LETTER FROM THE MANAGING DIRECTOR
DIRECTORS REPORT
OPERATING & FINANCIAL REVIEW
REMUNERATION REPORT
DIRECTORS’ DECLARATION
AUDITORS’ INDEPENDENCE DECLARATION
AUDITOR’S REPORT
CONSOLIDATED STATEMENT OF PROFIT OR LOSS & OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASHFLOWS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
NOTES TO THE FINANCIAL STATEMENTS
BASIS FOR PREPARATION
KEY OPERATING & FINANCIAL RESULTS
CAPITAL & RISK MANAGEMENT
FINANCIAL POSITION
EQUITY
GROUP STRUCTURE
OTHER DISCLOSURES
CORPORATE DIRECTORY
ASX INFORMATION
1
2
7
9
26
27
28
32
34
35
37
39
40
42
57
57
70
77
80
87
88
Dear Fellow Shareholders,
DigitalX experienced an exciting year operating in one of the world’s fastest growing markets, driven by increasing awareness and
adoption of Blockchain technology. We started the year with a focus on solidifying the Blockchain Global cornerstone investment,
building a team of professionals with financial expertise to complement our core industry experience and setting our sights on
generating positive cash flows.
The Company began the financial year with myself as CEO, the only Australian-based employee. Certainly, one of the most positive
developments has been the time and energy spent on hiring the right talent. We had a key focus on attracting the right team, with a
mix of financial expertise in the management of assets as well as product and markets analysis to complement our core industry
experience. I am very pleased to see that our team of high calibre individuals has expanded to just under twenty people across
Australia and the United States. This skill set will aid DigitalX’s transition into a sustainable growth business over the next three to five
years. The management team is now supported by a Board that has well-known expertise within the industry and represents a
significant and fully-paid shareholding in your Company.
With the support of the Board and a well-funded Company, management was able to pursue and evaluate business opportunities
globally with a focus on achieving significant positive revenues from consulting, advising and creating new crypto-financial products.
Initial Coin Offering commentary
DigitalX was at the forefront of the Initial Coin Offering (ICO) revolution - in which, for the first time ever, the market placed a value
on promising ideas from entrepreneurs. DigitalX was fortunate to play a role in advising more than 10 projects in a period that may
be looked on by history as the foundation of the ‘internet of value’. The ICO process brought together a team behind a founder’s
vision to create a mechanism to attract the attention and talent required to co-develop potentially world-changing ideas. The speed
that some of these projects were able to develop their project, build a team and prioritise their vision above the immediate needs of
the status quo at times exhilarating.
1
The ICO market saw cross-border collaboration on solving some of the big problems the world is facing. In hindsight, the hype and
excitement in the market exceeded the pace of the technology development and the value of the technology that had been created
at that time. Those that are bearish on blockchain technology are now in the minority. While there is clear support for the technology,
the first iteration of the funding mechanism, ICOs, were not suitable to all projects. On reflection, it can be a flawed model when
applied to too many diverse businesses. DigitalX is confident that the upcoming Security Token Offering (STO), hybrid utility and STO,
and limited ICO model will see greater benefits for issuers and investors. We are focused on providing advisory services and the
technology to enable this transition in a compliant manner.
Financial Discussion
Pleasingly, the excitement and interest in the blockchain sector led to financial success for DigitalX shareholders. The Company is a
profitable blockchain company on the ASX, reporting our maiden net profit of over $USD2.5m. In addition to the profitability, prudent
management of expenses and treasury led us to a strong financial position, with over $USD10m in assets.
Outlook
As our business has grown, management’s vision has expanded alongside it. We believe our financial stability, technical expertise and
track record operating compliantly and securely in the blockchain ecosystem, across several booms and downturns, provides a leading
position ahead of competitors. We know we have more work to do to deliver on our mission of providing blockchain technology
expertise to help innovative companies launch in global markets. We are going to methodically increase our global network and secure
international partners to work with us and continue to work with industry bodies, such as the Australian Digital Commerce Association
(ADCA), to promote blockchain technology adoption.
We are pleased to be opening a world-class Blockchain Centre in Western Australia before the end of the year and we also have a
small office in Sydney supporting the asset management team. With a mix of seasoned financial professionals and crypto-asset and
distributed ledger technology expertise, we are well placed to focus on STOs. We are excited by the opportunity to be a market leader
in the booming1 STO market and look forward to seeing our business grow as we progress this offering.
Leigh Travers
Managing Director & CEO
1 https://www.nasdaq.com/article/security-tokens-set-to-take-center-stage-in-2019-cm982207
Your Directors present their report together with the financial report on the consolidated entity (referred to hereafter as the
Group or Consolidated entity) consisting of DigitalX Limited (DigitalX or the Company) and the entities it controlled at the end of,
or during, the year ended 30 June 2018. Information contained within this report and the financial report is presented in United
States dollars ($USD).
Directors
The following persons were Directors of DigitalX Limited during the financial year and up to the date of this report:
Mr Peter Rubinstein
Non-Executive Director &
Chairman
Term of Appointment
Appointed 15 September
2017
Status
Non-Independent
Non-Executive
Current Directorships
Genetic Technologies Limited
Since January 2018
Blockchain Global Limited
Since July 2015
Previous Directorships of
Listed Entities within past 3
years
None.
Experience
in early stage technology
Mr Peter Rubinstein has over 20 years’ experience
commercialisation through to public listings on the ASX. He is a lawyer by training, having
worked at one of the large national firms prior to moving in house at Montech, the commercial
arm of Monash University.
Mr Rubinstein has had significant exposure to the creation, launch and management of a
diverse range of technology companies including in biotech, digital payments and renewable
energy.
Peter is also Chairman of EasyPark ANZ an early adopter in the “Smart City” opportunities for
digital parking.
Interests in shares and options held as at the date of the report
23,266,296 fully paid ordinary shares;
2
3,400,000 unlisted options exercisable at $0.0324 each expiring on 18 September 2019;
and
617,284 unlisted options exercisable at $0.324 each expiring on 1 September 2020.
Experience
Leigh Travers has enjoyed a decade of building relationships in financial and technology
markets through his experience with Fintech and Investment Advisory companies. He is a
current Director and Vice Chairman of the ADCA, the representative body for digital
commerce businesses in Australia.
Mr Travers previously worked for seven years at Australian wealth management firm Euroz
Securities as an Investment Advisor. His clients included high net worth, institutions and listed
companies as he provided trading advice and assisted with company buybacks and sell downs
and capital raising services.
Mr Travers holds a Bachelor of Commerce and Communications from the University of
Western Australia and has completed a Fintech Certification from the Massachusetts Institute
of Technology.
Interests in shares and options held as at the date of the report
4,461,111 fully paid ordinary shares.
Experience
Mr Sam Lee is the founder and CEO of Blockchain Global Ltd. Blockchain Global is a profitable
Blockchain technology company with offices in Melbourne, New York, Kobe, Shanghai and
Dalian. Since incorporation, Blockchain Global has, through its corporate accelerator program,
made over 50 investments in companies leveraging Blockchain technology.
3
Mr Lee is a frequent interviewee on CNBC, BBC and Sky News and a panellist at the World
Economic Forum, as well as at numerous Blockchain summits.
Interests in shares and options held as at the date of the report
10,096,296 fully paid ordinary shares;
1,203,704 unlisted options exercisable at $0.0324 each expiring on 8 September 2020;
1,400,000 unlisted options exercisable at $0.0324 each expiring on 8 September 2019; and
2,800,000 unlisted options exercisable at $0.0324 each expiring on 18 September 2020.
Mr Leigh Travers
Managing Director &
CEO
Term of Appointment
Appointed 24 July 2017
Status
Non-independent
Executive
Current Directorships
None
Previous Directorships of
Listed Entities within past 3
years
None
Mr Xue Samuel (“Sam”) Lee
Non-Executive Director
Term of Appointment
Appointed 15 September
2017
Status
Independent
Non-Executive
Current Directorships
Genetic Technologies Limited
Since January 2018
Blockchain Global Limited
Since June 2015
Previous Directorships of
Listed Entities within past 3
years
None
Mr Toby Hicks
Independent Non-Executive Director
Appointed 28 July 2017
Resigned 7 September 2018
Mr Hicks is a Partner of Steinepreis Paganin Lawyers & Consultants with over 15 years' experience advising companies, both public
and private, on matters relating to corporate governance, capital raisings, and mergers and acquisitions, as well as general
commercial and strategic legal advice. He acts for a number of ASX listed companies.
Mr Hicks is not and has not been a director of any other ASX listed company for the previous three years.
Interests in shares and options held as at the date of Mr Hicks’ resignation
300,000 Fully Paid Ordinary Shares
150,000 Unlisted Options exercisable at $0.08 each expiring 10 February 2018
Mr Faisal Khan
Independent Non-Executive Director
Appointed 6 October 2016
Resigned 23 November 2017
Mr Khan is a recognised global expert on remittance, banking, payments and FinTech. He is the owner of Faisal Khan &
Company, a leading payments consultancy to Fortune 100 companies across the banking, FinTech and money transfer sectors.
The firm provides advisory services in areas including architecture of cross-border payment networks, products and solutions,
product/idea validation and cross-border transactions in the P2P, B2C and B2B space.
4
Mr Khan is not and has not been a director of any other ASX listed company for the previous three years.
No interests in shares and options held as at the date of Mr Khan’s resignation.
Company Secretary
Ms Shannon Coates has over 20 years’ experience in corporate law and compliance. She is currently named company secretary to
a number of public unlisted and listed companies, and has provided company secretarial and corporate advisory services to boards
across a variety of industries, including financial services, manufacturing and technology both in Australia and internationally. Ms
Coates is a qualified lawyer, Chartered Secretary and graduate of the AICD’s Company Directors course.
Ms Shannon Coates was appointed Company Secretary of DigitalX on 8 December 2016.
Principal activities
During the year the Group continued to develop and deliver on its strategy of focussing on advisory related services to the
blockchain market. The principal activities of the Group consisted of:
•
ICO/STO Advisory;
• Blockchain consulting;
•
• Media.
Funds under management; and
Refer to the Operating and Financial Review for further information about each of the activities.
Environmental regulation
The Group is not subject to significant environmental regulation in respect of its operations. Where possible the Group endeavours
to procure services from vendors who actively support and promote sustainability initiatives such as energy ratings, carbon
initiatives and ethical supply chains.
Significant changes in the state of affairs
Significant changes in the state of affairs of the Group during the financial year were as follows:
• During the course of the financial year the Group’s contributed equity increased by $USD7,778,256 (from $USD22,653,332
to $USD30,431,588) as a result of shares issued for strategic placements, conversion of options and conversion of convertible
notes during the year. The changes for the year are disclosed in Note F1. In addition to this the Group issued 55 convertible
notes with a face value of $AUD10,000 to raise $AUD550,000. The details are disclosed in Note D6.
• As a result of the changes in equity noted above, the profitable operations for the year, and year on year increase in
cryptocurrency prices, the Group’s cash and digital asset position increased $USD10,030,010 (from $USD242,259 to
$USD10,272,569) positioning the Group with a much stronger financial position heading into the 2019 financial year.
•
In addition to the above, the Group also announced the following significant changes and updates to the market during the
financial year which contributed to the overall performance and position of the Group at the end of the financial year:
Date
Announcement
Impact1
Link2
10/04/2018 DigitalX enters joint venture with Multiplier for Coin.org
Investments
Announcement
5
10/04/2018 DigitalX opens funds under management division
6/03/2018
DigitalX corporate advisor to two ICOs with global markets
26/02/2018 DigitalX appointed Blockchain Consultant to TTL
4/12/2017
DigitalX appointed corporate advisor for two ICOs
30/11/2017 DigitalX named corporate advisor to high profile ICOs
23/11/2017 Board Changes
4/10/2017
DigitalX to act as strategic adviser to Power Ledger ICO
19/09/2017 DigitalX signs corporate advisory engagement with Etherparty
15/09/2017 Capital raising completion and appointment of new Directors
30/08/2017 Bitcoin investment received from Blockchain Global
29/08/2017 DigitalX Appointed to Bankera ICO
1 Refer to the relevant section of the Report for the impact of the change.
2Refer to ASX announcement for full details.
Segment Note
Revenue
Revenue
Revenue
Revenue
Directors’ Report
Revenue
Revenue
Equity
Equity
Announcement
Announcement
Announcement
Announcement
Announcement
Announcement
Announcement
Announcement
Announcement
Announcement
Revenue
Announcement
Dividends
No dividends have been paid or declared up to the date of this report. The Directors have not recommended the payment of a
dividend in the current financial year.
Any future determination as to the payment of dividends by the Company (and the potential creation of a dividend policy for that
purpose) will be at the discretion of the Directors and will depend on the availability of distributable earnings and operating results
and financial condition of the Company, future capital requirements and general business as well as other factors considered
relevant by the Directors. No assurance in relation to the payment of dividends or franking credits attaching to dividends can be
given by the Company.
Subsequent events
No other matter or circumstance has arisen since 30 June 2018 that has significantly affected the Group’s operations, results or
state of affairs, or may do so in future years other than those set out below.
Date of event
5 July 2018
17 July 2018
7 August 2018
29 August 2018
Details of event
On 5 July 2018, 1,000,000 Tranche 2 Performance Rights converted on achievement of vesting
conditions, as approved by shareholders on 23 November 2017.
On 17 July 2018, the Group signed a 5 year lease for commercial premises, the total commitment
excluding rent abatements is $AUD808,125.
On 7 of August 2018, 3,086,420 Shares were issued on exercise of 3,086,420 Unlisted Options,
exercisable at $0.0324 and expiring 8 September 2020.
On 29 August 2018, DigitalX entered into an agreement to purchase $AUD250,000 of YPB via convertible
notes at $0.018. DigitalX is also entitled to 1:1 options when the convertible notes are exercised at
$0.026 and 10% of all YPB tokens. DigitalX is entitled to various fees from services which are detailed
into the announcement.
30 August 2018
On 30 August 2018, 85,185,185 shares were released from escrow.
7 September 2018
On 7 September 2018, Mr Toby Hicks retired as a Non-Executive Director.
18 September 2018
DigitalX has established a joint venture company, Future ICO Pty Ltd (Future ICO) with Blockchain Global
Ltd and Big Start Pty Ltd to develop and operate the platform. The platform is designed to provide a
seamless way for ICO applicants and ICO issuers to interact under a compliant framework.
6
18 September 2018
On 18 September 2018, 19,737,295 Shares and 8,800,000 Incentive Options were issued on exercise of
44 convertible notes with a face value of $10,000 each, converting to Shares at $0.027 per share.
28 September
On 28 September the Company announced that it had been served with an Originating Application and
Statement of Claim in the Federal Court of Australia filed by a group of parties relating to an investment
made by those parties in an initial coin offering to which the Company was an advisor. While the
Company and its legal advisors continue to review and examine the claims made, the Company denies
any claim of wrongdoing and, for reasons that will become apparent as this matter progresses, believes
that it has strong grounds to defend any claims bought forward by these applicants. As such, the
Company intends to vigorously defend this matter and protect the reputation of the Company. The
claim is for a combined amount of approximately US$1,833,077 plus damages.
28 September 2018
Due to the volatile nature and the materiality of the digital assets held, we disclose the value of digital
assets held by the Group, excluding the DigitalX Fund, as at the close date of the 25 September 2018.
Coin Symbol
BTC
Alt-coins
Total
Coin Amount
433.25
-
-
$USD Spot Price
$6,429
-
-
$USD Balance
$2,785,377
$165,697
$2,951,074
Operating results
DigitalX is pleased to report the consolidated profit attributable to members of the group after providing for income tax amounted
to $USD 2,595,834 (2017: loss of $USD3,973,761).
With the Group well-funded in the early part of the financial year, the management team focused on bringing new services to
market that would position the Group as a leading service provider for the blockchain and cryptoasset industry over the medium
term. The four service lines the Group operates are Initial Coin Offering (ICO) and Security Token Offering (STO) advisory, funds
management, blockchain consulting and Coincast Media’s marketing and education arm.
The Group is pleased to have successfully navigated an extremely volatile market with a focus on increasing its profile in the
industry, increasing assets on the balance sheet and by delivering a maiden full year profit for shareholders.
ICO/STO Advisory
DigitalX commenced ICO advisory services in August 2017 and quickly established an extremely strong record of delivering high
quality services to clients. The Group provided advisory services to projects that raised in excess of $AUD500m during the period.
The advisory services team specialised in three main categories; technical due diligence, marketing and promotion, and
introductions to DigitalX’s network.
The technical services typically included a crypto-economic review of the businesses token model, review of product at launch
and review of smart contracts utilised in the ICO process.
The marketing and promotional services were guided by our marketing partners across cryptocurrency and mainstream media.
This enabled our clients to be featured in some of the world’s highest profile media across print, digital and television. DigitalX
and our marketing partners created high quality content, including videos that were published and shared more than half a million
times across mainstream news and social media networks and later formed the basis of our learnings for the new business of
Coincast Media.
7
We have generated value for our ICO clients by introducing them to high-net-worth cryptocurrency investors and digital currency
exchanges. As the world’s first publicly listed Blockchain company and with a team that has been involved in the entire Blockchain
ecosystem including mining, trading and Blockchain development, DigitalX has an enviable network.
Blockchain consulting
DigitalX continued to provide services to a small number of groups during the year with highlights including publicly listed clients
and a tier 1 global energy firm. DigitalX is currently tailoring an offering to deliver an introduction to Blockchain technology, with
proof of concept, to ensure clients can receive validation for adopting the technology at a rapid rate.
Funds under management
In April 2018, the Group announced the opening of the funds under management division, DigitalX Investments, to give high net
worth and institutional investors access to a portfolio of cryptoassets. DigitalX’s first fund invests predominantly in the leading
cryptocurrencies, with a smaller allocation towards special trading opportunities including ICOs. The fund outperformed the top
10 index during the period and is well placed to attract further interest from sophisticated investors, family offices and institutions
looking to gain access to the asset class.
The funds management team has developed extensive research on the marketplace as well as detailed research notes on
individual assets within the fund. The fund is planning a large-scale marketing effort in the coming quarter.
Funds management personnel had extensive engagement with prospective partners and regulators in two major investment fund
jurisdictions, Panama and Malta, as the Group considers opportunities to expand its funds management division into the
international market.
Coincast Media
Coincast Media is a new cryptocurrency business news website and online cryptocurrency
education platform and television show. Coincast Media generated revenue of more than
$AUD200,000 for the June 2018 quarter and a modest profit. Coincast Media’s digital assets
are quickly attracting interest with over half a million digital impressions and the team has been
attracting major interest at conferences. The Coincast TV program has successfully launched
to provide mainstream media coverage for exciting blockchain businesses. The TV show’s
revenue will be generated through a mix of corporate sponsorships and sponsored content.
Future developments
After successfully scaling up our team, DigitalX is continuing to consider ways to expand our business verticals by building on our
strong position as a leader in the Blockchain space.
At the end of the 2018 Financial Year, having delivered its maiden full year net profit, DigitalX now sits in a strong position to
continue to grow its business arms with the aim of expanding on its results over this year.
8
Message from the Board of Directors
The Directors are pleased to present this Remuneration Report, which forms part of the Directors’ Report for the financial year
ended 30 June 2018.
The Directors note that Executive and KMP remuneration continues to be an area that receives stakeholder focus and scrutiny, as
such the report has been structured with an attempt to provide transparency and clarity to readers around the framework, policies
and remuneration of DigitalX Limited’s Directors and its Executives.
The report has been set out under the following main headings:
Key terms of employment contracts
A. Key Management Personal
B. Remuneration policy including elements of remuneration
C.
D. Relationship between the remuneration policy and company performance
E.
F.
G. Related Party Transactions
H.
I.
Remuneration of Directors and executives
Share based payments granted
Future changes
Definitions
The information provided in this remuneration report has been audited as required by Section 308(3C) of the Corporations Act
2001.
9
KEY MANAGEMENT PERSONNEL
The Key Management Personnel (“KMP”) of the Group consist of the Board and Executives. This is the case due to the size and
scale of the Group’s current operations. All the named persons held their current position for the whole or part of the financial
year and since the end of the financial year unless otherwise stated.
KMP
Position
Status
Term as KMP
Peter Rubenstein
Sam Lee
Toby Hicks1
Faisal Khan
Chairman and Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Leigh Travers
Managing Director and Chief Executive Officer
Neel Krishnan
President
1 Toby Hicks resigned 7 September 2018.
REMUNERATION POLICY
For the year ended 30 June 2018 the Board as a whole determined and
reviewed compensation arrangements for the Executive Directors and where
applicable the Executive Team. The Board assessed the appropriateness of the
nature and amount of emoluments of such officers on a periodic basis by
reference to relevant employment market conditions with the overall objective
of ensuring maximum shareholder benefit from the retention of a high quality
team. The objective of the Company’s remuneration framework was to ensure
reward for performance was competitive and appropriate to the results
delivered.
Non-Executive KMP
Non-Executive KMP
Non-Executive KMP
Non-Executive KMP
Executive KMP
Executive KMP
From 15 Sep 2017
From 15 Sep 2017
Full Year
To 23 Nov 2017
Full Year
Full Year
The Board aims to ensure that executive
rewards satisfied the following key criteria for
good reward governance practices:
Competitiveness and reasonableness;
Acceptability to shareholders;
Performance linked;
Transparency; and
Capital management.
ELEMENTS OF REMUNERATION
Base pay
Directors and Executives are offered a competitive base salary and participation in the bonus pool. Base pay for executives is
reviewed annually by the Board to ensure that executive’s pay is competitive with the market, and is also reviewed upon
promotion or additional responsibilities.
There is no guarantee of base pay increases fixed in any executive or Director contracts.
Commission
There is no entitlement to commissions based remuneration.
Short term incentives (STI)
Managing Director
To align the remuneration of the Managing Director and the performance of the Company, the Managing Director is issued STI in
the form of performance rights that vest on the achievement of certain performance hurdles. The STI for the year ended 30 June
2018 were approved by shareholders at the Annual General Meeting held on 27 November 2018.
Staff
For the purpose of incentivising and tying the rewarding of the Company’s staff to the performance of the Company, the Board
has determined that it may, at its discretion, issue shares from time to time as a reward.
Long term incentives (LTI)
There were no LTI issued for the year ended 30 June 2018.
10
Performance Metrics
At the 2017 AGM the Board set the following performance metrics for 30 June 2018 year for the Managing Director as part of the
issue of 3,000,000 performance rights (STI). The table below sets out the performance against those metrics.
Metric
Complete 5 ICO advisory engagement
Generate $5m gross revenue
5 day VWAP greater than $0.10 per share
Met?
C. RELATIONSHIP BETWEEN THE REMUNERATION POLICY AND COMPANY PERFORMANCE
As noted in Sections A & B, the Board seeks to align the interests of the Executive Team with those of the shareholders
when setting future short and long-term benefits. For the year ended 30 June 2018 the total remuneration is reflective of
the remuneration strategy as noted above, this is evident from the relationship between:
•
•
The composition of base and at risk components of remuneration being weighted toward at risk compensation for
100% achievement of the performance hurdles for the Managing Director set at the 2017 AGM, execution of strategy
in building new and diversified revenue streams, and the Group’s maiden profit of $2.595m.
The award of at risk component linked to increased share price year on year (108% increase) and positive earnings
per share growth and maiden profit per share.
The Company is not yet at stage of its development where it considers benchmark returns against an ASX peer group
(Blockchain and cryptocurrency focussed) relevant based on limited inclusions and comparable data.
4,000,000
1,000,000
(2,000,000)
(5,000,000)
(8,000,000)
(11,000,000)
(14,000,000)
Net profit &
KMP remuneration
Net profit/(loss)
before tax
Total reported
remuneration
3,750,000
3,000,000
2,250,000
1,500,000
750,000
0
0.020
Basic EPS & total KMP
remuneration trend
At risk
Base
Basic earnings
per share
(0.010)
(0.040)
(0.070)
(0.100)
(0.130)
d
e
t
s
e
V
s
t
h
g
i
R
f
o
%
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
100%
100%
MD Performance
Rights Vested (%)
Performance
Rights Target
Performance
Rights Vested
11
Share price & KMP
remuneration trend
At risk
Base
Share price at
the EOY
0.400
0.320
0.240
0.160
0.080
0.000
2014
2015
2016
2017
2018
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
RELATIONSHIP BETWEEN THE REMUNERATION POLICY AND COMPANY PERFORMANCE – FIVE YEAR DATA TABLE
The table below includes the remuneration and performance data from the preceding five (5) financial years used to analyse the linkage between remuneration and performance in the
section above.
Revenue & other income from all operations
4,409,335
36,600,025
40,403,656
8,041,026
9,905,859 ↑
Net profit/(loss) before tax
(11,216,375)
(6,769,719)
(3,417,305)
(3,973,961)
2,595,834 ↑
30 June 2014
$USD
30 June 2015
$USD
30 June 2016
$USD
30 June 2017
$USD
30 June 2018
$USD
Total reported in remuneration report
3,340,152
1,264,620
Remuneration - Base
Remuneration - At risk
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Share Price at the start of year
Share price at the end of year
Final dividend
515,025
1,264,620
2,825,127
(0.122)
(0.122)
0.050
0.370
-
-1
(0.042)
(0.042)
0.370
0.150
-
955,292
910,725
44,567
(0.019)
(0.019)
0.150
0.140
-
755,980
1,437,838 ↑
691,496
479,860 ↓
64,484
(0.020)
(0.020)
0.140
0.036
-
957,978 ↑
12
0.006 ↑
0.005 ↑
0.036 -
0.075 ↑
-
1 At risk remuneration for the year ended 30 June 2015 not shown as the amount was negative due to the reversal of the share based payment expense for that year.
KEY TERMS OF EMPLOYMENT CONTRACTS
Executives
Mr Leigh Travers
Managing Director & CEO
Under an Executive Employment Agreement entered into between Mr Travers and DigitalX, Mr Travers is appointed as Chief
Executive Officer, in effect from 28 November 2017. The employment will be ongoing until it is terminated in accordance with Mr
Travers’ Executive Employment Agreement. The employment may be terminated by either party giving 6 months’ written notice
(although less than 6 months’ notice is required by DigitalX in certain circumstances such as Mr Travers’ illness, absence, material
breaches or misconduct in which case Mr Travers will not be entitled to receive any payment in lieu or compensation as set out
below). On termination of his employment and where DigitalX elects to make payment in lieu of notice, the Company must pay
Mr Travers a payment equal to his salary for the remainder of the notice period. Mr Travers will be under restraint and non-
solicitation clauses for up to 24 months after the termination of his employment.
Mr Travers’ salary is $AUD195,000 per annum (inclusive of mandatory social security payments including superannuation) subject
to annual salary reviews and his reasonable expenses will also be paid by the Company.
Under all of the Employment Agreements above, DigitalX, in its absolute discretion acting reasonably, can assign and transfer the
employment to any of DigitalX’s Related Bodies Corporate.
Mr Neel Krishnan
President
13
Under an Executive Employment Agreement entered into between Mr Krishnan and DigitalX, Mr Krishnan was appointed as
President of DigitalX, in effect from 28 November 2016. The employment will be ongoing until it is terminated in accordance with
Mr Krishnan’s Employment Agreement. The employment may be terminated by either party giving 1 months’ written notice
(although less than 1 months’ notice is required by DigitalX in certain circumstances such as Mr Krishnan‘s illness, absence,
material breaches or misconduct in which case Mr Krishnan will not be entitled to receive any payment in lieu or compensation
as set out below). On termination of his employment and where DigitalX elects to make payment in lieu of notice, the Company
must pay Mr Krishnan a payment equal to his salary for the remainder of the notice period. Mr Krishnan will be under restraint
and non-solicitation clauses for up to 12 months after the termination of his employment.
Mr Krishnan‘s salary is $USD148,000 per annum (inclusive of mandatory social security payments including superannuation)
subject to annual salary reviews and his reasonable expenses will also be paid by the Company.
Under all of the Employment Agreements above, DigitalX, in its absolute discretion acting reasonably, can assign and transfer the
employment to any of DigitalX’s Related Bodies Corporate.
Non-Executive Directors
Non-Executive Directors remuneration arrangements include compensation in the form of annual Directors’ fees in accordance
with their relevant service agreement. The Non-Executive Directors from time to time may receive incentive compensation in the
form of share based payments (as approved by Shareholders).
For the year ended 30 June 2018, all Non-Executive Directors received a base fee of $AUD50,000 inclusive of entitlements. There
were no additional fees payable for special responsibilities or committees.
Amounts payable to Director controlled entities for services provided by Directors for the year ending 30 June 2018 is detailed in
the following table of this report. The Group may carry out consulting activities with the Directors on an arm’s length basis in the
normal course of business.
REMUNERATION OF DIRECTORS AND EXECUTIVES
The compensation for each Director and executive for the period is contained in the following table:
Year ended 30 June 2018
Name
Short-term employee benefits
Post-employment
benefits
Share-based payment
Total
At Risk %
Salary & Fees
$USD
Director Fees
$USD
Other Benefits2
$USD
Superannuation3
$USD
Shares, options and
performance rights5
$USD
Non-Executive Directors
Peter Rubinstein
Sam Lee
Toby Hicks
Faisal Khan
Executive Directors
Leigh Travers
Other KMP
Neel Krishnan
Total
-
-
-
-
133,909
126,125
260,034
25,625
22,453
41,914
15,788
-
-
105,780
-
-
-
-
-
-
-
-
-
-
152,420
10,857
$USD
25,625
22,453
-
-
14
194,334
78.4%
26,645
40.7%
69,399
12,721
702,1334
918,162
76.5%
18,683
88,082
13,243
25,964
92,568
957,978
250,619
36.9%
1,437,838
66.6%
1 Amount paid in Australian Dollars are converted to United States Dollars at 0.7714.
2 Other benefits includes tokens from Initial Coin Offerings (ICOs) distributed to KMP and staff.
3 Superannuation or equivalent (i.e 401k, social security).
4 Included in the total is an amount of $USD534,813 relating to the share based payment expense for performance rights issued.
5 Refer to Sections E & F of the Remuneration Report for additional details.
Year ended 30 June 2017
Name
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
Leigh Travers2
Toby Hicks3
Peter Rubinstein4
Sam Lee5
Faisal Khan6
Neel Krishnan7
Zhenya Tsvetnenko8
Alex Karis9
William Brindise10
Fabricio Rodriguez11
Brett Mitchell12
Total
Salary & Fees
$USD
110,7601
-
-
-
-
155,267
8,4751
121,407
88,118
136,506
-
620,533
Director Fees
$USD
Consulting
Fees
$USD
-
41,445
-
-
18,750
-
-
-
-
-
2,247
62,441
-
-
-
-
-
-
-
-
-
-
-
-
Superannuation
$USD
5,7161
-
-
-
-
-
8051
-
-
-
-
6,521
Shares, options and
performance rights13
$USD
-
-
-
-
-
-
-
-
56,262
10,222
-
64,484
$USD
116,476
41,445
-
-
18,750
155,267
9,280
121,407
144,380
146,728
2,247
755,980
15
1 Amount paid in Australian Dollars are converted to United States Dollars at 0.75.
2 Leigh Travers was appointed effective 24 July 2016.
3 Toby Hicks was appointed effective 28 July 2016.
4 Peter Rubinstein was appointed effective 15 September 2017.
5 Sam Lee was appointed effective 15 September 2017.
6 Faisal Khan was appointed effective 6 October 2016.
7 Neel Krishnan was appointed effective 1 December 2016.
8 Zhenya Tsvetnenko resigned effective 24 July 2016.
9 Alex Karis resigned effective 23 December 2016.
10 William Brindise resigned effective 1 December 2016.
11 Fabricio Rodriguez resigned effective 31 May 2017.
12 Brett Mitchell resigned effective 24 July 2016.
13 Refer to Sections E & F of the Remuneration Report for additional details.
SHARE OPTIONS AND PERFORMANCE RIGHTS GRANTED TO DIRECTORS
Name
2018
Toby Hicks
Leigh Travers
Total
Opening balance
150,000
250,000
400,000
Options2
Movement for the
period
(150,000)3
(250,000)4
(400,000)
Closing balance
Opening balance
-
-
-
Performance Rights
Movement for the
period
Closing balance
-
-
1,000,0001
1,000,000
1,000,000
1,000,000
-
-
-
1 Leigh Travers was issued 3 tranches (3,000,000 at a value $AUD0.235 per right) of performance rights based on the terms and conditions set out in the notice of meeting. During the year the performance hurdle for all 3
tranches were satisfied but due to timing of the final tranche being issued only 2,000,000 performance rights vested (66%) were issued during the year ended 30 June 2018. At 30 June 2018, 1,000,000 rights remain unvested,
the final tranche of shares was issued on 3 July 2018.
2 100% of the options from the prior year received as remuneration were exercised in the current year, there were no unvested and unexercised options at 30 June 2018.
3 On 2 February 2018, 150,000 options were exercised at $AUD0.08 per share. The value of the shares received were $AUD0.245 per share.
4 On 16 February 2018, 250,000 options were exercised at $AUD0.08 per share. The value of the shares received were $AUD0.28 per share.
16
Name
2017
Leigh Travers
Toby Hicks
Zhenya Tsvetnenko
Alex Karis
William Brindise
Brett Mitchell
Total
Options
Class A Performance Rights
Class B Performance Rights
Opening
balance
Movement for
the period
Closing
balance
Opening
balance
Movement for
the period
Closing
balance
Open balance
Movement for
the period
Closing balance
-
-
-
-
-
250,000
250,000
150,000
150,000
-
-
-
-
-
-
-
300,000
(300,000)
300,000
100,000
400,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,893,883
(3,893,883)
1,986,031
(1,986,031)
1,147,705
(1,147,705)
-
-
7,027,619
(7,027,619)
-
-
-
-
-
-
-
The Class B Performance Rights are unvested and lapsed on 1 July 2016 as the performance hurdle was not met and the unlisted options have expired and lapsed on 30 June 2017.
SHAREHOLDINGS OF DIRECTORS
Directors
Peter Rubinstein
Sam Lee
Toby Hicks
Faisal Khan
Leigh Travers
Total
Opening Balance
1 July 2017
Granted as
Compensation
Conversions &
Vesting
Net Other
Changes1
Closing Balance
30 June 2018
-
-
-
-
23,403,7044
(6,933,704)
16,470,000
-
4,911,111
4,911,111
300,000
1,000,0002
150,000
(650,000)
800,000
-
250,000
-
(250,000)
-
811,111
1,500,0002,3
2,250,0005
(1,300,000)
3,261,111
1,111,111
2,750,000
23,783,704
(2,992,593)
24,652,222
1 Net changes includes initial holdings, final holdings and on-market sales as reported to the market per the respective Appendix 3X, 3Y, and 3Z.
2 1,000,000 shares each issued to Messrs Travers and Hicks at a fair value of $AUD0.20 per share, as approved by Shareholders on 23 November 2017.
3 500,000 shares issued at a fair value of $AUD0.04 per share approved by the Board of Directors.
4 Conversions relate to options received as part of convertible note entered into prior to becoming a Director.
5 Included in the total is 2,000,000 shares received on vesting of performance rights and 250,000 shares on exercise of options noted in Section E
above.
Opening Balance
1 July 2016
Granted as
Compensation
Conversions &
Vesting
Net Other
Changes
Closing Balance
30 June 2017
-
-
-
-
-
-
-
Directors
Leigh Travers
Toby Hicks
Peter Rubinstein
Sam Lee
Faisal Khan
311,111
-
-
-
-
Zhenya Tsvetnenko1
Alex Karis2
43,016,201
20,514,200
William Brindise3
12,549,897
1,466,888
Brett Mitchell4
62,879
-
Total
76,454,288
1,466,888
1 Zhenya Tsvetnenko resigned effective 24 July 2016.
2 Alex Karis resigned effective 23 December 2016.
3 William Brindise resigned effective 1 December 2016.
4 Brett Mitchell resigned effective 24 July 2016.
-
-
-
-
-
-
-
-
-
-
500,000
300,000
811,111
300,000
17
-
-
-
(43,016,201)
-
-
-
-
(16,517,742)
3,996,458
-
14,016,785
(62,879)
-
(58,796,822)
19,124,354
RELATED PARTY TRANSACTIONS
Year ended 30 June 2018
• During the financial year 2,546,000 unlisted options exercisable at $AUD0.08, expiring on 30 June 2018, lapsed unexercised.
• During the year, the Group paid Steinepreis Paganin, a law firm of which former Non-Executive Director Toby Hicks is a
partner, $AUD116,607 for legal services rendered on various matters. At 30 June 2018, the Group owed $AUD2,545 to
Steinepreis Paganin.
• During the year, the Group recognised an expense and paid Blockchain Global Ltd, a company controlled by Non-Executive
Chairman Peter Rubinstein and Non-Executive Director Sam Lee, $USD469,623 for services related to initial coin offerings. At
30 June 2018, no amounts were owed to Blockchain Global Ltd.
• During the year, Mars Capital Australia Pty Ltd, a company controlled by Non-Executive Director Sam Lee, was issued 14
convertible notes, with a face value of $AUD10,000 each, convertible at $AUD0.027 each, as approved by Shareholders on 25
August 2017. Each convertible note was entitled to 100,000 incentive options, exercisable at $AUD0.0324 and expiring 8
September 2019. During the year, $AUD11,737 of interest was paid, and recognised as an expense, on the convertible notes
held. At 30 June 2018, the Group owed $AUD5,236 to Mars Capital Australia Pty Ltd for unpaid interest.
• During the year, Irwin Biotech Nominees Pty Ltd, a company controlled by Non-Executive Chairman Peter Rubinstein, was
issued 17 convertible notes, with a face value of $AUD10,000 each, convertible at $AUD0.027 each, as approved by
Shareholders on 25 August 2017. Each convertible note was entitled to 100,000 incentive options, exercisable at $AUD0.0324.
During the year, $AUD16,422 of interest was paid, and recognised as an expense on the convertible notes held. At 30 June
2018, the Group owed $AUD6,357 to Irwin Biotech for unpaid interest.
• During the year, Rip Opportunities Pty Ltd, a company controlled by Non-Executive Chairman Peter Rubinstein, was issued 10
convertible notes, with a face value of $AUD10,000 each, convertible at $AUD 0.027 each, as approved by Shareholders on
25 August 2017. Each convertible note was entitled to 100,000 incentive options, exercisable at $AUD 0.0324 and expiring 14
September 2019. Convertible notes have been converted during the year. During the year, $AUD2,589 of interest was paid
on the convertible notes held. At 30 June 2018, no amounts were owed to Rip Opportunities Pty Ltd as the notes have been
converted during the year.
18
• During the year, the Group paid Value Admin Pty Ltd, a company controlled by Non-Executive Chairman Peter Rubinstein,
$USD22,231 as part of Non–Executive Director fees.
Year ended 30 June 2017
• During the financial year 8,349,517 unlisted options exercisable at $AUD0.286, expiring on 30 June 2018, lapsed unexercised.
•
The financial effect of the options being forfeited is a credit to the accumulated losses in the current financial year of
$AUD642,360 based on the fair value of the options being initially accounted for at $AUD0.18 cents.
• DigitalX Limited paid Mpire Media Pty Ltd (a company controlled by former Director Zhenya Tsvetnenko) $AUD1,010 for the
reimbursement of office rent, computer, telephone and offices supplies incurred by the consolidated group. The consolidated
group shares an office with Mpire Media Pty Ltd in Perth, Western Australia.
• Digital CC Holdings Pty Limited paid Karis Holdings Inc (a company controlled by former Director Alex Karis) $USD30,226 for
the reimbursement of office rent, computer and offices supplies, legal expenses incurred by the consolidated group, domain
names, telephone and administration staff reimbursements for the personnel in the Boston office. The consolidated group
shares an office with Karis Marketing Group in Boston, Massachusetts and these costs incurred by the consolidated group
were charged through Karis Holdings Inc.
• Digital CC Limited paid Sibella Capital Pty Ltd (a company controlled by former Director Brett Mitchell) $AUD3,000 as part of
non–executive director fees.
• Digital CC USA LLC extended a $USD250,000 credit facility at 1.25% interest rate to Karis Holdings Inc, with $USD156,061 being
drawn down during the prior financial year, of which $USD152,000 was repaid during the year.
FUTURE REMUNERATION DEVELOPMENTS
Future Remuneration Developments
The Directors note at last year’s Annual General Meeting the
Remuneration Report passed unanimously on a show of
hands and there were no comments on the Remuneration
Report.
However, the Directors note recent trends and concerns
raised by investors in general around remuneration policies
and practices of public companies. With this in mind the
Group has commenced an independent remuneration
review with remuneration consultant, Crichton + Associates,
to review the Group’s remuneration framework. As a result,
a new framework is being developed, as set out in the
following page, with the view to being finalised prior to the
2018 AGM.
Benchmark
2019
The Group notes in the interim report received that the
actual remuneration proposed by the consultant was
total annual
approximately 34% higher
remuneration (TAR) proposed predominantly due to a lower
STI and LTI dollar component.
than
the
No remuneration recommendations were adopted for the
year ended 30 June 2018
TAR - DigitalX vs Benchmark
Fixed
At Risk - STI
At Risk - LTI
TAR by component (%)
11.7%
11.4%
76.8%
Fixed
At Risk - STI
At Risk - LTI
19
DIGITALX LTD (DCC) EXECUTIVE REMUNERATION STRATEGY
An appropriate balance of fixed
and at risk components
Attract, motivate and retain
executive talent required at
stage of development
The creation of reward differentiation
to drive performance
culture/behaviours
Shareholder value creation through
equity incentives that meet
contemporary design
Total Targeted Remuneration (TTR)
TTR is set by reference to the relevant
targets and market benchmarks
Fixed
At Risk
Total Fixed Remuneration (TFR)
Short Term Incentive (STI)
Long Term Incentive (LTI)
Fixed remuneration is set on
relativities reflecting
responsibilities, performance,
qualifications & experience
A new STI policy is under consideration
but aims to align rewards with
performance culture
Allocations in the past have been one
off and ad-hoc. A new LTI policy is
under consideration designed to align
with shareholder value creation and
contemporary standards
Remuneration will be delivered as
Base salary plus any allowances
(including superannuation, pension,
or relevant statutory entitlements).
STI will be paid and/or vest on
achievement of the performance
hurdle and completion of the
relevant performance period.
Annual LTI allocations be considered
under the new LTI policy being
considered.
Strategic Intent & Marketing Positioning
TFR in the early stages will be position
between 25th percentile and the
median compared to relevant market
data considering expertise and
performance in the role and will be
reassessed as the Group develops.
Performance incentive is directed to
achieve key strategic and financial
targets. TFR + STI opportunity is
intended to be positioned in the 3rd
quartile (Median to 75th) of relevant
benchmark reference group.
LTI is intended to provide a reward
for ‘out performance’ and align
executives with shareholder
interests. LTI opportunity to be
positioned at the top of the 3rd
quartile.
Total Targeted Remuneration (TTR)
TTR is intended to be positioned in the 3rd quartile (Median to 75th) compared to relevant market based comparisons. 4th
quartile TTR should only be achieved/targeted if demonstratable outperformance against key strategic and financial targets is
achieved by DigitalX and the relevant executive.
DEFINITIONS
Key management personnel
Those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or
indirectly, including any director (whether executive or otherwise) of that entity.
Remuneration of an officer or employee of a corporation
A benefit given to an officer or employee of a corporation is remuneration if and only if the benefit, were it received by a director of
the corporation, would be remuneration of the director for the purposes of an accounting standard that deals with disclosure in
companies' financial reports of information about directors' remuneration.
Remuneration committee
A committee of the board of directors of the company; and has functions relating to the remuneration of key management personnel
for the company.
Remuneration consultant
A person:
(a) who makes a remuneration recommendation under a contract for services with the company to whose key management personnel
the recommendation relates; and
(b) who is not an officer or employee of the company.
A remuneration recommendation
(a) a recommendation about either or both of the following:
a) for one or more members of the key management personnel for a company;
how much the remuneration should be;
i.
ii. what elements the remuneration should have; or
b) a recommendation or advice about a matter or of a kind prescribed by the regulations.
21
ASIC may by writing declare that s.9B(1) of the Corporations Act 2001 above does not apply to a specified recommendation or
specified advice, but may do so only if ASIC is satisfied that it would be unreasonable in the circumstances for the advice or
recommendation to be a remuneration recommendation. The declaration has effect accordingly. The declaration is not a legislative
instrument.
What is not a remuneration recommendation?
None of the following is a remuneration recommendation (even if it would otherwise be covered by subsection (1)):
(a) advice about the operation of the law (including tax law);
(b) advice about the operation of accounting principles (for example, about how options should be valued);
(c) advice about the operation of actuarial principles and practice;
(d) the provision of facts
(e) the provision of information of a general nature relevant to all employees of the company;
(f) a recommendation, or advice or information, of a kind prescribed by the regulations.
AGM
means an annual general meeting of a company that section 250N requires to be held.
END OF AUDITED REMUNERATION REPORT
Directors’ Meetings
During the current financial period, the Board decided that given the size and scale of operations, that the full Board undertakes the
roles undertaken by Audit and Risk Committee, Remuneration Committee and Nomination Committee.
The Directors attendances at Board meetings held during the year were:
Director
Peter Rubinstein1
Sam Lee2
Toby Hicks
Faisal Khan3
Leigh Travers
1 Peter Rubinstein was appointed effective 15 September 2017.
2 Sam Lee was appointed effective 15 September 2017.
3 Faisal Khan resigned effective 23 November 2017.
Shares under option
Board Meetings
Number eligible to attend
7
7
9
3
9
Number attended
7
7
9
2
9
As at the date of this report, there are 48,571,953 options to subscribe for unissued ordinary shares in the Company, comprising:
Date options granted
Vesting
Date
Option class
Exercise price of
options
Expiry date of
options
Number of shares
under option
22
1 September 2017
30 August 2018
1 September 2018
8 September 2018
8 September 2017
18 September 2018
-
-
-
-
-
-
Unlisted
$0.0324
1 September 2019
100,000
Unlisted
$0.0324
30 August 2020
24,691,358
Unlisted
$0.0324
1 September 2020
6,172,840
Unlisted
$0.0324
8 September 2020
6,107,755
Unlisted
$0.0324
8 September 2019
2,700,000
Unlisted
$0.0324
18 September 2020
8,800,000
The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest issue of the
Company or any other body corporate or registered scheme.
Shares issued on exercise of options
During the Financial year and to the date of this report the Company issued 89,136,174 Ordinary Shares, on exercise of options.
Date
Details
Issue Price A$
Number of Shares
1 September 2017
8 September 2017
12 September 2017
14 September 2017
22 September 2017
22 September 2017
4 October 2017
9 October 2017
31 October 2017
3 November 2017
3 November 2017
8 November 2017
14 November 2017
14 November 2017
17 November 2017
17 November 2017
24 November 2017
24 November 2017
24 November 2017
1 December 2017
12 December 2017
22 December 2017
9 January 2018
9 January 2018
19 January 2018
25 January 2018
2 February 2018
16 February 2018
14 March 2018
11 April 2018
7 August 2018
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
Unlisted
0.08
0.0324
0.0324
0.0324
0.0324
0.0324
0.0324
0.0324
0.0324
0.08
0.0324
0.08
0.08
0.0324
0.08
0.0324
0.08
0.0324
0.0324
0.08
0.08
0.08
0.08
0.0324
0.08
0.08
0.08
0.08
0.0324
0.0324
0.0324
23
500,000
5,700,000
4,000,000
600,000
1,000,000
4,000,000
246,914
917,284
9,597,284
3,725,000
620,000
4,450,000
4,357,500
17,000,000
405,000
11,308,519
375,000
6,700,000
2,000,000
700,000
160,000
685,000
35,000
246,914
4,220,000
595,000
215,000
517,500
246,914
925,925
3,086,420
Shares under Convertible notes
As at the date of this report, there are no convertible notes issued that are convertible to ordinary shares in the Company as all
outstanding notes have converted subsequent to 30 June 2018 as set out in the table below:
Shares issued on conversion of Convertible notes
During the Financial year, and to the date of this report the Company issued 46,296,294 Ordinary Shares, on conversion of
Convertible notes.
Date
Notes converted
Value of note
Number of Shares
Issue Price A$
31 August 2017
1 September 2017
5 September 2017
12 September 2017
14 November 2017
18 September 2018
26
24
20
1
10
44
Indemnification of officers and auditors
$AUD10,000
$AUD10,000
$AUD10,000
$AUD10,000
$AUD10,000
$AUD10,000
9,629,629
8,888,889
7,407,407
370,370
3,703,704
16,296,295
0.027
0.027
0.027
0.027
0.027
0.027
During the financial period, the Company paid a premium in respect of a contract insuring the Directors, secretary and officers of the
Company and of any related body corporate against a liability incurred as such a Director, Secretary or Officer to the extent permitted
by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the
premium.
24
The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the
officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in
connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by
the officers or the improper use of their position or of information to gain advantage for themselves or someone else or to cause
detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs
and those relating to other liabilities.
The Company has executed a Deed of Protection for each of the Directors. The Company has not otherwise, during or since the
financial period, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a
liability incurred as such an officer or auditor.
Non-audit services
Amounts of $AUD 15,875 were paid to the auditor for non-audit, tax compliance services provided during the period. No amounts are
payable as at the date of this report. Full details of amounts paid to the audit, Grant Thornton Audit Pty Ltd are set out in Note C4.
The Board of directors has considered the position is satisfied that the provision of the non-audit services is compatible with the
general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision
of non-audit services by the auditor, as noted above, did not compromise the auditor independence requirements of the Corporations
Act 2001 none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics
for Professional Accountants.
Auditor’s Independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 27.
Auditor
Grant Thornton Audit Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001.
The Directors’ Report is signed in accordance with a resolution of the Directors made pursuant to Section 298(2) of the Corporations
Act 2001.
On behalf of the Board of Directors.
Leigh Travers
Managing Director and CEO
Perth, 28 September 2018
25
In the opinion of the Directors of DigitalX Limited (the ‘Company’):
(a)
the financial statements, notes and the additional disclosures of the consolidated entity set out on pages 32 to 86 are in
accordance with the Corporations Act 2001 including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2018 and of its performance for the
period then ended; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001; and
(b)
(c)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable.
the financial statements and notes thereto are in accordance with International Financial Reporting Standards, as stated in Note
B1 to the financial statements.
This declaration has been made after receiving the declarations required to be made to the Directors in accordance with Section 295A
of the Corporations Act 2001 for the financial period ended 30 June 2018.
Signed in accordance with a resolution of the Directors made pursuant to Section 295(5) of the Corporations Act 2001.
On behalf of the directors
26
Leigh Travers
Managing Director and CEO
Perth, 28 September 2018
27
28
29
30
31
Revenue from operations
Net gain on digital assets
Other Income
Professional and consultancy fees
Corporate expenses
Advertising, media and investor relations
Employee benefit expenses
Share based payments – employee benefits
Depreciation
Intangible asset impairment
Realised and unrealised foreign exchange losses
Fair value adjustment of derivative liability
Impairment of investments and other assets
Interest expense
Finance costs
Other expenses
Equity accounted share of profit from joint venture
Profit/(Loss) before tax
Income tax benefit/(expense)
Profit/ (Loss) after income tax from continuing operations
Profit/(Loss) from discontinued operations
e
t
o
N
C3
C3
C3
C4
E2
D6
D5
C4
D5
C5
C2
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
8,211,408
1,685,053
9,398
(2,020,899)
(334,831)
(249,875)
(1,597,924)
(1,285,386)
(12,295)
-
(270,259)
-
(511,059)
(54,268)
(682,036)
(521,697)
37,144
-
18,141
28,992
(521,096)
(221,425)
(333,886)
(853,607)
(109,729)
(13,057)
(953,653)
(25,141)
20,197
-
-
(224,335)
(395,929)
-
32
2,402,473
(3,584,528)
-
-
2,402,473
(3,584,528)
40,748
(389,233)
Profit/(Loss) for the period
2,443,221
(3,973,761)
Profit/(Loss) attributable to:
Members of the parent entity
Non-controlling interests
2,595,834
(152,613)
2,443,221
(3,973,761)
-
(3,973,761)
e
t
o
N
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
Profit/(Loss) for the period
2,443,221
(3,973,761)
Other comprehensive income for the period
Items that may be reclassified to profit or loss
Exchange differences on translation of operations
Other comprehensive income for the period, net of tax
(2,561)
(2,561)
-
-
Total comprehensive income for the period
2,440,660
(3,973,761)
Total comprehensive income/(loss) attributable to:
Members of the parent entity
Non-controlling interests
Profit/(Loss) per share attributable to the ordinary equity holders
of the parent:
Basic earnings/(loss) per share (cents)
Earnings per share from continuing operations
Earnings per share from discontinued operations
Total
Diluted earnings/(loss) per share (cents)
Earnings per share from continuing operations
Earnings per share from discontinued operations
Total
C6
C6
2,579,947
(139,287)
2,440,660
(3,973,761)
-
(3,973,761)
33
0.006
0.000
0.006
0.005
0.000
0.005
(0.018)
(0.002)
(0.02)
(0.018)
(0.002)
(0.02)
The accompanying notes form part of these financial statements.
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Digital assets
Total Current Assets
NON-CURRENT ASSETS
Investments
Property, plant and equipment
Intangible assets
Total Non-Current Assets
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Derivative financial instruments
Interest bearing liabilities
Total Current Liabilities
TOTAL LIABILITIES
NET ASSETS/(NET ASSET DEFICIENCY)
EQUITY
Contributed equity
Reserves
Retained earnings/(losses)
Capital & reserves attributable to owners of DigitalX
Non-controlling interests
TOTAL EQUITY
The accompanying notes form part of these financial statements.
e
t
o
N
D3
C3
D4
D5
E1
E2
C4
D6
D6
F1
F2
F2
30 June 2018
$USD
30 June 2017
$USD
5,772,287
1,295,844
4,500,282
11,568,413
56,581
502
49,519
106,602
232,225
89,320
10,034
331,579
-
10,832
49,519
60,351
11,675,015
391,930
34
574,696
-
281,446
856,142
362,385
121,026
414,172
897,583
856,142
897,583
10,818,873
(505,653)
30,431,588
832,033
22,653,332
396,194
(20,959,347)
(23,555,180)
10,304,274
514,599
10,818,873
(505,653)
-
(505,653)
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Other income
Interest paid
Proceeds from sale of bitcoin
Payment for purchase of bitcoin
Payments for power and hosting
Net cash provided by/(used in) operating activities
Cash flows from investing activities
Payment for intellectual property
Acquisition of property plant and equipment
Payment for investments including digital assets in fund
Payment for deposits
Loan to related party
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of equity securities
Proceeds from issue of units in fund
Proceeds from borrowings
Proceeds from issue of convertible notes
Other (Share Buy-back)
Payments for share issue costs
Net cash (used in)/provided by financing activities
e
t
o
N
Year ended
30 June 2018
$USD
4,585,891
(2,532,763)
212,493
(60,000)
-
(135,068)
(5,000)
2,065,553
-
(1,883)
(1,449,535)
(11,683)
-
(1,463,101)
3,762,469
1,366,773
-
225,188
-
(180,550)
5,173,840
Year ended
30 June 17
$USD
-
(2,609,050)
14,039
-
8,964,809
(8,391,084)
(199,455)
(2,220,741)
(806,547)
(3,414)
-
-
152,000
(657,961)
1,829,410
-
239,124
530,352
(394,117)
(117,409)
2,087,360
35
Net increase/ (decrease) in cash and cash equivalents
5,776,292
(791,342)
Cash and cash equivalents at beginning of period
Foreign exchange movement in cash
Cash and cash equivalents at end of period
D3
232,225
(236,230)
5,772,287
1,042,289
(18,722)
232,225
The accompanying notes form part of these financial statements.
Reconciliation of operating cashflows to net profit
Profit/(loss) after income tax
Non-cash flows in profit/(loss)
Net fair value (gain)/ loss on digital assets
Loss of coins on exchange
Intangible asset impairment
Depreciation
Employee share issue
Fair value adjustment of debt conversion options
Fair value adjustment of investments
Finance costs
Restoration provision write-down
Other non-cash (income)/expenses including foreign exchange
Change in assets and liabilities, net the effects of purchase of
subsidiaries
Decrease/(increase) in trade and other receivable
(Decrease)/increase in trade payables and accruals
(Decrease)/increase in tax payable
e
t
o
N
Year ended
30 June 18
$USD
Year ended
30 June 2017
$USD
2,443,221
(3,971,761)
(1,685,053)
-
-
12,295
1,285,386
-
511,059
682,036
-
(189,176)
3,059,768
(1,206,524)
212,310
-
184,577
47,331
953,653
13,057
109,729
(20,197)
-
205,782
(103,981)
(347,808)
(2,931,615)
884,931
(174,056)
-
36
Net cash provided by/(used in) operating activities
2,065,553
(2,220,741)
Non-cash investing and financing activities
During the year the Group announced that it had invested $AUD750,000 into the DigitalX Fund. This amount comprised $AUD631,000
in cash payment included in the consolidated cashflows under payment for investments including digital assets in fund. The remaining
amount of $AUD131,000 was invested by way of cryptocurrencies. As the Group controls the DigitalX Fund this amount is eliminated
on consolidation in accordance with principles set out in Note G1.
Consolidated Group
Balance at 1 July 2017
Profit/(Loss) for the year
Other comprehensive income
Total comprehensive income for the period
Shares issued during the period
Units issued during the period
Share issue costs
Share based payment expense
Share options issued
Contributed
Equity
$USD
22,653,332
-
-
-
7,759,367
-
(394,036)
-
-
Share options and performance rights converted
375,754
(375,754)
Equity component of convertible note
Early conversion of convertible note
-
37,171
78,465
(15,785)
Reserves1
$USD
Retained
Earnings/(Losses)
$USD
Total
$USD
Non-controlling
interest
$USD
Total
$USD
396,194
(23,555,180)
(505,653)
-
(505,653)
-
2,595,834
2,595,834
(152,613)
2,443,221
(15,887)
-
(15,887)
13,326
(2,561)
(15,887)
2,595,834
2,579,947
(139,287)
2,440,660
-
-
-
350,294
414,506
-
-
-
-
-
-
-
-
7,759,367
-
7,759,367
37
-
653,887
653,886
(394,036)
350,294
414,506
-
37
78,465
21,386
-
-
-
-
-
-
(394,036)
350,294
414,506
-
78,465
21,386
Balance at 30 June 2018
30,431,588
832,033
20,959,346
10,304,274
514,600
10,818,874
1 Refer to Note F2 for reconciliation of reserve balances.
The accompanying notes form part of these financial statements.
Consolidated Group
Balance at 1 July 2016
Loss for the year
Other comprehensive income
Total comprehensive income for the period
Shares issued during the period
Share issue costs
Share buy-back and cancellation
Buy-back costs
Share options issued
Share options and performance rights lapsed
Balance at 30 June 2017
Contributed
Equity
$USD
21,249,214
Reserves1
$USD
Retained
Earnings/(Losses)
$USD
Total
$USD
642,360
(20,223,779)
1,667,795
-
-
-
1,939,140
(138,320)
(394,117)
(2,585)
-
-
-
-
-
-
-
-
-
396,194
(642,360)
38
(3,973,761)
(3,973,761)
-
-
(3,973,761)
(3,973,761)
-
-
-
-
-
1,939,140
38
(138,320)
(394,117)
(2,585)
396,194
642,360
-
22,653,332
396,194
(23,555,180)
(505,653)
Management are pleased to note that as part of the preparation of the Annual Report for the year ended 30 June 2018 the ordering,
layout, and information presented in the notes to the financial statements has been improved in an attempt to increase the
usability, readability, and transparency of disclosures to stakeholders and other users of the financial statements.
The notes to the financial statements have been set out under the following main headings:
A. Legend
B. Basis for preparation (B1)
C. Key operating results (C1 to C6)
D. Capital & risk management (D1 to D6)
E. Financial position (E1 to E2)
F. Equity (F1 to F2)
G. Group structure (G1 to G3)
H. Other disclosures (H1 to G4)
CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
39
Critical judgements in developing and applying accounting policies
The following are the critical judgements, apart from those involving estimations (see Notes below), that the Directors
have made in the process of applying the Group’s accounting policies and that have the most significant effect on the
amounts recognised in the consolidated financial statements.
• Note C3 – Revenue recognition from cryptocurrency related transactions including, bitcoin mining and ICOs
• Note D4 – Digital assets including bitcoin inventory
• Note D4 – Fair value of digital assets
• Note E2 – Capitalisation intangibles and impairment
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the
end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
• Note C5 – Multijurisdictional taxation of operations
• Note E2 – Valuation of share based payments
KEY AUDIT MATTER
Item is a key audit matter referenced in the Auditor’s Report on Page 28.
ADDITIONAL COMMENTARY
Additional management commentary on the item has been provided above what is required under legislation or
accounting standards for stakeholders to understand the financial report
The section below includes information regarding how the overall financial statements are prepared including key accounting
policies, accounting standard frameworks applied.
CORPORATE INFORMATION
The consolidated historical financial statements of DigitalX Limited and its controlled entities (collectively, the Consolidated Entity or
Group) for the year ended 30 June 2018 were authorised for issue in accordance with a resolution of the Directors on 28 September
2018.
DigitalX Limited (the Company or the parent) is a company limited by shares incorporated in Australia whose shares are publicly traded
on the Australian Securities Exchange. The Company is a for-profit entity.
The nature of the operations and principal activities of the Group are described in the Directors’ Report. Information on the Group’s
structure is provided in Note G1. Information on other related party relationships is provided in Note H1.
The Company’s Corporate Governance Statement for the 2018 financial year can be accessed at: https://DigitalX.com/corporate-
governance/.
B1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation of the financial report are set out below. These policies have been
applied consistently to all periods presented in the financial report excepted as described in Note C3. These accounting policies are
consistent with Australian Accounting Standards and with International Financial Reporting Standards.
Basis of preparation
40
The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards
(AASs) and interpretations issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. All amounts
are presented in United States Dollars, unless otherwise noted.
Compliance with IFRS
The consolidated financial report of the Group also complies with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
Historical cost convention
The consolidated financial report has been prepared under the historical cost convention, except for bitcoin holdings inventory that
are measured at fair value at the end of each reporting period, as explained in the accounting policies below. Cost is based on the fair
value of the consideration given in exchange for assets.
Going concern
At the date of this report the consolidated entity’s has a strong working capital position and its cash flow forecast indicates that it
expects to be able to meet its minimum commitments and working capital requirements for the twelve month period from the date
of signing the financial report.
Presentation and functional currency
Presentation currency
The consolidated financial report is presented in United States Dollars.
Functional currency
The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which
the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial
position of each group entity are expressed in United States dollars (‘$USD’), which is the functional currency of the Company and the
presentation currency for the consolidated financial statements. Due to the nature of these activities for all entities in the Group the
functional currency has been determined to be $USD.
In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional
currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each
reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-
monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date
when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not
retranslated.
The Group continues to monitor its exposure and dealings in various currencies including $USD, $AUD, $HKD and has considered
that for the year ended 30 June 2018 that $USD is the most appropriate currency for the Group’s reporting as the predominant
currency for revenue generating activities has been $USD combined with the material US operations. The Group will continue to
assess the relevant of that assessment each reporting period.
Current and Non-Current classification
The Group presents assets and liabilities in the statement of financial position based on current/non-current classification.
An asset as current when it is:
expected to be realised or intended to be sold or consumed in normal operating cycle;
•
• held primarily for the purpose of trading;
•
•
expected to be realised 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.
41
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The section below includes information regarding how the Group performed during the financial year including segment analysis
and detailed breakdowns of items in the Statement of Profit or Loss and Other Comprehensive Income.
This section includes the following disclosures:
C1 Segment Information (Page 43)
C2 Discontinued Operations (Page 46)
C3 Revenue & Receivables (Page 49)
C4 Expenses, Payables & Other Assets (Page 50)
C5 Income Tax (Page 52)
C6 Earnings Per Share (Page 56)
42
C1 SEGMENT INFORMATION
Segment reporting
AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to
allocate resources to the segment and to assess its performance.
Based on the information used for internal reporting purposes by the Chief Operating Decision Maker (CODM), being the Board which makes strategic decisions, at 30 June 2018 the group
operated three.
With the change in the Group’s service offerings the Group now has 3 reportable segments; ICO Advisory, funds under management and Technology. The Group does report media and marketing
as a segment as the Group’s interest in these activities is via a joint venture as disclosed in Note D5. In the previous corresponding period (period ended 30 June 2017) the Group had 1 reportable
segment, software development which has been renamed technology in the current reporting period.
Segment description
43
ICO & STO ADVISORY
The Group provides advisory services specialising in three main categories; technical
due diligence, marketing and promotion, and introductions to DigitalX’s network.
TECHNOLOGY
The Group has previously been engaged in the development of a mobile application
remittance software, “AirPocket”. The development activities are part of an internal
project, with costs incurred both by an internal software development team and
through the outsourcing of development activities to external contractors.
FUNDS UNDER MANAGEMENT (FUM)
The FUM division was setup in 2018 to give high net worth and institutional investors
access to a portfolio of cryptoassets. DigitalX’s first fund invests predominantly in the
leading cryptocurrencies, with a smaller allocation towards special trading
opportunities including ICOs.
UNALLOCATED
Amounts disclosed in the unallocated segment primarily relates to Group-level
functions including governance, finance, legal, risk management and company
secretarial.
SEGMENT PERFORMANCE
Segment reporting ($USD)
ICO & STO ADVISORY
30 June
2018
30 June
2017
FUNDS UNDER
MANAGEMENT2
30 June
2018
30 June
2017
TECHNOLOGY
UNALLOCATED
TOTAL
30 June
2018
30 June
2017
30 June
2018
30 June
2017
30 June
2018
30 June
2017
Results
Segment revenue
Profit/(Loss) before income tax
Income tax expense/(benefit)
Profit/(Loss) after income tax
from continuing operations
Profit/(Loss) from discontinued operations
Profit/(Loss) attributable to members
of the parent entity
8,211,408
6,441,782
-
6,441,782
-
6,441,782
Other
Equity accounted share of profit from joint venture
-
Profit/(loss) after income tax
Reconciliation of underlying EBITDA
Interest
Taxation
Depreciation
Amortisation
EBITDA
-
-
-
-
-
-
-
-
(141,391)
-
(141,391)
-
(141,391)
-
-
-
-
-
-
-
-
-
-
-
-
8,211,408
-
(123,075)
(860,027)
(3,811,986)
(2,724,501)
2,365,330
(3,584,528)
-
-
-
-
-
(123,075)
(860,027)
(3,811,986)
(2,724,501)
2,365,330
(3,584,528)
-
-
-
-
40,748
(389,233)
44
(123,075)
(860,027)
(3,811,986)
(2,724,501)
2,406,078
(3,973,761)
-
-
-
-
37,143
-
2,443,221
(3,973,761)
54,268
18,552
-
-
12,295
13,057
-
-
2,509,784
(3,942,152)
1Revenue earned from external customers by geography and major customer information is not able to be disclosed as the information is not available to the Group.
2 For the purpose of segment reporting the Funds Under Management segment does not include the operating results, segment assets or segment liabilities of the DigitalX Fund as CODM reviews the fund on a fair value basis of the Group’s
interest in the fund as disclosed in Note D5.
SEGMENT POSITION
Segment reporting ($USD)
Assets
Segment assets
Total assets
Assets pertaining to discontinued operations
Liabilities
Segment liabilities
Total liabilities
Liabilities pertaining to discontinued operations
30 June
2018
965,113
965,113
-
23,136
23,136
-
ICO ADVISORY
FUNDS UNDER
MANAGEMENT
TECHNOLOGY
UNALLOCATED
TOTAL
30 June
2017
30 June
2018
30 June
2017
30 June
2018
30 June
2017
30 June
2018
30 June
2017
30 June
2018
-
-
-
-
-
-
-
-
-
24,666
24,666
-
-
-
-
-
-
-
49,519
49,519
49,519
10,660,383
301,662
11,675,015
49,519
10,660,383
301,662
11,675,015
-
-
-
-
-
-
-
-
-
-
-
40,749
808,399
808,399
1,046,128
1,046,128
856,141
856,141
1,046,128
1,046,128
-
-
-
5,000
45
30 June
2017
351,181
351,181
C2 DISCONTINUED OPERATIONS
Wind up of Bitcoin mining operations
On 8 January 2017 the Group and the Bitcoin mining power and hosting provider Verne had actioned an amendment to the master service agreement between the two parties, releasing the
Group as at 2 June 2017 from any future financial obligation as was stipulated under the master service agreement.
The termination of the master service agreement marked the full wind up of the bitcoin mining operations.
Wind up of Bitcoin trading operations
In December 2016, the Group started to wind down its Bitcoin trading operations to concentrate resources on its flagship product AirPocket. Concurrently, active discussions were being held
with interested parties to leverage the knowledge, trading platform and customer base of DigitalX Direct.
On 7 February 2017, the Group announced that it has entered into a binding agreement with Blockchain Group Limited (BGL), owner of ACX.io, the largest Bitcoin exchange in Australia by volume
and order book. The Group has wound down its DigitalX Direct operations by introducing DigitalX Direct customers to BGL in consideration for which it will receive 50% of all profit for customers
introduced to the BGL owned ACX, digital currency exchange over a five-year term.
Analysis of profit or loss for the year from discontinued operations
46
The combined results of the discontinued operations (i.e. Bitcoin mining and Bitcoin trading) included in the loss for the year are set out below. The comparative profit and cash flows from
discontinued operations have been re-presented to include those operations classified as discontinued in the current year
Revenue from bitcoins mined
Trading desk bitcoin sales
Trading desk bitcoin purchases
Net fair value gain/(loss) on bitcoin inventory held
Other Income
Power and hosting expenses
Hardware Repair expense
Depreciation
Employee benefit expenses
Loss of cash on exchange
Bad debtors expense
Profit/(Loss) before income tax
Attributable income tax benefit
Trading
Period ended
30 June 2018
$USD
-
-
-
-
-
-
-
-
-
-
40,748
40,748
-
Period ended
30 June 2017
$USD
-
8,012,035
(7,913,143)
(202,719)
-
-
-
-
(128,803)
(47,331)
(109,096)
(389,058)
-
Profit/(Loss) for the year from discontinued operations
(attributable to owners of the Company)
40,748
(389,058)
Cash flows from discontinued operations
Net Cash Inflows/(Outflows) from Operating activities
Net Cash Inflows from Investing activities
Net Cash Inflows from Financing activities
Net Cash Inflows/(Outflows)
-
-
-
-
487,092
-
-
487,092
Mining
Period ended
30 June 2018
$USD
Period ended
30 June 2017
$USD
Total
Period ended
30 June 2018
$USD
-
-
-
-
-
-
(175)
-
-
-
-
(175)
-
-
-
-
-
-
-
-
-
-
-
40,748
40,748
-
Period ended
30 June 2017
$USD
-
8,012,035
(7,913,143)
(202,719)
-
-
(175)
-
(128,803)
(47,331)
(109,096)
(389,233)
-
47
(175)
40,748
(389,233)
(199,455)
-
-
(199,455)
-
-
-
-
287,637
-
-
287,637
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Current assets:
Trade and other receivables
Inventories
Assets pertaining to discontinued operations
Current liabilities:
Trade and other payables
Accrued expenses
Liabilities pertaining to discontinued operations
Trading
Period ended
30 June 2018
$USD
Period ended
30 June 2017
$USD
Mining
Period ended
30 June 2018
$USD
Period ended
30 June 2017
$USD
Total
Period ended
30 June 2018
$USD
Period ended
30 June 2017
$USD
-
-
-
-
-
-
40,749
-
40,749
-
-
-
-
-
-
-
-
-
-
-
-
5,000
-
5,000
-
-
-
-
-
-
40,749
-
40,749
5,000
-
5,000
48
C3 - REVENUE & RECEIVABLES
Policy - Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be
reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received
or receivable, taking into account contractually defined terms of payment, if any, and excluding taxes or duty.
Revenue is recognised when the specific recognition criteria described below have been met:
A. Bitcoin Mining (Prior year)
The Group has determined that the substance of its Bitcoin mining activities is service provision under the scope of AASB 118 Revenue
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 Bitcoin protocol. Furthermore, the nature of the Bitcoin protocol is such that the Group is
unable to determine in advance the consideration that it will receive, if any. Revenue earned from Bitcoin processing activities is
recognised at the fair value of the Bitcoins received as consideration on the date of actual receipt, fair value being measured using
the closing price of Coin Market Cap.
B. Liquidity Desk, DigitalX Direct and Market Making Transaction
Revenue from the sale of bitcoins through the Liquidity Desk, DigitalX Direct and Market Making is recognised when the Group
transfers the risks and rewards of ownership of the bitcoins to its customers. The transfer of the bitcoins is completed through the
issue of electronic instructions to the bitcoin network to facilitate the transfer and the transaction is recorded into the Blockchain.
Cost of sales on transactions in Liquidity desk, DigitalX Direct and Market Making represents the fair value of bitcoins purchased in
the market on the date of sale. Any fair value movements arising between date of purchase of bitcoins and the date of sale are
included in the net fair value gains and losses on bitcoin inventory in the statement of profit or loss and other comprehensive income.
No trading revenue is recognised on the sale of mined bitcoins which are either sold on an exchange (i.e. not an over the counter
transaction) or utilised as an exchange medium in place of fiat currency. Accordingly the amounts included on the statement of profit
or loss and other comprehensive income in relation to mined bitcoins is revenue from bitcoin mining and net fair value gain and loss
on bitcoin inventory held for trading.
49
Revenue activities from bitcoin mining and liquidity desk have been wound down as set out in Note C2.
C. ICO Advisory
The Group provides consulting services for its customers, assisting in the customers’ sale of its digital assets, with the sale being
conducted as an ICO or a Pre-ICO. In either case, these services are rendered over a period of time until the close of the sale. For the
provisioning of its consulting services, the Group is remunerated by its customers through the distribution of cash, the customers’
digital asset, other digital assets, or a combination of these sources.
The Group recognises ICO consulting revenue when all of the following are met:
•
•
•
Its services have been fully rendered under contract and the Group no longer has any continuing involvement in the sale of digital
assets by its customers;
The digital asset’s value is measurable, which is determined:
o by referencing publicly available pricing data from digital asset exchanges; or
o
for those digital assets not yet listed on exchanges, by referencing the results of the ICO or Pre-ICO (i.e. the unit price of
a digital asset can be measured by dividing the dollar amounts raised in the ICO by the number of units issued in the ICO).
The Group measures its ICO consulting revenue at the fair value of the consideration. Where digital assets are received, the fair
value is determined with reference to the price of the digital asset on the date at which the digital asset is transferred to the
Group’s wallet or exchange account.
D. Interest revenue
Interest income is recognised on a time proportion basis that takes into account the effective yield on the financial asset.
Revenue
ICO consulting
Blockchain Consulting
Total revenue
Trade and other receivables
Trade receivables (gross)1,2
Allowance for doubtful accounts
Trade receivables – Net
Other receivables
Statutory tax receivable
Loan to a related party
Other
Total trade and other receivables
Year ended
30 June 2018
$USD
8,035,852
175,556
8,211,408
Year ended
30 June 18
$USD
1,037,624
-
1,037,624
86,972
5,932
165,316
1,295,844
Year ended
30 June 2017
$USD
-
-
-
Year ended
30 June 2017
$USD
81,497
(40,748)
40,749
12,064
5,932
29,009
87,754
50
1At 30 June 2018, $USD92,874 is considered past due but not impaired.
2 Included in the balance at 30 June 2018 is an amount $USD770,000 for token to be received from a customer pending a token
generation event (TGE) that has not yet occurred. Management are confident that based on the history of previous ICO
engagements and discussions with the customer the TGE will occur before the end of the calendar year.
Other Income
Interest received
Net fair value gain on digital assets held
Other income
Total other income
C4 - EXPENSES, PAYABLES & OTHER ASSETS
Policy - Trade and other payables
Year ended
30 June 2018
$USD
-
1,685,053
9,398
1,694,451
Year ended
30 June 2017
$USD
262
18,141
28,729
47,132
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are
unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as
current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value
and subsequently measured at amortised cost using the effective interest method.
Policy - Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting
date, taking into account the risks and uncertainties surrounding the obligation.
Policy - Employee benefits
Short-term and long-term employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick
leave when it is probable that settlement will be required and they are capable of being measured reliably.
Liabilities recognised in respect of short-term employee benefits, are measured at their nominal values using the remuneration rate
expected to apply at the time of settlement.
Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash
outflows to be made by the Group in respect of services provided by employees up to reporting date.
Policy - Goods and services, Value Added Tax, or Sales Tax
Amounts are recognised net of the amount of associated GST or VAT, except:
• where the GST or VAT incurred on a purchase of goods and services is not recoverable from the taxation authority, in which
case the GST or VAT is recognised as part of the cost of acquisition of the asset or part of the expense item as applicable; and
receivables and payables are stated with the amount of GST or VAT.
•
The net amount of GST or VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in
the balance sheet.
51
Cash flows are presented on a gross basis. The GST or VAT component of cash flows arising from investing or financing activities which
are recoverable from, or payable to, the taxation authority, are presented as operating cash flows.
Professional and Consultancy fees
Legal fees
Consulting fees
Tax consulting fees
Audit fees
Brokerage fees
Total professional and consultancy fees
Other expenses
Office and administration
Bank charges
Other expenses
Total other expenses
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
122,051
247,909
14,167
91,102
1,545,670
2,020,899
Year ended
30 June 2018
$USD
201,906
5,866
313,925
521,697
241,454
184,252
18,702
76,688
-
521,096
Year ended
30 June 2017
$USD
274,349
4,544
117,036
395,929
Current liabilities – trade & other payables
Trade payables
Accrued expenses
PAYG withholding payable
Remuneration of Auditors
Remuneration of the auditors of the Company for:
Grant Thornton Audit Pty Ltd
Audit and review of financial reports
Non-audit services – tax compliance
Non-audit services – consulting
C5 INCOME TAX
Policy - Income tax
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
377,682
187,768
9,244
574,694
169,774
183,182
9,430
362,385
Year ended
30 Jun 18
$USD
Year ended
30 Jun 17
$USD
78,626
12,476
-
91,102
76,688
9,958
4,608
91,254
52
The income tax expense or revenue for the period is the tax payable on the current period’s taxable income or tax loss based on the
applicable income tax rate for each jurisdiction.
Current tax
The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit before tax as reported in the
consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or
deductible in other periods and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that
have been enacted or substantively enacted by the end of the reporting period.
Deferred tax
Deferred tax is recognised on temporary 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
recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences
to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be
utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other
than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
In addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates,
and interests in joint ventures, 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. Deferred tax assets arising from deductible temporary
differences associated with such investments and interests are only recognised to the extent that it is probable that there will be
sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to 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 assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled
or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting
period. The measurement of deferred tax liabilities and assets 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 liabilities and assets 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.
Current and deferred tax for the period
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive
income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly
in equity, respectively.
Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the
accounting for the business combination.
Tax consolidation
The Company and its wholly-owned Australian tax resident entities are part of a tax-consolidated group under Australian taxation law.
The head entity within the tax-consolidated group is DigitalX Limited. Digital CC Holdings joined the DigitalX Limited tax consolidation
group on 26 May 2014.
Tax expense/income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax-
consolidated group are recognised in the separate financial reports of the members of the tax-consolidated group using the 'separate
taxpayer within group' approach, by reference to the carrying amounts in the separate financial reports of each entity and the tax
values applying under tax consolidation. Any current tax liabilities (or assets) and deferred tax assets arising from unused tax losses
of the wholly-owned entities are assumed by the head entity in the tax-consolidated group and are recognised as amounts payable
(or receivable) to (or from) other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts.
The head entity recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is
probable that future taxable profits of the tax-consolidated group will be available against which the assets can be utilised.
53
Estimates & Judgement – Taxation
Income taxes
The Group operates in a newly emerging industry and the application of taxation laws in Australia, the United States, Hong Kong and
previously Iceland (the principal countries in which the Group currently operates) in relation to the Group’s activities may change
from time to time. Changes in the taxation laws or in assessments or interpretation or decisions in respect of, but not limited to the
following, may have a significant impact on the Group’s results:
Jurisdiction in which and rates at which income is taxed;
Jurisdiction in which and rates at which expenses are deductible;
•
•
• The nature of income taxes levied, for example whether taxes are assessed on the revenue account or on the capital account;
• Requirements to file tax returns; and
• The availability of credit for taxes paid in other jurisdictions, for example through the operation of double taxation treaties
In recognition of the limited trading and tax history of the Group, management do not consider there is sufficient evidence of
probability of the ability to utilise temporary differences and tax losses and hence no deferred tax asset has been recognised as at 30
June 2018 in relation to these assets. The Group will continue to assess the performance and may in the future recognise some or all
of these assets.
The Group has taken the approach to calculate income tax expense on the basis that all revenue and expenses attributable to its
operations are taxable in Australia and all revenue and expenses attributable to its trading operations are taxable in the United States
in addition to certain employee costs incurred in the United States plus an appropriate mark-up.
A.
Income tax expense
Current tax expense / (benefit)
Deferred tax expense / (benefit)
Total income tax (benefit) in profit or loss
B. Numerical reconciliation of tax expense to prima facie tax payable
Profit/(Loss) before tax from continuing operations
Profit/(Loss) before tax from discontinued operations
Profit/(Loss) before tax
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
-
-
-
-
-
-
Year ended
30 June 2018
$USD
2,402,473
40,748
2,443,221
Year ended
30 June 2017
$USD
(3,584,528)
(389,233)
(3,973,761)
Tax at the Group’s statutory income tax rate of Australia: 27.5% (2017: 30%)
671,886
(1,192,128)
Tax effect of amounts which are not deductible or assessable (taxable) in
calculating taxable income:
Non-deductible share based payment
Non-deductible impairment losses
Non-deductible finance costs – convertible note
Profit from equity accounted investments
Other
Effect of different tax rates of subsidiaries operating in other jurisdictions
Unrealised gain on foreign exchange
Effect of timing expenses that are not deductible
Deferred tax assets not recognised1
Previously unrecognised tax losses now recouped to reduce tax expense
Income tax expense/(benefit)
Income tax expense/(benefit) is attributable to:
Profit/(Loss) from continuing operations
Profit/(Loss) from discontinued operations
54
-
286,096
-
-
8,864
(97,640)
-
-
994,808
-
-
-
-
-
353,481
13,165
148,803
10,214
1,580
10,627
1,010
7,434
202,888
(1,421,088)
-
-
-
-
1 Amount relates to tax losses incurred in US operations that cannot be applied to profits generated in Australia or entities outside
the tax consolidated group.
C. Current tax assets and liabilities
Current tax liability
Income tax payable
Total current tax liability
D. Deferred tax assets and liabilities
-
-
-
-
-
-
As at 30 June 2018 the Group has tax losses available to be applied in the future periods in the United States and Australia estimated
to be $USD4.5 million and $USD4.8 million respectively. The losses in respect of the Group’s operations in Hong Kong are immaterial.
In addition, the Group has gross capital losses in Australia estimated at $USD1.1 million at 30 June 2018. The Group reviews the
recoverability of tax losses each reporting period by reviewing the continuity of ownership test (COT) or Same Business Test (SBT) and
no adjustments have been made for the year ended 30 June 2018.
Other than those noted above and tax losses there are no other material temporary differences.
E. Other tax information
The tax rate used for the reconciliation above is the corporate tax rate of 27.5% payable by Australian corporate entities on taxable
profits under Australian tax law for entities with gross consolidated turnover of less than $AUD25,000,000.
Franking Account
Amounts recognised directly in equity
F. Future Developments
-
-
-
-
55
(i) The Group notes that on the 1 January 2018, the US corporate tax rate was lowered to a flat rate of 21% (2017: 35%) for financial
years commencing 1 January 2018. The impact of the rate change has been reflected in the Group’s income tax calculations in
Section B above. As the US operations currently has accumulated tax losses of $10.4m and therefore any change is not expected
to materially impact US tax, however, if and when the US operations become profitable the Group will benefit from the losses
accumulated.
(ii) The Group notes that from the 2019 financial year on, the corporate tax for Hong Kong will use a two-tier regime where profits
will be assessed at 8.25% for the first $HK2,000,000 and 16.5% (2017: 16.5%) above $HK2,000,000. The Group’s operations in
Hong Kong are immaterial and the effective of the rate is expected to immaterial.
(iii) The Group has commenced a transfer pricing update review between the Australian and US operations, the Group expects this
to be completed prior to the lodgement of the next tax returns in both the US and Australia. The impact to the consolidated
results arising from the difference in tax rates to be immaterial.
C6 - EARNINGS PER SHARE (EPS)
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit/(loss) after tax attributable to equity holders of the Company by the
weighted average number of ordinary shares outstanding during the period, adjusted for bonus elements in ordinary shares issued or
cancelled during the period.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in determination of basic earnings per share to take into account the after income
tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number
of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.
Basic earnings/(loss) per share (cents)
From continuing operations
From discontinued operations
Total
Diluted earnings/(loss) per share (cents)
From continuing operations
From discontinued operations
Total
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
0.006
0.000
0.006
0.005
0.000
0.005
(0.018)
(0.002)
(0.02)
1 (0.018)
1(0.002)
(0.02)
56
The earnings/(loss) used in the calculation of basic and diluted loss per share
are as follows:
From continued operations
From discontinued operations
Weighted average number of ordinary shares on issue during the period
used in the calculation of basic EPS
Adjustments for calculation of diluted EPS
Options
Performance rights
Convertible notes
2,555,086
40,748
(3,584,528)
(389,233)
421,293,051
198,937,819
42,858,373
1,000,000
8,800,000
-
-
-
Weighted average number of ordinary shares on issue during the period
used in the calculation of diluted EPS
473,951,423
198,937,819
1 Potential ordinary shares in the form of share options and rights are not considered to be dilutive. As the Group made a loss for the
prior period, diluted earnings per share is the same as basic earnings per share for that period.
The section below includes information regarding how the Group manages it capital assets including the positions at year end as
well as outlining the risks arising from market, price, liquidity and credit exposures. Finally the section covers how the Group
manages its equity position and movements during the year.
The section includes the following disclosures:
D1 Capital Management (Page 58)
D2 Financial Risk Management (Page 58)
D3 Cash & cash equivalents (Page 61)
D4 Digital Assets (Page 61)
D5 Investments (Page 62)
D6 Interest bearing liabilities and derivatives (Page 64)
57
D1 - CAPITAL MANAGEMENT
The Group’s objectives when managing capital are to:
•
Safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and
benefits for other stakeholders; and
• Maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital
to shareholders, issue new shares or sell assets to reduce debt.
D2 – FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks including but not limited to:
Foreign exchange risk;
Liquidity risk;
Interest rate risk;
•
•
•
• Credit risk; and
• Digital asset price risk
The Group’s and the Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to
minimize potential adverse effects on the financial performance of the Group. The Group uses different methods to measure different
types of risks to which it is exposed. The method used is sensitivity analysis for each of foreign exchange risk, liquidity risk and interest
rate risk.
The capital structure of the Group consists of equity attributable to equity holders of the Company, comprising issued capital, reserves
and retained earnings.
58
The Group holds the following financial assets and financial liabilities:
Financial Assets
Cash and cash equivalents
Trade receivables
Financial liabilities
Trade and other payables
Interest bearing liabilities
Derivative financial instruments
Foreign exchange risk
2018
$USD
5,772,287
1,037,624
6,809,911
377,682
281,446
-
659,128
2017
$USD
232,225
73,789
306,014
179,203
414,172
121,026
714,401
The Group and the parent entity operate internationally, and during the period were exposed to foreign exchange risk arising from
currency exposures, primarily with respect to the USD/AUD dollar rates.
Foreign exchange risks arise from future commercial transactions and recognized assets and liabilities that are denominated in a
currency that is not the entity’s functional currency. The risk is measured using sensitivity analysis and cash flow forecasting.
Management regularly monitors exposure to foreign exchange risk, but do not have a current hedging policy in place. It is intended
that this policy will be continuously assessed in line with funding requirements for each of the investment opportunities.
As of 30 June 2018, the Group had exposure to foreign currency risk within its recognised assets and liabilities. The Cash and cash
equivalents held $AUD7,556,476 (2017: $AUD253,210) in bank accounts. The Group has no derivative liabilities in $AUD (2017:
$AUD157,440) and interest bearing liabilities of $AUD440,000 (2017: $AUD547,959).
Group sensitivity – foreign exchange risk
Based upon the financial instruments held as at 30 June 2018, had the Australian dollar weakened/strengthened 10% against the US
dollar with all other variables held constant, the following impact on profit and or loss in noted:
Impact on profit of loss – 2018
Impact on profit or loss – 2017
Interest rate risk management
Fluctuation
+10%
$USD
(322,471)
(85,316)
-10%
$USD
322,471
85,316
The Group is exposed to interest rate risk as entities in the Group deposit funds at both short-term fixed and floating rates of interest.
The Group exposure to interest rates on financial assets and liabilities is detailed in the liquidity risk management section of this note.
Interest rate sensitivity
A change in interest rates would not have a material impact on the profit and equity for the current and previous periods of the Group
or the Parent entity.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, who oversee a liquidity risk management
framework for the management of the Group’s funding and liquidity management requirements. The Group manages liquidity risk by
continuously monitoring forecast and actual cash flows and ensuring there are appropriate plans in place to finance these future cash
flows.
59
Weighted
average
effective
interest rate
Less than 1
month
Interest
bearing -
variable
1 to 3 months
Interest
bearing -
variable
More than 3
months
Interest
bearing
liabilities
Less than 1
month
Non-interest
bearing
1 to 3 months
Non-interest
bearing
More than 3
months
Non-interest
bearing
%
$USD
$USD
$USD
$USD
$USD
$USD
5,772,287
-
-
-
-
-
15
-
-
-
(281,446)
-
-
-
-
-
-
(377,682)
-
-
267,624
-
-
-
770,000
-
-
0.036
-
-
12.3
232,225
-
-
-
5,932
-
(1,000,000)
-
-
(179,203)
-
67,857
-
-
-
-
-
2018
Cash and cash equivalents
Other receivables
Other payables
Interest bearing liabilities
2017
Cash and cash equivalents
Other receivables
Other payables
Interest bearing liabilities
5
The Liquidity and Interest rate risk table above has been drawn up based on the undiscounted cash flow (including both interest and
principal cash flows expected) using contractual maturities of financial assets and the earliest date on which the Group can be required
to pay financial liabilities. Amounts for financial assets include interest earned on those assets except where it is anticipated cash will
occur in a different period.
Credit Risk
Credit risk arises from cash and cash equivalents, deposits with banks and financial institutions, as well as credit exposures to
customers, including outstanding receivables.
Credit risk is managed on a group basis. For banks and financial institutions, the Group aims to hold deposit with independently rated
parties with a rating of ‘A’ or above based on S&P ratings. From time to time the Group may hold deposits with unrated institutions
(i.e. exchanges) after trading in digital assets. The Group’s credit risk exposure is set out below
Due to the nature of the customers the Group engages with rating are not common place. Credit risk is therefore factored into the
transaction price for services often in the form of bonus tokens or a discount to public token sale rate. At 30 June 2018 no customers
had a publish credit rating.
Credit risk
by rating
AA-
A
A-
BB
Unrated
Rating
AA-
A
A-
BB
Unrated
Total
$USD
5,507,458
4,175
11,309
4,124
1,282,844
6,809,910
Fair value measurement
The Group measures financial instruments and non-financial assets at fair value at each balance sheet date. Also, fair values of financial
instruments measured at amortised cost are disclosed. 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.
60
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 to 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, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
•
•
•
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable
Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers
have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
At 30 June 2018 all assets carried at fair value are deemed to be level 1 based on observable prices in an active market.
Fair value estimation
The Directors consider that the carrying amount of financial assets and financial liabilities, as recorded in the financial statements,
represent or approximate their respective fair values.
D3 CASH AND CASH EQUIVALENTS
Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call
with financial institutions, cash held with bitcoin exchanges, other short-term, highly liquid investments that are readily convertible
to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Cash and cash
equivalents do not include the Group’s holdings of digital assets which are classified as inventory (refer to D4).
Cash at bank
Cash deposits at call1
Total cash and cash equivalents
Year ended
30 June 18
$USD
5,772,211
76
5,772,287
Year ended
30 June 2017
$USD
232,225
-
232,225
1Cash deposits at call include cash balances on exchanges. The balance originates following a liquidation of digital assets. Refer to
Note D2 for information on liquidity and credit risk.
61
D4 - DIGITAL ASSETS
Digital Assets
Digital assets are cryptocurrencies such as Bitcoin and Ethereum, which use an open-source software-based online system where
transactions are recorded in a public ledger (blockchain) using its own unit of account. The Group is a broker-trader of bitcoin and
other coins as it buys and sells principally for the purpose of selling in the near future and generating a profit from fluctuations in price
or broker-traders’ margin. The Group measures digital assets at its fair value less costs to sell, with any change in fair value less costs
to sell being recognised in profit or loss in the period of the change. Amounts are derecognised when the Group has transferred
substantially all the risks and rewards of ownership. As a result of the various blockchain protocols, costs to sell are immaterial in the
current period and no allowance is made for such costs.
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.
Digital asset fair value measurement is a level 1 fair value as it is based on a quoted (unadjusted) market price (Coin Market Cap) in
active markets for identical assets.
Digital assets are derecognised when the Group disposes of the inventory through its trading activities or when the Group otherwise
loses control and, therefore, access to the economic benefits associated with ownership of the digital asset.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Estimates & Judgements
(a) Digital assets (including bitcoin inventory)
Management considers that the Group’s bitcoin and altcoins (any coin that is not bitcoin) are a commodity. As International Financial
Reporting Standards do not define the term ‘commodity,’
Management has considered the guidance in AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors (AASB 108)
that allows an entity to consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual
framework to develop accounting standards, other accounting literature and accepted industry practice to the extent that these do
not conflict with the requirements of the International Financial Reporting Standards and the International Accounting Standards
Board Conceptual Framework. Under United States Generally Accepted Accounting Principles (US GAAP) as set out in the Master
Glossary of the Accounting Standards Codification, a commodity has been defined as “products whose units are interchangeable, are
traded on an active market where customers are not readily identifiable, and are immediately marketable at quoted prices.” Based
on this definition and the guidance in AASB 108, management has therefore determined that Bitcoins are a commodity
notwithstanding that Bitcoins lack physical substance.
The Group’s activities include trading Bitcoins, primarily the buying and selling of Bitcoins and to a lesser extent trading in other Bitcoin
trading products and, therefore, subsequent to initial recognition, Bitcoin inventory (whether received as consideration for mining
activities or acquired through purchase) is held at fair value less costs to sell, reflecting the Group’s purpose of holding such Bitcoin
inventory as a commodity broker-trader in accordance with AASB 102 Inventories. As a result of the Bitcoin protocol, costs to sell
Bitcoin inventories are immaterial and no allowance is made for such costs. Changes in the amount of Bitcoin inventories based on
fair value are included in profit or loss for the period.
Bitcoin inventory is derecognised when the Group disposes of the inventory through its trading activities or when the Group otherwise
loses control, and, therefore, access to the economic benefits associated with ownership of the Bitcoin inventory. Inventory shrinkage
arising from denial of access to the economic benefits associated with ownership of Bitcoin inventory are recognised as an expense
in profit or loss on identification.
(b) Fair value of Digital Assets
Digital assets (including bitcoin inventory) is measured at fair value using the quoted price in United States dollars on the Coin Market
Cap (www.coinmarketcap.com) at closing Coordinated Universal Time. Management considers this fair value to be a Level 1 input
under the AASB 13 Fair Value Measurement fair value hierarchy as the price on the quoted price (unadjusted) in an active market for
identical assets. Management uses a number of exchanges including Binance, KuCoin, Independent Reserve and others in order to
provide the Group with appropriate size and liquidity to provide reliable evidence of fair value for the size and volume of transactions
that are reasonably contemplated by the Group.
62
Bitcoin1
Other listed digital assets1,2
Non listed digital assets3
Total Digital Assets
Year ended
30 June 2018
$USD
2,764,706
1,494,484
241,092
4,500,282
Year ended
30 June 2017
$USD
10,034
-
-
10,034
1 Digital assets were measured at fair value using the closing price per Coin Market Cap (https://coinmarketcap.com/) as at 30 June
2018. Refer to Note 19 for prices at the date of this report.
2 Includes all tokens that are not bitcoin that are listed on an exchange. The amount includes $529,778 held by the DigitalX Fund.
3 Includes all tokens not listed on an exchange. The amount includes $149,991 held by the DigitalX Fund.
D5 – INVESTMENTS
Investments in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of
the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require unanimous consent of the parties sharing control.
The results and assets and liabilities of joint ventures are incorporated in these consolidated financial statements using the equity
method of accounting.
Under the equity method, an investment in an associate or a joint venture is initially recognised in the consolidated statement of
financial position at cost and adjusted thereafter to recognise the Group's share of the profit or loss and other comprehensive income
of the associate or joint venture. When the Group's share of losses of an associate or a joint venture exceeds the Group's interest in
that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group's net investment in
the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to
the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.
An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee
becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of
the investment over the Group's share of the net fair value of the identifiable assets and liabilities of the investee is recognised as
goodwill, which is included within the carrying amount of the investment. Any excess of the Group's share of the net fair value of the
identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the
period in which the investment is acquired.
The requirements of AASB 139 are applied to determine whether it is necessary to recognise any impairment loss with respect to the
Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including
goodwill) is tested for impairment in accordance with AASB 136 ‘Impairment of Assets’ as a single asset by comparing its recoverable
amount (higher of value in use and fair value less costs of disposal) with its carrying amount.
Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is
recognised in accordance with AASB 136 to the extent that the recoverable amount of the investment subsequently increases.
Equity accounted investment in joint venture – CoincastA
Investment in DigitalX FundB
Year ended
30 June 2018
$USD
56,581
-
56,581
Year ended
30 June 2017
$USD
-
-
-
63
An amount of $511,059 was written down for the Group’s investments, of the total an amount of $47,874 related to write down of
Bitfunds following receipt of advice the listing would not proceed. The remaining amount relates to deferred tokens to be issued for
which the market price had decreased materially at 30 June 2018.
Investment in Digital Multiplier Pty Ltd (“Coincast”)
A.
During the period the Group entered into a 50:50 joint venture with Multiplier Pty Ltd by way of a $USD19,437 ($AUD25,000)
investment to launch a new crypto business news website and online cryptocurrency education platform and television show. For the
period ended 30 June 2018 the joint venture generated profit of $USD74,288.
Initial investment
DigitalX share of profit – 50%
30 June 2018
$USD
19,437
37,144
56,581
Investment in DigitalX Funds Management Pty Ltd
B.
On 16 February 2018, the Group incorporated a new subsidiary, DigitalX Funds Management Pty Ltd, to act as the fund manager for
the DigitalX Fund and any future funds the Group may launch. The Group holds a 73% interest and has deemed it has control. The
results for DigitalX Funds Management Pty Ltd are immaterial for the period.
Investment in DigitalX Fund
C.
On 26 of April 2018, the Group provided seed capital to the DigitalX Fund (a unit trust) for the purpose of investing in and generating
returns digital assets. At 30 June 2018, the Group has an interest in the fund of 46%, however, as DigitalX also provides fund
management services for the fund it is deemed that the Group meets the definition of control under AASB10: Consolidated Financial
Statements and as a result, the fund has been included in the Group’s consolidated financial statements. The Group will continue to
assess its position with respect to control of the fund at each reporting period.
The net asset value (NAV) of the Group’s units in the fund at 30 June 2018 is $AUD 0.79.
D6 - INTEREST BEARING LIABILITIES & DERIVATIVES
Convertible notes – debt-liability component1,2
Convertible loan2
Convertible Notes – derivative liability component3
Net carrying amount
Reconciliation
Carrying amount at beginning of period
Convertible note – debt liability component
Convertible note – transaction costs
Convertible note – derivative liability component
Fair value adjustment of derivative liability component
Amortisation of debt liability component
Convertible loan
Conversion of loans & notes
Carrying amount at end of period
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
281,446
-
281,446
-
281,446
535,198
360,459
(360,459)
-
-
294,976
-
(548,728)
281,446
190,252
223,920
414,172
121,026
535,198
-
235,585
(93,314)
141,223
(20,197)
47,981
223,920
-
535,198
64
Refer to Note D1 for fair value and liquidity disclosures. Subsequent to 30 June 2018, the convertible note was satisfied through the
issue of 19,737,295 shares as per Note H4.
1The convertible notes were issued to various holders at various dates in the period in units of $AUD10,000, with a 12-month maturity
and an annual interest rate of 15%. The total face value of the lending in the period was $AUD550,000. The holder may elect to convert
into shares at a $AUD0.027 per share. The note was determined to be a compound instrument result in a split between the liability
and equity components. The holders were also granted free attaching options for each unit held. These have been valued as
demonstrated in Note F2 and accounted for as transaction costs.
2The convertible notes were issued to various holders at various dates in the period in units of $AUD10,000, with a 12-month maturity
and an annual interest rate of 15%. The total face value of the lending in the period was $AUD700,000. The holder may elect to convert
into shares at a conversion right equal to the lower of 5 cents per share and the price of the next capital raise. This factor was
determined to be an embedded derivative and has been separated and recorded as a financial liability. The holders were also granted
100,000 “free attaching” options for each unit held. These have been valued as demonstrated in Note F2 and accounted for as
transaction costs. Performance rights were issued to consultants involved in the financing arrangement. The performance rights
convert into 1,000,000 options exercisable at the lower of 6 cents or a 20% premium to the next capital raising price. These have been
treated as transaction costs. Details to the valuation are disclosed in Note F2.
3 The convertible loan was issued on 2 June 2018 in the amount of $AUD300,000, with a 12-month maturity and a 12% annual interest
rate. The loan may be converted at the election of the Company at a fixed price of $AUD0.027 cents per share, subject to shareholder
approval. This loan has been determined to be a compound instrument. However, management has determined that the conversion
option for the instrument does not have a material intrinsic value and therefore nil amounts have been recorded as Equity.
4The derivative financial instrument is the conversion right of the holders of the notes. The liability has been measured at grant date
using the valuation inputs and estimates as described in Note F2. The initial value at grant date was $149,747. A re-measurement at
30 June 2018 resulted in a fair value of the instrument of $121,026. The adjustment of $20,197 has been recorded in profit or loss on
the Statement of Profit of Loss and Other Comprehensive Income.l
65
The section below includes information regarding the financial position of the Group (excluding non-operating assets & liabilities
covered under Section C and Working Capital covered under Section D)
The section includes the following disclosures:
E1 Property, Plant and Equipment (Page 43)
E2 Intangible Assets (Page 46)
66
E1 - PROPERTY, PLANT AND EQUIPMENT – COMPUTER EQUIPMENT
Policy
Plant and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Plant and equipment are depreciated or amortised on a reducing balance or straight line basis at rates based upon their expected
useful lives as follows:
• Bitcoin mining computer equipment – diminishing value at 25% per month, with the remaining carrying value of the
equipment being fully depreciated in the month where the carrying value is 10% or less than the asset’s original cost price
• Computer equipment – 3 years
Depreciation is recognised so as to write off the cost or valuation of assets (other than freehold land) less their residual values over
their useful lives. The estimated residual value of plant and equipment has been assessed to be zero. The estimated useful lives,
residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any change in estimate
accounted for on a prospective basis.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and value in use. Gains and losses
on disposals are determined by comparing proceeds with their carrying amount.
Leases
67
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases.
The Group as lessor
Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the
leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net
investment outstanding in respect of the leases.
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs
incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a
straight-line basis over the lease term.
Estimates & Judgements (Prior Year Only)
The Directors have assessed the basis of depreciation of the Bitcoin computer mining hardware at 25% per month on a diminishing
value basis.
The Bitcoin computer mining hardware is used to generate Bitcoins (refer to discussion on Revenue from Bitcoin Mining discussed in
C3). The rate at which the Group generates bitcoins and, therefore, consumes the economic benefits of its Bitcoin computer mining
hardware is influenced by a number of factors including the following:
•
•
•
the complexity of the Mining process which is driven by the algorithms contained within the Bitcoin open source software;
the general availability of appropriate computer processing capacity on a global basis (commonly referred to in the industry as
hashing capacity which is measured in Petahash units); and
technological obsolescence reflecting rapid development in the Bitcoin mining computer hardware industry such that more
recently developed hardware is more economically efficient to run in terms of Bitcoins mined as a function of operating costs,
primarily power costs i.e. the speed of hardware evolution in the industry is such that later hardware models generally have faster
processing capacity combined with lower operating costs and a lower cost of purchase.
Because of both the Group and the industry’s relatively short life cycle to date management has only limited data available to it.
Furthermore, the data available also includes data derived from the use of economic modelling to forecast future Bitcoin generation
and the assumptions included in such forecasts, including bitcoin price and network difficulty, are derived from management
assumptions which are inherently judgemental. Based on current data available management has determined that 25% diminishing
value best reflects the current expected useful life of Bitcoin computer mining hardware, the diminishing value determined for
financial year ending 30 June 2018 is in line with the value applied for the financial year ending 30 June 2017. Management will review
this estimate at each reporting date and will revise such estimates as and when data comes available. Whilst it is currently expected
that the Group will dispose by sale of Bitcoin mining hardware at the end of its useful life due to the small volume of such transactions
to date the Bitcoin computer mining hardware has been assumed to have no residual value at the end of its useful life. Management
will review the appropriateness of its assumption of nil residual value at each reporting date.
As set out in Accounting Policy management also assess whether there are any indicators of impairment of property, plant and
equipment at the end of each reporting period and if any such indication exists, the Group will estimate the recoverable amount of
its property, plant and equipment.
Cost
Accumulated depreciation
Net Carrying amount
Reconciliation
Carrying amount at beginning of period
Additions
Disposals
Depreciation charge for the period
Net carrying amount at end of period
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
15,922
(15,420)
502
10,832
1,965
-
(12,295)
502
40,417
(29,585)
10,832
24,251
1,955
(2,317)
(13,057)
10,832
68
E2 - NON-CURRENT ASSETS - INTANGIBLE ASSETS
Internally-generated intangible assets - research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible
asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following
have been demonstrated:
•
•
•
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when
the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised,
development expenditure is recognised in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and
accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Capitalisation of development costs
The Group has been engaged in the development of its mobile application remittance software, “AirPocket”. The development
activities are part of an internal project, with costs incurred both by an internal software development team and through the
outsourcing of development activities to external contractors. The total cost capitalised on the project at 30 June 2018 is
$USD2,016,187.
An intangible asset arising from the development phase of an internal project shall be recognised if, and only if, an entity can
demonstrate all of the following:
•
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
its intention to complete the intangible asset and use or sell it;
its ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the
existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the
usefulness of the intangible asset;
the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible
asset; and
its ability to measure reliably the expenditure attributable to the intangible asset during its development.
•
•
The Company has evaluated the criteria required to be satisfied for an intangible asset arising from the development phase of an
internal project to be recognised and conclude in respect to AirPocket that all conditions required to recognise an intangible asset
generated from development of an internal project have been demonstrated. In particular the Group has entered memorandum of
understanding (MoU) with global partners to form a Joint Venture Company (JVC) to facilitate the distribution and roll out of AirPocket
through Latin America and the Caribbean.
The Company has evaluated the future economic benefit by modelling the expected future cash flows to estimate a value of the asset.
69
The Company has raised a $USD1,966,669 impairment provision against the costs capitalised for its AirPocket intangible asset. This
provision has been recorded in the current period as a result of a lack of historical data with respect to the estimates used in
determining the fair value of AirPocket. The provision is to be reassessed at the next reporting date with anticipation that more
information will be available to assess the recoverable amount of the asset.
Intellectual property
Cost
Accumulated amortisation
Provision for Impairment2
Net Carrying amount
Reconciliation
Carrying amount at beginning of period
Additions
Write down of Intangible Assets
Provision of impairment of Intangible Assets
Net carrying amount at end of period1
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
2,016,188
-
(1,966,669)
49,519
49,519
-
-
-
49,519
2,016,188
-
(1,966,669)
49,519
194,205
1,915,609
(93,626)
(1,966,669)
49,519
1 Net of accumulated amortisation and provision for impairment
2 The Group has raised a $USD1,966,669 impairment provision against the costs capitalised for its AirPocket intangible asset.
AirPocket’s gross capitalised cost totals $USD2,016,188. This provision was recorded in the prior period as a result of a lack of
historical data with respect to the estimates used in determining the fair value of AirPocket. The provision is to be reassessed at the
next reporting date with anticipation that more information will be available to assess the recoverable amount of the asset.
The section below includes information regarding the Group’s equity structure including movements in contributed equity from
share transactions and movements in reserves.
The section includes the following disclosures:
F1 Contributed Equity (Page 71)
F2 Reserves (Page 74)
70
F1 – CONTRIBUTED EQUITY
(a) Issued and paid up Capital
Fully paid ordinary shares – 486,865,628
(2017: 212,044,933)
(b) Movement in Ordinary Share Capital
Date
Details1
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
30,431,588
22,653,332
Number of
Shares
Issue Price
$AUD
$USD2
30-Jun-17
Opening Balance
212,044,933
-
22,653,332
16-Aug-17
Issue of Shares to Leigh Travers - CEO and Managing Director
500,000
16-Aug-17
Share Issue costs
-
0.038
-
14,900
-1,456
31-Aug-17
Issue of Shares to Ironside Capital as consideration under the
Capital raising services and mandate fees
7,772,745
0.041
253,176
31-Aug-17
Issue of Subscription shares
74,074,074
0.027
1,547,318
31-Aug-17
Share Issue costs
31-Aug-17
Issue of Loan Conversion Shares
31-Aug-17
Shares Issued on conversion of Convertible Notes
1-Sep-17
Issue of Shares in part consideration for capital raising services
1-Sep-17
Issue of Subscription shares
1-Sep-17
Share Issue costs
1-Sep-17
Shares Issued on conversion of Convertible Notes
1-Sep-17
Issue of Shares on exercise of Options
5-Sep-17
Shares Issued on conversion of Convertible Notes
5-Sep-17
Share Issue costs
-
-
-298,888
71
11,111,111
9,629,629
988,867
25,370,003
-
8,888,889
500,000
7,407,407
-
0.027
0.027
0.027
0.027
-
0.027
0.08
0.027
-
236,940
204,119
20,656
529,949
-46,322
188,418
31,594
157,015
-5,004
8-Sep-17
Issue of Subscription shares
32,804,142
0.027
685,239
8-Sep-17
Share Issue costs
-
-
-4,374
8-Sep-17
Issue of Shares on exercise of Incentive options
5,700,000
0.0324
292,037
8-Sep-17
Early conversion of convertible note
12-Sep-17
Shares Issued on conversion of Convertible Notes
12-Sep-17
Share Issue costs
12-Sep-17
Issue of Shares on exercise of Incentive options
14-Sep-17
Issue of Subscription shares
14-Sep-17
Share Issue costs
-
370,370
-
4,000,000
600,000
-
-
0.027
-
0.0324
0.027
-
7,953
7,851
-1,632
103,766
24,776
-12,496
14-Sep-17
Issue of Shares on exercise of Incentive options
600,000
0.0324
14-Sep-17
Early conversion of convertible note
22-Sep-17
Issue of Shares on exercise of Incentive options
22-Sep-17
Issue of Shares on exercise of Incentive options
22-Sep-17
Share Issue costs
-
1,000,000
4,000,000
-
-
0.0324
0.0324
-
4-Oct-17
Issue of Shares on exercise of Incentive options
246,914
0.0324
4-Oct-17
Share Issue costs
6-Oct-17
Issue of Shares to Director Faisal Khan
6-Oct-17
Share Issue costs
9-Oct-17
Issue of Shares on exercise of Incentive options
31-Oct-17
Issue of Shares on exercise of options
3-Nov-17
Issue of Shares on exercise of options
3-Nov-17
Issue of Shares on exercise of options
8-Nov-17
Issue of Shares on exercise of options
14-Nov-17
Issue of Shares on exercise of options
-
250,000
-
917,284
9,597,284
3,725,000
620,000
4,450,000
4,357,500
-
0.056
-
0.0324
0.0324
0.08
0.0324
0.08
0.08
14-Nov-17
Issue of Shares on exercise of options
17,000,000
0.0324
14-Nov-17
Shares Issued on conversion of 10 Convertible Notes
17-Nov-17
Issue of Shares on exercise of options
3,703,704
405,000
0.027
0.08
17-Nov-17
Issue of Shares on exercise of Incentive options
11,308,519
0.0324
23-Nov-17
Issue of Shares to Directors
24-Nov-17
Issue of Shares on exercise of options
24-Nov-17
Issue of Shares on exercise of Incentive options
24-Nov-17
Issue of Shares on exercise of Incentive options
1-Dec-17
Issue of Shares on exercise of options
1-Dec-17
Issue of Shares on vesting of Tranche 3 of Performance Rights
12-Dec-17
Issue of Shares on exercise of options
12-Dec-17
Issue of Employee Incentive Shares
22-Dec-17
Issue of Shares on exercise of options
22-Dec-17
Share Issue costs
9-Jan-18
Issue of Shares on exercise of options
2,000,000
375,000
6,700,000
2,000,000
700,000
1,000,000
160,000
1,300,000
685,000
-
35,000
0.2
0.08
0.0324
0.0324
0.08
0.215
0.08
0.24
0.08
-
0.08
9-Jan-18
Issue of Shares on exercise of options
246,914
0.0324
19-Jan-18
Issue of Shares on exercise of options
25-Jan-18
Issue of Shares on exercise of options
4,220,000
595,000
0.08
0.08
15,569
13,433
45,484
103,696
-1,720
20,233
-1,425
10,857
-1,430
23,107
549,422
225,621
71,193
291,927
158,686
232,166
29,316
25,700
547,073
304,840
11,379
244,958
52,274
45,557
162,626
10,375
235,030
44,800
-1,615
2,190
6,256
269,307
37,971
72
25-Jan-18
Share Issue costs
-
-
(17,674)
2-Feb-18
Issue of Shares on exercise of options
16-Feb-18
Issue of Shares on exercise of options
1-Mar-18
Issue of Shares on exercise of options
14-Mar-18
Issue of Shares on exercise of options
11-Apr-18
Issue of Shares on exercise of options
215,000
517,500
1,000,000
246,914
925,925
0.08
0.08
-
0.0324
0.0324
13,578
32,683
-
6,164
23,114
30-Jun-18
Closing Balance
486,865,628
30,431,588
Date
Details1
1-Jul-16
Opening Balance
7-Sep-16
Placement of Shares
7-Sep-16
Share Issue costs
8-Dec-162
Placement of Shares
8-Dec-16
Share Issue costs
Number of
Shares
178,119,581
10,580,303
-
Issue Price A$
$USD2
-
21,249,214
0.05
-
401,119
(22,942)
32,780,000
0.05
1,257,296
-
-
(92,189)
73
14-Dec-163
Share Buy-back and cancellation
(17,633,839)
0.03
(394,117)
14-Dec-16
Buy-back costs
19-Jan-174
Share Purchase Plan
19-Jan-17
Share Issue costs
7-Feb-175,6
Former Director share issue
7-Feb-17
Share Issue costs
-
4,232,000
-
1,466,888
-
-
0.05
-
0.05
-
7-Feb-17
Issue of shares to key employees
1,700,000
0.041
7-Feb-17
Share Issue costs
10-Feb-177
Shares Issued pursuant to Directors
10-Feb-17
Share Issue costs
30-Jun-17
Closing Balance
1 Refer to the corresponding Appendix 3B for full details of each issue.
2 Based on AUD/USD as at the date of transaction.
3 Refer to Note H4 for any issues subsequent to the end of the reporting period.
-
800,000
-
-
0.05
-
212,044,933
22,653,332
(2,585)
159,549
(17,291)
56,263
(3,056)
53,467
(1,499)
11,447
(1,344)
Rights Attaching to Shares
The rights attaching to fully paid ordinary shares arise from a combination of the Company’s constitution, statute and general law.
Fully paid ordinary shares carry one vote per share and carry a right to dividend.
Dividends
There are no dividends paid or declared during the period.
F2 - RESERVES
Nature of reserves
Option premium and share-
based payment reserve
Reserve is established to record balances pertaining to share options and performance rights
granted for services provided to the company by employees and vendors.
Convertible note reserve
Foreign Exchange Reserve
Non-controlling interest
Reserve is established to record amounts required to be recognised in equity for convertible notes
that meet the definition of compound instruments.
Exchange differences arising on translation of the foreign controlled entity are recognised in other
comprehensive income and accumulated in a separate reserve within equity. The cumulative
amount is reclassified to profit or loss when the net investment is disposed of.
This reserve is used to record transactions with non-controlling interests that do not result in a
loss of control.
Option premium
e
t
and share-based
o
N
payment reserve1
Convertible Note
Reserve
Foreign Exchange
Reserve
Non-Controlling
Interest
1 July 2016
Share options issued
Share options expired
30 June 2017
Share based payment expense
Share options issued
Conversion of options & rights
Equity portion of convertible note
Early conversion of convertible note
Conversion of foreign operations
NCI share of profit or loss
NCI units issued in Unit Trust
P&L
G2
NCI share in translation difference
642,360
396,194
(642,360)
396,194
350,294
414,506
(375,754)
-
-
-
-
-
-
-
-
-
-
78,465
(15,785)
-
-
-
-
-
-
-
-
-
-
(15,887)
30 June 2018
785,240
62,680
(15,887)
1 Ordinary share issues treated as share based payments that have no vesting conditions are recognised directly in equity.
-
-
-
-
-
-
-
-
-
74
(152,613)
653,887
13,326
514,600
Share based payments
Employees and consultants of the Group receive remuneration in the form of share-based payments, whereby employees render
services as consideration for equity instruments (equity-settled transactions).
Equity-settled transactions
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate
valuation model. That cost is recognised, together with a corresponding increase in other capital reserves in equity, over the period
in which the performance and/or service conditions are fulfilled in employee benefits expense. The cumulative expense recognised
for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has
expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The statement of profit or loss
expense or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that
period and is recognised in employee benefits expense.
No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions, for which vesting is
conditional upon a market or non-vesting condition. These are treated as vesting irrespective of whether or not the market or non-
vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
Valuation of options and performance rights
The fair value of the share options and performance rights at grant date are determined using a binomial option pricing method that
takes into account the exercise price, the term of the option, the probability of exercise, the share price at grant date and expected
volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.
The following tables list the inputs to the model used for valuation of the options:
30 June 2018
Item
Volatility (%) (see below)
Risk-free interest rate (%) – range
Expected life of option (years)
Exercise price per terms & conditions
Underlying security spot price
Valuation date
Expiry date
Valuation per option
30 June 2017
Item
Volatility (%) (see below)
Risk-free interest rate (%) – range
Expected life of option (years)
Exercise price per terms & conditions
Underlying security spot price
Valuation date
Expiry date
Valuation per option
Date of Issuance - Inputs
30 Mar
2017
99%
1.78%
2
$0.06
$0.04
30 Mar 2018
30 Mar 2019
$0.021
Date of Issuance – Inputs
21 Apr
2017
99%
1.78%
2
$0.06
$0.036
21 April 2018
21 April 2019
$0.018
24 Apr
2017
99%
1.78%
2
$0.06
$0.036
24 April 2018
24 April 2019
$0.018
Valuation of options and performance rights on issue or owed as at 30 June 2018
Details
Share options
Performance rights
Number
15,840,000
3,000,000
Issue Date
14 Sep 2017
23 Nov 2017
75
14 Sep 2017
119.96%
1.78%
2
$0.0324
$0.074
14 Sep 2017
14 Sep 2019
$0.0561
23 May
2017
99%
1.78%
2
$0.06
$0.024
23 May 2018
23 May 2019
$0.01
30-Jun-18
$USD
414,506
231,836
646,342
Valuation of options and performance rights on issue or owed as at 30 June 2017
During the financial year ended 30 June 2017 the Director’s assessed the probability that the Class B Performance Rights, as issued in
the prior period, would vest at 1 July 2017, to be 0%, and therefore the fair value of the Class B Performance rights has been
determined to be nil. As the fair value is consistent with the amount recorded in prior period no impact on the financial performance
is to be reflected at 30 June 2017.
Details
Share options
Share options1
Performance rights1
Share options1
Performance rights1
Share options1
Performance rights1
Share options1
Performance rights1
Number
5,000,000
5,000,000
8,640,000
5,000,000
8,640,000
100,000
288,000
900,000
2,592,000
Issue Date
30 June 2017
16 Feb 2017
30 Mar 2017
30 Mar 2017
21 April 2017
21 April 2017
24 April 2017
24 April 2017
23 May 2017
23 May 2017
$USD
20,440
48,047
138,375
40,689
117,184
1,361
3,919
6,746
19,433
396,194
1 Relates to convertible notes issued on the same day as the issue date.
76
The section below includes information regarding the Group organisational structure and information related to the parent entity as
required by the Corporations Act 2001.
G1 - PRINCIPLES OF CONSOLIDATION
The consolidated financial report incorporates the assets and liabilities of all subsidiaries of DigitalX Limited (Company or Parent Entity)
as at period end and the results of all subsidiaries for the period then ended. DigitalX Limited and its subsidiaries together are referred
to as the Group or the Consolidated Entity.
The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities)
controlled by the Company and its subsidiaries. Control is achieved when the Company:
•
•
•
has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control listed above. The Company considers all relevant facts and circumstances in assessing whether
or not the Company's voting rights in an investee are sufficient to give it power, including:
•
•
•
•
the size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
potential voting rights held by the Company, other vote holders or other parties;
rights arising from other contractual arrangements; and
any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the
relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.
77
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses
control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the
consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date
when the Company ceases to control the subsidiary.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with
the Group's accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions
between members of the Group are eliminated in full on consolidation.
G2 - CONTROLLED ENTITIES
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with
the accounting policy described in Note G1. All controlled entities are included in the consolidated annual final report. The parent
entity does not guarantee to pay the deficiency of its controlled entities in the event a winding up of any controlled entity. The period
end of the controlled entities is the same as that of the parent entity, except for the US companies listed below which use 31 December
year end.
Name of Controlled Entity
Place of Incorporation
% of Shares Held
2018
% of Shares Held
2017
Digital CC Management Pty Ltd
Digital CC Trading Pty Ltd
Digital CC IP Pty Ltd
Digital CC Limited
Digital CC IP Limited
Australia
Australia
Australia
Hong Kong
Hong Kong
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Name of Controlled Entity
Place of Incorporation
% of Shares Held
2018
% of Shares Held
2017
Digital CC Holdings USA Inc
Digital CC USA LLC
Digital CC USA Services LLC
Digital CC Ventures Pty Ltd
Pass Petroleum Pty Ltd
Airpocket International Pty Ltd
AirPocket LLC
DigitalX Funds Management Pty Ltd
DigitalX Fund Unit Trust
Year ended 30 June 2018
United States
United States
United States
Australia
Australia
Australia
United States
Australia
Australia
100%
100%
100%
100%
100%
100%
100%
73%
46%
100%
100%
100%
100%
100%
100%
100%
-
-
There were no changes to the controlled entities during the year ended 30 June 2018 except for those noted below:
Investment in DigitalX Funds Management Pty Ltd
On 16 February 2018, the Group incorporated a new subsidiary, DigitalX Funds Management Pty Ltd, to act as the fund manager for
the DigitalX Fund and any future funds the Group may launch. The Group holds a 73% interest and has deemed it has control. The
results for DigitalX Funds Management Pty Ltd are immaterial for the period.
78
Investment in DigitalX Fund (DigitalX Fund Unit Trust)
On the 26 April 2018, the Group provided seed capital to the DigitalX Fund (a unit trust) for the purpose of investing in and generating
returns digital assets. At 30 June 2018, the Group has an interest in the fund of 46%, however, as DigitalX also provides fund
management services for the fund it is deemed that the Group meets the definition of control under AASB10: Consolidated Financial
Statements and as a result, the fund has been included in the Group’s consolidated financial statements. The Group will continue to
assess its position with respect to control of the fund at each reporting period.
Year ended 30 June 2017
There were no changes to the controlled entities during the year ended 30 June 2017.
G3 - PARENT ENTITY INFORMATION
The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the
same as those applied in the consolidated financial statements. Refer to Summary Note A for a summary of the significant accounting
policies relating to the Group.
Parent entity financial information
The financial information for the parent entity, DigitalX Limited, disclosed below has been prepared on the same basis as the
consolidated financial statements, except as set out below:
Investments in subsidiaries, associates and joint venture entities
Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of DigitalX
Limited.
Financial guarantees
Where the parent entity has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the
fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment.
Tax consolidation legislation
DigitalX Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation.
The head entity, DigitalX Limited, and the controlled entities in the tax consolidated group account for their own current and deferred
tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand-alone taxpayer
in its own right.
In addition to its own current and deferred tax amounts, DigitalX Limited also recognises the current tax liabilities (or assets) and the
deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated
group.
The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate DigitalX Limited
for any current tax payable assumed and are compensated by DigitalX Limited for any current tax receivable and deferred tax assets
relating to unused tax losses or unused tax credits that are transferred to DigitalX Limited under the tax consolidation legislation. The
funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.
The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity,
which is issued as soon as practicable after the end of each financial period. The head entity may also require payment of interim
funding amounts to assist with its obligations to pay tax instalments.
Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts
receivable from or payable to other entities in the group. Any difference between the amounts assumed and amounts receivable or
payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated
entities.
(a) Summary of financial information
Financial position
Assets
Current assets
Non-Current assets
Total Assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Equity
Contributed Equity
Retained earnings
Reserves
Total equity
Financial performance
Profit/(loss) for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss)
30 June 2018
30 June 2017
$USD
$USD
79
7,599,816
4,637,480
12,237,296
(702,532)
(715,889)
(1,418,421)
65,993,746
(59,178,587)
4,003,716
10,818,875
5,225,186
-
5,225,186
172,091
228,400
400,491
(231,510)
(2,137,579)
(2,369,089)
61,087,071
(64,403,773)
1,348,104
(1,968,598)
(4,306,339)
-
(4,306,339)
(b) Commitments and Contingent Liabilities of the parent
The parent entity did not have any contingent liabilities or commitments, as at 30 June 2018.
(c) Guarantees entered into the parent entity
There were no guarantees entered into by the parent entity.
The section below includes information regarding other disclosures relevant to users of the financial statement in understanding
other transactions and the impact of future standards or events that may impact the Group.
The section includes the following disclosures:
H1 Related Party Transactions (Page 81)
H2 Commitments and contingents (Page 82)
H3 New Accounting Standards and Interpretations (Page 82)
H4 Events after reporting date (Page 85)
80
H1 - RELATED PARTY TRANSACTIONS
(a) Subsidiaries
Interests in subsidiaries are set out in Note G2. Balances and transaction between the Company and its subsidiaries, which are related
parties of the Company, have been eliminated on consolidation and are not disclosed in this note.
(b) Transactions with key management personnel
Short term employee benefits
Salaries and fees
Director fees
Other benefits
Post-Employment Benefits
Superannuation
Share-based payments
Shares granted
Share, options and performance rights1
Total Remuneration
Year ended
30 June 2018
$USD
Year ended
30 June 2017
$USD
260,034
105,780
88,082
620,533
62,441
-
25,964
6,521
423,165
534,813
1,437,838
66,484
-
755,979
81
1 Refer to Note E1 for details of the events relating to performance rights and options effecting key management personnel.
(c) Transactions with director related entities
Year ended 30 June 2018
• During the financial year 2,546,000 unlisted options exercisable at $AUD0.08, expiring on 30 June 2018, lapsed unexercised.
• During the year, the Group paid Steinepreis Paganin, a law firm of which former Non-Executive Director Toby Hicks is a partner,
$AUD116,607 for legal services rendered on various matters. At 30 June 2018, the Group owed $AUD2,545 to Steinepreis Paganin.
• During the year, the Group recognised an expense and paid Blockchain Global Ltd, a company controlled by Non-Executive
Chairman Peter Rubinstein and Non-Executive Director Sam Lee, $USD469,623 for services related to initial coin offerings. At 30
June 2018, no amounts were owed to Blockchain Global Ltd.
• During the year, Mars Capital Australia Pty Ltd, a company controlled by Non-Executive Director Sam Lee, was issued 14
convertible notes, with a face value of $AUD10,000 each, convertible at $AUD0.027 each, as approved by Shareholders on 25
August 2017. Each convertible note was entitled to 100,000 incentive options, exercisable at $AUD0.0324 and expiring 8
September 2019. During the year, $AUD11,737 of interest was paid, and recognised as an expense, on the convertible notes held.
At 30 June 2018, the Group owed $AUD5,236 to Mars Capital Australia Pty Ltd for unpaid interest.
• During the year, Irwin Biotech Nominees Pty Ltd, a company controlled by Non-Executive Chairman Peter Rubinstein, was issued
17 convertible notes, with a face value of $AUD10,000 each, convertible at $AUD0.027 each, as approved by Shareholders on 25
August 2017. Each convertible note was entitled to 100,000 incentive options, exercisable at AUD0.0324. During the year,
$AUD16,422 of interest was paid, and recognised as an expense on the convertible notes held. At 30 June 2018, the Group owed
$AUD6,357 to Irwin Biotech for unpaid interest.
• During the year, Rip Opportunities Pty Ltd, a company controlled by Non-Executive Chairman Peter Rubinstein, was issued 10
convertible notes, with a face value of $AUD10,000 each, convertible at $AUD0.027 each, as approved by Shareholders on 25
August 2017. Each convertible note was entitled to 100,000 incentive options, exercisable at $AUD0.0324 and expiring 14
September 2019. Convertible notes have been converted during the year. During the year, $AUD2,589 of interest was paid on
the convertible notes held. At 30 June 2018, no amounts were owed to Rip Opportunities Pty Ltd as the notes have been converted
during the year.
• During the year, the Group paid Value Admin Pty Ltd, a company controlled by Non-Executive Chairman Peter Rubinstein,
$USD22,231 as part of non–executive director fees.
Year ended 30 June 2017
• During the financial year 8,349,517 unlisted options exercisable at $AUD0.286, expiring on 30 June 2018, lapsed unexercised.
•
The financial effect of the options being forfeited is a credit to the accumulated losses in the current financial year of
$AUD642,360 based on the fair value of the options being initially accounted for at $AUD0.18 cents.
• DigitalX Limited paid Mpire Media Pty Ltd (a company controlled by former Director Zhenya Tsvetnenko) $AUD1,010 for the
reimbursement of office rent, computer, telephone and offices supplies incurred by the consolidated group. The consolidated
group shares an office with Mpire Media Pty Ltd in Perth, Western Australia.
• Digital CC Holdings Pty Limited paid Karis Holdings Inc (a company controlled by former Director Alex Karis) $USD30,226 for the
reimbursement of office rent, computer and offices supplies, legal expenses incurred by the consolidated group, domain names,
telephone and administration staff reimbursements for the personnel in the Boston office. The consolidated group shares an
office with Karis Marketing Group in Boston, Massachusetts and these costs incurred by the consolidated group were charged
through Karis Holdings Inc.
• Digital CC Limited paid Sibella Capital Pty Ltd (a company controlled by former Director Brett Mitchell) $AUD3,000 as part of non–
executive director fees.
• Digital CC USA LLC extended a $USD250,000 credit facility at 1.25% interest rate to Karis Holdings Inc, with $USD156,061 being
drawn down during the prior financial year, of which $USD152,000 was repaid during the year.
82
H2 – COMMITMENTS AND CONTINGENCIES
Commitments of the Group
The Group did not have any commitments (other than those set out in note D2), as at 30 June 2018 (2017: Nil)
Guarantees entered into by the Group
There were no guarantees entered into by the Group as at 30 June 2018 (2017: Nil)
Contingent Liabilities of the Group
On 28 September the Company announced that it had been served with an Originating Application and Statement of Claim in the
Federal Court of Australia filed by a group of parties relating to an investment made by those parties in an initial coin offering to which
the Company was an advisor. While the Company and its legal advisors continue to review and examine the claims made, the Company
denies any claim of wrongdoing and, for reasons that will become apparent as this matter progresses, believes that it has strong
grounds to defend any claims bought forward by these applicants. As such, the Company intends to vigorously defend this matter and
protect the reputation of the Company. The claim is for a combined amount of approximately US$1,833,077 plus damages.
H3 - NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
Standards and Interpretations in issue not yet adopted
The following table lists Australian Accounting Standards and Interpretations that have been recently issued or amended but are not
yet effective and have not been early adopted by the Company for the reporting period ended 30 June 2018. These particular
standards are considered relevant to the entity based on the balances and transactions presented within these financial statements.
Management are in the process of determining the potential impact of the initial application of the Standards and Interpretations.
These Standards and Interpretations will be first applied in the financial report of the Group that relates to the annual reporting period
beginning on or after the effective date of each pronouncement.
New / revised
pronouncement
Superseded
pronouncement
Nature of the change
Effective date
AASB 15 Revenue
from Contracts
with Customers
AASB 118
Revenue
AASB 111
Construction
Contracts
AASB 15:
• replaces AASB 118 Revenue, AASB 111
Construction Contracts and some
revenue-related Interpretations:
− establishes a new revenue
1 January 2018
recognition model
− changes the basis for deciding
whether revenue is to be recognised
over time or at a point in time
− provides new and more detailed
guidance on specific topics (e.g.
multiple element arrangements,
variable pricing, rights of return,
warranties and licensing)
− expands and improves disclosures
about revenue
Likely impact on initial
application
When this Standard is
first adopted for the
year ending 30 June
2019, there will be an
immaterial impact on
the transactions and
balances recognised in
the financial statements
to reflect over time
performance obligations
at 30 June 2018 for
ongoing ICO
engagements.
The Group currently
treats tokens received
as non-cash
consideration and
considers that no
material adjustment will
be required at 30 June
2018 as amount of non-
cash consideration
record as owing
approximates the fair
value.
83
AASB 9 Financial
Instruments
(December 2014)
AASB 139
Financial
Instruments:
Recognition and
Measurement
1 January 2018 When this Standard is
first adopted for the
year ending 30 June
2019, there will be not
be a material impact on
the transactions and
balances recognised in
the financial statements
as the investments held
by the Group are
immaterial and the
convertible note was
satisfied on the 18th of
September 2018.
AASB 9 introduces new requirements for
the classification and measurement of
financial assets and liabilities and includes
a forward-looking ‘expected loss’
impairment model and a substantially-
changed approach to hedge accounting.
These requirements improve and simplify
the approach for classification and
measurement of financial assets
compared with the requirements of AASB
139. The main changes are:
a Financial assets that are debt
instruments will be classified based on:
(i) the objective of the entity’s business
model for managing the financial
assets; and (ii) the characteristics of the
contractual cash flows.
b Allows an irrevocable election on initial
recognition to present gains and losses
on investments in equity instruments
that are not held for trading in other
New / revised
pronouncement
Superseded
pronouncement
Nature of the change
Effective date
Likely impact on initial
application
comprehensive income (instead of in
profit or loss). Dividends in respect of
these investments that are a return on
investment can be recognised in profit
or loss and there is no impairment or
recycling on disposal of the instrument.
c Introduces a ‘fair value through other
comprehensive income’ measurement
category for particular simple debt
instruments.
d Financial assets can be designated and
measured at fair value through profit or
loss at initial recognition if doing so
eliminates or significantly reduces a
measurement or recognition
inconsistency that would arise from
measuring assets or liabilities, or
recognising the gains and losses on
them, on different bases.
e Where the fair value option is used for
financial liabilities the change in fair
value is to be accounted for as follows:
• the change attributable to changes
in credit risk are presented in Other
Comprehensive Income (OCI)
• the remaining change is presented in
profit or loss
If this approach creates or enlarges an
accounting mismatch in the profit or
loss, the effect of the changes in credit
risk are also presented in profit or loss.
Otherwise, the following requirements
have generally been carried forward
unchanged from AASB 139 into AASB 9:
• classification and measurement of
financial liabilities; and
• derecognition requirements for
financial assets and liabilities
AASB 9 requirements regarding hedge
accounting represent a substantial
overhaul of hedge accounting that enable
entities to better reflect their risk
management activities in the financial
statements.
Furthermore, AASB 9 introduces a new
impairment model based on expected
credit losses. This model makes use of
more forward-looking information and
84
New / revised
pronouncement
Superseded
pronouncement
Nature of the change
Effective date
Likely impact on initial
application
AASB 16 Leases
applies to all financial instruments that
are subject to impairment accounting.
AASB 16:
• replaces AASB 117 Leases and some
lease-related Interpretations
• requires all leases to be accounted for
‘on-balance sheet’ by lessees, other
than short-term and low value asset
leases
• provides new guidance on the
application of the definition of lease
and on sale and lease back accounting
• largely retains the existing lessor
accounting requirements in AASB 117
requires new and different disclosures
about leases
AASB 117
Leases
Int. 4
Determining
whether an
Arrangement
contains a Lease
Int. 115
Operating
Leases—Lease
Incentives
Int. 127
Evaluating the
Substance of
Transactions
Involving the
Legal Form of a
Lease
1 January 2019 When this Standard is
first adopted for the
year ending 30 June
2020, there will be no
material impact on the
transactions and
balances recognised in
the financial
statements.
However, as disclosed in
Note H4 the Group has
entered into a 5 year
lease for commercial
premises and will record
a lease liability and
corresponding right to
use asset. The amount
has not yet been
determined as the fitout
is ongoing at the date of
this report but will not
impact transactions and
balances for the year
ended 30 June 2018.
85
H4 - EVENTS AFTER THE REPORTING DATE
No other matter or circumstance has arisen since 30 June 2018 that has significantly affected the group’s operations, results or state
of affairs, or may do so in future years other than those set out below.
Date of event
5 July 2018
17 July 2018
Details of event
On 5 July 2018, 1,000,000 Tranche 2 Performance Rights converted on achievement of vesting
conditions, as approved by shareholders on 23 November 2017.
On 17 July 2018, the Group signed a 5 year lease for commercial premises, the total commitment
excluding rent abatements is $AUD808,125. As part of the lease a cash-backed guarantee equal to 6
months rent has been provided.
7 August 2018
On 7 of August 2018, 3,086,420 Shares were issued on exercise of 3,086,420 Unlisted Options,
exercisable at $0.0324 and expiring 8 September 2020.
29 August 2018
On the 29 of August 2018, DigitalX entered into an agreement to purchase $AUD250,000 of YPB via
convertible notes at $0.018. DigitalX is also entitled to 1:1 options when the convertible notes are
exercised at $0.026 and 10% of all YPB tokens. DigitalX is entitled to various fees from services which
are detailed into the announcement.
30 August 2018
On the 30 of August 2018, 85,185,185 ordinary shares were released from escrow.
7 September 2018
On the 7 of September 2018, Mr Toby Hicks retired as a Non-Executive Director.
18 September 2018
DigitalX has established a joint venture company, Future ICO Pty Ltd (Future ICO) with Blockchain Global
Ltd and Big Start Pty Ltd to develop and operate the platform. The platform is designed to provide a
seamless way for ICO applicants and ICO issuers to interact under a compliant framework.
18 September 2018
On 18 September 2018, 19,737,295 Shares and 8,800,000 Incentive Options were issued on exercise of
44 convertible notes with a face value of $AUD10,000 each, converting to Shares at $0.027 per share.
28 September 2018
On 28 September 2018 the Company announced that it had been served with an Originating Application
and Statement of Claim in the Federal Court of Australia filed by a group of parties relating to an
investment made by those parties in an initial coin offering to which the Company was an advisor. While
the Company and its legal advisors continue to review and examine the claims made, the Company
denies any claim of wrongdoing and, for reasons that will become apparent as this matter progresses,
believes that it has strong grounds to defend any claims bought forward by these applicants. As such,
the Company intends to vigorously defend this matter and protect the reputation of the Company. The
claim is for a combined amount of approximately US$1,833,077 plus damages.
Due to the volatile nature and the materiality of the digital assets held, we disclose the value of digital
assets held by the Group, excluding the DigitalX Fund, as at the close date of the 25 September 2018.
86
Coin Symbol
BTC
Alt-coins
Total
Coin Amount
433.25
-
-
$USD Spot Price
$6,429
-
-
$USD Balance
$2,785,377
$165,697
$2,951,074
There were no other reportable subsequent events.
Directors
Peter Rubinstein
Non-Executive Chairman
Leigh Travers
Managing Director and
Chief Executive Officer
Sam Lee
Non-Executive Director
Company Secretary
Shannon Coates
ABN
59 009 575 035
Registered Office and Principal Place of Business
Suite 5, 62 Ord Street
West Perth WA 6005
Tel: +61 (8) 9322 1587
Auditor
Grant Thornton Audit Pty Ltd
Level 43, 152-158 St Georges Terrace
PERTH WA 6000
Tel: +61 (8) 9480 2000
Fax +61 (8) 9322 7787
Stock Exchange Listing
DigitalX Limited shares are listed on the Australian Securities Exchange (ASX Code: DCC)
Share Registry
Computershare Investor Services Pty Limited
Level 11, 172 St Georges Terrace
Perth WA 6000
GPO Box D182
Perth WA 6840
Telephone: +61 (8) 9323 2000
Facsimile: +61 (8) 9323 2096
Email: perth.services@computershare.com.au
Website www.digitalx.com
87
The following information is current as at 25 September 2018.
EXCHANGE LISTING
DigitalX Limited shares are listed on the Australian Securities Exchange. The Company’s ASX code is DCC.
DISTRIBUTION OF SHAREHOLDERS
The number of shareholders, by size of holding, are:
Range
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
UNMARKETABLE PARCELS
Holdings of less than a marketable parcel of ordinary shares:
Holders: 4,203
Shares: 5,377
UNQUOTED SECURITIES
Number of
Holders
178
3,927
2,029
3,696
450
10,280
Number of
Shares
41,600
11,830,101
16,478,704
123,005,352
359,333,586
510,689,343
88
For each class of unquoted securities, if a person holds 20% or more of the securities in a class, the name of the holder and number
of securities held is disclosed.
UNLISTED OPTIONS AND CONVERTIBLE NOTES
Unlisted Options exercisable at $0.0324 each on or before 1 September 2019
Range
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
Mr Zijing Xu holds 100,000 Options comprising 100% of this class.
Number of
Holders
-
-
-
11
-
1
Number of Options
-
-
-
100,000
-
100,000
Unlisted Options exercisable at $0.0324 each on or before 8 September 2019
Range
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
1 ACL Investment Australia Pty Ltd holds 1,300,000 options comprising 48.15% of this class.
2 Mars Capital Australia Pty Ltd holds 1,400,000 options comprising 51.85% of this class.
Number of
Holders
-
-
-
-
21,2
2
Number of Options
-
-
-
-
2,700,000
2,700,000
Unlisted Options exercisable at $0.0324 each on or before 30 August 2020
Range
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
1 Blockchain Global Ltd holds 24,691,358 options comprising 100% of this class.
Unlisted Options exercisable at $0.0324 each on or before 1 September 2020
Range
Number of
Holders
-
-
-
-
11
1
Number of Options
-
-
-
-
24,691,358
24,691,358
89
Number of Options
Number of
Holders
-
-
-
-
61-4
6
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
1 Ozstudy Group Pty Ltd holds 1,234,568 options comprising 20% of this class.
2 Tirelem Pty Ltd holds 1,234,568 options comprising 20% of this class.
3 WHW Investments Pty Ltd holds 1,234,568 options comprising 20% of this class.
4 YMG International Group Pty Ltd holds 1,234,568 options comprising 20% of this class.
-
-
-
-
6,172,840
6,172,840
Unlisted Options exercisable at $0.0324 each on or before 18 September 2020.
Range
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
1 ACL Investment Australia Pty Ltd holds 2,600,000 Options comprising 29.55% of this class.
2 Irwin Biotech Nominees Pty Ltd holds 3,400,000 Options comprising 38.64% of this class.
3 Mars Capital Australia Pty Ltd holds 2,800,000 Options comprising 31.82% of this class.
Number of
Holders
-
-
-
-
33
3
Number of Options
-
-
-
-
8,800,000
8,800,000
LISTING OF 20 LARGEST SHAREHOLDERS
The names of the twenty largest registered holders of quoted ordinary shares are:
Name
BLOCKCHAIN GLOBAL LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
NRB INTERNATIONAL LLC
BNP PARIBAS NOMINEES PTY LTD
BLOCKCHAIN GLOBAL LTD
CITICORP NOMINEES PTY LIMITED
ONE CC PTY LTD
MARS CAPITAL AUSTRALIA PTY LTD
ACL INVESTMENT AUSTRALIA PTY LTD
IRWIN BIOTECH NOMINEES PTY LTD
VALUE ADMIN.COM PTY LTD
MR NEEL KRISHNAN
IRWIN BIOTECH NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
MRS LISA JANINE DE MEIO
MR ZIJING XU
YMG INTERNATIONAL GROUP PTY LTD
OZSTUDY GROUP PTY LTD
RIP OPPORTUNITIES PTY LTD
K C CONSULTING SERVICES PTY LTD
Number of Shares
63,274,074
33,490,610
14,973,785
13,602,747
11,111,111
10,672,723
10,500,000
10,096,296
8,696,295
7,796,296
7,000,000
6,507,500
5,470,000
4,469,094
4,042,000
3,703,704
3,703,704
3,600,000
3,000,000
2,590,000
Percentage of
Shares
12.39
6.56
2.93
2.66
2.18
2.09
2.06
1.98
1.70
1.53
1.37
1.27
1.07
0.88
0.79
0.73
0.73
0.70
0.59
0.51
90
TOTAL
228,299,939
44.70
SUSTANTIAL SHAREHOLDERS (HOLDING NOT LESS THAN 5%)
Name
Blockchain Global Ltd 63,274,074 12.39
No of shares
% of shares
VOTING RIGHTS
All ordinary shares carry one vote per share without restriction. No voting rights are attached to Options or Convertible Notes.
ON MARKET BUY BACK
There is no current on-market buy-back.
SECURITIES APPROVED FOR PURPOSES OF S611 OF THE CORPORATIONS ACT
On 25 August 2017, Shareholders approved the following securities for the purposes of item 7 under s611 of the Corporations Act to
Blockchain Global Limited (or its nominee) on the terms and conditions set out in the Explanatory Statement accompanying Notice of
Meeting dated 24 July 2017. As at the 25 September 2018, these issues are only partially completed, as described below:
a) 129,819,193
b) 43,268,737
c) 43,268,737
d) 11,111,111
e) 55
f) 20,370,370
g) 5,500,000
h) 5,500,000
i) 11,000,000
j) 11,000,000
Subscription Shares (129,804,379 issued)
Subscription Options (43,268,127 issued)
Shares upon the exercise of Subscription Options (b) (37,897,879 issued)
Shares upon conversion of Loan (11,111,111 issued)
Subscription Convertible Notes (55 issued)
Shares upon conversion of Subscription Convertible Notes (e) (20,370,370
issued)
Subscription Convertible Note Options issued free attaching to the
Subscription Convertible Notes (e) (5,500,000 issued)
Shares upon exercise of the Subscription Convertible Note Options (g)
(2,700,00 issued)
Incentive Options (11,000,000 issued)
Shares upon exercise of the Incentive Options (i) (2,200,000 issued)
CORPORATE GOVERNANCE STATEMENT
The Company’s Corporate Governance Statement for the 2018 financial year can be accessed at:
https://digitalx.com/corporate-governance/
91