Xref
Annual Report 2023

Plain-text annual report

 Contents 2023 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 5 6 9 21 22 26 61 62 68 71 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 public listed 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. Xref Limited | Annual Report 2022 | 1 The financial statements were authorised for issue, in accordance with a resolution of directors, on 23 August 2023. The directors have the power to amend and reissue the financial statements. 2023 Highlights 2 | Xref Limited | Annual Report 2023 Group RevenueXref RevenueTrust Marketplace RevenueEngage RevenueRegional RevenueAustralia & New ZealandNorth AmericaUnited KingdomGrowth of SaaS H1 v H2SaaS RevenueOther RevenueIncrease10%“Despite softening market conditions our revenue grew 10% to $20.4m, aided by a $1.8m contribution from Voice Project in the second half.”Lee SeymourCEO, Founder, Exec DirectorARR430%“The focus in FY2023 was transitioning clients to the new Enterprise Platform and the SaaS business model. As a result, Annualised Recurring Revenue (ARR) grew 430% to $5.6m at June 2023 since the launch of that Enterprise Platform which included both legacy clients from Xref Recruiter and newly won Enterprise Platform clients.”Lee SeymourCEO, Founder, Exec Director“North America now represents 18% of the Group’s active users, 21% of references requested and 34% of the Pulse Surveys already launched demonstrating the demand from this important region for future growth.”Lee SeymourCEO, Founder, Exec DirectorXref Limited | Annuak Report 2023 | 3 Increase79%“Xref hasinvested considerable time andresources into product development, including $2.5m of new internally generated software assets being recognised during FY23. This was in addition to the $2.5m already recognised in FY21 and FY22 (combined) and in addition to the acquisition of Voice Project in FY23.”Lee SeymourCEO, Founder, Exec Director*Prior to FY21, Xref expensed immediately all of its product development costsGroup ProfitabilityGroup Net ProfitGroup RevenueCashflowCash ExpensesCash at BankCash CokkectionsCapitakisedInvestment in ProductNPAT Net Loss$3.36m“Operations delivered a cash surplus of$0.5m but after taking into account non-cash items such as share based payments, depreciation and amortisationan NPAT loss of $3.36m was incurred.”Lee SeymourCEO, Founder,Exec DirectorOperatingCash Surplus$0.5m“Xref generated positive operating cashflow of $0.5m, andduring the year $4.0m of cash was invested in developing new capability, (including $1.5m to acquire Voice Project and $2.5m on product development).”Lee SeymourCEO, Founder, Exec Director2023 $ 2022 $ 20,398,912 18,591,434 (1,417,924) (3,359,340) 454,402 1,774,730 729,575 4,622,960 2023 $ 2022 $ 16,018,222 15,568,389 2,620,628 1,760,062 3,023,045 - 20,398,912 18,591,434 (3,252,179) (3,674,245) (17,027,162) (12,503,372) (1,605,954) (767,885) (21,885,295) (16,945,502) 68,459 (1,365,986) (2,783,910) 59,465 (616,678) (18,217) 128,798 (474,397) 1,300,333 5,739 (576,497) - Change 10% (180)% (560)% (90)% Change 3% (13)% 10% (11)% 36% 109% 29% (47)% 188% (314)% 936% 7% (3,359,340) 729,575 (560)% 2023 $ (3,359,340) 557,213 1,365,986 18,217 2022 $ 729,575 570,758 474,397 - Change (560)% (2)% 188% (1,417,924) 1,774,730 (180)% 2023 Operating Results Financial Summary Total revenue EBITDA Net profit/(loss) after tax Net cash generated from operating activities Business results Xref revenue RapidID revenue Engage revenue Total revenue Cost of sales OPEX Share based payments Total Expenses Other income Depreciation & amortisation Operating profit Finance income Finance expense Income tax expense Net profit after tax EBITDA Net profit after tax Add back: net interest income and expense Add back: net depreciation and amortisation Add back: income tax expense EBITDA 4 | Xref Limited | Annual Report 2023 Chairman’s Report I am pleased to present the Xref annual report for the year ended 30 June 2023. The 2023 financial year saw your company make significant investments in capability and functionality. During the year we: • • • • • acquired Voice Project Pty Ltd in January 2023. This accelerated our launch of the engagement survey product; launched our Enterprise Platform offering reference checks, pulse checks, and exit surveys. The enterprise platform already has over 1,000 users and is expected to be a key growth driver for the Company; launched Trust MarketPlace, a single site providing access to a suite of checking services including identity checks, graduate verification, police checks, government document verification service (DVS). We plan to add more information vendors to the Trust MarketPlace such as the recently signed “Certn”; implemented a new billing system allowing clients to use Xref via a SaaS subscription service; and released Survey Builder on the enterprise platform allowing clients to custom build over 500 staff surveys. Investments in product innovation increased the size of our underlying software assets (or code base) during the year. This has been reflected in positive customer feedback and in a recent customer survey Xref received 92% customer satisfaction and an Net Promoter Score (NPS) of +35. Despite softening market conditions and the resultant subdued demand for our services, revenue grew 10% to $20.4m, aided by a $1.8m contribution from Voice Project in the second half. Operations delivered a cash surplus but disappointingly after taking into account non-cash items such as share based payments, depreciation and amortisation an NPAT loss of $3.36m was incurred. The business has continued to innovate and invest in its products, and this increases the size of our addressable market and lays the foundation for ongoing growth in years to come The RapidID identity verification service had a 13% reduction in revenue as a result of the reduction in demand from cryptocurrency clients. These were a significant proportion of RapidID revenue in FY22 but are now less significant as new clients have been added. Xref generated positive operating cash flow of $0.5m, however, $4.5m of cash was invested in developing new capability (including $1.5m to acquire Voice Project and $2.5m on product development). These investments plus financing costs led to our cash balance for the year reducing from $11.67m to $6.83m. In the year ahead, we will continue to innovate and invest in product development, however, we aim to scale that investment to match the growth in revenue so as to maintain a cash buffer. In addition, in order to give the Company more options for growth, we aim to extend or replace the current debt facility. While Xref has already established a leading global position in reference checking, further development of product features are needed to ensure ongoing total addressable market expansion. Therefore, we will prioritise completing this development before investing further in USA expansion. 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. Tom Stianos Chairman Xref Limited | Annual Report 2023 | 5 Chief Executive Officer’s Report ● Xref Enterprise Platform, which includes the Reference, Pulse and Exit survey products and now has over 1,000 users; ● Survey Builder, a feature of the Enterprise Platform which has already allowed users to custom-build over 500 surveys; and ● Xref Engage (previously known as Voice Project), which is now integrated with the Xref Enterprise Platform and will be introduced to users worldwide as part of an aggressive go-to- market strategy during FY24. FY2023 Results Summary Group sales of $21.3m were up 2.2% and revenue of $20.4m was up 10% on FY22. The focus in FY23 was transitioning clients to the new Enterprise Platform and the SaaS business model. As a result, Annual Recurring Revenue (ARR) grew to $5.6m at June 2023 which included both migrated clients from Xref Recruiter and newly won Enterprise Platform clients. An operating cash surplus of $0.5m was generated. Xref cash was invested in the $1.5m payment for the acquisition of Voice Project, a $2.5m investment into product development and $3.3m in related support activities. User Activity and Customer Satisfaction Despite the weaker market conditions references taken by Xref clients grew 5% and the number of net new clients grew 9% when compared to FY22. Xref now has over 16,000 active users across its three platforms, up 8% when compared to FY22. These users are part of 2,618 active accounts which grew 7% in FY23. Half of Xref’s active users have been with Xref for more than 3 years with a further 15% joining in FY23, demonstrating Xref’s client retention and global credibility and market standing. In June 2023, Xref conducted a customer survey which resulted in a 92% satisfaction score as well as an overall Net Promoter Score (NPS) of +35. FY23 was a year of retention and transformation while Xref endured tough global economic conditions. During the year Xref launched numerous revenue-focused platforms, products and features, transitioned successfully to a SaaS business model, commenced marketing via a new website, acquired Voice Project, and won over 160 new enterprise clients. Xref has established a global leadership position in automated applicant reference checking. Last year, Xref launched its Exit Survey product, and following the acquisition of Voice Project, it launched its Pulse and Engagement Survey offerings to complete the hire-to-retire product portfolio. Acquisition The acquisition of Voice Project, completed in January 2023, created an opportunity for cross-selling by giving Voice Project’s 900 plus clients access to Xref’s complementary services and offering Voice Project’s services to Xref’s 1,300 enterprise clients and 15,000 users. Furthermore, the Voice Project acquisition provided the foundation for the launch into Pulse and Engagement surveys and it is expected to add $4 million in revenue in a full year. Most importantly, the Voice Project acquisition accelerated Xref’s product strategy and growth potential. As Xref integrates the Voice Project portal, into Xref’s platform, employers will have access to its comprehensive suite of market-leading surveys and they will be able to view every single piece of information about a candidate, employee, or ex-employee in one place, and identify actionable insights. Product Innovation Xref invested considerable time and resources into product development during the year and successfully delivered key milestones in its product strategy. These have included the launch of: 6 | Xref Limited | Annual Report 2023 During the year 1,000 users across 160 accounts joined the new Xref Enterprise Platform, launched in October 2022, and 94% of all newly won clients chose Xref Enterprise over Xref Recruiter. 47 key accounts also migrated from Xref Recruiter to Enterprise during the financial year in order to access the new products and features. Pleasingly, North America now represents 18% of the Group's active users, 21% of references requested and 34% of the Pulse Surveys already launched demonstrating the demand from this important region for future growth. The adoption of our new survey products, Pulse and Exit, was encouraging with over 3,000 Exit Surveys launched during the year as well as 50 new Pulse Surveys, in the 4 weeks since its launch in May 2023. There was strong client adoptions of all products within the Enterprise Platform and are now building insights across the entire hire-to-retire journey by using Reference, Pulse and Exit simultaneously. Xref Engage also sent 174,000 surveys during the year on behalf of 212 existing and 57 new clients. The Xref sales and marketing teams are now executing a go- to-market strategy to introduce Xref Engage to all Xref’s global users. . Channel Partnerships and Integration Revenue Xref now has 31 channel partners with direct integrations into their applicant tracking systems (ATS) such as Bullhorn, Oracle or Workday and 29% of active customers use Xref via integration with an ATS. In FY23 37% of reference requests were made via an integration and represented 30% of revenue from reference checking. Clients using Xref via an integration grew 22% in FY23 to 504 despite overall reference requests remaining flat for the year. This demonstrates that despite recruitment being slower, clients and channel partners continue to see the value in integrating Xref into their business-critical systems Employee Engagement There are now 114 employees in the Group, this has grown through Voice Project acquisition and organically during the year without the use of external recruiters and relying purely on Xref’s strong employer brand. Overall employee retention remained at 87% and in May 2023 a company-wide employee engagement survey returned an overall engagement score of 81%. In order to further drive engagement, Xref launched meaningful employee initiatives such as a revised ESOP, better internal processes and policies including our new industry-leading parental leave policy, targeted training budgets, and multiple health and well-being initiatives. During the year Xref also announced its excellent gender and equality statistics and details of these can be seen in the recently released investor snapshot. Outlook During FY24 Xref will continue to focus on executing its product innovation strategy, delighting its customers and rewarding and retaining its employees. By leveraging its current clients Xref will increase share of wallet by offering its extended services and continue to attract new clients to increase revenue growth. Xref will measure its progress against these strategic priorities by building on the following opportunities: Xref Enterprise: With a much larger addressable market and aggressive go-to-market strategy, we expect the enterprise platform will have an opportunity to grow revenue over time by migrating current clients to Xref Enterprise and continuing to attract new clients. During FY24 Xref intends to increase the expected growth of Reference requests, Pulse Surveys, Exit Surveys, and thereby increase its ARR. CEO’s Report A typical client now has the opportunity to extend their use of Xref past recruitment, which tends only to be 15% of their business, to cover 100% of their employees with Pulse and a further 10% of exiting employees, helping to recruit, retain and remember their talent. Xref Engage (formerly Voice Project) collected feedback from 174,000 employees across 271 key clients last year. Now integrated to Xref we have the opportunity to introduce Engage across 2,100 accounts which represent at least 6 million employees. Xref intends to grow surveys taken, new clients, and revenue as a result. Trust Marketplace: As we increase the number of background checking vendors in the Marketplace (such as the newly signed Certn) we will, in turn, integrate those checks via Trust Marketplace into Xref Enterprise. This presents an opportunity to introduce all global customers to a suite of checking services that we have not been able to offer before. 12,000 background checks were consumed via Xref Recruiter last year which demonstrated the demand from clients to have all feedback, including background verifications in one place. The average margin for Trust Marketplace is 42% due to the majority of checks being for Identity and via the government document verification service (DVS). It is expected that as vendors and checks grow the margin will increase. Xref intends to share news about new partners, when the integration to Xref Enterprise is complete, margin growth and the increase in checks taken. There are also cost strategies in place to offset expected expense growth in FY24 such as reducing marketing spend, relying on self- service features, extending the development team overseas and improving internal processes in a more efficient way. Despite the tough global economic conditions, we remained resilient, and persevered with our strong focus on product innovation whilst keeping costs at an optimal level. With proven demand for our product, successful completion of the hire-to-retire strategy and the conversion to a SaaS business model, Xref elevates to a new level of competitiveness. We thank you for your support and we look forward to continue delivering on our future growth initiatives and company vision. Lee-Martin Seymour, Founder & Chief Executive Officer, Xref Limited | Annual Report 2023 | 7 8 | Xref Limited | Annual Report 2023 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 2023. 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 • Lee-Martin Seymour • Nigel Heap • Lija Wilson (resigned 18 July 2023, effective 31 July 2023) 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. Operating and Financial Review The loss for the Group after providing for income tax amounted to $3,359,340 (30 June 2022: profit $729,575). Review of Operations FY23 was a year of retention and transformation. During the year Xref launched numerous revenue-focused platforms, products and features, transitioned successfully to a SaaS business model, launched a new website, acquired Voice Project, and won over 160 new enterprise clients. Xref increased investment into product innovation, employees, internal system efficiencies and strategies for long-term market awareness in preparation for the next stage of its growth when the market recovers. Xref also continued to display strong levels of staff engagement and client satisfaction and has demonstrated the ability to innovate whilst balancing costs and short-term cash flow in a demanding economic climate. Xref has invested considerable time and resources into product development during the year and has successfully delivered on key milestones in its product strategy. These have included the launch of: • a new billing system that allows clients to join Xref on a traditional SaaS subscription model and this has helped build ARR 430% to $5.6m since its launch in October 2022. This in turn decouples revenue recognition from recruitment or seasonal trends and allows Xref to forecast more accurately; • Xref Enterprise Platform which includes the Reference, Pulse and Exit survey products and now has over 1,000 users; • Survey Builder, a feature of the Enterprise platform, which has allowed users to custom-build over 500 surveys; and • Xref Engage(previously known as Voice Project) is now integrated with the Xref Enterprise Platform and will be introduced to users worldwide as part of an aggressive go-to-market strategy in FY24. During the year, Xref focused on transitioning clients to the new Enterprise Platform under SaaS subscription agreements. This included both migrated clients from Xref Recruiter and newly won Enterprise Platform clients. The Xref Enterprise, Trust Marketplace and Xref Engage platforms have provided the ability to build and launch integrated products such as Exit and Pulse Surveys and the ability to integrate all three with the goal of creating a best-in-class, hire-to-retire, feedback platform. Review of Financial Performance As a result of the above operating and investment decisions, financial results for the year were a net loss of $3.36m, returning an underlying negative EBITDA of $1.4m (positive EBITDA of $1.77m in FY22) and cash generated from operations of $0.5m ($4.6m in FY22). Group sales growth was 2.6%, and group revenue growth was 10% year on year. A part of this growth was due to the acquisition of Voice Project, which added $1.8m to headline revenue since its acquisition on 3 January 2023. Sales from Xref and Trust Marketplace were, however, down 5% and 14% respectively when compared to FY22 due mainly to the difficult global economic environment and its impact on hiring. Xref Limited | Annual Report 2023 | 9 Total operating expenses grew 29% due to increases in strategic expenditure in the following key areas: • Voice Project - incurred $1.3m in costs to the Group since acquisition; • headcount increased by 42 to 114 full-time employees, 15 from the acquisition of Voice Project, 15 for the development team (of which 5 are based in Pakistan) and the remaining 12 were recruited across the operations, marketing and sales teams. Total salaries for the group were $13.9m before capitalisation of $2.2m related to software development projects delivered throughout the year; • marketing expenses increased by $0.8m to drive lead flows, launch the new products, and the new Xref website; and • other expenses like rent, subscriptions and platform costs increased 34% to $3.3m to support the services required for the extended platform architecture, Voice Project and general inflationary cost increases. The increase in expenditure was in line with the budget and was part of Xref’s planned investment to enable future profitable growth. Likely developments, business strategies and prospects During FY24 Xref will continue to focus on executing its product innovation strategy, delighting its customers and rewarding and retaining its employees. By leveraging its current clients it will increase share of wallet by offering its extended services and continue to attract new clients to increase revenue growth. As Xref progresses development during FY24, it will focus on the features offered in its platforms as well as deeper integrations between systems and with channel partners. At the same time, Xref will focus on cost efficiencies and maximising recurring revenue to build a pathway to sustainable and growing profit. Xref will measure its progress against these strategic priorities by reporting on the following opportunities: • Xref Enterprise: With a much larger addressable market and aggressive go-to-market strategy, we expect the enterprise platform will have an opportunity to grow revenue over time by migrating current clients to Xref Enterprise and continuing to attract new clients. Xref intends to increase the expected growth of Reference requests, Pulse Surveys, Exit Surveys, and thereby increase its ARR in FY24. A typical client now has the opportunity to extend their use of Xref past recruitment, which tends to be 15% of their business and across 100% of their employees with Pulse as well as a further 10% of exiting employees, helping to recruit, retain and remember their talent. • • Xref Engage(formerly Voice Project): Xref Engage collected feedback from 174,000 employees across 271 key clients last year. Now integrated to Xref, we have the opportunity to introduce Engage across 2,100 accounts which represent at least 6 million employees and presenting opportunities for revenue synergies via cross sales, to grow surveys taken, expand client base and contract values, positively impacting revenue as a result. Trust Marketplace: As we increase the number of background checking vendors in the Marketplace (such as the newly signed Certn) we will, in turn, integrate those checks via Trust Marketplace into Xref Enterprise. This presents an opportunity to introduce all global customers to a suite of checking services that we have not been able to offer before. 12,000 background checks were consumed via Xref Recruiter last year which has demonstrated the demand by our clients to have all feedback, including background verifications in one place. The average margin for Trust Marketplace is 42% due to the majority of checks being for Identity and via the government document verification service (DVS). It is expected that as vendors and checks grow the margin will increase. Xref intends to share news about new partners, when the integration to Xref Enterprise is complete, margin growth and the increase in checks taken. • Employee Engagement & Customer Satisfaction: Having now conducted both an employee engagement survey and a customer satisfaction survey, Xref will pulse these results throughout the year and via another full Engagement and Satisfaction survey in May 2024 which will benchmark the feedback as part of next year's results. • Expense Management: Approximately two thirds of Xref’s expenses relate to headcount and this expense is expected to increase in FY24 as a result of the increase in headcount in FY23 and wage and salary inflation. Current monthly salaries for the Group as of July 15th are $1.3m and are forecast to total $16m in FY2024. To partially offset this expense growth, Xref will focus on other cost efficiencies including: • Targeting a reduction in marketing spend by 39%, as Xref focuses on the growth of current clients by expanding their use of the platform and migrating them to subscription agreements; • An increase of self-service features removing the need to increase support headcount; • Complementing our Australian development team with the offshore team extension in Pakistan; • • Keeping travel and event costs to a minimum; and • Increasing the speed to market of revenue-generating product initiatives. Improved internal systems including billing, revenue recognition, performance reporting and talent management; In addition, in order to give the Company more options for growth, we aim to extend or replace the current debt facility. 10 | Xref Limited | Annual Report 2023 Significant changes in the state of affairs In the opinion of the directors, a significant change in the state of affairs of the Group that occurred during the financial year under review was the strategic acquisition of Voice Project Pty Limited (VP) on 03 January 2023. This acquisition enhances the Group’s product position and expands its total addressable market in the global hire-to-retire market, by filling a niche product opportunity gap in its suite of products and is a significant business in Australia within the Group’s target market. The cost of acquisition was $3.6m; $2.1m in cash, and $1.5m in future allocation of shares contingent on future EBITDA and other performance-related covenants. An employee engagement mapping survey company, VP significantly enhances Xref’s hire-to-retire suite of products by adding a key capability to map an employee’s engagement journey throughout a period of employment providing invaluable insights to people managers and management teams. Xref has diligently worked on integrating VP into the fabric of its business to accelerate synergies to be extracted from this acquisition, and has successfully achieved the following milestones to this end, as on the date of this report - Integration as a distinct business division, and as a reportable operating segment • Rebranding as Xref Engage • • Uniformity in accounting policies and aligning with corporate group policies and processes • Migration onto Xref’s management and financial reporting platforms • Supported by Xref corporate, marketing and development teams to help achieve its growth vision Events arising since the end of the reporting period On the 18 July 2023, Mrs. Lija Wilson resigned as Non-Executive Director of the company effective on 31 July 2023. The board wishes to acknowledge her contribution to Xref as director, and as member of the Remuneration and Nomination Committee, and the Audit and Risk Committee respectively. Since her appointment to the board on the 2 June 2021, Lija has been a valued member whose guidance and contribution were invaluable. The board is thankful and wishes her all the best for her future endeavours. No other matter or circumstances have arisen since the end of FY23, which could have had a notable impact on operations. Environmental regulation The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. Information on directors Name: Title: Qualifications: Experience and expertise: Thomas Stianos Non-Executive Chairman B. App Sc 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. He 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 (FAICD) Date of appointment as a director 14 October 2021 Other current directorships: Former directorships (last 3 years) Chairman of Soco Limited (ASX:SOC), Non-Executive director of Gale Pacific Limited (ASX:GAP), Chairman of Escient Non-Executive director of Inabox Group Limited, Chairman of Empired Limited (ASX:EPD) Special responsibilities: Chairman of the Remuneration & Nomination Committee and Member of the Audit & Risk Committee Interests in shares: Interests in options: Contractual rights to shares: 200,000 1,800,000 None Xref Limited | Annual Report 2023 | 11 Name: Title: Qualifications: Experience and expertise: Date of appointment as a director Lee-Martin Seymour Managing Director and Chief Executive Officer None Lee-Martin Seymour is the 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. 18 January 2016 Other current directorships: None Former directorships (last 3 years): Special responsibilities: Interest in shares: Interests in options: Contractual rights to shares: Name: Title: Qualifications: Experience and expertise: None Member of the Remuneration & Nomination Committee (appointed 14 August 2023) Member of the Audit & Risk Committee (appointed 14 August 2023) 31,730,108 None None Nigel Heap Non-Executive Director LLB, AMP Nigel has been a non-executive director at Xref since 2016 and is Chairman of the Audit & Risk Committee. He has 34 years of experience in the recruitment industry and spent his career at Hays PLC, one of the world’s largest recruitment companies. Nigel joined Hays UK in 1988 as a trainee consultant. By 1997, he was Managing Director of Hays Australia, and consequently expanded operations to New Zealand, Hong Kong, China, Japan, Singapore and Malaysia. This led to his appointment as Managing Director of Asia Pacific. In 2012 he was appointed UK & Ireland Managing Director and Chairman of the Asia Pacific business and in 2017 Nigel was appointed Managing Director of 12 countries in the EMEA region. Nigel was also a member of the Management Board for many years until he left Hays in 2022 Date of appointment as a director 18 August 2016 Other current directorships: Former directorships (last 3 years): None None Special responsibilities: Chairman of the Audit & Risk Committee and Member of the Remuneration & Nomination Committee Interests in shares: Interests in options: Contractual rights to shares: 32,103 900,000 None 12 | Xref Limited | Annual Report 2023 Name: Title: Qualifications: Experience and expertise: Lija Wilson Non-Executive Director BCom 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 Date ceased to be a director 31 July 2023 Other current directorships: None Former directorships (last 3 years): Special responsibilities: Interests in shares: Interests in options: Contractual rights to shares: None Member of the Remuneration & Nomination Committee (ceased 31 July 2023) Member of the Audit & Risk Committee (ceased 31 July 2023) None 900,000 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. Key Management Personnel Chief Financial Officer / Chief Operating Officer James Solomons, BCom, FCA, CTA, GAICD James is a chartered accountant with over 22 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 bringing 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 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. In a prior role, she was a major corporate client manager at Sqware Peg, and also an IT&T Project Manager for recruitment specialists Hays. Company Secretary Robert Waring, BEc, ACA, FCIS, ASIA, FAICD Robert has more than 44 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. Xref Limited | Annual Report 2023 | 13 Meetings of directors The number of meetings of the company’s Board of Directors and of each Board committee held during the 2022-23 financial year, and the number of meetings attended by each Director were as follows: Board meetings held 14 Attended 14 14 14 14 Audit and Risk Committee meetings held 3 Attended 3 N/A 3 3 Remuneration and Nomination Committee meetings held 2 Attended 2 N/A 2 2 Disclosure Committee meetings held 0 Attended - - N/A N/A Directors Thomas Stianos * Lee-Martin Seymour Nigel Heap ** Lija Wilson * Chairman of the Remuneration & Nomination Committee ** Chairman of the Audit and Risk Committee. The Board has a Disclosure Committee, which meets as and when required to approve announcements when the full Board is not available for this purpose. It was not required to meet this past year. 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 people who have 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 14 | Xref Limited | Annual Report 2023 • attracting and retaining high calibre executives • increasing return on assets as well as focusing the executive on key non-financial drivers of value 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 23rd 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 an increase in shareholder value relative to the entire market and the increase compared to the Group’s direct competitors. 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: • Thomas Stianos - Non-Executive Chairman • Lee-Martin Seymour - Managing Director & Chief Executive Officer • Nigel Heap - Non-Executive Director Xref Limited | Annual Report 2023 | 15 • Lija Wilson - Non-Executive Director • James Solomons – Chief Financial Officer / Chief Operating Officer • Sharon Blesson – Chief Technology Officer • Robert Waring – Company Secretary Short-term benefits Post- employment benefits Long-term benefits Share-based payments Cash salary and fees $ 110,000 55,000 55,000 2023 Non-Executive Directors: Thomas Stianos Nigel Heap Lija Wilson Executive Directors: Lee-Martin Seymour 379,572 Other Key Management Personnel: James Solomons Sharon Blesson Robert Waring 353,208 354,433 84,203 1,391,416 Cash bonus $ Non- monetary $ Super- annuation $ Long service leave $ Equity- settled shares $ Equity- settled options $ Total $ - - - - - - - - - - - 11,550 5,775 5,775 - 28,428 - - - - 27,865 27,994 - 107,387 - - - - - - - - - - - - - - - - - - - 121,550 60,775 60,775 - - 408,000 - 25,050 406,123 25,050 407,477 62,550 146,753 112,650 1,611,453 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 $ Total $ 2022 Non-Executive Directors: Thomas Stianos* Nigel Heap Lija Wilson Brad Rosser** Executive Directors: 73,333 55,000 55,000 68,744 - - - - - - - - 7,333 5,500 5,500 - Lee-Martin Seymour 320,216 83,363 - 26,034 Other Key Management Personnel: James Solomons 340,135 35,000 Sharon Blesson Robert Waring 293,216 93,025 87,877 - 1,293,521 211,388 - - - - 27,637 24,284 - 96,288 * Represents remuneration from 14 October 2021 to 30 June 2022 ** Represents remuneration from 01 July 2021 to 26 November 2021 16 | Xref Limited | Annual Report 2023 - - - - - - - - - - - - - - - - - - 540,000 620,666 270,000 330,500 350,606 411,106 - 68,744 - - 429,613 - 402,772 410,525 87,877 - - - 1,160,606 2,761,803 The proportion of remuneration linked to performance and the fixed proportion are as follows: Name Non-Executive Directors: Thomas Stianos Nigel Heap Lija Wilson Brad Rosser * Executive Directors: Lee-Martin Seymour Other Key Management Personnel: James Solomons Robert Waring Sharon Blesson * Ceased to be a director on 26 November 2021 Service agreements Fixed remuneration 2022 2023 At risk - STI 2023 2022 At risk - LTI 2023 2022 100% 100% 100% - 100% 100% 100% 100% 100% 80.60% 100% 100% 100% 91.31% 100% 77.34% - - - - - - - - - - - - - 19.40% - 8.69% - 22.66% - - - - - - - - - - - - - - - - - - - - Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Lee-Martin Seymour Title: Agreement commenced: Term of agreement: Details: Managing Director and Chief Executive Officer 1 July 2022 No fixed term Base salary for the year ending 30 June 2023 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. Name: James Solomons Title: Agreement commenced: Term of agreement: Details: Chief Financial Officer & Chief Operating Officer 1 July 2022 No fixed term Base salary for the year ending 30 June 2023 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. Name: Sharon Blesson Title: Agreement commenced: Term of agreement: Details: Chief Technology Officer 1 July 2022 No fixed term Base salary for the year ending 30 June 2023 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. Xref Limited | Annual Report 2023 | 17 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 2023 and 30 June 2022 are set out below: Name Thomas Stianos Lee-Martin Seymour Nigel Heap Lija Wilson Brad Rosser * James Solomons Sharon Blesson Robert Waring *Ceased to be a director on 26 November 2021 Options granted carry no dividend or voting rights No. of Shares Granted 2023 No. of Shares Granted 2022 - - - - - - - - - - - - - - - - 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. Number 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 2023 are set out below: Name Thomas Stianos Nigel Heap Lija Wilson James Solomons Sharon Blesson Robert Waring Number of Options Granted during the year Number of Options Vested during the year 2023 - - - 105,000 105,000 355,000 2022 1,800,000 900,000 - - - - 2023 600,000 300,000 300,000 - - - 2022 600,000 300,000 300,000 3,050,000 2,711,111 - Details regarding the exercise price and valuation of the above options can be found in note 25. 18 | Xref Limited | Annual Report 2023 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 Received as part start of the year of remuneration Additions Disposals/ other Balance at the end of the year Ordinary shares Thomas Stianos Nigel Heap Lee-Martin Seymour James Solomons Sharon Blesson Robert Waring Option holding - 32,103 31,730,108 400,000 500,000 276,350 32,938,561 - - - - - - - 200,000 - - - - - - - - (386,043) (150,000) - 200,000 32,103 31,730,108 13,957 350,000 276,350 200,000 (536,043) 32,602,518 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 theyear Granted Exercised Expired/ forfeited/other Balance at the end of the year Options over ordinary shares Thomas Stianos Nigel Heap Lija Wilson James Solomons Sharon Blesson Robert Waring 1,800,000 900,000 900,000 3,050,000 2,711,111 54,257 9,415,368 - - 105,000 105,000 355,000 565,000 - - - - - - - - - (750,000) (300,000) (20,714) (1,070,714) 1,800,000 900,000 900,000 2,405,000 2,516,111 388,543 8,909,654 Payments for company secretarial services from Oakhill Hamilton Pty Ltd (related entity of Robert Waring of $84,203 (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. Xref Limited | Annual Report 2023 | 19 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. Non-audit services There were no non-audit services provided during the financial year by the auditor as outlined in Note 9 to the financial statements. 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 28 August 2023 Sydney Thomas Stianos Chairman 28 August 2023 Sydney 20 | Xref Limited | Annual Report 2023 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 28 August 2023 The Board of Directors Xref Limited Suite 13, 13 Hickson Road Dawes Point NSW 2000 Dear Board Members 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 period ended 30 June 2023, 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 Some of the Crowe personnel involved in preparing this document may be members of a professional scheme approved under Professional Standards Legislation such that their occupational liability is limited under that Legislation. To the extent that applies, the following disclaimer applies to them. If you have any questions about the applicability of Professional Standards Legislation Crowe’s personnel involved in preparing this document, please speak to your Crowe adviser. 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 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 © 2023 Findex (Aust) Pty Ltd Xref Limited | Annual Report 2023 | 21 Financial Statements Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2023 Revenue Cost of sales Gross profit Finance costs Employee expenses Overhead and administrative expenses Share based payments Depreciation Impairment and amortisation Total expenses Operating profit/(loss) Other income Profit/(loss) before income tax expense Income tax expense Profit/(loss) 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/(loss) for the year, net of tax Total comprehensive income/(loss) for the year attributable to the owners of Xref Limited Earnings/(loss) per share for profit from continuing operations attributable to the owners of Xref Basic earnings/(loss) per share Diluted earnings(loss) per share Consolidated 2023 $ 2022 $ Note 8 20,398,912 18,591,434 (3,252,179) (3,674,245) 17,146,733 14,917,189 (616,678) (11,834,421) (5,192,741) (1,605,954) (509,261) (856,725) (576,497) (8,746,212) (3,757,160) (767,885) (261,816) (212,581) (20,615,780) (14,322,151) (3,469,047) 595,038 127,924 (3,341,123) (18,217) 134,537 729,575 - (3,359,340) 729,575 - (290,918) (290,918) - (90,451) (90,451) (3,650,258) 639,124 (cents) (1.81) (1.81) (cents) 0.40 0.36 9 10 10 8 11 27 27 The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 22 | Xref Limited | Annual Report 2023 Statement of financial position As at 30 June 2023 Assets Current assets Cash and cash equivalents Trade and other receivables Contract assets Prepayments Total current assets Non-current assets Financial assets Property, plant and equipment Right of use asset Intangibles Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Financial liabilities Employee benefits Contract liabilities Other liabilities Total current liabilities Non-current liabilities Financial liabilities Employee benefits Contract liabilities Other liabilities Total non-current liabilities Total liabilities Net assets/(liabilities) Equity Issued capital Reserves Retained earnings Total equity Consolidated 2023 $ 2022 $ Note 12 13 14 15 16 17 18 19 20 21 22 23 20 21 22 23 24 25 6,835,478 2,774,414 1,149,378 906,904 11,673,989 1,892,011 1,211,830 715,716 11,666,174 15,493,546 624,777 638,972 528,489 9,440,498 11,232,736 55,070 229,991 321,282 4,073,676 4,680,019 22,898,910 20,173,565 2,448,524 1,816,991 849,871 1,048,797 554,749 634,218 12,225,903 11,064,908 812,000 - 17,385,095 14,070,866 4,482,469 323,399 225,469 685,000 4,405,732 224,785 - - 5,716,337 4,630,517 23,101,432 18,701,383 (202,522) 1,472,182 55,470,213 55,100,613 (20,742,001) (21,492,803) (34,930,734) (32,135,628) (202,522) 1,472,182 The above statement of financial position should be read in conjunction with the accompanying notes. Xref Limited | Annual Report 2023 | 23 Statement of Changes in Equity For the year ended 30 June 2023 Consolidated Issued capital Warrants $ $ Share option reserves $ Foreign currency translation Consolidation reserve $ reserve $ Retained Earnings $ Total $ Balance at 1 July 2022 55,100,613 308,571 1,596,643 (552,196) (22,845,821) (32,135,628) 1,472,182 Loss after income tax expense for the year Other comprehensive income/(loss) for the year Total comprehensive income/(loss) for the year - - - Transactions with owners in their capacity as owners Shares issued during the year 369,600 Options exercised Options issued Options lapsed Options expired Warrants exercised - - - - - - - - - - - - - - - - - - - 1,605,954 (79,399) (484,835) - - - (3,359,340) (3,359,340) (290,918) - - (290,918) (290,918) - (3,359,340) (3,650,258) - - - - - - - - - - - - - - - 369,600 - 1,605,954 79,399 484,835 - - - - Balance at 30 June 2023 55,470,213 308,571 2,638,363 (843,114) (22,845,821) (34,930,734) (202,522) For the year ended 30 June 2022 Consolidated Issued capital Warrants $ $ Share option reserves $ Foreign currency translation Consolidation reserve $ reserve $ Retained Earnings $ 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 expense for the year Other comprehensive income/(loss) for the year Total comprehensive income/(loss) for the year Transactions with owners in their capacity as owners Shares issued during the year Options exercised Options issued Options lapsed Options expired - - - 60,000 15,240 - - - - - - - - - - - - - - - (1,240) 767,885 (110,406) (1,041,626) Warrants exercised 1,077,143 (77,143) - - (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 24 | Xref Limited | Annual Report 2023 Statement of cash flows For the year ended 30 June 2023 Cash flows from operating activities Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Net cash provided by operating activities Cash flows from investing activities Payment for intangibles Payment for business acquisitions, net of cash acquired Payment for acquisition transaction costs 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 Repayment of financial liabilities Net cash provided by / (used in) financing activities Net increase/(decrease) in cash and cash equivalents held Cash and cash equivalents at beginning of year Consolidated 2023 $ 2022 $ Note 29 32 22,981,974 21,070,575 (22,587,037) (16,453,354) 59,465 454,402 5,739 4,622,960 (2,515,407) (1,474,475) (238,100) (112,120) (1,410,675) - - (50,075) (4,340,102) (1,460,750) - - (527,812) (425,000) (952,812) 1,000,000 14,000 (182,779) (450,514) 380,707 (4,838,511) 11,673,989 3,542,917 8,131,072 Cash and cash equivalents at end of financial year 12 6,835,478 11,673,989 The above statement of cash flows should be read in conjunction with the accompanying notes Xref Limited | Annual Report 2023 | 25 Notes to the financial Statements Note 1. Reporting Entity Xref Limited is a limited liability company (limited by shares) 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 global HR technology company that automates pre-employment recruitment checks, retention feedback surveys, and exit interviews. 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. c. 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. 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. These policies have been consistently applied to all the years presented, unless otherwise stated. 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 34. 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. 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; 26 | Xref Limited | Annual Report 2023 » 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. 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. Xref Limited | Annual Report 2023 | 27 e. Contract assets 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 Unsatisfied performance obligations associated with the unearned revenue balance for Xref and RapidID are expected to be satisfied within 12 months from the date of the balance sheet. Unearned revenue for Voice Project has a proportion where the platform subscription does not begin until post year end and will continue to be recognised through to the following financial year. It will however be recognised within 12months of when the platform subscription starts. This is the value making up the non-current component. Under Xref’s candidate referencing & exit surveys business model, clients can purchase Xref credits to use our candidate referencing platform or they can take out a 12-month subscription which contains a profile cap to undertake candidate referencing or exit surveys which must be used within the 12-month subscription period. Unused profiles do not role forward to the following year. Where a client purchases credits in advance, the value of the deal is added to unearned revenue when the client has paid. 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 invoices are the ‘conditional credits’ represented in Note 22 and represents trade debtors (less goods & services tax). Where a client has purchased a subscription, the value of the deal is added to unearned revenue when the contract begins and this can be before or after payment and so ‘conditional credits’ exist for subscription related deals 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. 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 28 | Xref Limited | Annual Report 2023 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. 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 (Capitalised development costs): 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, software acquired in business combinations are amortised over the assessed period of their expected benefit, being their finite life of 5 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. Significant costs associated with acquisition of intellectual property rights in business combinations are amortised over an assessed finite useful life of 5 years. Brand Names Significant costs associated with acquisition of brand assets in business combinations are amortised over an assessed finite useful life of 5 years. Customer Relationships Xref Limited | Annual Report 2023 | 29 Significant costs associated with acquisition of customer relationship assets acquired in business combinations are amortised over an assessed finite useful life of 7 years. Goodwill Goodwill arises on the acquisition of a business. Goodwill is not amortised; it is instead tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. 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. 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 30 | Xref Limited | Annual Report 2023 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. 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 Xref Limited | Annual Report 2023 | 31 ‘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 three main sources of Sales. The provision of candidate referencing services via the sale of credits & subscriptions through Xref, the sale of ID verification checks through RapidID and the provision of engagement surveys through Xref Engage (Voice Project) Revenue Recognition For Xref sales, there are two revenue recognition events. When a customer uses a credit the service has been performed and the revenue is recognised at the point in time when the customer uses the service. Or if the customer has purchased a subscription to the Xref platform, revenue is recognised over the life of the contract. For RapidID sales, when customers request a Check and it is performed the service has been delivered. Revenue is recognised at the point in time when the customer uses the service. For Voice Project sales, a customer will subscribe to the platform for 12 months to deliver and view results of engagement surveys over the contracted subscription period. Revenue for the subscription component is recognised over the life of the contract. During the course of the contracted service period, consultants will assist customers to design and deliver engagement surveys and provide back results & analysis to the customer. Revenue is recognised as these services are delivered. 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. Other income Other revenue is recognised when it is received or when the right to receive payment is established. 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. 32 | Xref Limited | Annual Report 2023 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. 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. y. Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued, or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity’s operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Where the business combination is achieved in stages, the consolidated entity remeasures its previously held equity interest in the acquiree at the acquisition-date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss. Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. The difference between the acquisition-date fair value of assets acquired, liabilities assumed and any non-controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition-date, but only after a reassessment of the identification and measurement of the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Xref Limited | Annual Report 2023 | 33 z. Going concern The financial report shows that a loss of $3,359,340 (2022: a profit of $729,575) has been incurred. There is also a deficiency of net current assets of $5,718,921 (2022: positive net assets of $1,422,680) and a deficiency of net assets of $202,522 (2022: positive net assets of $1,472,182). The financial report has been prepared on the going concern basis which assumes that the company will be able to meet its commitments, realise its assets and discharge its liabilities in the ordinary course of business. This basis has been adopted by the directors of the company as they have; • Prepared a cash flow forecast for the period to September 2024 which indicates that they would be able to meet their obligations and repay the debt facility at maturity which is 4 August 2024. In addition, in order to give the Company more options for growth, the directors may look to extend or replace the current debt facility • Met all covenants pertaining to the debt facility since drawdown. The directors are confident that the covenants will continue to be met. • Post year end and up to 28 August 2023, the unaudited management accounts show that the business results are consistent with the forecast. The directors therefore remain confident that the achievement of their forecast will continue to September 2024. Given the Directors expectations, the financial statements have been prepared on the going concern basis which contemplates that the business will continue as normal and therefore realise its assets and extinguish its liabilities in the normal course of business. aa. Fair value measurement When an asset or liability, financial or non-financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market. Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non-financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Assets and liabilities measured at fair value are classified into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are reviewed at each reporting date and transfers between levels are determined based on a reassessment of the lowest level of input that is significant to the fair value measurement. For recurring and non-recurring fair value measurements, external valuers may be used when internal expertise is either not available or when the valuation is deemed to be significant. External valuers are selected based on market knowledge and reputation. Where there is a significant change in fair value of an asset or liability from one period to another, an analysis is undertaken, which includes a verification of the major inputs applied in the latest valuation and a comparison, where applicable, with external sources of data. 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 2023. 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. 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, 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 34 | Xref Limited | Annual Report 2023 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 18 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. 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 the 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. Further details are in note 11. Research and development refundable tax offset There were no research or developments costs identified in the group in 2023 that qualified for any government Research & Development Tax Xref Limited | Annual Report 2023 | 35 Offsets. Fair value measurement hierarchy The consolidated entity is required to classify all assets and liabilities, measured at fair value, using a three-level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability Considerable judgement is required to determine what is significant to fair value and therefore which category the asset or liability is placed in can be subjective. The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs. Refer to note 30 for further information. Note 6. Group Information The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiary in accordance with the accounting policy described in note 3: Name Xref Limited Xref (AU) Pty Limited Xref Engage Pty Limited* Rapid ID Pty Limited TMP Digital Verifications Pty Limited** Voice Project Pty Limited*** Xref (UK) Limited Xref Referencing (CA) Limited Xref LLC Xref (NZ) Limited Rapid ID Limited * Established 13 December 2022 ** Established 31 August 2022 *** Acquired 3 January 2023 Principal place of business/ Country of incorporation 2023 % Australia Australia Australia Australia Australia Australia United Kingdom Canada United States New Zealand New Zealand 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 2022 % 100.00 100.00 - 100.00 - - 100.00 100.00 100.00 100.00 100.00 36 | Xref Limited | Annual Report 2023 Note 7. Operating segments Identification of reportable operating segments The consolidated entity is organised into three operating segments based on products and services sold: candidate referencing, ID verification and engagement surveys. 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 three business segments. Products and services The principal products and services of each of these operating segments are as follows: Xref Rapid ID Candidate referencing ID verification Xref Engage (formerly Voice Project) Engagement surveys Intersegment transactions 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 2023 | 37 Operating segment information Revenue Revenue from external customers 16,018,222 2,620,628 1,760,062 20,398,912 Consolidated 2023 Candidate referencing $ ID Engagement verification $ Surveys $ Total $ Intersegment sales Total sales revenue Other revenue Total segment revenue Intersegment eliminations Non trading revenue: Interest revenue Total revenue EBITDA Depreciation and amortisation Interest revenue Finance costs Profit before income tax expense Income tax expense 660 - - 660 16,018,882 2,620,628 1,760,062 20,399,572 57,693 8,874 1,892 68,459 16,076,575 2,629,502 1,761,954 20,468,031 - (660) - (660) 57,481 - 1,984 59,465 16,134,056 2,628,842 1,763,938 20,526,836 (2,253,764) (740,156) 57,481 (603,718) 353,321 (232,016) - - (3,540,157) 121,305 (18,217) - 482,519 (393,814) 1,984 (12,960) 77,729 - (1,417,924) (1,365,986) 59,465 (616,678) (3,341,123) (18,217) Profit after income tax expense (3,558,374) 121,305 77,729 (3,359,340) Assets Segment assets Intersegment eliminations Unallocated assets: Goodwill Total Assets Total assets includes: Investments in subsidiaries Liabilities Segment liabilities Intersegment eliminations Total liabilities 23,098,787 1,202,267 4,513,102 28,814,156 (8,292,972) 2,377,726 22,898,910 8,292,972 - - 8,292,972 20,958,221 270,050 1,873,161 23,101,432 - 23,101,432 38 | Xref Limited | Annual Report 2023 Consolidated 2022 ID Candidate referencing $ verification $ Total $ Revenue Revenue from external customers Intersegment sales Total earned revenue Other revenue Total segment revenue Intersegment eliminations Non trading 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 Geographical information Australia Canada United Kingdom New Zealand United States 15,568,389 3,023,045 18,591,434 820 - 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) (820) 5,739 - 5,739 15,688,557 3,037,414 18,725,971 1,319,529 (273,895) 5,739 (576,497) 474,876 - 455,201 (200,502) - - 254,699 - 1,774,730 (474,397) 5,739 (576,497) 729,575 - 474,876 254,699 729,575 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 Revenue from external customers Geographical non-current assets 2023 $ 2022 $ 2023 $ 2022 $ 15,713,610 14,243,856 8,278,293 2,968,437 738,464 951,137 1,860,858 1,134,843 20,398,912 736,668 927,677 1,726,849 956,384 18,591,434 45,342 2,808 78 - 51,551 4,609 154 - 8,326,521 3,024,751 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. Xref Limited | Annual Report 2023 | 39 Note 8. Revenue Revenue from contracts with customers - Xref - Rapid ID - Engage (Voice Project) Total revenue Other revenue Interest Government subsidies Other revenue Total revenue and other income Disaggregation of revenue The disaggregation of revenue from contracts with customers is as follows: Consolidated 2023 $ 2022 $ 16,018,222 15,568,389 2,620,628 1,760,062 3,023,045 - 20,398,912 18,591,434 59,465 14,787 53,672 127,924 5,739 28,021 100,777 134,537 20,526,836 18,725,971 Consolidated 2023 Candidate referencing $ ID Engagement verification $ Surveys $ Total $ 16,018,222 2,620,628 1,760,062 20,398,912 11,340,251 2,613,297 1,760,062 15,713,610 738,464 943,806 1,860,858 1,134,843 - 7,331 - - - - - - 738,464 951,137 1,860,858 1,134,843 16,018,222 2,620,628 1,760,062 20,398,912 14,298,913 2,620,628 1,719,309 - 794,877 965,185 17,714,418 2,684,494 16,018,222 2,620,628 1,760,062 20,398,912 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 40 | Xref Limited | Annual Report 2023 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 Note 9. Overheads and administrative expenses Accounting and consulting fees Auditing or reviewing the financial report Legal expenses Marketing fees Consulting and professional fees Administration expenses Platform expenses Operating lease payments Auditors remuneration Fees charged by Audit Firm Financial statement audit and review 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 2023 $ 303,712 92,289 126,329 1,695,019 313,421 2022 $ 266,458 87,807 41,867 904,218 373,838 1,879,680 1,543,178 665,134 117,157 426,051 113,743 5,192,741 3,757,160 2023 $ 2022 $ 92,289 87,807 Xref Limited | Annual Report 2023 | 41 Note 10. Depreciation, amortisation and impairment expenses Depreciation, amortisation and impairment expenses Depreciation Depreciation ROU Asset Impairment and amortisation Note 11. Income tax expense Consolidated 2023 $ 2022 $ 108,853 400,408 856,725 1,365,986 86,122 175,694 212,581 474,397 Xref Limited has operating subsidiaries in Australia, the UK, New Zealand, USA and Canada which are expected to accumulate tax losses. (a). Reconciliation of effective tax rate : Profit (loss) before income tax expense Consolidated 2023 $ 2022 $ (3,341,123) 729,575 Tax at the statutory rate of 25% (2022: 25%) (835,281) 182,394 Impact of tax effect: Reduction / (Increase) in deferred tax asset Permanent differences Adjustment for foreign tax rates Income tax paid by subsidiaries Income tax expense for the year b. Deferred tax assets and liabilities 705,781 23,174 106,326 18,217 18,217 (98,280) 16,145 (100,259) - - 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 $7,923,596 (2022: $7,217,815). Note 12. Current assets—cash and cash equivalents Cash at bank and in hand 2023 $ 2022 $ 6,835,478 11,673,989 42 | Xref Limited | Annual Report 2023 Note 13. Current assets—trade and other receivables Current Trade receivables Other receivables Total current trade and other receivables 2023 $ 2022 $ 2,715,091 1,809,749 59,323 82,262 2,774,414 1,892,011 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 2023, 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 Note 14. Current assets—Contract assets Capitalised Commission Credit Sales Capitalised Commission Subscriptions 2023 $ 2022 $ 2,297,488 1,711,817 361,730 55,873 43,554 54,378 2,715,091 1,809,749 2023 $ 852,227 297,151 2022 $ 1,160,636 51,194 1,149,378 1,211,830 (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—financial assets Rental Bonds Employee Share Trust * Total 2023 $ 1,211,830 1,419,317 2022 $ 1,031,498 1,757,989 (1,495,611) (1,580,602) 13,842 2,945 1,149,378 1,211,830 2023 $ 255,177 369,600 624,777 2022 $ 55,070 - 55,070 Xref Limited | Annual Report 2023 | 43 * The Xref Employee Share trust was set up to administer the Xref Employee Option Plan. Xref Limited issues shares to the ‘Trust’ to be held in trust on behalf of employees ‘pending exercise of options under grant’. When an employee makes an exercise request, the share trust will honour this request by transferring ownership of the number of shares per the option grant document, from the ‘Trust’ to the employee (or their nominee) at the ‘exercise price’ stated in the employee grant document. A single issue of 880,000 FPO has been made to the trust during FY2023. No employees have exercised their options and so the number of the shares held by the trust remains 880,000. The asset is valued at $369,600 at the issue price of $0.42. Note 16. 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 2023 $ 98,617 (44,235) 54,382 964,191 (859,940) 104,251 523,236 (368,056) 155,180 457,250 (132,091) 325,159 2022 $ 98,230 (38,554) 59,676 146,437 (112,091) 34,346 382,075 (280,578) 101,497 106,654 (72,182) 34,472 Total property, plant and equipment 638,972 229,991 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 2021 65,144 61,913 Additions Disposals Depreciation Opening balance revaluation due to forex Balance at 30 June 2022 Additions Additions by acquisition Disposals Depreciation - - (6,032) 564 59,676 - - - - - (28,733) 1,292 34,472 - 304,105 - 40,505 1,400 - (5,933) (1,626) 34,346 667 79,713 (96) 98,498 48,675 (1,250) (45,424) 998 101,497 111,453 21,527 (11,712) (67,754) 169 Total $ 266,060 50,075 (1,250) (86,122) 1,228 229,991 112,120 405,345 (11,808) (97,044) 368 Opening balance revaluation due to forex 97 72 30 (5,391) (13,490) (10,409) Balance at 30 June 2023 54,382 325,159 104,251 155,180 638,972 44 | Xref Limited | Annual Report 2023 Note 17. Non current assets—right of use assets Right of use assets—Land and Buildings Less: Accumulated depreciation Total 2023 $ 1,866,492 (1,338,003) 528,489 2022 $ 1,253,201 (931,919) 321,282 Additions to the right-of-use assets during the year were $613,291 (unamortised / gross value). Of the total additions, $466,723 relate to lease agreements with Voice Project Pty Limited, acquired and capitalised on 03 January 2023. The remaining $146,568 relate to extensions to existing leased premises. These leases are subject to amortization in accordance with our accounting policy for leases, commencing on the date of capitalization. The Group leases land and buildings for its offices under agreements which have terms remaining of no longer than 2 years and 2 months as at 30 June 2023. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. Note 18. Non current assets—intangible assets Goodwill Less: Accumulated impairment Website Less: Accumulated amortisation Patents, trademarks and other rights Less: Accumulated amortisation Customer relationships Less: Accumulated amortisation Licenses Less: Accumulated impairment Domain Names Less: Accumulated amortisation Software development Less: Accumulated amortisation Total intangibles Consolidated 2023 $ 2022 $ 2,377,726 1,333,986 - - 2,377,726 1,333,986 325,000 (270,388) 54,612 853,737 (67,092) 786,645 847,000 (42,350) 804,650 325,000 (162,055) 162,945 11,337 (4,504) 6,833 - - - 50,000 50,000 - - 50,000 50,000 113,958 (27,738) 86,220 113,958 (16,316) 97,642 6,004,846 2,514,439 (724,201) (92,169) 5,280,645 2,422,270 9,440,498 4,073,676 Xref Limited | Annual Report 2023 | 45 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. Consolidated Balance at 1 July 2021 Additions Amortisation expense Balance at 30 June 2022 Additions Patents, trademarks and other Customer rights Relationships Licenses $ $ $ Domain Software Names Development Website Goodwill $ $ $ $ Total $ 7,964 - (1,131) 6,833 - - - - - - 50,000 103,192 1,109,162 271,278 1,333,986 2,875,582 - - 5,398 1,405,277 - (10,948) (92,169) (108,333) - - 1,410,675 (212,581) 50,000 97,642 2,422,270 162,945 1,333,986 4,073,676 - - - - - 2,515,407 975,000 - - 2,515,407 - 1,043,740 3,708,140 (11,422) (632,032) (108,333) - (856,725) Additions by acquisition 842,400 847,000 Amortisation expense (62,588) (42,350) Balance at 30 June 2023 786,645 804,650 50,000 86,220 5,280,645 54,612 2,377,726 9,440,498 Impairment testing Goodwill acquired through business combination has been allocated to the following cash-generating units: RapidID Voice Project 1. RapidID Consolidated 2023 $ 1,333,986 1,043,740 2,377,726 2022 $ 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: • 16.83% post-tax discount rate; • 15% per annum average projected revenue growth in FY2024 and 5% thereafter; • 15% per annum in operating expenses; • 35-45% per annum average in gross margin; and • 2.5% terminal value growth rate. The discount rate of 16.83% post-tax reflects Leadenhall’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. Overall, the discount rate has not changed drastically compared to last year and is not expected to go above 19%. Management have estimated $2.5M in revenue in FY24 similar to FY23, however as Trust Marketplace (where ID checks will be introduced into the employment sector) is being built and launched, revenue is expected to pick up at the end of FY24/start of FY25 and onwards. 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. Operating expenses represent 15% of the revenue with employment expenses slightly increasing in FY23 as a new General Manager was hired to lead RapidID into its new phase of growth. There were no other key assumptions for RapidID. Based on the above, the recoverable amount of RapidID exceeded the carrying amount by $4m. 46 | Xref Limited | Annual Report 2023 Sensitivity As disclosed in note 5, management has made judgements and estimates in respect of impairment testing of goodwill and intangibles assets including the ID Platform, Licence and Website. Should these judgements and estimates not occur the resulting carrying amount may decrease. The sensitivities are as follows: • 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. 2. Voice Project 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 Voice Project: • 20.32% post-tax discount rate; • 10-11% per annum average projected revenue growth rate during the forecast period; • 58-62% per annum in wages during the forecast period; • 20-23% in operating expenses during the forecast period; • 2-3% in marketing expenses during the forecast period; • 2.5% terminal value growth rate. The discount rate of 20.32% post-tax reflects Leadenhall’s estimate of the time value of money and the Group’s weighted average cost of capital adjusted for Voice Project, the risk-free rate and the volatility of the share price relative to market movements. Voice Project’s revenue is expected to grow 10-11% in the next fours years from a boost in sales following full integration into Xref, then a stabilising 2.5-5% growth in the long-term. Wages are expected to be about 60% of the revenue with few additions to the team. Second largest expense is Occupancy & Office operations which will remain consistent with prior periods as the office will continue to be leased. There were no other key assumptions for Voice Project. Based on the above, the recoverable amount of Voice Project exceeded the carrying amount by $1.7m. Sensitivity As disclosed in note 5, management has made judgements and estimates in respect of impairment testing of goodwill and intangible assets including the Voice Project Software, customer contracts, IP and brand. 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 18-20% over the forecast period for Voice Project before goodwill would need to be impaired, with all other assumptions remaining constant. • The discount rate would be required to increase by 38-42% for Voice Project 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 Voice Project’s goodwill is based would not cause the cash-generating unit’s carrying amount to exceed its recoverable amount. Xref Limited | Annual Report 2023 | 47 Note 19. Current liabilities—trade and other payables Trade payables GST payable Accrued salaries, wages and related costs Non trade payables and accrued expenses Superannuation payable 2023 $ 956,048 412,414 355,800 431,466 292,796 2022 $ 366,429 423,268 277,114 545,118 205,062 2,448,524 1,816,991 Refer to note 28 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 20. Financial liabilities Current Lease Liability Borrowing [refer note (a) below] Total current borrowings Non-current Lease Liability Borrowing [refer note (a) below] Total non-current borrowings Total borrowings a. Borrowing facility with Pure Asset Management Reconciliation Loan Facility Fair value of warrants Transaction Cost Amortisation of finance cost Repayment of contractual payment Gain on revaluation Closing Balance 2023 $ 2022 $ 424,120 425,751 849,871 107,279 4,375,190 4,482,469 5,332,340 129,749 425,000 554,749 200,540 4,205,192 4,405,732 4,960,481 2023 $ 2022 $ 5,000,000 5,000,000 (385,714) (209,744) (385,714) (209,744) 4,404,542 4,404,542 1,643,466 (1,247,066) - 1,086,885 (822,065) (39,170) 4,800,942 4,630,192 The loan from Pure Asest Management matures on 4 August 2024 at which time the the loan of $5m is due to be repaid in full. 48 | Xref Limited | Annual Report 2023 Note 21. Employee benefits Employee benefits - current (short-term) Employee benefits - non-current (long-term) Total Employee Benefits 2023 $ 1,048,797 323,399 1,372,196 2022 $ 634,218 224,786 859,004 Short–term employee benefits represent accruals for leave entitlements as at the reporting date, and the Group’s obligation to its current employees that are expected to be settled within 12 months of the balance date. Long–term employee benefits represent accruals for leave entitlements as at the reporting date, and the Group’s obligation to its current employees that are expected to be settled beyond 12 months of the balance date. Note 22. Contract Liabilities Xref unearned revenue movement Opening balance - Xref Xref Sales Add: Opening conditional credits Less: Credit Usage & Subscriptions recognised 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 Voice Project unearned revenue movement Opening balance - Voice Project (recognised at acquisition) Add: Platform subscriptions sold Less: Subscriptions recognised Closing balance - Unearned revenue Voice Project Total group unearned revenue Current (within 12 months) Non-Current (12-18 months) Total contract liabilities 2023 $ 2022 $ 10,987,225 8,783,300 16,177,650 17,751,578 1,428,393 1,474,436 (16,332,384) (15,551,723) (992,194) (1,428,393) 281,465 (50,956) 2,245,898 (41,973) 11,217,734 10,987,225 77,683 4,300 (22,003) 59,980 1,043,181 1,095,662 (965,185) 1,173,658 15,993 102,240 (40,550) 77,683 - - - - 12,451,372 11,064,908 12,225,903 11,064,908 225,469 - 12,451,372 11,064,908 Xref Limited | Annual Report 2023 | 49 Note 23. Other Liabilities Other liabilities represent the present value of the total earn-out consideration payable ($2,000,000), valued at $1,497,000 as at the balance date (refer note 31 for valuation details) payable in Xref shares subject to Voice Project Pty Limited (now rebranded Xref Engage) achieving performance hurdles as detailed in note 32 on the business combination completed on 03 January 2023. Contingent consideration - current Contingent consideration - non-current Total contingent consideration Note 24. Equity—issued capital 2023 $ 812,000 685,000 1,497,000 2022 $ - - - Ordinary shares—fully paid 186,176,289 185,296,289 55,470,213 55,100,613 2023 Shares 2022 Shares 2023 $ 2022 $ Date Shares Issued price / exercise price $ Balance 1 July 2021 182,309,247 Issued under share based remuneration Issued under share based remuneration Options exercised Warrants exercised Issued to employee share trust Issued under share based remuneration Options exercised Warrants exercised 46,759 43,141 40,000 2,857,142 30 June 2022 185,296,289 880,000 - - - 0.64 0.70 0.35 0.35 0.42 - - - Total $ 53,948,230 30,000 30,000 15,240 1,077,143 55,100,613 369,600 - - - 30 June 2023 186,176,289 55,470,213 During the year ended 30 June 2023 No shares were issued under share based remuneration or due to exercising of Options or Warrants. During the year ended 30 June 2022 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. 50 | Xref Limited | Annual Report 2023 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 following the acquisition of Voice Project in January 2023 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 2023 Annual Report. Note 25. Equity—other equity reserves Foreign currency reserve Options reserve Warrants Consolidation Reserve Foreign Currency Reserve 2023 $ (843,114) 2,638,363 308,571 2022 $ (552,196) 1,596,643 308,571 (22,845,821) (22,845,821) (20,742,001) (21,492,803) The reserve is used to recognise exchange differences arising from the translation of the financial statements of foreign operations to Australian dollars. a). Share option reserve Issue Date 4/12/2018 20/07/2020 20/07/2020 20/07/2020 7/09/2020 7/09/2020 26/11/2021 26/11/2021 5/07/2022 5/07/2022 5/07/2022 20/02/2023 20/02/2023 20/02/2023 Expiry Date 3/09/2023 15/01/2024 15/01/2024 15/01/2024 15/01/2024 15/01/2024 17/11/2024 17/11/2024 5/07/2025 5/07/2026 5/07/2026 20/02/2026 20/02/2027 20/02/2027 30/06/2023 Average exercise price in $A per share $0.66 $0.35 $0.35 $0.35 $0.18 $0.18 $0.35 $0.54 $0.00 $0.50 $0.42 $0.00 $0.50 $0.42 Issue Date 7/12/2016 22/03/2018 12/4/2018 12/4/2018 12/4/2018 20/07/2020 20/07/2020 20/07/2020 7/9/2020 26/11/2021 26/11/2021 Expiry Date 25/11/2022 12/2/2023 3/9/2022 3/9/2023 1/8/2022 15/01/2024 15/01/2024 15/01/2024 15/01/2024 17/11/2024 17/11/2024 30/06/2022 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 300,000 1,613,558 300,000 33,543 2,000,000 2,000,000 900,000 2,700,000 626,859 4,670,000 1,460,741 275,000 1,010,000 687,500 18,577,201 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 14,096,660 Option Reserve $ 36,570 50,020 9,300 1,040 114,000 114,000 332,948 768,340 244,629 662,795 230,078 27,424 25,181 22,038 2,638,363 Option Reserve $ 357,000 84,023 28,620 36,570 17,567 66,245 9,300 1,040 228,000 232,665 535,613 1,596,643 Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Closing Balance At 30 June 2017 Granted Granted Granted Granted Granted Granted Granted Granted Granted Granted Closing Balance Options Reserve During the year ended 30/06/2023, 8,995,100 options were issued, 887,181 options lapsed, 3,702,378 options expired, and Nil (40,000 in FY2022) options were exercised. Xref Limited | Annual Report 2023 | 51 Options vested and therefore exercisable Options Vested - Brad Rosser Options Vested - James Solomons Options Vested - James Solomons Options Vested - Employees and Contractors Options Vested - Sharon Blesson Options Vested - Sharon Blesson Options Vested - Sharon Blesson Options vested - Robert Waring Options Vested - Employees Options vested - Lija Wilson Options vested - Thomas Stianos Options vested - Nigel Heap Expiry Date 25/11/2022 12/2/2023 15/01/2024 1/8/2022 3/9/2022 3/9/2023 15/01/2024 15/01/2024 15/01/2024 17/11/2024 17/11/2024 17/11/2024 2023 - - 2,300,000 - - 300,000 2,111,111 33,543 2,025,812 600,000 1,200,000 600,000 9,170,466 2022 2,500,000 750,000 2,300,000 176,194 300,000 300,000 2,111,111 33,543 2,025,812 300,000 600,000 300,000 11,696,660 The weighted average share price for the current financial year was $0.26 (2022: $0.57) 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 loan facility agreement executed on 31 July 2020, a warrant deed was also signed with Pure Asset Management on the same date (note 20). Consequently, 14,285,714 detached warrants were issued to Pure Asset Management with an exercise option price 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 was $385,714 as originally assessed. 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 the current carrying value of $308,571. Note 26. Equity—dividends No dividends were declared, recommended, or paid during the current or previous financial year. Note 27. 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 (where the exercise price is currently below the current share price). The Group recorded a loss for the year ended 30 June 2023 and a profit for the year ended 30 June 2022. The following reflects the income and share data used in the basic and diluted EPS computations Consolidated 2023 $ 2022 $ Profit after income tax attributable to the owners of Xref Limited (3,359,340) 729,575 Weighted average number of ordinary shares used in calculating basic earnings per share 186,101,549 184,003,268 Weighted average number of ordinary shares used in calculating diluted earnings per share 186,101,549 202,802,306 Basic earnings / (loss) per share Diluted earnings / (loss) per share Cents (1.81) (1.81) Cents 0.40 0.36 52 | Xref Limited | Annual Report 2023 Note 28. Financial instruments a. Classification of financial instruments The carrying amounts presented in the statement of financial position relate to the following categories of financial assets and liabilities Group 2023 Financial assets Cash and cash equivalents Trade debtors and other receivables Total Financial liabilities Trade creditors and other payables Financial liabilities Total Group 2022 Financial assets Cash and cash equivalents Trade debtors and other receivables Total Financial liabilities Trade creditors and other payables Financial liabilities Total Cash, Loans and receivables Available-for- sale financial assets Financial liabilities at fair value through profit and loss 6,835,478 2,774,414 9,609,892 - - - - - - - - - - - - 2,155,728 5,332,340 7,488,068 Cash, Loans and receivables Available-for- sale financial assets Financial liabilities at fair value through profit and loss Total $ 6,835,478 2,774,414 9,609,892 2,155,728 5,332,340 7,488,068 Total $ 11,729,059 1,892,011 13,621,070 - - - - - - - - - - - - 11,729,059 1,892,011 13,621,070 1,611,919 4,960,481 6,572,400 1,611,919 4,960,481 6,572,400 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. Xref Limited | Annual Report 2023 | 53 Group 2023 Trade creditors and other payables Superannuation payable Group 2022 Trade creditors and other payables Superannuation payable 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 17.7% compared to 2022, against a revenue decrease of (2.2%) compared to 2022. This combined with the prior year raise of debt funding and positive cash flow is enabling adequate management of liquidity risk. 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 2,155,728 2,155,728 2,155,728 292,796 292,796 292,796 - - - - Financial liabilities 4,800,941 5,530,259 214,247 211,504 5,104,508 Total 7,249,465 7,978,783 2,662,771 211,504 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 1,611,919 1,611,919 1,611,919 205,062 205,062 205,062 - - - - - - - - - - Financial liabilities 4,630,192 5,956,433 214,247 210,753 426,925 5,104,508 Total 6,447,173 7,773,414 2,031,228 210,753 426,925 5,104,508 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. The exposure to currencies of the Group is as follows: Canadian Dollars UK Pound Sterling New Zealand Dollars United States Dollar Total 54 | Xref Limited | Annual Report 2023 2023 $ 852,133 867,256 821,480 696,419 3,237,288 2022 $ 275,869 778,710 2,392,516 1,745,636 5,192,731 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% $ 42,607 43,363 41,074 34,821 10% $ 85,213 86,726 82,148 69,642 Total impact of potential change in exchange rate 161,865 323,729 20% $ 170,427 173,451 164,296 139,284 647,458 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 2023 – Group Australia United Kingdom Canada New Zealand United States Short-term exposure Financial Assets Financial Liabilities Net statements of financial position exposure 5,967,958 (2,687,767) 953,635 (45,713) 927,980 (161,358) 978,523 (110,761) 781,795 - 3,280,191 907,922 766,622 867,762 781,795 30 June 2023 – Group Australia United Kingdom Canada New Zealand United States Long-term exposure Financial Assets Financial Liabilities Net statements of financial position exposure 234,650 (4,375,190) (4,140,540) - - - 20,527 (107,279) (86,752) Short-term exposure - - - - - - 30 June 2022 – Group Australia United Kingdom Canada New Zealand United States 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 (121,774) 1,859,684 - 6,118,528 827,727 77,148 2,455,482 1,859,684 30 June 2022 – Group Australia United Kingdom Canada New Zealand United States Long-term exposure Financial Assets Financial Liabilities Net statements of financial position exposure Foreign exchange risk Sensitivity analysis 34,650 (4,205,192) (4,170,542) - - - 20,420 (139,787) (119,367) - - - - - - The following analysis illustrates the sensitivity of profit and equity in regard to the Group’s financial assets and financial liabilities carried in Xref Limited | Annual Report 2023 | 55 foreign currencies. It assumes a 5+/- % change in exchange rates for the year ended at 30 June 2023 (2022: 5%). The percentage movement has been determined based on the average exchange rate market volatility for the AUD in the previous 12 months. Group 2023 2022 Profit for the year Equity Profit for the year Equity + 5% (2022: 5%) increase in AUD against foreign currencies (3,313,465) (603,423) 703,986 (990,829) + 5% (2022: 5%) decrease in AUD against foreign currencies (3,373,887) 160,196 732,228 (1,907,692) + 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. 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 29. 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: 2023 $ 2022 $ (3,359,340) 729,575 130,477 2,265,615 - 1,605,954 (28,426) 15,001 1,365,986 591,164 (882,402) - (191,190) 62,452 631,533 513,193 454,402 60,000 767,885 (117,519) - 474,397 565,829 129,134 (927) (223,300) (180,332) (81,039) 233,642 4,622,960 Operating profit Non cash flows in profit: Unearned income Shares based payments Options expense Foreign exchange Bad debts written off Depreciation, amortisation and impairment Interest expense on borrowing Changes in assets and liabilities: (Increase)/decrease in trade and other receivables (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 56 | Xref Limited | Annual Report 2023 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 Other related party balances Loans to directors for the year ended 30 June 2023 amounted to $0 (2022: $0). c. Key management compensation see information below Short term employee benefit Post employment benefits Share based payments Note 31. Fair value measurement Fair value hierarchy 2023 $ 2022 $ 84,203 87,877 2023 $ 2022 $ 1,391,416 1,504,909 107,387 112,650 1,611,453 96,288 1,160,606 2,761,803 The following tables detail the Group's assets and liabilities, measured or disclosed at fair value, using a three-level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Unobservable inputs for the asset or liability Consolidated - 30 June 2023 Other liabilities Contingent consideration Total liabilities Consolidated - 30 June 2022 Other liabilities Contingent consideration Total liabilities Level 1 Level 2 Level 3 $ $ $ Total $ - - - - - - - - 1,497,000 1,497,000 1,497,000 1,497,000 - - - - There were no transfers between levels during the financial year. The carrying amounts of trade and other receivables and trade and other payables are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the remaining contractual maturities at the current market interest rate that is available for similar financial liabilities. Valuation techniques for fair value measurements categorised within level 3 Xref Limited | Annual Report 2023 | 57 The contingent consideration payable relates to acquisition of subsidiaries (refer to note 32 for further detail). The fair value of the contingent consideration is estimated by calculating the present value of the future expected cash flows. The valuation model considers the present value of the expected future payments, discounted using a risk-adjusted discount rate. Subsidiary acquired Voice Project Pty Limited Fair value at 2023 $ 1,497,000 2022 Significant unobservable Relationship of unobservable $ inputs inputs to fair value - Risk-adjusted discount rate 19.1% The estimated fair value would increase (decrease) if the risk- adjusted discount rate were lower (higher). Total 1,497,000 - Level 3 assets and liabilities Movement in level 3 assets and liabilities during the current and previous financial year are set out below: Contingent Consideration Consolidated Balance at 1 July 2021 Expense recognised in profit or loss Additions Balance at 30 June 2022 Expense recognised in profit or loss Additions Settlement Balance at 30 June 2023 Total $ - - - - - 1,497,000 - 1,497,000 Applying a discount rate range of 16-21 % across the each of the contingent consideration payments results in a range of $1.5m to $1.6m of potential movement in total contingent consideration. Note 32. Business Combinations On 03 January 2023, Xref Limited, entered into a share sale agreement to acquire 100% of the ordinary shares of The Voice Project Pty Limited for a maximum purchase consideration of $3,620,675. $2,123,675 was settled on completion in cash and an earn out consideration of up to $1,497,000 (refer note 31) in script subject to The Voice Project Pty Limited achieving performance hurdles based on the following criteria: 1. The first earnout payment in Xref shares of the value $500,000 is contingent on Voice Project achieving an EBITDA of more than $250,000 in the first year following completion and is payable on 24 March 2024. 2. The second earnout payment in Xref shares of the value $500,000 is payable if, during the first year following completion, permanent employees of Voice Project work an average of 403 hours per week and is payable on 24 March 2024. 3. The third earnout payment in Xref shares of the value $1,000,000 is contingent on Voice Project achieving an EBITDA of more than $300,000 in the second year following completion and is payable on 24 March 2025. The transaction was completed on 03 January 2023. Established in 2002, Voice Project is a human resources consulting company that utilizes proprietary IP to help organizations track employee engagement, leadership, and customer satisfaction through research-backed surveys and expert guidance provided by organizational psychologists. Voice Project leverages its proprietary database to provide meaningful analytics and benchmarking, enabling organizations to make data-driven decisions. The acquired business contributed revenues of $1,760,062 from 03 January 2023 to 30 June 2023. If the acquisition occurred on 1 July 2022, the full year contributions would have been revenues of $3,541,358. Goodwill on acquisition The goodwill of $1,043,740 relates predominantly to the key management, specialised know-how of the workforce, employee relationships, competitive position and service offerings that do not meet the recognition criteria as an intangible asset at the date of acquisition. 58 | Xref Limited | Annual Report 2023 The values identified in relation to the acquisition of The Voice Project Pty Limited are provisional as at 30 June 2023 as permitted by AASB 3 Business Combinations. Any true ups required to fair value of assets and liabilities taken on will be reflected as at 31 December 2023. Details of the acquisition are set out below: Cash and cash equivalents Trade and other receivables Other assets Property, plant and equipment Intellectual Property Voice Project Software Brand Customer contracts and relationships Trade and other payables Employee benefits Unearned revenue Net Assets acquired Goodwill Acquisition date fair value of total consideration Representing: Cash paid / payable to the vendor Contingent consideration Total Acquisition costs expensed to profit or loss Cash used to acquire business, net of cash acquired: Cash consideration payable Less: Cash and cash equivalents acquired Net cash paid Note 33. Contingencies Fair Value $ 649,200 324,892 25,100 405,345 797,400 975,000 45,000 847,000 (245,478) (203,343) (1,043,181) 2,576,935 1,043,740 3,620,675 2,123,675 1,497,000 3,620,675 238,100 2,123,675 (649,200) 1,474,475 There are two contingent liabilities relating to bank guarantees associated with the lease of office premises, totaling $233,550 (2022: $33,550). These are asset backed by term deposits of equal value. In the opinion of the Directors, the Company did not have any other contingent assets or liabilities at 30 June 2023. Xref Limited | Annual Report 2023 | 59 Note 34. 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/ (loss) Statement of Financial Position Assets Total non current assets Total Assets Liabilities Total current liabilities Total non-current liabilities Total Liabilities Net Assets Equity Issued capital Reserves Retained profits Total Equity 2023 $ 2022 $ (1,617,376) (1,617,376) (778,832) (778,832) 38,707,171 36,851,993 38,707,171 36,851,993 812,000 685,000 1,497,000 - - - 37,210,171 36,851,993 55,470,213 55,100,613 2,946,934 1,905,214 (21,206,976) (20,153,834) 37,210,171 36,851,993 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 2023 and 2022. Contingent liabilities In relation to the acquisition of Voice Project Pty Limited the parent entity has contingent consideration liabilities first recognised in 2023 (2022: Nil) dependent on successful achievement of earn out criteria. Further information can be found in the business combination note (Note 32). Capital commitments - Property, plant and equipment The parent entity had no capital commitments for property, plant and equipment in 2023 and 2022. Note 35. Events Occurring After the Reporting Date On the 18 July 2023, Mrs. Lija Wilson resigned as Non-Executive Director of the company effective on 31 July 2023. No other matters or events requiring adjustments have arisen since 30 June 2023, that relate to circumstances that existed as on the balance sheet date. 60 | Xref Limited | Annual Report 2023 Director’s Declaration The directors of the Company declare that: 1. The financial statements and notes for the year ended 30 June 2023 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 Financial 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 28 August 2023 Sydney Thomas Stianos Chairman 28 August 2023 Sydney Xref Limited | Annual Report 2023 | 61 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 Ltd (the Company and its subsidiaries (the Group), which comprises the consolidated statement of financial position as at 30 June 2023, 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 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 2023 and of its financial performance for the year then ended; (b) and 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. Some of the Crowe personnel involved in preparing this document may be members of a professional scheme approved under Professional Standards Legislation such that their occupational liability is limited under that Legislation. To the extent that applies, the following disclaimer applies to them. If you have any questions about the applicability of Professional Standards Legislation Crowe’s personnel involved in preparing this document, please speak to your Crowe adviser. 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 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 © 2023 Findex (Aust) Pty Ltd 62 | Xref Limited | Annual Report 2023 Independent Auditor’s Report Xref Limited We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 (Note 18) According to AASB 138: Intangible Assets, the group has capitalised software development costs amounting to $4,403,145 (as of 2022, it's $2,422,270). These costs include both external expenses, and internal wage costs of Xref Limited's developers. This is a key audit matter because of the estimates, criteria, and judgments involved in capitalising internally developed intangible assets. We critically analysed management’s assessment in accordance with AASB 138: Intangible Assets, including performing the following procedures: a) reviewed documentation produced by Management outlining the nature of the development projects, the benefits to the business that the projects would achieve and the project timeline and their introduction to the market. b) discussed with Management and certain employees their role in developing projects to determine the reasonableness of their input and work performed to confirm criteria was satisfied to capitalise certain internal (wage) costs. c) obtained management 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) f) confirmed with management that consideration of redundant technology has been written off. evaluated costs capitalised against the requirements of AASB 138, ensuring the criteria for development was satisfied and any research was expensed in the period. g) evaluated the reasonableness of the Group’s financial report disclosures in light of the requirements of Australian Accounting Standards. © 2023 Findex (Aust) Pty Ltd www.crowe.com.au Xref Limited | Annual Report 2023 | 63 Independent Auditor’s Report Xref Limited Goodwill (Note 18) Goodwill is required by Australian Accounting Standards to be tested annually for impairment at the Cash Generating Unit (CGU) level. The Group performed an impairment assessment of goodwill by calculating the value in use for each CGU using discounted cash flow models. The impairment assessment was a key audit matter due to the size of the goodwill balance and the judgement involved in determining the value in use of each CGU. Business Combinations (Note 32) The Group acquired The Voice Project Pty Limited during the year. The accounting for the acquisition of a business is complex. Australian Accounting Standards require the Group to identify all assets, liabilities and contingent liabilities of the acquired businesses and estimate the fair value at the date of acquisition. The acquisition is a key audit matter because it is a significant transaction to the Group, and the Group made significant judgements when accounting for the acquisition, including the measurement of separately identifiable intangible assets and the measurement of contingent consideration. We critically analysed management’s workings, including performing the following procedures: a) assessed whether the Group’s identification of CGUs was consistent with our knowledge of the operations, internal reporting lines and level of integration of the acquired businesses b) discussed with management the basis for the significant assumptions and inputs used in the value in use model calculations as provided by management and its external expert and challenged its appropriateness. Additionally, assessed the expert’s qualifications to provide such input c) d) obtained reports of relevant industries to compare to management’s growth rates utilised in the calculation. interrogated the value in use model using different inputs as a means to perform sensitivity analysis. e) evaluated the reasonableness of the Group’s financial report note disclosures in light of the requirements of Australian Accounting Standards. We critically analysed the Group’s business combination workings to ensure its appropriateness with AASB 3: Business Combinations, including performing the following procedures: a) developed an understanding of the relevant purchase agreements. b) obtained the purchase price allocated prepared by an independent valuer and evaluated the reasonability of estimates and judgements used within the fair value assessment. c) agreed the amount of the purchase consideration paid and/or payable to the transaction agreement, bank statements and ASX notices. Where there were contingent considerations, we assessed the appropriateness of management’s assumptions in measuring the fair value of the consideration. d) assessed the reasonableness of the financial © 2023 Findex (Aust) Pty Ltd www.crowe.com.au 64 | Xref Limited | Annual Report 2023 Independent Auditor’s Report Xref Limited Going Concern (Note 3 (z)) There was a deficiency in current assets and net assets for the Group, which amounts to $5,718,920 and $202,522, respectively. As a result, this was considered a key audit matter. Despite these deficiencies, the financial statements were prepared on a going concern basis, taking into account the measures implemented by management as described in the related note. report note disclosures in light of the requirements of the Australian Accounting Standards. We critically analysed the Group’s cashflow forecast, for at least twelve months from the date of this report, which was used to support the going concern assessment, including performing the following procedures: a) obtained justification from management around the assumptions used within the cashflow forecast. b) c) critically evaluated assumptions used by management against historical performances. interrogated the cashflow forecast using different inputs as a means to perform sensitivity analysis. d) evaluated the reasonableness of the Group’s financial report note disclosures in light of the requirements of Australian Accounting Standards. 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 2023, 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. © 2023 Findex (Aust) Pty Ltd www.crowe.com.au Xref Limited | Annual Report 2023 | 65 Independent Auditor’s Report Xref Limited 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. 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. © 2023 Findex (Aust) Pty Ltd www.crowe.com.au 66 | Xref Limited | Annual Report 2023 Independent Auditor’s Report Xref Limited Report on the Remuneration Report Opinion on the Remuneration Report We have audited the remuneration report included in pages 14 to 19 of the directors’ report for the year ended 30 June 2023. In our opinion, the remuneration report of Xref Limited, for the year ended 30 June 2023, 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 28 August 2023 Sydney © 2023 Findex (Aust) Pty Ltd www.crowe.com.au Xref Limited | Annual Report 2023 | 67 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 4 August 2023, based on Substantial Shareholder Notices received by the ASX and the Company: Substantial Shareholders Lee-Martin John Seymour Timothy David Griffiths Herald Investment Trust PLC Shareholding 31,730,108 28,730,690 11,540,775 Based on the market price at 4 August 2023 there were 547 shareholders with less than a marketable parcel of 2,632 shares at a share price of $0.19. Number of Ordinary Shares Held 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total Number of Holders Ordinary Shares % of Total Issued Capital 235 686 456 635 101 120,741 2,004,867 3,506,766 18,053,669 162,490,246 2,113 186,176,289 0.06 1.08 1.88 9.70 87.28 100.00 Top 20 Holders of Ordinary Shares (XF1) as at 4 August 2023 Rank Name of Shareholder Shares % of Shares 1 West Riding Investments Pty Ltd 2 3 4 5 6 7 8 9 Netwealth Investments Limited Squirrel Holdings Australia Pty Ltd HSBC Custody Nominees (Australia) Limited National Nominees Limited UBS Nominees Pty Ltd Citicorp Nominees Pty Limited J P Morgan Nominees Australia Pty Limited BNP Paribas Nominees Pty Ltd 10 Mr Craig Graeme Chapman 11 12 Lightview Asset Pty Ltd Seymour Superannuation Holdings Pty Ltd 13 Mijon Investments Pty Ltd 14 DMX Capital Partners Limited 15 16 Schindler Investment Haus Pty Ltd Assumo (Nominees) Pty Ltd 17 Mr Michael Charles Bowden 18 19 INGTBWTS Pty Limited Solium Nominees (Aus) Pty Ltd 20 Mr Mark William Hoey Total of Top 20 Holdings Other Holdings Total Fully Paid Shares Issued 68 | Xref Limited | Annual Report 2023 30,090,353 29,899,191 27,157,613 13,318,516 10,298,552 8,608,538 3,633,893 3,208,198 2,467,201 2,320,924 2,000,000 1,639,755 1,500,000 979,199 912,500 836,827 823,659 793,166 780,000 754,020 142,022,105 44,154,184 186,176,289 16.16 16.06 14.59 7.15 5.53 4.62 1.95 1.72 1.33 1.25 1.07 0.88 0.81 0.53 0.49 0.45 0.44 0.43 0.42 0.41 76.29 23.71 100.00 Shareholder Information Options (XF1AD to XF1AW) as at 4 August 2023 Name and Number of Option Holders Sharon Blesson (under Employee Option Plan) James Solomons and Sharon Blesson (under Employee Option Plan) – 2,000,000 options each 20 employees and contractors (under Employee Option Plan) Thomas Stianos Nigel Heap Lija Wilson 53 employees and contractors (under Employee Option Plan) 14 employees and contractors (under Employee Option Plan) 58 employees and contractors (under Employee Option Plan) 56 employees and contractors (under Employee Option Plan) 14 employees and contractors (under Employee Option Plan) 14 employees and contractors (under Employee Option Plan) Total Number of Options on Issue Warrants (XF1AN) as at 4 August 2023 Name of Warrant Holder Pure Asset Management Pty Ltd Voting Rights Shares the Option Holder is Entitled to Exercise Price Option Expiry Date 300,000 $0.70 3 September 2023 4,000,000 1,801,268 1,800,000 900,000 600,000 494,359 275,000 1,380,741 4,390,000 687,500 1,010,000 17,638,868 $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 Nil 5 July 2025 Nil 20 February 2026 $0.42 $0.50 5 July 2026 5 July 2026 $0.42 20 February 2027 $0.50 20 February 2027 Warrants the Holder is Entitled to Exercise Price Expiry Date 11,428,572 $0.35 23 July 2024 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. Xref Limited | Annual Report 2023 | 69 This page has been left intentionally blank. 70 | Xref Limited | Annual Report 2023 Corporate Directory PLACE OF BUSINESS Australia (Head Office and Registered Office) Suite 13, 13 Hickson Road Dawes Point, NSW 2000 Tel: +61 2 8244 3099 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 Investor Hub xf1.com DIRECTORS OFFICERS AUDITORS Thomas Stianos Chairman Lee-Martin Seymour Managing Director Nigel Heap Non-Executive Director 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 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 LEADERSHIP TEAM SHARE REGISTRY Tracy Murdoch General Counsel Karina Guerra GM – Customer Intelligence Sarah Mulvenna GM - Revenue Peter Langford GM – Xref Engage Automic Pty Ltd Level 5, 126 Phillip Street Sydney NSW 2000 GPO Box 5193 Sydney NSW 2001 www.automic.com.au hello@automic.com.au Tel: 1300 288 664 (within Australia) Tel: + 61 2 9698 5414 (outside Australia) Xref Limited | Annual Report 2023 | 71 AUDITORS 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) 72 | Xref Limited | Annual Report 2023 X R E F Xref Limited | Annual Report 2023 | 73 

Continue reading text version or see original annual report in PDF format above