Annual and Transition Report (foreign Private Issuer) (20-f)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

(Mark One)

 

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2022

 

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

OR

 

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report ___________

 

Commission file number: 001-39600

 

EQONEX LIMITED

(Exact name of Registrant as specified in its charter)

 

Not Applicable
(Translation of Registrant’s Name Into English)

 

Singapore
(Jurisdiction of incorporation or organization)

 

118 Piccadilly

Mayfair, London W1J 7NW

United Kingdom

(Address of principal executive offices)

 

Jonathan Farnell

 

Chief Executive Officer
118 Piccadilly

Mayfair, London W1J 7NW

United Kingdom

 

Telephone: [phone]

Email: [e-mail]

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Ordinary Shares		EQOS		The Nasdaq Stock Market LLC

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

 

None

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: As of March 31, 2022, Eqonex Limited had 46,442,058 ordinary shares outstanding.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐	Accelerated Filer ☐	Non-Accelerated Filer ☒
		Emerging Growth Company ☒

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP ☐

International Financial Reporting Standards as issued by the International Accounting Standards Board ☒

Other ☐

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18 ☐

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

☐ Yes ☐ No

 

 

 

 

 

TABLE OF CONTENTS

 

INTRODUCTION	1
Part I	5
Item 1. Identity of Directors, Senior Management and Advisers	5
Item 2. Offer Statistics and Expected Timetable	5
Item 3. Key Information	6
Item 4. Information on the Company	47
Item 4A. Unresolved Staff Comments	59
Item 5. Operating and Financial Review and Prospects	59
Item 6. Directors, Senior Management and Employees	77
Item 7. Major Shareholders and Related Party Transactions	82
Item 8. Financial Information	84
Item 9. The Offer and Listing	84
Item 10. Additional Information	85
Item 11. Quantitative and Qualitative Disclosures About Market Risk	94
Item 12. Description of Securities Other Than Equity Securities	96
Part II	97
Item 13. Defaults, Dividend Arrearages and Delinquencies	97
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds	97
Item 15. Controls and Procedures	97
Item 16A. Audit Committee Financial Expert	97
Item 16B. Code of Ethics	97
Item 16C. Principal Accountant Fees and Services	98
Item 16D. Exemptions from the Listing Standards for Audit Committees	98
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers	98
Item 16F. Change in Registrant’s Certifying Accountant	98
Item 16G. Corporate Governance	99
Item 16H. Mine Safety Disclosure	101
Part III	101
Item 17. Financial Statements	101
Item 18. Financial Statements	101
Item 19. Exhibits	101
SIGNATURES	102

 

I

 

 

INTRODUCTION

 

Eqonex Limited (“Eqonex,” “Eqonex Group,” “the Group,” “we,” “us,” “our,” or the “Company”) is a Singapore-domiciled digital assets financial services company. Eqonex has subsidiaries in Singapore, Hong Kong, Vietnam, South Korea, United Kingdom, Germany, Switzerland, Luxembourg, Seychelles, British Virgin Islands and Gibraltar. The subsidiaries in Singapore, Hong Kong, United Kingdom, Switzerland and Vietnam are the primary operating centers. On June 16, 2021, the legal name of the company was changed from Diginex Limited to Eqonex Limited.

 

Eqonex currently operates three complementary business lines to deliver products and services to its clients: Custody, Asset Management, and Brokerage. The Custody business is composed of Digivault, an FCA registered warm and cold digital assets custodian based in the United Kingdom. The Asset Management business is composed of Bletchley Park, a Fund of Hedge Funds operating in Switzerland, and Eqonex Investment Products, which issues publicly placed exchange-traded products listed on globally recognized exchanges. The Brokerage business is made up of Eqonex OTC, an over-the counter brokerage business operating from Hong Kong and Singapore; Eqonex Lending, a borrowing and lending business; and Eqonex Structured Products, a soon-to-be launched business that offers bespoke private placements against underlying crypto assets.

 

Eqonex Group has a headcount of 157 as of July 31, 2022, with employees and contractors located in the United Kingdom, Hong Kong, Singapore, Vietnam, Switzerland, France, China, Philippines, USA, Gibraltar, Austria and Italy.

 

Recent Developments

 

On March 7, 2022, Eqonex Limited entered into strategic partnership with Bifinity UAB (“Bifinity”), a payments technology company that is part of the wider Binance group. Under the terms of the strategic partnership, Bifinity advanced a $36 million convertible loan to EQONEX and will work together to maximize business synergies with a focus on custody and asset management.

 

On August 15, 2022, Eqonex announced that it will cease operations of the EQONEX Exchange (the “Exchange”) as well as its associated liquidity risk management desk. See Item 5 of this Annual Report, “Operating and Financial Review and Prospects—Recent Developments—Ceasing Operations for the Exchange Business,” for more information.

 

On August 15, 2022, in connection with the exchange closure and in accordance with the loan agreement, Bifinity granted Eqonex a waiver for the cessation of a major business and Eqonex agreed to increase its share charge of Digivault under the loan agreement from 24.9% to 100%.

 

Current business lines

 

Unless otherwise stated, Eqonex owns 100% of all business lines discussed in this Annual Report.

 

Custody

 

Digivault (“Custody Business” or “Digivault”): Eqonex’s custody solution, Digivault, offers an institutionally focused, highly secure Digital Asset custodian. In May 2021, Digivault received approval from the UK Financial Conduct Authority (“FCA”) to register as a custodian wallet provider under the Money Laundering, Terrorist Financing and Transfer of Funds (Information of the Payer) Regulations 2017 (MLR 2017), as amended by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019. Digivault offers a cold storage solution, known as Kelvin (“Kelvin”), and a warm storage solution, known as Helios (“Helios”), for Digital Assets and targets, primarily institutional clients.

 

The assets that Digivault can provide custody services for, continue to grow and the business currently supports the following (1) blockchains: BTC, ETH, BCH, DOT, XRP, BNB Smart Chain (supported from July 2022), (2) stablecoins: USDC, USDT, TUSD, BUSD (supported from July 2022), and (3) over 70x ERC20 tokens. Support for SOL and additional BEP20 tokens are currently under development.

 

1

 

 

Asset Management

 

Bletchley Park (“Bletchley Park”): provides Digital Asset investment solutions for institutional and professional investors. Management has been undertaken from Switzerland since the final quarter of 2020 in order to be more geographically aligned with key staff and the business operates in compliance with the regulatory framework of the Organisme de Surveillance des Instituts Financiers (“OSIF”). Prior to relocation, the business was managed from Hong Kong where Eqonex continues to retain its Securities & Futures Commission of Hong Kong (“SFC”) Type 4 and Type 9 licenses. Eqonex opened its first fund of hedge funds, consisting of a selection of Digital Asset hedge funds, in November 2019. The fund’s aim is to generate positive returns irrespective of the underlying market environment by ensuring that the fund is exposed to a diverse range of alpha focused investment strategies utilized by various managers.

 

EQONEX Investment Products (“Investment Products Business” or “EQONEX Investment Products”): The Investment Products Business issues securitized products that can be accessed via traditional stock exchanges. The first such issuance was a BTC/EUR Exchange Traded Note (“ETN”) on July 11, 2022, listed on the Frankfurt Exchange.

 

Brokerage

 

EQONEX OTC (“OTC Business” or “EQONEX OTC”): The Over-The-Counter (“OTC”) Business offers broker services through a white glove experience tailored for institutions, family offices, and high-net-worth individuals.

 

EQONEX Lending (“Lending Business” or “EQONEX Lending”): The Borrowing & Lending Business launched in July 2021 and provides liquidity to borrowers and yields for lenders.

 

EQONEX Structured Products (“Structured Products Business” or “EQONEX Structured Products”): The Structured Products Business will seek to offer bespoke private placements tailored to client demand against underlying crypto assets.

 

Use of Certain Defined Terms

 

Except as otherwise indicated by the context and for the purpose of this Annual Report only, references in this Annual Report to:

 

	●	“Annual Report” are to the Company’s annual report on Form 20-F as of and for the year ended March 31, 2022.
	●	“bitcoin” or “BTC” are to the decentralized digital currency invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto;
	●	“Bletchley Park” are to the Company’s fund of hedge funds business, which provides digital asset investment solutions for institutional and professional investors;
	●	“BPAMJ” are to Bletchley Park Asset Management Jersey Limited, an asset management business owned by the Company that will be liquidated in 2022;
	●	“BPMSF” are to Bletchley Park Multi-Strategy Fund, a fund of hedge funds owned by the Company that invests in funds that trade Virtual Currencies;
	●	“Business Combination” or “Transaction” are to the transactions effected pursuant to (i) the Merger Agreement, dated October 8, 2019, by and among Diginex Limited, DIGITAL INNOVATIVE LIMITED, a British Virgin Islands business company (“BVI NewCo”), and 8i Enterprises Acquisition Corp., a British Virgin Islands business company (“JFK”), and the Plan of Merger, dated as of September 30, 2020, entered into between BVI NewCo and JFK, whereby BVI NewCo merged with and into JFK with JFK being the surviving entity and a wholly-owned subsidiary of Diginex Limited, and (ii) the Share Exchange Agreement, dated as of July 9, 2019, as amended by the Amendment and Joinder to the Share Exchange Agreement, Second Amendment to the Share Exchange Agreement, Third Amendment to the Share Exchange Agreement, and Fourth Amendment to Share Exchange Agreement, dated October 8, 2019, January 28, 2020, May 6, 2020, and June 24, 2020, respectively, by and among JFK, Diginex Limited, a Hong Kong company (“Diginex Hong Kong”), the shareholders of Diginex Hong Kong (the “Sellers”), Pelham Limited, a Hong Kong company, as representative of the Sellers, Diginex Limited and BVI NewCo, pursuant to which JFK acquired all of the issued and outstanding ordinary shares of Diginex Hong Kong owned by the Sellers in exchange for the issuance to the Sellers of an aggregate of 25,000,000 Diginex Limited ordinary shares. See Notes 1 and 36 to our consolidated financial statements contained elsewhere in this Annual Report for additional information.

 

2

 

 

	●	“Closing” are to the closing of the Business Combination;
	●	“Constitution” are to the Company’s amended and restated constitution;
	●	“Custody Business” or “Digivault” are to the Company’s Digital Asset custody solutions business;
	●	“DHPC” are to Diginex High Performance Computing Limited, a Digital Asset mining business previously owned by the Company that was partially divested in 2018;
	●	“Diginex Hong Kong” are to Diginex Limited, a corporation incorporated in Hong Kong which became a subsidiary of the Company following the closing of the Business Combination;
	●	“Digital Asset” are to a new asset class that, as of yet, have not been widely adopted, particularly by institutional investors and corporate securities issuers;
	●	“Digital Assets,” are collectively or separately as the context requires, to Digital Securities, Virtual Currencies and Stablecoins;
	●	“Digital Securities” are to securities issued in tokenized form using distributed ledger technology;
	●	“EQO” is the Company’s utility token;
	●	“EQONEX Investment Products” or “Investment Products Business” is the Company’s future investment
	●	“EQONEX Lending”, “Borrowing & Lending Business” or “Lending Business” are to the Company’s future digital assets borrowing and lending business;
	●	“EQONEX,” “Eqonex,” “Eqonex Group,” “the Group,” “we,” “us,” “our,” or the “Company” are to Eqonex Limited, a Singapore public company limited by shares;
	●	“Ether,” “Ethereum” or “ETH” are to the native cryptocurrency of the Ethereum decentralized, open-source blockchain with smart contract functionality;
	●	“Helios” are to the Company’s permanently online storage solution;
	●	“Kelvin” are to the Company’s vaulted cold storage solution, which is the conversion of access keys (private key) to Digital Assets into physical objects for safekeeping;
	●	“Madison” are to Madison Holdings Group Limited;
	●	“MAS” are to the Monetary Authority of Singapore;
	●	“Nasdaq” are to the Nasdaq Stock Market LLC.;
	●	“ordinary shares” are to the ordinary shares of the Company, with no par value per share;
	●	“public warrants” are to warrants issued on the consummation of 8i’s initial public offering and warrants issued to holders of certain 8i promissory notes converted into warrants and ordinary shares in connection with the Business Combination. Each public warrant entitles the holder thereof to purchase one-half (1/2) of one ordinary share at a price of $11.50 per full share;
	●	“private placement warrants” are to the warrants issued pursuant to the Securities Purchase Agreement, each exercisable for one ordinary share;

 

3

 

 

	●	“Solutions Business” are to the legal entities of Diginex Solutions (HK) Limited and Diginex USA LLC, together with the trademarks associated with the Diginex name;
	●	“Stablecoins” are to Virtual Currencies that have been issued using distributed ledger technology that are backed by reserve assets such as fiat currencies, Virtual Currencies or exchange-traded commodities;
	●	“Starmark” are to Starmark Investment Management Limited, an entity authorized and regulated by the UK Financial Conduct Authority which provides regulatory coverage for the Company’s capital markets business;
	●	“The Exchange,” “Exchange Business” or “EQONEX Exchange” are to the EQONEX cryptocurrency exchange;
	●	“Trading Business” are to the Company’s trading business, which consists of a risk management desk, an OTC desk;
	●	“Virtual Currencies” are to non-security tokens and digital currencies that serve as a medium of exchange, store of value or unit of account that have been issued using distributed ledger technology;
	●	“warrants” are to the warrants issued pursuant to the Securities Purchase Agreement, each exercisable for one ordinary share; and
	●	“8i”, “8i Enterprises” or “JFK” are to 8i Enterprises Acquisition Corp., a British Virgin Islands company that upon the closing of the Business Combination became a wholly-owned subsidiary of Eqonex.

 

Forward-Looking Information

 

This Annual Report includes statements that express Eqonex’s opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, the Business Combination, the benefits and synergies of the Business Combination, including anticipated cost savings, results of operations, financial condition, liquidity, prospects, growth, strategies and the markets in which the Company operates. Such forward-looking statements are based on available current market material and management’s expectations, beliefs and forecasts concerning future events impacting Eqonex. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of Eqonex to differ materially from those expressed or implied by such forward-looking statements. Potential risks and uncertainties include those generally set forth under Item 3 “Key information—D. Risk Factors” and elsewhere in this report, including without limitation:

 

	●	expectations regarding our strategies and future financial performance, including our future business plans or objectives, prospective performance and opportunities, and competitors, revenues, customer acquisition and retention, products and services, pricing, marketing plans, operating expenses, market trends, liquidity, cash flows and uses of cash, capital expenditures, and our ability to maintain access to content and manage license relationships, and to invest in growth initiatives and pursue acquisition opportunities;
	●	adverse effects to our financial condition and results of operations due to public health issues, including epidemics or pandemics such as COVID-19;
	●	adverse effects to our financial condition and results of operations due to global events, including the ongoing conflict between Russia and Ukraine;
	●	changes and uncertainties related to the laws and regulations of the People’s Republic of China (“China” or the “PRC”);
	●	the Chinese government’s potential intervention or influence over our current and future operations in Hong Kong;
	●	our future financial performance, including our expectations regarding our net revenue, operating expenses, and our ability to achieve and maintain future profitability;
	●	our business lines and our ability to effectively manage our growth;
	●	anticipated trends, growth rates, and challenges in our business, the Digital Assets economy, and in the markets in which we operate;
	●	market acceptance of our products and services;

 

4

 

 

	●	beliefs and objectives for future operations;
	●	our ability to maintain, expand, and further penetrate our existing customer base;
	●	our ability to develop new products and services and grow our business in response to changing technologies, customer demand, and competitive pressures;
	●	our expectations concerning relationships with third parties;
	●	our ability to maintain, protect, and enhance our intellectual property;
	●	our ability to continue to expand internationally;
	●	our ability to operate each of our business lines effectively;
	●	the effects of increased competition in our markets and our ability to compete effectively;
	●	future acquisitions of or investments in complementary companies, products, services, or technologies and our ability to successfully integrate such companies or assets;
	●	our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally, including environmental regulations on cryptocurrency mining;
	●	economic and industry trends, projected growth, or trend analysis;
	●	trends in revenue, cost of revenue, and gross margin;
	●	trends in operating expenses, including technology and development expenses, sales and marketing expenses, and general and administrative expenses, and expectations regarding these expenses as a percentage of revenue; and
	●	increased requirements and expenses associated with being a public company.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the Securities and Exchange Commission ( “SEC”). These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

 

Part I

 

Item 1. Identity of Directors, Senior Management and Advisers

 

Not applicable.

 

Item 2. Offer Statistics and Expected Timetable

 

Not applicable.

 

5

 

 

Item 3. Key Information

 

A. Selected Financial Data

 

Not applicable.

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D. Risk Factors

 

You should carefully consider the following risk factors, together with all of the other information included in this Annual Report. These risks could have a material adverse effect on the business, financial conditioning and results of operations of Eqonex, and could adversely affect the trading price of Eqonex’s securities.

 

Risk Factor Summary

 

Consistent with the foregoing, our business is subject to a number of risks and uncertainties, including those risks discussed at length below. These risks include, among others, the following, which we consider our most material risks:

 

	●	we have a limited operating history and have incurred operating losses since inception. Our business lines are generally unproven and are not assured to be profitable, and are subject to material legal, regulatory, operational, reputational, tax and other risks in every jurisdiction;
	●	risk relating to the ceasing of operations of EQONEX Exchange on August 15, 2022. The Exchange accounted for the a significant portion of our revenues and our shift in focus towards driving revenue growth from Custody and Asset Management Divisions may not be successful, which may adversely affect our operating results;
	●	risk relating to the Bifinity strategic partnership;
	●	our Structured Product business may not launch;
	●	risk relating to the highly volatile nature of Digital Assets, which may cause our operating results to significantly fluctuate;
	●	risk relating to our dependency on the prices of Digital Assets and the transaction volumes on our platforms. If such prices or volumes decline, our business, operating results, and financial condition would be adversely affected;
	●	risk relating to the future development of Digital Assets. If demand for Digital Assets does not grow as we expect, our business, operating results, and financial condition could be adversely affected;
	●	risks relating to cyberattacks and security breaches impacting our customers or third parties, as well as other systems and technology problems, which may materially and adversely impact our reputation and our business, operating results, and financial condition;
	●	Digital Assets and distributed ledger technology may not be widely adopted;
	●	our business lines may require regulatory licenses and qualifications that we do not currently have and that may be costly to obtain or maintain;
	●	risks relating to regulatory changes that could prevent the selling or marketing of our products. If our selling and marketing activities were restricted, our business, operating results, and financial condition could be adversely affected;
	●	risk relating to our inability to establish or maintain partnerships with entities to satisfy regulatory requirements;
	●	risk relating to changes in law or regulation, which could subject us to further regulatory requirements that are costly to comply with;

 

6

 

 

	●	risks relating to litigation and regulatory enforcement actions;
	●	risk relating to increased competition, including from new market entrants in the future, that may lead to fee compression and materially and negatively impact our business, financial condition and results of operations;
	●	risk relating to opposition from market participants towards the development of distributed ledger-based technology products and services; for example, banks or other third-party services providers may decline to provide services to companies engaged in distributed ledger-related businesses, including us;
	●	risk relating to our inability to develop technology to service our business lines;
	●	risk relating to our reliance on vendors and third-party service providers, which may cause interruption of our operations and adversely affect our business, financial condition and results of operations;
	●	risk relating to our inability to protect our proprietary rights, including from attempts to imitate our services, products and technology by our competitors;
	●	risk relating to loss of access to private keys or data loss relating to our Digital Asset investments, which may adversely affect our reputation, business, financial condition and results of operations;
	●	risk relating to our inability to effectively manage our growth;
	●	distributed ledger networks, Digital Assets and the exchanges on which such assets are traded are susceptible to system failures, security risks and rapid technological change;
	●	malicious actors could manipulate distributed ledger networks and smart contract technology upon which Digital Assets rely and increase the vulnerability of the distributed ledger networks;
	●	the network contributors for certain Digital Assets could propose amendments to the network protocols and software for Digital Assets that, if accepted and authorized by the network for the Digital Assets, could adversely affect us;
	●	Digital Assets may be used to fund criminal or terrorist enterprises or launder the proceeds of illegal activities, which would materially impact our business;
	●	political or economic crises may motivate large-scale sales of Digital Assets, which would result in a reduction in values and materially and adversely affect us;
	●	economic, political and market conditions, both in Hong Kong, Singapore and worldwide, can adversely affect our business, results of operations and financial condition;
	●	we may be adversely affected by natural disasters, pandemics (including the COVID-19 pandemic), terrorism, and other catastrophic events, and our business continuity and disaster recovery plans may not adequately protect us from serious catastrophic events;
	●	risks related to bitcoin, Ether and other Virtual Currencies or Stablecoins;
	●	regulatory authorities may never permit certain of our business lines to become operational or permit certain products to be accepted;
	●	one or more of our business lines may not, by itself or together with Eqonex’s other business lines, be able to produce sufficient cash flows to fund the capital requirements and expenditures necessary to run the business line, which will affect our business, results of operations and financial condition;
	●	one or more of our pending or future business lines may not ever become operational and our current business lines may cease to operate due to regulatory or other factors;
	●	the tax treatment of Digital Assets is unclear and could be subject to adverse tax consequences in one or more jurisdiction;
	●	Eqonex has limited experience operating as a public company and the Company’s executive officers have no past experience in operating a U.S. public company, which makes their ability to comply with applicable laws, rules and regulations uncertain;
	●	Eqonex may not be able to maintain the listing of our ordinary shares on Nasdaq; and
	●	other risks included herein which could adversely impact our reputation and our business, operating results, and financial condition.

 

7

 

 

Risks Related to Our Business, Industry and Financial Position

 

Eqonex has a limited operating history and has incurred operating losses since its inception as it has been investing in the build out of its three business lines. Its business lines are nascent, relatively unproven and subject to material legal, regulatory, operational, reputational, tax and other risks in every jurisdiction and are not assured to be profitable.

 

Eqonex has a limited operating history on which an investor might evaluate its performance. It is therefore subject to many of the risks common to early-stage enterprises, including under-capitalization, cash shortages, limitations with respect to personnel and financing sources and lack of revenues, any of which could have a material adverse effect on Eqonex and may force it to reduce or curtail its operations. Eqonex is not currently profitable and has incurred operating losses of $67.2 million for the year ended March 31, 2022 and operating loss of $64.6 million and $42.5 million for the years ended March 31, 2021 and 2020 respectively. There is no assurance that Eqonex will achieve a return on shareholders’ investments and the likelihood of success must be considered in light of the early stage of its operations. Even if Eqonex accomplishes its objectives, it may not generate positive cash flows or profits.

 

Furthermore, Eqonex’s business lines are nascent, relatively unproven and subject to material legal, regulatory, operational, reputational, tax and other risks in every jurisdiction, including those applicable due to its use of distributed ledger technology, and are not assured to be profitable. During the year ended March 31, 2022, the business generated more revenue than in prior years, though not at a material level. Eqonex may fail to develop its business lines or produce a return for its investors. It is possible that some of Eqonex’s business lines may be difficult to enter and/or it may become evident that a particular business line is not a productive use of capital or time. This could result in Eqonex modifying its business and focus away from such business lines. For Eqonex’s business lines that have access to client or counterparty assets, the regulatory requirements associated with shutting down such businesses may be costly and expose Eqonex to inquiries, investigations, lawsuits and proceedings by clients, counterparties, other third parties and regulatory and other governmental agencies.

 

From time to time, Eqonex has and may continue to launch new business lines, offer new products and services within existing business lines or undertake other strategic projects. There are substantial risks and uncertainties associated with these efforts and Eqonex could invest significant capital and resources into such efforts. Regulatory requirements can affect whether initiatives are able to be brought to market in a manner that is timely and attractive to Eqonex’s customers. Initial timetables for the development and introduction of new business lines or new products or services and price and profitability targets may not be met. New products or services may need to be initially launched on a limited basis prior to their full launch. In addition, Eqonex’s revenues and costs may fluctuate because new business lines, products and services generally require startup costs while revenues take time to develop, which may adversely impact Eqonex’s results of operations.

 

If Eqonex is unable to successfully build its business while controlling expenses, its ability to continue in business could depend on the ability to raise sufficient additional capital, obtain sufficient financing and monetize assets. There can be no guarantee that Eqonex will be able to raise funding in sufficient quantity or at acceptable terms to fund the continued development of its business lines.

 

The occurrence of any of the foregoing risks would have a material adverse effect on Eqonex’s business, financial condition and results of operations.

 

8

 

 

Our new strategic direction may not be successful, which may adversely affect our results of operations and cause our share price to decline.

 

On August 15, 2022, we announced plans to undertake a transformative restructure in which we would cease operations in our Exchange business line and associated risk liquidation management desk in order to focus on our Custody, Asset Management, and Brokerage business lines. The exchange accounted for 79.9% of our revenues in the financial year ending March 31, 2022.

 

The changes and potential changes to our operations as a result of the new strategic direction, may introduce uncertainty regarding our prospects and may result in disruption of our business. The loss of a material component of our revenues could have a material adverse impact on our operations if adequate funding or revenue is not obtained. As a result of these or other similar risks, our business, results of operations and financial condition may be adversely affected.

 

Our strategic transaction with Bifinity may not achieve the anticipated benefits and we may not complete discussions to explore potential merger opportunities.

 

On March 7, 2022, we announced a strategic partnership with Bifinity, a payments technology company that is part of the wider Binance Group and the official fiat-to-crypto payments provider for Binance. The strategic partnership will initially focus on leveraging Digivault as an FCA regulated custodian and expanding Bifinity’s geographical footprint through our licensing framework. Both parties will also explore opportunities to grow Eqonex’s digital asset management solutions business. Both companies will continue to engage in non-binding discussions to explore potential merger opportunities, subject to regulatory approval.

 

Eqonex may not achieve any benefits from its strategic partnership with Bifinity. While the parties are having ongoing discussions on these fronts, it is possible that they may not ultimately achieve any sustainable commercial benefits for Eqonex. Furthermore, Eqonex and Bifinity may not ultimately enter into a merger transaction in the event that regulatory approvals are not obtained in a timely manner, and/or if the commercial benefits to both parties from such a merger transaction are no longer compelling. The strategic partnership and merger discussions could be terminated at any time by either party. Furthermore, even if such merger or other transaction were to occur, there is no certainty that such transaction would be beneficial to Eqonex.

 

Bifinity may not convert its loan to equity and as a result Eqonex may be forced to repay $36 million, which would have an adverse impact on the Company’s operations and financial position.

 

Under the terms of the strategic partnership, Bifinity would advance a $36 million convertible loan over a series of drawdowns.

 

Bifinity is under no obligation to exercise such conversion and Eqonex may have to repay the $36 million loan, with interest. Repayment of the loan would force Eqonex to seek additional funding for the repayment of the loan and continued operations. Eqonex may be forced to obtain funding on unfavorable terms, and may not be able to find funding at all. Should Eqonex be unable to repay the loan, or otherwise find funding, our business, results of operations and financial condition may be adversely affected.

 

9

 

 

Our operating results have and will significantly fluctuate due to the highly volatile nature of Digital Assets.

 

All of our sources of revenue are dependent on Digital Assets and the broader decentralized ledger ecosystem. Due to the highly volatile nature of the decentralized ledger economy and the prices of Digital Assets, our operating results have, and may continue to, fluctuate significantly from month to month in accordance with market sentiments and movements of the prices of Digital Assets.

 

Over the last 12 months, the broader crypto economy has seen a substantial decrease in value. Many cryptocurrencies have lost significant value. For example, BTC is down 57% from January 1 to July 1, and ETH is down 71% over the same period. Such fluctuations in the global crypto economy have had, and may continue to have, a material adverse impact on our business, results of operations, and financial condition.

 

Our operating results may continue to fluctuate significantly as a result of a variety of factors, many of which are unpredictable and in certain instances are outside of our control, including without limitation:

 

	●	macroeconomic conditions;
	●	our dependence on offerings that are dependent on Digital Assets trading activity, including trading volume and the prevailing trading prices for Digital Assets, whose trading prices and volume can be highly volatile;
	●	our ability to attract, maintain, and grow our customer base and engage our customers;
	●	changes in the legislative or regulatory environment, or actions by governments or regulators, including fines, orders, or consent decrees;
	●	regulatory changes that impact our ability to offer certain products or services;
	●	pricing for our products and services;
	●	investments we make in the development of products and services as well as technology offered to our customers, international expansion, and sales and marketing;
	●	adding and removing of Digital Assets on our platforms;
	●	adverse legal proceedings or regulatory enforcement actions, judgments, settlements, or other legal proceeding and enforcement-related costs;
	●	the development and introduction of existing and new products and services by us or our competitors;
	●	increases in operating expenses that we expect to incur to grow and expand our operations and to remain competitive;
	●	system failure or outages, including with respect to our Digital Assets platforms and third-party Digital Asset networks;
	●	breaches of security or privacy;
	●	inaccessibility of our platforms due to our or third-party actions;
	●	our ability to attract and retain talent; and
	●	our ability to compete with our competitors.

 

As a result of these factors, it is difficult for us to forecast growth trends accurately and our business and future prospects are difficult to evaluate, particularly in the short term. In view of the rapidly evolving nature of our business and the distributed ledger technologies, period-to-period comparisons of our operating results may not be meaningful, and you should not rely upon them as an indication of future performance. Monthly and annual expenses reflected in our financial statements may be significantly different from historical or projected rates. Our operating results in one or more future periods may fall below the expectations of securities analysts and investors. As a result, the trading price of our common stock may decrease significantly.

 

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Our net revenue is substantially dependent on the prices of Digital Assets conducted on our platform. If such price or volume declines, our business, operating results, and financial condition would be adversely affected.

 

Transaction revenue is based on transaction fees that is calculated as a percentage of the value of each transaction. For our OTC brokerage product, we also charge a spread to ensure that we are able to settle purchases and sales at the price we quote to customers. We also generate net revenue from our Custody and Asset Management divisions and, while revenue from these divisions have not been significant to date, most of this revenue will also fluctuate based on the price of Digital Assets. As such, any declines in the volume of Digital Asset transactions, the price of Digital Assets, or market liquidity for Digital Assets generally may result in lower net revenue to us.

 

The price of Digital Assets and associated demand for buying, selling, and trading Digital Assets has historically been subject to significant volatility. The price and trading volume of any Digital Assets is subject to significant uncertainty and volatility, depending on a number of factors, including without limitation:

 

	●	market conditions across the Digital Assets ecosystem, which have become increasingly volatile;
	●	changes in liquidity, market-making volume, and trading activities;
	●	trading activities on other Digital Asset platforms worldwide, many of which may be unregulated, and may include manipulative activities;
	●	investment and trading activities of highly active retail and institutional users, speculators, miners, and investors;
	●	the speed and rate at which Digital Assets is able to gain adoption as a medium of exchange, utility, store of value, consumption asset, security instrument, or other financial assets worldwide, if at all;
	●	decreased user and investor confidence in Digital Assets and Digital Asset platforms;
	●	negative publicity and events relating to the Digital Assets ecosystem;
	●	unpredictable social media coverage or “trending” of Digital Assets;
	●	the ability for Digital Assets to meet user and investor demands;
	●	inflation and global economic conditions;
	●	global conflicts, including Russia’s invasion of Ukraine;
	●	the functionality and utility of Digital Assets and their associated ecosystems and networks, including Digital Assets designed for use in various applications;
	●	consumer preferences and perceived value of Digital Assets and Digital Asset markets;
	●	increased competition from other payment services or other Digital Assets that exhibit better speed, security, scalability, or other characteristics;
	●	regulatory or legislative changes and updates affecting the Digital Assets economy;
	●	the characterization of Digital Assets under the laws of various jurisdictions around the world;
	●	the maintenance, troubleshooting, and development of the blockchain networks underlying Digital Assets, including by miners, validators, and developers worldwide;
	●	the ability for Digital Asset networks to attract and retain miners or validators to secure and confirm transactions accurately and efficiently;
	●	ongoing technological viability and security of Digital Assets and their associated smart contracts, applications and networks, including vulnerabilities against hacks and scalability;
	●	fees and speed associated with processing Digital Asset transactions, including on the underlying blockchain networks and on Digital Asset platforms;

 

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	●	financial strength of market participants;
	●	the availability and cost of funding and capital, which may be impacted by the increased volatility in the capital markets;
	●	the liquidity of Digital Asset platforms;
	●	interruptions in service from or failures of major Digital Asset platforms;
	●	availability of an active derivatives market for various Digital Assets;
	●	availability of banking and payment services to support Digital Asset-related projects;
	●	level of interest rates and inflation;
	●	monetary policies of governments, trade restrictions, and fiat currency devaluations; and
	●	national and international economic and political conditions.

 

There is no assurance that any supported Digital Asset will maintain its value or that there will be meaningful levels of trading activities. In the event that the price of Digital Assets or the demand for trading Digital Assets decline, our business, operating results, and financial condition would be adversely affected.

 

The future development and growth of Digital Assets is subject to a variety of factors that are difficult to predict and evaluate. If Digital Assets do not grow as we expect, our business, operating results, and financial condition could be adversely affected.

 

Virtual Currencies built on blockchain technology were only introduced in 2008 and remain in the early stages of development. In addition, different Digital Assets are designed for different purposes. Bitcoin, for instance, was designed to serve as a peer-to-peer electronic cash system, while Ethereum was designed to be a smart contract and decentralized application platform. Many other Digital Asset networks—ranging from cloud computing to tokenized securities networks—have only recently been established. The further growth and development of any Digital Assets and their underlying networks and other cryptographic and algorithmic protocols governing the creation, transfer, and usage of Digital Assets represent a new and evolving paradigm that is subject to a variety of factors that are difficult to evaluate, including, without limitation:

 

	●	Many Digital Asset networks have limited operating histories and are still in the process of developing and making significant decisions that will affect the design, supply, issuance, functionality, and governance of their respective Digital Assets and underlying blockchain networks, any of which could adversely affect their respective Digital Assets.
	●	Many Digital Asset networks are in the process of implementing software upgrades and other changes to their protocols, which could introduce bugs, security risks, or adversely affect the respective Digital Asset networks.
	●	Several large networks, including bitcoin and Ethereum, are developing new features to address fundamental speed, scalability, and energy usage issues. If these issues are not successfully addressed, or are unable to receive widespread adoption, it could adversely affect the underlying Digital Assets.
	●	Security issues, bugs, and software errors have been identified with many Digital Assets and their underlying blockchain networks, some of which have been exploited by malicious actors. There are also inherent security weaknesses in some Digital Assets, such as when creators of certain Digital Asset networks use procedures that could allow hackers to counterfeit tokens. Any weaknesses identified with a Digital Asset could adversely affect its price, security, liquidity, and adoption. If a malicious actor obtains a majority of the compute or staking power on a Digital Asset network, as has happened in the past, it may be able to manipulate transactions, which could cause financial losses to holders, damage the network’s reputation and security, and adversely affect its value.
	●	The development of new technologies for mining, or changes in industry patterns, such as the consolidation of mining power in a small number of large mining farms, could reduce the security of blockchain networks, lead to increased liquid supply of Digital Assets, and reduce a Digital Asset’s price and attractiveness.
	●	If rewards and transaction fees for miners or validators on any particular Digital Asset network are not sufficiently high to attract and retain miners, a Digital Asset network’s security and speed may be adversely affected, increasing the likelihood of a malicious attack.

 

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	●	Many Digital Assets have concentrated ownership or an “admin key”, allowing a small group of holders to have significant unilateral control and influence over key decisions relating to their Digital Asset networks, such as governance decisions and protocol changes, as well as the market price of such Digital Assets.
	●	The governance of many decentralized blockchain networks is by voluntary consensus and open competition, and many developers are not directly compensated for their contributions. As a result, there may be a lack of consensus or clarity on the governance of any particular Digital Asset network, a lack of incentives for developers to maintain or develop the network, and other unforeseen issues, any of which could result in unexpected or undesirable errors, bugs, or changes, or stymie such network’s utility and ability to respond to challenges and grow.
	●	Many Digital Asset networks are in the early stages of developing partnerships and collaborations, all of which may not succeed and adversely affect the usability and adoption of the respective Digital Assets.
	●	Various other technical issues have also been uncovered from time to time that resulted in disabled functionalities, exposure of certain users’ personal information, theft of users’ assets, and other negative consequences, and which required resolution with the attention and efforts of their global miner, user, and development communities. If any such risks or other risks materialize, and in particular if they are not resolved, the development and growth of Digital Asset may be significantly affected and, as a result, our business, operating results, and financial condition could be adversely affected.

 

Cyberattacks and security breaches of our platform, or those impacting our customers or third parties, could adversely impact our brand and reputation and our business, operating results, and financial condition.

 

Our business involves the collection, storage, processing, and transmission of confidential information, customer, employee, service provider, and other personal data, as well as information required to access customer assets. We have built our reputation on the premise that our platform offers customers a secure way to purchase, store, and transact in Digital Assets. As a result, any actual or perceived security breach of us or our third-party partners may, among others:

 

	●	harm our reputation and brand;
	●	result in our systems or services being unavailable and interrupt our operations;
	●	result in improper disclosure of data and violations of applicable privacy and other laws;
	●	result in significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, and financial exposure;
	●	cause us to incur significant remediation costs;
	●	lead to theft or irretrievable loss of our or our customers’ fiat currencies or Digital Assets;
	●	reduce customer confidence in, or decreased use of, our products and services;
	●	divert the attention of management from the operation of our business;
	●	result in significant compensation or contractual penalties from us to our customers or third parties as a result of losses to them or claims by them; and
	●	adversely affect our business and operating results.

 

Further, any actual or perceived breach or cybersecurity attack directed at other financial institutions or Digital Asset companies, whether or not we are directly impacted, could lead to a general loss of customer confidence in the Digital Assets economy or in the use of technology to conduct financial transactions, which could negatively impact us, including the market perception of the effectiveness of our security measures and technology infrastructure.

 

An increasing number of organizations, including large merchants, businesses, technology companies, and financial institutions, as well as government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on their websites, mobile applications, and infrastructure.

 

13

 

 

Attacks upon systems across a variety of industries, including the Digital Asset industry, are increasing in their frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded, and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper, or illegal access to systems and information (including customers’ personal data and Digital Assets), disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on our systems or those of our third-party service providers or partners. Certain types of cyberattacks could harm us even if our systems are left undisturbed. For example, attacks may be designed to deceive employees and service providers into releasing control of our systems to a hacker, while others may aim to introduce computer viruses or malware into our systems with a view to stealing confidential or proprietary data. Additionally, certain threats are designed to remain dormant or undetectable until launched against a target and we may not be able to implement adequate preventative measures.

 

Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security breaches, effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security or prevent breaches or attacks. We have experienced from time to time, and may experience in the future, breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities, or other irregularities. Unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to our systems and facilities, as well as those of our customers, partners, and third-party service providers, through various means, including hacking, social engineering, phishing, and attempting to fraudulently induce individuals (including employees, service providers, and our customers) into disclosing usernames, passwords, payment card information, or other sensitive information, which may in turn be used to access our information technology systems and customers’ Digital Assets. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. Certain threat actors may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. Further, there has been an increase in such activities as a result of the novel coronavirus, or COVID-19, pandemic. As a result, our costs and the resources we devote to protecting against these advanced threats and their consequences may continue to increase over time.

 

Although we maintain insurance coverage that we believe is adequate for the current stage of development of our business, it may be insufficient to protect us against all losses and costs stemming from system failures, security breaches, cyberattacks, and other types of unlawful activity, or any resulting disruptions from such events. Outages and disruptions of our platform, including any caused by cyberattacks, may harm our reputation and our business, operating results, and financial condition.

 

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Risks Related to Eqonex’s Business Divisions, Business Lines and Industry

 

One or more of Eqonex’s business lines may not produce sufficient cash flows to fund the capital requirements and expenditures necessary to run the business.

 

There can be no guarantee that Eqonex’s business lines, individually or together with our other business lines will be able to produce sufficient cash flows to fund the capital requirements and expenditures necessary to run the business. On August 15, 2022, the Company announced the closure of EQONEX Exchange, which accounted for $4.2 million or approximately 79.9% of net revenues during the fiscal year ended March 31, 2022. Furthermore, Eqonex may not have or may not be able to obtain the technical skills, expertise, or regulatory approvals needed to successfully or fully develop its business lines. While Eqonex has sought to retain and continues to recruit experts, there may, from time to time, be a scarcity of management, technical, scientific, research and marketing personnel with appropriate training to develop and maintain development of its business lines. In addition, there are significant legal and regulatory considerations that will need to be addressed in order to develop and maintain its business lines and addressing such considerations will require significant time and resources. If Eqonex is not successful in its efforts to fully develop one or more of its business lines in a way that is compliant with all regulatory and legal requirements, and demonstrate to users the utility and value of such business, or there is not sufficient demand for the business line to be commercially viable, one or more business line may not be viable, which could have an adverse effect on the Eqonex’s overall business, financial condition and results of operations.

 

Digital Assets and distributed ledger technology may not be widely adopted.

 

Digital Assets are a relatively new asset class that, as of yet, have not been widely adopted, particularly by institutional investors and corporate securities issuers. The majority of Eqonex’s business lines rely, or will rely, on the acceptance and use by such investors and issuers of Digital Assets at a scale to create demand for Eqonex’s products and services sufficient to make Eqonex’s business lines commercially viable. Though Eqonex believes that the anticipated benefits of Digital Assets will create such demand, there can be no assurance that this will occur, or if it does occur that it will be in the near term.

 

Furthermore, the growth of the distributed ledger industry in general, as well as the protocol technology on which Eqonex will rely, is subject to a high degree of uncertainty. The factors affecting the further development of these protocols and, therefore, Digital Assets, include, without limitation:

 

	●	worldwide growth in the adoption and use of Digital Assets and distributed ledger technology and its associated protocols;
	●	government and quasi-government regulation of Digital Assets and distributed ledger technology and their use, or restrictions on or regulation of access to and operation of distributed ledger technology or similar systems;
	●	the maintenance and development of the open-source software protocol of smart contracts;
	●	banking restrictions on companies operating in this industry;
	●	changes in consumer demographics and public tastes and preferences;
	●	the availability and popularity of other forms or methods of buying and selling goods and services, or trading assets including new means of using government-backed currencies or existing networks;
	●	general economic conditions and the regulatory environment relating to Digital Assets; and
	●	a decline in the popularity or acceptance of Digital Assets.

 

The distributed ledger industry as a whole has been characterized by rapid changes and innovations and is constantly evolving. Although it has experienced significant growth in recent years, the slowing or stopping of the development, general acceptance and adoption and usage of distributed ledger technology and Digital Assets may have a materially adverse effect on Eqonex’s business plans.

 

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Eqonex’s business lines may require regulatory licenses and qualifications that Eqonex does not currently have and that may be costly and time-consuming to obtain and, even if obtained, may subsequently be revoked.

 

Eqonex’s business lines involve certain activities which require regulatory licenses and qualifications such as custody services, asset management and brokerage services. These activities are subject to material, costly and constraining financial regulation in jurisdictions worldwide. The process of acquiring and maintaining these licenses and qualifications will be costly and time-consuming, will occupy material management attention and is not certain to be successful. Eqonex may not meet the requirements for such licenses or qualifications, including, for example, minimum capital requirements, or may fail to secure discretionary approval of relevant regulatory bodies. A failure or delay in receiving approval for a license or qualification, or approval that is more limited in scope than initially requested, or subsequently limited or rescinded, could have a significant and negative effect on Eqonex, including the risk that a competitor gains a first-mover advantage. The time it takes to receive regulatory approval may also be difficult to plan for and further delayed due to limited regulator’s resources.

 

In particular, Eqonex is or will be seeking the following licenses:

 

	●	Singapore:
			Brokerage Business (OTC spot)
				■	Major Payment Institution license pursuant to the Payment Services Act (on-going)
	●	United Kingdom:
			Custody Business – additional products (submission in Q4 2022)
				■	Safeguarding and Administering Investments license pursuant to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
	●	Gibraltar
			Brokerage Business – Lending (OTC derivatives to be added)
				■	License to operate as a DLT Provider under the Financial Services (Distributed Ledger Technology Providers (ongoing)

 

The law and regulation surrounding the operation of Eqonex’s businesses with respect to Digital Assets is rapidly evolving and not assured to develop in a way that is favorable to Eqonex. The anticipated business activities of Eqonex may cause regulatory bodies to delay, or refuse to issue, licenses and qualifications to Eqonex that it would otherwise receive. For example, a regulatory authority may delay or refuse to issue a brokerage license to Eqonex due to concerns about its focus on digital assets as opposed to more traditional securities. There is a risk that Eqonex’s business could be outlawed in jurisdictions in which it seeks to do business, which could materially affect Eqonex’s ability to expand its business and become profitable.

 

When a decision to enter a jurisdiction is made, Eqonex may utilize local law firms to ensure it is informed of the local regulatory requirements needed to operate therein. Eqonex also maintains regular communications with the regulators in the jurisdictions in which it holds or wishes to seek licenses. In addition, to ensure that Eqonex maintains regulatory compliance, Eqonex has built internal capabilities to monitor regulatory changes as well as obtaining supplementary support from external experts. Eqonex’s business lines have developed a regulatory roadmap to identify additional relevant licenses and qualifications they will need to operate; however, this has been done for only a small number of jurisdictions and significant further investment will be needed. This may result in unplanned costs and/or delayed or cancelled launches into particular jurisdictions.

 

Eqonex’s senior management come from multi-jurisdictional regulated financial service institutions. As such, Eqonex’s senior management have accumulated experience in operating within a regulated environment and understand the importance of compliance with regulations, including securities.

 

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Eqonex may be unable to establish or maintain partnerships with entities to satisfy regulatory requirements.

 

To the extent it is unable or not cost-effective to procure the necessary licenses or qualifications to conduct its business in jurisdictions any of Eqonex’s business lines seek to enter, Eqonex plans to partner with existing entities that have such licenses or qualifications to enable it to offer its products and services. However, there can be no assurance that it will be able to do so, or that it will be able to do so now, in the future or at an acceptable price. Prospective partners may (i) not exist, (ii) be unwilling or unable to engage in activities involving distributed ledger technology, (iii) not offer terms that are acceptable to Eqonex, (iv) have a conflict of interest with one or more of Eqonex’s business lines that makes such a partnership impermissible, (v) be otherwise unable or unwilling to partner with Eqonex, or (vi) terminate their relationship with Eqonex. If Eqonex is not able to establish and maintain such partnerships, it may be unable to pursue its business in certain jurisdictions which could have a material adverse effect on its business, financial condition and results of operations.

 

Where Eqonex does not obtain licenses, and seeks to build partnerships with regulated firms such as Starmark Investment Management Limited in the United Kingdom, which provides regulatory coverage for certain activities carried out in the United Kingdom through an umbrella licensing scheme, a risk exists that a partner may lose its own regulatory status for reasons beyond Eqonex’s control, or a partner may choose to exit from a partnership that it establishes with Eqonex, either of which may leave Eqonex without regulatory cover to provide services within the market the partner supports.

 

Changes in law or regulation could subject Eqonex to further material, costly and constraining regulation, licensing qualifications and other requirements.

 

Legal or regulatory changes or interpretations of Eqonex’s existing and planned activities could require the licensing or qualification of Eqonex, or impose costly and contradictory regulatory burdens on Eqonex, outside of management’s current expectations. In addition, jurisdictions that do not currently require licensing or qualifications to conduct Eqonex’s existing and planned activities may adopt regulatory regimes that do require them. Meeting such additional requirements could cause Eqonex to incur additional expenses, which could materially and adversely affect its business, financial condition and results of operations. In addition, even where activities have been approved and obtained necessary licenses, a change in the legal framework may render such activities illegal or no longer economically sustainable.

 

Eqonex faces substantial litigation and regulatory risks.

 

As an enterprise whose material business lines include financial services, Eqonex depends to a significant extent on its relationships with its clients and its reputation for integrity and high-caliber professional services. As a result, if a client is not satisfied with Eqonex’s services or if there are allegations of improper conduct, including improper conduct by any of Eqonex’s partners, by private litigants or regulators, whether the ultimate outcome is favorable or unfavorable to Eqonex, or if there is negative publicity and press speculation about Eqonex, whether or not valid, it may harm Eqonex’s reputation and may be more damaging to Eqonex than to businesses in other, non-financial industries.

 

Many of Eqonex’s business lines are subject to significant regulation and oversight, including periodic examination by regulatory authorities. Eqonex could be the subject of inquiries, investigations, sanctions, cease and desist orders, terminations of licenses or qualifications, lawsuits and proceedings by counterparties, clients, other third parties and regulatory and other governmental agencies, which could lead to increased expenses or reputational damage. Responding to inquiries, investigations, audits, lawsuits and proceedings, regardless of the ultimate outcome of the matter, is time-consuming and expensive and can divert the attention of senior management. The outcome of such proceedings may be difficult to predict or estimate until late in the proceedings, which may last a number of years.

 

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The risks described above may be greater for companies in the distributed ledger industry as it is relatively new and clients, counterparties and regulators are expected to need significant education to understand the mechanics of products and services that rely on distributed ledger technology.

 

Furthermore, while Eqonex maintains insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject to various exclusions as well as caps on amounts refundable. Even if Eqonex believes a claim is covered by insurance, insurers may dispute Eqonex’s entitlement for a variety of different reasons, which may affect the timing and, if the insurers prevail, the amount of Eqonex’s recovery. Any claims or litigation, even if fully indemnified or insured, could damage Eqonex’s reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.

 

If Eqonex and/or any governmental agency believe that it has accepted capital contributions by, or is otherwise holdings assets of, any person or entity that is acting directly or indirectly in violation of any money laundering or corruption laws, rules, regulations, treaties, sanctions or other restrictions, or on behalf of any suspected terrorist or terrorist organization, suspected drug trafficker or senior foreign political figure(s) suspected in engaging in foreign corruption, Eqonex and/or such governmental agency may “freeze the assets” of such person or entity. Eqonex may also be required to report and remit or transfer those assets to a governmental agency. Any such action may harm Eqonex’s reputation and materially and adversely affect its business, financial condition and results of operations.

 

Some market participants may oppose the development of distributed ledger-based technology products and services like those central to Eqonex’s business lines, which could adversely affect Eqonex’s ability to do business.

 

Many participants in the financial industry (including certain regulators) and other industries may oppose the development of products and services that utilize distributed ledger technology. The market participants who may oppose such products and services may include entities with significantly greater resources, including financial resources and political influence, than Eqonex has. The ability of Eqonex to operate and achieve its commercial goals could be adversely affected by any actions of any such market participants that result in additional regulatory requirements or other activities that make it more difficult for Eqonex to operate.

 

Eqonex may not successfully develop technology to service its business lines.

 

Eqonex relies heavily on the use of technology that it has created or plans to create by itself or with other third-parties as much of the existing technology for the financial services business was not built to service Digital Assets, which require a unique set of considerations. If Eqonex’s technology solutions do not work as planned, or do not meet or continue to meet the level of quality required by Eqonex, its clients or its regulators, it may make transacting business less efficient, more expensive and potentially prone to errors, thereby reducing the positive effects Eqonex seeks to make available to its clients through the adoption of distributed ledger technology.

 

Eqonex may not be able to keep pace with rapidly changing technology and client or regulatory requirements.

 

Eqonex’s success depends on its ability to develop new products and services for its business lines, while improving the performance and cost-effectiveness of its existing products and services, in each case in ways that address current and anticipated client and regulatory requirements. Such success is dependent upon several factors, including functionality, competitive pricing, licensing and integration with existing and emerging technologies. The distributed ledger industry is characterized by rapid technological change, and new technologies could emerge that might enable Eqonex’s competitors to offer products and services with better combinations of price and performance, or that better address client requirements, than Eqonex’s products and services. Competitors may be able to respond more quickly and effectively than Eqonex can to new or changing opportunities, technologies, standards or client requirements.

 

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Due to the significant lead time involved in bringing a new product or service to market, Eqonex is required to make a number of assumptions and estimates regarding the commercial feasibility of new products and services. As a result, it is possible that Eqonex may introduce a new product or service that uses technologies that have been displaced by the time of launch, addresses a market that no longer exists or is smaller than previously thought or otherwise is not competitive at the time of launch. The expenses or losses associated with an unsuccessful product or service development or launch, or a lack of market acceptance of Eqonex’s new products and services, could adversely affect Eqonex’s business, financial condition or results of operations.

 

Eqonex’s ability to attract new clients and increase revenue from existing clients also depends on its ability to deliver any enhanced or new products and services to its clients in a format where they can be easily and consistently deployed by most or all clients without significant client service. If Eqonex’s clients believe that deploying its products and services would be overly time-consuming, confusing or technically challenging, then Eqonex’s ability to grow its business would be substantially harmed.

 

Cybersecurity incidents and other systems and technology problems may materially and adversely affect Eqonex.

 

Cybersecurity incidents and cyber-attacks have been occurring globally at a more frequent and severe level and will likely continue to increase in frequency in the future. The distributed ledger industry is a particular target for cybersecurity incidents, which may occur through intentional or unintentional acts by individuals or groups having authorized or unauthorized access to Eqonex’s systems or Eqonex’s clients’ or counterparties’ information, all of which may include confidential information. These individuals or groups include employees, third-party service providers, customers and hackers. The information and technology systems used by Eqonex and its service providers are vulnerable to unauthorized access, damage or interruption from, among other things: hacking, ransomware, malware and other computer viruses; denial of service attacks; network failures; computer and telecommunication failures; phishing attacks; infiltration by unauthorized persons; fraud; security breaches; usage errors by their respective professionals; power outages; terrorism; and catastrophic events such as fires, tornadoes, floods, hurricanes and earthquakes. Recently, the virtual currency exchange industry has become a significant target for fraud. To date, Eqonex has only experienced phishing incidents, none of which have been material. While Eqonex deploys a range of defenses, it is possible Eqonex could suffer an impact or disruption that could materially and adversely affect Eqonex. The security of the information and technology systems used by Eqonex and its service providers may continue to be subjected to cybersecurity threats that could result in material failures or disruptions in Eqonex’s business. If these systems are compromised, become inoperable for extended periods of time or cease to function properly, Eqonex or a service provider may have to make a significant investment to fix or replace them. As a company whose material business lines include financial services, Eqonex has and will continue to have access to sensitive, confidential information of clients and counterparties and, in certain business lines, access to such clients and counterparties’ assets, which makes the cybersecurity risks identified above more important than they may be to other non-financial services companies.

 

Concerns about Eqonex’s practices regarding the collection use, disclosure, or safekeeping of confidential information, personal data, and assets, even if unfounded, could adversely affect its operating results. Furthermore, failures of Eqonex’s cybersecurity system could harm Eqonex’s reputation, subject it to legal claims and otherwise materially and adversely affect Eqonex’s business, financial condition and results of operations.

 

Eqonex may face the risk that one or more competitors have or will obtain patents covering technology critical to the operation of one or more of its business lines and that it may infringe on the intellectual property rights of others.

 

If one or more other persons, companies or organizations has or obtains a valid patent covering technology critical to the operation of one or more of Eqonex’s business lines, there can be no guarantee that such an entity would be willing to license such technology at acceptable prices or at all, which could have a material adverse effect on Eqonex’s business, financial condition and results of operations. Moreover, if for any reason Eqonex were to fail to comply with its obligations under an applicable agreement, it may be unable to operate, which would also have a material adverse effect on Eqonex’s business, financial condition and results of operations.

 

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Due to the fundamentally open-source nature of distributed ledger technology, Eqonex may not always be able to determine that it is using or accessing protected information or software. For example, there could be issued patents of which Eqonex is not aware that its products infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may currently be pending applications of which Eqonex is unaware that may later result in issued patents that its products infringe.

 

Eqonex could expend significant resources defending against patent infringement and other intellectual property right claims, which could require it to divert resources away from operations. Any damages Eqonex is required to pay or injunctions against its continued use of such intellectual property in resolution of such claims may cause a material adverse effect to its business, financial condition and results of operations.

 

Managing different business lines could present conflicts of interest.

 

Eqonex has built and continues to develop its three divisions consisting of various products and services. While Eqonex will take steps to prevent or mitigate conflicts of interests, there are certain inherent and potential conflicts of interest in managing different business lines. Due to the broad scope of Eqonex’s current and anticipated business lines, potential conflicts of interest include situations where its services to a particular client, or Eqonex’s own investments or other interests, conflict, or are perceived to conflict, with the interests of another client, as well as situations where one or more of Eqonex’s business lines have access to material non-public information that may not be shared with its other business lines and situations where Eqonex may be an investor in an entity with which it also has an advisory or other relationship. Furthermore, the allocation of investment opportunities among its investors could also present a conflict of interest. In managing these different conflicts, fiduciary duty obligations may require Eqonex to resolve conflicts in favor of clients over itself or other third parties. Employees and executives may also have conflicts of interest in allocating their time and activity between the business lines. Appropriately identifying and dealing with conflicts of interest is complex and difficult, and Eqonex’s reputation could be damaged and the willingness of clients to enter into transactions with Eqonex may be affected if Eqonex fails, or appears to fail, to identify, disclose and deal appropriately with conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or regulatory enforcement actions. As a result, failures to appropriately identify and address potential conflicts of interest could materially adversely affect Eqonex’s business, financial condition and results of operations.

 

The regulation of Digital Assets and distributed ledger technology continues to evolve in every jurisdiction, and regulatory changes or actions may restrict the use of Digital Assets, the operation of distributed ledger technology that supports such Digital Assets and platforms that facilitate the trading of such Digital Assets.

 

As distributed ledger technology and Digital Assets have grown in popularity and in market size, governments, regulators and self-regulators (including law enforcement and national security agencies) around the world are examining the operations of distributed ledger technology and Digital Assets issuers, users, investors and platforms. To the extent that any government or quasi-governmental agency exerts regulatory authority over the Digital Asset industry in general, the issuance of Digital Assets, and trading and ownership of and transactions involving the purchase and sale or pledge of such Digital Assets, may be adversely affected, which could materially and adversely affect Eqonex’s business, financial condition and results of operations.

 

The prices of Digital Assets are extremely volatile. Fluctuations in the price of Digital Assets could materially and adversely affect Eqonex’s business.

 

The prices of Virtual Currencies, such as bitcoin and Ether, and other Digital Assets have historically been subject to dramatic fluctuations and are highly volatile. A decrease in the price of a single Digital Asset may cause volatility in the entire Digital Asset industry. For example, a security breach that affects purchaser or user confidence in bitcoin or ether may affect the industry as a whole. This volatility may adversely affect interest in and demand for the products and services Eqonex currently operates and seeks to offer, which would materially and adversely affect Eqonex’s business, financial condition and results of operations.

 

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Distributed ledger networks, Digital Assets and the exchanges on which such assets are traded are dependent on internet infrastructure and susceptible to system failures, security risks and rapid technological change.

 

The success of distributed ledger technology-based products and services will depend on the continued development of a stable infrastructure, with the necessary speed, data capacity and security, and complementary products such as high-speed networking equipment for providing reliable internet access and services. Digital Assets have experienced, and are expected to continue to experience, significant growth in the number of users and amount of content. There is no assurance that the relevant public infrastructure will continue to be able to support the demands placed on it by this continued growth or that the performance or reliability of distributed ledger technology will not be adversely affected by this continued growth. There is also no assurance that the infrastructure or complementary products or services necessary to make Digital Assets a viable product for their intended use will be developed in a timely manner, or that such development will not result in the requirement of incurring substantial costs to adapt to changing technologies. The failure of these technologies or platforms or their development could materially and adversely affect Eqonex’s business, financial condition and results of operation.

 

Furthermore, Digital Assets are created, issued, transmitted, and stored according to protocols run by nodes within the blockchain network. It is possible these protocols have undiscovered flaws or could be subject to network scale attacks which could result in losses to Eqonex. Finally, advancements in quantum computing could break the cryptographic rules of protocols that support certain Digital Assets.

 

Malicious actors could manipulate distributed ledger networks and smart contract technology upon which Digital Assets rely and increase the vulnerability of the distributed ledger networks.

 

If a malicious actor, including a state-sponsored actor, is able to hack or otherwise exert unilateral control over a particular distributed ledger network, or the Digital Assets on such a network, that actor could attempt to divert assets from that distributed ledger or otherwise prevent the confirmation of transactions recorded on that distributed ledger. Such an event could materially and adversely affect Eqonex’s business. Digital Assets have been the subject of attempted manipulation by hackers to use them for malicious purposes. For example, misuses could occur if a malicious actor obtains a majority of the processing power controlling the Digital Asset validating activities and altering the distributed ledger on which Digital Asset transactions rely. Moreover, if the award for solving transaction blocks for a particular Digital Asset declines, and transaction fees are not sufficiently high, the incentive to continue validating distributed ledger transactions would decrease and could lead to a stoppage of validation activities. The collective processing power of that distributed ledger would be reduced, which would adversely affect the confirmation process for transactions by decreasing the speed of the adaptation and adjustment in the difficulty for transaction block solutions. Such slower adjustments would make the distributed ledger network more vulnerable to malicious actors’ obtaining control of the processing power over distributed ledger network processing.

 

The network contributors for certain Digital Assets could propose amendments to the network protocols and software for Digital Assets that, if accepted and authorized by the network for the Digital Assets, could adversely affect Eqonex.

 

The networks for certain Digital Assets are based on a protocol governing the peer-to-peer interactions between computers connected to each other within that network. The development team for a network (if any) might propose and implement amendments to a network’s source code through software upgrades altering the original protocol, including fundamental ideas such as the irreversibility of transactions and limitations on the validation of blockchain software distributed ledgers. Such changes to original protocols and software could materially and adversely affect Eqonex’s business.

 

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Banks or other third-party services providers may decline to provide services to companies engaged in distributed ledger-related businesses, including Eqonex.

 

A number of companies that provide distributed ledger technology-related products and services have been unable to find banks that are willing to provide them with bank accounts and banking services. Similarly, a number of such companies have had their existing bank accounts closed by their banks. Banks may refuse to provide bank accounts and other banking services to distributed ledger technology-related companies, including Eqonex, for a number of reasons, such as perceived compliance risks. In addition to banks, other third-party service providers including auditors, lawyers and insurance providers may also decline to provide services to companies engaged in distributed ledger technology-related businesses because of the perceived risk profile associated with such businesses or the lack of regulatory certainty. The failure of distributed ledger technology-related businesses to be banked or obtain services could materially and adversely affect Eqonex’s business, financial condition and results of operation.

 

The extent to which Digital Assets are used to fund criminal or terrorist enterprises or launder the proceeds of illegal activities could materially impact Eqonex’s business.

 

The potential, or perceived potential, for anonymity in transfers of Digital Assets, as well as the decentralized nature of distributed ledger networks, has led some terrorist groups and other criminals to solicit certain Digital Assets for capital raising purposes. As Digital Assets have grown in both popularity and market size, government authorities have been examining the operations of distributed ledger technology and Digital Assets, their users, investors and exchanges, concerning the use of Digital Assets for the purpose of laundering the proceeds of illegal activities or funding criminal or terrorist enterprises. In addition to the current market, new distributed ledger networks or similar technologies may be developed to provide more anonymity and less traceability.

 

The use of Digital Assets for illegal purposes, or the perception of such use, even if such use does not involve Eqonex’s services or products, could result in significant damage to Eqonex’s reputation, damage to the reputation of Digital Assets and a loss of confidence in the services provided by the distributed ledger technology community as a whole.

 

Political or economic crises may motivate large-scale sales of Digital Assets, which would result in a reduction in values and materially and adversely affect Eqonex.

 

As an alternative to fiat currencies that are backed by central governments, Virtual Currencies, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. For example, political or economic crises could motivate large-scale acquisitions or sales of Digital Assets either globally, regionally or locally. Large-scale sales of certain Digital Assets could result in a reduction in their value and could materially and adversely affect Eqonex’s business, financial condition and results of operations.

 

Economic, political and market conditions, both in Hong Kong, Singapore and worldwide, can adversely affect Eqonex’s business, results of operations and financial condition.

 

Eqonex’s business is influenced by a range of factors that are beyond its control and that it has no comparative advantage in forecasting. These include, among others:

 

	●	General economic and business conditions;
	●	Overall demand for Eqonex’s products and services; and
	●	General legal, regulatory, and political developments.

 

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Macroeconomic developments, including the impact of the United Kingdom’s vote to exit the European Union, known as Brexit, evolving trade policies between the U.S. and international trade partners, including the PRC or the occurrence of similar events in other countries that lead to uncertainty or instability in economic, political or market conditions could negatively affect Eqonex’s business, operating results and financial conditions and/or any of its third-party service providers.

 

The impact of global events, including the ongoing conflict between Russia and Ukraine, may also negatively impact Eqonex.

 

Furthermore, any general weakening of, and related declining confidence in, the global economy or the curtailment of government or corporate spending could cause potential clients to delay, decrease or cancel purchases of Eqonex’s products and services and the adoption of distributed ledger technology in general.

 

While Eqonex shifted its incorporation from Hong Kong to Singapore in connection with the Business Combination, an element of Eqonex’s operations is expected to remain in Hong Kong. Hong Kong has been governed by the basic law, which guarantees a high degree of autonomy from the PRC in certain matters until 2047. If the PRC were to exert its authority to alter the economic, political or legal structures or the existing social policy of Hong Kong, investor and business confidence in Hong Kong could be negatively affected, which in turn could negatively affect markets and business performance and have an adverse effect on Eqonex. There is uncertainty as to the political, economic and social status of Hong Kong. Hong Kong’s evolving relationship with the PRC’s central government in Beijing has been a source of political unrest that has periodically resulted in large-scale protests, including those that occurred in 2019 in response to an extradition bill proposed by the Hong Kong government, which was subsequently waived. These protests created disruptions for businesses operating in Hong Kong and have negatively impacted the overall economy however, the frequency and intensity of protests have declined since the passing of the National Security Law.

 

Significant operations of Eqonex’s business are currently located in Hong Kong. It is possible that Eqonex may decide to relocate certain operations from Hong Kong to Singapore or another jurisdiction in the future when COVID 19 related travel restrictions are relaxed. In doing so, it is also possible that Eqonex may not be able to retain certain expert staff. If Eqonex loses the services of any member of management or other such key personnel as a result of relocating, it may not be able to find suitable or qualified replacements and may incur additional expenses to recruit and train new staff, which could materially disrupt Eqonex’s business and growth.

 

Eqonex’s business lines and its acceptance of currencies other than the U.S. Dollar will subject it to currency risk.

 

Nearly all of Eqonex’s business occurs, and is anticipated to occur in the medium term, outside of the U.S. As a result, some of Eqonex’s expenses are, and are anticipated to be, denominated in currencies other than the U.S. dollar. Because Eqonex’s financial statements are presented in U.S. dollars, it must translate non-U.S. dollar denominated revenues, income and expenses, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. These fluctuations may materially impact the translation of Eqonex’s non-U.S. results of operations and financial condition.

 

Furthermore, increases or decreases in the value of the currencies Eqonex receives may affect its operating results and the value of its assets and liabilities.

 

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Eqonex may be adversely affected by natural disasters, pandemics, and other catastrophic events, and by man-made problems such as terrorism, that could disrupt the business operations, and the business continuity and disaster recovery plans may not adequately protect it from a serious disaster.

 

Natural disasters or other catastrophic events may also cause damage or disruption to operations, international commerce, and the global economy, and could have an adverse effect on business, operating results, and financial condition. Business operations are subject to interruption by natural disasters, fire, power shortages, and other events beyond Eqonex’s control. In addition, Eqonex’s global operations expose it to risks associated with public health crises, such as pandemics and epidemics, which could harm the business and cause operating results to suffer. For example, the ongoing effects of the COVID-19 pandemic and/or the precautionary measures that we have adopted have resulted, and could continue to result, in difficulties or changes to customer support, or create operational or other challenges, any of which could adversely impact business and operating results. Further, acts of terrorism, labor activism or unrest, and other geo-political unrest could cause disruptions in the business or the businesses of partners or the economy as a whole. In the event of a natural disaster, including a major earthquake, blizzard, or hurricane, or a catastrophic event such as a fire, power loss, or telecommunications failure, Eqonex may be unable to continue operations and may endure system interruptions, reputational harm, delays in development of Eqonex’s platform(s), lengthy interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse effect on future operating results.

 

The COVID-19 pandemic could have an adverse effect on business, operating results, and financial condition.

 

Eqonex responded to the global outbreak of COVID-19 by taking steps to mitigate the potential risks to us posed by its spread and the impact of the restrictions put in place by governments to protect the population. Since 2020, the United Kingdom, Hong Kong, Singapore and governments around the world have taken a number of actions, including prohibiting residents from free travel, encouraging employees of enterprises to work from home, cancelling public activities, and closing corporate offices. In addition, as the outbreak continues to threaten global economies, it may continue to cause significant market volatility and declines in general economic activities. Some employees and service providers have transitioned to work-from-home and Eqonex is operating as a remote-first company in certain jurisdictions. This subjects Eqonex to heightened operational risks. For example, technologies in employees’ and service providers’ homes may not be as robust as in Eqonex’s offices and could cause the networks, information systems, applications, and other tools available to employees and service providers to be more limited or less reliable than in offices. Further, the security systems in place at employees’ and service providers’ homes may be less secure than those used in the offices, and while Eqonex has implemented technical and administrative safeguards to help protect its systems as its employees and service providers work from home, Eqonex may be subject to increased cybersecurity risk, which could expose it to risks of data or financial loss and could disrupt its business operations. There is no guarantee that the data security and privacy safeguards Eqonex has put in place will be completely effective or that it will not encounter risks associated with employees and service providers accessing company data and systems remotely. Eqonex also faces challenges due to the need to operate with the remote workforce and are addressing those challenges to minimize the impact on its ability to operate.

 

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The transition to a remote-first company in certain jurisdictions may make it more difficult for Eqonex to preserve its corporate culture and its employees may have decreased opportunities to collaborate in meaningful ways. Further, Eqonex cannot guarantee that its transition to becoming a remote-first company in certain jurisdictions will not have a negative impact on employee morale and productivity. Any failure to preserve the corporate culture and foster collaboration could harm Eqonex’s future success, including its ability to retain and recruit personnel, innovate and operate effectively, and execute on its business strategy.

 

In addition, the continued spread of COVID-19 and the imposition of related public health measures have resulted in, and is expected to continue to result in, increased volatility and uncertainty in the Digital Assets economy. Eqonex also relies on third party service providers to perform certain functions. Any disruptions to a service providers’ business operations resulting from business restrictions, quarantines, or restrictions on the ability of personnel to perform their jobs could have an adverse impact on the service providers’ ability to provide services to Eqonex. The continued spread of COVID-19 and efforts to contain the virus could adversely impact Eqonex’s strategic business plans and growth strategy, reduce demand for its products and services, reduce the availability and productivity of its employees, service providers, and third-party resources, cause it to experience an increase in costs due to emergency measures, and otherwise adversely impact the business.

 

Risks Related to Doing Business in Hong Kong

 

The recent PRC government intervention into business activities by U.S.-listed Chinese companies may indicate an expansion of the PRC’s authority that could negatively impact our existing and future operations in Hong Kong and China.

 

Eqonex Limited is incorporated under the laws of Singapore. We are not a mainland Chinese firm and neither us nor any of our subsidiaries is required to obtain permission from the government of the People’s Republic of China (“PRC”) to operate and issue our ordinary shares to foreign investors. We do not operate in the PRC and have no subsidiary located in China. 

 

Recently, the Chinese government announced that it would increase supervision of mainland Chinese firms listed offshore. Under the new measures, China will improve regulation of cross-border data flows and security, police illegal activity in the securities market and punish fraudulent securities issuances, market manipulation and insider trading. China will also monitor sources of funding for securities investment and control leverage ratios. The Cyberspace Administration of China (“CAC”) has also opened a cybersecurity probe into several large U.S.-listed technology companies focusing on anti-monopoly and financial technology regulation and, more recently with the passage of the Data Security Law, how companies collect, store, process and transfer data. If we are subject to such a probe or if we are required to comply with stepped-up supervisory requirements, valuable time from our management and money may be expended in complying and/or responding to the probe and requirements, thus diverting valuable resources and attention away from our operations. This may, in turn, negatively impact our operations.

 

As a Singapore company that does not operate in the PRC, the laws and regulations of the PRC do not currently have any material impact on our business, financial condition or operation. However, because of the Company’s operations in Hong Kong and given the Chinese government’s significant oversight authority over the conduct of business in Hong Kong, there is always a risk that the Chinese government may, in the future, seek to affect operations of any company with any level of operations in mainland China or Hong Kong, including its ability to offer securities to investors, list its securities on a U.S. or other foreign exchange, conduct its business or accept foreign investment. In light of China’s recent expansion of authority in Hong Kong, there are risks and uncertainties which we cannot foresee for the time being, and rules and regulations in China can change quickly with little or no advance notice. The Chinese government may intervene or influence our current and future operations in Hong Kong and China at any time, or may exert more control over offerings conducted overseas and/or foreign investment in issuers likes ourselves.

 

If any or all of the foregoing were to occur, this could result in a material change in our Company’s operations and/or the value of our ordinary shares and/or significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

 

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Our business, financial condition and results of operations, and/or the value of our ordinary shares or our ability to offer or continue to offer securities to investors may be materially and adversely affected if certain laws and regulations of the PRC become applicable to a company such as us, including the PRC government ban on cryptocurrency and clarification that foreign exchanges are banned from providing services to mainland China residents. In that case, we may be subject to the risks and uncertainties associated with the evolving laws and regulations in the PRC, their interpretation and implementation, and the legal and regulatory system in the PRC more generally, including with respect to the enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice, and be forced to relocate our operations outside of Hong Kong.

 

Our custody business, Digivault, operates under a license from the United Kingdom; and our other business lines operate out of Singapore, the United Kingdom, Switzerland, the Seychelles, and otherwise outside of Hong Kong, with only operational support from within Hong Kong. We have 51employees in Hong Kong as of July 31, 2022. Although our principal executive offices are located in the United Kingdom, we continue to have support operations in Hong Kong, a special administrative region of the PRC, the laws and regulations of the PRC do not currently have any material impact on our business, financial condition and results of operations. We are a Singapore company and not a mainland Chinese firm, and neither us nor any of our subsidiaries is required to obtain permission from the government of the PRC to operate and issue our ordinary shares to foreign investors. Eqonex and our subsidiaries are not covered by permissions requirements from the China Securities Regulatory Commission, CAC, and no other PRC entity is required to approve of the company’s operations. We do not believe that we are required to obtain any approvals to offer securities to foreign investors. If we inadvertently conclude that such approvals are not required, or applicable laws, regulations, or interpretations change and we are required to obtain approval in the future, obtaining such approvals could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities, including the ordinary shares, to significantly decline or be worthless.

 

If certain PRC laws and regulations, including existing laws and regulations and those enacted or promulgated in the future, were to become applicable to a company such as us in the future, the application of such laws and regulations may have a material adverse impact on our business, financial condition and results of operations and our ability to offer or continue to offer securities to investors, any of which may cause the value of our securities, including our ordinary shares, to significantly decline or become worthless. For example, if the PRC Data Security Law were to apply to our Hong Kong-based businesses, we could become subject to data security and privacy obligations, including the need to conduct a national security review of data activities that may affect the national security of the PRC, and be prohibited from providing data stored in Hong Kong to foreign judicial or law enforcement agencies without approval from relevant PRC regulatory authorities. Furthermore, if any law relating to the Public Company Accounting Oversight Board (“PCAOB”) access to auditor files were to apply to a company such as us or our auditor, the PCAOB may be unable to fully inspect our auditor, which may result in our securities, including our ordinary shares, being delisted or prohibited from being traded pursuant to the Holding Foreign Companies Accountable Act and materially and adversely affect the value and/or liquidity of your investment

 

It is noted that relevant parts of the PRC government have made recent statements or recently taken regulatory actions related to cryptocurrency, data security, anti-monopoly and overseas listings of mainland China businesses. For example, the People’s Bank of China (PBOC) announced in a joint release with the China Securities Regulatory Commission, the China Banking and Insurance Regulatory Commission and other regulatory agencies a ban on all cryptocurrency activities within mainland China, which includes services provided by overseas cryptocurrency service providers, such as Eqonex. In addition to the PBOC Ban, the PRC Data Security Law and the Draft Measures, relevant PRC government agencies have recently taken anti-trust enforcement action against certain mainland China-based businesses. We understand such enforcement action was taken pursuant to the PRC Anti-Monopoly Law which applies to monopolistic activities in domestic economic activities in mainland China and monopolistic activities outside mainland China which eliminate or restrict market competition in mainland China. In addition, in July 2021, the PRC government provided new guidance on PRC-based companies raising capital outside of the PRC, including through arrangements called variable interest entities (“VIEs”). In light of such developments, the SEC has imposed enhanced disclosure requirements on China-based companies seeking to register securities with the SEC. While, as our company currently does not have any operations in mainland China, including any customer-facing business in mainland China, and does not have a VIE structure, we believe that the recent statements or regulatory actions by the relevant parts of the PRC government, including statements relating to the PRC Data Security Law, the Draft Measures, the PRC Personal Information Protection Law and VIEs as well as the anti-monopoly enforcement actions, will not have any material adverse impact on our ability to conduct business, accept foreign investments, or list on a U.S. or other foreign exchange, there is no guarantee that this will continue to be the case or that the PRC government will not seek to intervene or influence our operations at any time. Should such statements or regulatory actions apply to a company such as us in the future, it would likely have a material adverse impact on our business, financial condition and results of operations, our ability to accept foreign investments and our ability to offer or continue to offer securities to investors on a U.S. or other international securities exchange, any of which may cause the value of our securities, including our ordinary shares, to significantly decline or become worthless.

 

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Because, in part, we cannot predict the extent of such impact if such events were to occur, we have relocated our principal executive offices, employees, and operations out of Hong Kong and to the United Kingdom. We may also be forced to dissolve our Hong Kong subsidiary and incorporate one or more new entities outside of Hong Kong. While we believe we may be able to relocate and reorganize, as an early-stage enterprise with limited revenue and that is not currently profitable, the costs and expenses related to relocating our offices, employees, and operations, as well as the legal and professional fees associated with reorganizing certain legal entities, would likely have a material impact on our business, financial condition and results of operations. There can be no guarantee that Eqonex’s business lines, individually or together with our other business lines will be able to produce sufficient cash flows to fund the capital requirements and expenditures necessary to run the business and relocate.

 

The laws and regulations in the PRC are evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties. To the extent any PRC laws and regulations become applicable to us, we may be subject to the risks and uncertainties associated with the evolving laws and regulations in the PRC, their interpretation and implementation, and the legal and regulatory system in the PRC more generally, including with respect to the enforcement of laws and the possibility of changes of rules and regulations with little or no advance notice.

 

There are political risks associated with conducting business in Hong Kong.

 

During the period covered by the financial information included in this report, we had a substantial part of our operations in Hong Kong. We have since moved our principal place of business to the United Kingdom. Despite this change, since we maintain operations in Hong Kong, our business operations and financial condition may be affected by political and legal developments in Hong Kong. Any adverse economic, social and/or political conditions, material social unrest, strike, riot, civil disturbance or disobedience, as well as significant natural disasters, may adversely affect the business operations of our Hong Kong subsidiaries. Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law, namely, Hong Kong’s constitutional document, which provides Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems.” However, there is no assurance that the PRC will not drive changes in the economic, political and legal environment in Hong Kong in the future. Since part of our operation is based in Hong Kong, any change of such political arrangements may pose immediate threat to the stability of the economy in Hong Kong, thereby directly and adversely affecting our results of operations and financial position.

 

Under the Basic Law of the Hong Kong Special Administrative Region of the PRC, Hong Kong is exclusively in charge of its internal affairs and external relations, while the government of the PRC is responsible for its foreign affairs and defense. As a separate customs territory, Hong Kong maintains and develops relations with foreign states and regions. Based on certain recent developments, including the Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region of the PRC issued by the Standing Committee of the PRC National People’s Congress in June 2020, the U.S. State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from China. President Trump signed an executive order and the Hong Kong Autonomy Act, or HKAA, to remove Hong Kong’s preferential trade status and to authorize the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong Kong’s autonomy. The United States may impose the same tariffs and other trade restrictions on exports from Hong Kong that it places on goods from mainland China. These and other recent actions may represent an escalation in political and trade tensions involving the U.S, China and Hong Kong, which could potentially harm our business.

 

Given the relatively small geographical size of Hong Kong, any such incidents may have a widespread effect on our business operations, which could in turn adversely and materially affect our business, results of operations and financial condition. It is difficult to predict the full impact of the HKAA on Hong Kong and companies with operations in Hong Kong. Furthermore, legislative or administrative actions in respect of China-U.S. relations could cause investor uncertainty for affected issuers, including us, and the market price of our ordinary shares could be adversely affected.

 

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The Hong Kong legal system embodies uncertainties that could limit the availability of legal protections.

 

As one of the conditions for the handover of the sovereignty of Hong Kong to China, China accepted conditions such as Hong Kong’s Basic Law. The Basic Law ensured Hong Kong will retain its own currency (the Hong Kong Dollar), legal system, parliamentary system and people’s rights and freedom for fifty years from 1997. This agreement has given Hong Kong the freedom to function with a high degree of autonomy. The Special Administrative Region of Hong Kong is responsible for its own domestic affairs including, but not limited to, the judiciary and courts of last resort, immigration and customs, public finance, currencies and extradition. Hong Kong continues using the English common law system.

 

However, if the PRC attempts to alter its agreement to allow Hong Kong to function autonomously, this could potentially impact Hong Kong’s common law legal system and may in turn bring about uncertainty in, for example, the enforcement of our contractual rights. This could, in turn, materially and adversely affect our business and operations. Additionally, intellectual property rights and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the Hong Kong legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our customers.

 

The Hong Kong government may face further restrictive measures from PRC government in the future.

 

The PRC government may intervene or influence our operations in Hong Kong at any time or may exert more control over offerings conducted overseas and/or foreign investment in us. We cannot assure you that the Hong Kong government will not be facing further restrictive measures from PRC’s government in the future. The PRC government’s further potential restrictive regulations and measures could increase our existing and future operating costs in adapting to these regulations and measures, limit our access to capital resources or even restrict our existing and future business operations, which could further adversely affect our business and prospects.

 

Interpretation of PRC laws and the implementation of National Security Law in Hong Kong involve uncertainty.

 

The PRC’s legal system is based on written statutes, and prior court decisions can only be used as a reference. Since 1979, the PRC’s government has promulgated laws and regulations in relation to economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, with a view to developing a comprehensive system of commercial law, including laws relating to property ownership and development. However, due to the fact that these laws and regulations have not been fully developed, and because of the limited volume of published cases and the non-binding nature of prior court decisions, interpretation of PRC’s laws and regulations involves a degree of uncertainty. Some of these laws may be changed with little advance notice, without immediate publication or may be amended with retroactive effect.

 

Depending on the government agency or how an application or case is presented to such agency, we may receive less favorable interpretations of laws and regulations than our competitors, particularly if a competitor has long been established in the locality of, and has developed a relationship with such agency. In addition, any litigation may be protracted and result in substantial costs and a diversion of resources and management attention. All of these uncertainties may cause difficulties in the enforcement of our rights, entitlements under our permits and other statutory and contractual rights and interests.

 

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Our ordinary shares may be delisted or prohibited from being traded under the Holding Foreign Companies Accountable Act if the PCAOB were unable to fully inspect our auditor. The delisting or the cessation of trading of our ordinary shares, or the threat of them being delisted or prohibited from being traded, may materially and adversely affect the value and/or liquidity of your investment. Additionally, if the PCAOB were unable to conduct full inspections of our auditor, it would deprive our investors with the benefits of such inspections.

 

The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA states that if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded on a national securities exchange or in the over-the-counter trading market in the U.S.

 

Our auditor, the independent registered public accounting firm that has issued the audit report included elsewhere in this report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Under current practice and PRC law, the PCAOB is currently unable to inspect the audit work and practices of PCAOB-registered firms in mainland China. Our auditor is located in the United States, with affiliates in Singapore and Hong Kong, and the PCAOB has not been legally restricted from inspecting PCAOB audits relating to operations in Hong Kong. As noted above, except for the Basic Law, national laws of the PRC do not apply in Hong Kong unless they are listed in Annex III of the Basic Law and applied locally by promulgation or local legislation. The Basic Law expressly provides that the national laws of the PRC which may be listed in Annex III of the Basic Law shall be confined to those relating to defense and foreign affairs as well as other matters outside the autonomy of Hong Kong. National laws of the PRC relating to PCAOB access to auditor files have not been listed in Annex III and so do not apply directly to Hong Kong. The PRC legal system is evolving rapidly and the PRC laws, regulations, and rules may change quickly with little advance notice. To the extent any PRC laws and regulations become applicable to a company such as us or our auditor, the PCAOB may be unable to inspect our auditor. The lack of inspection could cause trading in your securities to be prohibited under the HFCAA and as a result the Nasdaq may determine to delist your ordinary shares.

 

On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the Act. We would be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the HFCAA, including the listing and trading prohibition requirements described above.

 

In May 2021, the PCAOB issued a proposed rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act, for public comment. The proposed rule is related to the PCAOB’s responsibilities under the HFCAA, which, according to the PCAOB, would establish a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The proposed rule was adopted by the PCAOB on September 22, 2021 and approved by the SEC on November 5, 2021. On December 2, 2021, SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA.

 

On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if passed by the U.S. House of Representatives and signed into law, would decrease the number of non-inspection years from three years to two, thus reducing the time period before your securities may be prohibited from trading or delisted.

 

In December 2021, the SEC adopted rules to implement the HFCAA and pursuant to the HFCAA, the PCAOB issued its report notifying the SEC of its determination that it is unable to inspect or investigate completely accounting firms headquartered in mainland China or Hong Kong.

 

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If for whatever reason the PCAOB is unable to conduct full inspections of our auditor, such uncertainty could cause the market price of our ordinary shares to be materially and adversely affected, and our securities could be delisted or prohibited from being traded. If our securities were unable to be listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase our ordinary shares when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price of our ordinary shares.

 

Inspections of other firms that the PCAOB has conducted outside the PRC have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. If the PCAOB were unable to conduct full inspections of our auditor, we and investors in our ordinary shares would be deprived of the benefits of such PCAOB inspections. In addition, the inability of the PCAOB to conduct full inspections of auditors would make it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors that are subject to the PCAOB inspections, which could cause investors and potential investors in our securities to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

 

Our independent registered public accounting firm, Mazars USA LLP, is not subject to the determinations announced by the PCAOB on December 16, 2021. Mazars USA LLP is headquartered in the United States. Mazars USA LLP is not headquartered in the PRC or Hong Kong. The PCAOB currently has access to inspect the working papers of Mazars USA LLP. As a result, we do not believe the HFCAA and related regulations will affect our company. If, however, our independent registered public accounting firm, or its affiliates, were denied, even temporarily, the ability to practice before the SEC and PCAOB, and it were determined that our financial statements or audit reports are not in compliance with the requirements of the U.S. Exchange Act, we could be at risk of delisting or become subject to other penalties that would adversely affect our ability to remain listed on the Nasdaq.

 

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Risks Related to Custody Business

 

Development of the Custody Business poses financial, technological and regulatory challenges and Eqonex may not be able to successfully develop and market the custody solutions.

 

The continued development of the custody solutions, known as Kelvin and Helios requires significant capital funding, expertise on the part of Eqonex’s management and time and effort in order to be successful. Digivault may have to make changes to the specifications of the custody solutions for any number of reasons and it may be unable to further develop the service in a way that realizes those specifications. The custody solutions, even if successfully developed and maintained, may not meet investor expectations. For example, there can be no assurance that the custody solutions will provide less expensive or more efficient services than are currently available for traditional assets (or even other Digital Assets). Furthermore, the custody solutions may experience malfunctions or otherwise fail to be adequately developed or maintained, which may negatively the volume of Digital Assets being held.

 

There can be no assurance that Digivault by itself or together with Eqonex’s other business lines will be able to produce sufficient cash flows to fund the ongoing capital requirements and expenditures necessary to run the custody solutions. Digivault may not have or may not be able to obtain the technical skills, expertise, or regulatory approvals needed to successfully further develop the custody solutions. While Eqonex has sought to retain and continues to competitively recruit experts, there may, from time to time, be a scarcity of management, technical, scientific, research and marketing personnel with appropriate training to develop and maintain the custody solutions. In addition, there are significant legal and regulatory considerations that will need to be addressed in order to develop and maintain the custody solutions, and addressing such considerations will require significant time and resources. Despite launching both Kelvin and Helios, there can be no assurance that Digivault will be able to develop the custody solutions in such a way as to fully achieve its goals and satisfy the complex regulatory requirements that are applicable to them and acquire the necessary licenses to expand the operation. If Eqonex is not successful in its efforts to develop and maintain the custody solutions in ways that are compliant with all regulatory and legal requirements, and demonstrate to users the utility and value of such a service, or if there is not sufficient demand for the custody solutions for them to be commercially viable, Digivault may not be viable, which could have a material adverse effect on Eqonex’s business, financial condition and results of operations.

 

Numerous regulatory authorities may never permit the custody solutions to become operational.

 

Numerous regulatory authorities may need to permit the custody solutions to operate in different jurisdictions. If any regulatory authority objected to the custody solutions or to certain aspects of them, such regulatory authority could prevent them from ever becoming operational, or continuing to operate, in that jurisdiction. The regulatory landscape that Eqonex needs to navigate in order to run a viable Custody Business is complex, extensive and changing and Digivault may never be able to do so successfully. Any such regulatory issues including fines or injunctions from regulators, could have a material adverse impact on Eqonex’s business, financial condition and results of operations.

 

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Regulatory authorities may revoke licenses previously granted

 

Regulatory authorities, including but not limited to the FCA, may revoke licensed previously granted if Eqonex fails to comply with the necessary conditions associated with the license. Any loss of license and resulting reputational damage could have a material adverse effect on Eqonex’s business, financial condition and results of operations.

 

The custody solutions may not be widely adopted and may have limited users.

 

It is possible that the custody solutions will not be used by a large number of holders of Digital Assets or that there will be limited public interest in the continued creation and development of Digital Asset custody services. Such a lack of use or interest may result in insufficient demand for the custody solutions to be commercially viable, which could have an adverse effect on Eqonex’s business, financial condition and results of operation.

 

The custody solutions, and any distributed ledger technology on which they rely, may be the target of cyber-attacks or may contain exploitable flaws in their underlying code, which may result in security breaches and the loss or theft of Digital Assets that are held or deposited. If such attacks occur or Digivault’s security is compromised, Digivault could be exposed to liability and reputational harm, and such attacks could seriously curtail the utilization of Digital Assets and cause a decline in the market price of the affected Digital Assets which could result in claims against Digivault.

 

The custody solutions, their structural foundation, and the software applications and other interfaces or applications upon which they rely are relatively unproven, and there can be no assurances that the custody solutions are or will be fully secure, which may result in a complete loss of investors’ Digital Assets and an unwillingness of market participants to access, adopt and utilize Digital Assets or the custody solutions. Examples of the above include, but are not limited to:

 

	●	a cyber-attack causing a client withdrawal instruction, or a withdrawal address being altered;
	●	a client receiving an incorrect deposit address;
	●	hardware failures delaying or preventing deposits and withdrawals;
	●	the tampering or spoofing of client instructions and materials;
	●	deposit addresses being incorrectly stored;
	●	the hacking or unavailability of client portals rendering clients unable to access their account;
	●	vulnerabilities within the applicable distributed ledger code arising or the distributed ledger being manipulated by a malicious actor;
	●	a cyber-attack causing the individual to lose otherwise valid credentials;
	●	the tampering with of laptop codes to cause withdrawals to incorrect withdrawal addresses; and
	●	bad acts by employees, third-party service providers and others.

 

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While Digivault has taken, and will continue to take, steps to ensure that the custody solutions are secure and protected against such incidents, no assurance can be given that the custody solutions are or will be fully secure and protected from attack, and any failure in this regard could materially and adversely affect Eqonex’s business, financial condition and results of operations.

 

There can be no guarantee that Digivault will be able to acquire or maintain necessary insurance coverage or that it will be able to offer insurance to its clients.

 

The failure of Digivault to secure or maintain insurance cover may have an adverse effect on its ability to attract clients and hence reduce its revenue generating abilities.

 

Risks Related to the Asset Management Business

 

Risks Related to Bletchley Park

 

Changes in the value of Eqonex’s assets under management (“AUM”) may cause revenue and earnings to decline.

 

The Bletchley Park business revenue is expected to be primarily composed of fees based on a percentage of the value of AUM and, in some cases, performance fees which are normally expressed as a percentage of returns to the client. Numerous factors, including price movements in the assets in the markets in which Bletchley Park manages assets, could cause:

 

	●	the value of assets AUM, or the returns that Bletchley Park realizes on AUM, to decrease;
	●	the withdrawal of funds from any products offered by Bletchley Park in favor of products offered by competitors; or
	●	a decrease in the amount of such capital available to invest.

 

The occurrence of any of these events may cause AUM, revenue and earnings, if any, to decline and may negatively impact the success of the Asset Management Business.

 

Bletchley Park’s business is highly regulated and regulators may apply or interpret these regulations with respect to Digital Assets in novel and unexpected ways.

 

Asset management is a highly regulated business subject to numerous legal and regulatory requirements. These regulations are intended to protect customers whose assets are under management and, as such, may limit Eqonex’s ability to develop, expand or carry out its asset management business in the intended manner. Furthermore, the funds in which Bletchley Park invests will be subject to regulatory regimes that are not clear or are not yet developed. To the extent that there is any ambiguity as to whether an asset under the management of a fund in which Bletchley Park invests is deemed a security, the applicability of many regulations to such fund, will not be clear and could indirectly adversely affect the Asset Management Business. Furthermore, Bletchley Park must address conflicts of interest, as well as the perception of conflicts of interest, between itself (including the other business lines of Eqonex) and its clients and funds. In particular, Blecthley Park will be required to act in the best interest of its clients and funds, which may include allocating opportunities to its clients and funds rather than to its own principal business lines. In addition, regulators have substantial discretion in determining what is in the best interest of a client of a fund and have increased their scrutiny of potential conflicts. Appropriately dealing with conflicts of interest is complex and if Bletchley Park fails, or appears to fail, to deal appropriately with any of these conflicts of interest, it may face reputational damage, litigation, regulatory proceedings, or penalties, fines or sanctions, any of which may have a material and negative impact on Eqonex’s business, financial condition and results of operations. In addition, to the extent that Bletchley Park is required to obtain client or investor consent in connection with any potential conflict, any failure or delay in obtaining such consent may have a material and negative impact on Bletchley Park’s ability to take advantage of certain business opportunities.

 

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Bletchley Parks’ investments in other investment vehicles may be subject to substantial risk.

 

On behalf of itself and its managed funds, Bletchley Park may make direct or indirect investments in pooled investment vehicles, which may expose it to all the risks of those vehicles’ investments. The values of pooled investment vehicles are subject to change as the values of their respective assets fluctuate. To the extent that Bletchley Park invests in managed pooled investment vehicles, the performance of the investments in such vehicles will be dependent on the investment and research abilities of persons other than Bletchley Park. The securities offered by such vehicles typically are not registered under applicable securities laws and are offered in transactions that are exempt from registration.

 

The Digital Assets funds in which Bletchley Park invests are by their nature small and unproven.

 

Given that Bletchley Park may invest in funds with little or no track record, there is a risk that such funds may not generate the returns anticipated by Bletchley Park and may even result in the complete loss of the investment allocated to such funds.

 

Risks Related to the Brokerage Business

 

Short sales of Digital Assets may be especially risky.

 

Eqonex may make short sales of Digital Assets. In such a short sale, Eqonex would sell Digital Assets that it does not own, typically borrowed from a third party. Borrowing and lending markets for Digital Assets are currently in an early stage and may take time to become as developed and stable as those for securities or other established assets, which exposes Eqonex to risks.

 

Because Eqonex would remain liable to return any Digital Assets that it borrowed, Eqonex would be required to purchase an equivalent amount of Digital Assets prior to the date on which delivery to the third party is required. Eqonex will incur a loss as a result of a short sale if the price of the Digital Assets increases between the date of the short sale and the date on which Eqonex replaces the borrowed Digital Assets. The amount of any loss will be increased by the amount of the premium or interest that Eqonex may be required to pay in connection with a short sale. Short selling exposes Eqonex to unlimited risk with respect to the borrowed Digital Assets because of the lack of an upper limit on the prices to which those Digital Assets can rise. Purchasing Digital Assets to close out a short position can itself cause the price of the Digital Assets to rise further, thereby exacerbating any losses. Under adverse market conditions, Eqonex may have difficulty purchasing Digital Assets to meet its short sale delivery obligations, and may have to sell other Digital Assets to raise the necessary capital at a time when it would be unfavorable to do so. If a request for return of borrowed assets occurs at a time when other short sellers are receiving similar requests, a “short squeeze” can occur, and Eqonex may be compelled to replace borrowed Digital Assets previously sold short with purchases on the open market at the most disadvantageous time, possibly at prices significantly in excess of the proceeds received in originally selling the assets short. In addition, Eqonex may have difficulty purchasing assets to meet its delivery obligations if the assets sold short by Eqonex have a limited daily trading volume or limited market capitalization. Short sales by Eqonex and “short” derivative positions are forms of investment leverage, and the amount of Eqonex’s potential loss is theoretically unlimited.

 

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Eqonex’s trades in options may be subject to substantial risk.

 

Eqonex may trade in options on Digital or non-Digital Assets. Purchasing and writing put and call options are highly specialized activities that entail greater-than-ordinary investment risks. An investment in an option may be subject to greater fluctuation than an investment in the underlying asset. An uncovered call writer’s loss is theoretically unlimited. The ability to trade in or exercise options may be restricted in the event that trading in the underlying asset becomes restricted. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size and strike price, the terms of over-the-counter options (options not traded on exchanges) are generally established through negotiation with the other party to the option contract. While this type of arrangement allows greater flexibility to tailor an option, over-the-counter options generally involve greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where they are traded. As of this writing, the availability of exchange-traded and over-the-counter options on Digital Assets is limited, so terms may be unfavorable in comparison to those available for more firmly established types of options.

 

Eqonex’s trades in derivatives may be subject to substantial risk.

 

Eqonex may trade in derivatives of Digital Assets. Derivatives are financial instruments, the value of which is based on the value of one or more reference assets or indicators, such as a security, currency, interest rate or index. Eqonex’s use of derivatives may involve risks different from, and possibly greater than, the risks associated with investing directly in securities and other more traditional investments. Moreover, although the value of a derivative is based on an underlying asset or indicator, a derivative typically does not carry the same rights as would be the case if Eqonex invested directly in the underlying asset.

 

Derivatives are subject to a number of risks, such as potential changes in value in response to market developments, and the risk that a derivative transaction may not have the effect that Eqonex anticipated. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value of a derivative may not achieve the desired correlation with the underlying asset or indicator. Derivative transactions may be highly volatile, and Eqonex could lose more than the amount it invests. Moreover, derivative transactions permit Eqonex to create investment leverage, which may exacerbate any losses on these positions. A liquid secondary market may not always exist for Eqonex’s derivative positions at any time, and Eqonex may not be able to initiate or liquidate a derivative position at an advantageous time or price, which may result in significant losses.

 

In addition, derivative products are specialized instruments that require investment techniques and risk analyses that differ from those associated with direct investments. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself. In particular, the complexity of derivatives requires the maintenance of adequate controls to monitor the transactions entered into and the ability to assess the risk that a derivative adds to Eqonex’s portfolio.

 

Eqonex’s trades in currencies may be subject to substantial risk.

 

Eqonex may trade currencies in the interbank market, a global network of commercial banking institutions that make markets in foreign currencies. There is no limitation on daily price moves of contracts traded through banks and dealers. Banks and dealers may require Eqonex to deposit margin with respect to such trading. Banks and dealers are not required to continue to make markets in currencies.

 

There have been periods during which certain banks have refused to quote prices for currency contracts or have quoted prices with an unusually wide bid-ask spread. Arrangements to trade currency contracts may be made with only one or a few banks, and liquidity problems might therefore be greater than if such arrangements were made with numerous banks. The imposition of credit controls by government authorities might limit such trading to less than that which Eqonex would otherwise undertake. In respect of such trading, Eqonex is subject to the risk of bank failure or the inability of, or refusal by, a bank to perform with respect to such contracts. Most, if not all, of these contracts are directly affected by changes in interest rates. The effects of governmental intervention may also be particularly significant at certain times in the interbank market.

 

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Eqonex’s trading transactions may be subject to credit risk.

 

Credit risk is the risk that an issuer of a security or a counterparty will be unable or unwilling to satisfy payment or delivery obligations when due and the related risk that the value of a trade may decline because of concerns about the issuer’s or the counterparty’s ability to make such payments. In addition to the risk of an issuer of a security in which Eqonex trades failing or declining to perform on an obligation under the security, Eqonex is exposed to the risk that third parties, including trading counterparties, exchanges, custodians, administrators and other financial intermediaries that may owe Eqonex money, securities or other assets will not perform their obligations. Any of these parties might default on their obligations to Eqonex because of bankruptcy, lack of liquidity, dispute, operational failure or other reasons, in which event Eqonex may lose all or substantially all of the value of any such trading transaction. To the extent Eqonex trades on exchanges that specialize in Digital Asset futures and derivatives, it is exposed to the credit risk of that exchange.

 

Eqonex is not obligated to hedge its exposures, and, if it does, hedging transactions may be ineffective or reduce Eqonex’s overall performance.

 

Eqonex is not obligated to, and often at times may not, hedge its exposures. However, from time to time, it may use a variety of financial instruments and derivatives, such as options, swaps and forward contracts, for risk management purposes, including to: protect against possible changes in the market value of Eqonex’s investment or trading assets resulting from fluctuations in the securities markets and changes in interest rates; protect Eqonex’s unrealized gains in the value of its investments or trading assets; facilitate the sale of any such assets; enhance or preserve returns, spreads or gains on any trade or investment; hedge the interest-rate or currency-exchange risk on any of Eqonex’s liabilities or assets; protect against any increase in the price of any assets that Eqonex anticipates purchasing at a later date; or any other end that Eqonex deems appropriate. The success of any hedging activities by Eqonex will depend, in part, on its ability to correctly assess the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the assets being hedged. Since the characteristics of many assets change as markets change or time passes, the success of Eqonex’s hedging strategy will also be subject to its ability to continually recalculate, readjust and execute hedges in an efficient and timely manner. In addition, while Eqonex may enter into hedging transactions to seek to reduce risk, such transactions may actually increase risk or result in a poorer overall performance for Eqonex than if it had not engaged in such hedging transactions.

 

Eqonex may make, or otherwise be subject to, trade errors.

 

Errors may occur with respect to trades executed by or on behalf of Eqonex. Trade errors can result from a variety of situations, including, for example, when the wrong asset is purchased or sold or when the wrong quantity is purchased or sold. Trade errors frequently result in losses, which could be material. To the extent that an error is caused by a third party, Eqonex may seek to recover any losses associated with the error, although there may be contractual or other limitations on any third party’s liability with respect to such error.

 

Eqonex’s trading orders may not be executed in a timely matter.

 

Eqonex’s trading and risk management strategies may depend on the ability to establish and maintain an overall market position in a combination of financial instruments. Eqonex’s trading orders may not be executed in a timely and efficient manner because of various circumstances, including, for example, trading volume surges or systems failures attributable to Eqonex or its counterparties, brokers, dealers, agents or other service providers. In such an event, Eqonex might only be able to acquire or dispose of some, but not all, of the components of its positions, or if the overall positions were to need adjustments, Eqonex might not be able to make such adjustments. As a result, Eqonex would not be able to achieve its desired market position, which may result in a loss. In addition, Eqonex can be expected to rely heavily on electronic execution systems (and may rely on new systems and technology in the future), which may be subject to certain systemic limitations or mistakes, causing the interruption of trading orders made by Eqonex.

 

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Eqonex is exposed to losses due to lack of perfect information.

 

As a facilitation trader in Digital Assets, Eqonex may trade in a variety of assets with a number of different counterparties. Eqonex may at times trade with others who have information that is more accurate or complete than Eqonex’s, and as a result Eqonex may accumulate unfavorable positions at unfavorable prices preceding large price movements in a given instrument. If the frequency or magnitude of these events increases, Eqonex’s losses would likely increase correspondingly, which could have a material and adverse effect on Eqonex.

 

Risks Related to the Lending Business

 

The Lending Business may never become successful.

 

The Lending Business launched in July 2021. In June 2021 Eqonex invested $0.9 million in the purchase of a perpetual software license to provide technology to operate the Lending Business which may never result in a positive return. Eqonex can make no assurance that the Lending Business will be successful or that Eqonex will have sufficient capital and other resources to support the business.

 

Regulatory authorities may not permit, or may limit the ability of, Eqonex to facilitate borrowing or lending

 

Eqonex may need the approval of various regulatory authorities to permit Eqonex to engage in borrowing and / or lending activities. If any regulatory authority refuses approval to Eqonex to engage in such activities then, such authority could prevent the Eqonex Lending Business from ever becoming active or could limit the business to operating within a narrow scope and thereby not reach its full potential. The regulatory landscape that Eqonex needs to navigate in order to facilitate the Eqonex Lending Business is extensive and changing, and Eqonex may not be able to successfully activate this business without required approvals.

 

Furthermore, laws and regulations may change over time. Therefore, even if Eqonex were to acquire necessary approvals or licenses, an ongoing threat to Eqonex’s business would remain that such permission to operate could be subsequently revoked or materially altered over time, which could have a material adverse effect on the Eqonex Lending Business.

 

Competition will likely increase in borrowing and lending for Digital Assets.

 

While the Digital Asset industry is at an early stage, there are already a number of providers of borrowing and lending for Digital Assets. These providers create competition which is likely to create downward pressure on margins and / or worsen the risk profile of trades. Further competition could also arise as traditional investment banks, who may be active in borrowing and lending for stocks and other securities presently, may seek to expand their business into Digital Assets. Large financial institutions such as investment banks, have considerable resources, technology and distribution channels to access clients which could threaten Eqonex’s success in this area.

 

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Eqonex may be unable to establish significant demand or supply for borrowing and lending in order to make the business viable.

 

A material component of the viability of the Eqonex Lending Business will be the willingness of clients to engage in borrowing and lending activity with Eqonex. In addition to the competitive threats mentioned, this could be impacted by a general inability to attract a sufficient number of customers seeking to engage in this activity. Furthermore, this activity may require not just sufficient borrowers or lenders, but a sufficient balance of borrowers and lenders to sustain a viable business model.

 

Failure to accurately document transactions, terms and covenants may give risk to significant legal risks.

 

Clients of the Eqonex Lending Business may deal with Eqonex acting, potentially, as either principal or agent. In either case Eqonex is likely to have a material role in designing and executing the legal terms of transactions. Transactions will need to specify terms and conditions and may be relatively standardized or bespoke, which can lead to even higher litigation risk. Additionally, Eqonex Lending may involve the offering of leverage. Providing leverage for traded products can lead to losses being magnified. Clients with magnified losses may be more likely than other clients to resort to litigation.

 

Digital Assets are extremely volatile and are subject to market risks

 

Digital Assets are extremely volatile and where the Eqonex Lending Business involves the provision of leverage for the purposes of trading, clients’ market risk may be magnified; this can in turn result in credit risk for Eqonex where a client’s market risk losses exceed the collateral provided by the client. Also, where Eqonex performs a role as agent, seeking to effectively match borrowers and lenders on the same terms, it may act as principal holding positions for short periods in the course of matching lenders and borrowers. In any of these cases, Eqonex could be exposed to market risks and this would be highlighted in cases of extreme market turbulence and large sudden moves in digital asset prices.

 

The Lending Business is subject to substantial operational, counterparty and collateral risks

 

The Lending Business’ transactions flows involve multiple process steps, systems and counterparties and are subject to operational risks throughout their lifecycle. These may include human error, failures in process or systems and other unforeseen external events. While operational controls are built into all elements of the business it may not be possible to completely eliminate the possibility of such events leading to significant operational losses.

 

Even where the Lending Business is collateralized to manage credit risk, the business involves collateral flows and margins. Borrowers of Digital Assets are often required to provide collateral and lenders of Digital Assets often need their loaned assets to be effectively safeguarded and managed. Collateral flows are not limited to initial collateral, but collateral requirements are likely to change over time. Initial collateral may prove to be insufficient and could lead to losses for Eqonex. Variations in collateral may need to occur during the life of a transaction. To ensure this operates effectively to mitigate risk, appropriate technology and systems will need to be utilized. Such technology could fail and / or borrowers may seek to obstruct Eqonex in accessing the required collateral. Any shortfall in collateral, whether the fault of the client or the fault of Eqonex, could lead to material losses and detrimental client outcomes. If collateral posted is of a different nature to the asset underlying the transaction, then this could further give rise to potential mismatches and shortfalls in collateral value.

 

Clients may have a negative impact on the safety and security of the assets held with Lending Businesses

 

Following the collapse of some large Lending Businesses in June/July 2022 and the financial loss to their client there may be a lasting negative view of Lending Businesses in general. Such a negative sentiment could lead to a reduction in the number of clients and transactions being executed which could have an adverse effect on Eqonex’s business, financial condition and results of operation

 

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Risks Related to the Investment Products Business

 

Regulatory authorities may never permit, or severely limit the ability of, Eqonex to issue investment products.

 

Numerous regulatory authorities may need to permit Eqonex to issue investment products. If any regulatory authority, or other authority whose permission is required, such as a stock exchange listing authority, objected to the investment products or to certain aspects of them, such regulatory authority could prevent the investment products from ever becoming issued, or if permitted to rescind such permission, in that jurisdiction. The regulatory landscape that Eqonex needs to navigate in order to provide investment products is complex, extensive and changing, and Eqonex may never be able to do so successfully.

 

Furthermore, laws and regulations may change over time. Therefore, even if Eqonex were to acquire necessary approvals or licenses, an ongoing threat to Eqonex’s business would remain that such permission to operate could be subsequently revoked or materially altered over time, which could have a material adverse effect on the Investment Products Business and its customers.

 

Competition will likely increase in investment products referencing Digital Assets.

 

While the Digital Asset industry is at an early stage, there are examples in several countries of securitized products or collective investment schemes being created in order to provide exposure to Digital Assets. These, as well as those companies who provide access to Digital Asset exchanges, including several significant exchanges, present competition to the Investment Products Business. Such competition is likely to grow as new entrants emerge, including large financial institutions such as investment banks, which have greater resources, technology and distribution channels than Eqonex. Such increased competition could result in, among other things, the Investment Products Business losing market share, the emergence of superior products and to compression of margins, any of which could have a material and adverse effect on the Investment Products Business’ business, financial condition and results of operations.

 

Eqonex may be unable to establish distributor networks necessary to successfully grow the business.

 

A material component of the sales strategy of the Investment Products Business involves reaching and maintaining agreements with distributors. There can be no guarantee that such distribution agreements will be executed and there is a risk that distributors reject Eqonex’s proposals and/or do not wish to engage in the distribution of products linked to Digital Assets.

 

The failure to accurately describe investment products may lead to financial and regulatory exposure.

 

The business plan of the Investment Products Business will seek clients of varying expertise, including retail clients, as possible end clients, to whom the greatest duty of care may be owed and to whom the greatest regulatory protection may be given. If an investment product is not described accurately or completely, either in print or orally, investors may not be able to make an informed decision as to the risk profile of the investment product, which may result in litigation, regulatory fines, investigations and restitution. Even if such inaccurate disclosure is alleged but not proven, the Investment Products Business and Eqonex may face significant reputational damage as a result. Any of the above may have a material adverse effect on the business, financial condition and operations results of Eqonex.

 

The Investment Products Business is subject to technology failure.

 

The Investment Products Business will utilize and rely on technology, and such technology is potentially subject to failure and errors. Applications are expected to be used to price products and if pricing models were inaccurate, products could be issued at prices considerably different to fair value, resulting in a loss to Eqonex and/or potential harm to investors which could cause financial restitution to clients and potential regulatory sanctions and fines. There is also a risk for subsequent valuations of products being potentially inaccurate and/or a mis-estimation of the way in which such products should be risk managed and hedged. Furthermore, the Investment Products Business intends to list products on various exchanges and some exchanges may require external market making to ensure there is liquidity available to investors. Eqonex could be in breach of various regulations and face fines as well as potentially having to compensate investors who may have suffered as a result. Such market making activities would also include the issuance of new securities which requires automation and cohesive technology required to create the product and to automatically execute the underlying exposure in the correct way, which, if erroneous, could cause Eqonex to be either under or over hedged in such a product and to potentially face resulting losses.

 

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Risks Related to Taxation

 

The tax treatment of Digital Assets is unclear.

 

The treatment of Digital Assets under the tax laws of the jurisdictions in which Eqonex does business is unclear. The operations and dealings of Eqonex, in or in connection with Digital Assets, could be subject to adverse tax consequences in one or more jurisdictions, including as a result of development of the legal regimes surrounding Digital Assets, and Eqonex’s operating results could be adversely affected thereby.

 

Eqonex may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of Eqonex’s ordinary shares.

 

Eqonex would be classified as a passive foreign investment company (“PFIC”) for any taxable year if, after the application of certain look-through rules, either: (i) 75% or more of gross income for such year is “passive income” (as defined in the relevant provisions of the Internal Revenue Code of 1986, as amended), or (ii) 50% or more of the value of assets (determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. Whether Eqonex is a PFIC is a factual determination that must be made annually based on the total income for the year and the value of the assets throughout the year. The amount of “passive income” relative to the amount of other income that Eqonex will earn for the 2021 taxable year and future years is difficult to estimate. Moreover, the value of assets for purposes of the PFIC determination may be determined by reference to the public price of ordinary shares, which could fluctuate significantly. Therefore, there can be no assurance that Eqonex will not be classified as a PFIC for the 2021 taxable year or in the future. Certain adverse U.S. federal income tax consequences could apply to a U.S. Holder (as defined in “Taxation—U.S. Federal Income Tax Considerations”) if Eqonex is treated as a PFIC for any taxable year during which such U.S. Holder holds Eqonex ordinary shares.

 

Risks Related to Being a Public Company

 

Eqonex has limited experience operating as a public company and fulfilling its obligations as a U.S. reporting company may be expensive and time consuming.

 

The Company’s executive officers have no past experience in operating a U.S. public company, which makes their ability to comply with applicable laws, rules and regulations uncertain. The Company’s failure to comply with all laws, rules and regulations applicable to U.S. public companies could subject Eqonex or its management to regulatory scrutiny or sanction, which could harm the Company’s reputation and share price.

 

As a public company Eqonex will incur significant legal, accounting, and other expenses that it did not incur as a private company. Eqonex is subject to reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the rules subsequently implemented by the SEC, the rules and regulations of the listing standards of The Nasdaq Stock Market LLC, or Nasdaq, and other applicable securities rules and regulations. Stockholder activism, the current political and social environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which will likely result in additional compliance costs and could impact the manner in which Eqonex operates its business in ways Eqonex cannot currently anticipate. Compliance with these rules and regulations may strain Eqonex’s financial and management systems, internal controls, and employees. The Exchange Act requires, among other things, that Eqonex files annual, quarterly, and current reports with respect to its business and operating results. Moreover, the Sarbanes-Oxley Act requires, among other things, that Eqonex maintains effective disclosure controls and procedures, and internal control, over financial reporting. In order to maintain and, if required, improve disclosure controls and procedures, and internal control over, financial reporting to meet this standard, significant resources and management oversight may be required. If Eqonex encounters material weaknesses or deficiencies in internal control over financial reporting, Eqonex may not detect errors on a timely basis and its consolidated financial statements may be materially misstated. Effective internal control is necessary for Eqonex to produce reliable financial reports and is important to prevent fraud.

 

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Eqonex expects its independent registered public accounting firm will be required to formally attest to the effectiveness of internal control over financial reporting commencing with its second annual report on Form 20-F. Eqonex expects to incur significant expenses and devote substantial management effort toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, Eqonex’s management attention may be diverted from other business concerns, which could harm the business, operating results, and financial condition. Although Eqonex has already hired additional employees to assist in complying with these requirements, its finance team is small and it may need to hire more employees in the future, or engage outside consultants, which will increase operating expenses.

 

Eqonex also expects that being a public company and complying with applicable rules and regulations will make it more expensive for it to obtain director and officer liability insurance, and Eqonex may be required to incur substantially higher costs to obtain and maintain the same or similar coverage. These factors could also make it more difficult for Eqonex to attract and retain qualified members of its board of directors and qualified executive officers.

 

As a foreign private issuer (“FPI”), Eqonex is exempt from a number of rules under U.S. securities laws and is permitted to file less information with the SEC than U.S. public companies.

 

Eqonex is an FPI, as defined in the SEC rules and regulations, and, consequently, it is not subject to all the disclosure requirements applicable to companies organized within the United States, including certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, Eqonex’s officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of the Company’s securities. Moreover, Eqonex is not required to file periodic reports and financial statements with the SEC as frequently or promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning Eqonex than there is for U.S. public companies.

 

Eqonex is not subject to certain Nasdaq corporate governance rules applicable to U.S. listed companies.

 

Eqonex is entitled to rely on a provision in Nasdaq’s corporate governance rules that allows the Company to follow Singapore corporate law with regards to certain aspects of corporate governance. This allows the Company to follow certain corporate governance practices that differ in significant respects from the corporate governance requirements applicable to U.S. companies listed on Nasdaq.

 

In addition, Eqonex’s Audit Committee is not subject to additional Nasdaq requirements applicable to listed U.S. companies, including an affirmative determination that all members of the audit committee are “independent,” using more stringent criteria than those applicable to the Company as an FPI.

 

Risks Related to Eqonex’s Securities

 

Eqonex may not be able to maintain the listing of its ordinary shares on Nasdaq.

 

Eqonex’s ordinary shares are listed on Nasdaq. On July 21, 2022, we received a written notice from Nasdaq that the Company is not in compliance with the minimum bid price requirement of US$1.00 per share set forth in Nasdaq Rules for continued listing on Nasdaq. If it continues to violate Nasdaq listing requirements, its ordinary shares may be delisted. If it fails to meet any of Nasdaq’s listing standards, its ordinary shares may be delisted. In addition, the board of directors may determine that the cost of maintaining the listing on a national securities exchange outweighs the benefits of such listing. A delisting of Eqonex’s ordinary shares may materially impair shareholders’ ability to buy and sell our ordinary shares and could have an adverse effect on the market price of, and the efficiency of the trading market for, Eqonex ordinary shares. The delisting of ordinary shares could significantly impair Eqonex’s ability to raise capital and the value of your investment.

 

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If securities industry analysts do not publish research reports on Eqonex, or publish unfavorable reports on Eqonex, then the market price and market trading volume of Eqonex’s ordinary shares could be negatively affected.

 

Any trading market for Eqonex ordinary shares may be influenced in part by any research reports that securities industry analysts publish about Eqonex. Eqonex does not currently have and may never obtain research coverage by securities industry analysts. If no securities industry analysts commence coverage of Eqonex, the market price and market trading volume of Eqonex ordinary shares could be negatively affected. In the event Eqonex is covered by analysts, and one or more of such analysts downgrade Eqonex shares, or otherwise reports on Eqonex unfavorably, or discontinues coverage of Eqonex, the market price and market trading volume of Eqonex ordinary shares could be negatively affected.

 

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against Eqonex or its management named in this report based on foreign laws.

 

Eqonex is incorporated under the laws of Singapore. Eqonex conducts its operations outside the United States and substantially all of our assets are located outside the United States. In addition, a majority, if not all, of Eqonex’s directors and executive officers and the experts named in this report reside outside the United States, and a significant amount of their assets are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against Eqonex or against them in the United States in the event you believe your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of Singapore or other relevant jurisdiction may render you unable to enforce a judgment against Eqonex assets or the assets of its directors and officers.

 

Future issuance of Eqonex ordinary shares could dilute the interests of existing shareholders

 

Eqonex may issue additional ordinary shares in the future. The issuance of a substantial number of ordinary shares could have the effect of substantially diluting the interests of Eqonex shareholders. In addition, the sale of a substantial amount of ordinary shares in the public market, in the initial issuance, in a situation in which Eqonex acquires a company, a business or an asset and the acquired company or the owner of the business or asset receives ordinary shares as consideration and the acquired company or the owner of the business or asset subsequently sells its ordinary shares, or by investors who acquired such ordinary shares in a private placement, could have an adverse effect on the market price of Eqonex’s ordinary shares.

 

Future issuances of debt securities, which would rank senior to Eqonex ordinary shares upon our bankruptcy or liquidation, and future issuances of preferred shares, which could rank senior to Eqonex ordinary shares for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in Eqonex ordinary shares.

 

Eqonex has, and in the future, may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of Eqonex debt securities, and lenders with respect to other borrowings Eqonex may make, would receive distributions of Eqonex available assets prior to any distributions being made to holders of our ordinary shares. Moreover, if Eqonex issues preferred shares, the holders of such preferred shares could be entitled to preferences over holders of ordinary shares in respect of the payment of dividends and the payment of liquidating distributions. Because Eqonex’s decision to issue debt or preferred shares in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond Eqonex’s control, Eqonex cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of Eqonex’s ordinary shares must bear the risk that any future offerings Eqonex conducts or borrowings Eqonex makes may adversely affect the level of return, if any, they may be able to achieve from an investment in Eqonex ordinary shares.

 

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The trading price of Eqonex’s ordinary shares may be volatile, which could result in substantial losses to investors.

 

The trading price of Eqonex’s ordinary shares is likely to be volatile and could fluctuate widely due to factors beyond Eqonex’s control. This may happen due to broad market and industry factors, such as performance and fluctuation in the market prices or underperformance or deteriorating financial results of other listed companies based in Singapore. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances of other Singapore companies’ securities after their offerings may affect the attitudes of investors towards Singapore-based, U.S.-listed companies, which consequently may affect the trading performance of Eqonex ordinary shares regardless of its actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure, or matters of other Singapore companies may also negatively affect the attitudes of investors towards Singapore companies in general, including Eqonex, regardless of whether it has conducted any inappropriate activities. Furthermore, securities markets may from time to time experience significant price and volume fluctuations that are not related to Eqonex’s operating performance, which may materially and adversely affect the trading price of its ordinary shares.

 

In addition to the above factors, the price and trading volume of Eqonex’s ordinary shares may be highly volatile due to multiple factors, including the following:

 

	●	regulatory developments affecting Eqonex or its industry;
	●	variations in Eqonex’s revenue, profit, and cash flow;
	●	changes in the economic performance or market valuations of other financial services firms;
	●	actual or anticipated fluctuations in Eqonex’s results of operations and changes or revisions of its expected results;
	●	changes in financial estimates by securities research analysts;
	●	detrimental negative publicity about Eqonex, its services, its officers, directors, shareholders, other beneficial owners, its business partners, or its industry;
	●	announcements by Eqonex or Eqonex competitors of new service offerings, acquisitions, strategic relationships, joint ventures, capital raises, or capital commitments;
	●	additions to or departures of senior management;
	●	litigation or regulatory proceedings involving Eqonex, its officers, directors, or shareholders; and
	●	sales or perceived potential sales of additional ordinary shares.

 

Any of these factors may result in large and sudden changes in the volume and price at which Eqonex ordinary shares will trade. In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If Eqonex were involved in a class action suit, it could divert a significant amount of its management’s attention and other resources from its business and operations and require it to incur significant expenses to defend the suit, which could harm Eqonex’s results of operations. Any such class action suit, whether or not successful, could harm Eqonex’s reputation and restrict its ability to raise capital in the future. In addition, if a claim is successfully made against Eqonex, jt may be required to pay significant damages, which could have a material adverse effect on its financial condition and results of operations.

 

Short sellers of Eqonex’s ordinary shares may be manipulative and may drive down the market price of its ordinary shares.

 

Short sellers of Eqonex stock may be manipulative and may attempt to drive down the market price of Eqonex’s ordinary shares. Short selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the securities, as the short seller expects to pay less in the covering purchase than it received in the sale. It is therefore in the short seller’s interest for the price of the stock to decline, and some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, often involving deliberate misrepresentations of the issuer’s business prospects and similar matters calculated to create negative market momentum.

 

As a public entity in a highly digital world, Eqonex has been and in the future may be the subject of concerted efforts by profiteering short sellers to spread misinformation and misrepresentations in order to gain an illegal market advantage. In addition, the publication of intentional misinformation may also result in lawsuits, the uncertainty and expense of which could adversely impact Eqonex’s business, financial condition, and reputation.

 

While utilizing all available tools to defend itself and its assets against these short seller efforts, there is limited regulatory control, making such efforts an ongoing concern for any public company. While Eqonex moves forward in its business development strategies in good faith, there are no assurances that Eqonex will not face more of these short sellers’ efforts or similar tactics by bad actors in the future, and the market price of its common stock may decline as a result of their actions or the action of other short sellers.

 

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General Risks

 

If Eqonex is unable to successfully identify, hire and retain skilled individuals, it will not be able to implement its growth strategy successfully.

 

Eqonex’s growth strategy is based, in part, on its ability to attract and retain highly skilled senior financial service professionals and software engineers. To date, Eqonex has been able to locate and engage such employees; however, because of competition from other firms, Eqonex may face difficulties in recruiting and retaining professionals of a caliber consistent with its business strategy in the future. If Eqonex is unable to successfully identify and retain qualified professionals, it could materially and adversely affect Eqonex’s business, financial condition and results of operations.

 

Eqonex’s employee retention plans may not be sufficient to retain key employees, including as it relates to equity compensation plans in place now and in the future.

 

Competition, including from new market entrants in the future, may cause Eqonex’s revenue and earnings to decline.

 

Eqonex has entered and is entering into multiple business lines that have traditionally been dominated by large businesses that have access to substantially greater resources than Eqonex. Many of these businesses and other competitors have significant competitive advantages, including longer operating histories, the ability to leverage their sales efforts and marketing expenditures across a broader portfolio of services, greater global presence, more established third-party relationships, greater brand recognition, greater financial strength, greater numbers of company and investor clients, larger research and development teams, larger marketing budgets and other advantages over Eqonex.

 

While Eqonex believes its focus on providing products and services that take advantage of distributed ledger technology differentiates it from many such competitors, many of its business lines have relatively low barriers to entry and Eqonex anticipates that such barriers to entry will become lower in the future. Eqonex currently expects that, as Digital Assets become more mainstream, additional competitors, potentially in large numbers, may begin to provide equivalent products and services. In addition, the introduction of new technologies, as well as regulatory changes, may significantly alter the competitive landscape for Eqonex’s business lines. This could lead to fee compression or require Eqonex to spend more to modify or adapt its offerings to attract and retain customers and remain competitive with the products and services offered by new competitors in the industry. Increased competition on the basis of any of these factors, including competition leading to fee reductions, could materially and negatively impact Eqonex’s business, financial condition and results of operations.

 

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Eqonex’s business lines rely on vendors and third-party service providers.

 

Eqonex’s operations could be interrupted or disrupted if Eqonex’s vendors and third-party service providers, or even the vendors of such vendors and third-party service providers, experience operational or other systems difficulties, terminate their service, fail to comply with regulations, raise their prices or dispute key intellectual property rights sold or licensed to, or developed for, Eqonex. Eqonex may also suffer the consequences of such vendors and third-party providers’ mistakes. Eqonex outsources some of its operational activities and accordingly depends on relationships with many vendors and third-party service providers. For example, Eqonex relies on vendors and third parties for certain services, including know-your-customer (“KYC”) and anti-money laundering (“AML”) background checks. The failure or capacity restraints of vendors and third-party services, a cybersecurity breach involving any third-party service providers or the termination or change in terms or price of a vendors and third-party software license or service agreement on which Eqonex relies could interrupt Eqonex’s operations. Replacing vendors and third-party service providers or addressing other issues with Eqonex’s vendors and third-party service providers could entail significant delay, expense and disruption of service. As a result, if these vendors and third-party service providers experience difficulties, are subject to cybersecurity breaches, terminate their services, dispute the terms intellectual property agreements, or raise their prices, and Eqonex is unable to replace them with other vendors and service providers, particularly on a timely basis, Eqonex’s operations could be interrupted. If an interruption were to continue for a significant period, Eqonex’s business, financial condition and results of operations could be adversely affected. Even if Eqonex can replace vendors and third-party providers, it may be at a higher cost to Eqonex, which could also adversely affect Eqonex’s business, financial condition and results of operations.

 

Finally, notwithstanding Eqonex’s efforts to implement and enforce strong policies and practices regarding third-party service providers, Eqonex may not successfully detect and prevent fraud, incompetence or theft by its third-party service providers, which could adversely affect Eqonex’s business, financial condition and results of operations.

 

Competitors will likely attempt to imitate Eqonex’s services, products and technology. If Eqonex is unable to protect or preserve its proprietary rights, its business may be harmed.

 

As Eqonex’s business continues to expand, its competitors will likely imitate its products, services, and technology, which could harm Eqonex’s business. Only a portion of the intellectual property used in the operation of Eqonex’s business lines is patentable, and therefore it will rely significantly on trade secrets, trade and service marks and copyright. Eqonex also relies on trade secret protection and confidentiality agreements with its employees, consultants, suppliers, third-party service providers, and others to protect its intellectual property and proprietary rights. Nevertheless, the steps Eqonex takes to protect its intellectual property and proprietary rights against infringement or other violation may be inadequate and it may experience difficulty in effectively limiting the unauthorized use of its patents, trade secrets, trade and service marks, copyright and other intellectual property and proprietary rights worldwide. Eqonex also cannot guarantee that others will not independently develop technology with the same or similar function to any proprietary technology it relies on to conduct its business and differentiate itself from competitors.

 

Eqonex could incur significant costs and management distraction in pursuing claims to enforce its intellectual property and proprietary rights through litigation and defending any alleged counterclaims. If Eqonex is unable to protect or preserve the value of its patents, trade secrets, trade and service marks, copyright, or other intellectual property and proprietary rights for any reason, its brand and reputation could be damaged and its business, financial condition and results of operations could be materially adversely affected.

 

Eqonex could be the victim of employee misconduct.

 

In recent years, there have been a number of highly publicized cases involving fraud, conflicts of interest, or other misconduct by employees, and there is a risk that an employee of, or contractor to, Eqonex or any of its affiliates could engage in misconduct that adversely affects Eqonex’s business. It is not always possible to deter such misconduct, and the precautions Eqonex takes to detect and prevent such misconduct may not be effective in all cases. Misconduct by an employee of, or contractor to, Eqonex or any of its affiliates, or even unsubstantiated allegations of such misconduct, could result in direct financial harm to Eqonex.

 

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Eqonex’s loss of access to its private keys or its experience of a data loss relating to its Digital Asset investments could adversely affect Eqonex.

 

Certain Digital Assets are controllable only by the possessor of the private key or keys relating to the “digital wallet” in which the Digital Assets is held. Private keys must be safeguarded and kept private in order to prevent a third party from accessing the Digital Assets while held in such wallet. To the extent a private key is lost, destroyed or otherwise compromised by Eqonex or another digital party and no backup of the private key is accessible, Eqonex will be unable to access the Digital Assets held in the related digital wallet. Any loss of private keys relating to digital wallets used to store Eqonex’s Digital Assets could adversely affect its business, financial condition and results of operations.

 

In addition, if Eqonex’s Digital Assets are lost, stolen or destroyed under circumstances rendering a party liable to Eqonex, the responsible party may not have the financial resources sufficient to satisfy Eqonex’s claims.

 

Eqonex may not be able to effectively manage its growth.

 

As Eqonex grows its business, its employee headcount and the scope and complexity of its business lines may increase dramatically. Consequently, if Eqonex’s business grows at a rapid pace, it may experience difficulties maintaining this growth and building the appropriate processes and controls. Growth may increase the strain on resources, cause operating difficulties, including difficulties in sourcing, logistics, maintaining internal controls, marketing, designing products and services and meeting customer needs.

 

In addition, Eqonex currently operates and is seeking to run many business lines and, while these business lines are anticipated to be complimentary, there can be no assurance that Eqonex will be able to effectively deliver internal or external resources effectively to each business line as and when needed, particularly when multiple business lines are experiencing high levels of need at the same time. Finally, many of Eqonex’s business lines are interlinked. For example, EQONEX Investment Products is expected to be closely related to Digivault. Delays or the inability to roll out products in one business line may pose corresponding issues in other business lines.

 

If Eqonex does not adapt to meet these challenges, it could have a material adverse effect on its business, financial condition and results of operations.

 

Operational risk may materially and adversely affect Eqonex’s performance and results.

 

Operational risk is the risk of an adverse outcome resulting from inadequate or failed internal processes, people, systems or external events. Eqonex’s exposure to operational risk arises from routine processing errors, as well as extraordinary incidents, such as major systems failures or legal and regulatory matters. Because Eqonex’s business lines are reliant on both technology and human expertise and execution, Eqonex is exposed to material operational risk arising from a number of factors, including, but not limited to, human error, processing and communication errors, errors of third-party service providers, counterparties or other third parties, failed or inadequate processes, design flaws and technology or system failures and malfunctions.

 

Operational errors or significant operational delays could have a materially negative impact on Eqonex’s ability to conduct its business or service its clients, which could adversely affect results of operations due to potentially higher expenses and lower revenues, create liability for Eqonex or its clients or negatively impact its reputation. Recurring operational issues may also raise concerns among regulators regarding Eqonex’s governance and control environment.

 

Eqonex may not be effective in mitigating risk.

 

Eqonex has established, and continues to develop, risk management and oversight policies and procedures to provide a sound operational environment for the types of risk to which it is subject, including operational risk, credit risk, market risk and liquidity risk. However, as with any risk management framework, there are inherent limitations to Eqonex’s current and future risk management strategies, including risks that it has not appropriately anticipated or identified and that certain policies may be insufficient when used in connection with Digital Assets. Accurate and timely enterprise-wide risk information is necessary to enhance management’s decision-making in times of crisis. If Eqonex’s risk management framework proves ineffective or if Eqonex’s enterprise-wide management information is incomplete or inaccurate, it could suffer unexpected losses or fail to generate the expected revenue, which could materially and adversely affect its business, financial condition and results of operations.

 

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Item 4. Information on the Company

 

4A. History and Development of the Company

 

General Corporate Information

 

The legal and commercial name of our company is Eqonex Limited. We were incorporated under the laws of the Singapore in 2019 under the name Diginex Innovations Limited with the sole share being held by Miles Pelham. Upon completion of the Business Combination, Diginex Innovations Limited changed its name to Diginex Limited and became the parent of the Eqonex Group. Prior to the Business Combination, the parent for the Eqonex Group was Diginex Hong Kong. In June 2021, the Company announced that it was unifying its businesses under the EQONEX brand and changed its name to Eqonex Limited. The rebrand followed the divestment of Diginex Solutions, the ESG blockchain solutions company, in May 2020 and the impending lapse of the license to use the “Diginex” brand at the end of June 2021.

 

In October 2020, we completed our listing on Nasdaq following the completion of the Business Combination with 8i. Prior to the Business Combination, 8i was listed on Nasdaq as a Special Purpose Acquisition Company. Since October 1, 2020, our ordinary shares have traded on the Nasdaq under the symbol “EQOS.” The Company also had warrants listed on Nasdaq that were issued as part of the Business Combination. These warrants were fully redeemed in February 2021.

 

The registered office of Eqonex is 140 Robinson Road, #18-01 Tahir Building, Singapore 068907 Singapore with the principal executive offices being 118 Piccadilly, Mayfair, London W1J 7NW, United Kingdom. The contact telephone number for both locations being [phone].

 

The SEC maintains an internet site at www.sec.gov that contains reports and information statements and other information regarding registrants like us that file electronically with the SEC.

 

We routinely post important information on our website at https://group.eqonex.com/. This website and the information contained therein or connected thereto shall not be deemed to be incorporated into this Annual Report.

 

Capital Expenditures

 

During the years ended March 31, 2022, 2021 and 2020, our capital expenditures from continuing operations were $4.4 million, $6.3 million and $10.7 million, respectively. In the year ended March 31, 2022, $0.9 million of the capital expenditure was funded by the issuance of equity and $0.6 million and $5.4 million for the years ended March 31, 2021 and March 31, 2020 respectively. All other capital expenditure was funded by cash payments. The focus of our capital expenditure program has been the expansion and development of EQONEX Exchange, the digital asset exchange.

 

The major projects undertaken during these three years, as part of our capital expenditure program, include:

 

	-	The initial build and subsequent product and feature enhancement for EQONEX Exchange
	-	The continued build and feature improvement of Digivault
	-	Leasehold improvements for office space

 

In June 2021, Eqonex acquired a perpetual software license for total consideration of $900,000 payable in equity of the Company. This license provides Eqonex with software on which to execute and manage transactions related to the digital assets borrowing and lending business, EQONEX Lending.

 

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Industry Overview

 

The Digital Asset industry is at an early stage of development, and as of yet, Digital Assets have not been widely adopted, particularly by institutional investors and corporate securities issuers. While there were earlier attempts at creating online or Virtual Currencies, the modern Digital Asset industry began with the introduction of bitcoin in 2008 by a pseudonymous person or organization known as Satoshi Nakamoto.

 

Underpinning the core fundamentals of bitcoin and other digital assets is a blockchain. A blockchain is a distributed ledger in which transaction data is grouped into specific, time-stamped sets. Once consensus is reached on the data that will go into the set, the set is sealed with a cryptographic signature called a “hash” creating a sealed “block.” This block is then mathematically tied to the previous block on the ledger, forming a chain.

 

Since 2008 there has been a significant increase in development and investment in Digital Assets and the infrastructure to support the issuance, storage and trading of Digital Securities, Virtual Currencies and Stablecoins, collectively defined as Digital Assets.

 

Custodial services for Digital Assets continue to grow and are now providing insured custody for Digital Assets. According to Blockdata, a market intelligence platform for blockchain and other distributed ledger technology, the assets under custody have grown by approximately 600% since the beginning of 2019 to approximately $233 billion in January 2022. We believe the market size to potentially be higher as various custody providers do not disclose the number of assets under custody.

 

The market for securitized crypto products that can be accessed via traditional stock exchanges and structured investment products for high-net-worth individuals and institutional investors continues to grow as more well-known institutions from traditional finance begin entering the sector. According to internal data, assets under management across Bitcoin ETN globally was approximately $3.7 billion in March 2022.

 

We expect the size of the Digital Assets industry to continue to grow significantly, particularly through the disruption of traditional financial services, and has developed several business lines in anticipation of this growth.

 

4.B. Business Overview

 

We are a Digital Assets financial services company focused on fairness, governance, and innovation. Our current business operations and our principal activities are conducted through individual business lines under each of our three divisions. The three divisions are: (i) Custody, (ii) Asset Management, and (iii) Brokerage. Our Custody division is composed of Digivault, our FCA-licensed hot and cold Digital Assets custodian. Our Asset Management division is composed of Bletchley Park, our fund of hedge funds; and EQONEX Investment Products, which issues exchange-traded products. Our Brokerage division is composed of Eqonex OTC, an over-the-counter brokerage business; Eqonex Lending, a borrowing and lending business; and the Structured Products Business, which will seek to offer private placements tailored to client demand against underlying crypto assets.

 

On August 15, 2022, we announced that we will cease operations for the EQONEX Exchange. Intense market competition and low margins, combined with the significant technological load required to ensure optimal performance has made running a profitable exchange increasingly challenging, especially in the current environment where crypto exchange volumes have fallen. Closing the Exchange will improve our financial position by materially reducing the high-cost structure associated with operating the Exchange, and free up resources to drive growth in the segments where we have significant competitive strengths. With the ceasing of operations of the Exchange, exchange fee income and trading income generated in relation to the Exchange and liquidation reserve management respectively will also cease. In addition, Access Trading, our trade execution and risk management platform, is being decommissioned and should cease being offered to clients during the third quarter of calendar year 2022. Our Capital Markets business ceased being active during the year ended March 31, 2021. Details about our current and legacy businesses can be found below under “Our Business Lines,” including information on each business line.

 

The Eqonex Group has employees and contractors located in United Kingdom, Hong Kong, Singapore, Vietnam, Switzerland, France, China, Philippines and USA.

 

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Revenue for each of the last three fiscal years was as follows:

 

		For the year ended March 31,
in USD millions		2022				2021				2020
Current Business
Custody			0.1				0.0				0.0
Asset Management			0.6				0.0				0.1
Brokerage			0.3				0.0				0.0
			1.0				0.0				0.1
Legacy/Discontinued Business
Exchange			4.2				0.2				0.0
Trading			0.1				0.1				0.1
Capital Markets			-				0.0				0.3
			4.3				0.3				0.4
			5.3				0.3				0.5

 

We own and control a variety of intellectual property, including but not limited to proprietary information and software and applications that, in the aggregate, are material to our business. The proprietary software related to our Custody Business is material to our business. No other individual instance of intellectual property is material to the Company.

 

Summary of Our Business Lines

 

Unless otherwise stated, Eqonex owns 100% of all business lines discussed in this Annual Report.

 

 

Custody

 

Digivault (“Custody Business” or “Digivault”): Eqonex’s custody solution, Digivault, offers an institutionally focused, highly secure Digital Asset custodian. In May 2021, Digivault received approval from the FCA to register as a custodian wallet provider under the Money Laundering, Terrorist Financing and Transfer of Funds (Information of the Payer) Regulations 2017 (MLR 2017), as amended by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019. Digivault offers a cold storage solution, known as Kelvin, and a warm storage solution, known as Helios, for Digital Assets and targets, primarily institutional clients.

 

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Asset Management

 

Bletchley Park provides Digital Asset investment solutions for institutional and professional investors. Bletchley Park has been managed from Switzerland since the final quarter of 2020 in order to be more geographically aligned with key staff and the business operates in compliance with the regulatory framework of the OSIF. Prior to relocation, the business was managed from Hong Kong where we continue to retain our SFC Type 4 and Type 9 licenses. We opened our first fund of hedge funds, consisting of a selection of Digital Asset hedge funds, in November 2019. The fund’s aim is to generate positive returns irrespective of the underlying market environment by ensuring that the fund is exposed to a diverse range of alpha focused investment strategies utilized by various managers.

 

EQONEX Investment Products: The Investment Products Business issues securitized products that can be accessed via traditional stock exchanges. The first such issuance was a BTC/EUR ETN on July 11, 2022, which was listed on the Frankfurt Exchange.

 

Brokerage

 

EQONEX OTC: The OTC Business offers brokerage services through a white glove experience tailored for institutions, family offices, and high-net-worth individuals.

 

EQONEX Lending: The Borrowing & Lending Business launched in July 2021 and provides liquidity to borrowers with interesting returns for longer-term holders and lenders.

 

EQONEX Structured Products: The Structured Products Business will seek to offer bespoke private placements tailored to client demand against underlying crypto assets.

 

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Our Business Lines

 

The Custody Business

 

Overview

 

Digivault (“Custody Business”, “Digivault”): Eqonex’s custody solution is an institutionally focused, highly secure digital asset custodian that started to accept client assets from October 2019. The business operates both cold (“Kelvin”) and warm (“Helios”) custody services. The business commenced services by offering BTC custody and followed shortly thereafter with ETH. The assets that Digivault can provide custody services for continue to grow and the business currently supports the following (1) blockchains: BTC, ETH, BCH, DOT, XRP, BNB Smart Chain (supported from July 2022), (2) stablecoins: USDC, USDT, TUSD, BUSD (supported from July 2022), and (3) over 70x ERC20 tokens. Support for SOL and additional BEP20 tokens are currently under development.

 

Digivault has in place a crime insurance policy and is insured by certain London insurance companies and syndicates, rated A- or higher by S&P. Key aspects covered by the policy include internal or external theft, including theft of private keys.

 

During the year ended March 31, 2022, Digivault continued to grow assets under custody and generate revenues. The revenues of the Custody Business for the year ended March 31, 2022, was $0.1 million with assets under Custody of $110.0 million.

 

In November 2021, Digivault and Asset Reality, the world’s first end-to-end solution for recovering, managing and realizing seized crypto assets, entered into a partnership aimed at making the digital asset ecosystem safer by assisting global law enforcement agencies and victims of cybercrime with asset recovery. As part of the partnership, Digivault provides secure storage for seized digital assets during the period of the court proceedings. Together, both parties have been engaging with a growing list of government and law enforcement agencies across the UK and Europe. In February 2022, as part of the partnership, Digivault commenced the storage of digital assets seized by Belgian law enforcement and has subsequently commenced the storage of assets on behalf of two further governments. In July 2022, Digivault entered into a partnership with poundtoken.io, the first British-Isles regulated stablecoin that is 100% backed by GBP, where it will offer the holders of poundtoken secure custody in the UK, through its cold and warm custody solutions.

 

Sales and Marketing

 

Digivault is focused on institutional and high net worth individual clients and as a result business development and marketing is centred upon on attending industry events and bolstered by social media, webinar/podcast appearances and press engagement. Sales of the Digivault solutions is led by a dedicated sales team and supported by the wider Eqonex group sales members. The sales approach is also supported by submission for RFQs by institutions looking for custody solutions and by referrals.

 

Digivault has identified and focused upon a newly emerging requirement, securing digital assets on behalf of Government departments/law enforcement agencies. This growing segment of the market is currently underserviced. Digivault’s partnership with Asset Reality, while still in its infancy, has already lead to assets being secured for a European Government and a UK law enforcement agency.

 

The assets held under custody relate to clients in Asia (c. 30%), Europe (c. 20%), USA (c. 40%) and the Middle East (c. 10%).

 

Competition and Pricing

 

Digital asset custody continues to be a focal point within the digital asset sector, with safety and security being a key consideration for new entrants. Within the sector there have been notable purchases of custodians: Bitpanda adding Trustology (now Bitpanda Custody Ltd) to their portfolio and Galaxy Digital acquiring BitGo. The implications of internalizing these custody service platforms have yet to be seen.

 

Digivault continually monitors the competitive landscape in terms of pricing so that it remains competitive and adapts to market conditions. Custody prices continue to remain relatively stable; there has been a small amount of price compression but such price compression has not been significant.

 

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Government Regulation

 

Digivault continues to be registered by the FCA under their crypto asset registration program (registration number: 927958). The FCA’s full register contains 36 companies and the FCA’s temporary register is now closed but contains one company awaiting final approval or removal (there were approximately 200 firms that applied for registration).

 

Digivault has temporarily paused the application for a custody license facilitating the “safeguarding and administering investments” that will enable Digivault to provide custody services for Digital Securities due to changes in market conditions which has not seen the expected adoption of tokenised assets. However, recent proposals on definition of digital assets between security and commodity could drive the need for this additional license and Digivault intends to resume this application process in Q4 2022.

 

Global regulations continue to develop, as they do, Digivault will continue to monitor and assess the regulatory requirements to expand operations globally.

 

The Asset Management Business

 

The Asset Management Business manages Bletchley Park Multi-Strategy Fund through Eqonex SA and uses globally recognized exchanges to offer publicly traded products that track the performance of the most liquid crypto assets.

 

Asset Management – Bletchley Park

 

Overview

 

The Bletchley Park business provides Digital Asset investment solutions for institutional and professional investors. Management has been undertaken from Eqonex SA, a legal entity domiciled in Switzerland, since the final quarter of 2020 in order to be more geographically aligned with key staff and the business operates in compliance with the regulatory framework of the OSIF. It is a member of the Association Romande des Intermédiaires Financiers (ARIF), a Self-Regulatory Organization recognized by the Swiss Financial Market Supervisory Authority (FINMA). Eqonex SA is currently operating in Switzerland under licensing exemption, but will be required to obtain a licence with FINMA by January 1, 2023 pursuant to the new licensing regime under the Swiss Financial Institution Act (FinIA). Eqonex SA is also registered as an exempt reporting advisor (ERA) with the Securities and Exchange Commission. Prior to relocation, the business was managed from Hong Kong where the business continues to retain its SFC Type 4 and Type 9 licenses.

 

The business opened its first fund, the Bletchley Park Multi-Strategy Fund (“BPMSF”), consisting of a selection of digital asset hedge funds, in November 2019. The BPMSF is organized as a master Cayman fund with feeder funds (each of which is managed by Eqonex SA), where the investable assets of each feeder fund are invested in the participating shares of the master fund. A US feeder fund was established during the final quarter of 2021 to address growing interest in the Fund from US investors via private placements exempt from registration pursuant to Regulation D under the Securities Act.

 

The fund has generated cumulative positive returns since the launch and aims to ensure that the fund is exposed to a diverse range of alpha focused investment strategies utilized by various managers.

 

The initial strategy of BPMSF was to raise seed capital and create a live track record of returns prior to raising additional capital. The seed capital was offered an entry point with zero fees and in January 2021, BPMSF commenced raising additional capital. The fee structure for new investment varies depending on the level of investment. The initial strategy of BPMSF has now been achieved having generated positive returns over its three-year track record.

 

Separately to BPMSF, in November 2018, Eqonex acquired 75% of Bletchley Park Asset Management Jersey Limited (“BPAMJ”) and subsequently acquired the remaining 25% in March 2020. Prior to the year ended March 31, 2021, the underlying funds of BPAMJ had been liquidated and BPAMJ now remains dormant and will eventually be wound up.

 

At March 31, 2022, BPMSF had $32.6 million assets under management.

 

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The revenues for the three years ended March 31, 2022, 2021 and 2020 were:

 

		For the year ended March 31,
In USD million		2022				2021				2020
BPMSF			0.6				0.0				-
BPAMJ			-				-				0.1
			0.6				0.0				0.1

 

Sales and Marketing

 

Since January 2021 (after the seed capital period), BPMSF has been promoted to qualified investors which saw the assets under management increase to $32.6 million at March 31, 2022, from $9.4m at March 31, 2021. The increase is largely attributable to (i) investors’ growing interest in digital asset, (ii) Eqonex SA’s partnership with a range of licensed distributors, placement agents and introducers across various jurisdictions, and (iii) the establishment of a US feeder fund and positive returns generated by the fund.

 

At March 31, 2022, the assets under management originated from Asia (47%), Europe (22%) and from Switzerland (26%). 56% of the clients were high net-worth individuals, 22% External Asset Managers and 22% Institutions.

 

Competition and Pricing

 

Currently, to the best of our knowledge, there are only a few direct competitors to BPMSF. Most of the competition originates from single strategies, single portfolio manager solutions rather than diversified fund of hedge fund.

 

Similar structures to BPMSF also tend to mix liquid and less liquid strategies in their offering as well as directional and non-directional strategies to a much larger extent compared to BPMSF which focuses on liquid and alpha focused strategies mainly.

 

While we believe direct competition is limited, our pricing structure is competitive when compared to traditional asset management structures.

 

Government Regulation

 

Eqonex SA currently operates as an asset manager in Switzerland under licensing exemption, but will be required to obtain a licence with FINMA by January 1, 2023 pursuant to the new licensing regime under the Swiss Financial Institution Act (FinIA). Eqonex SA is registered as an exempt reporting advisor (ERA) with the Securities and Exchange Commission.

 

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Asset Management - Investment Products Business

 

Overview

 

The Investment Products Business seeks to originate and distribute products whose performance will be driven by various underlying assets, particularly Digital Assets. The products may further include other assets such as equities or currencies, for example, as a collective basket of assets, or in relative performance to such other assets. The Investment Products business was launched in the third quarter of 2022 with the listing of Eqonex’s first exchange-traded product, a bitcoin ETN on the Frankfurt Exchange in July 2022. The bitcoin ETN prospectus was approved by Germany’s Federal Financial Supervisory Authority. The types of products created will seek to appeal to investors whose needs may not be met by accessing products presently available via the traditional Exchange or OTC Business. As an example, some clients may wish to gain exposure to Digital Assets, such as bitcoin, in the format of a transferable security, such as a note, certificate or warrant. Such investors may also have a desire to access such products on specific venues of their preference, such as local stock exchanges, and via accounts of their preference, such as brokerage accounts. Furthermore, certain investors have specific risk and return objectives that might not be met in traditional generic investments or OTC products where investment return would usually be reflected one to one with price movements of the underlying assets. Some investors might desire to have exposure to an underlying Digital Asset with reduced market exposure (e.g. via capital protected notes), or to increase risk (e.g. via leverage), or to potentially generate growth or other forms of income in relation to agreed price movements of the underlying asset.

 

Sales and Marketing

 

It is anticipated that a large component of sales will be via regulated distributors and intermediaries akin to financial advisers or brokers rather than direct relationships with end investors, though that is not precluded and will be a meaningful component of the bespoke structured products business. Marketing can be broad-based, depending on the type of the product and could be via on-line portals, websites and other electronic channels and informational outlets where appropriate to do so. The location of clients will be global, but likely to have a majority in Europe and have a large component in developed markets like Germany and Switzerland.

 

Competition and Pricing

 

Exchange traded products are a large market, with equities being a common and prevalent asset class. There is much less competition for Digital Asset based products, but competition is growing for a share of investors allocation against more traditional asset classes. Whilst securitized products linked to crypto currencies are in their infancy as a new asset class to many investors, competition is increasing and likely to continue to do so which will create downward pressure on margins. However, there are barriers to entry including the willingness of crypto currency businesses to embrace regulatory prudence and to adopt regulatory frameworks to originate products into highly regulated markets. Virtual currencies are not naturally securitized so a barrier to entry is origination of asset-based investment products in an appropriate way to enable them to trade similarly to other securitized products.

 

Government Regulations

 

As the Investment Products Business will contain products that may be classed as securities, securities regulations like the European Union’s MIFID may apply to these products. In some circumstances, such as for listed investment products, it is necessary to obtain regulatory approval from a national regulator and from a listing venue. The regulations regarding Virtual Currencies continue to evolve and this could change the suitability of the target demographic for various product types and or change the way in which the business would need to be organized in order to deliver products and comply with evolving regulations.

 

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The Brokerage Business

 

The Brokerage Business consists of OTC, Lending and Structured Products. Structured Products is yet to be launched, and therefore has not generated revenue as of the date of this filing.

 

		For the year ended March 31,
In USD million		2022				2021				2020
OTC			0.2				0.0				0.0
Lending			0.1				-				-
			0.3				0.0				0.0

 

Brokerage - OTC

 

Overview

 

The OTC Business, which commenced operation during the year ended March 31, 2019 has the capacity to trade as principal, or match client orders internally or externally via third party institutions. The OTC desk operates from Hong Kong and Singapore where all execution in fiat and Digital Asset payments are actioned. In Singapore, the OTC desk falls under the Singapore regulatory framework and was included in the full license application submitted on May 17, 2020.

 

OTC is available, where possible, 24 hours a day, 365 days a year without any obvious drivers of seasonality.

 

Sales and Marketing

 

EQONEX provides OTC services through a dedicated team offering a bespoke customer service to enable the trading of digital assets without the requirement to use an exchange. The main source of client acquisition is from referrals, event attendance, and media exposure. The OTC desk works very closely with Digivault in order to integrate the OTC purchase or sale of digital assets alongside custodial services.

 

OTC clients are located primarily in the United Kingdom, France, Germany, Switzerland, United Arab Emirates, Hong Kong, Australia, and Singapore.

 

Competition and Pricing

 

The OTC landscape has evolved at pace during the last three years. Clients can now execute trades via an OTC platform integrated with a highly secure custodian. Their purchases of digital assets also now come with the knowledge that leading technology partners have provided analysis of their purchases. This ‘know-your-coin’ approach ensures the validity of the coins being purchased and also reduces the venues for bad actors to use.

 

Liquidity across the leading digital assets has been expanded by the arrival of traditional trading partners, whose expertise has ensured that price discovery is now similar across trading venues. This enables Eqonex to differentiate by service levels, with our tailored OTC offering providing access, delivery and pricing for digital assets for regulated, institutional, fund and corporate treasuries, as well as high-net-worth individuals.

 

While barriers to entry are relatively low for pure OTC trading services, Eqonex has built a trusted reputation within the marketplace, particularly when coupled with Digivault. The robust compliance, KYC and AML polices the company deploys ensure customers are comfortable to use Eqonex as their OTC partner.

 

Our pricing model is in line with our competitors. Clients receive a ‘white glove’ service and can usually expect to trade within tight spread of the mid-price of an asset, depending on liquidity. We also provide fast settlement times, with some assets delivered within 60 minutes of a transaction. This is ahead of the general T+1 settlement time offered by the majority of our competitors. We also allow for clients to receive delivery of digital assets directly into Digivault.

 

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Government Regulation

 

While the OTC business is not regulated in Hong Kong at this stage, it does fall under the regulatory framework in Singapore and as such the business line was included in the full license application to Monetary Authority of Singapore (“MAS”), under the Payment and Services Act, in 2020. The business continues to work under the exemption offered by MAS until a decision on the license has been made.

 

Brokerage – Lending

 

Overview

 

EQONEX Lending enables the borrowing and lending of Digital Assets by borrowers and lenders to achieve their desired outcomes. Eqonex Lending acts as agent to help match borrowers and lenders who enter into a direct transaction with each other. To borrow digital assets, borrowers are required to post collateral to mitigate credit risk and pay an agreed fixed interest rate to the lender. Eqonex Lending provides the service of matching lenders and borrowers, settling the loan and managing the collateral, calling for additional collateral where needed. For this service Eqonex charges a platform fee that includes a loan arrangement fee, ongoing loan administration fees and fees charged in the event of liquidations. Eqonex can also act as principal and directly face either borrowers or lenders. Where it does so Eqonex may seek to charge and/or to offer different rates to borrowers and lenders, in order to profit from the difference.

 

Sales and marketing

 

The lending product is currently focused on the institutional market and the sales effort is aligned to Eqonex’s broader institutional sales effort. Sales discussions with our institutional clients will typically seek to identify and understand their cross-product needs and, as part of that, to understand where clients have specific borrowing or lending requirements. Marketing efforts are also tailored to the institutional client base with the main focus on developing interesting and relevant content for industry publications regarding the state of maturity of the lending market and topical themes such as the importance of robust credit risk management and the need to achieve better rate transparency. Marketing efforts also focus on attendance at and sponsorship of key institutional conferences. At this early stage of the lending product roll-out the firm has not conducted any specific advertising campaigns, instead relying on network marketing via our existing client base. The majority of borrowing and lending clients are located in major financial centers across Asia and Europe with some also located in key offshore financial centers. These include funds, trading firms, asset managers, exchanges and other industry-specific clients such as cryptocurrency miners. EQONEX Lending successfully executed its first loans in Q4 2021 and continues to focus on the build out of the institutional pipeline.

 

Competition and Pricing

 

The lending market had grown significantly over the last two years with the institutional lending market centered around a small number of custodial lenders and largely conducted via ‘over-the-counter’ lending transactions. However, risk management failing in a number of the large competitors led to their collapse during June/July 2022. This landscape however is still competitive in which there is little rate transparency and significant divergence in lending rates across the market. The EQONEX Lending product is designed to create a transparent venue for multiple lenders and borrowers to come together via an exchange-style marketplace with the intention of creating greater a degree rate transparency.

 

Government Regulation

 

Due to the fast growth of lending within the overall Digital Assets market, there has recently been increased focus from regulators to date on the regulation of lending businesses. EQONEX Lending is domiciled in the Seychelles where crypto lending activities are currently unregulated, but the business nevertheless maintains a key focus on compliance with broader global regulatory standards including anti-money laundering regulations. The Lending Business uses our UK-based and FCA registered custody provider Digivault for the custody of collateral assets in respect of collateralized loans. Eqonex continues to assess the broader regulatory environment to ensure that it becomes appropriately regulated as lending market regulation develops and has submitted an application to the Gibraltar Financial Services Commission to have the Eqonex Lending platform regulated under the distributed ledger technology regime.

 

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Brokerage – Structured Products

 

Overview

 

The Structured Products business is a defined return investment issuance business which will seek to offer private placements of bespoke products tailored to client demand against underlying crypto assets. Such private placement products are typically short-term investments of three to six months. Structured Products uses a Luxembourg-based special purpose vehicle entity as the issuer; providing an issuer bankruptcy remote structure. The Structured Products business is expected to launch during the year ended March 31, 2023.

 

Sales and marketing 

  

Sales and Marketing activities for the Structured Products business will employ a distributor-led sales strategy that primarily utilizes distributors that target institutional clients.

  

Competition and Pricing 

  

The Structured Products business has not witnessed such a strong growth in issuers or products and there remains only a few issuers of Digital Assets structured products. Eqonex aspires to become a leading native issuer of structured products. As a direct result of there being very few issuers, pricing can be varied and product availability scarce.

 

Government Regulation

  

A Structured Products business is the most commonly adopted method for offering bespoke investment products to certain clients; and requires adoption of a legal framework (usually a base prospectus) in which to provide the necessary standards and protections for clients.

 

Legacy Businesses

 

The Exchange Business

 

On August 15, 2022, Eqonex announced that it will cease operations of its Exchange business and the EQONEX Exchange. Eqonex took the proactive decision to close the exchange due to intense market competition and low margins, combined with the significant technological load required made running a profitable exchange business increasingly challenging, especially in the current environment where crypto exchange volumes have fallen.

 

The EQONEX Exchange, was a Digital Assets exchange that facilitated the trading of Virtual Currencies and their respective derivatives and operated under an exemption granted by the Monetary Authority of Singapore, under the Payment Services Act.

 

The Exchange Business generated revenue of $4.2 million and $0.2m in financial year ended March 31, 2022 and March 31, 2021, respectively.

 

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The Trading Business

 

The Trading Business consisted of OTC and Lending, both of which have been recategorized under the Brokerage Business. The Trading business also included the liquidation risk management desk, Access Trading and previously a proprietary trading desk. All three operations have either closed or are in the process of being closed as noted below. The Trading Business, excluding OTC and Lending, generated $0.1 million, $0.03 million and 0.1 million in revenue in financial year ended March 31 in 2022, 2021 and 2020 respectively.

 

In the year ended March 31, 2022, Eqonex had a liquidation risk management desk that managed liquidation trades on behalf of the Exchange. The liquidation risk management desk managed risk for leveraged positions from Exchange customers who have triggered their margin limits. This service was not designed to generate any profit or loss for the Trading Business but to isolate and close out risky positions on the Exchange. On August 15, 2022, Eqonex ceased operations for its liquidation risk management desk in tandem with the EQONEX Exchange.

 

Eqonex offered a trading tool known as Access Trading to enable API-based trading on the EQONEX Exchange as well as other exchanges. Access Trading is being decommissioned and is expected to cease being offered to clients during the third quarter of calendar year 2022.

 

The Capital Markets Business

 

The Capital Markets Business was developed to assist issuers seeking to access global capital markets through the issuance of Digital Securities. To this end, the Capital Markets Business advised, issued and distributed offerings of digital securities from its clients to investors. The business operated as an Appointed Representative of Starmark Investment Management Limited (“Starmark”), which is authorized and regulated by the UK Financial Conduct Authority (“FCA”). The Capital Markets Business ceased being active during the year ended March 31, 2021.

 

C. Organizational Structure

 

The legal and commercial name of our company is Eqonex Limited. We were incorporated under the laws of Singapore in 2019 under the name Diginex Innovations Limited with the sole share being held by Miles Pelham. Upon completion of the Business Combination, Diginex Innovations Limited changed its name to Diginex Limited and became the parent of the Eqonex Group. Prior to this the parent for the Eqonex Group was Diginex Hong Kong. In June 2021, the Company announced that it was unifying its businesses under the EQONEX brand and subsequently changed the company name to Eqonex Limited.

 

Significant Subsidiaries

 

Below is a list of our significant subsidiaries as of March 31, 2022:

 

Name		Country of Incorporation		% of Equity Interest
Diginex Limited		Hong Kong		100%
Eqonex Markets Limited		Hong Kong		100%
Eqonex Capital Pte Limited		Singapore		100%
Digivault Limited		United Kingdom		100%
Eqonex SA		Switzerland		100%
Digital Markets Limited		Seychelles		100%

 

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D. Property, Plants and Equipment

 

The following is a list of our principal facilities as of March 31, 2022:

 

Location		Square Footage				Main Use		Own/Lease
118 Piccadilly, London, W1J 7NW			420			Main executive offices		Lease
1206-1209 Three Pacific Place, 1 Queen’s Road East, Hong Kong			7,519			Operations in Asia		Lease
#18-01,140 Robinson Road, Singapore 068907			1,970			Legal and compliance		Lease
12.2, 12th Floor, 436 – 438 Nguyen Thi Minh Khai Street, Ward 3, District 3, Ho Chi Minh City, Vietnam			1,152			IT development and support		Lease

 

Whilst the office facilities are adequate for the time being, there may be a need to secure additional office space as the business grows.

 

Item 4A. Unresolved Staff Comments

 

Not required.

 

Item 5. Operating and Financial Review and Prospects

 

The following discussion and analysis of Eqonex’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Annual Report. This discussion contains forward-looking statements reflecting Eqonex’s current expectations, estimates and assumptions concerning events and financial trends that may affect its future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” appearing elsewhere in this Annual Report.

 

Recent Developments

 

Strategic Partnership with Bifinity

 

On March 7, 2022, Eqonex Limited entered into a strategic partnership with Bifinity which included a $36 million convertible loan agreement. The loan carries an interest charge of 4% per annum. The loan will be drawn down in monthly $3 million instalments during the first quarter, commencing on March 15, 2022, and $9 million per quarter, in advance, for the remaining three quarters. The loan must be repaid 18 months after each drawdown or can be converted by Bifinity at any time, at their option, into shares of Eqonex Limited. The loan can be converted into equity at a share price of $1.89 per share. At March 31, 2022, $3 million had been drawn down.

 

Under the terms of the loan agreement, Bifinity has the right to nominate for appointment the Chief Executive Officer, Chief Financial Officer and Chief Legal Officer of Eqonex. The board of directors of Eqonex (the “Board”) has appointed the nominees of Bifinity for Chief Executive Officer, Chief Financial Officer and, in lieu of appointing the Chief Legal Officer, has appointed a Chief Corporate Affairs Officer. Bifinity has also appointed two members to the Eqonex board, pursuant to the terms of the loan agreement. The Eqonex officers and directors nominated by Bifinity are being compensated by Bifinity directly as part of our strategic partnership.

 

On August 15, 2022, in connection with the exchange closure and in accordance with the loan agreement, Bifinity granted Eqonex a waiver for the cessation of a major business and Eqonex agreed to increase its share charge of Digivault under the loan agreement from 24.9% to 100%.

 

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Ceasing Operations for the Exchange Business

 

On August 15, 2022, Eqonex announced the ceasing of operations of its Exchange Business and EQONEX Exchange. Intense market competition and low margins, combined with the significant technological load required made running a profitable exchange business increasingly challenging, especially in the current environment where crypto exchange volumes have fallen.

 

Ceasing operations for EQONEX Exchange will improve Eqonex’s financial position by materially reducing the high-cost structure associated with operating the Exchange, and free up resources to drive growth in its current business segments where it believes it has competitive strengths.

 

Nasdaq Compliance

 

On July 21, 2022, we received a written notice from Nasdaq stating that we are not in compliance with the minimum bid price requirement of US$1.00 per share set forth in Nasdaq Rules for continued listing on Nasdaq.

 

Based on the closing bid price of our listed securities for the last 30 consecutive business days from June 7, 2022, to July 20, 2022, we no longer meet the minimum bid price requirement set forth in Listing Rule 5550(a)(2). The notice is only a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of our securities on the Nasdaq Capital Market.

 

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided 180 calendar days, or until January 17, 2023, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, our common shares must have a closing bid price of at least US$1.00 for a minimum of 10 consecutive business days.

 

Our business operations are not affected by the receipt of the Notification Letter. We intend to monitor the closing bid price of our ordinary shares and may, if appropriate, consider implementing available options, including, but not limited to, implementing a reverse share split of its outstanding ordinary shares, to regain compliance with the minimum bid price requirement under the Nasdaq Rules for continued listing on Nasdaq.

 

The Company intends to resolve the deficiency and regain compliance with the Listing Rules.

 

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A. Operating Results

 

Result of Operations

 

		For the year ended March 31,
in USD millions		2022				2021				2020
Continuing Operations
Revenue			5.3				0.3				0.5
General and administrative expenses			(72.5	)			(64.9	)			(42.9	)
Operating loss			(67.2	)			(64.6	)			(42.4	)
Other losses and expenses , net			5.2				(65.8	)			(1.7	)
Impairment reversal (losses) on financial assets			0.0				0.0				(11.2	)
Impairment losses on intangible assets			(13.9	)			0.0				0.0
Finance costs, net			(0.3	)			(2.3	)			(1.9	)
Loss before tax			(76.2	)			(132.7	)			(57.2	)
Income tax credit			0.4				0.5				0.0
Loss from continuing operations			(75.8	)			(132.2	)			(57.2	)
(Loss) profit from discontinued operations			0.0				5.0				(0.9	)
Loss for the year			(75.8	)			(127.2	)			(58.1	)
Loss attributable to owners			(75.0	)			(126.7	)			(57.7	)
Non-controlling interests			(0.8	)			(0.5	)			(0.4	)
			(75.8	)			(127.2	)			(58.1	)

 

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (the “CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Group’s executive committee is considered the Group’s CODM. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. While the Group has revenue from multiple products and geographies, the balance sheet and cashflow of the Group is considered by the CODM on a consolidated basis, so discrete financial information is not available for each such component. Although the financial performance is presented by product within the monthly finance information, they are not used as standalone pieces of management information for decision making. The overall financial performance of the Group is also considered. In particular, in terms of resource allocation, the CODM tend to look from a burn rate perspective, where cash is the one of key components to decision making and it drives allocations of the Group’s resources. As such, the Group has determined that it operates as one operating segment and one reportable segment. The Group will continue to assess the operating segments reviewed by the CODM and the associated reportable segments per IAS 8.

 

With the ceasing of operations of EQONEX Exchange announced after the reporting period on August 15, 2022, the Group shall treat such segment as continuing operation during the year ended March 31, 2022 and will report it as discontinued operations at the date at which it is fully closed during the year ending March 31, 2023, per IFRS 5. See Note 36 to our consolidated financial statements for additional information.

 

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A description of any governmental economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, directly or indirectly, our operations or investments can be found under the “Government Regulations” heading in the description of each of our business lines under Item 4. “Information on the Company”.

 

Revenue

 

		For the year ended March 31,
in USD millions		2022				2021				2020
Current Business
Custody service income			0.1				0.0				0.0
Asset Management fee income			0.6				0.0				0.1
Brokerage income			0.3				0.1				0.0
			1.0				0.1				0.1
Legacy Business
Exchange income			4.2				0.2				0.0
Trading income			0.1				0.0				0.1
Capital Markets income			0.0				0.0				0.3
			4.3				0.2				0.4
			5.3				0.3				0.5

 

Revenue from continuing operations for the year ended March 31, 2022, increased to $5.3 million from $0.3 million for the year ended March 31, 2021 and from $0.5 million for the year ended March 31, 2020.

 

Assets held by Digivault increased by 893% during the year ended March 31, 2022. In May 2021, Digivault also became the first stand-alone digital custodian to receive approval from the UK Financial Conduct Authority to store cryptocurrencies under the Money Laundering, Terrorist Financing and Transfer of Funds (Information of the Payer) Regulations 2017 (MLR 2017), (as amended 2019). The combination of secure infrastructure and regulatory oversight positions Digivault well for future growth.

 

The Asset Management business increased assets under management by 245% during the year ended March 31, 2022, and generated management fees of $0.1 million and a performance fee of $0.5 million during the year. During the prior year there was minimal fees generated.

 

During the year ended March 31, 2022, the OTC desk saw an increase in client base which drove an uplift in OTC orders and revenues of the brokerage income to $0.3 million when compared to $0.1 million for the year ended March 31, 2021.

 

The revenue during the year ended March 31, 2022 was primarily derived by fees earned from the Exchange. During the first quarter of the fiscal year, from April to June, there was a progressive increase in trading volumes which reached a high in June with an average daily volume for the month of $177 million. This was driven, in part, by the launch of EQO, which, amongst other features, rewarded clients for taker volumes. Market conditions since then weakened, driven by declining digital asset prices and lower volatility. Trading volumes on EQONEX also softened, averaging $70 million per day over the year ended March 31, 2022. During the year ended March 31, 2021, monthly average daily volume reached a high of $16 million.

 

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General and Administrative Expenses from Continuing Operations

 

		For the year ended March 31,
in USD millions		2022				2021				2020
Employee benefits			35.5				44.4				26.1
Amortization of intangible assets			3.8				2.0				0.0
Depreciation of plant, property and equipment			0.3				0.8				0.8
Depreciation of right of use assets			1.5				2.0				2.0
Operating lease expenses in respect of short-term leases			0.2				0.2				0.2
Auditor’s remuneration			1.0				0.7				0.3
Legal and professional fees			11.1				5.0				6.5
Marketing and promotions			11.2				3.2				0.7
Software maintenance			0.9				0.7				3.3
Technology			5.7				4.6				1.1
Other expenses			1.3				1.3				1.9
			72.5				64.9				42.9

 

General and administrative expenses increased by $7.4 million to $72.3 million for the year ended March 31, 2022, and increased from $42.9 million for the year ended March 31, 2020. This increase between March 31, 2022, and 2021was primarily driven by an increase in auditor’s remuneration, legal and professional and marketing costs which was partially offset by a reduction in employee benefits. The increase between March 31, 2021 and 2020 was primally driven by increased staff benefits and most notably the fair value of share options awarded to employees.

 

Employee Benefits

 

Employee related expenses decreased by $8.9 million to $35.5 million for the year ended March 31, 2022 and increased from $26.1 million for the year ended March 31, 2020. The decrease between March 31, 2022 and 2021 was driven, in the most part, by the fair value reporting associated with the employee share option scheme. This was also the main reason for the increase between March 31, 2022 and 2021.

 

For the year ended March 31, 2022, the costs associated with the employee share option scheme reduced to $11.7 million compared to $29.2 million for the year ended March 31, 2021. The higher expense for the year ended March 31, 2021 was due to a modification to the scheme during the period which resulted in a non-recurring fair value charge to the income statement. During the year ended March 31, 2022, the Group awarded employees, for the first time, with Restricted Share Units (“RSUs”) as part compensation for their services. The RSUs vest over three years and the expense for the year ended March 31, 2022 was $4.1 million. The RSU’s have both service and business performance conditions linked to the vesting conditions. There was no similar cost for the year ended March 31, 2021. See Note 22 to our consolidated financial statements for additional information.

 

Salaries and benefits in kind between March 31, 2021 and March 31, 2022 increased by $8.4 million to $23.3 million. Over the same period the headcount for the Group rose from 157 to 195.

 

Salaries and benefits in kind between March 31, 2020 and March 31, 2021 increased marginally by $0.5 million to $14.9 million. Over the same period the headcount for the Group rose from 137 to 157.

 

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Amortization of Intangible Assets

 

Amortization of Intangible Assets increased by $1.8 million to $3.8 million during the year ended March 31, 2022. The year ended March 31, 2022 was the first full year of amortization which resulted in the higher expense.

 

Following the launch of the Exchange and Digivault, the Group commenced amortizing the capitalized costs associated with the acquisition and development of software for the Exchange and those capitalized for Digivault. Such costs are amortized over a five-year period on a straight-line basis.

 

Depreciation of Property, Plant and Equipment

 

Depreciation of property, plant and equipment decreased by $0.5 million to $0.3 million for the year ended March 31, 2022 and remained flat at $0.8 million for the years ended March 31, 2021 and 2020. The decrease during the year ended March 31, 2022 is driven by depreciation of the capital expenditure on leasehold improvements related to the new Hong Kong office, which are depreciated over the lease terms. The capital expenditure on the new office space was less than that incurred for the prior Hong Kong office space. See Note 13 to our consolidated financial statements for additional information.

 

Depreciation of Right of Use Assets

 

In the year ended March 31, 2022, there was a decrease of $0.5 million to $1.5 million when compared to the year ended March 31, 2021. The decrease is primarily related to a new long-term lease contractually committed to in Hong Kong at a reduced cost per month compared to the previous office space, The capitalized cost also includes an associated dilapidation provision.

 

In the year ended March 31, 2021, leases under IFRS 16 were categorized as right of use assets and related to the office leases in Hong Kong for the whole year and the offices in Singapore and Vietnam for part of the year, following the commitment of new leases in these jurisdictions during the year. The depreciation expense for right of use assets remained flat at $2.0 million compared to the year ended March 31, 2020.

 

Right of use assets for the year ended March 31, 2020 included offices in both Hong Kong and Jersey. However, during the year ended March 31, 2021 the Jersey office lease was restructured to shorten the lease term and as a result the lease has been recategorized in the year ended March 31, 2021 from a right of use asset to an operating lease expense. The Hong Kong lease expired on June 15, 2021 and a new lease has been entered into at an alternative premise in Hong Kong.

 

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Auditor’s Remuneration

 

Audit fees increased to $1.0 million for the year ended March 31, 2022 compared to $0.7 million and $0.3 million for the years ended March 31, 2021 and March 31, 2020 respectively. The increase in auditor’s remuneration for the year ended March 31, 2022 is due to higher audit fee for the new auditors in connection with the annual audit of the Group for the year ended March 31, 2022.

 

Legal and Professional Fees

 

We incurred legal and professional fees of $11.1 million in the year ended March 31, 2022, which was an increase of $6.1 million from the $5.0 million expensed in the year ended March 31, 2021 and $4.6 million higher than costs incurred in the year ended March 31, 2020 of $6.5 million. The increase is predominantly driven by the following key components:

 

	●	Fees associated with being a listed company including those related with SEC filings and incremental investor relation activities. The year ended March 31, 2022 was the first full year as a listed company.
	●	Recruitment fees as the Group continued to hire high caliber employees in the early part of the year ended March 31, 2022;
	●	Costs associated with the legal and regulatory structure for the pending launch of the investment products business;
	●	Cost associated with trademark applications following the rebranding from Diginex to Eqonex; and
	●	Incremental KYC/AML costs as activity on EQONEX increases.

 

Marketing and Promotions

 

Marketing and promotional related costs of $11.2 million for the year ended March 31, 2022 increased by $8.0 million when compared to March 31, 2021 and by $10.5 million compared to the year ended March 31, 2020. The marketing spend was focused primarily on activities to promote the Exchange. The expenses include fees associated with market makers which are, for the majority, settled via the issuance of equity.

 

Software Maintenance

 

Software maintenance costs totaled $0.9 million for the year ended March 31, 2022, which was an increase of $0.2 million compared to the year ended March 31, 2021 and a decrease of $2.4 million compared to the year ended March 31, 2020. The costs incurred during the years ended March 31, 2022, 2021 and 2020 were primarily associated with building the Exchange which did not qualify as capitalized costs per IAS 38.

 

Technology

 

Technology costs increased to $5.7 million for the year ended March 31, 2022 compared to $4.6 million and $1.1 million for the years ended March 31, 2021 and 2020, respectively. The increase consists primarily of services engaged into cloud-based host servers to support the Exchange infrastructure

 

Other

 

Other expenses were $1.3 million for the year end March 31, 2022, which remained flat compared to the year ended March 31, 2021 and decreased by $0.6 million compared to the year ended March 31, 2020. The decrease, from 2020, was, in part, due to lower travel and entertainment costs as a result of the COVID-19 pandemic.

 

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Other gain (losses) and expenses, net

 

		For the year ended March 31,
in USD millions		2022				2021				2020
Transaction expense			-				(45.4	)			0.0
Net fair value gain of financial liabilities at fair value through profit and loss			5.2				11.4				0.0
Net fair value gain (loss) on financial assets at fair value through profit or loss			0.0				(0.1	)			(1.5	)
Foreign exchange gains (losses),net			0.1				0.4				(0.1	)
Earnout share awards			0.0				(32.1	)			0.0
Net loss on sale of financial assets at fair value through profit or loss			0.0				0.0				(0.2	)
Others			(0.1	)			0.1				0.1
Total other losses and expenses, net			5.2				(65.7	)			(1.7	)

 

Eqonex recognized total other gains of $5.2 million for the year ended March 31, 2022 which compared to total other losses of $65.7 million and total other losses of $1.7 million for the year ended March 31, 2020.

 

The gain in the year ended March 31, 2022 was driven by the fair value measurement of private warrants issued in January 2021.

 

The losses incurred in the year ended March 31, 2021 were primarily due to the issue of shares and warrants to former 8i Enterprises shareholders on completion of the Transaction, issue of unit purchase options by 8i Enterprises to a service provider, and the fair value of earn-out shares that were introduced as a condition of the Transaction. The earn-out shares vest on the achievement of predefined milestones. This loss was partially offset by a fair value gain on warrants issued in January 2021.

 

Transaction Expenses

 

The execution of the Transaction resulted in the issuance of shares and warrants in the Company to former shareholders and warrant holders of 8i Enterprises. The shares and warrants were valued at $65.2 million. The Group recognized an expense associated with the Transaction for a Unit Purchase Option granted to a service provider with a fair market value of $1.4 million per the Transaction. Upon completion of the Transaction, Eqonex consolidated the net assets of 8i Enterprises of $21.2 million resulting in a $45.4 million cost of Transaction for the year ended March 31, 2021. This was a one-off cost and did not involve cash.

 

Net Fair Value Gains of Financial Liabilities at Fair Value Through Profit and Loss

 

In January 2021, the Company raised capital via a private placement and issued shares and private warrants. The private warrants were valued upon issue using the Black-Scholes model at $16.6 million. At March 31, 2022 and 2021, the private warrants were fair valued for reporting purposes using the same model with a resulting valuation of $4,005 and $5.2 million respectively, which concluded in a $5.2 million and $11.4 million gain being recognized in the consolidated statement of profit or loss for the years ended March 31, 2022 and 2021, respectively. See Note 26 to our consolidated financial statements for more information.

 

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Net Fair Value Gain (Loss) on Financial Assets at Fair Value through Profit or Loss

 

During the year ended March 31, 2022, Eqonex held investments in a collection of startups at various stages of maturity and also made a $2 million investment into the BPMSF, which is managed by a subsidiary of the Group. On an aggregate basis, the value of the investments remained flat for the year ended March 31, 2022 when compared to the prior year, with a $0.3 million gain from Bletchley Park being partially offset by a $0.3 million loss from a collection of startups. During 2021 and 2020, Eqonex only held a collection of startups. As at March 31, 2021 and 2020, these investments incurred net fair value losses of $0.1 million and $1.5 million, respectively.

 

Earnout Share Awards

 

Under the terms of the Transaction, former Diginex Hong Kong shareholders are entitled to an additional 12 million shares if certain share price milestones are achieved over a four-year period post the Transaction date. The earnout was valued using a Monte Carlo simulation model which resulted in a fair value cost of $32.1 million. The first earnout milestone was achieved in January 2021 and 3 million shares were issued together with 30,000 shares to a service provider who is entitled to 1% of the shares issued in the earnout. The achievement of the first earnout did not have any impact to the statement of profit or loss with the fair value of the earnout being recategorized from share-based payment reserve to share capital on the statement of financial position

 

Net Loss on Sale of Financial Assets at Fair Value through Profit or Loss & Gain on Fair Value on Equity Method Investment

 

Shares in Madison Holdings Group Limited, which are listed on GEM of The Stock Exchange of Hong Kong, were received as part consideration for the 51% disposal of Diginex High Performance Computing Limited (“DHPC”) in July 2018. In June 2019, the Group sold the remaining 3,681,399 Madison shares and recorded a realized loss of $221,626.

 

Impairment Reversal (Losses) on Financial Assets

 

No impairment reversal (losses) on financial assets was made during the year ended March 31, 2022. A minimal reversal on an impairment loss on financial assets was recognized during the year ended March 31, 2021 in relation to a previously impaired loan to DHPC. $11.2 million of impairment losses on financial assets were recognized in the year ended March 31, 2020 which also related to a previously advanced loan.

 

During the year ended March 31, 2019, Eqonex advanced a loan of $15.0 million for the purchase of high-performance computing equipment for DHPC and $2.0 million for working capital purposes, of which $2.0 million was repaid. The net loan receivable was repayable from the cash profits of DHPC. In accordance with IFRS 9, a detailed expected credit loss model based on various scenarios of the future success of DHPC was carried out and the results analyzed. The outcome of the modelling led to a $10.6 million impairment in the year ended March 31, 2020. See Note 19 to our consolidated financial statements for additional information.

 

Other impairments to loans, advances and trade receivables during the years ending March 31, 2020 resulted in additional impairment charges of $0.6 million.

 

Impairment losses on intangible assets

 

With the announced cessation of operation of the EQONEX Exchange on August 15, 2022, there was an accelerated amortization of the associated capitalized costs. This resulted in an impairment charge of $13.9 million relating to the software for the Exchange was made for the year ended March 31, 2022. There were no such charges for the years ended March 31, 2021 or 2020.

 

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Finance Costs

 

Eqonex incurred finance costs for the year ended March 31, 2022 of $0.3 million compared to $2.3 million and $1.9 million for the years ended March 31, 2021 and 2020, respectively.

 

Interest arising from operating lease liabilities is recognized in the profit and loss statement in line with IFRS 16 reporting. The resulting finance charge from IFRS 16 amounted to $0.3 million in 2022, 0.2 million in 2021 and $0.5 million in 2020. Finance cost for the year ended March 31, 2022 also included a minor interest charge on convertible loan with Bifinity UAB following the $3.0 million drawn down in March 2022.

 

During the year ended March 31, 2021, $1.2 million of the finance charges related to the cost of the private placement capital raise that was associated with the issuance of private warrants. The total cost of the capital raise was $2.9 million with $1.7 million offset against share capital issued and the balance recognized in the statement of profit or loss. The private warrants have been recognized as a liability rather than an equity instrument.

 

In May 2020, Eqonex issued a convertible bond with a 10% annual coupon, raising $25 million. The bond had a mandatory conversion into shares of Diginex Hong Kong prior to a listing in September 2020. The bond and accrued interest were converted on September 21, 2020.

 

Eqonex had a $20 million credit facility in place with Pelham Limited which was terminated in September 2020. The facility accrued interest at 12.5% per annum which resulted in a charge of $0.3 million for the year ended March 31, 2021 and $1.3 million for the years ended March 31, 2020. Pelham Limited is a company controlled by the founder of the group, Miles Pelham.

 

Eqonex also issued a loan note in September 2019, the loan note had a 12-month maturity and a 15% interest charge. A notional amount of $0.7 million was raised and was fully redeemed early on June 1, 2020. Interest of $0.1 million was charged for the year ended March 31, 2020 with a minimal residual amount charged during the year ended March 31, 2021.

 

Income Tax

 

During the year ended March 31, 2022 and 2021, Digivault Limited, a UK subsidiary of the Group, received a tax credit for research and development of $0.3 million and $0.5 million respectively.

 

The operating activities of the Group in the years ended March 31, 2022, 2021 and 2020 did not generate a taxable charge due to operating losses incurred.

 

Although Eqonex has or had active operations in United Kingdom,, Switzerland, Singapore, Vietnam, Seychelles and Germany during the reporting periods, the majority of its operations have been in Hong Kong, with a growing presence in the United Kingdom. Eqonex’s entities in Hong Kong are subject to Hong Kong Profits Tax at a rate of 16.5%.

 

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Profit (Loss) from Discontinued Operations

 

		For the year ended March 31,
in USD millions		2022				2021				2020
Revenue			-				0.0				0.2
General and administrative expenses			-				(0.1	)			(1.1	)
Operating (loss)			-				(0.1	)			(0.9	)
Finance costs			-				0.0	)			(0.0	)
(Loss) before tax			-				(0.1	)			(0.9	)
Income tax expense			-				-				-
(Loss) after income tax			-				(0.1	)			(0.9	)
Gain on sale of subsidiary			-				5.1				0.0
Profit (loss) from discontinued operations			-				5.0				(0.9	)

 

Eqonex sold the Solutions Business in May 2020 to Rhino Ventures Limited, a company controlled by Miles Pelham. While the transaction was completed post the March 31, 2020 year end it was considered material and hence the results of the business line have also been reported as discontinued in both the years ended March 31, 2020 and March 31, 2019. The business was sold for $6.0 million with the consideration value being offset against the Pelham Limited loan.

 

The Solutions Business produced revenues of $0.0 million and $0.2 million during the years ended March 31, 2021 and 2020, respectively. The Solutions Business incurred general and administrative expenses of $0.1 million and $1.1 million during the years ended March 31, 2021 and 2020, respectively. These costs relate, primarily, to employee salaries and benefits.

 

Inflation

 

Since incorporation, Eqonex has not been materially impacted by changes in inflation.

 

Impact of Foreign Currency Fluctuations on Results

 

Eqonex’s main operating currencies have historically been the US Dollar and Hong Kong Dollar. As the Hong Kong Dollar is pegged to the US Dollar, Eqonex has not been overly exposed to foreign currency fluctuations in prior years. As the business grows, Eqonex is exposed to more foreign currencies and their fluctuations, such as the British Pound, Euro and Singapore Dollar. 

 

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B. Liquidity and Capital Resources

 

The Group’s ability to fund its operations has historically been based on raising capital from investors and borrowing funds on reasonable economic terms. During the year ended March 31, 2022, the Group has been funded primarily by the proceeds from the Transaction and capital raises in prior periods plus revenues generated during the period from the Exchange.

 

On March 7, 2022, Eqonex Limited entered into a $36 million convertible loan agreement with Bifinity UAB. The loan carries an interest charge of 4% per annum. The loan will be drawn down in monthly $3 million instalments during the first quarter, commencing on March 15, 2022, and $9 million per quarter, in advance, for the remaining three quarters. The loan must be repaid 18 months after each drawdown or can be converted by Bifinity at any time, at their option, into shares of Eqonex Limited. The loan can be converted into equity at a share price of $1.89. Under the terms of the loan agreement, Bifinity has the right to nominate for appointment the Chief Executive Officer, Chief Financial Officer and Chief Legal Officer for Eqonex. The Board has appointed the nominees of Bifinity for Chief Executive Officer, Chief Financial Officer and, in lieu of appointing the Chief Legal Officer, has appointed a Chief Corporate Affairs Officer. Bifinity has also appointed two members to the Eqonex board, pursuant to the terms of the loan agreement. On August 15, 2022, in connection with the exchange closure and in accordance with the loan agreement, Bifinity granted Eqonex a waiver for the cessation of a major business and Eqonex agreed to increase its share charge of Digivault under the loan agreement from 24.9% to 100%.

 

In prior years, Eqonex’s ability to fund its operations is based on its ability to generate revenue, its ability to attract investors and its ability to borrow funds on reasonable economic terms.

 

Management is of the opinion that the capital of the Company is sufficient to meet present requirements. The Company is not aware of any legal or economic restrictions on the ability of its subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. The company is also not aware of any material restrictions that impact the transfer of funds between subsidiaries to enable the operating of the business in various jurisdictions.

 

At March 31, 2022, Eqonex held cash and cash equivalents of $4.9 million. the majority was held in USD with residual balances in Hong Kong Dollars, British Pounds and Euros. Eqonex held all balances in bank accounts and had not hedged any foreign exchange exposures. Given the increased use of British Pounds, Euro and Singapore Dollar, Eqonex is looking to implement a Treasury Policy to manage foreign exchange requirements going forward.

 

At March 31, 2022, 2021 and 2020, Eqonex had cash and cash equivalents of $4.9 million, $52.1 million and $1.0 million, respectively, as detailed below:

 

		As of March, 31
		2022												2021												2020
in USD Millions		Cont. Ops				Disc. Ops				Total				Cont. Ops				Disc. Ops				Total				Cont. Ops				Disc. Ops				Total
Net cash provided by (used in) operating activities			(42.6	)			-				(42.6	)			(38.5	)			(1.0	)			(39.5	)			(21.5	)			(0.8	)			(22.3	)
Net cash used in investing activities			(6.1	)			-				(6.1	)			18.4				-				18.4				(5.4	)			-				(5.4	)
Net cash provided by (used in) financing activities			1.6				-				1.6				72.7				-				72.7				28.0				-				28.0
Net increase (decrease) in cash and cash equivalents			(47.1	)			-				(47.1	)			52.6				(1.0	)			51.6				1.1				(0.8	)			0.3
Cash and cash equivalents, beginning of year			52.1				-				52.1				(4.9	)			5.9				1.0				(6.0	)			6.7				0.7
Effect of foreign exchange rate changes			(0.1	)			-				(0.1	)			(0.5	)			-				(0.5	)			0.0				-				0.0
Cash and cash equivalents, end of year			4.9				-				4.9				47.2				4.9				52.1				(4.9	)			5.9				1.0

 

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Cash Flows from Operating Activities

 

Total cash outflows from operating activities were $42.6 million in the year end March 31, 2022, compared to an outflow of $39.5 million for the year ended March 31, 2021 and an outflow of $22.3 million for the year ended March 31, 2020. Cash flow related to both continued and discontinued operations:

 

Continued Operations

 

Cash outflows from operating activities were $42.6 million in the year ended March 31, 2022 compared to an outflow of $38.5 million in the year ended March 31, 2021 and an outflow of $21.5 million for the year ended March 31, 2020. The increased cash outflow in the year ended March 31, 2022 relates, in part, to an increase in employees from 157 to 195 together with additional year-over-year expenditure on marketing, promotions and technology matters associated with the continued build out and investment into the Eqonex ecosystem.

 

During the year ended March 31, 2021, cash outflow increase related, in part, to an increase in employees from 137 to 157 together with costs associated with the Transaction and listing and additional expenditure year-over-year on technology matters in the course of growing the business as well as marketing the Group’s business lines. Eqonex also acquired $1.7 million in USDC and digital assets which have, in part, been used to fund promotions to attract clients and volumes to the Exchange. The liquidation risk management desk has also been funded with USDC to managed liquidated positions on the Exchange.

 

Discontinued Operations

 

There were no cashflows from discontinued operations during the year ended March 31, 2022. The cash outflow from discontinued operations was $1.0 million for the year ended March 31, 2021 and $0.8 million for the year end March 31, 2020. The outflows in these two years relates to costs associated with the operations of the Solutions Business.

 

Cash flows from Investing Activities

 

Total cash outflows from investing activities were $6.1 million in the year ended March 31, 2022, compared to inflows of $18.4 million for the year ended March 31, 2021 and outflows of $5.4 million for the year ended March 31, 2020.

 

During the year ended March 31 2022, Eqonex invested in the Bletchley Park Multi-Strategy Fund for $2.0 million and the net investing cashflows on digital assets amounting to $0.6 million. There were no such investments in previous years.

 

During the year ended March 31 2022, Eqonex also invested $3.2 million in the build and enhancement of the Exchange which compares to $5.7 million during the year ended March 31, 2021 and $5.3 million during the year ended March 31, 2020. The Company also issued equity to the value of $0.9 million, $0.6 million and $5.4 million to acquire software which had no cash flow impact in the years ended March 31, 2022, 2021 and 2020 respectively.

 

During the year ended March 31, 2021, Eqonex collected cash of $24.1 million following the completion of the Transaction with 8i Enterprises.

 

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Cash flows from Financing Activities

 

Total cash inflows from financing activities were $1.6 million in the year ended March 31, 2022, compared to an inflow of $72.7 million for the year ended March 31, 2021 and an inflow of $28.0 million for the year ended March 31, 2020.

 

During the year ended March 31, 2022, Eqonex entered into a $36 million convertible loan agreement with Bifinity UAB with $2.8 million net of expenses drawn in March 2022. The loan carries an interest charge of 4% per annum.

 

During the year ended March 31, 2022, Eqonex paid $1.2 million for long-term office leases accounted for under IFRS 16. The office leases are in Hong Kong, Singapore and Vietnam. During the years ended March 31, 2021 and 2020, Eqonex paid $2.4 million each for long-term office leases.

 

During the year ended March 31, 2021, Eqonex raised $24.3 million, net of costs, from the issuance of a convertible bond with a 10% coupon. The bond converted into Diginex Hong Kong shares prior to the Transaction.

 

Eqonex completed a private placement in January 2021 raising $36.2 million net of costs for the issuance of both shares and private warrants.

 

Upon completion of the Transaction, Eqonex issued public warrants to the former holders of 8i Enterprises warrants. The warrants met the redemption conditions and Eqonex called them in February 2021. Eqonex raised $17.0 million from this exercise with 48% of the warrants being converted into Eqonex shares at a price of $11.50.

 

During the year ended March 31, 2021, Eqonex raised $0.3 million from the issuance of equity compared to $30.9 million during the year ended March 31, 2020.

 

At September 2020, Eqonex terminated a credit facility with Pelham Limited. The facility was for $20.0 million and charged interest at 12.5% per annum. As of March 31, 2020, Eqonex had drawn $10.6 million of the credit facility. A further $0.1 million was advanced during the year ended March 31, 2021 prior to the termination of the facility. The facility was repaid via the sale of the Solution Business for $6.0 million, which was offset against the outstanding balance. A further $3.9 million was settled in cash with $0.7 million settled via the issuance of shares and $0.1 million swapped into the convertible bond. During the year ended March 31, 2021, Eqonex was charged interest of $0.3 million which was paid in full. During the year ended March 31, 2020, Eqonex was charged $1.3 million of interest expense.

 

Eqonex advanced funds to DHPC during the year ended March 31, 2020 of $2 million of which $0.8 million was repaid in the same year. A further $1.0 million was repaid during the year ended March 31, 2021. During the year ended March 31, 2021, Eqonex received an advance of $0.9 million from a subsidiary of DHPC. This amount is non-interest bearing and repayable on demand.

 

During the year ended March 31, 2020, Eqonex issued a 12-month loan note paying interest at 15%. The loan note raised $0.7 million and was repaid in full during the year ended March 31, 2021.

 

On February 20, 2019, Eqonex signed a term sheet to set up a partnership in the United States which was subject to shareholder approval. Eqonex advanced $0.5 million to the United States operation in the year ended March 31, 2020. However, Diginex Hong Kong’s shareholders failed to agree to the term sheet and a definitive shareholder agreement was not signed. This loan has been fully written off.

 

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Indebtedness

 

The indebtedness of the Group at March 31, 2022 was $56.9 million compared to $40.4 million at March 31, 2021. When excluding client liabilities which are supported by an offsetting asset on the consolidated statement of financial position, the indebtedness of the Group had increased marginally to $14.8 million from $13.4 million.

 

During the year ended March 31, 2022, Eqonex entered into a $36 million convertible loan agreement with Bifinity UAB with $3.0 million drawn in March 2022. In addition, the Group entered into a new lease in Hong Kong at a reduced monthly rental but there was an increase in the capitalized lease obligations under IFRS 16 of $4.1 million.

 

The Group also saw a decrease in other payable during the year ended March 31, 2022 when compared to that at March 31, 2021. Other payables outstanding relate primarily to accounts payable and accruals that have accumulated in the ordinary course of business. The fair value of the warrants liability reduced by $5.2m when compared to the fair value at March 31, 2021. The fair value of the warrants liability was calculated using a Black Scholes model.

 

At March 31, 2022 the Eqonex had contracted to the below long and short term office leases:

 

Long term:

 

	●	Hong Kong: A long-term lease expired on June 15, 2021 which incurred monthly rent expense of HKD 1,455,744 (c.USD 187,500). The Hong Kong employees relocated to a new office with the new lease being for a period of six years at a reduced monthly rental compared to the previous lease agreement of HKD 676,000 (c.USD 87,000) for the first 3 years.
	●	Singapore: 24-month lease that expires on August 15, 2022. The monthly rent is SGD16,500 (c.USD 12,125)
	●	Vietnam: 36-month lease that expires on August 31, 2023. Monthly rent is VND 106,080,000 (c.USD 4,561)

 

Short term:

 

	●	Germany: three month rolling lease at a monthly rent of EUR 512 (c.USD 610)
	●	England: one month rolling lease at a monthly rent of GBP 8,800 (c.USD 12,320)
	●	Scotland: one month rolling lease at a monthly rent of GBP 1,000 (c.USD 1,400)

 

The table below illustrates the indebtedness as at March 31, 2022 and 2021:

 

		As of March 31,
in USD millions		2022				2021
Amounts due to related parties			0.0				0.2
Amount due to an associate			0.9				0.9
Short term lease obligation			0.9				0.7
Client liabilities*			42.1				27.0
Warrant liability			0.0				5.2
Other payables			6.2				6.3
Convertible loan, non-current			2.8				-
Long term lease obligation			4.0				0.1
Total debt			56.9				40.4

 

*The client liabilities held of $42.1 million (March 31, 2021: $27.0 million) relate to monies held in the form of cash (fiat) and digital assets (including USDC) on behalf of clients to enable then to trade on the Exchange and execute OTC trades.

 

The table below illustrates a summary of Eqonex’s contractual obligations and commitments as at March 31, 2022:

 

		Payments due by period
		Total				less than 1 year				1-3 years				3-5 years				more than 5 years
Short-term Debt Obligations			4.1				0.9				3.2				0.0				0.0
Operating Lease Obligations			5.6				1.1				2.1				2.1				0.3
Total			9.7				2.0				5.3				2.1				0.3

 

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C. Research and Developments, Patents and Licenses, Etc.

 

We own and control a variety of intellectual property, including but not limited to trademarks, patents, proprietary information and software tools and applications that, in the aggregate, are material to our business. No individual instance of intellectual property is material to the Company.

 

D. Trend Information

 

For a discussion on the trends that affect Eqonex’s business, financial conditions, and results of operations, see the headings “Business Overview,” “—Operating Results” and “—Liquidity and Capital Resources” of this Annual Report, which are incorporated herein by reference.

 

E. Critical Accounting Estimates

 

Critical Accounting Policies, Judgments and Estimates

 

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

 

Eqonex prepares its consolidated financial statements in conformity with IFRS, which requires it to make judgments, estimates and assumptions. Eqonex continually evaluates these estimates and assumptions based on the most recently available information, its own historical experiences and various other assumptions that Eqonex believes to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from Eqonex’s expectations as a result of changes in its estimates. Some of Eqonex’s accounting policies require a higher degree of judgment than others in their application and require it to make significant accounting estimates.

 

The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with Eqonex’s consolidated financial statements and the notes related thereto, and other disclosures included in this document. When reviewing Eqonex’s consolidated financial statements, you should consider (i) Eqonex’s selection of critical accounting policies, (ii) the judgments and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.

 

The significant accounting policies, judgments and estimates are the same as those applied to the audited consolidated financial statements as at and for the year ended March 31, 2021 with the exception of the additional new areas discussed below:

 

Significant accounting estimates and judgments

 

Unit purchase options

 

The unit purchase options are considered equity instruments and are recognized at the fair value upon initial recognition. As equity instruments, they are not subsequently remeasured. The fair value of the unit purchase options granted to a service provider by 8i Enterprises determined at the date of grant is expensed on the same date of grant, with a corresponding adjustment to the Group’s share-based payment reserve. In assessing the fair value of the unit purchase options, Black-Scholes-Merton Call Option Model was used. The model requires the input of subjective assumptions, including the volatility of its own ordinary shares. Any changes in these assumptions can significantly affect the estimate of the fair value of the unit purchase options.

 

Investment in Bletchley Park Multi-Strategy Fund Class E shares (“BP Fund”)

 

The fair value of the investment in BP Fund is primarily estimated based on the net asset value report (“NAV report”) provided by the fund administrator. BP Fund is an open-ended fund and third parties have been investing into the fund based on the NAV report value, as such we have used the NAV report as a key input in estimating the fair value of the investment.

 

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Share-based payment – Restricted Share Units (“RSUs”)

 

Where RSUs have performance-based vesting targets, management apply judgement in estimating the number of awards expected to vest over the three year vesting period based on whether the performance based vesting targets are likely to be met or not. Where RSUs have performance-based vesting targets which have not been established and communicated, the accounting grant date has not been established per IFRS, which sets the fair value per award. However, upon receiving the grant notification the awardee is deemed to have begun providing a service. In this scenario when the service start date is before the accounting grant date, per IFRS 2, the Group should recognize an expense based on management’s estimate of the grant date fair value. Therefore, on each reporting date where a grant date has not been established per IFRS 2 but service had been rendered by the awardee, the Group estimates the grant date fair value of the award based on the closing share price on such a reporting date.

 

Convertible loans

 

The component parts of the convertible loans are classified separately as financial liability and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument.

 

At the date of issue, the fair value of the liability component (including any embedded non-equity derivatives features) is estimated by measuring the fair value of similar liability that does not have an associated equity component.

 

A conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognised in equity will be transferred to other reserve. Where the conversion option remains unexercised at the maturity date of the convertible note, the balance recognised in equity will be transferred to accumulated losses. No gain or loss is recognised in profit or loss upon conversion or expiration of the conversion option.

 

Transaction costs that relate to the issue of the convertible loans are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are charged directly to equity. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible loans using the effective interest method.

 

Recently Released Accounting Standards

 

See Note 2 to our consolidated financial statements for additional information.

 

Reconciliation of Non-IFRS financial Measures at March 31:

 

				2022				2021				2020
		Notes		$ million				$ million				$ million
Loss from continuing operations					(75.8	)			(132.2	)			(57.2	)
Adjustments
Interest costs					0.0				0.8				1.4
Depreciation					0.3				0.8				0.8
Amortization					3.8				2.0				-
Tax credit					(0.4	)			(0.5	)			-
EBITDA from continuing operations					(72.1	)			(129.1	)			(55.0	)
Additional items:
Share options and RSUs		a			11.6				28.2				9.7
Transaction fees		b			-				45.4				-
Earn-out costs		c			-				32.1				-
Impairment / Fair value / revaluation gains and losses		d			8.7				(11.3	)			12.9
Finance charges		e			0.0				1.2				-
Adjusted EBITDA					(51.8	)			(33.5	)			(32.4	)

 

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We present our earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA adjusted for specific items (“Adjusted EBITDA”), which are non-IFRS measures, to supplement our consolidated financial statements presented in accordance with IFRS. We believe that EBITDA and Adjusted EBITDA are useful to investors, enabling them to better access changes in our results of operations across different periods on a consistent basis, independent of certain items as presented above. Thus, EBITDA and Adjusted EBITDA provide investors with additional methods of assess our operating results in a manner that is focused on our continuing, core operating performance and current and historical results. Given our use of EBITDA and Adjusted EBITDA, we believe that these measures many be important to investors in understanding our operating results as seen through the eyes of management. EBITDA and Adjusted EBITDA are not prepared in accordance with IFRS or intended to be a replacement for IFRS financial data, should be reviewed together with the IFRS measures and may be different from non-IFRS measures used by other companies.

 

The below is a description of each adjustment to arrive at our non-IFRS measures:

 

		a)	Share options and RSUs: share options and RSUs were allocated to employees as a means of attracting high caliber candidates on lower cash salaries and as a means of retention. The charge is higher in the year ended March 31, 2021 following modifications made to the plan in the year ended March 31, 2020 which resulted in the recognition of a significantly higher non-cash based cost in the statement of profit or loss. During the year ended March 31, 2022, Eqonex granted RSUs as either sign on awards or as further retention tools which vest based on services provided and business performance KPI’s being met. The cost of the RSU is partially offset the reduction in costs from the employee share options plan. Due to the variable nature of this non-cash expense, management is of the view that the exclusion of such a cost provides a more accurate representation of the financial performance of Eqonex.
		b)	Transaction fees: this relates to a one off, non-cash charge to the consolidated statement of profit or loss on completion of the business Transaction. Management believes that the exclusion of these costs provides a more accurate representation of the financial performance of Eqonex.
		c)	Earnout costs: similar to Transactions fees, the earnout costs are a one-off, non-cash charge to the statement of profit or loss and as a consequence management feels that the exclusion of these costs provides a more accurate representation of the financial performance of Eqonex.
		d)	Impairment/Fair value/revaluation gains and losses: these costs relate to those associated with impairments of intangible assets, and fair value measurements of the private warrants and non-core investments in the year ended March 31, 2022. In the year ended March 31, 2021, these costs relate to fair value measurements of the private warrants. In the year ended March 31, 2020, these costs relate to those associated with impairments, and fair value adjustments on the investment in DHPC and loans advanced, primarily, to DHPC. All such gains and losses are not a feature of the core business of Eqonex and management believes the exclusion provides a meaningful evaluation of past performances.
		e)	Finance charges: incurred in the act of raising capital. These are not costs reflective of the core performance of the business and management believe the exclusion provides a more meaningful evaluation of the business performance.

 

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Item 6. Directors, Senior Management and Employees

 

A. Directors and Senior Management

 

Eqonex’s directors and executive officers, as of March 31, 2021, are the individuals indicated below. There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management.

 

Name		Age		Position
Jonathan Stuart Farnell		50		Chief Executive Officer and Director
Daniel Ling		50		Chief Financial Officer and Director
Chi-Won Yoon		63		Chairman and Director
Lisa Theng		55		Independent Non-Executive Director
Richard Petty		51		Independent Non-Executive Director
Paul Smith		62		Independent Non-Executive Director
Andrew Watkins		55		Independent Non-Executive Director

 

Jonathan Stuart Farnell was appointed Chief Executive Officer and Director on March 17, 2022. He was the Head of Binance for the United Kingdom and was the Chief Executive Officer of Bifinity UAB. Mr. Farnell has a strong background in compliance and was involved in developing the Bifinity UAB’s global regulatory license and registration roadmap, which was crucial for the official launch of the business in March 2022. Prior to that, Mr. Farnell was Director of Compliance and board member of eToro Money, a payments firm registered with the Financial Conduct Authority in the United Kingdom. He also headed operations and was a member of the board of eToroX, the crypto exchange and custody platform.

 

Daniel Ling, was appointed to the board on April 28, 2022. He has over 27 years of experiences in financial and risk management, having served in various roles at notable organizations such as Bridgewater Associates, PricewaterhouseCoopers, the Singapore Exchange and ShoreVest Capital. He graduated with a Bachelor of Arts degree from Dartmouth College, and received his Master of Business Administration degree from Booth School of Business at University of Chicago. Mr. Ling is currently serving as Bifinity UAB’s Director of Strategy, prior to that, he was the Chief Financial Officer of Pujiang International Group.

. 

Chi-Won Yoon has been the Chairman of Eqonex since August 2020. Prior to joining Eqonex, Mr. Yoon was the Executive Vice Chairman of UBS Wealth Management. In this position, Mr. Yoon was responsible for developing and enhancing long-term strategic relationships with key clients globally. He retired from UBS in 2019. Mr. Yoon also served as a President and CEO of UBS AG, Asia Pacific, and was a member of the UBS Group Executive Board from 2009 to 2015. In his capacity, he oversaw the entire firm in 13 countries around the region and was responsible for UBS’s three main divisions: Investment Banking, Wealth Management and Global Asset Management. Mr. Yoon joined UBS in 1997 and established the equity derivatives business. He then held various positions in the investment bank including Head of Equities and Head of Securities Asia Pacific. He also served as the Hong Kong Country Head. Mr. Yoon has been in financial services since 1986 when he started in equity derivatives. Prior to joining UBS, Mr. Yoon worked at Lehman Brothers in New York and Hong Kong, and before that at Merrill Lynch in New York. Before embarking on a Wall Street career, Mr. Yoon worked as an electrical engineer in satellite communications. Mr. Yoon holds a bachelor’s degree in electrical engineering from M.I.T. and a master’s degree in finance from M.I.T.’s Sloan School of Management.

 

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Theng Siew Lian Lisa is currently the Managing Partner of CNPLaw LLP and has been in practice since 1991. She has extensive experience in corporate litigation prior to focusing her practice in the areas of Corporate M&A, Corporate Advisory and Corporate and Commercial services. She is also a Commissioner for Oaths and Notary Public appointed by the Supreme Court of the Republic of Singapore.

 

In the area of corporate law, she has advised both Singapore and foreign companies in major acquisitions and disposal transactions and has also advised on investment and other corporate agreements. Her major clients comprise public listed companies and multi-national corporations in Singapore and in the region. Ms. Theng has advised healthcare, electronics, technology, engineering, oil and gas, logistics, manufacturing, exhibition, publishing, food and leisure and entertainment companies and private equity and venture capitalist houses on a range of issues. These issues include restructurings, investments, joint ventures, corporate governance and compliance, and acquisitions.

 

In the area of corporate advisory, Ms. Theng has advised listed companies and their audit committees and boards in relation to potential disputes, irregularities, fraud and issues involving directors and shareholders; an example, Ms. Theng has advised the audit committee of a listed company in Singapore over the fraudulent acts of its managing director and advised the board in relation to ensuring good corporate governance in the company. Her other experiences include cross-border joint ventures and mergers and acquisitions in the region.

 

Ms. Theng started her career with Colin Ng & Partners in 1991, and between 2000 and 2006, she was an equity partner of Chui Sim Goh & Lim. She returned to Colin Ng & Partners in July 2006 as an equity partner and became the Head of Corporate Advisory Practice Group and Head of Dispute Resolution Practice Group. Ms. Theng became joint managing partner in 2011 and managing partner in 2017. The firm changed its name to CNPLaw LLP on April 16, 2019.

 

Ms. Theng obtained a Degree of Bachelor of Laws from the National University of Singapore in July 1990. She is an advocate and solicitor of the Supreme Court of Singapore and has been in practice since 1991.

 

Richard Petty is a former member of the B20 serving on the Finance and Infrastructure taskforce. He is a former Board Member of International Federation of Accountants. Mr. Petty is a past Chairman of the Australian Chamber of Commerce Hong Kong & Macau. Mr. Petty has been a key adviser on significant projects and investments in Asia, working closely with several governments and the private sector. Mr. Petty has served on the faculty of several business schools. He remains active in academia as an academic board chair and visiting professor. Mr. Petty is Chairman of the Australian International School Hong Kong and senior adviser to several firms. He has served on the boards of other companies, both publicly listed and privately held. Richard holds several degrees including a PhD. He is a Fellow of Chartered Accountants Australia and New Zealand and the Australian Institute of Company Directors.

 

Paul Smith was most recently President and Chief Executive Officer of CFA Institute from January 2015 to September 2019, prior to which he was its Managing Director and Head of Asia Pacific region from October 2012 to January 2015. While at CFA Institute, Mr. Smith led the organization’s global growth to a record number of candidates, members and local societies, and expanded the organization’s presence in India and China. Since January 2004, he has been the Chief Executive Officer of Warlencourt Limited. Mr. Smith also holds several external directorships at various investment funds and financial technology companies globally. He received his Master of Arts in Modern History from Merton College at Oxford University. Mr. Smith is a Fellow of the Institute of Chartered Accountants of England and Wales.

 

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Andrew Watkins was a Partner for 20 years with PricewaterhouseCoopers (“PwC”) Hong Kong and Mainland China. During this time, he held a number of senior leadership roles. Most recently, from July 2016 to June 2019, Mr. Watkins was the Chief Technology & Disruption Officer and member of the Management Board for PwC Hong Kong and Mainland China. In this role he was responsible for driving the identification and commercialization of new digital and technology based business models - helping the firm to adopt a business strategy that was optimized for the digital age and to find ways to not only manage disruption, but lead it. From May 2012 to June 2016, Mr. Watkins served as the Chief Executive Officer of the China and Hong Kong Consulting business, was a member of the Global Consulting Leadership Team and the China/HK Advisory Leadership Team. Prior to that, from 2006, he was the Asia-Pacific Risk Assurance (“RA”) Leader and member of the Global RA leadership team, the China/HK RA Leader and a member of the China/HK Assurance Leadership Team. Mr. Watkins has more than 28 years of professional services experience and has worked with a wide range of companies and organizations in Hong Kong, China and across Asia-Pacific.

 

B. Compensation

 

For the year ended March 31, 2022, Eqonex paid its executive officers, as noted in section A above, for services in all capacities an aggregate compensation of approximately $2.8 million. The compensation comprised of $0.3 million paid in cash and $2.5 million issued in equity. The executive officers did not receive performance bonuses for the year ended March 31, 2022.

 

Our Chief Executive Officer, Chief Financial Officer, and Chief Corporate Affairs Officer are being compensated by Bifinity as part of our strategic partnership. This compensation includes compensation for the CEO and CFO serving on the Eqonex Board.

 

The executive members of Eqonex’s board of directors did not receive any compensation in the year ended March 31, 2022 in their capacity as directors, and going forward, Eqonex does not expect to have a compensation plan for executive directors. Our non-executive directors were paid an aggregate compensation of $270,000 in the year ended March 31, 2022, of which $150,000 was paid in cash with the balance paid in equity of the Company.

 

Eqonex contributes to mandatory government pension schemes. Pension contributions for the year ended March 31, 2022 are included in the aggregate compensation noted above.

 

Post the year ended March 31, 2021 the Company engaged an independent remuneration expert, Mercer (Hong Kong) Limited (“Mercer”), to provide independent, analytical and evaluative advice about Eqonex’s compensation programs. Mercer reviewed the Group’s current compensation structure and delivered proposals, with the intention of maintaining Group competitiveness and retention features.

 

C. Board Practices

 

Eqonex’s business affairs are managed under the direction of its board of directors. Eqonex’s board of directors consists of seven members. Our external directors serve for a three-year term which began on September 30, 2020. See Item 16G “Corporate Governance” for a description of our board practices.

 

Director Independence

 

Eqonex’s board of directors consists of seven members, four of whom qualify as independent within the meaning of the independent director guidelines of Nasdaq. Richard Petty, Paul Smith, Theng Siew Lian Lisa and Andrew Watkins are “independent directors” as defined in the rules of Nasdaq and applicable SEC rules.

 

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Committees of the Board of Directors

 

Eqonex’s board of directors has established an audit committee, a risk committee, and a nomination and compensation committee. Mr. Smith serves as the chair of the audit committee; Mr. Petty serves as the chair of the risk committee and Ms. Theng serves as the chair of the nomination and compensation committee. Members will serve on these committees until their resignation or until otherwise determined by Eqonex’s board of directors.

 

Audit Committee

 

The Company’s audit committee oversees Eqonex’s corporate accounting and financial reporting process. Among other matters, the audit committee:

 

●	appoints Eqonex’s independent registered public accounting firm;
●	evaluates the independent registered public accounting firm’s qualifications, independence and performance;
●	determines the engagement of the independent registered public accounting firm;
●	reviews and approves the scope of the annual audit and the audit fee;
●	discusses with management and the independent registered public accounting firm the results of the annual audit and the review of the Eqonex’s interim financial statements;
●	approves the retention of the independent registered public accounting firm to perform any proposed permissible non-audit services;
●	monitors the rotation of partners of the independent registered public accounting firm on Eqonex’s engagement team in accordance with requirements established by the SEC;
●	is responsible for reviewing Eqonex’s financial statements and the Company’s management’s discussion and analysis of financial condition and results of operations to be included in the Company’s annual and interim reports to be filed with the SEC;
●	reviews the Company’s critical accounting policies and estimates; and
●	reviews the audit committee charter and the committee’s performance at least annually.

 

The chair of the audit committee is Paul Smith. Richard Petty and Theng Siew Lian Lisa are also members of the audit committee. Eqonex believe that both Paul Smith and Richard Petty qualify as an “audit committee financial expert,” as such term is defined in Item 401(h) of Regulation S-K. Eqonex’s board of directors has adopted a written charter for the audit committee.

 

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Risk Committee

 

The Company’s risk committee oversees Eqonex’s risk framework. Among other matters, the risk committee:

 

●	oversees the development and maintenance of the risk management framework, including the risk management policies, risk appetite and risk strategy;
●	ensures adequate processes and systems for identifying, reporting and mitigating all relevant risk exposures, including regulatory, commercial, financial and operational risks;
●	reviews key risk reports and risk registers and provides oversight of the key risks Eqonex is exposed to; and
●	reviews reports on any material breaches of risk limits and adequacy of actions being taken, and where necessary, institute and oversee special investigations.

 

The chair of the risk committee is Richard Petty. Paul Smith and Andrew Watkins are also members of the risk committee. Eqonex’s board of directors has adopted a written charter for the risk committee.

 

Nomination and Compensation Committee

 

Eqonex’s nomination and compensation committee will review and recommend policies relating to compensation and benefits of Eqonex’s officers and employees. Among other matters, the nomination and compensation committee will:

 

●	assist the board in overseeing Eqonex’s employee compensation policies and practices, including approving the compensation of the CEO and other executive officers and reviewing and approving incentive and equity compensation policies and programs;
●	produce the annual report of the committee required by the rules of the SEC; and
●	consider and make recommendations relating to the selection and qualification of directors and candidates nominated to serve as directors.

 

The chair of the Company’s nomination and compensation committee is Theng Siew Lian Lisa. Paul Smith and Andrew Watkins are also members of the compensation committee. Eqonex’s board of directors has adopted a written charter for the nomination and compensation committee.

 

D. Employees

 

At March 31, 2022 Eqonex had a headcount of 195 which included 15 contactors.

 

At March 31, 2021 Eqonex had a headcount of 157 which included 49 contactors. Of the 49 contractors, 38 are located in Vietnam which became full time employees of the local entity when it was fully set up to employ staff during the year ended March 31, 2022

 

At March 31, 2020 the headcount was 137 which included 19 contractors.

 

Our employees are at the forefront of our strategy. We believe that our future success depends on our ability to attract, retain and motivate qualified personnel. Eqonex places great importance on building and maintaining a highly motivated and skilled workforce by identifying and developing key skills, experience and knowledge and applying this talent set to job specific requirements.

 

We believe that our relations with our employees are good.

 

None of our employees are currently represented by unions or covered by collective bargaining agreement

 

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E. Share Ownership

 

For information regarding the share ownership of our directors and senior management, please refer to Item 6.B. “Compensation” and Item 7.A. “Major Shareholders.”

 

Item 7. Major Shareholders and Related Party Transactions

 

A. Major Shareholders

 

The following table sets forth information regarding the beneficial ownership based on 46,960,734 of our ordinary shares outstanding as of July 31, 2022, based on information obtained from the persons named below, with respect to the beneficial ownership of our shares by:

 

	●	each person known by us to be the beneficial owner of more than 5% of our outstanding shares;
	●	each of our officers and directors; and
	●	all our officers and directors as a group.

 

Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all ordinary shares beneficially owned by them.

 

Name and Address of Beneficial Owner(1)		Number of Ordinary Shares				Approximate Percentage of Outstanding Ordinary Shares
Executive Officers and Directors
Chi-Won Yoon			2,839,245				6.05	%
Richard Petty(2)			108,557				*
Ever Wise Ventures Limited(2)			106,792				*
Paul Smith			60,919				*
Theng Siew Lian Lisa			31,334				*
Andrew Watkins			1,765				*
All Directors and Executive Officers as a Group (Seven Individuals)			3,041,280				6.48	%

 

*Less than one percent.

 

	(1)	Unless otherwise noted, the business address of each of the individuals is c/o Diginex Limited, 1 Robinson Road, #18-00, AIA Tower, Singapore (048542).
	(2)	Ever Wise Ventures Limited, a Seychelles limited liability company, is wholly-owned and managed by Richard Petty, who has voting and dispositive control over the Eqonex ordinary shares held by Ever Wise Ventures Limited. The business address of Ever Wise Ventures Limited is Vistra Corporate Services Center Suite 23, 1st floor Eden Plaza, Eden Island Mage Republic of Seychelles.

 

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B. Related Party Transactions

 

Related party transactions are detailed in Note 21 of our consolidated financial statements as have been filed as part of this report. See Item 18 “Financial Statements.”

 

The key related party transactions are detailed below:

 

Solutions Business Sale

 

On 15 May 2020, Diginex Hong Kong, together with Diginex Solutions Limited, sold the legal entities of Diginex Solutions (HK) Limited and Diginex USA LLC, together with the trademarks associated with the Diginex name, to a related party, Rhino Ventures Limited, an entity controlled by Miles Pelham, the founder of Diginex Hong Kong. The consideration of $6,000,000 was netted against the shareholder loan with Pelham Limited, also an entity controlled by Miles Pelham. In addition, Diginex Hong Kong agreed to fund the business for six months post the sale at a 25% discount to the projected costs. The assets and liabilities of Diginex Solutions (HK) Limited and Diginex USA LLC have not been disclosed as available for sale as they are deemed immaterial.

 

Pelham Limited Credit Facility

 

As of September 9, 2020, there is no outstanding balance on the credit facility offered by Pelham Limited. The facility has been repaid by a combination of (i) sale of the Solutions Business with consideration being a reduction in debt; (ii) cash repayments; (iii) investment into the convertible bond, and (iv) investment into equity in Diginex Hong Kong.

 

Convertible Bonds

 

On May 29, 2020, 8i raised $25 million in Convertible Bonds. The Convertible Bonds mature after 24 months, bear a 10% coupon and converted into ordinary shares into equity upon the Company becoming publicly listed. The participants in the offering of Convertible Bonds included certain holders of more than 5% of the Company’s capital stock and certain directors or their respective affiliates. The following table sets forth the Convertible Bonds issued to these related parties:

 

Stockholder		Principal Amount of Bonds
Chi-Won Yoon		$	1,000,000
Ever Wise Ventures Limited		$	500,000
Lisa Siew Lian Theng		$	150,000
Paul Smith		$	30,000

 

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C. Interests of Experts and Counsel

 

Not applicable.

 

Item 8. Financial Information

 

A. Consolidated Statements and Other Financial Information

 

Consolidated Statements and Other Financial Information

 

Consolidated financial statements have been filed as part of this report. See Item 18 “Financial Statements.”

 

Legal Proceedings

 

From time to time we may be subject to legal proceedings and claims in the ordinary course of business. We are not involved in any material legal proceedings.

 

Dividend Policy

 

We paid a divided in year ended March 31, 2019. Since that payment we have not declared or paid cash dividends to our shareholders. Currently we do not intend to pay cash dividends. We currently intend to reinvest any future earnings in developing and expanding our business. Any future determination relating to our dividend policy will be at the discretion of our Board of Directors and will depend on a number of factors, including future earnings, our financial condition, operating results, contractual restrictions, capital requirements, business prospects, applicable Singapore law and other factors our Board of Directors may deem relevant.

 

B. Significant Changes

 

Not applicable.

 

Item 9. The Offer and Listing

 

A. Offer and Listing Details

 

Our ordinary shares are quoted on Nasdaq under the symbol “EQOS”.

 

B. Plan of Distribution

 

Not applicable.

 

C. Markets

 

See “—Offer and Listing Details” above.

 

D. Selling Shareholders

 

Not applicable.

 

E. Dilution

 

Not applicable.

 

F. Expenses of the Issue

 

Not applicable.

 

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Item 10. Additional Information

 

A. Share Capital

 

Not applicable.

 

B. Constitution

 

The following represents a summary of certain key provisions of Eqonex’s Constitution. The summary does not purport to be a summary of all of the provisions of the Constitution. For more complete information, you should read the Constitution, which is listed as an exhibit to this report, which is incorporated herein by reference.

 

Business

 

Our Constitution states that the Company shall have full capacity to carry on or undertake any business or activity, do any act or enter into any transaction not prohibited by the laws of Singapore.

 

Directors

 

Our Constitution does not restrict a director’s power to vote in respect of any contract or transaction in which he or she is interested (provided that the nature of the interest of any director in any such contract or transaction shall be disclosed by him or her at or prior to its consideration and any vote thereon), vote on remuneration to themselves or any other members of their body, or to borrow from the Company. There is no mandatory retirement age for our directors and our directors are not required to own securities of the Company in order to serve as directors.

 

Ordinary shares

 

Holders of ordinary shares are entitled to receive dividends when and if declared by ordinary resolution by the Company out of the profits of the Company. Voting at any meeting of shareholders is by a show of hands unless a poll is duly demanded or on the declaration of the result of the show of hands or ballot (as applicable). If voting is by a show of hands, every holder of ordinary shares who is entitled to vote and who is present in person or by proxy at the meeting has one vote. On a poll, every shareholder who is present in person or by proxy or by attorney, or in the case of a corporation, by a representative, has one vote for every share held by him or which he represents.

 

Upon our winding up, liquidation and dissolution and after payment in full of all amounts required to be paid to creditors and to the holders of preferred shares having liquidation preferences, if any, the liquidator may, with the authority of a special resolution, divide among the members in specie or kind the whole or any part of the assets of the Company and whether or not the assets shall consist of property of one (1) kind or shall consist of properties of different kinds and may for such purpose set such value as he deems fair upon any one (1) or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members.

 

The rights, powers and privileges of holders of our ordinary shares are subject to those of holders of any shares of our preferred shares or any other series or class of shares we may authorize and issue in the future.

 

There are no provisions in the Constitution that discriminate against any existing or prospective holder of our ordinary shares as a result of such shareholder owning a substantial number of shares.

 

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Preferred Shares

 

Our Constitution provides that preferred shares may be issued from time to time in one or more series. Our Board of Directors will be authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. Our Board of Directors will be able to issue preferred shares with voting and other rights that could adversely affect the voting power and other rights of the holders of the ordinary shares and could have anti-takeover effects. The issuance of preferred shares could have the effect of delaying, deferring or preventing a change of control of us or the removal of existing management. We have no preferred shares issued and outstanding at the date hereof. Although we do not currently intend to issue any preferred shares, we cannot assure you that we will not do so in the future.

 

Action Required to Change the Rights of Holder of Stock

 

The Company currently has an issued share capital comprising ordinary shares. The Constitution of the Company provides that if the Company’s share capital splits into different classes, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, subject to the provisions of the Companies Act (Cap. 50) of Singapore (the “Singapore Companies Act”), whether or not the Company is being wound up, be varied or abrogated with the sanction of a special resolution passed at a separate general meeting of the holders of shares of the class. For the purposes of such general meeting, the necessary quorum shall be two people (unless all the shares of the class are held by one person whereupon no quorum is applicable) at least holding or representing by proxy or by attorney not less than one-third of the total voting rights of all members having the right to vote at the general meeting and any holder of shares of the class present in person or by proxy or by attorney may demand a poll, provided that where the necessary majority for such a special resolution is not obtained at the general meeting, consent in writing if obtained from the holders of three-fourths of the issued shares of the class concerned within two months of the general meeting shall be as valid and effectual as a special resolution carried at the general meeting. The Singapore Companies Act further mentions in pursuance of the foregoing provision, where the rights attached to any such class of shares are at any time varied or abrogated, the holders of not less in the aggregate than 5% of the total number of issued shares of that class may apply to the court to have the variation or abrogation cancelled, and, if any such application is made, the variation or abrogation shall not have effect until confirmed by the court.

 

Appointment and Removal of Directors

 

Appointment

 

The Company may by ordinary resolution appoint any person to be a director. The directors shall have power at any time and from time to time to appoint any person to be a director either to fill a casual vacancy or as an additional director but so that the total number of directors shall not at any time exceed the maximum number, if any, fixed by or in accordance with the Constitution.

 

Preemptive or Other Rights

 

There will be no sinking fund or redemption provisions applicable to our ordinary shares.

 

Removal of Directors

 

Our board consists of seven directors. The Company may by ordinary resolution remove any director before the expiration of his or her period of office, notwithstanding anything in this Constitution or in any agreement between the Company and such Director.

 

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General Meetings

 

At least 14 days’ notice in writing (exclusive both of the day on which the notice is served or deemed to be served and of the day for which the notice is given) of every general meeting shall be given, which notice shall specify the place and the date and time of the general meeting, and there shall appear with reasonable prominence in every such notice a statement that a member entitled to attend and vote is entitled to appoint a proxy to attend and to vote instead of him and that a proxy need not be a member. Where there are two or more members, no business shall be transacted at any general meeting unless two members are present in person or by proxy or by attorney to form a quorum, representing in aggregate not less than one-third of the total voting rights of all members having the right to vote at the general meeting. In the event of a corporation being beneficially entitled to the whole of the issued capital of the Company or there being only one member, one person representing such corporation or the sole member shall be a quorum and shall be deemed to constitute a general meeting. If within half an hour from the time appointed for the general meeting a quorum is not present, the general meeting if convened on the requisition of the members shall be dissolved. In any other case it shall stand adjourned to the same day in the next week at the same time and place, or to such other day and at such other time and place as the directors may determine, and if at such adjourned general meeting a quorum is not present within 15 minutes from the time appointed for holding the general meeting, the general meeting shall be dissolved. No notice of any such adjournment as aforesaid shall be required to be given to the members.

 

Annual General Meetings

 

Subject to the provisions of the Singapore Companies Act, the Company shall hold a general meeting as its annual general meeting, in addition to any other meetings, within the timeline(s) prescribed by the provisions of the Singapore Companies Act. In addition, for so long as the shares of the Company are listed on Nasdaq, the interval between the close of the Company’s financial year and the date of the Company’s annual general meeting shall not exceed such period as may be prescribed or permitted by Nasdaq. Notice of an annual general meeting shall be made in the same manner as a regular general meeting.

 

Extraordinary General Meetings

 

All general meetings other than annual general meetings are extraordinary general meetings. The directors may, whenever they think fit, convene an extraordinary general meeting. Extraordinary general meetings may be requested by any director, whenever he thinks fit, or any requisitions as provided in the Act. If at any time there are not within Singapore sufficient directors capable of acting to form a quorum at a meeting of directors, any director may convene an extraordinary general meeting in the same manner as nearly as possible as that in which meetings may be convened by the directors.

 

Our Constitution does not contain any provisions that would have an effect of delaying, deferring or preventing a change in control of our Company.

 

Our Constitution does not contain any provisions governing the ownership threshold above which shareholder ownership must be disclosed.

 

Our Constitution does not contain any provisions limiting the rights to own its securities.

 

Our Constitution is not significantly different from the requirements of the Singapore Companies Act and the conditions imposed by our Constitution governing changes in capital are not more stringent than what is required by the Singapore Companies Act.

 

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C. Material Contracts

 

There were no material contracts, other than material contracts entered into in the ordinary course of business, to which we or any of our subsidiaries is a party, for the two years immediately preceding the date of this Annual Report.

 

D. Exchange Controls

 

Under the laws of Singapore, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to nonresident holders of our ordinary shares.

 

E. Taxation

 

U.S. Federal Income Tax Considerations

 

The following summary describes certain U.S. federal income tax considerations generally applicable to U.S. Holders (as defined below) of our ordinary shares. This summary deals only with our ordinary shares held as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). This summary also does not address the tax consequences that may be relevant to holders in special tax situations including, without limitation, dealers in securities, traders that elect to use a mark-to-market method of accounting, holders that own our ordinary shares as part of a “straddle,” “hedge,” “conversion transaction,” or other integrated investment, banks or other financial institutions, individual retirement accounts and other tax-deferred accounts, insurance companies, tax-exempt organizations, U.S. expatriates, holders whose functional currency is not the U.S. dollar, holders subject to the alternative minimum tax or the Medicare tax on net investment income, holders that acquired our ordinary shares in a compensatory transaction, or holders that actually or constructively own 10% or more of the total voting power or value of our ordinary shares.

 

This summary is based upon the Internal Revenue Code, applicable U.S. Treasury regulations, administrative pronouncements and judicial decisions, in each case as in effect on the date hereof, all of which are subject to change (possibly with retroactive effect). No ruling will be requested from the Internal Revenue Service (the “IRS”) regarding the tax consequences of the initial listing, and there can be no assurance that the IRS will agree with the discussion set out below. This summary does not address any U.S. federal tax consequences other than U.S. federal income tax consequences (such as the estate and gift tax).

 

As used herein, the term “U.S. Holder” means a beneficial owner of our ordinary shares that is, for U.S. federal income tax purposes, (i) an individual that is a citizen or resident of the United States, (ii) a corporation or other entity taxable as a corporation created or organized under the laws of the United States or any state thereof or therein or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust (a) that is subject to the supervision of a court within the United States and the control of one or more United States persons as described in Internal Revenue Code Section 7701(a)(30), or (b) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.

 

If an entity or other arrangement treated as a partnership for U.S. federal income tax purposes acquires our ordinary shares, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Partners of a partnership considering an investment in our ordinary shares should consult their tax advisors regarding the U.S. federal income tax consequences of acquiring, owning, and disposing of our ordinary shares.

 

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THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. ALL PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING OUR ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.

 

Dividends

 

Subject to the discussion below under “—Passive Foreign Investment Company,” the amount of dividends paid to a U.S. Holder with respect to our ordinary shares generally will be included in the U.S. Holder’s gross income as ordinary income from foreign sources to the extent paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Distributions in excess of earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s adjusted tax basis in our ordinary shares and thereafter as capital gain. However, we do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, U.S. Holders should expect that a distribution will generally be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

 

Foreign withholding tax (if any) paid on dividends on our ordinary shares at the rate applicable to a U.S. Holder (taking into account any applicable income tax treaty) will, subject to limitations and conditions, be treated as foreign income tax eligible for credit against such holder’s U.S. federal income tax liability or, at such holder’s election, eligible for deduction in computing such holder’s U.S. federal taxable income. Dividends paid on our ordinary shares generally will constitute “passive category income” for purposes of the foreign tax credit. The rules governing the treatment of foreign taxes imposed on a U.S. Holder and foreign tax credits are complex, and U.S. Holders should consult their tax advisors about the impact of these rules in their particular situations.

 

Dividends paid to a non-corporate U.S. Holder by a “qualified foreign corporation” may be subject to reduced rates of taxation if certain holding period and other requirements are met. “Qualified foreign corporation” generally includes a foreign corporation (other than a foreign corporation that is a PFIC (as defined below) with respect to the relevant U.S. Holder for the taxable year in which the dividends are paid or for the preceding taxable year) whose ordinary shares are readily tradable on an established securities market in the United States. Our ordinary shares are readily tradable on Nasdaq Stock Market, an established securities market. U.S. Holders should consult their tax advisors regarding the availability of the reduced tax rate on dividends in light of their particular circumstances. The dividends will not be eligible for the dividends received deduction available to corporations in respect of dividends received from other U.S. corporations.

 

If we are treated as a PFIC for any taxable year during a U.S. Holder’s holding period, the tax consequences relating to the receipt of dividends would be materially different. See discussions below under “ —Passive Foreign Investment Company.”

 

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Disposition of Our Ordinary Shares

 

Subject to the discussion below under “—Passive Foreign Investment Company,” a U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes on the sale or other taxable disposition of our ordinary shares equal to the difference, if any, between the amount realized and the U.S. Holder’s adjusted tax basis in shares. In general, capital gains recognized by a non-corporate U.S. Holder, including an individual, are subject to a lower rate under current law if such U.S. Holder held shares for more than one year. The deductibility of capital losses is subject to limitations. Any such gain or loss generally will be treated as U.S. source income or loss for purposes of the foreign tax credit. A U.S. Holder’s initial tax basis in shares generally will equal the cost of such shares.

 

If we are treated as a PFIC for any taxable year during a U.S. Holder’s holding period, the tax consequences of the sale or other taxable disposition of our ordinary shares would be materially different. See discussions below under “ —Passive Foreign Investment Company.”

 

Passive Foreign Investment Company

 

In general, a non-U.S. corporation will be classified as a PFIC for any taxable year if at least (i) 75% of its gross income is classified as “passive income,” or (ii) 50% of its assets (determined on the basis of a quarterly average) produce or are held for the production of passive income. For these purposes, cash is considered a passive asset. In making this determination, the non-U.S. corporation is treated as earning its proportionate share of any income and owning its proportionate share of any assets of any corporation in which it holds a 25% or greater interest. The determination of whether we are a PFIC is made annually based on the total income for the year and the value of the assets throughout the year. The amount of “passive income” relative to the amount of other income that we will earn for our 2021 taxable year and future years is difficult to estimate. Moreover, the value of our assets for purposes of the PFIC determination generally will be determined by reference to the public price of our ordinary shares, which may fluctuate significantly. Therefore, there is no assurance that we would not be classified as a PFIC for our 2021 taxable year or in the future due to, for example, changes in the composition of our assets or income, as well as changes in our market capitalization.

 

If we are a PFIC in any taxable year during which a U.S. Holder owns ordinary shares, such U.S. Holder could be liable for additional taxes and interest charges upon (1) a distribution paid during a taxable year that is greater than 125% of the average annual distributions paid in the three preceding taxable years, or, if shorter, the U.S. Holder’s holding period for the ordinary shares, and (2) any gain recognized on a sale, exchange or other taxable disposition, including a pledge, of the ordinary shares, whether or not we continue to be a PFIC. In these circumstances, the tax will be determined by allocating such distribution or gain ratably over the U.S. Holder’s holding period for the ordinary shares. The amount allocated to the current taxable year (i.e., the year in which the distribution occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC will be taxed as ordinary income earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates that apply to ordinary income and are in effect for individuals or corporations, as applicable, for each such taxable year, and an interest charge, generally determined based on the rate applicable to underpayments of income tax, will be added to the tax. If we are a PFIC for any year during which a U.S. Holder holds the ordinary shares, we must generally continue to be treated as a PFIC by that U.S. Holder for all succeeding years during which the U.S. Holder holds the ordinary shares, unless we cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect to the ordinary shares. If such election is made, the U.S. Holder will be deemed to have sold the ordinary shares it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain from such deemed sale would be subject to the consequences described above. After the deemed sale election, the U.S. Holder’s ordinary shares with respect to which the deemed sale election was made will not be treated as shares in a PFIC unless we subsequently again become a PFIC.

 

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If we are a PFIC for any taxable year during which a U.S. Holder holds the ordinary shares and one of our non-U.S. subsidiaries is also a PFIC (i.e., a lower-tier PFIC), such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be subject to the rules described above on certain distributions by the lower-tier PFIC and a disposition of shares of the lower-tier PFIC even though such U.S. Holder would not receive the proceeds of those distributions or disposition. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

 

The tax consequences that would apply if we were a PFIC would be different from those described above if a timely and valid “mark-to-market” election is made by a U.S. Holder for the ordinary shares held by such U.S. Holder. An electing U.S. Holder generally would take into account as ordinary income each year, the excess of the fair market value of the ordinary shares held at the end of the taxable year over the adjusted tax basis of such ordinary shares. The U.S. Holder would also take into account, as an ordinary loss each year, the excess of the adjusted tax basis of such ordinary shares over their fair market value at the end of the taxable year, but only to the extent of the excess of amounts previously included in income over ordinary losses deducted in prior years as a result of the mark-to-market election. The U.S. Holder’s tax basis in the ordinary shares would be adjusted to reflect any income or loss recognized as a result of the mark-to-market election. Any gain from a sale, exchange or other taxable disposition of the ordinary shares in any taxable year in which we are a PFIC would be treated as ordinary income and any loss from such sale, exchange or other taxable disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains previously included in income) and thereafter as capital loss. If, after having been a PFIC for a prior taxable year, we cease to be classified as a PFIC, the U.S. Holder that has made a valid mark-to- market election would not be required to take into account any latent gain or loss in the manner described above and any gain or loss recognized on the sale or exchange of the ordinary shares would be classified as a capital gain or loss.

 

A mark-to-market election is available to a U.S. Holder only if the ordinary shares are “marketable stock.” Generally, the ordinary shares will be considered marketable stock if they are “regularly traded” on a “qualified exchange” within the meaning of applicable Treasury Regulations. For these purposes, the Nasdaq Stock Market is a qualified exchange, and the ordinary shares generally will be considered regularly traded during any calendar year during which the ordinary shares are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. A mark-to-market election will not apply to the ordinary shares for any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC, unless the ordinary shares are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election. Such election will not apply to any subsidiary that we own. Accordingly, a U.S. Holder may continue to be subject to the PFIC rules with respect to any lower-tier PFICs notwithstanding the U.S. Holder’s mark-to-market election for the ordinary shares, and it is possible that any mark-to-market election will be of limited benefit.

 

The tax consequences that would apply if we were a PFIC would also be different from those described above if a U.S. Holder were able to make a valid “qualified electing fund,” or QEF, election. As we do not expect to provide U.S. Holders with the information required in order to permit a QEF election, prospective investors should assume that a QEF election will not be available.

 

Each U.S. Holder who holds ordinary shares during any year in which we are treated as a PFIC must file an annual information report on IRS Form 8621 containing such information as the U.S. Treasury Department may require. The failure to file IRS Form 8621 could result in the imposition of penalties and the extension of the statute of limitations with respect to U.S. federal income tax.

 

The U.S. federal income tax rules relating to PFICs are very complex. Prospective U.S. investors should consult their tax advisors with respect to the impact of these rules on the purchase, ownership and disposition of our ordinary shares, the consequences to them of an investment in a PFIC, any elections available with respect to the ordinary shares and the IRS information reporting obligations with respect to the purchase, ownership and disposition of the ordinary shares.

 

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Information Reporting and Backup Withholding

 

Dividend payments and proceeds paid from the sale or other taxable disposition of ordinary shares may be subject to information reporting to the IRS. In addition, a U.S. Holder (other than exempt holders who establish their exempt status if required) may be subject to backup withholding on cash payments received in connection with dividend payments and proceeds from the sale or other taxable disposition of our ordinary shares made within the United States or through certain U.S.-related financial intermediaries.

 

Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number, makes other required certification and otherwise complies with the applicable requirements of the backup withholding rules. Backup withholding is not an additional tax. Rather, any amount withheld under the backup withholding rules will be creditable or refundable against the U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

 

Foreign Financial Asset Reporting

 

Certain U.S. Holders are required to report their holdings of certain foreign financial assets, including equity of foreign entities, if the aggregate value of all of these assets exceeds certain threshold amounts. The ordinary shares are expected to constitute foreign financial assets subject to these requirements unless the ordinary shares are held in an account at certain financial institutions. Penalties can apply if U.S. Holders fail to satisfy such reporting requirements. U.S. Holders should consult their tax advisors regarding the application of these reporting requirements.

 

Singapore Tax Considerations

 

The following is a discussion on certain Singapore income tax consequences of an investment in the securities of the Company. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Singapore laws. You should consult your tax advisers concerning the overall tax consequences of acquiring, owning or selling the ordinary shares of the Company.

 

Dividends or Other Distributions with Respect to Ordinary Shares

 

Under the one-tier corporate tax system which currently applies to all Singapore tax resident companies, tax on corporate profits is final, and dividends paid by a Singapore tax resident company will be income tax exempt in the hands of a shareholder, whether or not the shareholder is a company or an individual and whether or not the shareholder is a Singapore tax resident.

 

Capital Gains upon Distribution of Ordinary Shares

 

Under current Singapore tax laws, there is no tax on capital gains. There are no specific laws or regulations which deal with the characterization of whether a gain is income or capital in nature. Gains arising from the disposal of the Company’s ordinary shares may be construed to be of an income nature and subject to Singapore income tax, if they arise from activities which the Inland Revenue Authority of Singapore regards as the carrying on of a trade or business in Singapore. However, under Singapore tax laws, any gains derived by a divesting company from its disposal of ordinary shares in an investee company between June 1, 2012 and May 31, 2022 are generally not taxable if immediately prior to the date of the relevant disposal, the investing company has held at least 20% of the ordinary shares in the investee company for a period of at least 24 months.

 

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Goods and Services Tax

 

The issue or transfer of ownership of the Company’s ordinary shares should be exempt from Singapore Goods and Services Tax. Hence, the holders would not incur any Goods and Services Tax on the subscription or subsequent transfer of the shares.

 

Stamp Duty

 

If the Company’s ordinary shares evidenced in certificated forms are acquired in Singapore, stamp duty is payable on the instrument of their transfer at the rate of 0.2% of the consideration for or market value of the Company’s ordinary shares, whichever is higher. Where an instrument of transfer is executed outside Singapore or no instrument of transfer is executed, no stamp duty is payable on the acquisition of the Company’s ordinary shares. However, stamp duty may be payable if the instrument of transfer is executed outside Singapore and is received in Singapore. The stamp duty is borne by the purchaser unless there is an agreement to the contrary.

 

On the basis that any transfer instrument in respect of the Company’s shares traded on Nasdaq are executed outside Singapore through the Company’s transfer agent/transfer secretary and share registrar in the United States for registration in the Company’s branch registers of members maintained in the United States (without any transfer instrument being received in Singapore), no stamp duty should be payable in Singapore on such transfers.

 

Tax Treaties Regarding Withholding Taxes

 

There is no comprehensive avoidance of double taxation agreement between the United States and Singapore which applies to withholding taxes on dividends or capital gains.

 

F. Dividends and Paying Agents

 

Not applicable.

 

G. Statement by Experts

 

Not applicable.

 

H. Documents on Display

 

Eqonex has filed this annual report on Form 20-F with the SEC under the Exchange Act. Statements made in this report as to the contents of any document referred to are not necessarily complete. With respect to each such document filed as an exhibit to this report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

 

Eqonex is subject to the informational requirements of the Exchange Act as a foreign private issuer and file reports and other information with the SEC. Reports and other information filed by Eqonex with the SEC, including this report, may be obtained from the SEC’s Internet site at http://www.sec.gov. The SEC’s telephone number is 1-800-SEC-0330.

 

As a foreign private issuer, Eqonex is exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

 

I. Subsidiary Information

 

Not applicable.

 

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Item 11. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk factors

 

The Group’s activities expose it to a variety of market risks: price risk, foreign currency risk, and interest rate risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.

 

The risks are minimized by the financial management policies and practices described below.

 

Price risk

 

The Group’s exposure to unlisted equity securities price risk arises from investments held by the Group and classified in the consolidated statement of financial position as at fair value through profit or loss. As at 31 March 2021, the Group’s investment in unlisted equity securities was not considered material. As at 31 March 2022, the Group’s investment in unlisted equity securities is predominantly focused on the investment into Bletchley Park Multi-Strategy Fund Offshore Limited - Class E shares (the “BP Fund”) which in turn in exposed to digital asset price risk.

 

The Group’s exposure to digital asset price risk arises from digital assets held by the Group on a revaluation basis mostly in BTC and USDC, as well as the investment made to the BP Fund which is exposed to price changes due to the performance of the underlying funds.

 

The Group has issued private warrants which are subject to price risks driven by the volatility of the Company’s share price and the spot price of the shares at a particular point in time when the warrants are being valued.

 

Foreign currency risk

 

The Group operates primarily in USD and HKD, albeit there is an increasing exposure to GBP, SGD and EUR. Given USD and HKD are pegged within a range the Group had a reduced exposure to foreign currency risk during the year. Given the increasing exposure to other currencies the Group is formalizing a foreign currency hedging policy in respect of foreign currency transactions, assets and liabilities. The Group monitors its foreign currency exposure closely and will consider hedging significant foreign currency exposure to manage the risk. The material balance sheet items are denominated in USD and as such no sensitivity analysis on the impact of foreign exchange movements has been performed.

 

Liquidation risk management

 

The Group currently takes no proprietary trading positions and is not exposed to deliberate position risk, but was exposed to a small amount of market risk via EQONEX Exchange in managing the liquidation mechanism in place to close clients’ open trading positions in the event that they breach minimum margin requirements. The Group runs a so-called “liquidation reserve” fund which was used to take on the positions of liquidated clients in the event of there being insufficient liquidity on the exchange liquidation platform or main order book to liquidate client positions. Any positions taken on by the liquidation reserve were hedged immediately, to minimize the market risk in positions taken on, but some residual exposure exists in the execution of hedges and unwinding positions.

 

There will be no such risk following the ceasing of operations for the Exchange.

 

Interest rate risk

 

The Group has minimal interest rate risk because there are no significant borrowings at variable interest rates. The Group currently does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider other necessary action when significant interest rate exposure is anticipated. The Group’s cash flow interest rate risk relates primarily to variable-rate bank balances. The exposure to the interest rate risk for variable rate bank balances is insignificant as the bank balances have a short maturity period.

 

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Credit risk

 

The Group has exposure to credit risk arising from monies relating to notional credit offered to some EQONEX Exchange customers, amounts advanced to third parties, shareholders, associates as well as trade receivables and deposits with bank. Credit risk is managed on a Group basis.

 

The amount of the Group’s maximum exposure to credit risk is the amount of the Group’s carrying value of the related financial assets and liabilities as of the end of the reporting period.

 

Deposits with bank

 

With respect to the Group’s cash deposits held with banks, the Group limits its exposure to credit risk by placing deposits with financial institutions with high credit rating and no recent history of default. Given the high credit ratings of the banks, management does not expect any counterparty to fail to meet its obligations. Management will continue to monitor the position and will take appropriate action if their ratings are changed. As at 31 March 2022 and 31 March 2021, the Group had a concentration of deposits with one bank but does have additional banking relationships to mitigate any concentration risk.

 

Amounts due from related companies/shareholders/an associate

 

If the parties are independently rated, these ratings are used. Otherwise, the Group’s risk measurement and monitoring process includes assessment of the credit quality of the parties, taking into account its financial position, past experience and other factors impacting credit quality of the parties.

 

Other than the credit risks mentioned above, the Group does not have any other significant concentrations of credit risk. The exposures to these credit risks are monitored on an ongoing basis.

 

On exchange credit

 

Following the launch of the Exchange, the Group has offered notional on-exchange credit to selected clients. Notional on-exchange credit increases the available trading balance to those selected clients and is termed as notional as there is no physical transfer of assets to the clients. The notional credit offered has restricted use on the Exchange and cannot be withdrawn. Collateral is deposited by the trading counterparties in advance of receiving on-exchange credit and the risk of any loss is mitigated by risk management processes in place such as regular reconciliations and margin calls in advance of the client’s asset portfolio breaching the advanced credit balance. As at March 31, 2022, the total amount of notional credit outstanding to the selected clients was 23,300,000 USDC 164.5 BTC 1,513 ETH, 800 BCH and 6,250 DOT. Against the notional credit advanced the Group held collateral deposited by the clients of 7,075,000 USDC, 53 BTC, 455.5 ETH, 200 BCH and 1250 DOT. Additionally, as of March 31, 2022, the clients, that had been allocated on-exchange credit, had balances in excess of the notional credit in their EQONEX trading accounts that is monitored and ensured via a margin call and settlement process.

 

There will be no on exchange credit following the closure of the exchange.

 

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Liquidity risk

 

Financing arrangement

 

The Group monitors its cash position on a regular basis and manages cash and cash equivalents to finance the Group’s operations. The Group has been primarily financed via the proceeds from the shareholder investments via the convertible bond, the Transaction, private placement, warrants exercised and convertible loans from Bifinity.

 

Capital risk

 

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maximize the return to the shareholders through the optimization of the debt and equity balance.

 

The Group manages its capital structure and adjusts it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders, and issue new shares or other instruments. No changes were made in the objectives, policies or processes for managing capital during the year ended March 31, 2022.

 

The Group has a subsidiary that holds a Type 4 and Type 9 licenses from the Hong Kong Securities and Futures Commission and is subject to minimal capital requirements. Other than this, the Group was not subject to any externally imposed capital requirements during the reporting periods.

 

Item 12. Description of Securities Other Than Equity Securities

 

Private warrants were issued in January 2021 as part of the private placement capital raise.

 

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Part II

 

Item 13. Defaults, Dividend Arrearages and Delinquencies

 

There have not been any defaults, dividend arrearages, or delinquencies.

 

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

 

None.

 

Item 15. Controls and Procedures

 

Disclosure Controls and Procedures

 

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 20-F. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2022, our disclosure controls and procedures were effective.

 

Management Annual Report on Internal Control Over Financial Reporting and Attestation Report of the Registered Public Accounting Firm

 

This annual report on Form 20-F does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this annual report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 16A. Audit Committee Financial Expert

 

Our board of directors has determined that Paul Smith and Richard Petty are audit committee financial experts as defined by the SEC rules, have the requisite financial experience as defined by Nasdaq corporate governance rules and are “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act.

 

Item 16B. Code of Ethics

 

We have adopted the Code of Business Conduct and Ethics, which applies to all of directors, officers, employees, consultants and others working on our behalf, and is intended to meet the definition of “code of ethics” under Item 16B of Form 20-F. The Code of Business Conduct and Ethics is available on our website at https://group.eqonex.com/investor-relations/corporate-governance. We intend to disclose on our website any amendments to or waivers of the Code of Business Conduct and Ethics.

 

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Item 16C. Principal Accountant Fees and Services

 

We have recorded the following fees for professional services rendered by our principal auditors, Mazars USA LLP (“Mazars”) for the year ended March 31, 2022 and by UHY, LLP (“UHY”), and their affiliates in Singapore and Hong Kong, an independent registered public accounting firm, for the year ended March 31, 2021:

 

		2022				2021
Audit Fees		$	600,000			$	340,016
Audit-Related Fees			92,250				41,000
Tax Fees			-				5,100
All Other Fees			-				251,174
		$	692,250			$	637,290

 

“Audit fees” include the auditing and issuance of an audit opinion for the consolidated Group for the years ended March 31, 2022 and 2021 by Mazars and UHY, respectively, and for standalone entities in Hong Kong and Singapore for the year ended March 31, 2021 by UHY. During the years ended March 31, 2021, the Group incurred audit fees from UHY affiliated companies in Hong Kong and Singapore of $145,016 and $40,597, respectively.

 

“Audit-related fees” include the review of the interim financial statements for the six-month ended September 30, 2021 and 2020 and Form F1 filings prior to submission by UHY.

 

“Tax fees” include preparation of and filing of corporate tax returns in Hong Kong and Singapore.

 

“All other fees” include the fees incurred during the year ended March 31, 2021 for the financial statements for the years ending March 31, 2019 and 2018 of Eqonex in preparation for the completion of the business combination with 8i.

 

The Audit Committee pre-approves all audit services to be provided to the Company. All services provided by the principal external auditors for the years ended March 31, 2022 and 2021 were approved by the Audit Committee pursuant to the pre-approval policy.

 

Item 16D. Exemptions From the Listing Standards For Audit Committees

 

Not applicable.

 

Item 16E. Purchases of Equity Securities By the Issuer and Affiliated Purchasers

 

Not applicable.

 

Item 16F. Change in Registrant’s Certifying Accountant

 

Not applicable.

 

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Item 16G. Corporate Governance

 

Eqonex shares are listed on the NASDAQ. We are therefore required to comply with certain of NASDAQ Listing Rules. Pursuant to the NASDAQ Listing Rules, as a foreign private issuer, the Company may elect to follow its home country practice in lieu of the corporate governance requirements of the NASDAQ Listing Rule 5600 Series, with the exception of those rules that are required to be followed pursuant to the provisions of NASDAQ Listing Rule 5615(a)(3). The Singapore corporate governance practices are set out in the Code of Corporate Governance (“CCG”) which applies to companies listed on the Singapore Exchange (which the Company is not and hence, is not strictly required to comply with). Set forth below is a summary of the significant differences between the corporate governance practices we follow under our home country practice and those followed by NASDAQ-listed U.S. domestic issuers.

 

Majority Independent Board

 

Pursuant to Rule 5605(b)(1) of the NASDAQ Listing Rules, a majority of the board of directors must be comprised of “Independent Directors” as defined in Rule 5605(a)(2). The CCG requires that independent directors only make up a majority of the board of directors where the chairman is not independent. The Company has at present complied with this requirement under the NASDAQ Listing Rules, even though we are not statutorily required to comply with the requirement for such independence.

 

For reference, under provision 2.1 of the CCG, an “independent” director is one who is independent in conduct, character and judgement, and has no relationship with the company, its related corporations, its substantial shareholders or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent business judgement in the best interests of the company.

 

Executive Sessions of Independent Directors

 

Pursuant to Rule 5605(b)(2) of the NASDAQ Listing Rules, Independent Directors are to have regularly scheduled meetings at which only Independent Directors are present, and it is contemplated that these occur at least twice a year, and perhaps more frequently. Under the CCG, the only requirement is that non-executive directors and/or independent directors meet regularly without the presence of management. Given that the Company is not required to comply with the CCG, up to the date of this filing the non-executive directors and/or independent directors have not met without the presence of management this year.

 

Composition of the Nomination and Compensation Committee

 

Pursuant to the NASDAQ Listing Rules, the Company is required to have, and certify that it has and will continue to have a compensation committee comprising of at least two members, and each committee member must be an “Independent Director” as defined under Rule 5605(a)(2) of the NASDAQ Listing Rules. However Rule 5605(2)(B) of the NASDAQ Listing Rules provides that if the compensation committee is comprised of at least three members, one director who does not meet the requirements of paragraph 5605(d)(2)(A) and is not currently an Executive Officer or employee or a Family Member of an Executive Officer, may be appointed to the compensation committee if the board, under exceptional and limited circumstances, determines that such individual’s membership on the committee is required by the best interests of the Company and its Shareholders.

 

The NASDAQ Listing Rules also requires for there to be Independent Director oversight of Director nominations such that director nominees are selected or recommended for the Board’s selection either by (A) Independent Directors constituting a majority of the Board’s Independent Directors in a vote in which only Independent Directors participate, or (B) a nominations committee comprised solely of Independent Directors.

 

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The Company however adheres to Singapore corporate governance requirements under the CCG with regard to Remuneration and Nominating committees. The CCG requires that the Nominating Committee comprises at least three directors, the majority of whom, including the chairman of the Nominating Committee, is independent within the definition of “independence” in the CCG. The CCG also requires that the Remuneration Committee to have at least three directors, all of whom are non-executive directors, and the majority of whom, including the chairman of the Remuneration Committee, are independent, within the definition of independence in the CCG. Unlike the NASDAQ Listing Rules, there is no requirement for specific independent director oversight and the only requirements are in relation to the number of independent directors which are to make up the Nominating and Remuneration Committee.

 

Responsibilities of the Compensation Committee

 

Under Rule 5605(d)(3) of the NASDAQ Listing Rules, the compensation committee is required to have several specific responsibilities and authority. It is noted that the Company complies with certain responsibilities and authorities required under the NASDAQ Listing Rules such as Rule 5605(d)(3)(A) which provides that “the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser”. This is not specifically provided for under the CCG.

 

Review of Related Party Transactions

 

Under Rule 5630 of the NASDAQ Listing Rules, there is a requirement that a company conduct an appropriate review and oversight of all related party transactions for potential conflict of interest situations on an ongoing basis by the Company’s audit committee or another independent body of the board of directors. For purposes of this rule, the term “related party transaction” shall refer to transactions required to be disclosed pursuant to Item 404 of Regulation S-K under the Securities Exchange Act of 1934. However, in the case of non-U.S. issuers, the term “related party transactions” shall refer to transactions required to be disclosed pursuant to Form 20-F, Item 7.B. Based on our charter, we review “Interested Transactions” within our defined scope, which has a different definition from “related party transactions” under the NASDAQ Listing Rules.

 

“Interested Transactions” are defined in the Company’s Related Party Transaction Policies and Procedures as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (a) the aggregate amount involved in any calendar year will or is expected to exceed $120,000 (excluding, when calculating the amount of indebtedness, amounts due from a related party for purchases of goods and services subject to usual trade terms, for ordinary business travel and expense payments and for other transactions in the ordinary course of business), (b) the Company is a participant, and (c) any Related Party has or will have a direct or indirect interest.

 

Compensation of Directors

 

While the NASDAQ Listing Rules require independent oversight of executive officer compensation to help assure that appropriate incentives are in place, consistent with the board’s responsibility to act in the best interests of the corporation, Singapore law further provides that a company shall not at any meeting or otherwise provide emoluments or improve emoluments for a director of a company in respect of his office as such unless the provision is approved by a resolution that is not related to other matters and any resolution passed in breach of this section shall be void.

 

“Emoluments” in relation to a director includes fees and percentages, any sums paid by way of expenses allowance in so far as those sums are charged to income tax in Singapore, any contribution paid in respect of a director under any pension scheme and any benefits received by him otherwise than in cash in respect of his services as director.

 

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Shareholder Approval

 

Under Rule 5635 of the NASDAQ Listing Rules, there are specific circumstances where shareholder approval is required, namely prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) transactions other than public offerings.

 

Specifically, under Rule 5635(c) of the NASDAQ Listing Rules shareholder approval is required when a plan or other equity compensation arrangement is established or materially amended.

 

The Company intends to refresh its shareholder mandate for the issuance of securities at every annual general meeting.

 

Item 16H. Mine Safety Disclosure

 

Not Applicable

 

Part III

 

Item 17. Financial Statements

 

See Item 18. “Financial Statements”

 

Item 18. Financial Statements

 

The audited Consolidated Financial Statements as required under Item 18 are attached hereto starting on page F-1 of this Annual Report on Form 20-F.

 

Item 19. Exhibits

 

The following are filed as exhibits hereto:

 

Exhibit Number		Description
1.1		Constitution of Diginex Limited (incorporated by reference to Exhibit 3.4 to the JFK Registration on Form F-4/A filed with the Securities and Exchange Commission on February 5, 2020).†
1.2		Amended and Restated Constitution of Diginex Limited (incorporated by reference to Exhibit 10.5 to the JFK Registration Statement on Form F-4/A filed with the Securities and Exchange Commission on February 20, 2020).†
4.1		Form of Registration Rights Agreement by and among Diginex Limited and the Investors named therein (incorporated by reference to Exhibit 10.5 to the JFK Registration Statement on Form F-4/A filed with the Securities and Exchange Commission on February 20, 2020).†
4.2		Form of Escrow Agreement (incorporated by reference to Exhibit 10.6 to the JFK Registration Statement on Form F-4/A filed with the Securities and Exchange Commission on February 5, 2020).†
4.3		Form of Lock-Up Agreements (incorporated by reference to Exhibit 10.7 to the JFK Registration Statement on Form F-4/A filed with the Securities and Exchange Commission on February 5, 2020). †
4.4		Merger Agreement, dated October 8, 2019, by and among 8i Enterprises Acquisition Corp., Digital Innovative Limited, and DIGITAL INNOVATIVE LIMITED (incorporated by reference to Exhibit 10.8 to the JFK Registration Statement on Form F-4/A filed with the Securities and Exchange Commission on February 5, 2020).†
4.5		Diginex Limited 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.9 to the JFK Registration Statement on Form F-4/A filed with the Securities and Exchange Commission on February 5, 2020).†
4.6		Form of Option Agreement (incorporated by reference to Exhibit 10.10 to the JFK Registration Statement on Form F-4/A filed with the Securities and Exchange Commission on February 5, 2020).†
4.7		Form of Assignment of Warrant Agreement (incorporated by reference to Exhibit 10.11 to the JFK Registration Statement filed on Form F-4/A filed with the Securities and Exchange Commission on February 20, 2020).†
4.8		Form of Supplemental Warrant Agreement (incorporated by reference to Exhibit 10.11 to the JFK Registration Statement on Form F-4/A filed with the Securities and Exchange Commission on February 20, 2020).†
4.9		Convertible Loan Agreement with Bifinity
8		List of Subsidiaries
12.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1		Consent of Independent Registered Public Accounting Firm, UHY LLP
15.2		Consent of Independent Registered Public Accounting Firm, Mazars USA LLP
†		Previously filed

 

101

 

 

SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

Date: August 15, 2022	EQONEX LIMITED
		/s/ Jonathan Farnell
	Name:	Jonathan Farnell
	Title:	Chief Executive Officer

 

102

 

 

EQONEX LIMITED

 

CONSOLIDATED FINANCIAL STATEMENTS

 

31 March 2022, 2021 AND 2020

 

103

 

 

Table of Contents

 

Consolidated Financial Statements as of 31 March 2022, 2021 and 2020		Page
Report of independent registered public accounting firm, Mazars USD LLP (PCAOB ID: 339)		F-2
Report of independent registered public accounting firm, UHY LLP (PCAOB ID: 1195)		F-3
Consolidated Statement of Profit or Loss		F-4
Consolidated Statement of Comprehensive (Loss) Income		F-5
Consolidated Statement of Financial Position		F-6
Consolidated Statement of Changes in Equity		F-7
Consolidated Statement of Cash Flows		F-9
Notes to the Consolidated Financial Statements		F-12

 

F-1

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and
Stockholders of EQONEX Limited

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated financial position of EQONEX Limited (the “Company”) as of March 31, 2022, and the related consolidated statements of profit or loss, comprehensive (loss) income, changes in equity, and cash flows for the year ended March 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022, and the results of their operations and their cash flows for the year ended March 31, 2022, in conformity with the International Financial Reporting Standards as issued by the International Accounting Standard Board.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ Mazars USA LLP
We have served as the Company’s auditor since 2022.
New York, New York
August 15, 2022

 

F-2

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Diginex Limited

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated statements of financial position of Diginex Limited (the “Company”) as of March 31, 2021 and 2020, and the related consolidated statements of profit or loss, comprehensive loss, changes in equity, and cash flows for the years ended March 31, 2021, 2020 and 2019, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of their operations and their cash flows for the years ended March 31, 2021, 2020 and 2019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the generally accepted auditing standards established by the Auditing Standards Boards (United States) and in accordance with the auditing standards of PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ UHY LLP

 

We have served as the Company’s auditor since 2019.

 

New York, New York

June 29, 2021

 

F-3

 

EQONEX LIMITED

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the years ended 31 March 2022, 2021 and 2020

 

					Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		Notes			USD				USD				USD
CONTINUING OPERATIONS
Revenue			3			5,294,708				287,468				494,622
						5,294,708				287,468				494,622
General and administrative expenses			4			(72,511,076	)			(64,916,121	)			(42,984,644	)
OPERATING LOSS						(67,216,368	)			(64,628,653	)			(42,490,022	)
Other gains, losses and expenses, net			6			5,218,331				(65,849,864	)			(1,699,067	)
Impairment loss on intangible assets			11			(13,899,728	)			-				-
Impairment reversal (losses) on financial assets, net			7			-				21,071				(11,237,660	)
Finance costs, net			8			(270,314	)			(2,271,445	)			(1,851,527	)
LOSS BEFORE TAX						(76,168,079	)			(132,728,891	)			(57,278,276	)
Income tax credit			9			348,951				478,078				-
LOSS FROM CONTINUING OPERATIONS						(75,819,128	)			(132,250,813	)			(57,278,276	)
DISCONTINUED OPERATIONS
Profit (loss) from discontinued operations (attributable to the ordinary equity holders of the Company)			34			-				4,956,408				(857,554	)
LOSS FOR THE YEAR						(75,819,128	)			(127,294,405	)			(58,135,830	)
Loss attributable to:
Owners of the Company						(74,995,788	)			(126,752,064	)			(57,716,069	)
Non-controlling interests						(823,340	)			(542,341	)			(419,761	)
						(75,819,128	)			(127,294,405	)			(58,135,830	)
LOSS PER SHARE FOR LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY
Basic loss per share			10		$	(1.87	)		$	(5.03	)		$	(3.80	)
EARNINGS (LOSS) PER SHARE FOR PROFIT (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY
Basic earnings (loss) per share			10		$	0.00			$	0.19			$	(0.06	)
LOSS PER SHARE FOR LOSS FOR THE YEAR ATTRIBUTABLE TO THE ORDINARY EQUITY HOLDERS OF THE COMPANY
Basic loss per share			10		$	(1.87	)		$	(4.84	)		$	(3.86	)

 

The above consolidated statement of profit or loss should be read in conjunction with the accompanying notes.

 

F-4

 

EQONEX LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME

For the years ended 31 March 2022, 2021 and 2020

 

						Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		Notes				USD				USD				USD
LOSS FOR THE YEAR							(75,819,128	)			(127,294,405	)			(58,135,830	)
OTHER COMPREHENSIVE INCOME (LOSS)
Exchange gain (loss) on translation of foreign operations							(167,106	)			(525,878	)			22,903
Digital assets revaluation gain			19				9,798				429,789				-
TOTAL COMPREHENSIVE LOSS FOR THE YEAR							(75,976,436	)			(127,390,494	)			(58,112,927	)
Total comprehensive loss attributable to:
Owners of the Company							(75,153,096	)			(126,848,153	)			(57,693,166	)
Non-controlling interests continuing
Non-controlling interests discontinuing
Non-controlling interests							(823,340	)			(542,341	)			(419,761	)
							(75,976,436	)			(127,390,494	)			(58,112,927	)
Total comprehensive (loss) income attributable to Owners of the Company arising from:
Continuing operations							(75,153,096	)			(131,804,561	)			(56,835,612	)
Discontinued operations							-				4,956,408				(857,554	)
							(75,153,096	)			(126,848,153	)			(57,693,166	)

 

The above consolidated statement of comprehensive (loss) income should be read in conjunction with the accompanying notes.

 

F-5

 

EQONEX LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 March 2022 and 2021

 

						At 31 March 2022				At 31 March 2021
		Notes				USD				USD
ASSETS
Intangible assets, net			11				1,199,167				14,845,896
Property, plant and equipment, net			12				426,309				473,512
Right-of-use assets, net			13				4,691,765				906,474
Financial assets at fair value through profit or loss			14				48,399				304,053
Prepayment, deposits and other receivables, non-current			15				347,299				152,988
Non-current assets							6,712,939				16,682,923
Trade receivables			15				71,423				12,604
Prepayment, deposits and other receivables			15				2,194,185				3,256,771
Amounts due from related companies			17				43,202				12,296
Amounts due from shareholders			17				1				36,963
Client assets			18				42,071,538				27,021,925
Digital assets			19				1,054,649				348,998
USDC			20				1,983,767				2,034,800
Financial assets at fair value through profit or loss			14				2,262,599				-
Cash and cash equivalents							4,882,410				52,118,497
Current assets							54,563,774				84,842,854
TOTAL ASSETS							61,276,713				101,525,777
EQUITY
Share capital			21				365,794,851				312,633,450
Reverse acquisition reserve			21, 24				(129,036,521	)			(129,036,521	)
Convertible loans – equity component			30				220,450				-
Share-based payment reserve			22, 24				31,688,905				64,957,905
Revaluation surplus			24				9,798				180,260
Foreign currency translation reserve			24				(678,936	)			(511,830	)
Accumulated losses			24				(263,900,341	)			(186,397,263	)
Shareholders’ equity (deficit) attributable to the owners of the Company							4,098,206				61,826,001
Non-controlling interests			24				-				(748,136	)
Total equity							4,098,206				61,077,865
LIABILITIES
Lease liabilities, non-current			26				3,995,562				134,951
Convertible loans, non-current			30				2,774,692				-
Non-current liabilities							6,770,254				134,951
Amount due to an associate			16				900,000				900,000
Amounts due to related parties			17				7,828				203,460
Amounts due to directors			17				-				6,785
Client liabilities			18				42,071,538				27,021,925
Warrant liability			23				4,005				5,197,201
Lease liabilities, current			26				933,405				733,488
Other payables and accruals			27				6,491,477				6,250,102
Current liabilities							50,408,253				40,312,961
Total liabilities							57,178,507				40,447,912
TOTAL EQUITY AND LIABILITIES							61,276,713				101,525,777

 

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

 

F-6

 

eqonex LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the years ended 31 March 2022, 2021 and 2020

 

						Shares				Amount				reserve				surplus				loan				Warrants				reserve				reserve				Losses				Total				interests				equity
						Attributable to owners of the Group
						Share capital								Reverse acquisition				Revaluation				Equity component of convertible								Share-based payment				Foreign currency translation				Accumulated								Non- controlling				Total shareholders’
						Shares				Amount				reserve				surplus				loan				Warrants				reserve				reserve				Losses				Total				interests				equity
		Notes								USD				USD				USD				USD				USD				USD				USD				USD				USD				USD				USD
Balance at 1 April 2019			21				973,903				13,382,920				-				-				-				-				634,462				(8,855	)			(10,094,383	)			3,914,144				(61,954	)			3,852,190
Shares issued for cash during the year			21				214,753				31,831,174				-				-				-				-				-				-				-				31,831,174				-				31,831,174
Shares issued for consulting services			21				17,081				2,709,854				-				-				-				-				-				-				-				2,709,854				-				2,709,854
Shares issued for intangible assets			11				35,088				5,400,043																																5,400,043								5,400,043
Shares issued to employees			21				10,522				1,745,447				-				-				-				-				-				-				-				1,745,447				-				1,745,447
Expenses related to raise of capital			21				-				(913,159	)			-				-				-				-				-				-				-				(913,159	)			-				(913,159	)
Total loss for the year							-				-				-				-				-				-				-				-				(57,716,069	)			(57,716,069	)			(419,761	)			(58,135,830	)
Total other comprehensive income for the year							-				-				-				-				-				-				-				22,903				-				22,903				-				22,903
Acquisition of a subsidiary			32				-				-				-				-				-				-				-				-				(375,920	)			(375,920	)			275,920				(100,000	)
Equity-settled share-based payments			22				-				-				-				-				-				-				9,722,202				-				-				9,722,202				-				9,722,202
Balance at 31 March 2020							1,251,347				54,156,279				-				-				-				-				10,356,664				14,048				(68,186,372	)			(3,659,381	)			(205,795	)			(3,865,176	)
Recapitalization of Diginex HK (1:13.9688 exchange ratio)			21				16,228,418				85,180,290				(85,180,290	)			-				-				-				-				-				-				-				-				-
Recapitalization			21				16,228,418				85,180,290				(85,180,290	)			-				-				-				-				-				-				-				-				-
Balance at 31 March 2020 (Note a)							17,479,765				139,336,569				(85,180,290	)			-				-				-				10,356,664				14,048				(68,186,372	)			(3,659,381	)			(205,795	)			(3,865,176	)
Equity after Recapitalization							17,479,765				139,336,569				(85,180,290	)			-				-				-				10,356,664				14,048				(68,186,372	)			(3,659,381	)			(205,795	)			(3,865,176	)
Balance at 1 April 2020			21				1,251,347				54,156,279				-				-				-				-				10,356,664				14,048				(68,186,372	)			(3,659,381	)			(205,795	)			(3,865,176	)
Shares issued for cash during the six months to 30 September 2020			21				3,572				285,438				-				-				-				-				-				-				-				285,438				-				285,438
Shares issued for cash during the year			21				3,572				285,438				-				-				-				-				-				-				-				285,438				-				285,438
Shares issued on conversion of convertible bond			21				318,311				25,436,232				-				-				-				-				-				-				-				25,436,232				-				25,436,232
Shares issued for consulting services			21				595				47,546				-				-				-				-				-				-				-				47,546				-				47,546
Shares issued for intangible asset purchase			11				3,899				600,056				-				-				-				-				-				-				-				600,056				-				600,056
Shares issued to employees			21				9,114				728,300				-				-				-				-				-				-				-				728,300				-				728,300
Shares issued to settle shareholder loan			17				9,039				722,306				-				-				-				-				-				-				-				722,306				-				722,306
Equity-settled share-based payments			22				448				35,800				-				-				-				-				-				-				-				35,800				-				35,800
Equity-settled earn-out awards			22				-				-				-				-				-				-				32,148,300				-				-				32,148,300				-				32,148,300
Anti-dilutive share issuance			21				187,001				-				-				-				-				-				-				-				-				-				-				-
Expenses related to raise of capital			21				6,382				(152,044	)			-				-				-				-				-				-				-				(152,044	)			-				(152,044	)
Subtotal							1,789,708				81,859,913				-				-				-				-				42,504,964				14,048				(68,186,372	)			56,192,553				(205,795	)			55,986,758
Equity before recapitalization							1,789,708				81,859,913				-				-				-				-				42,504,964				14,048				(68,186,372	)			56,192,553				(205,795	)			55,986,758
Recapitalization of Diginex HK (1:13.9688 exchange ratio)			21				23,210,292				129,019,911				(129,019,911	)			-				-				-				-				-				-				-				-				-
Recapitalization			21				23,210,292				129,019,911				(129,019,911	)			-				-				-				-				-				-				-				-				-
Subtotal							25,000,000				210,879,824				(129,019,911	)			-				-				-				42,504,964				14,048				(68,186,372	)			56,192,553				(205,795	)			55,986,758
Subtotal - Equity after recapitalization							25,000,000				210,879,824				(129,019,911	)			-				-				-				42,504,964				14,048				(68,186,372	)			56,192,553				(205,795	)			55,986,758
Recapitalized with founding share of the Company			32				1				1				(16,610	)			-				-				-				-				-				-				(16,609	)			-				(16,609	)
Acquisition of 8i Enterprises			32				6,688,392				56,851,332				-				-				-				8,324,147				-				-				-				65,175,479				-				65,175,479
Subtotal							31,688,393				267,731,157				(129,036,521	)			-				-				8,324,147				42,504,964				14,048				(68,186,372	)			121,351,423				(205,795	)			121,145,628
Shares issued for services			21				27,334				285,160				-				-				-				-				-				-				-				285,160				-				285,160
Shares issued for cash during the six months to 31 March 2021			21				2,571,669				21,980,647				-				-				-				-				-				-				-				21,980,647				-				21,980,647
Shares issued for cash during period one			21				2,571,669				21,980,647				-				-				-				-				-				-				-				21,980,647				-				21,980,647
Expenses related to raise of capital			21				-				(1,636,312	)			-				-				-				-				-				-				-				(1,636,312	)			-				(1,636,312	)
Shares issued in settlement of earn-out awards			22				3,030,000				7,241,700				-				-				-				-				(7,241,700	)			-				-				-				-				-

 

F-7

 

						Shares				Amount				reserve				surplus				loan								Warrants				reserve				reserve				Losses				Total				interests				equity
						Attributable to owners of the Group
						Share capital								Reverse acquisition				Revaluation				Equity component of convertible												Share-based payment				Foreign currency translation				Accumulated								Non- controlling				Total shareholders’
						Shares				Amount				reserve				surplus				loan								Warrants				reserve				reserve				Losses				Total				interests				equity
		Notes								USD				USD				USD				USD								USD				USD				USD				USD				USD				USD				USD
Shares issued for warrants exercised and warrants repurchased			23				1,480,965				17,031,098				-				-				-								(8,324,147	)			-				-				8,291,644				16,998,595				-				16,998,595
Equity-settled share-based payments			22				-				-				-				-				-								-				29,694,641				-				-				29,694,641				-				29,694,641
Total loss for the year							-				-				-				-				-								-				-				-				(126,752,064	)			(126,752,064	)			(542,341	)			(127,294,405	)
Total other comprehensive loss for the year							-				-				-				180,260				-								-				-				(525,878	)			249,529				(96,089	)			-				(96,089	)
Balance at 31 March 2021							38,798,361				312,633,450				(129,036,521	)			180,260				-								-				64,957,905				(511,830	)			(186,397,263	)			61,826,001				(748,136	)			61,077,865
Balance at 1 April 2021 (Note a)							38,798,361				312,633,450				(129,036,521	)			180,260				-								-				64,957,905				(511,830	)			(186,397,263	)			61,826,001				(748,136	)			61,077,865
Balance							38,798,361				312,633,450				(129,036,521	)			180,260				-								-				64,957,905				(511,830	)			(186,397,263	)			61,826,001				(748,136	)			61,077,865
Shares issued for services			21				371,324				3,896,546				-				-				-				-				-				(3,746,546	)			-				-				150,000				-				150,000
Shares issued for intangible asset purchase			21				154,906				900,000				-				-				-								-				-				-				-				900,000				-				900,000
Shares issued to employees			21				17,841				142,201				-				-				-								-				(142,201	)			-				-				-				-				-
Shares issued in settlement of share-based payments			22				5,635,335				45,689,431				-				-				-								-				(45,689,431	)			-				-				-				-				-
Acquisition of non-controlling interests paid by shares			32				1,464,291				2,533,223				-				-				-								-				-				-				(4,104,699	)			(1,571,476	)			1,571,476				-
Equity-settled share-based payments			22				-				-				-				-				-								-				17,726,327				-				-				17,726,327				-				17,726,327
Drawdown of convertible loan			30				-				-				-				-				220,450								-				-				-				-				220,450				-				220,450
Revaluation surplus realization			19				-				-				-				(180,260	)			-								-				-				-				180,260				-				-				-
Total loss for the year							-				-				-				-				-								-				-				-				(74,995,788	)			(74,995,788	)			(823,340	)			(75,819,128	)
Total other comprehensive loss for the year							-				-				-				9,798				-								-				-				(167,106	)			-				(157,308	)			-				(157,308	)
							46,442,058				365,794,851				(129,036,521	)			9,798				220,450								-				33,106,054				(678,936	)			(265,317,490	)			4,098,206				-				4,098,206

 

Note a – The balance of share capital as at 31 March 2020 has been recapitalized and reflected as such in the consolidated statement of financial position.

 

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

 

F-8

 

EQONEX LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS

For the years ended 31 March 2022, 2021 and 2020

 

						Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		Notes				USD				USD				USD
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax from:
Continuing operations							(76,168,079	)			(132,728,891	)			(57,278,276	)
Discontinued operations							-				4,956,408				(857,554	)
PROFIT (LOSS) INCLUDING DISCONTINUED OPERATIONS							(76,168,079	)			(127,772,483	)			(58,135,830	)
Adjustments for:
Impairment (reversal) losses on financial assets, net			7				-				(21,071	)			11,237,660
Finance costs			8				270,314				1,036,104				1,851,527
Transaction cost associated with private warrants			8				-				1,235,341				-
Net fair value gain on financial liabilities at fair value through profit or loss			6, 23				(5,193,196	)			(11,397,187	)			-
Revaluation loss on digital assets			6, 19				399,070				68,360				-
Net fair value (gains) losses on financial assets at fair value through profit or loss			6				(6,945	)			144,109				1,527,158
Net loss on sale of financial assets at fair value through profit or loss			6				-				-				221,626
Impairment loss on intangible assets			11				13,899,728				-				-
Amortization – intangible assets			11				3,821,276				2,021,722				-
Depreciation – property, plant and equipment			12				263,407				817,597				791,714
Loss on disposal – property, plant and equipment			12				87,811				36,300				-
Depreciation – right-of-use assets			13				1,493,946				1,963,787				1,965,711
Impact on reclassification to short term lease							-				(32,588	)			-
Shares issued for consulting services			21				150,000				332,706				2,709,854
Shares issued to employees			21				-				715,834				-
Equity-settled share-based payments			21				-				35,800				-
Equity settled share-based payments – salaries to be settled in shares			22				54,567				-				-
Equity settled share-based payments – employee share option scheme and accrued share awards			22				13,535,580				28,901,004				11,397,317
Equity settled share-based payments – restricted share units			22				4,134,847				-				-
Earn-out share awards			22				-				32,148,300				-
Transaction expense			22, 33				-				45,413,018				-
Discontinued operations			34				-				(5,987,534	)			70,331
							(43,257,674	)			(30,340,881	)			(26,362,932	)
Changes in:
Trade receivables							(58,819	)			60,048				(81,735	)
Prepayment, deposits and other receivables							1,051,608				(1,285,134	)			(1,615,696	)
Income tax payable							-				-				(27,680	)
Client assets							(15,049,613	)			(26,478,015	)			(543,910	)
Client liabilities							15,049,613				26,478,015				543,910
Amounts due from related companies							(30,906	)			-				(1,113	)
Amounts due to related parties							(195,632	)			203,460				-
Other payables and accruals							(48,591	)			(6,066,606	)			7,846,029
Amounts due to directors							(6,785	)			(367,819	)			17,749
Advance to an associate company							-				-				(226,308	)

 

F-9

 

						Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		Notes				USD				USD				USD
Amounts due to shareholders							-				(1,686	)			1,686
Amounts due from shareholders							36,962				765				63,372
Digital assets			19				(498,393	)			48,465				(36,034	)
USDC			20				51,033				(1,741,007	)			(293,793	)
Cash used in operating activities							(42,957,197	)			(39,490,395	)			(20,716,455	)
Finance costs paid							614				(387,366	)			(1,561,094	)
Income tax credit received			9				348,951				478,078				-
Net cash used in operating activities							(42,607,632	)			(39,399,683	)			(22,277,549	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment			12				(307,936	)			(49,743	)			(69,875	)
Acquisition of subsidiaries, net of cash acquired			33				-				(75,000	)			(25,000	)
Acquisition of digital assets							(4,000,000	)			-				-
Disposal of digital assets							3,403,470				-				-
Cash received on completion of Transaction			33				-				24,149,575				-
Sales of financial assets through profit or loss							-				-				155,951
Investment in financial assets at fair value through profit or loss			14				(2,000,000	)			-				(267,773	)
Acquired software and capitalized software development			11				(3,173,309	)			(5,652,943	)			(5,269,116	)
Net cash generated from (used in) investing activities							(6,077,775	)			18,371,889				(5,475,813	)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan receivables							-				-				(479,749	)
Loan to an associate			16				-				-				(2,000,000	)
Repayment of amounts due from an associate			16				-				951,781				814,572
Advance from an associate			16				-				900,000				-
Payment of lease liabilities			26				(1,183,585	)			(2,399,147	)			(2,390,366	)
Proceeds from issues of share capital, net			21				-				255,438				30,918,015
Proceed from issues of private placement shares, net of expenses			21				-				20,626,394				-
Proceed from issues of private placement warrants, net of expenses			23				-				15,571,989				-
Procced from issues of public warrant shares			23				-				17,031,098				-
Proceeds from loans from shareholders			17				-				100,000				5,332,303
Repayment of loans from shareholders			17				-				(3,949,050	)			(4,850,000	)
Proceeds from notes payable			28				-				-				675,000
Repayment of notes payable			28				-				(675,000	)			-
Proceeds from convertible bond, net of expenses			29				-				24,272,539				-
Proceeds from convertible loan, net of expenses			30				2,800,000				-				-
Net cash generated from financing activities							1,616,415				72,686,042				28,019,775
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS							(47,068,992	)			51,658,248				266,413
Cash and cash equivalents at the beginning of the period							52,118,497				988,836				740,061
Effect of foreign exchange rate changes							(167,095	)			(528,587	)			(17,638	)
CASH AND CASH EQUIVALENTS AT 31 MARCH							4,882,410				52,118,497				988,836

 

F-10

 

Non-cash investing and financing activities

 

Non-cash investing and financing activities for the year ended 31 March 2022, as disclosed in the notes, are:

 

	●	Acquisition of intangible assets through the issuance of shares valued at $900,000 (note 11).
	●	Acquisition of 15% of Digivault Limited through issuance of shares valued at $2,533,223 (note 32).
	●	Additions to right-of-use assets and lease liabilities of $5,111,736 (notes 13 and 26).
	●	Issuance of shares for services for $3,896,546 and to employees for $142,201.

 

Non-cash investing and financing activities for the year ended 31 March 2021, as disclosed in the notes, are:

 

	●	Acquisition of intangible assets through the issuance of Diginex HK shares valued at $600,056 (note 11).
	●	Addition to right-of-use assets and lease liabilities of $406,333 (notes 13 and 26).
	●	Settlement of loans from shareholders of $722,306 via issuance of shares in Diginex HK (note 17.6).
	●	Settlement of loans from shareholders of $100,000 via issuance of a convertible bond (note 17.6).
	●	Settlement of deferred compensation from the salary deferral scheme of $485,000 via issuance of convertible bonds (note 29).
	●	Conversion of convertible bonds and accrued interest into shares in Diginex HK of $25,436,232 (note 21).
	●	Issue of earn-out shares of 3,030,000 from the earn-out share based payment reserve of $7,241,700 (note 22).
	●	Accrual of transaction costs of $495,000 payable to a service provider associated with the private placement (note 23.2).

 

Non-cash investing and financing activities for the year ended 31 March 2020, as disclosed in the notes, are:

 

	●	Loan novation of $4,323,530 from a loan receivable to an amount due from an associate (note 16).
	●	Acquisition of intangible assets amounting to $5,400,043 through the issuance of Diginex HK shares (note 11).
	●	Outstanding payable of $75,000 on acquisition of remaining interest in Bletchley Park Asset Management Jersey Limited.

 

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

 

F-11

 

EQONEX LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 March 2022 and 2021

 

1 ACTIVITIES

 

Eqonex Limited (the “Company” or “Eqonex”) was incorporated on 1 October 2019 and domiciled in Singapore with its registered office and principal place of business located at 140 Robinson Road, #18-01 Tahir Building, Singapore 068907. The Company was formerly known as Diginex Limited before 13 October 2021.

 

The Company is an investment holding company listed on Nasdaq (ticker: EQOS). The Company has various subsidiaries that are incorporated in Hong Kong, People’s Republic of China (“PRC”), Singapore, Switzerland, Republic of Korea, Germany, Gibraltar, Jersey, United Kingdom, British Virgin Islands, Vietnam, Luxembourg and Republic of Seychelles (“collectively, the Group”).

 

Eqonex is a digital assets financial services company focused on fairness, governance, and innovation. The Company’s current business operations and its principal activities are conducted through its individual business lines that are captured within three divisions. The three divisions being (i) Custody, (ii) Asset Management, and (iii) Brokerage. Custody is composed of Digivault, our FCA-licensed hot and cold digital assets custodian. Asset Management is composed of Bletchley Park, our Fund of Hedge Funds; and Eqonex Investment Products, which issues exchange-traded products. Brokerage is composed of Eqonex OTC, an over-the-counter brokerage business; Eqonex Lending, a borrowing and lending business; and the Structured Products Business, which will seek to offer private placements tailored to client demand against underlying crypto assets.

 

These consolidated financial statements are presented in US dollars (USD), which is the same as the functional currency of the Company.

 

These consolidated financial statements for year ended 31 March 2022 were authorized for issue by the Board of Directors on August 15, 2022.

 

2 BASIS OF PREPARATION

 

These consolidated financial statements for the years ended 31 March 2022, 2021 and 2020 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

 

These consolidated financial statements are prepared on a going concern basis and correspond to the classification provisions contained in IAS 1 (revised), “Presentation of Financial Statements”. Accounting policies have been applied consistently to all periods presented in these consolidated financial statements. The consolidated financial statements comprise of the statement of financial position as of 31 March 2022 with comparative statement of financial position as on 31 March 2021; the statement of profit or loss, the statement of comprehensive (loss) income, the statement of changes in equity, and the statement of cash flows for the year ended 31 March 2022 with comparatives for the year ended 31 March 2021 and 31 March 2020.

 

The Group has prepared its subsidiaries’ financial statements in accordance with the recognition, measurement and disclosure principles of IFRS as issued and published by the IASB. The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments, which are measured at fair value.

 

Restatement of Prior Period Financial Statements

 

Management determined the share-based payment expense of $1,417,149, associated with the issuance of unit purchase options by 8i Enterprise to a service provider was omitted. This amount, which is not deductible for tax purpose, should be recognised in the profit or loss during the year ended March 31, 2021 as part of the one time expense incurred for the Transaction. Management determined that it was necessary to restate the comparative financial information for the year ended March 31, 2021, the effect of correcting these changes was not material to the consolidated financial statements for the year ended March 31, 2021.

 

As shown in the tables below, the effect of the restatement was an increase of $1,417,149 in “Other gains, losses, and expenses, net” for the year ended March 31, 2021 and a corresponding increase in share-based payment reserve and an increase in accumulated losses as of March 31, 2021.

		For the year ended March 31, 2021
		As previously reported				Adjustment				As restated
		USD				USD				USD
Consolidated statement of profit or loss
Other gains, losses and expenses, net			(64,432,715	)			(1,417,149	)			(65,849,864	)
Loss before tax			(131,311,742	)			(1,417,149	)			(132,728,891	)
Loss from continuing operations			(130,833,664	)			(1,417,149	)			(132,250,813	)
Loss for the year			(125,877,256	)			(1,417,149	)			(127,294,405	)
Basic loss per share for loss from continuing operations attributable to the ordinary equity holders of the Company			(4.97	)			(0.06	)			(5.03	)
Basic loss per share for loss for the year attributable to the ordinary equity holders of the Company			(4.78	)			(0.06	)			(4.84	)
Consolidated statement of comprehensive income
Loss for the year			(125,877,256	)			(1,417,149	)			(127,294,405	)
Total comprehensive loss for the year			(125,973,345	)			(1,417,149	)			(127,390,494	)
Consolidated statement of cash flows
Loss before tax from continuing operations			(131,311,742	)			(1,417,149	)			(132,728,891	)
Loss including discontinued operations			(126,355,334	)			(1,417,149	)			(127,772,483	)
Transaction expense			43,995,869				1,417,149				45,413,018

 

		As at March 31, 2021
		As previously reported				Adjustment				As restated
		USD				USD				USD
Consolidated statement of financial position
Share-based payment reserve			63,540,756				1,417,149				64,957,905
Accumulated losses			(184,980,114	)			(1,417,149	)			(186,397,263	)

 

F-12

 

2.1 Amendments to IFRS that are mandatorily effective for the current year

 

The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those followed in the preparation of the Group’s consolidated financial statements for the year ended 31 March 2021 except for the adoption of the following amendments to IFRS:

 

	●	Amendments to IFRS 16: COVID19 Related Rent Concessions beyond 30 June 2021 (effective for fiscal periods beginning on or after 1 April 2021)
	●	Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform – Phase 2 (effective for fiscal periods beginning on or after 1 January 2021)

 

The application of these amendments to IFRS has had no material impact on the Group’s financial positions and performance for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

 

2.2 New and amendments to IFRS in issued but not yet effective

 

The Group has not early applied the following new and amendments to IFRS that have been issued but are not yet effective:

 

	●	IFRS 17: Insurance Contracts and the related Amendments (effective for fiscal periods beginning on or after 1 January 2023)
	●	Amendments to IFRS 3: “Reference to the Conceptual Framework (effective for fiscal periods beginning on or after 1 January 2022)
	●	Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (effective date is deferred indefinitely)
	●	Amendments to IAS 1: “Classification of Liabilities as Current or Non-current” (effective for fiscal periods beginning on or after 1 January 2023)
	●	Amendments to IAS 1 and FIRS Practice Statement 2: “Disclosure of Accounting Policies” (effective for fiscal periods beginning on or after 1 January 2023
	●	Amendments to IAS 8: “Definition of Accounting Estimates” (effective for fiscal periods beginning on or after 1 January 2023
	●	Amendments to IAS 12: “Deferred Tax related to Assets and Liabilities arising from a Single Transaction (effective for fiscal periods beginning on or after 1 January 2023)
	●	Amendments to IAS 16: “Property, Plant and Equipment – Proceeds before Intended Use” (effective for fiscal periods beginning on or after 1 January 2022)
	●	Amendments to IAS 37: “Onerous Contracts – Cost of Fulfilling a Contract” (effective for fiscal periods beginning on or after 1 January 2022)
	●	Amendments to IFRS Standards: “Annual Improvements to IFRS 2018 – 2020” (effective for fiscal periods beginning on or after 1 January 2022)

 

Management is currently assessing the impact of the new and amendments to IFRS and does not anticipate that the adoption of these new and amendments to IFRS will have a material impact on the Group’s consolidated financial statements.

 

F-13

 

2.3 Significant accounting estimates and judgements

 

The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

 

Estimation and assumptions

 

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period, are discussed below:

 

Useful lives of intangible assets

 

The Group’s management determines the estimated useful lives of its intangible assets for calculating amortization. This estimate is determined after considering the expected usage of the asset and the impact of expected residual value. Management reviews the useful lives annually and the future amortization charge would be adjusted where management believes that the useful lives differ from previous estimates.

 

Impairment of intangible assets

 

At each reporting date, the Group reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest cash-generating units for which a reasonable and consistent allocation basis can be identified.

 

Useful lives of property, plant and equipment

 

The Group’s management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear and the impact of expected residual value. Management reviews the useful lives annually and the future depreciation charge would be adjusted where management believes that the useful lives differ from previous estimates.

 

Impairment of property, plant and equipment

 

At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, an impairment assessment is performed to determine the recoverable amount and the associated impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the residual value of the cash generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest cash-generating units for which a reasonable and consistent allocation basis can be identified.

 

Discount rate used for initial measurement of lease liability

 

The Group, as a lessee, measures the lease liability at the present value of the unpaid lease payments at the commencement date. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Group on initial recognition of the lease uses its incremental borrowing rate. Incremental borrowing rate is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use assets in similar economic environment.

 

F-14

 

Income taxes

 

The Group is subject to income taxes in several jurisdictions. Significant estimates are required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

 

Investment in Bletchley Park Multi-Strategy Fund Class E shares (“BP Fund”)

 

The fair value of the investment in BP Fund is primarily estimated based on the net asset value report (“NAV report”) provided by the fund administrator. BP Fund is an open-ended fund and third parties have been investing into the fund based on the NAV report value, as such we have used the NAV report as a key input in estimating the fair value of the investment.

 

Impairment of financial assets

 

The measurement of impairment losses under IFRS 9, Financial Instruments, across all financial assets measured at amortized cost requires judgement, in particular, the estimation of the amount and timing of future cash flows when determining impairment losses and the assessment of a significant increase in credit risk. These estimates are driven by a number of factors, changes in which can result in different levels of allowances.

 

At each reporting date, the Group assesses whether there has been a significant increase in credit risk for exposures since initial recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial recognition. The Group considers reasonable and supportable information that is relevant and available without undue cost or effort for this purpose. This includes quantitative and qualitative information and also forward-looking analysis.

 

Impairment of loans receivables

 

The Group uses the simplified approach under IFRS 9 to assess impairment of loans receivables and calculates Expected Credit Losses (ECLs) based on lifetime expected credit losses. The Group calculates the ECL based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, and an assessment of both the current and forecast general economic conditions at the end of reporting period. Where the estimation is different from the original estimate, such difference will affect the carrying amounts of loan receivables and thus the impairment loss in the period in which such estimate is changed. The Group keeps assessing the expected credit loss of loan receivables during their expected lives.

 

Share-based payment expenses – employee share options

 

The fair value of the share options granted to the directors, employees and contractors determined at the date of grant of the respective share options is expensed over the vesting period, with a corresponding adjustment to the Group’s share-based payment reserve. In assessing the fair value of the share options, a binomial model was used to calculate the fair value of the share options. The option pricing model requires the input of subjective assumptions, including the volatility of its own ordinary shares and the expected life of options. Any changes in these assumptions can significantly affect the estimate of the fair value of the share options.

 

F-15

 

Share-based payment expenses – earn-out awards

 

According to an earn-out provision of a Share Swap Transaction (“Transaction”) between the Company, 8i Enterprises Acquisition Corp (“8i Enterprises”), a company incorporated in the British Virgin Islands, and Diginex Limited (“Diginex HK”), a company incorporated in Hong Kong, former Diginex HK shareholders are entitled to receive up to 12,000,000 additional shares in the Company if share price related milestones are achieved over a 4-year period from 30 September 2020 post Transaction. Upon reaching the earn-out milestones, a service provider to the Transaction is also entitled to receive the equivalent of 1% of the earn-out shares issued. Earn-out awards are accounted for under IFRS 2 as equity-settled awards with non-vesting conditions.

 

The fair value of the earn-out awards is based on a Monte Carlo simulation model taking assumptions on share price volatility, risk-free rate and other market data to predict distribution of relative share performance.

 

The share price volatility assumption used in the model is based on publicly listed traditional financial exchanges (due to the lack of publicly listed digital asset exchanges) and other related companies, and a 6-months BTC option volatility. The 6-months BTC option volatility being included to reflect the exposure to digital assets which would not be a feature of the traditional exchanges and other related companies selected as a comparable within the model.

 

Share-based payment – Restricted Share Units (“RSUs”)

 

Where RSUs have performance-based vesting targets, management apply judgement in estimating the number of awards expected to vest over the three year vesting period based on whether the performance based vesting targets are likely to be met or not.

 

Where RSUs have performance-based vesting targets which have not been established and communicated, the accounting grant date has not been established per IFRS, which sets the fair value per award. However, upon receiving the grant notification the awardee is deemed to have begun providing a service. In this scenario when the service start date is before the accounting grant date, per IFRS 2, the Group should recognize an expense based on management’s estimate of the grant date fair value. Therefore, on each reporting date where a grant date has not been established per IFRS 2 but service had been rendered by the awardee, the Group estimates the grant date fair value of the award based on the closing share price on such a reporting date.

 

Private warrants

 

The private warrants are recorded as financial liabilities on the consolidated statement of financial position and are remeasured on each reporting date. In assessing the fair value of the private warrants, the Black-Scholes-Merton Call Option Model was used to calculate the fair value of the private warrants since they are not publicly traded. The model requires the input of subjective assumptions, including the volatility of its own ordinary shares and the expected life of the warrants. Any changes in these assumptions can significantly affect the estimate of the fair value of the warrants.

 

Unit purchase options

 

The fair value of the unit purchase options granted to a service provider by 8i Enterprises determined at the date of grant was expensed on the same date of grant, with a corresponding adjustment to the Group’s share-based payment reserve. In assessing the fair value of the unit purchase options, Black-Scholes-Merton Call Option Model was used. The model requires the input of subjective assumptions, including the volatility of its own ordinary shares. Any changes in these assumptions can significantly affect the estimate of the fair value of the unit purchase options.

 

F-16

 

Judgements

 

In the process of applying the Group’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognized in the consolidated financial statements:

 

Functional currency

 

The Group’s operating costs, borrowing, revenue contracts and investments are primarily in USD, and are expected to remain principally denominated in USD in the future. Management has determined USD as the Company’s functional currency and presented the consolidated financial statements in USD to meet the requirements of users.

 

Intangible assets

 

The Group classifies acquired software and capitalized software development costs as intangible assets. Under IAS 38 the Group has elected to measure these intangible assets at cost rather than a revalued amount.

 

Convertible loans

 

Management has evaluated the terms of the convertible loan agreement with Bifinity UAB (“Bifinity”) and determined that the Group shall recognize separately the components of the convertible loans as a financial liability and an equity instrument (i.e. a call option granting the holder the right, for a specified period of time, to convert it into a fixed number of ordinary shares of the Company).

 

Digital Assets

 

The Group holds digital assets which are also referred to as cryptocurrencies. There is no specific accounting standard that applies to all digital assets and accordingly judgement is applied based on the terms and structure of each individual cryptocurrency in determining the most relevant accounting standards to adopt. The Group assessed that the cryptocurrencies currently owned (primarily BTC and ETH), unless specifically stated otherwise, are most appropriately accounted for as intangible assets in accordance with IAS 38 on the basis that they do not meet the definition of financial assets and are assets with no tangible form. Under IAS 38 the Group has elected to measure digital assets at a revalued amount on the basis that an active secondary market exists for those assets.

 

USD Coin (“USDC”)

 

USDC is a type of digital asset which the Group holds to meet certain working capital requirements. The Group classifies USDC as a financial asset in accordance with IFRS 9 on the basis that one USDC can be redeemed for one US dollar from an issuer, which is unlike other digital assets held, as noted above.

 

Client assets and liabilities

 

Clients deposit fiat, digital assets and USDC with the Group for trading purposes on the Exchange, and for OTC trading.

 

For fiat, the Group recognizes same amount client assets and client liabilities on the consolidated statement of financial position in accordance with IFRS 9 D.1.1.

 

F-17

 

For USDC and digital assets, there is no specific accounting guidance on recognition for these assets held on behalf of others. As such, the Group refers to para 4.3 and 4.4 of the conceptual framework for the definition of an asset. An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. On the basis that the USDC and digital assets deposited by clients are held in omnibus wallets offered by digital asset custodians under relevant group entity’s name, the relevant group entity has economic control over the wallets. Therefore, with control over the wallets, an asset and a corresponding liability with the same amount are recognized.

 

EQO token

 

The EQO white paper was published on 15 March 2021 and the token was launched on April 8, 2021 when a number of tokens were airdropped to eligible recipients. Holders of EQO initially benefitted from Exchange fee reductions and staking rewards. Fee paying price takers on EQONEX during the period March 16, 2021 to April 7, 2021 were entitled to an allocation of EQO on 8 April 2021. Post 8 April 2021, EQO was airdropped daily based on a formula weighted between price taking volume and the number of EQO tokens staked on EQONEX by eligible users.

 

EQO is a utility token and was not issued for cash consideration but instead used as a tool to incentivize activity on EQONEX whilst providing value to the recipient. The holding of EQO by clients created a liability for EQONEX as clients could, post April 8, 2021, receive benefits such as reduced trading fees. However, management estimates the impact from 16 March 2021 to 31 March 2021 and for the year ended 31 March 2021 to be immaterial.

 

With the ceasing of operations for the EQONEX Exchange since August 15, 2022, the EQO token will also cease trading.

 

Property, plant and equipment

 

The Group has acquired and capitalized property, plant and equipment as fixed assets. Under IAS 16 the Group has elected to measure such assets at cost rather than a revalued amount.

 

Lease commitments - Group as a lessee

 

The Group has entered into several rental agreements. The Group has determined these agreements to be leases in accordance with IFRS 16 “Leases” and accounts for these agreements as such. The Group has also elected simplified accounting for short-term leases of 12 months or less and an operating lease expense is recognized in the period of the lease on a straight-line basis.

 

Financial instruments

 

In the process of classifying a financial instrument, management has made various judgments. Judgment is needed to determine whether a financial instrument, or its component parts, on initial recognition is classified as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. In making its judgment, management considered the detailed criteria and related guidance for the classification of financial instruments as set out in IFRS 9, in particular, whether the instrument includes a contractual obligation to deliver cash or another financial asset to another entity.

F-18

 

Public warrants

 

Public warrants are classified as equity instruments under IAS 32 on the basis that the public warrants do not create an obligation for the Company to pay cash to the warrant holders since the warrant holders cannot put the warrants to the Company, and a fixed number of shares are to be issued based on a fixed warrant price. Permitted adjustments to the warrant price and the number of shares are anti-dilutive and therefore preservative in nature to maintain the relative economic interest of the holder and the issuer, which does not breach the fixed-for-fixed principle of IAS 32 para 16.

 

Private warrants

 

Private warrants are classified as financial liabilities under IAS 32 para 25 on the basis that there is a contingent settlement provision outside the control of the Company in a change of control event when the holder may demand the Company to pay cash.

 

Deemed reverse acquisition

 

On 30 September 2020, the Company entered into the Transaction with 8i Enterprises and Diginex HK that resulted in the issuance of shares and warrants to the shareholders of 8i Enterprises, Diginex HK and service providers. Following the issuance, the Company became the ultimate parent holding company of 8i Enterprises and Diginex HK (together with its subsidiaries) and listed on Nasdaq.

 

Under IFRS 3, neither 8i Enterprises nor the Company met the definition of a business and therefore the Transaction is not defined as a business combination. Although Diginex HK is considered a business under IFRS 3, a business combination requires the combination of businesses and hence requires more than one business in the transaction to fall within the scope of the standard. In accordance with IAS 8 paragraph 10, in the absence of an IFRS that specifically applies to such a transaction, management should apply judgement in developing and applying an accounting policy that results in consolidated financial statements that are presented in a way that reflects the economic substance of the transaction.

 

Management has concluded that the Transaction would be more accurately represented as a deemed reverse acquisition of 8i Enterprises and the Company by Diginex HK, together with a recapitalization of the Group’s share capital. The outcome of such judgement being that the results of Diginex HK, subject to an adjustment to equity to reflect the issuance of shares by the Company on completion of the Transaction, have been consolidated on the basis that Diginex HK is the accounting acquirer and hence the historical results of Diginex HK continue to be consolidated on an on-going basis. The excess between the fair value of the shares and equity instruments issued and the net assets acquired is treated as an expense under IFRS 2. Details of the accounting policy applied is summarized in note 2.5.

 

F-19

 

Share-based payments – replacement of employee share option scheme

 

On 30 September 2020, the Group replaced the employee share option scheme issued by Diginex HK with the establishment of a plan with modified terms issued by the Company upon completion of the Transaction. Under IFRS 2, the Group considered this as a replacement and modification of the Diginex HK scheme (see note 22).

 

Related party transactions

 

The Group has entered into transactions with a person or entity that is considered related to the Group under IAS 24, which require separate disclosure. A person or entity is considered a related party if classifications are met under the definition set out in note 2.5. There are many related party transactions that require judgment by management that have been disclosed in note 17.

 

Related party transaction – sale of Solutions Business

 

The IFRS conceptual framework of accounting defines income as an increase in assets or decrease in liabilities that results in increases in equity, other than those relating to contributions from equity holders. When a transaction is entered into with a related party, judgement is required in determining whether the accounting gain represents income or a capital contribution. The accounting treatment is determined by considering if the related party was acting in their capacity as a related party or a normal counterparty for the particular transaction.

 

In May 2020, the Group sold the Solutions Business to Rhino Ventures Limited, an entity controlled by Miles Pelham, the founder of Diginex HK. The transaction resulting in income being recorded in the consolidated statement of profit or loss on the basis that Rhino Ventures Limited was acting as a normal counterparty and purchased the Solutions Business at fair market value, as determined by the following:

 

	1)	The Solutions Business was offered to other parties to acquire, not only to Rhino Ventures Limited. A less favorable tentative offer was received from a third party to that offered by Rhino Ventures Limited.
	2)	Management believes the consideration paid is fair and reasonable. In making that judgement, management considered that certain inputs of the internally created valuation model were reviewed by an independent third party.
	3)	Shareholders voted to approve the sale of the Solutions Business to Rhino Ventures Limited.

 

Management believes that these attributes support that Rhino Ventures Limited purchased the Solutions Business at fair market value, therefore the gain on sale of the Solutions Business is reflected in profit from discounted operations in the consolidated statement of profit or loss.

 

F-20

 

Segmental reporting

 

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (the “CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Group’s executive committee is considered the Group’s CODM. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. While the Group has revenue from multiple products and geographies, the balance sheet and cashflow of the Group is considered by the CODM on a consolidated basis, so discrete financial information is not available for each such component. Although the financial performance is presented by product within the monthly finance information, they are not used as standalone pieces of management information for decision making. The overall financial performance of the Group is also considered. In particular, in terms of resource allocation, the CODM tend to look from a burn rate perspective, where cash is the one of key components to decision making and it drives allocations of the Group’s resources.

 

As such, the Group has determined that it operates as one operating segment and one reportable segment. The Group will continue to assess the operating segments reviewed by the CODM and the associated reportable segments per IAS 8.

 

2.4 Summary of significant accounting policies

 

Basis of consolidation

 

Subsidiaries

 

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

 

The acquisition method of accounting is used to account for business combinations by the Group except for common control business combinations.

 

Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, consolidated statement of comprehensive (loss) income, consolidated statement of changes in equity and consolidated statement of financial position respectively.

 

Changes in ownership interests

 

The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognized in a separate reserve within equity attributable to owners of the Company.

 

F-21

 

When the Group ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the entity is re-measured to its fair value with the change in carrying amount recognized in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs.

 

Business combinations

 

The acquisition method of accounting is used to account for all business combinations other than common control business combination, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:

 

	●	fair values of the assets transferred;
	●	liabilities incurred to the former owners of the acquired business;
	●	fair value of equity interests issued by the Group; and
	●	fair value of any pre-existing equity interest in the subsidiary.

 

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets. Acquisition related costs are expensed as incurred.

 

The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity, and acquisition-date fair value of any previous equity interest in the acquired entity, over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in profit or loss as a bargain purchase.

 

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently re-measured to fair value with changes in fair value recognized in profit or loss.

 

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date. Any gains or losses arising from such re-measurement are recognized in profit or loss.

 

Deemed reverse acquisition

 

The acquisition method of accounting is used to account for all deemed reverse acquisitions where in substance, there is an operating company acquired by a shell company where the shareholders of the operating company obtain control of the shell company.

 

For the Transaction, Diginex HK is the operating company while both the Company and 8i Enterprises are considered as shell companies.

 

Identifying the accounting acquirer/accounting acquiree

 

The Company is considered as the legal acquirer and the accounting acquiree. Control is obtained by Diginex HK shareholders as the Company issued 25,000,000 shares which allowed Diginex HK shareholders to hold the majority of issued share capital and voting rights.

 

F-22

 

Determining the deemed consideration transferred

 

The deemed consideration transferred for the deemed reverse acquisition of 8i Enterprises is:

 

	1.	The fair value of the shares which Diginex HK would have had to issue in establishing the same post transaction control structure but as if it were the legal acquirer; or
	2.	The quoted price of the Company’s shares and warrants multiplied by the number of the instruments held by the former 8i Enterprises shares and warrants holders on the date the deemed reverse acquisition completes.

 

In a transaction involving only the exchange of equity instruments, the fair value of the Company’s shares and warrants that are quoted on Nasdaq should be used to measure the consideration transferred as it is more reliably measurable than the value of the Diginex HK’s equity based on IFRS 13 fair value hierarchy principles.

 

Based on this principle, the Group measured the deemed consideration for the Transaction using the quoted Nasdaq share price of the Company’s shares and warrants on the completion date of 30 September 2020.

 

Fair value of assets and liabilities acquired in a deemed reverse acquisition:

 

Identifiable assets acquired and liabilities assumed in a deemed reversed acquisition are, with limited exceptions, measured initially at their fair values at the acquisition date. For the Transaction, the net assets acquired from 8i Enterprises and the Company are primarily cash, prepayments and trade payables, and their carrying values approximate fair value.

 

There is no non-controlling interest involved in the Transaction. Acquisition related costs such as professional fees were expensed as incurred.

 

Calculating the Transaction expense

 

The excess of the deemed consideration transferred over the fair value of the net identifiable assets acquired from 8i Enterprises represents a service and is recorded as an expense under IFRS 2 in the Group’s consolidated statement of profit or loss.

 

Presentation of the consolidated financial statements post deemed reverse acquisition

 

In the Transaction, the Company being the accounting acquiree (legal acquirer), becomes the ultimate parent holding company of the Group, however, the consolidated financial statements represents a continuation of Diginex HK, the accounting acquirer (legal acquiree) with the exception of the legal capital structure.

 

Shareholders’ equity of Diginex HK prior to the Transaction is retrospectively adjusted as a recapitalization for the equivalent number of shares received and on a pro rata basis for prior reporting periods. Retained earnings and relevant reserves of the Diginex HK are carried forward after the Transaction. Any difference to shareholders’ equity of Diginex HK arising from the recapitalization of share capital and equity instruments issued is recorded in equity under the reverse acquisition reserve (note 24).

 

Discontinued operations

 

A discontinued operation is a component of an entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operation are presented separately in the consolidated statement of profit or loss.

 

Revenue recognition

 

Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

The Group recognizes revenue from contracts with customers based on a five-step model as set out in IFRS 15:

 

F-23

 

Step 1. Identify contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.

 

Step 2. Identify performance obligations in the contract: A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.

 

Step 3. Determine the transaction price: The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

 

Step 4. Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance obligation, the Group allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Group expects to be entitled in exchange for satisfying each performance obligation.

 

Step 5. Recognize revenue when (or as) the Group satisfies a performance obligation.

 

The Group recognized revenue when (or as) a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligation is transferred to customers.

 

The Group satisfies a performance obligation and recognizes revenue over time, if one of the following criteria is met:

 

	a)	The Group’s performance does not create an asset with an alternate use to the Group and the Group has as an enforceable right to payment for performance completed to date.
	b)	The Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced.
	c)	The customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Company performs.

 

For performance obligations where one of the above conditions are not met, revenue is recognized at the point in time at which the performance obligation is satisfied.

 

When the Group satisfies a performance obligation by delivering the promised goods or services it creates a contract-based asset on the amount of consideration earned by the performance. Where the amount of consideration received from a customer exceeds the amount of revenue recognized this gives rise to a contract liability.

 

Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes and duty. The Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent.

 

Revenue is recognized to the extent it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably.

 

The Group recognized revenue from the following major sources:

 

	●	Fees earned from EQONEX
	●	Brokerage (OTC and lending business)
	●	Trading (Proprietary, Access Trading and a risk management desk, in which the Group has ceased proprietary trading in May 2020)
	●	Capital markets services
	●	Custody services for digital assets
	●	Asset management services

 

In July 2020, the Group publicly launched EQONEX, its digital asset exchange platform. Revenue is generated from trading fees earned when clients buy and sell digital assets on EQONEX at a point in time. In addition, revenues are also generated, at a point in time, when clients withdraw assets from the platform.

 

F-24

 

The Group conducts OTC trades where the Group acts as principal in a trade between counterparties looking the buy or sell digital assets. The Group earns revenue by charging a commission to execute such trades and recognizes revenue at a point in time when the trade is completed. During the years ended 31 March 2020 and 2019, the Group also participated in proprietary trading and earned revenues, at a point in time, when executing buy and sell orders on various exchanges. The Group ceased proprietary trading in May 2020.

 

The Group earns revenues from the provision of a trade execution and risk management platform, known as Access Trading. Fees are charged based on total volume executed on the platform on a monthly basis. Clients are invoiced monthly with revenues being recorded at a point in time.

 

The Group generated revenues from the provision of a liquidation risk management desk. On behalf of the Exchange, the desk earns fees for managing liquidated trades for the customers. Such fees are recognized at a point in time when a liquidation trade is completed.

 

Capital markets income was recognized over the service period based on services provided as the customer simultaneously receives and consumes the services provided by the Group over the period. Payment of the transaction is in line with agreed terms when the services are rendered to the customers. The Group has the primary responsibility for providing the services to the customer or for fulfilling the order, for example, by being responsible for the acceptability of the services ordered by the customer. The Group recognizes the revenue from both services over time. The Group ceased the provision for capital markets services during the year ended 31 March 2021.

 

The Group launched the cold wallet custody solution, Kelvin, and the warm wallet solution, Helios, for digital assets in February 2020 and April 2020, respectively. Management assessed that there are two types of revenue, i.e. holding fees and withdrawal processing fees. Holding fee is generated from holding client digital assets with the revenue recognized over the service period. Withdrawal processing fee is generated, at a point in time, when clients withdraw assets from the custody platform.

 

For the Asset Management services, the Group receives management fees at agreed rates. Management fee income is recognized on a time-proportion basis at agreed percentages on the value of assets held under managements. The Group recognizes management fee revenue from asset management services over time. The Group can also earn a fee based on the performance of the assets under management. The performance fee is only recognized on an annual basis, at a point in time, when the performance fees have been agreed and there is no risk of significant reversal in the revenue.

 

Leases

 

At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

The Group as lessee

 

For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. The Group applies practical expedient not to separate non-lease components from lease component, and instead account for the lease component and any associated non-lease components as a single lease component.

 

In applying IFRS 16, the Group elected a simplified approach for leases with a lease term of 12 months or less from the commencement date and do not contain a purchase option. Lease payments on short-term leases are recognized as expense on a straight-line basis.

 

In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, the Group considers all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease. The Group revises the lease term if there is a change in the non-cancellable period of a lease.

 

F-25

 

Right-of use assets

 

The right-of-use asset is initially recognized at cost comprising of:

 

	●	amount of the initial measurement of the lease liability;
	●	any lease payments made at or before the commencement date, less any lease incentives received;
	●	any initial direct costs incurred by the Group; and
	●	an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

 

Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

 

Right-of-use assets in which the Group is reasonably certain to obtain ownership of the underlying leased assets at the end of the lease term are depreciated from commencement date to the end of the useful life. Otherwise, right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

 

The Group presents right-of-use assets as a separate line item on the consolidated statement of financial position.

 

Lease liabilities

 

At the commencement date of a lease, the Group recognizes and measures the lease liability at the present value of lease payments that are unpaid at that date. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

The lease payments include:

 

	●	fixed payments (including in-substance fixed payments) less any lease incentives receivable;
	●	variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
	●	amounts expected to be payable by the Group under residual value guarantees;
	●	the exercise price of a purchase option if the Group is reasonably certain to exercise the option; and
	●	payments of penalties for terminating a lease, if the lease term reflects the Group exercising an option to terminate the lease.

 

After the commencement date, lease liabilities are adjusted by interest accretion and lease payments.

 

The Group remeasures lease liabilities (and makes a corresponding adjustment to the related right-of-use assets) whenever:

 

	●	the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the related lease liability is remeasured by discounting the revised lease payments using a revised discount rate at the date of reassessment.
	●	the lease payments change due to changes in market rental rates following a market rent review, in which cases the related lease liability is remeasured by discounting the revised lease payments using the initial discount rate.

 

The Group presents lease liabilities as a separate line item on the consolidated statement of financial position.

 

F-26

 

Employee benefits

 

Employee leave entitlements

 

Employee entitlements to annual leave are recognized when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the end of the reporting period.

 

Employee entitlements to sick leave and maternity leave are not recognized until the time of leave.

 

Retirement benefit costs

 

For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.

 

Foreign currencies

 

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recognized at the rates of exchanges prevailing on the dates of the transactions. At the end of the 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 on 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.

 

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognized in profit or loss in the period in which they arise.

 

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s operations are translated into the presentation currency of the Group (i.e. US$) using exchange rates prevailing at the end of each reporting period. Income and expenses items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity under the heading of foreign currency translation reserve (attributed to non-controlling interests as appropriate).

 

Share-based payments

 

Restricted share options

 

The Group operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees (including directors) and contractors of the Group may receive remuneration in the form of share-based payments, whereby the employees and contractors render services as consideration for equity instruments (“equity-settled transactions”).

 

The fair value of the equity-settled share-based payments determined at the grant date without taking into consideration all non-market vesting conditions is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a corresponding increase in equity (share-based payment reserve). At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest based on assessment of all relevant non-market vesting conditions. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share-based payment reserve.

 

F-27

 

Shares/Share options granted to non-employees

 

Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service. The fair values of the goods or services received are recognized as expenses (unless the goods or services qualify for recognition as assets).

 

Earn-out awards

 

The earn-out awards are equity-settled awards measured at the fair value on grant date taken into account the non-vesting conditions. Earn out awards are only fair valued on the grant date and not subsequently fair valued on each future reporting date on the basis that they are equity-settled awards.

 

Market conditions and non-vesting conditions are considered in estimating the fair value of an individual share using a Monte Carlo simulation model.

 

Taxation

 

Income tax represents the sum of the current tax and deferred tax.

 

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit recognized in profit or loss because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

 

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences, unused tax losses or unused tax credits can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

 

Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

 

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

 

For leasing transactions in which the tax deductions are attributable to the lease liabilities, the Group applies IAS 12 requirements to the leasing transaction as a whole. Temporary differences relating to right-of-use assets and lease liabilities are assessed on a net basis. Excess of depreciation on right-of-use assets over the lease payments for the principal portion of lease liabilities results in net deductible temporary differences.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realized, based on tax rates that have been enacted or substantively enacted by the end of the reporting period.

 

The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

 

Current and deferred tax are recognised in profit or loss.

 

F-28

 

Dividend distribution

 

Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s and the Company’s consolidated statement of financial position in the period in which the dividends are approved by the Company’s shareholders or directors, where appropriate.

 

Property, plant and equipment

 

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost of an item of property plant and equipment comprises its acquisition cost including borrowing cost and all directly attributable costs of bringing the asset to working condition for its intended use. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred if the recognition criteria are met. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the consolidated statement of profit or loss as incurred. The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Depreciation is computed on a straight-line method based on estimated useful lives of assets as follows:

Furniture and fixtures		5 years
Office equipment		5 years
Leasehold improvement		Over the lease terms

 

The assets’ residual values and useful lives are reviewed and adjusted if appropriate, at each financial position date to determine whether there is an indication of impairment. If any such indication exists, an impairment loss is recognized in the consolidated statement of profit or loss. For the purpose of impairment assessment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

 

The carrying amounts are reviewed at each reporting date to assess whether they are recorded in excess of their recoverable amounts, and where carrying values exceed this estimated recoverable amount, assets are written down to their recoverable amount, being the higher of their fair value less costs to sell and their value in use.

 

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of profit or loss in the year the asset is derecognized.

 

Intangible assets

 

Intangible assets, other than digital assets, with finite useful lives that are acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination, or otherwise, is their cost at the date of acquisition including borrowing cost and all directly attributable costs of bringing the asset to working condition for its intended use. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses, if any.

 

Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortization period and the amortization method for intangible assets with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated statement of profit or loss in the expense category that is consistent with the function of the intangible assets.

 

Capitalized software development

 

External spend on software development costs is capitalized in accordance with IAS 38 “Intangible Assets” when control is obtained, future economic benefits of such software are probable and the cost of such software can be reliably measured.

 

Following initial recognition of capitalized software development costs, the asset is carried at cost less any accumulated amortization and accumulated impairment losses, if any. Amortization of the asset begins when development is complete, and the asset is available for use. Amortization is recorded in the consolidated statement of profit or loss over the period of expected future benefit. During the period of development, the asset is tested for impairment annually.

 

F-29

 

Amortization of the following intangibles assets with finite useful lives are provided for on a straight-line basis over the estimated useful lives:

 

Capitalized Software Development	5	years
Software	5	years

 

Digital assets are intangible assets with indefinite lives and are described below.

 

Gains or losses arising from derecognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement of profit or loss when the asset is derecognized.

 

Digital assets

 

Digital assets consist of cryptocurrencies, such as BTC and ETH that do not meet the definition of a financial asset and are classified as current assets. In accordance with IAS 38, digital assets are initially recognized at cost and the Group has adopted an accounting policy to apply the revaluation model for subsequent measurements as the fair value can be reliably measured.

 

Digital assets are classified as current assets on the basis that they are used for working capital purposes to settle expenses incurred in the normal course of business and are regularly traded on exchange platforms globally between willing buyers and sellers which provides a high degree of liquidity.

 

Digital assets are considered to have indefinite lives and therefore are not amortized but subject to review for impairment.

 

The increase in carrying value at the end of the measurement period is to be recognized in equity through other comprehensive income and presented as revaluation surplus in equity, unless and to the extent it reverses a revaluation decrease previously recognized in the profit or loss; a decrease in carrying value at the end of the measurement period is to be recognized in the profit or loss, unless and to the extent of any credit balance existing in the revaluation surplus associated with the underlying asset, in which case the debit will be recognized through other comprehensive income to reduce the revaluation surplus.

 

When digital assets are exchanged or sold for traditional (fiat) currencies, such as the US dollar, the digital assets are derecognized when the Group has transferred substantially all the risk and rewards of ownership.

 

USDC

 

USDC is a type of cryptocurrency which can be redeemed for one US dollar from the issuer. On this basis USDC meets the definition of a financial instrument and in accordance with IFRS 9, USDC is recorded at fair value through profit or loss, however, as it is linked to the US dollar, the carrying value is considered to be the same as fair value.

 

Impairment of non-financial assets

 

At each reporting date, the Group reviews the carrying amounts of its tangible assets and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss (if any).

 

The recoverable amounts of relevant assets are estimated individually. When it is not possible to estimate the recoverable amount individually, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.

 

F-30

 

In testing a cash-generating unit for impairment, corporate assets are allocated to the relevant cash-generating unit when a reasonable and consistent basis of allocation can be established, or otherwise they are allocated to the smallest group of cash generating units for which a reasonable and consistent allocation basis can be established. The recoverable amount is determined for the cash-generating unit or group of cash-generating units to which the corporate asset belongs, and is compared with the carrying amount of the relevant cash-generating unit or group of cash-generating units.

 

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted.

 

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. For corporate assets or portion of corporate assets which cannot be allocated on a reasonable and consistent basis to a cash-generating unit, the Group compares the carrying amount of a group of cash-generating units, including the carrying amounts of the corporate assets or portion of corporate assets allocated to that group of cash-generating units, with the recoverable amount of the group of cash-generating units. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit or the group of cash-generating units. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit or the group of cash-generating units. An impairment loss is recognised immediately in profit or loss.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit or a group of cash-generating units) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit or a group of cash-generating units) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss

 

Cash and cash equivalents

 

Cash and cash equivalents represent cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term highly liquid investments which are readily convertible into known amounts of cash and subject to an insignificant risk of change in value. As at 31 March 2022 and 2021, the Group held cash at different banks.

 

Client assets and liabilities

 

Client money is represented as both an asset and liability on the consolidated statement of financial position. The monies relate to funds deposited with the Group in either fiat, USDC, or digital asset format for the purpose of executing OTC trades and for trading on EQONEX. The monies are either held with a bank or digital asset custodian to which Diginex has control over and bears any associated risk. Due to their nature, fiat and USDC are not subject to fair value changes. Client digital assets and liabilities are measured using Level 1 quoted prices available on digital asset exchanges per IFRS 13 guidance.

 

Share capital

 

Ordinary shares, which are regarded as equity instruments, issued by the Company are recorded at the proceeds received, net of direct issue costs.

 

The Company also issues shares as awards and consideration. The cost of the share awards is measured at the fair value of the goods and services received; and secondarily at the fair value of the awards at the grant date. Share based payment is recognized as an expense for services obtained or assets for consideration paid.

 

F-31

 

Financial instruments

 

Financial assets

 

Classification and subsequent measurement of financial assets

 

Financial assets that meet the following conditions are subsequently measured at amortised cost:

 

	●	the financial asset is held within a business model whose objective is to collect contractual cash flows; and
	●	the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

All other financial assets are subsequently measured at FVTPL,

 

Amortized cost and interest income

 

Interest income is recognized using the effective interest method for financial assets measured subsequently at amortized cost. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently become credit-impaired (see below). For financial assets that have subsequently become credit-impaired, interest income is recognized by applying the effective interest rate to the amortized cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognized by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit-impaired. At the end of the reporting period, trade and other receivables and amounts due from an associate/shareholders/related companies are measured at amortized cost.

 

Financial assets at FVTPL

 

Financial assets that do not meet the criteria for being measured at amortized cost or Fair Value Through Other Comprehensive Income (“FVTOCI”) or designated as FVTOCI are measured at FVTPL.

 

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in profit or loss. The net gain or loss recognized in profit or loss excludes any dividend or interest earned on the financial asset and is included in the “other gains and losses” line item.

 

Impairment of financial assets subject to impairment assessment under IFRS 9

 

The Group performs impairment assessment under expected credit loss (“ECL”) model on financial assets (including trade and other receivables and amounts due from an associate/shareholders/related companies) which are subject to impairment assessment under IFRS 9. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.

 

Lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. In contrast, 12-month ECL (“12m ECL”) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. Assessments are done based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions.

 

The Group always recognizes lifetime ECL for trade receivables.

 

For all other instruments, the Group measures the loss allowance equal to 12m ECL, unless there has been a significant increase in credit risk since initial recognition, in which case the Group recognizes lifetime ECL. The assessment of whether lifetime ECL should be recognized is based on significant increases in the likelihood or risk of a default occurring since initial recognition.

 

F-32

 

Derecognition of financial assets

 

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

 

On derecognition of a financial asset measured at amortized cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss.

 

Financial liabilities and equity

 

Classification as debt or equity

 

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

 

Equity instruments

 

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.

 

Financial liabilities at amortised cost

 

Financial liabilities including other payables and amounts due to an associate/related parties/directors are subsequently measured at amortised cost, using the effective interest method.

 

Convertible loan notes

 

The component parts of the convertible loan are classified separately as financial liability and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity instrument.

 

At the date of issue, the fair value of the liability component (including any embedded non-equity derivatives features) is estimated by measuring the fair value of similar liability that does not have an associated equity component.

 

A conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognised in equity will be transferred to other reserve. Where the conversion option remains unexercised at the maturity date of the convertible note, the balance recognised in equity will be transferred to accumulated losses. No gain or loss is recognised in profit or loss upon conversion or expiration of the conversion option.

 

Transaction costs that relate to the issue of the convertible loan are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are charged directly to equity. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible loan using the effective interest method.

 

F-33

 

Derecognition of financial liabilities

 

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

 

Offsetting financial instruments

 

Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the recognized amounts; and intends either to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

 

Provisions

 

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

 

The amount recognized as a provisions is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of time value of money is material).

 

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of receivable can be measured reliably.

 

Restoration provisions

 

Provisions for the costs to restore leased assets to their original condition, as required by the terms and conditions of the lease, are recognized at the date of inception of the lease at the directors’ best estimate of the expenditure that would be required to restore the assets, Estimates are regularly reviewed and adjusted as appropriate for new circumstances.

 

F-34

 

Related parties

 

A related party is a person or entity that is related to the Group.

 

(a)

A person or a close member of that person’s family is related to the Group if that person:

 

	i.	has control or joint control over the Group;
	ii.	has significant influence over the Group; or
	iii.	is a member of key management personnel of the Group or the Group’s parent.

 

(b)

An entity is related to the Group if any of the following conditions apply:

 

	i.	The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
	ii.	One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
	iii.	Both entities are joint ventures of the same third party.
	iv.	One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
	v.	The entity is a post-employment benefit plan for the benefit of the employees of the Group or an entity related to the Group.
	vi.	The entity is controlled or jointly controlled by a person identified in (a).
	vii.	A person identified in (a)(i) has significant influence over the entity or is a member of key management personnel of the entity (or of a parent of the entity).
	viii.	The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

 

Fair value

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are accounted for in accordance with IFRS 16, and measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets.

 

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.

 

For financial instruments which are transacted at fair value and a valuation technique that unobservable inputs are to be used to measure fair value in subsequent periods, the valuation technique is calibrated so that at initial recognition the results of the valuation technique equals the transaction price.

 

F-35

 

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

 

	●	Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
	●	Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
	●	Level 3 inputs are unobservable inputs for the asset or liability.

 

Current versus non-current classification

 

The Group presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification. An asset as current when:

 

	●	It is expected to be realized or intended to be sold or consumed in normal operating cycle;
	●	It is held primarily for the purpose of trading;
	●	It is expected to be realized within twelve months after the reporting period; or
	●	It is 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.

 

All other liabilities are classified as non-current.

 

Earnings per share

 

Earnings per share for periods prior to the deemed reverse acquisition are retrospectively adjusted to reflect the number of equivalent shares received by the accounting acquirer, Diginex HK, based on the number of shares outstanding on the reporting dates multiplied by the exchange ratio. The exchange ratio being calculated as the number of shares issued by the Company to the former shareholders of Diginex HK divided by the number of shares outstanding in Diginex HK on 30 September 2020.

 

3 REVENUE

 

An analysis of the Group’s revenue from continuing operations for the reporting periods are as follows:

 

		Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		USD				USD				USD
Exchange income			4,230,604				203,230				415
Asset management fee income			553,648				3,674				119,857
Brokerage income			258,055				-				-
Trading income			157,688				66,039				78,833
Custody service income			94,713				4,525				4,202
Capital markets service income			-				10,000				291,315
			5,294,708				287,468				494,622

 

F-36

 

4 GENERAL AND ADMINISTRATIVE EXPENSES

 

						Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		Notes				USD				USD				USD
Employee benefit expenses			5				35,510,826				44,433,520				26,106,003
Amortization of intangible assets			11				3,821,276				2,021,722				-
Depreciation of property, plant and equipment			12				263,407				817,597				791,714
Depreciation of right-of-use assets			13				1,493,946				1,963,787				1,965,711
Operating lease expense in respect of short-term leases							158,501				184,983				239,200
Auditor’s remuneration			(a)				1,062,731				653,582				326,557
Legal and professional fees			(b)				11,073,190				4,970,555				6,524,305
Marketing and promotions			(c)				11,191,580				3,223,609				698,412
Software maintenance							864,406				714,063				3,303,135
Technology			(d)				5,769,085				4,584,780				1,113,871
Other expenses							1,302,128				1,347,923				1,915,736
							72,511,076				64,916,121				42,984,644

 

Note 4(a): The increase in auditor’s remuneration for the year ended 31 March 2022 is due to higher audit fee for the new auditor in connection with the annual audit of the Group for the year ended 31 March 2022.

 

Note 4(b): Legal and professional fees for the year ended 31 March 2022 mainly consist of:

 

	●	Fees associated with being a listed company including those related with SEC filings and incremental investor relation activities;
	●	Cost associated with trademark applications following the rebranding from Diginex to Eqonex;
	●	Incremental recruitment fees as the Group invested in high quality employees to grow and support the business;
	●	Cost associated with the legal structure and regulatory approval for the pending launch of the investment products business in Europe; and
	●	Incremental fees for compliance related services to support Know Your Customer and Anti-Money Laundering monitoring following the launch of EQONEX in July 2020.

 

Note 4(c): Fees paid to market and promote EQONEX following the launch of the exchange in July 2020. The marketing costs include fees paid to market makers of which the majority was settled via the issuance of equity. The increase in marketing and promotions expenses for the year ended 31 March 2022 included a full year effect of related activities when compared to that of prior year.

 

Note 4(d): Technology costs consist, in part, of cloud-based hosting services. The year-on-year growth is driven by the additional demand for this service during the continued expansion of EQONEX.

 

F-37

 

5 EMPLOYEE BENEFIT EXPENSES

 

						Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		Note				USD				USD				USD
Basic salaries, allowances and all benefits-in-kind							23,274,243				14,934,202				14,392,676
Pension costs - defined contribution plans							552,064				322,891				316,009
Share-based payments			(a)				11,684,519				29,176,427				11,397,318
							35,510,826				44,433,520				26,106,003

 

Note 5 (a):

 

For the year ended 31 March 2022, share-based payments included the following:

 

	●	$7,495,105 related to the employee share option scheme (note 21)
	●	$4,134,847 related to the employee Restricted Share Units (“RSU”) (note 21)
	●	$54,567 related to the fair value of shares awarded to employees and a contractor of the Group (note 21).

 

For the year ended 31 March 2021, share-based payments include the following:

 

	●	$26,942,783 related to the employee share option scheme, originally established by Diginex HK (note 22)
	●	$1,315,248 related to the vesting period changes due to the replacement employee share option scheme post Transaction (note 22)
	●	$548,453 related to the fair value of shares awarded to staff as part of the salary deferral scheme, which excludes $9,263 related to the fair value of shares awarded which were reclassed to discontinued operations (note 34). Under the salary deferral scheme, certain employees and long-term contractors deferred payment on a portion of their salaries and in return Diginex HK issued a corresponding share-based payment award equal to the deferred value (the “salary deferral scheme”). Of this amount, $164,474 has been accrued and not yet issued as at 31 March 2021.
	●	$369,943 related to share awards accrued, yet to be issued as at 31 March 2021, based on employment service contract obligations.

 

For the year ended 31 March 2020, share-based payments included the following:

 

	●	$9,722,202 related to the Diginex HK employee share option scheme (note 22)
	●	$1,425,116 related to the fair value of shares awarded to staff as part of the salary deferral scheme, this excludes $70,331 related to the fair value of shares awarded which were reclassed to discontinued operations (note 34)
	●	$250,000 related to share awards based on service contract obligations

 

F-38

 

6 OTHER GAINS, LOSSES AND EXPENSES, NET

 

						Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		Notes				USD				USD				USD
Transaction expense			(a)				-				(45,413,018	)			-
Revaluation loss on digital assets			19				(399,070	)			(68,360	)			-
Disposal of property, plant and equipment, net			12				(23,625	)			(36,300	)			-
Net fair value gain on financial liabilities at fair value through profit or loss			(b)				5,193,196				11,397,187				-
Net fair value gain (loss) on financial assets at fair value through profit or loss			(c)				6,945				(144,109	)			(1,527,158	)
Foreign exchange gains (losses), net							82,093				367,134				(133,431	)
Earn-out share awards related to the Transaction			(d)				-				(32,148,300	)			-
Net loss on sale of financial assets at fair value through profit or loss			(e)				-				-				(221,626	)
Others							358,792				195,902				183,148
							5,218,331				(65,849,864	)			(1,699,067	)

 

Note 6(a): During the year ended 31 March 2021, the Group recognized the below expense from the Transaction:

 

6,688,392 shares issued to former shareholders of 8i Enterprises and service providers (note 33)			(56,851,332	)
6,212,050 warrants issued to the former warrant holders of 8i Enterprises (note 33)			(8,324,147	)
345,000 units of options granted by 8i Enterprises to a service provider (note 22.6)			(1,417,149	)
			(66,592,628	)
Less: Total identifiable net assets of 8i Enterprises at fair value (note 33)			21,179,610
			(45,413,018	)

 

The shares and warrants issued were valued at the quoted closing price on Nasdaq on 30 September 2020 of $8.50 and $1.34 respectively.

 

Note 6(b): Private warrants were issued on 15 January 2021 as part of a capital raise that saw 2,571,669 shares and the same number of warrants issued. The warrants had an initial fair value of $16,594,388 and subsequently remeasured to $4,005 on 31 March 2022 (2021: $5,197,201) (note 23) with the corresponding net fair value gain of $5,193,196 (2021: $11,397,187) recognized in profit or loss.

 

Note 6(c): During the year ended 31 March 2022, the Group invested into the Bletchley Park Multi-Strategy Fund Class E shares which experienced an increase in the market value of $262,599. The fair value gain was offset by a decrease in the fair market value of the CSP tokens issued by Caspian and VOTE tokens issued by Agora (note 13) of $255,654.

 

During the year ended 31 March 2021, investments held in CSP tokens issued by Caspian and VOTE tokens issued by Agora recorded fair value gains of $110,877 and $145,014 respectively. This is offset by fair value losses of the private unlisted equity investments in Shadow Factory Limited and Nynja Group Limited of $400,000 (note 14.2).

 

During the year ended 31 March 2020 a decrease in market value of CSP tokens issued by Caspian of $38,200 and VOTE tokens issued by Agora of $172,699 was recognized (both tokens are listed on digital asset exchanges, see note 14.1). The unlisted investment in Shadow Factory Limited incurred a fair value loss of $1,316,259 (note 14.2).

 

F-39

 

Note 6(d): Under the terms of the Transaction, up to 12,000,000 shares will be issued via an earn-out provision should share price milestones be met over a 4-year period from 30 September 2020. Upon reaching the earn-out milestones, a service provider to the Transaction is also entitled to receive the equivalent of 1% of the earn-out shares issued. During the year ended 31 March 2021, these shares have a grant date fair value of $32,148,300 and were recognized in the share-based payment reserve and charged as an expense in the profit or loss (note 22.4).

 

Note 6(e): Shares in Madison Holdings Group Limited, which are listed on GEM of The Stock Exchange of Hong Kong, were received as part consideration for the 51% disposal of Diginex High Performance Computing Limited (“DHPC”) in July 2018. In June 2019, the Group sold 3,681,399 Madison shares and recorded a realized loss of $221,626.

 

 

7 IMPAIRMENT REVERSAL (LOSSES) ON FINANCIAL ASSETS, NET

 

		Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		USD				USD				USD
Impairment of loan receivables			-				-				4,374,446
Impairment of amounts due from an associate			-				-				6,749,833
Impairment of trade receivables			-				-				113,381
Reversal of an impairment			-				(21,071	)			-
			-				(21,071	)			11,237,660

 

During the year ended 31 March 2022,

 

●

There was no impairment loss on financial assets during the year.

 

During the year ended 31 March 2021,

 

	●	There was no impairment loss on financial assets during the year.
	●	Impairment on amounts due from an associate was partially reversed based on the agreed repayment plan which was fully settled in April 2021 (note 16).

 

During the year ended 31 March 2020,

 

	●	Impairment of loan receivables consisted of: (1) impairment of a loan with Peter Yuan and (2) on 20 February 2019, the Group signed a non-binding term sheet with a third party to establish a new subsidiary under the Group in the United States of American. In connection with the term sheet the group advanced monies for working capital purposes prior to a definitive agreement being signed. During the year ended 31 March 2020, the Group impaired $479,748 of the advance as the definitive agreement was not signed.
	●	Amounts due from an associate was impaired by $6,749,833 (note 16).

 

F-40

 

8 FINANCE COSTS, NET

 

						Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		Notes				USD				USD				USD
Interest on:
● Lease liabilities			(a)				259,124				231,759				460,983
● Convertible loan			(b)				11,804				-				-
● Convertible bond			(c)				-				509,230				-
● Loans from shareholders			(d)				-				277,959				1,333,480
● Notes payable			(e)				-				17,156				57,064
Other finance costs			(f)				-				1,235,341				-
Other finance income							(614	)			-				-
							270,314				2,271,445				1,851,527

 

Note 8(a): Lease liabilities are measured at amortized cost using an effective interest method with interest expense being recognized over the lease term (note 26).

 

Note 8(b): In March 2022, the Group entered into a $36 million convertible loan agreement with Bifinity. The loan carries an interest charge of 4% per annum (note 30).

 

Note 8(c): In May 2020, the Group issued a convertible bond with an annual 10% coupon. The bond and accrued interest were converted to shares of Diginex HK on the 21 September 2020 with additional accrued interest between 22 and 28 September settled in cash (note 29).

 

Note 8(d): During the years ended 31 March 2021 and 2020, the Group had a shareholder loan with Pelham Limited, via a $20 million credit facility with a 12.5% interest charge on the outstanding balance. This credit facility was terminated upon the Transaction on 30 September 2020 (note 17).

 

Note 8(e): In September 2019, the Group issued a loan note with a 12-month maturity and a 15% interest charge. A notional amount of $675,000 was raised and was fully redeemed early on 1 June 2020 (note 28).

 

Note 8(f): During the year ended 31 March 2021, the Group issued private shares and warrants for cash. In raising the funds the Group incurred transaction costs of $2,871,652 of which $1,235,341 relates to the private warrants on a fair value pro-rata basis between the shares and warrants issued. The private warrants are classified as a liability at fair value through profit or loss, accordingly the related transaction cost is recorded as a finance cost upon initial recognition (note 23).

 

F-41

 

9 INCOME TAXES

 

There was no income or deferred tax expense for the years ended 31 March 2022, 2021 and 2020.

 

9.1 Reconciliation of effective tax rate

While the Company is domiciled in Singapore, the majority of operations are based in Hong Kong during the year ended 31 March 2022, 2021 and 2020. Under the two-tiered profits tax rates regime of Hong Kong Profits Tax, the first HK$2 million (c.$250,000) of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2 million (c.$250,000) will be taxed at 16.5%. The profits of group entities not qualifying for the two-tiered profits tax rates regime will continue to be taxed at a flat rate of 16.5%. Taxes charged on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretation and practices in respect thereof. As at 31 March 2022, 2021 and 2020, the effective tax rate for the Group is 0%. Tax effects on other comprehensive loss has been deemed immaterial.

 

		Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		USD				USD				USD
Loss from continuing operations before income taxes			(76,168,079	)			(132,728,891	)			(57,278,276	)
Profit (loss) from discontinued operations before income taxes			-				4,956,408				(857,554	)
			(76,168,079	)			(127,772,483	)			(58,135,830	)
Notional tax calculated at the rates applicable to profits in the tax jurisdictions concerned			(15,830,802	)			(11,397,968	)			(9,546,464	)
Tax effect of income that is not taxable			(1,736,424	)			(2,455,883	)			550
Tax effect of expenses that are not deductible			850,040				7,636,301				2,233,494
Tax effect of tax losses not utilized			13,957,110				6,789,872				5,216,460
Tax effect of utilization of unrecognized tax losses			-				(963,219	)			-
Tax concession received			348,951				-				-
Tax effect of temporary differences			2,760,076				390,897				2,095,960
Income tax credit for the year			348,951				-				-

 

The results for both reporting periods can also be analyzed in the following way:

 

		Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		USD				USD				USD
Loss from continuing operations			(76,168,079	)			(132,728,891	)			(57,278,276	)
Loss from discontinued operations			-				(117,137	)			(857,554	)
Total losses subject to income tax			(76,168,079	)			(132,846,028	)			(58,135,830	)
Gain on sale of discontinued operations			-				5,073,545				-
Profit (loss) for the year before tax			(76,168,079	)			(127,772,483	)			(58,135,830	)

 

Of the loss generated in the year ended 31 March 2021, $5,073,545 relates to a gain on sale of the discontinued Solutions Business. The gain was recognized in Diginex Solutions Limited, a Hong Kong resident company, and was capital in nature. In Hong Kong there is no capital gains tax. As a result, the effect of non-taxable income is $833,680 at Hong Kong’s tax rate of 16.5%.

 

For the years ended 31 March 2022 and 2021, there were operating losses with respect to continuing and discontinued operations. No tax provision has been recognized for the periods in relation to these activities as no taxable income was generated.

 

F-42

 

Included in the loss for the year ended 31 March 2022, the following material items of income or expense are regarded non-taxable or non-deductible for tax purpose:

 

	●	$4,858,708 relates to a dividend received by Diginex Limited, a company carrying on business in Hong Kong, declared and paid by DigitalTech Global Limited, another group company carrying on business in Hong Kong. Dividend income received from a company that is carrying on business in Hong Kong and therefore chargeable to profits tax in respect of that business is not subject to profits tax in the hands of the recipient;
	●	$262,599 relates to unrealized remeasurement gain on an unlisted investment that is capital in nature (note 14), where gains and expenses which are capital in nature are not taxable in Hong Kong; and
	●	$5,193,196 unrealized gain on the remeasurement of the warrant liabilities in Eqonex Limited, a Singapore resident company. These gains are capital in nature and Singapore income tax does not apply to capital gains.
	●	$1,609,623 share-based payment expenses associated with share options, restricted share units and share awards which are non-deductible in Singapore;

 

Included in the loss from continuing operations for the year ended 31 March 2021 is a share-based payment of $45,413,018 (note 33) which relates to the Transaction. This relates to a consolidation adjustment and is not subject to taxation. The loss from continuing operations also includes an expense of $32,148,300 related to the fair value of earn-out awards (note 21), which was recognized by the Company. This expense is treated as non-deductible and tax effected at the Singapore tax rate of 17%.

 

The impact of the operating loss from continued operations has resulted in the Group carrying forward tax losses of $13,943,974 (2021: $16,962,865; 2020: $9,857,098). The losses carried forward as at 31 March 2022 include those accumulated in prior years. The majority of operating losses and hence tax losses have been generated in Hong Kong. Tax losses in Hong Kong can be carried forward and offset against future profits indefinitely.

 

9.2 Deferred income taxes

 

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The main components of the deferred income tax assets are as follows:

 

		Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		USD				USD				USD
Depreciation and amortization recognized for tax purposes			608,809				789,005				434,696
Rental payments (IFRS 16)			(211,687	)			(394,631	)			(391,426	)
Impairment on loan balances			-				(3,477	)			2,052,689
Impairment on intangible assets			2,362,954				-				-
Benefit of tax loss carryforwards			13,943,974				16,962,865				9,857,098
			16,704,050				17,353,762				11,953,057
Unrecognized deferred tax asset			(16,704,050	)			(17,353,762	)			(11,953,057	)
Deferred tax asset			-				-				-

 

The ultimate realization of deferred tax assets is dependent upon the generation of sufficient future taxable income during the periods in which those temporary differences become deductible. In determining the recognition of a deferred tax asset, management considered the future profitability of the Group. While management expects the Group to return profits in the future, there is still an element of uncertainty and as such, no deferred tax asset has been recognized.

 

F-43

 

10 EARNINGS (LOSS) PER SHARE

 

		Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		USD				USD				USD
Basic earnings (loss) per share
From continuing operations attributable to the ordinary equity holders of the company			(1.87	)			(5.03	)			(3.80	)
From discontinued operations			-				0.19				(0.06	)
Total basic earnings (loss) per share attributable to the ordinary equity holders of the company			(1.87	)			(4.84	)			(3.86	)
Reconciliation of earnings (loss) used in calculating earnings (loss) per share
Profit (Loss) attributable to the ordinary equity holders of the company used in calculating basic earnings (loss) per share:
From continuing operations			(75,819,128	)			(132,250,813	)			(57,278,276	)
From discontinued operation			-				4,956,408				(857,554	)
			(75,819,128	)			(127,294,405	)			(58,135,830	)
Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used in the denominator in calculating basic earnings (loss) per share			40,616,376				26,301,024				15,061,549

 

Due to the losses from continuing operations during the years ended 31 March 2022, 2021 and 2020, anti-dilutive instruments were excluded from the calculation of diluted loss per share. The excluded anti-dilutive instruments include:

 

	●	Nil employee share options as at March 31, 2022 (2021: 5,600,000; 2020: 4,196,383, as adjusted to reflect the exchange ratio);
	●	2,571,669 warrants (2021: 2,571,669; 2020: nil) outstanding as at March 31, 2022 exercisable to acquire 2,571,669 shares (2021: 2,571,669; 2020: nil);
	●	345,000 unit purchase options (2021: 345,000; 2020: nil) outstanding as at March 31, 2022 to acquire 552,000 shares (2021: 552,000; 2020: nil);
	●	1,978,401 restricted stock units outstanding as at March 31, 2022 (2021: nil; 2020: nil);
	●	9,090,000 shares (2021: 9,090,000; 2020: nil).to be issued as earn-out awards as at March 31, 2022 should the certain share price milestones be achieved; and
	●	$3,000,000 convertible loan with a conversion price of $1.87 per share from Bifinity as at March 31, 2022, which would result in a decrease in loss per share.

 

F-44

 

11 INTANGIBLE ASSETS, NET

		Capitalized Software Development				Software Acquired				Total
		USD				USD				USD
At 31 March 2022:
Cost:
At 1 April 2021			10,367,531				6,500,087				16,867,618
Adjustment for foreign exchange			3				154				157
Reclassification (note 12)			(60,378	)			-				(60,378	)
Additions			3,173,309				900,000				4,073,309
Impairment losses recognized			(13,120,089	)			(6,500,056	)			(19,620,145	)
At 31 March 2022			420,754				900,185				1,320,939
Amortization:
At 1 April 2021			(1,196,708	)			(825,014	)			(2,021,722	)
Adjustment for foreign exchange			756				53				809
Charge for the period			(2,446,266	)			(1,375,010	)			(3,821,276	)
Write back on impairment			3,595,400				2,125,017				5,720,417
At 31 March 2022			(46,818	)			(74,954	)			(121,772	)
Net carrying amount:
At 31 March 2022			373,936				825,231				1,199,167
At 31 March 2021:
Cost:
At 1 April 2020			5,169,073				5,500,043				10,669,116
Adjustment for foreign exchange			5,893				(12	)			5,881
Reclassification (note 12)			(60,378	)			-				(60,378	)
Additions			5,252,943				1,000,056				6,252,999
At 31 March 2021			10,367,531				6,500,087				16,867,618
Amortization:
At 1 April 2020			-				-				-
Charge for the period			(1,196,708	)			(825,014	)			(2,021,722	)
At 31 March 2021			(1,196,708	)			(825,014	)			(2,021,722	)
Net carrying amount:
At 31 March 2021			9,170,823				5,675,073				14,845,896

 

External spend on software development costs is capitalized in accordance with IAS 38 “Intangible Assets” when control is obtained, future economic benefits of such software are probable and the cost of such software can be reliably measured. Capitalized software development costs are capitalized when incurred with amortization commenced at that point in time.

 

During the year ended 31 March 2022, the Group acquired a perpetual software license for $900,000, fully settled by issuance of the Company’s shares. The software is being modified for the borrowing and lending business which had been publicly launched and amortized in November 2021. As a result of worsening economic conditions since the start of 2022, there is decline in the trading volume and financial performance of the EQONEX and an expected continuous decline in the corresponding financial forecast. The Group’s management determined there is impairment indicator identified in respect of the EQONEX and consequently determined the intangible assets related to the EQONEX of $13,899,728 is fully impaired during the year.

 

During the year ended 31 March 2021, the Group began amortizing its intangible assets as EQONEX, the digital asset exchange and the Custody Solution, Digivault, became available for use. The Group settled $1,000,056 as a milestone payment for the software associated with EQONEX, comprising $400,000 in cash and 3,899 shares of Diginex HK, valued at $600,056.

 

F-45

 

12 PROPERTY, PLANT AND EQUIPMENT, NET

 

		Furniture and fixtures				Office equipment				Leasehold improvements				Total
		USD				USD				USD				USD
At 31 March 2022:
Cost:
At 1 April 2021			24,747				436,339				2,184,739				2,645,825
Adjustment for foreign exchange			(107	)			(5,169	)			(7,021	)			(12,297	)
Reclassification (note 11)			-				60,378				-				60,378
Additions			-				77,426				230,510				307,936
Disposal			(12,989	)			(13,382	)			(2,136,597	)			(2,162,968	)
At 31 March 2022			11,651				495,214				271,631				778,496
Depreciation:
At 1 April 2021			(13,092	)			(211,523	)			(1,947,698	)			(2,172,313	)
Adjustment for foreign exchange			81				4,159				4,136				8,376
Charge for the period			(2,782	)			(94,828	)			(165,797	)			(263,407	)
Disposal			6,278				13,382				2,055,497				2,075,157
At 31 March 2022			(9,515	)			(288,810	)			(53,862	)			(352,187	)
Net carrying amount:
At 31 March 2022			2,136				206,404				217,769				426,309
At 31 March 2021:
Cost:
At 1 April 2020			74,300				376,027				2,146,236				2,596,563
Adjustment for foreign exchange			(1,037	)			(2,338	)			(5,458	)			(8,833	)
Reclassification (note 11)			-				60,378				-				60,378
Additions			-				5,782				43,961				49,743
Disposal			(48,516	)			(3,510	)			-				(52,026	)
At 31 March 2021			24,747				436,339				2,184,739				2,645,825
Depreciation:
At 1 April 2020			(16,733	)			(126,394	)			(1,233,715	)			(1,376,842	)
Adjustment for foreign exchange			276				897				5,227				6,400
Charge for the period			(6,062	)			(88,462	)			(723,073	)			(817,597	)
Disposal			9,427				2,436				3,863				15,726
At 31 March 2021			(13,092	)			(211,523	)			(1,947,698	)			(2,172,313	)
Net carrying amount:
At 31 March 2021			11,655				224,816				237,041				473,512

 

F-46

 

13 RIGHT-OF-USE ASSETS, NET

 

Right-of-use assets relate to office space leased by the Group. The amount in respect of leases are as follows:

 

		Properties
		USD
Year ended 31 March 2022:
At 1 April 2021			906,474
Additions (a)			5,111,736
Additions – Dilapidation provision (a)			289,966
Reclassification			-
Adjustment for foreign exchange			(27,643	)
Depreciation			(1,493,946	)
Other adjustments			(94,822	)
Closing net book amount			4,691,765
At 31 March 2022:
Cost			5,799,321
Accumulated depreciation			(1,117,603	)
Adjustment for foreign exchange			10,047
Net book amount			4,691,765
Year ended 31 March 2021:
At 1 April 2020			2,879,032
Additions			406,333
Reclassification (b)			(438,150	)
Adjustment for foreign exchange			23,046
Depreciation			(1,963,787	)
Closing net book amount			906,474
At 31 March 2021:
Cost			6,084,957
Accumulated depreciation			(5,216,173	)
Adjustment for foreign exchange			37,690
Net book amount			906,474

 

Note (a) – Additions during the year ended 31 March 2022 relate to a long-term lease contractually committed to in Hong Kong. The lease was entered into at a reduced cost per month compared to the previous office space, The capitalized cost also includes an associated dilapidation provision estimated at $289,966.

 

Note (b) – The reclassification relates to a lease entered in Jersey which was renegotiated on 16 July 2020 from a long-term lease terminating on 28 February 2027 into a short-term lease terminating on 1 March 2021. Accordingly, the Group has elected simplified accounting for short-term leases of 12 months or less and an operating lease expense is recognized on a straight-line basis over the remainder of the lease. See note 4 for short term lease expenses.

 

F-47

 

14 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

 

		Notes				At 31 March 2022				At 31 March 2021
						USD				USD
Listed investments			14.1				48,399				304,053
Unlisted investments			14.2				2,262,599				-
							2,310,998				304,053

 

14.1 Listed investments

 

		At 31 March 2022				At 31 March 2021
		USD				USD
Listed investments, at fair value (a) and (b)			48,399				304,053
			48,399				304,053

 

Note 14.1(a):

 

Caspian

 

Diginex HK held 4,923,077 CSP Tokens issued by Caspian.

 

As at 31 March 2022, the closing price was $0.004612 (2021: $0.02692) resulting in a fair value of $22,705 (2021: $132,529) with a fair value loss of $109,824 (2021: fair value gain of $110,877).

 

Note 14.1(b):

 

Agora

 

Diginex HK held 25,490,196 VOTE Tokens issued by Agora.

 

As at 31 March 2022, the closing price was $0.001008 (2021: $0.006729) resulting in a value of $25,694 (2021: $171,524) with a fair value loss of $145,830 (2021: fair value gain of $145,014).

 

F-48

 

14.2 Unlisted investments

 

		At 31 March				At 31 March
		2022				2021
		USD				USD
Opening balance			-				400,000
Acquisition			2,000,000				-
Change in fair value			262,599				(400,000	)
			2,262,599				-

 

Note 14.2(a):

 

Shadow Factory Limited

 

Diginex HK holds an investment in Shadow Factory Limited (“Shadow Factory”). As at 31 March 2021, management reviewed the financial information provided by Shadow Factory and revised the fair value of the investment from $200,000 to zero. Management has determined that the investment value should remain zero as at 31 March 2022.

 

Nynja Group Limited

 

Diginex HK holds an investment in Nynja Group Limited (“Nynja”). As at 31 March 2021, management reviewed the financial information provided by Nynja and revised the fair value of the investment from $200,000 to zero. Management has determined that the investment value should remain zero as at 31 March 2022.

 

Bletchley Park Multi-Strategy Fund Offshore Limited - Class E shares (“BP Fund”)

 

In May 2021, the Group invested $2,000,000 into the BP Fund and recognized a fair value gain of $262,599 during the year ended 31 March 2022.

 

Bletchley Park Multi-Strategy Fund Offshore Limited, which issued the Class E shares, is considered a related party to the Group as Eqonex SA, a subsidiary of the Group, serves as the investment manager of BP Fund. In addition, see note 17.1(a) for the corresponding asset management fee earned by the Group.

 

F-49

 

15 TRADE RECEIVABLES, PREPAYMENT, DEPOSITS AND OTHER RECEIVABLES

 

15.1 Trade receivables

 

		At 31 March 2022				At 31 March 2021
		USD				USD
Trade receivables			71,423				12,604
Less: loss allowance			-				-
Trade receivables total			71,423				12,604

 

Trade receivables are non-interest bearing and generally have credit terms of 30 days.

 

An aging analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of loss provision, is as follows:

 

		At 31 March 2022				At 31 March 2021
		USD				USD
Less than 1 month			20,375				9,609
Between 1 month and 3 months			11,051				1,667
Over 3 months			39,997				1,328
			71,423				12,604

 

The movements in the loss allowance for impairment of trade receivables are as follows:

 

		Notes		Year ended 31 March 2022				Year ended 31 March 2021
				USD				USD
At the beginning of the year					-				113,381
Write-off of trade receivables		(a)			-				(113,381	)
At the end of the year					-				-

 

Note (a) – As at 31 March 2021, management determined that a trade receivable fully provided for was uncollectable and reversed the associated provision as the underlying receivables were written-off.

 

The carrying amounts of trade receivables approximate their fair values.

 

15.2 Prepayment, deposits and other receivables

 

		Notes		At 31 March 2022				At 31 March 2021
				USD				USD
Non-current:
Deposits		(a)			347,299				152,988
Current:
Deposits		(a)			176,405				1,389,615
Prepayments		(b)			1,807,913				1,607,298
Other receivables					209,867				259,858
					2,194,185				3,256,771
Total					2,541,484				3,409,759

 

F-50

 

Note 15.2(a): Decrease of deposits is mainly due to the return of deposit for the former Hong Kong office following the expiry of the lease in June 2021 and the Group then entered into a cheaper lease which required reduced deposit. As at 31 March 2022, the amounts mainly comprised of deposits with an aggregate amount of $350,381 for new office leases in Hong Kong, Vietnam and Singapore and deposit of $111,826 paid for hiring of contractors.

 

Note 15.2(b): The balance at 31 March 2022 and 2021 consisted primarily of prepaid insurance and other advanced payments associated with the operations of the business.

 

16 AMOUNT DUE To / FROM AN ASSOCIATE

 

16.1 Amount due from an associate

 

		At 31 March 2022				At 31 March 2021
		USD				USD
At 1 April			-				977,421
Foreign exchange translation difference			-				(1,173	)
Repayment			-				(760,136	)
Impairment reversal (impairment)			-				21,071
Reclass to other receivables			-				(237,183	)
At 31 March			-				-

 

During year ended 31 March 2021, $760,136 of the outstanding balance was settled by the associate. The remaining balance was novated and reclassified to other receivable from a third party with full settlement made in April 2021.

 

16.2 Amount due to an associate

 

During the year ended 31 March 2021, $900,000 was advanced from a 100% owned subsidiary of Diginex High Performance Computing Limited, a Digital Asset mining business previously owned by the Company that was partially divested in 2018, to Diginex HK on an interest free basis, unsecured basis and repayable on demand. The Group holds 49% of the shares in DHPC as at 31 March 2022 and 2021.

 

F-51

 

17 RELATED PARTY TRANSACTIONS

 

17.1 Transactions with other related parties

 

In addition to those related party transactions and balances disclosed elsewhere in the consolidated financial statements, the Group had the following transactions with its related parties during the reporting period:

 

				Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		Notes		USD				USD				USD
Amounts received (paid) per the following:
Income from services
Asset management fee		(a)			553,648				-				-
Custody service income		(b)			-				-				4,108
Exchange revenue		(c)			55,938				23,103				-
Services agreement with a shareholder		(d)			32,805				148,201				151,288
Financing costs
Interest charged on shareholder loans		(e)			-				(277,959	)			(1,333,480	)
Interest charged on notes payable		(f)			-				(17,855	)			(57,064	)
Interest charged on convertible bond		(g)			-				(44,493	)			-
Other transactions
Investment into BPAM		(h)			2,000,000				-				-
Subscription to convertible bond		(g)			-				1,530,000				-
Shares subscribed by employees for cash		(i)			-				120,185				-
Exchange promotion rewards		(j)			-				(108,302	)			-
Shares issued to an existing shareholder		(k)			-				-				(155,030	)

 

Note 17.1(a): During the year ended 31 March 2022, the Group earned asset management fees from Bletchley Park Multi-strategy Fund Offshore Limited and Bletchley Park Multi-strategy US Feeder Fund.

 

Note 17.1(b): During the year ended 31 March 2020, Pelham Limited, used the custody service offered by Digivault and was charge a fee on an arms-length basis. Pelham Limited is a company controlled by Miles Pelham, the founder of Diginex HK.

 

Note 17.1(c): During the year ended 31 March 2021 and 2022, key management personnel and their immediate family members paid fees while trading on the EQONEX.

 

Note 17.1(d): The amounts received from a shareholder were pursuant to the terms of services agreement between Diginex HK and a shareholder. Services include the provision of office space and administrative duties. The service agreement with the shareholder was terminated in June 2021.

 

Note 17.1(e): The interest charged on a shareholder loan from Pelham Limited was pursuant to the terms in the loan agreement entered between Diginex HK and Pelham Limited at 12.5% per annum. The credit facility from Pelham limited totaled $20m and was terminated upon the Transaction on 30 September 2020. Pelham Limited is controlled by the founder of Diginex HK.

 

Note 17.1(f): The interest charged on the notes payable (note 28) is pursuant to terms in note agreement entered between Diginex Capital Limited, a subsidiary of the Company, employees, and a shareholder. The note principal was $675,000 and at an interest rate of 15% per annum. The note payable was fully settled on 1 June 2020.

 

F-52

 

Note 17.1(g): During the year ended 31 March 2021, key management personnel (including directors), and some of their immediate family members subscribed to the convertible bond with a 10% coupon issued by Diginex HK (note 27). The convertible bond converted into shares of Diginex HK on 21 September 2020.

 

Note 17.1(h): During the year ended 31 March 2022, the Group invested $2,000,000 into the BP Fund, a fund managed by Eqonex SA, see note 14.2(b) for details.

 

Note 17.1(i): During the year ended 31 March 2021, two employees and one of their immediate family members subscribed for shares in Diginex HK for cash consideration on an arm’s length basis.

 

Note 17.1(j): During the year ended 31 March 2021, key management personnel and their immediate family members who are users on the EQONEX participated in the promotion events and received rewards on the same terms as all users on the EQONEX.

 

Note 17.1(k): During the year ended 31 March 2020, Diginex HK issued shares to existing shareholders for consulting services. This non-cash amount was recorded as consulting expenses.

 

17.2 Amounts due from related companies

 

The amounts due from related companies as at 31 March 2022 and 31 March 2021 are unsecured, interest-free and repayable on demand. At 31 March 2021, the amounts due from related companies relate to asset management fund entities set up in the Cayman Islands as part of the Asset Management business. Prior to the launch of the asset management fund entities, all shares were owned by the Group. The Group only holds management shares post the launch of the funds in November 2019. During the year ended 31 March 2022, the amounts due from related companies increased arising from asset management fees payable by the fund to the Group.

 

17.3 Amounts due to related companies

 

The amounts due to related companies as at 31 March 2022 are due to Bletchley Park Multi-Strategy Fund Offshore Limited, which is managed by the investment manager, Eqonex SA. The investment manager was previously Bletchley Park Asset Management (Hong Kong) Limited and since October 2020 is Eqonex SA. The investment manager of the funds agreed to cap expenditure in the fund at 1% of assets under management and take on the liability of any excess expenditure. 

 

17.4 Amounts due from shareholders

 

The amounts due from shareholders are unsecured, interest-free and repayable on demand.

 

Name		Maximum amount outstanding during the year ended 31 March 2022				At 31 March 2022				At 31 March 2021
		USD				USD				USD
DHC Investments Limited			36,962				-				36,962
Various			1				1				1
							1				36,963

 

F-53

 

17.5 Amounts due to directors

 

The amounts due to directors are unsecured, interest-free and had no fixed terms of repayment.

 

Name		Maximum amount outstanding during the year ended 31 March 2022				At 31 March 2022				At 31 March 2021
		USD				USD				USD
Richard Byworth			12,241				-				6,241
Paul Ewing			812				-				544
							-				6,785

 

17.6 Loans from shareholders

 

					At 31 March 2022				At 31 March 2021
		Notes			USD				USD
1 April						-				10,711,563
Loans advanced						-				100,000
Loan repayment:
Loan settled through sale of Solutions Business			33			-				(6,000,000	)
Loan repayments settled in cash						-				(3,949,050	)
Loan settled in shares			a			-				(650,000	)
Loan converted to convertible bond						-				(100,000	)
Interest repayment:
Interest charged			8			-				277,959
Interest repayments settled in cash						-				(318,166	)
Interest settled in shares			a			-				(72,306	)
						-				-

 

Note a – Loan principal and accrued interest, totaling $722,306, were settled by the issuance of 9,039 Diginex HK shares (note 21). On 30 September 2020, the loan from Pelham Limited was terminated.

 

17.7 Sale of Solutions Business

 

On 15 May 2020, Diginex HK, together with Diginex Solutions Limited, sold the legal entities of Diginex Solutions (HK) Limited and Diginex USA LLC, together with the trademarks associated with the Diginex name, to a related party, Rhino Ventures Limited, an entity controlled by Miles Pelham, the founder of Diginex HK. The Group realized a gain on sale of $5,073,545 which has been recognized as discontinued operations (note 34).

 

F-54

 

17.8 Key management compensation

 

		Year ended 31 March 2022				Year ended 31 March 2021				Year ended 31 March 2020
		USD				USD				USD
Fees			170,000				75,000				-
Basic salaries, allowances and all benefits-in-kind			3,621,818				2,532,911				2,029,445
Pension costs - defined contribution plans			151,328				62,877				14,055
Share-based payments			6,363,957				18,312,630				7,392,836
			10,307,103				20,983,418				9,436,336

 

Key management personnel are considered as the directors of Diginex HK (for the pre Transaction period) and the Company for the periods noted above, as well as members of the Executive Committee.

 

F-55

 

18 CLIENT ASSETS AND LIABILITIES

 

		At 31 March 2022				At 31 March 2021
Client monies consisted of:		USD				USD
Cash			1,520,828				5,142,400
Digital assets and USDC, at fair value			40,550,710				21,879,525
			42,071,538				27,021,925

 

As at 31 March 2022 and 2021, the Group held monies in the form of cash (fiat), digital assets and USDC on behalf of clients. Cash balances were held in bank accounts and the digital assets and USDC were held in secure wallets with a custodian. The Group has economic control over these assets and bears the associated risks. The values of the assets are taken from the prices stated on the active public markets that the assets are traded on.

 

Following the launch of the Exchange, on-exchange credit has been offered to some trading clients. Prior to the advance of on-exchange credit, the client deposits collateral with the Exchange to mitigate any risk of the Exchange incurring a loss. Based on the terms of the on-exchange credit, the clients cannot withdraw assets advanced in the form of on- exchange credit unless there is an excess above the notional amount granted in the clients’ trading account. As such, the risk and rewards of the asset have not been transferred. Only if the client’s trading balance drops below the notional amount of on-exchange credit granted does an obligation crystalize and the client then has an obligation to top-up their trading account on the Exchange. If a client’s trading account balance is below the value of on-exchange credit advanced, an asset and associated liability is recognized in the consolidated statement of financial position. At 31 March 2022 and 2021, those selected clients all held trading balances in excess of the notional on-exchange credit granted and therefore no incremental assets or liabilities were recorded other than the collateral deposited. See note 35.2.3 for details.

 

F-56

 

19 DIGITAL ASSETS

 

		At 31 March 2022				At 31 March 2021
		USD				USD
Opening			348,998				36,034
Additions			5,442,163				699,828
Additions (non-cash)			39,773				-
Disposals			(4,387,013	)			(748,293	)
Revaluation gain			9,798				429,789
Revaluation loss (note 6)			(399,070	)			(68,360	)
			1,054,649				348,998

 

Digital assets primarily consist of BTC and ETH.

 

The Group acquired BTC during the period in line with the Group’s treasury policy. In addition, the Group also holds digital assets to fund EQONEX promotional activities, amongst others, and are classified as disposals when are used to meet an expense. The value of the digital assets were taken from the prices stated on the active public markets that the assets are traded on.

 

Revaluation gains on digital assets accounted for under IAS 38 are recognized in other comprehensive income and accumulated in revaluation surplus. Such revaluation gains shall only be recognized in profit or loss to the extent that the gains reverse revaluation losses of the same digital assets previously recognized in the consolidated statement of profit or loss. Upon realization, the cumulative revaluation surplus included in equity are reclassified to accumulated losses.

 

Revaluation losses on digital assets are recognized directly in the consolidated statement of profit or loss. Such revaluation losses are only recognized in other comprehensive income to the extent of any credit balance in the revaluation surplus in respect of that digital assets.

 

During the year ended 31 March 2022, a revaluation gain of $9,798 (2021: $429,789) was recorded in the consolidated statement of comprehensive (loss) income, of which $180,260 (2021: $249,529) was realized and was reclassified from revaluation surplus to accumulated losses, leaving a residual $9,798 (2021: $180,260) unrealized revaluation gain in the revaluation surplus at 31 March 2022.

 

Movements of the revaluation surplus are as follows:

		At 31 March 2022				At 31 March 2021
		USD				USD
As 1 April			180,260				-
Revaluation gains through other comprehensive income			9,798				429,789
Realization of revaluation gains recognized in revaluation surplus			(180,260	)			(249,529	)
			9,798				180,260

 

20 USDC

 

USDC is a type of digital asset where 1 USDC can be redeemed from the issuer for one US dollar.

 

The Group generates commissions from EQONEX in USDC.

 

As at 31 March 2022, the Group held USDC 1,983,767 (31 March 2021: USDC 2,034,800). The Group uses USDC to settle expenses incurred in the normal course of business, such as marketing costs. In addition, the Group held USDC on other exchanges as to aid the liquidation risk management process on EQONEX when client positions are liquidated.

 

F-57

 

21 SHARE CAPITAL

 

Per note 2.5, under a deemed reverse acquisition, the historical shareholders’ equity of Diginex HK, being the accounting acquirer (legal acquiree) prior to the Transaction is retrospectively adjusted to reflect the legal capital structure of the accounting acquiree (legal acquirer). This is done by using the exchange ratio as determined on the completion of the Transaction of 13.9688 shares in the Company for each Diginex HK share and 1:2.5455 for the share capital value of Diginex HK against a value of $8.50 per the Company’s listed share price on 30 September 2020 (excluding capital raise expenses). The difference in value of the share capital arising from this conversion versus the share capital amount in Diginex HK is recorded in equity under the reverse acquisition reserve.

 

As a Singapore incorporated company, the Company’s shares do not have a par value.

 

		Number of				Share capital				Reverse acquisition				Share capital net of reverse acquisition reserve
		Shares				amount				reserve				Amount
Ordinary shares, issued and fully paid:						USD				USD				USD
At 1 April 2019 pre-recapitalization			973,903				13,382,920				-				13,382,920
Shares issued for cash during the year			214,753				31,831,174				-				31,831,174
Shares issued for services (a)			17,081				2,709,854				-				2,709,854
Shares issued for intangible asset purchase (b)			35,088				5,400,043				-				5,400,043
Shares issued to employees (c)			10,522				1,745,447				-				1,745,447
Expenses related to raise of capital (g)			-				(913,159	)			-				(913,159	)
At 31 March 2020			1,251,347				54,156,279				-				54,156,279
Recapitalization of Diginex HK (1:13.9688 exchange ratio) (h)			16,228,418				85,180,290				(85,180,290	)			-
At 31 March 2020 recapitalized			17,479,765				139,336,569				(85,180,290	)			54,156,279
At 1 April 2020 pre-recapitalization			1,251,347				54,156,279				-				54,156,279
Shares issued for cash prior to the Transaction			3,572				285,438				-				285,438
Shares issued on conversion of convertible bond (note 29)			318,311				25,436,232				-				25,436,232
Shares issued for services (a)			595				47,546				-				47,546
Shares issued for intangible asset purchase (b)			3,899				600,056				-				600,056
Shares issued to employees (c)			9,114				728,300				-				728,300
Shares issued to settle shareholder loan (d)			9,039				722,306				-				722,306
Equity-settled share-based payments (e)			448				35,800				-				35,800
Anti-dilutive share issuance (f)			187,001				-				-				-
Expenses related to raise of capital (g)			6,382				(152,044	)			-				(152,044	)
Subtotal			1,789,708				81,859,913				-				81,859,913
Recapitalization of Diginex HK (1:13.9688 exchange ratio) (h)			23,210,292				129,019,911				(129,019,911	)			-
Subtotal – recapitalized			25,000,000				210,879,824				(129,019,911	)			81,859,913
Recapitalized with founding share of the Company			1				1				(16,610	)			(16,609	)
Acquisition of 8i Enterprises (i)			6,688,392				56,851,332				-				56,851,332
At 30 September 2020 - recapitalized			31,688,393				267,731,157				(129,036,521	)			138,694,636
Shares issued for services (a)			27,334				285,160				-				285,160

 

F-58

 

		Number of				Share capital				Reverse acquisition				Share capital net of reverse acquisition reserve
		Shares				amount				reserve				Amount
Ordinary shares, issued and fully paid:						USD				USD				USD
Shares issued for cash during the six months to 31 March 2021 (j)			2,571,669				21,980,647				-				21,980,647
Expenses related to raise of capital (j)			-				(1,636,312	)			-				(1,636,312	)
Shares issued in settlement of earn-out awards (k)			3,030,000				7,241,700				-				7,241,700
Shares issued for warrants exercised (l)			1,480,965				17,031,098				-				17,031,098
At 31 March 2021			38,798,361				312,633,450				(129,036,521	)			183,596,929
At 1 April 2021			38,798,361				312,633,450				(129,036,521	)			183,596,929
Shares issued for services (a)			371,324				3,896,546				-				3,896,546
Shares issued for intangible asset purchase (b)			154,906				900,000				-				900,000
Shares issued to employees (c)			17,841				142,201				-				142,201
Shares issued to settlement of share-based payments			5,635,335				45,689,431				-				45,689,431
Acquisition of non-controlling interests paid by shares (Note 22)			1,464,291				2,533,223				-				2,533,223
At 31 March 2022			46,442,058				365,794,851				(129,036,521	)			236,758,330

 

Note 21(a):

Diginex HK shares were issued at the fair value for the services rendered by consultants, service providers, contractors and/or non-executive directors during respective years.

 

Note 21(b):

Diginex HK issued shares for the purchase of intangible assets related EQONEX and a perpetual software license related to the borrowing and lending business during the year ended 31 March 2021 and 2022, respectively. The shares were issued at the fair value of the asset acquired (note 11).

 

Note 21(c):		During the year ended 31 March 2021, Diginex HK shares totaling a fair value of $393,242 were issued to employees related to the salary deferral scheme. Shares issued to employees also includes shares totaling a fair value of $12,861 issued as part of the contractual agreement related to the Solutions Business and reported net of the gain on sale. In addition, shares were also issued to employees in lieu of salaries and benefits-in-kind amounting to $211,122 and $111,075, respectively. The total amounted to $728,300 of which $715,834 is presented as continued operation and $12,466 as discontinued operations (note 34) in the consolidated statement of cash flows. During the year ended 31 March 2022, the Company issued shares to settle outstanding obligations under salary deferral scheme and in accordance with employment contracts accrued from 31 March 2021.
		For the year ended 31 March 2020, 10,522 shares of Diginex HK were issued to employees who participated in the salary deferral scheme and to settle contractual obligations.

 

Note 21(d):

Shareholders loan of $650,000 and the associated interest of $72,306 were settled by the issuance of 9,039 Diginex HK shares (note 17).

 

Note 21(e):

On 1 September 2020, an employee share option holder exercised its vested share options from the employee share option scheme resulting in the issuance of 448 new Diginex HK shares.

 

Note 21(f):

Shares were issued to shareholders as make-whole units based on an anti-dilutive clause in the share subscription agreement of Diginex HK.

 

F-59

 

Note 21(g):

Expenses to raise capital via both the issuance of Diginex HK shares and the convertible bond amounted to $687,236 of which $509,985 was settled in shares, resulting in a net charge against share capital of $177,251. Also included is capitalized finance costs, recorded under the effective interest rate method in relation to the convertible bond in accordance with IFRS 9, of $25,207 (note 29) resulting in a total charge of $152,044.

 

Note 21(h):

On completion of the Transaction, Diginex HK shareholders were issued 25,000,000 new shares in the Company in exchange for the outstanding shares of 1,789,708. The resultant share exchange ratio being 13.9688. This exchange ratio has been applied to the issued number of shares of Diginex HK as at 30 September 2019 as per the significant accounting policies detailed in note 2.5. The Company’s share capital is based on the closing price of the Company’s listed share price on 30 September 2020 of $8.50 per share. The 25,000,000 shares issued to the shareholders of Diginex HK, hence have a value of $212,500,000 (excluding prior expenses related to raise of capital). This derives a share capital conversion ratio of 1:2.5455 when comparing the share capital value for Diginex HK of $83,480,089 (excluding prior expenses related to raise of capital) immediately before the Transaction which is applied to the share capital of Diginex HK in the recapitalization. A reverse acquisition reserve of $129,019,911 is recorded in equity for the difference between the share capital value of the Company and Diginex HK. The exchange ratio has also been applied to the shares and share capital issued by Diginex HK as at 31 March, 2020.

 

Note 21(i):

6,688,392 shares of the Company were issued to the shareholders of 8i Enterprises and service providers to the Transaction on 30 September 2020. The shares were fair valued at $8.50, the closing price of the Company’s listed share price on 30 September 2020.

 

Note 21(j):

On 15 January 2021, the Company issued 2,571,669 new shares and the same number of private warrants in a private placement for cash of $38,575,035. On a residual value basis after deducting the fair value of the private warrants, the new shares are estimated to have a fair value of $21,980,647. Capital raise expenses of $2,871,652 were incurred for the private placement of which $1,636,312 relates to the new shares issued on a fair value pro-rata basis.

 

Note 21(k):

In January 2021, the Company issued 3,030,000 new shares to the former shareholders of Diginex HK and a service provider to the Transaction in settlement for meeting the first milestones per the earn-out award arrangement (see note 22 for details). The shares related to the first milestone were estimated to have a fair value of $7,241,700 based on the Monte Carlo simulation ran when calculating the share-based payment reserve and expenses upon the completion of the Transaction on 30 September 2020.

 

Note 21(l):

After the Transaction, public warrant holders exercised their right to acquire 1,480,965 Company shares at $11.50 each totaling $17,031,098 for cash.

 

F-60

 

22 SHARE-BASED PAYMENT RESERVE - SHARE OPTIONS, SHARE AWARDS AND EARN-OUT

 

		At 31 March 2022				At 31 March 2021
		USD				USD
At 1 April			64,957,905				10,356,664
Employee share option scheme (note 22.1)			7,495,105				26,942,783
Exercised employee share options (note 22.1)			(45,482,704	)			(623,512	)
Acceleration of expenses from the share option scheme modification (note 22.2)			-				1,315,248
Employee benefits – salaries to be settled in shares (note 22.3)			54,567				-
Share awards accrued (note 22.3)			6,041,808				642,973
Shares issued to settle share awards accrued (note 22.3)			(3,888,747	)			-
Earn-out share awards accrued (note 22.4)			-				32,148,300
Earn-out shares issued (note 22.4)			-				(7,241,700	)
Employee benefits – restricted share units accrued (note 22.5)			4,134,847				-
Shares issued to settle restricted share units accrued (note 22.5)			(206,727	)			-
Unit purchase options (note 22.6)			-				1,417,149
At 31 March			33,106,054				64,957,905

 

22.1 Employee share option scheme

 

During the year ended 31 March 2022, share-based payment expense of $7,495,105 (2021: $26,942,783) was recognized associated with the employee share option scheme. 5,600,000 employee share options with an amount of $45,482,704 vested and automatically converted into the Company’s shares.

 

During the year ended 31 March 2021, 4,327 vested Diginex HK share options were exercised which were settled by 3,879 shares transferred by a third party who received shares in advance of providing a service. The service was not completed and these shares were reallocated and 448 new Diginex HK shares issued with a fair value of $35,800. No Diginex HK share options vested during the year ended 31 March 2020 and hence no share options were exercised in this period.

 

22.2 Share option scheme modification

 

On the modification date 30 September 2020, as a condition of the Transaction, the Company established a new employee share option scheme (the “Plan”) which replaces the Scheme with modified terms:

 

	(i)	options are granted for no consideration
	(ii)	exercise price: $0 per share
	(iii)	grant date: 30 September 2020
	(iv)	vesting condition: service condition of 15 months from grant date
	(v)	share price at modification date: $8.50
	(vi)	number of options per plan: 5,600,000

 

Comparing between the Plan and the Scheme, the key changes are:

 

	●	The options included in the Plan are now a fixed number rather than being based on a percentage of outstanding shares issued, and
	●	Changing from 3 year service condition from employment date to 15 months service condition from 30 September 2020.

 

Management considers the Plan is a replacement of the Scheme for the Group to continue to incentivize employees and for their retention.

 

F-61

 

Impact on fair value upon replacement:

 

In accordance with IFRS 2, management assessed whether there was an incremental fair value to the awardees upon the replacement of the Scheme by the Plan.

 

The Plan has a grant date and modification date fair value of $47,600,000 based on 5,600,000 Company options in the Plan and the quoted share price on closing of the Transaction of $8.50. The Scheme had a modification date fair value of $51,000,000 based on 429,530 of Diginex HK options in the Scheme at a deemed fair value of $118.73 per Diginex HK share. The $118.73 is based on the closing Transaction price of $8.50 multiplied by the exchange ratio of 13.9688.

 

As the modification date fair value of the Plan of $47,600,000 is not higher than the Scheme fair value of $51,000,000, no incremental fair value needs to be amortized over the Plan terms as per IFRS 2, and the Group would continue to amortize the share-based payment expense based on the grant date fair value of the Scheme of $46,256,501 as at 30 September 2020.

 

Impact on service period changes:

 

In accordance with IFRS 2, management assessed the impact of a change in the service period and where awardees are benefited from the change in service condition. The modified service period condition beneficial to the awardee is taken into account when applying the modified grant-date method, where the number of awards expected to vest is amortized over the modified (shortened) vesting period resulting in an acceleration of expense.

 

As the Scheme service period was based on employment date, the change to the Plan impacts each awardee differently and management assessed the impact on an individual-by-individual basis to ascertain the impact. Accordingly, it was concluded some awardees would benefit from the change in the service condition which resulted in a one-off accelerated expense of $1,315,248 that was charged to the consolidated statements of profit or loss for the year ended 31 March 2021.

 

22.3 Share awards accrued, not yet issued

 

During the year ended 31 March 2021, $642,973 related to the value of the shares awarded as part of the salary deferral scheme and contractual agreements that have yet to be issued and remain accrued in the share-based payment reserve based on the fair value of the services provided.

 

During the year ended 31 March 2022, $6,041,808 related to the value of the shares awarded to service providers, non-executive directors and a contractor, and $54,567 awarded to employees and a contractor based on service contracts. 389,165 shares were issued in settlement for share awards issued for services and employee benefits valued at $4,038,747, of which share awards of $150,000 were issued for prepaid services, as a prepayment, and therefore not included as share awards accrued

 

22.4 Earn-out share awards

 

Under the terms of the Transaction, the Company is also required to issue 12,000,000 earn-out shares in four equal tranches to the former shareholders of Diginex HK if certain share price milestones are met over a four-year period post 30 September 2020.

 

The earn-out award share price related targets are as below:

 

Milestone date		Share price target $		Number of shares to be awarded
1st anniversary of the Closing date		15.00		3,000,000
2nd anniversary of the Closing date		20.00		3,000,000
3rd anniversary of the Closing date		25.00		3,000,000
4th anniversary of the Closing date		30.00		3,000,000

 

Upon reaching the earn-out milestones, a service provider to the Transaction is also entitled to receive the equivalent of 1% of the earn-out shares issued.

 

F-62

 

Earn-out awards are accounted for under IFRS 2. The earn-out awards are settled in a fixed number of shares with conditions based on future market prices, but do not require the former Diginex HK shareholders nor the service provider to provide on-going service to the Group until such milestone dates.

 

The awards are considered as equity-settled share-based payments with non-vesting conditions since there is no explicit nor implicit service requirements despite that the share price targets are set beyond 30 September 2020.

 

The fair value of the earn-out awards has been valued on a probability basis using a Monte Carlo simulation model with the below inputs:

 

	1.	Risk-free rates of 0.12%, 0.13%, 0.16% and 0.22% respectively for the 1st to the 4th anniversary of the closing date based on daily US treasury yield curve rates on 30 September 2020
	2.	No dividend will be paid during the four-year period from 30 September 2020
	3.	Reference price of $8.50 based on the closing date quoted trade price on 30 September 2020
	4.	20,000 simulation runs per milestone
	5.	Share price volatility of 50%, based on judgement below.

 

Volatility parameter of 50% is used on the basis that on 30 September 2020:

 

a)

Volatility from a sample of 52 related companies including traditional stock exchanges had an average of 37% over a three month to five-year period.

b)

Unlike traditional exchanges, the Company is exposed to movements in digital asset values and the most prominent digital asset being BTC. The longest dating BTC option of six months had a volatility of 63% as at 30 September 2020

c)

The Company used volatility of 50% in the Monte Carlo simulation based on the average of the above two points.

 

The outcome of the Monte Carlo simulations derived the following probabilities and fair values per award (based on probability of achieving the share price target) per milestone date:

 

Milestone date		Share price target $				Number of shares to be awarded*				Risk-free rates				Probability				Fair value per award				Total fair value $
1st anniversary			15.00				3,030,000				0.12	%			15.91	%		$	2.39				7,241,700
2nd anniversary			20.00				3,030,000				0.13	%			12.71	%		$	2.54				7,696,200
3rd anniversary			25.00				3,030,000				0.16	%			11.18	%		$	2.80				8,484,000
4th anniversary			30.00				3,030,000				0.22	%			9.59	%		$	2.88				8,726,400
																							32,148,300

 

*	Includes the service provider’s 1% entitled shares upon reaching the earn-out milestones, as previously described.

 

The first milestone share price target was met in January 2021 and 3,030,000 Company shares were issued as a result. Share capital corresponding to the fair value of the awards valued as at 30 September 2020, the Transaction date, of $7,241,700 is recorded with an equivalent reduction in the share-based payment reserve for the year ended 31 March 2021.

 

22.5 Restricted share units (“RSUs”)

 

During the year ended 31 March 2022, the Group issued RSUs to employees and contractors as part of the long-term incentive scheme, as well as sign-on bonus to new employees.

 

The are three types of RSUs:

 

	1.	Sign-on RSU
	2.	Staff incentive RSU (“SI RSU”)
	3.	Performance based RSU (“PB RSU”)

 

The RSUs are equity settled share-based payments in accordance with IFRS 2. The RSUs vest on a graded basis over a three-year period with service conditions. The grant date fair value of the RSUs is the closing share price of the Company share on the grant date. The IFRS 2 expense is recognized based on the grant date fair value and management’s expected number of awards to vest over the vesting period. The PB RSU vesting is further dependent on non-market performance conditions, which are factored in by adjusting the expected number of awards to vest.

 

F-63

 

		Number of RSUs				Weighted average fair value
						USD
Awarded and unvested as of 1 April 2021			-				-
Granted			3,150,596				4.52
Vested			(65,822	)			5.85
Canceled/forfeited			(1,106,373	)			4.55
Awarded and unvested as of 31 March 2022			1,978,401				4.46

 

As at 31 March 2022, 1,978,401 RSUs were outstanding with a weighted average grant date fair value of $4.46

 

	●	1,061,391 Sign-on RSU
	●	570,300 SI RSU
	●	346,710 PB RSU

 

22.6 Unit purchase options

 

8i Enterprises granted, to a service provider, the option to purchase 345,000 units. Each unit comprising of one ordinary share, one tenth of a share via a right and half a share via a warrant. To obtain the unit components, the holder must first pay an exercise price of $11.50 per unit. The options expire on 27 March 2024.

 

Unit components:		Number of shares
Ordinary shares			345,000
Rights			34,500
Warrants			172,500
			552,000

 

The warrants also have an exercise price of $11.50 per share.

 

The fair value of the Unit Purchase Option on 30 September 2020 was estimated using the Black-Scholes-Merton Call Option Model with the following inputs:

 

	1.	Risk free rate of 0.23% based on the yield of USD Treasury Strips with the same tenure;
	2.	No dividend will be paid during the options period;
	3.	Share price volatility of 56.59%, based on judgement below.

 

Volatility parameter of 56.59% is used on the basis that on 30 September 2020:

 

	●	Volatility from a sample of 52 related companies including traditional stock exchanges had a median of 30.23% over a three-year period;
	●	Unlike traditional exchanges, the Company is exposed to movements in digital asset values and the most prominent digital asset being BTC. The historical volatility of BTC over the last 3.49 years as at 30 September 2020 was 82.96%;
	●	The Company used volatility of 56.59% in the Black-Scholes-Merton Call Option Model based on the average of the above two points.

 

The valuation of the unit purchase options is $1,417,149.

 

F-64

 

23 WARRANTS

 

		Notes		At 31 March 2022				At 31 March 2021
				USD				USD
Public warrants		23.1			-				-
Private warrants		23.2			4,005				5,197,201
					4,005				5,197,201

 

23.1 Public warrants

 

		At 31 March 2022				At 31 March 2021
		USD				USD
At 1 April			-				-
Issue public warrants			-				8,324,147
Warrants exercised			-				(3,968,986	)
Warrants redeemed			-				(4,355,161	)
31 March			-				-

 

Public warrants are equity instruments as they are settled in the Company’s shares upon exercising and were initially recognized based on the fair value on the date of issuance. No subsequent remeasurement is required.

 

The public warrants were traded on Nasdaq and the closing trade price on 30 September 2020 was used to measure their fair value. On 30 September 2020, the warrants had a fair value of $8,324,147 (6,212,050 warrants valued at $1.34 each on closing at 30 September 2020), which is included as a Transaction expense in the consolidated statement of profit or loss (note 33).

 

Between January 2021 to March 2021, 2,961,935 warrants ($3,968,986 of the $8,324,147 reserve recorded) were exercised and 1,480,965 shares issued for cash consideration of $17,031,098. The remaining 3,250,115 warrants ($4,355,161 of the $8,324,147 reserve recorded) were redeemed by the Company for $0.01 each. The warrant reserve recognized on 30 September 2020 was reclassified to distributable reserves within retained earnings.

 

23.2 Private warrants

 

		At 31 March 2022				At 31 March 2021
		USD				USD
At 1 April			5,197,201				-
Additions							16,594,388
Fair value remeasurement			(5,193,196	)			(11,397,187	)
31 March			4,005				5,197,201

 

On 15 January 2021, the Company raised cash of $38,575,035 via a private placement of 2,571,669 shares and 2,571,669 private warrants. As part of the private placement, a capital raise expense of $2,871,652 was incurred which $2,376,652 was paid from the capital raise proceeds and a remaining $495,000 accrued.

 

The private warrants have a 3-year tenure and each warrant has an exercise price of $18.75 per share. Based on IFRS 9 and IAS 32, the private warrants are classified as financial liabilities on the basis that there is a contingent settlement provision outside the Company’s control which may require the Company to redeem the private warrants in cash. The private warrants are recorded as Warrant liability on the consolidated statement of financial position and are measured at fair value through profit or loss.

 

F-65

 

The fair value of the private warrants on 15 January 2021 was estimated using the Black-Scholes-Merton Call Option Model with the following inputs:

 

	1.	Risk free rate of 0.21% based on the yield of USD Treasury Strips with the same tenure of 3 years as at 15 January 2021.
	2.	No dividend will be paid during the three-year period from 15 January 2021.
	3.	Share price volatility of 55.52%, based on judgement below.

 

Volatility parameter of 55.52% is used on the basis that on 15 January 2021:

 

	●	Volatility from a sample of 52 related companies including traditional stock exchanges had a median of 34.45% over a three-year period.
	●	Unlike traditional exchanges, the Company is exposed to movements in digital asset values and the most prominent digital asset being BTC. The historical volatility of BTC over the last three years as at 15 January 2021 was 76.59%
	●	The Company used volatility of 55.52% in the Black-Scholes-Merton Call Option Model based on the average of the above two points.

 

The model estimates the fair value of the private warrants at $6.45 each with an aggregate value of $16,594,388 and on a pro-rata basis between the shares and warrants issued, the associated capital raise expense of $1,235,341 for the warrants is recorded as a loss (other finance cost) in the income statement ($1,022,399 was paid in cash and $212,940 accrued).

 

On 31 March 2021, the option pricing model was updated to estimate the fair value with the below inputs:

 

	●	Risk free rate of 0.31% based on the yield of USD Treasury Strips with the same tenure as the warrant expiry.
	●	No dividend will be paid during the warrant tenure.
	●	Share price volatility of 52.75%, revised as at 31 March 2021 based on the same judgement as above where the median of the related companies sample was 34.41% and the 2.79 year annualized volatility of BTC at 71.09%.

 

The updated model estimates the fair value of the private warrants at $2.02 each with an aggregate value of $5,197,201 and a fair value gain of $11,397,187 is recognized in the consolidated statement of profit or loss.

 

On 31 March 2022, the option pricing model was updated to estimate the fair value with the below inputs:

 

	●	Risk free rate of 2.19% based on the yield of USD Treasury Strips with the same tenure as the warrant expiry.
	●	No dividend will be paid during the warrant tenure.
	●	Share price volatility of 51.81%, revised as at 31 March 2022 based on the same judgement as above where the median of the related companies sample was 32.69% and the 1.79 year annualized volatility of BTC at 70.93%.

 

The updated model estimates the fair value of the private warrants at $0.002 each with an aggregate value of $4,005 and a fair value gain of $5,193,196 is recognized in the consolidated statement of profit or loss.

 

F-66

 

24 OTHER RESERVES

 

Nature and purpose of reserves

 

24.1 Reverse acquisition reserve

 

The reverse acquisition reserve arises from the recapitalization of the Group with the Company’s share capital issued as part of the Transaction. This reserve ensures that the total shareholders equity both pre- and post-Transaction remains the same as that of the Diginex HK group immediately before the Transaction.

 

24.2 Share-based payment reserve

 

The share-based payment reserve comprises of 1) the fair value of share options and restricted share units granted which are yet to exercised; 2) accrued share awards (including earn-outs) that have yet to be issued; and 3) the fair value of unit purchase options.

 

24.3 Foreign currency translation reserve

 

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the consolidated financial statement of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 2.5.

 

24.4 Accumulated losses

 

Accumulated losses are the cumulative net loss of the Group sustained in the business. The losses assume the continuation of Diginex HK as the accounting acquirer following the Transaction.

 

24.5 Non-controlling interests

 

At 31 March 2021, the non-controlling interest relates solely to the 15% of Digivault Limited held by employees of the entity.

 

On 28 February 2022, Diginex Limited acquired the remaining 15% of Digivault Limited from the holders in exchange for 1,464,291 shares in Eqonex Limited and Diginex Limited holds 100% of the issued share capital of Digivault Limited after the completion of the transaction. Should substantially all the shares of Digivault be sold within 12 months of this transaction for consideration in excess of $100 million, the sellers of the 15% will be entitled to 5% of any amounts received above $100 million, pro rata subject to the percentage of Digivault shares sold.

 

24.6 Revaluation surplus

 

The revaluation surplus arises from the upward revaluation surplus on Group owned digital assets that are measured on a revalued basis that are not yet realized, and are recorded as other comprehensive income per note 2.5.

 

25 DIVIDEND

 

No dividends were paid in the years ended 31 March 2022, 2021 and 2020.

 

F-67

 

26 LEASE LIABILITIES

 

During the year ended 31 March 2021, there were two new leases and one amendment entered into by the Group.

 

On 15 August 2020, the Group entered into a lease agreement for an office located in Singapore. The Group will owe monthly rental payments of SGD16,500 (approximately $12,125) until the lease agreement terminates on 31 August 2022.

 

On 1 September 2020, the Group entered into a lease agreement for an office located in Ho Chi Minh City, Vietnam. The Group will owe quarterly rental payments of VND106,080,000 (approximately $4,561) until the lease agreement terminates on 31 August 2023.

 

On 16 July 2020, the Group entered into an agreement with the landlord for the office in St. Hellier, Jersey to amend the lease term to terminate on 1 March 2021. Accordingly, the Group has elected simplified accounting for short-term leases of 12 months or less and an expense is recognized in the remaining period of the lease on a straight-line basis.

 

During the year ended 31 March 2022, a lease agreement for an office located in Hong Kong, which was entered by the Group on 9 March 2021, became available to use on 1 May 2021. The Group will owe monthly rental payments of HK$676,700 (approximately $86,882) from 1 July 2021 until the lease agreement terminates on 30 June 2027. The period 1 May 2021 to 30 September 2021 was rent free.

 

On 1 July 2021, the Group entered into a lease in St Andrews, Scotland for a fee of GBP1,000 per month for 12 months.

 

On 20 September 2021, the Group entered a short-term lease on a rolling basis for GBP8,800 a month for an office in London, United Kingdom.

 

Changes in lease liability is as follows:

 

		At 31 March				At 31 March
		2022				2021
		USD				USD
At 1 April			868,439				3,078,251
Adjustment for foreign exchange			(31,925	)			20,082
Increase in lease liability			5,111,736				406,333
Reclassification (note 13(b))			-				(468,839	)
Other adjustments			(94,822	)
Interest expense (note 8)			259,124				231,759
Reduction in lease liability			(1,183,585	)			(2,399,147	)
At 31 March			4,928,967				868,439

 

Classified in the consolidated statements of financial position as follows:

 

		At 31 March				At 31 March
		2022				2021
		USD				USD
Current			933,405				733,488
Non-current			3,995,562				134,951
At 31 March			4,928,967				868,439

 

F-68

 

Maturity of lease liabilities is as follows:

 

		At 31 March				At 31 March
		2022				2021
		USD				USD
Not later than one year			1,153,762				764,103
Later than one year and not later than five years			4,171,642				139,470
Later than five years			259,276				-
			5,584,680				903,573
Finance costs			(655,713	)			(35,134	)
Present value of minimum lease payments			4,928,967				868,439

 

The lease commitments have been discounted to calculate a present value of commitments. For the Hong Kong lease, a rate of 5% (2021: 12.5%) has been used being the incremental borrowing rate as determined by the Group, being the prime borrowing rate in Hong Kong. This reflects the rate the Company previously borrowed at from a shareholder. For the other leases, the local rate to borrow in the relevant jurisdiction has been applied.

 

27 OTHER PAYABLES AND ACCRUALS

 

		At 31 March				At 31 March
		2022				2021
		USD				USD
Accounts payable			2,762,600				3,458,574
Accruals (a)			3,100,614				2,511,309
Provision (b)			288,089				-
Other payables			340,174				280,219
			6,491,477				6,250,102

 

Note 27(a): Accruals includes fees associated with the legal and professional fee in connection with the convertible loan agreement with Bifinity UAS, holiday pay accruals for employees and others associated with the on-going running of the Group

 

Note 27(b): Provisions include the dilapidation provision associated with the lease entered into in Hong Kong (see note 12) and EQONEX promotional activities during the year ended 31 March 2022.

 

28 NOTES PAYABLE

 

Diginex Capital Limited, a subsidiary incorporated in the United Kingdom and operating as an Authorized Representative of Starmark, issued a loan note with a value date of 6 September 2019. Starmark is regulated by the Financial Conduct Authority (“FCA”), the financial services regulatory body in the United Kingdom. The loan note was available to only employees and shareholders of Diginex HK and its subsidiaries due to regulatory constraints. The loan note was structured in $5,000 units and paid interest of 15% per annum and interest payments were made on a quarterly basis. During the year ended 31 March 2021 a further $17,156 of interest was accrued (note 8) until the notes were redeemed early, in full, on the 1 June 2020.

 

F-69

 

29 CONVERTIBLE BOND

 

In May 2020, Diginex HK issued a 24-month convertible bond with a 10% annual coupon rate which had a provision for mandatory conversion into Diginex HK shares two business days prior to the completion of the Transaction. The convertible bond raised $25,000,000 which consisted of $24,415,000 in cash and $585,000 of non-cash transfers from the salary deferral scheme and shareholder loan of $485,000 and $100,000 respectively. Expenses related to the raise of the convertible bond amounted to $652,202 of which $509,741 was settled by the issuance of 6,319 Diginex HK shares (note 21(h)).

 

Finance costs of $509,230 were accrued via the 10% coupon on the convertible bond. On 21 September 2020, the convertible bond of $25,000,000 and finance costs accrued at that point of $436,232 were converted into Diginex HK shares under the mandatory conversion provision. The Transaction was anticipated to close on September 23, 2020 and hence the convertible bond converted on 21 September 2020. However, as the Transaction completed on September 30, 2020 additional interest was accrued, but not converted into Diginex HK shares from 22 to 28 September 2020 amounting to $47,791. Additional finance costs, recorded under the effective interest rate method in accordance with IFRS 9, of $25,207 were capitalized against the expenses related to the raise of capital (note 21(h)).

 

30 CONVERTIBLE LOANS

 

On 7 March 2022, Eqonex Limited entered into a $36 million convertible loan agreement with Bifinity (the “Loan”). The Loan carries an interest charge of 4% per annum. The Loan will be drawn down in monthly $3 million installments during the first quarter, commencing on March 15, 2022, and $9 million per quarter, in advance, for the remaining three quarters. The Loan must be repaid 18 months after each drawdown or can be converted by Bifinity at any time, at their option, into shares of Eqonex Limited. The Loan can be converted into equity at a share price of $1.89. However, Bifinity may not exercise its conversion right to the extent that to do so would cause any breach by the Group of any law or regulation applicable to it or, unless a requisite waiver from the provisions of the Singapore Code on Take-overs and Mergers has been obtained, cause Bifinity to hold more than 29.9% of the entire issued share capital of the Group. If and when issued, such Ordinary Shares will rank pari passu in all respects with the then existing ordinary shares of the Group.

 

Under the terms of the Loan, Bifinity has the right to nominate for appointment the Chief Executive Officer, Chief Financial Officer and Chief Legal Officer for Eqonex. Pursuant to such right, the Board has appointed the nominees of Bifinity for Chief Executive Officer, Chief Financial Officer and, in lieu of appointing the Chief Legal Officer, has appointed a Chief Corporate Affairs Officer. Bifinity has also appointed two members to the Eqonex board, pursuant to the terms of the loan agreement.

 

Subsequent to the end of the reporting period, the second tranche of the Loan in the amount of $3,000,000 has been drawn down by the Group and were paid by Bifinity on April 19, 2022.

 

F-70

 

31 RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

 

The table below provides a reconciliation of the principal amount on liabilities arising from financing activities presented in the consolidated statement of cash flows, excluding interests:

		1 April 2020				Cash Flows				Other changes (i)				31 March 2021
		USD				USD				USD				USD
Loans from shareholders			10,599,039				(3,849,050	)			(6,749,989	)			-
Notes payable			675,000				(675,000	)			-				-
Convertible bond			-				24,272,539				(24,272,539	)			-
Warrant liability			-				15,571,989				(10,374,788	)			5,197,201
Liabilities			11,274,039				35,320,478				(41,397,316	)			5,197,201

 

		1 April 2021				Cash Flows				Other changes (i)				31 March 2022
			USD				USD				USD				USD
Convertible loan			-				2,800,000				(25,308	)			2,774,692
Warrant liability			5,197,201				-				(5,193,196	)			4,005
Liabilities			5,197,201				2,800,000				(5,218,504	)			2,778,697

 

In the year ended 31 March 2021, other changes include:

 

	●	Partial settlement of the shareholder loan by issuance of Diginex HK shares valued at $650,000
	●	Partial settlement of the shareholder loan by issue of a convertible bond valued at $100,000
	●	Partial settlement of the shareholder loan as consideration for the sale of the Solutions Business valued at $6,000,000
	●	Conversion of the convertible bond into Diginex HK shares
	●	Remeasurement gain on the warrant liability of $11,397,187 is offset by cash settled transaction costs of $1,022,399 not recorded against the fair value of the warrants on the consolidated statement of financial positions. The outstanding $5,197,201 relates to the fair value of private warrants issued (see note 22.2).

 

In the year ended 31 March 2022, other change is the remeasurement gain on the warrants liability of $5,193,196.

 

F-71

 

32 SUBSIDIARIES

 

The Group’s subsidiaries at March 31, 2022 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Group. The country of incorporation or registration is also their principal business place of business. Particulars of the subsidiaries as of March 31, 2022 are as follows:

 

Name of entity		Place of Incorporation and operation		Principal activities		Particulars of issued/registered share capital		Percentage of ownership interest
8i Enterprises Acquisition Corp		British Virgin Islands		Investment holding		1 ordinary share of US$1 each		Direct 100%
Diginex Limited		Hong Kong		Investment holding and provision of support services to the Group		1,779,708 ordinary shares (US$83,478,807)		Indirect 100%
						10,000 ordinary shares (HK$10,000)
Eqonex (HK) Limited (formerly known as Diginex Strategic Limited)		Hong Kong		Investment holding		10,000 ordinary shares (HK$10,000)		Indirect 100%
DigitalTech Global Limited (formerly known as Diginex Global Limited)		Hong Kong		Investment holding		10,000 ordinary shares (HK$10,000)		Indirect 100%
Eqonex Solutions Limited (formerly known as Diginex Solutions Limited)		Hong Kong		Investment holding		10,000 ordinary shares (HK$10,000)		Indirect 100%
Eqonex Solutions Pte Limited (formerly known as Diginex Solutions Pte Limited)		Singapore		Technology service provider		10,000 ordinary shares of par value $1 each		Indirect 100%
Digital Software Technology Pte. Ltd.		Singapore		Technology service provider		1 ordinary share of SG$1		Indirect 100%
Eqonex Financial Services Limited (formerly known as Diginex Financial Services Limited)		Hong Kong		Investment holding		10,000 ordinary shares (HK$10,000)		indirect 100%
Eqonex Markets Limited (formerly known as Diginex Markets Limited)		Hong Kong		Financial trading		10,000 ordinary shares (HK$10,000)		Indirect 100%
Diginex Capital (Hong Kong) Limited		Hong Kong		Not yet commenced business		10,000 ordinary shares (HK$10,000)		Indirect 100%
Bletchley Park Asset Management (Hong Kong) Limited		Hong Kong		Fund Investment Manager		9,935,369 ordinary shares (HK$9,935,369)		Indirect 100%
Eqonex SA (formerly known as Diginex SA)		Switzerland		Fund Investment Manager		100,000 ordinary shares of CHF1 each		Indirect 100%
EQONEX Capital Pte. Ltd. (formerly known as Diginex Capital Pte. Limited)		Singapore		Provision of Digital Asset Exchange		100,000 ordinary shares of SG$1 each		Indirect 100%

F-72

 

Digital Markets Ltd		Republic of Seychelles		Risk management trading		1 ordinary share of US$1		Indirect 100%
Digital Software Technology Vietnam Limited Liability Company		Vietnam		Technology service provider		Share capital of VND54,584,500		Indirect 100%
Digital Management Ltd		Republic of Seychelles		Financial trading		1 ordinary share of US$100		Indirect 100%
Digital Software Technology Ltd		Republic of Seychelles		Technology service provider		1 ordinary share of US$100		Indirect 100%
Eqonex Digital Technology Limited		Gibraltar		Financial trading		1 ordinary share of GBP 1		Indirect 100%
Eqonex Ventures Limited (formerly known as Diginex Ventures Limited)		Hong Kong		Investment holding		10,000 ordinary shares (HK$10,000)		Indirect 100%
深圳市數塊鏈科技有限公司 (“Diginex Limited China”)		The People’s Republic of China		Not yet commenced business		Registered capital of RMB300,000		Indirect 100%
Diginex Data Centre Services Limited		Hong Kong		Data Centre Services		10,000 ordinary shares (HK$10,000)		Indirect 100%
Diginex Co., Ltd. (Korea)		Republic of Korea		Not yet commenced business		20,000 ordinary shares of KRW 500 each		Indirect 100%
Eqonex GmbH (formerly known as Diginex GmbH)		Germany		Software development		25,000 ordinary shares of EUR1 each		Indirect 100%
Diginex Global Market Holdings Limited		Hong Kong		Investment holding		10,000 ordinary shares (HK$10,000)		Indirect 100%
Diginex Capital (Jersey) Limited		Jersey		Not yet commenced business		1,000,000 ordinary shares of par value USD0.01 each		Indirect 100%
Diginex (UK) Limited		United Kingdom		Investment holding		8,350 ordinary shares of GBP1p each		Indirect 100%
DigivaultLimited		United Kingdom		Provision of digital asset custody		3,400 ordinary shares of GBP1p each 600 ordinary B shares of GBP1p each		Indirect 100% (2021: 85%) note (a)
						1,650 preference shares of GBP1 each
Digivault GmbH		Germany		Inactive		25,000 ordinary shares of EUR1		Indirect 100% (2021: 85%)
Bletchley Park Asset Management Jersey Limited		Jersey		Fund investment manager		10,000 ordinary shares of US$1 each		Indirect 100%
EQONEX Investment Products S.A.R.L. (formerly known as EQUOS Investment Products S.A.R.L.)		Luxembourg		Not yet commenced business		12,000 ordinary shares of EUR1 each		Indirect 100%
Eqonex Capital Limited (formerly known as Diginex Capital Limited)		United Kingdom		Financial services		1 ordinary share of GBP1		Indirect 100%

 

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Note (a) – On 28 February 2022, Diginex Limited acquired 15% of Digivault Limited from the holders in exchange for 1,464,291 shares in Eqonex Limited. Post the transaction, Diginex Limited holds 100% of the issued share capital of Digivault Limited. Should substantially all the shares of Digivault be sold within 12 months of this transaction for consideration in excess of $100m, the sellers of the 15% will be entitled to 5% of any amounts received above $100m, pro rata subject to the percentage of Digivault shares sold.

 

During the year ended 31 March 2021 the Group closed Diginex Asset Management (Cayman) Limited, Digivault (Jersey) Limited and Diginex Japan Limited. These entities are no longer consolidated.

 

33 ACQUISITIONS

 

33.1 8i Enterprises Acquisition Corp and Diginex Limited

 

On 30 September 2020, the Company completed the Transaction with 8i Enterprises and Diginex HK where the Company issued 6,688,392 shares to 8i Enterprises shareholders and service providers to the Transaction as well as 25,000,000 shares to the Diginex HK shareholders. The 6,688,392 shares issued were valued at $8.50 based on the quoted trading price on 30 September 2020, with a total value of $56,851,332.

 

In addition, the Company also issued 6,212,050 warrants to the former warrant holders of 8i Enterprises on a one to one basis as part of the Transaction. The warrants were valued at $1.34 based on the quoted trading price on 30 September 2020, with a total value of $8,324,147.

 

As a result of the Transaction, the Diginex HK shareholders became the majority shareholders of the Company and Diginex HK is considered the accounting acquirer per note 2.5.

 

As at 30 September 2020, 8i Enterprises held cash of $35,263,363 in Trust due back to the redeeming former shareholders of 8i Enterprises and recorded an equivalent redemption liability. The redemption liability was settled in full on 2 October 2020.

 

The fair values of the identifiable assets and liabilities of 8i Enterprises acquired as at 30 September 2020, the date of Transaction were as follows:

 

Net assets acquired:		Notes				USD
Prepayment, other receivables and other assets							54,166
Cash held in trust							35,263,363
Cash and cash equivalents							24,149,525
Redemption liability							(35,263,363	)
Accounts payable							(909,051	)
Other payables and accruals							(1,725,000	)
Amount due to Diginex HK							(390,030	)
Total identifiable net assets at fair value							21,179,610
Transaction expense			6				45,413,018
Deemed consideration (see below)							66,592,628
Deemed consideration comprised of:
- 6,688,392 shares valued at $8.50 per share							56,851,332
- 6,212,050 warrants valued at $1.34 per warrant			23				8,324,147
- 345,000 unit purchase options valued at $ 4.11 per unit			22.6				1,417,149
							66,592,628
An analysis of the cash flows in respect of the acquisition of a subsidiary is as follows:
Cash consideration paid							-
Cash and cash equivalents acquired							24,149,525
Net cash inflow generated from acquisition							24,149,525

 

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The fair values of the identifiable assets and liabilities of the Company acquired as at the date of Transaction were as follows:

 

Net assets acquired:		Note				USD
Prepayment, other receivables and other assets							2,191
Cash and cash equivalents							50
Other payables and accruals							(18,851	)
Total identifiable net assets at fair value							(16,610	)
Recapitalization difference taken to reverse acquisition reserve			21				16,610
Deemed consideration							-
An analysis of the cash flows in respect of the acquisition of a subsidiary is as follows:
Cash consideration paid							-
Cash and cash equivalents acquired							50
Net cash inflow generated from acquisition							50

 

Upon incorporation, the Company issued one founding share at $1 on 1 October 2019. On completion of the Transaction, the Company’s net liabilities of $16,610 and share capital of $1 were consolidated into the Group’s consolidated financial statements via the recapitalization of Diginex HK (note 2.5).

 

34 DISCONTINUED OPERATIONS

 

34.1 Summary

 

There is one component that makes up discontinued operations as detailed in note 33.2.

 

				Year ended 31 March 2022				Year ended 31 March 2021
Profit (loss) from discontinued operation (attributable to the ordinary equity holders of the Company)		Notes		USD				USD
Solutions business		37.3			-				4,956,408
Profit (loss) from discontinued operations					-				4,956,408

 

34.2 Solutions business

 

On 15 May 2020, Diginex HK, together with Diginex Solutions Limited, sold the legal entities of Diginex Solutions (HK) Limited and Diginex USA LLC, together with the trademarks associated with the Diginex name, to a related party, Rhino Ventures Limited, an entity controlled by Miles Pelham, the founder of Diginex HK. The consideration of $6,000,000 was netted against the shareholder loan with Pelham Limited, also an entity controlled by Miles Pelham. In addition, Diginex HK agreed to fund the business for six months post the sale at a 25% discount to the projected costs. The assets and liabilities of Diginex Solutions (HK) Limited and Diginex USA LLC have not been disclosed as available for sale as they are deemed immaterial.

 

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The gain on sale is calculated as below:

 

		USD
Proceeds:
Shareholder loan settled			6,000,000
Total Proceeds			6,000,000
Costs:
Net costs incurred on behalf – note (a)			915,181
Cost of investment			11,274
Total Costs			926,455
Gain on sale			5,073,545

 

Note (a) – as part of the sale agreement, Diginex HK agreed to continue funding the Solutions Business for 6 months post sale. Subsequent to the agreement, a one-off payment was made to settle the liability at a 25% discount.

 

A summary of the discontinued gain (loss) and cash flow is below:

 

		Year ended 31 March				Year ended 31 March
		2022				2021
		USD				USD
Revenue			-				-
General and administrative expenses			-				(117,137	)
Loss before tax			-				(117,137	)
Income tax expense			-				-
Loss after income tax of discontinued operations			-				(117,137	)
Gain on sale of Solutions business			-				5,073,545
Profit (loss) from discontinued operations			-				4,956,408
Adjustment for:
Net cash (inflow) outflow from operating activities – note (b)			-				(5,987,534	)
Net (decrease) in cash generated from discontinued operations			-				(1,031,126	)

 

Note (b) – For the year ended 31 March 2021, $5,987,534 is net of $6,000,000 proceeds less $12,466 related to shares issued to employees of the Solutions Business ($9,263 relates to the employee salary deferral scheme and $3,203 relate to costs incurred on behalf of Solutions per note (a) above). For the year ended 31 March 2020, $70,331 related to shares awarded as part of the salary deferral scheme to an employee of the Solutions Business.

 

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35 FINANCIAL RISK MANAGEMENT

 

35.1 Market risk factors

 

The Group’s activities expose it to a variety of market risks: price risk, foreign currency risk, interest rate risk and liquidation risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.

 

The risks are minimized by the financial management policies and practices described below.

 

35.1.1 Price risk

 

The Group’s exposure to unlisted equity securities price risk arises from investments held by the Group and classified in the consolidated statement of financial position as at fair value through profit or loss (FVTPL) (note 14). As at 31 March 2021, the Group’s investment in unlisted equity securities was not considered material. As at 31 March 2022, the Group’s investment in unlisted equity securities is predominantly focused on the investment into the BP Fund which in turn in exposed to digital asset price risk.

 

The Group’s exposure to digital asset price risk arises from digital assets held by the Group on a revaluation basis mostly in BTC (note 18) and USDC (note 19), as well as the investment made to the BP Fund which is exposed to price changes due to the performance of the underlying funds.

 

The Group has issued private warrants which are subject to price risks driven by the volatility of the Company’s share price and the spot price of the shares at a particular point in time when the warrants are being valued.

 

35.1.2 Foreign currency risk

 

The Group operates primarily in USD and HKD, albeit there is an increasing exposure to GBP, SGD and EUR. Given USD and HKD are pegged within a range, the Group had a reduced exposure to foreign currency risk during the year. Given the increasing exposure to other currencies, the Group is formalizing a foreign currency hedging policy in respect of foreign currency transactions, assets and liabilities. The Group monitors its foreign currency exposure closely and will consider hedging significant foreign currency exposure to manage the risk. The material balance sheet items are denominated in USD and as such no sensitivity analysis on the impact of foreign exchange movements has been performed.

 

35.1.3 Interest rate risk

 

The Group has minimal interest rate risk because there are no significant borrowings at variable interest rates. The Group currently does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider other necessary action when significant interest rate exposure is anticipated. The Group’s cash flow interest rate risk relates primarily to variable-rate bank balances. The exposure to the interest rate risk for variable rate bank balances is insignificant as the bank balances have a short maturity period.

 

35.1.4 Liquidation risk management

 

The Group currently takes no proprietary trading positions and is not exposed to deliberate position risk but is exposed to a small amount of market risk via the EQONEX Exchange in managing the liquidation mechanism in place to close clients’ open trading positions in the event that if they breach minimum margin requirements. The Group runs a liquidation risk management desk which is used to take on the positions of liquidating positions in the event of there being insufficient liquidity on the Exchange liquidation platform or main order book to liquidate client positions. Any positions taken on by the liquidation risk management desk are hedged immediately, to minimize the market risk in positions taken on, but some residual exposure exists in the execution of hedges and unwinding positions.

 

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35.2 Credit risk

 

The Group has exposure to credit risk arising from monies relating to notional credit offered to some EQONEX customers, amounts due from shareholders, related parties and associates as well as trade receivables and deposits with bank. Credit risk is managed on a Group basis.

 

The amount of the Group’s maximum exposure to credit risk is the amount of the Group’s carrying value of the related financial assets and liabilities as of the end of the reporting period.

 

35.2.1 Deposits with bank

 

With respect to the Group’s deposit with bank, the Group limits its exposure to credit risk by placing deposits with financial institution with high credit rating and no recent history of default. Given the high credit ratings of the banks, management does not expect any counterparty to fail to meet its obligations. Management will continue to monitor the position and will take appropriate action if their ratings are changed. As at 31 March 2022 and 31 March 2021, the Group had a concentration of deposits with one bank but does have additional banking relationships to mitigate any concentration risk.

 

35.2.2 Amounts due from related companies/shareholders/an associate

 

If the parties are independently rated, these ratings are used. Otherwise, the Group’s risk measurement and monitoring process includes assessment of the credit quality of the parties, taking into account its financial position, past experience and other factors impacting credit quality of the parties.

 

Other than the credit risks mentioned above, the Group does not have any other significant concentrations of credit risk. The exposures to these credit risks are monitored on an ongoing basis.

 

35.2.3 On exchange credit

 

Following the launch of the Exchange, the Group has offered notional on-exchange credit to selected clients. Notional on-exchange credit increases the available trading balance to those selected clients and is termed as notional as there is no physical transfer of assets to the clients. The notional credit offered has restricted use on the Exchange and cannot be withdrawn. Collateral is deposited by the trading counterparties in advance of receiving on-exchange credit and the risk of any loss is mitigated by risk management processes in place such as regular reconciliations and margin calls in advance of the client’s asset portfolio breaching the advanced credit balance. As at 31 March 2022, the total amount of notional credit outstanding to the selected clients was 23,300,000 USDC 164.5 BTC 1,513 ETH, 800 BCH and 6,250 DOT . Against the notional credit advanced the Group held collateral deposited by the clients of 7,075,000 USDC, 53 BTC, 455.5 ETH, 200 BCH and 1250 DOT (2021: $150,000 and 310,000 USDC). Additionally, as of March 31, 2022 and 2021, the clients, that had been allocated on-exchange credit, had balances in excess of the notional credit in their EQONEX trading accounts that is monitored and ensured via a margin call and settlement process.

 

Other than the credit risks mentioned above, the Group does not have any other significant concentrations of credit risk. The exposures to these credit risks are monitored on an ongoing basis.

 

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35.3 Liquidity risk

 

35.3.1 Financing arrangement

 

The Group monitors its cash position on a regular basis and manages cash and cash equivalents to finance the Group’s operations. The Group has been primarily financed via the proceeds from the shareholder investments via the convertible bond, the convertible loan, the Transaction, private placement, warrants exercised and convertible loans from Bifinity.

 

35.3.2 Maturities of financial liabilities

 

The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the end of each financial reporting period to the contractual maturity dates. The amounts disclosed in the table are the contractual undiscounted cash flows.

			1				2				3				4
		Within 1 year				1-5 years				Over 5 years				Total
		USD				USD				USD				USD
At 31 March 2022
Other payables and accruals			6,491,477				-				-				6,491,477
Amount due to an associate			900,000				-				-				900,000
Lease liabilities			1,153,762				4,171,642				259,276				5,584,680
Amount due to related parties			7,828				-				-				7,828
Client liabilities			42,071,538				-				-				42,071,538
Convertible loans			-				3,180,000				-				3,180,000
Warrant liability			4,005				-				-				4,005
			50,628,610				7,351,642				259,276				58,239,528
At 31 March 2021
Other payables and accruals			6,250,102				-				-				6,250,102
Amount due to an associate			900,000				-				-				900,000
Lease liabilities			764,103				139,470				-				903,573
Amount due to related parties			203,460				-				-				203,460
Client liabilities			27,021,925				-				-				27,021,925
Amount due to directors			6,785				-				-				6,785
Warrant liability			5,197,201				-				-				5,197,201
			40,343,576				139,470				-				40,483,046

 

35.4 Capital risk

 

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maximize the return to the shareholders through the optimization of the debt and equity balance.

 

The Group manages its capital structure and adjusts it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders, issue new shares or other instruments. No changes were made in the objectives, policies or processes for managing capital during the year ended 31 March 2022 and 2021.

 

The Group has a subsidiary that holds a Type 4 and Type 9 licenses from the Hong Kong Securities and Futures Commission and is subject to minimal capital requirements. Other than this, the Group was not subject to any externally imposed capital requirements during the reporting periods.

 

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35.5 Fair values measurements

 

35.5.1 Fair value hierarchy

 

This section explains the judgements and estimates made in determining the fair values of financial instruments in the consolidated financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has classified its financial instruments and non-financial assets into the three levels prescribed under the accounting standards. An explanation of each level follows underneath the table.

R			1				2				3				4
Fair value measurements using:
At 31 March 2022		Level 1				Level 2				Level 3				Total
		USD				USD				USD				USD
Recurring fair value
Financial assets at FVTPL			48,399				-				2,262,599				2,310,998
Warrant liability			-				-				4,005				4,005
Digital assets			1,054,649				-				-				1,054,649
USDC			1,983,767				-				-				1,983,767
			3,086,815				-				2,266,604				5,353,419

 

R			1				2				3				4
Fair value measurements using:
At 31 March 2021		Level 1				Level 2				Level 3				Total
		USD				USD				USD				USD
Recurring fair value
Financial assets at FVTPL			304,053				-				-				304,053
Warrant liability			-				5,197,201				-				5,197,201
Digital assets			348,998				-				-				348,998
USDC			2,034,800				-				-				2,034,800
Non-Recurring fair value measurements
Financial assets at amortized cost (a)			-				-				45,538				45,538
			2,687,851				5,197,201				45,538				7,930,590

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

 

Level 2 inputs, other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

 

Level 3 inputs are unobservable inputs for the asset or liability.

 

Note 35.5.1(a): This relates to an amount due from an associate (note 16) which was impaired in the year ended 31 March 2020 under the expected credit loss methodology. During the year ended 31 March 2021, the balance is being settled via a repayment agreement via a 3^rd party recorded within other receivables. The balance was fully repaid in April 2021.

 

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35.5.2 Valuation techniques used to determine fair values

 

Below lists the valuation techniques and key inputs used by the Group to value its Level 3 financial assets. There has been no change in valuation technique during the year ended 31 March 2021.

		Amount		Valuation techniques and key inputs		Significant unobservable inputs		Relationship of unobservable inputs to fair value and sensitivity
Investment		Amount as at 31 March 2022 USD		Valuation techniques and key inputs		Significant unobservable inputs		Relationship of unobservable inputs to fair value and sensitivity
Shadow Factory		Nil (2021: Nil)		Review of 12-month financial projections and discussions with management at 31 March 2022 and 2021.		(i): Discount rate; (ii): Revenue growth rate		A slight increase in the discount rate or decrease in revenue growth rate used in isolation would result in a decrease in the fair value
Nynja		Nil (2021: Nil)		Review of 12-month financial projections and discussions with management at 31 March 2022 and 2021.		(i): Discount rate; (ii): Revenue growth rate		A slight increase in the discount rate or decrease in revenue growth rate used in isolation would result in a decrease in the fair value
BP Fund		2,262,599 (2021: Nil)		Based on NAV Report received from the fund administrators, corroborated with no premium/discount made by third party investments		(i): NAV Report from the fund administrators; (ii): Third party investments value premium/discount		A discount or premium placed by third party investors into the BP Fund over the NAV would result in an adjustment in the estimation of fair value
Warrants liability		4,005 (2021: 5,197,201)		Black-Scholes modelling taking into account of: current share price, risk free rates, expected share price volatility based on unobservable inputs, dividend rate, tenure		(i): Historical share price volatility of comparable companies; (ii): Bitcoin volatility		A movement in the volatility of comparable companies and bitcoin in isolation would result in an increase or decrease in the fair value.
Other receivables		Nil (2021: 45,538)		Based on collections		N/A		N/A
Other receivables		Nil (2021: 45,538)		Based on collections		N/A		N/A

 

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35.5.3 Reconciliation of Level 3 fair value measurements

		31 March 2022				31 March 2021
		USD				USD
At 1 April			5,242,739				1,377,421
Additions			2,000,000				16,594,388
Repayments			(45,538	)			(760,136	)
Fair value remeasurement			(4,930,597	)			(11,797,187	)
Impairment reversal			-				21,071
Repayment by 3rd party			-				(191,645	)
Adjustment for foreign exchange			-				(1,173	)
At 31 March			2,266,604				5,242,739

 

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35.5.4 Financial assets and financial liabilities measured at amortized cost

 

The financial assets and financial liabilities in the table below are measured at amortized cost. Management believes the carrying amounts of these financial assets and liabilities measured at amortized cost approximate their Level 3 fair values.

		Notes				At 31 March 2022				At 31 March 2021
						USD				USD
Financial assets
Trade receivables			15.1				71,423				12,604
Other receivables							209,867				259,858
Amounts due from related companies			17.2				43,202				12,296
Amounts due from shareholders			17.4				1				36,963
Total							324,493				321,721
Total - Financial assets							324,493				321,721
Financial liabilities:
Amount due to an associate			16.2				900,000				900,000
Amounts due to related parties			17.3				7,828				203,460
Amounts due to directors			17.5				-				6,785
Other payables and accruals			27				6,491,477				6,250,102
Convertible loans			30				2,774,692				-
Total							10,173,997				7,360,347
Total - Financial liabilities							10,173,997				7,360,347

 

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36 SUBSEQUENT EVENTS

 

On August 15, 2022, the Company announced that it would close its EQONEX cryptocurrency exchange on August 15, 2022. Exchange customers will have until September 14, 2022 to transfer or withdraw their digital assets from the Exchange. Customer assets that are not withdrawn or transferred within the prescribed timeline will be securely stored in a segregated Digivault account. In connection with the exchange closure and in accordance with the loan agreement, Bifinity granted the Company a waiver for the cessation of a major business and the Company agreed to increase its share charge of Digivault under the loan agreement from 24.9% to 100%. For the year ended March 31, 2022, the Exchange business accounted for $4.2 million of revenue and $29.0 million of directly-related general and administrative expenses, of which some, albeit not a material amount, of such costs would be utilised by other continuing operations of the Group. In respect of the Group’s infrastructure costs that were allocated to the Exchange business, the Group’s management is still in the process of assessing the necessary actions to have further reduction on such expenditures.

 

Management considered that closing Exchange business will improve the Group’s consolidated financial position by materially reducing the high-cost structure associated with operating the Exchange, and free up resources to drive growth in its current business segments, i.e. custody business, asset management business and brokerage business, where the Company believes it has competitive strengths.

 

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