XTM Inc.
CSE: PAID, OTCQB: XTMIF, FSE: 7XT
www.XTMINC.com

Annual Audited Consolidated Financial Statements

For the years ended December 31, 2024 and 2023

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

Management's Responsibility for Consolidated Financial Statements

The accompanying consolidated financial statements of XTM Inc. (the "Company" or "XTM") are the responsibility of management and the Board of Directors.

The consolidated financial statements have been prepared by management, on behalf of the Board of Directors, in accordance with the accounting policies disclosed in the notes to the consolidated financial statements. Where necessary, management has made informed judgments and estimates in accounting for transactions, which were not complete at the statement of financial position date. In the opinion of management, the consolidated financial statements have been prepared within acceptable limits of materiality and are in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS").

Management has established processes which are in place to provide it sufficient knowledge to support management representations that it has exercised reasonable diligence that (i) the consolidated financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of, and for the years presented by, the consolidated financial statements and (ii) the consolidated financial statements fairly present in all material respects the financial condition, results of operations and cash flows of the Company, as of the date of and for the years presented by the consolidated financial statements.

The Board of Directors is responsible for reviewing and approving the consolidated financial statements together with other financial information of the Company and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the consolidated financial reporting process and the consolidated financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements together with other financial information of the Company for issuance to the shareholders.

Management recognizes its responsibility for conducting the Company's affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.

DATED 7th day of May, 2025

XTM INC.

Per: (signed) "Marilyn Schaffer"

Name: Marilyn Schaffer

Title: Chief Executive Officer

ABU-FARAH Professional Corporation

4230 Sherwoodtowne Blvd
Mississauga, ON L4Z 2G6
437-800-1587
Ipgcpa.ca

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
XTM Inc.
Toronto, Ontario, Canada

Opinion

We have audited the financial statements of XTM Inc. and its subsidiaries (the "Company"), which comprise the consolidated statement of financial position as at December 31, 2024 and the consolidated statement of loss and comprehensive loss, consolidated statement of changes in shareholder's deficiency, and consolidated statement of changes in cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2024, and the results of its operations and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the relevant ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 to the consolidated financial statements, which indicates that the Company incurred a net loss during the year ended December 31, 2024 and, as of that date, the Company had an accumulated deficit. As stated in Note 1 these events or conditions that indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Emphasis of Matter

We draw attention to Note 24 in the consolidated financial statements, which explains use of restricted cash funds by the Company for its operating and program management resulting in a potential liability to the Company. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Key Audit Matters	How our audit addressed the key audit matters
Revenue Recognition
The Company's revenue from contracts with customer (IFRS 15) relates to technology solutions provided to restaurants and salons for disseminating earned wages and gratuities. The Company has multiple revenue streams as described in Note 3,4 and 26 which include card revenue, program revenue and subscription revenue.

The Company enters into agreements with restaurants and has various performance obligations.

The application of revenue recognition policies requires Company to exercise judgment in the following areas:
• Assessing whether the Company's performance obligations are distinct from one another.
• Determining the timing of when revenue is recognized for the separate performance obligations and whether the performance is deemed to occur over time or at a point in time.
• For performance obligations satisfied over time, the selection of an appropriate methodology to best depict the transfer of services to the customer under the contract.

These judgments required significant auditor attention and accordingly, we identified revenue recognition as a key audit matter. | We responded to this matter by performing procedures in relation to the assessment of revenue recognition. Our audit work in relation to this included, but was not restricted to, the following:
• We obtained the understanding of the process and internal controls related to each significant revenue generating activity with the scope of IFRS 15.
• We tested determination of individual performance obligations identified by the Company to ensure distinct performance obligations identified were consistent with the contracts.
• We assessed whether all distinct obligations noted in the contracts were complete and revenue was recognized appropriately.
• We evaluated the key judgments applied by the Company, including:
- Assessing whether the performance obligations noted in the contract are distinct or highly interdependent and highly interrelated.
- Assessing the application of over time revenue recognition methodology. |

| Goodwill Impairment Analysis
As described in Notes 3 and 6 to the consolidated financial statements, the Company's goodwill balance was $920,000 as of December 31, 2024.

Goodwill is tested for impairment annually, or whenever certain events or changes in circumstances indicate that the carrying value of goodwill may be greater than the recoverable amount. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of cash inflows of other assets or groups of assets (a cash generating unit ("CGU")).

Management uses the higher of the value in use and fair value less cost of disposal approach to determine the recoverable amount for all CGUs.

We considered this to be a key audit matter due to the significant judgment made by management in estimating the recoverable amount for goodwill and a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to management's estimates. This resulted in an increased extent of audit effort, including the involvement of internal valuation specialists. | We responded to this matter by performing procedures in relation to the goodwill impairment analysis. Our audit work in relation to this included, but was not restricted to, the following:

• Evaluated the appropriateness of the discounted cash flow models by testing the completeness, accuracy, and relevance of underlying data used in the cash flow models.
• Obtained an understanding of management's internal control process as it relates to the determination of key inputs and assumptions.
• Evaluated management's assumptions related to revenue growth rates, and ratio of expenses after considering (i) the current and past performance of each CGU, (ii) the consistency with forecasts per industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.
• With the assistance of internal valuation specialists, evaluated the reasonableness of management's impairment model and evaluated management's assumptions related to the pre-tax discount rate.
• Assessed the appropriateness of the disclosures relating to the assumptions used in the impairment assessments in the notes to the consolidated financial statements. |
| --- | --- |

Other Information

Management is responsible for the other information, which comprises the information included in the Company’s Management Discussion & Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed on this other information, 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 Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are 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 Canadian generally accepted 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 these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit and also:

Identify and assess the risks of material misstatement of the consolidated financial statements, 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 Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's 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 Company'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 consolidated financial statements 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 Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent 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 Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance 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 our audit.

We also provide those charged with governance 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, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our 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 our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Abufarah Professional Corporation

Chartered Professional Accountants, Licensed Public Accountant

The engagement partner on the audit resulting in this independent auditor's report is Fathi Abu-Farah

Mississauga, Ontario

May 07, 2025

Table of Contents

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION... 3
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)... 4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)... 5
CONSOLIDATED STATEMENTS OF CASH FLOWS... 6
1. NATURE OF OPERATIONS... 7
2. BASIS OF PREPARATION AND PRESENTATION... 8
3. MATERIAL ACCOUNTING POLICIES... 9
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS... 19
5. BUSINESS COMBINATIONS... 23
6. GOODWILL... 24
7. CASH... 24
8. INVENTORY... 24
9. PREPAID EXPENSES... 25
10. CONTRACT ASSETS... 25
11. PROPERTY AND EQUIPMENT... 26
12. RIGHT-OF-USE ASSETS... 27
13. INTANGIBLE ASSETS... 27
14. LOAN PAYABLE... 28
15. LEASE LIABILITIES... 28
16. CAPITAL STOCK... 29
17. CONVERTIBLE DEBENTURES & SUBSCRIPTION RECEIPTS... 31
18. RELATED PARTY BALANCES AND TRANSACTION... 34
19. UNEARNED REVENUE... 35
20. COMMITMENTS AND CONTINGENCIES... 35
21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT... 35
22. MANAGEMENT OF CAPITAL... 38
23. INCOME TAXES... 38
24. CLIENT AND CARDHOLDER FUNDS – RESTRICTED CASH AND PROGRAM DEPOSITS... 39
25. GOVERNMENT LOAN... 40
26. NET REVENUES... 40
27. OTHER EXPENSES... 41
28. SEGMENTED INFORMATION... 41
29. COMPARATIVE FIGURES... 41
30. SUBSEQUENT EVENTS... 41

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Expressed in Canadian Dollars	Note	As At December 31, 2024	December 31, 2023
Assets
Current
Cash	7	$ 64,130	$ 94,096
Cash – restricted	24	65,431,206	49,974,371
Trade and other receivables	21	584,357	503,370
Receivables – restricted	21	2,395,732	658,271
Prepaid expenses	9	415,860	454,027
Inventory	8	65,374	417,339
Contract assets	10	387,291	384,121
Sales tax receivable		-	37,244
		69,343,950	52,522,839
Property and equipment	11	315,648	479,461
Right-of-use assets	12	605,720	241,911
Prepayment option on convertible note	17	2,735	142,060
Intangible assets	13	5,992,947	7,038,555
Goodwill	6	920,000	3,127,619
Total Assets		$ 77,181,000	$ 63,552,445
Liabilities
Current
Trade and other payables	21	$ 11,119,681	$ 7,500,309
Program deposits	21,24	76,950,759	57,113,812
Sales tax payable	21	145,465	15,452
Due to related party	18,21	218,509	2,259,482
Loan payable	14,21	4,982,366	-
Unearned revenue	19	1,148,008	1,104,249
Current portion of lease liabilities	15,21	164,367	246,007
		94,729,155	68,239,311
Government loan	21,25	60,000	60,000
Long term portion of lease liabilities	15,21	595,713	11,428
Convertible debentures	17,21	9,688,036	1,483,204
Subscription receipts	17,21	1,184,179	1,088,467
Total Liabilities		$ 106,257,083	$ 70,882,410
Shareholders' Equity (Deficit)
Share capital	16	27,795,879	26,474,701
Contributed surplus	16	2,154,880	1,127,791
Equity conversion feature on convertible note	17	174,222	589,836
Warrant reserve	16,17	61,255	53,020
Cumulative translation reserve		(298,363)	31,287
Accumulated deficit		(58,963,956)	(35,606,600)
Total Shareholders' Equity (Deficit)		(29,076,083)	(7,329,965)
Total Liabilities and Shareholders' Equity (Deficit)		$ 77,214,084	$ 63,552,445
Commitments and contingencies	20
Subsequent events	30
Going concern	1

The accompanying notes are an integral part of these audited consolidated financial statements.

APPROVED BY THE BOARD OF DIRECTORS:

"Marilyn Schaffer" "Keith McKenzie" "Olga Balanovskaya"
Director Director Director

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

Years Ended December 31,
Expressed in Canadian Dollars	Note	2024	2023
Net revenues	26	$ 9,091,458	$ 6,775,066
Cost of sales		8,908,830	6,555,775
Gross profit		96,165	219,291
Expenses
Salaries and employee benefits	18	10,251,790	6,871,803
Share-based compensation	16	2,126,864	1,656,822
Office and general		1,366,280	863,671
Professional fees		1,953,165	452,382
Consulting		541,977	550,930
Marketing and promotion		254,107	1,615,261
Public company and regulatory		187,929	327,961
Interest on debentures	17	971,969	811,803
Accretion on debentures	17	78,811	142,481
Travel, meals and entertainment		72,954	131,171
Goodwill impairment	6	2,207,619	-
Depreciation and amortization	11,12,13	2,121,323	101,220
Bank charges and interest	14	551,461	61,417
Bad debt and ECL	21	58,439	51,467
Other expenses	27	294,717	2,663,824
Total expenses		23,039,405	16,302,214
Income (loss) from operations		(22,943,240)	(16,082,923)
Income taxes	23	-	-
Net income (loss) for the year		$ (22,943,240)	$ (16,082,923)
Other comprehensive income (loss)		(329,650)	55,677
Net income (loss) and comprehensive income (loss)		$ (23,272,890)	$ (16,027,246)
Net income (loss) per share - Basic and diluted		$ (0.11)	$ (0.08)
Weighted average number of shares outstanding - Basic and diluted		214,283,198	191,286,762

The accompanying notes are an integral part of these audited consolidated financial statements

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

Expressed in Canadian Dollars	Share Capital			Contributed Surplus	Warrant Reserve	Equity conversion feature on convertible debenture	Accumulated Other Comprehensive Income (loss)	Accumulated Deficit	Total Shareholders' Equity (Deficit)
	Note	Number of Common Shares	Amount
Balance, January 1, 2023		171,569,084	$ 18,084,459	$ 612,136	$ 3,038,230	$ -	$ (24,390)	$ (19,523,677)	$ 2,186,758
Issue of shares	16	28,343,750	4,222,405	-	-	-	-	-	4,222,405
Warrants expired	16	-	3,038,230	-	(3,038,230)	-	-	-	-
Stock options expired	16	-	88,829	(88,829)	-	-	-	-	-
Restricted stock units issued	16	2,534,215	403,891	(403,891)	-	-	-	-	-
Share-based compensation	16	4,230,769	390,000	390,000	-	-	-	-	780,000
Shares issued for services	16	2,081,000	246,887	-	-	-	-	-	246,887
Stock options vested	16	-	-	168,070	-	-	-	-	168,070
Restricted stock units vested	16	-	-	450,305	-	-	-	-	450,305
Convertible debentures equity component	17	-	-	-	-	589,836	-	-	589,836
Warrants issued from convertible debentures	16,17	-	-	-	53,020	-	-	-	53,020
Exchange loss from translation of foreign operations		-	-	-	-	-	55,677	-	55,677
Net loss for the year		-	-	-	-	-	-	(16,082,923)	(16,082,923)
Balance, December 31, 2023		208,758,818	$ 26,474,701	$ 1,127,791	$ 53,020	$ 589,836	$ 31,287	$ (35,606,600)	$ (7,329,965)
Balance, January 1, 2024		208,758,818	$ 26,474,701	$ 1,127,791	$ 53,020	$ 589,836	$ 31,287	$ (35,606,600)	$ (7,329,965)
Restricted stock units issued	16	3,846,500	327,074	(99,074)	-	-	-	-	228,000
Shares issued for stock options	16	296,875	26,641	11,203	-	-	-	-	37,844
Stock options vested	16	-	-	750,448	-	-	-	-	750,448
Restricted stock units vested	16	-	-	360,571	-	-	-	-	360,571
Convertible debentures equity component	16	-	-	-	-	(415,614)	-	-	(415,614)
Warrants issued from convertible debentures	16,17	-	-	-	8,235	-	-	(8,235)	-
Redemption of convertible debentures	17	1,449,755	217,463	3,941	-	-	-	-	221,404
Shares issued for director fees	16	10,000,000	750,000	-	-	-	-	-	750,000
Other comprehensive loss from translation of foreign operations		-	-	-	-	-	(329,650)	(405,881)	(735,531)
Net loss for the year		-	-	-	-	-	-	(22,943,240)	(22,943,240)
Balance, December 31, 2024		224,351,948	$ 27,795,879	$ 2,154,880	$ 61,255	$ 174,222	$ (305,496)	$ (58,963,956)	$ (29,076,083)

The accompanying notes are an integral part of these audited consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS

Expressed in Canadian Dollars	Note	For the year ended December 31,
		2024	2023
OPERATING ACTIVITIES
Net loss for the year		$ (22,943,240)	$ (16,082,923)
Items not affecting cash:
Share-based compensation	16	2,133,338	1,615,261
Accretion and interest on convertible debentures	17	1,050,780	273,653
Amortization of intangible assets	13	1,583,635	604,717
Depreciation of property and equipment	11	173,455	97,599
Depreciation of right-of-use assets	12	364,233	231,230
Expected credit loss	21	58,439	51,467
Interest on lease liabilities	15	17,666	6,187
Unrealized loss on prepayment option remeasurement	17	39,226	87,277
		(17,522,468)	(13,115,532)
Changes in non-cash working capital:
Accounts payable	21	3,451,545	6,250,453
Cash – restricted	24	(15,308,662)	1,300,550
Contract assets	10	(3,170)	(136,604)
Program deposits	24	19,836,944	4,587,500
Prepaid expenses	9	52,311	(173,410)
Trade and other receivables	21	(1,091,760)	75,959
Receivables - restricted	21	(1,583,334)	(486,542)
Inventory	8	369,526	(410,566)
Goodwill	6	2,207,619	-
Unearned revenue	19	17,591	639,938
		7,948,610	11,647,278
Cash flows used by operating activities		(9,573,858)	(1,468,254)
INVESTING ACTIVITIES
Additions of property and equipment	11	-	(6,824)
Disposals of property and equipment	11	-	11,486
Additions of right-of-use assets	12	(693,764)	(105,380)
Acquisition of property and equipment	5,11	-	(469,584)
Acquisition of right-of-use assets	5,12	-	(287,268)
Acquisition of intangible assets	5,13	-	(7,751,744)
Investments	5	-	(2,014,786)
Cash flows used by investing activities		(693,764)	(10,624,101)
FINANCING ACTIVITIES
(Repayment to) advances from related parties	18	(2,040,973)	1,776,419
Issuance of common shares	16	-	4,626,296
Addition of lease liabilities	14	459,883	170,567
Net proceeds from convertible debt issuance	16	7,149,178	1,483,204
Subscription receipts	16	-	1,088,467
Proceeds from loan payable	15	4,743,100	-
Net proceeds from warrants	16	8,235	53,021
Cash flows from financing activities		10,319,423	9,197,974
Foreign exchange affecting cash		(81,767)	300,850
Decrease in cash		(29,966)	(2,593,530)
Cash, beginning of year		94,096	2,687,626
Cash, end of year	7	$ 64,130	$ 94,096

The accompanying notes are an integral part of these audited consolidated financial statements

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

1. NATURE OF OPERATIONS

XTM, with offices in Toronto, Denver and London, is a fintech creator of payment innovations including fully certified Earned Wage Access ("EWA") through its AnyDay™ product. Founded in the cloud-banking space to further support businesses to inspire their workforce in the hospitality, personal care and services staffing industries, XTM provides on-demand pay for many large brands including Earls, Maple Leaf Sports & Entertainment, Cactus Club, Marriott Hotels and Live Nation.

The Company was incorporated under the Ontario Business Corporations Act on December 1, 2005. The head office, principal address and registered office of the Company is located at 67 Mowat Avenue, Suite 437, Toronto, Ontario, Canada, M6K 3E3.

On March 10, 2020, the common shares of the Company were listed on the Canadian Securities Exchange under the trading symbol PAID. On April 29, 2020, the common shares of the Company were listed on the Frankfurt Stock Exchange (Deutsche Boerse AG) under the symbol "7XT". On March 5, 2021, XTM's shares started trading on the OTCQB Venture Market, a US trading platform that is operated by OTC Markets Group in New York. The Company's symbol is "XTMIF".

Going Concern

The Company's audited consolidated financial statements are prepared on a going concern basis, which contemplates the realisation of assets and the satisfaction of obligations in the normal course of business.

The audited consolidated financial statements show a net loss of $22,943,240 for the year ended December 31, 2024 (December 31, 2023 - $16,082,923) and as at that date, the Company had an accumulated deficit of $58,963,956 (December 31, 2023 - $35,606,600). These conditions indicate the existence of material uncertainties that may cast significant doubt over the ability of the Company to continue as a going concern.

In view of these matters, continuation as a going concern is dependent upon the continued development of the financial product and services of the Company, which in turn is dependent upon the Company's ability to meet its financial requirements, raise additional capital, and the success of its future operations. The audited consolidated financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should the Company not continue as a going concern.

Management is funding operations of the Company through advances from existing shareholders, private placement of convertible debt, credit facilities, restricted cash, asset sales or the issuance of shares in lieu of cash for payment of services and chooses the best funding method that is in the best interest of the Company and related stakeholders at the time of funding.

On January 1, 2025, the Company obtained a term sheet for $13,000,000 lending facility from which funds can be used for operations (with approval from the lender) and the deficit of restricted cash fully reconciled on demand, in the event a customer demands repayment of the restricted cash. Note that while the deficit of restricted cash has not been cured, the funds available under the credit facility can be used for the settlement of any demands for restricted cash in the event of such demand.

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

2. BASIS OF PREPARATION AND PRESENTATION

a) Statement of compliance:

These audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC") in effect as of December 31, 2024.

These audited consolidated financial statements were approved by the Board of Directors on May 7, 2025.

b) Basis of presentation:

These audited consolidated financial statements have been prepared on a historical cost basis using accounting policies and methods as described in note 3. Assets and liabilities acquired in a business combination are measured at fair value.

c) Basis of consolidation:

The audited consolidated financial statements include the accounts of the Company's wholly-owned subsidiaries. A subsidiary is an entity that the Company controls, either directly or indirectly, where control is defined as the power over the entity, rights to variable returns from its involvement with the entity, and the ability to use its power to affect the amount of returns. Subsidiaries are fully consolidated from the date of control commences until the date that control ceases to exist. The Company reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Intercompany transactions, balances and unrealized gains or losses between subsidiaries are eliminated in the preparation of the audited consolidated financial statements. The financial statements of the subsidiaries are prepared for the same reporting period as the reporting Company using consistent accounting policies.

Subsidiaries and investments included within these audited consolidated financial statements include:

Name of Subsidiary and / or Investment	Place of Incorporation	Ownership Interest	Functional Currency	Status
XTM Inc.	Ontario, Canada	100%	CAD	Active
XTM USA Inc.	Delaware, United States	100%	USD	Active
QRails, Inc. Note (i)	Delaware, United States	100%	USD	Active
QRails Limited Note (i)	United Kingdom	100%	GBP	Active
QRails Ireland Ltd. Note (i)	Ireland	100%	EUR	Active

(i) These subsidiaries were acquired by the Company on August 18, 2023 (Note 5).

Management has determined it has a single operating segment as at December 31, 2024 as the products and regions in which the Company operates have similar operating characteristics and the chief operating decision maker, being the CEO of the Company, evaluates performance for the Company as a whole. In addition, no geographical segments of the Company exceed the monetary threshold to be categorized separately as an operating segment.

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

d) Foreign currency translation:

(i) Functional and presentation currency

The functional currency for the Company and its subsidiaries is the currency of the primary economic environment in which the entity operates. The Company determined its functional currency is CAD and that the different functional currencies for each of its subsidiaries are listed in the table in (c) basis of consolidation. Determination of functional currency may involve certain judgments to determine the primary economic environment and the Company reconsiders the functional currency of its subsidiaries if there is a change in events and conditions that determined the primary economic environment.

The Company's subsidiaries are all translated to its presentation currency for consolidated reporting. The audited consolidated financial statements are presented in Canadian dollars, and all resulting exchange differences are accounted in currency translation reserve in other comprehensive income (loss).

(ii) Transactions and balances

Transactions in a currency other than the functional currency ("foreign currency") are translated into the functional currency using the exchange rates at the dates of the transactions. Currency translation differences resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the balance sheet date are recognised in profit or loss. Non-monetary items measured at fair values in foreign currencies are translated using the exchange rates at the date when the fair values are determined.

(iii) Translation of Company's subsidiaries' financial statements

The results and financial position of all the entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) Assets and liabilities are translated at the closing exchange rates at the reporting date; (ii) Income and expenses are translated at average exchange rates (unless the 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 using the exchange rates at the dates of the transactions); and (iii) All resulting currency translation differences are recognised in other comprehensive income (loss).

MATERIAL ACCOUNTING POLICIES

The preparation of the audited consolidated financial statements in conformity with IFRS requires management to make critical judgments, estimates and assumptions that affect the application of accounting policies, reported amounts of assets, liabilities and contingent liabilities, revenues and expenses at the date of the audited consolidated financial statements and during the reporting period.

Estimates and assumptions are continuously evaluated and are based on management's historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Actual outcomes can differ from these estimates, with revisions to critical accounting estimates recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the review affects both current and future periods.

Refer to note 4 for further details regarding the use of critical accounting estimates and judgements. The accounting policies set out below have been applied consistently to all periods presented in these audited consolidated financial statements.

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

Inventory

Inventory is comprised of payment cards and program collateral and envelopes. Inventory is valued at the lower of cost, determined on a weighted average cost basis, and net realizable value.

Net realizable value is determined as the estimated selling price less a reasonable estimate of the costs of completion, disposal, and transportation. The Company reviews inventory for obsolete, redundant and slow-moving goods and any such inventories are written down to net realizable value. Factors considered in determining obsolescence include, but are not limited to, slow-moving inventory or products that can no longer be marketed, typically because of a program closing. As such, any identified slow moving and/or obsolete inventory is written down to its net realizable value through costs and expenses applicable to revenues on the consolidated statements of income (loss) and comprehensive income (loss).

Property and Equipment

All items of property and equipment are stated at historical cost, less any accumulated depreciation and accumulated impairment losses. Historical cost includes all costs directly attributable to the acquisition.

Depreciation is recognized in profit or loss on a basis that most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Methods of depreciation are as follows:

	Rate	Method
Computer equipment	45%	Diminishing balance
Furniture and fixtures	20%	Diminishing balance
Telephone equipment	20%	Diminishing balance
Servers and hardware	-	Straight-line over 5 years
Right-of-use assets	-	Straight-line over term of the lease

Depreciation methods, useful lives, and residual values are reviewed at reporting period date and adjusted as appropriate.

Gains or losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in profit or loss.

Intangible assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and any impairment losses. Amortization is recognized on a straight-line basis over the remaining estimated useful life of the asset acquired, which ranges from 3.5 – 8 years.

Software platforms with finite useful lives are measured at acquisition cost. Intangible assets are amortized on a straight-line basis over their useful life, which is 5 years for the EWA software platform, and an impairment loss is recognized in profit or loss when their recoverable amount is less than their net carrying amount.

Goodwill

Goodwill is the amount that results when the fair value of consideration transferred for an acquired business exceeds the net fair value of the identifiable assets, liabilities and contingent liabilities recognized. When the Company enters into a business combination, the acquisition method of accounting is used. Goodwill is assigned, as of the date of the business combination, to cash-generating units (a "CGU") that are expected to benefit from the business combination. Each CGU represents the lowest level at which goodwill is monitored for internal management purposes and it is never larger than an operating segment. Goodwill is stated at cost less accumulated impairment losses. Goodwill is

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

not amortized but is subject to impairment testing at least once a year, or more frequently if events or changes in circumstances indicate the carrying amount may be impaired. Impairment losses relating to goodwill cannot be reversed in future periods. When the excess of the consideration transferred less the assets and liabilities acquired is negative, a bargain purchase gain is recognized immediately in earnings.

Share capital

Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. Share capital is presented at the value of the shares issued. Costs related to issuing shares are reported net of tax as a deduction of the proceeds from the issue.

Restricted cash and program deposits

The Company receives funds as restricted cash from its customers, holds the restricted cash in a custodial account (each a "Custodial Account") on behalf of the customers, and then transmits restricted cash on an as-needed basis to the respective customer's employees via the AnyDay™ Financial app and prepaid card ("Loading"). The Custodial Accounts are held in a schedule 1 financial institution in Canada, and typically, the restricted cash is deposited into a bank account which is segregated from funds use for the Company's operations and working capital requirements.

Under agreements with each customer (the "Customer Agreements"), customers are required to prefund all amounts required for the loading of cardholder cards, held by each customer's employees who participate in the Company's programs, to a Custodial Account, pursuant to which the Company will act as agent and bare trustee in respect of the restricted cash for as long as they remain in the Custodial Account. The Company is contractually bound under the Customer Agreements to hold all restricted cash in a Custodial Account for the benefit of the customers. The Customer Agreements provide that pre-funded deposits by a customer shall remain the property of the Customer until the time such funds are loaded onto the respective cardholder's cards or assigned for e-transfers at the direction of the customer and the discretion of the Company based on historical data usage. Any restricted cash deposited by the customer to the Custodial Account and not loaded on a respective cardholder's card may be required to be returned to the customer on demand.

Restricted cash includes the funds deposited by the client and held at the relevant time in Custodial Accounts in accordance with the terms of the Customer Agreements.

Program deposits represent the amount of restricted cash paid to the Company under the Customer Agreements, for which the Company is liable to its customers and is maintained on client digital wallets.

A detail of the sources of restricted cash and the amount of program deposits has been outlined in in note 24.

Cash

For presentation purposes in the consolidated statement of financial position and consolidated statement of cashflows, cash represents balances on hand in the Company's operating accounts.

Impairment of non-financial assets

The Company assesses the carrying amount of non-financial assets including goodwill, property and equipment and intangible assets at each reporting date to determine whether there is any indication of impairment. The carrying amounts of the Company's non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. Internal factors (such as budgets and forecasts) and external factors (such as expected future prices, costs and other market factors) are also monitored to determine if indications of impairment exist. If any such indication exists, then the asset's recoverable amount is estimated. Goodwill is tested for impairment at least annually, regardless of whether an indicator of impairment exists.

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

The recoverable amount is the higher of value in use (being the net present value of expected pre-tax future cash flows of the relevant asset) and fair value less costs of disposal of the asset. The best evidence of fair value is a quoted price in an active market or a binding sale agreement for the same or similar asset. Where neither exists, fair value is based on the best information available to estimate the amount the Company could obtain from the sale of the asset in an arm's length transaction. This is often accomplished by using a discounted cash flow technique.

Impairment is assessed at the cash-generating unit (CGU) level. A CGU is the smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or group of assets.

An impairment loss is recognized if the carrying amount of CGU exceeds its estimated recoverable amount. The Company derecognizes the carrying amount of assets on disposal or when no future economic benefits are expected from its use. Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment annually at the cash-generating unit level.

If, after the Company has previously recognized an impairment loss, circumstances indicate that the fair value of the impaired assets is greater than the carrying amount, the Company reverses the impairment loss by the amount the revised fair value exceeds its' carrying amount, to a maximum of the previous impairment loss. In no case shall the revised carrying amount exceed the original carrying amount, after depreciation or amortization, that would have been determined if no impairment loss had been recognized. An impairment loss or a reversal of an impairment loss is recognized in the consolidated statements of income (loss) and comprehensive income (loss). An impairment loss for goodwill is not reversed in a subsequent period.

Income (Loss) per share

Basic income (loss) per share amounts is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is calculated using the treasury method, which assumes that all outstanding stock option grants and warrants are exercised, if dilutive, and the assumed proceeds are used to purchase the Company's common shares at the average market price during the period. As at December 31, 2024 and 2023, all convertible instruments are anti-dilutive.

Income taxes

Income tax is comprised of current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income, in which case the income tax is also recognized directly in equity or other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to offset the amounts, and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Deferred tax is recognized in respect of all qualifying temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the audited consolidated financial statements. Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.

Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. At the end of each reporting year, the Company reassesses unrecognized deferred tax assets.

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

Revenue Recognition

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized as follows:

Identify the contract with a customer,
Identify the performance obligations in the contract,
Determine the transaction price, which is the total consideration provided by the customer,
Allocate the transaction price among the performance obligations in the contract based on their relative fair values, and
Recognize revenue when the relevant criteria are met for each performance obligation.

The Company recognizes revenue at the time persuasive evidence of an agreement exists, price is fixed and determinable, the delivery has occurred, and collectability is reasonably assured. Fees charged for card program, website, design and subscriptions are recognized when services are performed or when the product is transferred to the customer.

Costs incurred to obtain contracts, i.e. commissions paid to a third party in relation to signed customer contracts, are recognized in the profit and loss statement as a reduction to revenue if the commission is tied to the term of the contract, and as a cost of sales if the commission is a single payment, or multiple payments not tied to the contract duration. Commissions in both cases are recognized as incurred based on the underlying agreement with the third party.

The Company's revenue streams consist of:

Transaction revenue

Financial service fees resulting from transactions entered into by clients and cardholders for their direct benefit. Interchange fees are charged to merchants accepting the cards for payment, while service fees are charged to either a cardholder or client depending on the nature of the underlying transaction. Financial service fees are recognized on the transaction date.

i. Interchange Revenue:

Revenue is recognized, as per terms of the contract, at the point-in-time that the card holder executes a point of sale ("POS") transaction using their card in the form of interchange fees. Interchange fees are earned when a transaction is successfully completed (i.e. authorization, batching and clearing, and settlement/funding). Interchange is a fee paid by a merchant bank to the card-issuing bank through the interchange network and are set by the network based on cardholder purchase volumes.

ii. Service Fees:

Card holder

A service fee is charged to the card holder, as per terms of the contract, at the point-in-time the cardholder executes various transfer of funds transactions using their card, including but not limited to: ATM withdrawals, Interac transfers, and ACH deposits. This fee is recognized as revenue when the funds are transferred.

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

Client

A service fee is charged to the client at the time the client engages the Company to execute various transactions at their request, or when the client executes a transaction through their own means (actively or passively) to which a fee pertains. This includes but is not limited to Instant self-deposit, NSF fees, wallet withdrawal fees, and expedited wallet load fees. This fee is recognized as revenue at the point in time when the particular activity occurs.

iii. Recognition:

The Company recognizes fees charged for transaction revenue on a gross basis when the Company is the principal with respect to completing payment transactions. As the principal to these transactions, the Company is primarily responsible for the service of completing payments using the Company's financial technology platform. The Company contracts directly with its clients (users of its' AnyDay™ Financial platform) and is responsible for fulfillment of the payment service, design and control the product specifications (including the Company's mobile application) and defines the value proposition from its services. The Company has discretion in determining the fee charged to its customers for using the Company's payment services and is primarily responsible for credit losses resulting from any potential failure to deliver promised service, exposing the Company to significant margin risk, especially where the Company engages payment processors and other financial institutions to perform services on the Company's behalf. Fees paid to payment processors and other financial institutions are recognized as a fulfillment cost within the cost of sales. The Company is also responsible for providing customer support, for which the Company may engage third parties to perform on its behalf and recognizes this as a fulfillment cost.

Program Management

The Company's digital ledger and associated mobile application are highly customizable, enabling it to deliver bespoke financial solutions and / or customized branding for clients. The Company is able to charge clients who require customizations a fee (recurring and / or one-time) depending on the level of work and ongoing support required.

A client may desire customization of the Company's software or physical cards in which case the Company and client enter into an agreement to deliver such requirements, or a client may select a contract term that includes fees charged for on-boarding of client on to the Company's services. Fees charged for card program set-up / on-boarding, website and card design, and mobile app customizations are recognized when services are performed satisfying the obligations set out in the contract or associated statement of work ("SOW"), or when the product is transferred to the customer where defined obligations in a contract or SOW does not exist.

A client may require customizations to the execution of the Company's services such that extensive customization via unique workflows and support are required ("changes"). In this circumstance the Company will assess the cost associated with the changes, determine the appropriate mark-up, and enter into an agreement to deliver such services at an agreed upon fee. These fees are earned so long as the client has access to / utilization of Company technology per the terms of the agreement and is charged at the frequency outlined in the agreement, or monthly in arrears if no term is specified. If the term outlined in the agreement exceeds one month, the fees are amortized and accrued monthly.

Card revenue

A card sale is comprised of two distinct but related components, 1) amounts invoiced to clients for the purchase of inactivated pre-paid debit cards, and 2) shipping fees for order fulfillment.

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

Revenue is recognized over the life of the customer contract, which will range from 1 to 3 years in length. Card quantities are determined by the client at the time of ordering, and card pricing is set based on either the client contract, or the most recently published price which is distributed to client at least 30 days in advance. Cards are assigned to the client during the order preparation process and card proxy numbers are provided to the client at the time of shipping allowing client to set up and transfer funds to card holders prior to the physical card being present. The Company is responsible for selecting the method of delivery.

Subscription revenue

Subscription fees are billed either monthly or annually at the choice of the customer, with a discount provided if the annual fee is chosen. When the annual fee option is chosen and paid for, the revenue is deferred and only recognized once it has been earned each month, as the Company is still responsible for delivering the services over the year under the agreement.

Financial instruments

(a) Classification

Under IFRS 9, financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The primary measurement categories for financial instruments are measured at amortized cost, fair value through other comprehensive income ("FVTOCI") and fair value through profit and loss ("FVTPL").

The accounting policy and the classification and measurement basis of the financial instruments as disclosed in the audited consolidated financial statements are:

Financial Instrument	Classification /Measurement
Cash	Amortized cost
Cash - restricted	Amortized cost
Trade and other receivables	Amortized cost
Receivables - restricted	Amortized cost
Prepayment option on convertible note	FVTPL
Trade and other payables	Amortized cost
Program deposits	Amortized cost
Due to related party	Amortized cost
Loan payable	Amortized cost
Government loan	Amortized cost
Convertible debentures	Amortized cost

(b) Measurement

Financial assets and liabilities at amortized cost

Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.

Financial assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost, less any impairment. The Company's intent is to hold these receivables until cash flows are collected.

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

Financial liabilities are measured initially at fair value (net of transaction costs) and subsequently measured at amortized cost using the effective interest method, unless required to be measured at fair value through profit or loss (FVTPL), or the Company has opted to measure at FVTPL.

Impairment of financial assets

The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment from one or more events that occurred after the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

a) Trade and other receivables

The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated statements of income (loss) and comprehensive income (loss). If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the group may measure impairment based on an instrument's fair value using an observable market price.

b) Expected credit loss impairment model

The Company evaluates the credit risk of financial assets at the initial recognition and at each reporting period thereafter until it is derecognized. For a financial asset this is determined to have low credit risk at the reporting date and that has not had significant increases in credit risk since initial recognition, the Company measures impairment loss based on the expected credit losses expected to be recognized over the next twelve months. For other financial assets, the Company will measure an impairment loss based on the lifetime expected credit losses. Certain assets such as trade and other receivables without significant financing components must always be recorded at lifetime expected credit losses. Lifetime expected credit losses are estimates of possible default events over the expected life of a financial instrument and are evaluated by the Company using historical credit losses. Twelve month expected credit losses are estimates of all possible default events within twelve months of the reporting date or over the expected life of the financial instrument, which ever is shorter. Financial assets that are significant in value are assessed individually.

The carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Company determines that the debtor does not have the assets or sources of income that could generate sufficient cash flows to repay the amounts subject to write-off.

If the amount of the impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor's credit rating), the reversal of the previously recognized impairment loss is recognized in the consolidated statements of income (loss) and comprehensive income (loss).

Compound financial instruments

Convertible debentures can be comprised of multiple embedded features and as a result are typically compound financial instruments. The various components of these instruments are accounted for as financial assets, in equity,

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

debt and other financial liabilities according to their classification. The debt component is valued at issuance at the present value (taking into account the credit risk of the Company) of the future cash flows of an instrument with the same characteristics (maturity, cash flows, security) but without any option for conversion or redemption in shares. The component classified as equity is defined as the residual of the net proceeds from the issuance of the instrument less the fair value of the financial liability component. The inclusion of other financial instruments, such as warrants and broker warrants, are accounted according to their classification. Broker warrants are treated as an issuance cost and reduced in the determination of net proceeds. Warrants issued necessitate the use of a calibration method to determine the appropriate fair value allocated to the warrants and convertible debentures.

Share-based compensation

The Company has stock option and restricted share unit ("RSU") plans that are described in note 16. The granting of stock options and / or RSU's represents a benefit given to employees of the Company, which include others providing similar services, and non-employees and constitutes additional compensation to be borne by the Company.

a) Restricted share units (RSUs):

RSUs are issued to directors, employees and/or consultants through a vesting plan and distribution schedule and such other conditions as determined by the Company. An amount equivalent to the grant date fair market value of RSUs is recognized as share-based compensation expense with a corresponding increase to contributed surplus over the vesting period. Subject to the terms of the plan, within thirty (30) days after each relevant vesting date, but in no event later than the expiry date, the participant (a director, an employee or consultant, as the case maybe), shall be entitled to receive the equivalent number of class A common shares ("common shares" or "shares"). Upon complete vesting of equity-settled RSUs, the related contributed surplus associated with the RSUs is reclassified into share capital.

b) Stock options and warrants:

The fair value of stock option awards granted is recognized as share-based compensation expense with a corresponding increase in contributed surplus. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee.

Warrants granted are recognized as share-based compensation when they are provided in exchange for services and are deferred and amortized over the term of the debt instrument through finance costs when they are granted on account of debt financing. On the grant date, there is a corresponding increase in contributed surplus and warrant reserve.

Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. The fair value is measured at grant date and each tranche is recognized on a graded vesting basis over the period during which the instrument vests. The fair value of the share-based payment awards granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the awards were granted. At each statement of financial position reporting date, the amount recognized as an expense is adjusted to reflect the actual number of awards, for which the related service is expected to be met. Share-based compensation expense is not adjusted for forfeitures that occur after the vesting date. Cancellation or forfeited options are removed from the associated tranche and returned to the pool of Shares available for options under the Company's Stock Option Plan. The Company does not reverse any previously recognized share-based compensation associated with cancelled or forfeited options.

For equity-settled share-based payment transactions with non-employees, the Company measures the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably, in which case, the Company measures

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. The Company records option forfeitures, resulting from terminations, as a share-based compensation recovery equal to the vesting expenditure expensed up to and including the termination date.

Government grants

Government grants are assistance from the government in the form of transfer of resources for past or future compliance with certain conditions relating to the operating activities of the Company. The Company recognizing government grants when there is a reasonable assurance that it will comply with the conditions required to qualify for the grant, and that the grant will be received. The government grants are recorded as "Other income".

Leases

IFRS 16 requires leases to be recognized on the statement of financial position as a right-of-use asset and as a corresponding lease liability at the date at which the leased asset is available for use by the Company. Each lease payment is then to be allocated between the lease liability and finance cost, with the finance cost charged to comprehensive income over the lease period to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is to be depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Assets and liabilities arising from a lease are to be initially measured on a present value basis. Lease liabilities include the net present value of fixed lease payments discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is to be used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. After initial measurement, the liability would be reduced for payments made and increased for interest and remeasured to reflect any reassessment or modifications, or if there are changes in in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is to be reflected in the right-of-use asset, or comprehensive income if the right-of-use asset is already reduced to zero. The right-of-use asset is recorded at the amount of the lease liability adjusted by the amount of any previously recognized prepaid or accrued lease payments related to that lease. Payments associated with short-term leases (12 months or less) and leases of low-value assets (less than USD $5,000) can continue to be recognized on a straight-line basis as an expense in comprehensive income. In some cases, the fair value of the underlying asset or the initial direct costs of the lessor may not be available to the lessee in which case a lessee will default to using its incremental borrowing rate. This borrowing rate must reflect comparable characteristics to the lease (similar term, with a similar security, the funds necessary to obtain an asset of similar value to the ROU asset in a similar economic environment). Instead of requiring a lessee to determine the incremental borrowing rate for every single lease, IFRS 16 allows a lessee to apply a single discount rate to a portfolio of leases with reasonably similar characteristics. When measuring lease liabilities, the Company adopted the following practical expedients: the adoption of the portfolio methodology discounting lease payments using an incremental borrowing rate of 13%, and inclusion of non-lease components which consists of ancillary costs that are directly related to the lease.

Related parties

A related party is defined as follows: (i) A person or a close member of that person's family is related to the Company if that person: (i) Has control or joint control over the Company; (ii) Has significant influence over the Company; or (iii) Is a member of the key management personnel of the Group or Company or of a parent of the Company. (ii) An entity is related to the Group and the Company if any of the following conditions applies: (i) The entity and the Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company. If the Company is itself such a plan, the sponsoring employers are also related to the Company. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity. The effect of the Group's and Company's transactions and arrangements with related party is reflected in these audited consolidated financial statements. The balances are unsecured, interest-free and repayable on demand unless otherwise stated.

Segment reporting

The Company has identified its operating segments based on internal reports that are reviewed and used by the chief executive officer and the executive management team (collectively, the chief operating decision maker) in assessing performance and in determining the allocation of resources on behalf of the Company.

Adoption of new standards, amendments and interpretations

The following amended standards were adopted by the Company when they became effective on January 1, 2023:

Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2
Definition of Accounting Estimates - Amendments to IAS 8

The adoption of these amendments did not have a material impact on the Company's audited consolidated financial statements.

Future changes in accounting standards

IAS 21 – The amendment to IAS 21, Effects of Changes in Foreign Exchange Rates, clarify when a currency is considered exchangeable into another currency and how an entity estimates a spot rate for currencies that lack exchangeability. The amendment to IAS 21 is effective for annual reporting periods beginning on or after January 1, 2025. The adoption of this amendment is not expected to have a material impact on the Company's audited consolidated financial statements.

IFRS 7 and IFRS 9 – Amendments to IFRS 7 and IFRS 9, Classification and Measurement of Financial Instruments, clarify financial assets and financial liabilities are recognized and derecognized at settlement date except for regular way purchases or sales of financial assets and financial liabilities meeting conditions for new exception. The new exception permits companies to elect to derecognize certain financial liabilities settled via electronic payment systems earlier than the settlement date. The amendments also provide guidelines to assess contractual cash flow characteristics of financial assets, which apply to all contingent cash flows, including those arising from environmental, social, and governance (ESG)-linked features. These amendments also introduce new disclosure requirements and update others. The amendment to IAS 21 is effective for annual reporting periods beginning on or after January 1, 2026. The adoption of these amendments are not expected to have a material impact on the Company's consolidated financial statements.

IFRS 18 - On April 9, 2024, the IASB issued IFRS 18 "Presentation and Disclosures in Financial Statements". The objective of the new standard is to set out requirements for the presentation and disclosure of information in general purpose financial statements to help ensure they provide relevant information that faithfully represents an entity's assets, liabilities, equity, income and expenses. The new standard is effective for reporting periods beginning on or after January 1, 2027. The Company is assessing the impacts of IFRS 18 on its audited annual consolidated financial statements.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of these audited consolidated financial statements require management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the audited consolidated financial statements and reported amounts of revenue and expenses during the reporting period. Actual outcomes could differ from these estimates. The audited consolidated financial statements include estimates which,

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

by their nature, are uncertain. The impacts of such estimates are pervasive throughout the audited consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods.

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the consolidated statement of financial position date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

Going concern

The audited consolidated financial statements were prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The assessment of going concern involves significant judgement based on historical experience and other factors including expectation of future events that are believed to be reasonable under the circumstances.

Revenue Recognition

Application of the accounting principals in IFRS related to the measurement and recognition of revenue requires the Company to make judgements and estimates. Complex arrangements may require significant contract interpretation to determine the appropriate accounting treatment. Specifically, the determination of whether the Company is a principal to a transaction (gross revenue) or an agent (net revenue) can require considerable judgement. There is significant judgement in assessing whether the Company controls the promised service before it is transferred to the customer, including assessing whether the Company was primarily responsible for fulfilling the service and whether the Company had full discretion in establishing the price for the service.

Income Taxes

Deferred tax assets, including those arising from tax loss carry-forwards, require management to assess the likelihood that the Company will generate sufficient taxable earnings in future periods in order to utilise recognised deferred tax assets.

Assumptions about the generation of future taxable profits depend on management's estimates of future cash flows. In addition, future changes in tax laws could limit the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realise the net deferred tax assets recorded at the reporting date could be impacted.

Assessment of Cash Generating Unit ("CGU")

The Company has applied judgment in its assessment of the appropriateness of the determination of CGU. The identification of CGU required significant judgment as it depends on the smallest identifiable group of assets that generates largely independent cash inflows. When management has identified a group of assets that generates an output, but those assets do not generate largely independent cash inflows, it needs to consider if there is an active market for the output. Changes in the Company's operations and the way it conducts them could significantly impact the assessment of CGU. Management is required to use its judgment to combine these assets with others that contribute to the same revenue stream until a CGU is identified.

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

Functional currency

Certain factors need to be considered in determining the functional currency of an entity. Once the foreign entities have been identified, the Company is required to determine the currency of primary economic environment in which each foreign entity operates. An entity is required to use significant judgment in making this determination. When the indicators are mixed and the functional currency is not obvious, management uses its judgment to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. Once determined, the functional currency is not changed unless there is a change in those underlying transactions, events and conditions.

Impairment

Management assesses impairment of non-financial assets such as goodwill, intangible assets and property and equipment. In assessing impairment, management estimates the recoverable amount of each asset or cash generating unit ("CGU") based on expected future cash flows.

Goodwill is subject to impairment testing on an annual basis. The Company performed its annual assessment of goodwill impairment as at December 31, 2024 as described in note 6. However, if indicators of impairment are present, the Company will review goodwill for impairment when such indicators arise. In addition, at each reporting period, the Company reviews whether there are any indicators that the recoverable amount of intangible assets and property and equipment may be less than their carrying amount.

Goodwill, intangible assets and property and equipment were reviewed for impairment by determining the recoverable amount of each CGU or groups of CGUs to which the goodwill, intangible assets or property and equipment relate. Management estimated the recoverable amount of the CGUs based on the higher of value-in-use ("VIU") and fair value less costs of disposal ("FVLCD"). The VIU calculations are based on expected future cash flows. When measuring expected future cash flows, management makes key assumptions about future growth of profits which relate to future events and circumstances. Estimation uncertainty relates to assumptions about future operating results and the application of an appropriate discount rate. Actual results could vary from these estimates.

Allowances for expected credit losses

The Company is exposed to credit risk associated with its "Trade and other receivables", and "Due from related party" balances. Management reviews the trade and other receivables at recognition and at each reporting date there after in accordance with IFRS 9, until it is derecognized. The expected credit loss ("ECL") model requires considerable judgment, including consideration of how changes in economic factors affect ECLs, which are determined on a probability-weighted basis. IFRS 9 outlines a three-stage approach to recognizing ECLs which is intended to reflect the increase in credit risks of a financial instrument based on 1) 12-month expected credit losses or 2) lifetime expected credit losses. The Company measures provision for ECLs at an amount equal to lifetime ECLs. The Company applies the simplified approach to determine ECLs on trade and other receivables by using a provision matrix based on historical credit loss experiences. The historical results are used to calculate the run rates of default which are then applied over the expected life of the trade receivables, adjusted for forward looking estimates.

Business combinations

Estimates and judgments are used when calculating the purchase price allocation to the fair value of acquired net assets (specifically to the acquired intangible technology assets) in business combinations. The Company estimates the fair value of technology and brands acquired in a business combination based on the income approach. The income approach is a valuation technique that calculates the fair value of an intangible asset based on the present value of future cash flows that the asset can be expected to generate over its remaining useful life. For significant business combinations, significant estimates and judgments include forecasted cashflows, forecasted annual customer growth rate, migration rate, retention rate and the discount rates used to estimate the fair value of the

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

acquired intangible assets. Changes in these estimates and judgments could result in significant changes to the valuation of the intangible assets.

Convertible debentures

Convertible debentures are compound financial instruments whose components may be allocated between a financial liability and an equity instrument. The identification of such components embedded within a convertible debenture requires significant judgement based on the interpretation of the substance in the contractual arrangement(s). Where the conversion option is fixed, the financial liability represents the discounted future obligation to repay the cash component and is initially measured at fair value with subsequent measurement at amortized cost. The conversion option and any related warrants are initially measured at fair value and reported separately as equity. Prepayment options are initially measured at fair value and reported as a derivative asset. The allocation and valuation methodology used for these instruments are calculated using the Partial Differential Equations ("PDE") method solved by finite difference method, which values financial instruments whereby a set of differential equations are solved iteratively. In the context of financial option pricing, this approach uses random numbers, together with various market assumptions (i.e. risk-free rate, expected volatility, correlation, etc.) to generate potential future outcomes for stock prices using Geometric Brownian Motion ("GBM"). GBM is an industry standard method that is generally accepted for simulating the expected future path of stock prices.

After initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument and any derivative asset or liability is not re-measured after initial recognition. On conversion or upon expiration, the carrying value of the equity portion is transferred to common shares or contributed surplus.

Share-based payments

The fair value of all share-based payments granted are determined using the Black-Scholes option pricing model which incorporates assumptions regarding risk-free interest rates, dividend yield, expected volatility, estimated forfeitures, and the expected life of the options. Changes in the input assumptions can materially affect the fair value estimate and the Company's earnings and equity reserves.

Application of IFRS 16

The Company applies judgment in determining whether a contract contains an identified asset, whether the Company has the right to control the asset, and the lease term. Lease term reflects the period over which the lease payments are reasonably certain including renewal options that the Company is reasonably certain to exercise. The determination of lease term involves significant judgment with respect to assumptions of whether lease extensions will be utilized. Management makes assumptions about long-term industry outlook and store operating performances and growth which relate to future events and circumstances. Actual results could vary from these assumptions and the differences could be material to the carrying value of the lease liabilities and right-of-use assets, for which the lease term is the basis for determining useful life.

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

5. BUSINESS COMBINATIONS

There were no acquisitions during the year ended December 31, 2024.

On August 18, 2023, the Company acquired 100% of the issued share capital of QRails Inc. ("QRails"), a company incorporated and based in the United States that operates within the payments segment. The objective of the acquisition is to expand the Company's service offerings and accelerate its expansion into the United States. The details of the business combination are as follows:

As at August 18, 2023
Fair value of consideration transferred
Cash	$ 135,520
Interim funding of QRails’ operations	4,609,117
Shares issued	4,222,405
Total consideration transferred	$ 8,967,042
Recognized amounts of identifiable net assets
Cash and cash equivalents	$ 53,875
Cash - restricted	397,906
Trade and other receivables	19,523
Receivable - restricted	808,846
Inventory	404,649
Prepaid expenses	290,052
Total current assets	1,974,851
Property and equipment	469,584
Right-of-use assets	287,268
Intangible assets	7,751,744
Total non-current assets	8,508,596
Account payable and accrued liabilities	3,373,926
Unearned revenue	9,938
Current portion of lease liabilities	14,951
Total current liabilities	3,398,815
Long-term portion of lease liabilities	325,209
Total non-current liabilities	325,209
Identifiable net assets	$6,759,423
Goodwill on acquisition	$2,207,619

Goodwill

The goodwill that arose on the combination can be attributed to the synergies expected to be derived from the combination and the value of the workforce of QRails which cannot be recognized as an intangible asset. Goodwill has been provisionally allocated to cash-generating units at August 18, 2023. The goodwill that arose from this business combination is not expected to be deductible for tax purposes.

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

6. GOODWILL

The Company has determined that it has two CGUs comprised of 1) XTM and 2) QRails. The Company completed its annual goodwill impairment testing on December 31, 2024 and determined that the goodwill associated with QRails had an impairment loss of $2,207,619. The amount is not expected to be recoverable.

Expressed in Canadian Dollars	As at December 31, 2024	As at December 31, 2023
Goodwill consists of the following CGUs:
XTM	$920,000	$920,000
QRails	-	2,207,619
	$920,000	$3,127,619

7. CASH

As at December 31, 2024, the Company held the totals below in cash, and is not currently utilizing money market instruments:

Expressed in Canadian Dollars	As at December 31, 2024	As at December 31, 2023
Cash consists of:
CAD Operating account	$27,909	$14,677
USD Operating account	36,221	79,419
	$64,130	$94,096

8. INVENTORY

Inventory is comprised of the following items:

Expressed in Canadian Dollars	As at December 31, 2024	As at December 31, 2023
Payment cards	$51,049	$360,992
Program stationery & envelopes	14,325	56,347
	$65,374	$417,339

Inventories are written down for any obsolescence or when the net realizable value considering future events and conditions is less than the carrying value. In 2024, a total of $331,359 of inventory was written off (December 31, 2023 – nil) relating to payment cards that were no longer useful, expired, or had been destroyed to reduce storage costs. The write-off was recorded under other expenses (income).

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

9. PREPAID EXPENSES

The Company's prepaid expenses are comprised of the following amounts:

Expressed in Canadian Dollars	As at December 31, 2024	As at December 31, 2023
Subscriptions	$108,289	$172,708
Licensing Fees	111,062	111,062
Program and other operating related	86,871	69,244
Insurance premiums	41,021	39,519
Leasehold deposit	13,238	36,073
Consulting services & other	55,379	25,421
	$ 415,860	$454,027

Program and other operating related prepaid expenses consist of payments for software subscriptions, licensing fees, insurance premiums, program setup costs and deposits with service providers.

10. CONTRACT ASSETS

Contract Assets represent the balance of deferred cost of goods sold pertaining to card issuance. The cost of goods sold is deferred over the term of clients' contracts. Management estimates the average term of contracts as 2.5 years, and an estimated gross margin of 25%. A continuity for contract assets for the years ending December 31, 2024 and 2023, is as follows:

Expressed in Canadian Dollars
Balance, January 1, 2023	$ 247,517
Additions deferred to future periods	336,168
Unearned revenue recognized in current year	(199,564)
Balance, December 31, 2023	$ 384,121
Additions deferred to future periods	$ 342,240
Unearned revenue recognized in current year	(339,070)
Balance, December 31, 2024	$387,291

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

11. PROPERTY AND EQUIPMENT

A continuity of the property and equipment for the years ended December 31, 2024 and 2023, is as follows:

Cost	Computer Equipment	Furniture and Fixtures	Servers and Hardware	Telephone Equipment	Total
Balance as at January 1, 2023	$122,131	$139,947	$25,000	$8,707	$295,785
Additions	6,824	-	-	-	6,824
Derecognition	-	(32,516)	-	-	(32,516)
Acquisition (note 5)	22,053	-	447,531	-	469,584
Effects of foreign exchange	(655)	-	(13,166)	-	(13,821)
Balance as at December 31, 2023	$150,353	$107,431	$459,365	$8,707	$725,856
Derecognition	-	(32,516)	(25,000)	(8,707)	(66,223)
Effects of foreign exchange	2,063	-	38,013	-	40,076
Balance as at December 31, 2024	$152,416	$74,915	$472,378	$ -	$699,709
Accumulated Depreciation					Total
---	---	---	---	---	---
Balance as at January 1, 2023	($72,271)	($67,506)	($19,664)	($8,125)	($167,566)
Depreciation	(25,123)	(14,207)	(58,152)	(117)	(97,599)
Derecognition	-	18,770	-	-	18,770
Balance as at December 31, 2023	($97,394)	($62,943)	($77,816)	($8,242)	($246,395)
Depreciation	(27,998)	(6,204)	(139,523)	-	(173,725)
Derecognition	-	19,051	21,264	8,242	48,557
Effects of foreign exchange	(953)	-	(11,545)	-	(12,498)
Balance as at December 31, 2024	($126,345)	($50,096)	($207,620)	$ -	($384,061)
Carrying Amount					Total
---	---	---	---	---	---
Balance as at December 31, 2023	$52,959	$44,488	$381,549	$465	$479,461
Balance as at December 31, 2024	$26,071	$24,819	$264,758	$ -	$315,648

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

12. RIGHT-OF-USE ASSETS

Cost	Total
Balance as at January 1, 2023	$388,372
Additions	105,380
Derecognition	(41,062)
Acquisition (note 5)	287,268
Effects of foreign exchange	(7,572)
Balance as at December 31, 2023	$732,386
Additions	687,383
Effects of foreign exchange	66,031
Balance as at December 31, 2024	$1,485,800
Accumulated Depreciation	Total
---	---
Balance as at January 1, 2023	($300,307)
Depreciation	(231,230)
Derecognition	41,062
Balance as at December 31, 2023	($490,475)
Depreciation	(365,152)
Effects of foreign exchange	(24,453)
Balance as at December 31, 2024	($880,080)
Carrying Amount	Total
---	---
Balance as at December 31, 2023	$241,911
Balance as at December 31, 2024	$605,720

13. INTANGIBLE ASSETS

A continuity of the intangible assets for the years ended December 31, 2024 and 2023, is as follows:

Cost	Software platform acquired	Software platform	Total
Balance as at January 1, 2023	-	$424,000	$424,000
Acquisition (note 5)	7,751,744	-	7,751,744
Effects of foreign exchange	(186,472)	-	(186,472)
Balance as at December 31, 2023	$7,565,272	$424,000	$7,989,272
Effects of foreign exchange	665,237	-	665,237
Balance as at December 31, 2024	$8,230,509	$424,000	$8,654,509
Accumulated Amortization			Total
---	---	---	---
Balance as at January 1, 2023	-	($346,000)	($346,000)
Amortization	(553,574)	(51,143)	(604,717)
Balance as at December 31, 2023	($553,574)	($397,143)	($950,717)
Amortization	(1,567,617)	(26,858)	(1,594,475)
Effects of foreign exchange	(116,370)		(116,370)
Balance as at December 31, 2024	($2,237,561)	($424,000)	($2,661,562)
Carrying Amount			Total
---	---	---	---
Balance as at December 31, 2023	$7,011,698	$26,857	$7,038,555
Balance as at December 31, 2024	$5,992,947	$-	$5,992,947

Subsequent to year end, the software platform acquired was sold as described in note 30.

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

The Company acquired QRails' internally generated asset, the AnyDay™ Financial software platform, in August 2023. The platform is amortized over 5 years.

14. LOAN PAYABLE

In March 2024, the Company secured a senior first lien revolving credit facility to fund eligible EWA advances with an initial capacity of US$20M, with incremental capacity available to $100M. The facility bears interest at a rate of 13% per annum, compounded monthly and has a maturity date of March 31, 2026 (inclusive of a 12-month extension option). The credit facility includes a guarantee by the Company.

As at December 31, 2024 the Company had drawn $4,982,366 (US$3,462,622) on the credit facility as a loan payable (December 31, 2023 – nil).

15. LEASE LIABILITIES

The Company has agreements to lease office space in multiple locations and equipment liabilities acquired from the acquisition of QRails. A lease contract is recognized on the consolidated statement of financial position by recognizing the right-of-use assets and corresponding lease liability. Right-of-use assets are presented in note 12 and below is a continuity of the Company's lease liabilities:

Expressed in Canadian Dollars	£
Balance, January 1, 2023	$86,868
Additions	105,380
Acquisition (note 5)	340,160
Effects of foreign exchange	(14,175)
Repayment of lease liability	(266,985)
Interest expense on lease liability	6,187
Balance, December 31, 2023	$257,435
Addition of new leases	$665,050
Repayment of lease liability	(282,199)
Interest expense on lease liability	63,750
Effect of foreign exchange	56,044
Balance, December 31, 2024	$760,080
Lease liabilities due within one year	164,367
Lease liabilities – long term	595,713
Total lease liabilities	$760,080

The Company's lease term at its head office in Canada expired on November 30, 2024 and the Company is leasing month-to-month.

The Company signed a new office lease in Denver, Colorado for a term of 49 months effective March 30, 2024. The first 7 months of rent on the lease were abated, with the first payment required on November 1, 2024. The Company applied a discount rate of 12% to determine the asset value for the right-of-use asset. The total payments over the remaining term of this lease, inclusive of cost allocations, are projected to be as follows:

In Canadian Dollars
2025	251,093
2026	257,370
2027	263,800
2028	77,683
Total lease payments – Denver office	$ 849,946

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

16. CAPITAL STOCK

Share capital

The Company is authorized to issue an unlimited number of common shares and an unlimited number of preference shares.

Shares issued and outstanding	# of common shares	$
Shares issued and outstanding as at January 1, 2023	171,569,084	18,084,459
Shares issued for restricted stock units	2,534,215	403,891
Shares issued for directors’ fees	4,230,769	390,000
Options expired	-	88,829
Warrants expired	-	3,038,230
Shares issued for acquisition	28,343,750	4,222,405
Shares issued for services	2,081,000	246,887
Shares issued and outstanding as at December 31, 2023	208,758,818	26,474,701
Shares issued for restricted stock units	3,846,500	327,074
Shares issued for stock options	296,875	26,641
Shares settled for taxes	(429,188)	-
Shares issued for convertible debentures	1,449,755	217,463
Shares issued for compensation	3,050,000
Shares issued for director fees	10,000,000	750,000
Shares issued and outstanding as at December 31, 2024	223,922,760	27,795,879

Restricted stock units

	Number of RSU’s Granted
Balance January 1, 2023	415,625
Granted	4,732,000
Vested and issued	(712,984)
Settled for taxes	(26,766)
Cancelled	(459,375)
Balance December 31, 2023	3,948,500
Granted	6,845,000
Issued	(3,346,500)
Cancelled	(215,750)
Balance December 31, 2024	7,231,250

Stock options

The Board initially adopted a stock option plan on March 1, 2018, which was established to provide incentive to directors, officers, employees, and consultants. The plan provided for issuance of common shares upon exercise of options equal to a maximum of 20% of the issued and outstanding common shares from time to time. The plan was approved by the shareholders on March 1, 2018.

	Number of Options	Weighted Average Exercise Price
Balance outstanding, January 1, 2023	1,603,500	$0.18
Granted (iv) (v) (vi) (vii) (viii)	16,372,000	$0.13
Expired / Forfeited	(1,653,000)	$0.14
Balance outstanding, December 31, 2023	16,322,500	$0.14
Granted (iv) (v) (vi) (vii) (viii)	2,075,000	$0.12
Exercised (xii)	(296,875)	$0.16
Expired / Forfeited	(3,456,500)	$0.10

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

Balance outstanding, December 31, 2024
14,644,125
$0.15

The fair value of stock options was determined using the Black Scholes model with the following assumptions:

Grant Date	Share Price	Exercise Price	Term	Dividend Rate	Risk-free rate	Volatility	Forfeiture rate
8-Mar-22	0.33	0.33	3 years	0%	1.49%	82%	0%
13-May-22	0.25	0.19	3 years	0%	2.68%	85%	0%
8-Aug-22	0.21	0.21	3 years	0%	3.12%	90%	0%
30-Nov-22	0.13	0.13	3 years	0%	3.64%	94%	0%
1-Feb-23	0.16	0.16	3 years	0%	3.38%	96%	0%
1-Apr-23	0.155	0.155	3 years	0%	3.51%	97%	0%
1-Sep-23	0.125	0.125	3 years	0%	4.31%	104%	0%
1-Sep-23	0.125	0.125	1 year	0%	5.07%	181%	0%
2-Nov-23	0.16	0.16	3 years	0%	3.38%	107%	0%
31-Jan-24	0.19	0.19	3 years	0%	3.77%	96%	0%
14-Feb-24	0.155	0.155	3 years	0%	4.02%	96%	0%
1-Apr-24	0.18	0.18	3 years	0%	4.00%	137%	0%
15-Apr-24	0.165	0.145	3 years	0%	4.11%	137%	0%
20-Jun-24	0.12	0.15	3 years	0%	3.74%	139%	0%
07-Oct-24	0.085	0.11	3 years	0%	3.21%	141%	0%
29-Nov-24	0.08	0.075	3 years	0	2.98%	150%	0%
17-Dec-24	0.07	0.065	3 years	0	2.95%	151%	0%

Details of options outstanding as at December 31, 2024:

Expiry Date	Number of Options Outstanding	Exercise Price ($)	Weighted Average Remaining Contractual Life (years)	Number of Options Exercisable
March 8, 2025	100,000	$0.33	0.2	100,000
May 13, 2025	600,000	$0.19	0.4	600,000
November 29, 2025	215,375	$0.13	0.9	215,375
March 31, 2026	2,000,000	$0.16	1.2	1,500,000
August 31, 2026	9,960,000	$0.13	1.7	5,550,000
January 31, 2027	18,750	$0.19	2.1	18,750
February 15, 2027	50,000	$0.16	2.1	18,750
April 1, 2027	600,000	$0.13	2.2	600,000
April 15, 2027	100,000	$0.15	2.3	25,000
June 20, 2027	100,000	$0.15	2.5	100,000
October 7, 2027	100,000	$0.11	2.8	0
November 29, 2027	750,000	$0.08	2.9	0
December 17, 2027	50,000	$0.07	3.0	0
Balance	14,644,125	$0.13	1.6	8,727,875

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

Financing Warrants

Summary of the warrant activity is as follows:

	Number of Warrants	Weighted Avg. Exercise Price ($)
Balance January 1, 2023	28,623,254	0.57
Expired	(28,623,254)	0.57
Issued	1,405,000	0.40
Balance December 31, 2023	1,405,000	0.40
Warrants extinguished from convertible debentures	(990,000)	0.40
Balance December 31, 2024	415,000	0.40

Warrants outstanding as at December 31, 2024 were as follows:

Expiry Date	Number of Warrants	Exercise Price ($)
31-May-25	415,000	0.40

The weighted average life of the warrants outstanding and exercisable at December 31, 2024 is 0.42 years.

Broker Warrants

Summary of the broker warrants activity is as follows:

	Number of Warrants	Weighted Average Exercise Price ($)
Balance January 1, 2023	1,721,860	0.65
Issued	51,500	0.40
Expired	(1,721,860)	0.65
Balance December 31, 2023	51,500	0.40
Issued	146,909	0.40
Balance December 31, 2024	198,409	0.40

Broker warrants outstanding as at December 31, 2024 were as follows:

Expiry Date	Number of Warrants	Exercise Price ($)
30-May-25	51,500	0.40
29-Feb-26	146,909	0.40
Balance December 31, 2024	198,409	0.40

The weighted average life of the broker warrants outstanding at December 31, 2024 is 0.97 years.

17. CONVERTIBLE DEBENTURES & SUBSCRIPTION RECEIPTS

Q2 2023 Tranche

On April 28, 2023, the Company announced that they intend to complete a non-brokered private placement of convertible debenture units of the Company (each, a "Convertible Debenture Unit") at a price of US$1,000 or C$1,340 per Convertible Debenture Unit for gross proceeds to the Company of up to US$5,000,000 (the "Q2 2023 Tranche").

Each Convertible Debenture Unit was comprised of US$1,000 or CAD$1,340 principal amount of unsecured convertible debentures ("Convertible Debentures") and 1,000 common share purchase warrants ("Financing Warrants"). Each Financing Warrant will entitle the holder thereof to purchase one common share of XTM (a

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

"Common Share") at a price of US$0.29 or CAD$0.40 per Common Share for a period of twenty-four (24) months from the date of issuance thereof.

The Convertible Debentures carry an interest rate of 10.0% per annum, calculated and payable quarterly in arrears, commencing September 30, 2024, and mature twenty-four (24) months following the date of issuance (the "Maturity Date"). The principal amount of each Convertible Debenture will be convertible into Common Shares at a conversion price of US$0.185 or CAD$0.25 per Common Share at the option of the holder of a Convertible Debenture at any time prior to the close of business on the Maturity Date. A total CAD equivalent of $1,088,467 has also been recorded as subscription receipts.

The Convertible Debentures are unsecured obligations of the Company and will be subordinated in right of payment of principal and interest to all secured debt and to all existing and future senior indebtedness of the Company and senior to any of the Company's future debt that is expressly subordinated to the Convertible Debentures.

The Company paid a fee in connection with the Q2 2023 Tranche issuance comprised of (a) cash of 5% of the aggregate principal amount of the Convertible Debenture Units sold; and (b) an aggregate number of broker warrants, with substantially the same terms as the Financing Warrants, of up to 5% of the aggregate number of Financing Warrants issued.

As at December 31, 2024, the Company had received the equivalent of $1,882,700 CAD in net proceeds under the convertible debenture terms noted above, net of legal fees of $59,492 and broker commissions of $69,010. The net proceeds received for the Q2 2023 Tranche were $1,754,198. The Q2 2023 Tranche are convertible into fixed shares at amounts determined using $0.25 per share and as such, a conversion option is recorded as equity at a fair value of $589,836. There were 1,405,000 financing warrants issued at a value of $50,071 expiring May 31, 2025 and 51,500 broker warrants issued at a fair value of $2,949 expiring May 31, 2025.

There was also a prepayment option available to the Company that is considered to be an embedded option (derivative asset) for the Q2 2023 Tranche which was valued at $229,337 upon recognition. A loss in fair value change of $87,277 was recognized in 2023 leaving a balance of $142,060 at December 31, 2023. During 2024, as part of the extinguishment of the portion of Q2 2023 Tranche rolled over, $100,099 was extinguished, leaving a balance of $41,961 at December 31, 2024.

In Q1 2024, a portion of the Q2 2023 Tranche were rolled over into USD convertible debentures as described below (the "Q2 2023 Rollover). This resulted in an extinguishment of those CAD convertible debentures. The remaining CAD convertible debentures from the Q2 2023 Tranche had a prepayment option of $41,961 at March 31, 2024 (December 31, 2023 - 142,060) and an equity conversion feature of $174,222 at March 31, 2024 (December 31, 2023 - $589,836). The valuation of the Q2 2023 Tranche as at Dec. 31, 2024 concluded that the prepayment option was valued at $2,735 resulting in a loss on remeasurement of $39,226.

All USD proceeds were recorded as subscription receipts relating to convertible debentures that have not yet been issued, remaining as a liability. A total CAD equivalent of $1,088,467 has been recorded as subscription receipts.

A summary of the Convertible Debenture terms, the financial instruments recognized and the valuation methods used are as follows:

	Q2 2023 Tranche
Gross proceeds – April 28, 2023	$ 1,882,700
Less: legal and financing fees	(128,502)
Net proceeds	1,754,198
Financial instruments split out:
Broker warrants (equity)	(2,949)
Finance warrants (equity)	(50,071)

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

Conversion option (equity)	(589,836)
Prepayment option on convertible note (derivative asset)	229,337
Host convertible debentures at recognition	$ 1,340,679
Add: Accretion of convertible debentures for the year	142,481
Q2 2023 convertible debentures at December 31, 2023	$ 1,483,160
Extinguishment of debentures rolled over to Q1 2024 USD debentures:
Capitalized costs released on extinguishment	18,298
Carrying amount extinguished	(1,077,879)
Gain on extinguishment	(52,500)
Accretion	78,033
Remeasurement loss on prepayment option at December 31, 2024	(39,226)
Q2 2023 convertible debentures at December 31, 2024	$ 409,886

The terms used in the valuation of each tranche and their related financial instruments, where applicable, are as follows:

Valuation metric	Q2 2023 Tranche	Q1 2024 Tranche 1	Q1 2024 Tranche 2	Q1 2024 Tranche 3	Q2 2024 Tranche	Q4 2024 Tranche
Issuance date	April 20, 2023	Jan 25, 2024	Feb 16, 2024	Feb 23, 2024	May 31, 2024	Dec 27, 2024
Maturity date	April 30, 2025	Jan 25, 2026	Feb 16, 2026	Feb 23, 2026	May 31, 2026	Dec 27, 2026
Interest rate	10%	12%	12%	12%	12%	12%
Conversion option	C$0.25/share	U$0.11/share	U$0.11/share	U$0.11/share	U$0.11/share	C$0.11/share
Closing share price	C$0.175	U$0.096	U$0.119	U$0.107	U$0.106/share	C$0.075/share
Volatility (low/high)	75% / 85%	100%/115%	100%/115%	100%/115%	105%/115%	120%/140%
Credit spread (low/high)	24.03%/31.95%	22.81%/30.73%	22.68%/30.60%	22.57%/30.49%	22.54%/30.47%	22.13%/30.06%
Risk-free rate	4.27%	4.28%	4.64%	4.64%	4.89%	3.00%

At December 31, 2024, the prepayment option on the CAD Tranche was revalued at $9,250, resulting in a loss on remeasurement of $87,277. The major valuation metric differences at December 31, 2023 volatility (low/high) of 100% / 120% and a credit spread (low / high) of 22.9% / 30.8%.

Q2 2023 Rollover

On February 16th, 2024, a portion of convertible debtholders elected to rollover their debentures to new convertible debentures offered under the new terms of the Q1 2024 offering; however, a portion of the debenture holders did not exercise this right. For the debentures rolled over, it was determined that since the fair value changed by greater than 10%, the original debentures are to be treated as an extinguishment and a gain or loss recognized. The remaining original debentures would continue to be accounted for in the same manner. The new debentures were included in the Q1 2024 Tranche 2 amount below and the fair value used to calculate the gain on extinguishment of the Q2 2023 Tranche as calculated above.

Q1 2024 Offering (Tranche 1, 2 and 3)

On February 6, 2024, the Company announced that it completed non-brokered private placement offering for convertible debentures, previously announced and revised on December 18, 2023, for aggregate gross proceeds of US$5,579,282, net of commissions of US$114,720 and oversubscribed from the original maximum offering size of US$5,000,000. Broker warrants with a fair value of US$6,113 were also issued. The debentures were issued at a par value of US$1,000, at a rate of 12% per annum from the date of issuance with a maturity date 24 months from issuance date. Each Debenture shall be convertible at the option of the holder thereof into units ("Units") of the Company at a price of US$0.11 per Unit. Each Unit shall entitle the holder thereof to receive one common share in the capital of the Company ("Common Shares"), for no additional compensation, and one warrant to purchase a Common Share upon payment of US$0.11 to the Company.

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

The closing occurred in 3 tranches in 2024 on January 25, February 16 and February 23 ("Q1 2024 Tranche 1", "Q1 2024 Tranche 2" and "Q1 2024 Tranche 3", respectively), as shown in the summary below.

Q2 2024 Tranche

In Q2 2024, a portion of the third tranche has been redeemed for a total of 1,449,755 common shares at $0.15 per share. In addition, the Company has received $200,000 USD or $270,800 CAD for a total of 200 new debentures, at $1,000 USD per debenture, or $1,354 CAD equivalent on May 31, 2024. Each debenture will be convertible at the option of the holder, at any time on or before the maturity date, at a conversion price of $0.11 USD, or $0.15 CAD per unit. Each unit consists of one common share and one warrant to purchase common shares.

Q4 2024 Tranche

The Company received $947,000 CAD on December 27, 2024, under the same terms of other 2024 tranches, except in Canadian dollars. Upon initial measurement, the fair value of the convertible debenture was equal to the principal amount less commissions of $56,820, totaling $890,180.

Convertible Debenture Summary

| In Canadian Dollars | Q1 2024
Tranche 1 | Q1 2024
Tranche 2 | Q1 2024
Tranche 3 | Q2 2024
Tranche USD | Q4 2024
Tranche CAD | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Proceeds – 2024 debentures | $ 5,646,091 | $ 1,710,536 | $ 371,273 | $ 270,800 | $ 947,000 | $ 8,945,700 |
| Less: Commissions | (133,766) | (21,932) | - | | (56,820) | (155,698) |
| Net proceeds | 5,512,325 | 1,688,604 | 371,273 | 270,800 | 890,180 | 8,733,182 |
| Less: Broker warrants | (6,785) | (1,512) | - | | | (8,297) |
| Total 2024 debentures | 5,505,540 | 1,687,092 | 371,273 | 270,800 | 890,180 | 8,724,885 |
| Less: redemption in Q2 2024 | | | (221,404) | | | (221,404) |
| Effect of foreign exchange | | | | | | 774,669 |
| Total convertible debentures Q1-Q4 2024 Tranches, December 31, 2024 | | | | | | $ 9,278,150 |
| Add: Q2 2023 Tranche, December 31, 2024 | | | | | | 409,886 |
| Total convertible debentures, December 31, 2024 | | | | | | $ 9,688,036 |

18. RELATED PARTY BALANCES AND TRANSACTION

(i) Key management personnel:

Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of certain executive and non-executive members of the Company's Board of Directors, its CEO and its CFO.

Remuneration attributed to key management personnel can be summarized as follows:

	December 31, 2024	December 31, 2023
Management salaries, bonuses, and other benefits	$ 825,906	$ 936,984
Share-based payments - Management	112,500	320,023
Share-based payments - Directors	750,000	390,000
Total	$ 1,688,406	$ 1,647,007

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

(ii) Due to related parties:

As at December 31, 2024, the Company has a balance payable of $218,509, comprised of $153,886 to the CEO and $64,623 to a board member of the Company (December 31, 2023 – payable of $2,259,482, of which $1,900,500 was payable to the board member and $358,983 to the CEO).

The Company settled the December 31, 2023 balance of $1,839,661 and an additional $570,000 received in January 2024 - a total of $2,409,661 of the board member's debt - through the issuance of convertible debentures in February 2024 (USD$1,778,102) on the same terms as other investors. The CEO was also reimbursed a net amount of $205,096 in 2024 and is owed $153,886 at December 31, 2024.

UNEARNED REVENUE

On July 6, 2022, the Company entered into a partnership agreement (“the VISA Agreement”) with VISA for its US card program. The Agreement provided the Company $125,000 USD at signing to be earned as certain transaction dollar volumes were achieved over the three-year period from the signing date (the “Upfront Bonus”); if volumes are not met within the 3-year period, the unearned balance is repayable by the Company to VISA. As at December 31, 2024 the Company has not recognized any of the Upfront Bonus as it is still within the three-year period.

On September 15, 2023, the Company entered into a partnership agreement with Cyberloq (“the Cyberloq Agreement”) to integrate Cyberloq’s geofencing services into the AnyDay™ Financial platform for $100,000 USD. As at December 31, 2024, the Company has not recognized any of the revenue as the integration planning had not commenced.

The Company sells cards which earn additional revenue over the period of the card’s life, as described in note 10, contract assets. The portion of the card revenue relating to future periods is deferred as unearned revenue and recognized over the course of the contract specific to that customer.

Description	Amount
Balance, January 1, 2023	$ 464,311
Additions deferred to future periods	879,880
Unearned revenue recognized in current year	(239,942)
Balance, December 31, 2023	$ 1,104,249
Additions deferred to future periods	1,052,073
Unearned revenue recognized in current year	(1,034,482)
Currency translation	26,168
Balance, December 31, 2024	$ 1,148,008

COMMITMENTS AND CONTINGENCIES

In the ordinary course of operating, the Company may from time to time be subject to various claims or possible claims. Management believes that there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s financial position, results of operations, or cash flows. These matters are inherently uncertain, and management’s view of these matters may change in the future.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The fair value of cash, trade and other receivables, government loans, due to related party, trade and other payables, approximate their carrying values due to the relatively short-term nature of these financial instruments. The carrying value of the government loan approximates its fair value as the interest rates are consistent with the current rates offered to the Company for loans with similar terms.

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

The Company's activities expose it to a variety of financial risks: market risk (including interest rate risk and price risk), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Company.

The Company uses various methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate and other price risks.

(a) Market risk

(i) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company does not have any financial instruments subject to floating interest rates; therefore, interest rate risk is considered low.

(ii) Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. As at December 31, 2024, the Company had the following balances denominated in US dollars: cash of $24,750 (December 31, 2023 - $66,537), restricted cash of $1,649,853 (December 31, 2023 - $675,562), trade and other receivables, including restricted, of $1,840,488 (December 31, 20223 - $498,283), trade and other payables of $2,536,507 (December 31, 2023 - $2,415,565) and loan payable of $3,462,222. As at December 31, 2024, a 10% depreciation or appreciation of the U.S. dollar against the Canadian dollar would result in an approximate $357,533 decrease or increase, respectively, in the consolidated statements of income (loss) and comprehensive income (loss).

The Company also had the following balances denominated in GBP as at December 31, 2024: trade and other payables of £249,593 (December 31, 2023 - £182,977). As at December 31, 2024, a 10% depreciation or appreciation of the British pound against the Canadian dollar would result in an approximate $45,000 increase or decrease, respectively, in the consolidated statements of income (loss) and comprehensive income (loss).

(iii) Other price risks

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Company is not exposed to other price risk.

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of dealing with credit-worthy counterparties. The Company's exposure and credit ratings of counterparties is continuously monitored. The Company's maximum exposure to credit risk for its trade receivables is summarized as follows:

	December 31, 2024	December 31, 2023
	$	$
Trade receivables aging:
0-30 days	549,440	447,308
31-90 days	24,510	23,960
Greater than 90 days	45,893	58,836
	619,843	530,104
Provision for expected credit losses	(98,916)	(67,017)

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

The Company recognizes a restricted receivable for earned wage access advances to client employees, which is paid back when client settles payroll. On average, the duration of these advances is 10 days. The Company also recognizes a restricted receivable when temporary deficiencies arise between the restricted cash asset balances and program deposits liabilities. These deficiencies can occur due to fraud credits being issued to cardholders in advance of reimbursement by the network (Visa or Mastercard) to the Company and temporary client overdrafts stemming from funding transaction failures. The Company considers restricted receivables low risk due to the counter parties involved and therefore does not apply an expected loss provision.

The Company applies the simplified approach to provide for expected credit losses as prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade and other receivables. The expected credit loss provision is based on the Company's historical collections and loss experience and incorporates forward-looking factors, where appropriate.

All the Company's cash is held with major Canadian or US financial institutions and thus the exposure to credit risk is considered insignificant. Management actively monitors the Company's exposure to credit risk under its financial instruments, including with respect to trade and other receivables.

(c) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements. The Company coordinates this planning and budgeting process with its financing activities through its capital management process.

The Company's approach to managing liquidity risk is to ensure that it will have sufficient funds to meet liabilities as they come due and to execute on its business plan. The Company manages liquidity risk by maintaining adequate cash reserves and loan facilities, financings such as convertible debentures, and by continuously monitoring forecast and actual cash flows. At December 31, 2024, the Company had a cash balance of $64,130 (December 31, 2023 - $94,096).

Maturity analysis of liabilities which are due in next twelve months can be summarized as follows:

	At December 31, 2024	At December 31, 2023
	$	$
Trade and other payables	11,119,681	7,500,309
Due to related party	218,509	2,259,482
Sales tax payable	145,465	15,452
Lease liabilities (current)	164,367	246,007
Loan payable	4,982,366	-
Program deposits	76,950,759	57,113,812
Total	93,581,147	67,135,062

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

Maturity analysis of liabilities which are due beyond next twelve months can be summarized as follows:

	At December 31, 2024	At December 31, 2023
	$	$
Government loan (note 25)	60,000	60,000
Subscription receipts (note 17)	1,184,179	1,483,204
Long term portion of lease liabilities (note 15)	595,713	1,088,467
Convertible debentures (note 17)	9,688,036	11,428
Total	11,527,928	2,643,099

As at December 31, 2024, the Company had negative working capital of $25,385,205 (December 31, 2023 – $15,716,472).

22. MANAGEMENT OF CAPITAL

At December 31, 2024, the Company's capital consists of the negative shareholders' deficit in the amount of $29,076,083 (December 31, 2023 – shareholders' deficit of $7,329,965).

The Company's capital management is designed to ensure that it has sufficient financial flexibility both in the short and long-term to support its financial obligations and the future development of the business.

The Company manages its capital with the following objectives:

a) Ensure sufficient liquidity is available to support financial obligations and to execute its operating strategic plans;
b) Maintaining financial capacity and flexibility through access to capital to develop the future of the business;
c) Minimizing its cost of capital and considering all industry, market and economic risks and conditions;
d) Utilizing short term funding sources to manage its working capital requirements; and
e) Managing cash flows related to restricted cashflows that are utilized to meet withdrawals from program deposits.

23. INCOME TAXES

The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 26.5% (2023 – 26.5%) to the effective tax rate as follows:

| As at
In Canadian Dollars | December 31,
2024 | December 31,
2023 |
| --- | --- | --- |
| Net loss before recovery of income taxes | $ (23,067,128) | $ (16,082,923) |
| Expected income tax recovery | (5,487,110) | (4,038,782) |
| Share-based compensation and other non-deductible expenses | 574,710 | 348,330 |
| Change in tax benefits not recognized | 4,912,400 | 3,690,451 |
| Income taxes | $ - | $ - |

Deferred Tax

| As at
In Canadian Dollars | December 31,
2024 | December 31,
2023 |
| --- | --- | --- |
| Deferred tax assets | | |
| Lease liability | $ 123,404 | $ 25,500 |
| Operating tax losses carried forward | 5,347 | 1,220 |
| Total deferred tax assets | 128,751 | 26,720 |
| Deferred tax liabilities | | |
| Right-of-use assets | (128,751) | (26,720) |
| Total deferred tax liabilities | (128,751) | (26,720) |

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

Unrecognized deferred tax assets

Deferred taxes are provided due to temporary differences that arise from the differences between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

| As at
In Canadian Dollars | December 31, 2024 | December 31, 2023 |
| --- | --- | --- |
| Property and equipment | $ 312,830 | $ 306,760 |
| Intangible assets | 424,000 | 397,140 |
| Deferred revenue | 20,000 | 20,000 |
| Government loan | 179,860 | 165,330 |
| Share issuance cost | 235,940 | 485,760 |
| Reserves | 16,750 | 5,150 |
| Non-capital losses carried forward – Canada | 35,101,190 | 26,809,840 |
| Non-capital losses carried forward – US | 62,765,460 | 51,780,100 |
| Non-capital losses carried forward - UK | 10,829,070 | 9,286,410 |
| Capital losses carried forward | 138,410 | 130,700 |
| Charitable donations carry forward | 2,400 | 1,900 |
| Income taxes | $ 110,025,910 | $ 89,389,130 |

The Canadian, US and UK non-capital loss carry-forwards expire as noted in the table below. The capital loss carry forward may be carried forward indefinitely but can only be used to reduce capital gains. The remaining deductible temporary differences may be carried forward indefinitely. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the group can utilize the benefits therefrom.

The Company's Canadian, US and UK non-capital income tax losses expire as follows:

Year	Canada	US	UK	TOTAL
2038	$ 816,220	-	-	$ 816,220
2039	1,925,960	-	-	1,925,960
2040	2,842,880	-	-	2,842,880
2041	5,211,700	-	-	5,211,700
2042	6,282,570	-	-	6,282,570
2043	9,730,510	-	-	9,730,510
2044	8,651,310			8,651,310
Indefinitely		62,765,460	10,829,074	73,594,534
	$ 35,461,150	$ 62,765,460	$ 10,829,074	$ 109,055,684

24. CLIENT AND CARDHOLDER FUNDS – RESTRICTED CASH AND PROGRAM DEPOSITS

During the year ended December 31, 2024, there was $ 76,950,759 of program deposits made by customers (December 31, 2023 - $57,113,812). As at December 31, 2024, there was $53,629,427 of cardholder money in a segregated account (December 31, 2023 - $42,517,146) and $11,801,779 in funding in float balances (December 31, 2023 - $6,563,727) with the balance available (on lender approval) through the Company's lending facility of $13,000,000.

For the US operations, the Company holds trust assets in the form of restricted cash totaling $2,443,553 (December 31, 2023 – 789,970) and these assets do not offset the Canadian deficit.

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

	December 31, 2024	December 31, 2023
	Canada	Canada
Cash - restricted (CA)	$ 62,987,653	$ 49,184,401
Trust assets	62,987,653	49,184,401
Program deposits	(76,950,726)	(57,113,812)
Deficit	$ (13,963,073)	$ (7,929,411)
Deficit, prior year (A)	$ (7,929,411)	$ (1,251,391)
Deficit, current period:
Administration (B)	(6,318,692)	(4,931,134)
Fraud losses (C)	(166,354)	(2,023,848)
Timing differences (D)	434,917	276,962
Total deficit, current period	(6,050,129)	(6,678,020)
Closing deficit	$ (13,963,073)	$ (7,929,411)

25. GOVERNMENT LOAN

On April 21, 2020, the Company received a $40,000 Canada Emergency Business Account ("CEBA") loan from the Government of Canada. On December 16, 2020, the Company received an additional $20,000 CEBA loan. Both loans were unsecured and interest-free.

As at	December 31, 2024	December 31, 2023
	$	$
Opening balance	60,000	60,000
Ending balance	60,000	60,000

26. NET REVENUES

The Company generates revenue through four distinct streams:

1) Transaction revenue - cardholder transactions consisting of merchant transactions resulting in interchange revenue, and fee revenue for ATM withdrawals, electronic fund transfers and e-transfers.
2) Program management - consists of one-time and recurring fees charged to clients for bespoke program support and platform licensing, recurring fixed fees not tied to client transactions, and development support fees.
3) Card revenue - procurement and fulfillment of Today debit cards to the clients for use by card holders.
4) Subscription revenue - monthly and annual subscription fees paid by clients to access the Anyday™ platform.

Revenues for the years ended December 31, 2024, and 2023 are as follows:

	December 31, 2024	December 31, 2023
	$	$
Transaction revenue	7,815,058	5,963,091
Program management	173,195	204,866
Card revenue	858,926	607,109
Subscription revenue	244,279	-
Net revenue	9,091,458	6,775,066
Geographical Information:
Canada	8,184,212	6,496,873
United States	907,246	278,193
Net revenue	9,091,458	6,775,066

XTM Inc.

Notes to the audited consolidated financial statements

For the years ended December 31, 2024 and 2023

27. OTHER EXPENSES

Other expenses in 2024 totaling $ 294,717 are primarily comprised of foreign exchange losses and inventory write-offs as described in note 8 along with the valuation loss on the prepayment option remeasurement totaling $39,226. In 2023, other expenses totaling $2,663,824 were mostly comprised of fraud credits provided to cardholders totaling $2,023,848. A portion of these expenses relates to a system glitch amounting to $1,032,546 that was exploited by bad actors. A claim has been filed under the Company's crime insurance policy for the full amount.

28. SEGMENTED INFORMATION

Operating segments

The Company's sole operating segment is the provision of an earned wage access platform.

Geographic segments

The Company operates in two geographic segments being Canada and the United States.

As at December 31	2024	2023
	$	$
Revenue:
Canada	8,184,212	351,154
United States	907,246	7,550,833
	$ 9,091,458	$7,901,987
For the year ended	2024	2023
	$	$
Net loss:
Canada	10,784,958	10,901,247
United States	12,158,282	5,181,676
	22,943,240	16,082,923

29. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current period presentation. These reclassifications shall not have an impact on results of operations for the year ended December 31, 2024 and 2023.

30. SUBSEQUENT EVENTS

The Company had the following material subsequent events occur after the reporting period, but prior to the finalization of the audited consolidated financial statements:

On April 25, 2025, the Company executed a definitive Asset Purchase Agreement with Pateno Payments Inc. ("Pateno"), a subsidiary of Digital Commerce Group, on for the sale of the QRails, Inc. processing technology. The strategic transaction, valued at USD $3,000,000 (subject to purchase adjustments), is expected to reduce XTM's monthly operating costs by approximately 50%. XTM will retain full ownership and management of its proprietary EWA platform, including key contracts, integrations with payroll, time & attendance, and other critical systems. The previously announced letter of intent with Pateno was formally cancelled.

On April 28, 2025, the Company entered into a secured demand loan agreement, effective January 1, 2025 from Pateno, which provides for a revolving credit facility in the principal amount of up to $13,000,000. The credit facility combined with the proceeds of the sale of the processor operations support the trust deficit reported in note 24. A

XTM Inc.
Notes to the audited consolidated financial statements
For the years ended December 31, 2024 and 2023

total of 20,000,000 XTM shares will be issued to pay the standby fee of the facility in four instalments of 5,000,000 shares over 9 months.

The Company also dissolved its referral agreement with KOHO, aligning with its focus on core strategic priorities and direct customer engagement. The decision affirms the Company's commitment to strengthening its financial position, simplifying its capital structure, and enhancing long-term shareholder value through disciplined balance sheet management.

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XTM Inc. — Audit Report / Information 2024

47722_rns_2025-05-07_2c26a268-1dd3-4925-b042-49fcd87c714c.pdf

Annual Audited Consolidated Financial Statements

Management's Responsibility for Consolidated Financial Statements

INDEPENDENT AUDITORS' REPORT

Opinion

Basis for Opinion

Material Uncertainty Related to Going Concern

Emphasis of Matter

Key Audit Matters

Other Information

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Abufarah Professional Corporation

Chartered Professional Accountants, Licensed Public Accountant

1. NATURE OF OPERATIONS

Going Concern

2. BASIS OF PREPARATION AND PRESENTATION

a) Statement of compliance:

b) Basis of presentation:

c) Basis of consolidation:

Inventory

Property and Equipment

Intangible assets

Goodwill

Share capital

Restricted cash and program deposits

Cash

Impairment of non-financial assets

Income (Loss) per share

Income taxes

Revenue Recognition

Transaction revenue

Client

iii. Recognition:

Program Management

Card revenue

Subscription revenue

Financial instruments

(a) Classification

(b) Measurement

Financial assets and liabilities at amortized cost

Impairment of financial assets

a) Trade and other receivables

b) Expected credit loss impairment model

Compound financial instruments

Share-based compensation

Government grants

Leases

Related parties

Segment reporting

Adoption of new standards, amendments and interpretations

Future changes in accounting standards

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Going concern

Revenue Recognition

Income Taxes

Assessment of Cash Generating Unit ("CGU")

Functional currency

Impairment

Allowances for expected credit losses

Business combinations

Convertible debentures

Share-based payments

Application of IFRS 16

5. BUSINESS COMBINATIONS

Goodwill

6. GOODWILL

7. CASH

8. INVENTORY

9. PREPAID EXPENSES

10. CONTRACT ASSETS

11. PROPERTY AND EQUIPMENT

12. RIGHT-OF-USE ASSETS

13. INTANGIBLE ASSETS

14. LOAN PAYABLE

15. LEASE LIABILITIES

16. CAPITAL STOCK

Share capital

XTM Inc. Audit Report / Information 2024