Locafy Limited: FY2022 Form 20-F Summary
Reporting period: Fiscal year ended June 30, 2022, with comparison to FY2021. This is an annual report, not a standalone 2021 Q4 filing. Financial statements are prepared under IFRS and presented in Australian dollars (A$), unless stated otherwise.
Business context
Locafy develops SaaS technology that converts structured data into search-optimized web pages, with a focus on local search. It also operates online directories, including Hotfrog and Australian directory properties. Revenue comes from publishing and advertising, direct subscriptions, and channel/reseller subscriptions. The company completed its Nasdaq IPO in March 2022; ordinary shares and warrants trade as LCFY and LCFYW.
Key financial metrics
| Metric (A$ unless noted) | FY2022 | FY2021 |
|---|---|---|
| Revenue | 4,222,689 | 2,191,425 |
| Other income | 1,298,499 | 788,258 |
| Operating loss | (4,342,137) | (936,853) |
| Net loss | (5,090,327) | (995,766) |
| Net cash used in operating activities | (4,240,436) | (496,031) |
| Net cash used in investing activities | (2,005,531) | (442,423) |
| Net cash from financing activities | 9,183,513 | 1,427,994 |
At June 30, 2022, cash and cash equivalents were A$4,083,735, versus A$650,731 a year earlier. Total assets were A$8,554,930 and total liabilities A$3,437,445; net assets were A$5,117,485, compared with net liabilities of A$835,478 in FY2021. Current borrowings were A$308,100, consisting of matured, unsecured ASX convertible notes reported as due and payable. Lease liabilities totaled A$450,416. No gross margin is clearly reported.
Revenue increased 92.6%. Channel revenue rose 742.8% to A$1,929,836; direct revenue rose 12.3% to A$1,328,403; and publishing revenue rose to A$964,450 from A$779,430. Operating expenses increased 151.8% to A$9,863,325, including higher technology, staffing, marketing, consultancy and depreciation/amortization costs. Consultancy expense included IPO and Nasdaq-listing costs. Financial costs rose to A$748,190, largely due to implied interest associated with convertible notes and their IPO-related conversion. The company recorded A$376,606 of impairment expense on financial assets and an allowance for credit losses of A$369,844.
Material changes and unusual items
- The March 2022 IPO generated approximately US$6.0 million gross proceeds; offering expenses were approximately US$1.3 million. Proceeds were intended for commercialization, product development, debt reduction, possible acquisitions, working capital and general corporate purposes.
- Other income included A$757,609 of R&D tax incentive income, A$45,433 of export market development grant income, and A$495,457 of unrealized foreign-exchange gains. No COVID-19 government subsidy was received in FY2022, compared with A$290,900 in FY2021.
- Net cash increased with IPO-related financing, despite materially higher operating and investing cash outflows. The company’s net U.S.-dollar exposure was A$3,212,072; it did not hedge currency exposure.
- At June 30, 2022, Locafy had 20,528,803 ordinary shares outstanding. The filing reports 1,454,546 IPO shares and 475,843 shares issued on conversion of convertible notes.
Outlook, risks and contingencies
Management planned to expand reseller channels, grow subscription and advertising revenue, apply its technology to directory data, and pursue selected acquisitions. It expected advertising revenue to continue growing and described channel expansion as a route to reaching more end customers. No specific forward revenue or profit guidance is provided. Management said available funds were expected to meet needs for at least 12 months, conditional on forecast sales, collections and cost management.
The auditor highlighted substantial doubt about the company’s ability to continue as a going concern, citing the FY2022 loss and operating cash outflows. Management’s plans depend on revenue growth, cost control and potentially raising capital; the financial statements contain no adjustments for a possible failure to continue as a going concern. Locafy also disclosed material weaknesses in financial reporting controls involving expected credit losses, convertible-note accounting and share-based payment valuations, as well as deficient written accounting procedures. The auditor did not audit internal-control effectiveness.
Other notable risks include reliance on resellers and third-party cloud hosting (AWS), competition and customer retention, execution of growth and acquisitions, privacy and cybersecurity compliance, further financing and dilution, and foreign-exchange exposure. Nasdaq notified the company on June 30, 2022 that its share price did not meet the $1.00 minimum bid-price rule; the stated compliance period ran through December 27, 2022. The filing also reports post-period events: acquisition of Jimmy Kelley Digital on September 1, 2022, and launch of Brand Boost on October 4, 2022. The filing states there were no material legal proceedings and no contingent liabilities at June 30, 2022.
Important facts for investors to verify
- Confirm current liquidity and cash runway against actual subsequent operating cash flows, collections and financing needs; reconcile management’s 12-month liquidity expectation with the auditor’s going-concern warning.
- Track remediation and testing of the disclosed material weaknesses, including the accounting estimates and controls that contributed to prior-year audit adjustments.
- Verify collection performance and the recoverability of receivables after the A$369,844 credit-loss allowance, and monitor customer and reseller concentration and renewal trends.
- Assess whether channel-led revenue growth and planned advertising monetization persist without disproportionate increases in operating costs.
- Review the matured A$308,100 notes, lease commitments, acquisition obligations and subsequent acquisition outcomes; confirm Nasdaq listing compliance after the reported deficiency.
- Note a working-capital inconsistency: the balance-sheet figures imply current assets less current liabilities of A$2,599,869, while the MD&A table reports A$2,369,775. Verify the correct amount in the underlying filing.