Netcapital Inc.

Good day, everyone, and welcome to the NetCapital, Inc. Second Quarter Fiscal 2025 Conference Call. At this time, all participants have been placed on a listen-only mode. If you have any questions or comments during the presentation, you may press star 1 on your phone to enter the question queue at any time, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Corrine Krasler, CFO of NetCapital, Inc. Ma'am, the floor is yours.

Thank you, Matthew. Good morning, everyone, and thank you for joining NEC Capital's second quarter fiscal 2025 financial results conference call. I'm Corrine Kreisler, CFO of NEC Capital, Inc. I will begin by reviewing our financial results, and then our Chief Executive Officer, Martin Kaye, will share his prepared remarks before we open up the Q&A portion of our call. Before we begin, I'd like to remind everyone of the 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 strategy, liquidity, and future events. Net capital 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 second quarter fiscal 2025. Revenues for Q2 fiscal 2025 for the period ended October 31, 2024, decreased by approximately $1.9 million or approximately 92% to $170,528 as compared to approximately $2.04 million in Q2 fiscal 2024. The decline in revenues was attributed to the lack of consulting service revenue in Q2 2025 as compared to revenue of approximately $1.5 million for consulting services for equity securities and $62,000 for consulting revenue in Q2 2024. I'm pleased to report that as of November 22, 2024, we received approval from FINRA for our broker-dealer subsidiary, which will be a focus for the company moving forward. We reported an operating loss of $2.2 million approximately for the second quarter fiscal 2025 as compared to an operating profit of $52,220 for the second quarter fiscal 2024. Our net loss for the second quarter fiscal 2025 was approximately $2,220,501 as compared to a net profit of approximately $339,616 for the same period in the prior year. We reported a loss per share of $2.34 for the second quarter ended October 31, 2024, compared to earnings per share of $2.52 for the same period in the prior year. As of October 31, 2024, The company had cash and cash equivalents of $1,346,739. I'll now turn the call over to our CEO, Martin Kay.

Thank you, Corrine. I'd like to also thank everyone for being on this call today and for your interest and support of NetCapital. As Corrine mentioned, during the quarter, we saw a decrease in revenue primarily due to the shift away from what is primarily non-cash consulting service revenue. So with our focus on the broker-dealer subsidiary, we believe that we will see greater potential and value added in that area. And as such, we've not been pursuing equity-based revenue contracts. Recently, as Corinne mentioned, we were pleased to announce that our wholly owned subsidiary, Net Capital Securities, Inc., had received approval from the Financial Industry Regulatory Authority, or FINRA, to become a FINRA member broker-dealer. This marks a significant achievement for the company and it begins to open new opportunities for more revenue streams. We believe that by having NetCapital Securities, Inc. as registered broker-dealer, it could create new opportunities to expand the company's revenue base by hosting and generating additional fees from Reg A and Reg D offerings on the NetCapital platform. This positions the company to support larger fundraisers and potentially expand the range of investment opportunities available to its investor base. A broker-dealer license allows us to conduct private placements of securities and referral business, support companies raising equity capital, as I mentioned under Regulation A and Regulation D, partner with other broker-dealers to syndicate deals, charge fees on capital raised under Reg A and Reg D, as well as enter into fee-sharing agreements with other broker-dealers. Thank you for your continued interest and support of NetCapital, and we look forward to keeping you informed of our progress. Operator, we're ready for questions.

Certainly. Everyone at this time will be conducting a question-and-answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone.

Please hold while I poll for questions. Thank you. Your first question is coming from Carl Malhe from Bull Run Capital. Your line is live. Hello?

Hi, Carl. Go ahead.

Hi there. Hi. Who is this? Who am I?

You have Martin Kay, the CEO, and Corrine Kreisler, our CFO. Okay.

Hey, Martin, I'm an investor, and I'm also, I do a lot of startups, and we look at crowdfunding, what have you. But more so, I'm curious to see what is your capital structure? I know, you know, online it says you've got a limited number of shares, but you guys trade crazy volumes based on what you have. Can you explain? Can you provide an update on what that structure is?

It's all common stock. There's nothing really complex about it. We trade on NASDAQ and we have a pretty diversified shareholder base and it's not uncommon for that to trade large volumes periodically.

How many shares are outstanding now?

I think we, I'll defer to Corinne, but I think it's approximately 1.8 million shares outstanding. Okay.

And then you have a number of warrants or what have you. What are the cheapest warrants that are out there and how many are out?

I don't know, Corinne, if you have that in front of you.

I don't have that in front of me.

Okay. What's your net assets right now? I know you have a number of investments in other companies. What would you say your net asset value is?

Well, if you're talking about the portfolio of equity securities, and we talked about The business we had been in of taking equity in return for consulting services, that portfolio of equity positions is, I believe on the balance sheet we just disclosed, is a little over $25 million worth of net asset value in those equity positions.

What's your cash position in payables or liabilities?

Again, cash and cash equivalents at the end of the quarter, a little over $1.3 million.

And we're going to have to move on to the next questioner after this. Thank you.

Okay.

Thank you. Your next question is coming from Chris Sakai from Singular Research. Your line is live.

Yes, hi, good morning. Just really wanted to get a sense and idea of what differentiates NetCapital Securities from other broker-dealers.

Well, there's a number of things.

Obviously, as we talked about the ability to support Reg A fundraising through the existing net capital platform, where we've already built out an ecosystem and a marketplace that brings investors and other issuers together, obviously creates a platform and an environment that is unique to the sort of equity crowdfunding industry versus traditional broker-dealer activities. So in other words, we already have and we've disclosed over 115,000 investor accounts and we have robust relationships with digital marketing providers and the team internally that understands how to bring the right investors to the right deal in this way and in this model, which is relatively unique. Obviously, we have a few competitors in our space, but it's not the traditional broker-dealer business.

Okay, thanks for that. And also, does this new registration for broker-dealer, does that provide any revenue visibility? Can you see any new revenue streams from that? About how much would that be, do you think?

Well, we haven't disclosed specifically what that forecast. That's not what we do. But as we discussed in our remarks, it certainly opens up the potential for new revenue streams. For example, Reg A, as I'm sure you know, allows issuers to raise a greater amount, up to $75 million in a 12-month period versus $5 million under Reg CF exemption, so that much larger raise. And as a broker-dealer, we are now able to structure a fee arrangement that is likely a percentage of that, as opposed to some sort of flat fee. So that obviously is something that we plan to pursue.

Do you see any large deals like that coming up?

Well, again, we haven't disclosed specifics of deals that we're pursuing, but it's safe to assume that, again, we are out in the marketplace talking to issuers all the time and have been. We've had almost 300 companies successfully raise on our platform. Many of those have gone on to raise additional rounds of capital and are obviously candidates also for Reg A. So, yeah, we're in active discussions and have been for some time with companies who'd like to raise more capital than they can under Reg CF exemption.

Okay, great. Thanks.

Thank you. Your next question is coming from John Gilliam from Point Clear's Strategic Capital. Your line is live.

Good morning. Yes, last quarter you indicated that you expected the Templin ATS exchange to open up from the beta to a full launch in the quarter ended this month. And I wanted to just get an update there if it's still expected to launch in 24.

Well, what I can say and what we've said, I think, previously is the technical and product build-out is complete, as you mentioned, in partnership with the Templum ATS. But I think it's safe to say we're still working through some details of the regulatory framework governing secondary exchanges and And it's really important to us to make sure that we don't roll out or open up to everyone a capability that we're still wanting to get to be exactly right. So we're still working on that. And, again, I think it's prudent for us to not do anything before we feel comfortable 100% comfortable, that we have the best product experience, and that we're operating within the regulatory framework in a way that we need to. So, again, we haven't really talked or disclosed official timeline for launching that secondary transfer functionality, but that's all I can say at this point.

Well, on the prior call, you mentioned you thought it would be in the year, the calendar year, into 2024. Are you feeling like that's going to push into Q3, past the end of Q3, into Q4?

I think that's right.

How far out do you think we're looking?

Again, I don't think I can confidently predict that at this point.

Okay, thank you. Thank you.

That concludes our Q&A session. I'll now hand the conference back to CFO Corrine Krasler for closing remarks. Please go ahead.

Thank you, everyone, for joining our call today. We really appreciate you as shareholders and potential shareholders. We are excited about the prospects ahead for our new broker-dealer subsidiary and wish you all a wonderful holiday season. Thank you. Thank you all.

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.