Company Overview: DigitalX Limited, formerly Digital CC Limited, is an Australia-based software solutions company developing products and services. The Company is involved in the activities, which include development of software for retail-based consumer applications; Bitcoin trading and the operation of a liquidity desk, and Bitcoin mining. The Company operates through two segments: Software Development and Trading. The Company offers AirPocket, which is a short message service (SMS)-enabled, international mobile bill payments platform and mobile money remittance application. The application supports international Airtime transfers for the United States consumers to approximately 10 countries in Latin American in a partnership. The application is available on Google Play and the Apple App store. The Company also offers DigitalX Direct, which is a business-to-business liquidity platform that is designed to provide real time liquidity to institutional investors and commercial operators.


DCC Details

Innovative software solutions company, DigitalX Limited is known for providing exposure to the global digital payments systems industry through disruptive fintech solutions in the remittance and value chain sectors, and the group has cemented its position as one of the world’s leading publicly listed Initial Coin Offerings (ICO) advisor from 2017 onwards. The group is actively reviewing its funds, cash position, business trends and is leveraging the experience it has in order to generate higher revenue.

Strong Liquidity Position: Digital had an insignificant revenue about 12 months ago with limited cash and was going through a period of upheaval; and in 2017, the group returned to the cryptocurrency market as a maker on approved cryptocurrency exchanges. As on date, the Company has secured a cornerstone investor support and raised significant funds through the placement in 2017 and still continues to receive funds for its future growth from the ongoing exercise of the options which were issued under the capital pursuant to the share purchase plan finalised in last year. DigitalX is well capitalised to move ahead and cater to the cryptocurrency market with more than AUD$18m in liquid assets comprised of over $5m cash at bank, over $10m in Bitcoin and approximately $2m in Ether, Power Ledger (POWR) and Etherparty (FUEL), as at December 12, 2017. On an initial basis, AUD$1m was allocated to the group to make markets on digital currency exchanges. The group has set its fundamentals strong as one of the leading liquidity providers in the Bitcoin marketplace, supplying wholesale Bitcoin liquidity to exchanges, commercial operators and institutions, since 2014. The group had also reported a revenue of US$225,000 for the quarter ending 30 September 2017 and this included the receipt of tokens which were received for its advisory services to Bankera, Etherparty and Power Ledger. These tokens were slated to be used within their respective platforms, and in many cases, these are trading on cryptocurrency exchanges with a strong liquidity.

Encouraging December Updates: During December 2017 quarter, the Company issued 4,550,000 fully paid ordinary shares as approved by shareholders, 63,562,501 fully paid ordinary shares on conversion of unlisted options, and 3,703,704 fully paid ordinary shares on conversion of convertible notes. Lastly 2,000,000 unlisted options were issued as approved by shareholders. On 09 January 2018, the Company issued a further 281,914 fully paid ordinary shares on conversion of unlisted options. DigitalX Ltd had a total cash and digital assets at a fair value of AUD$20.7m at the quarter end. The group generated a revenue of approximately of US$3.6m from corporate advisory fees which was received in tokens and further received a referral fees of US$10k due for January 2018 Quarter.
 

Distribution of DigitalX cash and Digital Asset Holdings (Source: Company Reports)
 
Pre-Initial Coin Offering for Bankera: DCC was appointed as an advisor to the Bankera Pre-Initial Coin Offering which has been closed in September last year and Bankera has now raised over 90 million euros from about 70,000 contributors resulting in the largest ICO given the amount raised. The Bankera Pre-ICO continued on a growing trend of decentralised cryptocurrency projects that yielded an entirely new corporate structure. The global cryptocurrency market has grown from only $20 billion at the start of the year to over $150 billion that was led by a surge in ICOs. Market commentators are expecting a $2 trillion market over the next decade. In view of this, DigitalX had provided a range of industry specific and traditional corporate advisory services to Bankera throughout the Pre-ICO process. In consideration for the Company’s strategic advice, it was offered a hybrid remuneration of ETH and POWR tokens. Due to the high level of demand for the ICO, DigitalX received the entire consideration in POWR tokens that resulted in the issue of approximately net 4.5 million of POWR tokens to DigitalX after-expenses.

Blockchain Projects: A promising venture, Blockchain Global Limited and its investors also became the shareholders of DigitalX in 2017. Placement of shares to Blockchain Global and its investors marked a turning point in the Company’s performance and also provided the funds that were required for the management to execute their plans in this fast-evolving space. In addition to advising some of the most exciting Blockchain projects during their ICO, DigitalX is aiming to broaden the scope of its advisory services to provide Blockchain strategy to companies and organisations. The Company sees a potential for developing the blockchain transactions and an identity management software underlying AirPocket (world’s first blockchain-enhanced money transfer application) while plans for further development and commercialisation of AirPocket will be released soon.

Benefits from SingularityNET agreement: On 30 November 2017, the Company announced that it acted as the corporate advisor to SingularityNET, a decentralised, open market for Artificial Intelligence (AI) algorithms for the sale of 55 million tokens and raised up to US$36 million. DigitalX will receive approximately 0.8% of the 1 billion AGI tokens for the marketing project and promotional services plus additional fees for introducing the SingularityNET project to DigitalX’s cryptocurrency investor network across Australia. The group expects to receive net 5M AGI tokens during the current quarter.

Advising INS Ecosystem and CoinPoker: DigitalX was appointed as corporate advisor for the ICO for direct-order grocery platform INS Ecosystem and for online poker game platform CoinPoker. INS Ecosystem aims to disrupt the $8.5 trillion global grocery by creating a platform in which consumers can purchase goods directly from manufacturers in efficient and affordable manner. INS Ecosystem targeted a sale of 30 million INS tokens and DigitalX received 250,000 of tokens in consideration for giving corporate advisory services with 125,000 of these INS tokens that will be distributed over the next three months. CoinPoker, a platform for online poker games helped in ensuring a true and a fair gaming experience, issued 375 million chips (CHP) tokens to the market and DigitalX will receive a corporate advisory fee of 7.5 million CHP tokens plus additional fees of approximately $40,000 in ETH for advisory services and introduction to its networks.

Volatility due to cryptocurrency movements: Lately, DCC came under some pressure with speculation of cryptocurrency having zero potential and many experts calling this as a bubble. A couple of months earlier, it was announced that the Bitcoin fork referred to as “Segwit 2X” was suspended which meant that the fork would not occur due to the lack of sufficient consensus among the wider Bitcoin community. The community still has the chance to choose to announce another fork at a subsequent date. Meanwhile, the news impacted the holders of digital currencies including Bitcoin. DCC still held 450 Bitcoins post the news update and continues to manage its holdings regardless of any future proposed forks. The group recently sold approximately AUD$300,000 of Bitcoin after the suspension announcement at around AUD$9,000.
 

Bitcoin Forks Highlights (Source: Company Reports)
 
Legacy Challenges impacted 2017 result: The Group made a loss of US $3,973,761 for the year ended 30 June 2017 and its accumulated losses accounted for US $12,509,086, while working capital deficiency of US $566,004 was reported as on 30 June 2017. This was at the back of legacy issues relating to restructuring efforts among many other factors. The Group carried $49,519 of net capitalised development cost. If we talk about the revenue from the segments, the Group recognised $8,012,000 in revenues and also carried $121,026 of derivate financial liabilities. At that point, an inherit risk with group operating with a small finance team and working capital deficiency, were highlighted as concerns. The net cash outflow from operating and investing activities also increased from $1,537,199 as on 30 June 2016 to $2,878,702 on 30 June 2017. However, the group aims to improve the financial performance with strategies being adopted and key associations being built in the industry.
 

Cash flows of last year (Source: Company Reports)
 
Stock Performance: The 2017 developments have been reflected in the Company’s share price which zoomed up significantly over the last 12 months (up 505.26%). The group is now well funded and has a revenue generating business model and a qualified management. It is being approached by businesses of all sizes across Australia, and new opportunities within the Blockchain marketplace are being explored as a part of the Company’s ongoing growth. However, the Company operates within a volatile industry, and is subject to certain risks and uncertainties that may impact its future trading results. Having said this, the recent fall in cryptocurrency has opened up opportunities and any boost in the domain can benefit DCC which is also strengthening at group level with better growth path being laid down. It is worth noting that DigitalX was named a 2017 Deloitte Technology Fast 50 Australia Winner in October 2017, and its Airpocket app has also won many awards. The stock price rallied by 576.47% in the past six months based on the significant developments and favourable industry trend but in the last one month there was a dip of 41.77% (as at February 08, 2018) owing to cryptocurrency volatility, and this offers an entry opportunity. We give a “Speculative Buy” on the stock at the current price of $0.23
 

DCC Daily Chart (Source: Thomson Reuters)

 
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