Xref
Annual Report 2022

Plain-text annual report

2022 Contents 2022 Highlights Chairman’s Report Chief Executive Officer’s Report Directors’ Report Independence declaration Financial Statements Notes to the financial statements Director’s Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 2 7 8 12 26 27 33 74 75 80 84 General information Xref Limited ABN 34 122 404 666 The financial statements cover Xref Limited as a consolidated entity consisting of Xref Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Xref Limited’s functional and presentation currency. Xref Limited is a listed public company limited by shares (ASX:XF1), incorporated and domiciled in Australia. Its registered office and principal place of business is: Suite 13, 13 Hickson Road, Dawes Point, New South Wales, Australia, 2000 A description of the nature of the Group’s operations and its principal activities are included in the directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 23 August 2022. The directors have the power to amend and reissue the financial statements. Xref Limited | Annual Report 2022 | 1 2022 Highlights $20.84M $15.38M $9.81M Total Sales Xref Sales Marketplace Sales FY 2020 FY 2021 FY 2022 Increase 36% “The value of Xref credits sold in FY22 grew 41% year on year, to $16.9 million, while Marketplace sales grew 15% to $4 million. Overall the combined growth rate of 36% saw group sales reach $20.8 million.” Lee Seymour CEO, Co-Founder, Exec Director $18.59M $14.45M $8.27M FY 2020 FY 2021 FY 2022 Increase 29% “Continuing on from the strong FY21 growth, Group revenue grew a further 29% year on year with Xref growing 33% and Marketplace growing 14% respectively.” Lee Seymour CEO, Co-Founder, Exec Director Recognised Revenue Xref Marketplace 2 | Xref Limited | Annual Report 2022 2022 Highlights Key Expense Changes Wages Rent/occupancy Marketing FY 2020 FY 2021 FY 2022 Group Profitability $18.59M $14.45M $8.27M $0.08M $0.73M -$10.06M FY 2020 FY 2021 FY 2022 Group Revenue Group Net Profit Increase 20% “Increases in marketing spend and wage costs to support continued revenue growth and product development were the key expense changes for FY22.” Lee Seymour CEO, Co-Founder, Exec Director Increase 834% “After achieving profitability in FY21, Xref remained profitable in FY22 growing NPAT 834% to $0.73 million and EBITDA 75% to $1.77 million.” Lee Seymour CEO, Co-Founder, Exec Director Xref Limited | Annual Report 2022 | 3 2022 Highlights 2022 Highlights $18.59M “All regions grew strongly in FY22. North American revenue grew 49% year on year with revenue from the United States growing by 129% when compared to FY21 showing strong demand for Xref’s products from this area.” $14.45M $8.27M Revenue Region North America EMEA ANZ FY 2020 FY 2021 FY 2022 Lee Seymour CEO, Co-Founder, Exec Director $18.59M $14.45M $8.27M Revenue Stream Trust Marketplace Channel API Xref Platform FY 2020 FY 2021 FY 2022 4 | Xref Limited | Annual Report 2022 “Clients that use the Xref platform directly accounted for 52% of revenue and usage grew 22% during FY2022. Clients that use Xref’s services via a Channel partner accounted for 27% of revenue and grew 64% during FY2020. Trust Marketplace includes revenues from RapidID and Xref consumed via wholesale.” Lee Seymour CEO, Co-Founder, Exec Director 2022 Highlights 2022 Highlights $18.59M $14.45M $8.27M Client Cohort Joined FY2022 Joined FY2021 Joined FY2020 Pre Existing FY 2020 FY 2021 FY 2022 $18.59M $14.45M $8.27M Business Model Capped Subscription Postpaid Checks Prepaid Credits FY 2020 FY 2021 FY 2022 “Clients who joined Xref prior to FY2020 accounted for 60% of revenue in FY2022. Clients who joined in FY2021 grew by 131% in FY2022 and revenue from new clients grew 32% when compared to the previous year. This demonstrates Xref’s strong track record in client retention and increasing customer life time value (LTV).” Lee Seymour CEO, Co-Founder, Exec Director “The purchase of prepaid credits accounted for 75% of revenue in FY2022 and grew 33% year on year. Capped subscriptions now contribute 4% of revenue and form a strong foundation for growth as the new Enterprise subscription platform is launched.” Lee Seymour CEO, Co-Founder, Exec Director Xref Limited | Annual Report 2022 | 5 2022 Operating Results Financial summary Total Revenue EBITDA Net profit after tax Net cash generated from operating activities Business results Xref revenue RapidID revenue Total revenue Cost of Sales OPEX Share based payments Total Expenses Other income Depreciation & Amortisation Operating profit Finance income Finance expense 30 June 2022 30 June 2021 % Change 18,591,434 14,454,868 1,774,730 1,016,899 729,575 78,084 4,622,960 2,322,373 30 June 2022 30 June 2021 15,568,389 11,558,269 3,023,045 2,896,599 18,591,434 14,454,868 (3,674,245) (3,045,508) (12,503,372) (10,715,970) (767,885) (318,550) 16,945,502 14,080,028 128,798 642,059 (474,397) (440,206) 29% 75% 834% 99% % Change 35% 4% 29% 21% 17% 141% 20% (80%) 8% 1,300,333 576,693 125% 5,739 11,779 (576,497) (510,388) (51%) 13% Net profit after tax 729,575 78,084 834% EBITDA Net profit after tax Add back: net interest income and expense Add back: net depreciation and amortisation 30 June 2022 729,575 570,758 474,397 30 June 2021 78,084 498,609 440,206 EBITDA 1,774,730 1,016,899 % Change 834% 14% 8% 75% 6 | Xref Limited | Annual Report 2022 Chairman’s Report I am pleased to present the Xref annual report for the year ended 30 June 2022. In my first year as Chair, I have been impressed with the passion and energy of the Xref management team and their determination to make Xref a world class software product. Your company has performed well, delivering revenue growth of 29% while also generating positive operating cash flow of $4.6m. EBITDA also grew 75% to $1.77m. This places us in a strong position to invest in product innovation and sales growth. We launched an exit survey product to complement our core reference checking software and plan to further fill out our offering with pulse checks next year. We have made good progress in developing a subscription-based service and plan to launch the offering during FY23. The Company signed a number of significant contracts during the year that will underpin continued growth in future years. This included the Graduate Verification Service and the Coles employee identity verification system. We have begun to broaden the client base for our Rapid ID product which will reduce its dependence on Crypto clients and better integrate it with our core Xref client base. The seasonally softer demand during the Australian summer was moderated this year by an increased contribution from our Europe and North America sales. All businesses have recovered well following natural disasters, impacts of the pandemic, and disruption from a national election. We have provided comprehensive shareholder updates quarterly during the year and have recently published the new investor presentation that can be found at XF1.com. The management team keep an unwavering focus on client satisfaction. As a result, Xref has repeatedly ranked the #1 reference checking company based on customer reviews from G2. This credibility boosts our brand and allows us to deliver new products and services in a collaborative and successful manner. Testimonials and case studies from organisations across multiple geographies and industries are exemplary and demonstrate the support Xref has from its clients. Our ability to deliver global, accessible technology with the aid of multi-language, multi-region data and certifications like ISO27001, allow us to compete globally. This is further enhanced through partnerships and integrations with industry peers. Looking forward to 2023, I note that Xref is already credible, profitable and scalable - this is an excellent foundation from which to grow the business. Given the current challenging employment market, Xref has invested time and resources in people and culture, remuneration, and recognition to secure and retain top talent. This gives us confidence that we have the talent needed to execute on our growth plans. We have also put in place a senior leadership team capable of driving profitable growth in FY2023. Our key focus areas for the year ahead include: • Launch of new products such as Pulse Surveys, Engagement and the Trust Marketplace for checks • Growth of subscription revenue (ARR) • Growth of North American revenue • Sustained profitability • Positive operating cash flow On behalf of the Board, I would like to thank our staff for their contribution during the year, our clients for their trust in Xref, and our shareholders for their support. Further investment in marketing has led to increased lead flow during the year. This further pivoted the company from salesperson led sales to marketing led sales and will allow us to scale the business without adding proportionally to sales staff costs. Tom Stianos Chairman Xref Limited | Annual Report 2022 | 7 Chairman’s Report Chief Executive Officer Report Talent is on the Move Talent remains on the move and employers are facing an extremely competitive market. Increased salary expectations, shorter tenures, and geographic barriers have all contributed to a chaotic employment market. Employers need to move quickly to hire the best talent, so having the right processes in place to make confident hiring decisions has never been more important. Sector leaders are increasingly questioning legacy processes and seeking new technology solutions designed to tackle the pressures of remote working, talent sourcing, and candidate verification - while increasing engagement and retention, and combating attrition. Product Development Continual product development designed to meet the needs of our users is in our DNA at Xref. In 2010, we launched the Xref Automated Reference Check platform and have continuously enhanced it over time with Template Builder, Xref Lite, People Search, and a range of integrations and added features. During FY2022, we have been busy developing an all new subscription-based Xref platform that increases self-service and offers surveys at each stage of the complete employee lifecycle from References to Pulses and Exits. Trust Marketplace In conjunction with our new platform launch, we will also launch the Trust Marketplace that encompasses ID checks from RapidID, the new Graduate Verification Service via the HES (formerly ‘Higher Ed Services’), and additional checks such as criminal, right to work, and employment checks via our partner network. The Trust Marketplace brings together a range of online trust products in an agnostic, API-only marketplace. All Trust Marketplace products will be available via Xref Recruiter and the new Enterprise platform. Client Acquisition and Customer Ratings The attractiveness of our evolving product suite is reflected in the high levels of new and existing customer demand for our services, and the ratings we achieve from third-party sources. As a response to the needs of our clients and the impact of the COVID-19 pandemic, we launched the Xref Exit Platform in November 2021. During FY2022, all credibility ratings across referral sites such as G2, Capterra, Get App, and Google increased and promoted Xref as best in class globally. 8 | Xref Limited | Annual Report 2022 Xref was rated the #1 referencing platform by G2 on multiple occasions throughout the year and continues to win multiple badges for leadership, usability, and customer satisfaction. Our global Google star rating was 4.8 out of 5 stars. Referrals continue to form a major contributor to our overall lead flow. Twenty-seven percent of our revenue originates from clients who use our service via an integration. These channel partnerships continue to drive lead flow and, as a result of those integrations, client retention remains high. In FY2022, Xref secured a number of significant clients operating in a range of sectors globally, demonstrating the breadth of our addressable market. Twenty-four percent of sales in FY2022 came from new clients during the year. Sales from these clients converted to 8% of the revenue recognised during the year. Sales to new clients during the year grew by 55% when compared to FY2021. Global Users In FY2022, 1.3 million new users transacted on the Xref platform across 195 countries globally, including employers, candidates, and referees. Xref referenced 60% more candidates during FY2022 compared to FY2021, demonstrating significantly increased demand within the global employment sector . Profitable, Credible, Scalable In FY2022, our profits and overall sales grew 834% and 36% respectively. Having turned a $10 million loss in FY2020 into a profit in FY2021, we remain focused on generating cash and investing in growth. Expenses grew by 20% in FY2022, driven by marketing expenditure and commissions paid to salespeople as a result of record sales results. Growth in sales far outweighed the increase in expenses, demonstrating our ability to scale and sustain profitability. Lead flow grew by 100% during FY2022 when compared to FY2021. This demonstrates Xref’s transition from being sales- led to marketing-led. This further supports our ability to scale, and strongly legitimises the decision to increase investment into marketing over time. FY2022 Results Following on from a record FY2021 in which Xref posted its maiden year of profitability, we continue to outperform in all areas in FY2022. Sales grew by 36% to $20.8 million and the Company saw a 29% increase in revenue to $18.6 million. Strong controls on expenditure enabled Xref to increase net profit after tax by 834% to $0.73 million and increase EBITDA 75% to $1.77 million. Xref generated an operating cash surplus of $4.62 million for the year and net increase in cash of $3.54 million after investing $1.4 million into the development of the new platform. Cash reserves were strengthened during the year after receiving proceeds from the exercise of warrants and options of $1 million, taking Xref’s closing cash at bank to $11.7 million compared to $8.1 million at June 2021. FY2023 Strategy In FY2023, Xref intends to increase its addressable market and drive subscription revenues through the launch of the new platform, including self-service, Pulse Checks, and the Trust Marketplace. The new Xref platform has been designed to leverage opportunities identified in the North American market, following revenue growth of 49% across the region. The United States saw 129% revenue growth during the year reaching $1 million. In FY2022, when compared to FY2021, lead growth also increased in the North American region. Lead generation will continue via channel partners, through Xref products such as Template Builder and Xref Lite, referral sites such as G2, Capterra and Get App and online content such as thought-leadership blogs. Xref Limited | Annual Report 2022 | 9 CEO Report Leadership and People Closing Remarks Our digital-first approach has been vital to our growth in FY2022. The Company’s outstanding results not only reflect the critical nature and demand for the Xref platform and services but demonstrate the brilliance and professionalism of the Xref team. I am incredibly proud of the many strategic decisions the team made during FY2022, which resulted in our strongest position to date. Our executive and senior leadership team were critical to our success, and I look forward to achieving many more years of growth and profitability with this high-calibre team. Lee-Martin Seymour, Chief Executive Officer, Co-Founder Xref’s internal culture is echoed through feedback from our clients and demonstrates the experience, tenure and quality of our people. The high calibre of our staff is a direct result of Xref’s unwavering focus to continually attract, retain and develop industry-leading talent. Xref continues to invest in its team, with 14 senior promotions made in July 2022 as a result of individual achievement. During FY2022, Xref’s headcount rose to 74, with 43% of staff focusing on development, and 30% of staff working in sales and marketing. Consistent and effective internal communication, plus rewards systems established by our leadership team, continue to drive Xref’s primary goals to scale revenue globally and grow profits whilst delivering industry-leading, critical innovations to the employment sector. Our vision to create the most credible, best in class employment feedback platform is supported by our belief in and ability to execute a winning strategy over time. In July 2022, we launched a new policy for awarding options under the Employee Option Plan for all staff in recognition of their achievement, drive and passion to date. Environmental, Social, Governance (ESG) Xref continues to work with our Environment, Social, and Governance (ESG) policy front of mind. On an Environmental front, our people all work from home, resulting in a low carbon footprint while as a tech solution, we promote paperless automation. On a Social front, our multi- language capabilities and cloud-based solution increase the accessibility of our platform, helping to empower workforces around the globe. In terms of Governance, we remain ISO27001 certified and GDPR compliant offering assurances to all our users that Xref is built using the highest standard of data privacy, security and quality management practices. 10 | Xref Limited | Annual Report 2022 CEO ReportXref Limited | Annual Report 2022 | 11 CEO Report Directors’ Report The directors present their report, together with the financial statements, on the consolidated entity (referred to hereafter as the ‘consolidated entity’) consisting of Xref Limited (referred to hereafter as the ‘company’ or ‘parent entity’) and the entities it controlled at the end of, or during, the year ended 30 June 2022. Directors The following persons were directors of Xref Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: • Thomas Stianos (appointed 14 October 2021, Chairman 26 November 2021) • Lee-Martin Seymour • Nigel Heap • Lija Wilson • Brad Rosser (ceased 26 November 2021) Principal activities During the financial year, the consolidated entity continued to conduct its core activity which was to develop human resources technology that automates the candidate reference process for employers. It also embarked on significant product evolution, getting the development of a new platform, including additional offerings for the HR industry, underway. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations The profit for the Group after providing for income tax amounted to $729,575 (30 June 2021: a profit of $78,084). Highlights of the financial year included: • Record results—Another record year for sales and revenue with a 36% increase in group sales year on year and a 29% increase in group revenue. • Profitable—Continued profitability with an increase in net profit after tax to $729,575, an increase in EBITDA to $1.77m ($1.02m in FY2021) and an increase in surplus cash generated from operations to $4.62m ($2.32m in FY2021). • Credible—Our best in class credibility as a leading online brand is evidenced by our continued ranking as #1 reference checking company on G2. On this review platform, our customers have awarded us an average 4.7 star rating. This is further supported by our global Google review rating of 4.8 stars, Capterra reviews also place us with 4.7 stars. • Scalable—Our continual product development and imminent new platform release points to the scalability of our platform. The new subscription model leaves plenty of opportunity for growth as we follow the expansion and success of our customer base. As they grow and hire more people, Xref is with them on the talent journey. Specifically, the release of Xref Exit Surveys allows organisations to survey retrospectively for informed people analytics. The number of past exitees and potential future leavers, especially in the context of The Great Resignation, is unlimited. Commentary on significant features of the operating performance, results of segments, trends in performance and other factors affecting the results for the period are contained in the Chairman’s Report on page 7 and in the CEO’s Report on page 8. 12 | Xref Limited | Annual Report 2022 Matters subsequent to the end of the financial year On August 1, 2022, the Board approved the issue of 880,000 fully paid ordinary shares to the Xref Employee Share Trust. The trust was established to administer the Xref Limited Employee Option Plan. Xref uses its Employee Option Plan to attract and motivate high performing team members to further the growth of the business globally. On August 15, 2022, the Board approved the issue of 7,060,100 Options across three tranches with varying exercises prices and vesting periods to 71 eligible employees as part of the Xref Employee Option plan. Please refer to the announcement released to the market on 19 August 2022 for further details. No other matter or circumstances have arisen since the end of FY22, which could have had a notable impact on operations. Likely developments and expected results of operations The first half of FY23 will see Xref preparing to launch products to grow the marketplace and platform subscriptions. It is a very exciting period in our growth journey. Environmental regulation The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. Information on directors Name: Title: Lee-Martin Seymour Managing Director and Chief Executive Officer Qualifications: None Experience and expertise: Lee-Martin Seymour is a co-founder of Xref. He has 22 years recruitment experience across many geographic and market sectors. For 14 years Lee worked for one of the world’s largest specialist recruitment companies. As a result, he understands the demands of the employment market and is passionate about pioneering positive change for the long term. As a serial entrepreneur Lee has identified and successfully leveraged market opportunities to aid innovation in the employment sector. Date of appointment as a director 18 January 2016 Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Remuneration and Nomination Committee (until 8 July 2021) Interests in shares: Interests in options: Contractual rights to shares: 31,730,108 None None Xref Limited | Annual Report 2022 | 13 Directors’ Report Name: Title: Thomas Stianos Non-Executive Chairman Qualifications: B. App Sc Experience and expertise: Mr Stianos is widely recognised as one of the most successful and experienced leaders in the IT industry. He is currently a non-executive director of Gale Pacific Limited. (ASX: GAP) and Chairman of Escient. Mr Stianos was also previously a non-executive director of Inabox Group Limited and the Managing Director of SMS Management & Technology Limited. Mr Stianos has also previously held senior positions with the Department of Premier and Cabinet, Department of Justice, and Department of Treasury & Finance. He holds a Bachelor of Applied Science from the University of Melbourne and is a Fellow of the Australian Institute of Company Directors. Date of appointment as a director 14 October 2021 Other current directorships: Non-Executive director of Gale Pacific Limited Chairman of Escient Former directorships (last 3 years): Non-Executive director of Inabox Group Limited Chairman of Empired Limited (ASX: EPD) Special responsibilities: Member of the Audit and Risk Committee (commenced 14 February 2022), Member and Chairman of the Remuneration and Nomination Committee (commenced 16 May 2022). Interests in shares: Interests in options: None 1,800,000 Contractual rights to shares: None Name: Title: Nigel Heap Non-Executive Director Qualifications: LLB, AMP Experience and expertise: Nigel Heap is the Regional Managing Director of EMEA and ANZ for Hays PLC and is a member of their group Management Board. He joined Hays in 1988 in the UK and served as Managing Director of ANZ from 1997-2012. He also launched Hays operations in Asia and served as the Regional Managing Director of APAC from 2005 -2012. In 2012 he was appointed Managing Director of the UK & Ireland and served in this role until 2018. Date of appointment as a director 18 August 2016 Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Chairman of the Audit and Risk Committee and member of the Remuneration and Nomination Committee Interests in shares: Interests in options: 32,103 900,000 Contractual rights to shares: None 14 | Xref Limited | Annual Report 2022 Directors’ Report Name: Title: Lija Wilson Non-Executive Director Qualifications: BCom Experience and expertise: Lija Wilson is the CEO and Founder of award-winning digital talent platform, Puffling, which launched in 2017 to design solutions to support diverse hiring and flexible work best practices. Prior to this, she held CMO-level roles at various organisations, including TEDx, Qantas Group and Fairfax Media. She is also a global ambassador for Flexible Work Day. Through her current work in Puffling, Lija has worked as a senior level career coach and advisor, further crediting her passion for developing and mentoring top female talent, particularly in tech. Date of appointment as a director 2 June 2021 Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Became a member of the Remuneration and Nomination Committee on 8 July 2021 and became a member of the Audit and Risk Committee on 1 September 2021 Interests in shares: Interests in options: None 900,000 Contractual rights to shares: None Name: Title: Brad Rosser (ceased to be a director 26 November 2021) Non-Executive Chairman Qualifications: B.Com, MBA Experience and expertise: Brad Rosser is a business builder and entrepreneur who worked for McKinsey and Co from 1992 to 1995 before working directly for Richard Branson as Director of Corporate Development for Virgin from 1995 to 1999, helping to identify and implement start-up businesses. He holds an MBA from Cornell University’s Johnson Graduate School of Management and a Bachelor of Commerce (Honors) from the University of Western Australia. Date of appointment as a director 18 August 2016 Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Ceased to be a member of the Audit and Risk Committee, and ceased to be the Chairman of the Remuneration and Nomination Committee on 26 November 2021 Interests in shares: Interests in options: 393,607 2,500,000 Contractual rights to shares: None ‘Other current directorships’ quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. ‘Former directorships (last 3 years)’ quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Xref Limited | Annual Report 2022 | 15 Directors’ Report Key Management Personnel Chief Financial Officer / Chief Operating Officer Mr. James Solomons, BCom, FCA, CTA, GAICD James is a chartered accountant with over 21 years of experience within the accounting and corporate finance industry. He has held various roles within the sector and has positioned himself as a leader in the accounting technology space brining with him to Xref over 5 years of experiences as Xero Australia’s Head of accounting. A successful entrepreneur in his own right James has a deep understanding of the need to find a balance between investing for growth whilst maintaining strong corporate governance processes across the business. Chief Technology Officer Mrs. Sharon Blesson Recognised for her ability to bridge the gap between IT and business, Sharon has a rich history of program management in both delivery and operational environments. She has developed excellent leadership skills and expertise in managing diverse teams while providing motivation and strategic vision. Prior to joining Xref, Sharon spent over a year as director of the project management office at the Ivy College in Sydney, earlier she was a major corporate client manager at Sqware Peg, and also a IT&T Project Manager for recruitment specialists Hays. Company Secretary Mr. Robert Waring, BEc, ACA, FCIS, ASIA, FAICD Robert has more than 43 years of experience in financial and corporate roles, including more than 27 years in company secretarial and director roles for ASX-listed companies. He is a director of Oakhill Hamilton Pty Ltd, a company that provides secretarial and corporate advisory services to a range of listed and unlisted companies. He is also the Company Secretary of ASX-listed companies Aeris Environmental Ltd and Vectus Biosystems Limited. Meetings of directors The number of meetings of the company’s Board of Directors and of each Board committee held during the 2021-22 financial year, and the number of meetings attended by each Director were as follows: Board meetings held 11 Audit and Risk Committee meetings held 3 Remuneration and Nomination Committee meetings held 5 Disclosure Committee meetings held 0 Attended Attended Attended Attended 6 11 11 11 5 2 N/A 3 2 1 2 N/A 5 5 3 - - N/A N/A - Directors Thomas Stianos * Lee-Martin Seymour ** Nigel Heap *** Lija Wilson **** Brad Rosser ***** * Joined the Board on 14 October 2021 as a Non-Executive Director and the Chairman of the Board, and joined as a member of the Audit and Risk Committee on 14 February 2022, and joined as a member and the Chairman of the Remuneration and Nomination Committee on 16 May 2022. ** Ceased to be a member of the Remuneration and Nomination Committee on 8 July 2021. *** Chairman of the Audit and Risk Committee. 16 | Xref Limited | Annual Report 2022 Directors’ Report**** Joined as a member of the Remuneration and Nomination Committee on 8 July 2021, and joined as a member of the Audit and Risk Committee on 1 September 2021. ***** Ceased to be a Director on 26 November 2021 (ceased to be Chairman of the Board, Chairman of the Remuneration and Nomination Committee, and member of the Audit and Risk Committee on this date too). Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: • Principles used to determine the nature and amount of remuneration • Details of remuneration • Service agreements • Share-based compensation • Additional information • Additional disclosures relating to key management personnel Principles used to determine the nature and amount of remuneration The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors (‘the Board’) ensures that executive reward satisfies the following key criteria for good reward governance practices: • Competitiveness and reasonableness • Acceptability to shareholders • Performance linkage / alignment of executive compensation • Transparency The Remuneration and Nomination Committee is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the Group depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. The reward framework is designed to align executive reward to shareholders’ interests. The Board have considered that it should seek to enhance shareholders’ interests by: • having economic profit as a core component of plan design • focusing on sustained growth in shareholder wealth, consisting of dividends and growth in share price, and delivering constant or increasing return on assets as well as focusing the executive on key non-financial drivers of value • attracting and retaining high calibre executives • increasing return on assets as well as focusing the executive on key non-financial drivers of value Xref Limited | Annual Report 2022 | 17 Directors’ Report Additionally, the reward framework should seek to enhance executives’ interests by: • rewarding capability and experience • reflecting competitive reward for contribution to growth in shareholder wealth • providing a clear structure for earning rewards. In accordance with best practice corporate governance, the structure of non-executive director and executive director remuneration is separate. Non-executive directors remuneration Fees and payments to non-executive directors reflect the demands and responsibilities of their role. Non-executive directors’ fees and payments are reviewed annually by the Remuneration and Nomination Committee. The Remuneration and Nomination Committee may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors’ fees and payments are appropriate and in line with the market. The chairman’s fees are determined independently to the fees of other non-executive directors based on comparative roles in the external market. The chairman is not present at any discussions relating to the determination of his own remuneration. ASX listing rules require the aggregate non-executive directors’ remuneration be determined periodically by a general meeting. In the Prospectus dated 23th December 2015, noted on page 18 the current maximum annual aggregate remuneration for directors was shown as $200,000. This has changed and a resolution was passed at the 2016 AGM that the maximum aggregate cash-based remuneration payable to Non Executive Directors in any financial year be increased by $300,000 from $200,000 to $500,000. Executive remuneration The Group aims to reward executives based on their position and responsibility, with a level and mix of remuneration which has both fixed and variable components. The executive remuneration and reward framework has four components: • base pay and non-monetary benefits • short-term performance incentives • long-term performance incentives • other remuneration such as superannuation and long service leave. The combination of these comprises the executive’s total remuneration. Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits, are reviewed annually by the Remuneration and Nomination Committee based on individual and business unit performance, the overall performance of the consolidated entity and comparable market remunerations. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example motor vehicle benefits) where it does not create any additional costs to the consolidated entity and provides additional value to the executive. The short-term incentives (‘STI’) program is designed to align the targets of the business units with the performance hurdles of executives. STI payments are granted to executives based on specific annual targets and key performance indicators (‘KPI’s’) being achieved. KPI’s include profit contribution, customer satisfaction, leadership contribution and product management. The long-term incentives (‘LTI’) are primarily share based payments. Shares are awarded to executives over a period of three years based on long-term incentive measures. These include increase in shareholders value relative to the entire market and the increase compared to the Group’s direct competitors. 18 | Xref Limited | Annual Report 2022 Directors’ ReportDetails of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables. The key management personnel of the Group consisted of the following directors of Xref Limited: • Lee-Martin Seymour - Managing Director & Chief Executive Officer • Nigel Heap - Non-Executive Director • Thomas Stianos - Non-Executive Chairman (commenced 14 October 2021) • Lija Wilson - Non-Executive Director • Brad Rosser - Non-Executive Chairman (ceased 26 November 2021) And the Key Management Personnel: • James Solomons – Chief Financial Officer / Chief Operating Officer • Sharon Blesson – Chief Technology Officer • Robert Waring – Company Secretary Short-term benefits Post- employment benefits 2022 Non-Executive Directors: Thomas Stianos* Nigel Heap Lija Wilson Brad Rosser** Cash salary and fees $ 73,333 55,000 55,000 68,744 - - - - Executive Directors: Lee-Martin Seymour 320,216 83,363 Other Key Management Personnel: James Solomons 340,135 35,000 Robert Waring Sharon Blesson 87,877 - 293,216 93,025 1,293,521 211,388 Cash bonus $ Non- monetary $ Super- annuation $ Long-term benefits Share-based payments Long service leave $ Equity- settled shares $ Equity- settled options $ Total $ - - - - - - - - - 7,333 5,500 5,500 - 26,034 27,637 - 24,284 96,288 - - - - - - - - - - - - - - - - - 540,000 620,666 270,000 330,500 350,606 411,106 - 68,744 - 429,613 - - - 402,772 87,877 410,525 - 1,160,606 2,761,803 * Represents remuneration from 14 October 2021 to 30 June 2022 ** Represents remuneration from 01 July 2021 to 26 November 2021 Xref Limited | Annual Report 2022 | 19 Directors’ Report Short-term benefits Post- employment benefits Long-term benefits Share-based payments Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Long service leave $ Equity- settled shares $ Equity- settled options $ 162,279 59,582 2,597 305,000 319,827 290,000 84,440 270,000 1,493,725 - - - - - - - - - - - - - - - - - - - 5,660 247 27,075 25,015 25,650 - 23,750 107,397 - - - - - - - - - Total $ 170,128 67,781 3,238 7,849 2,539 - - - 394 13,154 13,154 - - 345,229 357,996 87,461 123,300 526,411 2,280 1,040 87,760 86,538 121,164 501,452 212,975 245,898 2,059,995 2021 Non-Executive Directors: Brad Rosser Nigel Heap Lija Wilson* Executive Directors: Lee-Martin Seymour Timothy Griffiths** Other Key Management Personnel: James Solomons Robert Waring Sharon Blesson * Represents remuneration from 02 June 2021 to 30 June 2021 ** Represents remuneration from 01 July 2020 to 05 March 2021 Value of shares issued to Directors & KMP in lieu of forgone salaries as part of an agreed four day working week (April 1st 2020 to June 30th 2020) due to COVID-19. This scheme was applied to all staff within the business. James Solomons and Sharon Blesson includes value of shares awarded on 7 Sept 2020. 20 | Xref Limited | Annual Report 2022 Directors’ Report The proportion of remuneration linked to performance and the fixed proportion are as follows: Name 2022 2021 2022 2021 2022 2021 Fixed remuneration At risk - STI At risk - LTI 100% 100% 100% 100% - 100% 100% 100% - - - - 80.60% - 100% 100% 19.40% - 91.31% 100% 77.34% 100% 100% 100% 8.69% - 22.66% - - - - - - - - - - - - - - - - - - - - - - - - - - - Non-Executive Directors: Thomas Stianos* Nigel Heap Brad Rosser* Lija Wilson** Executive Directors: Lee-Martin Seymour Timothy Griffiths*** Other Key Management Personnel: James Solomons Robert Waring Sharon Blesson * Ceased on 26 November 2021 ** Appointed on 14 October 2021 *** Resigned 05 March 2021 Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Title: Lee-Martin Seymour Managing Director and Chief Executive Officer Agreement commenced: 01 January 2022 Term of agreement: No fixed term Details: Base salary for the year ending 30 June 2022 of $329,707 p.a. plus superannuation, plus $20,000 car allowance to be reviewed annually by the Remuneration and Nomination Committee. 3 months termination notice by either party. Discretionary bonus may be paid as per Remuneration and Nomination Committee approval and KPI achievement. Non-solicitation and non-compete clauses exist. Xref Limited | Annual Report 2022 | 21 Directors’ Report Name: Title: James Solomons Chief Financial Officer & Chief Operating Officer Agreement commenced: 01 January 2022 Term of agreement: No fixed term Details: Name: Title: Base salary for the year ending 30 June 2022 of $308,707 p.a. plus superannuation, plus $20,000 car allowance to be reviewed annually by the Remuneration and Nomination Committee. 3 months termination notice by either party. Discretionary bonus may be paid as per Remuneration and Nomination Committee approval and KPI achievement. Non-solicitation and non-compete clauses exist. Sharon Blesson Chief Technology Officer Agreement commenced: 01 January 2022 Term of agreement: No fixed term Details: Base salary for the year ending 30 June 2022 of $308,707 p.a. plus superannuation, plus $20,000 car allowance to be reviewed annually by the Remuneration and Nomination Committee. 3 months termination notice by either party. Discretionary bonus may be paid as per Remuneration and Nomination Committee approval and KPI achievement. Non-solicitation and non-compete clauses exist. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. Share-based compensation Issue of shares Details of shares issued to directors and other key management personnel as part of compensation during the year ended 30 June 2022 are set out below: No. of Shares Granted 2022 No. of Shares Granted 2021 - - - - - - - - 14,103 43,607 73,077 569,231 564,103 12,665 - - Name Nigel Heap Brad Rosser* Lee-Martin Seymour James Solomons Sharon Blesson Robert Waring Thomas Stianos Lija Wilson *Ceased on 26 November 2021 22 | Xref Limited | Annual Report 2022 Directors’ Report Options granted carry no dividend or voting rights All options were granted over unissued fully paid ordinary shares in the company. The number of options granted was determined having regard to the satisfaction of performance measures and weightings as described above in the section ‘Consolidated entity performance and link to remuneration’. Options vest based on the provision of service over the vesting period whereby the executive becomes beneficially entitled to the option on vesting date. Options are exercisable by the holder as from the vesting date. There has not been any alteration to the terms or conditions of the grant since the grant date. There are no amounts paid or payable by the recipient in relation to the granting of such options other than on their potential exercise. Values of options over ordinary shares granted, exercised and lapsed for directors and other key management personnel as part of compensation during the year ended 30 June 2022 are set out below: Name James Solomons Sharon Blesson Robert Waring Lija Wilson Thomas Stianos Nigel Heap Number of Options Granted during the year Number of Options Vested during the year 2022 - - - - 1,800,000 900,000 2021 2,300,000 2,111,111 33,543 900,000 - - 2022 3,050,000 2,711,111 - 300,000 600,000 300,000 2021 2,300,000 2,411,111 33,543 - - - Additional disclosures relating to key management personnel Shareholding The number of shares in the company held during the financial year by each director and other members of key management personnel of the consolidated entity, including their personally related parties, is set out below: Balance at the start of the year Received as part of remuneration Additions Disposals/ other Balance at the end of the year Ordinary shares Nigel Heap Brad Rosser* 32,103 393,607 Lee-Martin Seymour 31,730,108 James Solomons Sharon Blesson Robert Waring 578,231 580,622 276,350 33,591,021 *Ceased on 26 November 2021 - - - - - - - - - - - - - - - - 32,103 393,607 31,730,108 (178,231) 400,000 (80,622) 500,000 - 276,350 - (258,853) 33,332,168 Xref Limited | Annual Report 2022 | 23 Directors’ Report Option holding The number of options over ordinary shares in the company held during the financial year by each director and other members of key management personnel of the Group, including their personally related parties, is set out below: Balance at the start of the year Granted Exercised Expired/ forfeited/other Balance at the end of the year Options over ordinary shares Brad Rosser* Nigel Heap James Solomons Sharon Blesson Robert Waring Thomas Stianos Lija Wilson *Ceased on 26 November 2021 7,000,000 900,000 3,800,000 3,011,111 70,569 - 900,000 - - - - 1,800,000 900,000 - 15,681,680 2,700,000 - - - - - - - - (4,500,000) 2,500,000 (900,000) (750,000) (300,000) (16,312) - - 900,000 3,050,000 2,711,111 54,257 1,800,000 900,000 (6,466,312) 11,915,368 Payments for company secretarial services from Oakhill Hamilton Pty Ltd (related entity of Robert Waring of $87,877 (ex GST) were made. All transactions were made on normal commercial terms and conditions and at market rates. This concludes the remuneration report, which has been audited. Indemnity and insurance of officers The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. Indemnity and insurance of auditor The company has not, during or since the end of the financial year, indemnified or agreed to indemnify the auditor of the company or any related entity against a liability incurred by the auditor. During the financial year, the company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. 24 | Xref Limited | Annual Report 2022 Directors’ ReportNon-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 9 to the financial statements. The directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in note 9 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and • none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risks and rewards. Rounding of amounts The company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this directors’ report. Corporate Governance The Group’s Corporate Governance Statement and Appendix 4G checklist are released to ASX on the same day the Annual Report is released. The Corporate Governance Statement and Corporate Governance manual can be found on the Company’s website at https://xf1.com/#resources. This report is made in accordance with a resolution of directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the directors Lee-Martin Seymour Managing Director 24 August 2022 Sydney Thomas Stianos Chairman 24 August 2022 Sydney Xref Limited | Annual Report 2022 | 25 Directors’ Report Independence declaration 24 August 2022 The Board of Directors Xref Limited Suite 13, 13 Hickson Road Dawes Point NSW 2000 Dear Board Members Crowe Sydney ABN 97 895 683 573 Level 24, 1 O’Connell Street Sydney NSW 2000 Main +61 (02) 9262 2155 Fax +61 (02) 9262 2190 www.crowe.com.au Xref Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the Directors of Xref Limited. As lead audit partner for the audit of the financial report of Xref Limited for the financial year ended 30 June 2022, I declare that to the best of my knowledge and belief, that there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely, Crowe Sydney Ash Pather Partner Liability limited by a scheme approved under Professional Standards Legislation. The title ‘Partner’ conveys that the person is a senior member within their respective division and is among the group of persons who hold an equity interest (shareholder) in its parent entity, Findex Group Limited. The only professional service offering which is conducted by a partnership is external audit, conducted via the Crowe Australasia external audit division and Unison SMSF Audit. All other professional services offered by Findex Group Limited are conducted by a privately owned organization and/or its subsidiaries. Findex (Aust) Pty Ltd, trading as Crowe Australasia is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a separate and independent legal entity. Findex (Aust) Pty Ltd and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global. Crowe Global does not render any professional services and does not have an ownership or partnership interest in Findex (Aust) Pty Ltd. Services are provided by Crowe Sydney, an affiliate of Findex (Aust) Pty Ltd. Liability limited by a scheme approved under Professional Standards Legislation. © 2022 Findex (Aust) Pty Ltd 26 26 | Xref Limited | Annual Report 2022 Financial Statements Statement of profit or loss and other comprehensive income For the year ended 30 June 2022 Revenue Cost of sales Gross profit Finance costs Employee expenses Overhead and administration expenses Share based payments Depreciation Impairment and amortisation Total expenses Operating profit/(loss) Other income Profit before income tax expense Income tax expense Profit after income tax expense for the year attributable to the owners of Xref Limited Other comprehensive income, net of income tax Exchange differences on translating foreign controlled entities Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Xref Limited Earnings per share for profit from continuing operations attributable to the owners of Xref Basic earnings per share Diluted earnings per share Consolidated 2022 2021 18,591,434 14,454,868 (3,674,245) (3,045,508) 14,917,189 11,409,360 (576,497) (510,388) (8,746,212) (7,692,632) (3,757,160) (3,023,338) (767,885) (261,816) (212,581) (318,550) (379,983) (60,223) (14,322,151) (11,985,114) 595,038 (575,754) 134,537 729,575 - 653,838 78,084 - 729,575 78,084 (90,451) (90,451) (100,116) (100,116) 639,124 (22,032) $ 0.40 0.36 $ 0.04 0.04 Note 8 9 10 10 11 26 26 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. Xref Limited | Annual Report 2022 | 27 Statement of financial position As at 30 June 2022 Assets Current assets Cash and cash equivalents Trade and other receivables Capitalised commission Prepayments Total current assets Non current assets Rental bonds Property, plant and equipment Right of use assets Intangibles Total non current assets Total assets Liabilities Current liabilities Trade and other payables Financial liabilities Employee entitlements Unearned revenue Total current liabilities Consolidated 2022 $ 2021 $ Note 12 13 14 15 16 17 18 20 19 21 11,673,989 1,892,011 1,211,830 8,131,072 2,021,145 1,031,498 715,716 492,416 15,493,546 11,676,131 55,070 229,991 321,282 4,073,676 4,680,019 54,143 266,060 127,316 2,875,582 3,323,101 20,173,565 14,999,232 1,816,991 1,898,030 554,749 634,218 636,425 439,695 11,064,908 8,799,293 14,070,866 11,773,443 The above statement of financial position should be read in conjunction with the accompanying notes. 28 | Xref Limited | Annual Report 2022 Financial Statements Statement of financial position continued As at 30 June 2022 Non current liabilities Financial liabilities Employee entitlements Total non current liabilities Total liabilities Net assets/(liabilities) Equity Issued capital Reserves Retained earnings Total equity Note 20 22 Consolidated 2022 $ 2021 $ 4,405,732 4,048,950 224,785 185,666 4,630,517 4,234,616 18,701,383 16,008,059 1,472,182 (1,008,827) 23 24 55,100,613 53,948,230 (21,492,803) (20,939,822) (32,135,628) (34,017,235) 1,472,182 (1,008,827) The above statement of financial position should be read in conjunction with the accompanying notes. Xref Limited | Annual Report 2022 | 29 Financial Statements Statement of Changes in Equity For the year ended 30 June 2022 Consolidated Issued capital $ Warrants $ Share option reserves $ Foreign currency translation reserve $ Consolidation reserve $ Retained profits $ Total $ Balance at 1 July 2021 53,948,230 385,714 1,982,030 (461,745) (22,845,821) (34,017,235) (1,008,827) Profit after income tax for the year Other comprehensive income for the half-year Total comprehensive income for the half-year - - - Transactions with owners in their capacity as owners Shares issued during the year 60,000 Options exercised 15,240 Options issued Options lapsed Options expired Warrants issued - - - - - - - - - - - - - Warrants exercised 1,077,143 (77,143) - - - - (1,240) 767,885 (110,406) (1,041,626) - - - (90,451) (90,451) - - - - - - - - - - - - - - - - - 729,575 729,575 - (90,451) 729,575 639,124 - - - 60,000 14,000 767,885 110,406 1,041,626 - - - - - 1,000,000 Balance at 30 June 2022 55,100,613 308,571 1,596,643 (552,196) (22,845,821) (32,135,628) 1,472,182 The above statement of changes in equity should be read in conjunction with the accompanying notes 30 | Xref Limited | Annual Report 2022 Financial Statements Statement of Changes in Equity continued For the year ended 30 June 2022 Consolidated Issued capital $ Warrants $ Share option reserves $ Foreign currency translation reserve $ Consolidation reserve $ Retained Earnings $ Total $ 1,797,122 (361,629) (22,845,821) (34,228,961) (2,404,063) Balance at 1 July 2020 53,235,226 Profit after income tax expense for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners in their capacity as owners - - - Shares issued during the year 713,004 - - - - - - - - - - - - 318,550 (63,972) (69,670) - (100,116) (100,116) - - - - - - - - - - - - - 78,084 78,084 - (100,116) 78,084 (22,032) - - 713,004 318,550 63,972 69,670 - - - 385,714 Options issued Options lapsed Options expired Warrants issued - - - - 385,714 - Balance at 30 June 2021 53,948,230 385,714 1,982,030 (461,745) (22,845,821) (34,017,235) (1,008,827) The above statement of changes in equity should be read in conjunction with the accompanying notes Xref Limited | Annual Report 2022 | 31 Financial Statements Statement of cash flows For the year ended 30 June 2022 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Note 2022 $ 2021 $ 21,070,575 14,804,985 (16,453,354) (12,494,391) 5,739 11,779 Net cash provided by operating activities 28 4,622,960 2,322,373 Cash flows from investing activities Payment for intangibles Purchase of property, plant and equipment Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from exercise of options Repayments of lease liabilities Proceeds from borrowings Borrowing transaction costs Repayment of financial liabilities Net cash provided by financing activities Net increase in cash and cash equivalents held Cash and cash equivalents at beginning of year (1,410,675) (1,110,732) (50,075) (19,501) (1,460,750) (1,130,233) 1,000,000 14,000 - - (182,779) (348,566) - - (450,514) 5,000,000 (209,744) (371,552) 380,707 4,070,138 3,542,917 5,262,278 8,131,072 2,868,794 Cash and cash equivalents at end of financial year 12 11,673,989 8,131,072 The above statement of cash flows should be read in conjunction with the accompanying notes 32 | Xref Limited | Annual Report 2022 Financial Statements Notes to the financial Statements Note 1. Reporting Entity Xref Limited is a limited liability company incorporated on 28 January 2003 in New Zealand and from 21 September 2017 was domiciled in Australia. The address of its registered office is Unit 13, 13 Hickson Road, Dawes Point, New South Wales, Australia 2000. Xref is a human resources technology company that automates the candidate reference process for employers. Note 2. Basis of Preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001, as appropriate for profit oriented entities. These financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board (‘IASB’). a. Historical cost convention The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of available for sale financial assets, financial assets and liabilities at fair value through profit or loss, investment properties, certain classes of property, plant and equipment and derivative financial instruments. b. Critical accounting estimates The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 5. Note 3. Significant Accounting Policies The group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Parent entity information In accordance with the Corporations Act 2001, these financial statements present the results of the consolidated entity only. Supplementary information about the parent entity is disclosed in note 31. a. Basis of consolidation The Group financial statements consolidate the financial statements of the Parent and all entities over which the Parent is deemed to have controlling relationship (defined as “subsidiaries”). An entity is defined as a subsidiary when the Group is exposed, or has rights to variable returns from its relationship with the entity and has the ability to affect those returns through its power over the entity. When the Group has less than a majority of the voting power or similar rights of another entity, the Group considers all relevant facts and circumstances in assessing whether it has power over the other entity. The Group re assesses whether or not it controls another entity if facts and circumstances indicate that there are changes in one or more of the three elements of control. The financial statements of subsidiaries are included in the preliminary consolidated financial statements from the date that control commences until the date that control ceases. The consolidation of the Parent and subsidiary entities involves adding together like terms of assets, liabilities, income and expenses on a line by line basis. All significant intra group balances are eliminated on consolidation of Group financial position, performance and cash flows. A change in the ownership interest of a subsidiary that does not result in a loss of control, is accounted for as an equity transaction that is, as transactions with owners in their capacity as owners, recorded in the statement of movements in equity. Xref Limited | Annual Report 2022 | 33 Note 3. Significant Accounting Policies continued If the Group loses control over a subsidiary, it: » derecognises the assets (including goodwill) and liabilities of the subsidiary; » derecognises the carrying amount of any non controlling interest; » derecognises the cumulative carrying amount of foreign currency translation; differences recorded in reserves; » recognises the fair value of the consideration received; » recognises the fair value of any investment retained; » recognises any surplus or deficit in profit or loss; and » reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss, or retained earnings as appropriate. Interests in subsidiaries are held at cost less impairment in the Parent. b. Foreign currency translation The financial statements are presented in Australian dollars, which is Xref Limited’s functional and presentation currency. Foreign currency transactions are translated into the functional currency of the Parent, using exchange rates prevailing at the dates of the transactions (i.e. the spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from measurement of monetary items denominated in foreign currency at year end exchange rates are recognised in the reported profit or loss. Non monetary items measured at historical cost are not re translated at each year end, instead they are only translated once using the exchange rate at the transaction date. Non monetary items measured at fair value are translated using the exchange rates at the date when the year end fair value was determined. The net balance of foreign exchange gains and losses that relate to monetary items (such as borrowings, cash and cash equivalents) are presented in the Statement of Comprehensive Income within “finance income” or “finance costs”. All other foreign exchange gains and losses are presented in the Statement of Comprehensive Income within “Other gains/(losses)”. Translation differences on non monetary financial assets and liabilities such as equities held at fair value through profit and loss are recognised in the Statement of Comprehensive Income as part of the fair value gain or loss. Translation differences on nonmonetary financial assets, such as equities classified as available for sale, are included in fair value movements disclosed within other comprehensive income. Foreign operations In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than Australian Dollars are translated into Australian Dollars upon consolidation. The results and financial position of subsidiaries are translated into the presentation currency as follows: i. assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; ii. income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and iii. all resulting exchange differences are recognised in other comprehensive income. 34 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 3. Significant Accounting Policies continued The assets and liabilities of foreign operations, including any goodwill, are translated to AUDs at exchange rates at the reporting date. The income and expenses of foreign operations, are translated to AUDs at exchange rates at the dates of the transactions. Foreign currency differences are recognised on other comprehensive income, and presented in the foreign currency translation reserve within equity. When a foreign operation is disposed of such that control is lost, the cumulative amount of the translation reserve related to the foreign operation is reclassified to the reported surplus or deficit as part of the gain or loss on disposal. c. Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held on call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. d. Trade debtors and other receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. Other receivables are recognised at amortised cost, less any allowance for expected credit losses. e. Contract assets —capitalised commission Contract assets are recognised when the consolidated entity has transferred services to the customer but where the consolidated entity is yet to establish an unconditional right to consideration. Contract assets are treated as financial assets for impairment purposes. Contract assets include commissions paid and are amortised as performance obligations are met and an unconditional right to consideration is established. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained or which are not otherwise recoverable from a customer are expensed as incurred to profit or loss. Incremental costs of obtaining a contract where the contract term is less than one year is immediately expensed to profit or loss. f. Trade creditors and other payables Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Creditors are classified as current liabilities if payment is due within one year or less. If not, they are presented as non current liabilities. Trade creditors and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. g. Contract liabilities—unearned revenue Contract liabilities represent the consolidated entity’s obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the consolidated entity recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the consolidated entity has transferred the goods or services to the customer. h. Refund liabilities A cooling off period of 28 days exists within all contracts. After this period has passed no refunds are provided even if the client does not use their purchased credits. If a client exercises their right to cancel their purchase during this cooling off period they can be refunded an amount equal to the value of credits not used. Xref Limited | Annual Report 2022 | 35 Notes to the Financial Statements Note 3. Significant Accounting Policies continued i. Property, plant and equipment Items of plant and equipment are measured at cost, less accumulated depreciation and any impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. Subsequent costs and the cost replacing part of an item of plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. In most instances, an item of plant and equipment is recognised at its cost. Where an asset is acquired at no cost, or for a nominal cost, it is recognised at fair value at the acquisition date. All repairs and maintenance expenditure is charged to profit or loss in the year in which the expense is incurred. When an item of plant or equipment is disposed of, the gain or loss recognised in the profit or loss is calculated as the difference between the net sale proceeds and the carrying amount of the asset. Depreciation is calculated on a straight line basis to write off the net cost of each item of plant and equipment of their expected useful lives as follows: The depreciation rates used for each class of depreciable asset are shown below: Office Furniture Office Equipment Computer Equipment Office Fit Out 10-20 years 3-20 years 3-5 years 6-20 years The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date. Leasehold improvements and plant and equipment under lease are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter. An item of plant and equipment is derecognised upon disposal or when there is no future economic benefit to the consolidated entity. Gains and losses between the carrying amount and the disposal proceeds are taken to profit or loss. j. Right-of-use assets A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asst is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, expect where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asst, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life, Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities. The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. 36 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 3. Significant Accounting Policies continued k.Intangibles Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The gains or losses recognised in profit or loss arising from the derecognition of intangible assets are measured as the difference between net disposal proceeds and the carrying amount of the intangible asset. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period. Internally developed intangible assets: Expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in the reported profit or loss when incurred. Development activities include a plan or design for the production of new or substantially improved products. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised in the reported surplus and deficit when incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and any impairment losses. Software Significant costs associated with software are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 4 years. Website Significant costs associated with website development are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 3 years. Domain Significant costs associated with domains are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 10 years. Patents and trademarks Significant costs associated with patents and trademarks are deferred and amortised on a straight line basis over the period of their expected benefit, being their finite life of 10 years. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost leas accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. Xref Limited | Annual Report 2022 | 37 Notes to the Financial Statements Note 3. Significant Accounting Policies continued l. Impairment of non financial assets Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs of disposal and value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit. m. Investment and other financial assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either amortised cost or fair value depending on their classifications. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset unless an accounting mismatch is being avoided. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. When there is no reasonable expectation of recovering part or all of a financial asset, it’s carrying value is written off. Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movement are recognised in profit or loss. Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the Group intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition. Impairment of financial assets The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the Group’s assessment at the end of each reporting period as to whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset’s lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets mandatorily measured at fair value through other comprehensive income, the loss allowance is recognised in other comprehensive income with a corresponding expense through profit or loss. In all other cases, the loss allowance reduces the asset’s carrying value with a corresponding expense through profit or loss. 38 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 3. Significant Accounting Policies continued n. Provisions A provision is recognised for a liability when the settlement amount or timing is uncertain; when there is a present legal or constructive obligation as a result of a past event; it is probable that expenditures will be required to settle the obligation; and a reliable estimate of the potential settlement can be made. Provisions are not recognised for future operating losses. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower that the unavoidable cost of meeting its obligation under the contract. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Provisions are discounted to their present values, where the time value of money is material. The increase in the provision due to the passage of time is recognised as an interest expense. All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. o. Lease liabilities A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. p. Employee benefits Short term employee benefits Employee benefits, previously earned from past services, that the Group expect to be settled within 12 months of reporting date are measured based on accrued entitlements at current rate of pays. These include salaries and wages accrued up to the reporting date and annual leave earned, but not yet taken at the reporting date. The Group recognises a liability and an expense for bonuses where they are contractually obliged or where there is a past practice that has created a constructive obligation. Termination benefits Termination benefits are recognised as an expense when the Group is committed without realistic possibility of withdrawal, to terminate employment, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value. Long term benefits The Group’s net obligation in respect of long service leave is the amount of future benefit that employees have earned in return for their services in the current and prior years. The obligation is calculated using the projected unit credit method and is discounted to its present value. Any actuarial gains and losses are recognised in profit or loss in the year in which they arise. Xref Limited | Annual Report 2022 | 39 Notes to the Financial Statements Note 3. Significant Accounting Policies continued Share based payments The Group operates an equity settled, share based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non market vesting conditions (for example, profitability). Non market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each reporting date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the statements of comprehensive income, and a corresponding adjustment to equity over the remaining vesting period. If the options lapse or expire, the accumulated balance will be reclassified to retained earnings. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) when the options are exercised. q. Revenue Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations in the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the ‘expected value’ or ‘most likely amount’ method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are initially recognised as deferred revenue in the form of a separate refund liability Group Sales The Group has two main sources of Sales. The sale of candidate referencing credits through Xref and the sale of ID verification checks through RapidID. For Xref sales, when customers use a credit the service has been performed. Revenue is recognised at the point in time when the customer uses the service. For RapidID sales, when customers take an ID Check the service has been performed. Revenue is recognised at the point in time when the customer uses the service. Rendering of services Revenue from a contract to provide services is recognised over time as the services are rendered based on agreed rates. Interest Interest revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. 40 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 3. Significant Accounting Policies continued Other income Other revenue is recognised when it is received or when the right to receive payment is established. Government Grant—Covid-19 Subsidy Government grant subsidies in relation to COVID-19 is recognised when it is received or when the right to receive payment is established. These government grant income related to JobKeeper and Cash Boost payments. r. Income Tax Current income taxes Current tax is the amount of income tax payable based on the taxable surplus for the current year, plus any adjustment to income tax payable in respect of prior years. Current tax is calculated using tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date. Deferred tax Deferred tax is the amount of income tax payable or recoverable in future years in respect of temporary differences and unused tax losses (if any). Temporary differences are differences between the carrying amount of asset and liabilities in the financial statements and the corresponding tax bases used in the consumption of taxable surpluses. Deferred tax is not provided on the initial recognition of goodwill or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects the tax or accounting profit. Deferred tax on temporary differences associated with investments in subsidiaries and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future. Deferred tax assets are recognised to the extent that it is probable that taxable surpluses will be available in future years, against which the deductible temporary differences or tax losses can be utilised. Deferred tax is measured at the tax rates that are expected to apply when the asset is realised or the liability settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects to recover the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only when the Group has a right and intention to set off current tax assets and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognised as a component of income tax in profit or loss, except where they relate to items that are recognised in other comprehensive income or directly in equity, in which case the related deferred tax is also recognised in other comprehensive income or equity, respectively. s. Goods and services tax (GST) All amounts in these financial statements are shown exclusive of GST, except for receivables and payables that are stated inclusive of GST. The net amount of GST recoverable from, or payable to the Australian Taxation Office (ATO), or tax offices in other jurisdictions is included as part of receivables and / or payables in the Statement of Financial Position. GST balances from different countries are not offset. t. Share capital Share capital represents the consideration received for shares that have been issued. All transaction costs associated with the issuing of shares are recognised as a reduction in equity, net of any related income tax benefits. Xref Limited | Annual Report 2022 | 41 Notes to the Financial Statements Note 3. Significant Accounting Policies continued u. Dividend distribution Dividend distributions to the parent’s shareholders are recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Parent Directors. v. Earnings per share The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shareholders outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees. w. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is ultimately responsible for strategic decision, approving the allocation of resources and assessing the performance of the operating segments, has been identified as the Board of Directors. x. Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities, which are not incremental costs relating to the actual draw-down of the facility, are recognised as prepayments and amortised on a straight-line basis over the term of the facility. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. Note 4. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2022. 42 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 5. Critical accounting judgements, estimates and assumptions The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below. Coronavirus (COVID-19) pandemic Judgement has been exercised in considering the impacts that the Coronavirus (COVID-19) pandemic has had, or may have, on the Group based on known information. This consideration extends to the nature of the products and services offered, customers, supply chain, staffing and geographic regions in which the Group operates. Other than as addressed in specific notes, there does not currently appear to be either any significant impact upon the financial statements or any significant uncertainties with respect to events or conditions which may impact the Group unfavourably as at the reporting date or subsequently as a result of the Coronavirus (COVID-19) pandemic. Allowance for expected credit losses The allowance for expected credit losses assessment requires a degree of estimation and judgement. It is based on the lifetime expected credit loss, grouped based on days overdue, and makes assumptions to allocate an overall expected credit loss rate for each group. These assumptions include recent sales experience, historical collection rates, the impact of the Coronavirus (COVID-19) pandemic and forward-looking information that is available. The allowance for expected credit losses, as disclosed in note 13, is calculated based on the information available at the time of preparation. The actual credit losses in future years may be higher or lower. Goodwill and other indefinite life intangible assets The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 3. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows. Refer to note 17 for further information. Lease term The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the Group’s operations; comparison of terms and conditions to prevailing market rates; incurrence of significant penalties; existence of significant leasehold improvements; and the costs and disruption to replace the asset. The Group reassesses whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances. Incremental borrowing rate Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to discount future lease payments to measure the present value of the lease liability at the lease commencement date. Such a rate is based on what the Group estimates it would have to pay a third party to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset, with similar terms, security and economic environment. Xref Limited | Annual Report 2022 | 43 Notes to the Financial Statements Note 5. Critical accounting judgements, estimates and assumptions continued Employee benefits provision As discussed in note 3, the liability for employee benefits expected to be settled more than 12 months from the reporting date are recognised and measured at the present value of the estimated future cash flows to be made in respect of all employees at the reporting date. In determining the present value of the liability, estimates of attrition rates and pay increases through promotion and inflation have been taken into account. Share-based payment transactions The Group measures the cost of equity settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Binomial or Black Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity settled share based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Impairment An impairment loss is recognised for the amount by which the asset’s or cash generating unit’s carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each cash generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows management makes assumptions about future operating results. These assumptions relate to future events and circumstances. Determination of variable consideration Judgement is exercised in estimating variable consideration which is determined having regard to past experience with respect to refund where the customer maintains a right of refund pursuant to the customer contract or where goods or services have a variable component. Revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Internally generated software and research costs Management monitors progress of internal research and development projects by using a project management system. Significant judgement is required in distinguishing research from the development phase. To distinguish any research type project phase from the development phase, it is the Group’s accounting policy to require a detailed forecast of sales or cost savings expected to be generated by the intangible asset. The forecast is incorporated into the Group’s overall budget forecast as the capitalisation of development costs commences. This ensures that managerial accounting, impairment testing procedures and accounting for internally generated intangible assets are based on the same data. Deferred tax assets The assessment of the probability of future taxable income in which deferred tax assets can be utilised is based on the Group’s latest approved budget forecast, which is adjusted for significant non taxable income and expenses and specific limits to the use of any unused tax losses or credits. The Group has taken the view that they will wait for another consecutive period of profitability prior to recognising any losses as a deferred tax asset. Research and Development Refundable Tax Offset There were no research or developments costs identified in the group in 2022 that qualified for any government Research & Development Tax Offsets. 44 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 6. Group Information The preliminary consolidated financial statements of the Group include Name Xref Limited Xref (AU) Pty Limited Xref (UK) Limited Xref Referencing (CA) Limited Xref LLC Xref (NZ) Limited Rapid ID Pty Ltd Note 7. Operating segments Identification of reportable operating segments Principal place of business/ Country of incorporation Australia Australia United Kingdom Canada United State New Zealand Australia 2022 % 100.00 100.00 100.00 100.00 100.00 100.00 100.00 2021 % 100.00 100.00 100.00 100.00 100.00 100.00 100.00 The consolidated entity is organised into two operating segments based on differences in products and services provided: candidate referencing and ID verification). The disclosures on the face of the statement of comprehensive income to operating loss and the statement of financial position (excluding the items designated for sale) represent the Group’s two business segments Types of products and services The principal products and services of each of these operating segments are as follows: Xref Rapid ID Intersegment transactions Candidate referencing ID verification Intersegment transactions were made at market rates. Candidate referencing and ID verification are complementary in nature and intersegment transactions arise due to customer needs. Intersegment transactions are eliminated on consolidation. Intersegment receivables, payables and loans Intersegment loans are initially recognised at the consideration received. Intersegment loans receivable and loans payable that earn or incur non-market interest are not adjusted to fair value based on market interest rates. Intersegment loans are eliminated on consolidation. Xref Limited | Annual Report 2022 | 45 Notes to the Financial Statements Note 7. Operating segments continued Operating segment information Revenue Revenue from external customers 15,568,389 3,023,045 18,591,434 Consolidated 2022 Candidate referencing $ ID verification $ Total $ Intersegment sales Total sales revenue Other revenue Total segment revenue Intersegment eliminations Unallocated revenue: Interest revenue Total revenue EBITDA Depreciation and amortisation Interest revenue Finance costs Profit before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Intersegment eliminations Unallocated assets: Goodwill Total Assets Total assets includes: Investments in subsidiaries Liabilities Segment liabilities Intersegment eliminations Total liabilities 46 | Xref Limited | Annual Report 2022 820 - 820 15,569,209 3,023,045 18,592,254 113,609 15,189 128,798 15,682,818 3,038,234 18,721,052 - - (820) 1,319,529 455,201 5,739 18,725,971 1,774,730 (474,397) 5,739 (576,497) 729,575 - 729,575 20,750,980 2,760,896 23,511,876 (4,672,297) 1,333,986 20,173,565 4,672,297 - 4,672,297 16,669,504 2,032,771 18,702,275 (892) 18,701,383 Notes to the Financial Statements Note 7. Operating segments continued Revenue Revenue from external customers 11,558,269 2,896,599 14,454,868 Consolidated 2021 Candidate referencing $ ID verification $ Total $ Intersegment sales Total earned revenue Other revenue Total segment revenue Intersegment eliminations Unallocated revenue: Interest revenue Total revenue EBITDA Depreciation and amortisation Interest revenue Finance costs Profit before income tax expense Income tax expense Profit after income tax expense Assets Segment assets Intersegment eliminations Unallocated assets: Goodwill Total Assets Total assets includes: Investments in subsidiaries Liabilities Segment liabilities Intersegment eliminations Total liabilities 4,628 - 4,628 11,562,897 2,896,599 14,459,496 612,662 29,397 642,059 12,175,559 2,925,996 15,101,555 - - (4,628) 563,697 453,202 11,779 15,108,706 1,016,899 (440,205) 11,779 (510,388) 78,084 - 78,084 16,321,739 2,015,808 18,337,547 (4,672,297) 1,333,986 14,999,236 4,672,297 - 4,672,297 14,469,238 1,542,378 16,011,616 (3,557) 16,008,059 Xref Limited | Annual Report 2022 | 47 Notes to the Financial Statements Note 7. Operating segments continued Geographical information Australia Canada United Kingdom New Zealand United States Revenue from external customers Geographical non-current assets 2022 $ 2021 $ 2022 $ 2021 $ 14,243,856 11,631,922 2,968,437 3,136,185 736,668 927,677 719,695 674,483 1,726,849 1,011,173 956,384 417,595 51,551 4,609 154 - 180,547 6,051 318 - 18,591,434 14,454,868 3,024,751 3,323,101 The geographical non-current assets above are exclusive of, where applicable, financial instruments, deferred tax assets, post- employment benefits assets and rights under insurance contracts. Note 8. Revenue Revenue from contracts with customers Revenue of Xref Revenue of Rapid ID Total revenue Other revenue Interest Government subsidies Other revenue Consolidated 2022 $ 2021 $ 15,568,389 11,558,269 3,023,045 2,896,599 18,591,434 14,454,868 5,739 28,021 100,777 134,537 11,779 540,753 101,306 653,838 Total revenue and other income 18,725,971 15,108,706 48 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 8. Revenue continued Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Revenue from customers Revenue Geographical regions Australia Canada United Kingdom New Zealand United States Timing of revenue recognition Goods transferred at a point in time Services transferred over time Consolidated 2022 Candidate referencing $ ID verification $ Total $ 15,568,389 3,023,045 18,591,434 11,229,585 3,014,271 14,243,856 736,668 918,903 1,726,849 956,384 - 8,774 - - 736,668 927,677 1,726,849 956,384 15,568,389 3,023,045 18,591,434 14,651,531 3,023,045 17,674,576 916,858 - 916,858 15,568,389 3,023,045 18,591,434 Xref Limited | Annual Report 2022 | 49 Notes to the Financial Statements Consolidated 2021 Candidate referencing $ ID verification $ Total $ 11,558,269 2,896,599 14,454,868 8,735,323 2,887,941 11,623,264 719,695 674,483 1,011,173 417,594 - 8,658 - - 719,695 683,141 1,011,173 417,595 11,558,269 2,896,599 14,454,868 10,689,356 2,896,599 13,585,955 868,913 - 868,913 11,558,269 2,896,599 14,454,868 Note 8. Revenue continued Revenue from customers Revenue Geographical regions Australia Canada United Kingdom New Zealand United States Timing of revenue recognition Goods transferred at a point in time Services transferred over time 50 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 9. Overheads and administrative expenses Accounting and consulting fees Auditing or reviewing the financial report Legal expenses deductible Marketing fees Consulting and professional fees Administration expenses Foreign exchange loss Operating lease payments Administrative expenses Auditors remuneration Fees charged by Audit Firm Financial statement audit and review Note 10. Depreciation, amortisation and impairment expenses Depreciation, amortisation and impairment expenses Depreciation Depreciation ROU Asset Impairment and amortisation expense Consolidated 2022 $ 266,458 87,807 41,867 904,218 373,838 2,047,651 (78,422) 113,743 2021 $ 246,842 85,901 177,471 468,106 269,768 1,809,634 (137,340) 102,956 3,757,160 3,023,338 2022 $ 2021 $ 87,807 85,901 2022 $ 86,122 175,694 212,581 474,397 2021 $ 67,916 312,067 60,223 440,206 Xref Limited | Annual Report 2022 | 51 Notes to the Financial Statements Note 11. Income tax expense Xref Limited has operating subsidiaries in Australia, the UK, New Zealand, USA and Canada which are expected to accumulate tax losses prior to returning a profit. (a). Reconciliation of effective tax rate : Profit (loss) before income tax expense 2022 $ 729,575 2021 $ 78,084 Tax at the statutory rate of 25% (2021: 26%) 182,394 20,302 Impact of tax effect: Reduction in deferred tax asset Permanent differences Adjustment for foreign tax rates (98,280) 16,145 (100,259) (211,501) 5,864 185,335 Income tax expense for the year - - b. Deferred tax assets and liabilities The assessment of the probability of future taxable income in which deferred tax assets can be utilised is based on the Group’s latest approved budget forecast, which is adjusted for significant non taxable income and expenses and specific limits to the use of any unused tax losses or credits. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full. The company has not yet raised a deferred tax entry as the Group is not certain whether the tax losses carried forward can be utilised in the foreseeable future. The deferred tax asset position of the Group, which has not been brought to account is $7,217,815 (2021: $7,316,089). Note 12. Current assets—cash and cash equivalents Cash at bank and in hand 2022 $ 2021 $ 11,673,989 8,131,072 52 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 13. Current assets—trade and other receivables Current Trade receivables Other receivables Total current trade and other receivables 2022 $ 2021 $ 1,809,749 1,885,795 82,262 135,350 1,892,011 2,021,145 Trade debtors and other receivables are non interest bearing and receipt is normally on 30 days terms. Therefore, the carrying value of trade debtors and other receivables approximates its fair value. All receivables are subject to credit risk exposure. The maximum exposure to credit risk at the reporting date is the carrying amount of trade debtors and other receivables as disclosed above. The Group does not hold any collateral as security. The Group’s management considers that all financial assets that are not impaired or past due for each of the reporting dates under review are of good credit quality. None of the Group’s financial assets are secured by collateral or other credit enhancements. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. No allowance for expected credit losses was deemed to be necessary. As at 30 June 2022, the ageing analysis of trade receivables post due but not impaired is detailed as follows: 0-30 days in terms 30-90 days overdue 90 days+ overdue 2022 $ 2021 $ 1,711,817 1,848,329 43,554 54,378 21,449 16,017 1,809,749 1,885,795 Xref Limited | Annual Report 2022 | 53 Notes to the Financial Statements Note 14. Current assets—Capitalised Commission Capitalised Commission Credit Sales Capitalised Commission Subscriptions Capitalised Commission People Search 2022 $ 2021 $ 1,160,636 1,013,035 51,194 - 18,373 90 1,211,830 1,031,498 (a). Reconciliation of the written down values at the beginning and end of the current and previous financial year are set out below: Opening Balance Additions Recognition as expenses Balancing adjustment due to forex Closing balance Note 15. Non current assets —property, plant and equipment Office furniture at cost Less: Accumulated depreciation Office equipment at cost Less: Accumulated depreciation Computer equipment at cost Less: Accumulated depreciation Office fitout Less: Accumulated depreciation 2022 $ 1,031,498 1,757,989 2021 $ 1,011,918 1,159,554 (1,580,602) (1,140,761) 2,945 787 1,211,830 1,031,498 2022 $ 98,230 (38,554) 59,676 2021 $ 96,918 (31,774) 65,144 146,437 146,264 (112,091) (105,759) 34,346 40,505 382,075 337,182 (280,578) (238,684) 101,497 98,498 106,654 (72,182) 34,472 103,027 (41,114) 61,913 Total property, plant and equipment 229,991 266,060 54 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 15. Non current assets —property, plant and equipment continued Reconciliations Reconciliations of the carrying value at the beginning and end of the current and previous financial year are set out below: Office Furniture $ Office Fitout $ Office Equipment $ Computer Equipment $ Balance at 1 July 2020 Additions Depreciation Balance at 30 June 2021 Additions Disposals Depreciation Opening balance revaluation due to forex 71,736 272 (6,864) 65,144 - - (6,032) 564 64,374 - (2,461) 61,913 - - (28,733) 1,292 50,246 523 (10,264) 40,505 1,400 - (5,933) (1,626) Total $ 314,475 19,501 (67,916) 266,060 50,075 (1,250) 128,119 18,706 (48,327) 98,498 48,675 (1,250) (45,424) (86,122) 998 1,228 Balance at 30 June 2022 59,676 34,472 34,346 101,497 229,991 Note 16. Non current assets—right of use assets Right of use assets—Land and Buildings Less: Accumulated depreciation Total 2022 $ 1,253,201 (931,919) 2021 $ 860,792 (733,476) 321,282 127,316 Additions to the right-of-use assets during the year were $392,409. The Group leases land and buildings for its offices under agreements which have terms remaining of no longer than 3 years and 2 months as at 30 June 2022. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. Two leases were renegotiated during the year resulting in an increase of right of use assets. Xref Limited | Annual Report 2022 | 55 Notes to the Financial Statements Note 17. Non current assets—intangible assets Goodwill Website Less: Accumulated amortisation Patents, trademarks and other rights Less: Accumulated amortisation Licenses Domain Names Less: Accumulated amortisation Software development Less: Accumulated amortisation Consolidated 2022 $ 2021 $ 1,333,986 1,333,986 325,000 (162,055) 162,945 11,337 (4,504) 6,833 325,000 (53,722) 271,278 10,231 (2,267) 7,964 50,000 50,000 113,958 (16,316) 97,642 108,830 (5,638) 103,192 2,514,439 1,109,162 (92,169) - 2,422,270 1,109,162 Total intangibles 4,073,676 2,875,582 56 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 17. Non current assets—intangible assets continued Reconciliations of the written down values at the beginning and end of the current and previous financial year are set out below: Movements in carrying amounts of intangible assets Patents, trademarks and other rights $ Licenses $ Domain Names $ Software Development $ Website $ Goodwill $ Total $ 9,097 50,000 106,990 - 325,000 1,333,986 1,825,073 - (1,133) - - 1,570 1,109,162 - - 1,110,732 (5,368) - (53,722) - (60,223) 7,964 50,000 103,192 1,109,162 271,278 1,333,986 2,875,582 - (1,131) - - 5,398 1,405,277 - (10,948) (92,169) (108,333) - - 1,410,675 (212,581) 6,833 50,000 97,642 2,422,270 162,945 1,333,986 4,073,676 Consolidated Balance at 1 July 2020 Additions Amortisation expense Balance at 30 June 2021 Additions Amortisation expense Balance at 30 June 2022 Xref is preparing for the growth that is anticipated to come from millions of returning workers globally. Xref is working with some of its largest global clients to expand the current platform and support their future requirements. The enhanced platform will dramatically increase the global addressable market through the provision of additional services, allowing for an entirely digital new client acquisition process and add a subscription-based ARR to the current credit-based model. In addition RapidID has built a significant enhancement which will expand the capability of the existing platform. As at 30 June the new products for Xref remained in development. After their launch the software will be amortised over their respective effective lives. Xref Limited | Annual Report 2022 | 57 Notes to the Financial Statements Note 17. Non current assets—intangible assets continued Impairment testing Goodwill acquired through business combination has been allocated to the following cash-generating units: RapidID Consolidated 2022 $ 2021 $ 1,333,986 1,333,986 The recoverable amount of the consolidated entity’s goodwill has been determined as the higher of the asset’s value in use and its fair value less cost of disposal using a discounted cash flow model, based on a 5 year projection period approved by management and the board, together with a terminal value. Key assumptions are those to which the recoverable amount of an asset or cash-generating units is most sensitive. The following key assumptions were used in the discounted cash flow model for RapidID: • 14.5% post-tax discount rate; • 20% per annum average projected revenue growth rate; • 4% per annum average improvement in gross margin; • 2.5% terminal value growth rate. The discount rate of 14.5% post-tax reflects management’s estimate of the time value of money and the Group’s weighted average cost of capital adjusted for RapidID, the risk free rate and the volatility of the share price relative to market movements. Management have estimated a 20% growth in accordance with the acquisition strategy and have no reason to revise this estimation based on current performance. Synergies achieved following the acquisition of RapidID combined with cost efficient customer acquisition strategies has result in the operational costs budgeted initially being lower than forecast There were no other key assumptions for RapidID. Based on the above, the recoverable amount of RapidID exceeded the carrying amount by $4.1m. Sensitivity As disclosed in note 5, the directors have made judgements and estimates in respect of impairment testing of goodwill. Should these judgements and estimates not occur the resulting goodwill carrying amount may decrease. The sensitivities are as follows: • Sales would need to decrease by more than 15% over the forecast period for RapidID before goodwill would need to be impaired, with all other assumptions remaining constant. • The discount rate would be required to increase by 35% for RapidID before goodwill would need to be impaired, with all other assumptions remaining constant. Management believes that other reasonable changes in the key assumptions on which the recoverable amount of RapidID’s goodwill is based would not cause the cash-generating unit’s carrying amount to exceed its recoverable amount. 58 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 18. Current liabilities—trade and other payables Trade payables GST payable Accrued salaries, wages and related costs Non trade payables and accrued expenses Superannuation payable Note 2022 $ 366,429 423,268 277,114 545,118 205,062 2021 $ 471,405 516,614 364,835 379,933 165,243 1,816,991 1,898,030 Refer to note 27 for further information on financial instruments. Trade creditors and other payables are non interest bearing and normally settled on 30 day terms; therefore, their carrying amount approximates their fair value. Note 19. Current liabilities —employee entitlements Annual leave 2022 $ 2021 $ 634,218 439,695 Short–term employee entitlements represent the Group’s obligation to its current and former employees that are expected to be settled within 12 months of balance date. These consist of accrued holiday entitlements at the reporting date. Note 20. Financial liabilities Current Lease Liability Borrowing—Pure Asset Management (a) Total current borrowings Non-current Lease Liability Borrowing—Pure Asset Management (a) Total non-current borrowings 2022 $ 129,749 425,000 554,749 2021 $ 138,925 497,500 636,425 200,540 4,205,192 4,405,732 3,072 4,045,878 4,048,950 Total borrowings 4,960,481 4,685,375 Xref Limited | Annual Report 2022 | 59 Notes to the Financial Statements Note 20. Financial liabilities continued a. Reconciliation Loan Facility Fair value of warrants Transaction Cost Amortisation of finance cost Repayment of contractual payment Gain on revaluation Note 2022 $ 2021 $ 5,000,000 (385,714) (209,744) 4,404,542 1,086,885 (822,065) (39,170) 5,000,000 (385,714) (209,744) 4,404,542 510,388 (371,551) - Closing Balance 4,630,192 4,543,378 During the current year, Xref Limited negotiated a more favourable interest rate for the Pure Asset loan facility which resulted in a reduction of the interest rate from 9.95% to 8.5%. This reduction resulted in a change in the effective interest rate from 13.57% to 12.66%. The reduction in interest rate resulted in a gain on revaluation of $39,170. Note 21. Current liabilities—Unearned Revenue Xref unearned revenue movement Opening balance - Xref Credits sold Add: Opening conditional credits Less: Usage Less: Closing conditional credits Foreign exchange revaluation impacts Closing balance – Unearned revenue Xref RapidID unearned revenue movement Opening balance - RapidID Add: Prepaid Checks Sold Less: Prepaid Checks Used Closing balance - Unearned revenue RapidID 2022 $ 2021 $ 8,783,300 7,847,799 17,751,578 12,477,129 1,474,436 1,011,261 (15,551,723) (11,091,879) (1,428,393) (1,474,436) 2,245,898 922,075 (41,973) 13,426 10,987,225 8,783,300 15,993 102,240 (40,550) 77,683 - 16,022 (29) 15,993 Balance carried forward 11,064,908 8,799,293 60 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 21. Current liabilities—Unearned Revenue continued Unsatisfied performance obligations The performance obligations associated with the unearned revenue balance are expected to be satisfied within 12 months from the date of the balance sheet Under Xref’s business model, clients purchase Xref credits to use our candidate referencing platform. The value of credits sold are added to unearned revenue when the client has paid. The credits are consumed when reference checks are ordered, and credit usage becomes recognised revenue. At balance date some clients will have purchased credits and have been issued an invoice but will not have paid. The value of these unpaid credit sale invoices are the ‘conditional credits’ above and represents trade debtors (less goods & services tax). In addition, clients that have subscribed to People Search or an Xref Subscription pay for 12 months in advance and each month a proportion of the upfront payment is recognised as revenue.. Note 22. Non current liabilities—Employee entitlements Long service leave Note 23. Equity—issued capital 2022 $ 2021 $ 224,785 185,666 Ordinary shares—fully paid 185,296,289 182,309,247 55,100,613 53,948,230 2022 Shares 2021 Shares 2022 $ 2021 $ Balance 1 July 2020 178,055,751 53,235,226 Date Shares Issued price/ exercise price $ Total $ Issued under share based remuneration Issued under share based remuneration Issued under share based remuneration Issued under share based remuneration Issued under share based remuneration Issued under share based remuneration Options exercised Warrants exercised 2,878,496 300,000 1,000,000 75,000 0.18 0.10 0.15 0.20 517,764 30,240 150,000 15,000 30 June 2021 182,309,247 - 53,948,230 46,759 43,141 40,000 2,857,142 0.64 0.70 0.35 0.35 30,000 30,000 15,240 1,077,143 30 June 2022 185,296,289 - 55,100,613 Xref Limited | Annual Report 2022 | 61 Notes to the Financial Statements Note 23. Equity—issued capital continued Xref issued 43,141 shares at $0.70 per share and 46,759 shares at $0.64 per share to senior employees on 6 December 2021 as a bonus for good performance. Xref issued 40,000 shares at $0.35 per share to an employee on 6 December 2021 under the company’s employee option plan. Xref issued 2,857,142 shares at $0.35 per share to Pure Asset Management on 6 December 2021 from an exercise of warrants. Capital risk management The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders and to maintain an optimum capital structure to reduce the cost of capital. Capital is regarded as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group would look to raise capital when an opportunity to invest in a business or company was seen as value adding relative to the current company’s share price at the time of the investment. The Group is not actively pursuing additional investments in the short term as it continues to integrate and grow its existing businesses in order to maximise synergies. The Group is in compliance with its loan covenants and expects to meet all covenants at the next review. The capital risk management policy remains unchanged from the 30 June 2022 Annual Report. Note 24. Equity—other equity reserves Foreign currency reserve Options reserve Warrants Consolidation Reserve Foreign Currency Reserve 2022 $ (552,196) 1,596,643 308,571 2021 $ (461,745) 1,982,030 385,714 (22,845,821) (22,845,821) (21,492,803) (20,939,822) The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. 62 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 24. Equity—other equity reserves continued a). Share option reserve At 30 June 2017 Issue Date 7/12/2016 Expiry Date 25/11/2022 At 30 June 2017 7/12/2016 25/11/2021 Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted 22/09/2017 22/09/2017 22/03/2018 3/07/2021 3/07/2021 5/02/2022 22/03/2018 12/02/2022 22/03/2018 12/02/2023 4/12/2018 4/12/2018 4/12/2018 4/12/2018 3/09/2021 3/09/2022 3/09/2023 1/08/2022 4/12/2018 29/11/2022 20/07/2020 15/01/2024 20/07/2020 15/01/2024 20/07/2020 15/01/2024 7/09/2020 15/01/2024 7/09/2020 15/01/2024 14/06/2021 14/06/2024 14/06/2021 14/06/2025 14/06/2021 14/06/2026 Average exercise price in $A per share $0.70 $0.70 $0.59 $0.58 $0.66 $0.70 $0.70 $0.70 $0.70 $0.66 $0.66 $0.70 $0.35 $0.35 $0.35 $0.18 $0.18 $0.35 $0.35 $0.35 Options 2,500,000 5,400,000 545,814 95,390 90,021 750,000 750,000 300,000 300,000 300,000 224,255 2,500,000 2,319,336 300,000 33,543 2,000,000 2,000,000 300,000 300,000 300,000 Option Reserve $ 357,000 646,920 121,662 21,444 9,434 69,635 84,023 20,730 28,620 36,570 22,358 253,000 71,899 9,300 1,040 114,000 114,000 395 - - Closing Balance 30/06/2021 21,308,359 1,982,030 Xref Limited | Annual Report 2022 | 63 Notes to the Financial Statements Note 24. Equity—other equity reserves continued At 30 June 2017 07/12/2016 25/11/2022 Issue Date Expiry Date Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted 22/03/2018 12/02/2023 04/12/2018 03/09/2022 04/12/2018 03/09/2023 04/12/2018 01/08/2022 20/07/2020 15/01/2024 20/07/2020 15/01/2024 20/07/2020 15/01/2024 07/09/2020 15/01/2024 26/11/2021 17/11/2024 26/11/2021 17/11/2024 Average exercise price in $A per share $0.70 $0.70 $0.70 $0.66 $0.66 $0.35 $0.35 $0.35 $0.18 $0.35 $0.54 Options 2,500,000 750,000 300,000 300,000 176,194 2,136,923 300,000 33,543 4,000,000 900,000 2,700,000 Option Reserve $ 357,000 84,023 28,620 36,570 17,567 66,245 9,300 1,040 228,000 232,665 535,613 Closing Balance 30/06/2022 14,096,660 1,596,643 Options Reserve During the year ended 30/06/2022, 1,190,474 options lapsed, 8,681,228 options expired, and 40,000 options were exercised. On 26/11/2021, 1,800,000 options, at a fair value of $0.30, were issued to Mr Thomas Stianos as a key component of his remuneration. The first tranche of 600,000 options vested on 26/11/2021, the second tranche of 600,000 options will vest on 14/10/2022, and the third tranche of 600,000 options will vest on 14/10/2023. The options will expire on 17/11/2024. On 26/11/2021, 900,000 options, at a fair value of $0.30, were issued to Mr Nigel Heap as a key component of his remuneration. The first tranche of 300,000 options vested on 26/11/2021, the second tranche of 300,000 options will vest on 14/10/2022, and the third tranche of 300,000 options will vest on 14/10/2023. The options will expire on 17/11/2024. 64 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 24. Equity—other equity reserves continued Options vested and therefore exercisable Options Vested – Nigel Heap Options Vested - Brad Rosser Options Vested – James Solomons Options Vested – James Solomons Options Vested – James Solomons Expiry Date 25/11/2021 2022 - 2021 900,000 25/11/2022 2,500,000 7,000,000 12/02/2022 - 12/02/2023 750,000 750,000 750,000 15/01/2024 2,300,000 2,300,000 Options Vested - Employees and Contractors Options Vested - Employees and Contractors 03/07/2021 05/02/2022 - - Options Vested - Employees and Contractors 01/08/2022 176,194 Options Vested – Sharon Blesson Options Vested – Sharon Blesson Options Vested – Sharon Blesson Options Vested – Sharon Blesson Options Vested – Senior Staff Options vested - Robert Waring Options vested - employees Options vested - Lija Wilson Options vested - Thomas Stianos Options vested - Nigel Heap 641,204 90,021 224,255 300,000 300,000 300,000 30/09/2021 03/09/2022 03/09/2023 - 300,000 300,000 15/01/2024 2,111,111 2,111,111 29/11/2022 - 2,500,000 15/01/2024 33,543 33,543 15/01/2024 2,025,812 2,208,225 17/11/2024 17/11/2024 17/11/2024 300,000 600,000 300,000 - - - 11,696,660 20,408,359 The weighted average share price for the current financial year was $0.57 (2021: $0.22) Consolidation Reserve The reserve was formed on the reverse acquisition of assets and liabilities of King Solomon Mines Limited by Xref Pty Limited which brought the share capital of Xref Pty Limited to the share capital of King Solomon Mines Limited immediately after the reverse acquisition. Warrant reserve In conjunction with the facility agreement being signed on 31 July 2020, a warrant deed was also signed with Pure Asset Management on the same date (note 20). 14,285,714 detached warrants were issued to Pure Asset Management with an exercise option of $0.35 each exercisable within the next 4 year period. The fair value of the warrants was determined using the black scholes methodology with a volatility rate of 62% and a grant date share price of $0.13. The fair value of the warrants as disclosed per the financials is $385,714. On 6 December 2021, Pure Asset Management exercised 2,857,142 warrants at $0.35 each, reducing the fair value of the warrant reserve to $308,571. Xref Limited | Annual Report 2022 | 65 Notes to the Financial Statements Note 25. Equity—dividends There were no dividends paid, recommended or declared during the current or previous financial year. Note 26. Earnings per share Basic EPS amounts are calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted EPS amounts are calculated by dividing the profit attributable to ordinary equity holders of the Parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. The Group recorded a profit for the year ended 30 June 2022 and the year ended 30 June 2021. The following reflects the income and share data used in the basic and diluted EPS computations Profit after income tax attributable to the owners of Xref Limited 2022 $ 729,575 2021 $ 78,084 Weighted average number of ordinary shares used in calculating basic earnings per share 184,003,268 181,978,936 Weighted average number of ordinary shares used in calculating diluted earnings per share 202,802,306 202,917,529 Basic earnings per share Diluted earnings per share Note 27. Financial instruments a. Classification of financial instruments Cents 0.40 0.36 Cents 0.04 0.04 The carrying amounts presented in the statement of financial position relate to the following categories of financial assets and liabilities Loans and receivables Available-for- sale financial assets Financial liabilities at fair value through profit and loss Total 11,729,059 1,892,011 13,621,070 - - - - - - - - - - - - 11,729,059 1,892,011 13,621,070 1,611,919 1,611,919 4,960,481 4,960,481 6,572,400 6,572,400 Group 2022 Financial assets Cash and cash equivalents Trade debtors and other receivables Total Financial liabilities Trade creditors and other payables Financial liabilities Total 66 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 27. Financial instruments continued Group 2021 Financial assets Cash and cash equivalents Trade debtors and other receivables Total Financial liabilities Trade creditors and other payables Financial liabilities Total Loans and receivables Available-for- sale financial assets Financial liabilities at fair value through profit and loss Total 8,185,215 2,021,145 10,206,360 - - - - - - - - - - - - 8,185,215 2,021,145 10,206,360 1,898,030 1,898,030 4,685,376 4,685,376 6,583,406 6,583,406 b. Financial instrument risk management The Group is exposed to the following risks from its use of financial instruments: • Credit risk • Liquidity Risk • Market Risk The Group are exposed to market risk through their use of financial instruments and specifically to currency risk, interest rate risk and certain other price risks, which result from both its operating and investing activities. The Group has a series of policies to manage the risk associated with financial instruments. Policies have been established which do not allow transactions that are speculative in nature to be entered into and the Group is not actively engaged in the trading of financial instruments. As part of this policy, limits of exposure have been set and are monitored on a regular basis. i. Credit risk Credit risk is the risk that a third party will default on its obligation to the Group, causing the Group to incur a loss. The Group has no significant concentration of risk in relation to cash and cash equivalents, trade debtors and other financial assets. The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporates this information into its credit risk controls. Further details in relation to the credit quality of financial assets is provided in Note 13. ii. Liquidity risk Liquidity risk represents the Group’s ability to meet is contractual obligations as they fall due. The Group manages liquidity risk by managing cash flows and ensuring that adequate cash is in place to cover any potential short falls. During the financial year expenses increased 19% compared to 2021, against a revenue increase of 29% compared to 2021. This combined with the prior year raise of debt funding and positive cash flow is enabling adequate management of liquidity risk. Xref Limited | Annual Report 2022 | 67 Notes to the Financial Statements Group 2022 Non-derivative financial liabilities Trade creditors and other payables Superannuation payable Group 2021 Non-derivative financial liabilities Trade creditors and other payables Superannuation payable Note 27. Financial instruments continued All amounts shown as current financial liabilities are expected to be paid on demand and without interest. The Group’s financial liabilities have contractual maturities (including interest payments where applicable) as summarised below: Contractual cash-flow maturities Carrying amounts Total contractual cash-flows 0-6 months 6-12 months 1 - 2 years 2-5 years Later than 5 years - - - 1,611,919 1,611,919 1,611,919 205,062 205,062 205,062 - - - - - - - - - Financial liabilities 4,630,192 5,951,775 214,247 210,753 426,925 5,104,508 Total 6,447,173 7,768,756 2,031,228 210,753 426,925 5,104,508 Contractual cash-flow maturities Carrying amounts Total contractual cash-flows 0-6 months 6-12 months 1 - 2 years 2-5 years Later than 5 years - - - 1,732,787 1,732,787 1,732,787 165,243 165,243 165,243 - - - - - - - - - Financial liabilities 4,543,378 6,617,089 250,795 246,705 497,500 5,622,089 Total 6,441,408 8,515,119 2,148,825 246,705 497,500 5,622,089 iii. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. iv. Foreign exchange risk The Group is exposed to fluctuations in foreign currency exchange rates as a result of maintaining foreign currency denominated bank accounts and entering into foreign currency transactions. Thus, the Group will incur a foreign exchange gain or loss each year due to the appreciation and depreciation of the Australian dollar relative to other currencies including the United States dollar, the Canadian dollar and the UK Pounds Sterling. 68 | Xref Limited | Annual Report 2022 - - - - - - - - Notes to the Financial Statements Note 27. Financial instruments continued The exposure to currencies of the Group is as follows: Canadian Dollars UK Pound Sterling New Zealand Dollars United States Dollar Total 2022 $ 275,869 778,710 2021 $ 343,684 128,279 2,392,516 1,204,091 1,745,636 5,192,731 540,635 2,216,689 The potential impact on the bank accounts, net deficits and equity movements in foreign currency exchange rates (calculated by applying the change in foreign exchange rate to foreign currencies held at balance date) is indicated below: Potential Foreign Exchange Rate Fluctuation Impact on valuation of holding in: Canadian Dollars UK Pound Sterling New Zealand Dollar United States Dollar 5% $ 13,793 38,936 10% $ 27,587 77,871 119,626 239,252 20% $ 55,174 155,742 478,503 87,282 174,564 349,127 Total impact of potential change in exchange rate 259,637 519,274 1,038,546 Foreign exchange risk Currency risk is the risk that the fair value of financial instruments will fluctuate due to a change in foreign exchange rates. Most of the Group transactions are carried out in Australian Dollars (AUD). Exposures to currency exchange rates arise from the Group’s overseas sales and purchases, which are primarily denominated in United Kingdom Pounds Sterling (GBP) , Canadian dollars (CAD), New Zealand Dollar (NZD) and United States Dollar (USD). The Group monitors foreign expenditure, seeking favourable terms when it is time to for further funding. By adopting this passive strategy, it expects its average foreign exchange rates to reflect the average foreign exchange rate for the year. Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into AUD at the closing rate: 30 June 2022 – Group Australia United Kingdom Canada New Zealand United States Short-term exposure Financial Assets Financial Liabilities Net statements of financial position exposure 7,931,106 1,812,578 891,938 64,211 306,016 228,868 2,577,256 1,859,684 121,774 - 6,118,528 827,727 77,148 2,455,482 1,859,684 Xref Limited | Annual Report 2022 | 69 Notes to the Financial Statements Note 27. Financial instruments continued Long-term exposure 30 June 2022 – Group Australia United Kingdom Canada New Zealand United States Financial Assets Financial Liabilities Net statements of financial position exposure 34,650 4,205,192 4,170,542 - - - 20,420 139,787 119,367 - - - - - - 30 June 2021 – Group Australia United Kingdom Canada New Zealand United States Short-term exposure Financial Assets Financial Liabilities Net statements of financial position exposure 7,569,100 2,157,948 194,303 40,249 442,033 208,583 1,317,354 127,675 602,428 - 5,411,152 154,054 233,450 1,189,679 602,428 30 June 2021 – Group Australia United Kingdom Canada New Zealand United States Long-term exposure Financial Assets Financial Liabilities Net statements of financial position exposure 34,650 4,045,879 4,011,229 - - - 19,493 3,071 16,422 - - - - - - Foreign exchange risk Sensitivity analysis The following analysis illustrates the sensitivity of profit and equity in regard to the Group’s financial assets and financial liabilities carried in foreign currencies. It assumes a 5+/- % change in exchange rates for the year ended at 30 June 2022 (2021: 3%). The percentage movement has been determined based on the average exchange rate market volatility for the AUD in the previous 12 months. Group 2022 2021 Profit for the year Equity Profit for the year Equity 5% (2021: 3%) increase in AUD against foreign currencies 703,986 (990,829) 59,349 (1,010,926) 5% (2021: 3%) decrease in AUD against foreign currencies 732,228 (1,907,692) 122,958 (1,006,850) Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Group’s exposure to currency risk. 70 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 27. Financial instruments continued Interest rate risk Interest rate risk is the risk that cash flows from a financial instrument will fluctuate because of changes in market interest rates. Revenue of the Group is exposed to interest rate risk on interest bearing financial assets only as it has immaterial bank overdraft balances. The Group is also exposed to interest rate risk on interest bearing financial assets. The Group’s investment in bonds all pay fixed interest rates and the interest risk exposure on money market funds is considered immaterial. Note 28. Cash Flow Information (a). Reconciliation of result for the year to cashflows from operating activities Reconciliation of net income to net cash provided by operating activities: Operating profit Non cash flows in profit: Unearned income Shares based payments Options expense Foreign exchange Depreciation, amortisation and impairment Interest expense on borrowing Changes in assets and liabilities: 2022 $ 729,575 2,265,615 60,000 767,885 2021 $ 78,084 922,076 686,196 318,550 (117,519) (117,133) 474,397 565,829 440,206 525,442 (Increase)/decrease in trade and other receivables 129,134 (646,375) (Increase)/decrease in other assets (Increase)/decrease in prepayments (Increase)/decrease in contract assets Increase/(decrease) in trade and other payables Increase/(decrease) in employee benefits Net cash from operating activities Note 29. Contingencies There is a contingent liability of $33,550 for a bank guarantee. (927) (223,300) (180,332) (81,039) 233,642 16,111 73,672 (19,583) 106,767 (61,640) 4,622,960 2,322,373 In the opinion of the Directors, the Company did not have any other contingent assets or liabilities at 30 June 2022. Xref Limited | Annual Report 2022 | 71 Notes to the Financial Statements Note 30. Related Parties Related party transactions arise when an entity or person(s) has the ability to significantly influence the financial and operating policies of the Group. The Group has a related party relationship with its Shareholders, Directors and other key management personnel. Unless otherwise stated transactions with related parties in the years reported have been on an arms length basis, none of the transactions included special terms, conditions or guarantees. The following transactions were carried out with related parties a. Purchase of services Key management personnel b. Other related party balances 2022 $ 2021 $ 87,877 84,440 Other related party balances Loans to directors for the year ended 30 June 2022 amounted to $0 (2021: $0). c. Key management compensation see information below Short term employee benefit Post employment benefits Share based payments 2022 $ 2021 $ 1,504,909 1,493,725 96,288 1,160,606 107,397 458,874 2,761,803 2,059,996 72 | Xref Limited | Annual Report 2022 Notes to the Financial Statements Note 31. Parent entity Set out below is the supplementary information about the parent entity. Statement of Profit or Loss and Other Comprehensive Income Loss after income tax Total comprehensive income Statement of Financial Position Assets Total non current assets Total Assets Liabilities Total current liabilities Total non-current liabilities Total Liabilities Equity Issued capital Reserves Retained profits Total Equity 2022 $ 2021 $ (778,832) (778,832) (284,684) (284,684) 36,851,993 35,788,942 36,851,993 35,788,942 - - - - - - 55,100,613 53,948,230 1,905,214 2,367,744 (20,153,834) (20,527,032) 36,851,993 35,788,942 Guarantees entered into by the parent entity in relation to the debts of its subsidiaries There are no guarantees entered into by the parent entity in relation to any of its subsidiaries in 2021 or 2022. Contingent liabilities The parent entity had no contingent liabilities in 2021 or 2022. Capital commitments Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment in 2021 and 2022. Note 32. Events Occurring After the Reporting Date On August 1, 2022, the Board approved the issue of 880,000 fully paid ordinary shares to the Xref Employee Share Trust. The trust was established to administer the Xref Limited Employee Option Plan. Xref uses its Employee Option Plan to attract and motivate high performing team members to further the growth of the business globally. On August 15, 2022, the Board approved the issue of 7,060,100 Options across three tranches with varying exercises prices and vesting periods to 71 eligible employees as part of the Xref Employee Option plan. Please refer to the announcement released to the market on 19 August 2022 for further details. No other matter or circumstances have arisen since the end of FY22, which could have had a notable impact on operations. Xref Limited | Annual Report 2022 | 73 Notes to the Financial Statements Director’s Declaration The directors of the Company declare that: 1. the financial statements and notes for the year ended 30 June 2022 are in accordance with the Corporations Act 2001 and a. comply with Accounting Standards, which, as stated in basis of preparation Note 2 to the financial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and b. give a true and fair view of the financial position and performance of the consolidated group; 2. the Chief Executive Officer and Chief Finance Officer have given the declarations required by Section 295A that: a. the financial records of the Company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001; b. the financial statements and notes for the financial year comply with the Accounting Standards; and c. the financial statements and notes for the financial year give a true and fair view. 3. In the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable with the continuing support of creditors. At the date of this declaration, there are reasonable grounds to believe that the companies which are party to this deed of cross guarantee will be able to meet any obligations or liabilities to which they are, or may become subject to, by virtue of the deed. This declaration is made in accordance with a resolution of the Board of Directors. Lee-Martin Seymour Managing Director 24 August 2022 Sydney Thomas Stianos Chairman 24 August 2022 Sydney 74 | Xref Limited | Annual Report 2022 Crowe Sydney ABN 97 895 683 573 Level 24, 1 O’Connell Street Sydney NSW 2000 Main +61 (02) 9262 2155 Fax +61 (02) 9262 2190 www.crowe.com.au Independent Auditor’s Report to the Members of Xref Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Xref Limited (the Company and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2022, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group’s financial position as at 30 June 2022 and of its financial performance for the year then ended; and (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Liability limited by a scheme approved under Professional Standards Legislation. The title ‘Partner’ conveys that the person is a senior member within their respective division, and is among the group of pe rsons who hold an equity interest (shareholder) in its parent entity, Findex Group Limited. The only professional service offering which is conducted by a partnership is external audit, conducted via the Crowe Australasia external audit division and Unison SMSF Audit. All other professional services offered by Findex Group Limited are conducted by a privately owned organisation and/or its subsidiaries. Findex (Aust) Pty Ltd, trading as Crowe Australasia is a member of Crowe Global, a Swiss verein. Each member firm of Crowe Global is a separate and independent legal entity. Findex (Aust) Pty Ltd and its affiliates are not responsible or liable for any acts or omissions of Crowe Global or any other member of Crowe Global. Crowe Global does not render any professional services and does not have an ownership or partnership interest in Findex (Aust) Pty Ltd. Services are provided by Crowe Sydney, an affiliate of Findex (Aust) Pty Ltd. Liability limited by a scheme approved under Professional Standards Legislation. © 2022 Findex (Aust) Pty Ltd 75 Xref Limited | Annual Report 2022 | 75 Independent Auditor’s Report Xref Limited Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matter How we addressed the Key Audit Matter Software Development Costs As per Note 17, the Group has capitalised software development costs of $2,422,270 (2021: $1,109,162) in accordance with the requirements of AASB 138 Intangible Assets. The capitalised development costs are inclusive of external costs of being use of specialists, as well as internal wage costs primarily of developers employed by Xref Limited. We have determined this is to be a key audit matter because of the detailed recognition criteria which needs to be satisfied to capitalise development costs. We critically analysed management’s assessment in accordance with AASB 138 Intangible Assets, including performing the following procedures: a) Reviewed documentation produced by Management which outlined the nature of the development projects, the benefits to the business that the projects would achieve and the timeline for the projects and their introduction to the market. b) Discussed with Management and certain employees their role in the development projects to determine the reasonableness of their input and work performed in order to confirm criteria was satisfied to capitalise certain internal (wage) costs. c) Obtained managements reports, along with timesheets in relation to the internal payroll costs capitalised. Performed detailed tests verifying the amounts capitalised in comparison to the work performed as recorded in timesheets. d) Obtained supporting documentation in relation to external costs capitalised to ensure the scope of work performed by experts was in relation to the development of software. e) Confirmed with management that consideration of redundant technology has been written off. f) Evaluated costs capitalised against the requirements of AASB 138 ensuring the criteria for development was satisfied and any research was expensed in the period. Goodwill Impairment The acquisition of Rapid ID resulted in a recognition of Goodwill on consolidation of $1,333,986 as per Note 17. The Goodwill represents the expected synergies from merging Rapid ID with Xref along with the significant opportunity to increase Rapid We obtained management’s discounted cashflow forecast for the cash generating unit Rapid ID Pty Limited, critically evaluated the key assumptions and estimates used which have been disclosed in Note 17, to ascertain impairment, including © 2022 Findex (Aust) Pty Ltd www.crowe.com.au 76 76 | Xref Limited | Annual Report 2022 Independent Auditor’s Report Xref Limited ID’s revenue through Xref’s client base. performing the following procedures: As per the requirements of AASB 136 Impairment of Assets, an annual review of Goodwill for the cash generating unit (CGU) Rapid ID Pty Limited was performed based on a value in use calculation. Given the materiality of this item and the use of assumptions in the value in use calculation we have determined this to be a key audit matter. a) Discussed with management the basis for the significant assumptions and inputs used in the value in use calculation as provided by management and its external expert and challenged its appropriateness. Additionally, assessed the expert’s qualifications to provide such input. b) Obtained reports of relevant industries to compare to management’s growth rates utilised in the calculation. c) Reperformed the discounted cashflow forecast using different inputs as a means to perform a sensitivity analysis. d) Reviewed the disclosures on this item to ensure that they were adequate. Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s Annual Report for the year ended 30 June 2022, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. © 2022 Findex (Aust) Pty Ltd www.crowe.com.au 77 Xref Limited | Annual Report 2022 | 77 Independent Auditor’s Report Xref Limited Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the group financial report. The auditor is responsible for the direction, supervision and performance of the group audit. The auditor remains solely responsible for the audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during the audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in the auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. © 2022 Findex (Aust) Pty Ltd www.crowe.com.au 78 78 | Xref Limited | Annual Report 2022 Independent Auditor’s Report Xref Limited Report on the Remuneration Report Opinion on the Remuneration Report We have audited the remuneration report included on pages 17 to 24 of the directors’ report for the year ended 30 June 2022. In our opinion, the remuneration report of Xref Limited, for the year ended 30 June 2022, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Crowe Sydney Ash Pather Partner 24 August 2022 Sydney © 2022 Findex (Aust) Pty Ltd www.crowe.com.au 79 Xref Limited | Annual Report 2022 | 79 Shareholder Information Information relating to shareholders, as required by ASX Listing Rule 4.10, and not disclosed elsewhere in this Annual Report, is detailed below. Substantial Shareholders of the Company as at 22 July 2022, based on Substantial Shareholder Notices received by the ASX and the Company: Substantial Shareholders Netwealth Investment Limited Lee-Martin John Seymour Timothy David Griffiths National Nominees Ltd ACF Australian Ethical Investment Limited Shareholding 30,472,161 30,090,353 28,657,613 18,230,579 Based on the market price at 22 July 2022 there were 281 shareholders with less than a marketable parcel of 1,163 shares at a share price of $0.43. Number of Ordinary Shares Held Number of Holders Ordinary Shares % of Total Issued Capital 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total 257 807 555 710 101 2,430 144,810 2,330,612 4,293,614 19,454,328 159,072,925 185,296,289 0.08 1.26 2.32 10.50 85.85 100.00 80 | Xref Limited | Annual Report 2022 Top 20 Holders of Ordinary Shares as at 22 July 2022 Rank Name of Shareholder Shares % of Shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Netwealth Investments Limited West Riding Investments Pty Ltd Squirrel Holdings Australia Pty Ltd National Nominees Limited UBS Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Pty Limited Sweet As Developments Pty Ltd BNP Paribas Nominees Pty Ltd Seymour Superannuation Holdings Pty Ltd Mijon Investments Pty Ltd Mr Craig Graeme Chapman Assumo (Nominees) Pty Ltd Citicorp Nominees Pty Limited DMX Capital Partners Limited Gang-Gang Pty Ltd Schindler Investment Haus Pty Ltd Daniel P Moses (Nominees) Pty Ltd INGTBWTS Pty Limited Mr Mark William Hoey Total of Top 20 Holdings Other Holdings Total Fully Paid Shares Issued 30,472,161 30,090,353 28,657,613 18,230,579 8,608,538 6,403,645 3,094,357 2,000,000 1,666,423 1,639,755 1,500,000 1,320,924 1,136,827 1,124,174 979,199 926,605 912,500 910,000 793,166 754,020 141,220,839 44,075,450 185,296,289 16.45 16.24 15.47 9.84 4.65 3.46 1.67 1.08 0.90 0.88 0.81 0.71 0.61 0.61 0.53 0.50 0.49 0.49 0.43 0.41 76.21 23.79 100.00 Xref Limited | Annual Report 2022 | 81 Shareholder Information Options as at 22 July 2022 Name and Number of Option Holders Brad Rosser James Solomons (under Employee Option Plan) 16 employees and contractors (under Employee Option Plan) Three senior staff members (under Employee Option Plan), each holding 500,000 Options Sharon Blesson (under Employee Option Plan) Sharon Blesson (under Employee Option Plan) James Solomons and Sharon Blesson (under Employee Option Plan) – 2,000,000 options each 40 employees and contractors (under Employee Option Plan) Thomas Stianos Nigel Heap Lija Wilson Total Number of Options on Issue Warrants as at 22 July 2022 Shares the Option Holder is Entitled to Exercise Price Option Expiry Date 2,500,000 750,000 164,241 1,500,000 300,000 300,000 4,000,000 2,324,633 1,800,000 900,000 900,000 15,438,874 $0.70 25 November 2022 $0.70 12 February 2023 $0.66 1 August 2022 $0.70 29 November 2022 $0.70 3 September 2022 $0.70 3 September 2023 $0.18 15 January 2024 $0.35 15 January 2024 $0.54 17 November 2024 $0.54 17 November 2024 $0.35 17 November 2024 Name of Warrant Holder Warrants the Holder is Entitled to Exercise Price Expiry Date Pure Asset Management Pty Ltd 11,428,572 $0.35 23 July 2024 Voting Rights At general meetings of the Company, all fully paid ordinary shares carry one vote per share without restriction. On a show of hands, every member present at a general meeting, or by proxy, shall have one vote and, upon a poll, each share shall have one vote. Option holders and Warrant holders have no voting rights until the Options are exercised and the Warrants are exercised, respectively. On-Market Buy-Back There is no current on-market buy-back of shares in the Company. 82 | Xref Limited | Annual Report 2022 Shareholder InformationThis page has been left intentionally blank. Xref Limited | Annual Report 2022 | 83 Shareholder Information Corporate Directory PLACE OF BUSINESS DIRECTORS LEADERSHIP TEAM AUDITORS Australia (Head Office and Registered Office) Suite 13, 13 Hickson Road Dawes Point, NSW 2000 Tel: +61 2 8244 3099 Thomas Stianos Chairman Lee-Martin Seymour Nigel Heap Lija Wilson Lee-Martin Seymour Chief Executive Officer, Co-Founder James Solomons Chief Financial Officer, Chief Operating Officer Sharon Blesson Chief Technology Officer Robert Waring Company Secretary Karina Guerra Group Marketing Director Tracy Murdoch General Counsel David Haines GM RapidID United Kingdom Kemp house 124 City Road London Canada Suite 202 1 Adelaide Street East Toronto, Ontario United States Suite 500 13809 Research Blvd Austin, Texas New Zealand Level 10 11 Britomart Place Auckland Website xref.com 84 | Xref Limited | Annual Report 2022 Crowe Sydney Level 24 1 O’Connell Street Sydney NSW 2000 Tel: +61 2 9262 2155 STOCK EXCHANGE The company’s ordinary shares are listed on the ASX under code XF1 SHARE REGISTRY Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street Abbotsford, Victoria Australia 3067 www.investorcentre.com/au Tel: 1300 850 505 (within Australia) Tel: + 61 3 9415 4000 (outside Australia) This page has been left intentionally blank.This page has been left intentionally blank.

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