Overview

Netcapital Inc. is a fintech company that operates a scalable technology platform to allow private companies to raise capital online from accredited and non-accredited investors. The company generates fees from listing private companies on its funding portal at www.netcapital.com, as well as from advising companies on their Regulation A (“Reg A”) offerings. Netcapital Advisors, a wholly-owned subsidiary, provides marketing and strategic advice to companies in exchange for equity positions and cash fees.

The Netcapital funding portal is registered with the SEC and is a member of FINRA, providing investors with opportunities to invest in private companies. Netcapital Advisors is not a broker-dealer and does not operate as one with respect to Reg A offerings.

Netcapital generated revenues of $312,755, with costs of service of $30,001, in the six months ended October 31, 2024, resulting in a gross profit of $282,754. This compares to revenues of $3,561,467, with costs of service of $38,187, in the six months ended October 31, 2023, for a gross profit of $3,523,280.

The total number of offerings on the Netcapital funding portal that closed was 63 in fiscal 2024 and 81 in fiscal 2023, of which 13 and 17 offerings, respectively, terminated their listings without raising the required minimum amount of capital. As of the date of this report, Netcapital has minority equity positions in 19 Portfolio Companies that have utilized the funding portal.

In addition to the funding portal, Netcapital provides services such as automated onboarding, regulatory compliance, custom offering pages, and marketing support. Netcapital Advisors also offers services like incubation, investor introductions, digital marketing, and strategic advice to help companies raise capital.

Broker-Dealer Business

Netcapital recently formed a wholly-owned subsidiary, Netcapital Securities Inc. (NSI), which has received approval from FINRA to become a FINRA-member broker-dealer. This approval allows NSI to conduct private placements, support Reg A and Reg D offerings, partner with other broker-dealers, and charge fees on capital raised under these regulations.

Recent Developments

On November 22, 2024, NSI received FINRA approval to become a broker-dealer, positioning the company to support larger fundraises and expand the range of investment opportunities available to its investor base.

In August 2024, Netcapital entered into an At-The-Market Offering Agreement with Wainwright to sell up to $2.1 million in common stock, raising net proceeds of approximately $2.029 million. The company also regained compliance with Nasdaq’s continued listing requirements in August 2024.

Results of Operations

Netcapital’s revenues decreased by 92% in the six months ended October 31, 2024 compared to the same period in 2023, primarily due to a lack of consulting service revenue. Funding portal revenues also decreased, driven by a decline in dollars invested in issuers listed on the portal.

Costs of revenues, payroll and payroll-related expenses, marketing, and consulting expenses all decreased, while general and administrative expenses increased, largely due to professional and legal fees associated with launching the broker-dealer subsidiary.

Liquidity and Capital Resources

As of October 31, 2024, Netcapital had cash and cash equivalents of $1,346,739 and negative working capital of $2,615,585. The company has been successful in raising capital through public offerings of common stock, including a $2.1 million at-the-market offering in August 2024.

However, Netcapital’s management believes the company’s existing cash and anticipated cash flows may not be sufficient to meet its working capital and expenditure requirements for the next 12 months. The company plans to continue operating with lower fixed overhead and seek to raise additional funds through private placements, public offerings, and/or bank financing. Management has concluded that these conditions raise substantial doubt about the company’s ability to continue as a going concern.