20-F: Locafy Reports Wider Losses, Restates Financials Amid Strategic Shift

Locafy Limited reported a significant increase in net loss for fiscal year 2025, alongside a restatement of prior financial statements and ongoing efforts to streamline operations and raise capital.

Summary

• Net loss for fiscal year 2025 was A$4,314,231, a significant increase from A$1,941,033 in fiscal year 2024.
• Net cash used in operating activities for fiscal year 2025 was A$688,667.
• Total revenue declined 22.8% to A$3,202,692 in fiscal year 2025 from A$4,151,088 in fiscal year 2024.
• Subscription revenues decreased 9.8% to A$3,011,836 in fiscal year 2025 due to a shift from a Reseller to a Partner program and product streamlining.
• Advertising revenues declined 43.9% to A$140,907, impacted by Google's advertising program changes and increased AI/alternative platform search queries.
• Services revenues decreased 91.1% to A$49,949 due to non-recurrence of high-volume services work from fiscal year 2024.
• Other income increased 432.3% to A$326,613, primarily from R&D Tax Incentive rebates for fiscal years 2024 and 2025.
• Total operating expenses increased 27.0% to A$7,666,054, mainly due to share-based payment expenses related to legacy transactions; excluding these, pro forma operating expenses decreased 11.9%.
• The company restated its fiscal year 2024 financial statements due to errors in accounting for performance rights.
• Auditors issued a "going concern" doubt due to substantial operating losses and negative cash flow.
• The company is implementing AI sales agent technologies and focusing on a complete SEO package ("Localizer") to drive future growth.
• An "At The Market" offering raised approximately $2,029,678 (A$3,086,989) during fiscal year 2025 and a further $531,805 (A$755,539) post-June 30, 2025.
• New Executive Agreements were signed with CEO Gavin Burnett (A$334,500 p.a.) and CFO Melvin Tan (A$289,900 p.a.) effective April 9, 2025.
• The company acquired a Lead Management System (LMS) technology asset in June 2025, to be settled by issuing 18,000 shares post-balance date.

Sentiment

Score: 3

Explanation: The company reported a substantially wider net loss and continued negative operating cash flow, leading to a "going concern" qualification from its auditors. The restatement of prior financials and identified material weaknesses in internal controls further compound the negative sentiment. While strategic shifts and capital raises are underway, the immediate financial performance and operational challenges are concerning.

Positives

• Other income significantly increased by 432.3% to A$326,613, primarily from R&D Tax Incentive rebates.
• Pro forma total operating expenses (excluding share-based payments) decreased by 11.9%, indicating some operational efficiency improvements.
• Successful capital raise through an "At The Market" offering, securing A$3,086,989 in fiscal year 2025 and an additional A$755,539 post-June 30, 2025.
• Strategic shift to a Partner program and streamlined product offering is expected to improve collections and establish foundations for future subscription revenue growth.
• Investment in AI sales agent technologies and the acquisition of a Lead Management System are expected to drive more efficient and cost-effective sales.
• The company's technology is well-positioned to address new growth opportunities arising from changes in Google's search algorithm and increased AI platform usage.
• Employee benefits expense decreased by 40.6% to A$1,639,375 due to streamlined product suite and engagement of third-party Partners.
• The company maintains a cyber liability insurance policy to mitigate the financial impact of cybersecurity incidents.

Negatives

• Net loss significantly widened to A$4,314,231 in fiscal year 2025 from A$1,941,033 in fiscal year 2024.
• Total revenue declined 22.8% to A$3,202,692 in fiscal year 2025.
• Subscription revenue decreased 9.8%, advertising revenue decreased 43.9%, and services revenue decreased 91.1%.
• Negative cash flow from operating activities of A$688,667 in fiscal year 2025.
• Auditors issued a "going concern" doubt, highlighting substantial operating losses and reliance on future capital raises.
• Restatement of previously issued consolidated financial statements for fiscal year 2024 due to accounting errors, which was time-consuming and expensive and could lead to reputational damage and shareholder litigation.
• Material weaknesses in internal control over financial reporting identified, particularly regarding accounting review processes and share-based payment accounting.
• Outstanding ASX Convertible Notes totaling A$249,100, with A$130,000 unlikely to be repaid due to a defunct noteholder, and the failure to redeem these notes at maturity constitutes an Event of Default.
• Technology expense increased by 39.6% to A$1,243,678.
• Share-based payments expense increased to A$1,518,553 in fiscal year 2025 (compared to a reversal of A$567,204 in fiscal year 2024), largely due to legacy transactions.
• Expected credit loss expense increased by 36.2% to A$370,869.
• The company has incurred substantial operating losses and used cash in operating activities for the past few years, and there is no assurance of future profitability.

Risks

• The restatement of the fiscal year 2024 financials was time-consuming and expensive, could impair reputation, and may lead to future shareholder litigation.
• Failure to maintain an effective system of internal control over financial reporting could lead to inaccurate financial results, fraud, and loss of investor confidence; material weaknesses were identified in fiscal year 2025.
• Prior growth may not be indicative of future growth, and the company may not be able to sustain its revenue growth rate.
• The market is competitive, new, and rapidly changing; failure to compete effectively, introduce new features, or enhance existing products could harm the business.
• Challenges with properly managing AI use could result in reputational harm, competitive harm, and legal liability due to flaws in algorithms, biased data, system failures, or cybersecurity incidents; rapid evolution and potential government regulation of AI require significant resources.
• Disruption to third-party services and technologies (e.g., Cloudflare) could result in negative publicity and affect business.
• Failure to manage growth effectively could hinder business plan execution or maintenance of high service and customer satisfaction levels.
• Additional risks arise from offering new products/services, transacting with broader clients, and entering new geographical markets.
• Real or perceived errors, failures, vulnerabilities, or bugs in technology could harm business, results, and reputation.
• Exposure to cybersecurity breaches could damage reputation, lead to fines, lawsuits, and restrictions on data use.
• Inability to attract new users and organizations will harm revenue growth and profitability.
• Failure to maintain and enhance brand and market awareness could adversely affect business.
• No guarantee that future monetization strategies will be successfully implemented or generate sustainable revenues and profit.
• Past reliance on government subsidies and R&D grants, with no assurance of future availability or sufficiency of existing capital.
• Compliance with evolving global data privacy and security laws (e.g., GDPR, CCPA, EU AI Act) is challenging and non-compliance could damage reputation, deter customers, or incur significant costs/penalties.
• Dependence on expertise of executive officers and key employees; failure to attract and retain them could reduce revenues and operational effectiveness.
• Failure to adequately protect proprietary rights could impair competitive position and lead to costly litigation.
• Protracted infringement claims could harm results of operations.
• Substantial doubt about the ability to continue as a going concern due to operating losses and cash outflows.
• May need additional capital, and financing may not be available on acceptable terms, or at all, leading to potential delays or cessation of operations.
• The market for solutions may be limited if prospective clients demand customized features not offered.
• Business is subject to economic, political, regulatory, and other risks associated with international operations (e.g., economic weakness, political instability, IP protection, changing laws, currency exchange rates, trade protection, tax laws, geopolitical actions).
• Requirements of being a U.S. public company strain resources, divert management attention, and affect ability to attract/retain qualified board members.
• May lose foreign private issuer status, resulting in additional costs and expenses.
• Relying on reduced reporting requirements as an emerging growth company could make shares less attractive to investors.
• Inherent limitations in control systems mean misstatements due to error or fraud may occur and not be detected.
• Substantial future sales of ordinary shares could cause price to drop significantly.
• Shareholders must rely on share appreciation for return on investment, as no cash dividends are anticipated.
• Failure to meet Nasdaq continued listing requirements could result in delisting.
• Governed by Australian corporate laws, which may have different effects on shareholders than U.S. laws and could delay/prevent change in control.
• U.S. civil liabilities may not be enforceable against the company, its directors, officers, or experts residing outside the U.S.
• If securities or industry analysts do not publish research or publish inaccurate/unfavorable research, share price and trading volume could decline.
• U.S. holders may suffer adverse tax consequences if characterized as a passive foreign investment company (PFIC).
• Insiders have substantial control, which could delay or prevent a change in corporate control or result in entrenchment of management/board.
• Outstanding obligations under ASX Convertible Notes constitute an Event of Default and could lead to winding up proceedings if noteholders demand repayment.

Future Outlook

The company expects future revenues to be generated primarily through license subscription fees and the acquisition of additional online directories and databases. It plans to leverage AI sales agent technology and work with channel partners to scale sales more rapidly, focusing on North American and Australian markets. The company will continue ongoing maintenance, development, and enhancement of its technology, and seek complementary technologies and businesses for strategic acquisitions. It anticipates near-term headcount growth in R&D and operational roles, with lower growth in sales-related roles due to AI sales agent technologies. The company believes its technology is well-positioned to capitalize on new growth opportunities arising from changes in Google's search algorithms and increased AI platform usage.

Management Comments

• "We believe these changes will establish the foundations for future subscription revenue growth."
• "We believe a significant factor leading to the decline in revenues has been the decrease in organic search traffic to websites more broadly and users increasingly conducting search queries through AI and alternative platforms."
• "We anticipate near term headcount growth to be associated with R&D as we continue to develop our technology and also in operational roles in line with our Partner growth strategy. We expect lower growth in sales-related roles as we continue to implement AI sales agent technologies."
• "We believe that presenting operating expenses excluding share based payment expenses provide investors with additional insight into the underlying trends in our cost structure and facilitates a more consistent comparison between periods."
• "We expect to be able to better manage customer collections as a result of implementing our Partner program and having a direct billing relationship with end users."
• "The directors believe that it is reasonably foreseeable that the consolidated group will continue as a going concern, and that it is appropriate to adopt the going concern basis in the preparation of the financial report, after consideration of the factors noted within this report."
• "At the date of this report, based on current data and projections available, the Directors are of the opinion that there are reasonable grounds to expect that the Groups operational and financial performance will improve and will be able to continue as a going concern."
• "We are unlikely to repay an aggregate of A$130,000 due to a noteholder of the ASX Convertible Notes that is no longer in existence and that has since been deregistered as a corporation in Australia, and may need to allow the statute of limitations to expire before making any corresponding adjustment in our financial accounts."
• "We plan to progressively pay down the outstanding balance of the ASX Convertible Notes as our financial capacity allows us to do so, while also maintaining sufficient funds on hand for our ongoing business operations."
• "We believe that our existing capital and other sources of liquidity will be sufficient to meet our anticipated cash needs for at least the next 12 months."
• "We believe that our technology is well positioned to fulfil these new growth opportunities."
• "We believe all of our products serve a particular purpose and it is to our customers benefit that each are utilized. We believe that this strategy will help improve customer satisfaction and retention as we are not reliant on any one product to derive the expected results from implementing our solutions. In essence, we are mitigating our performance risk."

Industry Context

The digital marketing industry is highly competitive and rapidly evolving, particularly with the rise of generative AI, chatbots, and machine learning. The company operates in a market where businesses seek online prominence through digital advertising (a $678 billion market in 2025, with $355 billion in search advertising) and SEO services. Google's continuous algorithm changes and the advent of AI search results are significantly impacting traditional search traffic and SEO strategies. The company's focus on Entity-Based SEO, AI Pages, and Map Boosting directly addresses these industry shifts, aiming to provide faster and more prominent search rankings compared to traditional methods. The increased content creation efficiency due to AI has intensified competition for high search engine rankings, requiring companies like Locafy to constantly adapt their technology. New regulations around AI (e.g., EU AI Act, Colorado AI Act, Texas Responsible AI Governance Act) are also shaping the industry, requiring ethical implementation and compliance.

Comparison to Industry Standards

• The company claims its technology achieves "superior results compared to what they would otherwise be able to achieve" against "enterprise level organizations, digital media agencies and SEO freelancers."
• The company states its technology can generate a Page 1 search result within 30 days, which is presented as a significant advantage over traditional SEO techniques that "often take months to take effect (if at all)."
• The company notes that "around 42% of local organic traffic is generated from map pack results, according to Backlinko," highlighting the importance of its Map Pack Booster product in the local search market.
• The acquisition of scoop.com.au with a Moz Domain Authority score of 36, approximately 48,000 backlinks, and ranking for over 157,000 organic keywords (according to Semrush) indicates the company is acquiring assets with established industry metrics.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently a party to any legal proceedings that are likely to have a material adverse effect on its business.
• The restatement of prior financial statements may lead to future shareholder litigation.
• Failure to comply with a statutory demand from ASX Convertible Noteholders could lead to winding up proceedings.

Related Party Transactions

• New Executive Agreements with Gavin Burnett (CEO) and Melvin Tan (CFO) effective April 9, 2025, detailing fixed remuneration.
• 13,430 shares issued to Collin Visaggio (10,254 shares for A$73,333 unpaid director fees) and John Chegwidden (3,176 shares for A$29,340 unpaid director fees) in lieu of cash.
• 113,910 shares issued to related parties for debt extinguishment and share restitution, including: Collin Visaggio (16,629 shares for A$182,092 unpaid director fees), Gavin Burnett (15,474 shares for A$169,444 unpaid salary and entitlements; 28,884 shares for A$316,287 for restitution of previously cancelled shares), and Melvin Tan (52,923 shares for A$579,520 unpaid salary and entitlements).
• Deeds of Indemnity, Insurance and Access entered into with each director, indemnifying them against certain liabilities.
• Directors and executive officers, together with affiliates, beneficially own approximately 20.8% of outstanding ordinary shares as of June 30, 2025.

Stakeholder Impact

• Shareholders face negative impact from significant net losses, negative operating cash flow, and "going concern" doubt, along with potential dilution from equity offerings and risk of litigation due to financial restatement.
• Employees experienced reduced headcount in sales and operations (from 36 to 18 globally in FY2025) due to streamlining efforts, with potential for near-term growth in R&D and operational roles.
• Customers may benefit from improved satisfaction and retention through the new Partner program and enhanced AI-powered solutions, but face risks of service disruptions or performance issues.
• Suppliers/Creditors face risk from outstanding ASX Convertible Notes in default, though improved collections are expected from the new Partner program.
• Regulatory Authorities will likely increase scrutiny due to financial restatement, internal control weaknesses, and ongoing compliance with evolving data privacy and AI regulations.

Next Steps

• Continue ongoing maintenance, development, and enhancement of technology to meet consumer demand and comply with new technologies and data protection laws.
• Seek out complementary technologies and businesses for strategic acquisitions.
• Seek additional staffing and resources in engineering, operations, and marketing to grow the business and facilitate commercialization strategy.
• Complete implementation of remedial measures for internal control weaknesses by June 30, 2026.
• Progressively pay down outstanding ASX Convertible Notes as financial capacity allows.
• Make a separate application to extend R&D Tax Incentive rebate claim to incorporate relevant overseas expenditure.
• Integrate the newly acquired Lead Management System (LMS) technology with AI sales agent technologies.
• Formally close Moboom USA Inc. at an appropriate time.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a widening net loss of A$4.3 million, persistent negative operating cash flow, and an explicit "going concern" doubt from its auditors. The restatement of prior financial statements due to accounting errors and the identification of material weaknesses in internal controls indicate significant operational and governance issues, eroding investor confidence. While strategic shifts and capital raises are in progress, the fundamental financial health is highly concerning, and the risks of delisting, litigation, and inability to achieve profitability are substantial. The current outlook suggests a high probability of further value erosion.

Keywords

SEO, Digital Marketing, SaaS, AI, Search Engine Optimization, Local Search, Map Pack, Online Directories, Financial Results, SEC Filing, Going Concern, Restatement, Capital Raise, Corporate Governance, Risk Factors, Australia, Nasdaq