X2M CONNECT LIMITED — Interim / Quarterly Report 2021

Sep 19, 2021

X2M Connect Limited Appendix 4E Preliminary final report

1. Company details

Name of entity: X2M Connect Limited ACN: 637 951 154 Reporting period: For the period ended 30 June 2021 Previous period: For the period 9 December 2019 to 30 June 2020

X2M Connect Limited (the "Company" or “X2M”) is a company domiciled in Australia. It was originally incorporated on 9 December 2019. As such, the comparative reporting period is from the date of incorporation to 30 June 2020. In turn this makes prior period financial comparisons less meaningful.

2. Results for announcement to the market

				$
Revenues from ordinary activities	up	333.8%	to	5,700,396
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)	up	361.7%	to	(4,393,007)
Loss from ordinary activities after tax attributable to the owners of X2M
Connect Limited	up	498.5%	to	(8,308,066)
Loss for the period attributable to the owners of X2M Connect Limited	up	498.5%	to	(8,308,066)

Dividends

There were no dividends paid, recommended or declared during the current financial period.

Key points

The 2021 financial year was a strong one for X2M with all core business metrices performing well. Key operational metrices for the period delivered the following results compared to the period ended 30 June 2020:

• Revenues from ordinary activities are up 334% to $5,700,396.

• 9 new enterprise and government customers were added during the year bringing the total customer base up to 34, an increase of 36% on the prior period.

• Total connected devices increased to 123,000 up from 64,000 at the end of the last period.

• Earnings Before Interest, Tax, Depreciation and Amortisation for the year was a loss of $4,393,007.

• Loss for the period attributable to the owners of X2M was $8,308,066 .

Group Commentry

The loss for the Group after providing for income tax amounted to $8,308,066 (9 December 2019 to 30 June 2020: $1,388,198).

Revenue for the period was $5,700,396 (9 December 2019 to 30 June 2020: $1,314,138), reflecting strong organic growth and a full year of trading. The Group saw strong growth in its South Korean operations, driven by hardware sales to new municipalities and generated reoccurring platform subscription revenue from these sales. The Group also entered China and earned revenue of $1,088,774 for the period. The Group added approximately 60,000 connected devices to its patented software platform over the period, representing 93% year-on-year growth.

Other income increased to $819,279 for the year, predominantly consisting of government assistance of $393,381 in response to the COVID-19 pandemic, research and development tax credits of $322,101 and an export market development grant of $100,000.

X2M Connect Limited Appendix 4E Preliminary final report

Total expenses for the year was $15,073,263 (9 December 2019 to 30 June 2020: $2,944,802). The increase in operating expenses in 2021 reflect a full year of operations and the corresponding increase in the cost of sales as a result of revenue growth. The total expenses were driven by:

• Full year cost of sales of $4,091,280, increased in line with revenue growth.

• $4,935,291 Employee benefits and staff costs that include the appointment of the Board and additional employees added to meet demands.

• $2,072,156 non-cash share based payments expense.

• $1,245,807 depreciation and amortisation.

• $681,534 one off costs associated with the IPO.

The following table summarises key reconciling items between statutory after tax result attributable to the shareholders of the Company and EBITDA:

Loss after income tax Less: Income tax benefit Add: Depreciation and amortisation Add: Finance costs Add: Share based payments expense Add: One off IPO costs EBITDA	Consolidated 2021 9 December 2019 to 30 June 2020 $ $ (8,308,066) (1,388,198) (245,522) (62,554) 1,245,807 386,283 161,084 113,007 2,072,156 - 681,534 -	Consolidated 2021 9 December 2019 to 30 June 2020 $ $ (8,308,066) (1,388,198) (245,522) (62,554) 1,245,807 386,283 161,084 113,007 2,072,156 - 681,534 -
	(4,393,007)	(951,462)

3. Net tangible assets

Net tangible assets per ordinary security	Reporting period Cents (2.72)	Previous period Cents (5.90)

The net tangible assets per ordinary shares is calculated based on 88,062,050 ordinary shares on issue as at 30 June 2021 and 50,800,480 ordinary shares that would have been in existence had the share split occurred as at 30 June 2020.

4. Control gained over entities

Not applicable.

5. Loss of control over entities

Not applicable.

6. Dividends

Current period

There were no dividends paid, recommended or declared during the current financial period.

Previous period

There were no dividends paid, recommended or declared during the previous financial period.

X2M Connect Limited Appendix 4E Preliminary final report

7. Dividend reinvestment plans

Not applicable.

8. Details of associates and joint venture entities

Not applicable.

9. Foreign entities

Details of origin of accounting standards used in compiling the report:

Not applicable.

10. Audit qualification or review

Details of audit/review dispute or qualification (if any):

The financial statements are in the process of being audited and an unqualified opinion is expected to be issued.

11. Attachments

Details of attachments (if any):

The Preliminary Financial Report of X2M Connect Limited for the period ended 30 June 2021 is attached.

12. Signed

Signed _________

Date: 19 September 2021

Hon. Alan Stockdale AO Non-Executive Chairman

X2M Connect Limited

ACN 637 951 154

Preliminary Financial Report - 30 June 2021

X2M Connect Limited Contents 30 June 2021

2 3 4 5 6

Statement of profit or loss and other comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Notes to the financial statements

1

X2M Connect Limited Statement of profit or loss and other comprehensive income For the period ended 30 June 2021

Note Revenue 3 Other income 4 Total revenue and other income Expenses Cost of sales Employee benefits expense Share based payments Depreciation and amortisation expense Finance costs Telephone expenses Short-term lease expenses Other expenses Professional fees IPO expenses Total expenses Loss before income tax benefit Income tax benefit Loss after income tax benefit for the period attributable to the owners of X2M Connect Limited Other comprehensive income Items that may be reclassified subsequently to profit or loss Foreign currency translation Other comprehensive income for the period, net of tax Total comprehensive income for the period attributable to the owners of X2M Connect Limited Basic earnings per share Diluted earnings per share	Consolidated 2021 9 December 2019 to 30 June 2020 $ $ 5,700,396 1,314,138 819,279 179,912 6,519,675 1,494,050 (4,091,280) (551,734) (4,935,291) (1,281,823) (2,072,156) - (1,245,807) (386,283) (161,084) (113,007) (211,968) (89,688) (101,779) (65,925) (688,919) (272,645) (883,445) (183,697) (681,534) - (15,073,263) (2,944,802) (8,553,588) (1,450,752) 245,522 62,554 (8,308,066) (1,388,198) (184,667) 23,813 (184,667) 23,813 (8,492,733) (1,364,385) Cents Cents (12.29) (3.25) (12.29) (3.25)
	6,519,675
	(4,091,280) (4,935,291) (2,072,156) (1,245,807) (161,084) (211,968) (101,779) (688,919) (883,445) (681,534)
	(15,073,263)
	(8,553,588) 245,522
	(8,308,066) (184,667)
	(184,667)
	(8,492,733)
	Cents (12.29) (12.29)

The above statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes

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X2M Connect Limited Statement of financial position As at 30 June 2021

Note Assets Current assets Cash and cash equivalents Trade and other receivables Contract assets Inventories Other assets Total current assets Non-current assets Property, plant and equipment and right-of-use assets Intangible assets Other assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables 5 Contract liabilities Borrowings Lease liabilities Derivative financial instruments Employee benefits 6 Provisions Total current liabilities Non-current liabilities Lease liabilities Deferred tax liabilities Employee benefits 6 Total non-current liabilities Total liabilities Net liabilities Equity Issued capital Foreign currency translation reserve Accumulated losses Total deficiency in equity	Consolidated 2021 2020 $ $ 1,952,842 302,092 204,826 520,856 359,319 437,759 76,317 269,043 1,506,599 638,976 4,099,903 2,168,726 632,856 1,306,672 2,196,687 1,761,502 128,021 256,118 2,957,564 3,324,292 7,057,467 5,493,018 2,044,068 1,108,204 1,070,696 7,798 2,408,423 4,483,548 129,056 62,943 31,488 112,000 1,327,762 266,479 28,540 87,847 7,040,033 6,128,819 113,232 64,273 98,785 346,066 249,577 317,985 461,594 728,324 7,501,627 6,857,143 (444,160) (1,364,125) 9,412,958 260 (160,854) 23,813 (9,696,264) (1,388,198) (444,160) (1,364,125)
	4,099,903
	632,856 2,196,687 128,021
	2,957,564
	7,057,467
	2,044,068 1,070,696 2,408,423 129,056 31,488 1,327,762 28,540
	7,040,033
	113,232 98,785 249,577
	461,594
	7,501,627
	(444,160)
	9,412,958 (160,854) (9,696,264)
	(444,160)

The above statement of financial position should be read in conjunction with the accompanying notes

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X2M Connect Limited Statement of changes in equity For the period ended 30 June 2021

Consolidated Balance at 9 December 2019 Loss after income tax benefit for the period Other comprehensive income for the period, net of tax Total comprehensive income for the period Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs Balance at 30 June 2020 Consolidated Balance at 1 July 2020 Loss after income tax benefit for the period Other comprehensive income for the period, net of tax Total comprehensive income for the period Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs Share-based payments Issue of shares on conversion of convertible notes Balance at 30 June 2021	Issued capital $ - - -	Foreign currency translation reserve $ - - 23,813	Accumulated losses $ - (1,388,198) -	Total deficiency in equity $ - (1,388,198) 23,813
	- 260	23,813 -	(1,388,198) -	(1,364,385) 260
	260	23,813	(1,388,198)	(1,364,125)
	Issued capital $ 260 - -	Foreign currency translation reserve $ 23,813 - (184,667)	Accumulated losses $ (1,388,198) (8,308,066) -	Total deficiency in equity $ (1,364,125) (8,308,066) (184,667)
	- 2,013,000 1,419,725 5,979,973	(184,667) - - -	(8,308,066) - - -	(8,492,733) 2,013,000 1,419,725 5,979,973
	9,412,958	(160,854)	(9,696,264)	(444,160)

The above statement of changes in equity should be read in conjunction with the accompanying notes

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X2M Connect Limited Statement of cash flows For the period ended 30 June 2021

Note Cash flows from operating activities Receipts from customers and other sources Payments to suppliers and employees Net cash used in operating activities Cash flows from investing activities Payment for purchase of business, net of cash acquired 2 Payments for intangibles Proceeds from release of security deposits Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Cost of capital raising Proceeds from convertible notes Proceeds from borrowings Repayment of lease liabilities (including interest) Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial period Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the financial period	Consolidated 2021 9 December 2019 to 30 June 2020 $ $ 7,654,942 1,418,515 (10,895,759) (2,325,216) (3,240,817) (906,701) - (2,825,080) (776,738) (258,037) 128,097 - (648,641) (3,083,117) 2,070,000 260 (57,000) - 2,800,000 4,200,000 952,221 113,050 (225,013) (18,893) 5,540,208 4,294,417 1,650,750 304,599 302,092 - - (2,507) 1,952,842 302,092
	(3,240,817)
	- (776,738) 128,097
	(648,641)
	2,070,000 (57,000) 2,800,000 952,221 (225,013)
	5,540,208
	1,650,750 302,092 -
	1,952,842

The above statement of cash flows should be read in conjunction with the accompanying notes

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X2M Connect Limited Notes to the financial statements 30 June 2021

Note 1. Significant accounting policies

This preliminary final report has been prepared in accordance with ASX Listing Rule 4.3A and the disclosure requirements of ASX Appendix 4E.

Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of X2M Connect Limited ('Company' or 'parent entity') as at 30 June 2021 and the results of all subsidiaries for the period then ended. X2M Connect Limited and its subsidiaries together are referred to in these financial statements as the 'Group'.

Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

The acquisition of subsidiaries is accounted for using the acquisition method of accounting. A change in ownership interest, without the loss of control, is accounted for as an equity transaction, where the difference between the consideration transferred and the book value of the share of the non-controlling interest acquired is recognised directly in equity attributable to the parent.

Where the Group loses control over a subsidiary, it derecognises the assets including goodwill, liabilities and non-controlling interest in the subsidiary together with any cumulative translation differences recognised in equity. The Group recognises the fair value of the consideration received and the fair value of any investment retained together with any gain or loss in profit or loss.

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X2M Connect Limited Notes to the financial statements 30 June 2021

Note 2. Business combinations

The Group consists of X2M Connect Limited and the following companies: Freestyle Energy Two Pty Ltd Freestyle Technology Taiwan Limited Freestyle Technology Co., Ltd* Golden Sino Hong Kong Limited Freestyle Technology (Shanghai) Co., Ltd Freestyle Technology Japan KK Beijing Freestyle Technology Co., Ltd

*South Korean operations

The above mentioned companies, excluding Beijing Freestyle Technology Co., Ltd, were acquired by X2M Connect Limited on 26 February 2020 from Freestyle Technology Limited.

Details of the acquisition are as follows:

Cash and cash equivalents Trade & other receivables Contract assets Inventories Other assets Property, plant and equipment and right-of-use assets Trade & other payables Employee benefits Provisions (onerous contract) Lease liabilities Identifiable intangible assets recognised on acquisition (intellectual property, patents and copyright) Deferred tax liability on intellectual property, patents and copyright Net assets acquired Goodwill Acquisition-date fair value of the total consideration transferred Representing: Cash paid or payable to vendor Less: Cash and cash equivalents acquired Net cash and cash equivalents on purchase of business	Fair value $ 174,920 421,699 415,774 212,493 239,710 1,525,202 (897,714) (102,211) (107,368) (84,740) 1,610,855 (408,620)
	3,000,000 -
	3,000,000
	3,000,000 (174,920)
	2,825,080

Note 3. Revenue

Platform subscriptions revenue Hardware sales Proof of concepts and development services revenue Revenue	Consolidated 2021 9 December 2019 to 30 June 2020 $ $ 1,443,801 741,546 4,139,630 572,592 116,965 -	Consolidated 2021 9 December 2019 to 30 June 2020 $ $ 1,443,801 741,546 4,139,630 572,592 116,965 -
	5,700,396	1,314,138

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X2M Connect Limited Notes to the financial statements 30 June 2021

Note 3. Revenue (continued)

The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers and the related revenue recognition policies.

Type of product/service Nature and timing of satisfaction of performance obligations Platform subscription revenue The nature and timing of revenue recognition can differ between customers based on the deliverables and pricing of each customer's contract. Where a contract provides pricing for licence/subscription fees, revenue is recognised over the service period following the completion of hardware being installed. Hardware sales Hardware sales are recognised at a point in time when the Group has transferred to the buyer control of the goods and where there is no unfulfilled obligation that could affect the buyer's acceptance of the goods. The timing of the transfer of control varies depending on the individual terms of the sales agreement. The transfer usually occurs once the units of hardware are installed. Proof of concepts and development Where a contract requires the completion of milestones related to proof of concept service revenue and development service revenue, revenue is recognised when the objectives of the milestones are achieved.

Note 4. Other income

Research and development tax credits Government assistance Export market development grant Interest income Other income Other income	Consolidated 2021 9 December 2019 to 30 June 2020 $ $ 322,101 44,849 393,381 135,000 100,000 - 612 63 3,185 - 819,279 179,912
	819,279

Note 5. Trade and other payables

Current liabilities Trade payables Accrued expenses	Consolidated 2021 2020 $ $ 695,746 562,809 1,348,322 545,395 2,044,068 1,108,204
	2,044,068

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X2M Connect Limited Notes to the financial statements 30 June 2021

Note 6. Employee benefits

Current liabilities Employee benefits Other employee benefits* Non-current liabilities Employee benefits	Consolidated 2021 2020 $ $ 675,331 266,479 652,431 - 1,327,762 266,479 249,577 317,985 1,577,339 584,464
	1,327,762
	249,577
	1,577,339

*On 2 July 2021, the Company issued 5,219,448 fully paid ordinary shares at a deemed issue price of $0.125 (12.5 cents) to a key management personnel under the employee incentive scheme. As there was shared understanding established before year end, a share based payment expense of $652,431 was recognised in the statement of profit or loss and other comprehensive income.

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