TIDMTECH
RNS Number : 5318S
TechFinancials Inc.
26 June 2018
26 June 2018
TechFinancials Inc.
("TechFinancials", the "Company", or the "Group")
Preliminary Results for the year ended 31 December 2017
TechFinancials Inc. (AIM: TECH), a leading technology provider
to financial trading brokers, today announces its results for the
year ended 31 December 2017.
The Company also announces that in accordance with AIM Rule 20,
electronic copies of its Annual Report and Accounts for the year
ended 31 December 2017 are available from the Company's investor
relations website at https://group.techfinancials.com. Hard copies
of the 2017 Annual Report and Accounts will be posted to
shareholders no later than 29 June 2018.
Financial Highlights
-- Revenues of US$13.4 million (2016: US$21.3 million) decreased by 37%
-- Core software licensing revenues of US$4.3 million (2016: US$10.4 million) decreased by 59%
-- Trading platform revenues of US$8.9 million (2016: US$10.9 million) decreased by 18%
-- New segment blockchain trading technology revenues of US$0.24 million
-- Net cash generated from operating activities of US$0.2 million (2016: US$5.9 million)
-- Gross margins decreased to 76% (2016: 78%)
-- Impairment provision of US$1.5 million made to write-down the
value of intangible assets relating to the US and Japanese trading
solutions
-- Operating profit of US$0.8 million (2016: US$5.0 million)
-- EBITDA attributable to shareholders was US$0.3 million (2016: US$2.8 million)
-- Pre-tax loss attributable to shareholders was US$2.49 million
(2016: pre-tax profit of US$1.3 million)
-- Cash position of US$3.5 million as at 31 December 2017 (2016:
US$7.7 million). Cash at 25 June 2018 stood at US$2.8 million
-- Basic earnings per share ('EPS') has decreased to a loss of
US$0.036 (2016: profit of US$0.017)
-- DragonFinancials, the Company's 51% subsidiary, paid
dividends of US$7.2 million during 2017 with TechFinancials
receiving US$3.7 million for its 51% interest
-- Loan and Option Agreement with the shareholder of Cedex
Holdings Ltd ("CEDEX") - loan of US$0.4 million made in 2017 in
exchange for an option to acquire 90% of CEDEX in addition to
initial 2% shareholding acquired as the first step part of new
strategy of the Group in entering blockchain-based trading
solutions (out of the initial loan amount US$0.33 million was
repaid by CEDEX on 5 June 2018)
-- As of 31 December 2017, the fair value of the option is
US$8.9 million based on Black Scholes model (see Note 8).
Operational Highlights
Blockchain Trading Technology Activity
-- TechFinancials provided financing to CEDEX, a company engaged
in an ICO, in exchange for receiving an option to hold an interest
of up to 92% in CEDEX or up to 87.4% on a fully diluted basis.
-- As at 31 December 2017, the fair value of the option was
US$8.9 million based on the Black Scholes model. The recognition of
the option value is deferred and will be recognized as a gain or
loss, only to the extent that it arises from a change in a factor
that market participants would take into account when pricing the
asset or liability, which is the completion of the ICO in April
2018.
-- The Company commenced a new activity related to blockchain
trading technology developing an array of new products, where CEDEX
was its first customer.
Software Licensing (B2B)
-- There has been a reduction in B2B software licensing operations due to:
o Continued regulatory tightening which caused financial
institutions such as banks and payment service providers (PSPs) to
terminate services to binary options platforms. There has been a
similar effect on marketing service providers.
o In addition, the termination of the contract with
24option.com, our largest customer in 2016 has depressed
revenues.
-- Two development projects cancelled namely the Introducing
Broker product in the United States with Cantor Fitzgerald, and a
regulated solution in Japan - intangibles assets impaired by US$1.5
million.
-- R&D efforts focused on solutions for Asian markets have
now shifted from binary options to Forex.
-- Transfer of the R&D team from Israel to Ukraine for regulatory reasons and to reduce costs.
Trading Platform (B2C)
-- TechFinancials completed the successful integration and
operation of the DragonFinancials trading platform, focused on the
Asia Pacific Region. This has contributed to the profitability of
the B2C division.
-- Renouncement of CIF license of BOT, ceasing the operation of
OptionFair in February 2018. In line with TechFinancials' wider
strategy, BOT has notified the Cyprus Securities and Exchange
Commission ("CySEC") of its intention to withdraw its Cyprus
Investment Firm "(CIF") authorization.
Asaf Lahav, Group Chief Executive Officer of TechFinancials,
commented:
"2017 has been a year of significant change, as we shifted our
focus from binary options to blockchain trading technologies and
solutions, and the growth of our Forex and CFD business.
"The Company's long-term strategic investment in CEDEX has been
a pivotal step for the business and whilst continuing to support
CEDEX, we will look to build on our experience and expertise to
develop innovative solutions for the rapidly growing
blockchain-based products and technologies market, as we seek to
expand into new product areas.
"Despite a number of challenges faced over the year, we have
remained committed to developing new technologies and seeking new
investment opportunities to facilitate expansion. We are confident
that the changes implemented across the business, and the new
strategy will best position the Company for future growth."
For further information:
TechFinancials, Inc.
Asaf Lahav, Group Chief Executive Officer
Yuval Tovias, Chief Financial Officer https://group.techfinancials.com
Grant Thornton UK LLP (Nominated Adviser)
Colin Aaronson / Samantha Harrison Tel: +44 (0) 20 7383
5100
Northland Capital Partners Limited (Joint
Broker)
David Hignell/ John Howes Tel: +44 (0) 20 3861
6625
Peterhouse Corporate Finance (Joint Broker)
Lucy Williams / Eran Zucker Tel: +44 (0) 20 7469
0932
Media enquiries:
Yellow Jersey (Media Relations)
Charles Goodwin / Katie Bairsto Tel: +44 (0) 7748 843
871
About TechFinancials
TechFinancials, Inc (AIM: TECH) is a fintech software provider
of financial trading solutions, including blockchain-based digital
assets and traditional financial trading solutions for retail
clients. The Group operates a B2B division licensing white label
trading platform solutions to online brokers. In addition, the
Company operates a B2C division operating trading platform
incorporating a strategic joint venture focusing on solutions for
traders in the Asia Pacific region.
The Company currently holds a 2 % interest and an option to
acquire a further 90 % in CEDEX, a blockchain-based on-line
exchange for diamonds, which would give TechFinancials up to 92 %
of CEDEX or 87.4 % on a fully diluted basis.
Further information can be found at
http://techfinancials.com.
Chairman's Statement
2017 has been an important year for the development of the
Company, despite facing a number of challenges over the course of
the year. The loss of our largest customer 24option and the ongoing
uncertainty surrounding the regulatory environment have adversely
affected our core B2B software licensing business, leading to a
fall in revenues. These challenges have meant that we have had to
focus on diversifying our business offering by introducing new
products as well as carefully reviewing and managing our cost
base.
Our approach to mitigate the impact of these negative factors is
to be continually innovative in terms of new products, which has
helped to alleviate the fall in revenues and profits whilst at the
same time, providing a strong foundation for 2018 and beyond. In
response we have developed a new strategy, based on innovative
products, which the Board expects to drive future revenues. The
Group has been developing its technology since H2 2017 to allow
merchants to integrate a crypto-payment processing of Bitcoin,
BitcoinCash and Ethereum into their systems. This technology was
integrated successfully into TechFinancials' core systems in Q1
2018 (and licensed to CEDEX, our first customer of this product).
During H2 2017, the Company was focused on supporting the CEDEX
token sale and has continued to deepen its technical and business
knowledge in blockchain and crypto implementation. The Group will
continue to support the CEDEX project and transfer its blockchain
and crypto knowledge into new technologies, services and solutions.
One of the potential solutions that the Company is working on,
based on the Crypto Payment Solution, is centimize.com - a safer
and simpler way to acquire crypto paying customers. This solution
is targeting merchants looking to boost their bottom line with a
fast-growing cryptocurrency payments channel, receiving, storing
and transferring funds rapidly, reliably and securely.
Overall, revenues have decreased by 37% and losses attributable
to Shareholders were US$2.6 million against a profit of US$1.2
million in 2016. EBITDA has fallen from US$5.6 million in 2016 to
US$2.9 million in 2017.
During the year, TechFinancials has managed the loss of our
largest B2B customer and focused on diversifying its products,
adding to the simplified Forex platform, mobile trading solutions
and the add-on CFD platform. We have also built on our investment
in and partnership with DragonFinancials, which operates our B2C
trading platform in Asia. We continue the process of shifting the
focus from binary options to Forex and CFD, as well as other new
products.
DragonFinancials generated a profit of US$5.3 million against
US$5.6 million in 2016 and paid dividends totalling US$7.2 million
of which TechFinancials received US$3.7 million. These results
meant that the additional contingent consideration became payable
to our partners and was settled in May 2018 by the issue of new
shares to OptionFortune shareholders to the value of US$4.5
million.
The regulatory environment continued to tighten and depress
trading activity, particularly in European markets. In February
2018, the Company decided to cease the activity of OptionFair and
to return the licence to CySEC which means that it no longer has a
presence in any European markets (although the B2B business has
retained some customers in Europe). This action is expected to
enhance the Group's B2C performance in 2018 as OptionFair was
loss-making in 2017.
Our B2B software licensing business segment has suffered from
the customer loss and increasingly tough regulatory conditions with
revenues falling by 55% to US$5.1 million and EBITDA declining from
a profit of US$1.3 million in 2016 to a loss of US$1.5 million in
2017. However, our policy of diversifying our product range through
the simplified Forex, CFD platform and mobile trading solutions has
helped to limit the loss of revenues. Whilst these products are not
expected to have a significant impact on 2018 revenues,
implementing a professional Forex trading platform MetaTrader 5
into our B2C Joint Venture DragonFinancials will support future
growth.
A detailed analysis of the financial performance of each segment
of the Group's business is provided in Note 9.
The decline in the Group's financial performance has reduced our
cash flows and at the year-end, the Company's cash balances stood
at US$3.5 million against US$7.7 million last year (due in part to
the payment of dividends to the 49% shareholder in
DragonFinancials). Whilst we have seen cash flows decline, we have
continued to invest in new products and R&D to support future
growth opportunities. Significantly, TechFinancials entered into a
loan and option agreement with the shareholders of CEDEX in October
2017. CEDEX will operate what the Company believes will be the
first blockchain-based online diamond exchange with a long-term
vision to transform the traditional diamond industry into a
financial tradeable asset. This was followed by the signing of a
Share Purchase Agreement (SPA) in December 2017 for the Company to
acquire 2% of CEDEX, which in addition to its option to acquire 90%
of CEDEX, gives it the right to acquire up to 87.4% on a fully
diluted basis.
We have further increased our R&D team in Ukraine, whilst
discharging staff in Israel, in order to support the strategy of
product diversification.
Notwithstanding the challenges of the past year, the Group's
cash position remains strong. We have had to be agile in a rapidly
changing industry and the new products and initiatives are designed
to support our growth strategy and to enable TechFinancials to
deliver returns to shareholders by way of a progressive dividend
payment policy. Cash was US$3.5 million as at 31 December 2017 and
at 25 June 2018 stood at US$2.8 million (this does not include cash
within CEDEX).
Alongside the development of new opportunities, we have sought
to rationalize those activities which are not core to our future
business strategy. The regulatory changes which have impacted the
binary options sector led us to actively seek divestment of B.O
TradeFinancials ("BOT") and MarketFinancials ("MF"). BOT is a
Cyprus Investment Firm ("CIF") licensed by the Cyprus Securities
and Exchange Commission ("CySEC"), and was the operator of the
Group's OptionFair trading platform. Until 30 June 2017, MF, which
is regulated by the Seychelles Financial Services Authority
("SFSA"), was the provider of market maker services and risk
management to DragonFinancials. MF no longer provides market making
services to BOT - it ceased activity on 26 February 2018 when we
notified CySEC of our intention to return the license and close
OptionFair which was operated by BOT.
In November 2017, we signed conditional agreements for the sale
of both BOT and MF. However, in February 2018, we decided not to
progress with the proposed sales as the buyer had not secured the
relevant regulatory consents for the acquisition of either BOT or
MF. We are carefully considering our options with regard to the
shareholdings in BOT and MF and will continue to focus our
attention on developing the Forex and CFD and other innovative
solutions, including solutions for the rapidly growing
blockchain-based products and technologies market. In this
connection, the Group has been developing technology to integrate
the crypto-payment processing of Bitcoin, BitcoinCash and Ethereum
into TechFinancials' core systems which was implemented
successfully in Q1 2018 (and licensed to CEDEX, our first customer
of this product). The Group will continue to apply additional
technologies and knowledge and provide services to support the
innovative CEDEX project that intends to use blockchain trading
technology to revolutionize the diamond-trading market.
Regulation
As I have highlighted above, the regulatory environment
surrounding the financial services industry and marketing of binary
options, Forex and CFD trading in a number of countries has
continued tightening and it has had an impact on our product
offerings and financial performance.
The ban by the European Securities and Markets Authority on
binary options, that will take effect on 2 July 2018, and the
restrictions on CFDs that will take effect on 1 August 2018, will
continue to be a challenge for that industry as a whole in 2018 and
beyond.
In light of this, TechFinancials will continue to take steps to
mitigate the impact of these regulatory changes on the business,
focusing on new areas of blockchain trading technologies and
solutions as a core part of our strategy. Additionally, we will
continue to offer and provide solutions as we divert our focus from
binary options to the offering of Forex and CFD online trading
solutions, including the implementation of the third-party
professional Forex trading platform, MetaTrader 5.
Margins
Gross profit decreased by 38.8% to US$10.19 million from
US$16.65 million in 2016, largely due to the lower revenues from
the core B2B software licencing business, which has traditionally
higher margins than the B2C trading platform business. The gross
margin in the period decreased to 76% (2016: 78%).
In a shrinking market, the Company has had to be conscious of
its cost levels and, by reducing headcount, and management and
operational costs (employee costs in Ukraine are some 30% lower
than in Israel), the Group has been able to limit the fall in
margins.
Business summary and operational review
B2B
Our core software licensing business has seen a significant
reduction in revenues, primarily as a result of the loss of our
major customer. We received prior notification that our largest
software licensee, Richfield Capital, owner of www.24option.com,
intended to terminate its agreement with the Group with effect from
1 April 2017. As a result, we were able to plan for this loss and
have worked hard to offset this loss by diversifying our product
offering through the simplified Forex platform and mobile trading
solutions and the launch of the add-on CFD platform in the second
half of 2016. However, as the entire market is shrinking, we expect
to see a further reduction in B2B revenues in 2018, hence our
strategic focus on new technologies, including blockchain trading
products and solutions.
Overall, our software licensing revenues have declined on a
standalone basis by 55% to US$5.1 million. EBITDA fell from US$1.3
million in 2016 to a loss of US$1.5 million in 2017.
B2C
DragonFinancials, the B2C binary options trading platform
focused on the Asia Pacific region and the partnership with the
owners of OptionFortune, has continued to perform well. Pre-tax
profit of the division was stable at US$4.1 million and it
continues to generate good cash flow for the Group.
On 1 March 2017, DragonFinancials declared the payment of a
dividend of US$3.0 million, followed by further dividends of US$2.0
million on 1 August 2017 and US$2.2 million on 20 December 2017.
All such dividends, totalling $7.2 million, were paid in 2017, with
TechFinancials receiving US$3.7 million for its 51% interest.
Overall, revenues have decreased by 18% to US$8.9 million. This
includes revenues of US$7.2 million from DragonFinancials. With
careful control of overheads, the division achieved EBITDA of
US$4.4 million against US$4.3 million in 2016. In 2018, binary
option revenues will continue to decrease due to the challenges and
changes that this industry is facing.
Under the terms of the agreement with the owners of
OptionFortune, additional consideration was payable in cash or
shares in respect to the results of DragonFinancials in 2017.
DragonFinancials achieved its target profitability and as a result
a total of 12,406,352 TechFinancials' ordinary shares were issued
at a price of GBP0.27 per share to the OptionFortune Shareholders,
in lieu of payment of US$4.53 million in April 2018. The Company
had recognised a contingent consideration payable of US$4.53
million in its financial statements in 2016 and therefore this
payment has not impacted on results or net assets in 2017.
Blockchain
As part of TechFinancials' vision and the new strategy of the
Group to focus on new areas of blockchain trading technologies and
solutions, in October 2017, we entered into a loan and option
agreement with the shareholders of CEDEX. CEDEX will operate what
the Company believes will be the first blockchain-based online
exchange for diamonds with a long-term vision to turn the
traditional diamond industry into a financial tradable asset.
Under the loan and option agreement, the Group agreed to make an
unsecured loan funding of US$0.4 million available to the CEDEX
group to develop its technology. On 5 June 2018, CEDEX repaid
US$0.33 million out of the initial loan amount.
It is envisaged that CEDEX will also utilise the Company's
knowledge and expertise. In addition, we may provide technical
development services to assist CEDEX with the development of the
trading platform. The Group received blockchain trading technology
revenues of US$0.24 million from CEDEX. TechFinancials will
continue to serve CEDEX throughout 2018 and provide software
services and some of the components for the CEDEX platform.
The collaboration with CEDEX is a strategic development aligned
with the Company's long-term vision of utilizing its expertise and
considerable experience in the development of online financial
trading solutions and technology systems to further expand into new
product areas. It is anticipated that CEDEX will provide a novel
way to invest in diamonds, aligned with the Company's vision of
simplifying trading instruments.
In addition, under the SPA TechFinancials agreed to make an
equity investment of US$0.2 million at a post-money valuation of
US$10 million, representing 2% of CEDEX's current capital on a
fully diluted basis.
TechFinancials also agreed a three-year option to acquire a
further 90% of CEDEX at an exercise price of US$62 thousand, giving
a potential maximum holding of 92% or 87.4% on a fully diluted
basis.
TechFinancials has continued to develop its Forex and CFD and
other innovative solutions including solutions for the rapidly
growing blockchain-based products and technologies market. In
particular, the Group has been developing technology to integrate
the crypto-payment processing of Bitcoin, Bitcoin Cash and Ethereum
into TechFinancials' core systems, which were implemented in Q1
2018. The Group will also apply its technology and knowledge to
support the innovative CEDEX project in the diamond-trading
market.
Dividends
The Board will not be recommending a final dividend to the
Shareholders of the Company for FY2017. The Board's intention is to
resume dividend payments when it is prudent to do so.
Outlook and current trading
2017 has been a transitional year with numerous challenges.
However, we have been proactive in developing new technologies and
seeking new investment opportunities to support future growth.
The Board is con dent about the long-term prospects of the Group
and it has continued to invest in new product lines and services
for the future, as it adapts to the evolving regulatory
environment.
However, it is expected that revenues will continue to decline
throughout 2018 although appropriate mitigation actions have been
and continue to be put in place to contain our expected losses.
I would like to thank all of our Shareholders and staff for
their continued support, and we look forward to updating the market
on the Company's progress in due course.
Christopher Bell
Independent Non-Executive Chairman
26 June 2018
Strategic Report
Financial Results
The Group's revenues for the year ended 31 December 2017
decreased by 37.3% to US$13.36 million (2016: US$21.32
million).
Revenues in the core B2B software licencing business decreased
on standalone basis by 55.39 % to US$5.14 million from US$11.53
million in 2016. The decrease was mainly due to the termination of
the previous software license agreement with our largest customer
and the increasingly tight regulation in the industry.
The B2C trading platform revenues decreased by 18.5% to US$8.86
million from US$10.87 million in 2017. DragonFinancials, which
operates our B2C trading platform in the Asia Pacific region,
started operations in January 2016 and produced revenue of US$8.5
million compared with US$9.3 million in 2016. The positive
financial performance of DragonFinancials meant that additional
contingent consideration of US$4.53 million became payable which
was settled in May 2018 through the issue of shares.
Our new blockchain trading technology division generated US$0.24
million of revenues (from CEDEX) and a pre-tax profit of
US$26k.
Gross profit decreased by 38.8% to US$10.19 million from
US$16.65 million in 2016, predominantly due to the lower revenues
from the core software licencing business, which has traditionally
higher margins than the trading platform business. The gross margin
in the period decreased to 76% (2016: 78%).
B2B margins increased from 73.4% to 75.9%, whilst margins in the
B2C division have declined from 75.3% to 70.7%,
Operating profits decreased by 83.8% to US$0.82 million (2016:
US$5.04 million). We have achieved savings in research and
development expenditure partly by transferring staff to Ukraine
where costs are lower, whilst other operating expenses, including
selling and marketing and administrative costs, decreased broadly
in line with the decrease in revenues.
However, R&D expenditure decreased by only 13% to US$2.9
million, reflecting a continued focus on product innovation,
regulation and improving customer experience.
The amount of R&D expenditure capitalised was US$0.04
million compared with US$0.3 million in 2016.
Administration costs reduced significantly by 25% to US$3.0
million which reflects a reduced headcount and tight control of
overhead expenditure.
Selling and marketing costs reduced significantly by 54% to
US$1.9 million, reflecting a curtailing of marketing activities
whilst the Group restructured its activities and shifted focus to
new technologies and products.
The Group recognised a finance charge of US$0.47 million in
respect of the contingent consideration payable to the owners of
OptionFortune due to the positive financial performance of
DragonFinancials.
The Group cancelled two development projects resulting in an
impairment charge of US$1.50 million against expenditure previously
capitalised. In the US market, the Company has been developing a
trading solution for the Introducing Broker product which would
allow TechFinancials' licensees, including the Group's own brands,
to operate in a fully regulated environment through the Cantor
Exchange, a US regulated retail-focused binary options exchange
owned by Cantor Fitzgerald. Cantor has tried to reach a broader
range of retail customers via different initiatives including with
major binary option players like 24option.com and others via online
marketing that they have conducted themselves. However, these
initiatives generated low trading volumes that resulted in minimal
revenues to TechFinancials and failed to justify the expenses
related to keeping the market making activity solution developed by
TechFinancials. In Japan we have also been developing a regulated
solution. However, we have been unable to source brokers in Japan
to license the regulated platform partly due to high costs of
obtaining a Japanese Financial Services Agency license.
Overall, the Group managed to record a profit before taxation of
US$0.12 million (2016: US$4.05 million) and a small profit after
taxation of US$5k (2016: US$3.92 million).
Notwithstanding the decreases in B2C trading platform revenues,
EBITDA for the division was stable at US$4.38 million compared with
US$4.33 million in 2016. The lower costs of operating in Asia have
also contributed to maintaining profitability.
B2B licence income has produced US$1.48 million of EBITDA losses
compared with US$1.3 million of EBITDA profit in 2016. The decline
in revenues and margins have made the division loss-making but
operational costs and R&D expenditure were each reduced as the
Group restructured its activities.
There is a tax expense of US$0.11 million in 2017 (2016: US$0.14
million). A majority of the Group's profits have not been taxable
as the profits generated by DragonFinancials are sourced from the
Seychelles and are not subject to tax. The Group is taxable at a
rate of 24% of the assessable pro ts in Israel (2016: 25%) while in
Cyprus the statutory rate of tax is 12.5%. Further details are
provided in Note 6.
Basic earnings per share ('EPS') have decreased from US$0.0172
in 2016 to a loss of US$ 0.0358 in 2017. On a diluted basis, EPS
decreased from US$1.70 cents in 2016 to a loss of US$3.58
cents.
The Group cash generated from operating activities was US$173k
compared with net cash of US$ 5.92 million generated in 2016.
Cash outflows from investing activities were US$0.80 million
(2016: US$0.55 million). This included US$0.4 million in respect of
the loan made to the shareholder of CEDEX.
Cash outflows from financing activities were US$3.62 million
(2016: US$1.07 million), which reflects the dividend payment of
US$3.53 million to the non-controlling partners, the shareholders
of DragonFinancials.
The Group has continued to place great importance on strong
controls over working capital and the collection of cash from
operators. However, debtor days at the end of 2017 were 58 days
compared with 28 days at the end of 2016, reflecting a slowdown in
the B2C collections from PSPs (payment solution provider).
The Group's cash position at 31 December 2017 was US$3.50
million (31 December 2016: US$7.65 million).
Operations
Operationally, the Group has restructured its activities in the
light of ever increasing regulation and an industry-wide decline in
activity across binary options.
Despite the loss of our single largest customer, we have
continued to invest in R&D, particularly in Forex and CFD and
are now developing blockchain technologies which we believe will be
critical in our focus on innovation to drive shareholder value.
We have made our first investment in blockchain by way of a loan
to and shares in CEDEX, and we have been granted options to acquire
a controlling stake in this company.
The investment made in DragonFinancials in 2016 has exceeded our
expectations and minimized the impact of the decline in the B2B
binary options segment. DragonFinancials' success has meant that we
have now made a further consideration payment to the owners of
OptionFortune.
We have had to cancel projects in the United States and Japan
but remain committed to a programme of R&D to support future
growth. TechFinancials will continue to develop new products and
invest in its highly experienced R&D team. The regulatory and
competitive environment is evolving quickly, and the Board will
seek to maximise the opportunities that come from these changes.
Our cash reserves and strong balance sheet mean that we are
extremely well placed to capture growth from new products and
markets.
We have also renounced our CIF authorized license of BOT,
ceasing the operation of OptionFair in order to reduce costs in
areas the Group does not forecast a profitable future.
The Directors have continued to build infrastructure to support
the Group's long-term growth plans whilst keeping operational and
management costs under control.
Key Performance Indicators
The Board monitors key performance indicators ('KPIs') on a
monthly basis. The Board considers that the most important ones for
the success of the business are:
-- Numbers of licensees using the Group's software: 13 (2016: 34).
-- Total number of trades executed through its licensees: 8.16 million (2016: 20.98 million).
-- Total revenues: US$13.4 million (2016: US$21.3 million)
-- EBITDA attributable to shareholders: US$0.3 million (2016: US$2.8 million)
-- Cash generation from operating activities: US$0.3 million (2016: US$5.9 million)
The Company's systems track trading volumes on a daily basis.
These statistics provide an early and reliable indicator of current
performance of the trading platform. Pro tability of the business,
with its relatively low xed cost base, is managed primarily via a
review of revenue and margins. Working capital is reviewed by
measures of absolute amounts and debtor days.
Growth Strategy and Outlook
The Group's near-term goals are to diversify our online trading
solutions as a means of withstanding increased regulation and to
soften the blow from the effects of the loss of its largest B2B
customer. We have now made the final consideration payment for
DragonFinancials and will continue our focus on the high growth
potential of Asian markets.
We will continue to launch new trading platforms and other
products implementing new innovative technologies to meet the
changing demands of our global customer base and to target markets
with high growth potential and to develop solutions for newly
regulated jurisdictions.
Investment in our brand is vital and our marketing activities
will seek to strengthen further the Company's brand awareness. As
the regulatory landscape continues to change, we have been
diversifying our product offering with Forex and CFD online trading
solutions with plans to introduce further products in coming years.
As a result, we have become a provider of diversified online
trading solutions rather than a binary options business.
The Company's wider strategy is to cease any B2C operation in
the EU and to focus only on B2C trading in Asia Pacific region via
its Joint Venture, DragonFinancials. In Asia, we are shifting the
focus from binary options to Forex and CFD products. Such shift
will take time and we expect to see a reduction in revenue before
it will recover. In Europe, we are carefully considering options
for BOT TradeFinancials and MarketFinancials following the decision
not to sell these businesses. This may involve closing down BOT and
either disposing of MF or using the company for other Group
activities.
The Group's growth strategy is being developed around its plans
for blockchain technologies and its investment in CEDEX, a
blockchain-based on-line exchange for diamonds. We currently have a
2% interest and an option to acquire a further 90%, which would
give TechFinancials up to 92% of CEDEX or 87.4% on a fully diluted
basis.
TechFinancials intends to apply the extensive experience and
knowledge accumulated over many years, to continue to develop
innovative solutions for the rapidly growing blockchain-based
products and technologies market. In this connection, the Group has
been developing technology to integrate the crypto-payment
processing solutions of Bitcoin, Bitcoin Cash and Ethereum into
TechFinancials' core systems, which were implemented in Q1 2018 by
CEDEX.
We remain committed to creating value for Shareholders and I
would like to thank our Shareholders once again for their continued
support during this challenging year.
Asaf Lahav
Chief Executive Officer
26 June 2018
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
2017 2016
---------- ---------
Note US$'000 US$'000
Revenue 13,362 21,325
Cost of sales (3,170) (4,675)
---------- ---------
Gross profit 10,192 16,650
Other income - 2
Research and development (2,916) (3,336)
Impairment of Intangible assets 3 (1,501) -
Selling and marketing expenses (1,918) (4,202)
Administrative expenses (3,039) (4,077)
---------- ---------
Operating profit/(loss) 818 5,037
Bank fees (85) (141)
Foreign exchange loss (150) (285)
Finance cost of contingent
consideration (471) (558)
Other financials income (expenses) 4 (2)
---------- ---------
Financing expenses (702) (986)
Profit before taxation 116 4,051
Income tax (expense) 6 (111) (136)
---------- ---------
Profit after taxation 5 3,915
Total comprehensive income 5 3,915
========== =========
Profit (loss) attributeable
to:
Owners of the Company (2,599) 1,179
Non-controlling interest 2,604 2,736
---------- ---------
Profit for the period 5 3,915
Earnings per share attributable to owners of the parent during
the year:
Basic (Cents USD) 7 (3.58) 1.72
========== =========
Diluted (Cents USD) 7 (3.58) 1.70
========== =========
Consolidated Statement of financial position
As at 31 December 2017
31 December 31 December
------------------------------ ------------------------------
2017 2016
------------------------------ ------------------------------
Note US$'000 US$'000
Non-current assets
Intangible assets 3 6,026 7,843
Property and equipment 671 510
Other long term assets 90 42
------------------------------ ------------------------------
6,787 8,395
------------------------------ ------------------------------
Current assets
Trade and other receivables 3,377 2,121
Restricted bank deposits 305 279
Cash 3,499 7,651
7,181 10,051
------------------------------ ------------------------------
Total Assets 13,968 18,446
Current liabilities
Consideration due to shareholders 4,528 -
Trade and other payables 1,559 4,546
Income tax payable 6 78 138
------------------------------ ------------------------------
6,165 4,684
------------------------------ ------------------------------
Non-current liabilities
Contingent consideration - 4,058
Equity
Share capital 4 55 55
Share premium account 7,500 7,500
Treasury shares - (1,540)
Share-based payment reserve 5 922 925
Accumulated profits / (losses) (1,510) 1,008
------------------------------ ------------------------------
Equity attributable to owners
of the Company 6,967 7,948
Non-controlling interests 836 1,756
Total equity 7,803 9,704
Total Equity and Liabilities 13,968 18,446
Consolidated statements of changes in equity
For the year ended 31 December 2017
Share
based
Share Share payment Accumulated
capital Premium reserve profits/
(losses) Non
(Note (Note Treasury (Note -controlling
4) 4) Shares 5) (Note 4) Total interests Total
--------- --------- ----------- --------- ------------ ----------- --------------- -----------
US$'000 US$'000 US$'0000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- --------- ----------- --------- ------------ ----------- --------------- -----------
Balance
at 1 January
2016 36 5,979 - 877 (276) 6,616 - 6,616
========= ========= =========== ========= ============ =========== =============== ===========
Total
comprehensive
income for
the year - - - - 1,179 1,179 2,736 3,915
Dividends - - - - - - (980) (980)
Share based
payment - - - 153 - 153 - 153
Transfer
of Share
based
payment
reserve
on lapsed
options - - - (105) 105 - - -
Issue of
shares 19 1,521 - - - 1,540 - 1,540
Treasury
shares - - (1,540) - - (1,540) - (1,540)
Balance
at 31
December
2016 55 7,500 (1,540) 925 1,008 7,948 1,756 9,704
========= ========= =========== ========= ============ =========== =============== ===========
Total comprehensive
income (expense)
for the
year - - - - (2,599) (2,599) 2,604 5
Dividends - - - - - - (3,524) (3,524)
Share based
payment - - - 78 - 78 - 78
Transfer
of Share
based payment
reserve
on lapsed
options - - - (81) 81 - - -
Treasury
shares - - 1,540 - - 1,540 - 1,540
Balance
at 31 December
2017 55 7,500 - 922 (1,510) 6,967 836 7,803
====== ========= ====== ======= =========== ======== ======== =========
Consolidated statements of cash flows
For the year ended 31 December 2017
The consolidated statements of cash flows for the Group for the
years ended 31 December 2016 and 31 December 2017 are set out
below:
Years ended 31 December
2017 2016
---------- ---------
Note US$'000 US$'000
---------- ---------
Cash Flows from operating activities
Profit before tax for the period 116 4,051
Adjustment for:
Profit on disposal of property and
equipment - 3
Amortization of intangible assets 3 422 352
Impairment of intangible assets 3 1,501 -
Depreciation of property and equipment 104 100
Share option charge 5 78 153
Operating cash flows before movements
in working capital
(Increase) in trade and other receivables (856) (494)
(Increase) in long term receivables (48) (42)
(Decrease)/ increase in trade and
other payables (1,447) 1,799
Increase in long term contingent
consideration 471 -
Interest Expenses 3 2
Income tax paid (171) -
---------- ---------
Net cash generated from operating
activities 173 5,924
---------- ---------
Cash flows from investing activities
Proceeds from disposal of property,
plant and equipment - 10
Increase of restricted bank deposits (26) (76)
Development of intangible assets 6 (41) (334)
Increase in software license 6 (65) -
Loans given by the Company 8 (400) -
Acquisition of property, plant and
equipment (267) (146)
---------- ---------
Net cash used in investing activities (799) (546)
---------- ---------
Cash flows from financing activities
Interest Paid - (2)
Dividends paid to NCI (3,524) (980)
Repayment of borrowings (98) (92)
---------- ---------
Net cash used in financing activities (3,622) (1,074)
---------- ---------
Net increase/ (decrease) in cash
and cash equivalents (4,248) 4,304
Cash and equivalents at beginning
of period 7,651 3,391
Effect of changes in exchange rates
on Cash 96 (44)
---------- ---------
Cash and equivalents at end of period 3,499 7,651
========== =========
NOTES TO THE FINANCIAL STATEMENTS
1. General Information
TechFinancials Inc (the "Company") and its subsidiaries
(together, the "Group") is engaged in the development and licensing
of financials trading platforms to businesses and the provision of
investment services through its trading platform and development of
blockchain-based digital assets solutions. The Financial Statements
present the consolidated results of the Group for each of the years
ended 31 December 2017 and 2016.
The Group
TechFinancials Inc. (formerly Mika Holdings Inc.), a company
incorporated in the British Virgin Islands on 16 June 2009 under
the BVI Business Companies Act, 2004, is the holding company for
the Group. The Company is listed on AIM.
The Financial Statements of the Group consolidates the following
companies: B.O. TradeFinancials Limited a Cyprus Investment Firm
("CIF") in accordance with license no. 216/13 granted by the Cyprus
Securities and Exchange Commission ("CySEC") on 27 September 2013,
MarketFinancials Limited a company regulated by the Financial
Services Authority in Seychelles under the license SD006 issued on
21 October 2014, TechFinancials (Israel) 2014 Ltd, an Israeli
incorporated company, DragonFinancials Limited a company
incorporated on 27 October 2015 in Seychelles owned 51% by
TechFinancials, Capital Financials Limited, a company incorporated
on 7 October 2016 in Vanuatu, TechFinancials Asia a dormant company
incorporated in Hong Kong and Slidepoint Trading Limited, a dormant
company incorporated in Cyprus. The companies within the Group are
set out below:
County of
registration percentage
Registered office or incorporation of ownership Principal activity
--------------------- ------------------ -------------- ------------------------------------
TechFinancials, British Virgin Development and licensing
Inc. Islands of financial trading platforms
and blockchain-based digital
assets solutions.
B.O. TradeFinancials Cyprus 100% The provision of investment
Limited. services, being the operation
of the OptionFair trading
platform.
TechFinancials Israel 100% The provision of services
(Israel) 2014 Ltd. to the Group.
MarketFinancials Seychelles 100% Liquidity provider, Providing
Ltd. Binary Option and Forex market
maker services and risk management
to the Group
DragonFinancials Seychelles 51% The provision of marketing
Ltd. services, being the operation
of the Option33 trading platform.
Capital Financials Vanuatu 100% Liquidity provider, Providing
Ltd Binary Option and Forex market
maker services and risk management
to DragonFinancials Ltd.
Slidpoint Trading Cyprus 100% Dormant
Ltd
TechFinancials Hong Kong 100% Dormant
Asia
The registered offices for the companies within the Group are as
follows:
TechFinancials, Inc.: Craigmuir Chambers, PO Box 71, Road
Town,
VG1110 Tortola, British Virgin Islands.
B.O.TradeFinancials Limited: 1, Kosta Hadjikakou, Kyriakos Tower, 1st Floor
4107, Agios Athanasios, Limassol, Cyprus.
TechFinancials (2014) Israel Ltd: 3 Hamada St. Herzliya, Israel.
MarketFinancials Ltd: Suite 3, Global Village, Jivan's Complex,
Mont Fleuri,
Mahe, Seychelles.
DragonFinancials Ltd: Francis Rachel St. Victoria, Mahe,
Seychelles.
Capital Financials Ltd.; S.I.P Building, Rue Pasteur, Port Vila,
Vanuatu.
Slidepoint Trading Ltd.: 6 Tassou Papadopoulou, office/flat 22,
2373 Ag.
Dometios, Nicosia, Cyprus.
TechFinancials Asia Ltd.: Room 506A5/F, Tower 1, Admiralty
Centre, 18
Harcourt Road, Hong Kong.
Capital Financials Ltd.; S.I.P Building, Rue Pasteur, Port Vila,
Vanuatu.
2. Summary of significant accounting policies
2.1 Basis of preparation
The consolidated Financial Statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRS") issued by the International
Accounting Standards Board ("IASB") including related
interpretations issued by the International Financial Reporting
Interpretations Committee ("IFRIC"). The consolidated Financial
Statements have been prepared under the historical cost convention,
as modified by the revaluation of financials assets and liabilities
at fair value through the profit and loss.
The preparation of Financial Statements in conformity with IFRS
require the use of certain critical accounting estimation. It also
requires management to exercise its judgment in the process of
applying the Group's accounting policies.
2.2 Basis of consolidated reporting
The financial statements of the subsidiaries are prepared for
the same reporting year as the parent Company using consistent
accounting policies. Control is achieved where the Group is
exposed, or has rights, to variable returns from its involvement
with the investee entity and has the ability to affect these
returns through its power over the investee. Control is lost when
the Group no longer has rights to variable returns from its
involvement with an investee entity and no longer has the ability
to affect those returns as it no longer has power over the
investee. When control is lost the subsidiaries are de-recognised
and no longer consolidated.
The results of subsidiaries acquired or disposed of during the
year are included in the Consolidated Statement of Comprehensive
Income from the effective date of acquisition or up to the
effective date of disposal, as appropriate.
The Group uses the acquisition method of accounting to account
for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair values of the assets
transferred, the liabilities incurred and the equity interests
issued by the Group. The consideration transferred includes the
fair value of any asset or liability resulting from a contingent
consideration agreement. Acquisition related costs are expensed as
incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date. On
an acquisition by acquisition basis, the Group recognises any
non-controlling interest in the acquiree either at fair value or at
the non-controlling interest's proportionate share of the
acquiree's net assets.
The excess of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the acquisition date
fair value of any previous equity interest in the acquiree over the
fair value of the Group's share of the identifiable net assets
acquired is recorded as goodwill. If this is less than the fair
value of the net assets of the subsidiary acquired in the case of a
bargain purchase, the difference is recognised directly in the
Consolidated Statement of Comprehensive Income.
Investments in subsidiaries are accounted for at cost less
impairment. Acquisition related costs are expressed as incurred.
Cost is adjusted to reflect changes in consideration arising from
contingent consideration amendments.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated. Unrealised
losses are also eliminated. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the
policies adopted by the Group.
3. Intangible assets
Project Project Project Project Project Computer
A B C D E Software License Goodwill** Total
------- ------- ------- ------- ------- --------- --------- ------------ --------
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- ------- --------- --------- ------------ --------
As at 31 December
2016
Cost
At 1 January
2016 784 858 932 359 211 8 - - 3,152
Additions - - 82 87 162 3 - 5,040 5,347
------- ------- ------- ------- ------- --------- --------- ------------ --------
At 31 December
2016 784 858 1,014 446 373 11 - 5,040 8,526
------- ------- ------- ------- ------- --------- --------- ------------ --------
Accumulated
amortisation
At 1 January
2016 157 171 - - - 3 - - 331
Charge for the
year 157 171 - - 21 3 - - 352
------- ------- ------- ------- ------- --------- --------- ------------ --------
At 31 December
2016 314 342 - - 21 6 - - 683
------- ------- ------- ------- ------- --------- --------- ------------ --------
Net book value
At 31 December
2016 470 516 1,014 446 352 5 - 5,040 7,843
======= ======= ======= ======= ======= ========= ========= ============ ========
As at 31 December
2017
Cost
At 1 January
2017 784 858 1,014 446 373 11 - 5,040 8,526
Additions - - 41 - - - 65 - 106
------- ------- ------- ------- ------- --------- --------- ------------ --------
At 31 December
2017 784 858 1,055 446 373 11 65 5,040 8,632
------- ------- ------- ------- ------- --------- --------- ------------ --------
Accumulated
amortisation
At 1 January
2017 314 342 - - 21 6 - - 683
Charge for the
year 156 170 - - 91 5 - - 422
Impairment - - 1,055 446 - - - - 1,501
------- ------- ------- ------- ------- --------- --------- ------------ --------
At 31 December
2017 470 512 1,055 446 112 11 - - 2,606
------- ------- ------- ------- ------- --------- --------- ------------ --------
Net book value
At 31 December
2017 314 346 - - 261 -* 65 5,040 6,026
======= ======= ======= ======= ======= ========= ========= ============ ========
* lower than a thousand USD
** Goodwill arose on the acquisition of DragonFinancials.
3.1. Intangible assets - development expenditure
Project A - Forex trading solution.
Project B - Mobile and tablet native applications adjusted to
different screen sizes.
Project C - Trading solution for the US market.
Project D - Trading solution for the Japanese market.
Project E - Trading solution for CFD.
Current estimates of useful economic live of intangible assets
are as follows:
Development expenditure recognized as intangible assets 5 years
Goodwill N/A
Computer software 3 years
-------
The intangible assets are reviewed for impairment annually and
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, the recoverable
amount of intangible assets is determined based on a value in use
calculation using cash flows forecasts derived from the most recent
financial model information available.
The recoverable amounts of all the above have been determined
from value in use calculations based on cash flows projections from
formally approved budgets covering a five year period from the date
on which it starts to carry value. The key assumptions used in
these calculations include discount rates and turnover projections.
Management estimates the discount rates using pre-tax rates that
reflect current market assessments of the time value of money and
risks specific to expected future projects.
Major assumptions are as follows:
2017
------------------------------------------------------------
Project Project Project Project Project Computer
A B C D E software
-------- -------- -------- -------- -------- ----------
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------- -------- -------- -------- -------- ----------
Discount
rate 15% 15% N/A N/A 15% N/A
--------- -------- -------- -------- -------- -------- ----------
The Company covered all its expenses recognised as intangible
assets for projects A and B During 2016.
As of December 31 2017, the Board of Company decided that
projects C and D are no longer recoverable and recognized an
impairment in the amounts of US$1,055 thousand and US$446 thousand,
respectively.
3.2 Intangible assets - Goodwill
Impairment of goodwill was assessed by comparing the unlevered
free cash flow to the value of goodwill for the entity whose
acquisition gave rise to the goodwill, DragonFinancials Ltd.
The discount rate utilised is 40%.
4. Share capital
As at 31 December
--------------------------------------------
2017 2016
--------------------- -----------------
Authorised Number of Shares Number of Shares
--------------------- -----------------
The Company Ordinary share of
US$0.0005 100,000,000 100,000,000
--------------------- -----------------
Authorised 100,000,000 100,000,000
===================== =================
As at 31 December
------------------------------------
2017 2016
---------------------- --------
Issued and fully paid US$'000 US$'000
---------------------- --------
The Company Ordinary share of
US$0.0005 55 36
====================== ========
Ordinary shares issued and fully paid
US$'000
----------------
At 1 January 2017 55
share based compensation exercise of
options -*
----------------
At 31 December 2017 55
================
*less than a thousand
Share Capital -Amount subscribed for share at nominal value.
Share Premium -Amount subscribed for share capital in exercise
of nominal value.
Share-based payment reserve-The share-based payments reserve is
used to recognise the value of equity-settled share-based payments
provided to employees, including key management personnel, as part
of their remuneration. Refer to Note 5 for further details of these
plans.
5. Share-based payment transactions (Group)
The Group runs two share-based payment arrangements ("2013
Plan") and ("2014 plan") which are summarised below.
Employee Stock Option Plan:
Year ended 31 December 2016
-------------------------------------------------------------
Weighted Average
Exercise Price
Numbers of Option (US$)
---------------------- -------------------------------------
Balance at beginning of
period 1,896,280 0.0440
Granted 569,800 0.189
Exercised during the period (34,516) -
Lapsed during the period (407 ,020) 0.211
---------------------- -------------------------------------
Balance at end of period 2,059,060 0.151
====================== =====================================
Year ended 31 December 2017
---------------------------------------------
Weighted Average
Exercise Price
Numbers of Option (US$)
---------------------- ---------------------
Balance at beginning of
period 2,059,060 0.151
Granted 1,120,000 0.0915
Exercised during the period (19,982) -
Lapsed during the period (774,780) 0.206
---------------------- ---------------------
Balance at end of period 2,384,298 0.1052
====================== =====================
Share Option Plan on behalf of certain employees, employees and
board members of the Group during 2017:
Date of Grant: August 1 2017 (2014 Plan)
Number Granted: 1,120,000 options to purchase ordinary shares of US$0.0005 each.
Contractual life: 10 years
Vesting conditions: 396,667 options on the first year of grant,
280,000 options in each of the
following two years and 163,333 on the fourth year.
Earliest Exercise date: August 1 2017
Exercise price: US$0.0915
The model inputs for 2017 grant were:
* share prices at grant date US$0.189
* weighted average exercise prices of US$ 0.083;
* expected volatility of 55%;
* contractual life of 10 years; and
* a risk-free interest rate of 3.85%.
On August 1 2017 the Company granted to 13 employees and 4 board
members 840,000 and 280,000 options respectively, to purchase
ordinary shares of the Company under a share-based plan adopted by
the Board of Directors in November 2014. The options vesting dates
ranges from the date of grant and up to 4 years and are exercisable
for a period of 10 years with an exercise price of $0.0915 per
share.
On December 15 2017, two former employees of the Company
exercised 27,210 options pursuant to the 2014 employee share option
plan, to acquire 7,228 ordinary shares of US$0.0005 ("Ordinary
Shares") in the Company in consideration for the cancellation of
the balance of 19,982 options.
6. Income tax expenses
Years ended 31 December
-------------------------
2017 2016
------------ -----------
US$'000 US$'000
------------ -----------
Current income tax 79 133
Deferred tax 32 3
111 136
============ ===========
A reconciliation of income tax expense applicable to the profit
before taxation at the statutory tax rate to the income tax
expense/(release) at the effective tax rate of the Group is as
follows:
Years ended 31 December
--------------------------
2017 2016
------------ ------------
US$'000 US$'000
------------ ------------
Profit before taxation 116 4,051
============ ============
Profit multiplied by standard rate of
EIT of 0% - -
Effect of Different tax rates in different
countries:
Israeli tax rates 2016-2017: 25% -24% 79 133
Cyprus tax rates 2016-2017: 12.5% - -
Deferred tax rate 32 3
------------ ------------
111 136
============ ============
7. Earnings per share
The calculation of earnings per share is based on the following
earnings and number of shares:
Years ended 31 December
---------------------------
2017 2016
---------- ---------------
US$'000 US$'000
---------- ---------------
(Loss) /profit attributable to equity
holders (2,599) 1,179
Weighted average number of shares basic 72,542,484 68,634,680*
Earnings/(loss) per share basic (dollars) (0.036) 0.0172
*In 2016 including treasury shares held in escrow.
Weighted average number of shares diluted 73,242,484 69,334,680
Earnings/(loss) per share diluted (dollars) (0.036) 0.0170
The number of potentially dilutive share options are as
disclosed in Note 5.
8. Option to acquire new business
On 22 October 2017 the Company and Saar Levi entered into a
legally binding Heads of Terms in respect of a to be incorporated
group of companies which will operate under the name CEDEX
("CEDEX").
CEDEX will operate what the Company believes will be the first
blockchain technology based online exchange for diamonds with a
long-term vision to turn the traditional diamond industry into a
financial tradable asset.
Under the Heads of Terms, TechFinancials will make unsecured
loan funding of US$0.4 million available to the CEDEX group to
develop its technology. The loan bears no interest. On 5 June 2018
CEDEX made a partial repayment of the loan on the amount of US$0.33
million.
In consideration for providing this initial funding, CEDEX will
grant the Company an option to acquire 90% of CEDEX at an exercise
price of US$62 thousands, which may be offset against any amount
outstanding under the loan. Exercise of the option is at the sole
discretion of TechFinancials and the option can be transferred,
sold or disposed of as TechFinancials sees fit. The option period
is for three years from the date of grant and may be exercised
until October 22, 2020.
As of 31 December 2017 the fair value of the option is US$8.9
million based on Black-Scholes model. However, the option value has
no impact on the financial statements in the current period due to
deferral of the initial recognition in accordance with IAS 39. As
the purchase price of the option was not significant and the fair
value of the option could not be based on a quoted price in an
active market for an identical asset or liability or based on a
valuation technique that uses only data from observable markets,
therefore, after initial recognition, the deferred value will be
recognized as a gain or loss, only to the extent that it arises
from a change in a factor that market participants would take into
account when pricing the asset or liability, which is the ICO
completion in April 2018.
As such, the gain arising from the option, in the amount of
US$8.9 million would be fully recognised in the financial year
2018, along with any subsequent gains arising from subsequent
assessment of the valuation of the option.
In addition, it was agreed that the Company may provide
technical development services on a fee-for-service basis to CEDEX
to assist with the development of the trading platform, utilising
the Company's knowledge and expertise.
On 25 December 2017 the Company committed to make an equity
investment of US$0.2 million at a post-money valuation of US$10
million, giving a potential maximum holding of 92% or 87.4% on a
fully diluted basis. (see Note 11).
9. Segment Information
Business segment
IFRS 8 requires operation segments to be identified at the basis
of internal report about component of the Group that are regularly
reviewed by the Chief Financial Officer ("CFO"), and by the Board.
For this purpose's the Group's primary format for reporting segment
information is business segments, with each segment representing a
product category on a stand-alone basis.
Geographical information has not been disclosed as it is not
available and the cost to develop it would be excessive.
The segment information provided to management for the
reportable segments for the year ended 31 December 2016 and 31
December 2017 is as follows:
Year ended 31 December 2016
B2C B2B License Acquisition Total
Trading Licence Services related
platform income between cost
segments*
---------- --------- ----------- ------------ --------
US$'000 US$'000 US$'000 US$'000 US$'000
---------- --------- ----------- ------------ --------
Revenue and result:
Revenues 10,870 11,527 (1,072) - 21,325
Cost of sales 2,685 3,062 (1,072) - 4,675
Gross profit 8,185 8,465 - - 16,650
Other (income) expenses - (2) - - (2)
Research and development 192 3,144 - - 3,336
Selling and marketing
expenses 2,350 1,852 - - 4,202
Administrative expenses 1,358 2,719 - - 4,077
Finance expenses 169 259 - 558 986
Profit before tax from
recurring activities 4,116 493 - (558) 4,051
EBITDA** 4,329 1,313 - - 5,642
EBITDA attributed to
shareholders 1,523 1,313 - - 2,836
Assets and liabilities:
Assets 10,144 8,302 - - 18,446
Liabilities 296 2,611 - 5,697 8,604
Depreciation and additions:
Depreciation 31 69 - - 100
Additions to property,
plant and equipment - 146 - - 146
* License services represents intercompany charges between
segments, allowing the performance assessment of each segment on
standalone basis.
**Earnings before interest, tax, depreciation and amortisation
and non-cash charges
Revenues from the Group's top three customers in 2016 represent
approximately 30.21% of the total revenues.
Year ended 31 December 2017
B2C B2B License Blockchain Acquisition Total
Trading Licence Services related related
platform income between technology cost
segments* ***
---------- --------- ----------- ------------ ------------ --------
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------- --------- ----------- ------------ ------------ --------
Revenue and result:
Revenues 8,864 5,142 (886) 242 - 13,362
Cost of sales (2,601) (1,239) 886 (216) - (3,170)
Gross profit 6,263 3,903 - 26 - 10,192
Other (income) expenses - - - - - -
Research and development (192) (2,724) - - - (2,916)
Selling and marketing
expenses (1,038) (880) - - - (1,918)
Administrative expenses (650) (2,389) - - - (3,039)
Finance income (expenses) (243) 11 - - (470) (702)
Profit (loss) before
tax from recurring
activities 4,140 (2,079) - 26 (470) 1,617
Impairment of intangible
assets - (1,501) - - - (1.501)
Profit (loss) before
tax 4,140 (3,580) - 26 (470) 116
EBITDA** 4,383 (1,480) - 26 - 2,929
EBITDA attributed to
shareholders 1,781 (1,480) - 26 - 327
Assets and liabilities:
Assets 2,419 10,785 - 764 - 13,968
Liabilities 775 5,332 - 58 - 6,165
Depreciation and additions:
Depreciation 11 93 - - - 104
Additions to property,
plant and equipment 117 150 - - - 267
---------- --------- ----------- ------------ ------------ --------
* License services represents intercompany charges between
segments, allowing the performance assessment of each segment on
standalone basis.
** Earnings before interest, tax, depreciation and amortisation
and non-cash charges
*** see Note 8
Revenues from the Group's top three customers in 2017 represent
approximately 20% of the total revenues.
10. Contingencies
The Company's Israeli subsidiary has recently undergone a tax
audit for the year 2014-2016. No provision in relation to this
matter has been recognised in the Financials Statements based on
legal advice which indicates that it is not probable, at this
stage, that a significant liability will arise.
11. Subsequent events
On 26 February 2018, B.O. TradeFinancials ("BOT"), the Company's
subsidiary notified the Cyprus Securities and Exchange Commission
("CySEC") of its intention to withdraw its Cyprus Investment Firm
"(CIF") authorization.
In line with the above notification, BOT notified its customers
of the termination of its activities related to operating its
brand, OptionFair. Subsequently all client funds were returned.
As a result of the notification of the return of the license,
MarketFinancials ("MF") the Company's subsidiary, has terminated
its market maker services with BOT, which was its only source of
income.
In April 2018, CEDEX successfully completed the process of
selling a total of 30.2 million digital coins (" CEDEX Coins") by
way of a Token Sale. In this connection, CEDEX sold a material
proportion of the CEDEX coins available for sale in return for a
substantial amount of Cryptocurrency (Bitcoin and Etherium) and
Fiat. The introducer of certain purchasers received options to
acquire up to 5% of CEDEX.
In April 2018 CEDEX issued TechFinancials 2% of its share
capital, with an option to TechFinancials to acquire a further 90%,
which would give TechFinancials holding of up to 92% of CEDEX or
87.4% on a fully diluted basis.
Additional consideration of US$4.53 million settled by the issue
of 12,406,352 shares on 10 May 2018 to the owners of Optionfortune
(non-controlling interest holders of TechFinancials) based on
DragonFinancials' results for 2017.
As a result of the shares issuing above, the share capital of
the Company is comprised of 84,980,979 ordinary shares and the
directors' shareholdings in the ordinary share capital were changed
as follows:
Director's Name Shareholdings
%
------------------ --------------
Asaf Lahav 10.77%
Christopher Bell 0.21%
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAAKSAAPPEAF
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June 26, 2018 02:00 ET (06:00 GMT)
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