
operations is expected to remain in Hong Kong. Hong Kong has been governed by the basic law, which guarantees a high degree of autonomy
from the PRC in certain matters until 2047. If the PRC were to exert its authority to alter the economic, political or legal structures
or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected, which in turn
could negatively affect markets and business performance and have an adverse effect on Eqonex. There is uncertainty as to the political,
economic and social status of Hong Kong. Hong Kong’s evolving relationship with the PRC’s central government in Beijing has
been a source of political unrest that has periodically resulted in large-scale protests, including those that occurred in 2019 in response
to an extradition bill proposed by the Hong Kong government, which was subsequently waived. These protests created disruptions for businesses
operating in Hong Kong and have negatively impacted the overall economy however, the frequency and intensity of protests have declined
since the passing of the National Security Law.
Significant
operations of Eqonex’s business are currently located in Hong Kong. It is possible that Eqonex may decide to relocate certain operations
from Hong Kong to Singapore or another jurisdiction in the future when COVID 19 related travel restrictions are relaxed. In doing so,
it is also possible that Eqonex may not be able to retain certain expert staff. If Eqonex loses the services of any member of management
or other such key personnel as a result of relocating, it may not be able to find suitable or qualified replacements and may incur additional
expenses to recruit and train new staff, which could materially disrupt Eqonex’s business and growth.
Eqonex’s
business lines and its acceptance of currencies other than the U.S. Dollar will subject it to currency risk.
Nearly
all of Eqonex’s business occurs, and is anticipated to occur in the medium term, outside of the U.S. As a result, some of Eqonex’s
expenses are, and are anticipated to be, denominated in currencies other than the U.S. dollar. Because Eqonex’s financial statements
are presented in U.S. dollars, it must translate non-U.S. dollar denominated revenues, income and expenses, as well as assets and liabilities,
into U.S. dollars at exchange rates in effect during or at the end of each reporting period. These fluctuations may materially impact
the translation of Eqonex’s non-U.S. results of operations and financial condition.
Furthermore,
increases or decreases in the value of the currencies Eqonex receives may affect its operating results and the value of its assets and
liabilities.
Eqonex may be adversely affected by natural
disasters, pandemics, and other catastrophic events, and by man-made problems such as terrorism, that could disrupt the business operations,
and the business continuity and disaster recovery plans may not adequately protect it from a serious disaster.
Natural disasters or other
catastrophic events may also cause damage or disruption to operations, international commerce, and the global economy, and could have
an adverse effect on business, operating results, and financial condition. Business operations are subject to interruption by natural
disasters, fire, power shortages, and other events beyond Eqonex’s control. In addition, Eqonex’s global operations expose
it to risks associated with public health crises, such as pandemics and epidemics, which could harm the business and cause operating
results to suffer. For example, the ongoing effects of the COVID-19 pandemic and/or the precautionary measures that we have adopted have
resulted, and could continue to result, in difficulties or changes to customer support, or create operational or other challenges, any
of which could adversely impact business and operating results. Further, acts of terrorism, labor activism or unrest, and other geo-political
unrest could cause disruptions in the business or the businesses of partners or the economy as a whole. In the event of a natural disaster,
including a major earthquake, blizzard, or hurricane, or a catastrophic event such as a fire, power loss, or telecommunications failure,
Eqonex may be unable to continue operations and may endure system interruptions, reputational harm, delays in development of Eqonex’s
platform(s), lengthy interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse
effect on future operating results.
The COVID-19 pandemic could have an adverse
effect on business, operating results, and financial condition.
Eqonex is responding to
the global outbreak of COVID-19 by taking steps to mitigate the potential risks to us posed by its spread and the impact of the
restrictions put in place by governments to protect the population. During 2020, Hong Kong, Singapore and governments around the
world took a number of actions, including prohibiting residents from free travel, encouraging employees of enterprises to work from
home, cancelling public activities, and closing corporate offices. In addition, as the outbreak continues to threaten global
economies, it may continue to cause significant market volatility and declines in general economic activities. Some employees and
service providers have transitioned to work-from-home and Eqonex is operating as a remote-first company in certain jurisdictions.
This subjects Eqonex to heightened operational risks. For example, technologies in employees’ and service providers’
homes may not be as robust as in Eqonex’s offices and could cause the networks, information systems, applications, and other
tools available to employees and service providers to be more limited or less reliable than in offices. Further, the security
systems in place at employees’ and service providers’ homes may be less secure than those used in the offices, and while
Eqonex has implemented technical and administrative safeguards to help protect its systems as its employees and service providers
work from home, Eqonex may be subject to increased cybersecurity risk, which could expose it to risks of data or financial loss, and
could disrupt its business operations. There is no guarantee that the data security and privacy safeguards Eqonex has put in place
will be completely effective or that it will not encounter risks associated with employees and service providers accessing company
data and systems remotely. Eqonex also faces challenges due to the need to operate with the remote workforce and are addressing
those challenges to minimize the impact on its ability to operate.
The transition to a remote-first
company in certain jurisdictions may make it more difficult for Eqonex to preserve its corporate culture and its employees may have decreased
opportunities to collaborate in meaningful ways. Further, Eqonex cannot guarantee that its transition to becoming a remote-first company
in certain jurisdictions will not have a negative impact on employee morale and productivity. Any failure to preserve the corporate culture
and foster collaboration could harm Eqonex’s future success, including its ability to retain and recruit personnel, innovate and
operate effectively, and execute on its business strategy.
In addition, the continued spread of COVID-19
and the imposition of related public health measures have resulted in, and is expected to continue to result in, increased volatility
and uncertainty in the Digital Assets economy. Eqonex also relies on third party service providers to perform certain functions. Any
disruptions to a service providers’ business operations resulting from business restrictions, quarantines, or restrictions on the
ability of personnel to perform their jobs could have an adverse impact on the service providers’ ability to provide services to
Eqonex. The continued spread of COVID-19 and efforts to contain the virus could adversely impact Eqonex’s strategic business plans
and growth strategy, reduce demand for its products and services, reduce the availability and productivity of its employees, service
providers, and third-party resources, cause it to experience an increase in costs due to emergency measures, and otherwise adversely
impact the business.
Risks
Related to Doing Business in Hong Kong
The
recent PRC government intervention into business activities by U.S.-listed Chinese companies may indicate an expansion of the PRC’s
authority that could negatively impact our existing and future operations in Hong Kong and China.
Eqonex Limited is incorporated
under the laws of Singapore. We are not a mainland Chinese firm and neither us nor any of our subsidiaries is required to obtain permission
from the government of the People’s Republic of China (“PRC”) to operate and issue our ordinary shares to foreign investors.
Other than a non-active subsidiary located in mainland China, which is in the process of being dissolved, we do not operate in the PRC.
Recently,
the Chinese government announced that it would increase supervision of mainland Chinese firms listed offshore. Under the new
measures, China will improve regulation of cross-border data flows and security, police illegal activity in the securities market
and punish fraudulent securities issuances, market manipulation and insider trading. China will also monitor sources of funding for
securities investment and control leverage ratios. The Cyberspace Administration of China (“CAC”) has also opened a
cybersecurity probe into several large U.S.-listed technology companies focusing on anti-monopoly and financial technology regulation
and, more recently with the passage of the Data Security Law, how companies collect, store, process and transfer data. If we are
subject to such a probe or if we are required to comply with stepped-up supervisory requirements, valuable time from our management
and money may be expended in complying and/or responding to the probe and requirements, thus diverting valuable resources and
attention away from our operations. This may, in turn, negatively impact our operations.
As
a Singapore company that does not operate in the PRC, the laws
and regulations of the PRC do not currently have any material impact on our business, financial condition or operation. However, because
of the Company’s operations in Hong Kong and given the Chinese government’s significant oversight authority over the conduct
of business in Hong Kong, there is always a risk that the Chinese government may, in the future, seek to affect operations of any company
with any level of operations in mainland China or Hong Kong, including its ability to offer securities to investors, list its securities
on a U.S. or other foreign exchange, conduct its business or accept foreign investment. In light of China’s recent expansion of
authority in Hong Kong, there are risks and uncertainties which we cannot foresee for the time being, and rules and regulations in China
can change quickly with little or no advance notice. The Chinese government may intervene or influence our current and future operations
in Hong Kong and China at any time, or may exert more control over offerings conducted overseas and/or foreign investment in issuers
likes ourselves.
If
any or all of the foregoing were to occur, this could result in a material change in our Company’s operations and/or
the value of our ordinary shares and/or significantly limit or completely hinder our ability to offer or continue to offer securities
to investors and cause the value of such securities to significantly decline or be worthless.
Our business, financial condition and
results of operations, and/or the value of our ordinary shares or our ability to offer or continue to offer securities to investors may
be materially and adversely affected if certain laws and regulations of the PRC become applicable to a company such as us, including
the PRC government ban on cryptocurrency and clarification that foreign exchanges are banned from providing services to mainland China
residents. In that case, we may be subject to the risks and uncertainties associated with the evolving laws and regulations in the PRC,
their interpretation and implementation, and the legal and regulatory system in the PRC more generally, including with respect to the
enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice, and be forced to relocate
our operations outside of Hong Kong.
Other than a non-active subsidiary
located in mainland China, which we are in the process of dissolving, we do not operate in the PRC. While our principal executive offices
are located, and we operate, in Hong Kong, our primary business unit, the EQONEX Exchange, operates under an exemption from the Monetary
Authority of Singapore and there are no servers in Hong Kong that support the operations of the exchange; our custody business, Digivault,
operates under a license from the United Kingdom; and our other business lines operate out of Singapore, the United Kingdom, Switzerland,
the Seychelles, and otherwise outside of Hong Kong, with only operational support from within Hong Kong. We have approximately 100 employees
in Hong Kong. As a result, notwithstanding our principal executive offices are located, and we operate, in Hong Kong, a special administrative
region of China, the laws and regulations of the PRC do not currently have any material impact on our business, financial condition and
results of operations. We are a Singapore company and not a mainland Chinese firm, and neither us nor any of our subsidiaries is required
to obtain permission from the government of the PRC to operate and issue our ordinary shares to foreign investors. Eqonex and our subsidiaries
are not covered by permissions requirements from the China Securities Regulatory Commission (“CSRC”), Cyberspace Administration
of China (“CAC”), and no other PRC entity is required to approve of the company’s operations. We do not believe
that we are required to obtain any approvals to offer securities to foreign investors. If we inadvertently conclude that such approvals
are not required, or applicable laws, regulations, or interpretations change and we are required to obtain approval in the future, obtaining
such approvals could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause
the value of our securities, including the ordinary shares, to significantly decline or be worthless.
If certain PRC laws and regulations,
including existing laws and regulations and those enacted or promulgated in the future, were to become applicable to a company such as
us in the future, the application of such laws and regulations may have a material adverse impact on our business, financial condition
and results of operations and our ability to offer or continue to offer securities to investors, any of which may cause the value of
our securities, including our ordinary shares, to significantly decline or become worthless. For example, if the PRC Data Security Law
were to apply to our Hong Kong-based businesses, we could become subject to data security and privacy obligations, including the need
to conduct a national security review of data activities that may affect the national security of the PRC, and be prohibited from providing
data stored in Hong Kong to foreign judicial or law enforcement agencies without approval from relevant PRC regulatory authorities. Furthermore,
if any law relating to the PCAOB access to auditor files were to apply to a company such as us or our auditor, the PCAOB may be unable
to fully inspect our auditor, which may result in our securities, including our ordinary shares, being delisted or prohibited from being
traded pursuant to the Holding Foreign Companies Accountable Act and materially and adversely affect the value and/or liquidity of your
investment
It is noted that relevant
parts of the PRC government have made recent statements or recently taken regulatory actions related to cryptocurrency, data security,
anti-monopoly and overseas listings of mainland China businesses. For example, the People’s Bank of China (PBOC) announced in a
joint release with the China Securities Regulatory Commission, the China Banking and Insurance Regulatory Commission and other regulatory
agencies a ban on all cryptocurrency activities within mainland China, which includes services provided by overseas cryptocurrency service
providers, such as Eqonex. In addition to the PBOC Ban, the PRC Data Security Law and the Draft Measures, relevant PRC government
agencies have recently taken anti-trust enforcement action against certain mainland China-based businesses. We understand such enforcement
action was taken pursuant to the PRC Anti-Monopoly Law which applies to monopolistic activities in domestic economic activities in mainland
China and monopolistic activities outside mainland China which eliminate or restrict market competition in mainland China. In addition,
in July 2021, the PRC government provided new guidance on PRC-based companies raising capital outside of the PRC, including through arrangements
called variable interest entities (“VIEs”). In light of such developments, the SEC has imposed enhanced disclosure requirements
on China-based companies seeking to register securities with the SEC. While, as our company currently does not have any operations in
mainland China, including any customer-facing business in mainland China, and does not have a VIE structure, we believe that the recent
statements or regulatory actions by the relevant parts of the PRC government, including statements relating to the PRC Data Security
Law, the Draft Measures, the PRC Personal Information Protection Law and VIEs as well as the anti-monopoly enforcement actions, will
not have any material adverse impact on our ability to conduct business, accept foreign investments, or list on a U.S. or other foreign
exchange, there is no guarantee that this will continue to be the case or that the PRC government will not seek to intervene or influence
our operations at any time. Should such statements or regulatory actions apply to a company such as us in the future, it would likely
have a material adverse impact on our business, financial condition and results of operations, our ability to accept foreign investments
and our ability to offer or continue to offer securities to investors on a U.S. or other international securities exchange, any of which
may cause the value of our securities, including our ordinary shares, to significantly decline or become worthless.
While we cannot predict
the extent of such impact if such events were to occur, we expect that to the extent certain laws and regulations of the PRC become
applicable to us, we may relocate our principal executive offices, employees, and operations out of Hong Kong. We may also be forced
to dissolve our Hong Kong subsidiary and incorporate one ore more new entities outside of Hong Kong. While we believe we may be able
to relocate and reorganize, as an early-stage enterprise with limited revenue and that is not currently profitable, the costs and
expenses related to relocating our offices, employees, and operations, as well as the legal and professional fees associated with
reorganizing certain legal entities, would likely have a material impact on our business, financial condition and results of
operations. There can be no guarantee that Eqonex’s business lines, individually or together with our other business lines
will be able to produce sufficient cash flows to fund the capital requirements and expenditures necessary to run the business and
relocate.
The laws and regulations in
the PRC are evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties. To the extent
any PRC laws and regulations become applicable to us, we may be subject to the risks and uncertainties associated with the evolving laws
and regulations in the PRC, their interpretation and implementation, and the legal and regulatory system in the PRC more generally, including
with respect to the enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice.
There
are political risks associated with conducting business in Hong Kong.
During
the period covered by the financial information incorporated by reference into and included in this prospectus, we have a
substantial part of our operations in Hong Kong. Accordingly, our business operations and financial condition may be affected by
political and legal developments in Hong Kong. Any adverse economic, social and/or political conditions, material social unrest,
strike, riot, civil disturbance or disobedience, as well as significant natural disasters, may adversely affect the business
operations of our Hong Kong subsidiaries. Hong Kong is a special administrative region of the PRC and the basic policies of the PRC
regarding Hong Kong are reflected in the Basic Law, namely, Hong Kong’s constitutional document, which provides Hong Kong with
a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the
principle of “one country, two systems”. However, there is no assurance that the PRC will not drive changes in the
economic, political and legal environment in Hong Kong in the future. Since part of our operation is based in Hong Kong, any change
of such political arrangements may pose immediate threat to the stability of the economy in Hong Kong, thereby directly and
adversely affecting our results of operations and financial position.
Under
the Basic Law of the Hong Kong Special Administrative Region of the PRC, Hong Kong is exclusively in charge of its internal affairs
and external relations, while the government of the PRC is responsible for its foreign affairs and defense. As a separate customs
territory, Hong Kong maintains and develops relations with foreign states and regions. Based on certain recent developments,
including the Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region issued by the Standing
Committee of the PRC National People’s Congress in June 2020, the U.S. State Department has indicated that the United States
no longer considers Hong Kong to have significant autonomy from China. President Trump signed an executive order and the Hong Kong
Autonomy Act, or HKAA, to remove Hong Kong’s preferential trade status and to authorize the U.S. administration to impose
blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong
Kong’s autonomy. The United States may impose the same tariffs and other trade restrictions on exports from Hong Kong that it
places on goods from mainland China. These and other recent actions may represent an escalation in political and trade tensions
involving the U.S, China and Hong Kong, which could potentially harm our business.
Given
the relatively small geographical size of Hong Kong, any such incidents may have a widespread effect on our business operations, which
could in turn adversely and materially affect our business, results of operations and financial condition. It is difficult to predict
the full impact of the HKAA on Hong Kong and companies with operations in Hong Kong. Furthermore, legislative or administrative
actions in respect of China-U.S. relations could cause investor uncertainty for affected issuers, including us, and the market price
of our ordinary shares could be adversely affected.
The
Hong Kong legal system embodies uncertainties which could limit the availability of legal protections.
As
one of the conditions for the handover of the sovereignty of Hong Kong to China, China accepted conditions such as Hong Kong’s
Basic Law. The Basic Law ensured Hong Kong will retain its own currency (the Hong Kong Dollar), legal system, parliamentary system
and people’s rights and freedom for fifty years from 1997. This agreement has given Hong Kong the freedom to function with a
high degree of autonomy. The Special Administrative Region of Hong Kong is responsible for its own domestic affairs including, but
not limited to, the judiciary and courts of last resort, immigration and customs, public finance, currencies and extradition. Hong
Kong continues using the English common law system.
However,
if the PRC attempts to alter its agreement to allow Hong Kong to function autonomously, this could potentially impact Hong
Kong’s common law legal system and may in turn bring about uncertainty in, for example, the enforcement of our contractual
rights. This could, in turn, materially and adversely affect our business and operations. Additionally, intellectual property rights
and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries. Accordingly, we
cannot predict the effect of future developments in the Hong Kong legal system, including the promulgation of new laws, changes to
existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These
uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our
customers.
The
Hong Kong government may face further restrictive measures from PRC government in the future.
The
PRC government may intervene or influence our operations in Hong Kong at any time, or may exert more control over offerings conducted
overseas and/or foreign investment in us. We cannot
assure you that the Hong Kong government will not be facing further restrictive measures from PRC’s government in the future. The
PRC government’s further potential restrictive regulations and measures could increase our existing and future operating costs
in adapting to these regulations and measures, limit our access to capital resources or even restrict our existing and future business
operations, which could further adversely affect our business and prospects.
Interpretation
of PRC laws and the implementation of National Security Law in Hong Kong involve uncertainty.
The
PRC’s legal system is based on written statutes, and prior court decisions can only be used as a reference. Since 1979, the PRC’s
government has promulgated laws and regulations in relation to economic matters such as foreign investment, corporate organization and
governance, commerce, taxation and trade, with a view to developing a comprehensive system of commercial law, including laws relating
to property ownership and development. However, due to the fact that these laws and regulations have not been fully developed, and because
of the limited volume of published cases and the non-binding nature of prior court decisions, interpretation of PRC’s laws and
regulations involves a degree of uncertainty. Some of these laws may be changed with little advance notice, without immediate publication
or may be amended with retroactive effect.
Depending
on the government agency or how an application or case is presented to such agency, we may receive less favorable interpretations of
laws and regulations than our competitors, particularly if a competitor has long been established in the locality of, and has developed
a relationship with such agency. In addition, any litigation may be protracted and result in substantial costs and a diversion of resources
and management attention. All of these uncertainties may cause difficulties in the enforcement of our rights, entitlements under
our permits and other statutory and contractual rights and interests.
Our
ordinary shares may be delisted or prohibited from being traded under the Holding Foreign Companies Accountable Act if the PCAOB were
unable to fully inspect our auditor. The delisting or the cessation of trading of our ordinary shares, or the threat of them being delisted
or prohibited from being traded, may materially and adversely affect the value and/or liquidity of your investment. Additionally, if
the PCAOB were unable to conduct full inspections of our auditor, it would deprive our investors with the benefits of such inspections.
The
Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states that if the
SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection
by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded on a national securities
exchange or in the over-the-counter trading market in the U.S.
Our
auditor, the independent registered public accounting firm that has issued the audit report included elsewhere in this prospectus, as
an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the
United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards.
Under current practice and PRC law, the PCAOB is currently unable to inspect the audit work and practices of PCAOB-registered firms in
mainland China. Our auditor is located in the United States, with affiliates in Singapore and Hong Kong, and the PCAOB has not been legally
restricted from inspecting PCAOB audits relating to operations in Hong Kong. As noted above, except for the Basic Law, national laws
of the PRC do not apply in Hong Kong unless they are listed in Annex III of the Basic Law and applied locally by promulgation or local
legislation. The Basic Law expressly provides that the national laws of the PRC which may be listed in Annex III of the Basic Law shall
be confined to those relating to defense and foreign affairs as well as other matters outside the autonomy of Hong Kong. National laws
of the PRC relating to PCAOB access to auditor files have not been listed in Annex III and so do not apply directly to Hong Kong. The
PRC legal system is evolving rapidly and the PRC laws, regulations, and rules may change quickly with little advance notice. To the extent
any PRC laws and regulations become applicable to a company such as us or our auditor, the PCAOB may be unable to inspect our auditor.
The lack of inspection could cause trading in your securities to be prohibited under the HFCAA and as a result the Nasdaq may
determine to delist your ordinary shares.
On
March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements
of the Act. We would be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under
a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCAA, including
the listing and trading prohibition requirements described above.
In May 2021, the PCAOB issued
a proposed rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act, for public comment. The proposed rule
is related to the PCAOB’s responsibilities under the HFCAA, which, according to the PCAOB, would establish a framework for
the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely
registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
The proposed rule was adopted by the PCAOB on September 22, 2021 and approved by the SEC on November 5, 2021. On December 2, 2021, SEC
adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA.
On
June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if passed by the U.S. House
of Representatives and signed into law, would decrease the number of non-inspection years from three years to two, thus reducing the
time period before your securities may be prohibited from trading or delisted.
In
December 2021, the SEC adopted rules to implement the HFCAA and pursuant to the HFCAA, the PCAOB issued its report notifying the SEC
of its determination that it is unable to inspect or investigate completely accounting firms headquartered in mainland China or Hong
Kong.
If
for whatever reason the PCAOB is unable to conduct full inspections of our auditor, such uncertainty could cause the market price of
our ordinary shares to be materially and adversely affected, and our securities could be delisted or prohibited from being traded. If
our securities were unable to be listed on another securities exchange by then, such a delisting would substantially impair your ability
to sell or purchase our ordinary shares when you wish to do so, and the risk and uncertainty associated with a potential delisting would
have a negative impact on the price of our ordinary shares.
Inspections
of other firms that the PCAOB has conducted outside the PRC have identified deficiencies in those firms’ audit procedures and quality
control procedures, which may be addressed as part of the inspection process to improve future audit quality. If the PCAOB were unable
to conduct full inspections of our auditor, we and investors in our ordinary shares would be deprived of the benefits of such PCAOB inspections.
In addition, the inability of the PCAOB to conduct full inspections of auditors would make it more difficult to evaluate the effectiveness
of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors that
are subject to the PCAOB inspections, which could cause investors and potential investors in our securities to lose confidence in our
audit procedures and reported financial information and the quality of our financial statements.
Our
independent registered public accounting firm, UHY LLP, is not subject to the determinations announced by the PCAOB on December 16, 2021.
UHY LLP is headquartered in New York, NY. UHY LLP is not headquartered in the PRC or Hong Kong. The PCAOB currently has access to inspect
the working papers of UHY LLP. As a result, we do not believe the HFCAA and related regulations will affect our company. If, however,
our independent registered public accounting firm,
or its affiliates, were denied, even temporarily, the ability to practice before the SEC and PCAOB, and it were determined that our financial
statements or audit reports are not in compliance with the requirements of the U.S. Exchange Act, we could be at risk of delisting or
become subject to other penalties that would adversely affect our ability to remain listed on the Nasdaq.
Risks
Related to the Exchange Business
Regulatory
authorities may never permit the Exchange to become operational.
The
Exchange is operating under an exemption to provide payment services pursuant to the Payment Services (Exemption for Specified Period)
Regulations 2019. The exemption will remain in effect until
MAS make a decision on the license application. If the license is not granted, the Exchange will no longer be able to operate. Singapore
and numerous other regulatory authorities may need to permit the Exchange to maintain and expand operations. If any regulatory authority
objected to the Exchange or to certain aspects of it, such regulatory authority could prevent the Exchange from ever becoming operational,
or continuing to operate, in that jurisdiction. The regulatory landscape that Eqonex needs to navigate is complex, extensive and changing,
and Eqonex may never be able to do so successfully.
The
development of the Exchange poses financial, technological and regulatory challenges and Eqonex may not be able to successfully develop,
market and launch the Exchange.
The
Exchange Business intends to ultimately cover two distinct regulatory profiles, Virtual Currency and Digital Securities, with the Virtual
Currency profile, already launched and operating under the Exemption. The development of the Exchange requires significant capital funding,
expertise on the part of Eqonex’s management and time and effort in order to be successful. Eqonex may have to make changes to
the specifications for any number of reasons or it may be unable to develop the Exchange in a way that realizes those specifications
or any form of a functioning network. The Exchange, even if successfully developed and maintained, may not meet investor expectations.
For example, there can be no assurance that the Exchange will provide less expensive or more efficient trading than is possible on currently
available trading platforms for traditional assets (or even other Digital Asset exchanges). Furthermore, the Exchange may experience
malfunctions or otherwise fail to be adequately developed or maintained, which may negatively impact the Exchange and the assets being
traded on the Exchange.
Regulatory
authorities may not permit the Exchange to list certain products.
Eqonex
has, and intends to continue to develop multiple products and to make such products available on the Exchange. Regulatory authorities
may not permit the Exchange to list certain products or may restrict the markets or demographics to which products can be offered (e.g.
to restrict retail customer involvement). Such restrictions may adversely impact future revenues. Additionally, should products be inadvertently
offered in jurisdictions where regulatory approval is required and where no such approval has been sought or received, regulatory action
may be taken against Eqonex.
Eqonex’s
offer of products on its exchange may be subject to substantial risk.
Digital
Assets spot, futures, derivatives and securities trading are or may be deemed regulated financial instruments or fall under other regulatory
frameworks in many jurisdictions. Eqonex may not have applied for appropriate license and may not be able to offer, or continue offering,
such products.
Due
to their novel and specialized nature, Digital Assets futures, derivatives and securities substantially increase the risk of losses for
Eqonex and for Eqonex’s clients and customers which in turn increases the risk of litigation against Eqonex. Eqonex’s risk
mitigation strategies, if any, may not be adequate or sufficient.
Eqonex’s
exchange operations may be subject to credit risk.
Credit
risk is the risk that a borrower or a counterparty will be unable or unwilling to satisfy payment or delivery obligations when due and
the related risk that the transaction may not happen, or the value of a transaction may decline because of concerns about the borrower’s
or the counterparty’s ability to make such payments. In addition to the risk of a borrower declining to perform on an obligation
under the loan, Eqonex is exposed to the risk that third parties, including transaction counterparties, exchanges, custodians, administrators
and other financial intermediaries that may owe Eqonex money or other assets will not perform their obligations. Any of these parties
might default on their obligations to Eqonex because of bankruptcy, lack of liquidity, dispute, operational failure or other reasons,
in which event Eqonex may suffer unexpected losses. In addition to the credit risk on its own exchange, to the extent Eqonex relies on
third parties that specialize in Digital Asset futures and derivatives, it is exposed to the credit risk of those third parties.
The
Exchange may not be widely adopted and may have limited users.
It
is possible that the Exchange will not be used by a large number of market participants or that there will be limited public interest
in the continued creation and development of Digital Asset exchanges. Such a lack of use or interest could negatively impact the volumes
of the Exchange.
Alternative
Digital Asset exchanges may be established that compete with or are more widely used than the Exchange.
It
is possible that Digital Asset exchanges exist or could be established that utilize the same or similar protocols as those underlying
the Exchange or that facilitate services that are materially similar to the services provided by the Exchange. The Exchange may face
competition from any such alternative networks, which could negatively impact the Exchange and have a material adverse effect on Eqonex’s
business, financial condition and results of operations.
There
are already multiple Digital Asset exchanges that the Exchange will compete with. If the Exchange is unable to offer features that differentiate
it from such competitors, or such competitors create pricing pressure that results in lower-than-anticipated revenues, the Exchange may
not be viable, which could have a material adverse effect on Eqonex’s business, financial condition and results of operations.
The
Exchange, and any distributed ledger technology on which they rely, may be the target of cyber-attacks or may contain exploitable flaws
in its underlying code, which may result in security breaches and the loss or theft of Digital Assets that trade on the Exchange. If
such attacks occur or security is compromised, this could expose Eqonex to liability and reputational harm, could seriously curtail the
utilization of Digital Assets, cause a decline in the market price of the affected Digital Assets and result in claims against Eqonex.
The
Exchange, the structural foundation, and the software applications and other interfaces or applications upon which it relies or will
rely (including distributed ledger technology), are unproven, and there can be no assurances that the Exchange and the creation, transfer
or storage of Digital Assets will be uninterrupted or fully secure, which may result in impermissible transfers, a complete loss of investors’
Digital Assets on those systems or an unwillingness of market participants to access, adopt and utilize Digital Assets or the Exchange.
Further, the Exchange and any technology, including distributed ledger technology, on which they rely may also be the target of cyber-attacks
seeking to identify and exploit weaknesses, which may result in the loss or theft of Digital Assets, which, in turn, may materially and
adversely affect the adoption and success of the Exchange and Eqonex. Any of these risks could have a material adverse effect on Eqonex’s
business, financial condition and results of operations.
The
unregulated nature and lack of transparency surrounding the operations of some Digital Asset exchanges may cause the marketplace to lose
confidence in such exchanges.
Digital
Asset exchanges are relatively new and, in some cases, unregulated. Furthermore, while some exchanges provide information regarding their
ownership structure, management teams, corporate practices and regulatory compliance, many other exchanges do not. As a result, the marketplace
may lose confidence in the less transparent or unregulated exchanges, including prominent exchanges that handle a significant volume
of trading in Digital Assets. In recent years, there have been a number of Digital Asset exchanges that have closed because of fraud,
business failure or security breaches. Additionally, larger Digital Asset exchanges have been targets for hackers and malware and may
be targets of regulatory enforcement actions. A lack of stability in these exchange markets and the temporary or permanent closure of
such exchanges may reduce confidence in the Digital Asset marketplace in general and result in greater volatility in the price of Digital
Assets. These potential consequences could materially and adversely affect the adoption and success of the Exchange.
Eqonex’s
utility token, EQO, may not drive interest to the exchange and the price of the coin in secondary trading
may perform poorly.
EQO
may not be successful in driving additional interest and volume to the Exchange and demand for the coin in secondary trading may result
in the price of EQO performing poorly, resulting in losses for some owners of EQO and cause reputational damage for Eqonex. Utility tokens,
such as EQO, are each unique in their structure and benefits that accrue to owners of the token.
Eqonex
believes, based on legal advice, that EQO is not considered a financial security. However, regulators may take a view in the future that
EQO is considered a financial security, which will impact the way the token is able to be issued and traded on the Exchange. See Note
40 to our consolidated financial statements included elsewhere in this Form F-1 for additional information.
Risks
Related to Digivault
Development
of the Custody Business poses financial, technological and regulatory challenges and Eqonex may not be able to successfully develop and
market the custody solutions.
The
continued development of the custody solutions, known as Kelvin and Helios, which have now both launched, requires significant capital
funding, expertise on the part of Eqonex’s management and time and effort in order to be successful. Digivault may have to make
changes to the specifications of the custody solutions for any number of reasons and it may be unable to further develop the service
in a way that realizes those specifications. The custody solutions, even if successfully developed and maintained, may not meet investor
expectations. For example, there can be no assurance that the custody solutions will provide less expensive or more efficient services
than are currently available for traditional assets (or even other Digital Assets). Furthermore, the custody solutions may experience
malfunctions or otherwise fail to be adequately developed or maintained, which may negatively impact the Digital Assets being held.
There
can be no assurance that Digivault by itself or together with Eqonex’s other business lines will be able to produce sufficient
cash flows to fund the ongoing capital requirements and expenditures necessary to run the custody solutions. Digivault may not have or
may not be able to obtain the technical skills, expertise, or regulatory approvals needed to successfully further develop the custody
solutions. While Eqonex has sought to retain and continues to competitively recruit experts, there may, from time to time, be a scarcity
of management, technical, scientific, research and marketing personnel with appropriate training to develop and maintain the custody
solutions. In addition, there are significant legal and regulatory considerations that will need to be addressed in order to develop
and maintain the custody solutions, and addressing such considerations will require significant time and resources. Despite launching
both Kelvin and Helios, there can be no assurance that Digivault will be able to develop the custody solutions in such a way as to fully
achieve its goals and satisfy the complex regulatory requirements that are applicable to them and acquire the necessary licenses to operate.
If Eqonex is not successful in its efforts to develop and maintain the custody solutions in ways that are compliant with all regulatory
and legal requirements, and demonstrate to users the utility and value of such a service, or if there is not sufficient demand for the
custody solutions for them to be commercially viable, Digivault may not be feasible, which could have a material adverse effect on Eqonex’s
business, financial condition and results of operations.
Numerous
regulatory authorities may never permit the custody solutions to become operational.
Numerous
regulatory authorities may need to permit the custody solutions to operate in different jurisdictions. If any regulatory authority objected
to the custody solutions or to certain aspects of them, such regulatory authority could prevent them from ever becoming operational,
or continuing to operate, in that jurisdiction. The regulatory landscape that Eqonex needs to navigate in order to run a viable Custody
Business is complex, extensive and changing and Digivault may never be able to do so successfully. Any such regulatory issues including
fines or injunctions from regulators, could have a material adverse impact on Eqonex’s business, financial condition and results
of operations.
The
custody solutions may not be widely adopted and may have limited users.
It
is possible that the custody solutions will not be used by a large number of holders of Digital Assets or that there will be limited
public interest in the continued creation and development of Digital Asset custody services. Such a lack of use or interest may result
in insufficient demand for the custody solutions to be commercially viable, which could have an adverse effect on Eqonex’s business,
financial condition and results of operation.
The
custody solutions, and any distributed ledger technology on which they rely, may be the target of cyber-attacks or may contain exploitable
flaws in their underlying code, which may result in security breaches and the loss or theft of Digital Assets that are held or deposited.
If such attacks occur or Digivault’s security is compromised, Digivault could be exposed to liability and reputational harm, and
such attacks could seriously curtail the utilization of Digital Assets and cause a decline in the market price of the affected Digital
Assets which could result in claims against Digivault.
The
custody solutions, their structural foundation, and the software applications and other interfaces or applications upon which they rely
(including distributed ledger technology), are unproven, and there can be no assurances that the custody solutions are or will be fully
secure, which may result in a complete loss of investors’ Digital Assets and an unwillingness of market participants to access,
adopt and utilize Digital Assets or the custody solutions. Examples of the above include, but are not limited to:
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cyber-attack causing a client withdrawal instruction, or a withdrawal address being altered;
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a
client receiving an incorrect deposit address;
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hardware
failures delaying or preventing deposits and withdrawals;
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the
tampering or spoofing of client instructions and materials;
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deposit
addresses being incorrectly stored;
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the
hacking or unavailability of client portals rendering clients unable to access their account;
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vulnerabilities within the applicable distributed ledger
code arising or the distributed ledger being manipulated by a malicious actor;
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a
cyber-attack causing the individual to lose otherwise valid credentials;
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the
tampering with of laptop codes to cause withdrawals to incorrect withdrawal addresses; and
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bad
acts by employees, third-party service providers and others.
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While
Digivault has taken, and will continue to take, steps to ensure that the custody solutions are secure and protected against such incidents,
no assurance can be given that the custody solutions are or will be fully secure and protected from attack, and any failure in this regard
could materially and adversely affect Eqonex’s business, financial condition and results of operations.
There
can be no guarantee that Digivault will be able to acquire or maintain necessary insurance coverage or that it will be able to offer
insurance to its clients.
The
failure of Digivault to secure or maintain insurance cover may have an adverse effect on its ability to attract clients and hence reduce
its revenue generating abilities.
Risks
Related to the Asset Management Business
Changes
in the value of Eqonex’s assets under management (“AUM”) may cause revenue and earnings to decline.
The
asset management business (the “Asset Management Business”) revenue is expected to be primarily composed of fees based on
a percentage of the value of AUM and, in some cases, performance fees which are normally expressed as a percentage of returns to the
client. Numerous factors, including price movements in the assets in the markets in which Eqonex manages assets, could cause:
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the
value of assets AUM, or the returns that Eqonex realizes on AUM, to decrease;
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the
withdrawal of funds from any products offered by Eqonex in favor of products offered by competitors; or
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a
decrease in the amount of such capital available to invest.
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The
occurrence of any of these events may cause Eqonex’s AUM, revenue and earnings, if any, to decline and may negatively impact the
success of the Asset Management Business.
The
Asset Management Business is highly regulated and regulators may apply or interpret these regulations with respect to Digital Assets
in novel and unexpected ways.
Asset
management is a highly regulated business subject to numerous legal and regulatory requirements. These regulations are intended to protect
customers whose assets are under management and, as such, may limit Eqonex’s ability to develop, expand or carry out its asset
management business in the intended manner. Furthermore, the funds in which Eqonex invests will be subject to regulatory regimes that
are not clear or are not yet developed. To the extent that there is any ambiguity as to whether an asset under the management of a fund
in which Eqonex invests is deemed a security, the applicability of many regulations to such fund, will not be clear and could indirectly
adversely affect the Asset Management Business. Furthermore, Eqonex must address conflicts of interest, as well as the perception of
conflicts of interest, between itself (including the other business lines of Eqonex) and its clients and funds. In particular, Eqonex
will be required to act in the best interest of its clients and funds, which may include allocating opportunities to its clients and
funds rather than to its own principal business lines. In addition, regulators have substantial discretion in determining what is in
the best interest of a client of a fund and have increased their scrutiny of potential conflicts. Appropriately dealing with conflicts
of interest is complex and if Eqonex fails, or appears to fail, to deal appropriately with any of these conflicts of interest, it may
face reputational damage, litigation, regulatory proceedings, or penalties, fines or sanctions, any of which may have a material and
negative impact on Eqonex’s business, financial condition and results of operations. In addition, to the extent that Eqonex is
required to obtain client or investor consent in connection with any potential conflict, any failure or delay in obtaining such consent
may have a material and negative impact on Eqonex’s ability to take advantage of certain business opportunities.
The
Asset Management Business’ investments in other investment vehicles may be subject to substantial risk.
On
behalf of itself and its managed funds, the Asset Management Business may make direct or indirect investments in pooled investment vehicles,
which may expose the Asset Management Business to all of the risks of those vehicles’ investments. The values of pooled investment
vehicles are subject to change as the values of their respective assets fluctuate. To the extent that the Asset Management Business invests
in managed pooled investment vehicles, the performance of the Asset Management Business’ investments in such vehicles will
be dependent on the investment and research abilities of persons other than the Asset Management Business. The securities offered by
such vehicles typically are not registered under applicable securities laws and are offered in transactions that are exempt from registration.
The
Digital Assets funds in which the Asset Management Business invests are by their nature small and unproven.
Given
that the Asset Management Business may invest in funds with little or no track record, there is a risk that such funds may not generate
the returns anticipated by the Asset Management Business and may even result in the complete loss of the investment allocated to such
funds.
Risks
Related to the Trading Business
Short
sales of Digital Assets may be especially risky.
Eqonex
may make short sales of Digital Assets. In such a short sale, Eqonex would sell Digital Assets that it does not own, typically borrowed
from a third party. Borrowing and lending markets for Digital Assets are currently in an early stage and may take time to become as developed
and stable as those for securities or other established assets, which exposes Eqonex to risks.
Because
Eqonex would remain liable to return any Digital Assets that it borrowed, Eqonex would be required to purchase an equivalent amount of
Digital Assets prior to the date on which delivery to the third party is required. Eqonex will incur a loss as a result of a short sale
if the price of the Digital Assets increases between the date of the short sale and the date on which Eqonex replaces the borrowed Digital
Assets. The amount of any loss will be increased by the amount of the premium or interest that Eqonex may be required to pay in connection
with a short sale. Short selling exposes Eqonex to unlimited risk with respect to the borrowed Digital Assets because of the lack of
an upper limit on the prices to which those Digital Assets can rise. Purchasing Digital Assets to close out a short position can itself
cause the price of the Digital Assets to rise further, thereby exacerbating any losses. Under adverse market conditions, Eqonex may have
difficulty purchasing Digital Assets to meet its short sale delivery obligations, and may have to sell other Digital Assets to raise
the necessary capital at a time when it would be unfavorable to do so. If a request for return of borrowed assets occurs at a time when
other short sellers are receiving similar requests, a “short squeeze” can occur, and Eqonex may be compelled to replace borrowed
Digital Assets previously sold short with purchases on the open market at the most disadvantageous time, possibly at prices significantly
in excess of the proceeds received in originally selling the assets short. In addition, Eqonex may have difficulty purchasing assets
to meet its delivery obligations if the assets sold short by Eqonex have a limited daily trading volume or limited market capitalization.
Short sales by Eqonex and “short” derivative positions are forms of investment leverage, and the amount of Eqonex’s
potential loss is theoretically unlimited.
Eqonex’s
trades in options may be subject to substantial risk.
Eqonex
may trade in options on Digital or non-Digital Assets. Purchasing and writing put and call options are highly specialized activities
that entail greater-than-ordinary investment risks. An investment in an option may be subject to greater fluctuation than an investment
in the underlying asset. An uncovered call writer’s loss is theoretically unlimited. The ability to trade in or exercise options
may be restricted in the event that trading in the underlying asset becomes restricted. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size and strike price, the terms of over-the-counter options (options
not traded on exchanges) are generally established through negotiation with the other party to the option contract. While this type of
arrangement allows greater flexibility to tailor an option, over-the-counter options generally involve greater credit risk than exchange-traded
options, which are guaranteed by the clearing organization of the exchanges where they are traded. As of this writing, the availability
of exchange-traded and over-the-counter options on Digital Assets is limited, so terms may be unfavorable in comparison to those available
for more firmly established types of options.
Eqonex’s
trades in derivatives may be subject to substantial risk.
Eqonex
may trade in derivatives of Digital Assets. Derivatives are financial instruments, the value of which is based on the value of one or
more reference assets or indicators, such as a security, currency, interest rate or index. Eqonex’s use of derivatives may involve
risks different from, and possibly greater than, the risks associated with investing directly in securities and other more traditional
investments. Moreover, although the value of a derivative is based on an underlying asset or indicator, a derivative typically does not
carry the same rights as would be the case if Eqonex invested directly in the underlying asset.
Derivatives
are subject to a number of risks, such as potential changes in value in response to market developments, and the risk that a derivative
transaction may not have the effect that Eqonex anticipated. Derivatives also involve the risk of mispricing or improper valuation and
the risk that changes in the value of a derivative may not achieve the desired correlation with the underlying asset or indicator. Derivative
transactions may be highly volatile, and Eqonex could lose more than the amount it invests. Moreover, derivative transactions permit
Eqonex to create investment leverage, which may exacerbate any losses on these positions. A liquid secondary market may not always exist
for Eqonex’s derivative positions at any time, and Eqonex may not be able to initiate or liquidate a derivative position at an
advantageous time or price, which may result in significant losses.
In
addition, derivative products are specialized instruments that require investment techniques and risk analyses that differ from those
associated with direct investments. The use of a derivative requires an understanding not only of the underlying instrument but also
of the derivative itself. In particular, the complexity of derivatives requires the maintenance of adequate controls to monitor the transactions
entered into and the ability to assess the risk that a derivative adds to Eqonex’s portfolio.
Eqonex’s
trades in currencies may be subject to substantial risk.
Eqonex
may trade currencies in the interbank market, a global network of commercial banking institutions that make markets in foreign currencies.
There is no limitation on daily price moves of contracts traded through banks and dealers. Banks and dealers may require Eqonex to deposit
margin with respect to such trading. Banks and dealers are not required to continue to make markets in currencies.
There
have been periods during which certain banks have refused to quote prices for currency contracts or have quoted prices with an unusually
wide bid-ask spread. Arrangements to trade currency contracts may be made with only one or a few banks, and liquidity problems might
therefore be greater than if such arrangements were made with numerous banks. The imposition of credit controls by government authorities
might limit such trading to less than that which Eqonex would otherwise undertake. In respect of such trading, Eqonex is subject to the
risk of bank failure or the inability of, or refusal by, a bank to perform with respect to such contracts. Most, if not all, of these
contracts are directly affected by changes in interest rates. The effects of governmental intervention may also be particularly significant
at certain times in the interbank market.
Eqonex’s
trading transactions may be subject to credit risk.
Credit
risk is the risk that an issuer of a security or a counterparty will be unable or unwilling to satisfy payment or delivery obligations
when due and the related risk that the value of a trade may decline because of concerns about the issuer’s or the counterparty’s
ability to make such payments. In addition to the risk of an issuer of a security in which Eqonex trades failing or declining to perform
on an obligation under the security, Eqonex is exposed to the risk that third parties, including trading counterparties, exchanges, custodians,
administrators and other financial intermediaries that may owe Eqonex money, securities or other assets will not perform their obligations.
Any of these parties might default on their obligations to Eqonex because of bankruptcy, lack of liquidity, dispute, operational failure
or other reasons, in which event Eqonex may lose all or substantially all of the value of any such trading transaction. To the extent
Eqonex trades on exchanges that specialize in Digital Asset futures and derivatives, it is exposed to the credit risk of that exchange.
Eqonex
is not obligated to hedge its exposures, and, if it does, hedging transactions may be ineffective or reduce Eqonex’s overall performance.
Eqonex
is not obligated to, and often times may not, hedge its exposures. However, from time to time, it may use a variety of financial instruments
and derivatives, such as options, swaps and forward contracts, for risk management purposes, including to: protect against possible changes
in the market value of Eqonex’s investment or trading assets resulting from fluctuations in the securities markets and changes
in interest rates; protect Eqonex’s unrealized gains in the value of its investments or trading assets; facilitate the sale of
any such assets; enhance or preserve returns, spreads or gains on any trade or investment; hedge the interest-rate or currency-exchange
risk on any of Eqonex’s liabilities or assets; protect against any increase in the price of any assets that Eqonex anticipates
purchasing at a later date; or to any other end that Eqonex deems appropriate. The success of any hedging activities by Eqonex will depend,
in part, on its ability to correctly assess the degree of correlation between the performance of the instruments used in the hedging
strategy and the performance of the assets being hedged. Since the characteristics of many assets change as markets change or time passes,
the success of Eqonex’s hedging strategy will also be subject to its ability to continually recalculate, readjust and execute hedges
in an efficient and timely manner. In addition, while Eqonex may enter into hedging transactions to seek to reduce risk, such transactions
may actually increase risk or result in a poorer overall performance for Eqonex than if it had not engaged in such hedging transactions.
Eqonex
may make, or otherwise be subject to, trade errors.
Errors
may occur with respect to trades executed by Access Trading or by or on behalf of Eqonex. Trade errors can result from a variety
of situations, including, for example, when the wrong asset is purchased or sold or when the wrong quantity is purchased or sold. Trade
errors frequently result in losses, which could be material. To the extent that an error is caused by a third party, Eqonex may seek
to recover any losses associated with the error, although there may be contractual or other limitations on any third party’s liability
with respect to such error.
Eqonex’s
trading orders may not be executed in a timely matter.
Eqonex’s
trading and risk management strategies may depend on the ability to establish and maintain an overall market position in a combination
of financial instruments. Eqonex’s trading orders may not be executed in a timely and efficient manner because of various circumstances,
including, for example, trading volume surges or systems failures attributable to Eqonex or its counterparties, brokers, dealers, agents
or other service providers. In such an event, Eqonex might only be able to acquire or dispose of some, but not all, of the components
of its positions, or if the overall positions were to need adjustments, Eqonex might not be able to make such adjustments. As a result,
Eqonex would not be able to achieve its desired market position, which may result in a loss. In addition, Eqonex can be expected to rely
heavily on electronic execution systems (and may rely on new systems and technology in the future), which may be subject to certain systemic
limitations or mistakes, causing the interruption of trading orders made by Eqonex.
Eqonex
is exposed to losses due to lack of perfect information.
As
a facilitation trader in Digital Assets, Eqonex may trade in a variety of assets with a number of different counterparties. Eqonex may
at times trade with others who have information that is more accurate or complete than Eqonex’s, and as a result Eqonex may accumulate
unfavorable positions at unfavorable prices preceding large price movements in a given instrument. If the frequency or magnitude of these
events increases, Eqonex’s losses would likely increase correspondingly, which could have a material and adverse effect on Eqonex.
Access
Trading is exposed to failure of technology partners.
Access
Trading relies on another technology provider, namely Itiviti, to provide certain services as part of the product. Should
these services no longer be available, for whatever reason, Access Trading may no longer be able to service those customers under contract.
Risks
Related to the Capital Markets Business
Eqonex
may be unable to establish issuer and investor networks necessary to successfully execute offerings.
The
Capital Markets Business has and is being developed to assist issuers seeking to access global capital markets through issuing digital
securities. To this end, the Capital Markets Business will advise, issue and distribute offerings of digital securities from its clients
to investors.
To
be successful, Eqonex will have to source offerings from clients and there can be no assurance that it will be able to do so. Thus far,
there have been limited issuers willing to explore the possibility of making use of distributed ledger technology for their securities
offerings. Furthermore, it will be important that the offerings Eqonex assists on offer attractive terms and trustworthy clients, both
to be able to execute the transactions and receive payments and to demonstrate the ability to use digital securities on high quality
offerings that will be attractive to larger market participants.
Furthermore,
Eqonex will have to source investors to participate in offerings. There is still significant education required for investors on the
potential of digital securities. There can be no assurance that, even if Eqonex sources high quality offerings from issuers, it can source
investors, particularly institutional investors, many of which have investment mandates that do not include digital securities, to purchase
the digital securities offered.
If
Eqonex is not able to source either attractive offerings and/or investors to participate in them, it could have a material adverse effect
on its business, results of operation and financial condition.
The
Capital Markets Business is highly dependent on the closing of offerings to produce revenue.
Placement
agents, brokers, underwriters and other participants and advisors to issuers in the capital markets industry generally receive payment
as a percentage of the total capital raised in an offering. Such fees are where the Capital Markets Business expects to make the majority
of its revenue. As a result, successfully hitting revenue targets is highly dependent on a very small number of transactions closing,
particularly in the near term as the Capital Markets Business is in its early stages. Failure to close offerings and receive fees could
have a material adverse effect on Eqonex’s business, results of operation and financial condition.
The
development of digital securities poses technological and regulatory challenges and Eqonex may not be able to successfully develop, market
and launch such tokens.
The
development of digital securities requires significant technical expertise on the part of Eqonex or its sub-contractors in order to be
operational and secure. Eqonex may not have or may not be able to obtain the technical skills, expertise, or regulatory approvals needed
to successfully create or market digital securities. Even if successfully developed and created, digital securities may not meet investor
expectations. Furthermore, digital securities may experience technical failures or fail to fulfil their primary goal.
Digital
securities may not be widely adopted and may have limited users.
It
is possible that digital securities will not be used by a large number of issuers, broker-dealers or holders or that there will be limited
public interest in the continued creation and development of digital securities. Such a lack of use or interest could negatively impact
the Capital Markets Business.
Specific
legal and regulatory risks exist in the provision of advice and assistance in regard to the issuance and distribution of digital securities
that may give rise to claims against Eqonex.
Providing
advice and assistance in regard to the issuance and distribution of digital securities raises legal and regulatory risk in each of the
jurisdictions that Eqonex seeks to do business. The legal and regulatory landscape relating to offerings of digital securities is uncertain
and subject to both change and inconsistencies. Such a challenging landscape could result in Eqonex providing advice and service in jurisdictions
where it has no regulatory coverage to do so. Furthermore, digital securities may be distributed in jurisdictions or to investors that
are not permitted to receive such digital securities pursuant to local laws.
Eqonex
expects the key markets for its Capital Markets Business will include the following (with the related license that will be required to
operate):
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Hong
Kong (Type 1 Dealing in Securities License);
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Singapore
(Capital Markets Services License); and
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Dubai
(DFSA Category 4 Investment Advisor).
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If
licenses are not obtained for the Capital Markets Business to provide its services in these jurisdictions, Eqonex will seek to partner
with local firms.
Eqonex
does not intend to effect any transactions in, nor induce or attempt to induce the purchase or sale of any security with any U.S. persons
without ensuring that it is acting in compliance with U.S. laws relating to the offer and sale of securities. To the extent that in the
future Eqonex seeks to effect any transactions in, or induce or attempt to induce the purchase or sale of any security with any U.S.
person, Eqonex will either seek to register as a U.S. broker-dealer as required by Section 15(b) of the Exchange Act, or partner with
a U.S. broker-dealer.
Risks
Related to the Lending Business
The
Lending Business may never become successful.
The
Lending Business launched in July 2021. In June 2021 Eqonex invested $0.9 million in the purchase of a perpetual software license
to provide technology to operate the Lending Business which may never result in a positive return. Eqonex can make no assurance that the Lending Business will be successful or that Eqonex
will have sufficient capital and other resources to support the business.
Regulatory
authorities may not permit, or may limit the ability of, Eqonex to facilitate borrowing or lending
Eqonex
may need the approval of various regulatory authorities to permit Eqonex to engage in borrowing and / or lending activities. If any regulatory
authority refuses approval to Eqonex to engage in such activities then, such authority could prevent the Eqonex Lending from ever becoming
active or could limit the business to operating within a narrow scope and thereby not reach its full potential. The regulatory landscape
that Eqonex needs to navigate in order to facilitate the Eqonex Lending is extensive and changing, and Eqonex may not be able to successfully
activate this business without required approvals.
Furthermore,
laws and regulations may change over time. Therefore, even if Eqonex were to acquire necessary approvals or licenses, an ongoing threat
to Eqonex’s business would remain that such permission to operate could be subsequently revoked or materially altered over time,
which could have a material adverse effect on the Eqonex Lending.
Competition
will likely increase in borrowing and lending for Digital Assets.
While
the Digital Asset industry is at an early stage, there are already a number of providers of borrowing and lending for Digital Assets.
These providers create competition which is likely to create downward pressure on margins and / or worsen the risk profile of trades.
Further competition could also arise as traditional investment banks, who may be active in borrowing and lending for stocks and other
securities presently, may seek to expand their business into Digital Assets. Large financial institutions such as investment banks, have
considerable resources, technology and distribution channels to access clients which could threaten Eqonex’s success in this area.
Eqonex
may be unable to establish significant demand or supply for borrowing and lending in order to make the business viable.
A
material component of the viability of the Eqonex Lending will be the willingness of clients to engage in borrowing and lending activity
with Eqonex. In addition to the competitive threats mentioned, this could be impacted by a general inability to attract a sufficient
number of customers seeking to engage in this activity. Furthermore, this activity may require not just sufficient borrowers or lenders,
but a sufficient balance of borrowers and lenders to sustain a viable business model.
Failure
to accurately document transactions, terms and covenants may give risk to significant legal risks.
Clients
of the Eqonex Lending may deal with Eqonex acting, potentially, as either principal or agent. In either case Eqonex is likely to have
a material role in designing and executing the legal terms of transactions. Transactions will need to specify terms and conditions and
may be relatively standardized or bespoke, which can lead to even higher litigation risk. Additionally, Eqonex Lending may involve the
offering of leverage. Providing leverage for traded products can lead to losses being magnified. Clients with magnified losses may be
more likely than other clients to resort to litigation.
Digital
Assets are extremely volatile and are subject to market risks
Digital
Assets are extremely volatile and where the Eqonex Lending involves the provision of leverage for the purposes of trading, clients’
market risk may be magnified; this can in turn result in credit risk for Eqonex where a client’s market risk losses exceed the
collateral provided by the client. Also, where Eqonex performs a role as agent, seeking to effectively match borrowers and lenders on
the same terms, it may act as principal holding positions for short periods in the course of matching lenders and borrowers. In any of
these cases, Eqonex could be exposed to market risks and this would be highlighted in cases of extreme market turbulence and large sudden
moves in digital asset prices.
The
Lending Business is subject to substantial operational, counterparty and collateral risks
The
Lending Business’ transactions flows involve multiple process steps, systems and counterparties and are subject to operational
risks throughout their lifecycle. These may include human error, failures in process or systems and other unforeseen external events.
While operational controls are built into all elements of the business it may not be possible to completely eliminate the possibility
of such events leading to significant operational losses.
Even
where the Lending Business is collateralized to manage credit risk, the business involves collateral flows and margins. Borrowers of
Digital Assets are often required to provide collateral and lenders of Digital Assets often need their loaned assets to be effectively
safeguarded and managed. Collateral flows are not limited to initial collateral, but collateral requirements are likely to change over
time. Initial collateral may prove to be insufficient and could lead to losses for Eqonex. Variations in collateral may need to occur
during the life of a transaction. To ensure this operates effectively to mitigate risk, appropriate technology and systems will need
to be utilized. Such technology could fail and / or borrowers may seek to obstruct Eqonex in accessing the required collateral. Any shortfall
in collateral, whether the fault of the client or the fault of Eqonex, could lead to material losses and detrimental client outcomes.
If collateral posted is of a different nature to the asset underlying the transaction, then this could further give rise to potential
mismatches and shortfalls in collateral value.
Operational
Risks
Borrowing
and lending transactions flows involve multiple process steps, systems and counterparties and are subject to operational risks throughout
their lifecycle. These may include human error, failures in process or systems and other unforeseen external events. While operational
controls are built into all elements of the business it may not be possible to completely eliminate the possibility of such events leading
to significant operational losses.
Risks
Related to the Investment Products Business
The
Investment Products Business is not currently operational and may never become operational.
The
Investment Products Business is not currently operational and may never become operational. Eqonex has invested in the region of $0.8
million to date into the Investment Products Business which may never result in a positive return. The Investment Products business is
expected to launch in the first quarter of 2022. Eqonex can make no assurance that the Investment Products Business will be successful
or that Eqonex will have sufficient capital and other resources to support the business.
Regulatory
authorities may never permit, or severely limit the ability of, Eqonex to issue investment products.
Numerous
regulatory authorities may need to permit Eqonex to issue investment products. If any regulatory authority, or other authority whose
permission is required, such as a stock exchange listing authority, objected to the investment products or to certain aspects of them,
such regulatory authority could prevent the investment products from ever becoming issued, or if permitted to rescind such permission,
in that jurisdiction. The regulatory landscape that Eqonex needs to navigate in order to provide investment products is complex, extensive
and changing, and Eqonex may never be able to do so successfully.
Furthermore,
laws and regulations may change over time. Therefore, even if Eqonex were to acquire necessary approvals or licenses, an ongoing threat
to Eqonex’s business would remain that such permission to operate could be subsequently revoked or materially altered over time,
which could have a material adverse effect on the Investment Products Business and its customers.
Competition
will likely increase in investment products referencing Digital Assets.
While
the Digital Asset industry is at an early stage, there are examples in several countries of securitized products or collective investment
schemes being created in order to provide exposure to Digital Assets. These, as well as those companies who provide access to Digital
Asset exchanges, including several significant exchanges, present competition to the Investment Products Business. Such competition is
likely to grow as new entrants emerge, including large financial institutions such as investment banks, which have greater resources,
technology and distribution channels than Eqonex. Such increased competition could result in, among other things, the Investment Products
Business losing market share, the emergence of superior products and to compression of margins, any of which could have a material and
adverse effect on the Investment Products Business’ business, financial condition and results of operations.
Eqonex
may be unable to establish distributor networks necessary to successfully grow the business.
A
material component of the sales strategy of the Investment Products Business involves reaching and maintaining agreements with distributors.
There can be no guarantee that such distribution agreements will be executed and there is a risk that distributors reject Eqonex’s
proposals and/or do not wish to engage in the distribution of products linked to Digital Assets.
The
failure to accurately describe investment products may lead to financial and regulatory exposure.
The
business plan of the Investment Products Business will seek clients of varying expertise, including retail clients, to whom the greatest
duty of care may be owed and to whom the greatest regulatory protection may be given. If an investment product is not described accurately
or completely, either in print or orally, investors may not be able to make an informed decision as to the risk profile of the investment
product, which may result in litigation, regulatory fines, investigations and restitution. Even if such inaccurate disclosure is alleged
but not proven, the Investment Products Business and Eqonex may face significant reputational damage as a result. Any of the above may
have a material adverse effect on the business, financial condition and operations results of Eqonex.
The
Investment Products Business is subject to technology failure.
The
Investment Products Business will utilize and rely on technology, and such technology is potentially subject to failure and errors. Applications
are expected to be used to price products and if pricing models were inaccurate, products could be issued at prices considerably different
to fair value, resulting in a loss to Eqonex and/or potential harm to investors which could cause financial restitution to clients and
potential regulatory sanctions and fines. There is also a risk for subsequent valuations of products being potentially inaccurate and/or
a mis-estimation of the way in which such products should be risk managed and hedged. Furthermore, the Investment Products Business intends
to list products on various exchanges and some exchanges may require external market making to ensure there is liquidity available to
investors. Eqonex could be in breach of various regulations and face fines as well as potentially having to compensate investors who
may have suffered as a result. Such market making activities would also include the issuance of new securities which requires automation
and cohesive technology required to create the product and to automatically execute the underlying exposure in the correct way, which,
if erroneous, could cause Eqonex to be either under or over hedged in such a product and to potentially face resulting losses.
Risks
Related to Taxation
The
tax treatment of Digital Assets is unclear.
The
treatment of Digital Assets under the tax laws of the jurisdictions in which Eqonex does business is unclear. The operations and dealings
of Eqonex, in or in connection with Digital Assets, could be subject to adverse tax consequences in one or more jurisdictions, including
as a result of development of the legal regimes surrounding Digital Assets, and Eqonex’s operating results could be adversely affected
thereby.
Eqonex
may be classified as a passive foreign investment company,
which could result in adverse U.S. federal income tax consequences to U.S. Holders of Eqonex’s ordinary shares.
Eqonex
would be classified as a passive foreign investment company (“PFIC”) for any taxable year if, after the application of certain
look-through rules, either: (i) 75% or more of gross income for such year is “passive income” (as defined in the relevant
provisions of the Internal Revenue Code of 1986, as amended), or (ii) 50% or more of the value of assets (determined on the basis of
a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. Whether
Eqonex is a PFIC is a factual determination that must be made annually based on the total income for the year and the value of the assets
throughout the year. The amount of “passive income” relative to the amount of other income that Eqonex will earn for the
2021 taxable year and future years is difficult to estimate. Moreover, the value of assets for purposes of the PFIC determination may
be determined by reference to the public price of ordinary shares, which could fluctuate significantly. Therefore, there can be no assurance
that Eqonex will not be classified as a PFIC for the 2021 taxable year or in the future. Certain adverse U.S. federal income tax consequences
could apply to a U.S. Holder (as defined in “Taxation—U.S. Federal Income Tax Considerations”) if Eqonex is treated
as a PFIC for any taxable year during which such U.S. Holder holds Eqonex ordinary shares.
Risks
Related to Being a Public Company
Eqonex
has limited experience operating as a public company and fulfilling its obligations as a U.S. reporting company may be expensive and
time consuming.
The
Company’s executive officers have no past experience in operating a U.S. public company, which makes their ability to comply with
applicable laws, rules and regulations uncertain. The Company’s failure to comply with all laws, rules and regulations applicable
to U.S. public companies could subject Eqonex or its management to regulatory scrutiny or sanction, which could harm the
Company’s reputation and share price.
As
a public company Eqonex will incur significant legal, accounting, and other expenses that it did not incur as a private company. Eqonex
is subject to reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the rules subsequently implemented by the SEC, the
rules and regulations of the listing standards of The Nasdaq Stock Market LLC, or Nasdaq, and other applicable securities rules and regulations.
Stockholder activism, the current political and social environment and the current high level of government intervention and regulatory
reform may lead to substantial new regulations and disclosure obligations, which will likely result in additional compliance costs and
could impact the manner in which Eqonex operates its business in ways Eqonex cannot currently anticipate. Compliance with these rules
and regulations may strain Eqonex’s financial and management systems, internal controls, and employees. The Exchange Act requires,
among other things, that Eqonex files annual, quarterly, and current reports with respect to its business and operating results. Moreover,
the Sarbanes-Oxley Act requires, among other things, that Eqonex maintains effective disclosure controls and procedures, and internal
control, over financial reporting. In order to maintain and, if required, improve disclosure controls and procedures, and internal control
over, financial reporting to meet this standard, significant resources and management oversight may be required. If Eqonex encounters
material weaknesses or deficiencies in internal control over financial reporting, Eqonex may not detect errors on a timely basis and
its consolidated financial statements may be materially misstated. Effective internal control is necessary for Eqonex to produce reliable
financial reports and is important to prevent fraud.
Eqonex
expects its independent registered public accounting firm will be required to formally attest to the effectiveness of internal control
over financial reporting commencing with its second annual report on Form 10-K. Eqonex expects to incur significant expenses and devote
substantial management effort toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, Eqonex’s
management attention may be diverted from other business concerns, which could harm the business, operating results, and financial condition.
Although Eqonex has already hired additional employees to assist in complying with these requirements, its finance team is small and
it may need to hire more employees in the future, or engage outside consultants, which will increase operating expenses.
Eqonex
also expects that being a public company and complying with applicable rules and regulations will make it more expensive for it to obtain
director and officer liability insurance, and Eqonex may be required to incur substantially higher costs to obtain and maintain the same
or similar coverage. These factors could also make it more difficult for Eqonex to attract and retain qualified members of its board
of directors and qualified executive officers.
As
a foreign private issuer (“FPI”), Eqonex is exempt from a number of rules under U.S. securities laws and is permitted to
file less information with the SEC than U.S. public companies.
Eqonex
is an FPI, as defined in the SEC rules and regulations, and, consequently, it is not subject to all the disclosure requirements applicable
to companies organized within the United States, including certain rules under the Exchange Act that regulate disclosure obligations
and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under
the Exchange Act. In addition, Eqonex’s officers and directors are exempt from the reporting and “short-swing” profit
recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of the Company’s
securities. Moreover, Eqonex is not required to file periodic reports and financial statements with the SEC as frequently or promptly
as U.S. public companies. Accordingly, there may be less publicly available information concerning Eqonex than there is for U.S. public
companies.
Eqonex
is not subject to certain Nasdaq corporate governance rules applicable to U.S. listed companies.
Eqonex
is entitled to rely on a provision in Nasdaq’s corporate governance rules that allows the Company to follow Singapore corporate
law with regards to certain aspects of corporate governance. This allows the Company to follow certain corporate governance practices
that differ in significant respects from the corporate governance requirements applicable to U.S. companies listed on Nasdaq.
In
addition, Eqonex’s Audit Committee is not subject to additional Nasdaq requirements applicable to listed U.S. companies, including
an affirmative determination that all members of the audit committee are “independent,” using more stringent criteria than
those applicable to the Company as an FPI.
Risks
Related to Eqonex’s Securities
Eqonex may not be able to maintain the listing of its ordinary
shares on Nasdaq.
Eqonex’s
ordinary shares are listed on Nasdaq. If it violates Nasdaq listing requirements, its ordinary shares may be delisted. If it faisl to
meet any of Nasdaq’s listing standards, its ordinary shares may be delisted. In addition, the board of directors may determine
that the cost of maintaining the listing on a national securities exchange outweighs the benefits of such listing. A delisting of Eqonex’s
ordinary shares may materially impair shareholders’ ability to buy and sell our ordinary shares and could have an adverse effect
on the market price of, and the efficiency of the trading market for, Eqonex ordinary shares. The delisting of ordinary shares could
significantly impair Eqonex’s ability to raise capital and the value of your investment.
If
securities industry analysts do not publish research reports on Eqonex, or publish unfavorable reports on Eqonex, then the market price
and market trading volume of Eqonex’s ordinary shares could be negatively affected.
Any
trading market for Eqonex ordinary shares may be influenced in part by any research reports that securities industry analysts publish
about Eqonex. Eqonex does not currently have and may never obtain research coverage by securities industry analysts. If no securities
industry analysts commence coverage of Eqonex, the market price and market trading volume of Eqonex ordinary shares could be negatively
affected. In the event Eqonex is covered by analysts, and one or more of such analysts downgrade Eqonex shares, or otherwise reports
on Eqonex unfavorably, or discontinues coverage of Eqonex, the market price and market trading volume of Eqonex ordinary shares could
be negatively affected.
You
may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against Eqonex or
its management named in the prospectus based on foreign laws.
Eqonex
is incorporated under the laws of Singapore. Eqonex conducts its operations outside the United States and substantially all of our
assets are located outside the United States. In addition, a majority of Eqonex’s directors and executive officers and the
experts named in this prospectus reside outside the United States, and a significant amount of their assets are located outside the
United States. As a result, it may be difficult or impossible for you to bring an action against Eqonex or against them in the
United States in the event you believe your rights have been infringed under the U.S. federal securities laws or otherwise. Even if
you are successful in bringing an action of this kind, the laws of Singapore or other relevant jurisdiction may render you unable to
enforce a judgment against Eqonex assets or the assets of its directors and officers.
Future
issuance of Eqonex ordinary shares could dilute the interests of existing shareholders
Eqonex
may issue additional ordinary shares in the future. The issuance of a substantial number of ordinary shares could have the effect of
substantially diluting the interests of Eqonex shareholders. In addition, the sale of a substantial amount of ordinary shares in the
public market, in the initial issuance, in a situation in which Eqonex acquires a company, a business or an asset and the acquired company
or the owner of the business or asset receives ordinary shares as consideration and the acquired company or the owner of the business
or asset subsequently sells its ordinary shares, or by investors who acquired such ordinary shares in a private placement, could have
an adverse effect on the market price of Eqonex’s ordinary shares.
Future
issuances of debt securities, which would rank senior to Eqonex ordinary shares upon our bankruptcy or liquidation, and future issuances
of preferred shares, which could rank senior to Eqonex ordinary shares for the purposes of dividends and liquidating distributions, may
adversely affect the level of return you may be able to achieve from an investment in Eqonex ordinary shares.
In
the future, Eqonex may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders
of Eqonex debt securities, and lenders with respect to other borrowings Eqonex may make, would receive distributions of Eqonex available
assets prior to any distributions being made to holders of our ordinary shares. Moreover, if Eqonex issues preferred shares, the holders
of such preferred shares could be entitled to preferences over holders of ordinary shares in respect of the payment of dividends and
the payment of liquidating distributions. Because Eqonex’s decision to issue debt or preferred shares in any future offering, or
borrow money from lenders, will depend in part on market conditions and other factors beyond Eqonex’s control, Eqonex cannot predict
or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of Eqonex’s ordinary shares must bear
the risk that any future offerings Eqonex conducts or borrowings Eqonex makes may adversely affect the level of return, if any, they
may be able to achieve from an investment in Eqonex ordinary shares.
The
trading price of Eqonex’s ordinary shares may be volatile, which could result in substantial losses to investors.
The
trading price of Eqonex’s ordinary shares is likely to be volatile and could fluctuate widely due to factors beyond Eqonex’s
control. This may happen due to broad market and industry factors, such as performance and fluctuation in the market prices or underperformance
or deteriorating financial results of other listed companies based in Singapore. The securities of some of these companies have experienced
significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices
of their securities. The trading performances of other Singapore companies’ securities after their offerings may affect the attitudes
of investors towards Singapore-based, U.S.-listed companies, which consequently may affect the trading performance of Eqonex ordinary
shares regardless of its actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance
practices or fraudulent accounting, corporate structure, or matters of other Singapore companies may also negatively affect the attitudes
of investors towards Singapore companies in general, including Eqonex, regardless of whether it has conducted any inappropriate activities.
Furthermore, securities markets may from time to time experience significant price and volume fluctuations that are not related to Eqonex’s
operating performance, which may materially and adversely affect the trading price of its ordinary shares.
In
addition to the above factors, the price and trading volume of Eqonex’s ordinary shares may be highly volatile due to multiple
factors, including the following:
|
●
|
regulatory
developments affecting Eqonex or its industry;
|
|
●
|
variations
in Eqonex’s revenue, profit, and cash flow;
|
|
●
|
changes
in the economic performance or market valuations of other financial services firms;
|
|
●
|
actual
or anticipated fluctuations in Eqonex’s quarterly results of operations and changes or revisions of its expected
results;
|
|
●
|
changes
in financial estimates by securities research analysts;
|
|
●
|
detrimental
negative publicity about Eqonex, its services, its officers, directors, shareholders, other beneficial owners, its
business partners, or its industry;
|
|
●
|
announcements
by Eqonex or Eqonex competitors of new service offerings, acquisitions, strategic relationships, joint ventures, capital raises,
or capital commitments;
|
|
●
|
additions
to or departures of senior management;
|
|
●
|
litigation
or regulatory proceedings involving Eqonex, its officers, directors, or shareholders; and
|
|
●
|
sales
or perceived potential sales of additional ordinary shares.
|
Any
of these factors may result in large and sudden changes in the volume and price at which Eqonex ordinary shares will trade. In the past,
shareholders of public companies have often brought securities class action suits against those companies following periods of instability
in the market price of their securities. If Eqonex were involved in a class action suit, it could divert a significant amount of its
management’s attention and other resources from its business and operations and require it to incur significant expenses to defend
the suit, which could harm Eqonex’s results of operations. Any such class action suit, whether or not successful, could harm Eqonex’s
reputation and restrict its ability to raise capital in the future. In addition, if a claim is successfully made against Eqonex, jt may
be required to pay significant damages, which could have a material adverse effect on its financial condition and results of operations.
Short
sellers of Eqonex’s ordinary shares may be manipulative and may drive down the market price of its ordinary shares.
Short
sellers of Eqonex stock may be manipulative and may attempt to drive down the market price of Eqonex’s ordinary shares. Short selling
is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party with
the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in
the value of the securities, as the short seller expects to pay less in the covering purchase than it received in the sale. It is therefore
in the short seller’s interest for the price of the stock to decline, and some short sellers publish, or arrange for the publication
of, opinions or characterizations regarding the relevant issuer, often involving deliberate misrepresentations of the issuer’s
business prospects and similar matters calculated to create negative market momentum.
As
a public entity in a highly digital world, Eqonex has been and in the future may be the subject of concerted efforts by profiteering
short sellers to spread misinformation and misrepresentations in order to gain an illegal market advantage. In addition, the publication
of intentional misinformation may also result in lawsuits, the uncertainty and expense of which could adversely impact Eqonex’s
business, financial condition, and reputation.
While utilizing all available
tools to defend itself and its assets against these short seller efforts, there is limited regulatory control, making such efforts an
ongoing concern for any public company. While Eqonex moves forward in its business development strategies in good faith, there are no
assurances that Eqonex will not face more of these short sellers’ efforts or similar tactics by bad actors in the future, and the
market price of its common stock may decline as a result of their actions or the action of other short sellers.
General
Risks
If
Eqonex is unable to successfully identify, hire and retain skilled individuals, it will not be able to implement its growth strategy
successfully.
Eqonex’s
growth strategy is based, in part, on its ability to attract and retain highly skilled senior financial service professionals and software
engineers. To date, Eqonex has been able to locate and engage such employees; however, because of competition from other firms, Eqonex
may face difficulties in recruiting and retaining professionals of a caliber consistent with its business strategy in the future. If
Eqonex is unable to successfully identify and retain qualified professionals, it could materially and adversely affect Eqonex’s
business, financial condition and results of operations.
Eqonex’s
employee retention plans may not be sufficient to retain key employees, including as it relates to equity compensation plans in place
now and in the future.
Competition,
including from new market entrants in the future, may cause Eqonex’s revenue and earnings to decline.
Eqonex
has entered and is entering into multiple business lines that have traditionally been dominated by large businesses that have access
to substantially greater resources than Eqonex. Many of these businesses and other competitors have significant competitive advantages,
including longer operating histories, the ability to leverage their sales efforts and marketing expenditures across a broader portfolio
of services, greater global presence, more established third-party relationships, greater brand recognition, greater financial strength,
greater numbers of company and investor clients, larger research and development teams, larger marketing budgets and other advantages
over Eqonex.
While
Eqonex believes its focus on providing products and services that take advantage of distributed ledger technology differentiates it from
many such competitors, many of its business lines have relatively low barriers to entry and Eqonex anticipates that such barriers to
entry will become lower in the future. Eqonex currently expects that, as Digital Assets become more mainstream, additional competitors,
potentially in large numbers, may begin to provide equivalent products and services. A number of investment banks have already participated
in the issuance of Digital Assets and are continuing to grow their expertise. In addition, the introduction of new technologies, as well
as regulatory changes, may significantly alter the competitive landscape for Eqonex’s business lines. This could lead to fee compression
or require Eqonex to spend more to modify or adapt its offerings to attract and retain customers and remain competitive with the products
and services offered by new competitors in the industry. Increased competition on the basis of any of these factors, including competition
leading to fee reductions, could materially and negatively impact Eqonex’s business, financial condition and results of operations.
Eqonex’s
business lines rely on vendors and third-party service providers.
Eqonex’s
operations could be interrupted or disrupted if Eqonex’s vendors and third-party service providers, or even the vendors of such
vendors and third-party service providers, experience operational or other systems difficulties, terminate their service, fail to comply
with regulations, raise their prices or dispute key intellectual property rights sold or licensed to, or developed for, Eqonex. Eqonex
may also suffer the consequences of such vendors and third-party providers’ mistakes. Eqonex outsources some of its operational
activities and accordingly depends on relationships with many vendors and third-party service providers. For example, Eqonex relies on
vendors and third parties for certain services, including know-your-customer (“KYC”) and anti-money laundering (“AML”)
background checks, and systems development and maintenance. The failure or capacity restraints of vendors and third-party services, a
cybersecurity breach involving any third-party service providers or the termination or change in terms or price of a vendors and third-party
software license or service agreement on which Eqonex relies could interrupt Eqonex’s operations. Replacing vendors and third-party
service providers or addressing other issues with Eqonex’s vendors and third-party service providers could entail significant delay,
expense and disruption of service. As a result, if these vendors and third-party service providers experience difficulties, are subject
to cybersecurity breaches, terminate their services, dispute the terms intellectual property agreements, or raise their prices, and Eqonex
is unable to replace them with other vendors and service providers, particularly on a timely basis, Eqonex’s operations could be
interrupted. If an interruption were to continue for a significant period, Eqonex’s business, financial condition and results of
operations could be adversely affected. Even if Eqonex can replace vendors and third-party providers, it may be at a higher cost to Eqonex,
which could also adversely affect Eqonex’s business, financial condition and results of operations.
Finally,
notwithstanding Eqonex’s efforts to implement and enforce strong policies and practices regarding third-party service providers,
Eqonex may not successfully detect and prevent fraud, incompetence or theft by its third-party service providers, which could adversely
affect Eqonex’s business, financial condition and results of operations.
Competitors
will likely attempt to imitate Eqonex’s services, products and technology. If Eqonex is unable to protect or preserve its proprietary
rights, its business may be harmed.
As
Eqonex’s business continues to expand, its competitors will likely imitate its products, services, and technology, which could
harm Eqonex’s business. Only a portion of the intellectual property used in the operation of Eqonex’s business lines is patentable,
and therefore it will rely significantly on trade secrets, trade and service marks and copyright. Eqonex also relies on trade secret
protection and confidentiality agreements with its employees, consultants, suppliers, third-party service providers, and others to protect
its intellectual property and proprietary rights. Nevertheless, the steps Eqonex takes to protect its intellectual property and proprietary
rights against infringement or other violation may be inadequate and it may experience difficulty in effectively limiting the unauthorized
use of its patents, trade secrets, trade and service marks, copyright and other intellectual property and proprietary rights worldwide.
Eqonex also cannot guarantee that others will not independently develop technology with the same or similar function to any proprietary
technology it relies on to conduct its business and differentiate itself from competitors.
Eqonex
could incur significant costs and management distraction in pursuing claims to enforce its intellectual property and proprietary rights
through litigation, and defending any alleged counterclaims. If Eqonex is unable to protect or preserve the value of its patents, trade
secrets, trade and service marks, copyright, or other intellectual property and proprietary rights for any reason, its brand and reputation
could be damaged and its business, financial condition and results of operations could be materially adversely affected.
Eqonex
could be the victim of employee misconduct.
In
recent years, there have been a number of highly publicized cases involving fraud, conflicts of interest, or other misconduct by employees,
and there is a risk that an employee of, or contractor to, Eqonex or any of its affiliates could engage in misconduct that adversely
affects Eqonex’s business. It is not always possible to deter such misconduct, and the precautions Eqonex takes to detect and prevent
such misconduct may not be effective in all cases. Misconduct by an employee of, or contractor to, Eqonex or any of its affiliates, or
even unsubstantiated allegations of such misconduct, could result in direct financial harm to Eqonex.
Eqonex’s
loss of access to its private keys or its experience of a data loss relating to its Digital Asset investments could adversely affect
Eqonex.
Certain
Digital Assets are controllable only by the possessor of the private key or keys relating to the “digital wallet” in which
the Digital Assets is held. Private keys must be safeguarded and kept private in order to prevent a third party from accessing the Digital
Assets while held in such wallet. To the extent a private key is lost, destroyed or otherwise compromised by Eqonex or another digital
party and no backup of the private key is accessible, Eqonex will be unable to access the Digital Assets held in the related digital
wallet. Any loss of private keys relating to digital wallets used to store Eqonex’s Digital Assets could adversely affect its business,
financial condition and results of operations.
In
addition, if Eqonex’s Digital Assets are lost, stolen or destroyed under circumstances rendering a party liable to Eqonex, the
responsible party may not have the financial resources sufficient to satisfy Eqonex’s claims.
Eqonex
may not be able to effectively manage its growth.
As
Eqonex grows its business, its employee headcount and the scope and complexity of its business lines may increase dramatically. Consequently,
if Eqonex’s business grows at a rapid pace, it may experience difficulties maintaining this growth and building the appropriate
processes and controls. Growth may increase the strain on resources, cause operating difficulties, including difficulties in sourcing,
logistics, maintaining internal controls, marketing, designing products and services and meeting customer needs.
In
addition, Eqonex currently operates and is seeking to run many business lines and, while these business lines are anticipated to be complimentary,
there can be no assurance that Eqonex will be able to effectively deliver internal or external resources effectively to each business
line as and when needed, particularly when multiple business lines are experiencing high levels of need at the same time. Finally, many
of Eqonex’s business lines are interlinked. For example, the Capital Markets Business is expected to be closely related to Digivault
and the Exchange Business. Delays or the inability to roll out products in one business line may pose corresponding issues in other business
lines.
If
Eqonex does not adapt to meet these challenges, it could have a material adverse effect on its business, financial condition and results
of operations.
Operational
risk may materially and adversely affect Eqonex’s performance and results.
Operational
risk is the risk of an adverse outcome resulting from inadequate or failed internal processes, people, systems or external events. Eqonex’s
exposure to operational risk arises from routine processing errors, as well as extraordinary incidents, such as major systems failures
or legal and regulatory matters. Because Eqonex’s business lines are reliant on both technology and human expertise and execution,
Eqonex is exposed to material operational risk arising from a number of factors, including, but not limited to, human error, processing
and communication errors, errors of third-party service providers, counterparties or other third parties, failed or inadequate processes,
design flaws and technology or system failures and malfunctions.
Operational
errors or significant operational delays could have a materially negative impact on Eqonex’s ability to conduct its business or
service its clients, which could adversely affect results of operations due to potentially higher expenses and lower revenues, create
liability for Eqonex or its clients or negatively impact its reputation. Recurring operational issues may also raise concerns among regulators
regarding Eqonex’s governance and control environment.
Eqonex
may not be effective in mitigating risk.
Eqonex
has established, and continues to develop, risk management and oversight policies and procedures to provide a sound operational environment
for the types of risk to which it is subject, including operational risk, credit risk, market risk and liquidity risk. However, as with
any risk management framework, there are inherent limitations to Eqonex’s current and future risk management strategies, including
risks that it has not appropriately anticipated or identified and that certain policies may be insufficient when used in connection with
Digital Assets. Accurate and timely enterprise-wide risk information is necessary to enhance management’s decision-making in times
of crisis. If Eqonex’s risk management framework proves ineffective or if Eqonex’s enterprise-wide management information
is incomplete or inaccurate, it could suffer unexpected losses or fail to generate the expected revenue, which could materially and adversely
affect its business, financial condition and results of operations.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2021
You
should read the following discussion of our financial condition and results of operations in conjunction with its consolidated financial
statements and the related notes included elsewhere in this prospectus. The discussion in this prospectus contains forward-looking statements
that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements
made in this prospectus should be read as applying to all related forward-looking statements wherever they appear in this prospectus.
Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute
to these differences include those discussed below and elsewhere in this prospectus, particularly those set forth in the section entitled
“Risk Factors.”
Operating
Results
Results
of Operations
|
|
For the year ended March 31,
|
|
in USD millions
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
1.0
|
|
General and administrative expenses
|
|
|
(64.9
|
)
|
|
|
(42.9
|
)
|
|
|
(18.9
|
)
|
Operating loss
|
|
|
(64.6
|
)
|
|
|
(42.4
|
)
|
|
|
(17.9
|
)
|
Other losses and expenses, net
|
|
|
(64.4
|
)
|
|
|
(1.7
|
)
|
|
|
(2.9
|
)
|
Impairment reversal (losses) on financial assets
|
|
|
0.0
|
|
|
|
(11.2
|
)
|
|
|
(5.6
|
)
|
Impairment of goodwill
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(0.5
|
)
|
Finance costs, net
|
|
|
(2.3
|
)
|
|
|
(1.9
|
)
|
|
|
(1.1
|
)
|
Share of loss of an associate
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(12.3
|
)
|
Loss before tax
|
|
|
(131.3
|
)
|
|
|
(57.2
|
)
|
|
|
(40.3
|
)
|
Income tax credit
|
|
|
0.5
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Loss from continuing operations
|
|
|
(130.8
|
)
|
|
|
(57.2
|
)
|
|
|
(40.3
|
)
|
(Loss) profit from discontinued operations
|
|
|
5.0
|
|
|
|
(0.9
|
)
|
|
|
57.0
|
|
(Loss) profit for the year
|
|
|
(125.8
|
)
|
|
|
(58.1
|
)
|
|
|
16.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) profit attributable to owners
|
|
|
(125.3
|
)
|
|
|
(57.7
|
)
|
|
|
16.8
|
|
Non-controlling interests
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
(0.1
|
)
|
|
|
|
(125.8
|
)
|
|
|
(58.1
|
)
|
|
|
16.7
|
|
Revenue
|
|
For the year ended March 31,
|
|
in USD millions
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Exchange income
|
|
|
0.2
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Trading income
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.0
|
|
Capital Markets service income
|
|
|
0.0
|
|
|
|
0.3
|
|
|
|
0.9
|
|
Custody service income
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Asset Management fee income
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
1.0
|
|
Revenue
from continuing operations for the year ended March 31, 2021 decreased to $0.3 million from $0.5 million for the year ended March 31,
2020 and from $1.0 million for the year ended March 31, 2019.
The
decrease in revenues year on year can primarily be attributed to a change in focus of the Capital Markets Business from ICOs to digital
security focused transactions. In prior years, Eqonex provided services for clients to raise capital via non-regulated offerings. The
business has pivoted to provide the issuance of regulated products which has resulted in a current reduction of revenue but with potential
larger opportunities in the future.
During
the reporting period, Eqonex has also focused on developing its other business lines to drive future revenue growth.
Following
the public launch of the EQONEX Exchange in July 2020, Eqonex initially focused on attracting customers to the platform and growing trading
volumes. In order to achieve this, Eqonex offered fee, and other, incentives to both retail and institutional participants. The result
of these initiatives saw volumes rise to an average daily trading for March 2021 of $15.9 million.
Revenues
from trading were primarily from OTC trades in the year ended March 31, 2021. During the year ended March 31, 2020 trading revenues were
primarily generated from proprietary trading. The proprietary trading business was ceased prior to the public launch of the Exchange.
Digivault,
the Custody Business was integrated with EQONEX towards the end of the fiscal year March 31, 2021. While serving another Group
business does not generate revenues on a consolidated basis, it does save costs from engaging with alternative third party solutions.
The
Asset Management business, for the majority of the year ended March 31, 2021 offered a zero fee structure to the seed investors of
the Fund of Hedge Funds offering. Since January 2021, the business has been raising additional capital which generates both
management and performance fees. The revenues associated with the Asset Management business in prior years related to those
generated from Bletchley Park Asset Management Jersey (BPAMJ). The funds associated with BPAMJ were liquidated during the year ended
March 31, 2021 which resulted in a reduction in revenue.
General
and Administrative Expenses from Continuing Operations
|
|
For the year ended March 31,
|
|
in USD millions
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
|
44.4
|
|
|
|
26.1
|
|
|
|
8.5
|
|
Amortization of intangible assets
|
|
|
2.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Depreciation of right of use assets
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
1.4
|
|
Depreciation of property, plant and equipment
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
0.6
|
|
Operating lease expenses
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.4
|
|
Auditor’s remuneration
|
|
|
0.7
|
|
|
|
0.3
|
|
|
|
0.1
|
|
Legal and professional fees
|
|
|
5.0
|
|
|
|
6.5
|
|
|
|
4.6
|
|
Marketing and promotions
|
|
|
3.2
|
|
|
|
0.7
|
|
|
|
0.6
|
|
Expensed software development
|
|
|
0.7
|
|
|
|
3.3
|
|
|
|
0.0
|
|
Technology
|
|
|
4.6
|
|
|
|
1.1
|
|
|
|
0.3
|
|
Other
|
|
|
1.3
|
|
|
|
1.9
|
|
|
|
2.4
|
|
|
|
|
64.9
|
|
|
|
42.9
|
|
|
|
18.9
|
|
General
and administrative expenses increased by $22.0 million to $64.9 million for the year ended March 31, 2021 and increased from $18.9 million
for the year ended March 31, 2019. This increase was due, in part, to a non-cash IFRS 2 expense in relation to a modification to the
employee share option plan first established by Diginex Hong Kong in 2017. The share options become fully vested in December 2021. Other
key drivers to the increase in cost base relate to expenses incurred to complete the Transaction with 8i Enterprises in September 2020
and costs associated with being a publicly listed company that were not incurred in prior years. In addition, we continued to invest
in the build out and launch of the business lines which incurred increased costs in areas such as legal, as we sought regulatory clarity
in various jurisdictions, together with advertising and promotional costs as we invested in initiatives to attract customers to the
Exchange. Technology costs related to the build and hosting of the IT infrastructure also increased during the year.
Employee
Benefits
Employee
related expenses increased by $18.3 million to $44.4 million for the year ended March 31, 2021 and from $8.5 million for the year
ended March 31, 2019. Since hiring its first employees, Diginex Hong Kong created a share option plan as a means of attracting
employees to the Group on lower than market rate salaries to preserve cash. During the year ended March 31, 2020 there were two
modifications to the plan, first to reduce the strike price from $0.10 to zero and the second, to increase the size of the pool from
15% of issued ordinary share capital of Diginex Hong Kong to 20%. The modifications led to $9.7 million of costs recognized in the
consolidated statement of profit or loss in the year ended March 31, 2020. The options were to vest in three years from commencement
of employment. At September 30, 2020, the date of the Transaction, the Diginex Hong Kong share option plan was replaced by a share
option plan issued by the Company. The replacement plan modified the vesting date for all options previously issued to December 30,
2021, this resulted in an accelerated $1.3m charge. The continued expense recognition of the share options plan based on expected
vesting resulted in a charge to the statement of profit or loss account of $26.9 million during the year ended March 31, 2021, an
increase of $17.2 million when compared to the year ended March 31, 2020. See Note 25 to our consolidated financial statements
included elsewhere in this Form F-1 for additional information.
Salaries
and benefits in kind between March 31, 2021 and 2020 increased marginally
by $0.5 million to $14.9 million. Over the same period the headcount for the Group rose from 137 to 157.
Salaries
and benefits in kind between March 31, 2020 and 2019 increased by $6.6
million to $14.4 million. Over the same period the headcount for the Group rose from 92 to 137.
Amortization
of Intangible Assets
Following
the launch of the Exchange and Digivault, the Group commenced amortizing the capitalized costs associated with the acquisition and development
of software for the Exchange and those capitalized for Digivault. Such costs are amortized over a five-year period on a straight
line basis.
Depreciation
of Right of Use Assets
In
the year ended March 31, 2021, leases under IFRS 16 were categorized as right of use assets and related to the office leases in Hong
Kong for the whole year and the offices in Singapore and Vietnam for part of the year, following the commitment of new leases in these
jurisdictions during the year. The depreciation expense for right of use assets remained flat at $2.0 million compared to the year ended
March 31, 2020.
The
year ended March 31, 2020 included offices in both Hong Kong and Jersey. However, during the year ended March 31, 2021 the Jersey office
lease was restructured to shorten the lease term and as a result the lease has been recategorized in the year ended March 31, 2021 from
a right of use asset to an operating lease expense. The Hong Kong lease expired on June 15, 2021 and a new lease has been entered into
at an alternative premise in Hong Kong.
In
the year ended March 31, 2019, offices in Japan, United Kingdom and Germany were also capitalized under IFRS 16 but in the year ended
March 31, 2020, we elected a simplified approach for these short-term leases and recognized the rental expense of the remaining lease
period on a straight-line basis. This approach was also adopted for serviced offices in the USA, Singapore and Vietnam during the years
ended March 31, 2021 and 2020. The impact of the recategorization was offset by the cost associated with the Hong Kong office as the
year ended March 31, 2020 included a full 12 months of cost while the prior year only included a charge for 8 months. The office
in the USA was included as part of the Solutions Business sale in May 2020. See Note 14 to our consolidated financial statements
included elsewhere in this Form F-1 for additional information.
Depreciation
of Property, Plant and Equipment
Depreciation
of property, plant and equipment for the year ended March 31, 2021 remained flat compared to the year ended March 31, 2020 at $0.8 million
and increased from $0.6 million for the year ended March 31, 2019. The cost is driven by depreciation of the capital expenditure on leasehold
improvements related to the Hong Kong office, which are depreciated over 36 months. The lease expired in June 2021, and as a result,
the leasehold improvement costs of that office will be fully depreciated. See Note 13 to our consolidated financial statements included
elsewhere in this Form F-1 for additional information.
Auditor’s
Remuneration
Audit
fees increased to $0.7 million for the year ended March 31, 2021 compared to $0.3 million and $0.1 million for the years ended March
31, 2020 and March 31, 2019 respectively. The increase primarily resulted from a one-time charge of $0.3 million related to 8i Enterprises
and the Transaction, and other audit related fees incurred in relation to SEC regulatory filings.
Legal
and Professional Fees
Eqonex
incurred legal and professional fees of $5.0 million which was a decrease of $1.5 million from the $6.5 million expensed in the year
ended March 31, 2020 and $0.4 million higher than costs incurred in the year ended March 31, 2019 of $4.6 million. The decrease in costs
between March 31, 2020 and 2021 was driven, in part, by a reduction in legal fees in relation to the Transaction with additional
fees being incurred in the year ended March 31, 2020. This cost reduction from March 31, 2020 to March 31, 2021 was partly offset
by the cost of D&O insurance taken upon listing. The increase in costs from March 31, 2019 to March 31, 2020 was predominately
due to legal fees in associated with the Transaction.
Marketing
and Promotions
Eqonex
marketing and promotional related costs of $3.2 million for the year ended March 31, 2021 increased by $2.5 million when compared to
March 31, 2020 and by $2.6 million compared to the year ended March 31, 2019.
Increased
costs related to marketing and promotions incurred during the year ended March 31, 2021 which were driven by the introduction of promotions
for the Exchange to attract clients and volumes as well as costs related to commercial agreements with market makers that
engaged with the Exchange. The purpose of engaging with market makers is to create liquidity on the Exchange with the goal
being that such liquidity will attract more clients to trade on the Exchange, hence increasing trading volumes and revenue.
Expensed
Software Development
Expensed
software development costs totaled $0.7 million for the year ended March 31, 2021, which was a decrease of $2.6 million compared to the
year ended March 31, 2020. There were no expensed software development costs incurred during the year ended March 31, 2019. The costs
incurred during the years ended March 31, 2021 and 2020 were costs associated with building the Exchange which did not qualify as capitalized
costs per IAS 38.
Technology
Technology
costs increased to $4.6 million for the year ended March 31, 2021 compared to $1.1 million and $0.3 million for the years ended March
31, 2020 and 2019, respectively. The increase consists primarily of services engaged in to host servers key to the ongoing operation
of the Group’s business lines.
Other
Other
expenses were $1.3 million for the year end March 31, 2021, which decreased by $0.6 million compared to the year ended March 31, 2020
and by $1.1 million compared to the year ended March 31, 2019. The decrease was, in part, due to lower travel and entertainment
costs as a result of the COVID-19 pandemic.
Other
losses and expenses, net
|
|
For the year ended March 31,
|
|
in USD millions
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Transaction expense
|
|
|
(44.0
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
Earnout share awards
|
|
|
(32.1
|
)
|
|
|
0.0
|
|
|
|
0.0
|
|
Net fair value gain of financial liabilities at fair value through profit and loss
|
|
|
11.4
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Net loss on sale of financial assets at fair value through profit or loss
|
|
|
0.0
|
|
|
|
(0.2
|
)
|
|
|
(11.7
|
)
|
Net fair value loss on financial assets at fair value through profit or loss
|
|
|
(0.1
|
)
|
|
|
(1.5
|
)
|
|
|
(2.6
|
)
|
Net gain on fair value on equity method investment
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
11.0
|
|
Foreign exchange gains (losses),net
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
Others
|
|
|
0.0
|
|
|
|
0.1
|
|
|
|
0.3
|
|
Total other losses and expenses, net
|
|
|
(64.4
|
)
|
|
|
(1.7
|
)
|
|
|
(2.9
|
)
|
Eqonex
recognized total other losses of $64.4 million for the year ended March 31, 2021 which compared to total other losses of $1.7
million and total other losses of $2.9 million for the years ended March 31, 2020 and 2019, respectively. The losses incurred in the
year ended March 31, 2021 were primarily due to the issue of shares and warrants to former 8i Enterprises shareholders on completion
of the Transaction and the fair value of earn-out shares that were introduced as a condition of the Transaction. The earnouts vest
on the achievement of predefined milestones. This loss was partially offset by a fair value gain on the private warrants issued in
January 2021. The change in total other losses in the year ended March 31, 2020 compared to the year ended March 31, 2019 was mainly
driven by the loss on the sale of the remaining Madison stock which was originally received as part consideration for the sale of
Diginex High Performance Computing limited (“DHPC”) which was partially offset by a fair value gain on the 49% holding
of DHPC. In addition, in the ended March 31, 2019 the Group recognized a fair value reduction on the cost of unlisted investments
acquired.
Transaction
Expenses
The
execution of the Transaction resulted in the issuance of shares and warrants in the Company to former share and warrant holders of 8i
Enterprises. The shares and warrants were valued at $65.2 million. Upon completion of the Transaction, Eqonex consolidated the
net assets of 8i Enterprises of $21.2 million resulting in a $44.0 million cost of Transaction. This is a one-off cost and does not involve
cash.
Earnout
Share Awards
Under
the terms of the Transaction, former Diginex Hong Kong shareholders are entitled to an additional 12 million shares if certain share
price milestones are achieved over a four-year period post the Transaction date. The earnout was valued using a Monte Carlo simulation
model which resulted in a fair value cost of $32.1 million. The first earnout milestone was achieved in January 2021 and 3 million shares
were issued together with 30,000 shares to a service provider who is entitled to 1% of the shares issued in the earnout. The achievement
of the first earnout did not have any impact to the statement of profit or loss with the fair value of the earnout being recategorized
from share based payment reserve to share capital on the statement of financial position
Net
Fair Value Gains of Financial Liabilities at Fair Value Through Profit and Loss
In
January 2021, the Company raised capital via a private placement and issued shares and private warrants. The private warrants
were valued upon issue using the Black-Scholes model at $16.6 million. At March 31, 2021, the private warrants were fair valued for reporting
purposes using the same model. The resulting valuation was $5.2 million, which concluded in a $11.4 million gain being recognized in
the consolidated statement of profit or loss. See Note 26 to our consolidated financial statements included elsewhere in this Form F-1
for more information.
Net
Loss on Sale of Financial Assets at Fair Value through Profit or Loss & Gain on Fair Value on equity method investment
In
July 2018, following the divestment of 51% of DHPC, the remaining 49% investment was revalued under the guidance of IFRS 10 to $43.8
million, of which $42.6 million was booked to the profit and loss as a gain. During the remainder of the year ended March 31, 2019, Eqonex’s
share of losses from the retained 49% investment amounted to $12.3 million and at March 31, 2019 DHPC had net liabilities. Together,
these factors resulted in Eqonex fair valuing the investment to zero and recording a fair value loss of $31.5 million. The overall net
gain on DHPC (equity method investment) amounted to $11.0 million. See Notes 9 and 37 to our consolidated financial statements included
elsewhere in this Form F-1 for additional information.
In
October 2018, Eqonex sold a significant portion of the Madison Holdings Group Limited (“Madison”) stock received as
part consideration for the divestment in DHPC, which resulted in a realized loss on sale of a financial assets of $11.7 million. The
balance of Madison shares was sold in the year ended March 31, 2020 realizing a loss of $0.2 million. See Note 6 to our consolidated
financial statements included elsewhere in this Form F-1 for additional information.
Net
fair value losses on financial assets at fair value through profit or loss
During
2019 and 2020, Eqonex invested in a collection of startups at various stages of maturity. As at March 31, 2021, 2020 and 2019, these
investments incurred fair value losses of $0.1 million, $1.5 million and $2.6 million, respectively.
Impairment
Reversal (Losses) on Financial Assets
A
minimal reversal on an impairment loss on financial assets booked in a prior period was recognized during the year ended March 31, 2021
in relation to the previously impaired loan to DHPC. $11.2 million of impairment losses on financial assets were recognized in the year
ended March 31, 2020 compared to $5.6 million in the year ended March 31, 2019.
During
the year ended March 31, 2019, Eqonex advanced a loan of $15.0 million for the purchase of high-performance computing equipment for DHPC
and $2.0 million for working capital purposes, of which $2.0 million was repaid. The net loan receivable was repayable from the cash
profits of DHPC. In accordance with IFRS 9, a detailed expected credit loss model based on various scenarios of the future success of
DHPC was carried out and the results analyzed. The outcome of the modelling lead to an impairment of $4.8 million on the outstanding
loan receivable at the year ended March 31, 2019 and a further $10.6 million impairment in the year ended March 31, 2020 following an
additional loan advance of $2 million, working capital advance of $0.2 million and a repayment of $0.8 million during the year ended
March 31, 2020. On March 31, 2020, there was an unimpaired balance outstanding of $1 million. The outstanding balance was fully collected
by April 2021. See Note 19 to our consolidated financial statements included elsewhere in this Form F-1 for additional information.
Other
impairments to loans, advances and trade receivables during the years ending March 31, 2020 and March 31, 2019 resulted in additional
impairment charges of $0.6 million and $0.8 million, respectively.
Impairment
of Goodwill
No
goodwill has been recognized in either of the years ended March 31, 2021 or 2020. Eqonex did however recognize goodwill of $0.5 million
on the acquisition of Altairian Capital Holdings Limited in December 2018. At March 31, 2019, Eqonex reviewed the cash generating ability
of the business and based on economic factors, management determined that there was no measurable future cash generation from this business
and the goodwill was impaired in full. At March 31, 2021 and 2020, management reassessed the impairment and noted no changes.
Finance
Costs
Eqonex
incurred finance costs for the year ended March 31, 2021 of $2.3 million compared to $1.9 million and $1.1 million for the years ended
March 31, 2020 and 2019, respectively.
During
the year ended March 31, 2021, $1.2 million of the finance charges related to the cost of the private placement capital raise that was
associated with the issuance of private warrants. The total cost of the raise was $2.9 million with $1.7 million offset against share
capital issued and the balance recognized in the statement of profit or loss. The private warrants have been recognized as a liability
rather than an equity instrument.
In
May 2020, Eqonex issued a convertible bond with a 10% annual coupon, raising $25 million. The bond has a mandatory conversion into shares
of Diginex Hong Kong prior to a listing. The bond and accrued interest of $0.5 million were converted on September 21, 2020.
Eqonex
had a $20 million credit facility in place with Pelham Limited which was terminated in September 2020. The facility accrued interest
at 12.5% per annum which resulted in a charge of $0.3 million for the year ended March 31, 2021 and $1.3 million and $0.3 million for
the years ended March 31, 2020 and 2019, respectively.
In
the year ended March 31, 2019, Eqonex took out two short-term loans from shareholders to manage near term liquidity needs. The finance
costs related to these loans plus drawn down fees amounted to $0.2 million. Eqonex also entered into a short-term bank loan in 2019 that
cost $0.2 million in finance charges.
Interest
arising from operating lease liabilities is also booked to the profit and loss statement in line with IFRS 16 reporting. The resulting
finance charge from IFRS 16 amounted to $0.2 million in 2021, $0.5 million in 2020 and $0.4 million in 2019.
Eqonex
also issued a loan note in September 2019, the loan note had a 12-month maturity and a 15% interest charge. A notional amount of $0.7
million was raised and was fully redeemed early on June 1, 2020. Interest of $0.1 million was charged for the year ended March 31, 2020
with a minimal residual amount charged during the year ended March 31, 2021.
Share
of Loss of an Associate
Eqonex
has not recognized a share of loss of an associate in either of the years ended March 31, 2021 or 2020. During the year ended March 31,
2019 Eqonex recognized a share of loss of an associate of $12.3 million. As previously discussed, this was Eqonex’s share of
the reported losses of DHPC following the sale of 51% of the business. During the year ended March 31, 2020, DHPC’s business became
non-operational and as the investment had been fully impaired in the prior year, there have been no further losses booked in the
years ended March 31, 2020 or 2021 under the guidance of IAS 28.
Income
Tax
During
the year ended March 31, 2021, Digivault Limited, a UK subsidiary of the Group, received a tax credit for research and development of
$0.5 million.
The
operating activities of the Group in the years ended March 31, 2021, 2020 and 2019 did not generate a taxable charge due to operating
losses incurred. Although Eqonex reported a profit in the year ended March 31, 2019 following the sale of DHPC, it did not pay taxes
on the sale because there is no capital gains tax under the tax laws of Hong Kong.
Although
Eqonex has or had active operations in United Kingdom, Jersey, Japan, Switzerland, Dubai, USA, Singapore, Vietnam and Germany during
the reporting periods, the majority of its operations have been in Hong Kong. Eqonex’s entities in Hong Kong are subject to Hong
Kong profits tax at 16.5%.
(Loss)
Profit from Discontinued Operations
|
|
For the year ended March 31,
|
|
in USD millions
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
0.0
|
|
|
|
0.2
|
|
|
|
1.5
|
|
General and administrative expenses
|
|
|
(0.1
|
)
|
|
|
(1.1
|
)
|
|
|
(3.4
|
)
|
Operating (loss)
|
|
|
(0.1
|
)
|
|
|
(0.9
|
)
|
|
|
(1.9
|
)
|
Finance costs
|
|
|
0.0
|
|
|
|
(0.0
|
)
|
|
|
(0.2
|
)
|
(Loss) before tax
|
|
|
(0.1
|
)
|
|
|
(0.9
|
)
|
|
|
(2.1
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(Loss) after income tax
|
|
|
(0.1
|
)
|
|
|
(0.9
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale
|
|
|
5.1
|
|
|
|
0.0
|
|
|
|
59.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) from discontinued operations
|
|
|
5.0
|
|
|
|
(0.9
|
)
|
|
|
57.0
|
|
Eqonex
sold the Solutions Business in May 2020 to Rhino Ventures Limited, a company controlled by Miles Pelham. While the transaction was completed
post the March 31, 2020 year end it was considered material and hence the results of the business line have also been reported as discontinued
in both the years ended March 31, 2020 and March 31, 2019. The business was sold for $6.0 million with the consideration value being
offset against the Pelham Limited loan. Costs associated with the sale amounted to $0.9 million.
The
Solutions Business produced revenues of $0.0 million, $0.2 million and $0.4 million during the years ended March 31, 2021. 2020 and 2019,
respectively. The Solutions Business incurred general and administrative expenses of $0.1 million, $1.1 million and $0.7 million during
the years ended March 31, 2021,2020 and 2019, respectively. These costs relate, primarily, to employee salaries and benefits.
In
the year ended March 31, 2019, discontinued operations relate to the Solutions Business as well as the results of DHPC up to the date
of divestment, following which the subsidiary was deconsolidated.
DHPC
produced revenue of $1.1 million in the year ended March 31, 2019 and incurred general and administrative expenses of $2.7 million which
were primarily associated with maintaining the equipment and renting a data center to host the equipment.
Eqonex
divested 51% of DHPC for consideration of $60.0 million. The net assets at the time of sale amounted to $2.5 million, of which 51%, or
$1.3 million, was disposed of. Additionally, at the time of divestment a shareholder loan to DHPC of $0.4 million was waived. This resulted
in a reported gain on sale of $59.1 million. See Notes 9 and 37 to our consolidated financial statements included elsewhere in this Form
F-1 for additional information.
Inflation
Since
incorporation, Eqonex has not been materially impacted by changes in inflation.
Impact
of Foreign Currency Fluctuations on Results
Eqonex’s
main operating currencies have historically been the US Dollar and Hong Kong Dollar. As the Hong Kong Dollar is pegged to the US Dollar,
Eqonex has not been overly exposed to foreign currency fluctuations in prior years. As the business grows, Eqonex is exposed to more
foreign currencies and their fluctuations, such as the British Pound, Euro and Singapore Dollar.
Critical
Accounting Policies, Judgments and Estimates
An
accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are
highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes
in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.
Eqonex
prepares its financial statements in conformity with IFRS, which requires it to make judgments, estimates and assumptions. Eqonex continually
evaluates these estimates and assumptions based on the most recently available information, its own historical experiences and various
other assumptions that Eqonex believes to be reasonable under the circumstances. Since the use of estimates is an integral component
of the financial reporting process, actual results could differ from Eqonex’s expectations as a result of changes in its estimates.
Some of Eqonex’s accounting policies require a higher degree of judgment than others in their application and require it to make
significant accounting estimates.
The
following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with Eqonex’s financial
statements and the notes related thereto, and other disclosures included in this document. When reviewing Eqonex’s financial statements,
you should consider (i) Eqonex’s selection of critical accounting policies, (ii) the judgments and other uncertainties affecting
the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.
Deemed
reverse acquisition
On
September 30, 2020, the Company completed the Transaction. Management has made the following judgments which have the most significant
effect on the amounts recognized in the consolidated financial statements:
The
Company entered into the Transaction with 8i Enterprises and Diginex Hong Kong that resulted in the issuance of shares and warrants to
the shareholders of 8i Enterprises, Diginex Hong Kong and service providers to the Transaction. Following the issuance, the Company became
the ultimate parent holding company of 8i Enterprises and Diginex Hong Kong (together with its subsidiaries) and listed on Nasdaq.
Under
IFRS 3, neither 8i Enterprises nor the Company met the definition of a business and therefore the Transaction is not defined as a business
combination. Although Diginex Hong Kong is considered a business under IFRS 3, a business combination requires the combination of businesses
and hence requires more than one business in the transaction to fall within the scope of the standard. In accordance with IAS 8 paragraph
10, in the absence of an IFRS that specifically applies to such a transaction, management should apply judgment in developing and applying
an accounting policy that results in consolidated financial statements that are presented in a way that reflects the economic substance
of the transaction.
Management
has concluded that the Transaction would be more accurately represented as a deemed reverse acquisition of 8i Enterprises and the Company
by Diginex Hong Kong, together with a recapitalization of the Group’s share capital. The outcome of such judgment being that the
results of Diginex Hong Kong, subject to an adjustment to equity to reflect the issuance of shares by the Company on completion of the
Transaction, have been consolidated on the basis that Diginex Hong Kong is the accounting acquirer and hence the historical results of
Diginex Hong Kong continue to be consolidated on an on-going basis. The excess between the fair value of the shares and equity instruments
issued and the net assets acquired is treated as an expense under IFRS 2. Details of the accounting policy applied is summarized in Note
2 of the consolidated financial statements as at March 31, 2021.
Share-based
payments – replacement of employee share options plan
The
Group replaced the employee share options plan issued by Diginex Hong Kong with the establishment of a plan with modified terms issued
by the Company upon completion of the Transaction. Under IFRS 2, the Group considered this as a replacement and modification of the Diginex
Hong Kong plan, see Note 25 of our consolidated financial statements included elsewhere in this Form F-1 for additional information.
Share-based
payments – earn-out awards
The
Transaction agreement between the Company, 8i Enterprises and Diginex Hong Kong has an earn-out provision where former Diginex Hong Kong
shareholders will receive up to 12,000,000 additional shares in the Company if share price related milestones are achieved over a period
of time post Transaction. Upon reaching the earn-out milestones, a service provider to the Transaction is also entitled to receive the
equivalent of 1% of the earn-out shares issued. Earn-out awards are accounted for under IFRS 2 as equity-settled awards with non-vesting
conditions. See Note 25 to our consolidated financial statements included elsewhere in this Form F-1 for additional information.
The
fair value of the earn-out awards is based on a Monte Carlo simulation analysis utilizing a Geometric Brownian Motion taking assumptions
on share price volatility, risk-free rate and other market data to predict distribution of relative share performance.
The
share price volatility assumption used in the model (as detailed below) is based on publicly listed traditional financial exchanges (i.e.
non-Digital Asset) and other related companies, and a 6-months BTC option volatility. The 6-months BTC option volatility being included
to reflect the exposure to Digital Assets which would not be a feature of the traditional exchanges and other related companies selected
as a comparable within the model.
The
earn-out award share price related targets are as below:
Milestone
date
|
|
Share
price
target
$
|
|
Number
of shares to be
awarded
|
1st
anniversary of the Closing date
|
|
15.00
|
|
3,000,000
|
2nd
anniversary of the Closing date
|
|
20.00
|
|
3,000,000
|
3rd
anniversary of the Closing date
|
|
25.00
|
|
3,000,000
|
4th
anniversary of the Closing date
|
|
30.00
|
|
3,000,000
|
Earn-out
awards are accounted for under IFRS 2. The earn-out awards are settled in a fixed number of shares with conditions based on future market
prices, but do not require the former Diginex Hong Kong shareholders nor the service provider to provide on-going service to the Group
until such milestone dates.
The
awards are considered as equity-settled share-based payments with non-vesting conditions since there is no explicit nor implicit service
requirements despite that the share price targets are set beyond September 30, 2020.
The
fair value of the earn-out awards has been valued on a probability basis using a Monte Carlo simulation model with the below inputs:
|
1.
|
Risk-free
rates of 0.12%, 0.13%, 0.16% and 0.22% respectively for the 1st to the 4th anniversary of the Closing date
based on daily US treasury yield curve rates on September 30, 2020.
|
|
2.
|
No
dividend will be paid during the four-year period from September 30, 2020
|
|
3.
|
Reference
price of $8.50 based on the closing date quoted trade price on September 30, 2020
|
|
4.
|
20,000
simulation runs per milestone
|
|
5.
|
Share
price volatility of 50%, based on judgment below.
|
Volatility
parameter of 50% is used on the basis that on September 30, 2020:
|
a)
|
Volatility
from a sample of 52 related companies including traditional stock exchanges had an average of 37% over a three month to five year
period.
|
|
b)
|
Unlike
traditional exchanges, Eqonex is exposed to movements in Digital Asset values and the most prominent Digital Asset being BTC. The
longest dating BTC option of six months had a volatility 63%
|
|
c)
|
Eqonex
used volatility of 50% in the Monte Carlo simulation based on the average of the above two points.
|
The
outcome of the Monte Carlo simulations derived the probabilities and fair values per award (based on probability of achieving the share
price target) per milestone date, totaling a fair value of $32.1 million, inclusive of the service provider’s 1% entitled shares
upon reaching the earn-out milestones.
Related
party transaction – sale of Solutions Business
The
IFRS conceptual framework of accounting defines income as increases in assets or decreases in liabilities that result in increases in
equity, other than those relating to contributions from equity holders. When a transaction is entered into with a related party, judgment
is required in determining whether the accounting gain represents income or a capital contribution. The accounting treatment is determined
by considering if the related party was acting in his/her capacity as a related party or a normal counterparty for the particular transaction.
In
May 2020, the Group sold the Solutions Business to Rhino Ventures Limited, an entity controlled by Miles Pelham, the founder of Diginex
Hong Kong. The transaction resulting in income recorded in the consolidated statement of profit or loss on the basis
that Rhino Ventures Limited was acting as a normal counterparty and purchased the Solutions Business at fair market value, as determined
by the following:
|
1)
|
The
Solutions Business was offered to other parties to acquire, not only to Rhino Ventures Limited. A less favorable tentative offer
was received from a third party to that offered by Rhino Ventures.
|
|
2)
|
Management
believes the consideration paid is fair and reasonable. In making that judgment, management considered that certain inputs of the
internally created valuation model were reviewed by an independent third party.
|
|
3)
|
Shareholders
voted to approve the sale of the Solutions Business to Rhino Ventures Limited.
|
Management
believes that these attributes support that Rhino Ventures Limited purchased the Solutions Business at fair market value, therefore the
gain on sale of the Solutions Business should be reflected as profit from discontinued operations in the consolidated statement
of profit or loss.
Public
warrants
Public
warrants are classified as equity instruments under IAS 32 on the basis that the public warrants do not create an obligation for the
Company to pay cash to the warrant holders since the warrant holders cannot put the warrants to the Company, and a fixed number of shares
are to be issued based on a fixed warrant price. Permitted adjustments to the warrant price and the number of shares are anti-dilutive
and therefore preservative in nature to maintain the relative economic interest of the holder and the issuer, which do not breach the
fixed-for-fixed principle of IAS 32 para 16. See Note 26 to our consolidated financial statements included elsewhere in this Form F-1
for additional information.
Private
warrants
Private
warrants were issued in January 2021 as part of the private placement capital raise. The warrants were recognized as a liability on the
basis there is a contingent settlement provision outside of Eqonex’s control when the holder may require Eqonex to redeem
the private warrants in cash.
The
private warrants were valued at $16.6 million on issuance using the Black Scholes pricing model with the following inputs:
|
1.
|
Risk
free rate of 0.21% based on the yield of USD Treasury Strips with the same tenure of 3 years as at 15 January 2021.
|
|
2.
|
No
dividend will be paid during the three-year period from January 15, 2021.
|
|
3.
|
Share
price volatility of 55.52%, based on judgement below.
|
Volatility
parameter of 55.52% is used on the basis that on January 15, 2021:
|
●
|
Volatility
from a sample of 52 related companies including traditional stock exchanges had a median of 34.45% over a three-year period.
|
|
●
|
Unlike
traditional exchanges, the Company is exposed to movements in Digital Asset values and the most prominent Digital Asset being BTC.
The historical volatility of BTC over the last three years as at January 15, 2021 was 76.59%
|
|
●
|
The Company used volatility of 55.52% in the Black-Scholes-Merton
Call Option Model based on the average of the above two points.
|
The
private warrants were valued again to $5.2 million at March 31, 2021 using the below updated inputs:
|
●
|
Risk
free rate of 0.31% based on the yield of USD Treasury Strips with the same tenure as the warrant expiry.
|
|
●
|
No
dividend will be paid during the warrant tenure.
|
|
●
|
Share
price volatility of 52.75%, revised as at March 31, 2021 based on the same judgment as above where the median of the related companies
sample was 34.41% and the 2.79 year annualized volatility of BTC at 71.09%.
|
The
fair value of the private warrants at March 31, 2021 resulted in a fair value gain of $11.4 million against the initial valuation. See
Note 26 to our consolidated financial statements included elsewhere in this Form F-1 for additional information.
Digital
Assets
The
Group holds digital assets which are also referred to as cryptocurrencies. There is no specific accounting standard that applies to all
digital assets and accordingly judgement is applied based on the terms and structure of each individual cryptocurrency in determining
the most relevant accounting standards to adopt. The Group assessed that the cryptocurrencies currently owned (primarily BTC and ETH),
unless specifically stated otherwise, are most appropriately accounted for as intangible assets in accordance with IAS 38 on the basis
that they do not meet the definition of financial assets and are assets with no tangible form. Under IAS 38 the Group has elected to
measure digital assets at a revalued amount on the basis that an active secondary market exists for the assets.
USD
Coin (“USDC”)
USDC
is a type of digital asset which the Group holds to meet certain working capital requirements. The Group classifies USDC as a financial
asset in accordance with IFRS 9 on the basis that one USDC can be redeemed for one US dollar from an issuer, which is unlike other digital
assets held, as noted above.
Client
assets and liabilities
Clients
deposit fiat, digital assets and USDC with the Group for trading purposes on the Exchange, and for OTC trading.
For
fiat, the Group recognizes client assets and equal and opposite client liabilities on its consolidated statement of financial position
in relation to fiat in accordance with IFRS 9 D.1.1.
For
USDC and digital assets, there is no specific accounting guidance on recognition for these assets held on behalf of others. As such,
the Group refers to para 4.3 and 4.4 of the conceptual framework for the definition of an asset. An asset is a resource controlled by
the entity as a result of past events and from which future economic benefits are expected to flow to the entity. On the basis that the
USDC and digital assets deposited by clients are held in omnibus wallets offered by digital asset custodians under the relevant Group
company’s name, the company has ultimate control over the wallets. Therefore, with control over the wallets, an asset and a corresponding
liability is recognized.
EQO
token
The
EQO white paper was published on March 15, 2021 and the token was launched on April 8, 2021 when a number of tokens were airdropped to
eligible recipients. Holders of EQO may initially benefit from Exchange fee reductions and staking rewards. Fee paying price takers on
EQONEX during the period March 16, 2021 to April 7, 2021 were entitled to an allocation of EQO on April 8, 2021. Post April 8, 2021,
EQO was and will be airdropped daily based on a formula weighted between price taking volume and the number of EQO tokens staked on the
EQONEX Exchange by eligible users.
EQO
is a utility token and was not issued for cash consideration but instead used as a tool to incentivize activity on the EQONEX
Exchange while providing value to the recipient. The holding of EQO by clients does create a liability for the EQONEX Exchange
as clients can, post April 8, 2021, receive benefits such as reduced trading fees. However, management estimates the impact from
March 16, 2021 to March 31, 2021 to be immaterial.
Significant
accounting policies – New Policies
Revenue
recognition – Exchange income
In
July 2020, the Group launched EQONEX Exchange, its Digital Asset exchange platform. Revenue is generated from fees earned when clients
buy and sell Digital Assets on EQONEX Exchange at that point in time. In addition, revenues are also generated, at a point in time, when
clients withdraw assets from the platform.
Deemed
reverse acquisition
The
acquisition method of accounting is used to account for all deemed reverse acquisitions where in substance there is an operating company
is acquired by a shell company where the shareholders of the operating company obtain control of the shell company.
For
the Transaction, Diginex Hong Kong is the operating company while both the Company and 8i Enterprises are considered as shell companies.
Identifying
the accounting acquirer/accounting acquiree:
The
Company is considered as the legal acquirer and the accounting acquiree. Control is obtained by Diginex Hong Kong shareholders as the
Company issued 25,000,000 shares which allowed Diginex Hong Kong shareholders to hold the majority of issued share capital and voting
rights.
Determining
the deemed consideration transferred:
The
deemed consideration transferred for the deemed reverse acquisition of 8i Enterprises is:
|
1.
|
The
fair value of the shares which Diginex Hong Kong would have had to issue in establishing the same post transaction control structure
but as if it were the legal acquirer; or
|
|
2.
|
The
quoted price of the Company’s shares and warrants multiplied by the number of the instruments held by the former 8i Enterprises
instrument holders on the date the deemed reverse acquisition completes.
|
In
a transaction involving only the exchange of equity instruments, the fair value of the Company’ s shares and warrants that are
quoted on Nasdaq should be used to measure the consideration transferred as it is more reliably measurable than the value of the Diginex
Hong Kong’s equity based on IFRS 13 fair value hierarchy principles.
Based
on this principle, the Group measured the deemed consideration for the Transaction using the quoted Nasdaq share price of the Company’
s shares and warrants on the completion date of September 30, 2020.
Fair
value of assets and liabilities acquired in a deemed reverse acquisition:
Identifiable
assets acquired and liabilities assumed in a deemed reversed acquisition are, with limited exceptions, measured initially at their fair
values at the acquisition date. For the Transaction, the net assets acquired from 8i Enterprises and the Company are primarily cash,
prepayments and trade payables, and their carrying value approximates fair value.
There
is no non-controlling interest involved in the Transaction. Acquisition related costs such as professional fees were expensed as incurred.
Calculating
the Transaction expense:
The
excess of the deemed consideration transferred over the fair value of the net identifiable assets acquired from 8i Enterprises represents
a service and is recorded as an expense under IFRS 2 in the Group’s consolidated statement of profit or loss.
Presentation
of the consolidated financial statements post deemed reverse acquisition:
In
the Transaction, the Company being the accounting acquiree (legal acquirer), becomes the ultimate parent holding company of the Group,
however, the consolidated financial statement represents a continuation of Diginex Hong Kong, the accounting acquirer
(legal acquiree) with the exception of the legal capital structure.
Shareholders’
equity of Diginex Hong Kong prior to the Transaction is retrospectively adjusted as a recapitalization for the equivalent number of shares
received and on a pro rata basis for prior reporting periods. Retained earnings and relevant reserves of the Diginex Hong Kong are carried
forward after the Transaction. Any difference to shareholders equity of Diginex Hong Kong arising from the recapitalization of share
capital and equity instruments issued is recorded in equity under the reverse acquisition reserve.
Share-based
payments – earn-out awards
The
earn-out awards are equity-settled awards measured on grant date in accordance with IFRS 2 and the grant date fair value of each award
takes into account the non-vesting conditions. Earn-out awards are only fair valued on the grant date and not subsequently fair valued
on each future reporting date on the basis that they are equity-settled awards.
Market
conditions and non-vesting conditions are considered in estimating the fair value of an individual share using a Monte Carlo simulation
model.
Earnings
per share
Earnings
per share for periods prior to the deemed reverse acquisition are retrospectively adjusted to reflect the number of equivalent shares
received by the accounting acquirer, Diginex Hong Kong, based on the number of shares outstanding on the reporting dates multiplied by
the exchange ratio. The exchange ratio being calculated as the number of shares issued by the Company to the former shareholders of Diginex
Hong Kong divided by the number of shares outstanding in Diginex Hong Kong on September 30, 2020.
Significant
accounting policies relevant to the consolidated financial statements to note:
Impairment
of financial assets
Under
IFRS 9, the Group records an allowance for Expected Credit Loss (“ECL”) for financial assets not held at fair value through
profit or loss.
ECLs
are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group
expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate.
For
trade and other receivables, amounts due from an associate/shareholders/related companies/joint venture and loan receivables, the Group
has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The Group calculates
the ECL based on adjusted for forward-looking factors specific to the customer and the economic environment.
The
Group considers a financial asset in default when internal or external information indicates that the Group is unlikely to receive the
outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.
Reclassification
Certain
reclassifications have been made to prior year consolidated financial statements to conform to the current year presentation to present
the discontinued operations following the sale of the Solutions Business, the recapitalization of the Group on a comparable basis following
the Transaction, the alignment of unlisted investment to be reported as financial assets held at fair value through profit or loss in
accordance with IFRS 9, the distinction of USDC from other Digital Assets, and the presentation of General and Administrative expenses
by categorization to enhance reader understandability. The reclassification had no impact on previously reported loss for the
year nor accumulated losses.
Recently
Released Accounting Standards
See
Note 2 to the financial statements included elsewhere in this Form F-1.
Liquidity
and Capital Resources
Eqonex’s
ability to fund its operations is based on its ability to generate revenue, its ability to attract investors and its ability to borrow
funds on reasonable economic terms. During the year ended March 31, 2021, Eqonex raised capital via the issuance of a convertible bond
for $25 million which was converted into equity of Diginex Hong Kong prior to the Transaction. The cash position was increased by a further
$24.1 million on completion of the Transaction from proceeds from former 8i Enterprises shareholders. In January 2021, the Company raised
another $38.6 million, before costs from a private placement issuance of equity and private warrants. Furthermore, Eqonex raised $17.0
million when public warrants were called in February 2021. In prior years Eqonex funded operations, primarily, from the issuance of shares
and the utilization of a $20 million credit facility from Pelham Limited.
Management
is of the opinion that the capital of the Company is sufficient to meet present requirements. The Company is not aware of any legal or
economic restrictions on the ability of its subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances.
The Company is also not aware of any material restrictions that impact the transfer of funds between subsidiaries to enable the
operating of the business in various jurisdictions.
At
March 31, 2021, Eqonex held cash and cash equivalents of $52.1 million. $52.0 million was held in USD with residual balances primarily
held in Hong Kong Dollars, British Pounds and Euros. Eqonex held all balances in bank accounts, had no debt positions and had not
hedged any foreign exchange exposures. Given the increased use of British Pounds, Euro and Singapore Dollar, Eqonex is looking to implement
a Treasury Policy to manage foreign exchange requirements going forward.
As
of March 31, 2021, 2020 and 2019, Eqonex has cash and cash equivalents of $52.1 million, $1.0 million and $0.7 million, respectively,
as detailed below:
|
|
As of March 31,
|
|
|
As of March 31,
|
|
|
As of March 31,
|
|
in USD Millions
|
|
Cont. Ops
|
|
|
Disc.
Ops.
|
|
|
Total
|
|
|
Cont. Ops
|
|
|
Disc.
Ops.
|
|
|
Total
|
|
|
Cont. Ops
|
|
|
Disc.
Ops.
|
|
|
Total
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
Net cash provided by (used in) operating activities
|
|
|
(38.5
|
)
|
|
|
(1.0
|
)
|
|
|
(39.5
|
)
|
|
|
(21.5
|
)
|
|
|
(0.8
|
)
|
|
|
(22.3
|
)
|
|
|
(17.0
|
)
|
|
|
(2.4
|
)
|
|
|
(19.4
|
)
|
Net cash provided by (used in) investing activities
|
|
|
18.4
|
|
|
|
-
|
|
|
|
18.4
|
|
|
|
(5.4
|
)
|
|
|
-
|
|
|
|
(5.4
|
)
|
|
|
27.7
|
|
|
|
(15.6
|
)
|
|
|
12.1
|
|
Net cash provided by (used in) financing activities
|
|
|
72.7
|
|
|
|
-
|
|
|
|
72.7
|
|
|
|
28.0
|
|
|
|
-
|
|
|
|
28.0
|
|
|
|
(26.0
|
)
|
|
|
27.9
|
|
|
|
1.9
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
52.6
|
|
|
|
(1.0
|
)
|
|
|
51.6
|
|
|
|
1.1
|
|
|
|
(0.8
|
)
|
|
|
0.3
|
|
|
|
(15.3
|
)
|
|
|
9.9
|
|
|
|
(5.4
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
(4.9
|
)
|
|
|
5.9
|
|
|
|
1.0
|
|
|
|
(6.0
|
)
|
|
|
6.7
|
|
|
|
0.7
|
|
|
|
9.3
|
|
|
|
(3.2
|
)
|
|
|
6.1
|
|
Effect of foreign exchange rate changes
|
|
|
(0.5
|
)
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
0.0
|
|
|
|
-
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
-
|
|
|
|
0.0
|
|
Cash and cash equivalents, end of year
|
|
|
47.2
|
|
|
|
4.9
|
|
|
|
52.1
|
|
|
|
(4.9
|
)
|
|
|
5.9
|
|
|
|
1.0
|
|
|
|
(6.0
|
)
|
|
|
6.7
|
|
|
|
0.7
|
|
Cash
Flows from Operating Activities
Total
cash outflows from operating activities were $39.5 million in the year end March 31, 2021, compared to an outflow of $22.3 million for
the year ended March 31, 2020 and an outflow of $19.4 million for the year ended March 31, 2019. Cash flow relates to both continued
and discontinued operations:
Continued
Operations
Cash
inflow from operating activities were $38.5 million in the year ended March 31, 2021 compared to an outflow of $21.5 million in
the year ended March 31, 2020 and an outflow of $17.0 million for the year ended March 31, 2019, The cash outflow increase relates, in
part, to an increase in employees from 137 to 157 together with costs associated with the Transaction and listing. Eqonex also incurred
additional expenditure year-over-year on technology matters in the course of growing the business as well as marketing the Group’s
business lines.
During
the year ended March 31, 2021, Eqonex also acquired $1.7 million in USDC and Digital Assets which have, in part, been used to fund promotions
to attract clients and volumes to the Exchange. The liquidation risk management desk has also been funded with USDC to managed liquidated
positions on the Exchange.
Discontinued
Operations
The
cash outflow from discontinued operations of $1.0 million for the year ended March 31, 2021 and $0.8 million for the year end March 31,
2020 and outflows of $2.4 million for the year ended March 31, 2019. The outflows in all three years relates to costs associated with
the operations of the Solutions Business and costs incurred to operate the DHPC business for the year ended March 31, 2019.
Cash
flows from Investing Activities
Total
cash inflows from investing activities were $18.4 million in the year ended March 31, 2021, compared to outflows of $5.4 million for
the year ended March 31, 2020 and inflows of $12.1 million for the year ended March 31, 2019. Cash flow relates to both continued and
discontinued operations:
Continued
Operations
Cash
outflow from investing activities relating to continuing operations was $18.4 million in the year ended March 31, 2021 compared
to outflows of $5.4 million in the year ended March 31, 2020 and inflow of $27.7 million for the year ended March 31, 2019.
During
the year ended March 31, 2021, Eqonex collected cash of $24.1 million
following the completion of the Transaction with 8i Enterprises.
During
the year ended March 31, 2021, Eqonex invested $5.7 million in capitalized software for its Digital Asset exchange. This compares to
$5.3 million invested in the year ended March 31, 2020. The Company also issued equity to the value of $0.6 million and $5.4 million
to acquire software which had no cash flow impact in the years ended March 31, 2021 and 2020 respectively.
During
the year ended March 31, 2019, Eqonex received Madison stock valued at $50.0 million as part of the DHPC partial disposal. Eqonex
sold a significant portion of the stock for cash consideration of $34.0 million. In the year ended March 31, 2020, the balance of Madison
stock was sold for $0.2 million.
In
late 2018, Eqonex moved into a new office in Hong Kong and the related leasehold improvements during the year ended March 31, 2019 amounted
to $2.1 million with a further $0.3 million spent on fixed assets.
Eqonex
also acquired two business in the year ended March 31, 2019 which resulted in a net cash outflow of $0.1 million. During the year ended
March 31, 2020, Eqonex acquired the remaining 25% of BPAMJ and incurred a cash outflow of $25,000 with a further $75,000 paid
in the year ended March 31, 2021.
Eqonex
also invested in a number of startup companies and during 2019 the cash outflow for these investments amounted to $3.8 million. During
the year ended March 31, 2020, Eqonex increased its stake in an existing investment by $0.3 million. There were no similar investments
in the year ended March 31, 2021.
Discontinued
Operations
There
were no cash movements associated with discontinued operations for the years ended March 31, 2021 and 2020. There were cash outflows
from discontinued operations for the year ended March 31, 2019 of $15.6 million.
In
the year ended March 31, 2019, DHPC invested $25.6 million in high performing computing equipment. As previously reported, Eqonex
received $10.0 million cash as part consideration for the DHPC divestment.
Cash
flows from Financing Activities
Total
cash inflows from financing activities were $72.7 million in the year ended March 31, 2021, compared to an inflow of $28.0 million for
the year ended March 31, 2020 and an inflow of $1.9 million for the year ended March 31, 2019. Cash flow relates to both continued and
discontinued operations:
Continued
Operations
Eqonex
had inflows from financing activities in the year ended March 31, 2021 of $72.7 million compared to an inflow of $28.0 million in the
year ended March 31, 2020 and an outflow of $26.0 million for the year ended March 31, 2019.
During
the year ended March 31, 2021, Eqonex raised $24.3 million, net of costs, from the issuance of a convertible bond with a 10% coupon.
The bond converted into Diginex Hong Kong shares prior to the Transaction.
Eqonex
completed a private placement in January 2021 raising $36.2 million net of costs for the issuance of both shares and private warrants.
Upon
completion of the Transaction, Eqonex issued public warrants to the former holders of 8i Enterprises warrants. The warrants met the redemption
conditions and Eqonex called them in February 2021. Eqonex raised $17.0 million from this exercise with 48% of the warrants being converted
into Eqonex shares at a price of $11.50.
During
the year ended March 31, 2021, Eqonex raised $0.3 million from the issuance of equity compared to $30.9 million during the year ended
March 31, 2020 and $2.4 million during the year ended March 31, 2019.
At
September 2020, Eqonex terminated a credit facility with Pelham Limited. The facility was for $20.0 million and charged interest at 12.5%
per annum. As of March 31, 2020, Eqonex had drawn $10.6 million of the credit facility. A further $0.1 million was advanced during the
year ended prior to the termination of the facility. The facility was repaid via the sale of the Solution Business for $6.0 million,
This $6.0 million was offset against the outstanding balance. A further $3.9 million was settled in cash with $0.7 million settled via
the issuance of shares and $0.1 million swapped into the convertible bond. During the year ended March 31, 2021, Eqonex was charged interest
of $0.3 million which was paid in full. During the year ended March 31, 2020, Eqonex was charged $1.3 million of interest expense and
$0.4 million during the year ended March 31, 2019.
Eqonex
advanced funds to DHPC during the year ended March 31, 2020 of $2 million of which $0.8 million was repaid in the same year. A further
$1.0 million was repaid during the year ended March 31, 2021 Eqonex advanced a net sum of $13.0 million in the year ended March 31, 2019.
During the year ended March 31, 2021, Eqonex received an advance of $0.9 million from a subsidiary of DHPC. This amount is non-interest
bearing and repayable on demand.
During
the year ended March 31, 2020, Eqonex issued a 12-month loan note paying interest at 15%. The loan note raised $0.7 million and was repaid
in full during the year ended March 31, 2021.
During
the years ended March 31, 2021 and 2020, Eqonex paid $2.4 million for long-term office leases accounted for under IFRS 16. The office
leases are in Hong Kong, Singapore and Vietnam. During the year ended March 31, 2109, Eqonex paid $1.6 million for long-term office leases.
On
February 20, 2019, Eqonex signed a term sheet to set up a partnership in the United States which was subject to shareholder approval.
Eqonex advanced $0.5 million to the United States operation shortly after signing the term sheet during the period ending March 31, 2019.
Additionally, a further $0.5 million was advanced in the year ended March 31, 2020. However, Diginex Hong Kong’s shareholders failed
to agree to the term sheet and a definitive shareholder agreement was not signed. This loan has been fully written off. In addition,
during the year ended March 31, 2019, Eqonex advanced $0.2 million to Rise Tech Ventures which was fully impaired in the same year.
In
October 2018, Eqonex agreed to buy back Eqonex equity held by an employee. The employee held 55,727 shares of common stock. The consideration
paid was a combination $3.1 million in cash and Madison common stock. The combined costs of the share buyback were $6.6 million, and
the buyback was paid out of the accumulated profits of the Company.
In
October 2018, Eqonex paid an interim dividend of $20 million to shareholders.
Discontinued
Operations
There
were no cash movements associated with discontinued operations for the years ended March 31, 2021 and 2020. Cash inflow of $27.9 million
in the year ended March 31, 2019 related to cash received by DHPC via the issuance of debt prior to the sale and deconsolidation of 51%
of the business.
Indebtedness
As
of March 31, 2020, Eqonex had drawn down $10.7 million of the credit facility with Pelham Limited. This credit facility was fully repaid
and terminated in September 2020.
During
the year ended March 31, 2021, Eqonex issued capital via a private placement which resulted in the issuance of equity and warrants. The
warrants have been recorded as a liability on the consolidated statement of financial position and were fair valued at $5.1 million using
a Black Scholes model as at March 31, 2021. The warrants can result in a liability to the Company in the event of a forced change of
control.
During
the year ended March 31, 2021, Eqonex received an advance of $0.9 million from a subsidiary of DHPC. The advance is non-interest bearing
and repayable on demand. Eqonex also owes $0.2 million to the asset management fund that is managed by Eqonex. The amounts arise as Eqonex
have agreed to pay any costs to operate the fund that are more than 1% of the assets under management.
Eqonex
Capital Limited, a subsidiary registered in the United Kingdom and operating as an authorized representative of Starmark, issued a loan
note with a value date of September 6, 2019. Starmark is regulated by the UK Financial Conduct Authority (FCA), the financial services
regulatory body in the United Kingdom. The loan note was available to employees of Eqonex and shareholders only due to regulatory constraints.
The loan note was structured in $5,000 units and pays interest of 15% per annum and interest payments were made on a quarterly basis.
As of March 31, 2020, Eqonex Capital raised $0.7 million and accrued $0.1 million of interest payable. The proceeds of the loan note
were advanced via an intercompany loan to Eqonex Markets, a Hong Kong subsidiary. Eqonex Markets used the loan advanced as capital to
trade Digital Assets on a proprietary basis. The loan notes were fully redeemed on June 1, 2020 and Eqonex ceased to trade on a proprietary
basis.
Other
payables outstanding relate primarily to accounts payable and accruals that have accumulated in the ordinary course of business.
At
March 31, 2021 the Eqonex had contracted to the below long and short term office leases:
Long
term:
|
●
|
Hong
Kong: The first long-term lease expired on June 15, 2021 which incurred monthly rent expense of HKD 1,455,744 (c.USD 187,500). On
June 15, 2021 the Hong Kong employees relocated to a new office. The new lease is for a period of six years and at a reduced monthly
rental compared to the previous lease agreement at. HKD 676,000 (c.USD 87,000) for the first 3 years
|
|
●
|
Singapore:
24-month lease that expires on August 15, 2022. The monthly rent is SGD16,500 (c.USD 12,125)
|
|
●
|
Vietnam:
36-month lease that expires on August 31, 2023. Monthly rent is VND 106,080,000 (c.USD 4,561)
|
Short
term:
|
●
|
Germany:
three month rolling lease at a monthly rent of Eur 512 (c.USD 610)
|
|
●
|
Scotland:
one month rolling lease at a monthly rent of GBP 500 (c.USD 700)
|
The
table below illustrates the indebtedness as at March 31, 2021 and 2020:
|
|
As
of March 31,
|
|
in
USD millions
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Shareholder loans
|
|
$
|
-
|
|
|
|
10.7
|
|
Amounts due to directors
|
|
|
0.0
|
|
|
|
0.4
|
|
Amounts due to related parties
|
|
|
0.2
|
|
|
|
-
|
|
Amount due to an associate
|
|
|
0.9
|
|
|
|
-
|
|
Short term lease obligation
|
|
|
0.7
|
|
|
|
2.1
|
|
Notes payable
|
|
|
-
|
|
|
|
0.7
|
|
Client liabilities*
|
|
|
27.0
|
|
|
|
0.5
|
|
Warrant liability
|
|
|
5.2
|
|
|
|
-
|
|
Other payables
|
|
|
6.3
|
|
|
|
9.7
|
|
Long term lease obligation
|
|
|
0.1
|
|
|
|
1.0
|
|
Total
debt
|
|
|
40.4
|
|
|
|
25.1
|
|
*The
client liabilities held of $27.0 million (March 31, 2020: $0.5 million) relate to monies held in the form of cash (fiat) and Digital
Assets (including USDC) on behalf of clients to enable then to trade on the Exchange and execute OTC trades.
Research
and Developments, Patents and Licenses, Etc.
We
own and control a variety of intellectual property, including but not limited to trademarks, patents, proprietary information and software
tools and applications that, in the aggregate, are material to our business. The proprietary software related to our Exchange Business
is material to our business. No other individual instance of intellectual property is material to the Company.
Off-Balance
Sheet Arrangements
In
March 2020, the Group acquired software from a third party for potential consideration of up to $10.0 million. Of this, $8.5 million
of the fair value consideration was based on the integration of the software into the EQONEX Exchange
infrastructure and the delivery of future products with the balance of $1.5 million payable based on future trading volumes on
the exchange. At March 31, 2021, $6.5 million had been paid via cash and shares in Diginex Hong Kong. The third party will not be providing
the service associated with the remaining $2.0 million of the $8.5 million fair value consideration. Trading volume targets associated
with $1.0 million of the $1.5 million contingent payment were not met prior to the target date in February 2021. The remaining $0.5 million
may be payable if future trading volume target is met by future target date of February 2022.
The
table below illustrates a summary of Eqonex’s contractual obligations and commitments as at March 31, 2021:
|
|
Payments
due by period
|
|
|
|
Total
|
|
|
less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
more
than
5 years
|
|
Short-term Debt Obligations
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Operating Lease Obligations
|
|
|
0.9
|
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Total
|
|
|
2.0
|
|
|
|
1.9
|
|
|
|
0.1.
|
|
|
|
0.0
|
|
|
|
0.0
|
|
business
Overview
Eqonex
is a Singapore domiciled financial technology company that builds products, delivers services and develops solutions that utilize distributed
ledger and other technologies to improve the efficiency of financial markets and the current cryptocurrency industry. Eqonex has built
a cryptocurrency and Digital Assets ecosystem that offers innovative product and services that are compliant, fair and trusted. Eqonex
believes in a future where all financial and non-financial transaction data is recorded on distributed ledgers, such as blockchains.
This will enable the financial services industry to reduce the cost of originating, distributing and executing transactions of financial
assets, all of which depend on access to secure and trusted data. In June 2021, the Company announced that it was unifying its businesses
under the Eqonex brand. The rebrand follows the divestment of Diginex Solutions, the ESG blockchain solutions company, in May
2020 and the impending lapse of the license to use the “Diginex” brand at the end of June 2021. The new EQONEX brand focuses
on the Digital Asset element of the business, reflected in the EQUOS and EQO brands, while recognizing its history as “Diginex”.
History
Eqonex
was founded in Hong Kong in June 2017. The Company was incorporated in October 2019 and operates within Singapore. Eqonex was founded
based on the Company’s understanding that the combination of both technology and an extensive knowledge of the intricacies of capital
markets would be required to achieve potential efficiency gains using distributed ledger technology within financial markets. Eqonex
believed that existing players would struggle to transition to the new paradigm of conducting business and would be resistant to change
given their cost base and legacy business models in place. The Company identified an opportunity to create a new class of financial institution.
The
founders and early employees of Eqonex (the “Founding Team”) observed that several businesses related to Virtual Currency
investing and trading were thriving but were concerned that regulations had not kept pace with the industry. After considering several
opportunities to partner with existing firms to build Virtual Currency infrastructure, Eqonex decided to build its own Digital Asset
ecosystem comprising of a Virtual Currency exchange and custody solution, among other business lines. Eqonex recruited a compliance team
to oversee applications for various licenses and continues to engage with financial regulators and industry players to advocate for further
development of regulation of Digital Assets. Eqonex believes a comprehensive regulatory framework of Digital Assets is necessary to enable
its institutional adoption and market growth. Given that many institutional investors would prefer to allocate to investment products,
Eqonex also applied to the Hong Kong Securities and Futures Commission (“SFC”) for a license to operate a multi-manager fund.
The
Founding Team’s analysis of the cryptocurrency industry and, in particular, ICO’s was that, while the coins in early 2018
were predominantly unregulated security offerings for early stage companies, which they did not believe to be a scalable business upon
which to build a financial technology or services business, the underlying technology (the blockchain network and smart contracts) could
be applied to institutional offerings of debt, equity and alternative instruments. Participation in this business would require securities
licenses, investment banking advisory services, technology products and solutions. The Founding Team recognized that the medium-to-long-term
impact of distributed ledger technology in capital markets would extend beyond simply changing the form in which traditional securities
were traded (e.g. as a digital security on a distributed ledger) or the way they were distributed (e.g. fractionalized via a technology
platform). They believed distributed ledger technology would enable the creation of innovative financial products, that would give issuers
a way to lower their cost of capital by programming securities based on inputs (secure and trusted transaction data) that was recorded
on a distributed ledger.
Eqonex
has built and continues to develop a comprehensive set of products, services and solutions to capture the full value chain resulting
from transitioning data and securities to a distributed ledger.
Eqonex
has a current headcount of 200 with employees and contractors located in Hong Kong, Singapore, Vietnam, United Kingdom, Switzerland,
France, China, Dubai, Japan, Philippines, South Korea, USA, Puerto Rico and Canada.
Industry
Background
A
distributed ledger is a ledger containing records of transactions between parties in a network that is “distributed” (shared)
between those parties. When a participant in the network requests a transaction to be added to the ledger, it is broadcast to other computers
(nodes) in the network, which validate the transaction using a consensus algorithm that enables transactions to be confirmed without
the need for a central point of authority or control. A validated transaction is added to the network in a way which is permanent and
unalterable (immutable), leaving an audit trail by design. Every participant in the network has simultaneous access to view the information,
which is kept secure with the use of cryptographic functions. The network can be public (open to anyone), permissioned (open only to
approved parties) or private.
A
blockchain is a distributed ledger in which transaction data is grouped into specific, time-stamped sets. Once consensus is reached on
the data that will go into the set, the set is sealed with a cryptographic signature called a “hash” creating a sealed “block.”
This block is then mathematically tied to the previous block on the ledger, forming a chain. A blockchain is a type of distributed ledger,
though the terms are often incorrectly used interchangeably.
The
potential benefits of distributed ledger technology arise in the following circumstances, among others: (i) where there is value to be
created from the removal of a need for a central point of control (an intermediary) to verify transactions, leading to near or real time
processing and settlement of transactions, (ii) where there are efficiencies to be realized from the automation of transactions between
parties according to business logic embedded in a smart contract and (iii) where the provision of more information that participants
know to be verified and immutable can reduce the economic value lost by a lack of trust between parties.
In
2020, PwC estimated that blockchain technology has the potential to boost global gross domestic product by US$1.76 trillion by 2030.
The forecasted acceleration of growth is consistent with Eqonex’s expectation that once more enterprises have moved data onto distributed
ledgers, there will be more firms building applications, and value-added use cases will grow.
Since
2018, venture capital firms have invested billions of dollars into companies in the blockchain industry. This has included investment
into many different blockchain protocols, each with their own consensus mechanisms, programming language, and rules governing what information
is shared, in what form, and to whom. Eqonex is not a blockchain protocol, nor a type of distributed ledger, and does not intend to design
its own blockchain. Rather, Eqonex views blockchains and distributed ledgers as a foundational layer of data record keeping that enables
transactions between parties to be smarter (automated), faster, and more secure.
Currently,
there are numerous online trading venues to trade Digital Assets, primarily in the form of Virtual Currencies and Stablecoins, which
operate on a 24-hour, 365-day, basis. According to Nomics, a Virtual Currency data provider, the spot market for bitcoin, the
largest and most widely used Virtual Currencies, traded an average daily spot and derivative volume of $75 billion in May 2021.
Custodial
services for Digital Assets continue to grow, with several well-known institutions from traditional finance, now providing insured custody
for Digital Assets. Eqonex is not aware of any reliable data on the current market size for third-party custody of Digital Assets. BitGo,
a Digital Asset custodian which Eqonex believes is one of the largest Digital Asset custodians globally, announced over $16 billion of
assets under custody in December 2020.
Eqonex
expects the size of the Digital Assets industry to continue to grow significantly, particularly through the disruption of traditional
financial services, and has developed several business lines in anticipation of this growth.
Business
Lines
Eqonex
has established several complementary lines of business to deliver products and services to its clients. These lines consist of (i) the
Exchange Business, (ii) the Custody Business, (iii) the Trading Business, (iv) the Capital Markets Business, (v) the Asset Management
Business, and (vi) the Borrowing & Lending Business. Eqonex also anticipates the launch of the Investment Products Business in the
first quarter of 2022, subject to regulatory approval for Investment Products.
|
●
|
The
EQONEX cryptocurrency exchange (“The Exchange,” “Exchange Business” or “EQONEX Exchange”):
The Exchange offers the trading of Virtual Currencies, their respective derivatives and, in the future, digital securities 24 hours
a day, 365 days a year. The Exchange began operations in the second quarter of 2020 and is operational in Singapore, operating under
the brand name EQONEX since June 2021 (formerly EQUOS). The Exchange is operating under an exemption to provide payment services
pursuant to the Payment Services (Exemption for Specified Period) Regulations 2019. The exemption will remain in effect until
MAS decides on the license application. The Exchange currently facilities the trading of products in BTC, ETH, BCH, USDC, USDT and
EQONEX’s own utility token known as EQO. EQONEX Exchange intends to add additional coins to those listed above as well as expand
the product offering from spot and perpetual futures to include, for example, options.
|
|
|
|
|
●
|
Digivault
(“Custody Business” or “Digivault”): Eqonex’s custody solution, Digivault, offers an institutionally
focused, highly secure Digital Asset custodian. In May 2021, Digivault received approval from the UK Financial Conduct Authority
(“FCA”) to register as a custodian wallet provider under the Money Laundering, Terrorist Financing and Transfer of Funds
(Information of the Payer) Regulations 2017 (MLR 2017), as amended by the Money Laundering and Terrorist Financing (Amendment) Regulations
2019. Digivault developed and launched a cold storage solution, known as Kelvin, and a warm storage solution, known as Helios, for
Digital Assets and targets, primarily institutional clients while providing the main custody solution for the Exchange. Eqonex
owns 85% of Digivault, with the remaining 15% held by key management of Digivault.
|
|
|
|
|
|
Currently,
Digivault stores BTC, ETH, USDC, USDT and EQO but can support BTC, ETH, USDC, USDT, EQO, LINK, PAX, TUSD, GRT, MATIC,
WOO and CHZ. Support for DOT and BCH is currently under development.
|
|
|
|
|
●
|
Bletchley
Park (“Asset Management Business” or “Bletchley Park”): provides Digital Asset investment solutions for
institutional and professional investors. Management has been undertaken from Switzerland since the final quarter of 2020 in order
to be more geographically aligned with key staff and the business operates in compliance with the regulatory framework of the OSIF.
Prior to relocation, the business was managed from Hong Kong where Eqonex continues to retain its Securities & Futures Commission
of Hong Kong (“SFC”) type 4 and type 9 licenses. Eqonex opened its first fund of hedge funds, consisting of a selection
of Digital Asset hedge funds, in November 2019. The fund’s aim is to generate positive returns irrespective of the underlying
market environment by ensuring that the fund is exposed to a diverse range of alpha focused investment strategies utilized by various
managers.
|
|
|
|
|
●
|
Trading
Business (“Trading Business”): The Trading Business consists of a risk management desk, an Over The Counter (“OTC”)
trading desk and a Digital Assets trading tool called “Access Trading”. The risk management desk primarily manages liquidation
trades on behalf of the Exchange.
|
|
|
|
|
●
|
EQONEX
Capital (“Capital Markets Business” or “EQONEX Capital”): The Capital Markets Business is being developed
to assist issuers seeking to access global capital markets through the issuance of Digital Securities. To this end, the Capital Markets
Business will advise, issue and distribute offerings of digital securities from its clients to investors. The business operates as
an Appointed Representative of Starmark Investment Management Limited (“Starmark”), which is authorized and regulated
by the UK Financial Conduct Authority (“FCA”).
|
|
|
|
|
●
|
EQONEX
Lending (“Borrowing & Lending Business” or “EQONEX Lending”): The Borrowing & Lending Business
launched in July 2021 and will seek to offer borrowers a source of leverage and lenders an opportunity for yield in
Digital Assets.
|
|
|
|
|
●
|
EQONEX
Investment Products (“Investment Products Business” or “EQONEX Investment Products”): The Investment
Products Business is expected to launch in the first quarter of 2022 and will seek to issue securitized products that can
be accessed via traditional stock exchanges and structured investment products for high-net-worth individuals and institutional investors.
|
Our
Business Lines
The
Exchange Business
The
EQONEX Exchange, formerly known as EQUOS is a Digital Assets exchange that facilitates the trading of Virtual Currencies, their respective
derivatives and, in the future, Digital Securities. EQONEX Exchange offers retail, professional and institutional investors to trade
Digital Assets 24 hours per day, 7 days a week and 365 days per year without a noticeable seasonality in trading volumes. EQONEX Exchange,
based in Singapore, launched a beta version in the fourth quarter of 2019 and became fully operational in the second quarter of 2020.
The Exchange is operating since February 28, 2020 under an exemption to provide payment services pursuant to the Payment Services
(Exemption for Specified Period) Regulations 2019, allowing it to continue operating until such time as a decision on a full license
application has been made by the regulator. EQONEX Exchange launched with an initial focus on clients based in Asia and Europe.
EQONEX
Exchange commenced as a spot exchange offering trading in BTC/USDC and ETH/USDC. Both BCH/USDC and USDT/USDC were subsequently added
in March 2021, with EQO/USDC in April and MATIC/USDC, LINK/USDC and GRT/USDC expected to be added in July 2021.
The
product suite was expanded in January 2021 to include a perpetual swap offering for BTC/USDC and this was followed by ETH/USDC.
EQONEX
Exchange has plans to add further trading pairs and has a comprehensive product roadmap for future releases including dated futures and
options.
Sales
and Marketing
Since
the launch of EQONEX Exchange, the focus has been to build volumes and attract clients. EQONEX Exchange acts to oversee the fairness of the markets on the platform and hence an initial focus has been on building liquidity from
clients using, amongst others, the below initiatives:
|
●
|
Executing
strategic partnerships with a limited number of market markers. Payment is made in equity of the Company which aligns strategic goals
|
|
●
|
Creation
of a market-maker program that incentivizes competitive behavior from the market maker and rewards the participants based on the
percentage of the volume coming onto the platform that they facilitate
|
|
●
|
Offering
rebates and referrals rewards for clients introduced to the Exchange
|
|
●
|
Preferential
pricing for early participants of the Exchange
|
|
●
|
Incentives
for retail trading
|
|
●
|
Launch
of the EQO token
|
In
April 2021, EQONEX Exchange launched its own utility token, EQO, which can only be earned from trading or staking on EQONEX Exchange.
EQO provides various utilities for owners of EQO, including reduced trading fees and, in the future, cross-asset collateralization on
EQONEX Exchange as well as enhanced yields with Eqonex’s Borrowing & Lending Business. EQO can be traded on EQONEX
Exchange or with Eqonex Group’s Trading Business. See Note 40 to our consolidated financial statements for additional information.
EQONEX
Exchange has a comprehensive social media marketing program including Twitter, Telegram, YouTube and LinkedIn. To optimize
these channels across multiple jurisdictions, languages and generational demographics EQONEX Exchange contracts with a network of
influencers.
The
revenue for the year ended March 31, 2021 was $203,230 with an average daily volume in March 2021 of $15.9 million, of which 73%
was generated by institutional clients.
Competition
and Pricing
The
Digital Asset exchange industry is intensely competitive. Many of our competitors and market leaders have been established for many years
and have greater financial, technology and research and development resources, larger sales and marketing teams and greater brand name
recognitions than we have. However, barriers to entry have been relatively low resulting in numerous entrants into the space.
There
does appear to be a trend to wider adoption of Digital Assets with some large institutions expressing positive opinions, particularly
on Bitcoin.
While
the industry is not yet fully regulated, regulators globally are starting
to put policies in place for the future governance of the industry. The introduction of such regulation will significantly heighten the
barriers to entry and is expected to force those exchanges with limited legal and compliance capability out of the industry. Even some
of the largest and most successful exchanges could come under intense scrutiny forcing a reduction in their product offering and a KYC
remediation of their existing customer base.
Eqonex
was established based on the belief that the wider adoption of Digital Assets is only possible through the enforcement of AML/KYC and
licensing frameworks commensurate with traditional finance. EQONEX Exchange is based in Singapore due to the progressive approach to
Digital Assets and Singapore’s reputation as a robustly regulated and trustworthy financial center. EQONEX Exchange is also
exploring the establishment of a regulated exchange in Europe.
We
do not believe that pricing is a major factor between competing Exchanges. We believe that our pricing is competitive and is not a barrier
to growing the business.
Government
Regulation
The
Exchange is operating under an exemption to provide payment services pursuant to the Payment Services (Exemption for Specified Period)
Regulations 2019. The exemption will remain in effect until MAS decides
on the license application.
Only
a few countries have enacted detailed Digital Asset-centric legislation. We expect this to change, in the short to medium term. We expect
countries, in particular those in the European Union, to continue the trend of enacting digital asset/AML regulations and require both
host and extra-jurisdictional Digital Asset businesses to register and impose licensing obligations on the operating entities. Where
legislative or license requirements already exist, the licenses often mirror traditional financial/banking licenses. Eqonex will continue
to monitor the regulatory landscape as it evolves and make license applications as applicable to further grow the business.
Digivault
Digivault
(“Custody Business”, “Digivault”): Eqonex’s custody solution is an institutionally focused, highly
secure Digital Asset custodian that started to accept client assets from October 2019. The business operates both cold (Kelvin) and
warm (Helios) custody services. The business commenced services by offering BTC custody and followed shortly thereafter with ETH.
The assets that Digivault can provide custody services for continue to grow and the business currently supports BTC, ETH, USDC,
USDT, EQO, PAX, LINK, TUSD, GRT, MATIC, WOO and CHZ. Support for DOT and BCH is currently under development.
Following
the rebrand to Eqonex, Digivault retained the Digivault name.
Digivault
has incepted a crime insurance policy which covers both Kelvin and Helios and is insured by various London insurance companies and syndicates
rated A or higher by S&P.
During
the year ended March 31, 2021 Digivault increased assets held under custody and generated revenues albeit offered pricing incentives
initially. The revenues of assets under custody (“AUC”) for the year ended March 31, 2021 was $4,525 with assets under custody
of $11.1 million.
Towards
the end of the year ended March 31, 2020 the integration of Digivault to EQONEX Exchange, was complete and assets were transferred from
BitGo, a Digital Asset custodian, to Digivault. The integration has led to a significant increase in AUC and daily transaction volume.
Sales
and Marketing
Digivault
is focused on institutional and high net worth individual clients and as such does not advertise in the same way that a retail focused
solution might. Marketing is centered on the Digivault website and bolstered by social media, webinar appearances and press engagement.
Sales of the Digivault solutions is led by a dedicated sales lead and supported by the wider Eqonex group sales team. The sales approach
is also supported by submission for RFQs by institutions looking for custody solutions and by referrals.
Digivault
has concentrated on securing partnerships with vendors and service providers whose systems and services are already in use with traditional
institutions such as Torstone Technology (“Torstone”). Torstone is a leading platform for institutional post-trade processing
and settlement. Digivault has signed a Proof of Concept agreement with Torstone to develop connectivity (due for completion in July 2021)
between Torstone’s platform and Digivault to support the settlement flow of Digital Assets. The partnership with Torstone will
provide institutions integrated access to Digivault and Torstone and allows Digivault to leverage the existing Torstone customer base
while Torstone could offer support for digital as well as traditional asset services. The partnership with Torstone will provide
traditional institutions with access to Digivault custody via the Torstone integration with front-office trading systems.
The
assets held under custody relate to clients in Asia (c.70%), Europe (c. 20%) and the Middle East (c.10%).
Competition
and Pricing
The
Digital Assets custody competitive landscape has continued to grow since the inception of Digivault, more traditional custodians have
either already entered, or are looking to enter the space. There have also been some high-profile business combinations as corporates
look to strengthen their current offering by adding a Digital Assets custodian to their portfolio of products such as Galaxy Digital
purchasing BitGo and Curve being acquired by PayPal.
Digivault
continually monitors the competitive landscape in terms of pricing so that it remains competitive and adapts to market conditions. The
initial expectation was that there would be price compression between competitors, however, prices have remained relatively stable which
is believed to be partially due to the fact that the cost of insurance for Digital Assets has increased over time.
Government
Regulation
Within
the United Kingdom, Digivault is currently the only standalone Digital Asset custodian to be registered by the UK Financial Conduct Authority
as a cryptoasset firm (registration number: 927958: Registered Cryptoasset Firms (fca.org.uk)) under the Money Laundering, Terrorist
Financing and Transfer of Funds (Information of the Payer) Regulations 2017 (MLR 2017), as amended by the Money Laundering and Terrorist
Financing (Amendment) Regulations 2019. This registration is a significant barrier to entry in the UK and companies who wish to offer
digital wallets in the UK must receive this registration before they can provide services to clients. An exception is offered to those
businesses who were offering Digital Asset custodian services before January 2020. Those that were operation before January 2020 received
grandfather rights and in December 2020, approximately 180 were placed onto a temporary register. Of these businesses, Digivault were
the first to proceed from temporary to full registration.
In
the third quarter of 2021, Digivault will be recommencing its application for a custody license facilitating the “safeguarding
and administering investments” that will enable Digivault to provide custody services for Digital Securities. The license will
support the business’s future roadmap to support digital securities when the demand for Digital Asset securities evolves.
Global
regulations continue to develop, as they do, Digivault will continue to monitor and assess the regulatory requirements to expand operations
globally.
The
Trading Business
The
Trading Business consists of a liquidation risk management desk, an OTC desk and a Digital Assets trading tool, Access Trading.
The risk management desk primarily manages liquidation trades on behalf of the Exchange out of Digital Markets Limited, a Seychelles
incorporated entity.
The
liquidation risk management desk involves the risk management of leveraged positions from Exchange customers who have triggered their
margin limits. This service is not designed to generate any profit or loss for the Trading Business but to isolate and close out risk
positions on Exchange.
The
OTC desk, which commenced operation during the year ended March 31, 2019 has the capacity to trade as principal, or match client orders
internally or externally via third party institutions. The OTC desk operates from Hong Kong and Singapore where all execution in fiat
and Digital Asset payments are actioned. In Singapore, the OTC desk falls under the Singapore regulatory framework and was included in
the full license application submitted on May 17,2020 for the Exchange.
Access
Trading is a Digital Asset trading tool that has been built on top of an existing institutional platform offering an integrated
solution for trading, risk management and operations across multiple trading venues. Access Trading partners with Itiviti.
Access Trading’s first client went live in July 2020.
For
all the above activities, they are available 24 hours a day, 365 days a year without any obvious drivers of seasonality.
In
the year ended March 31, 2020 and for the initial months of the year ended March 31, 2021 Eqonex had a Proprietary Trading desk. The
desk traded on funds that were raised from the issuance of one year note with an annual 15% coupon paid quarterly. The note
was issued in September 2019, raising $675,000 and was prepaid in June 2020. Eqonex no longer trade on a proprietary basis.
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
OTC
|
|
|
40,181
|
|
|
|
350
|
|
|
|
3,216
|
|
Access Trading
|
|
|
13,951
|
|
|
|
-
|
|
|
|
-
|
|
Risk Management desk
|
|
|
11,179
|
|
|
|
-
|
|
|
|
-
|
|
Proprietary
Trading
|
|
|
728
|
|
|
|
78,483
|
|
|
|
-
|
|
|
|
|
66,039
|
|
|
|
78,833
|
|
|
|
3,216
|
|
Sales
and Marketing
OTC:
EQONEX provides OTC services through a dedicated team offering a bespoke customer service to enable the trading of Digital Assets
without the requirement to use an exchange. The main source of client acquisition is from referrals, event attendance, and media exposure.
The OTC team also provide a regular analysis on assets such as BTC to a broad subscriber list. The OTC desk works very closely with Digivault
in order to integrate the OTC purchase or sale of Digital Assets alongside custodial services. OTC clients are located primarily in the
United Kingdom, France, Germany, Switzerland, United Arab Emirates, Hong Kong, Australia, and Singapore.
Access
Trading: the Eqonex Group business development team take direct ownership for Access Trading sales. Following the onboarding of the
first client in July 2020, additional clients have onboarded to the platform in Singapore, USA, Brazil, Dubai and Thailand. The product
is being further developed based, in part, on feedback from both current and potential clients.
Risk
Management desk: this solution is solely to manage risk on the Exchange, there is no sales or marketing involved. Capital to manage risk
positions is provided by Eqonex Group and supplemented by fees charged to the Exchange to manage the risk.
Competition
and Pricing
The
OTC landscape has evolved at pace during the last 3 years. Clients from around the world can now transact with a listed, regulated business,
integrated with a highly secure custodian. Their purchases of Digital Assets also now come with the knowledge that leading technology
partners have provided analysis of their purchases. This ‘know-your-coin’ approach ensures the validity of the coins being
purchased and also reduces the venues for bad actors to use.
Liquidity
across the leading Digital Assets has been expanded by the arrival of traditional trading partners, whose expertise has ensured that
price discovery is now similar across trading venues. This enables Eqonex to differentiate by service levels, with our tailored OTC offering
providing access, delivery and pricing for Digital Assets for regulated, institutional, fund and corporate treasuries, as well as high
net worth individuals.
While
barriers to entry are relatively low for pure OTC trading services,
Eqonex has built a trusted reputation within the marketplace, particularly when coupled with Digivault. The robust compliance,
KYC and AML polices the company deploys ensure customers are comfortable to use Eqonex as their OTC partner.
Our
pricing model is in line with our competitors. Clients receive a ‘white glove’ service and can usually expect to trade within
a tight range of the mid-price of an asset, depending on liquidity. We also provide fast settlement times, with some assets delivered
within 60 minutes of a transaction. This is ahead of the general T+1 settlement time offered by the majority of our competitors. We also
allow for clients to receive delivery of Digital Assets directly into Digivault.
Access
Trading: While there are various retail competitors providing similar services, Access Trading offers an institutional focused
product that can also be enjoyed by retail customers. The integration of Access Trading into Itiviti cements the product
as unique in the institutional space. However, Access Trading is available without the additional PMS services as a more retail
and ‘pro-tail’ orientated product.
Access
Trading has the benefit of having been built based on requirements from experienced institutional traders. The product has been designed
to bridge the gap between Digital Assets and traditional markets and, as such, incorporates the complete front-to-back requirements of
a trading platform. In addition to back-end integration with PMS partners, Access Trading offers a full suite of algorithmic trading
strategies. Access Trading’s pricing is primarily a volume-based fee model with a minimum monthly license fee. This pricing is
competitive with respect to the competition and is the only fee that is charged for the full suite of services offered by Access Trading.
Government
Regulation
Liquidation
risk management: this operation does not fall under any direct regulatory guidance.
OTC:
While the OTC business is not regulated in Hong Kong it does fall under the regulatory framework in Singapore and as such the business
line is operating under the exemption to provide payment services pursuant to the Payment Services (Exemption for Specified Period)
Regulation 2019. The business continues to work under the exemption offered by MAS until a decision on the license has been made.
Access
Trading is a technology solution only. As such, there are no regulations governing the operations of the business and currently no jurisdictions
where Access Trading would not be permitted to operate.
However,
Access Trading relies on local regulation to allow institutional and retail customers to trade Digital Assets. Should the regulations
change such that trading of such assets was restricted or banned this would naturally severely impact the Access Trading business model.
The
Capital Markets Business
EQONEX
Capital, the Capital Markets Business has and is being developed to assist issuers seeking to access global capital markets through issuing
either paper or digital securities. To this end, the Capital Markets Business will advise, issue and distribute offerings of digital
securities from its clients to investors. The business operates as an Appointed Representative of Starmark Investment Management Limited
(“Starmark”), which is authorized and regulated by the UK Financial Conduct Authority.
Despite
being in discussions with numerous potential clients the business has yet to gain traction. In prior years, the business aided clients
to raise capital via the issuance of initial coin offers but has since pivoted to offer solutions for the issuance of securities. It
is recognized that while the idea of raising capital via a digital issuance is appealing, the investors are not always ready to
receive investment in a digital format, so EQONEX Capital allows of the issuance of securities in a traditional paper format with the
option to convert into a digital representation at a later date.
Although
the traction in completing mandates has been slow, we see the capital markets business as an essential part of the future structure of
the Digital Asset industry.
The
revenue for the Capital Markets Business for the years ended March 31, 2021, 2020 and 2019 were $10,000, $291,315 and $900,085, respectively.
Sales
and marketing
The
majority of opportunities presented to the Capital Markets Business originate from referrals, primarily from employees, partners or shareholders.
In addition, EQONEX Capital has been proactively building a network of partners in order to co-operate on cross border or co-led deals.
These partners, to date, are in Hong Kong, Singapore and Japan. Members of the capital markets team, who also support other areas of
the Eqonex Group, also actively participate in industry round-tables, panel events and webinars.
Competition
and Pricing
EQONEX
Capital competes with investment banks and boutique corporate finance houses as well as token issuance providers. However, EQONEX Capital
has few direct competitors capable of offering advisory, structuring and issuance in the context of digital securities.
Pricing
for capital markets deals are usually structured with a back-end success fee based on the capital raised for a particular project. EQONEX
Capital will also aim to charge a retainer fee for its services. Fees for EQONEX Capital are comparable to the fees charged in
traditional corporate finance deals. In addition to fund-raising, EQONEX Capital may also provide technology only solutions to some customers
looking for digital security solutions.
Government
Regulation
EQONEX
Capital operates as an Approved Representative of Starmark Investments under the FCA in the UK. In addition to the UK license EQONEX
Capital is also actively pursuing licenses in Dubai, Hong Kong and eventually Singapore. In jurisdictions where EQONEX Capital does not
have the appropriate licenses it will cooperate with locally licensed or approved partners.
Regulation
regarding digital securities is constantly evolving with a number of jurisdictions now providing a framework for issuers to operate in.
We expect the regulatory landscape to continue to develop with more and more regulators finalizing their digital securities regulation.
We expect this to both improve the quality of the issuers, given the regulatory oversight, as well as provide additional opportunities
for EQONEX Capital to operate under such regulation.
The
Asset Management Business
The
Asset Management business provides Digital Asset investment solutions for institutional and professional investors. Management has been
undertaken from Switzerland since the final quarter of 2020 in order to be more geographically aligned with key staff and the business
operates in compliance with the regulatory framework of the OSIF. Prior to relocation, the business was managed from Hong Kong
where the business continues to retain its SFC type 4 and type 9 licenses. The business opened its first fund, the Bletchley Park Multi
Strategy Fund (“BPMSF”), consisting of a selection of Digital Asset hedge funds, in November 2019. The fund has generated
positive returns to date and aim to ensure that the fund is exposed to a diverse range of alpha focused investment strategies utilized
by various managers.
The
initial strategy of BPMSF was to raise seed capital and create a live track record of returns prior to raising additional capital. The
seed capital was offered an entry point with zero fees and in January 2021, BPMSF commenced raising additional capital. The fee structure
for new investment varies depending on the level of investment.
Separately
to BPMSF, in November 2018, Eqonex acquired 75% of Bletchley Park Asset Management Jersey Limited (“BPAMJ”) and subsequently
acquired the remaining 25% in March 2020. See Note 36 to our consolidated financial statements for additional information. Prior to the
year ended March 31, 2021 the underlying funds of BPAMJ had been liquidated and BLAMJ now remains dormant and will eventually be wound
up.
At
March 31, 2021, BPMSF had $9.6 million assets under management.
The
revenues for the three years ended March 31, 2021, 2020 and 2019 were:
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
BPMSF
|
|
|
3,674
|
|
|
|
-
|
|
|
|
-
|
|
BPAMJ
|
|
|
-
|
|
|
|
119,857
|
|
|
|
46,763
|
|
|
|
|
3,674
|
|
|
|
119,857
|
|
|
|
46,763
|
|
Sales
and Marketing
Since
January 2021 (after the seed capital period), BPMSF has been promoted to qualified investors which saw the assets under management increase
to $9.6 million at March 31, 2021. It is expected the group will dedicate more resources to the distribution of BPMSF and also enter
into strategic distribution partnerships.
At
April 1, 2021, the assets under management originated from Asia (51%), Europe (26%) and from Switzerland (23%). 90% of the clients
were high net worth individuals, 5% External Asset Managers and 5% Institutions.
Competition
and Pricing
Currently,
to the best of our knowledge, there are only a few direct competitors to BPMSF. Most of the competition originates from single strategies
single portfolio manager solutions rather than diversified fund of hedge fund.
Similar
structures to BPMSF also tend to mix liquid and less liquid strategies in their offering as well as directional and non-directional strategies
to a much larger extent compared to BPMSF which focuses on liquid and alpha focused strategies mainly.
We
believe the direct competition to be limited, and believe that the pricing structure is competitive and attractive to investors. This
is further enhanced by the reduced fee structure available for large investors.
Government
Regulation
Diginex
SA operates as an asset manager under the de minimis exception and operates in compliance with the regulatory framework of OSIF.
When
assets under management of Diginex SA approach $100 million
it is expected the company will transition into a direct asset management license with the Swiss Financial Market Supervisory Authority.
The
Lending Business
Overview
Eqonex
Lending will seek to enable the lending and borrowing of Digital Assets by borrowers and lenders to achieve their desired outcomes.
Borrowers of Digital Assets may often seek to gain leveraged exposure to the asset class so that they may magnify returns.
Leverage can also magnify losses. To enable them to borrow Digital Assets, borrowers may be required to post collateral, as well
as pay various fees to Eqonex Lending. Fees could include initial set-up fees, ongoing fees and other types of fees such as fees for
restructuring transactions or in the event of liquidations. Lenders of Digital Assets consent, often for a fee in the form of a
yield, for their assets to be loaned and for them to be returned at a later time or if certain conditions are met. Eqonex Lending
intends to act as agent in order to help match borrowers and lenders who enter into a direct transaction with each other.
Alternatively, Eqonex could act as principal and directly face either borrowers or lenders or both. Eqonex may seek to charge and/or
to offer different rates to borrowers and lenders, in order to profit from the difference.
Sales
and marketing
The
initial phase of the lending product roll-out will be focused on the institutional market and the sales effort will therefore be embedded
into Eqonex’s broader institutional sales effort. Sales discussions with our institutional clients will typically seek to identify
and understand their cross-product needs and, as part of that, to understand where clients have specific borrowing or lending requirements.
Marketing efforts are also tailored to the institutional client base with the main focus on developing interesting and relevant content
for industry publications regarding the state of maturity of the lending market and topical themes such as the importance of robust credit
risk management and the need to achieve better rate transparency. Marketing efforts also focus on attendance at and sponsorship of key
institutional conferences. At this early stage of the lending product roll-out the firm has not conducted any specific advertising campaigns,
instead relying on network marketing via our existing client base. The majority of lending/borrowing clients are located in major financial
centers across Asia and Europe with some also located in key offshore financial centers worldwide. These include funds, market makers,
asset managers, exchanges and other industry-specific clients such as cryptocurrency miners.
Competition
and Pricing
The
lending market has grown significantly in the last two years with the institutional lending market centered around a small number of
custodial lenders and largely conducted via ‘over-the-counter’ lending transactions. This environment creates an opaque
competitive landscape in which there is little rate transparency and significant divergence in lending rates across the market. The EQONEX
lending product is designed to create a transparent venue for multiple lenders and borrowers to come together via an exchange-style marketplace
with the intention of creating a greater degree rate transparency.
Government
Regulation
Due
to the relatively recent emergence of lending within the overall Digital Assets market, there has been relatively little focus from regulators
to date on the regulation of lending businesses. EQONEX Lending is domiciled in the Seychelles where crypto lending activities are currently
unregulated, but the business nevertheless maintains a key focus on compliance with broader global regulatory standards including
anti-money laundering regulations. The lending business uses our UK-based and FCA registered custody provider Digivault for the custody
of collateral assets in respect of collateralized loans. The business is currently assessing the broader regulatory environment, with
the intention of creating a regulated lending platform in the coming months under an appropriate regulatory regime.
The
Investment Products Business
Overview
The
Investment Products Business seeks to design and distribute products whose performance will be driven by various underlying assets, particularly
Digital Assets, but may include other assets such as equities or currencies, for example, as a collective basket of assets, or in relative
performance to such other assets. The Investment Products Business is expected to launch in the first quarter of 2022. The types
of products created will seek to appeal to investors whose needs may not be met by accessing products presently available via the Exchange
Business. For example, some clients may wish to gain exposure to Digital Assets, such as bitcoin, in the format of a transferable security,
such as a note, certificate or warrant. Such investors may also have a desire to access such products on specific venues of their preference,
such as local stock exchanges, and via accounts of their preference, such as brokerage accounts. Furthermore, certain investors have
specific risk and return objectives that might not be met in traditional linear or OTC products where investment return would usually
be reflected one to one with price movements of the underlying assets. Some investors might desire to have exposure to an underlying
Digital Asset with reduced risk (e.g. via capital protected notes), or to increase risk (e.g. via leverage), or to potentially generate
coupons or other forms of income in relation to agreed price movements of the underlying asset.
Sales
and Marketing
It
is anticipated that a large component of sales will be via distributors / intermediaries like financial advisers or brokers rather than
direct relationships with end investors, though that is not precluded and will be a meaningful component of the bespoke structured products
business. Marketing can be broad based, depending on the type of the product and could be via websites and other electronic channels
and informational outlets where appropriate to do so. The location of clients will be global, but likely to have a majority in Europe
and have a large component in developed markets like Germany and Switzerland.
Competition
and Pricing
Structured
products and listed exchange traded products are a large market, with equities being a common asset class. There is much less competition
for crypto currency products, but still this asset class needs to compete for a share of investors allocation against more traditional
asset classes. While securitized products linked to crypto currencies are in their infancy as a new asset class to many investors,
competition is increasing and likely to continue to do so which will create downward pressure on margins. However, there are barriers
to entry including the willingness of crypto currency businesses to embrace regulations and navigate regulations to bring products into
highly regulated markets. Virtual Currencies are not naturally securitized so a barrier to entry is structuring assets in an appropriate
way to enable them to trade similarly to other securitized products.
Government
Regulations
As
the Investment Products Business will contain products that may be classed as securities, securities regulations like the European Union’s
MIFID may apply to these products in many cases. In some circumstances, such as for listed investment products, it is necessary to obtain
regulatory approval from a national regulator and from the listing venue. The regulations regarding Virtual Currencies continue to evolve
and this could change the suitability of the target demographic for various product types and / or change the way in which the business
would need to be organized in order to deliver products and comply with evolving regulations.
Organizational
Structure
The
legal and commercial name of our company is Eqonex Limited. We were incorporated under the laws of Singapore in 2019 under
the name Diginex Innovative Limited with the sole share being held by Miles Pelham. Prior to the completion of the Business Combination,
Diginex Innovative Limited changed its name to Diginex Limited and became the parent of the Eqonex Group. Prior to this the parent for
the Eqonex Group was Diginex Hong Kong. In June 2021, the Company announced that it was unifying its businesses under the Eqonex brand.
On October 13, 2021, the name of the Company was officially changed to EQONEX Limited, following shareholder approval at the
Company’s Annual General Meeting held on September 29, 2021.
Significant
Subsidiaries
Below
is a list of our significant subsidiaries as of March 31, 2021:
Name
|
|
Country
of Incorporation
|
|
%
of Equity Interest
|
|
|
|
|
|
Diginex
Limited
|
|
Hong
Kong
|
|
100%
|
Eqonex
Markets Limited
|
|
Hong
Kong
|
|
100%
|
Eqonex
Capital Pte Ltd
|
|
Singapore
|
|
100%
|
Digivault
Limited
|
|
United
Kingdom
|
|
85%
|
Diginex
SA
|
|
Switzerland
|
|
100%
|
Digital
Markets Limited
|
|
Seychelles
|
|
100%
|
Property,
Plants, and Equipment
The
following is a list of our principal facilities as of March 31, 2021:
Location
|
|
Square
Footage
|
|
|
Main
Use
|
|
Own/Lease
|
|
35F, Two International Finance
Centre, 8 Finance Street, Central, Hong Kong*
|
|
|
7,582
|
|
|
Main center of employment for the
Group.
|
|
|
Lease
|
|
#18-01,140 Robinson Road, Singapore 068907
|
|
|
1,970
|
|
|
Exchange support
|
|
|
Lease
|
|
12.2, 12th Floor,
436 –
438 Nguyen Thi Minh Khai Street, Ward 3, District 3, Ho Chi Minh City, Vietnam
|
|
|
1,152
|
|
|
IT development and support
|
|
|
Lease
|
|
*
the lease in Hong Kong expired on 15 June 2021 and a new long term lease was taken at 1206-1209 Three Pacific Place, Wanchai, Hong Kong,
with a square footage of 7,519.
Eqonex
did not renew a lease in the United Kingdom during the year ended March 31, 2021 but when COVID related restrictions are lifted on a
more permanent basis, Eqonex will look to secure a lease in the United Kingdom. In addition, while the office facilities are adequate
for the time being, there will be a need to secure additional office space as the business grows. See Note 29 to our consolidated financial
statements for additional information.
Employees
We
have a current headcount of 200 with employees and contractors located in Hong Kong, Singapore, Vietnam, United Kingdom, Switzerland,
France, China, Dubai, Japan, Philippines, South Korea, USA, Puerto Rico and Canada.
INDEX TO FINANCIAL STATEMENTS
DIGINEX
LIMITED
CONSOLIDATED
FINANCIAL STATEMENTS
31
March 2021, 2020 AND 2019
Table
of Contents
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders
of Diginex Limited
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated statements of financial position of Diginex Limited (the “Company”) as of March
31, 2021 and 2020, and the related consolidated statements of profit or loss, comprehensive loss, changes in equity, and cash flows for
the years ended March 31, 2021, 2020 and 2019, and the related notes (collectively referred to as the consolidated financial statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of March 31, 2021 and 2020, and the results of their operations and their cash flows for the years ended March 31, 2021, 2020 and
2019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the generally accepted auditing standards established by the Auditing Standards
Boards (United States) and in accordance with the auditing standards of PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly,
we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
UHY LLP
We
have served as the Company’s auditor since 2019.
New
York, New York
June
29, 2021
DIGINEX
LIMITED
CONSOLIDATED
STATEMENT OF PROFIT OR LOSS
For
the years ended 31 March 2021, 2020 and 2019
|
|
|
|
|
|
Year ended
31
March 2021
|
|
|
|
Year
ended
31
March 2020
|
|
|
|
Year
ended
31
March 2019
|
|
|
|
|
Notes
|
|
|
USD
|
|
|
|
USD
|
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
3
|
|
|
287,468
|
|
|
|
494,622
|
|
|
|
950,064
|
|
|
|
|
|
|
|
287,468
|
|
|
|
494,622
|
|
|
|
950,064
|
|
General
and administrative expenses
|
|
|
4
|
|
|
(64,916,121
|
)
|
|
|
(42,984,644
|
)
|
|
|
(18,885,901
|
)
|
OPERATING
LOSS
|
|
|
|
|
|
(64,628,653
|
)
|
|
|
(42,490,022
|
)
|
|
|
(17,935,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
losses and expenses, net
|
|
|
6
|
|
|
(64,432,715
|
)
|
|
|
(1,699,067
|
)
|
|
|
(2,872,909
|
)
|
Impairment
reversal (losses) on financial assets
|
|
|
7
|
|
|
21,071
|
|
|
|
(11,237,660
|
)
|
|
|
(5,589,772
|
)
|
Impairment
of goodwill
|
|
|
17
|
|
|
-
|
|
|
|
-
|
|
|
|
(457,818
|
)
|
Finance
costs, net
|
|
|
8
|
|
|
(2,271,445
|
)
|
|
|
(1,851,527
|
)
|
|
|
(1,139,211
|
)
|
Share
of loss of an associate
|
|
|
9
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,270,686
|
)
|
LOSS
BEFORE TAX
|
|
|
|
|
|
(131,311,742
|
)
|
|
|
(57,278,276
|
)
|
|
|
(40,266,233
|
)
|
Income
tax credit
|
|
|
10
|
|
|
478,078
|
|
|
|
-
|
|
|
|
-
|
|
LOSS
FROM CONTINUING OPERATIONS
|
|
|
|
|
|
(130,833,664
|
)
|
|
|
(57,278,276
|
)
|
|
|
(40,266,233
|
)
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
(loss) from discontinued operations (attributable to the ordinary equity holders of the Company)
|
|
|
37
|
|
|
4,956,408
|
|
|
|
(857,554
|
)
|
|
|
56,986,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS)
PROFIT FOR THE YEAR
|
|
|
|
|
|
(125,877,256
|
)
|
|
|
(58,135,830
|
)
|
|
|
16,720,713
|
|
(Loss)
Profit attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners
of the Company
|
|
|
|
|
|
(125,334,915
|
)
|
|
|
(57,716,069
|
)
|
|
|
16,810,157
|
|
Non-controlling
interests
|
|
|
|
|
|
(542,341
|
)
|
|
|
(419,761
|
)
|
|
|
(89,444
|
)
|
|
|
|
|
|
|
(125,877,256
|
)
|
|
|
(58,135,830
|
)
|
|
|
16,720,713
|
|
LOSS
PER SHARE FOR LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
loss per share
|
|
|
11
|
|
$
|
(4.97
|
)
|
|
$
|
(3.80)
|
|
|
$
|
(2.90)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
(LOSS) PER SHARE FOR PROFIT (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share
|
|
|
11
|
|
$
|
0.19
|
|
|
$
|
(0.06)
|
|
|
$
|
4.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS)
EARNINGS PER SHARE FOR (LOSS) PROFIT ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(loss) earnings per share
|
|
|
11
|
|
$
|
(4.78
|
)
|
|
$
|
(3.86)
|
|
|
$
|
1.21
|
|
The
above consolidated statement of profit or loss should be read in conjunction with the accompanying notes.
DIGINEX
LIMITED
CONSOLIDATED
STATEMENT OF COMPREHENSIVE (LOSS) INCOME
For
the years ended 31 March 2021, 2020 and 2019
|
|
|
|
|
Year ended
31
March 2021
|
|
|
Year ended
31
March 2020
|
|
|
Year ended
31
March 2019
|
|
|
|
Notes
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) PROFIT FOR THE YEAR
|
|
|
|
|
|
|
(125,877,256
|
)
|
|
|
(58,135,830
|
)
|
|
|
16,720,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE (LOSS) INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange (loss) gain on translation of foreign operations
|
|
|
|
|
|
|
(525,878
|
)
|
|
|
22,903
|
|
|
|
6,296
|
|
Digital assets revaluation gain
|
|
|
22
|
|
|
|
429,789
|
|
|
|
-
|
|
|
|
-
|
|
TOTAL COMPREHENSIVE (LOSS) INCOME FOR THE YEAR
|
|
|
|
|
|
|
(125,973,345
|
)
|
|
|
(58,112,927
|
)
|
|
|
16,727,009
|
|
Total comprehensive (loss) income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the Company
|
|
|
|
|
|
|
(125,431,004
|
)
|
|
|
(57,693,166
|
)
|
|
|
16,816,453
|
|
Non-controlling interests
|
|
|
|
|
|
|
(542,341
|
)
|
|
|
(419,761
|
)
|
|
|
(89,444
|
)
|
|
|
|
|
|
|
|
(125,973,345
|
)
|
|
|
(58,112,927
|
)
|
|
|
16,727,009
|
|
Total comprehensive (loss) income attributable to Owners of the Company arising from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
(130,387,412
|
)
|
|
|
(56,835,612
|
)
|
|
|
(40,170,493
|
)
|
Discontinued operations
|
|
|
|
|
|
|
4,956,408
|
|
|
|
(857,554
|
)
|
|
|
56,986,946
|
|
|
|
|
|
|
|
|
(125,431,004
|
)
|
|
|
(57,693,166
|
)
|
|
|
16,816,453
|
|
The
above consolidated statement of comprehensive (loss) income should be read in conjunction with the accompanying notes.
DIGINEX
LIMITED
CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
At
31 March 2021 and 2020
|
|
|
|
|
|
|
At
31 March 2021
|
|
|
|
At
31 March 2020
|
|
|
|
|
Notes
|
|
|
|
USD
|
|
|
|
USD
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
12
|
|
|
|
14,845,896
|
|
|
|
10,669,116
|
|
Property,
plant and equipment, net
|
|
|
13
|
|
|
|
473,512
|
|
|
|
1,219,721
|
|
Right-of-use
assets, net
|
|
|
14
|
|
|
|
906,474
|
|
|
|
2,879,032
|
|
Financial
assets at fair value through profit or loss
|
|
|
16
|
|
|
|
304,053
|
|
|
|
449,011
|
|
Prepayment,
deposits and other receivables, non-current
|
|
|
18
|
|
|
|
152,988
|
|
|
|
1,246,947
|
|
Non-current
assets
|
|
|
|
|
|
|
16,682,923
|
|
|
|
16,463,827
|
|
Trade
receivables
|
|
|
18
|
|
|
|
12,604
|
|
|
|
72,652
|
|
Prepayment,
deposits and other receivables
|
|
|
18
|
|
|
|
3,256,771
|
|
|
|
1,808,179
|
|
Amount
due from an associate
|
|
|
19
|
|
|
|
-
|
|
|
|
977,421
|
|
Amounts
due from related companies
|
|
|
20
|
|
|
|
12,296
|
|
|
|
12,392
|
|
Amounts
due from shareholders
|
|
|
20
|
|
|
|
36,963
|
|
|
|
37,726
|
|
Client
assets
|
|
|
21
|
|
|
|
27,021,925
|
|
|
|
543,910
|
|
Digital
assets
|
|
|
22
|
|
|
|
348,998
|
|
|
|
36,034
|
|
USDC
|
|
|
23
|
|
|
|
2,034,800
|
|
|
|
293,793
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
52,118,497
|
|
|
|
988,836
|
|
Current
assets
|
|
|
|
|
|
|
84,842,854
|
|
|
|
4,770,943
|
|
TOTAL
ASSETS
|
|
|
|
|
|
|
101,525,777
|
|
|
|
21,234,770
|
|
EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
24
|
|
|
|
312,633,450
|
|
|
|
139,336,569
|
|
Reverse
acquisition reserve
|
|
|
24
|
|
|
|
(129,036,521
|
)
|
|
|
(85,180,290
|
)
|
Share-based
payment reserve
|
|
|
25
|
|
|
|
63,540,756
|
|
|
|
10,356,664
|
|
Revaluation
surplus
|
|
|
27
|
|
|
|
180,260
|
|
|
|
-
|
|
Foreign
currency translation reserve
|
|
|
27
|
|
|
|
(511,830
|
)
|
|
|
14,048
|
|
Accumulated
losses
|
|
|
|
|
|
|
(184,980,114
|
)
|
|
|
(68,186,372
|
)
|
Shareholders’
equity (deficit) attributable to the owners of the Company
|
|
|
|
|
|
|
61,826,001
|
|
|
|
(3,659,381
|
)
|
Non-controlling
interests
|
|
|
27
|
|
|
|
(748,136
|
)
|
|
|
(205,795
|
)
|
Total
equity (deficit)
|
|
|
|
|
|
|
61,077,865
|
|
|
|
(3,865,176
|
)
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
liabilities, non-current
|
|
|
29
|
|
|
|
134,951
|
|
|
|
945,374
|
|
Non-current
liabilities
|
|
|
|
|
|
|
134,951
|
|
|
|
945,374
|
|
Amount
due to an associate
|
|
|
19
|
|
|
|
900,000
|
|
|
|
-
|
|
Amounts
due to related parties
|
|
|
20
|
|
|
|
203,460
|
|
|
|
-
|
|
Amounts
due to directors
|
|
|
20
|
|
|
|
6,785
|
|
|
|
374,604
|
|
Loans
from shareholders
|
|
|
20
|
|
|
|
-
|
|
|
|
10,711,563
|
|
Amounts
due to shareholders
|
|
|
20
|
|
|
|
-
|
|
|
|
1,686
|
|
Client
liabilities
|
|
|
21
|
|
|
|
27,021,925
|
|
|
|
543,910
|
|
Warrant
liability
|
|
|
26
|
|
|
|
5,197,201
|
|
|
|
-
|
|
Lease
liabilities, current
|
|
|
29
|
|
|
|
733,488
|
|
|
|
2,132,877
|
|
Other
payables and accruals
|
|
|
30
|
|
|
|
6,250,102
|
|
|
|
9,714,932
|
|
Notes
payable
|
|
|
31
|
|
|
|
-
|
|
|
|
675,000
|
|
Current
liabilities
|
|
|
|
|
|
|
40,312,961
|
|
|
|
24,154,572
|
|
Total
liabilities
|
|
|
|
|
|
|
40,447,912
|
|
|
|
25,099,946
|
|
TOTAL
EQUITY (DEFICIT) AND LIABILITIES
|
|
|
|
|
|
|
101,525,777
|
|
|
|
21,234,770
|
|
The
above consolidated statement of financial position should be read in conjunction with the accompanying notes.
DIGINEX
LIMITED
CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
For
the years ended 31 March 2021, 2020 and 2019
|
|
|
|
|
Attributable
to owners of the Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse acquisition
|
|
|
Revaluation
|
|
|
|
|
|
Share-based payment
|
|
|
Foreign currency translation
|
|
|
Accumulated
|
|
|
|
|
|
Non-controlling
|
|
|
Total shareholders’
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
reserve
|
|
|
surplus
|
|
|
Warrants
|
|
|
reserve
|
|
|
reserve
|
|
|
Losses
|
|
|
Total
|
|
|
interests
|
|
|
equity
|
|
|
|
Notes
|
|
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Balance at 1 April 2018
|
|
|
24
|
|
|
|
1,020,400
|
|
|
|
10,572,482
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,151
|
)
|
|
|
(285,077
|
)
|
|
|
10,272,254
|
|
|
|
-
|
|
|
|
10,272,254
|
|
Shares issued for cash during the year
|
|
|
24
|
|
|
|
7,424
|
|
|
|
2,412,868
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,412,868
|
|
|
|
-
|
|
|
|
2,412,868
|
|
Shares issued for consulting services
|
|
|
24
|
|
|
|
990
|
|
|
|
242,635
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
242,635
|
|
|
|
-
|
|
|
|
242,635
|
|
Shares issued as consideration for acquisition of a
subsidiary
|
|
|
24
|
|
|
|
816
|
|
|
|
199,920
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
199,920
|
|
|
|
-
|
|
|
|
199,920
|
|
Expenses related to raise of capital
|
|
|
24
|
|
|
|
-
|
|
|
|
(44,985
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(44,985
|
)
|
|
|
-
|
|
|
|
(44,985
|
)
|
Shares repurchased
|
|
|
24
|
|
|
|
(55,727
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,619,463
|
)
|
|
|
(6,619,463
|
)
|
|
|
-
|
|
|
|
(6,619,463
|
)
|
Total income (loss) for the year
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,810,157
|
|
|
|
16,810,157
|
|
|
|
(89,444
|
)
|
|
|
16,720,713
|
|
Total other comprehensive income for the year
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,296
|
|
|
|
-
|
|
|
|
6,296
|
|
|
|
-
|
|
|
|
6,296
|
|
Acquisition of a subsidiary
|
|
|
36
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,490
|
|
|
|
27,490
|
|
Interim 2019 dividend
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,000,000
|
)
|
|
|
(20,000,000
|
)
|
|
|
-
|
|
|
|
(20,000,000
|
)
|
Equity-settled share-based payments
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
634,462
|
|
|
|
-
|
|
|
|
-
|
|
|
|
634,462
|
|
|
|
-
|
|
|
|
634,462
|
|
Balance at 31 March 2019
|
|
|
|
|
|
|
973,903
|
|
|
|
13,382,920
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
634,462
|
|
|
|
(8,855
|
)
|
|
|
(10,094,383
|
)
|
|
|
3,914,144
|
|
|
|
(61,954
|
)
|
|
|
3,852,190
|
|
Recapitalization of Diginex HK
(1:13.9688 exchange ratio)
|
|
|
24
|
|
|
|
12,630,313
|
|
|
|
20,753,062
|
|
|
|
(20,753,062
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at 31 March 2019
|
|
|
|
|
|
|
13,604,216
|
|
|
|
34,135,982
|
|
|
|
(20,753,062
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
634,462
|
|
|
|
(8,855
|
)
|
|
|
(10,094,383
|
)
|
|
|
3,914,144
|
|
|
|
(61,954
|
)
|
|
|
3,852,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 April 2019
|
|
|
24
|
|
|
|
973,903
|
|
|
|
13,382,920
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
634,462
|
|
|
|
(8,855
|
)
|
|
|
(10,094,383
|
)
|
|
|
3,914,144
|
|
|
|
(61,954
|
)
|
|
|
3,852,190
|
|
Shares issued for cash during the year
|
|
|
24
|
|
|
|
214,753
|
|
|
|
31,831,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,831,174
|
|
|
|
-
|
|
|
|
31,831,174
|
|
Shares issued for consulting services
|
|
|
24
|
|
|
|
17,081
|
|
|
|
2,709,854
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,709,854
|
|
|
|
-
|
|
|
|
2,709,854
|
|
Shares issued for intangible assets
|
|
|
12
|
|
|
|
35,088
|
|
|
|
5,400,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,400,043
|
|
|
|
|
|
|
|
5,400,043
|
|
Shares issued to employees
|
|
|
24
|
|
|
|
10,522
|
|
|
|
1,745,447
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,745,447
|
|
|
|
-
|
|
|
|
1,745,447
|
|
Expenses related to raise of capital
|
|
|
24
|
|
|
|
-
|
|
|
|
(913,159
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(913,159
|
)
|
|
|
-
|
|
|
|
(913,159
|
)
|
Total loss for the year
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(57,716,069
|
)
|
|
|
(57,716,069
|
)
|
|
|
(419,761
|
)
|
|
|
(58,135,830
|
)
|
Total other comprehensive income for the year
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,903
|
|
|
|
-
|
|
|
|
22,903
|
|
|
|
-
|
|
|
|
22,903
|
|
Acquisition of a subsidiary
|
|
|
36
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(375,920
|
)
|
|
|
(375,920
|
)
|
|
|
275,920
|
|
|
|
(100,000
|
)
|
Equity-settled share-based payments
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,722,202
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,722,202
|
|
|
|
-
|
|
|
|
9,722,202
|
|
Balance at 31 March 2020
|
|
|
|
|
|
|
1,251,347
|
|
|
|
54,156,279
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,356,664
|
|
|
|
14,048
|
|
|
|
(68,186,372
|
)
|
|
|
(3,659,381
|
)
|
|
|
(205,795
|
)
|
|
|
(3,865,176
|
)
|
Recapitalization of Diginex HK
(1:13.9688 exchange ratio)
|
|
|
24
|
|
|
|
16,228,418
|
|
|
|
85,180,290
|
|
|
|
(85,180,290
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at 31 March 2020
(Note
a)
|
|
|
|
|
|
|
17,479,765
|
|
|
|
139,336,569
|
|
|
|
(85,180,290
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
10,356,664
|
|
|
|
14,048
|
|
|
|
(68,186,372
|
)
|
|
|
(3,659,381
|
)
|
|
|
(205,795
|
)
|
|
|
(3,865,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 April 2020 (Note a)
|
|
|
24
|
|
|
|
1,251,347
|
|
|
|
54,156,279
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,356,664
|
|
|
|
14,048
|
|
|
|
(68,186,372
|
)
|
|
|
(3,659,381
|
)
|
|
|
(205,795
|
)
|
|
|
(3,865,176
|
)
|
Shares issued for cash during the six months to 30 September
2020
|
|
|
24
|
|
|
|
3,572
|
|
|
|
285,438
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
285,438
|
|
|
|
-
|
|
|
|
285,438
|
|
Shares issued on conversion of convertible bond
|
|
|
24
|
|
|
|
318,311
|
|
|
|
25,436,232
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,436,232
|
|
|
|
-
|
|
|
|
25,436,232
|
|
Shares issued for consulting services
|
|
|
24
|
|
|
|
595
|
|
|
|
47,546
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47,546
|
|
|
|
-
|
|
|
|
47,546
|
|
Shares issued for intangible asset purchase
|
|
|
12
|
|
|
|
3,899
|
|
|
|
600,056
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
600,056
|
|
|
|
-
|
|
|
|
600,056
|
|
Shares issued to employees
|
|
|
24
|
|
|
|
9,114
|
|
|
|
728,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
728,300
|
|
|
|
-
|
|
|
|
728,300
|
|
Shares issued to settle shareholder loan
|
|
|
20
|
|
|
|
9,039
|
|
|
|
722,306
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
722,306
|
|
|
|
-
|
|
|
|
722,306
|
|
Equity-settled share-based payments
|
|
|
25
|
|
|
|
448
|
|
|
|
35,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,800
|
|
|
|
-
|
|
|
|
35,800
|
|
Equity-settled earn-out awards
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,148,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,148,300
|
|
|
|
-
|
|
|
|
32,148,300
|
|
|
|
|
|
|
Attributable
to owners of the Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse acquisition
|
|
|
Revaluation
|
|
|
|
|
|
Share-based payment
|
|
|
Foreign currency translation
|
|
|
Accumulated
|
|
|
|
|
|
Non-controlling
|
|
|
Total shareholders’
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
reserve
|
|
|
surplus
|
|
|
Warrants
|
|
|
reserve
|
|
|
reserve
|
|
|
Losses
|
|
|
Total
|
|
|
interests
|
|
|
equity
|
|
|
|
Notes
|
|
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Anti-dilutive share issuance
|
|
|
24
|
|
|
|
187,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expenses related to raise of
capital
|
|
|
24
|
|
|
|
6,382
|
|
|
|
(152,044
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(152,044
|
)
|
|
|
-
|
|
|
|
(152,044
|
)
|
Subtotal
|
|
|
|
|
|
|
1,798,708
|
|
|
|
81,859,913
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,504,964
|
|
|
|
14,048
|
|
|
|
(68,186,372
|
)
|
|
|
56,192,553
|
|
|
|
(205,795
|
)
|
|
|
55,986,758
|
|
Recapitalization of Diginex
HK
(1:13.9688 exchange ratio)
|
|
|
24
|
|
|
|
23,210,292
|
|
|
|
129,019,911
|
|
|
|
(129,019,911
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Subtotal
|
|
|
|
|
|
|
25,000,000
|
|
|
|
210,879,824
|
|
|
|
(129,019,911
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
42,504,964
|
|
|
|
14,048
|
|
|
|
(68,186,372
|
)
|
|
|
56,192,553
|
|
|
|
(205,795
|
)
|
|
|
55,986,758
|
|
Recapitalized with founding share of the Company
|
|
|
36
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(16,610
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,609
|
)
|
|
|
-
|
|
|
|
(16,609
|
)
|
Acquisition of 8i Enterprises
|
|
|
36
|
|
|
|
6,688,392
|
|
|
|
56,851,332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,324,147
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,175,479
|
|
|
|
-
|
|
|
|
65,175,479
|
|
Subtotal
|
|
|
|
|
|
|
31,688,393
|
|
|
|
267,731,157
|
|
|
|
(129,036,521
|
)
|
|
|
-
|
|
|
|
8,324,147
|
|
|
|
42,504,964
|
|
|
|
14,048
|
|
|
|
(68,186,372
|
)
|
|
|
121,351,423
|
|
|
|
(205,795
|
)
|
|
|
121,145,628
|
|
Shares issued for services
|
|
|
24
|
|
|
|
27,334
|
|
|
|
285,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
285,160
|
|
|
|
-
|
|
|
|
285,160
|
|
Shares issued for cash during the six months to 31 March
2021
|
|
|
24
|
|
|
|
2,571,669
|
|
|
|
21,980,647
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,980,647
|
|
|
|
-
|
|
|
|
21,980,647
|
|
Expenses related to raise of capital
|
|
|
24
|
|
|
|
-
|
|
|
|
(1,636,312
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,636,312
|
)
|
|
|
-
|
|
|
|
(1,636,312
|
)
|
Shares issued in settlement of earn-out awards
|
|
|
25
|
|
|
|
3,030,000
|
|
|
|
7,241,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,241,700
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares issued for warrants exercised and warrants repurchased
|
|
|
26
|
|
|
|
1,480,965
|
|
|
|
17,031,098
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,324,147
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,291,644
|
|
|
|
16,998,595
|
|
|
|
-
|
|
|
|
16,998,595
|
|
Equity-settled share-based payments
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,277,492
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,277,492
|
|
|
|
-
|
|
|
|
28,277,492
|
|
Total loss for the year
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(125,334,915
|
)
|
|
|
(125,334,915
|
)
|
|
|
(542,341
|
)
|
|
|
(125,877,256
|
)
|
Total other comprehensive loss
for the year
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
180,260
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(525,878
|
)
|
|
|
249,529
|
|
|
|
(96,089
|
)
|
|
|
-
|
|
|
|
(96,089
|
)
|
Balance at 31 March 2021
|
|
|
|
|
|
|
38,798,361
|
|
|
|
312,633,450
|
|
|
|
(129,036,521
|
)
|
|
|
180,260
|
|
|
|
-
|
|
|
|
63,540,756
|
|
|
|
(511,830
|
)
|
|
|
(184,980,114
|
)
|
|
|
61,826,001
|
|
|
|
(748,136
|
)
|
|
|
61,077,865
|
|
Note
a – The balance of share capital as at 31 March 2020 has been recapitalized and reflected as such in the consolidated statement
of financial position.
The
above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
DIGINEX
LIMITED
CONSOLIDATED
STATEMENT OF CASH FLOWS
For the years ended 31 March 2021, 2020
and 2019
|
|
|
|
|
Year ended
31 March
2021
|
|
|
Year ended
31 March
2020
|
|
|
Year ended
31 March
2019
|
|
|
|
Notes
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) before tax from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
(131,311,742
|
)
|
|
|
(57,278,276
|
)
|
|
|
(40,266,233
|
)
|
Discontinued operations
|
|
|
|
|
|
|
4,956,408
|
|
|
|
(857,554
|
)
|
|
|
56,986,946
|
|
PROFIT (LOSS) INCLUDING DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
(126,355,334
|
)
|
|
|
(58,135,830
|
)
|
|
|
16,720,713
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on bargain purchase of a subsidiary
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(82,470
|
)
|
Net gain on fair value on equity method investment
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,030,339
|
)
|
Impairment of goodwill
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
457,818
|
|
Impairment (reversal) losses
|
|
|
7
|
|
|
|
(21,071
|
)
|
|
|
11,237,660
|
|
|
|
5,589,772
|
|
Finance costs
|
|
|
8
|
|
|
|
1,036,104
|
|
|
|
1,851,527
|
|
|
|
1,139,285
|
|
Transaction cost associated with private warrants
|
|
|
8
|
|
|
|
1,235,341
|
|
|
|
-
|
|
|
|
-
|
|
Net gain from change in fair value on financial liabilities through profit or loss
|
|
|
26
|
|
|
|
(11,397,187
|
)
|
|
|
-
|
|
|
|
-
|
|
Revaluation loss on Digital assets through profit or loss
|
|
|
22
|
|
|
|
68,360
|
|
|
|
-
|
|
|
|
-
|
|
Net fair value losses on financial assets at fair value through profit or loss
|
|
|
6
|
|
|
|
144,109
|
|
|
|
1,527,158
|
|
|
|
2,590,853
|
|
Net loss on sale of financial assets at fair value through profit or loss
|
|
|
6
|
|
|
|
-
|
|
|
|
221,626
|
|
|
|
11,665,824
|
|
Depreciation – property, plant and equipment
|
|
|
13
|
|
|
|
817,597
|
|
|
|
791,714
|
|
|
|
575,109
|
|
Loss on disposal – property, plant and equipment
|
|
|
13
|
|
|
|
36,300
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation – right-of-use assets
|
|
|
14
|
|
|
|
1,963,787
|
|
|
|
1,965,711
|
|
|
|
1,387,004
|
|
Share of loss of an associate
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,270,686
|
|
Impact on reclassification to short term lease
|
|
|
|
|
|
|
(32,588
|
)
|
|
|
-
|
|
|
|
-
|
|
Amortization – Intangible assets
|
|
|
12
|
|
|
|
2,021,722
|
|
|
|
-
|
|
|
|
-
|
|
Shares issued for consulting services
|
|
|
24
|
|
|
|
332,706
|
|
|
|
2,709,854
|
|
|
|
242,635
|
|
Shares issued to employees
|
|
|
24
|
|
|
|
715,834
|
|
|
|
-
|
|
|
|
-
|
|
Equity-settled share-based payments
|
|
|
24
|
|
|
|
35,800
|
|
|
|
-
|
|
|
|
-
|
|
Equity settled share-based payments – employee share option scheme and accrued share awards
|
|
|
5
|
|
|
|
28,901,004
|
|
|
|
11,397,317
|
|
|
|
634,462
|
|
Earn-out share awards
|
|
|
6
|
|
|
|
32,148,300
|
|
|
|
-
|
|
|
|
-
|
|
Transaction expense
|
|
|
36
|
|
|
|
43,995,869
|
|
|
|
-
|
|
|
|
-
|
|
Discontinued operations
|
|
|
37
|
|
|
|
(5,987,534
|
)
|
|
|
70,331
|
|
|
|
(58,824,071
|
)
|
|
|
|
|
|
|
|
(30,340,881
|
)
|
|
|
(26,362,932
|
)
|
|
|
(16,662,719
|
)
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
|
|
|
|
60,048
|
|
|
|
(81,735
|
)
|
|
|
(212,298
|
)
|
Prepayment, deposits and other receivables
|
|
|
|
|
|
|
(1,285,134
|
)
|
|
|
(1,615,696
|
)
|
|
|
(1,275,075
|
)
|
Income tax payable
|
|
|
|
|
|
|
-
|
|
|
|
(27,680
|
)
|
|
|
-
|
|
Client assets
|
|
|
|
|
|
|
(26,478,015
|
)
|
|
|
(543,910
|
)
|
|
|
-
|
|
Client liabilities
|
|
|
|
|
|
|
26,478,015
|
|
|
|
543,910
|
|
|
|
-
|
|
Amounts due from related companies
|
|
|
|
|
|
|
-
|
|
|
|
(1,113
|
)
|
|
|
(9,856
|
)
|
Amounts due to related companies
|
|
|
|
|
|
|
203,460
|
|
|
|
-
|
|
|
|
-
|
|
Other payables and accruals
|
|
|
|
|
|
|
(6,066,606
|
)
|
|
|
7,846,029
|
|
|
|
1,379,759
|
|
Amounts due to directors
|
|
|
|
|
|
|
(367,819
|
)
|
|
|
17,749
|
|
|
|
334,374
|
|
Advance to an associate company
|
|
|
|
|
|
|
-
|
|
|
|
(226,308
|
)
|
|
|
(1,991,988
|
)
|
|
|
|
|
|
Year ended
31 March
2021
|
|
|
Year ended
31 March
2020
|
|
|
Year ended
31 March
2019
|
|
|
|
Notes
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Amounts due to shareholders
|
|
|
|
|
|
|
(1,686
|
)
|
|
|
1,686
|
|
|
|
(510,349
|
)
|
Amounts due from shareholders
|
|
|
|
|
|
|
765
|
|
|
|
63,372
|
|
|
|
520,315
|
|
Digital assets
|
|
|
22
|
|
|
|
48,465
|
|
|
|
(36,034
|
)
|
|
|
-
|
|
USDC
|
|
|
23
|
|
|
|
(1,741,007
|
)
|
|
|
(293,793
|
)
|
|
|
-
|
|
Discontinued operations
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(607,741
|
)
|
Cash used in operating activities
|
|
|
|
|
|
|
(39,490,395
|
)
|
|
|
(20,716,455
|
)
|
|
|
(19,035,578
|
)
|
Finance costs paid
|
|
|
|
|
|
|
(387,366
|
)
|
|
|
(1,561,094
|
)
|
|
|
(419,536
|
)
|
Income tax credit received
|
|
|
10
|
|
|
|
478,078
|
|
|
|
-
|
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
|
|
|
|
(39,399,683
|
)
|
|
|
(22,277,549
|
)
|
|
|
(19,455,114
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
13
|
|
|
|
(49,743
|
)
|
|
|
(69,875
|
)
|
|
|
(2,373,518
|
)
|
Acquisition of subsidiaries, net of cash acquired
|
|
|
36
|
|
|
|
(75,000
|
)
|
|
|
(25,000
|
)
|
|
|
(123,609
|
)
|
Cash received on completion of Transaction
|
|
|
36
|
|
|
|
24,149,575
|
|
|
|
-
|
|
|
|
-
|
|
Sales of financial assets through profit or loss
|
|
|
|
|
|
|
-
|
|
|
|
155,951
|
|
|
|
33,992,480
|
|
Investment in financial assets through profit or loss
|
|
|
16
|
|
|
|
-
|
|
|
|
(267,773
|
)
|
|
|
(3,811,256
|
)
|
Acquired software and capitalized software development
|
|
|
12
|
|
|
|
(5,652,943
|
)
|
|
|
(5,269,116
|
)
|
|
|
-
|
|
Discontinued operations
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,550,618
|
)
|
Net cash generated from (used in) investing activities
|
|
|
|
|
|
|
18,371,889
|
|
|
|
(5,475,813
|
)
|
|
|
12,133,479
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan receivables
|
|
|
15
|
|
|
|
-
|
|
|
|
(479,749
|
)
|
|
|
(15,700,000
|
)
|
Repayment of loan receivables
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000,000
|
|
Loan to an associate
|
|
|
19
|
|
|
|
-
|
|
|
|
(2,000,000
|
)
|
|
|
-
|
|
Repayment of amounts due from an associate
|
|
|
19
|
|
|
|
951,781
|
|
|
|
814,572
|
|
|
|
-
|
|
Advance from an associate
|
|
|
19
|
|
|
|
900,000
|
|
|
|
-
|
|
|
|
-
|
|
Advance to a director
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,000,000
|
)
|
Repayment of advance of a director
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
Payment of lease liabilities
|
|
|
29
|
|
|
|
(2,399,147
|
)
|
|
|
(2,390,366
|
)
|
|
|
(1,645,620
|
)
|
Proceeds from issues of share capital, net
|
|
|
24
|
|
|
|
255,438
|
|
|
|
30,918,015
|
|
|
|
2,367,883
|
|
Proceed from issues of private placement shares, net of expenses
|
|
|
24
|
|
|
|
20,626,394
|
|
|
|
-
|
|
|
|
-
|
|
Proceed from issues of private placement warrants, net of expenses
|
|
|
26
|
|
|
|
15,571,989
|
|
|
|
-
|
|
|
|
-
|
|
Procced from issues of public warrant shares
|
|
|
26
|
|
|
|
17,031,098
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from loans from shareholders
|
|
|
20
|
|
|
|
100,000
|
|
|
|
5,332,303
|
|
|
|
14,625,561
|
|
Repayment of loans from shareholders
|
|
|
20
|
|
|
|
(3,949,050
|
)
|
|
|
(4,850,000
|
)
|
|
|
(4,508,829
|
)
|
Payments for shares repurchase
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,144,943
|
)
|
Proceeds from notes payable
|
|
|
31
|
|
|
|
-
|
|
|
|
675,000
|
|
|
|
-
|
|
Repayment of notes payable
|
|
|
31
|
|
|
|
(675,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Proceeds from convertible bond, net of expenses
|
|
|
32
|
|
|
|
24,272,539
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from third-party loan
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000,000
|
|
Repayment of third-party loan
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,000,000
|
)
|
Dividend Paid
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,000,000
|
)
|
Discontinued operations
|
|
|
37
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,949,691
|
|
Net cash generated from financing activities
|
|
|
|
|
|
|
72,686,042
|
|
|
|
28,019,775
|
|
|
|
1,943,743
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
51,658,248
|
|
|
|
266,413
|
|
|
|
(5,377,892
|
)
|
Cash and cash equivalents at the beginning of the period
|
|
|
|
|
|
|
988,836
|
|
|
|
740,061
|
|
|
|
6,111,657
|
|
Effect of foreign exchange rate changes
|
|
|
|
|
|
|
(528,587
|
)
|
|
|
(17,638
|
)
|
|
|
6,296
|
|
CASH AND CASH EQUIVALENTS AT 31 MARCH
|
|
|
|
|
|
|
52,118,497
|
|
|
|
988,836
|
|
|
|
740,061
|
|
Non-cash
investing and financing activities
Non-cash
investing and financing activities for the year ended 31 March 2021, as disclosed in the notes, are:
|
●
|
Acquisition
of intangible assets through the issuance of Diginex HK shares valued at $600,056 (note 12)
|
|
●
|
Addition
to right-of-use assets and lease liabilities of $406,333 (notes 14 and 29)
|
|
●
|
Settlement
of loans from shareholders of $722,306 via issuance of shares in Diginex HK (note 20.6)
|
|
●
|
Settlement
of loans from shareholders of $100,000 via issuance of a convertible bond (note 20.6)
|
|
●
|
Settlement
of deferred compensation from the salary deferral scheme of $485,000 via issuance of convertible bonds (note 32)
|
|
●
|
Conversion
of convertible bonds and accrued interest into shares in Diginex HK of $25,436,232 (note 24)
|
|
●
|
Issue
of earn-out shares of 3,030,000 from the earn-out share based payment reserve of $7,241,700 (note 25)
|
|
●
|
Accrual
of transaction costs of $495,000 payable to a service provider associated with the private placement (note 26.2)
|
Non-cash
investing and financing activities for the year ended 31 March 2020, as disclosed in the notes, are:
|
●
|
Loan
novation of $4,323,530 from a loan receivable to an amount due from an associate (notes 15 and 19)
|
|
●
|
Acquisition
of intangible assets amounting to $5,400,043 through the issuance of Diginex HK shares (note 12), and
|
|
●
|
Outstanding
payable of $75,000 on acquisition of remaining interest in Bletchley Park Asset Management Jersey Limited (note 36).
|
Non-cash
investing and financing activities during the year ended 31 March 2019, are:
|
●
|
Adoption
of IFRS 16, Leases, resulting in the recognition of right-of-use assets and lease liabilities of $5,768,624,
|
|
●
|
Diginex
HK shares repurchased through allocation of Madison Group Holdings Limited stock which Diginex HK took ownership of as consideration
of the partial divestment of DHPC valued at $3,474,520, and
|
|
●
|
Purchase
of DHPC property, plant and equipment through financing (discontinued operations) $25,549,556.
|
The
above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
DIGINEX
LIMITED
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
For
the year ended 31 March 2021 and 2020
1
ACTIVITIES
Diginex
Limited (the “Company” or “Eqonex”) was incorporated on 1 October 2019 and domiciled in Singapore with
its registered office and principal place of business located at 1 Robinson Road #18-00 AIA Tower Singapore 048542.
The
Company is an investment holding company listed on Nasdaq (EQOS). The Company has various subsidiaries that are incorporated in
Hong Kong, People’s Republic of China (“PRC”), Singapore, Switzerland, Republic of Korea, Germany, Jersey, United
Kingdom, British Virgin Islands, Vietnam, Luxembourg, and Republic of Seychelles (“collectively, the Group”).
The
Group is a digital asset financial services and advisory company focused on delivering innovative products, architecture, and
infrastructure to foster the mainstream adoption of the digital asset class. The Group encompasses a cryptocurrency exchange,
EQONEX (“the Exchange” or “EQONEX”, formerly branded as EQUOS), an over-the-counter (“OTC”)
trading operation, a front-to-back integrated trading platform Access Trading (“Access Trading”), risk management
desk, a capital markets business, a warm and cold custody platform (“Digivault”) and an asset management business,
Bletchley Park Asset Management (“BPAM”).
Business
activities during the year:
Exchange
The Exchange offers the trading of cryptocurrencies,
their respective derivatives and, in the future, digital securities 24 hours a day, 365 days a year. The Exchange began operations in
the second quarter of 2020 and is operational in Singapore, operating under the brand name EQONEX since June 2021 (formerly EQUOS). The
Exchange is operating under an exemption to provide payment services pursuant to the Payment Services (Exemption for Specified Period)
Regulations 2019. The exemption will remain in effect until MAS decides on the license application. The Exchange currently facilities
the trading of products in bitcoin (“BTC”), Ether (“ETH”), Bitcoin Cash (“BCH”), USD Coin
(“USDC”), Tether (“USDT”) and EQONEX’s own utility token known as EQO. EQONEX intends to add additional
coins to those listed above as well as expand the product offering from spot and perpetual futures to include, for example, options.
On
8 April 2021, the Group launched EQO. EQO is a utility token which upon launch gives the holder a reduction in trading fees once
they meet specific number of tokens held. In total 21 million EQO will be airdropped to users of EQONEX based on a mixed weighting
between fee paying trading volume and number of EQO held over a period of two years, with a declining number of EQO over time.
Initially the weighting is more in the favor of trading volume and in time the weighting swings towards holding of EQO.
Trading
The
trading business comprises of an OTC offering, a digital asset trading tool, known as Access Trading, and a risk management desk.
Access Trading was integrated with Itiviti’s T-Bricks risk management platform in February 2021 to enhance the product by
including an order, execution and portfolio management solution.
During
the year, the business has commenced to on-board clients to Access Trading from July 2020.
The
risk management desk manages liquidation trades on behalf of the Exchange.
Capital
Markets
The
Capital Markets Business is being developed to assist issuers seeking to access global capital markets through the issuance of
Digital Securities. To this end, the Capital Markets Business will advise, issue and distribute offerings of digital securities
from its clients to investors. The business operates as an Appointed Representative of Starmark Investment Management Limited
(“Starmark”), which is authorized and regulated by the UK Financial Conduct Authority (“FCA”).
Custody
Digivault,
offers an institutionally focused, highly secure digital asset custodian. In May 2021, Digivault received approval from the UK Financial
Conduct Authority (“FCA”) to register as a custodian wallet provider under the Money Laundering, Terrorist Financing and
Transfer of Funds (Information of the Payer) Regulations 2017 (MLR 2017), as amended by the Money Laundering and Terrorist Financing
(Amendment) Regulations 2019. Digivault developed and launched a cold storage solution, known as Kelvin (“Kelvin”), and a
warm storage solution, known as Helios (“Helios”), for digital assets and targets primarily institutional clients whilst
providing the main custody solution for the Exchange. Eqonex owns 85% of Digivault, with the remaining 15% held by key management
of Digivault.
Currently, Digivault stores BTC, ETH, USDC, USDT and
EQO but can support BTC, ETH, USDC, USDT, EQO, LINK, PAX, TUSD, GRT, MATIC, WOO and CHZ. Support for DOT and BCH is currently under development.
Asset
Management
The
Asset Management business provides digital asset investment solutions for institutional and professional investors. Since the final
quarter of 2020 the business has been managed from Switzerland in order to be more geographically aligned with key staff and operates
in compliance with the regulatory framework of the Organisme de Surveillance des Instituts Financiers (“OSIF”). Prior to
relocation, the business was managed from Hong Kong where Eqonex continues to retain its Securities & Futures Commission of Hong
Kong (“SFC”) type 4 and type 9 licenses. Eqonex opened its first fund of hedge funds, consisting of a selection of digital
asset hedge funds, in November 2019. The fund’s aim is to generate positive returns irrespective of the underlying market environment
by ensuring that the fund is exposed to a diverse range of alpha focused investment strategies utilized by various managers.
Corporate
activities during the year:
On
30 September 2020, the Company completed a share swap transaction (“Transaction”) with 8i Enterprises Acquisition
Corp (“8i Enterprises”), a company incorporated in the British Virgin Islands and Diginex Limited (“Diginex
HK”), a company incorporated in Hong Kong. Prior to the Transaction, Diginex HK was the parent of the Diginex group of companies
(“Diginex HK group”). 8i Enterprises was a blank check company listed on Nasdaq, also referred to as a Special Purpose
Acquisition Company (“SPAC”). The SPAC was formed for the sole purpose of entering into a share exchange, asset acquisition,
share purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities.
The Transaction resulted in the Company becoming the ultimate parent holding company of 8i Enterprises and Diginex HK (together
with its subsidiaries) and listed on Nasdaq under the ticker code EQOS. Diginex HK became a subsidiary of 8i Enterprises. Prior
to the Transaction, the Company had issued one founding share and as part of the Transaction, the Company issued 31,688,392 new
shares and 6,212,050 warrants. 25,000,000 of the new shares were issued to former shareholders of Diginex HK with the balance
being issued to former shareholders of 8i Enterprises and service providers that aided the completion of the Transaction. The
warrants were issued to former shareholders and warrant holders of 8i Enterprises.
Prior
to the transaction, 8i shareholders held 5,750,000 shares which they could redeem or swap for shares in the Company. Holders of
2,326,375 8i shares swapped them for shares of the Company which resulted in a cash injection for the Company of $20,964,721 after
payments to the transaction service providers. The balance of shares was redeemed and $35,263,363 returned to those shareholders
on the 2 October 2020. Both transfers of monies were paid from an 8i Enterprises trust account which had a zero balance after
both payments were made.
Under
the terms of the Transaction, the Company was also required to issue 12,000,000 earn-out shares in four equal tranches to the
former shareholders of Diginex HK if certain share price milestones are met over a four-year period starting 30 September 2020.
Upon reaching the earn-out milestones, a service provider to the Transaction is also entitled to receive the equivalent of 1%
of the earn-out shares issued. During the year ended 31 March 2021, the first tranche of the share price milestones was achieved
and 3,030,000 Company shares were issued. See note 25 for details.
Furthermore,
as part of the Transaction, 5,600,000 employee share options were granted to replace the legacy employee share option scheme of
Diginex HK.
Due
to the structure of the above Transaction, these consolidated financial statements are considered as a continuation of the Diginex
HK group, with a recapitalization of equity post the Transaction in accordance with the accounting policy set out in note 2. Accordingly,
the 31 March 2020 and 31 March 2019 comparative consolidated financial statements reflect the financial performance and position
of the Diginex HK group assuming it had been recapitalized under the terms of the Transaction. The total shareholders equity and
reserves remain the same, with a reverse acquisition reserve utilized to offset the increase in share capital.
These
consolidated financial statements are presented in US dollars (USD), which is the same as the functional currency of the Company.
These
consolidated financial statements for year ended 31 March 2021 were authorized for issue by the Board of Directors on June 29, 2021.
The Company’s board of directors has the power to amend the consolidated financial statements after issue.
1.1
Summary of significant transactions
During
the year ended 31 March 2021, the Group entered into the following transactions that significantly affected the financial position
and performance of the Group:
|
●
|
On
30 September 2020, the Company completed the Transaction with 8i Enterprises and Diginex HK which led to the issuance of 31,688,392
shares (the Company had previously issued one founding share). Given the structure of the Transaction it is deemed that Diginex
HK, from an accounting perspective, was the accounting acquirer with the previously consolidated Diginex HK results being
recapitalized to reflect the shares issued to the former Diginex HK shareholders in relation to the Transaction, see note
24.
|
|
●
|
6,212,050
public warrants were issued by the Company to replace the outstanding warrants of 8i Enterprises. The warrants had a fair
value of $8,324,147 recorded as equity instruments issued, see note 26. 2,961,935 warrants were exercised at the warrant price
of $11.50 per share during the year ended 31 March 2021 resulting in the issuance of 1,480,965 Company shares and a cash injection
of $17,031,098. The remaining 3,250,115 shares were redeemed by the company at a price of $0.01, totaling $32,501 cash paid
out based on the terms of the public warrants.
|
|
●
|
The
Transaction resulted in a $43,995,869 non-cash Transaction expense under IFRS 2 as described in notes 6 and 36.
|
|
●
|
Under
the terms of the Transaction, the Company was also required to issue 12,000,000 earn-out shares in four equal tranches to
the former shareholders of Diginex HK if certain share price milestones are met over a four-year period starting 30 September.
Upon reaching the earn-out milestones, a service provider to the Transaction is also entitled to receive the equivalent of
1% of the earn-out shares issued. These shares have a grant date fair value of $32,148,300 and were recognized on 30 September
2020 as a share-based payment reserve and an expense to the consolidated statement of profit or loss under IFRS 2, see note
25. Subsequently on 27 January 2021 the first earn-out milestone was achieved and 3,030,000 Company shares were issued and
$7,241,700 of the share-based payment reserve was reclassified as share capital.
|
|
●
|
On
30 September 2020, the employee share option scheme under Diginex HK was replaced by a new scheme under the Company upon completion
of the Transaction. The new scheme has a different vesting period than the former Diginex HK scheme which resulted in an acceleration
of employee benefit expenses of $1,315,248 (note 25). This is in addition to the on-going expense related to the employee
share option scheme of $26,942,783, see note 25.
|
|
●
|
Total
capitalization of software developed amounted to $5,252,943 in relation to the continued build out of the Exchange and Digivault,
see note 12.
|
|
●
|
The
shareholder loan which amounted to $10,711,563 as at 31 March 2020 was fully settled by a mix of cash, conversion to shares,
investment into a convertible bond, and as consideration for the sale of the Solutions Business, see note 20.6.
|
|
●
|
The
issuance of share capital in Diginex HK, prior to the Transaction, for cash and non-cash consideration, net of capital raise
expenses of $27,703,634 (see note 24) included the conversion of $25,000,000 convertible bonds and the associated finance
costs of $436,232 into shares. The convertible bonds were issued in May 2020 and converted into Diginex HK shares prior to
the Transaction, see note 32.
|
|
●
|
The
Company completed a private placement on 15 January 2021 and raised funds of $38,575,035 by issuance of 2,571,669 ordinary
shares and 2,571,669 private warrants. In raising the funds $2,376,652 was paid to service providers resulting in net cash
inflow of $36,198,383. In addition, costs of $495,000 related to the raise have been accrued but yet to be paid. The private
warrants are classified as financial liabilities which are measured at fair value through profit or loss. On the issuance
date the fair value of the private warrants was $16,594,388 and on 31 March 2021 the private warrants had a fair value of
$5,197,201 causing a fair value gain of $11,397,187 (see note 26).
|
|
●
|
The
sale of the Solutions Business to Rhino Ventures Limited, a related party, in May 2020 resulted in a recognized gain on sale
of $5,073,595, see note 37.
|
2
BASIS OF PREPARATION
These
consolidated financial statements for the years ended 31 March 2021, 2020, and 2019 have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).
These
consolidated financial statements are prepared on a going concern basis and correspond to the classification provisions contained
in IAS 1 (revised), “Presentation of Financial Statements”. Accounting policies have been applied consistently to
all periods presented in these consolidated financial statements. The consolidated financial statements comprise of the statement
of financial position as of 31 March 2021 with comparative statement of financial position as on 31 March 2020; the statement
of profit or loss, the statement of comprehensive (loss) income, the statement of changes in equity, and the statement of cash
flows for the year ended 31 March 2021 with comparatives for the year ended 31 March 2020 and 31 March 2019.
The
Group has prepared its subsidiaries’ financial statements in accordance with the recognition, measurement and disclosure
principles of IFRS as issued and published by the IASB. The consolidated financial statements have been prepared on a historical
cost basis, except for financial instruments, which are measured at fair value.
2.2
Changes in accounting policies and disclosures
New
IFRS standards adopted during the year
The
accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in
the preparation of the Group’s annual financial statements for the year ended 31 March 2020 except for the adoption of the
new standards and interpretations noted below:
|
●
|
Amendments
to IFRS 16: COVID19 Related Rent Concessions (effective for fiscal periods beginning on or after 1 June 2020)
|
|
●
|
Amendments
to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform – Phase 1 (effective for fiscal periods beginning on or
after 1 January 2020)
|
The
application of these amendments did not have a material impact on the consolidated financial statements of the Group.
2.3
Future changes in accounting policies – standards issued but not yet effective
Standards
issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements are listed below.
The Group intends to adopt these standards when they become effective.
|
●
|
IFRS
17: Insurance Contracts (effective for fiscal periods beginning on or after 1 January 2023)
|
|
|
|
|
●
|
Amendments
to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective date
is deferred indefinitely)
|
|
|
|
|
●
|
Amendments
to IAS 1: “Classification of Liabilities as Current or Non-current” and “Presentation of Financial Statements”
(effective for fiscal periods beginning on or after 1 January 2023)
|
|
|
|
|
●
|
Amendments
to IAS 16: “Property, Plant and Equipment – Proceeds before Intended Use” (effective for fiscal periods
beginning on or after 1 January 2022)
|
|
|
|
|
●
|
Amendments
to IFRS 3: “Reference to the Conceptual Framework (effective for fiscal periods beginning on or after 1 January 2022)
|
|
|
|
|
●
|
Amendments
to IAS 37: “Onerous Contracts – Cost of Fulfilling a Contract” (effective for fiscal periods beginning on
or after 1 January 2022)
|
|
|
|
|
●
|
Annual
Improvements to IFRS Standards 2018–2020 (effective for fiscal periods beginning on or after 1 January 2022)
|
|
|
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Amendments
to IFRS 9, IAS 39, IFRS 7 and IFRS 16: Interest Rate Benchmark Reform – Phase 2 (effective for fiscal periods beginning
on or after 1 January 2021)
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Definition
of Accounting Estimates – Amendments to IAS 8
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Disclosure
of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2
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Management
is currently assessing the impact of these standards and does not anticipate that the adoption of these standards will have a
material impact on the Group’s consolidated financial statements.
2.4
Significant accounting estimates and judgements
The
preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the
reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment
to the carrying amount of the asset or liability affected in the future.
Estimation and assumptions
The key assumptions concerning the future and other
key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial period, are discussed below:
Useful
lives of intangible assets
The
Group’s management determines the estimated useful lives of its intangible assets for calculating amortization. This estimate
is determined after considering the expected usage of the asset and the impact of expected residual value. Management reviews
the useful lives annually and the future amortization charge would be adjusted where management believes that the useful lives
differ from previous estimates.
Impairment
of intangible assets
At
each reporting date, the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount
of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Where
a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating
units, or otherwise they are allocated to the smallest cash-generating units for which a reasonable and consistent allocation
basis can be identified.
Useful
lives of property, plant and equipment
The
Group’s management determines the estimated useful lives of its property, plant and equipment for calculating depreciation.
This estimate is determined after considering the expected usage of the asset or physical wear and tear and the impact of expected
residual value. Management reviews the useful lives annually and the future depreciation charge would be adjusted where management
believes that the useful lives differ from previous estimates.
Impairment
of property, plant and equipment
At
each reporting date, the Group reviews the carrying amounts of its property, plant and equipment to determine whether there is
any indication that the residual value of those assets is less than the carrying amount. If any such indication exists, an impairment
assessment is performed to determine the residual value and the associated impairment loss (if any). Where it is not possible
to estimate the recoverable amount of an individual asset, the Group estimates the residual value of the cash generating unit
to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also
allocated to individual cash-generating units, or otherwise they are allocated to the smallest cash-generating units for which
a reasonable and consistent allocation basis can be identified.
Discount
rate used for initial measurement of lease liability
The
Group, as a lessee, measures the lease liability at the present value of the unpaid lease payments at the commencement date. The
lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate
cannot be readily determined, the Group on initial recognition of the lease uses its incremental borrowing rate. Incremental borrowing
rate is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the
funds necessary to obtain an asset of a similar value to the right-of-use assets in similar economic environment.
Income
taxes
The
Group is subject to income taxes in several jurisdictions. Significant estimates are required in determining the provision for
income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary
course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such
differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Impairment
of goodwill
Goodwill
is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired.
The impairment test is performed by comparing carrying amount and the recoverable amounts of assets. The recoverable amount of
goodwill is determined from the higher of fair value less costs of disposal and value in use calculation. If the recoverable amount
declines below the carrying amount, impairment losses are recognized. The recoverable amount under value in use calculation is
mainly calculated based on the discounted cash flow model. Certain assumptions are made for the discount rates, the growth rates,
revenues from customers and operating costs.
Impairment
of financial assets
The
measurement of impairment losses under IFRS 9, Financial Instruments, across all financial assets measured at amortized cost requires
judgement, in particular, the estimation of the amount and timing of future cash flows when determining impairment losses and
the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can
result in different levels of allowances.
At
each reporting date, the Group assesses whether there has been a significant increase in credit risk for exposures since initial
recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial
recognition. The Group considers reasonable and supportable information that is relevant and available without undue cost or effort
for this purpose. This includes quantitative and qualitative information and also forward-looking analysis.
Impairment
of loans receivables
The
Group uses the simplified approach under IFRS 9 to assess impairment of loans receivables and calculates Expected Credit Losses
(ECLs) based on lifetime expected credit losses. The Group calculates the ECL based on the Group’s historical credit loss
experience, adjusted for factors that are specific to the debtors, and an assessment of both the current and forecast general
economic conditions at the end of reporting period. Where the estimation is different from the original estimate, such difference
will affect the carrying amounts of loan receivables and thus the impairment loss in the period in which such estimate is changed.
The Group keeps assessing the expected credit loss of loan receivables during their expected lives.
Revenue
from transaction verification service (discontinued operations)
The
Group generated revenue by providing computer processing activities for digital assets generation and transaction processing services.
The Group received consideration for providing these services in the form of digital assets, namely ETH.
The
Group has determined that the substance of its transaction verification services activities is classified as a service provision
under the scope of IFRS 15 Revenue from Contracts with Customers notwithstanding that there is no contractual arrangement under
which it provides such services as the services are provided instead through open source software being the blockchain protocol.
Furthermore, the Group is unable to determine in advance the consideration that it will receive, if any, for the services that
it provides and, therefore, the Group is unable to estimate reliably the outcome of its activities in advance of actual receipt
of consideration in the form of digital assets. Because of the uncertainty over both the timing and amount of the consideration
that the Group will receive for undertaking transaction verification services activities, management has determined that revenue
should only be recognized on actual receipt of digital assets as consideration for services provided.
Digital
assets received for transaction verification services activities are, therefore, recognized as revenue at fair value on the day
of receipt in a private digital asset wallet controlled by the Group. The fair value of digital assets received is determined
in accordance with the Group’s accounting policy; digital assets received are recognized immediately as digital assets inventory.
Share-based
payment expenses – employee share options
The
fair value of the share options granted to the directors, employees and contractors determined at the date of grant of the respective
share options is expensed over the vesting period, with a corresponding adjustment to the Group’s share-based payment reserve.
In assessing the fair value of the share options, a binomial model was used to calculate the fair value of the share options.
The option pricing model requires the input of subjective assumptions, including the volatility of its own ordinary shares and
the expected life of options. Any changes in these assumptions can significantly affect the estimate of the fair value of the
share options.
Share-based
payment expenses – earn-out awards
The
Transaction between the Company, 8i Enterprises and Diginex HK had an earn-out provision where former Diginex HK shareholders
will receive up to 12,000,000 additional shares in the Company if share price related milestones are achieved over a 4-year period
from 30 September 2020 post Transaction. Upon reaching the earn-out milestones, a service provider to the Transaction is also
entitled to receive the equivalent of 1% of the earn-out shares issued. Earn-out awards are accounted for under IFRS 2 as equity-settled
awards with non-vesting conditions.
The
fair value of the earn-out awards is based on a Monte Carlo simulation analysis utilizing a Geometric Brownian Motion taking assumptions
on share price volatility, risk-free rate and other market data to predict distribution of relative share performance.
The
share price volatility assumption used in the model is based on publicly listed traditional financial exchanges (due to the lack
of publicly listed digital asset exchanges) and other related companies, and a 6-months BTC option volatility. The 6-months BTC
option volatility being included to reflect the exposure to digital assets which would not be a feature of the traditional exchanges
and other related companies selected as a comparable within the model.
Private
warrants
The
private warrants are recorded as financial liabilities on the consolidated statement of financial position and are remeasured
on each reporting date. In assessing the fair value of the private warrants, a binomial model was used to calculate the fair value
of the private warrants since they are not publicly traded. The model requires the input of subjective assumptions, including
the volatility of its own ordinary shares and the expected life of the warrants. Any changes in these assumptions can significantly
affect the estimate of the fair value of the warrants.
Judgements
In
the process of applying the Group’s accounting policies, management has made the following judgements which have the most
significant effect on the amounts recognized in the consolidated financial statements:
Functional
currency
The
Group’s operating costs, borrowing, revenue contracts and investments are primarily in USD, and are expected to remain principally
denominated in USD in the future. Management has determined USD as the Group’s functional currency and presented the consolidated
financial statements in USD to meet the requirements of users.
Intangible
assets
The
Group classifies acquired and capitalized software development costs as intangible assets. Under IAS 38 the Group has elected
to measure intangibles at cost rather than a revalued amount.
Digital
Assets
The
Group holds digital assets which are also referred to as cryptocurrencies. There is no specific accounting standard that applies
to all digital assets and accordingly judgement is applied based on the terms and structure of each individual cryptocurrency
in determining the most relevant accounting standards to adopt. The Group assessed that the cryptocurrencies currently owned (primarily
BTC and ETH), unless specifically stated otherwise, are most appropriately accounted for as intangible assets in accordance with
IAS 38 on the basis that they do not meet the definition of financial assets and are assets with no tangible form. Under IAS 38
the Group has elected to measure digital assets at a revalued amount on the basis that an active secondary market exists for the
assets.
USD
Coin (“USDC”)
USDC
is a type of digital asset which the Group holds to meet certain working capital requirements. The Group classifies USDC as a
financial asset in accordance with IFRS 9 on the basis that one USDC can be redeemed for one US dollar from an issuer, which is
unlike other digital assets held, as noted above.
Client
assets and liabilities
Clients
deposit fiat, digital assets and USDC with the Group for trading purposes on the Exchange, and for OTC trading.
For
fiat, the Group recognizes client assets and equal and opposite client liabilities on its consolidated statement of financial
position in relation to fiat in accordance with IFRS 9 D.1.1.
For
USDC and digital assets, there is no specific accounting guidance on recognition for these assets held on behalf of others. As
such, the Group refers to para 4.3 and 4.4 of the conceptual framework for the definition of an asset. An asset is a resource
controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
On the basis that the USDC and digital assets deposited by clients are held in omnibus wallets offered by digital asset custodians
under the relevant Group company’s name, the company has ultimate control over the wallets. Therefore, with control over
the wallets, an asset and a corresponding liability is recognized.
EQO
token
The
EQO white paper was published on 15 March 2021 and the token was launched on 8 April 2021 when a number of tokens were airdropped
to eligible recipients. Holders of EQO may initially benefit from Exchange fee reductions and staking rewards. Fee paying price
takers on EQONEX during the period 16 March 2021 to 7 April 2021 were entitled to an allocation of EQO on 8 April 2021. Post 8
April 2021, EQO was and will be airdropped daily based on a formula weighted between price taking volume and the number of EQO
tokens staked on EQONEX by eligible users.
EQO
is a utility token and was not issued for cash consideration but instead used as a tool to incentivize activity on EQONEX whilst
providing value to the recipient. The holding of EQO by clients does create a liability for the EQONEX as clients can, post April 8,
2021, receive benefits such as reduced trading fees. However, management estimates the impact from 16 March 2021 to 31 March 2021 to
be immaterial.
Property,
plant and equipment
The
Group has acquired and capitalized property, plant and equipment as fixed assets. Under IAS 16 the Group has elected to measure
such assets at cost rather than a revalued amount.
Lease
commitments - Group as a lessee
The
Group has entered into several rental agreements. The Group has determined these agreements to be leases in accordance with IFRS
16, Leases, and accounts for these agreements as such. The Group has also elected simplified accounting for short-term leases
of 12 months or less and an expense is recognized in the period of the lease on a straight-line basis.
Financial
instruments
In
the process of classifying a financial instrument, management has made various judgments. Judgment is needed to determine whether
a financial instrument, or its component parts, on initial recognition is classified as a financial liability, a financial asset
or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability,
a financial asset and an equity instrument. In making its judgment, management considered the detailed criteria and related guidance
for the classification of financial instruments as set out in IFRS 9, in particular, whether the instrument includes a contractual
obligation to deliver cash or another financial asset to another entity.
Public
warrants
Public
warrants are classified as equity instruments under IAS 32 on the basis that the public warrants do not create an obligation for
the Company to pay cash to the warrant holders since the warrant holders cannot put the warrants to the Company, and a fixed number
of shares are to be issued based on a fixed warrant price. Permitted adjustments to the warrant price and the number of shares
are anti-dilutive and therefore preservative in nature to maintain the relative economic interest of the holder and the issuer,
which does not breach the fixed-for-fixed principle of IAS 32 para 16.
Private
warrants
Private
warrants are classified as financial liabilities under IAS 32 para 25 on the basis that there is a contingent settlement provision
outside the control of the Company in a change of control event when the holder may demand the Company to pay cash.
Deemed
reverse acquisition
On
30 September 2020, the Company entered into the Transaction with 8i Enterprises and Diginex HK that resulted in the issuance of
shares and warrants to the shareholders of 8i Enterprises, Diginex HK and service providers. Following the issuance, the Company
became the ultimate parent holding company of 8i Enterprises and Diginex HK (together with its subsidiaries) and listed on Nasdaq.
Under
IFRS 3, neither 8i Enterprises nor the Company met the definition of a business and therefore the Transaction is not defined as a business
combination. Although Diginex HK is considered a business under IFRS 3, a business combination requires the combination of businesses
and hence requires more than one business in the transaction to fall within the scope of the standard. In accordance with IAS 8 paragraph
10, in the absence of an IFRS that specifically applies to such a transaction, management should apply judgement in developing and applying
an accounting policy that results in consolidated financial statements that are presented in a way that reflects the economic
substance of the transaction.
Management
has concluded that the Transaction would be more accurately represented as a deemed reverse acquisition of 8i Enterprises and
the Company by Diginex HK, together with a recapitalization of the Group’s share capital. The outcome of such judgement
being that the results of Diginex HK, subject to an adjustment to equity to reflect the issuance of shares by the Company on completion
of the Transaction, have been consolidated on the basis that Diginex HK is the accounting acquirer and hence the historical results
of Diginex HK continue to be consolidated on an on-going basis. The excess between the fair value of the shares and equity instruments
issued and the net assets acquired is treated as an expense under IFRS 2. Details of the accounting policy applied is summarized
in note 2.5.
Share-based
payments – replacement of employee share option scheme
On
30 September 2020, the Group replaced the employee share option scheme issued by Diginex HK with the establishment of a plan with
modified terms issued by the Company upon completion of the Transaction. Under IFRS 2, the Group considered this as a replacement
and modification of the Diginex HK scheme (see note 25).
Related
party transactions
The
Group has entered into transactions with a person or entity that is considered related to the Group under IAS 24, which require
separate disclosure. A person or entity is considered a related party if classifications are met under the definition set out
in note 2.5. There are many related party transactions that require judgment by management that have been disclosed in note 20.
Related
party transaction – sale of Solutions Business
The
IFRS conceptual framework of accounting defines income as an increase in assets or decrease in liabilities that results in increases
in equity, other than those relating to contributions from equity holders. When a transaction is entered into with a related party,
judgement is required in determining whether the accounting gain represents income or a capital contribution. The accounting treatment
is determined by considering if the related party was acting in their capacity as a related party or a normal counterparty for
the particular transaction.
In
May 2020, the Group sold the Solutions Business to Rhino Ventures Limited,
an entity controlled by Miles Pelham, the founder of Diginex HK. The transaction resulting in income being recorded in the consolidated
statement of profit or loss on the basis that Rhino Ventures Limited was acting as a normal counterparty and purchased the Solutions
Business at fair market value, as determined by the following:
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1)
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The
Solutions Business was offered to other parties to acquire, not only to Rhino Ventures Limited. A less favorable tentative
offer was received from a third party to that offered by Rhino Ventures Limited.
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2)
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Management
believes the consideration paid is fair and reasonable. In making that judgement, management considered that certain inputs
of the internally created valuation model were reviewed by an independent third party.
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3)
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Shareholders
voted to approve the sale of the Solutions Business to Rhino Ventures Limited.
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Management
believes that these attributes support that Rhino Ventures Limited purchased the Solutions Business at fair market value, therefore the
gain on sale of the Solutions Business is reflected in profit from discounted operations in the consolidated statement of profit or
loss.
Segmental
reporting
Operating
segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed
by the Chief Operating Decision Maker (the “CODM”) in deciding how to allocate resources to an individual segment and in
assessing performance. The Group’s executive committee is considered the Group’s CODM. The CODM reviews financial information
presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.
While the Group has revenue from multiple products and geographies, the balance sheet and cashflow of the Group is considered
by the CODM on a consolidated basis, so discrete financial information is not available for each such component. As such, the Group has
determined that it operates as one operating segment and one reportable segment. The Group will continue to assess the operating segments
reviewed by the CODM and the associated reportable segments per IAS 8.
Reclassifications
Certain
reclassifications have been made to prior year consolidated financial statements to conform to the current year presentation to
present the discontinued operations following the sale of the Solutions Business, the recapitalization of the Group on a comparable
basis following the Transaction, the alignment of unlisted investment to be reported as financial assets held at fair value through
profit or loss in accordance with IFRS 9, the distinction of USDC from other digital assets, and the presentation of General and
Administrative expenses by categorization to enhance reader understandability. The reclassification had no impact on previously
reported loss for the year nor accumulated losses.
2.5
Summary of significant accounting policies
Principles
of consolidation and equity accounting
Subsidiaries
Subsidiaries
are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group
is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control ceases.
The
acquisition method of accounting is used to account for business combinations by the Group except for common control business
combinations.
Intercompany
transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also
eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies adopted by the Group.
Non-controlling
interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, consolidated
statement of comprehensive (loss) income, consolidated statement of changes in equity and consolidated statement of financial
position respectively.
Associates
Associates
are entities over which the Group has significant influence but not control or joint control. Investments in associates are accounted
for using the equity method of accounting, after initially being recognized at cost.
Equity
method accounting
Under
the equity method of accounting, the investments are initially recognized at cost. A notional ‘purchase price allocation’
is carried out to recognize any necessary fair value adjustments. Thereafter the Group recognize its share of the post-acquisition
profits or losses of the investee in profit or loss, with an adjustment to the carrying value of the investment. The Group also
recognizes its share of movements in other comprehensive income of the investee in its other comprehensive income. Dividends received
or receivable from associates and joint ventures are recognized as a reduction in the carrying amount of the investment.
When
the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any
other unsecured long-term receivables, the Group does not recognize further losses, unless it has incurred obligations or made
payments on behalf of the other entity.
Unrealized
gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s
interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of
the asset transferred.
Accounting
policies of equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by the
Group.
The
carrying amount of equity-accounted investments is tested for impairment whenever events or changes in circumstances indicate
that the carrying amount of the investment may not be recoverable.
Changes
in ownership interests
The
Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners
of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling
interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling
interests and any consideration paid or received is recognized in a separate reserve within equity attributable to owners of the
Company.
When
the Group ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant
influence, any retained interest in the entity is re-measured to its fair value with the change in carrying amount recognized
in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained
interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive
income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities.
This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss or transferred
to another category of equity as specified/permitted by applicable IFRSs.
If
the ownership interest in a joint venture or an associate is reduced but joint control or significant influence is retained, only
a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where
appropriate.
Business
combinations
The
acquisition method of accounting is used to account for all business combinations other than common control business combination,
regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a
subsidiary comprises the:
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fair
values of the assets transferred;
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liabilities
incurred to the former owners of the acquired business;
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fair
value of equity interests issued by the Group; and
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fair
value of any pre-existing equity interest in the subsidiary.
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Identifiable
assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured
initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquired entity
on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of
the acquired entity’s net identifiable assets. Acquisition related costs are expensed as incurred.
The
excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition-date fair
value of any previous equity interest in the acquired entity, over the fair value of the net identifiable assets acquired is recorded
as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference
is recognized directly in profit or loss as a bargain purchase.
Contingent
consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently
re-measured to fair value with changes in fair value recognized in profit or loss.
If
the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity
interest in the acquiree is re-measured to fair value at the acquisition date. Any gains or losses arising from such re-measurement
are recognized in profit or loss.
Deemed
reverse acquisition
The
acquisition method of accounting is used to account for all deemed reverse acquisitions where in substance, there is an operating
company acquired by a shell company where the shareholders of the operating company obtain control of the shell company.
For
the Transaction, Diginex HK is the operating company while both the Company and 8i Enterprises are considered as shell companies.
Identifying
the accounting acquirer/accounting acquiree:
The
Company is considered as the legal acquirer and the accounting acquiree. Control is obtained by Diginex HK shareholders as the
Company issued 25,000,000 shares which allowed Diginex HK shareholders to hold the majority of issued share capital and voting
rights.
Determining
the deemed consideration transferred:
The
deemed consideration transferred for the deemed reverse acquisition of 8i Enterprises is:
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1.
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The
fair value of the shares which Diginex HK would have had to issue in establishing the same post transaction control structure
but as if it were the legal acquirer; or
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2.
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The
quoted price of the Company’s shares and warrants multiplied by the number of the instruments held by the former 8i
Enterprises shares and warrants holders on the date the deemed reverse acquisition completes.
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In
a transaction involving only the exchange of equity instruments, the fair value of the Company’s shares and warrants that
are quoted on Nasdaq should be used to measure the consideration transferred as it is more reliably measurable than the value
of the Diginex HK’s equity based on IFRS 13 fair value hierarchy principles.
Based
on this principle, the Group measured the deemed consideration for the Transaction using the quoted Nasdaq share price of the
Company’s shares and warrants on the completion date of 30 September 2020.
Fair
value of assets and liabilities acquired in a deemed reverse acquisition:
Identifiable
assets acquired and liabilities assumed in a deemed reversed acquisition are, with limited exceptions, measured initially at their
fair values at the acquisition date. For the Transaction, the net assets acquired from 8i Enterprises and the Company are primarily
cash, prepayments and trade payables, and their carrying value approximates fair value.
There
is no non-controlling interest involved in the Transaction. Acquisition related costs such as professional fees were expensed
as incurred.
Calculating
the Transaction expense:
The
excess of the deemed consideration transferred over the fair value of the net identifiable assets acquired from 8i Enterprises
represents a service and is recorded as an expense under IFRS 2 in the Group’s consolidated statement of profit or loss.
Presentation
of the consolidated financial statements post deemed reverse acquisition:
In
the Transaction, the Company being the accounting acquiree (legal acquirer), becomes the ultimate parent holding company of the
Group, however, the consolidated financial statement represents a continuation of Diginex HK, the accounting acquirer (legal acquiree)
with the exception of the legal capital structure.
Shareholders’
equity of Diginex HK prior to the Transaction is retrospectively adjusted as a recapitalization for the equivalent number of shares
received and on a pro rata basis for prior reporting periods. Retained earnings and relevant reserves of the Diginex HK are carried
forward after the Transaction. Any difference to shareholders’ equity of Diginex HK arising from the recapitalization of
share capital and equity instruments issued is recorded in equity under the reverse acquisition reserve (note 27).
Discontinued
operations
A
discontinued operation is a component of an entity that has been disposed of or is classified as held for sale and that represents
a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such
a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued
operations are presented separately in the consolidated statement of profit or loss.
Revenue
recognition
Revenue
is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services.
The
Group recognizes revenue from contracts with customers based on a five-step model as set out in IFRS 15:
Step
1. Identify contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates enforceable
rights and obligations and sets out the criteria for every contract that must be met.
Step
2. Identify performance obligations in the contract: A performance obligation is a promise in a contract with a customer to transfer
a good or service to the customer.
Step
3. Determine the transaction price: The transaction price is the amount of consideration to which the Group expects to be entitled
in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
Step
4. Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance
obligation, the Group allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration
to which the Group expects to be entitled in exchange for satisfying each performance obligation.
Step
5. Recognize revenue when (or as) the Group satisfies a performance obligation.
The
Group recognized revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying
the particular performance obligation is transferred to customers.
The
Group satisfies a performance obligation and recognizes revenue over time, if one of the following criteria is met:
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a)
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The
Group’s performance does not create an asset with an alternate use to the Group and the Group has as an enforceable
right to payment for performance completed to date.
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b)
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The
Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced.
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c)
|
The
customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Company performs.
|
For
performance obligations where one of the above conditions are not met, revenue is recognized at the point in time at which the
performance obligation is satisfied.
When
the Group satisfies a performance obligation by delivering the promised goods or services it creates a contract-based asset on
the amount of consideration earned by the performance. Where the amount of consideration received from a customer exceeds the
amount of revenue recognized this gives rise to a contract liability.
Revenue
is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of
payment and excluding taxes and duty. The Group assesses its revenue arrangements against specific criteria to determine if it
is acting as principal or agent.
Revenue
is recognized to the extent it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable,
can be measured reliably.
The
Group recognized revenue from the following major sources:
|
●
|
Capital
Markets services
|
|
●
|
Asset
Management services
|
|
●
|
Trading
(OTC, Proprietary, Access Trading, and a risk management desk). The Group has ceased proprietary trading in May 2020
|
|
●
|
Custody
Services for digital assets
|
|
●
|
Fees
earned from EQONEX
|
|
●
|
Transaction
Verification services (discontinued operations)
|
|
●
|
Blockchain
Solution services (discontinued operations)
|
Capital
Markets and Blockchain Solutions services (discontinued operations) income is recognized over the service period based on services
provided as the customer simultaneously receives and consumes the services provided by the Group over the period. Payment of the
transaction is in line with agreed terms when the services are rendered to the customers. The Group has the primary responsibility
for providing the services to the customer or for fulfilling the order, for example, by being responsible for the acceptability
of the services ordered by the customer. The Group recognizes the revenue from both services over time.
For
the Asset Management services, the Group receives management fees at agreed rates. Management fee income is recognized on a time-proportion
basis at agreed percentages on the value of assets held under managements. The Group recognizes management fee revenue from asset
management services over time. The Group can also earn a fee based on the performance of the assets under management. The performance
fee is only recognized on an annual basis, at a point in time, when the performance fees have been agreed and there is no risk
of significant reversal in the revenue.
The
Group conducts OTC trades where the Group acts as principal in a trade between counterparties looking the buy or sell digital
assets. The Group earns revenue by charging a commission to execute such trades and recognizes revenue at a point in time when
the trade is complete. During the years ended 31 March 2021, 2020 and 2019, the Group also participated in proprietary trading
and earned revenues, at a point in time, when executing buy and sell orders on various exchanges. The Group has ceased proprietary
trading in May 2020.
The
Group earns revenues from the provision of a trade execution and risk management platform, known as Access Trading. Fees are charged
based on total volume executed on the platform on a monthly basis. Clients are invoiced monthly with revenues being recorded at
a point in time.
The
Group generated revenues from the provision of a liquidation risk management desk. The desk earns fees for managing liquidated
trades on behalf of the Exchange. Such fees are recognized at a point in time when a liquidation trade is completed.
In
February 2020, the Group launched its cold wallet custody solution, Kelvin, for digital assets. The warm wallet solution, Helios,
was launched in April 2020. Management assessed that there are two types of revenue, holding fees and withdrawal processing fees.
Holding fee is generated from holding client digital assets with the revenue recognized over the service period. Withdrawal processing
fee is generated, at a point in time, when clients withdraw assets from the custody platform.
In
July 2020, the Group publicly launched EQONEX, its digital asset exchange platform. Revenue is generated from trading fees earned when
clients buy and sell digital assets on EQONEX at a point in time. In addition, revenues are also generated, at a point in time, when
clients withdraw assets from the platform.
For
the Transaction Verification services, which is classified under discontinued operations, the Group provided computer processing
activities within digital currency networks, commonly termed “mining”. The Group receives digital assets, namely ETH,
as consideration for these services. Revenue is measured based on the fair value of the digital assets received. The fair value
is determined using the spot price of the digital assets on the date of receipt. The Group recognizes the revenue from transaction
verification at a point in time. These revenues are now classified as discontinued following the divestment of DHPC in July 2018.
Property,
plant and equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost of an item
of property plant and equipment comprises its acquisition cost including borrowing cost and all directly attributable costs of
bringing the asset to working condition for its intended use. Such cost includes the cost of replacing part of the plant and equipment
when that cost is incurred if the recognition criteria are met. Likewise, when a major inspection is performed, its cost is recognized
in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair
and maintenance costs are recognized in the consolidated statement of profit or loss as incurred. The present value of the expected
cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria
for a provision are met. Depreciation is computed on a straight-line method based on estimated useful lives of assets as follows:
Furniture
and fixtures
|
5
years
|
Office
equipment
|
5
years
|
Leasehold
improvement
|
Over
the lease terms
|
The
assets’ residual values and useful lives are reviewed and adjusted if appropriate, at each financial position date to determine
whether there is an indication of impairment. If any such indication exists, an impairment loss is recognized in the consolidated
statement of profit or loss impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (cash generating units).
The
carrying amounts are reviewed at each reporting date to assess whether they are recorded in excess of their recoverable amounts, and
where carrying values exceed this estimated recoverable amount, assets are written down to their recoverable amount, being the higher
of their fair value less costs to sell and their value in use.
An
item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its
use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the consolidated statement of profit or loss in the year the asset
is derecognized.
Intangible
assets
Intangible
assets, other than digital assets, acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination, or otherwise, is their cost at the date of acquisition including borrowing cost and all directly
attributable costs of bringing the asset to working condition for its intended use. Following initial recognition, intangible
assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangibles,
excluding capitalized development costs, are not capitalized and the related expenditure is reflected in profit or loss in the
period in which the expenditure is incurred.
Intangible
assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication
that the intangible assets may be impaired. The amortization period and the amortization method for intangible assets with a finite
useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern
of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as
appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives
is recognized in the consolidated statement of profit or loss in the expense category that is consistent with the function of
the intangible assets.
Amortization
of the following intangibles assets are provided for on a straight-line basis over the estimated useful lives:
Capitalized
Software Development
|
5
|
years
|
Software
|
5
|
years
|
Intangible
assets with indefinite lives are described below in Digital Assets.
Gains
or losses arising from derecognition of intangible assets are measured as the difference between the net disposal proceeds and
the carrying amount of the asset and are recognized in the consolidated statement of profit or loss when the asset is derecognized.
Digital
assets
Digital
assets consist of cryptocurrencies, such as BTC and ETH that do not meet the definition of a financial asset and are classified
as current assets. In accordance with IAS 38, digital assets are initially recognized at cost and the Group has adopted an accounting
policy to apply the revaluation model for subsequent measurements as the fair value can be reliably measured.
Digital
assets are classified as current assets on the basis that they are used for working capital purposes to settle expenses incurred
in the normal course of business and are regularly traded on exchange platforms globally between willing buyers and sellers which
provides a high degree of liquidity.
Digital
assets are considered to have indefinite lives and therefore are not amortized but subject to review for impairment.
The
increase in carrying value at the end of the measurement period is to be recognized in equity through other comprehensive income
and presented as revaluation surplus in equity, unless and to the extent it reverses a revaluation decrease previously recognized
in the profit or loss; a decrease in carrying value at the end of the measurement period is to be recognized in the profit or
loss, unless and to the extent of any credit balance existing in the revaluation surplus associated with the underlying asset,
in which case the debit will be recognized through other comprehensive income to reduce the revaluation surplus.
When
digital assets are exchanged or sold for traditional (fiat) currencies, such as the US dollar, the digital assets are derecognized
when the Group has transferred substantially all the risk and rewards of ownership.
USDC
USDC
is a type of cryptocurrency which can be redeemed for one US dollar from the issuer. On this basis USDC meets the definition of
a financial instrument and in accordance with IFRS 9, USDC is recorded at fair value through profit or loss, however, as it is
linked to the US dollar, the carrying value is considered to be the same as fair value.
Capitalized
software development
External
spend on software development costs is capitalized in accordance with IAS 38, Intangible Assets, when controlled by the Company,
when future economic benefits of such software are probable and the cost of such software can be reliably measured.
Following
initial recognition of capitalized software development costs, the asset is carried at cost less any accumulated amortization
and accumulated impairment losses. Amortization of the asset begins when development is complete, and the asset is available for
use. Amortization is recorded in the consolidated statement of profit or loss over the period of expected future benefit. During
the period of development, the asset is tested for impairment annually.
Goodwill
Goodwill
is not amortized but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that
it might be impaired and is carried at cost less accumulated impairment losses.
Goodwill
is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units
or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The
units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes, being
the operating segments.
Impairment
of non-financial assets
At
each reporting date, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount
of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Where
a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating
units, or otherwise they are allocated to the smallest cash-generating units for which a reasonable and consistent allocation
basis can be identified.
The
recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset or which the estimates of future cash flows have not been adjusted.
If
the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount
of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the
consolidated statement of profit or loss and the comprehensive (loss) income, unless the relevant asset is carried at a revalued
amount, in which case the impairment loss is treated as a revaluation decrease.
Where
an impairment loss subsequently reverses, the carrying amount of the asset (cash- generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment
loss is recognized immediately in consolidated statement of profit or loss and the comprehensive (loss) income.
Trade
and other receivables
Trade
receivables are amounts due from customers for services performed in the ordinary course of business. If collection of trade and
other receivables is expected in one year or less, they are classified as current assets. If not, they are presented as non-current
assets.
Trade
and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest
method, less provision for impairment.
Cash
and cash equivalents
For
the purpose of the consolidated statement of cash flows, cash and cash equivalents represent cash at bank and on hand, demand
deposits with banks and other financial institutions, and short-term highly liquid investments which are readily convertible into
known amounts of cash and subject to an insignificant risk of change in value. As at 31 March 2021 and 2020, the business held
cash at bank.
Client
assets and liabilities
Client
money is represented as both an asset and liability on the consolidated statement of financial position. The monies relate to
funds deposited with the Group in either fiat, USDC, or digital asset format for the purpose of executing OTC trades and for trading
on EQONEX. The monies are either held with a bank or digital asset custodian to which Diginex has control over and bears any associated
risk. Due to their nature, fiat and USDC are not subject to fair value changes. Client digital assets and liabilities are measured
using Level 1 quoted prices available on digital asset exchanges per IFRS 13 guidance.
Share
capital
Ordinary
shares, which are regarded as equity instruments, issued by the Company are recorded at the proceeds received, net of direct issue
costs.
The
Company also issues shares as awards and consideration. The cost of the share awards is measured at the fair value of the goods
and services received; and secondarily at the fair value of the awards at the grant date. Share based payment is recognized as
an expense for services obtained or assets for consideration paid.
Other
payables and accruals
Other
payables and accruals are recognized initially at their fair value and subsequently measured at amortized cost using the effective
interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.
Taxation
Income
tax represents the sum of the current tax and deferred tax.
The
tax currently payable is based on taxable profit for the year. Taxable profit differs from profit recognized in profit or loss
because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible.
The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the
end of the reporting period.
Deferred
tax is recognized on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and
the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable
temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available
against which deductible temporary differences, unused tax losses or unused tax credits can be utilized. Such assets and liabilities
are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred
tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, except where the Group
is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse
in the foreseeable future.
The
carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred
tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized,
based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax is recognized
in profit or loss, except when it relates to items recognized in other comprehensive income or directly in equity, in which case
the deferred tax is also recognized in other comprehensive income or directly in equity.
The
measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the
Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred
tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current
tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Leases
At
inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease
if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
For
a contract that is, or contains, a lease, the Group accounts for each lease component within the contract as a lease separately
from non-lease components of the contract.
The
Group determines the lease term as the non-cancellable period of a lease, together with both:
|
a)
|
periods
covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and
|
|
b)
|
periods
covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
|
In
assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate
a lease, the Group considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise
the option to extend the lease, or not to exercise the option to terminate the lease. The Group revises the lease term if there
is a change in the non-cancellable period of a lease.
In
applying IFRS 16, the Group elected a simplified approach for leases with a remaining lease term of less than 12 months and an
expense is recognized over the lease period using a straight-line methodology.
The
Group as lessee
For
a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration
in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate
stand-alone price of the non-lease components.
The
relative stand-alone price of lease and non-lease components is determined on the basis of the price the lessor, or a similar
supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is
not readily available, the Group estimates the stand-alone price, maximizing the use of observable information.
For
determination of the lease term, the Group reassesses whether it is reasonably certain to exercise an extension option, or not
to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that:
|
a)
|
is
within the control of the Group; and
|
|
b)
|
affects
whether the Group is reasonably certain to exercise an option not previously included in its determination of the lease term,
or not to exercise an option previously included in its determination of the lease term.
|
At
the commencement date, the Group recognizes a right-of-use asset and a lease liability classified separately on the consolidated
statement of financial position.
Right-of
use assets
The
right-of-use asset is initially recognized at cost comprising of:
|
a)
|
amount
of the initial measurement of the lease liability;
|
|
b)
|
any
lease payments made at or before the commencement date, less any lease incentives received;
|
|
c)
|
any
initial direct costs incurred by the Group; and
|
|
d)
|
an
estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which
it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. These
costs are recognized as part of the cost of right-of-use asset when the Group incurs an obligation for these costs. The obligation
for these costs are incurred either at the commencement date or as a consequence of having used the underlying asset during
a particular period.
|
After
initial recognition, the Group amortizes the right of use asset over the term of the lease where the right of use asset meets
the definition of property and equipment. In addition, the right of use asset is periodically reduced by impairment losses, if
any, and adjusted for certain re-measurements of the lease liability.
Financial
instruments
Classification
and measurement of financial assets
The
Group initially measures a financial asset at its fair value net of transaction costs, except if a financial asset is measured
at fair value through profit or loss where the transaction costs are immediately expensed in profit or loss.
Regarding
debt financial instruments, under IFRS 9, these are measured at fair value through profit or loss (“FVTPL”), amortized
cost, or fair value through other comprehensive income (“FVOCI”). The classification is based on two criteria: the
Group’s business model for managing the asset and whether the instrument’s contractual cash flows represent ‘solely
payments of principal and interest’ on the principal amount outstanding (the ‘SPPI criterion’).
The
classification and measurement of the Group’s financial instruments are, as follows:
|
●
|
Financial
instruments measured at amortized cost: Trade and other receivables, amounts due from an associate/shareholders/related companies,
and loan receivables are measured at amortized cost as they are held by the Group with the objective to collect contractual
cash flows that meet the SPPI criterion.
|
|
●
|
Financial
instruments measured at FVOCI: Gains or losses are recycled to profit or loss on de-recognition. Financial assets in this
category that meet the SPPI criterion and are held within a business model both to collect cash flows and to sell. The company
had no financial instruments measured at FVOCI in year end 31 March 2021, 31 March 2020 or 31 March 2019.
|
All
other financial instruments are measured at FVTPL at initial recognition, where gains and losses are recognized entirely in profit
or loss.
De-recognition
A
financial asset (or, where applicable a part of a financial asset or part of a Group of similar financial assets) is de-recognized
when:
|
●
|
The
rights to receive cash flows from the asset have expired.
|
|
●
|
The
Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash
flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group
has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred control of the asset.
|
When
the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement and has
neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the
asset is recognized to the extent of the Group’s continuing involvement in the asset.
In
that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured
on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of
a guarantee over the transferred asset, is measured at the lower of the original carrying amount of the asset and the maximum
amount of consideration that the Group could be required to repay.
Impairment
of financial assets
Under
IFRS 9, the Group records an allowance for Expected Credit Loss (“ECL”) for financial assets not held at FVTPL.
ECLs
are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that
the Group expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest
rate.
For
trade and other receivables, amounts due from an associate/shareholders/related companies/joint venture and loan receivables,
the Group has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses.
The Group calculates the ECL based on adjusted for forward-looking factors specific to the customer and the economic environment.
The
Group considers a financial asset in default when internal or external information indicates that the Group is unlikely to receive
the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.
Equity
instruments
An
equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Financial
liabilities
The
Group classifies its financial liabilities in the following measurement categories:
|
●
|
those
to be measured subsequently at fair value through profit or loss, and
|
|
●
|
those
to be measured at amortized cost
|
For
liabilities measured at fair value, gains and losses will be recorded in profit or loss.
Offsetting
financial instruments
Financial
assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position if,
and only 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.
Provisions
Provisions
are recognized when the Group has a legal or constructive obligation as a result of a past event, it is probable that an outflow
of resources will be required to settle the obligation, and the amount can be reliably estimated.
Provisions
are measured at the present value of the expenditures expected to be required to settle the obligation at the end of the reporting
period, using a rate that reflects current market assessments of the time value of money and the risks specific to the obligation.
When
some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable
is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of receivable can be measured
reliably.
Employee
benefits
Employee
leave entitlements
Employee
entitlements to annual leave are recognized when they accrue to employees. A provision is made for the estimated liability for
annual leave as a result of services rendered by employees up to the consolidated statement of financial position date.
Employee
entitlements to sick leave and maternity leave are not recognized until the time of leave.
Retirement
benefit costs
For
defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory,
contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions
are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that
a cash refund or a reduction in the future payments is available.
Share-based
payments
Share
Options
The
Group operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute
to the success of the Group’s operations. Employees (including directors) and contractors of the Group may receive remuneration
in the form of share-based payments, whereby the employees and contractors render services as consideration for equity instruments
(“equity-settled transactions”).
The
fair value of the employee and contractor services received in exchange for the grant of the options is recognized as an expense
with a corresponding increase in share-based payment reserve. The total amount to be expensed is determined by reference to the
fair value of the share options granted. The total expense is recognized over the vesting period, which is the period over which
all of the specified vesting conditions are to be satisfied. At the end of each period, the entity revises its estimates of the
number of options that are expected to vest based on the non-market vesting and service conditions. It recognizes the impact of
the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.
Earn-out
awards
The
earn-out awards are equity-settled awards measured on grant date in accordance with IFRS 2 and the grant date fair value of each
award takes into account the non-vesting conditions. Earn out awards are only fair valued on the grant date and not subsequently
fair valued on each future reporting date on the basis that they are equity-settled awards.
Market
conditions and non-vesting conditions are considered in estimating the fair value of an individual share using a Monte Carlo simulation
model.
Foreign
currencies
Transactions
in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All differences are taken to consolidated
statement of profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value is determined.
Dividend
distribution
Dividend
distribution to the Company’s shareholders is recognized as a liability in the Group’s and the Company’s consolidated
financial statements in the period in which the dividends are approved by the Company’s shareholders or directors, where
appropriate.
Related
parties
A
related party is a person or entity that is related to the Group.
(a)
A person or a close member of that person’s family is related to the Group if that person:
|
i.
|
has
control or joint control over the Group;
|
|
ii.
|
has
significant influence over the Group; or
|
|
iii.
|
is
a member of key management personnel of the Group or the Group’s parent.
|
(b)
An entity is related to the Group if any of the following conditions apply:
|
i.
|
The
entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related
to the others).
|
|
ii.
|
One
entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which
the other entity is a member).
|
|
iii.
|
Both
entities are joint ventures of the same third party.
|
|
iv.
|
One
entity is a joint venture of a third entity and the other entity is an associate of the third entity.
|
|
v.
|
The
entity is a post-employment benefit plan for the benefit of the employees of the Group or an entity related to the Group.
|
|
vi.
|
The
entity is controlled or jointly controlled by a person identified in (a).
|
|
vii.
|
A
person identified in (a)(i) has significant influence over the entity or is a member of key management personnel of the entity
(or of a parent of the entity).
|
|
viii.
|
The
entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the
parent of the Group.
|
Fair
value
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. The fair value measurement is based on the presumption that the transaction to sell the
asset or transfer the liability takes place either:
|
●
|
In
the principal market for the asset or liability, or
|
|
●
|
In
the absence of a principal market, in the most advantageous market for the asset or liability.
|
The
principal or the most advantageous market must be accessible by the Group.
The
fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset
or liability, assuming that market participants act in their economic best interest.
A
fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits
by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its
highest and best use.
The
Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure
fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
In
addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to
which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement
in its entirety, which are described as follows:
|
●
|
Level
I inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at
the measurement date;
|
|
●
|
Level
2 inputs, other than quoted prices included within Level I that are observable for the asset or liability, either directly
or indirectly; and
|
|
●
|
Level
3 inputs are unobservable inputs for the asset or liability.
|
Current
versus non-current classification
The
Group presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification.
An asset as current when it is:
|
●
|
Expected
to be realized or intended to be sold or consumed in normal operating cycle
|
|
●
|
Held
primarily for the purpose of trading
|
|
●
|
Expected
to be realized within twelve months after the reporting period, or
|
|
●
|
Cash
or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the
reporting period
|
All
other assets are classified as non-current.
A
liability is current when:
|
●
|
It
is expected to be settled in normal operating cycle
|
|
●
|
It
is held primarily for the purpose of trading
|
|
●
|
It
is due to be settled within twelve months after the reporting period, or
|
|
●
|
There
is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
|
The
Group classifies all other liabilities as non-current.
Earnings
per share
Earnings
per share for periods prior to the deemed reverse acquisition are retrospectively adjusted to reflect the number of equivalent shares
received by the accounting acquirer, Diginex HK, based on the number of shares outstanding on the reporting dates multiplied by the exchange
ratio. The exchange ratio being calculated as the number of shares issued by the Company to the former shareholders of Diginex HK divided
by the number of shares outstanding in Diginex HK on 30 September 2020.
3
Revenue
An
analysis of the Group’s revenue from continuing operations for the reporting periods are as follows:
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Exchange income
|
|
|
203,230
|
|
|
|
415
|
|
|
|
-
|
|
Trading income
|
|
|
66,039
|
|
|
|
78,833
|
|
|
|
3,216
|
|
Capital markets service income
|
|
|
10,000
|
|
|
|
291,315
|
|
|
|
900,085
|
|
Custody service income
|
|
|
4,525
|
|
|
|
4,202
|
|
|
|
-
|
|
Asset management fee income
|
|
|
3,674
|
|
|
|
119,857
|
|
|
|
46,763
|
|
|
|
|
287,468
|
|
|
|
494,622
|
|
|
|
950,064
|
|
4
GENERAL AND ADMINistrative expenses
|
|
|
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
Notes
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Employee benefit expenses
|
|
|
5
|
|
|
|
44,433,520
|
|
|
|
26,106,003
|
|
|
|
8,536,316
|
|
Amortization of intangible assets
|
|
|
12
|
|
|
|
2,021,722
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation of property, plant and equipment
|
|
|
13
|
|
|
|
817,597
|
|
|
|
791,714
|
|
|
|
575,108
|
|
Depreciation of right-of-use assets
|
|
|
14
|
|
|
|
1,963,787
|
|
|
|
1,965,711
|
|
|
|
1,387,004
|
|
Operating lease expense in respect of short-term leases
|
|
|
|
|
|
|
184,983
|
|
|
|
239,200
|
|
|
|
413,852
|
|
Auditor’s remuneration
|
|
|
(a)
|
|
|
|
653,582
|
|
|
|
326,557
|
|
|
|
52,564
|
|
Legal and professional fees
|
|
|
(b)
|
|
|
|
4,970,555
|
|
|
|
6,524,305
|
|
|
|
4,606,857
|
|
Marketing and promotions
|
|
|
(c)
|
|
|
|
3,223,609
|
|
|
|
698,412
|
|
|
|
558,534
|
|
Expensed software development
|
|
|
(d)
|
|
|
|
714,063
|
|
|
|
3,303,135
|
|
|
|
-
|
|
Technology
|
|
|
(e)
|
|
|
|
4,584,780
|
|
|
|
1,113,871
|
|
|
|
272,905
|
|
Other expenses
|
|
|
(f)
|
|
|
|
1,347,923
|
|
|
|
1,915,736
|
|
|
|
2,482,761
|
|
|
|
|
|
|
|
|
64,916,121
|
|
|
|
42,984,644
|
|
|
|
18,885,901
|
|
Note
4(a): The incremental costs for the year ended 31 March 2021 related, in part, to additional audit expenses as a result of the
Transaction.
Note
4(b): Legal and professional fees mainly consist of:
|
●
|
Fees
relating to the Transaction and those associated with being a listed company
|
|
|
|
|
●
|
Fees
incurred in seeking regulatory and legal advice for both existing and new products
|
|
|
|
|
●
|
Insurance
and fees associated with KYC and AML client reviews
|
Note
4(c): Marketing and promotions for the year ended 31 March 2021 relate, primarily, to the promotion of EQONEX following the public
launch in July 2020.
Note
4(d): Expensed software development are maintenance costs for the Exchange which do not meet the criteria to be capitalized. For
the year ended 31 March 2020, development costs where no identifiable future economic benefits were identified were fully expensed.
Note
4(e): Technology costs consist, in part, of cloud-based hosting services. The year-on-year growth is driven by the additional
demand for this service during the continued expansion of EQONEX.
Note
4(f): Other expenses include amongst others, office related costs, cost for the services of a third-party custodian for EQONEX
client assets, blockchain fees and travel and entertainment. The year-on-year reduction is primarily due to a reduction of business
travel following the global restrictions in place due to the COVID-19 pandemic.
5
Employee benefit expenses
|
|
|
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
Notes
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Basic salaries, allowances and all benefits-in-kind
|
|
|
|
|
|
|
14,934,202
|
|
|
|
14,392,676
|
|
|
|
7,769,503
|
|
Pension costs - defined contribution plans
|
|
|
(a)
|
|
|
|
322,891
|
|
|
|
316,009
|
|
|
|
132,351
|
|
Share-based payments
|
|
|
(b)
|
|
|
|
29,176,427
|
|
|
|
11,397,318
|
|
|
|
634,462
|
|
|
|
|
|
|
|
|
44,433,520
|
|
|
|
26,106,003
|
|
|
|
8,536,316
|
|
Note
5 (a): For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans
on a mandatory, contractual, or voluntary basis. The Group has no further payment obligations once the contributions have been
paid. The contributions are recognized as an employee benefit expense when they are due.
Note
5 (b):
For
the year ended 31 March 2021, share-based payments include the following:
|
●
|
$26,942,783
related to the employee share option scheme, originally established by Diginex HK (note 25)
|
|
●
|
$1,315,248
related to the vesting period changes due to the replacement employee share option scheme post Transaction (note 25)
|
|
●
|
$548,453 related
to the fair value of shares awarded to staff as part of the salary deferral scheme which excludes $9,263 related to the fair
value of shares awarded which were reclassed to discontinued operations (note 37). Under the salary deferral scheme, certain
employees and long-term contractors deferred payment on a portion of their salaries and in return Diginex HK issued a corresponding
share-based payment award equal to the deferred value (the “salary deferral scheme”). Of this amount $164,474 has
been accrued and not yet issued as at 31 March 2021
|
|
●
|
$369,943
related to share awards accrued, yet to be issued as at 31 March
2021, based on employment service contract obligations
|
For
the year ended 31 March 2020, share-based payments included the following:
|
●
|
$9,722,202
related to the Diginex HK employee share option scheme (note 25)
|
|
●
|
$1,425,116
related to the fair value of shares awarded to staff as part of the salary deferral scheme, this excludes $70,331 related
to the fair value of shares awarded which were reclassed to discontinued operations (note 37)
|
|
●
|
$250,000
related to share awards based on service contract obligations
|
For
the year ended 31 March 2019, share-based payments included the following:
|
●
|
$634,462
related to the Diginex HK employee share option scheme
|
6
Other LOSSES AND Expenses, net
|
|
|
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
|
Notes
|
|
|
|
USD
|
|
|
|
USD
|
|
|
|
USD
|
|
Foreign exchange gains (loss), net
|
|
|
|
|
|
|
367,134
|
|
|
|
(133,431
|
)
|
|
|
139,140
|
|
Transaction expense
|
|
|
(a)
|
|
|
|
(43,995,869
|
)
|
|
|
-
|
|
|
|
-
|
|
Earn-out share awards related to the Transaction
|
|
|
(b)
|
|
|
|
(32,148,300
|
)
|
|
|
-
|
|
|
|
-
|
|
Net fair value gain on financial liabilities at fair value through profit or loss
|
|
|
(c)
|
|
|
|
11,397,187
|
|
|
|
-
|
|
|
|
-
|
|
Net fair value loss on financial assets at fair value through profit or loss
|
|
|
(d)
|
|
|
|
(144,109
|
)
|
|
|
(1,527,158
|
)
|
|
|
(2,590,853
|
)
|
Disposal of property, plant and equipment, net
|
|
|
13
|
|
|
|
(36,300
|
)
|
|
|
-
|
|
|
|
-
|
|
Revaluation loss on Digital Assets
|
|
|
22
|
|
|
|
(68,360
|
)
|
|
|
|
|
|
|
|
|
Net gain on fair value on equity method investment
|
|
|
(e)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,030,339
|
|
Net loss on sale of financial assets at fair value through profit or loss
|
|
|
(f)
|
|
|
|
-
|
|
|
|
(221,626
|
)
|
|
|
(11,665,824
|
)
|
Others
|
|
|
|
|
|
|
195,902
|
|
|
|
183,148
|
|
|
|
214,289
|
|
|
|
|
|
|
|
|
(64,432,715
|
)
|
|
|
(1,699,067
|
)
|
|
|
(2,872,909
|
)
|
Note
6(a): During the year ended 31 March 2021, the Group recognized the below Transaction expense:
6,688,392 shares issued to former shareholders of 8i Enterprises and service providers (note 36)
|
|
|
(56,851,332
|
)
|
6,212,050 warrants issued to the former warrant holders of 8i Enterprises (note 36)
|
|
|
(8,324,147
|
)
|
|
|
|
(65,175,479
|
)
|
Less: Total identifiable net assets of 8i Enterprises at fair value (note 36)
|
|
|
21,179,610
|
|
|
|
|
(43,995,869
|
)
|
The
shares and warrants issued were valued at the quoted closing price on Nasdaq on 30 September 2020 of $8.50 and $1.34 respectively.
Note
6(b): Under the terms of the Transaction up to 12,000,000 shares will be issued via an earn-out provision should share price milestones
be met over a 4-year period from 30 September 2020. Upon reaching the earn-out milestones, a service provider to the Transaction
is also entitled to receive the equivalent of 1% of the earn-out shares issued. These shares have a grant date fair value of $32,148,300
and were recognized in the share-based payment reserve and as an expense to the consolidated statement of profit or loss under
IFRS 2 (note 25.4).
Note
6(c): Private warrants were issued on 15 January 2021 as part of a capital raise that saw 2,571,669 shares and the same number
of warrants issued. The warrants had an initial fair value of $16,594,388 and subsequently remeasured to $5,197,201 on 31 March
2021(note 26) under the guidance of IFRS 9, the fair value remeasurement of $11,397,187 is recorded as a gain in the consolidated
statement of profit or loss.
Note
6(d): At 31 March 2019, the Group held 3,681,399 of Madison shares valued at $377,580 and recorded a fair value loss of $490,853
as of the year ended 31 March 2019. In addition, during the year the Group recorded a decrease in market value of its investment
in CSP tokens issued by Caspian of $140,000. Unlisted investments recorded a fair value loss amounting to $1,960,000. The unlisted
investments fair value loss related to Nynja Group Limited of $1,160,000 and the Agora VOTE token for $800,000. Agora was subsequently
reclassed as listed during the year ended 31 March 2020.
During
the year ended 31 March 2020 a decrease in market value of CSP tokens issued by Caspian of $38,200 and VOTE tokens issued by Agora
of $172,699 was recognized (both tokens are listed on digital asset exchanges, see note 16.1). The unlisted investment in Shadow
Factory Limited incurred a fair value loss of $1,316,259 (note 16.2).
During
the year ended 31 March 2021, investments held in CSP tokens issued by Caspian and VOTE tokens issued by Agora recorded fair value
gains of $110,877 and $145,014 respectively. This is offset by fair value losses of the private unlisted equity investments in
Shadow Factory Limited and Nynja Group Limited of $400,000 (note 16.2).
Note
6(e): On 31 July 2018, 51% of the Group’s equity interest in Diginex High Performance Computing Limited (“DHPC”)
was sold to Madison Holdings Group Limited (“Madison”), a third party, for a total consideration of $60,000,000, resulting
in a gain from divestment of $59,127,340. The consideration was settled by cash of $10,000,000 and the issuance of 213,252,717
Madison shares, which are listed on the Growth Enterprise Market (“GEM”) of the Stock Exchange of Hong Kong (note
37). The Group classified the Madison shares as trading securities under IFRS 9. The retained investment of the 49% equity interest
in DHPC was accounted for under IFRS 10 using the equity accounting method. Per IFRS 10, the investment was revalued at its fair
value of $43,811,765. The net assets of the business attributable to the 49% ownership amounted to $1,240,347, resulting in a
fair value adjustment of $42,571,418. However, at the year ended 31 March 2019, based on the net liabilities position of DHPC
and after recording the share of the losses incurred during the year, the investment in DHPC recorded a fair value loss of $31,541,079
resulting in a net fair value gain of $11,030,339 for the year.
Note
6(f): The Madison shares were received as part consideration for the 51% disposal of DHPC in July 2018. In October 2018, the Group
sold 209,571,318 Madison’s shares and recorded a realized loss of $11,665,824. On 27 June 2019, the Group sold the remaining
3,681,399 Madison shares and recorded a realized loss of $221,626.
7
IMPAIRMENT REVERSAL (LOSSES) ON FINANCIAL
ASSETS, NET
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Impairment of loan receivables
|
|
|
-
|
|
|
|
4,374,446
|
|
|
|
5,481,772
|
|
Impairment of amounts due from an associate
|
|
|
-
|
|
|
|
6,749,833
|
|
|
|
-
|
|
Impairment of trade receivables
|
|
|
-
|
|
|
|
113,381
|
|
|
|
108,000
|
|
Reversal of an impairment
|
|
|
(21,071
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(21,071
|
)
|
|
|
11,237,660
|
|
|
|
5,589,772
|
|
During
the year ended 31 March 2021,
|
●
|
There
was no impairment loss on financial assets during the year.
|
|
●
|
Impairment
on amounts due from an associate was partially reversed based on the agreed repayment plan which was fully settled in April
2021 (note 19).
|
During
the year ended 31 March 2020,
|
●
|
Impairment
of loan receivables consisted of: (1) impairment of a loan with Peter Yuan as detailed in note 15 and (2) on 20 February 2019,
the Group signed a non-binding term sheet with a third party to establish a new subsidiary under the Group in the United States
of American. In connection with the term sheet the group advanced monies for working capital purposes prior to a definitive
agreement being signed. During the year ended 31 March 2020, the Group impaired $479,748 of the advance (note 15) as the definitive
agreement was not signed.
|
|
●
|
Amounts
due from an associate was impaired by $6,749,833 (note 19).
|
During
the year ended 31 March 2019,
|
●
|
Impairment
of loan receivables consisted of: (1) fully impaired loan to Rise Tech Ventures, Inc of $200,000, (2) a fully impaired advance
of $500,000 relating to the proposed new subsidiary in the US as noted above, and (3) an impairment of $4,781,772 on a loan
with Peter Yuan.
|
8
Finance costs, net
|
|
|
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
Notes
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Interest on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
● Loans from shareholders
|
|
|
20
|
|
|
|
277,959
|
|
|
|
1,333,480
|
|
|
|
393,038
|
|
● Lease liabilities
|
|
|
29
|
|
|
|
231,759
|
|
|
|
460,983
|
|
|
|
430,233
|
|
● Notes payable
|
|
|
31
|
|
|
|
17,156
|
|
|
|
57,064
|
|
|
|
-
|
|
● Convertible bond
|
|
|
32
|
|
|
|
509,230
|
|
|
|
-
|
|
|
|
-
|
|
● Other loans
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,477
|
|
Other finance costs
|
|
|
26
|
|
|
|
1,235,341
|
|
|
|
-
|
|
|
|
260,536
|
|
Other finance income
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
2,271,445
|
|
|
|
1,851,527
|
|
|
|
1,139,211
|
|
During
the years ended 31 March 2021, 2020 2019, the Group had a shareholder loan with Pelham Limited, via a $20m credit facility with
a 12.5% interest charge on the outstanding balance. During the year ended 31 March 2021, this credit facility was terminated upon
the Transaction on 30 September 2020 (note 20).
The
Group holds long term leases accounted for under IFRS 16. As the lease liability is recorded at the present value of the unpaid
lease payments, over the lease term, finance cost is accrued based on the implicit interest rate of the lease or the Group’s
incremental borrowing rate to secure borrowing over a similar term (note 29).
The
Group issued a loan note in September 2019, the loan note had a 12-month maturity and a 15% interest charge. A notional amount
of $675,000 was raised and was fully redeemed early on 1 June 2020 (note 31).
The
Group issued a convertible bond with an annual 10% coupon in May 2020. The bond and accrued interest were converted to shares
of Diginex HK on the 21 September 2020 with additional accrued interest between 22 and 28 September settled in cash (note 32).
The
Group issued private shares and warrants for cash during the year ended 31 March 2021. In raising the funds the Group incurred
transaction costs of $2,871,652 of which $1,235,341 relates to the private warrants on a fair value pro-rata basis between the
shares and warrants issued. The private warrants are classified as a liability at fair value through profit or loss, accordingly
the related transaction cost is recorded as a finance cost upon initial recognition (note 26).
9
EQUITY METHOD INVESTMENT – DHPC
On
31 July 2018, the Group sold 51% of its equity interest in DHPC (note 37). Under IFRS 10 DHPC ceased to be a subsidiary of the
Group and the remaining 49% equity interest in DHPC was accounted for as an associate at a fair value. Upon disposal the fair
value was estimated at $43,811,765 resulting in a fair value gain of $42,571,418. However, during the same year ended 31 March
2019 the Group recorded its share of DHPC’s losses for the period from the disposal date of $12,270,686. Considering the
material losses and the current net liability position of DHPC, at the year ended 31 March 2019 management reduced the fair value
estimate of the investment by $31,541,079 offsetting the fair value gain on disposal resulting in a net fair value gain of $11,030,339
being recorded in the year (note 6). Post recording the Group’s share of DHPC’s losses and the write-down of the investment
value, the carrying value of the Group’s investment in DHPC was nil as at 31 March 2019.
During
the year ended 31 March 2020, the operations of DHPC’s business ceased. As the investment measured under equity method has
been fully written down in the year ended 31 March 2019, there have been no further losses booked in the year ended 31 March 2020
and 31 March 2021 under the guidance of IAS 28.
Name
of entity
|
|
Place
of incorporation and operation
|
|
Principal
activities
|
|
Particular
of issued share capital
|
|
Percentage
of ownership interest attributable to the Group
|
Diginex
High Performance Computing Limited (“DHPC”)
|
|
Gibraltar
|
|
Transaction
verification service
|
|
2,000
ordinary shares of GBP1 each
|
|
Indirect
49%
|
The
Group’s shareholdings in DHPC comprised of equity shares held by the Group and the shareholding is held by a wholly owned
subsidiary of the Company. DHPC was previously a wholly owned subsidiary of the Group, which engaged in the provision of Transaction
Verification services. During the year ended 31 March 2019, the Group lost control over DHPC and became an associate of the Group
accordingly. At 31 March 2019, the Group’s effective interests in DHPC was 49%. Further details of the disposal are set
out in note 37. The directors, at the time, were of the view that DHPC was considered a material associate of the Group and was
accounted for using the equity method.
The
following table illustrates the summarized financial information in respect of DHPC at 31 March 2019:
|
|
At 31 March 2019
|
|
|
|
USD
|
|
Current assets
|
|
1,997,000
|
|
Non-current assets
|
|
|
10,513,000
|
|
Current liabilities
|
|
|
(21,828,000
|
)
|
Non-current liabilities
|
|
|
(13,193,000
|
)
|
Net liabilities
|
|
|
(22,511,000
|
)
|
A
reconciliation of the above summarized financial information to the carrying amount of the interest in the associate recognized
in the consolidated financial statements is below:
|
|
At 31 March 2019
|
|
|
|
USD
|
|
Net liabilities of the associate
|
|
|
(22,511,000
|
)
|
Proportion of the Group’s ownership interest in the associate at 49%
|
|
|
(11,030,390
|
)
|
Carrying amount of the Group’s interest in the Associate
|
|
|
-
|
|
|
|
|
|
|
Results of DHPC for the period post divestment 1 August 2018 to 31 March 2019:
|
|
|
|
|
|
|
|
USD
|
|
Revenue
|
|
|
2,485,000
|
|
Loss and total comprehensive loss for the period
|
|
|
(25,042,216
|
)
|
The
Group’s share of post divestment profits attributable to the 49% shareholding amounted to $12,270,686 as stated on the statement
of profit or loss as share of loss of an associate for the year ended 31 March 2019.
Cashflow
of DHPC from 1 August 2018 to 31 March 2019:
Net cash (outflow) from operating activities
|
|
|
(2,690,804
|
)
|
Net cash (outflow) from investing activities
|
|
|
(1,750,000
|
)
|
Net cash inflow from financing activities
|
|
|
4,440,804
|
|
Net increase (decrease) in cash generated by the subsidiary
|
|
|
-
|
|
Since
the partial divestment of DHPC on 31 July 2018 to 31 March 2019 the business generated cash proceeds from the sale of ETH amounting
to $3.1m and had cash outflows from operating activities over the same period of $5.8m, resulting in a net outflow of $2.7m. The
business invested $1.8m for the acquisition of another mining business in Sweden, High Performance Computing Nordic, AB in August
2018.
DHPC
does not have a bank account. Operating and investing cash activities were recorded via shareholder loans which have increased
by $4.4m as a result of the activity over the period.
Details
on the cashflows for DHPC for the period prior to divestment are detailed in note 37.
During
the year ended 31 March 2020, the Company advanced a further $226,308 to DHPC for working capital purposes and a loan of $2,000,000
to purchase new high-performance computing equipment. The equipment was not purchased and the business ceased being active. Details
of the amounts due from associate are highlighted in note 19.
There
has been no activity during the year ended 31 March 2021. As at 31 March 2021, the Group continue to hold the 49% shareholding
in DHPC.
10
Income taxES
There
was no income or deferred tax expense for the years ended 31 March 2020 and 2019. During the year ended 31 March 2021, Digivault
Limited, a UK subsidiary of the group, received a tax credit for research and development of $478,078.
10.1
Reconciliation of effective tax rate
While
the Company is domiciled in Singapore, the majority of operations are based in Hong Kong during the year ended 31 March 2021.
In Hong Kong, the profits tax rate for corporations is 16.5% except for the first HK$2,000,000 (c.$250,000) of profit, which is
charged at 8.25%. There is no capital gains tax in Hong Kong. Taxes charged on profits assessable elsewhere have been calculated
at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretation and
practices in respect thereof. As at 31 March 2021, the effective tax rate for the Group is 0%. Tax effects on other comprehensive
loss has been deemed immaterial.
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
|
USD
|
|
|
|
USD
|
|
|
|
USD
|
|
Loss from continuing operations before income taxes
|
|
|
(131,311,742
|
)
|
|
|
(57,278,276
|
)
|
|
|
(40,266,233
|
)
|
Profit (loss) from discontinued operations before income taxes
|
|
|
4,956,408
|
|
|
|
(857,554
|
)
|
|
|
56,986,946
|
|
|
|
|
(126,355,334
|
)
|
|
|
(58,135,830
|
)
|
|
|
16,720,713
|
|
Notional tax calculated at the rates applicable to profits in the tax jurisdictions concerned
|
|
|
(11,157,053
|
)
|
|
|
(9,546,464
|
)
|
|
|
2,469,380
|
|
Tax effect of income that is not taxable
|
|
|
(2,455,883
|
)
|
|
|
550
|
|
|
|
(9,756,003
|
)
|
Tax effect of expenses that are not deductible
|
|
|
7,395,386
|
|
|
|
2,233,494
|
|
|
|
909,937
|
|
Tax effect of tax losses not utilized
|
|
|
6,789,872
|
|
|
|
5,216,460
|
|
|
|
5,215,623
|
|
Tax effect of utilization of unrecognized tax losses
|
|
|
(963,219
|
)
|
|
|
-
|
|
|
|
-
|
|
Tax effect of temporary differences
|
|
|
390,897
|
|
|
|
2,095,960
|
|
|
|
1,161,063
|
|
Income tax expense for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The
results for both reporting periods can also be analyzed in the following way:
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Loss from continuing operations
|
|
|
(131,311,742
|
)
|
|
|
(57,278,276
|
)
|
|
|
(40,266,233
|
)
|
Loss from discontinued operations
|
|
|
(117,137
|
)
|
|
|
(857,554
|
)
|
|
|
(2,140,394
|
)
|
Total losses subject to income tax
|
|
|
(131,428,879
|
)
|
|
|
(58,135,830
|
)
|
|
|
(42,406,627
|
)
|
Gain on sale of discontinued operations
|
|
|
5,073,545
|
|
|
|
-
|
|
|
|
59,127,340
|
|
Profit (Loss) for the year before tax
|
|
|
(126,355,334
|
)
|
|
|
(58,135,830
|
)
|
|
|
16,720,713
|
|
Of
the loss generated in the year ended 31 March 2021, $5,073,545 relates to a gain on sale of the discontinued Solutions Business. The
gain was recognized in Diginex Solutions Limited, a Hong Kong resident company, and was capital in nature. In Hong Kong there is
no capital gains tax. As a result, the effect of non-taxable income is $833,680 at Hong Kong’s tax rate of 16.5%.
For
the years ended 31 March 2021, 2020, and 2019, there were operating losses with respect to discontinued operations. No tax provision
has been recognized for the periods in relation to these activities as no taxable income was generated.
Included
in the loss from continuing operations for the year ended 31 March 2021 is a share-based payment of $43,995,869 (note 36) which relates
to the Transaction. This relates to a consolidation adjustment and is not subject to taxation. The loss from continuing operations also
includes an expense of $32,148,300 related to the fair value of earn-out awards (note 25), which was recognized by the Company. This
expense is treated as non-deductible and tax effected at the Singapore tax rate of 17%.
The
impact of the operating loss from continued operations has resulted in the Group carrying forward tax losses of $16,962,865 (2020:
$9,857,098; 2019: $5,278,416). The losses carried forward as at 31 March 2021 include those accumulated in prior years. The majority
of operating losses and hence tax losses have been generated in Hong Kong. Tax losses in Hong Kong can be carried forward and offset
against future profits indefinitely.
10.2
Deferred income taxes
Deferred
income taxes reflect the net tax effects of the temporary differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The main components of the deferred income tax assets are as follows:
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Depreciation and amortization recognized for tax purposes
|
|
|
789,005
|
|
|
|
434,696
|
|
|
|
256,570
|
|
Rental payments (IFRS 16)
|
|
|
(394,631
|
)
|
|
|
(391,426
|
)
|
|
|
-
|
|
Impairment on loan balances
|
|
|
(3,477
|
)
|
|
|
2,052,689
|
|
|
|
904,493
|
|
Benefit of tax loss carried forward
|
|
|
16,962,865
|
|
|
|
9,857,098
|
|
|
|
5,278,416
|
|
|
|
|
17,353,762
|
|
|
|
11,953,057
|
|
|
|
6,439,479
|
|
Unrecognized deferred tax asset
|
|
|
(17,353,762
|
)
|
|
|
(11,953,057
|
)
|
|
|
(6,439,479
|
)
|
Deferred tax asset
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The
ultimate realization of deferred tax assets is dependent upon the generation of sufficient future taxable income during the periods in
which those temporary differences become deductible. In determining the recognition of a deferred tax asset, management considered the
future profitability of the Group. While management expects the Group to return profits in the future, there is still an element of uncertainty
and as such, no deferred tax asset has been recognized.
11
EARNINGS (loss) per share
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations attributable to the ordinary equity holders of the company
|
|
|
(4.97
|
)
|
|
|
(3.80
|
)
|
|
|
(2.90
|
)
|
From discontinued operation
|
|
|
0.19
|
|
|
|
(0.06
|
)
|
|
|
4.11
|
|
Total basic earnings (loss) per share attributable to the ordinary equity holders of the company
|
|
|
(4.78
|
)
|
|
|
(3.86
|
)
|
|
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of earnings (loss) used in calculating earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (Loss) attributable to the ordinary equity holders of the company used in calculating basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
|
(130,833,664
|
)
|
|
|
(57,278,276
|
)
|
|
|
(40,266,233
|
)
|
From discontinued operation
|
|
|
4,956,408
|
|
|
|
(857,554
|
)
|
|
|
56,986,946
|
|
|
|
|
(125,877,256
|
)
|
|
|
(58,135,830
|
)
|
|
|
16,720,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used as the denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares used in the denominator in calculating basic earnings (loss) per share
|
|
|
26,301,024
|
|
|
|
15,061,549
|
|
|
|
13,879,415
|
|
Due
to the losses from continuing operations during the years ended 31 March 2021, 2020 and 2019, anti-dilutive instruments were excluded
from the calculation of diluted loss per share. The excluded anti-dilutive instruments include 5,600,000 of employee share options outstanding
as at 31 March 2021 (2020: 4,196,383, 2019: 2,109,548, as adjusted to reflect the exchange ratio, see note 24), as well as 2,571,669
private warrants outstanding as at 31 March 2021 exercisable to acquire 2,571,669 shares.
The
3,030,000 shares issued for meeting the first share price milestone of the earn-out awards have been included in the calculation of basic
loss per share. The remaining 9,090,000 shares to be issued should certain share price milestones be achieved in the future have been
excluded from the calculation of diluted loss per share as those milestones were not met during the year ended 31 March 2021. See note
25 for details on earn-out awards.
12
INTANGIBLE ASSETS, NET
|
|
Capitalized
Software Development
|
|
|
Software
Acquired
|
|
|
Total
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
At 31 March 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2020
|
|
|
5,169,073
|
|
|
|
5,500,043
|
|
|
|
10,669,116
|
|
Adjustment for foreign exchange
|
|
|
5,893
|
|
|
|
(12
|
)
|
|
|
5,881
|
|
Reclassification (note 13)
|
|
|
(60,378
|
)
|
|
|
-
|
|
|
|
(60,378
|
)
|
Additions
|
|
|
5,252,943
|
|
|
|
1,000,056
|
|
|
|
6,252,999
|
|
At 31 March 2021
|
|
|
10,367,531
|
|
|
|
6,500,087
|
|
|
|
16,867,618
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Charge for the period
|
|
|
(1,196,708
|
)
|
|
|
(825,014
|
)
|
|
|
(2,021,722
|
)
|
At 31 March 2021
|
|
|
(1,196,708
|
)
|
|
|
(825,014
|
)
|
|
|
(2,021,722
|
)
|
Net carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2021
|
|
|
9,170,823
|
|
|
|
5,675,072
|
|
|
|
14,845,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Additions
|
|
|
5,169,073
|
|
|
|
5,500,043
|
|
|
|
10,669,116
|
|
At 31 March 2020
|
|
|
5,169,073
|
|
|
|
5,500,043
|
|
|
|
10,669,116
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Charge for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At 31 March 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2020
|
|
|
5,169,073
|
|
|
|
5,500,043
|
|
|
|
10,669,116
|
|
External
spend on software development is capitalized as an intangible asset in accordance with IAS 38 when control is obtained, future economic
benefits of such software is probable and the cost of such software can be reliably measured.
In
March 2020, the Group acquired software from a third party for potential consideration of up to $10,000,000. $8,500,000 of the fair value
consideration is based on the integration of the software into the EQONEX infrastructure and the delivery of future products with the
balance of $1,500,000 payable based on future trading volumes on the Exchange (note 33):
|
●
|
$5,500,043
was paid during the year ended 31 March 2020, which comprised of $100,000 in cash and $5,400,043
in shares of Diginex HK.
|
|
●
|
During
the year ended 31 March 2021, an additional $1,000,056 was paid to the seller comprising
of $400,000 in cash on 14 April 2020 and 3,899 shares of Diginex HK, valued at $600,056 issued
on 1 June 2020.
|
|
●
|
The
vendor will not be providing the service associated with the remaining $2,000,000 of the
$8,500,000 fair value consideration.
|
|
●
|
Trading
volume targets associated with $1,000,000 of the $1,500,000 contingent payment were not met
prior to the target date of February 2021. The remaining $500,000 may be payable if future
trading volume target is met by future target date of February 2022.
|
During
the year ended 31 March 2021, the Group began amortizing its intangible assets as EQONEX, the digital asset exchange and the Custody
Solution, Digivault, became available for use. The software acquired has a remaining amortization period of four years and four months
as at 31 March 2021. Capitalized software development costs are capitalized when incurred and amortization commences at that point in
time. Due to this there is no single remaining amortization period for the capitalized software development costs.
13
Property, plant and equipment, NET
|
|
Furniture and fixtures
|
|
|
Office equipment
|
|
|
Leasehold improvements
|
|
|
Total
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
At 31 March 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2020
|
|
|
74,300
|
|
|
|
376,027
|
|
|
|
2,146,236
|
|
|
|
2,596,563
|
|
Adjustment for foreign exchange
|
|
|
(1,037
|
)
|
|
|
(2,338
|
)
|
|
|
(5,458
|
)
|
|
|
(8,833
|
)
|
Reclassification (note 12)
|
|
|
-
|
|
|
|
60,378
|
|
|
|
-
|
|
|
|
60,378
|
|
Additions
|
|
|
-
|
|
|
|
5,782
|
|
|
|
43,961
|
|
|
|
49,743
|
|
Disposal
|
|
|
(48,516
|
)
|
|
|
(3,510
|
)
|
|
|
-
|
|
|
|
(52,026
|
)
|
At 31 March 2021
|
|
|
24,747
|
|
|
|
436,339
|
|
|
|
2,184,739
|
|
|
|
2,645,825
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2020
|
|
|
(16,733
|
)
|
|
|
(126,394
|
)
|
|
|
(1,233,715
|
)
|
|
|
(1,376,842
|
)
|
Adjustment for foreign exchange
|
|
|
276
|
|
|
|
897
|
|
|
|
5,227
|
|
|
|
6,400
|
|
Charge for the period
|
|
|
(6,062
|
)
|
|
|
(88,462
|
)
|
|
|
(723,073
|
)
|
|
|
(817,597
|
)
|
Disposal
|
|
|
9,427
|
|
|
|
2,436
|
|
|
|
3,863
|
|
|
|
15,726
|
|
At 31 March 2021
|
|
|
(13,092
|
)
|
|
|
(211,523
|
)
|
|
|
(1,947,698
|
)
|
|
|
(2,172,313
|
)
|
Net carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2021
|
|
|
11,655
|
|
|
|
224,816
|
|
|
|
237,041
|
|
|
|
473,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2019
|
|
|
73,273
|
|
|
|
304,249
|
|
|
|
2,133,521
|
|
|
|
2,511,043
|
|
Adjustment for foreign exchange
|
|
|
1,027
|
|
|
|
1,903
|
|
|
|
12,715
|
|
|
|
15,645
|
|
Additions
|
|
|
-
|
|
|
|
69,875
|
|
|
|
-
|
|
|
|
69,875
|
|
At 31 March 2020
|
|
|
74,300
|
|
|
|
376,027
|
|
|
|
2,146,236
|
|
|
|
2,596,563
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2019
|
|
|
(8,794
|
)
|
|
|
(61,371
|
)
|
|
|
(511,662
|
)
|
|
|
(581,827
|
)
|
Adjustment for foreign exchange
|
|
|
2,581
|
|
|
|
(507
|
)
|
|
|
(5,375
|
)
|
|
|
(3,301
|
)
|
Charge for the period
|
|
|
(10,520
|
)
|
|
|
(64,516
|
)
|
|
|
(716,678
|
)
|
|
|
(791,714
|
)
|
At 31 March 2020
|
|
|
(16,733
|
)
|
|
|
(126,394
|
)
|
|
|
(1,233,715
|
)
|
|
|
(1,376,842
|
)
|
Net carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2020
|
|
|
57,567
|
|
|
|
249,633
|
|
|
|
912,521
|
|
|
|
1,219,721
|
|
14
RIGHT-OF-USE ASSETS, NET
Right-of-use
assets relate to office space leased by the Group. The amount in respect of leases are as follows:
|
|
Properties
|
|
|
|
USD
|
|
Year ended 31 March 2021:
|
|
|
|
|
At 1 April 2020
|
|
|
2,879,032
|
|
Additions (a)
|
|
|
406,333
|
|
Reclassification (b)
|
|
|
(438,150
|
)
|
Adjustment for foreign exchange
|
|
|
23,046
|
|
Depreciation
|
|
|
(1,963,787
|
)
|
Closing net book amount
|
|
|
906,474
|
|
At 31 March 2021:
|
|
|
|
|
Cost
|
|
|
6,084,957
|
|
Accumulated depreciation
|
|
|
(5,216,173
|
)
|
Adjustment for foreign exchange
|
|
|
37,690
|
|
Net book amount
|
|
|
906,474
|
|
|
|
|
|
|
Year ended 31 March 2020:
|
|
|
|
|
At 1 April 2019
|
|
|
4,830,098
|
|
Additions
|
|
|
-
|
|
Adjustment for foreign exchange
|
|
|
14,645
|
|
Depreciation
|
|
|
(1,965,711
|
)
|
Closing net book amount
|
|
|
2,879,032
|
|
At 31 March 2020:
|
|
|
|
|
Cost
|
|
|
6,217,102
|
|
Accumulated depreciation
|
|
|
(3,352,715
|
)
|
Adjustment for foreign exchange
|
|
|
14,645
|
|
Net book amount
|
|
|
2,879,032
|
|
Note
(a) – Additions in the year ended 31 March 2021 relate to long terms leases contractually committed to in both Singapore and Ho
Cho Minh City, Vietnam as detailed in note 29.
Note
(b) – The reclassification relates to a lease entered in Jersey which was renegotiated on 16 July 2020 from a long-term lease terminating
on 28 February 2027 into a short-term lease terminating on 1 March 2021. Accordingly, the Group has elected simplified accounting for
short-term leases of 12 months or less and an expense is recognized on a straight-line basis over the remainder of the lease. See note
4 for short term lease expenses.
15
LOAN RECEIVABLES
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
At 1 April
|
|
|
-
|
|
|
|
8,218,228
|
|
Loan advance balance
|
|
|
-
|
|
|
|
479,748
|
|
Loan repayment
|
|
|
-
|
|
|
|
-
|
|
Loan novation (see note 19)
|
|
|
-
|
|
|
|
(4,323,530
|
)
|
Impairment
|
|
|
-
|
|
|
|
(4,374,446
|
)
|
At 31 March
|
|
|
-
|
|
|
|
-
|
|
For
the year ended 31 March 2021 there were no loan receivables.
At
1 April 2019, Diginex HK had a loan receivable outstanding in relation to DHPC, a former subsidiary that is now 49% owned. The loan was
due from a third party and was partially novated to be due from DHPC directly and hence reclassified as an amount due from an associate.
The balance outstanding was fully impaired at 31 March 2020 after management performed the analysis of expected credit losses based on
the fact that DHPC is no longer an operating business.
Additionally,
on 20 February 2019, Diginex HK signed a non-binding term sheet with a third party to establish a new subsidiary under Diginex HK in
the United States (“Americas”). In connection with the term sheet, Diginex HK advanced $479,748 to Americas during the year
ended 31 March 2020 for working capital purposes prior to of a definitive agreement being signed. As at 31 March 2020, the $479,748 advance
was fully written-off as the definitive agreement had not been signed.
16
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
|
|
Notes
|
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
|
|
|
USD
|
|
|
USD
|
|
Listed investments
|
|
|
16.1
|
|
|
|
304,053
|
|
|
|
49,011
|
|
Unlisted investments
|
|
|
16.2
|
|
|
|
-
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
304,053
|
|
|
|
449,011
|
|
16.1
Listed investments
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
Listed investments, at fair value (a) and (b)
|
|
|
304,053
|
|
|
|
48,162
|
|
Adjustment for foreign exchange
|
|
|
-
|
|
|
|
849
|
|
|
|
|
304,053
|
|
|
|
49,011
|
|
Note
16.1(a):
Caspian
As
at 1 April 2019, Diginex HK held 4,923,077 CSP Tokens issued by Caspian with a fair value of $60,000. As at 31 March 2020, the closing
price was $0.004398 resulting in fair value of $21,652.
As
at 31 March 2021, the closing price was $0.02692 resulting in a fair value of $132,529 with a fair value gain of $110,877.
Note
16.1(b):
Agora
In
September 2019, the VOTE token issued by Agora was listed on a digital asset exchange. As a result of the listing, Diginex HK consequently
updated its fair value measurement classification from Level 3 to Level 1.
As
at 1 April 2019, Diginex HK held 25,490,196 VOTE Tokens issued by Agora with a fair value of $200,000. As at 31 March 2020, each token
was valued at $0.00104 and the investment in Agora was reduced, by $172,699 to a fair value of $26,510.
As
at 31 March 2021, the closing price was $0.006729 resulting in a value of $171,524 with a fair value gain of $145,014.
16.2
Unlisted investments
|
|
At 31 March
|
|
|
At 31 March
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
|
|
|
USD
|
|
Opening balance
|
|
|
400,000
|
|
|
|
1,650,000
|
|
Acquisition
|
|
|
-
|
|
|
|
267,773
|
|
Reclassification
|
|
|
-
|
|
|
|
(200,000
|
)
|
Change in fair value
|
|
|
(400,000
|
)
|
|
|
(1,316,259
|
)
|
Adjustment for foreign exchange
|
|
|
-
|
|
|
|
(1,514
|
)
|
|
|
|
-
|
|
|
|
400,000
|
|
Note
16.2(a):
Shadow
Factory Limited
Diginex
HK holds of 5.35% of the outstanding shares in Shadow Factory Limited (“Shadow Factory”). As at 31 March 2020, Shadow Factory
had prepared financial projections out for one year only and following discussions with the management team regarding the future outlook
of the business Diginex HK assessed the fair value of the investment as $200,000 resulting in a fair value loss of $1,316,259.
As
at 31 March 2021, management reviewed the financial information provided by Shadow Factory and have revised the fair value of the investment
to zero.
Nynja
Group Limited
Diginex
HK holds of 6.8% of the outstanding shares in Nynja Group Limited (“Nynja”). As at 31 March 2020, Diginex HK assessed the
fair value of the investment in Nynja as $200,000, unchanged from the amount as at 31 March 2019.
As
at 31 March 2021, management reviewed the financial information provided by Nynja and have revised the fair value of the investment to
zero.
Reclassification
The
reclassification is the result of the listing, on a digital asset exchange, of the VOTE Tokens issued by Agora as Level 1 inputs were
observable during the year ended 31 March 2020 (see note 16.1(b)).
17
goodwill
During
the year ended 31 March 2019, goodwill of $457,818 arose from the acquisition of Altairian Capital Holdings Limited, now known as Diginex
(UK) Limited, and its subsidiaries. The acquisition was completed on 14 December 2018.
Goodwill
was allocated to the acquired business upon acquisition. At the year ended 31 March 2019 the company assessed the value of the business
based on the future financial projections the business could generate. Given a change in economic conditions management assessed the
recoverable amount of the business and determined that an impairment loss on the goodwill should be recognized for the year ended 31
March 2019. The impairment loss has been booked to the consolidated statement of profit or loss. At the year ended 31 March 2020 and
31 March 2021, management reassessed the impairment and noted no changes.
18
Trade receivables, prepayment, deposits and other receivables
18.1
Trade receivables
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
Trade receivables
|
|
|
12,604
|
|
|
|
186,158
|
|
Less: loss allowance
|
|
|
-
|
|
|
|
(113,381
|
)
|
Adjustment for foreign exchange
|
|
|
-
|
|
|
|
(125
|
)
|
|
|
|
12,604
|
|
|
|
72,652
|
|
Trade
receivables are non-interest bearing and generally have credit terms of 30 days.
An
aging analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of loss provision, is
as follows:
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
Less than 1 month
|
|
|
9,609
|
|
|
|
68,694
|
|
Between 1 month and 3 months
|
|
|
1,667
|
|
|
|
3,958
|
|
Over 3 months
|
|
|
1,328
|
|
|
|
-
|
|
|
|
|
12,604
|
|
|
|
72,652
|
|
The
movements in the loss allowance for impairment of trade receivables are as follows:
|
|
Notes
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
|
|
|
USD
|
|
|
USD
|
|
At the beginning of the year
|
|
|
|
|
113,381
|
|
|
|
108,000
|
|
Write-off of trade receivables
|
|
(a)
|
|
|
(113,381
|
)
|
|
|
(108,000
|
)
|
Provision for impairment for trade receivables
|
|
|
|
|
-
|
|
|
|
113,381
|
|
Foreign exchange translation difference
|
|
|
|
|
-
|
|
|
|
-
|
|
At the end of the year
|
|
|
|
|
-
|
|
|
|
113,381
|
|
The
carrying amounts of trade receivables approximate their fair values.
Note
(a) – As at 31 March 2020 and 31 March 2021, management determined that two separate trade receivables fully provided for were
uncollectable and reversed the associated provision as of the year ended 31 March 2019 and 31 March 2020 respectively as the underlying
receivables were written-off.
18.2
Prepayment, deposits and other receivables
|
|
Notes
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
|
|
USD
|
|
|
USD
|
|
Non-current:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
(a)
|
|
|
152,988
|
|
|
|
1,246,947
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
(a)
|
|
|
1,389,615
|
|
|
|
88,039
|
|
Prepayments
|
|
(b)
|
|
|
1,607,298
|
|
|
|
1,197,682
|
|
Other receivables
|
|
(c)
|
|
|
259,858
|
|
|
|
522,458
|
|
|
|
|
|
|
3,256,771
|
|
|
|
1,808,179
|
|
Total
|
|
|
|
|
3,409,759
|
|
|
|
3,055,126
|
|
Note
18.2(a): On 16 June 2018, the Group entered into a lease agreement for an office located in Hong Kong with a security deposit of $1,246,947.
The Group owes monthly rental payments of HKD1,455,744 (approximately $187,000) until the lease agreement terminates on 15 June 2021.
As at 31 March 2021 the deposit for the Hong Kong office is classified as a current asset (March 2020: non-current asset). On 9 March
2021 the Group paid an initial deposit for an office located in Hong Kong for $98,568. This is a new lease as the Hong Kong business
will relocate upon completion of the existing lease. During the year ended 31 March 2021, the Group entered into two new long-term lease
agreements in Vietnam and Singapore for office spaces with security deposits of $16,576 and $37,844 respectively.
Note
18.2(b): The balance at 31 March 2021 consisted primarily of prepaid insurance and other advanced payments associated with the operations
of the business. At 31 March 2020, the balance included $900,315 which related to issued shares in Diginex HK to a service provider as
an advanced payment for services to be provided to EQONEX which was fully amortized by 31 March 2021.
Note
18.2(c): Included in other receivables at 31 March 2020 was a promissory note due from 8i Enterprises for $100,000 which was entered
into on 3 March 2020. In June 2020 Diginex HK entered into another promissory note with 8i Enterprises of $287,500. Upon the close of
the Transaction on 30 September 2020 with 8i Enterprises the full balance of $387,500 was reclassified as an intercompany balance and
eliminated on consolidation of the Group results. Included in other receivables at 31 March 2021 was an amount due from an associate
which was reclassed to other receivables in December 2020 as payments would be settled by a 3rd party (note 19.1). This other
receivable was paid on a monthly basis and fully received in April 2021.
19
AMOUNT DUE To / FROM AN ASSOCIATE
19.1
Amount due from an associate
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
At 1 April
|
|
|
977,421
|
|
|
|
1,991,988
|
|
Foreign exchange translation difference
|
|
|
(1,173
|
)
|
|
|
-
|
|
Loan novation (note 15)
|
|
|
-
|
|
|
|
4,323,530
|
|
Working capital advance
|
|
|
-
|
|
|
|
226,308
|
|
Loan receivable
|
|
|
-
|
|
|
|
2,000,000
|
|
Repayment
|
|
|
(760,136
|
)
|
|
|
(814,572
|
)
|
Impairment reversal (impairment)
|
|
|
21,071
|
|
|
|
(6,749,833
|
)
|
Reclass to other receivables
|
|
|
(237,183
|
)
|
|
|
-
|
|
At 31 March
|
|
|
-
|
|
|
|
977,421
|
|
During
the year ended 31 March 2020, $4,323,530 of a loan receivable from a third party was novated to DHPC, an associate, (note 15) and hence
the amount became collectable directly from DHPC. Diginex HK also advanced DHPC an additional $226,308 of working capital during the
same period. On 28 June 2019, the Group entered into an additional loan agreement with DHPC for an amount of $2,000,000 to be used for
the purchase of new high-performance computing equipment. The loan was interest bearing at 5% per annum and repayable from 75% of DHPC
EBITDA.
As
at 31 March 2020 the combined amounts due from DHPC were impaired by $6,749,833 to leave an outstanding balance of $977,421.
During
year ended 31 March 2021, $700,000 of the outstanding balance was settled by the associate. The remaining balance was novated to be paid
by a third party. As of 31 March 2021, $45,538 remained outstanding which was fully repaid by April 2021 as noted in note 18.2 (c). Total
amount settled associated with this balance during the year ended 31 March 2021 was $951,781.
19.2
Amount due to an associate
During
the year ended 31 March 2021, $900,000 was advanced from a 100% owned subsidiary of DHPC to Diginex HK on an interest free basis, unsecured
basis and repayable on demand. There were no amounts due to an associate as at 31 March 2020.
20
RELATED PARTY TRANSACTIONS
20.1
Transactions with other related parties
In
addition to those related party transactions and balances disclosed elsewhere in the consolidated financial statements, the Group had
the following transactions with its related parties during the reporting period:
|
|
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
Notes
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Amounts received (paid) per the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services agreement with a shareholder
|
|
(a)
|
|
|
148,201
|
|
|
|
151,288
|
|
|
|
120,822
|
|
Custody service income from a shareholder
|
|
(b)
|
|
|
-
|
|
|
|
4,108
|
|
|
|
-
|
|
Exchange revenue
|
|
(c)
|
|
|
23,103
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and finance cost charged on shareholder loans
|
|
(d)
|
|
|
(277,959
|
)
|
|
|
(1,333,480
|
)
|
|
|
(463,288
|
)
|
Interest charged on notes payable
|
|
(e)
|
|
|
(17,855
|
)
|
|
|
(57,064
|
)
|
|
|
-
|
|
Interest charged on convertible bond
|
|
(f)
|
|
|
(44,493
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to an existing shareholder
|
|
(g)
|
|
|
-
|
|
|
|
(155,030
|
)
|
|
|
-
|
|
Shares subscribed by employees for cash
|
|
(h)
|
|
|
120,185
|
|
|
|
-
|
|
|
|
-
|
|
Subscription to convertible bond
|
|
(f)
|
|
|
1,530,000
|
|
|
|
-
|
|
|
|
-
|
|
Repurchase of shares
|
|
(i)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,619,463
|
)
|
Exchange promotion rewards
|
|
(j)
|
|
|
(108,302
|
)
|
|
|
|
|
|
|
|
|
Note
20.1(a): The amounts received from a shareholder were pursuant to the terms of services agreement between Diginex HK and a shareholder.
Services include the provision of office space and administrative duties. On 15 June 2021, the service agreement with the shareholder
was terminated.
Note
20.1(b): During the year ended 31 March 2020, Pelham Limited, used the custody service offered by Digivault and was charge a fee on an
arms-length basis. Pelham Limited is a company controlled by Miles Pelham, the founder of Diginex HK.
Note
20.1(c): During the year ended 31 March 2021, key management personnel and their immediate family members paid fees while trading on
the EQONEX digital asset exchange.
Note
20.1(d): The interest expense paid to the shareholders were pursuant to the terms in the loan agreements entered into between Diginex
HK and the shareholders. For the year ended 31 March 2019 $70,250 relates to finance fees paid to the shareholders, other than Pelham
Limited, pursuant to the terms in the loan agreements entered between the Company and shareholders.
Note
20.1(e): The interest charged on the notes payable (note 31) is pursuant to terms in note agreement entered between Diginex Capital Limited,
a subsidiary of the Company, employees, and a shareholder.
Note
20.1(f): During the year ended 31 March 2021, key management personnel and some of their immediate family members subscribed to the convertible
bond with a 10% coupon issued by Diginex HK (note 32).
Note
20.1(g): During the year ended 31 March 2020, Diginex HK issued shares to existing shareholders for consulting services. This non-cash
amount was recorded as consulting expenses.
Note
20.1(h): During the year ended 31 March 2021, two employees and one of their immediate family members subscribed for shares in Diginex
HK for cash consideration on an arm’s length basis.
Note
20.1(i): During the year ended 31 March 2019, Diginex HK purchased shares from a former employee for a value of $6,619,463. The purchase
consisted of two transactions:
|
●
|
Cash
payment of $3,144,943
|
|
●
|
Allocation
of Madison Group Holdings Limited shares received as consideration of the partial divestment
of DHPC valued at $3,474,520
|
Note
20.1(j): During the year ended 31 March 2021, key management personnel and their immediate family members who are users on the EQONEX
exchange participated in the promotion events and received rewards on the same terms as all users on the EQONEX exchange.
20.2
Amounts due from related companies
The
amounts due from related companies as at 31 March 2021 and 31 March 2020 are unsecured, interest-free and repayable on demand. At 31
March 2021 and 2020, the amounts due from related companies relate to initial costs in incorporating the underlying fund entities in
the Cayman Islands as part of the Asset Management business. Prior to the launch of the asset management fund entities, all shares were
owned by the Group. The Group only holds non-participating management shares post the launch of the funds in November 2019.
20.3
Amounts due to related companies
The
amounts due to related companies as at 31 March 2021 are due to Bletchley Park Multi-Strategy Fund Offshore Limited, which is managed
by the investment manager, Diginex SA. The investment manager was previously Bletchley Park Asset Management (Hong Kong) Limited
and since October 2020 is Diginex SA. The investment manager of the funds agreed to cap expenditure in the fund at 1% of assets
under management. As at 31 March 2021, the expenditure incurred by the fund exceed the agreed cap with the investment manager by $203,460
and hence resulting in an amount payable to the fund.
20.4
Amounts due from shareholders
The
amounts due from shareholders are unsecured, interest-free and repayable on demand.
Name
|
|
Maximum amount
outstanding during the year ended 31 March 2021
|
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
DHC Investments Limited
|
|
|
49,276
|
|
|
|
36,962
|
|
|
|
37,278
|
|
Various
|
|
|
500
|
|
|
|
1
|
|
|
|
448
|
|
|
|
|
|
|
|
|
36,963
|
|
|
|
37,726
|
|
20.5
Amounts due to directors
The
amounts due to directors are unsecured, interest-free and had no fixed terms of repayment.
Name
|
|
Maximum amount
outstanding during the year ended 31 March 2021
|
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Miles Pelham
|
|
|
39,180
|
|
|
|
-
|
|
|
|
28,214
|
|
Richard Byworth
|
|
|
262,381
|
|
|
|
6,241
|
|
|
|
243,117
|
|
Paul Ewing
|
|
|
118,067
|
|
|
|
544
|
|
|
|
103,273
|
|
Chi Won Yoon
|
|
|
65,407
|
|
|
|
-
|
|
|
|
-
|
|
Stylianos Moussis
|
|
|
100,791
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
6,785
|
|
|
|
374,604
|
|
As
a result of the Transaction, amounts disclosed above includes that for directors of Diginex HK and the Company. As at 31 March 2021,
neither Miles Pelham or Stylianos Moussis were directors of either Diginex HK or the Company.
20.6
Loans from shareholders
|
|
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
Notes
|
|
USD
|
|
|
USD
|
|
1 April
|
|
|
|
|
|
10,711,563
|
|
|
|
10,406,249
|
|
Loans advanced
|
|
|
|
|
|
100,000
|
|
|
|
5,332,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan repayment:
|
|
|
|
|
|
|
|
|
|
|
|
Loan settled through sale of Solutions Business
|
|
|
37
|
|
|
(6,000,000
|
)
|
|
|
-
|
|
Loan repayments settled in cash
|
|
|
|
|
|
(3,949,050
|
)
|
|
|
(4,850,000
|
)
|
Loan settled in shares
|
|
|
a
|
|
|
(650,000
|
)
|
|
|
-
|
|
Loan converted to convertible bond
|
|
|
|
|
|
(100,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest repayment:
|
|
|
|
|
|
|
|
|
|
|
|
Interest charged
|
|
|
8
|
|
|
277,959
|
|
|
|
1,333,480
|
|
Interest repayments settled in cash
|
|
|
|
|
|
(318,166
|
)
|
|
|
(1,510,469
|
)
|
Interest settled in shares
|
|
|
a
|
|
|
(72,306
|
)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
10,711,563
|
|
Note
a – Loan principal and accrued interest, totaling $722,306, were settled by the issuance of 9,039 Diginex HK shares (note 24)
As
at 31 March 2020, interest payable included in the loans from shareholders balance above amounted to $112,524.
On
30 September 2020 the credit facility offered by Pelham Limited was terminated.
20.7
Amounts due to shareholders
Name
|
|
Maximum amount
outstanding during the year ended 31 March 2021
|
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Various
|
|
|
185,504
|
|
|
|
-
|
|
|
|
1,686
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,686
|
|
During
the year ended at 31 March 2021, the amounts outstanding to shareholders includes interest accrued on the convertible bond.
20.7
Sale of Solutions Business
On
15 May 2020, Diginex HK, together with Diginex Solutions Limited, sold the legal entities of Diginex Solutions (HK) Limited and Diginex
USA LLC, together with the trademarks associated with the Diginex name, to a related party, Rhino Ventures Limited, an entity controlled
by Miles Pelham, the founder of Diginex HK. The Group realized a gain on sale of $5,073,545 which has been recognized as discontinued
operations (note 37).
20.8
Key management compensation
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Fees
|
|
|
75,000
|
|
|
|
-
|
|
|
|
-
|
|
Basic salaries, allowances and all benefits-in-kind
|
|
|
2,532,911
|
|
|
|
2,029,445
|
|
|
|
1,452,042
|
|
Pension costs - defined contribution plans
|
|
|
62,877
|
|
|
|
14,055
|
|
|
|
11,731
|
|
Share-based payments
|
|
|
18,312,630
|
|
|
|
7,392,836
|
|
|
|
222,218
|
|
|
|
|
20,983,418
|
|
|
|
9,436,336
|
|
|
|
1,685,991
|
|
Key
management personnel are considered as the directors of Diginex HK (for the pre Transaction period) and the Company for the periods noted
above, as well as members of the Executive Committee.
21
CLIENT ASSETS AND LIABILITIES
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
Client monies consisted of:
|
|
USD
|
|
|
USD
|
|
Cash
|
|
|
5,142,400
|
|
|
|
500,933
|
|
Digital assets and USDC, at fair value
|
|
|
21,879,525
|
|
|
|
42,977
|
|
|
|
|
27,021,925
|
|
|
|
543,910
|
|
As
at 31 March 2021 and 31 March 2020, the Group held monies in the form of cash (fiat), digital assets and USDC on behalf of clients. The
assets were held to enable clients to trade on the EQONEX exchange and execute OTC trades involving digital assets. Cash balances were
held in bank accounts and the digital assets and USDC were held in secure wallets with a custodian. The Group has control over these
assets and bears the associated risks. The values of the assets are taken from the prices stated on the active public markets that the
assets are traded on.
Following
the launch of the Exchange, on-exchange credit has been offered to some trading clients. Prior to the advance of on-exchange credit,
the client deposits collateral with the Exchange to mitigate any risk of the Exchange incurring a loss. At 31 March 2021, total collateral
of $150,000 and USDC 310,000 was recorded as client assets with the corresponding liabilities within the balances shown above.
Based
on the terms of the on-exchange credit, the clients cannot withdrawal assets advanced in the form of on- exchange credit unless there
is an excess above the notional amount granted in the clients’ trading account. As such, the risk and rewards of the asset has
not been transferred. Only if the client’s trading balance drops below the notional amount of on-exchange credit granted does an
obligation crystalize and the client then has an obligation to top-up their trading account on the Exchange. If a client’s trading
account balance is below the value of on-exchange credit advanced, an asset and associated liability is recognized in the consolidated
statement of financial position. At 31 March 2021 those selected clients all held trading balances in excess of the notional on-exchange
credit granted and therefore no incremental assets or liabilities were recorded other than the collateral deposited. See note 39.2.3
for details.
22
DIGITAL ASSETS
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
Opening
|
|
|
36,034
|
|
|
|
-
|
|
Additions
|
|
|
699,828
|
|
|
|
36,034
|
|
Disposals
|
|
|
(748,293
|
)
|
|
|
-
|
|
Revaluation gain
|
|
|
429,789
|
|
|
|
-
|
|
Revaluation loss (note 6)
|
|
|
(68,360
|
)
|
|
|
-
|
|
|
|
|
348,998
|
|
|
|
36,034
|
|
Digital
assets primarily consist of BTC and ETH.
As
at 31 March 2020, the Group held digital assets on exchanges to facilitate the Proprietary Trading business. During the year ended 31
March 2021, the Group ceased the Proprietary Trading business. Digital asset additions were acquired for cash payments.
The
Group also holds digital assets to fund trading competitions and marketing expenses, amongst others, and are disclosed as disposals above.
The value of the digital assets were taken from the prices stated on the active public markets that the assets are traded on.
Revaluation
gains on digital assets accounted for under IAS 38 are recorded in equity via other comprehensive income where unrealized gains are recorded
within the revaluation reserve. Upon realization, the realized revaluation gains are reclassified from revaluation reserve to accumulated
losses. Revaluation gain is only recorded in the consolidated statement of profit or loss if it reverses a previously recorded revaluation
loss and only to the extent of the loss.
During
the year ended 31 March 2021, a revaluation gain of $429,789 was recorded in the consolidated statement of comprehensive (loss) income,
of which $249,529 was realized and was reclassified from revaluation surplus to accumulated losses, leaving a residual $180,260 unrealized
revaluation gain in the revaluation surplus at 31 March 2021.
Revaluation
losses on digital assets are recorded in the consolidated statement of profit or loss. A revaluation loss is only recorded in equity
via other comprehensive income if it reverses a previously recorded revaluation gain recorded in other comprehensive income.
23
USDC
USDC
is a type of digital asset where 1 USDC can be redeemed from the issuer for 1 US dollar.
As
at 31 March 2021 the Group held USDC 2,034,800. The Group uses USDC to settle expenses incurred in the normal course of business, such
as marketing costs. In addition, the Group held USDC on exchanges as to aid the liquidation risk management process on EQONEX when client
positions are liquidated.
As
at 31 March 2020 the Group held USDC 293,793 which was acquired with cash during the year.
24
Share capital
Per
note 2.5, under a deemed reverse acquisition, the historical shareholders’ equity of Diginex HK, being the accounting acquirer
(legal acquiree) prior to the Transaction is retrospectively adjusted to reflect the legal capital structure of the accounting acquiree
(legal acquirer). This is done by using the exchange ratio as determined on the completion of the Transaction of 13.9688 shares in the
Company for each Diginex HK share and 1:2.5455 for the share capital value of Diginex HK against a value of $8.50 per the Company’s
listed share price on 30 September 2020 (excluding capital raise expenses). The difference in value of the share capital arising from
this conversion versus the share capital amount in Diginex HK is recorded in equity under the reverse acquisition reserve.
As
a Singapore incorporated company, the Company’s shares do not have a par value.
|
|
Number of
|
|
|
Share capital
|
|
|
Reverse acquisition
|
|
|
Share capital net of reverse acquisition reserve
|
|
|
|
Shares
|
|
|
amount
|
|
|
reserve
|
|
|
Amount
|
|
Ordinary shares, issued and fully paid:
|
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
At 1 April 2018
|
|
|
1,020,400
|
|
|
|
10,572,482
|
|
|
|
-
|
|
|
|
10,572,482
|
|
Shares issued for cash during the year
|
|
|
7,424
|
|
|
|
2,412,868
|
|
|
|
-
|
|
|
|
2,412,868
|
|
Shares issued for consulting services (a)
|
|
|
990
|
|
|
|
242,635
|
|
|
|
-
|
|
|
|
242,635
|
|
Shares issued as consideration for acquisition of a subsidiary
|
|
|
816
|
|
|
|
199,920
|
|
|
|
-
|
|
|
|
199,920
|
|
Expenses related to raise of capital
|
|
|
-
|
|
|
|
(44,985
|
)
|
|
|
-
|
|
|
|
(44,985
|
)
|
Shares repurchased during the year (b)
|
|
|
(55,727
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
At 31 March 2019 pre-recapitalization
|
|
|
973,903
|
|
|
|
13,382,920
|
|
|
|
-
|
|
|
|
13,382,920
|
|
Recapitalization of Diginex HK
(1:13.9688 exchange ratio) (i)
|
|
|
12,630,313
|
|
|
|
20,753,062
|
|
|
|
(20,753,062
|
)
|
|
|
-
|
|
At 31 March 2019 recapitalized
|
|
|
13,604,216
|
|
|
|
34,135,982
|
|
|
|
(20,753,062
|
)
|
|
|
13,382,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2019 pre-recapitalization
|
|
|
973,903
|
|
|
|
13,382,920
|
|
|
|
-
|
|
|
|
13,382,920
|
|
Shares issued for cash during the year
|
|
|
214,753
|
|
|
|
31,831,174
|
|
|
|
-
|
|
|
|
31,831,174
|
|
Shares issued for consulting services (a)
|
|
|
17,081
|
|
|
|
2,709,854
|
|
|
|
-
|
|
|
|
2,709,854
|
|
Shares issued for intangible asset purchase (c)
|
|
|
35,088
|
|
|
|
5,400,043
|
|
|
|
-
|
|
|
|
5,400,043
|
|
Shares issued to employees (d)
|
|
|
10,522
|
|
|
|
1,745,447
|
|
|
|
-
|
|
|
|
1,745,447
|
|
Expenses related to raise of capital (h)
|
|
|
-
|
|
|
|
(913,159
|
)
|
|
|
-
|
|
|
|
(913,159
|
)
|
At 31 March 2020
|
|
|
1,251,347
|
|
|
|
54,156,279
|
|
|
|
-
|
|
|
|
54,156,279
|
|
Recapitalization of Diginex HK
(1:13.9688 exchange ratio) (i)
|
|
|
16,228,418
|
|
|
|
85,180,290
|
|
|
|
(85,180,290
|
)
|
|
|
-
|
|
At 31 March 2020 recapitalized
|
|
|
17,479,765
|
|
|
|
139,336,569
|
|
|
|
(85,180,290
|
)
|
|
|
54,156,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2020 pre-recapitalization
|
|
|
1,251,347
|
|
|
|
54,156,279
|
|
|
|
-
|
|
|
|
54,156,279
|
|
Shares issued for cash prior to the Transaction
|
|
|
3,572
|
|
|
|
285,438
|
|
|
|
-
|
|
|
|
285,438
|
|
Shares issued on conversion of convertible bond (note 32)
|
|
|
318,311
|
|
|
|
25,436,232
|
|
|
|
-
|
|
|
|
25,436,232
|
|
Shares issued for consulting services (a)
|
|
|
595
|
|
|
|
47,546
|
|
|
|
-
|
|
|
|
47,546
|
|
Shares issued for intangible asset purchase (c)
|
|
|
3,899
|
|
|
|
600,056
|
|
|
|
-
|
|
|
|
600,056
|
|
Shares issued to employees (d)
|
|
|
9,114
|
|
|
|
728,300
|
|
|
|
-
|
|
|
|
728,300
|
|
Shares issued to settle shareholder loan (e)
|
|
|
9,039
|
|
|
|
722,306
|
|
|
|
-
|
|
|
|
722,306
|
|
|
|
Number of
|
|
|
Share capital
|
|
|
Reverse acquisition
|
|
|
Share capital net of reverse acquisition reserve
|
|
|
|
Shares
|
|
|
amount
|
|
|
reserve
|
|
|
Amount
|
|
Ordinary shares, issued and fully paid:
|
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Equity-settled share-based payments (f)
|
|
|
448
|
|
|
|
35,800
|
|
|
|
-
|
|
|
|
35,800
|
|
Anti-dilutive share issuance (g)
|
|
|
187,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expenses related to raise of capital (h)
|
|
|
6,382
|
|
|
|
(152,044
|
)
|
|
|
-
|
|
|
|
(152,044
|
)
|
Subtotal
|
|
|
1,789,708
|
|
|
|
81,859,913
|
|
|
|
-
|
|
|
|
81,859,913
|
|
Recapitalization of Diginex HK
(1:13.9688 exchange ratio) (i)
|
|
|
23,210,292
|
|
|
|
129,019,911
|
|
|
|
(129,019,911
|
)
|
|
|
-
|
|
Subtotal – recapitalized
|
|
|
25,000,000
|
|
|
|
210,879,824
|
|
|
|
(129,019,911
|
)
|
|
|
81,859,913
|
|
Recapitalized with founding share of the Company
|
|
|
1
|
|
|
|
1
|
|
|
|
(16,610
|
)
|
|
|
(16,609
|
)
|
Acquisition of 8i Enterprises (j)
|
|
|
6,688,392
|
|
|
|
56,851,332
|
|
|
|
-
|
|
|
|
56,851,332
|
|
At 30 September 2020 - recapitalized
|
|
|
31,688,393
|
|
|
|
267,731,157
|
|
|
|
(129,036,521
|
)
|
|
|
138,694,636
|
|
Shares issued for consulting services (k)
|
|
|
27,334
|
|
|
|
285,160
|
|
|
|
-
|
|
|
|
285,160
|
|
Shares issued for cash during the six months to 31 March 2021 (l)
|
|
|
2,571,669
|
|
|
|
21,980,647
|
|
|
|
-
|
|
|
|
21,980,647
|
|
Expenses related to raise of capital (l)
|
|
|
-
|
|
|
|
(1,636,312
|
)
|
|
|
-
|
|
|
|
(1,636,312
|
)
|
Shares issued in settlement of earn-out awards (m)
|
|
|
3,030,000
|
|
|
|
7,241,700
|
|
|
|
-
|
|
|
|
7,241,700
|
|
Shares issued for warrants exercised (n)
|
|
|
1,480,965
|
|
|
|
17,031,098
|
|
|
|
-
|
|
|
|
17,031,098
|
|
At 31 March 2021
|
|
|
38,798,361
|
|
|
|
312,633,450
|
|
|
|
(129,036,521
|
)
|
|
|
183,596,929
|
|
Note
24(a): Diginex HK shares were issued at the fair value for the services rendered during the periods.
Note
24(b): During the year ended 31 March 2019, Diginex HK repurchased 55,727 of its shares for a total consideration of $6,619,463 which
was paid wholly out of retained profits in accordance with section 257 of the Hong Kong Companies Ordinance and cancelled the shares.
The total amount paid for the purchase of the shares has been charged to retained profits of the Diginex HK under IAS 32. The consideration
was settled by cash and listed equity investments held by Diginex HK (see note 20).
Note
24(c): Diginex HK issued shares for the purchase of intangible assets. The shares were issued at the fair value of the asset acquired
(note 12).
Note
24(d): For the year ended 31 March 2021, Diginex HK shares totaling a fair value of $393,242 were issued to employees related to the
salary deferral scheme. Shares issued to employees also includes shares totaling a fair value of $12,861 issued as part of the contractual
agreement related to the Solutions Business and reported net of the gain on sale. In addition, shares were also issued to employees in
lieu of salaries and benefits-in-kind amounting to $211,122 and $111,075, respectively. The total amounted to $728,300 of which $715,834
is presented as continued operation and $12,466 as discontinued operations (note 37) in the consolidated statement of cash flows.
For
the year ended 31 March 2020, 10,522 shares of Diginex HK were issued to employees who participated in the salary deferral scheme and
to settle contractual obligations.
Note
24(e): Shareholders loan of $650,000 and the associated interest of $72,306 were settled by the issuance of 9,039 Diginex HK shares (note
20).
Note
24(f): On 1 September 2020, an employee share option holder exercised its vested share options from the employee share option scheme
resulting in the issuance of 448 new Diginex HK shares.
Note
24(g): Shares were issued to shareholders as make-whole units based on an anti-dilutive clause in the share subscription agreement of
Diginex HK.
Note
24(h): Expenses to raise capital via both the issuance of Diginex HK shares and the convertible bond amounted to $687,236 of which $509,985
was settled in shares, resulting in a net charge against share capital of $177,251. Also included is capitalized finance costs, recorded
under the effective interest rate method in relation to the convertible bond in accordance with IFRS 9, of $25,207 (note 32) resulting
in a total charge of $152,044.
Note
24(i): On completion of the Transaction, Diginex HK shareholders were issued 25,000,000 new shares in the Company in exchange for the
outstanding shares of 1,789,708. The resultant share exchange ratio being 13.9688. This exchange ratio has been applied to the issued
number of shares of Diginex HK as at 30 September 2019 as per the significant accounting policies detailed in note 2.5. The Company’s
share capital is based on the closing price of the Company’s listed share price on 30 September 2020 of $8.50 per share. The 25,000,000
shares issued to the shareholders of Diginex HK, hence have a value of $212,500,000 (excluding prior expenses related to raise of capital).
This derives a share capital conversion ratio of 1:2.5455 when comparing the share capital value for Diginex HK of $83,480,089 (excluding
prior expenses related to raise of capital) immediately before the Transaction which is applied to the share capital of Diginex HK in
the recapitalization. A reverse acquisition reserve of $129,019,911 is recorded in equity for the difference between the share capital
value of the Company and Diginex HK. The exchange ratio has also been applied to the shares and share capital issued by Diginex HK as
at 31 March, 2020 and 2019.
Note
24(j): 6,688,392 shares of the Company were issued to the shareholders of 8i Enterprises and service providers to the Transaction on
30 September 2020. The shares were fair valued at $8.50, the closing price of the Company’s listed share price on 30 September
2020.
Note
24(k): The Company issued 27,334 new shares totaling a fair value of $285,160 for services on 9 October 2020.
Note
24(l): On 15 January 2021, the Company issued 2,571,669 new shares and the same number of private warrants in a private placement for
cash of $38,575,035. On a residual value basis after deducting the fair value of the private warrants, the new shares are estimated to
have a fair value of $21,980,647. Capital raise expenses of $2,871,652 were incurred for the private placement of which $1,636,312 relates
to the new shares issued on a fair value pro-rata basis which $1,354,253 was settled in cash and the residual $282,059 still accrued.
Net cash impact is therefore $20,626,294 for the shares issued.
Note
24(m): In January 2021, the Company issued 3,030,000 new shares to the former shareholders of Diginex HK and a service provider to the
Transaction in settlement for meeting the first milestones per the earn-out award arrangement (see note 25 for details). The shares related
to the first milestone were estimated to have a fair value of $7,241,700 based on the Monte Carlo simulation ran when calculating the
share-based payment reserve and expenses upon the completion of the Transaction on 30 September 2020.
Note
24(n): After the Transaction, public warrant holders exercised their right to acquire 1,480,965 Company shares at $11.50 each totaling
$17,031,098 for cash.
25
SHARE-BASED PAYMENT RESERVE - SHARE OPTIONS, SHARE AWARDS AND EARN-OUT
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
At 1 April
|
|
|
10,356,664
|
|
|
|
634,462
|
|
Employee share option scheme (note 25.1)
|
|
|
26,942,783
|
|
|
|
9,722,202
|
|
Exercised employee share options (note 25.1)
|
|
|
(623,512
|
)
|
|
|
-
|
|
Acceleration of expenses from the share option scheme modification (note 25.2)
|
|
|
1,315,248
|
|
|
|
-
|
|
Share awards accrued, not yet issued (note 25.3)
|
|
|
642,973
|
|
|
|
-
|
|
Earn-out share awards accrued (note 25.4)
|
|
|
32,148,300
|
|
|
|
-
|
|
Earn-out shares issued (note 25.4)
|
|
|
(7,241,700
|
)
|
|
|
-
|
|
At 31 March
|
|
|
63,540,756
|
|
|
|
10,356,664
|
|
25.1
Employee share option scheme
Prior
to the Transaction, Diginex HK adopted a share option scheme (the “Scheme”). The Scheme held options equivalent to 15% of
the total outstanding share capital of Diginex HK that were allocated to employees of Diginex HK and its subsidiaries at the absolute
discretion of the directors of Diginex HK.
During
the year ended 31 March 2020, Diginex HK made two modifications to the structure of the Scheme:
|
●
|
Reduced
the strike price from $0.10 to nil as at 18 December 2019
|
|
●
|
Increased
the options pool from 15% to 20% of Diginex HK outstanding share capital as at 13 February
2020
|
Options
granted under this Scheme could be exercised after 36 months from commencement of employment with Diginex HK, or its subsidiaries, or
on other conditions as detailed in the Scheme policy. The options gave the holder the rights to receive ordinary shares in Diginex HK.
The fair value of the share options as at 31 March 2020 was $46,233,440 (weighted average fair value per share option: $153.90 each).
Upon
completion of the Transaction and based on an exchange ratio of 13.9688, the outstanding options of 300,412 as at 31 March 2020 would
be equivalent to 4,196,395 options in the Company and at 31 March 2019 the outstanding options of 151,019 would be equivalent to 2,109,548
in the Company (see note 11).
During
the six months to 30 September 2020, as new shares were issued by Diginex HK and there were leavers and joiners to the Scheme, the number
of awards changed from 300,412 to 429,530 and the grant date fair value of the Scheme changed from $46,233,440 at 31 March 2020 to $46,256,501
as at 30 September 2020 prior to the Transaction.
During
the year ended 31 March 2021, 4,327 vested Diginex HK share options were exercised which were settled by 3,879 shares transferred by
a third party who received shares in advance of providing a service. The service was not completed and these shares were reallocated
and 448 new Diginex HK shares issued with a fair value of $35,800. No Diginex HK share options vested during the year ended 31 March
2020 and hence no share options were exercised in this period.
25.2
Share option scheme modification
On
the modification date 30 September 2020, as a condition of the Transaction, the Company established a new employee share option scheme
(the “Plan”) which replaces the Scheme with modified terms:
|
(i)
|
options
are granted for no consideration
|
|
(ii)
|
exercise
price: $0 per share
|
|
(iii)
|
grant
date: 30 September 2020
|
|
(iv)
|
vesting
condition: service condition of 15 months from grant date
|
|
(v)
|
share
price at modification date: $8.50
|
|
(vi)
|
number
of options per plan: 5,600,000
|
Comparing
between the Plan and the Scheme, the key changes are:
|
●
|
The
options included in the Plan are now a fixed number rather than being based on a percentage
of outstanding shares issued, and
|
|
●
|
Changing
from 3 year service condition from employment date to 15 months service condition from 30
September 2020.
|
Management
considers the Plan is a replacement of the Scheme for the Group to continue to incentivize employees and for their retention.
Impact
on fair value upon replacement:
In
accordance with IFRS 2, management assessed whether there was an incremental fair value to the awardees upon the replacement of the Scheme
by the Plan.
The
Plan has a grant date and modification date fair value of $47,600,000 based on 5,600,000 Company options in the Plan and the quoted share
price on closing of the Transaction of $8.50. The Scheme had a modification date fair value of $51,000,000 based on 429,530 of Diginex
HK options in the Scheme at a deemed fair value of $118.73 per Diginex HK share. The $118.73 is based on the closing Transaction price
of $8.50 multiplied by the exchange ratio of 13.9688.
As
the modification date fair value of the Plan of $47,600,000 is not higher than the Scheme fair value of $51,000,000, no incremental fair
value needs to be amortized over the Plan terms as per IFRS 2, and the Group would continue to amortize the share-based payment expense
based on the grant date fair value of the Scheme of $46,256,501 as at 30 September 2020.
Impact
on service period changes:
In
accordance with IFRS 2, management assessed the impact of a change in the service period and where awardees are benefited from the change
in service condition. The modified service period condition beneficial to the awardee is taken into account when applying the modified
grant-date method, where the number of awards expected to vest is amortized over the modified (shortened) vesting period resulting in
an acceleration of expense.
As
the Scheme service period was based on employment date, the change to the Plan impacts each awardee differently and management assessed
the impact on an individual-by-individual basis to ascertain the impact. Accordingly, it was concluded some awardees would benefit from
the change in the service condition which resulted in a one-off accelerated expense of $1,315,248 that was charged to the consolidated
statements of profit or loss for the year ended 31 March 2021.
Expense
recognized based on replacement and continuation of the Scheme:
For
the year ended 31 March 2021, a $26,942,783 share-based payment expense was recognized in the consolidated statement of profit or loss.
For the year ended 31 March 2020, $9,722,202 was recognized in relation to the Scheme.
25.3
Share awards accrued, not yet issued
As
at 31 March 2021, $642,973 related to the value of the shares awarded as part of the salary deferral scheme and contractual agreements
that have yet to be issued and remain accrued in the share-based payment reserve based on the fair value of the services provided. As
at 31 March 2020, there were no shares accrued not yet issued.
25.4
Earn-out share awards
Under
the terms of the Transaction, the Company is also required to issue 12,000,000 earn-out shares in four equal tranches to the former shareholders
of Diginex HK if certain share price milestones are met over a four-year period post 30 September 2020.
The
earn-out award share price related targets are as below:
Milestone
date
|
|
Share
price target $
|
|
Number
of shares to be awarded
|
1st
anniversary of the Closing date
|
|
15.00
|
|
3,000,000
|
2nd
anniversary of the Closing date
|
|
20.00
|
|
3,000,000
|
3rd
anniversary of the Closing date
|
|
25.00
|
|
3,000,000
|
4th
anniversary of the Closing date
|
|
30.00
|
|
3,000,000
|
Upon
reaching the earn-out milestones, a service provider to the Transaction is also entitled to receive the equivalent of 1% of the earn-out
shares issued.
Earn-out
awards are accounted for under IFRS 2. The earn-out awards are settled in a fixed number of shares with conditions based on future market
prices, but do not require the former Diginex HK shareholders nor the service provider to provide on-going service to the Group until
such milestone dates.
The
awards are considered as equity-settled share-based payments with non-vesting conditions since there is no explicit nor implicit service
requirements despite that the share price targets are set beyond 30 September 2020.
The
fair value of the earn-out awards has been valued on a probability basis using a Monte Carlo simulation model with the below inputs:
|
1.
|
Risk-free
rates of 0.12%, 0.13%, 0.16% and 0.22% respectively for the 1st to the 4th
anniversary of the closing date based on daily US treasury yield curve rates on 30
September 2020
|
|
2.
|
No
dividend will be paid during the four-year period from 30 September 2020
|
|
3.
|
Reference
price of $8.50 based on the closing date quoted trade price on 30 September 2020
|
|
4.
|
20,000
simulation runs per milestone
|
|
5.
|
Share
price volatility of 50%, based on judgement below.
|
Volatility
parameter of 50% is used on the basis that on 30 September 2020:
|
a)
|
Volatility
from a sample of 52 related companies including traditional stock exchanges had an average
of 37% over a three month to five-year period.
|
|
b)
|
Unlike
traditional exchanges, the Company is exposed to movements in digital asset values and the
most prominent digital asset being BTC. The longest dating BTC option of six months had a
volatility of 63% as at 30 September 2020
|
|
c)
|
The
Company used volatility of 50% in the Monte Carlo simulation based on the average of the
above two points.
|
The
outcome of the Monte Carlo simulations derived the following probabilities and fair values per award (based on probability of achieving
the share price target) per milestone date:
Milestone date
|
|
Share price target $
|
|
|
Number of shares to be awarded*
|
|
|
Risk-free rates
|
|
|
Probability
|
|
|
Fair value per award
|
|
|
Total fair value
$
|
|
1st anniversary
|
|
|
15.00
|
|
|
|
3,030,000
|
|
|
|
0.12
|
%
|
|
|
15.91
|
%
|
|
$
|
2.39
|
|
|
|
7,241,700
|
|
2nd anniversary
|
|
|
20.00
|
|
|
|
3,030,000
|
|
|
|
0.13
|
%
|
|
|
12.71
|
%
|
|
$
|
2.54
|
|
|
|
7,696,200
|
|
3rd anniversary
|
|
|
25.00
|
|
|
|
3,030,000
|
|
|
|
0.16
|
%
|
|
|
11.18
|
%
|
|
$
|
2.80
|
|
|
|
8,484,000
|
|
4th anniversary
|
|
|
30.00
|
|
|
|
3,030,000
|
|
|
|
0.22
|
%
|
|
|
9.59
|
%
|
|
$
|
2.88
|
|
|
|
8,726,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,148,300
|
|
*Includes
the service provider’s 1% entitled shares upon reaching the earn-out milestones, as previously described.
The
first milestone share price target was met in January 2021 and 3,030,000 Company shares were issued as a result. Share capital corresponding
to the fair value of the awards valued as at 30 September 2020, the Transaction date, of $7,241,700 is recorded with an equivalent reduction
in the share-based payment reserve for the year ended 31 March 2021.
26
WARRANTS
|
|
Notes
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
|
|
USD
|
|
|
USD
|
|
Public warrants
|
|
26.1
|
|
|
-
|
|
|
|
-
|
|
Private warrants
|
|
26.2
|
|
|
5,197,201
|
|
|
|
-
|
|
|
|
|
|
|
5,197,201
|
|
|
|
-
|
|
26.1
Public warrants
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
At 1 April
|
|
|
-
|
|
|
|
-
|
|
Issue public warrants
|
|
|
8,324,147
|
|
|
|
|
|
Warrants exercised
|
|
|
(3,968,986
|
)
|
|
|
-
|
|
Warrants redeemed
|
|
|
(4,355,161
|
)
|
|
|
|
|
31 March
|
|
|
-
|
|
|
|
-
|
|
Public
warrants were issued by the Company to the former warrant holders of 8i Enterprises. The public warrants have the following terms:
|
●
|
Each
warrant entitles the holder to purchase ½ of one Company share at an exercise price
of $11.50 per full share. Warrants must be exercised in pair as no fraction shares are permitted.
|
|
●
|
Exercisable
post Transaction and expires 5 years after the Transaction.
|
|
●
|
The
Company may redeem the outstanding warrants, in whole and not in part, at a price of $0.01
per warrant at any time while the warrants are exercisable upon a minimum of 30 days prior
written notice of redemption:
|
|
○
|
if,
and only if, the last sales price of the Company’s shares equals or exceeds $16.50
per share for any 20 trading days within a 30 trading day period ending three business days
before the Company sends the notice of redemption, and
|
|
○
|
if,
and only if, there is a current registration statement in effect with respect to the Company’s
ordinary shares underlying the Company’s warrants at the time of redemption and for
the entire 30-day trading period referred to above and continuing each day thereafter until
the date of redemption.
|
Public
warrants are equity instruments as they are settled in the Company’s shares upon exercising and are initially recognized based
on the fair value on the date of issuance. No subsequent remeasurement is required.
The
public warrants were traded on Nasdaq and the closing trade price on 30 September 2020 was used to measure their fair value. On 30 September
2020, the warrants had a fair value of $8,324,147 (6,212,050 warrants valued at $1.34 each on closing at 30 September 2020), which is
included as a Transaction expense in the consolidated statement of profit or loss (note 35).
Between
January 2021 to March 2021, 2,961,935 warrants ($3,968,986 of the $8,324,147 reserve recorded) were exercised and 1,480,965 shares issued
for cash consideration of $17,031,098. The remaining 3,250,115 warrants ($4,355,161 of the $8,324,147 reserve recorded) were redeemed
by the Company for $0.01 each. The warrant reserve recognized on 30 September 2020 was reclassified to distributable reserves within
retained earnings.
26.2
Private warrants
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
At 1 April
|
|
|
-
|
|
|
|
-
|
|
Additions
|
|
|
16,594,388
|
|
|
|
-
|
|
Fair value remeasurement
|
|
|
(11,397,187
|
)
|
|
|
|
|
31 March
|
|
|
5,197,201
|
|
|
|
-
|
|
On
15 January 2021, the Company raised cash of $38,575,035 via a private placement of 2,571,669 shares and 2,571,669 private warrants. As
part of the private placement, a capital raise expense of $2,871,652 was incurred which $2,376,652 was paid from the capital raise proceeds
and a remaining $495,000 accrued.
The
private warrants have a 3-year tenure and each warrant has an exercise price of $18.75 per share. Based on IFRS 9 and IAS 32, the private
warrants are classified as financial liabilities on the basis that there is a contingent settlement provision outside the Company’s
control which may require the Company to redeem the private warrants in cash. The private warrants are recorded as Warrant liability
on the consolidated statement of financial position and are measured at fair value through profit or loss.
The
fair value of the private warrants on 15 January 2021 was estimated using the Black-Scholes-Merton Call Option Model with the following
inputs:
|
1.
|
Risk
free rate of 0.21% based on the yield of USD Treasury Strips with the same tenure of 3 years
as at 15 January 2021.
|
|
2.
|
No
dividend will be paid during the three-year period from 15 January 2021.
|
|
3.
|
Share
price volatility of 55.52%, based on judgement below.
|
Volatility
parameter of 55.52% is used on the basis that on 15 January 2021:
|
●
|
Volatility
from a sample of 52 related companies including traditional stock exchanges had a median
of 34.45% over a three-year period.
|
|
●
|
Unlike
traditional exchanges, the Company is exposed to movements in digital asset values and the
most prominent digital asset being BTC. The historical volatility of BTC over the last three
years as at 15 January 2021 was 76.59%
|
|
●
|
The
Company used volatility of 55.52% in the Black-Scholes-Merton Call Option Model based on
the average of the above two points.
|
The
model estimates the fair value of the private warrants at $6.45 each with an aggregate value of $16,594,388 and on a pro-rata basis between
the shares and warrants issued, the associated capital raise expense of $1,235,341 for the warrants is recorded as a loss (other finance
cost) in the income statement ($1,022,399 was paid in cash and $212,940 accrued).
On
31 March 2021, the option pricing model was updated to estimate the fair value with the below inputs:
|
●·
|
Risk
free rate of 0.31% based on the yield of USD Treasury Strips with the same tenure as the
warrant expiry.
|
|
●
|
No
dividend will be paid during the warrant tenure.
|
|
●
|
Share
price volatility of 52.75%, revised as at 31 March 2021 based on the same judgement as above
where the median of the related companies sample was 34.41% and the 2.79 year annualized
volatility of BTC at 71.09%.
|
The
updated model estimates the fair value of the private warrants at $2.02 each with an aggregate value of $5,197,201 and a fair value gain
of $11,397,187 is recognized in the consolidated statement of profit or loss.
27
OTHER RESERVES
Nature
and purpose of reserves
27.1
Reverse acquisition reserve
The
reverse acquisition reserve arises from the recapitalization of the Group with the Company’s share capital issued as part of the
Transaction. This reserve ensures that the total shareholders equity both pre- and post-Transaction remains the same as that of the Diginex
HK group immediately before the Transaction.
27.2
Share-based payment reserve
The
share-based payment reserve comprises of the fair value of share options granted which are yet to vest and accrued share awards (including
earn-outs) that have yet to be issued.
27.3
Foreign currency translation reserve
The
foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the consolidated financial
statement of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 2.5.
27.4
Accumulated losses
Accumulated
losses are the cumulative net loss of the Group sustained in the business. The losses assume the continuation of Diginex HK as the accounting
acquirer following the Transaction.
27.5
Non-controlling interests
On
2 March 2020, the Group acquired the remaining 25% interest in Bletchley Park Asset Management Jersey Limited in consideration for $100,000.
As a result, the non-controlling interest was fully reversed and the difference between the noncontrolling interest adjustment and the
consideration, amounting to $375,920, was recognized as a reserve in accumulated losses (note 36). At 31 March 2021, the remaining non-controlling
interest relates solely to the 15% of Digivault Limited held by employees of the entity.
27.6
Revaluation surplus
The
revaluation surplus arises from the upward revaluation surplus on Group owned Digital Assets that are measured on a revalued basis that
are not yet realized, which are recorded as other comprehensive income per note 2.5.
28
DIVIDEND
During
the year ended 31 March 2019, an interim dividend of $20,000,00 was paid at $20.24 per share for Diginex HK. No dividends were paid in
the years ended 31 March 2020 and 31 March 2021.
29
LEASE LIABILITIES
During
the year ended 31 March 2021, there were two new leases and one amendment entered into by the Group.
On
15 August 2020, the Group entered into a lease agreement for an office located in Singapore. The Group will owe monthly rental payments
of SGD16,500 (approximately $12,125) until the lease agreement terminates on 31 August 2022.
On
1 September 2020, the Group entered into a lease agreement for an office located in Ho Chi Minh City, Vietnam. The Group will owe quarterly
rental payments of VND106,080,000 (approximately $4,561) until the lease agreement terminates on 31 August 2023.
On
16 July 2020, the Group entered into an agreement with the landlord for the office in St. Hellier, Jersey to amend the lease term to
terminate on 1 March 2021. Accordingly, the Group has elected simplified accounting for short-term leases of 12 months or less and an
expense is recognized in the remaining period of the lease on a straight-line basis.
Changes
in lease liability is as follows:
|
|
At 31 March
|
|
|
At 31 March
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
|
|
|
USD
|
|
At 1 April
|
|
|
3,078,251
|
|
|
|
5,022,838
|
|
Adjustment for foreign exchange
|
|
|
20,082
|
|
|
|
(15,204
|
)
|
Increase in lease liability
|
|
|
406,333
|
|
|
|
-
|
|
Reclassification (note 14(b))
|
|
|
(468,839
|
)
|
|
|
-
|
|
Interest expense (note 8)
|
|
|
231,759
|
|
|
|
460,983
|
|
Reduction in lease liability
|
|
|
(2,399,147
|
)
|
|
|
(2,390,366
|
)
|
At 31 March
|
|
|
868,439
|
|
|
|
3,078,251
|
|
Classified
in the consolidated statements of financial position as follows:
|
|
At 31 March
|
|
|
At 31 March
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
|
|
|
USD
|
|
Current
|
|
|
733,488
|
|
|
|
2,132,877
|
|
Non-current
|
|
|
134,951
|
|
|
|
945,374
|
|
At 31 March
|
|
|
868,439
|
|
|
|
3,078,251
|
|
Maturity
of lease liabilities is as follows:
|
|
At 31 March
|
|
|
At 31 March
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
|
|
|
USD
|
|
Not later than one year
|
|
|
764,103
|
|
|
|
2,358,076
|
|
Later than one year and not later than five years
|
|
|
139,470
|
|
|
|
932,667
|
|
Later than five years
|
|
|
-
|
|
|
|
58,248
|
|
|
|
|
903,573
|
|
|
|
3,348,991
|
|
Finance costs
|
|
|
(35,134
|
)
|
|
|
(270,740
|
)
|
Present value of minimum lease payments
|
|
|
868,439
|
|
|
|
3,078,251
|
|
The
lease commitments have been discounted to calculate a present value of commitments. For the Hong Kong lease, a rate of 12.5% has been
used. This reflects the rate the Company previously borrowed at from a shareholder. For the other leases, the local rate to borrow in
the relevant jurisdiction has been applied.
30
OTHER PAYABLES AND ACCRUALS
|
|
At 31 March
|
|
|
At 31 March
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
|
|
|
USD
|
|
Accounts payable (a)
|
|
|
3,458,574
|
|
|
|
7,735,010
|
|
Accruals (b)
|
|
|
2,511,309
|
|
|
|
1,132,792
|
|
Deferred compensation (c)
|
|
|
-
|
|
|
|
614,081
|
|
Other payables
|
|
|
280,219
|
|
|
|
233,049
|
|
|
|
|
6,250,102
|
|
|
|
9,714,932
|
|
Note
30(a): Accounts payable relates to unpaid expenses incurred during the ordinary course of business.
Note
30(b): Accruals increased in March 2021 mainly due to the award of a bonus of $586,831 to employees that will be settled in June 2021
and $495,000 in relation to the private placement capital raise.
Note
30(c): During the year end 31 March 2020, the Group engaged in a salary deferral scheme. As at 31 March 2020, $614,081 was due to employees
that participated in the scheme.
31
NOTES PAYABLE
Diginex
Capital Limited, a subsidiary incorporated in the United Kingdom and operating as an Authorized Representative of Starmark, issued a
loan note with a value date of 6 September 2019. Starmark is regulated by the Financial Conduct Authority (“FCA”), the financial
services regulatory body in the United Kingdom. The loan note was available to only employees and shareholders of Diginex HK and its
subsidiaries due to regulatory constraints. The loan note was structured in $5,000 units and paid interest of 15% per annum and interest
payments were made on a quarterly basis. As of 31 March 2020, Diginex Capital had raised $675,000 and accrued $57,064 of interest payable.
Since
31 March 2020 a further $17,156 of interest was accrued (note 8) until the notes were redeemed early, in full, on the 1 June 2020.
32
CONVERTIBLE BOND
In
May 2020, Diginex HK issued a 24-month convertible bond with a 10% annual coupon rate which had a provision for mandatory conversion
into Diginex HK shares two business days prior to the completion of the Transaction. The convertible bond raised $25,000,000 which consisted
of $24,415,000 in cash and $585,000 of non-cash transfers from the salary deferral scheme and shareholder loan of $485,000 and $100,000
respectively. Expenses related to the raise of the convertible bond amounted to $652,202 of which $509,741 was settled by the issuance
of 6,319 Diginex HK shares (note 24(h)).
Finance
costs of $509,230 were accrued via the 10% coupon on the convertible bond. On 21 September 2020, the convertible bond of $25,000,000
and finance costs accrued at that point of $436,232 were converted into Diginex HK shares under the mandatory conversion provision. The
Transaction was anticipated to close on 23 September and hence the convertible bond converted on 21 September 2020. However, as the Transaction
completed on 30 September 2020 additional interest was accrued, but not converted into Diginex HK shares from 22 to 28 September 2020
amounting to $47,791. Additional finance costs, recorded under the effective interest rate method in accordance with IFRS 9, of $25,207
were capitalized against the expenses related to the raise of capital (note 24(h)).
33
CONTINGENT LIABILITIES
The
Group purchased software for consideration of up to $10,000,000 of which $6,500,000 ($6,500,099 per note 12) has been capitalized with
a balance of $3,500,000 remaining. Part of the consideration was paid via the issuance in Diginex HK shares and the additional $99 reflects
the inability to issue fractional shares to exactly match the consideration terms.
The
vendor will not be meeting the development milestones thus no payments are due from the Group for $2,000,000 of the $3,500,000 contingent
consideration to the seller.
For
the remaining $1,500,000, which is payable based on achieving volume targets on EQONEX. The February 2021 target associated with $1,000,000
of the balance was not met.
Accordingly,
the remaining contingent payment is $500,000 as at 31 March 2021 which is only payable if a pre set target EQONEX trading volume for
February 2022 is met.
34
RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
The
table below provides a reconciliation of the principal amount on liabilities arising from financing activities presented in the consolidated
statement of cash flows, excluding interests:
|
|
1 April 2019
|
|
|
Cash Flows
|
|
|
Other changes
|
|
|
31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Loans from shareholders
|
|
|
10,116,736
|
|
|
|
482,303
|
|
|
|
-
|
|
|
|
10,599,039
|
|
Notes payable
|
|
|
-
|
|
|
|
675,000
|
|
|
|
-
|
|
|
|
675,000
|
|
|
|
|
10,116,736
|
|
|
|
1,157,303
|
|
|
|
-
|
|
|
|
11,274,039
|
|
|
|
1 April 2020
|
|
|
Cash Flows
|
|
|
Other changes (i)
|
|
|
31 March 2021
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Loans from shareholders
|
|
|
10,599,039
|
|
|
|
(3,849,050
|
)
|
|
|
(6,749,989
|
)
|
|
|
-
|
|
Notes payable
|
|
|
675,000
|
|
|
|
(675,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Convertible bond
|
|
|
-
|
|
|
|
24,272,539
|
|
|
|
(24,272,539
|
)
|
|
|
-
|
|
Warrant liability
|
|
|
-
|
|
|
|
15,571,989
|
|
|
|
(10,374,788
|
)
|
|
|
5,197,201
|
|
|
|
|
11,274,039
|
|
|
|
35,320,478
|
|
|
|
(41,397,316
|
)
|
|
|
5,197,201
|
|
In
the year ended 31 March 2021, other changes include:
|
●
|
Partial
settlement of the shareholder loan by issuance of Diginex HK shares valued at $650,000
|
|
●
|
Partial
settlement of the shareholder loan by issue of a convertible bond valued at $100,000
|
|
●
|
Partial
settlement of the shareholder loan as consideration for the sale of the Solutions Business
valued at $6,000,000
|
|
●
|
Conversion
of the convertible bond into Diginex HK shares
|
|
●
|
Remeasurement
gain on the warrant liability of $11,397,187 is offset by cash settled transaction costs
of $1,022,399 not recorded against the fair value of the warrants on the consolidated statement
of financial positions. The outstanding $5,197,201 relates to the fair value of private warrants
issued (see note 25.2).
|
35
SUBSIDIARIES
The
Group’s subsidiaries at 31 March 2021 are set out below. Unless otherwise stated, they have share capital consisting solely of
ordinary shares that are held directly by the Group. The country of incorporation or registration is also their principal business place
of business. Particulars of the subsidiaries as at 31 March 2021 are as follows:
Name
of entity
|
|
Place
of Incorporation and operation
|
|
Principal
activities
|
|
Particulars
of issued/registered
share capital
|
|
Percentage
of ownership
interest
|
Diginex
Global Limited
|
|
Hong
Kong
|
|
Investment
holding
|
|
10,000
ordinary shares
(HK$10,000)
|
|
Indirect
100%
|
Diginex
Limited
|
|
Hong
Kong
|
|
Investment
holding and provision of support services to the Group
|
|
1,779,708
ordinary shares (US$83,478,807)
|
|
Indirect
100%
|
|
|
|
|
|
|
10,000
ordinary shares
(HK$10,000)
|
|
|
深圳市數塊鏈
科技有限公司
(“Diginex
Limited China”)
|
|
The
People’s Republic of China
|
|
Not
yet commenced business
|
|
Registered
capital of RMB300,000
|
|
Indirect
100%
|
Diginex
Solutions Limited
|
|
Hong
Kong
|
|
Investment
holding
|
|
10,000
ordinary shares
(HK$10,000)
|
|
Indirect
100%
|
Diginex
Financial Service Limited
|
|
Hong
Kong
|
|
Investment
holding
|
|
10,000
ordinary shares (HK$10,000)
|
|
indirect
100%
|
Diginex
Markets Limited
|
|
Hong
Kong
|
|
Financial
trading
|
|
10,000
ordinary shares (HK$10,000)
|
|
Indirect
100%
|
Diginex
Capital (Hong Kong) Limited
|
|
Hong
Kong
|
|
Not
yet commenced business
|
|
10,000
ordinary shares (HK$10,000)
|
|
Indirect
100%
|
Diginex
Capital Pte. Limited
|
|
Singapore
|
|
Provision
of Digital Asset Exchange
|
|
100,000
ordinary shares of SG$1 each
|
|
Indirect
100%
|
Diginex
SA
|
|
Switzerland
|
|
Fund
Investment Manager
|
|
100,000
ordinary shares of CHF1 each
|
|
Indirect
100%
|
Bletchley
Park Asset Management (Hong Kong) Limited
|
|
Hong
Kong
|
|
Fund
Investment Manager
|
|
9,935,369
ordinary shares (HK$9,935,369)
|
|
Indirect
100%
|
Diginex
Strategic Limited
|
|
Hong
Kong
|
|
Investment
holding
|
|
10,000
ordinary shares (HK$10,000)
|
|
Indirect
100%
|
Diginex
Ventures Limited
|
|
Hong
Kong
|
|
Investment
holding
|
|
10,000
ordinary shares (HK$10,000)
|
|
Indirect
100%
|
Diginex
Data Centre Services Limited
|
|
Hong
Kong
|
|
Data
Centre Services
|
|
10,000
ordinary shares (HK$10,000)
|
|
Indirect
100%
|
Diginex
Co., Ltd. (Korea)
|
|
Republic
of Korea
|
|
Not
yet commenced business
|
|
20,000
ordinary
shares of KRW 500 each
|
|
Indirect
100%
|
Diginex GmbH
|
|
Germany
|
|
Software
development
|
|
25,000
ordinary shares of EUR1 each
|
|
Indirect
100%
|
Bletchley
Park Asset Management Jersey Limited
|
|
Jersey
|
|
Fund
investment manager
|
|
10,000
ordinary shares of US$1 each
|
|
Indirect
100%
|
Digivault
Limited
|
|
United
Kingdom
|
|
Provision
of digital asset custody
|
|
3,400
ordinary shares of GBP1p each
600
ordinary B shares of GBP1p each
|
|
Indirect
85%
note
(a)
|
Diginex
(UK) Limited
|
|
United
Kingdom
|
|
Investment
holding
|
|
8,350
ordinary shares of GBP1p each
|
|
Indirect
100%
|
|
|
|
|
|
|
1,650
preference shares of GBP1 each
|
|
|
Diginex
Capital Limited
|
|
United
Kingdom
|
|
Financial
services
|
|
1
ordinary share of GBP1
|
|
Indirect
100%
|
Diginex
Capital (Jersey) Limited
|
|
Jersey
|
|
Not
yet commenced business
|
|
1,000,000
ordinary shares of par value USD0.01 each
|
|
Indirect
100%
|
Diginex
Solutions Pte Ltd
|
|
Singapore
|
|
Technology
service provider
|
|
10,000
ordinary shares of par value $1 each
|
|
Indirect
100%
|
Diginex
Global Market Holdings Limited
|
|
Hong
Kong
|
|
Investment
holding
|
|
10,000
ordinary shares (HK$10,000)
|
|
Indirect
100%
|
Digital
Markets Ltd
|
|
Republic
of Seychelles
|
|
Risk
management trading
|
|
1
ordinary share of US$1
|
|
Indirect
100%
|
Digital
Software Technology Pte. Ltd.
|
|
Singapore
|
|
Technology
service provider
|
|
1
ordinary share of SG$1
|
|
Indirect
100%
|
Digital
Software Technology Vietnam Limited Liability Company
|
|
Vietnam
|
|
Technology
service provider
|
|
Share
capital of VND54,584,500
|
|
Indirect
100%
|
8i
Enterprises Acquisition Corp
|
|
British
Virgin Islands
|
|
Investment
holding
|
|
1
ordinary share of US$1 each
|
|
Direct
100%
|
EQONEX
Investment Products S.A.R.L
|
|
Luxembourg
|
|
Not
yet commenced business
|
|
12,000
ordinary shares of EUR1 each
|
|
Indirect
100%
|
Note
(a) – On 2 July 2019, Digivault Limited issued additional 3,399 ordinary shares of GBP1p and 600 B class ordinary shares of GBP1p
each. The B class ordinary shares were purchased by employees. Both classes of shares carry the same voting rights but the B class ordinary
shares have a restriction that they cannot be sold for 36 months. The issuance of B class ordinary shares created a 15% minority interest
holding for the Group. During the year ended 31 March 2021, Digivault’s minority interest booked to the consolidated statement
of profit or loss was $(542,341) and at the end of the year the accumulated minority interest of Digivault was $(748,136).
During
the year ended 31 March 2021 the Group closed Diginex Asset Management (Cayman) Limited, Digivault (Jersey) Limited and Diginex Japan
Limited. These entities are no longer consolidated.
36
ACQUISITIONS
36.1
8i Enterprises Acquisition Corp and Diginex Limited
On
30 September 2020, the Company completed the Transaction with 8i Enterprises and Diginex HK where the Company issued 6,688,392 shares
to 8i Enterprises shareholders and service providers to the Transaction as well as 25,000,000 shares to the Diginex HK shareholders.
The 6,688,392 shares issued were valued at $8.50 based on the quoted trading price on 30 September 2020, with a total value of $56,851,332.
In
addition, the Company also issued 6,212,050 warrants to the former warrant holders of 8i Enterprises on a one to one basis as part of
the Transaction. The warrants were valued at $1.34 based on the quoted trading price on 30 September 2020, with a total value of $8,324,147.
As
a result of the Transaction, the Diginex HK shareholders became the majority shareholders of the Company and Diginex HK is considered
the accounting acquirer per note 2.5.
As
at 30 September 2020, 8i Enterprises held cash of $35,263,363 in Trust due back to the redeeming former shareholders of 8i Enterprises
and recorded an equivalent redemption liability. The redemption liability was settled in full on 2 October 2020.
The
fair values of the identifiable assets and liabilities of 8i Enterprises acquired as at 30 September 2020, the date of Transaction were
as follows:
Net
assets acquired:
|
|
Notes
|
|
|
USD
|
|
Prepayment,
other receivables and other assets
|
|
|
|
|
|
|
54,166
|
|
Cash
held in trust
|
|
|
|
|
|
|
35,263,363
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
24,149,525
|
|
Redemption
liability
|
|
|
|
|
|
|
(35,263,363
|
)
|
Accounts
payable
|
|
|
|
|
|
|
(909,051
|
)
|
Other
payables and accruals
|
|
|
|
|
|
|
(1,725,000
|
)
|
Amount
due to Diginex HK
|
|
|
|
|
|
|
(390,030
|
)
|
Total
identifiable net assets at fair value
|
|
|
|
|
|
|
21,179,610
|
|
Transaction
expense
|
|
|
6
|
|
|
|
43,995,869
|
|
Deemed
consideration (see below)
|
|
|
|
|
|
|
65,175,479
|
|
|
|
|
|
|
|
|
|
|
Deemed
consideration comprised of:
|
|
|
|
|
|
|
|
|
-
6,688,392 shares valued at $8.50 per share
|
|
|
|
|
|
|
56,851,332
|
|
-
6,212,050 warrants valued at $1.34 per warrant
|
|
|
26
|
|
|
|
8,324,147
|
|
|
|
|
|
|
|
|
65,175,479
|
|
|
|
|
|
|
|
|
|
|
An
analysis of the cash flows in respect of the acquisition of a subsidiary is as follows:
|
|
|
|
|
|
|
|
|
Cash
consideration paid
|
|
|
|
|
|
|
-
|
|
Cash
and cash equivalents acquired
|
|
|
|
|
|
|
24,149,525
|
|
Net
cash inflow generated from acquisition
|
|
|
|
|
|
|
24,149,525
|
|
The
fair values of the identifiable assets and liabilities of the Company acquired as at the date of Transaction were as follows:
Net assets acquired:
|
|
Note
|
|
|
USD
|
|
Prepayment, other receivables and other assets
|
|
|
|
|
|
|
2,191
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
50
|
|
Other payables and accruals
|
|
|
|
|
|
|
(18,851
|
)
|
Total identifiable net assets at fair value
|
|
|
|
|
|
|
(16,610
|
)
|
Recapitalization difference taken to reverse acquisition reserve
|
|
|
24
|
|
|
|
16,610
|
|
Deemed consideration
|
|
|
|
|
|
|
-
|
|
An analysis of the cash flows in respect of the acquisition of a subsidiary is as follows:
|
|
|
|
|
|
|
|
|
Cash consideration paid
|
|
|
|
|
|
|
-
|
|
Cash and cash equivalents acquired
|
|
|
|
|
|
|
50
|
|
Net cash inflow generated from acquisition
|
|
|
|
|
|
|
50
|
|
Upon
incorporation, the Company issued one founding share at $1 on 1 October 2019. On completion of the Transaction, the Company’s net
liabilities of $16,610 and share capital of $1 were consolidated into the Group’s consolidated financial statements via the recapitalization
of Diginex HK (note 2.5).
36.2
Bletchley Park Asset Management Jersey Limited
On
2 March 2020, the Group acquired the remaining 25% interest in Bletchley Park Asset Management Jersey Limited (“BPAMJ”) for
consideration of $100,000. As a result, the non-controlling interest of $275,920 was fully reversed and the difference between the noncontrolling
interest adjustment and the consideration of $375,920 was recognized in other reserves within accumulated losses on the interim condensed
consolidated statement of changes in equity.
The
payment of the $100,000 was payable in accordance with the below:
$25,000 on completion of the acquisition
$25,000 on 29 March 2020 (paid 2 April 2020)
$50,000 30 days after Diginex SG listed on Nasdaq
On
a consolidation level per IFRS 10, the 25% noncontrolling interest that had accumulated on the balance sheet from the date of acquisition
of 75% through 2 March 2020 when 100% ownership was acquired, is as follows:
Acquisition
21 Nov 2018:
|
($27,490)
|
01
Dec 2018 – 31 Mar 2019:
|
$89,444
(25% of BPAMJ net loss for the period)
|
01
Apr 2019 – 02 Mar 2020:
|
$213,966
(25% of BPAMJ net loss for the period)
|
Total
|
$275,920
(25% share of net loss since acquisition)
|
37
DISCONTINUED OPERATIONS
37.1
Summary
There
are two components that make up discontinued operations as detailed in notes 37.2 and 37.3.
|
|
|
|
Year ended
31 March 2021
|
|
|
Year ended
31 March 2020
|
|
|
Year ended
31 March 2019
|
|
Profit (loss) from discontinued operation (attributable to the ordinary equity holders of the Company)
|
|
Notes
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
DHPC
|
|
37.2
|
|
|
-
|
|
|
|
-
|
|
|
|
57,319,854
|
|
Solutions business
|
|
37.3
|
|
|
4,956,408
|
|
|
|
(857,554
|
)
|
|
|
(332,908
|
)
|
Profit (loss) from discontinued operations
|
|
|
|
|
4,956,408
|
|
|
|
(857,554
|
)
|
|
|
56,986,946
|
|
37.2
DHPC
On
31 July 2018, the Group sold 51% equity interest in a subsidiary. The disposal was reported in the consolidated financial statements
for the year ended 31 March 2019 as a discontinued operation. A summary of the results is below:
|
|
Period from 1 April 2018
to 31 July 2018
|
|
|
|
USD
|
|
Revenue
|
|
|
1,063,273
|
|
General and administrative expenses
|
|
|
(2,668,700
|
)
|
Other gains
|
|
|
23,767
|
|
Finance costs
|
|
|
(225,826
|
)
|
Loss before tax
|
|
|
(1,807,486
|
)
|
Income tax expense
|
|
|
-
|
|
Loss after income tax of discontinued operations
|
|
|
(1,807,486
|
)
|
Gain on sale of subsidiary
|
|
|
59,127,340
|
|
Profit from discontinued operations
|
|
|
57,319,854
|
|
Adjustment for:
|
|
|
|
|
Net cash (outflow) from operating activities
|
|
|
(2,111,958
|
)
|
Net cash (outflow) from investing activities
|
|
|
(15,550,618
|
)
|
Net cash inflow from financing activities
|
|
|
27,949,691
|
|
Net increase in cash generated from discontinued operations
|
|
|
10,287,115
|
|
37.3
Solutions business
On
15 May 2020, Diginex HK, together with Diginex Solutions Limited, sold the legal entities of Diginex Solutions (HK) Limited and Diginex
USA LLC, together with the trademarks associated with the Diginex name, to a related party, Rhino Ventures Limited, an entity controlled
by Miles Pelham, the founder of Diginex HK. The consideration of $6,000,000 was netted against the shareholder loan with Pelham Limited,
also an entity controlled by Miles Pelham. In addition, Diginex HK agreed to fund the business for six months post the sale at a 25%
discount to the projected costs. The assets and liabilities of Diginex Solutions (HK) Limited and Diginex USA LLC have not been disclosed
as available for sale as they are deemed immaterial.
The
gain on sale is calculated as below:
|
|
USD
|
|
Proceeds:
|
|
|
|
Shareholder loan settled
|
|
|
6,000,000
|
|
Total Proceeds
|
|
|
6,000,000
|
|
Costs:
|
|
|
|
|
Net costs incurred on behalf – note (a)
|
|
|
915,181
|
|
Cost of investment
|
|
|
11,274
|
|
Total Costs
|
|
|
926,455
|
|
|
|
|
|
|
Gain on sale
|
|
|
5,073,545
|
|
Note
(a) – as part of the sale agreement, Diginex HK agreed to continue funding the Solutions Business for 6 months post sale. Subsequent
to the agreement, a one-off payment was made to settle the liability at a 25% discount.
A
summary of the discontinued gain (loss) and cash flow is below:
|
|
Year ended 31 March
|
|
|
Year ended 31 March
|
|
|
Year ended 31 March
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
-
|
|
|
|
251,097
|
|
|
|
394,340
|
|
General and administrative expenses
|
|
|
(117,137
|
)
|
|
|
(1,108,651
|
)
|
|
|
(727,248
|
)
|
Loss before tax
|
|
|
(117,137
|
)
|
|
|
(857,554
|
)
|
|
|
(332,908
|
)
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss after income tax of discontinued operations
|
|
|
(117,137
|
)
|
|
|
(857,554
|
)
|
|
|
(332,908
|
)
|
Gain on sale of Solutions business
|
|
|
5,073,545
|
|
|
|
-
|
|
|
|
-
|
|
Profit (loss) from discontinued operations
|
|
|
4,956,408
|
|
|
|
(857,554
|
)
|
|
|
(332,908
|
)
|
Adjustment for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (inflow) outflow from operating activities – note (b)
|
|
|
(5,987,534
|
)
|
|
|
70,331
|
|
|
|
-
|
|
Net (decrease) in cash generated from discontinued operations
|
|
|
(1,031,126
|
)
|
|
|
(787,223
|
)
|
|
|
(332,908
|
)
|
Note
(b) – For the year ended 31 March 2021, $5,987,534 is net of $6,000,000 proceeds less $12,466 related to shares issued to employees
of the Solutions Business ($9,263 relates to the employee salary deferral scheme and $3,203 relate to costs incurred on behalf of Solutions
per note (a) above). For the year ended 31 March 2020, $70,331 related to shares awarded as part of the salary deferral scheme to an
employee of the Solutions Business.
38
NON-CONSOLIDATED STATEMENT OF FINANCIAL POSITION AND RESERVE MOVEMENT OF DIGINEX LIMITED
38.1
Non-consolidated statement of financial position of Diginex Limited
|
|
At 31 March
|
|
|
At 31 March
|
|
|
|
2021
|
|
|
2020
|
|
|
|
USD
|
|
|
USD
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Investments in subsidiaries
|
|
|
277,675,480
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
277,675,480
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Prepayment, deposits and other receivables
|
|
|
192,479
|
|
|
|
2,193
|
|
Amounts due from subsidiaries
|
|
|
21,886,063
|
|
|
|
-
|
|
Amounts due from shareholders
|
|
|
1
|
|
|
|
1
|
|
Cash and cash equivalents
|
|
|
51,271,019
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
73,349,562
|
|
|
|
2,194
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
351,025,042
|
|
|
|
2,195
|
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Equity attributable to owners of the Company
|
|
|
|
|
|
|
|
|
Share capital (note a)
|
|
|
314,253,626
|
|
|
|
1
|
|
Share-based payment reserve
|
|
|
44,614,503
|
|
|
|
-
|
|
Accumulated losses
|
|
|
(14,953,265
|
)
|
|
|
(15,127
|
)
|
Total equity
|
|
|
343,914,864
|
|
|
|
(15,126
|
)
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Other payables and accruals
|
|
|
768,418
|
|
|
|
11,000
|
|
Amounts due to subsidiaries
|
|
|
1,144,559
|
|
|
|
6,321
|
|
Warrant liability
|
|
|
5,197,201
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,110,178
|
|
|
|
17,321
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,110,178
|
|
|
|
17,321
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY AND LIABILITIES
|
|
|
351,025,042
|
|
|
|
2,195
|
|
Note
a – Share capital in the non-consolidated statement of financial position is greater than the share capital in the consolidated
statement of financial position as a result of the deemed reverse acquisition method of accounting. The share capital in the consolidated
statement of financial position includes $1,620,176 of capitalized expenses related to the raise of capital within Diginex HK. Capital
raise expenses are not deemed as part of legal share capital of the Company and remain in equity as part of the continuation of the accounting
acquirer, Diginex HK. See note 2.5 for details for deemed reverse acquisition accounting policy.
38.2
Non-consolidated reserve movement of Diginex Limited
|
|
Share capital
|
|
|
Warrants
|
|
|
Share-based payment reserve
|
|
|
Accumulated losses
|
|
|
Total
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
At 1 April 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares issued
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Total loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,127
|
)
|
|
|
(15,127
|
)
|
At 31 March 2020
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,127
|
)
|
|
|
(15,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 April 2020
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,127
|
)
|
|
|
(15,126
|
)
|
Shares issued to acquire a subsidiary
|
|
|
269,351,332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
269,351,332
|
|
Warrants issued
|
|
|
-
|
|
|
|
8,324,147
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,324,147
|
|
Shares issued for warrants exercised
|
|
|
17,031,098
|
|
|
|
(8,324,147
|
)
|
|
|
-
|
|
|
|
8,291,644
|
|
|
|
16,998,595
|
|
Shares issued for cash
|
|
|
21,980,647
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,980,647
|
|
Expenses related to raise of capital
|
|
|
(1,636,312
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,636,312
|
)
|
Shares issued for services
|
|
|
285,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
285,160
|
|
Equity settled share-based payment – share awards and share options
|
|
|
-
|
|
|
|
-
|
|
|
|
19,707,903
|
|
|
|
-
|
|
|
|
19,707,903
|
|
Equity-settled share-based payment – Earn-out awards
|
|
|
-
|
|
|
|
-
|
|
|
|
32,148,300
|
|
|
|
-
|
|
|
|
32,148,300
|
|
Earn-out shares issued
|
|
|
7,241,700
|
|
|
|
-
|
|
|
|
(7,241,700
|
)
|
|
|
-
|
|
|
|
-
|
|
Total loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,229,782
|
)
|
|
|
(23,229,782
|
)
|
At 31 March 2021
|
|
|
314,253,626
|
|
|
|
-
|
|
|
|
44,614,503
|
|
|
|
(14,953,265
|
)
|
|
|
343,914,864
|
|
39
FINANCIAL RISK MANAGEMENT
39.1
Market risk factors
The
Group’s activities expose it to a variety of market risks: price risk, foreign currency risk, and interest rate risk. The Group’s
overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects
on the Group’s financial performance.
The
risks are minimized by the financial management policies and practices described below.
39.1.1
Price risk
The
Group’s exposure to equity securities price risk arises from investments held by the Group and classified in the consolidated statement
of financial position as at fair value through profit or loss (FVTPL) (note 16). As at the year end the Group’s investment in equity
securities was not considered material.
The
Group’s exposure to digital asset price risk arises from digital assets held by the Group on a revaluation basis (note 22). As
at the year end the Group’s digital asset holdings were not material as the Group primarily holds USDC which is not subject to
material price risk on the basis that one USDC is redeemable for one USD from the issuer.
39.1.2
Foreign currency risk
The
Group operates primarily in USD and HKD, albeit there is an increasing exposure to GBP, SGD and EUR. Given USD and HKD are pegged within
a range the Group had a reduced exposure to foreign currency risk during the year. Given the increasing exposure to other currencies
the Group is formalizing a foreign currency hedging policy in respect of foreign currency transactions, assets and liabilities. The Group
monitors its foreign currency exposure closely and will consider hedging significant foreign currency exposure to manage the risk. The
material balance sheet items are denominated in USD and as such no sensitivity analysis on the impact of foreign exchange movements has
been performed.
39.1.3
Interest rate risk
The
Group has minimal interest rate risk because there are no significant borrowings at variable interest rates. The Group currently does
not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider other necessary action
when significant interest rate exposure is anticipated. The Group’s cash flow interest rate risk relates primarily to variable-rate
bank balances. The exposure to the interest rate risk for variable rate bank balances is insignificant as the bank balances have a short
maturity period.
39.1.4
Liquidation risk management
The
Group currently takes no proprietary trading positions and is not exposed to deliberate position risk. but is exposed to a small amount
of market risk via the EQONEX Exchange in managing the liquidation mechanism in place to close clients’ open trading positions
in the event that if they breach minimum margin requirements. The Group runs a liquidation risk management desk which is used to take
on the positions of liquidating positions in the event of there being insufficient liquidity on the Exchange liquidation platform or
main order book to liquidate client positions. Any positions taken on by the liquidation risk management desk are hedged immediately,
to minimize the market risk in positions taken on, but some residual exposure exists in the execution of hedges and unwinding positions.
39.2
Credit risk
The
Group has exposure to credit risk arising from monies relating to notional credit offered to some EQONEX customers, amounts advanced
to third parties, shareholders, associates as well as trade receivables and deposits with bank. Credit risk is managed on a Group basis.
The
amount of the Group’s maximum exposure to credit risk is the amount of the Group’s carrying value of the related financial
assets and liabilities as of the end of the reporting period.
39.2.1
Deposits with bank
With
respect to the Group’s cash deposits held with banks, the Group limits its exposure to credit risk by placing deposits with financial
institution with high credit rating and no recent history of default. Given the high credit ratings of the banks, management does not
expect any counterparty to fail to meet its obligations. Management will continue to monitor the position and will take appropriate action
if their ratings are changed. As at 31 March 2021 the Group had a concentration of deposits with one bank but is in the process of mitigating
such concentration. As at 31 March 2020, the Group has no significant concentration of credit risk in relation to deposit with bank.
39.2.2
Amounts due from related companies/shareholders/an
associate
If
the parties are independently rated, these ratings are used. Otherwise, the Group’s risk measurement and monitoring process includes
assessment of the credit quality of the parties, taking into account its financial position, past experience and other factors impacting
credit quality of the parties.
39.2.3
On exchange credit
Following
the launch of the Exchange, the Group has offered notional on-exchange credit to selected clients. Notional on-exchange credit increases
the available trading balance to those selected clients and is termed as notional as there is no physical transfer of assets to the clients.
The notional credit offered has restricted use on the Exchange and cannot be withdrawn. Collateral is deposited by the trading counterparties
in advance of receiving on-exchange credit and the risk of any loss is mitigated by risk management processes in place such as regular
reconciliations and margin calls in advance of the client’s asset portfolio breaching the advanced credit balance. As at 31 March
2021, the total value of notional credit outstanding to the selected clients was USDC 925,000 and 0.3 BTC. Against the notional credit
advanced the Group held collateral deposited by the clients of $150,000 and USDC 310,000. At 31 March 2021, all clients, that had been
allocated on-exchange credit had balances in excess of the notional advance in their trading accounts on EQONEX.
Other
than the credit risks mentioned above, the Group does not have any other significant concentrations of credit risk. The exposures to
these credit risks are monitored on an ongoing basis.
39.3
Liquidity risk
39.3.1
Financing arrangement
The
Group monitors its cash position on a regular basis and manages cash and cash equivalents to finance the Group’s operations. The
Group has been primarily financed via the proceeds from the shareholder investments via the convertible bond, Transaction, private placement
and warrants exercised.
39.3.2
Maturities of financial liabilities
The
table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the end
of each financial reporting period to the contractual maturity dates. The amounts disclosed in the table are the contractual undiscounted
cash flows.
|
|
Within
1 year
|
|
|
1-5
years
|
|
|
Over
5 years
|
|
|
Total
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
At
31 March 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
payables and accruals
|
|
|
6,250,102
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,250,102
|
|
Amount
due to an associate
|
|
|
900,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
900,000
|
|
Lease
liabilities
|
|
|
764,103
|
|
|
|
139,470
|
|
|
|
-
|
|
|
|
903,573
|
|
Amount
due to related parties
|
|
|
203,460
|
|
|
|
-
|
|
|
|
-
|
|
|
|
203,460
|
|
Client
liabilities
|
|
|
27,021,925
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,021,925
|
|
Amount
due to directors
|
|
|
6,785
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,785
|
|
Warrant
liability
|
|
|
5,197,201
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,197,201
|
|
|
|
|
40,343,576
|
|
|
|
139,470
|
|
|
|
-
|
|
|
|
40,483,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables and accruals
|
|
|
9,714,932
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,714,932
|
|
Lease liabilities
|
|
|
2,358,076
|
|
|
|
932,667
|
|
|
|
58,248
|
|
|
|
3,348,991
|
|
Loans from shareholders
|
|
|
10,711,563
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,711,563
|
|
Amounts due to shareholder
|
|
|
1,686
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,686
|
|
Client liabilities
|
|
|
543,910
|
|
|
|
-
|
|
|
|
-
|
|
|
|
543,910
|
|
Amounts due to directors
|
|
|
374,604
|
|
|
|
-
|
|
|
|
-
|
|
|
|
374,604
|
|
Notes payable
|
|
|
675,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
675,000
|
|
|
|
|
24,379,771
|
|
|
|
932,667
|
|
|
|
58,248
|
|
|
|
25,370,686
|
|
39.4
Capital risk
The
Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maximize
the return to the shareholders through the optimization of the debt and equity balance.
The
Group manages its capital structure and adjusts it in light of changes in economic conditions. To maintain or adjust the capital structure,
the Group may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or other instruments. No
changes were made in the objectives, policies or processes for managing capital during the year ended 31 March 2021.
The
Group has a subsidiary that holds a Type 4 and Type 9 licenses from the Hong Kong Securities and Futures Commission and is subject to
minimal capital requirements. Other than this, the Group was not subject to any externally imposed capital requirements during the reporting
periods.
39.5
Fair values measurements
39.5.1
Fair value hierarchy
This
section explains the judgements and estimates made in determining the fair values of assets in the financial statements. To provide
an indication about the reliability of the inputs used in determining fair value, the Group has classified its financial instruments
and non-financial assets into the three levels prescribed under the accounting standards. An explanation of each level follows underneath
the table.
Fair value measurements using:
|
At 31 March 2021
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Recurring fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at FVTPL
|
|
|
304,053
|
|
|
|
-
|
|
|
|
-
|
|
|
|
304,053
|
|
Financial liability at FVTPL
|
|
|
-
|
|
|
|
5,197,201
|
|
|
|
-
|
|
|
|
5,197,201
|
|
Digital assets
|
|
|
348,998
|
|
|
|
-
|
|
|
|
-
|
|
|
|
348,998
|
|
USDC
|
|
|
2,034,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,034,800
|
|
Non-Recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at amortized cost (a)
|
|
|
-
|
|
|
|
-
|
|
|
|
45,538
|
|
|
|
45,538
|
|
|
|
|
2,687,851
|
|
|
|
5,197,201
|
|
|
|
45,538
|
|
|
|
7,930,590
|
|
Fair value measurements using:
|
At 31 March 2020
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
|
USD
|
|
Recurring fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at FVTPL
|
|
|
49,011
|
|
|
|
-
|
|
|
|
400,000
|
|
|
|
449,011
|
|
Digital assets
|
|
|
36,034
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,034
|
|
USDC
|
|
|
293,793
|
|
|
|
-
|
|
|
|
-
|
|
|
|
293,793
|
|
Non-Recurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at amortized cost (a)
|
|
|
-
|
|
|
|
-
|
|
|
|
977,421
|
|
|
|
977,421
|
|
|
|
|
378,838
|
|
|
|
-
|
|
|
|
1,377,421
|
|
|
|
1,756,259
|
|
Level
1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement
date;
Level
2 inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly;
and
Level
3 inputs are unobservable inputs for the asset or liability.
Note
38.5.1(a): This relates to an amount due from an associate (note 19) which was impaired in the year ended 31 March 2020 under the expected
credit loss methodology. During the year ended 31 March 2021, the balance is being settled via a repayment agreement via a 3rd
party recorded within other receivables. The balance was fully repaid in April 2021.
39.5.2
Valuation techniques used to determine fair values
Below
lists the valuation techniques and key inputs used by the Group to value its Level 3 financial assets. There has been no change in valuation
technique during the year ended 31 March 2021.
Investment
|
|
Amount
USD
|
|
Valuation
techniques and key inputs
|
|
Significant
unobservable
inputs
|
|
Relationship
of unobservable inputs to fair value and sensitivity
|
|
|
|
|
|
|
|
|
|
Shadow
Factory
|
|
Nil
|
|
Review
of 12-month financial projections and discussions with management at 31 March 2021.
|
|
(i):
Discount rate;
(ii):
Revenue growth rate
|
|
A
slight increase in the discount rate or decrease in revenue growth rate used in isolation would result in a decrease in the fair
value
|
|
|
|
|
|
|
|
|
|
Nynja
|
|
Nil
|
|
Review
of 12-month financial projections and discussions with management at 31 March 2021.
|
|
(i):
Discount rate;
(ii):
Revenue growth rate
|
|
A
slight increase in the discount rate or decrease in revenue growth rate used in isolation would result in a decrease in the fair
value
|
|
|
|
|
|
|
|
|
|
Other
receivables
|
|
45,538
|
|
Based
on collections
|
|
N/A
|
|
N/A
|
39.5.3
Reconciliation of Level 3 fair value measurements
|
|
31 March 2021
|
|
|
31 March 2020
|
|
|
|
USD
|
|
|
USD
|
|
At 1 April
|
|
|
1,377,421
|
|
|
|
11,860,216
|
|
Additions
|
|
|
-
|
|
|
|
2,973,829
|
|
Reclassification (a)
|
|
|
-
|
|
|
|
(200,000
|
)
|
Repayments
|
|
|
(760,136
|
)
|
|
|
(814,572
|
)
|
Fair value remeasurement
|
|
|
(400,000
|
)
|
|
|
(1,316,259
|
)
|
Impairment of financial asset at amortized cost
|
|
|
-
|
|
|
|
(11,124,279
|
)
|
Impairment reversal
|
|
|
21,071
|
|
|
|
-
|
|
Repayment by 3rd party
|
|
|
(191,645
|
)
|
|
|
-
|
|
Adjustment for foreign exchange
|
|
|
(1,173
|
)
|
|
|
(1,514
|
)
|
At 31 March
|
|
|
45,538
|
|
|
|
1,377,421
|
|
Note
(a): During the year ended 31 March 2020, there was a transfer of a financial asset between Level 3 to Level 1 due to the listing on
an active market of the VOTE Tokens issued by Agora which allowed the Group to obtain a market value for the asset (note 16).
39.5.4
Financial assets and financial liabilities measured at amortized cost
The
financial assets and financial liabilities in the table below are measured at amortized cost. Management believes the carrying amounts
of these financial assets and liabilities measured at amortized cost approximate their Level 3 fair values.
|
|
Notes
|
|
|
At 31 March 2021
|
|
|
At 31 March 2020
|
|
|
|
|
|
|
USD
|
|
|
USD
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
18.1
|
|
|
|
12,604
|
|
|
|
72,652
|
|
Other receivables
|
|
|
18.2
|
|
|
|
259,858
|
|
|
|
522,458
|
|
Amounts due from related companies
|
|
|
20.2
|
|
|
|
12,296
|
|
|
|
12,392
|
|
Amounts due from shareholders
|
|
|
20.4
|
|
|
|
36,963
|
|
|
|
37,726
|
|
Total
|
|
|
|
|
|
|
321,721
|
|
|
|
645,228
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Amount due to an associate
|
|
|
19.2
|
|
|
|
900,000
|
|
|
|
-
|
|
Amounts due to related parties
|
|
|
20.3
|
|
|
|
203,460
|
|
|
|
-
|
|
Amounts due to directors
|
|
|
20.5
|
|
|
|
6,785
|
|
|
|
374,604
|
|
Loans from shareholders
|
|
|
20.6
|
|
|
|
-
|
|
|
|
10,711,563
|
|
Amounts due to shareholders
|
|
|
20.7
|
|
|
|
-
|
|
|
|
1,686
|
|
Other payables and accruals
|
|
|
30
|
|
|
|
6,250,102
|
|
|
|
9,714,932
|
|
Notes payable
|
|
|
31
|
|
|
|
-
|
|
|
|
675,000
|
|
Total
|
|
|
|
|
|
|
7,360,347
|
|
|
|
21,477,785
|
|
40
SUBSEQUENT EVENTS
On
8 April 2021, the Group launched EQO. EQO is a utility token which upon launch gives the holder a reduction in trading fees once they
meet specific number of tokens held. In total 21 million EQO will be airdropped to users of the EQOUS exchange based on a mixed weighting
between fee paying trading volume and number of EQO held over a period of two years, with a declining number of EQO over time. Initially
the weighting is more in the favor of trading volume and in time the weighting swings towards holding of EQO.
Between
27 April 2021 to 12 May 2021, the Company acquired in total 72.45971 BTC for $4,000,000 for store of value purpose.
On
3 May 2021, the Company invested $2,000,000 into the Bletchley Park Multi-Strategy Fund Class E shares. The Bletchley Park Multi-Strategy
Fund is managed by Diginex SA, a group company.
Post
year end, the Company issued 249,393 shares for the following transactions:
|
●
|
60,489
shares in settlement for the accrued share awards to employees and directors of $504,704,
|
|
●
|
33,998
shares for $260,325 of services, and
|
|
●
|
154,906
shares for acquiring a perpetual software license for total consideration of $900,000. This
license provides Diginex with software on which to execute and manage transactions related
to the digital assets borrowing and lending business.
|
In
June 2021, the Company announced that it is unifying its businesses under the brand, EQONEX. The rebrand follows the divestment of Diginex
Solutions, the ESG blockchain solutions company, in May 2020 and the impending lapse of the license to use the “Diginex”
brand at the end of June 2021. The new EQONEX brand focuses on the crypto element of the business, reflected by the EQONEX Exchange and
EQO token, whilst recognizing its history as Diginex. As at the reporting date, the following subsidiaries have been renamed:
Former
name
|
|
New
name
|
|
Jurisdiction
|
Diginex
Financial Services Limited
|
|
Eqonex
Financial Services Limited
|
|
Hong
Kong
|
Diginex
Global Limited
|
|
DigitalTech
Global Limited
|
|
Hong
Kong
|
Diginex
Strategic Limited
|
|
Eqonex
(HK) Limited
|
|
Hong
Kong
|
Diginex
Markets Limited
|
|
Eqonex
Markets Limited
|
|
Hong
Kong
|
Diginex
Ventures Limited
|
|
Eqonex
Ventures Limited
|
|
Hong
Kong
|
Diginex
Solutions Limited
|
|
Eqonex
Solutions Limited
|
|
Hong
Kong
|
Diginex
Capital Pte Ltd
|
|
Eqonex
Capital Pte. Ltd.
|
|
Singapore
|
Diginex
Solutions Pte Ltd
|
|
Eqonex
Solutions Pte. Limited
|
|
Singapore
|
Diginex
Capital Limited
|
|
Eqonex
Capital Limited
|
|
United
Kingdom
|
EQONEX
LIMITED
154,906
Ordinary Shares