Zebit : Appendix 4E and FY2021 Accounts

Zebit, Inc.

Appendix 4E

Preliminary final report

1. Company details

Name of entity:	Zebit, Inc.
ARBN:	639 736 726
only	For the year ended 31 December 2021
Reporting period:
Previous period:	For the year ended 31 December 2020

The following financial information included in this Appendix 4E should be read in conjunction with any public announcements made by Zebit, Inc. (Zebit or the Company) in accordance with the continuous disclosure obligations of the ASX Listing Rules.

2. Results for announcement to the market

useSan Diego-based Zebit, Inc. (ASX: ZBT) (Zebit or the Company), is an ESG-focused eCommerce company committed to

changing the lives of US credit-challenged consumers. The Company is registered as a 'foreign company' in Australia, under the Corporations Act, under the name Zebit, Inc. (ARBN 639 736 726). All amounts are expressed in US dollars unless otherwise stated. The Company's results for announcement to the market are as follows:

$US 000's	2021	2020	% Change	Up / Down
Revenue from ordinary activities1	116,617	87,651	33.0%	Up
personal	30,120	23,012	30.9%	Up
Gross Profit
Loss before tax attributable to	(20,995)	(7,392)	184.0%	Up
sh reholders
Loss after tax and from ordinary
activities attributable to	(21,001)	(7,414)	183.3%	Up
shareholders

FY21 resulted in US$116.6M of revenue, a 33.0% YoY growth rate to FY20. The Company spent approximately US$9.7M of direct marketing2 (8.3% of revenue) to acquire over 400K new registrants in FY21, almost three times the total marketing expense in FY20 and the highest annual spend since the Company's inception. The high level of marketing expense to drive the acquisition of new registrants significantly reduced EBITDA and Net Income without the benefit of fully monetizing these registrants in 2021 to generate more top line growth. The Company believes it attracted a portion of its new registrants who w re of much higher credit quality and applied for Zebit believing the Company's eCommerce value proposition was more attuned to traditional BNPL versus credit-constrained consumers to which Zebit predominately services.

While Gross Profit was up 30.9% in FY21 vs FY20, Gross Margin in FY21 was slightly less at 25.8% vs 26.3% in FY20 due to strong and consistent demand for e-certificates related to travel, entertainment, and home improvement in 2Q21-3Q21 which carried lower product margins.

ForInitial Bad Debts estimates for vintages prior to 4Q21 were impacted negatively due to decreased collection rates in late 2Q21 and into 3Q21 after the halo-effect of US COVID-19 cash subsidies ended. The decline in collections, coupled with an increase of fraud activity from third parties using stolen identities on Zebit's platform, as noted in the Company's 4Q21 earnings release, increased terminal Bad Debts rates. Overall, Bad Debts performance did not meet the Company expectations in FY21 and increased losses for the Company; however, the Company believes it has resolved the fraud issue by implementing new technologies in mid-October while also significantly tightening its new customer underwriting.

1. Revenue is the gross merchandise value (GMV) plus shipping revenue plus net margin on warranties sold less any post month adjustments for customer rebates. Revenue is recognized at the point the product is delivered to the end buyer.
2. Direct marketing expense excludes US $381K of employee expense related to marketing.

Zebit, Inc.

Appendix 4E

Preliminary final report

3.	Net tangible assets
			Reporting		Previous
			period		period
			Cents		Cents
	Net tangible assets per ordinary security3	US$0.08		US$0.29
4.	Control gained over entities
onlyThe Company formed a new subsidiary entity, Zebit CA, LLC. Zebit CA, LLC was incorporated in Delaware on 15 December
	2021. The subsidiary was not operational in 2021. It will be used to conduct business with customers who reside in California.
5.	Dividends
use

The company has not declared, and does not propose to pay, any dividends for the year ended 31 December 2021. There are no dividend or dividend reinvestment plans in operation.

personal6. Associates and joint venture entities There are no associate or joint venture entities.

7. Accounting standards

US GAAP has been used in compiling the information contained in this Appendix 4E.

8. Other information regarding the financial statements

This Appendix 4E and the included financial information are based on the Consolidated Financial Statements and Notes of Z bit, Inc. which have been audited by BDO USA, LLP. An unqualified opinion has been issued and includes an emphasis of matter paragraph relating to substantial doubt about the Company's ability to continue as a going concern.

Additional information related to Appendix 4E can be found in the notes to the 31 December 2021 Financial Statements and ForDi ector's Report.

The following financial report included in this Appendix 4E should be read in conjunction with any public announcements made by Zebit, Inc. in accordance with the continuous disclosure obligations of the ASX listing Rules.

3 The net tangible assets per ordinary security is defined as total assets minus intangibles minus liabilities divided by the amount of common stock

outstanding at year end.

Zebit, Inc. Directors' report 31 December 2021

The Directors present their report on the Zebit, Inc. (ASX: ZBT) (Zebit or Company) for the year ended 31 December 2021. All amounts are stated in US dollars unless otherwise noted.

Directors
only
The following persons were Directors of Zebit, Inc. during the whole of the financial year and up to the date of this report,
unless otherwise stated:
Jim Feuille	Chairman and Non-Executive Director
Marc Schneider	President and CEO, Executive Director
Sylvia Falzon	Independent Non-Executive Director
Miriam Rivera	Non-Executive Director
Larry Rosenberger	Independent Non-Executive Director
Scott Thompson	Independent Non-Executive Director
use
Principal activities

San Diego-based Zebit, Inc. (ASX: ZBT) (Zebit or the Company), is an ESG-focused eCommerce company committed to changing the lives of US credit-challenged consumers.

Review of operations

In late October 2020, during the pandemic, Zebit completed its initial public offering (IPO) and entered 2021 delivering strong res lts against its twelve-month Prospectus forecast for the period 1 July 2020 to 30 June 2021. The Company subsequently outlined revenue guidance of US$140M-US$150M for FY21, representing hyper-growth of 60%-71% on FY20, in its May 2021 Annual General Meeting and was on track to deliver against this guidance throughout the first three quarters of last year. personalHowever, in its 3Q21 earnings release1, the Company lowered its revenue guidance for FY21 to US$118M-US$123M, representing 35%-40% growth on FY20, with the intent to manage 4Q21 more conservatively by aligning the Company's growth path and core operating metrics with other eCommerce companies traded on the ASX. While the Company could have continued to pursue its original hyper-growth objectives, after observing the downward trend in the Company's stock price, receiving investor feedback, and taking into account the low valuation attributed to the business after posting positive results, the Board of Directors and Management concluded that it would benefit the Company to pursue a more conservative growth

path that included a clear line of sight to profitability, stronger operating metrics, and a lower overall cash burn rate.

The revised approach, implemented in November of 4Q21, is expected to generate increased Contribution Margin2 by leveraging the strong recurring annual revenue from tenured customers that have historically generated lower Bad Debts and a higher average Contribution Margin per order, while acquiring a smaller set of higher quality new registrants at a lower cost and with more stringent underwriting.3

It is important to note that FY20 results were heavily impacted by the Company's constrained growth from March to September 2020 to preserve capital until the Company's IPO in late October 2020. This resulted in a greater mix of orders from tenured customers on the platform which increased the overall Contribution Margin of booked revenue due to lower Bad Debts from these segments. In addition, the Company believes US government cash subsidies greatly improved cash collections from both new and existing customers in 3Q20-4Q20, lowering Bad Debts4 to historic levels.

Revenue for the financial year ended 31 December 2021 increased 33.0% to US$116.6M from US$87.7M in FY20. The ForCompany spent approximately US$9.7M of direct marketing5 (8.3% of revenue) to acquire over 400K new registrants in FY21, which was almost three times the total marketing expense in FY20 and the highest annual spend since the Company's inception. The high level of marketing expense to drive the acquisition of new registrants significantly reduced EBITDA and

Net Income without the benefit of fully monetizing these registrants to generate top-line growth.

1 Earnings released entitled: Zebit Quarterly Activities Report and Growth Strategy Update, 3Q Ending 31 September 2021, dated 28 October 2021.

2 Contribution Margin is Gross Margin less the provision for Bad Debts. Gross Margin is defined as the Product Margin less shipping profit or loss, logistics costs, and refunds. Product Margin is defined as the sales price for a product less its cost of goods sold.

3 Earnings release entitled: Zebit Quarterly Activities Report, 4Q Ending 31 December 2021, dated 28 January 2022 noted that tighter underwriting for new registrants included lowering the initial spending limit for new registrants from an average of US$1,325 to US$1,100 and raising their initial down payment at checkout from 20%-35%to 30%-35%in order to drive higher cash collections up front and lower expected Bad Debts on new orders.

4 The provision for Bad Debts is the estimate of Bad Debts that Zebit expects to book for historical revenue vintages with a positive underlying Accounts Receivable balance. The initial provision is estimated for each monthly revenue cohort by applying historical loss data against a segmented view of the monthly revenue cohort that considers prior repayment history, customer tenure and repayment methods. The initial provision is net of any expectation of recoveries related to payments received after the receivable has been written off. The provision for Bad Debts is not a static number at any point in time, as it is influenced by new revenue months, potential adjustments from prior periods as collection experience matures, and offsets related to recoveries of written off debt and other factors.

5 Direct marketing expense excludes $381K of employee expense related to marketing.

Zebit, Inc. Directors' report 31 December 2021

Gross Margin in for FY21 was 25.8% vs 26.3% in FY20. The slight decline, despite building a much wider assortment of goods, was due to strong and consistent demand for e-certificates related to travel, entertainment, and home improvement in 2Q21-3Q21 that carried lower product margins.

onlyBad Debts in FY21 were 17.7% of revenue and impacted by changing credit quality emerging from heavy US government cash subsidies in FY20. The Company believes Bad Debts were also impacted by fraud in 2021 as reported in the Company's 4Q21 earnings release entitled Zebit Quarterly Activities Report, 4Q Ending 31 December 2021, dated 28 January 2022. The Company believes it has resolved the fraud issues it experienced by implementing new technologies in mid-October while also significantly tightening its new customer underwriting.

The Net Loss for the Company after providing for tax increased by 183.3% to US$21.0M from US$7.4M FY20. Total operating c st and expenses for the year increased by 85.9% to US$50.6M for FY21 from US$27.2M in FY20.

The Company continues focus on improving its financial performance by lowering its overall cost structure and focusing on useprofitable growth by acquiring better quality new customers and continuing to drive high lifetime value with tenured customers that produce a material part of revenue at a higher Contribution margin per order. This strategy was put into place in November 2021 and remains the strategic approach being executed in FY22. The Company's overarching goal is to achieve EBITDA and Net Income profitability in FY23. Key projects related to customer engagement, credit and fraud risk, cost reduction, and

automation have been prioritized and are being executed to support this goal.

Financial position

As of 31 December 2021, the Company had US$7.7M of unrestricted cash as working capital to fund the activities of the Company, and US$15.4M drawn in debt from its facility ("Facility") with Bastion Consumer Funding II ("Bastion").

personalSignificant changes in the state of affairs

There were no significant changes in the state of affairs of the Company during the financial year.

Dividends

The company has not declared, and does not propose to pay, any dividends for the year ended 31 December 2021. There are no dividend or dividend reinvestment plans in operation.

Jurisdiction of Incorporation

The Company is incorporated in the State of Delaware, United States of America and is a registered foreign entity in Australia. As a foreign company registered in Australia, the Company is subject to different reporting and regulatory regimes than Australian companies.

Delaware law, Certificate of Incorporation and Amended and Restated Bylaws

As a foreign company registered in Australia, the Company is not subject to Chapter 6, 6A, 6B and 6C of the Corporations Act dealing with the acquisition of Shares (including substantial shareholdings and takeovers).

Under the provisions of Delaware General Corporation Law ("DGCL"), Shares are freely transferable subject to restrictions Forimposed by US federal or state securities laws, by the Company's Certificate of Incorporation or Amended and Restated Bylaws, or by an agreement signed with the holders of the Shares at issuance. The Company's Amended and Restated Certificate of Incorporation and Bylaws do not impose any specific restrictions on transfer. However, provisions of the DGCL, the Company's Certificate of Incorporation and the Company's Amended and Restated Bylaws could make it more difficult to acquire the Company by means of a tender offer (takeover, a proxy contest or otherwise), or to remove incumbent officers and Directors of the Company. These provisions could discourage certain types of coercive takeover practices and takeover bids that the Board may consider inadequate and to encourage persons seeking to acquire control of the Company to first

negotiate with the Board.

Zebit, Inc. Directors' report 31 December 2021

Matters subsequent to the end of the financial year

In February 2022, the Company's Facility with Bastion was amended to (i) reduce the borrowing base limitation to 80% of the cost of goods sold on eligible receivables, with respect to any eligible receivables originated on or after January 1, 2022, only(ii) reduce the principal borrowing amount from US$35.0 million to US$23.0 million, and (iii) amend the financial covenant for

the minimum unrestricted cash balance from US$5.0 million to US$2.0 million.

The reduction in advance rate and other amendments to the Facility were reported in the Company's 4Q21 earnings release. The advance rate is the proportion of the cost of goods sold that is funded by the Facility. The Company reduced the credit li e size from US$35M to US$23M to align with its more measured growth and to avoid paying additional expenses on unused funds.

The Company made a formal request for removal from the official list of ASX (the Delisting). The ASX has provided its consent to the Delisting on the conditions which are set out in the announcement titled Zebit, Inc. Announces Voluntary useD listing that was released on 11 February 2022. The Company plans to hold a special meeting of Shareholders (Special M ting) for the purpose of approving the Company's delisting from the ASX on 16 March 2022 as indicated in the Notice of

Meeting released to the market on 21 February 2022.

The Board of Directors and Management invite all shareholders to vote and attend the Special Meeting, and strongly encourage investors to vote yes on the resolution for the Company to Delist from the ASX. Upon a favourable vote to delist, the Company would become a US private company. Being private potentially opens avenues to a new class of investors to further capitalize the business. The reduced cost structure from being a private entity versus public, coupled with potential access to additional capital, will support the Company's future operations.

personalNo other matters or circumstances have arisen since 31 December 2021 that have significantly affected, or may significantly ffect the Company's operations, the results of those operations, or the Company's state of affairs in future financial years.

Likely developments and expected results of operations

A y other information on likely developments in the operations of the Company and its prospective future have not been included in this report because the Directors believe it to be commercial-in-confidence and as a result likely to result in unreasonable prejudice to the Company.

Environmental regulation

The Company is not subject to any environmental regulation under Australian Commonwealth or State law.

Ecommerce and Consumer Financial Protection

The regulatory framework for eCommerce companies, including Zebit, is developing and evolving, and it is possible that new laws and regulations will be adopted in the U.S., or existing laws and regulations may be interpreted in new ways, that could affect the operation of Zebit and the way in which it interacts with its registered users and active customers.

Regulators, including the Consumer Financial Protection Bureau and the Federal Trade Commission, other Federal agencies, and State executive agencies have broad discretion with respect to the creation, interpretation, implementation and enforcement of the laws and regulations that apply to Zebit, including through enforcement actions that could subject ForZebit to civil money penalties, customer remediation, increased compliance costs, and limits or prohibitions on its ability to

ffer certain products and services or to engage in certain activities.