Annual Report Nxchange B.V. 2017 INDEX Director’s Report ..................................................................................................................................................... 3 Key Figures ......................................................................................................................................................... 3 General ................................................................................................................................................................ 3 Financial Statements ............................................................................................................................................... 8 Statement of profit or loss for the period 01-01-2017 till 31-12-2017 ................................................................... 8 Statement of comprehensive income for the period 01-01-2017 till 31-12-2017 ................................................. 9 Statement of financial position 31-12-2017 ....................................................................................................... 10 Statement of changes in equity for the period 01-01-2017 till 31-12-2017 ....................................................... 11 Statement of cash flows for the period 01-01-2017 till 31-12-2017.................................................................... 12 Notes to the Financial Statements ........................................................................................................................ 13 Note 1 General Information ............................................................................................................................... 13 Note 2 Summary of significant accounting policies ............................................................................................ 13 Note 3 Financial risk management .................................................................................................................... 18 Note 4 Critical accounting estimates and judgements ....................................................................................... 21 Note 5 Personnel expenses............................................................................................................................... 21 Note 6 Other expenses by nature ...................................................................................................................... 22 Note 7 Finance costs ......................................................................................................................................... 23 Note 8 Income tax expense ............................................................................................................................... 23 Note 9 Intangible fixed assets............................................................................................................................ 24 Note 10 Property, plant and equipment ............................................................................................................. 25 Note 11 Long-term loans and receivables ......................................................................................................... 25 Note 12 Deferred tax assets .............................................................................................................................. 26 Note 13 Receivables and prepayments ............................................................................................................. 26 Note 14 Cash and cash equivalents .................................................................................................................. 27 Note 15 Share capital and premium and shareholders distribution ................................................................... 27 Note 16 Other reserves ..................................................................................................................................... 28 Note 17 Short term liabilities .............................................................................................................................. 28 Note 18 Long term liabilities .............................................................................................................................. 28 Note 19 Related party transactions ................................................................................................................... 29 Note 20 Contingent Liabilities ............................................................................................................................ 29 Note 21 Capital management policy .................................................................................................................. 29 Note 22 Subsequent events .............................................................................................................................. 30 Other Information ............................................................................................................................................... 32 2 Director’s Report Key Figures (All amounts are in € thousands unless otherwise stated.) 31.12.2017 31.12.2016 Capital raised 1,477 1,157 Total assets / liabilities 1,141 1,081 Results over the year - loss -330 -329 Net cash flow 385 561 Liquidity ratio 157% 323% Solvency ratio 66% 70% General The world is changing and it’s changing fast. By use of technology, communities are getting a voice and they want to be heard. In the era of social networking and distributed networks it makes sense to come up with a solution for security issuers to raise capital in their existing networks and deal directly with the investors wanting to take up the investment opportunity. Investors in turn want full transparency, 24/7 access, real-time settlement and the ability to use their assets and services anytime, anyplace and anywhere. Nxchange B.V. was incorporated in February 2015. After a complex license application period, Nxchange was delighted to receive its license to operate as an Investment firm and a Regulated Market in March 2016. Nxchange is registered in the trade register of the Dutch Chamber of Commerce under number 62712616. With the license to operate a Regulated Market, provided by the Dutch Minister of Finance. Nxchange is the Next Generation Stock Exchange that provides security issuers with a white-labelled stock exchange that can be fully integrated in their web-environment to raise capital and offer their investment community the possibility to trade these assets in a secondary market by combining the positive aspects of crowdfunding with the benefits of a regulated stock exchange, as a better alternative to existing stock-markets and private equity investing solutions. In this Director's Report, I would like to share with you Nxchanges’ developments in 2017, the future strategy, the main targets of 2018, the financial implications and the key risks. Nxchanges’ financial year runs from 1 January through 31 December 2017. Glancing back to 2017 In 2017 our strategy has been twofold. First of all we have focused on further refining Nxchanges’ roll out strategy and decided to fully focus on acquiring partnerships that are interested in providing an exchange to their investment community to raise capital and provide a secondary market. Within these partnerships, Nxchange will be the permit owner, the platform provider and will be responsible for the issuers and investors acting on the exchange. The partner will focus on acquiring interesting investment opportunities with accompanying investment communities. Several potential partners have expressed serious interest to incorporate Nxchange as of 2018 once we have obtained the MTF permit. Taking that into account we have also further invested in improving the infrastructure of Nxchange by setting up a blockchain bank account structure in collaboration with ABN Amro Clearing Bank which will be implemented in Q2 2018 after approval from the regulator. We have also upgraded Nxchange for MiFID II and prepared the application of the MTF permit. 3 To assure that Nxchange is sufficiently capitalized to get the MTF permit and make the necessary investments to roll out its strategic plan we have also invested time in on-boarding a new equity investor for Nxchange. The equity investor is Yellitech B.V. Yellitech’s initial investment will provide sufficient capital to reach the required equity capitalization levels for the MTF permit in Q2 of 2018. The Next Steps Tokenization of ownership Blockchain technology will become the beating heart of the Global Financial System. Tokenization of ownership will be key both for security tokens (tokens with a 1:1 relationship to a security) or utility tokens (tokens that can be used to pay for a certain service/ product). One thing is clear: Blockchain and smart contracts could catapult the securitization industry into a new digital age. The technology’s potential to streamline processes, lower costs, increase the speed of transactions, enhance transparency and fortify security will impact all participants in the securitization lifecycle – from originators, sponsors/ issuers and servicers to rating agencies, trustees, investors and even regulators. As a result ICO fundraising by issuing both security and utility tokens surged to $6.8 billion in 2017. This market however is not regulated at the moment. Since 2017 almost all regulators have now placed an absolute stop on issuing, or facilitating trade in, securitized tokens without the required