Netcapital Inc.

Good morning, everyone, and welcome to the Net Capital Incorporated quarterly earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to your host, Corrine Krasner of Net Capital Incorporated. Corrine, over to you.

Thank you so much, Jenny. Good morning, everyone. and thank you for joining NetCapital's full-year fiscal 2024 financial results conference call. This is Corrine Kreisler, CFO of NetCapital, Inc. I will begin with a review of our financial results. Following that, NetCapital's CEO, Martin Kaye, will follow with his prepared 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 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 strategies, 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. With that said, I'd like to now turn to our financial results for the full year of fiscal 2024. Revenues for fiscal 2024 decreased by $3,542,550, or 42%, to $4,951,435, compared to $8,493,985 in fiscal 2023. This decline in revenues was mainly due to a decrease in consulting services or equity securities, which dropped by $3,665,000, or 52%, to $3.44 million in fiscal 2024, as compared to $7.1 million in the previous year. The aggregate decrease of approximately $3.7 million in consulting services for equity securities in fiscal 2024 occurred because we provided consulting services to only three companies in fiscal 2024 as compared to six companies in fiscal 2023. We strive to provide more than $1 million worth of consulting services to this type of client, and the average fee that we earn per client in fiscal 2024 and 2023 amounted to $1,146,667 and $1,184,167 respectively. These services are provided by our consulting subsidiary, NetCapital Advisors, and Advisors did not return any equity securities from consulting work in the fourth quarter of fiscal 2024. Our subsidiary, NetCapital Funding Portal, Inc., introduced a 1% fee on the equity raised by issuers using the funding portal. In fiscal 2024, the funding portal earned equity securities from 30 clients with a total value of $97,700 as compared to $0 in the previous fiscal year. Our cost of revenues increased by $23,000, or 27%, to approximately $108,000 in fiscal 2024, from approximately 85,000 in fiscal 2023. The increase is attributable to the funding portal which saw a rise in revenues from portal fees to 874,368 in fiscal 2024. We recognize an unrealized loss in the value of our equity securities of approximately 2.7 million in fiscal 2024 as compared to unrealized gains of approximately 1.9 million in the value of our equity securities in fiscal 2023. The loss in fiscal 2024 was attributable to a decrease in value of our 3.2 million shares of King Shroud common stock from $1 per share to 16 cents per share. We recorded an impairment loss of 1,048,430 in fiscal 2024. The laws in fiscal 2024 consist of a reduction in value from $647,264 to $0 for the intangible assets we acquired in the purchase of MSG and a reduction in value from $401,167 to $0 for the intangible assets we own that are associated with the website one-on-one stands. The person who operated MSG retired due to health reasons during fiscal 2024. and we were unsuccessful in transitioning the valuation consulting works performed by MSG to another person. We may continue providing business valuation services in the future, but at this point in time, we cannot attribute any value to the assets we purchase. Similarly, the person who is designated to operate our one-on-one hands website left the company in May 2024, and without his expertise and connections with professional hockey players, we determined the value to be $0.00. Revenues from portal fees increased by 455,855, or 109% year-over-year, to 874,368 from 418,513 in fiscal 2023. The increase in portal fees is attributable to the increase in the amount of capital raised on the net capital funding portal and the increase in the number of issuers that completed an offering in fiscal 2024 and 2023. The average amount raised in an offering on the NetCapital funding portal was $280,978 and $128,170 respectively. We had an operating loss of $3,442,388 for the full fiscal 2024 as compared to operating income of $2,271,876 for fiscal 2023. and a net loss for fiscal 2024 of $4,986,317 as compared to $2,954,972 for fiscal 2023. We reported a loss per share of 41 cents in the full year ended April 30th, 2024, which was down compared to earnings per share of 63 cents for the same period in the prior year. As of April 30th, 2024, the company had cash and cash equivalents of $863,182. I'll now turn the call over to our CEO, Martin Kaye.

Thank you, Corrine, and thank you to all shareholders who are taking the time to be on this call today. We saw a challenging economic environment over the year, as reflected in the press release, filing, and the numbers that Corinne recapped, showing decreases in both top and bottom line. However, there are several important metrics, positive metrics to highlight. Corinne mentioned these, but just to emphasize, you know, the average amount raised in an offering on our platform went up from 128 to 280,000 year over year. The total number of successful offerings increased from 50 to 53, and in addition, we saw total revenue for portal fees increase by 109%, so more than double. And so these numbers tell the story that despite the tough environment, we completed more deals on our platform, our issuers, on average, raised more capital, and as a result, we saw strong growth in our portal fee revenue compared to 2023. Along those lines, I'd like to highlight two significant deals that were closed by issuers during the year. Avidane, a graphene technology company, successfully sold out their $4.5 million offering after upsizing the offering several times due to strong demand. And the second deal, EarthGrid PBC, a plasma boring technology company, closed a $3.3 million offering. These two deals alone total almost $8 million, demonstrating the opportunity for both companies and investors that use our funding portal. As of today, we own minority positions in 22 portfolio companies that have utilized the funding portal to facilitate their offerings, for which equity is received as a payment for services. And as Corrine mentioned, we added a 1% fee on equity raised by issuers this year, And the funding portal earns securities from 30 clients as a result of that move. Looking forward and highlighting some of the strategic priorities for us as a company, we recently announced the launch of the beta version of a secondary trading platform to a closed group of users in collaboration with Temple Markets. In September we began internal testing of this secondary trading platform which provides access to a registered alternative trading system or an APS. The Templin APS is approved in 53 US states and territories and will have the ability to facilitate the trading of unregistered or private equity securities. So this partnership will provide investors who purchase stock through the net capital funding portal with the potential for secondary trading and allow for improved liquidity. It will provide issuers with a potential path to a broader pool of retail investors, a way to engage their communities and share in the value they're creating, and also a potential stepping stone on journey to a more traditional public market. Second, we also announced that NetCapital has applied for a broker-dealer license for its wholly owned subsidiary, NetCapital Security. We believe that by having a registered broker-dealer, we may create opportunities to expand our revenue base by hosting and generating additional fees from what are called Reg A Plus and Reg D offerings on the NetCapital platform. Under Reg A Plus, companies can raise up to $75 million from accredited and non-accredited investors every 12 months versus $5 million that's permitted under our current Reg CF environment. Additionally, under Reg D 506C, companies can raise unlimited amounts of capital from accredited investors using general solicitation. So NetCapital remains a competitive, scalable platform offering a cost-effective online capital-raising solution for a growing network of companies and investors. We continue to strive as innovative leaders in producing what we believe our customers frequently tell us is the best platform. More than 100,000 users and growing, over 50 companies currently in the fundraising process, a healthy but very competitive 4.9% portal fee for capital raised at closing, and higher outcomes in money raised per offering all speak to the value we provide in the marketplace. Finally, I'd say that we are focused on the long-term and not optimizing for short-term results. Our success depends on our clients' success, and that usually takes time and patience. As always, thank you for your interest and support of NetCapital. Operator, we are ready for questions.

Thank you very much. We are now opening the floor for questions. If you have any questions, please press star 1 on your phone keypad now. We ask that while you're posing your question, you please pick up your handset if you're listening on a speakerphone to provide optimum sound quality.

Please wait a moment whilst we poll for any questions.

Thank you. Your first question is coming from Chris Sakai of Singular Research. Chris, your line is live.

Hi, good morning. Just a question on on portal fees and the growth there, what sort of initiatives are you doing to maintain and or increase that growth?

Well, as we mentioned, it's a function of the number of issuers on the platform and the success of those issuers. So we're continuing to do the things we always do, which is Innovate in the ways in which we connect with new companies that would be a good fit for our platform. And in terms of individual raises, we're learning from history at this point as to what it takes to be successful on our platform and ways in which you can engage in digital marketing activities and engage your community to become investors and owners and ambassadors for those companies. So we expect to, you know, continue focusing on those efforts. So targeting newer and potentially bigger issuers, particularly as we move into the Reg A Plus business, and leveraging the learnings to date as to how to make any given issuer as successful as possible on the platform.

Okay, thanks. And then you mentioned the ACS. Do you have any sort of timeline as far as the production there?

As I mentioned, we announced the launch of the production in a production environment to a closed group of users. We expect to, as I think we said in that press release, to open that up to a broader group of users before the end of this year. But we obviously, you know, we're doing something that no one else has done. We're doing it in partnership with a great company, and we just want to be careful and make sure that, you know, when we do open to everyone, that we provide the experience that folks will expect.

Okay, great. Thanks for the answers.

Thank you very much. Just as a reminder there, if anyone has any further questions, you can press star 1 on your phone keypad now to join the queue.

That's star 1. Okay, I'm not seeing anyone else come into queue. No, we don't have anyone else in the queue at the moment.

I will hand back over to Colleen. All right.

Thank you, everyone, for joining our call. We really appreciate your support, and we look forward to speaking to you all soon. Thank you. Thank you all.

Thank you very much. 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.