Netcapital Inc.

Good day, and welcome to the NetCapital first quarter earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Corrine Krasler. The floor is yours.

Thank you so much, Kelly. Good morning, everyone, and thank you for joining NetCapital's financial results conference call. for our first quarter of fiscal year 2024, ended July 31st, 2023. This is Corrine Kreisler, CFO of NetCapital, Inc. I will begin with a review of our financial results, and our CEO, Martin Kay, will follow with his remarks before we open up the call for questions. Before we begin, I'd like to call your attention to the customary safe harbor disclosure regarding forward-looking information. Management's discussion may include forward-looking statements. These statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. Any forward-looking statements reflect management's current views with respect to operations, results of operations, growth strategy, liquidity, and future events. NetCapital assumes no obligation to publicly update or revise these forward-looking statements for any reason or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. turning to our financial results for the first quarter. We are excited about the momentum shown by the net capital funding portal this quarter, as funding portal revenues increased by more than 110% to $375,856 in the three months ended July 31st, 2023, compared to $178,500 in the three months ended July 31st, 2022. This strength was driven by the success of several large issuers during the period. Total company revenues grew 13% year-over-year to $1.5 million, compared to revenue of $1.3 million in the first quarter of fiscal year 2023. We reported a net loss of approximately $492,000 compared to net income of approximately $65,000 in the first quarter of fiscal 2023, and the diluted loss per share was $0.07, compared to diluted earnings per share of $0.02. The first quarter net loss was driven primarily by non-cash stock-based compensation for marketing and salary expenses that increased to $483,000 $351 in the three months ended July 31, 2023, as compared to $32,953 in the three months ended July 31, 2022. I'll now turn the call over to our CEO, Martin Kay. Thank you, Corrine. As I stated in our fiscal year 2023 results conference call, I'd like to begin by reasserting our confidence

in the differentiated value proposition of our integrated offerings, and in net capital's ability to drive value creation for investors and entrepreneurs alike. Right now, we have more than 100,000 users of our funding portal, which is a sizable pool of investors for companies seeking funding. There are currently 55 companies raising capital on our platform. And both of these communities, investors and issuers, stand to benefit from our forthcoming launch of secondary trading functionality, which has been a key focal point in the first quarter. On the investor side, the purpose of secondary trading is, of course, to provide potential liquidity for investors from the ability of users to trade shares. Securities issued on the net capital platform are and have always been specifically designed to be tradable as straight common shares, free of transfer restrictions. Unlike other funding portals, net capital doesn't allow issuers to sell safe instruments, debts, revenue bonds, tokens, or other hybrid securities. We believe this strategy of only offering common equity coupled with secondary trading makes net capital issuers more attractive to investors. From the issuer standpoint, those seeking to raise capital, net capital is differentiated and has always been by our lower cost solutions, ease of automated onboarding, and superior issuer experience, as verified by issuers who've used both our platform and those of our competitors. On top of that, secondary trading should be a compelling added benefit for those issuers, providing another pathway for increased liquidity and the potential for increased company value. The new liquidity feature is essentially complete, and we began internal testing last week. As a next step, we expect to launch a beta version of the secondary trading feature to a limited number of investors, and we hope for a full rollout by the end of December. So in summary, the endeavors I've discussed represent milestone achievements in technology and product development, and ultimately a stronger competitive benefit for the audiences we serve. As always, thank you for your interest in support of NetCapital and Operator. We are ready for questions.

Certainly. The floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset, if listening on a speakerphone, to provide optimum sound quality. Please hold just a moment while we poll for questions. Your first question is coming from Michael Matheson with Singular Research. Please pose your question. Your line is live. Hi, Michael.

Thanks for joining us all.

Thank you, and thanks for having me. Good quarter, a lot of interesting news. My question really looks at your revenue forecast going forward. Last year, you averaged 55% year-over-year growth. You had forestry quarters of sequential growth. This quarter you had around 13%, I believe, year over year. Should we be looking at that as kind of a new normal, a growth rate that's kind of of that magnitude going forward?

So, Michael, great questions.

Thank you very much for asking that. You know, as you know, we don't provide a lot or any forward-looking guidance. What I would say is that the summer months, which this quarter primarily represents, tend to be slower months for us. That's why we were especially excited by the more than 110% growth we saw in the funding portal revenues. So I would focus on the growth that we saw in the funding portal. to help you frame what you think about our revenues going forward. Because that's really the cash engine of our company.

All right. So speaking of kind of what's going on on the portal, you're very near to launching secondary trading. Congratulations on that. Thank you. Any forecast of when you'll be live and what that will mean for revenues?

So what we have told investors, and what we said earlier in our comments is that we are currently testing the secondary trading feature internally, which is a really exciting development for us. The next step for us will be to open up a beta version to a limited number of investors, and then we hope to have the secondary transfer feature live by the end of this calendar year.

And we haven't talked about the impact on revenues yet. Well, good. Thank you for taking my questions. Thank you so much.

Your next question is from Mark Nelson with Tesche Capital. Please pose your question. Your line is left.

Hello. Thank you for taking the call. For your launch in December, do you guys have a sense of how many listings will be available on the secondary market at that launch?

Martin, do you want to jump in here?

Yeah, I can take that, Corrine. Thanks so much for the question. We are, as I mentioned in my comments, we have specifically designed from the beginning our platform so that all securities issued would be tradable in secondary. That's part of the agreement that issuers sign up for and have always signed up for. And I think we've disclosed elsewhere that we've had more than 200 companies who have successfully raised on our platform. So ultimately, that's the goal. We will begin with a smaller number and working with our ATS partner, Templum, who is the alternative trading system platform that we're working with on the secondary. But working with them, we will gradually introduce those securities into the platform. We haven't been specific about how many we'll be trading by when, but the point is, I guess, that all of them are ultimately eligible to be traded on the platform, and obviously any more going forward.

Great. Thank you very much. Does that answer your question, Mark? Thank you. Yes, it does. Once again, if you do have any remaining questions or comments, please press star 1 as it's time. There are no remaining questions in queue. Great.

Thank you so much, everyone. Oh, it looks like Michael Matheson might have a follow-up. Is that true?

Yes. Yes, he does. Just one moment. I'll place him in. Michael, your line is live.

Thank you for permitting one more question. I just wanted to ask you about cash flow. Yes. You were in negative operating cash flow last quarter. Yes. So can we expect that for the coming quarters, and how would that be financed?

Right.

So what we have said about cash flow and financing is that we are currently in a position of generating negative operating cash flow, and that given that, it would not be unreasonable to expect us to do future common financings from time to time. But one of the things, again, that we are very, very pleased to see is the growth, the very strong growth that we saw in the funding portal this quarter and the increased activity we're seeing in the portal overall, both in terms of the average investment size and the success of the larger issuers that we're seeing on our platform.

Okay, good. I just wanted to confirm that expectation. Thank you.

Thank you. Thank you so much, everyone, for joining us. We really appreciate your interest and support of our stock. We very much are looking forward to seeing investors at a few conferences coming up, specifically the LD Microconference. and also the Think Equity Conference, both in October. So we look forward to speaking with investors in person at these conferences, and we'll talk to you on the next conference call. If not then, thank you. Bye-bye.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.