Mail Stop 4720
February 23,
2018
Shy Datika
Chairman of the Board and Chief Executive Officer
INX Limited
1.23 World Trade Center
Bayside Road
Gibraltar, GX11 1AA
Re: INX Limited
Draft Registration Statement on Form F-1
Submitted January 11, 2018
CIK No. 0001725882
Dear Mr. Datika:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we
may better
understand your disclosure.
Please respond to this letter by providing the requested information
and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
General
1. Please supplementally provide us with copies of all written
communications, as defined
in Rule 405 under the Securities Act, including any presentation
materials, that you, or
anyone authorized to do so on your behalf, present to potential
investors in reliance on
Section 5(d) of the Securities Act, whether or not they retain
copies of the
communications.
2. We note your disclosure on page 2 that you intend to relocate your
principal office to
New York, NY after the INX Exchange becomes fully operational, which
you estimate
will be in the first half of 2019. We also note disclosure starting
at the end of page 1 that
one of your U.S. subsidiaries intends to register as a broker-dealer
and as an alternative
Shy Datika
INX Limited
February 23, 2018
Page 2
trading system with FINRA and the other U.S. subsidiary intends to
register as a
designated contract market and swap execution facility with the CFTC.
Please provide us
with a legal analysis demonstrating that you are currently an eligible
foreign private
issuer as the term is defined in Securities Act Rule 405. If you
currently fit such
definition, please disclose how and when administering the business
principally in the
U.S., among other things, may impact your status as a foreign private
issuer and the
resulting changes to your reporting obligation and accounting standards.
3. To better understand the offering process for the INX Tokens pursuant to
this registration
statement, please provide us with a diagram or a detailed explanation
illustrating the
process, starting from the initial issuance of the digital securities to
the recording of each
trade in the distributed ledger, as well as the clearance and settlement
process. Please
include a detailed explanation of the role of each participant in the
process, including but
not limited to, the issuer, A-Labs Finance and Advisory Ltd. ("A-Labs"),
and any broker-
dealers you may engage. Tell us whether you anticipate the involvement
of a registered
clearing agency or registered transfer agent at any stage of the
process.
4. Under the "Plan of Distribution" disclosure on page 70 you state that
you intend to use
"an online platform at the domain name www.inx.exchange ... to provide
technology
tools to allow for the sale of Tokens pursuant to this offering." Please
disclose whether
the platform is currently operational, and if it is not, please disclose
how the sale of the
currently outstanding 17,626,562 tokens ("Original Token Issuance") was
facilitated.
Please also disclose what exemption from the registration requirements
of Section 5 of
the Securities Act you relied upon in connection with the Original Token
Issuance and
briefly summarize the facts in support of this exemption. Please provide
us
supplementally with any offering materials such as a private placement
memorandum
you used in connection with the offering of the Original Token Issuance.
5. We note that you expect to sell INX Tokens to accredited investors and
non-U.S. persons
("Pre-Sale Investors") through private placements concurrent with and
"ending on the
effectiveness of this registration statement." Please explain how these
offers and sales to
Pre-Sale Investors after your registration statement has been filed will
comply with
Section 5 of the Securities Act as well as the specific subsection of
Rule 506 on which
you will rely. Please also tell us how the restrictive legend that is
required pursuant to
Rule 502(d)(3) will be reflected on the INX Tokens sold to Pre-Sale
Investors and how
the restrictive legend can be removed. Please also tell us whether you
will disclose the
price and the number of INX Tokens you will sell to Pre-Sale Investors
prior to the
effectiveness of the registration statement, and if not, explain why
this information would
not be material to an investment decision.
6. We note disclosure on page 68 stating that you anticipate registering
the resale of the Pre-
Sale Investor's INX Tokens "[s]imultaneous[ly] with or shortly after the
effectiveness" of
this registration statement. Please explain the reasons why rather than
selling through
this registered offering, you will conduct a separate concurrent private
placement and file
Shy Datika
INX Limited
February 23, 2018
Page 3
another registration statement for the resale, about the same time the
instant registration
statement may be declared effective. Please tell us whether you have
engaged in
discussions and/or have received indications of interest in connection
with the private
placement. Given the anticipated timing of the filing of the resale
registration statement,
please provide us with a detailed legal analysis demonstrating why the
tokens to be sold
to the Pre-Sale Investors have come to rest in their hands, and that the
Pre-Sale Investors
are not acting as a conduit for a wider public distribution. Please add
risk factor
disclosure addressing how the concurrent private placement may impact
the IPO
investors, including, but not limited, to an offering price
differential.
7. We note there is likely to be a substantial disparity between the public
offering price of
the INX Tokens and the effective cash cost of the tokens already issued
to directors,
officers, or affiliated persons. Please include a comparison of the
contribution in the
proposed public offering and the effective cash contributions of the
public investors and
disclose the amount and percentage of immediate dilution resulting from
the offering.
Prospectus Cover Page
8. Please expand disclosure at the end of the first paragraph to state that
following the
development of the INX Exchange, the INX Token holders will have the
right to use
them as payment for exchange transaction fees at a discount, or to post
collateral on the
INX Exchange at a more favorable ratio than other forms of collateral.
9. Please disclose here that the offering will terminate upon the earlier
to occur of: (i) the
sale of all of the 130,000,000 tokens being offered, or (ii) 365 days
after this registration
statement is declared effective. In addition, please disclose that this
continuous offering
has no minimum number of tokens that must be sold and that you will have
immediate
access to investor funds. Please refer to Item 1 of Form F-1 and Item
501(b)(8) of
Regulation S-K for guidance.
10. Please quantify your net offering proceeds pursuant to Item 501(b)(3) of
Regulation S-K.
In this regard we note that you may engage broker-dealers paying
commissions up to 7%
of the gross proceeds, as well as your Engagement Agreement with A-Labs
providing for
a $500,000 payment contingent upon A-Labs' selling at least $10 million
worth of INX
Tokens to third parties in this offering. Please disclose the material
terms of your
agreement with A-Labs under "Selling Agents and Expenses" on page 70.
11. Please revise your reference to 20% of your "annual net cash flow from
operating
activities" consistent with your disclosure on page 66 that this amount
will be adjusted to
exclude the proceeds from the initial sales of any INX Token and
calculated based on
other material adjustments to your net cash flow from operating
activities. Make
corresponding revisions throughout your prospectus.
Shy Datika
INX Limited
February 23, 2018
Page 4
12. Please disclose that you have received a going concern opinion, and
since your offering
has no minimum requirement, you may be unsuccessful in raising $9
million, the amount
you estimate would be required to fully fund your three Phases of
development. In this
regard, we note your disclosure on page 38.
Prospectus Summary
Overview, page 1
13. We note your disclosure on page 8 that "the balance" of your net
proceeds "will be used
to establish and capitalize a cash reserve fund for the INX Exchange."
Please add
appropriate risk factor disclosure to acknowledge that you do not
currently have any cash
reserves, that you cannot guarantee you will have any material amount of
cash reserves
given that there is no minimum offering amount, and that you intend to
use your initial
net proceeds for development and operation of the INX Exchange. Please
also revise
disclosures throughout the prospectus to remove or modify the references
of a
"significant" cash reserve for the reasons cited above.
14. Please expand disclosure at the end of the second paragraph to describe
how you will
offer investors liquidity through this alternative trading system.
15. We note that you will accept INX Tokens to pay INX Exchange transaction
fees. Please
disclose whether tokens received in payment of transaction fees will
constitute treasury
securities and whether they will be canceled or remain outstanding. We
note that 200
million tokens have been created and there is no means of creating new
INX Tokens.
Industry Overview
Background and Current Market, page 2
16. Please balance your disclosure on the growth of blockchain assets by
addressing their
recent and historic volatility. In this regard, while you disclose that
"blockchain assets
had a total market capitalization of over $570 billion" as of December
31, 2017,
prominent news outlets reported that this market capitalization fell by
more than $100
billion in a single day, on January 8, 2018.
Our Solution..., page 4
Robust Pre-Trade and Post-Trade Services, page 4
17. Please explain how "you will obtain liquidity through other ATSs or
through direct
sales." [emphasis added] Please identify and materially describe the
ATSs you anticipate
using, disclosing also whether they are located in the US or
internationally, and whether
or not they are registered as broker-dealers. Furthermore, please
explain how your plan
Shy Datika
INX Limited
February 23, 2018
Page 5
to obtain liquidity aligns with your "Fixed Rates; Arbitrage Prevention"
disclosure on the
following page stating that you "will not act as a market maker" nor
will you engage in
"proprietary trading."
Historical Trading Record, page 4
18. On page 3 you disclose that regulatory agencies cannot effectively
monitor transactions
because most blockchain asset exchanges do not present the entire
history of trades to
exchange participants in a manner that would be requested by a
regulator. Please
disclose whether your implementation of KYC/AML procedures would render
clients'
historical trading records accessible by a regulator when requested.
Otherwise, please
explain how you anticipate providing this information.
Our Solution..., page 4
19. Please disclose how your KYC/AML procedures will enable you to "verify
the legitimate
origin of funds in a trade" which current blockchain asset exchanges are
unable to
accomplish, partly due to "Lack of Regulation" as discussed on page 3.
Please also
revise your disclosure to clearly state whether the KYC/AML procedures
will be in place
at the time of the offering, and whether the holders of currently
outstanding tokens have
provided you with KYC/AML proper documentation. In this regard, it is
unclear from
the reading of your disclosures whether the KYC/AML procedures will be
implemented
at the time the INX Exchange becomes operational, or prior to the
issuance of the INX
Tokens in this offering.
20. We note that persons purchasing INX Tokens outside the registered
offering will not be
entitled to use their INX Tokens to pay INX Exchange transaction fees at
a discounted
rate or to receive a pro rata distribution of 20% of the company's
annual net cash flow
from operating activities, unless those purchasers first have been duly
identified through
the KYC/AML procedures. Make clear in the prospectus that these rights
will not
transfer with the INX Tokens when purchased on secondary markets.
21. Please revise to discuss the effectiveness of your KYC/AML procedures as
it appears that
INX Token holders would only need to provide the required KYC/AML
information to
use their INX Tokens on the INX Exchange or to receive an annual
participation right in
your Adjusted Operating Cash Flow, but they would have no apparent
incentive to do so
if they are holding INX Tokens as a short-term investment. Please also
disclose whether
selling and/or transferring INX Tokens to holders that are
KYC/AML-compliant or non-
compliant, in advance of a distribution of your Adjusted Operating Cash
Flow would be
permitted and how such actions would impact the effectiveness of your
KYC/AML
procedures, and whether or not such actions would be permissible.
Shy Datika
INX Limited
February 23, 2018
Page 6
Fixed Rates; Arbitrage Prevention, page 5
22. Please clarify your concerns surrounding arbitrage, how fixed rates will
prevent arbitrage,
and how limiting arbitrage opportunities will positively or negatively
impact your
operations as an ATS or broker-dealer.
Our Development Plan, page 5
23. Please expand your disclosure to clarify the meaning of your statement
that you are
developing a platform to provide clients with a "cross-asset,"
multi-currency "non-biased
execution" trading solution. If you will accept other forms of payment
in addition to INX
Tokens as payment transaction fees, please disclose how the use of
multi-currencies may
impact the valuation of your tokens.
Our Growth Strategies, page 5
The INX Token, page 6
24. Please disclose how you intend to profit from the INX Exchange despite
(1) offering 20%
discounts on transaction fees and 15% discounts for collateral deposits
when paid in INX
Tokens, and (2) depositing 20% of these INX Tokens received as
transaction fees into
your capital and liquidity reserves. To the extent that a market for
your INX Tokens does
not develop, disclose how you intend to monetize them in order to
achieve liquidity.
Please also disclose whether you expect users will pay transaction fees
or make collateral
deposits in currencies other than INX Tokens.
Risk Factors, page 6
25. We note that valuation of the INX Token is "difficult." Please disclose
whether your
offering price was "arbitrarily determined" (see disclosure at the end
of the second
paragraph on the prospectus cover page), or whether the offering price
will correlate to
the price the tokens will be sold to the Pre-Sale Investors. To the
extent there will be a
price differential, please disclose the factors considered by the board
in setting the public
offering price.
Implications of Our Emerging Growth Company and Foreign Private Issuer Status,
page 7
26. Please revise to clearly state your election under Section 107(b) of the
JOBS Act here and
elsewhere in the filing as appropriate. If you have elected to use the
extended transition
period for complying with new or revised accounting standards under
Section 102(b)(1),
provide a risk factor explaining that this election allows you to delay
the adoption of new
or revised accounting standards that have different effective dates for
public and private
companies until those standards apply to private companies. Please state
in your risk
Shy Datika
INX Limited
February 23, 2018
Page 7
factor that, as a result of this election, your financial statements may
not be comparable to
companies that comply with public company effective dates.
The Offering, page 8
27. Please disclose that in the event of liquidation an INX Token holder
will be entitled to a
distribution from the company's available funds together with the other
unsecured
creditors, prior to any distributions made to the company's
shareholders. Refer to
"Distribution to INX Token Holders Upon Liquidation" disclosure on page
66. Please
provide a legal opinion supporting your determination that INX Tokens
are characterized
as debt under the laws of Gibraltar. Please ensure that the opinion
addresses whether the
tokens would ever be subordinate to other unsecured general obligations
of the company,
and whether such subordination would render them equity instruments. In
that case, the
legal opinion should address the material implications of such
determination.
Risk Factors
Risks Related to Blockchain Assets
The application of distributed ledger technology is novel and untested and may
contain inherent
flaws or limitations, page 10
28. Please expand disclosure here or include a separately captioned risk
factor that to the
extent that the computer/program code and algorithm setting the rights
and the features of
the INX Tokens contain errors or latent terms not disclosed to the
investors, or use unsafe
algorithms, these errors and hidden terms may result in losses to
investors and
substantially dilute the value of the INX Tokens. In an appropriate
section of the filing,
please disclose what systems and processes you have in place to prevent
errors and
troubleshoot the functionality of the tokens. Please also disclose what
rights, if any, the
INX Token holders have to recoup their losses in the event that these
errors occur or
hidden terms, previously not disclosed to the investors, negatively
impact the value of the
tokens.
Risks Related to our Company's Operations
We have no operating history, page 13
29. You disclose that to date you have had no historical operating results
and that you will
not commence operations of the INX Exchange "until obtaining funding
through this
offering." Please expand your disclosure to discuss the risks resulting
from the offering
being conducted on a best efforts basis with no minimum number of tokens
required to be
sold. Disclosure should highlight that lack of a minimum offering amount
would
substantially jeopardize your ability to implement your business plan.
Shy Datika
INX Limited
February 23, 2018
Page 8
Our ability to develop the INX Exchange faces operational, technology and
regulatory
challenges..., page 13
30. Please expand this risk factor to highlight how your inability to
successfully develop the
INX Exchange will impact the value of the INX Tokens, and potentially
render them
worthless.
31. Please disclose how the features of the pro rata distribution of your
Adjusted Operating
Cash Flow may give preference to holders of a large number of your
tokens over the
holders of a smaller amount. Please quantify the minimum operating cash
flow required
to guarantee payment to all INX Token holders, updated to account for
the closing of
your private placement to "Pre-Sale Investors."
Risk of losing Tokens or losing Token access due to error or loss of a private
key may be
irreversible, page 23
32. You disclose that any errors or malfunctions caused by the owners
related to the safe
storage of their token, "or a failure to follow precisely the procedures
set forth for buying
and receiving INX Tokens may also result in the loss of Tokens as well
as the loss of part
or all of [their] investment." To help investors better assess this
risk, please disclose how
the token holder can cause errors or malfunctions of the safe storage of
their tokens, and
how and where the procedures to be followed by the token holder will be
communicated.
Use of Proceeds, page 27
33. We note your disclosure on page 38 that you will incur $9 million of
expenses to
complete all three phases of development. To the extent that your
offering raises less
than the minimum required for the INX Exchange to be fully operational,
please revise
your disclosure to prioritize your uses of proceeds, identifying also
the amount required
for each intended use. Please also disclose whether you anticipate
having other sources
of funds available to make up for the shortfall in the offering
proceeds. Refer to Item 4.a
of Form F-1 and Item 3.C.1 of Form 20-F. In addition, please ensure that
your page 38
disclosure provides a tabular presentation of the anticipated expenses
quantified for each
phase of development to include, but not limited to, software
development, marketing,
salaries, etc.
34. We note your risk factor disclosure on page 21 stating that you intend
to explore
acquisitions and other strategic alliances. To the extent that you
anticipate using any of
the offering proceeds to finance the acquisition of another business,
please provide a brief
description of the target business and information on the status of the
acquisition. Please
refer to Item 3.C.3 of Form 20-F.
Shy Datika
INX Limited
February 23, 2018
Page 9
Business
35. Please provide an overview of the INX Exchange Platform (or INEX
Services, Inc.) and
how it will operate. Specifically, discuss how the ATS will bring
together the orders of
multiple buyers and sellers for INX tokens and what will be the facility
or rules under
which such orders will interact (e.g., order entry processes, priority
rules, execution
procedures). In addition, please explain how you plan to achieve both a
centralized and
peer-to-peer professional trading services and what functionalities you
must developed to
achieve this dual platform. Please also discuss the eligibility criteria
for securities to
trade on your ATS. Your disclosure should address all other material
services that the
ATS may offer.
36. Please discuss the types of subscribers to the platform and any
differential in the levels of
services offered to them by the ATS.
37. Please discuss how the ATS will comply with Rules 300 through 303 of
Regulation ATS,
including but not limited to Rule 301(b)(11). Alternatively, please tell
us if you intend to
register your platform as a national securities exchange.
38. Please clarify whether the subsidiary that will act as your clearing
agent will seek to
register as a clearing agency or intends to rely on an exemption from
registration and, if
so, which exemption.
Our Solution..., page 36
39. Please disclose the material features of the INX Exchange. For example:
Will users need an INX Token to access the INX Exchange?
Will the INX Exchange be open to all users or restricted to certain
categories of
users? And, if so, who and why? E.g. only "institutional and other
accredited
investors," investors living in certain countries, etc.
How and where will you store your blockchain assets?
Will you withhold taxes, maintain records on the gain or loss from
sale, or provide
U.S. users with tax forms annually?
Will there be a transaction size limit?
Do you intend to charge any fees besides transaction fees? E.g.
deposit, withdrawal,
account opening, maintenance, closing, etc.
Will investors need to set up an account on the INX Exchange? If so,
please outline
the material aspects of that process.
How long do you anticipate trades to take on your exchange? How does
that compare
to existing exchanges and if there are material differences, why?
Will you make counterparties whole in the event that the forfeited
collateral does not
cover the failed trade? If so, will this come from your capital
reserve fund or from
Shy Datika
INX Limited
February 23, 2018
Page 10
another source? How will the INX Tokens provided at a discount
impact this
operation of your business?
Our Growth Strategies, page 38
40. Please revise to provide a brief description of each of the features
identified in the table.
Material Agreements
Convertible Loan Agreements, page 44
41. You disclose that in connection with entering into the Convertible Loan
Agreements,
each of Ms. Naor, Ms. Horn and Mr. Segev were granted a right to
purchase a specified
number of INX Tokens. We also note the "Recent Sales of Unregistered
Securities"
disclosure on page II-2, where you state that the company issued to each
of these three
lenders tokens at a price of $0.01/token. Please revise your disclosure
here to indicate
that the INX Tokens have already been issued.
Employees, page 45
42. Please quantify the number of your current employees at the end of a
recent period and, if
possible, breakdown these persons by their main category of activity and
location. Refer
to Item 6.D of Form 20-F for guidance.
Principal Shareholders, page 60
43. We note that a certain number of the outstanding INX tokens has been
issued to your
employees. We also note from page 8 that 7,373,438 INX tokens have been
reserved for
future sales and issuance to employees. Please tell us how you accounted
for these
tokens in greater detail including your consideration of whether, or
not, the tokens should
be classified as employee compensation, citing any applicable
authoritative guidance. If
you accounted for these issuances in different ways, please explain and
clearly
differentiate the basis for each accounting treatment. Additionally,
tell us whether you
have any employee compensation plans that include INX tokens as a
component. If so,
please supplementally provide an example of such employee compensation
plan.
Description of INX Tokens, page 66
44. Please outline the material features of the INX Tokens. For example:
Quantify the number of INX Tokens that are currently created and
disclose whether
and how this number may be changed in the future. Disclose also when
you
developed the source code underlying the tokens. To the extent that
there is an
inherent limit in the total number of tokens that you can create,
please explain how
that feature works and how it is enforced.
Shy Datika
INX Limited
February 23, 2018
Page 11
Disclose whether a single INX Token may be divided into fractions of
a token as well
as any limits on their division, or if only whole tokens may be
transferred or accepted.
Please further disclose whether and how payments and/or
distributions would be
rounded.
Clarify whether the discounts available for using the INX Token on
the INX
Exchange are features of the tokens themselves or promotional
incentives that may be
changed during the operation of your business.
Disclose any limits on the transfer of INX Tokens.
Address how the annual payment of 20% your Adjusted Operating Cash
Flow
(subject to certain restrictions) is evidenced in the token itself.
Please disclose the
process by which the Adjusted Operating Cash Flow payment is
executed. In
addition, please clarify whether these features attach to the token
during its lifetime as
long as it is outstanding. Disclose whether there will be a solvency
condition to the
annual payment, how such an analysis would be performed, and the
material
repercussions of including or excluding such a feature.
Explain how you intend to provide updates on the number of INX
Tokens you have
sold throughout the offering period, and the amount of proceeds
raised, which are
essential to your ability to implement your business plan. Please
also explain how
you plan to regularly communicate the number of INX Tokens
outstanding given the
material impact such number may have on the pro rata distribution of
your Adjusted
Operating Cash Flow. With respect to such pro rata distribution, to
the extent that
you intend to differentiate among INX Tokens held by parties other
than the company
and/or third parties that have provided you with satisfactory
KYC/AML forms, so
disclose.
Participation Right in Adjusted Operating Cash Flow, page 66
45. Please disclose the material features of the INX Token network. For
example:
How are INX Tokens transferred to other individuals?
Is the network decentralized, permissioned, or centralized?
How frequently is the distributed ledger updated or published and how
would
information on recent trading prices be shared or displayed?
What is the protocol used to validate transactions? What are the
incentives for parties
to validate transactions?
What is the blockchain on which your platform will run? And what are
the
implications of the INX Token being ERC20 compliant?
How does your network interact with the underlying blockchain?
What happens if there are issues with the underlying blockchain (e.g.
decreased
processing speeds or increased transaction fees)? What are your
contingency plans in
the event the underlying blockchain is no longer supported?
Shy Datika
INX Limited
February 23, 2018
Page 12
What cryptographic keys or other information will allow holders to
use their INX
Tokens?
Where and how will INX Tokens, their keys, etc. be stored? Will you
provide a
digital wallet? Who will control the wallet?
What are the implications for both the user and the network if a
user loses their key or
is otherwise unable to access their INX Token?
Has your management, or your affiliates developed or written a white
paper
describing the INX Token or its network? If true, please file it as
an exhibit pursuant
to Item 8 of Form F-1 and Item 601(b)(4) of Regulation S-K.
Please provide a graphical presentation of your INX Token Network
demonstrating also
the complete lifecycle of its operations.
Participation Right in Adjusted Operating Cash Flow, page 66
46. Please clarify how you will calculate your Adjusted Operating Cash Flow.
For example,
please tell us whether cash used to purchase a blockchain asset that has
not yet been sold
would be excluded from this calculation. Please also disclose the amount
of discretion
available to management in classifying cash flows so that they may be
included or
excluded from this calculation.
47. Please disclose what rights INX Token holders have, if any, to enforce
their participation
rights in your Adjusted Operating Cash Flow.
48. Please clarify what discretion you retain, if any, in accepting "[the
KYC/AML compliant]
persons as an INX Token holder," and quantify the time elapsed between a
person
investing in your tokens and your decision to accept them as a token
holder.
Distribution to INX Token Holders upon Liquidation, page 66
49. Please disclose whether your anticipate requiring additional information
to be provided
by then current token holders in the event of a distribution upon
liquidation, and if so,
whether those requirements would be embedded within the token.
50. Please disclose your anticipated "banking fees" required for
transferring funds to an
individual INX Token holder through the distribution of the annual
participation right.
Please also disclose why you set the minimum Adjusted Operating Cash
Flow at
$500,000, particularly as it appears that not every INX Token holder
would be entitled to
distribution payments from this minimum amount. Please also disclose the
minimum
number of INX Tokens, or portions thereof, that would be necessary to
guarantee
payment in the annual participation right. If you are unable to estimate
the minimum,
please disclose the factors that will impact the payment thereunder.
Shy Datika
INX Limited
February 23, 2018
Page 13
Use of the INX Token on the INX Exchange, page 67
51. We note that paying transaction fees with the INX Token will result in
an "average"
discount of 20% compared to using other "currencies." Please disclose
the range of
discounts that will be available and why these discounts vary (e.g.,
type of transaction,
transaction size, comparable currency or cryptocurrency).
52. Please explain how you will determine collateral requirements and
explain why you
believe offering a "more favorable ratio" for INX Tokens is appropriate
in these
circumstances. Regarding the "more favorable ratio" for depositing INX
Tokens as
collateral in short positions, please disclose whether the example of
posting 20%
collateral in INX Tokens and 65% of collateral in another currency is
the actual ratio that
will be available or a hypothetical example to demonstrate the operation
of "a more
favorable ratio." If it is only intended to be hypothetical, please
disclose the more
favorable ratios that will be available and the reasons for any
variations.
Capital Reserve and Liquidity Fund..., page 67
53. We note that you intend your capital reserve and liquidity fund "to
cover shortfalls in
transactions" on the INX Exchange. Please disclose:
The type of shortfalls to which you refer;
Whether the fund will contain other cryptocurrencies or blockchain
assets which you
anticipate would trade on the INX Exchange and, if so, how and when
you will
acquire and contribute these to the fund;
Whether and how additional capital, tokens, or other assets will be
contributed to the
fund following any withdrawals to cover the aforementioned
shortfalls;
Whether you will contribute 20% of any INX Tokens that are forfeited
as collateral;
The administrator of the fund and where it will be located;
Whether the funds will be invested and, if so, for what investment
return and at what
level of risk; and
The level of discretion, if any, that you have in maintaining or
withdrawing assets
from this fund.
54. Please tell us how you will account for the INX Tokens that will be used
to establish the
capital reserve and a liquidity fund. Provide a step-by-step analysis
citing the guidance
you considered, including how they will be presented within the
financial statements.
Voting Rights, page 67
55. Please disclose how decisions to restructure your company could impact
INX Token
holders' rights to receive the abovementioned participation rights. We
may have
additional comments following review of the token purchase agreement.
Shy Datika
INX Limited
February 23, 2018
Page 14
Tokens Eligible for Future Sale, page 68
56. Please disclose whether submission and or acceptance of KYC/AML forms
and related
documentation are required in order to resell the INX Tokens in a
secondary transaction.
Certain United States Federal Income Tax Consequences, page 69
57. Please expand your disclosure to properly identify where the uncertainty
regarding the
tax characterization of the tokens lies. In this regard, we note the
last paragraph of your
tax risk factor disclosure on page 22.
Plan of Distribution, page 70
58. We note your disclosures on pages 32 and F-14 that "certain individuals"
will receive a
$250,000 bonus after raising "a certain minimum offering amount" and
that "key
management personnel" will receive a "yet to be determined" amount of
compensation
when this minimum is raised. You also disclose that your tokens will be
sold and
distributed by your officers and directors who will not receive direct
compensation for
the sale of the tokens. Exchange Act Rule 3a4-1 non-exclusive
safe-harbor provides,
among other things, that persons associated with the issuer must not be
compensated
directly or indirectly in connection with the sale of the issuer's
securities. Please advise
whether you intend to rely on the safe-harbor or whether the insiders
will be registered as
broker-dealers pursuant to Section 15(a)(1) of the Exchange Act.
Financial Statements as of December 31, 2017
Balance Sheet, page F-3
59. We note your disclosure on page F-16 that the prepaid expenses balance
of $517,000
represents the difference between the total aggregate consideration
received by A-Labs
and the fair value of the services provided by A-Labs. Please tell us
and revise to
disclose, in greater detail, how you measured the total aggregate
consideration given to
A-Labs and the fair value of the services provided by A-Labs and how you
considered
your relationship with A-Labs, a related party, in recognizing this
prepaid expenses asset.
In addition, please revise to disclose relevant information required
under IFRS 13 as
necessary in understanding the nature and the calculation of the prepaid
expenses.
60. Based on the disclosures here and on pages 58 and 62, we note that your
share capital and
the related par value of ordinary shares are denominated in British
Pounds and are
translated to your functional currency, U.S. Dollar, on the balance
sheet. However, we
noted no foreign exchange adjustment in the financial statements. Please
revise to show
the adjustment pursuant to IAS 21 or tell us why the adjustment is not
necessary.
Shy Datika
INX Limited
February 23, 2018
Page 15
Statements of Comprehensive Loss, page F-4
61. Please revise to disclose earnings per share data in accordance with
Rule 5-03 of
Regulation S-X.
62. Please revise to disclose separately the amount of share-based
compensation expense
disclosed in Note 4. In addition, please revise your disclosure to
include the relevant
information required under IFRS 2 as appropriate.
Statement of Changes in Equity, page F-5
63. Please revise to disclose relevant information necessary to reconcile
the number of
ordinary shares outstanding at the beginning and at the end of the
period as required
under IAS 1, para.79.
Statement of Cash Flows, page F-6
64. We note the increase in prepaid expenses of $404,000 in the statement of
cash flows does
not agree to the prepaid expenses balance of $517,000 on the balance
sheet as of
December 31, 2017. Please reconcile this difference for us and revise
the disclosure to
clarify the difference if necessary.
Notes to Financial Statements
Note 3: Token Liability, page F-13
65. We note your re-measurement to fair value of the INX Token liability in
respect of
17,626,562 INX Tokens, which resulted in a $50,000 fair value adjustment
to the
statement of comprehensive loss. Please provide us with your
step-by-step analysis
citing the applicable literature you considered in determining the
classification (i.e.
meeting the definition of a financial liability under IAS32) and your
determination of the
fair value of the INX Token liability in accordance with paragraph 9 of
IAS39. In
addition, please revise to disclose all relevant disclosures required
under IFRS 13.
Note 5: Convertible Loans, page F-15
66. We note your issuance in the aggregate amount of $144,000 of convertible
notes in
November 2017 and related disclosure. Please provide us with an analysis
of your
accounting determination that these instruments should be classified as
liabilities with a
bifurcated portion in equity, including your consideration of potential
income statement
recognition features in a supplemental response, citing the applicable
literature you
considered in a step-by-step format. In addition, please provide us with
copies of the
related convertible loan agreements.
Shy Datika
INX Limited
February 23, 2018
Page 16
You may contact Lory Empie, Staff Accountant, at (202) 551-3714 or
Stephen Kim,
Assistant Chief Accountant, at (202) 551-3291 if you have questions regarding
comments on the
financial statements and related matters. Please contact Christopher Dunham,
Staff Attorney, at
(202) 551-3783 or, in his absence, me at (202) 551-3369 with any other
questions.
Sincerely,
/s/ Era Anagnosti
Era Anagnosti
Acting Assistant
Director
Office of Financial
Services
cc: Mark S. Selinger, Esq.