Netcapital Inc.

Good day and welcome to the NetCapital Inc. earnings call. At this time, all participants have been placed on risk-money mode. The floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Corrine Krasler. Ma'am, the floor is yours.

Thank you, Paul. Good morning, everyone, and thank you for joining NetCapital's full-year fiscal 2025 financial results conference call. I'm Corrine Krasler, CFO of NetCapital Inc., and I'll begin by reviewing our financial results, and then our Chief Executive Officer, Martin Kaye, will share his prepared remarks before we open the Q&A portion of our call. Before we begin, I'd like to remind everyone of the State 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. MedCapital 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 fiscal 2025. We reported revenues of $869,450 with cost of services of $40,344 for a gross profit of $829,116 in fiscal year 2025. This compares to revenues of approximately $4.9 million with cost of services of approximately $108,000 and gross profit of approximately $4.8 million in fiscal year 2024. In line with our shift in business strategy in fiscal year 2025, we discontinued our consulting services to portfolio companies in exchange for equity, which accounted for the largest portion of our revenue decline year over year. However, our funding portal did charge a 1% fee payable in securities to every issuer that closed an offering. The dollar value of that fee amounted to $72,090 and $97,700 for the years ended April 30, 2025 and 2024, respectively. In fiscal 2025, we evaluated our equity investments and multiple issuers for impairment in accordance with ASD 321-10-35-3. The fair value of several investments had declined below their fairing amounts, which were other than temporary. Qualitative indicators included the resignation of key personnel, discontinuation of business operations, termination of fundraising efforts, and other adverse developments. As a result, we wrote off several investments, resulting in an impairment expense of approximately $19.9 million. We reported an operating loss of approximately $8.3 million for full year fiscal 2025 as compared to an operating loss of approximately $3.4 million for full year fiscal 2024. The net loss for full year fiscal 2025 was approximately $28.3 million as compared to approximately $4.9 million for fiscal 2024. We reported a loss per share of $20.39 as compared to a loss per share of $28.83 for fiscal year 2024. I will now turn the call over to our CEO, Martin Kay.

Thank you, Corrine, and thank you to all our shareholders for being on this call today and for your continued support and interest in the company. As you heard from Corey, revenues did decline, but fiscal 2025 marked a pivotal shift in our strategy as we transitioned away from equity-based consulting revenue to focus on building a stronger, more scalable foundation for future growth. While this realignment brought some near-term volatility, and despite the challenges of macroeconomic headwinds and uncertainty in the financial markets, We remained on path to strengthen the core of our business and lay the foundation for long-term growth. During fiscal 2025, our wholly owned subsidiary, Net Capital Securities, received its broker-dealer license. As a result, we believe that we are positioned to serve a broader base of issuers and investors and have the ability to deepen our impact on democratizing access to private markets. I think it's also important to highlight platform success stories for our clients during the past years. For instance, our portfolio company, Zellgore, acquired Spellbook Studio, creators of the Infinite Black and the Infinite Black 2. MagFast, a charging device company, raised more than $10 million through multiple offerings on the net capital funding platform. And this was the second largest total amount raised under Reg CF in the consumer packaged goods industry, according to Kingsprout. We're also pleased to share that Aberdeen, a graphene licensing technology company, raised more than $1.275 million within the first 24 hours of launching its third offering on the NetCapital Funding Portal platform. So we're proud of the tangible results our platform continues to deliver, which underscore the power of our ecosystem to help innovative companies scale. We continue to believe strongly in our mission to democratize access to private capital markets and remain committed to disciplined execution, product innovation, and long-term value creation. As always, thank you for your interest and support of NetCapital and Operator. We're ready for questions.

Thank you. At this time, we'll be conducting a question-and-answer session. If you have any questions or comments, please press star 1 on your phone at this time. In the interest of time, we ask that participants limit themselves to one question and one follow-up on today's call. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, that is star 1 if you wish to ask a question on today's call.

And please hold while we poll for questions. And once again, that will be star one on your phone if you wish to ask a question on today's call. And there were no questions. Apologies.

We just did get a question in. The first question today is coming from Jeremy Mink from Las Vegas. Jeremy, your line is live.

Hi, I was just wondering, could you shed light on your transition, what you're, you know, what you're looking forward to doing in the future? You know, I've mentioned this on the call, so I was just wondering if you could shed light on that. Thank you.

Sure, I'll take a stab at that, Jim. Thanks for the question, and if I'm not answering it, please follow back up, but Yeah, we talked about, you know, broadening the platform to do what we do, which is, you know, help companies raise capital to build their businesses. We've been in the Reg CF business. As Corinne, I think, mentioned, during fiscal 2025, we secured a broker-dealer license for our subsidiary, Net Capital Securities. That allows us to participate more fully in Reg A capital raisings, which are typically larger. so that will allow us to broaden our access to capital raising fees associated with that. We also have always believed in the integration of blockchain, digital assets, and crypto with traditional finance, but obviously the regulatory environment has been somewhat in flux. Clearly, it's still in flux, but there's certainly some openings. And we have taken several steps to pursue that opportunity as well. So those, I think, are the areas that we're focused on. And as Corey mentioned, we've moved away from our equity-based consulting business to focus more on those more scalable cash-generating businesses.

To piggyback off that, I just have two follow-ups sort of tied together. First of all, was the consultant business the major cause of running the company? And that's why you have such a high, such a large quarter. Well, I can answer the first question and then, you know, offer some guidance on the second.

The first question around, you know, the financial dynamics of our business, the funding portal itself, so leave aside the consulting or advisory practice, the funding portal itself, is technology. We're a FinTech company. And so as typical in that sort of situation, there's a fixed cost platform. So if you look at, you know, we have approximately, I think, 20 employees is what we've disclosed. And if you look across our employee base, that's where you'd see most of our employees working. And that's a very scalable operation. So the key, obviously, is getting profitability there and cash flow positive is scaling and continuing to scale the business. The consulting business or the advisory business obviously is not necessarily so much technology-based. Obviously, we leverage technology there, but it's not as scalable. And, you know, we found that – and typically small companies struggle to pay cash for those services. So we were in a business that was, you know, had scaled fine to the level that we were at, but wasn't going to obviously scale forever. We weren't really looking to build out a giant consulting company. and also where we're typically being paid in equity, which is hard to value, versus cash. So that's kind of the way the current business works, which I think was the first part of your question. Second part, with respect to, you know, for blockchain and, you know, digital assets in general, you know, we're evaluating opportunities against the potential for you know, long-term value creation. You know, every day we see deals, I see deals getting done that, you know, trade down in the market to all regulatory exchange scrutiny, you know, and ultimately threaten the company's viability in public listing. So we're not and never have been focused on, you know, the short-term fans. We evaluate every opportunity that comes our way and we're out looking for opportunities, but we're not looking to jump on, you know, something that's going to be not a good deal for the company or for our shareholders. And you see some of that happening out in the market. The underlying trend with respect to crypto and the reason we put our advisory board together was to focus on the real integration of blockchain into the capital formation process that we're a part of. And I believe that's a very exciting opportunity for us, which opens up. access to capital, basically, both in primary and in secondary trading in ways and with user experiences that, you know, have not been possible given the regulatory environment primarily over the last few years.

Thank you. The next question is coming from Louis Mavarese, who's a private investor.

Louis, your line is live. Hello, Morgan.

My question was similar to Jeremy's question, so it was basically answered, but to be confident. So with the recent – I say I'm not from America, so it's there with me a little.

Yes, no problem.

So a lot of recent performance, I was just thinking if you are evaluating different – of adopting a new strategy with the recent current trends other companies are adopting?

Yeah, I'm not sure exactly what you're referring to there, but, you know, for sure we, you know, our long-term mission is pretty clear and hasn't really, you know, changed. We're about democratizing access to capital. in the private capital markets. And so we'll continue to explore every opportunity to do that in a way that is, you know, accretive to shareholders. And so, you know, we're expanding across the Reg A. And again, as I mentioned, we're looking for ways to, you know, to integrate blockchain digital assets and crypto with our more traditional fintech approach.

Okay. Yeah, that's what I wanted to say. Thank you.

You're welcome.

Thank you. And the next question is coming from Brandon Enver. And Brandon is a private investor. Brandon, your line is live.

Hi.

I just was thinking the current business model seems to be unsustainable with no credible path to a turnaround. is a strategic pivot that seems to be urgently needed.

Can you elaborate on that?

Well, thanks for the question, Brandon, but I think you made the statement, so I don't know how I can elaborate on that necessarily. But, yeah, I can comment on what you said. We do believe that our business varies apart to continue creating value and for the business to be sustainable. That's not to say we're not. always and haven't always been looking at other opportunities. But I'm not sure what you mean by a strategic pivot. I mean, I would argue that incorporating blockchain into what we do more fully, and we've taken a few steps in that direction already, and obviously are exploring others, is the most obvious extension, I would say. I don't think it's a strategic pivot. I think it's an extension. And no question, our core business, you know, faces challenges. I mean, we need to scale. And as Corinne mentioned, you know, the environment has not been wonderful for what we do, but, you know, we're still very committed to that long-term mission, and we're committed to using whatever, you know, tools and technologies become available so that we can, you know, our business is all about, you know, kind of threading the needle between the regulatory environment and the user experience. We're trying to create and continue to create and evolve something that is a compelling user experience, but also works within the regulatory environment which we operate. Those things are constantly changing, so yes, we're constantly evolving. I think we've made a secret that one of the most important things for us is liquidity in the secondary market, and that's been a challenge for everyone in our space. New ideas, you know, for providing liquidity in private capital markets, you see new ideas every day. I don't believe anybody has cracked that intersection of the user experience and the registry environment, at least in the U.S. But, again, those are things that we're actively exploring, and we're looking to move forward on that front.

Thank you.

And the next question is coming from Emily McLennan. Emily is a private investor. Emily, your line is live.

Hi, Martin. I have questions regarding your DNA expenses. Why are they so high for such a small company? I mean, $5.3 million. I mean, $1 million should be at legal at most. $200K to IR and proxy is sufficient. That doesn't look right on the books. Can you elaborate?

Look, I mean, we're a FinTech company in the financial services space doing something that is very new and very different that apparently the regulators don't understand very well. And we've always had a challenge with this. And so I couldn't agree more with you. Our legal expenses are much more than they should be, but that's the cost of doing business at this point as a public company in the FinTech space, financial services space. I could like Karina to comment more specifically, but that's the general, and it is a frustration. We spend a lot of time and energy and money, frankly, educating the regulators on what we do and why we do it, and there are a lot of companies that look like us. Even, let's leave aside the Reg CF and the Reg A, which is obviously all new in the grand scheme of things. You know, in our portfolio companies, we're essentially operating as a public, you know, collection of minority equity investments, which is, again, not something that the regulators typically have much experience in or understanding of. So, yes, we spend more than we should, but it's not more than we need to.

Okay. I guess just to piggyback off that, I don't think it takes, someone with too high interest in the life to know that that's just not sustainable. Would you guys, you know, are you guys exploring going private? This is just, it's not sustainable for a public company with these numbers.

No, and we don't, you know, I don't want to comment on that necessarily. Other than to say no, I mean, we, you know, the company uplifted demand factor and many benefits. to being a public company, but there's obviously no secret that there are also lots of costs, irrespective of whether you're a financial, you know, lay on top financial services and the regulatory environment there. It just becomes very, very expensive. But, you know, we've found and continue to believe that the tradeoff is worth it, and some of the things that we're exploring will certainly benefit from the exposure of being a public company.

Thank you. And that does conclude today's Q&A session.

I will now hand the call back to Martin Kaye for closing remarks.

Hey, thanks, Paul. Well, as always, you know, thank you for your interest and support of NetCapital. You know, we really appreciate that and hope you all have a pleasant day. Thank you.

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