| SIGNIFICANT ACCOUNTING POLICIES | NOTE 2: SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been applied
consistently in these consolidated financial statements for the periods presented, unless otherwise stated.
a. Basis of presentation of the financial statements: These consolidated financial statements
have been prepared in accordance with International Accounting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”) and interpretations of the International Reporting Interpretations Committee (“IFRIC”). The consolidated financial statements
have been prepared on a historical cost basis, except certain financial instruments which are measured at fair value and digital assets
which are measured at fair value less cost to sell through profit or loss.
b. Consolidated financial statements: The consolidated financial statements
comprise the financial statements of the Company and companies that are controlled by the Company (subsidiaries). Control is achieved
when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has control.
The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases. The financial statements of the Company
and of the subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform
accounting policies by all companies in the Group. Significant intra group balances and transactions and gains or losses resulting from
intragroup transactions are eliminated in full in the consolidated financial statements.
c. Functional and presentation currencies:
1. Functional currency
and presentation currency: The consolidated financial statements
are presented in U.S. dollars. The Company determines the functional
currency of each entity through an analysis of the consideration factors identified in International Accounting Standard (“IAS”)
21. Assets, including fair value adjustments
upon acquisition, and liabilities of an investee which is a foreign operation, are translated at the closing rate at each reporting date.
Profit or loss items are translated at average exchange rates for all periods presented. The resulting translation differences are recognized
in other comprehensive income (loss). Upon the full or partial disposal
of a foreign operation resulting in loss of control in the foreign operation, the cumulative gain (loss) from the foreign operation which
had been recognized in other comprehensive income is carried
to profit or loss. Upon the partial disposal of a foreign operation which results in the retention of control in the subsidiary, the
relative portion of the amount recognized in other comprehensive income is reattributed to non-controlling interests.
2. Transactions, assets and liabilities in foreign
currency: Transactions denominated in foreign
currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary
assets and liabilities denominated in foreign currency are translated at each reporting date into the functional currency at the exchange
rate at that date. Exchange rate differences, other than those capitalized to qualifying assets or accounted for as hedging transactions
in equity, are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currency and measured at cost
are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency
and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value
was determined.
3. Index-linked monetary items: Monetary assets and liabilities linked
to the changes in the Israeli Consumer Price Index (“Israeli CPI”) are adjusted at the relevant index at each reporting date
according to the terms of the agreement.
d. Use of estimates and judgements: The preparation of the consolidated
financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from those
estimates. Key assumptions made in the consolidated
financial statements concerning uncertainties at the reporting date that may result in a material adjustment to the carrying amount of
the INX Token liability and INX Token warrant liability within the next financial year are discussed in Note 11 and Note 12. Many aspects of the digital currency
and blockchain industry have not yet been addressed by current IFRS guidance. The Company is required to make significant assumptions
and judgments as to its accounting policies and the application thereof, which is disclosed in the notes to the consolidated financial
statements. If specific guidance is enacted by the IASB in the future, the impact may result in changes to the Company’s profit
or loss and financial position as currently presented. Discount rate for a lease liability When the Company is unable to readily
determine the discount rate implicit in a lease in order to measure the lease liability, the Company uses an incremental borrowing rate.
That rate represents the rate of interest that the Company would have to pay to borrow over a similar term and with similar security,
the funds necessary to obtain an asset of similar economic environment. When there are no financing transactions that can serve as a
basis, the Company determines the incremental borrowing rate based on its credit risk, the lease term and other economic variables deriving
from the lease contract’s conditions and restrictions. In certain situations, the Company is assisted by an external valuation expert
in determining the incremental borrowing rate. Impairment of goodwill The Group reviews goodwill for impairment
at least once a year. This requires management to make an estimate of the projected future cash flows from the continuing use of the
cash-generating unit (or a group of cash-generating units) to which the goodwill is allocated and also to choose a suitable discount
rate for those cash flows. Deferred tax assets Deferred tax assets are recognized
for unused carryforward tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be
available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax
assets that can be recognized, based upon the timing and level of future taxable profits, its source and the tax planning strategy.
e. Cash and cash equivalents: Cash and cash equivalents may include
demand deposits and short-term, highly liquid investments that are readily convertible to cash with an original maturity of three months
or less from the date of investment and are redeemable on demand without penalty.
f. Financial instruments:
1. Financial assets, including short-term and
certain long-term investments, INX Tokens, digital assets, derivative assets are initially
recognized at fair value plus directly attributable transaction costs, except for financial
assets measured at fair value through profit or loss in respect of which transaction costs
are recorded in profit or loss. The Company classifies and measures
debt instruments in the financial statements based on the following criteria:
- The Company’s business model for managing financial
assets; and
- The contractual cash flow terms of the financial asset.
a) Debt instruments are
measured at fair value through other comprehensive income when: The Company’s business model is to
hold the financial assets in order to both collect their contractual cash flows and to sell the financial assets, and the contractual
terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding. After initial recognition, the instruments
in this category are measured at fair value. Gains or losses from fair value adjustments, excluding interest and exchange rate differences,
are recognized in other comprehensive income.
b) Debt instruments are
measured at fair value through profit or loss when: A financial asset which is a debt
instrument does not meet the criteria for measurement at amortized cost or at fair value through other comprehensive income. After initial
recognition, the financial asset is measured at fair value and gains or losses from fair value adjustments are recognized in profit or
loss.
c) Derivative instruments As part of its risk management activities,
the Company enters into derivatives such as digital currency forwards. A digital currency forward is an exchange traded contract which
represents a legal agreement to either buy or sell a referenced digital asset at a predetermined price at some time in the future. Digital
assets forwards held by the Company are settled in a stable coin. The derivatives are carried at fair value and any realized and unrealized
gains (losses) on derivatives are recognized through profit and loss.
2. Loans and receivables are held to collect
contractual cash flows and give rise to cash flows representing solely payments of principal
and interest. These are measured subsequent to initial recognition at amortized cost. Impairment of financial assets: At the end of each reporting period,
the Company evaluates the loss allowance for financial debt instruments which are not measured at fair value through profit or loss. The Company has short-term financial
assets such as trade receivables in respect of which the Company applies the simplified approach in IFRS 9 and measures the loss allowance
in an amount equal to the lifetime expected credit losses. The Company grants its customers
interest-free credit for periods of 30-90 days. As of December 31, 2022 and 2021, there were no material past-due accounts. Accordingly,
the allowance for doubtful accounts is immaterial.
3. Derecognition of financial assets A financial asset is derecognized
only when:
a. The contractual rights to the cash flows
from the financial asset has expired; or
b. The Company has transferred substantially
all the risks and rewards deriving from the contractual rights to receive cash flows from
the financial asset or has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset; or
c. The Company has retained its contractual
rights to receive cash flows from the financial asset but has assumed a contractual obligation
to pay the cash flows in full without material delay to a third party.
4. Financial liabilities: Financial liabilities are initially
recognized at fair value. After initial recognition, the accounting treatment of financial liabilities is based on their classification
as follows:
a) Financial liabilities at amortized cost: After initial recognition, loans
and other liabilities are measured based on their terms at amortized cost less directly attributable transaction costs using the effective
interest method.
b) Financial liabilities at fair value through
profit or loss: These liabilities include financial
liabilities held for trading (including the INX Token warrant liability), contingent consideration liability recognized in a business
combination and financial liabilities designated upon initial recognition as at fair value through profit or loss. Changes in the fair
value of liabilities held for trading and contingent consideration are recognized in profit or loss in finance expenses. Based on the
terms of the INX Token, as described in Note 1, the INX Token is a hybrid financial instrument. The host instrument is a financial liability
due to the right of the INX Token holder to use the INX Token to pay transactions fees on the INX.One Trading Platform. The INX Token
is considered a puttable instrument which is a financial liability in accordance with IAS 32, Financial Instruments: Presentation. INX’s obligation to make a
pro rata distribution annually to the INX Token holders from INX’s Adjusted Operating Cash Flow is an embedded derivative. The
Company views INX’s operating cash flows as a financial variable, and therefore, the embedded derivative requires bifurcation pursuant
to IFRS 9. The Company elected, in accordance with IFRS 9, to designate the entire financial liability (including the embedded derivative)
at fair value through profit and loss. Accordingly, the INX Token liability and the INX Token warrant liability are remeasured to fair
value at the end of each reporting period. The change in the fair value of the
INX Token liability that is attributable to changes in credit risk, excluding those changes in credit risk attributable to the embedded
derivative, to the extent there are any, would be presented in other comprehensive income. The remaining amount of the change in the
fair value of the INX Token liability would be presented in profit or loss. At December 31, 2022, all change in fair value of the INX
Token liability is included in profit or loss. When the INX Token is used to pay
for services provided by INX, the respective portion of the INX Token liability is derecognized and revenue is recognized. The fair value
of INX Tokens issued in consideration for services to be provided to the Company (through its subsidiaries) is recognized as compensation
expense when services are provided.
5. Offsetting financial instruments: Financial assets and financial liabilities
are offset, and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off
the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The right of set-off must be legally enforceable not only during the ordinary course of business of the parties to the contract but also
in the event of bankruptcy or insolvency of one of the parties.
6. Compound financial instruments: Convertible debt which contains both
an equity component and a liability component are separated into two components. This separation is performed by first determining the
liability component based on the fair value of an equivalent non-convertible liability. The value of the conversion component is determined
to be the residual amount. Directly attributable transaction costs are apportioned between the equity component and the liability component
based on the allocation of proceeds to the equity and liability components.
7. Simple Agreement for Future Equity (“SAFE”): INX has entered into equity funding
agreements (SAFEs) pursuant to which funds received by INX from investors have been automatically converted into the same class of share
capital of INX that were issued in a qualifying financing, as defined in the SAFEs. The conversion price for SAFEs issued before June
2020 was equal to the lower of, (i) 25% discount on the base (undiscounted) price per share of the qualifying financing, or (ii) a fixed
price, as set forth in the SAFEs. For SAFEs issued in June 2020, the conversion price was equal to the lower of, (i) 25% discount on
the base (undiscounted) price per share of the qualifying financing, or (ii) a fixed INX valuation divided by the number of INX’s shares
outstanding on a fully-diluted basis (as defined in the SAFEs). INX is not obligated to complete
a qualifying financing or to approve the issuance of shares or dilutive securities within the term specified in the SAFE that would
result in the issuance of a variable number of the INX’s equity instruments. Accordingly, as the SAFEs are a non-derivative for
which the conversion price into the Company’s equity instruments is fixed at the end of its term, the consideration received from
investors pursuant to the SAFEs is classified as equity. As of December 31, 2022, all INX SAFE’s have been converted into ordinary
shares.
g. Fair value measurement: 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. Fair value measurement is based on the assumption that the transaction will take place in the asset’s or the liability’s
principal market, or in the absence of a principal market, in the most advantageous market. The fair value of an asset or a liability
is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants
act in their economic best interest. Fair value measurement of a non-financial
asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best
use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques
that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant
observable inputs and minimizing the use of unobservable inputs. All assets and liabilities measured
at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest level
input that is significant to the entire fair value measurement. The Company classifies the bases used
to measure certain assets and liabilities at their fair value. Assets and liabilities carried or measured at fair value have been classified
into three levels based upon a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The levels are as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities that the entity can
access at the measurement date;
Level 2: Significant inputs other than within Level 1 that are observable for the asset or liability, either
directly (i.e.: as prices) or indirectly (i.e.: derived from prices);
Level 3: Inputs for the assets or liabilities that are not based on observable market data and require management
assumptions or inputs from unobservable markets. For details of the fair value of the
INX Token liability - See Note 11. For the fair values of INX Token warrant liability, see Note 12. The fair values of current financial
assets and financial liabilities, other than the INX Token the INX Token warrant liability and investments measured at fair value, approximate
their carrying amounts due to the short-term maturity of these instruments.
h. Digital assets: Digital assets are measured on initial
recognition at cost. Digital assets characterized as inventory
(current assets): The Company has assessed that it acts
in a capacity as a commodity broker trader as defined in IAS 2, Inventories, in characterizing certain of its holdings as inventory,
or more specifically, certain holdings of digital assets. Such digital assets held by the Company are principally acquired for the purpose
of selling in the near future and generating a profit from fluctuations in price or broker-traders’ margin, therefore, they should
be accounted for as inventory, and changes in fair value (less cost to sell) should be recognized in profit or loss. Digital assets characterized as intangible
assets (non-current assets): Digital assets not characterized as
inventory are classified as indefinite life intangible assets, and are tested for impairment annually or whenever there is an indication
that the intangible asset may be impaired. An impairment loss is recognized if the carrying amount exceeds its fair value less cost of
sale. The Company recorded impairment of digital assets in the amount of $72 and $80, for the year ended December 31, 2022 and 2021,
respectively. As of December 31, 2022, the Company did not hold any digital assets characterized as intangible assets. The fair value of digital assets is
determined by quoted prices at the active markets as of 12:00 AM UTC.
i. Revenue recognition: The Company determines revenue
recognition from contracts with customers through the following steps:
● Identification
of the contract with the customer;
● Identification
of performance obligations in the contract;
● Determination
of transaction price;
● Allocation
of the transaction price to the performance obligations in the contract; and
● Recognition
of the revenue when, or as, the Company satisfies a performance obligation. In determining the amount of revenue
from contracts with customers, the Company evaluates whether it is a principal or an agent in the arrangement. The Company is a principal
when the Company controls the promised goods or services before transferring them to the customer. In these circumstances, the Company
recognizes revenue for the gross amount of the consideration. When the Company is an agent, it recognizes revenue for the net amount
of the consideration, after deducting the amount due to the principal. Brokerage fees revenue is recorded
according to the date the service was provided, or the operation was carried out. Trading fees revenue includes revenue
from transaction and trading fees charged to customers utilizing the Company’s trading platform and are presented on net basis.
The Company’s service is comprised of a single performance obligation to provide a matching service when customers buy, sell, or
convert digital assets. The Company does not control the digital asset being provided before it is transferred to the buyer, does not
have inventory risk related to the digital asset, and is not responsible for the settlement of the digital asset. The Company also does
not set the price for the digital asset as the price is a market rate established by users of the platform. As a result, the Company
acts as an agent in facilitating the ability for a customer to purchase digital assets from another customer. Trading fees charged on the INX.One
trading platform are recognized as revenue when the Company’s obligation is satisfied, the promised services are transferred
to the customer and the customer obtains control. Contracts with customers are usually open-ended and can be terminated by either party
without a termination penalty. Therefore, contracts are defined at the transaction level and do not extend beyond the service already
provided. The transaction price is the amount of the consideration that is expected to be received based on the contract terms, excluding
amounts collected on behalf of third parties (such as taxes). The Company also recognizes revenue
from buying and selling digital assets it owns. Such revenue is recognized in the gross amount of consideration received on sales less
the cost of digital assets sold.
j. Intangible assets Intangible assets acquired in a business
combination are measured at fair value at the acquisition date. Intangible assets with a finite useful
life are amortized on a straight-line basis over their useful life and reviewed for impairment whenever there is an indication that the
asset may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at each year-end.
As of December 31, 2022, the Company recorded $361 of loss on impairment related to certain legacy components of the INXS middle office
system that became obsolete and were replaced by a newly developed software (see Note 10d). Intangible assets with indefinite
useful lives are not systematically amortized and are tested for impairment annually or whenever there is an indication that the intangible
asset may be impaired. The useful life of these assets is reviewed annually to determine whether their indefinite life assessment continues
to be supportable. If the events and circumstances do not continue to support the assessment, the change in the useful life assessment
from indefinite to finite is accounted for prospectively as a change in accounting estimate and on that date the asset is tested for
impairment. Commencing from that date, the asset is amortized systematically over its useful life. The useful life of intangible assets
is as follows:
Licenses Customer relationships Trade name Technology
Useful life Indefinite Definite 10.58 years Definite 10.58 years Definite 8.67 years
Amortization method Not amortized Straight-line Straight-line Straight-line
k. Business combinations and goodwill Business combinations are accounted
for by applying the acquisition method. The cost of the acquisition is measured at the fair value of the consideration transferred on
the acquisition date with the addition of non-controlling interests in the acquiree. In each business combination, the Company chooses
whether to measure the non-controlling interests in the acquiree based on their fair value on the acquisition date or at their proportionate
share in the fair value of the acquiree’s net identifiable assets. Direct acquisition costs are recorded in the statement of comprehensive
income as incurred. Contingent consideration is recognized at fair value on the acquisition date and classified as a financial asset
or liability in accordance with IAS 39. Subsequent changes in the fair value of the contingent consideration are recognized in profit
or loss. Goodwill is initially measured at
cost which represents the excess of the acquisition consideration and the amount of non-controlling interests over the net identifiable
assets acquired and liabilities assumed. If the resulting amount is negative, the acquirer recognizes the resulting gain on the acquisition
date.
l. Impairment of non-financial assets: The Company evaluates the need to
record an impairment of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable.
If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount.
The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future
cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset
that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses
are recognized in profit or loss . An impairment loss of an asset, other
than goodwill, is reversed only if there have been changes in the estimates used to determine the asset’s recoverable amount since
the last impairment loss was recognized. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying
amount that would have been determined (net of depreciation or amortization) had no impairment loss been recognized for the asset in
prior years and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss. The following criteria are applied
in assessing impairment of these specific assets:
1. Goodwill in respect of subsidiaries: The Company reviews goodwill for impairment
once a year, on December 31, or more frequently if events or changes in circumstances indicate that there is an impairment. Goodwill is tested for impairment
by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill has been allocated.
An impairment loss is recognized if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill
has been allocated is less than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss
is allocated first to goodwill. Impairment losses recognized for goodwill cannot be reversed in subsequent periods.
2. Intangible assets with an indefinite useful
life that have not yet been systematically amortized: The impairment
test is performed annually, on December 31, or more frequently if events or changes in circumstances indicate that there is an impairment
(see Note 10d).
m. Customer funds and funds due to customers: As of December 31, 2022 and 2021,
customer funds include cash balances of $448 and $1,315 and digital asset balances of 2,161 and $2,955, respectively, that are held for
the exclusive benefit of customers. The Company safeguards these assets and is subject to security risks for loss, theft or misuse. Therefore,
the Company has concluded it has control over these assets and records them and the corresponding liability in the consolidated financial
statements at fair value upon initial recognition and subsequently at each reporting period. The Company restricts the use of the assets
underlying the customer funds to meet regulatory requirements and classifies the assets as current based on their purpose and availability
to fulfill its direct obligation to customers.
n. Leases: The Company accounts for a contract
as a lease when the contract terms convey the right to control the use of an identified asset for a period of time in exchange for consideration. The Company as a lessee: For leases in which the Company is
the lessee, the Company recognizes on the commencement date of the lease a right-of-use asset and a lease liability, excluding leases
whose term is up to 12 months and leases for which the underlying asset is of low value. For these excluded leases, the Company has elected
to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term. In measuring the lease liability,
the Company has elected to apply the practical expedient in the Standard and does not separate the lease components from the non-lease
components (such as management and maintenance services, etc.) included in a single contract. On the commencement date, the lease
liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be readily determined,
or otherwise using the Company’s incremental borrowing rate. After the commencement date, the Company measures the lease liability
using the effective interest rate method. On the commencement date, the right-of-use
asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the commencement date and
initial direct costs incurred. The right-of-use asset is measured applying the cost model and depreciated over the shorter of its useful
life and the lease term (3 years and 9 years). The Company tests for impairment of
the right-of-use asset whenever there are indications of impairment pursuant to the provisions of IAS 36.
o. Share based payment transactions: Certain of the Company’s employees
and other service providers are entitled to compensation in the form of equity settled share-based payment transactions. The cost of
the transactions is measured at the fair value of the equity instruments granted at grant date, using an appropriate valuation model,
further details of which are provided in Note 18. The cost of the transactions is recognized in profit or loss together with a corresponding
increase in equity or for share-based grants during the period which the performance and/or service conditions are to be satisfied ending
on the date on which the relevant employees/service provider become entitled to the award (the “vesting period”). The cumulative
expense recognized at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired
and the Company’s best estimate of the number of instruments that will ultimately vest. Until December 31, 2021, the Company
granted options exercisable into its Ordinary shares. Commencing in 2022, subsequent to the completion of the Transaction (see Note 1),
options are granted to the Company’s employees and other service providers by the Parent Company and are exercisable into the Common
shares of the Parent Company.
p. Research and development expenses: Research expenses are recognized in
profit or loss when incurred. An intangible asset arising from a development project or from the development phase of an internal project
is recognized if the Company can demonstrate all of the following: the technical feasibility of completing the intangible asset so that
it will be available for use or sale; the Company’s intention to complete the intangible asset and use or sell it; the Company’s
ability to use or sell the intangible asset; how the intangible asset will gener |
