Announcement PDF i 2021 Annual Report Xref Limited |Annual Report 2021 Contents 2021 Highlights  2 Chairman’s Report  6 Chief Executive Officer and Chief Strategy Officer Report  8 Directors’ Report 18 Independence declaration  26 Financial Statements  27 Notes to the financial statements  33 Director’s Declaration  74 Independent Auditor’s Report  75 Shareholder Information  80 Corporate Directory  84 General information The financial statements cover Xref Limited as a consolidated entity consisting of Xref Limited and the entities it controlled at the end of, or during, the year. The financial statements are presented in Australian dollars, which is Xref Limited’s functional and presentation currency. Xref Limited is a listed public company limited by shares (ASX:XF1), incorporated and domiciled in Australia. Its registered office and principal place of business is: Suite 13, 13 Hickson Road, Dawes Point, New South Wales, Australia, 2000 A description of the nature of the Group’s operations and its principal activities are included in the directors’ report, which is not part of the financial statements. The financial statements were authorised for issue, in accordance with a resolution of directors, on 31 August 2021. The directors have the power to amend and reissue the financial statements.  Xref Limited | Annual Report 2021 | 1 2021 Highlights $15.38M Increase 57% $9.81M “The value of Xref credits sold in FY21 grew 34% year-onyear, to $12.5 million, while gross sales for RapidID saw an incredible 513% growth, to $2.9 million representing 19% of Total Sales Group Sales.” Lee Seymour CEO, Co-Founder, Exec Director FY 2020 FY 2021 $12.56M Increase 56% $8.03M “The steady increase in revenue across each quarter - $2.0 million, $2.7 million, $3.5 million and $4.4 million respectively saw Xref end the financial year with a record Group revenue Recognised Revenue result of $12.6 million.” Lee Seymour CEO, Co-Founder, Exec Director FY 2020 2 | Xref Limited | Annual Report 2021 FY 2021 2021 Highlights Key Expense Changes Decrease 30% 15 “During the course of the financial year, operating 10 $ Millions expenses across the group reduced 30% when compared to the 2020 Financial Year.” 5 Lee Seymour CEO, Co-Founder, Exec Director 0 FY17 Wages FY18 Rent/occupancy FY19 FY20 FY21 Marketing Group Profitability EBITDA 15 8.05 $ Millions 5 $1M 12.56 8.03 “Xref achieved its maiden full year cash flow surplus in 4.85 2.98 0.08 0 Lee Seymour -6.46 -8.91 FY17 Group Revenue  profit after tax of $78,094 and EBITDA of $1.04m.” -5 -15 FY21, as well as a maiden net FY18 CEO, Co-Founder, Exec Director -8.18 -10.06 FY19 FY20 FY21 Group Net Profit Xref Limited | Annual Report 2021 | 3 Directors’ Report 2021 Highlights Group Sales Growth Sales by Region/Segment $ Millions 20 15 68.0% NA EMEA 4.1% 4.1% RapidID 18.9% EMEA 10 68.0% 9.0% APAC APAC NA 9.0% RapidID 18.9% 5 0 FY17 FY18 RapidID Xref FY19 FY20 FY21 Sales | Xref Client Cohort Group Revenue Growth $ Millions 15 FY20 22.0% 13.7% FY20 FY18 18.7% FY21 13.7% 22.0% FY19 FY19 16.4% 16.4% FY18 18.7% FY14-17 29.1% 10 Sales | RapidID Client Cohort 5 0 FY17 Xref.com FY18 FY19 Channel Partners FY20 RapidID FY21 Wholesale Partners FY21 FY18 37.7% FY20 6.9% 42.7% FY20 FY19 12.7% FY21 42.7% 6.9% FY19 12.7% FY18 37.7% Group Sales | Quarterly FY21 Group Revenue | Quarterly FY21 7 5 6 4 5 $ Millions $ Millions FY21 FY14-17 29.1% 4 3 2 2 1 1 0 3 Q1 APAC Q2 EMEA Q3 NA 4 | Xref Limited | Annual Report 2021 RapidID Q4 0 Q1 Q2 Xref RapidID Q3 Q4  CEO, Co-Founder, Exec Director Lee Seymour “Talent is on the move and employers are going to face an extremely competitive market. Having the right processes in place to make confident hiring decisions quickly has never been more important.” Headquarters Annual Sales Contribution Addressable Market Staff Northern Hemisphere Global Platform Interaction 1M+ Users exchanging data in FY21 Toronto, CA 13% 300M Workers 9 Sydney, AU 87% 15M Workers 52 Xref office locations | Sydney, Toronto, Auckland, London and Austin, Texas. Headquarters Annual Sales Contribution Addressable Market Staff Southern Hemisphere Directors’ Report Xref Limited | Annual Report 2021 | 5 Chairman’s Report The value of Xref credits sold in FY21 grew 34% year-on-year, to $12.5 million, while gross sales for RapidID saw an incredible 498% growth, to $2.9 million representing 19% of Group Sales. Newly acquired Xref clients accounted for 27% of Xref sales, while 16% of Xref sales came from Xref’s international offices in Europe and North America. Group revenue was also at an all time high by the end of the year, with Xref revenue totalling $11.6 million and RapidID’s net revenue reaching $1.0 million. Xref revenue grew 49% and RapidID’s net revenue grew 305%, year-on-year. Recognising future market needs Presenting the sixth annual Xref report I am delighted to welcome shareholders to the FY21 Xref annual report. This year has been marked by change and uncertainty globally. But for Xref, it has been defined by the agility of its platform and people, the ability of its leadership team to make difficult decisions under pressure and an unwavering focus on the future, despite the major distractions in the present. The result is an incredible story not only of survival but of embracing change and exceeding expectations. It is with great pleasure that I share the results of the company’s first profitable year. Embracing change Xref was able to weather the first few months of the COVID-19 storm and end FY20 in a strong position providing the platform for the company’s success in FY21. This was down to the work that the leadership team did in streamlining operations, preserving cash and pivoting the focus of the marketing function from sales support to online lead generation. The wider team also demonstrated their ability to adapt to new ways of working, embracing new approaches, getting on board with the decisions and direction outlined by the leadership team and delivering outstanding outcomes as a result. Exceeding expectations This year was no different from any other for Xref in the sense that record results were achieved every quarter. However, this year that was true not only in terms of the performance of the core Xref platform, but also the performance of acquired ID verification platform, RapidID. 6 | Xref Limited | Annual Report 2021 The investment of time and resources that has been put into the development of the future Xref platform this year, has demonstrated the ability of the leadership team to see beyond the immediate challenges in the market and recognise and realise the potential future direction of the business. By working with some of its largest global clients, Xref has been able to expand the platform, to ensure that it continues to add value and support clients’ future needs. The enhanced platform will dramatically increase the global addressable market through the provision of additional services, allowing for an entirely digital new client acquisition process and adding a subscription-based ARR to the current credit-based model. Outlook Xref enters the new year buoyed by the determination, focus and agility that has carried it confidently to its goals of reaching cash flow break even and profitability and will continue to drive it into it’s exciting and prosperous future. Xref has an impressive ability to continually delight existing clients while acquiring new business, despite the uncertain macroeconomic conditions faced. Now, the business finds itself at a very exciting junction in its journey, where it is positioned well for scale and evolution and with a community of forward thinking organisations around the world, who are ready to come along with it. Brad Rosser, Chairman Chariman’s Report  Xref Limited | Annual Report 2021 | 7 Chief Executive Officer Report Coming out on top At the end of FY20, we felt proud to have made it to the end of the year without suffering too dramatically from the effects of several market challenges, including the bushfires and floods in Australia, and the COVID-19 pandemic globally. It’s fair to say that we, like most businesses, had no idea how much longer we would be facing the challenges of COVID-19. A year later, we see many of the markets we operate in still going in and out of lockdown, we are still unable to travel freely and we still don’t know when we’ll see a return to “normal”but regardless Xref is positioned to succeed. The rise of verification As a result of the many changes that COVID-19 has enforced, a number of new ways of working have emerged. More organisations now allow, or even encourage, remote working, which means that while the domestic talent pool may have dwindled due to a lack of migrant workers, employers are feeling more comfortable hiring remote talent internationally. With that trend, recruiters and employees have realised the importance of candidate verification. New hires are now found, attracted and recruited from afar, so it has never been more important to find a way to confirm who they are, where they have been and what they have done. 8 | Xref Limited | Annual Report 2021 RapidID, the identity verification tool we acquired in July 2019, has also enabled us to be on the forefront of another, rapidly growing industry. Many organisations that have always required stringent verification, such as those in the financial services and insurance sectors, are evolving to turn a traditionally slow process into an efficient, tech-led step in their customer onboarding process. But we are also now seeing the HR community beginning to understand the use and value of ID checks. A profitable year Despite the turbulence of this financial year, we never lost sight of the goal set in November 2019, to preserve cash and reach cash flow break even. Although at times it felt less certain than we had hoped, we are delighted to have ended the year cash flow positive and profitable. The steady increase in revenue across each quarter - $2.0 million, $2.7 million, $3.5 million and $4.4 million respectively - saw Xref end the financial year with a record Group revenue result of $12.6 million. Xref has been able to dramatically reduce expenses by further refining measures introduced during FY20, including: • building efficiencies in the acquisition, onboarding, support and growth of clients; and • redirecting marketing efforts from sales support to online lead generation. CEO Report Xref has also actively pursued a reduction in headcount, from 100 in December 2019 to 60 as at 30 June 2021. Cash at bank on 30 June 2021 was $8.13 million, compared to $2.87 million in June 2020, including receipt of net proceeds from the new convertible debt facility of $4.7 million raised in July 2020. Xref achieved an operating cash surplus of $2.3 million for the year and a maiden full year cash flow surplus of $0.26 million after including all development costs, funding acquisition costs and interest costs. Reframing the business As foreshadowed in FY20, this financial year was largely defined by our transition from being sales-led to digital-first and marketing-led. Market conditions have brought candidate verification up the priority list for employers and potential clients are now looking for our services online. Our increased focus on Xref’s online identity and the wealth of resources we have created, including thought leadership content, case studies, guides, video interviews and webinars has enabled us to get in front of employers seeking a more efficient recruitment process. We have seen a significant rise in inbound leads from, in the most part, channel partner integrations, our improved global digital strategy and the network effect generated through the numerous sectors and global regions Xref is now used in. Maintaining a market leading position Research has shown that B2B buyers are becoming increasingly reliant on reviews when considering a software purchase. Our digital-first mentality has ensured an improved online brand salience but we realise their buying journey doesn’t stop there. After a prospect finds Xref through their search for candidate verification tools, they will then do their homework and see how Xref performs on various ratings pages. We have increased our focus on review platforms, such as G2, Capterra and Google My Business, to ensure we are aware of our online perception, encouraging customers to share their feedback and responding to every review posted. While it is nice to acknowledge and thank positive reviewers, we are also careful to quickly respond to any negative reviews. The reason for this is two-fold, first to ensure we deal with any immediate issues the reviewer is having and secondly so that if any potential clients read that review, they can see we have a solution to the issue raised. We ended the financial year with a 4.7 star rating on G2, Google My Business and Capterra, and a combined total of more than 800 reviews across the three platforms. We also maintained a ‘Leader’ position in the reference checking category on G2 for three consecutive quarters leading into the end of the year.  A decade of trust December 2020 marked the 10 year anniversary of Xref and the year leading up to it happened to present the perfect platform to showcase the fruits of our labour for the last decade. In a turbulent and unpredictable market we demonstrated that we could: » Act quickly From our sales and onboarding processes to our messaging in the market, we proved we have the best product and team to pivot and offer new and existing customers solutions, support and information they need, quickly and with ease. » Scale The Xref architecture has been built in a way that it is extremely flexible and able to scale up and down to the needs of different clients at any given time. While some industries saw a complete hiring freeze, others had to rapidly increase their recruitment. We were able to confidently scale back and ramp up with our customers as required. » Offer unrivaled support Xref has an incredible customer success team who are at the heart of the Xref business. We offer great technology with personable, passionate and knowledgeable support and this is one of the reasons our clients love and stay with us. This has never been more important than during COVID-19, when processes had to be completed efficiently, any issues needed to be resolved quickly and account updates (such as adding new questionnaires or topping up credits) were required at speed. Xref Limited | Annual Report 2021 | 9 CEO Report » Be trusted Candidate verification is ultimately about trust - you need to trust the partners you are bringing into your business so you carry out the verification required. But you can only be confident about the decisions you make if you trust the processes you use to get there. Prior to 2020, we were proud of the trust our customers had in our platform but in the last financial year the type of organisations using Xref has changed. The enterprise clients we had become used to were joined by ‘essential services’, such as healthcare and aged care providers. It was testament to the team and platform that we became a critical tool for those hiring for positions of trust during that time. Leaning on leadership This has been a year of difficult decisions caused by the most challenging business environment. I am so proud we have performed so well and none of it could have been achieved without the support, guidance and expertise of the incredible Xref leadership team. Our CFO, James Solomons, CTO, Sharon Blesson, and Group Marketing Director, Karina Guerra, were critical to our success and I’m grateful for the leadership group’s response to the circumstances. We collaborated, communicated clearly and turned a crisis into a reframed opportunity. As a result, we became marketing-led, achieved fiscal clarity and ensured platform reliability, all of which were key to overall client retention, acquisition and revenue growth. Product development Despite our impressive performance during otherwise difficult times, we haven’t been resting on our laurels in the last year. Our leadership, commercial, marketing, finance and development teams have been working tirelessly to bring our next product evolution to life. Our new platform, which will become home to a number of checks that span the length of the employee lifecycle, will launch with exit checks for our largest customers in Q1 FY22. This new offering will support our clients as they move out of the COVID-19 fog, providing them with the tools they need to understand the talent they are bringing into the business, how they can encourage that talent to stay and, ultimately, why they leave and how they can improve retention. Outlook I am incredibly proud of the many strategic decisions the team made during FY21, which resulted in Xref emerging from the pressures of the pandemic in our strongest position to date. Our digital-first approach has been vital to our growth in FY21 and Xref’s results not only reflect the critical nature and demand for the Xref platform and services but demonstrate the brilliance and professionalism of the Xref team. We move into the new year with the foundations laid for further success - we have a lean, productive team, worldclass leadership and an exciting new platform that tackles very real problems in the market and delivers the convenience, consistency and insights employers need in the future. Talent is in transition We are on the cusp of a significant migration of talent. According to the UN, there are currently 200 million people unemployed globally. Some have been let go, some are the victims of COVID-19 cuts and some have worked through COVID-19 and are now on the lookout for something new. We also see many “pandemic-proofers” who have demonstrated their ability to apply their skills in new areas when their industry, organisation and role have come to a standstill overnight. Talent is on the move and employers are going to face an extremely competitive market. Having the right processes in place to make confident hiring decisions, quickly has never been more important. 10 | Xref Limited | Annual Report 2021 Lee-Martin Seymour, Chief Executive Officer, Co-Founder CEO Report  Xref Limited | Annual Report 2021 | 11 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 2021. 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: • Lee-Martin Seymour • Brad Rosser • Nigel Heap • Tim Griffiths (resigned 5 March 2021) • Lija Wilson (appointed 2 June 2021) Principal activities During the financial year, the consolidated entity continued to conduct its core activity which was to develop human resources technology that automates the candidate reference process for employers, It also embarked on significant product evolution, getting the development of a new platform, including additional offerings for the HR industry, underway. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations The profit for the Group after providing for income tax amounted to $78,084 (30 June 2020: a loss of $10,056,090). Highlights of the financial year included: • Success in a challenging market—COVID-19 continued to present challenges for businesses globally but Xref was able to thrive. • Increased market demand—the conditions presented by COVID-19 resulted in an increased interest in verification tools that can be used to make confident hiring decisions in a remote working environment. • Record sales and revenue—a 56.70% increase in Group sales year-on-year and a 56.45% increase in Group revenue. • A profitable result— having seen a cash burn rate of $5.2 million in FY20, Xref achieved its maiden full year cash flow surplus in FY21. As well as a maiden net profit after tax of $78,084 and EBITDA of $1.04m. • A leading online brand—4.7 star ratings across three major online review sites, G2, Google My Business and Capterra and a leading position in G2’s reference checking category. • New product development—the planning and initial development of a new Xref platform designed to meet emerging client needs and significantly increase the addressable market. Matters subsequent to the end of the financial year With the fluctuating restrictions enforced by COVID-19 continuing to have an impact on businesses globally, and the virus itself still rife in many markets, its ongoing effect is impossible to predict. As such, it is not viable to put a figure on the impact it has had following the reporting date, particularly since Australian states have seen various levels of lockdown lifted and reintroduced during that time. On 19 August 2021 the interest rate applicable to the debt funding of $5m provided by Pure Asset Management was renegotiated downwards from 9.95% to 8.50%. This will result in an interest saving of $214,800 for the remainder of the term. In addition, Xref cannot voluntarily repay all or any part of the loan during the period commencing from 19 August 2021 until and including the date that is 12 months after 19 August 2021. All other conditions under the debt funding agreement remain unchanged No other matter or circumstances have arisen since the end of FY21, which could have had a notable impact on operations. 12 | Xref Limited | Annual Report 2021 Directors’ Report Likely developments and expected results of operations The Group anticipates continued growth driven by it’s existing reference checking services, as well as additional expected growth from the new platform in development. The success achieved during COVID-19 to date is expected to continue, given the strength of the company’s existing client portfolio, along with the pipeline of opportunities established by marketing-led lead generation during FY22. Environmental regulation The consolidated entity is not subject to any significant environmental regulation under Australian Commonwealth or State law. Information on directors  Name: Lee-Martin Seymour Title: Managing Director and Chief Executive Officer Qualifications: None Experience and expertise: Lee-Martin Seymour is a co-founder of Xref. He has 21 years recruitment experience across many geographic and market sectors. For 14 years Lee worked for one of the world’s largest specialist recruitment companies. As a result, he understands the demands of the employment market and is passionate about pioneering positive change for the long term. As a serial entrepreneur Lee has identified and successfully leveraged market opportunities to aid innovation in the employment sector. Date of appointment as a director 18 January 2016 Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Remuneration and Nomination Committee (ceased 8 July 2021) Interests in shares: 31,730,108 ordinary shares Interests in options: None Contractual rights to shares: None (8,333,333 performance rights expired 20 January 2021) Name: Brad Rosser Title: Chairman Qualifications: B.Com, MBA Experience and expertise: Brad Rosser is a business builder and entrepreneur who worked for McKinsey and Co from 1992 to 1995 before working directly for Richard Branson as Director of Corporate Development for Virgin from 1995 to 1999, helping to identify and implement start-p businesses. He holds an MBA from Cornell University’s Johnson Graduate School of Management and a Bachelor of Commerce (Honours) from the University of Western Australia. Date of appointment as a director 18 August 2016 Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Audit and Risk Committee and Chairman of the Remuneration and Nomination Committee Interests in shares: 393,607 Interests in options: 7,000,000 options Contractual rights to shares: None Xref Limited | Annual Report 2021 | 13 Directors’ Report Name: Nigel Heap Title: Non-Executive Director Qualifications: LLB, AMP Experience and expertise: Nigel Heap is the UK Ireland Managing Director, and Chairment of the Asia Pacific business, of Hays plc, the leasding global professional recruitment group, and a member of the group’s management board. He joined Hays in 1988 and over the last 21 years has successfully led the growth of the Asia-Pacific business. He has completed INSEAD’s Advanced Management Program and holds a Bachelor of Laws from Manchester University. Date of appointment as a director 18 August 2016 Other current directorships: Hays UK Ltd Former directorships (last 3 years): None Special responsibilities: Chairman of the Audit and Risk Committee and member of the Renumeration and Nomination Committee Interests in shares: 32,103 ordinary shares Interests in options: 900,000 options Contractual rights to shares: None Name: Lija Wilson (commenced on 02 June 2021) Title: Non-Executive Director Qualifications: BCom Experience and expertise: Lija Wilson is the CEO and Founder of award-winning digital talent platform, Puffling, which launched in 2017 to design solutions to support diverse hiring and flexible work best practices. Prior to this, she held CMO-level roles at various organisations, including TEDx, Qantas Group and Fairfax Media. She is also a global ambassador for Flexible Work Day. Through her current work in Puffling, Lija has worked as a senior level career coach and advisor, further crediting her passion for developing and mentoring top female talent, particularly in tech. Date of appointment as a director 2 June 2021 Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Became a member of the Renumeration and Nomination Committee on 8 July 2021 and will become a member of the Audit and Risk Committee on September 2021 Interests in shares: None Interests in options: 900,000 options Contractual rights to shares: Options are proposed to be issued, subject to approval at the 2021 AGM. 14 | Xref Limited | Annual Report 2021 Directors’ Report Name: Timothy Griffiths (Resigned on 05 March 2021) Title: Chief Strategy Officer Qualifications: MBA Experience and expertise: Tim Griffiths is a co-founder of Xref. Mr Griffiths, an MBA-qualified technologist, has 24 years’ experience advising companies, including Virgin and SkyTV. He worked for Benchmark Capital providing technical diligence for high tech start-up investment and was co-founder of media company a2a plc, which floated on the UK stock market. More recently Tim was CIO for Jcurve Solutions, an Australian cloud NetSuite ERP provider. Date of appointment as a director 18 January 2016 Other current directorships: None Former directorships (last 3 years): None Special responsibilities: Member of the Audit and Risk Committee Interests in shares: 30,930,690 ordinary shares Interests in options: None Contractual rights to shares: None (8,333,333 performance rights expired 20 January 2021) ‘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 Mr. James Solomons, BCom, FCA, CTA, GAICD James is a chartered accountant with over 20 years of experience within the accounting & corporate finance industry. He has held various roles within the sector and has positioned himself as a leader in the accounting technology space brining with him to Xref over 5 years of experiences as Xero Australia’s Head of accounting. A successful entrepreneur in his own right James has a deep understanding of the need to find a balance between investing for growth whilst maintaining strong corporate governance processes across the business. Company Secretary Mr Robert Waring, BEc, ACA, FCIS, ASIA, FAICD Robert has more than 42 years of experience in financial and corporate roles, including more than 26 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, Vectus Biosystems Limited and a director and Company Secretary of ASX-listed company R3D Resources Limited. Chief Technology Officer Mrs Sharon Blesson Recognised for her ability to bridge the gap between IT and business, Sharon has a rich history of program management in both delivery and operational environments. She has developed excellent leadership skills and expertise in managing diverse teams while providing motivation and strategic vision. Prior to joining Xref, Sharon spent over a year as director of the project management office at the Ivy College in Sydney, earlier she was a major corporate client manager at Sqware Peg, and also a IT&T Project Manager for  Xref Limited | Annual Report 2021 | 15 Directors’ Report recruitment specialists Hays. Meetings of directors Th