Executive Summary / Key Takeaways

• Strategic Pivot to Broker-Dealer Model: Netcapital is undergoing a profound transformation, shifting from its historical equity-based consulting revenue to a FINRA-approved broker-dealer subsidiary (Netcapital Securities Inc.) to unlock larger capital raises via Regulation A and D offerings, a critical move for future revenue growth.
• Advanced Technological Foundation: The company leverages a highly scalable, automated fintech platform, utilizing cloud-native architecture (Docker, AWS ECS, RDS, ElastiCache) to offer efficient, 24/7 online capital raising, positioning it as a low-cost solution with robust compliance capabilities.
• Significant Financial Headwinds and Liquidity Concerns: Despite strategic advancements, NCPL faces substantial financial challenges, including a $28.30 million net loss and $19.92 million in impairment charges in FY2025, negative working capital of $5.10 million, and a "going concern" doubt, necessitating ongoing capital raises.
• Uncertainty in Secondary Trading Platform: The proposed secondary trading platform (ATS) in partnership with Templum Markets, aimed at addressing liquidity, has paused further development, introducing uncertainty to a key strategic initiative.
• Competitive Differentiation and Long-Term Vision: NCPL differentiates through its integrated service model and regulatory expertise, aiming for long-term value creation by expanding its digital capital markets ecosystem, though it faces intense competition from larger, more agile platforms in marketing reach and innovation speed.

The Digital Frontier of Private Capital: Netcapital's Evolving Vision

Netcapital Inc. (NASDAQ:NCPL) stands at a pivotal juncture, striving to redefine its role within the rapidly evolving landscape of digital private capital markets. Founded in 1984 and transformed into Netcapital Inc. in 2020, the company has consistently adapted its business model, from online gaming to a fintech platform facilitating online capital raises for private companies under the Jumpstart Our Business Startups (JOBS) Act. This journey has culminated in a bold strategic pivot, aiming to expand beyond its Regulation Crowdfunding (Reg CF) roots into broader, more lucrative segments of the private capital market.

The industry itself is experiencing significant growth, driven by regulatory enhancements that increased offering limits for Reg CF to $5 million, Reg D Rule 504 to $10 million, and Reg A Tier 2 to $75 million. This has made online capital raising increasingly attractive for later-stage issuers. According to KingsCrowd, Reg CF funding surged by 360% from $74.8 million in 2018 to $343.6 million in 2024, with the number of raises reaching a new high of 569 in December 2024. Reg A offerings also saw a 7.5% increase in 2024, raising $244 million. This expanding market provides a fertile ground for platforms that can efficiently connect companies with a diverse investor base.

At the core of Netcapital's strategy is its highly differentiated technology platform. This scalable, real-time, transaction-processing engine operates 24 hours a day, seven days a week, largely without human intervention. Its cloud-native architecture, leveraging Docker containers, Amazon Elastic Container Service (ECS), Elastic Load Balancers (ELBs), and CloudFlare for DDoS protection, ensures robust scalability and resilience. The main database layer is built on Amazon RDS with Multi-AZ deployment, complemented by AWS ElastiCache Redis for asynchronous data processing and complex query caching. This technological backbone provides fully automated onboarding, integrated regulatory filings, custom-built offering pages, and comprehensive marketing tools.

The tangible benefits of this technology are clear: it facilitates access to capital at a low cost for entrepreneurs and opens private investment opportunities to a broad investor base. The platform has demonstrated its capacity by processing over 2,000 investments totaling more than $2 million in less than two hours in November 2021. This efficiency and automation are central to Netcapital's claim of offering the "lowest cost solution for online capital raising" compared to peers like StartEngine Crowdfunding, Inc., Wefunder Inc., and Republic Core LLC. For investors, the platform provides access to early-stage companies previously unavailable to the general public, with over 100,000 users currently on the platform.

Strategic Evolution: Expanding the Ecosystem

Netcapital's strategic narrative is one of continuous evolution, marked by a significant pivot in its revenue generation model. Historically, its Netcapital Advisors subsidiary provided marketing and strategic advice, often taking equity stakes in select disruptive start-ups. This model, while generating substantial equity-based revenue in the past ($3.44 million in FY2024), has been deliberately de-emphasized. In fiscal year 2025, the company did not seek consulting engagements in exchange for equity and plans to continue this in fiscal 2026, resulting in a $3.44 million decrease in this revenue stream for FY2025.

The strategic focus has shifted dramatically towards establishing Netcapital Securities Inc. (NSI) as a FINRA-approved broker-dealer, a milestone achieved in November 2024. This move is designed to unlock new, larger revenue streams by enabling NSI to:

1. Handle private placements of securities and referral business.
2. Support companies raising equity capital under Regulation A (Reg A) and Regulation D (Reg D) offerings, which permit significantly larger fundraises (up to $75 million for Reg A+ and unlimited for Reg D 506(c) from accredited investors).
3. Leverage strategic partnerships with other broker-dealers to expand distribution capabilities.

This is a critical step for Netcapital, as CEO Martin Kay emphasized, "NSI is now approved to do three things: First, handle private placements of securities as well as referral business. Second, support companies raising equity capital under Reg A and Reg D enabling larger fundraises and potentially attracting a broader range of issuers. And thirdly, partnering with other broker-dealers." An early validation of this strategy is the engagement of NSI by Algernon NeuroScience Inc. for a planned Reg A offering, where NSI will provide broker-dealer and administrative services.

Another key strategic initiative is the development of a secondary trading platform (ATS) in partnership with Templum Markets LLC. This platform aims to address the critical issue of illiquidity for investors in private companies, offering a potential path to greater distribution and liquidity. While a beta version was launched in July 2024, further development and roll-out have been paused as of the 10-K filing date to reevaluate market conditions and customer expectations. This pause, while prudent, introduces uncertainty to a highly anticipated feature.

Beyond these core initiatives, Netcapital is exploring new verticals, as evidenced by the formation of Crypto and Game Advisory Boards in June 2025. These boards are tasked with providing sector-specific strategic guidance and partnership referrals, signaling Netcapital's intent to integrate emerging technologies like blockchain and digital assets into its capital formation ecosystem. The company also secured a Horizon Software Agreement in June 2025, licensing technology for capital-raising and secondary trading services, further diversifying its technological capabilities.

Financial Performance and Liquidity: A Challenging Transition

Netcapital's financial performance in fiscal year 2025 reflects the significant strategic pivot and a challenging market environment. Total revenues for the fiscal year ended April 30, 2025, decreased sharply by 82.4% to $869,460, down from $4.95 million in fiscal 2024. This decline was primarily driven by the cessation of equity-based consulting services, which contributed $3.44 million in the prior year.

The funding portal, while a core asset, also experienced headwinds in FY2025. Portal fees decreased by 33% to $589,074, a direct consequence of a 29% reduction in total capital invested through the portal, which fell from $14.8 million in FY2024 to $10.6 million in FY2025. Listing fees saw an even steeper decline of 53% to $207,500, attributed to a 54% drop in new offerings launched (38 in FY2025 versus 82 in FY2024). The average amount raised per offering also decreased from $280,978 in FY2024 to $215,745 in FY2025.

The company reported a net loss of $28.30 million and an operating loss of $8.32 million for fiscal 2025.

A substantial portion of this loss stems from significant non-cash impairment charges totaling $19.92 million on thirteen equity investments in portfolio companies. These impairments were triggered by qualitative indicators such as key personnel resignations, cessation of operations, and technological obsolescence, underscoring the inherent risks of investing in early-stage ventures.

Operating expenses saw mixed trends. Marketing expenses decreased by 89% to $37,699 due to limited cash resources, while general and administrative expenses increased by 52% to $5.22 million, primarily due to higher professional fees. Payroll and related expenses decreased by 9% to $3.50 million, reflecting a reduction in employee count.

Liquidity remains a critical concern. As of April 30, 2025, Netcapital reported negative working capital of $5.10 million and cash and cash equivalents of $289,428, down from $863,182 in the prior year.

These conditions, coupled with ongoing operating losses and negative cash flow from operations ($5.34 million in FY2025), led management to conclude that there is "substantial doubt about our ability to continue as a going concern."

To address these liquidity challenges, Netcapital has actively sought external financing. Subsequent to fiscal year-end, in July 2025, the company completed two registered direct offerings, generating approximately $8.00 million in gross proceeds, with potential for an additional $7.8 million from warrants. These funds are intended for promissory note repayment and general working capital. Additional capital raises in June and May 2025, including an At-The-Market (ATM) offering ($944,067 net proceeds) and private placements/note financings (totaling $783,000 gross proceeds), further illustrate the company's reliance on external capital to fund operations and strategic initiatives.

Competitive Landscape and Positioning

Netcapital operates in a highly competitive and evolving market, facing both direct and indirect rivals. Its direct competitors include prominent online capital raising platforms such as StartEngine, Wefunder, and Republic. Each of these platforms offers similar services, including automated onboarding, compliance support, and investment facilitation, but with varying strategic emphases.

Netcapital's competitive advantage is rooted in its advanced technology platform and its claim of providing the "lowest cost solution for online capital raising." Its automated, scalable infrastructure is designed for efficiency and regulatory compliance, offering a streamlined experience for issuers. This integrated service model, encompassing compliance review, custom offering pages, and ongoing support, aims to foster stronger customer loyalty.

However, Netcapital faces significant challenges from its larger, more established competitors. StartEngine, for instance, is known for its aggressive marketing and broad reach to retail investors, which could give it an edge in customer acquisition and market visibility. Republic, with its diversified offerings and strategic acquisitions (like SeedInvest), boasts a vast network and innovative funding models, including blockchain integration, potentially outpacing Netcapital in innovation speed and global scale. Wefunder, while focused on early-stage companies, excels in community-driven investing and transparent processes. MicroVentures targets accredited investors with curated deal flow.

Netcapital's smaller scale, compared to some of these rivals, could lead to higher operational costs per deal and limit its marketing budget, potentially impacting its ability to capture market share. While its regulatory expertise and integrated services provide a strong niche, it must enhance its marketing and accelerate innovation to effectively counter the broader reach and diversified strategies of its competitors. The pivot to Reg A and Reg D offerings through Netcapital Securities Inc. is a direct strategic response to compete for larger deals, moving beyond the Reg CF cap to address a broader issuer base that its rivals also target. The pause in the secondary trading platform development also highlights a vulnerability, as providing liquidity is a key differentiator that competitors are also exploring or offering.

Outlook and Risks

Netcapital's outlook is cautiously optimistic, tempered by significant financial challenges. Management is "focused on the long-term and not optimizing for short-term results," acknowledging that success depends on client success, which "takes time and patience." The core of this long-term vision rests on the successful expansion of its broker-dealer operations and, eventually, the launch of its secondary trading platform.

The successful FINRA approval of Netcapital Securities Inc. is a pivotal step, expected to create new revenue opportunities from larger Reg A and Reg D offerings. The engagement with Algernon NeuroScience Inc. for a planned Reg A offering is an early positive indicator. However, the company has provided no specific quantitative guidance for future revenue or profitability, making it difficult to project the financial impact of these new initiatives. The decision to cease equity-based consulting in FY2025 and FY22026, while strategic, will continue to depress top-line revenue in the near term.

The most pressing risk remains the company's "going concern" status, driven by substantial losses, negative working capital, and negative operating cash flows. While recent capital raises have provided a lifeline, the need for additional financing is explicit. The company's significant debt obligations, including secured loans from the SBA, pose a risk of foreclosure if defaults occur.

The high concentration of illiquid equity investments in early-stage companies, as evidenced by the $19.92 million in impairment charges in FY2025, exposes the company to further volatility and potential losses.

The evolving regulatory environment for online capital formation also presents ongoing risks, with potential for new laws or interpretations to impact operations. The reliance on third-party providers for critical services, such as the ATS (Templum) and escrow services (Luminate Bank), introduces operational dependencies and potential disruptions. Furthermore, as an internet-based business, Netcapital is vulnerable to cybersecurity threats and data breaches, which could harm its reputation and financial condition.

Conclusion

Netcapital Inc. is in the midst of a transformative period, attempting to leverage its robust, automated fintech platform to capture a larger share of the digital private capital markets. The strategic pivot towards a FINRA-approved broker-dealer model for Reg A and Reg D offerings represents a significant opportunity to expand its revenue base and attract more substantial issuers, moving beyond the limitations of Reg CF. This, coupled with its technological prowess and a stated commitment to long-term value creation, forms the core of its investment thesis.

However, this ambitious rebirth is unfolding against a backdrop of severe financial challenges, including substantial losses, negative working capital, and a "going concern" warning. The company's ability to execute its strategy and achieve sustained profitability will hinge on its capacity to successfully monetize its new broker-dealer capabilities, navigate the inherent risks of illiquid early-stage investments, and, crucially, secure sufficient ongoing financing. While the pause in the secondary trading platform development introduces uncertainty, the company's continued investment in technology and exploration of new verticals like crypto and gaming advisory boards demonstrate a forward-looking approach. For investors, Netcapital represents a high-risk, high-reward proposition, where the potential for significant upside from its strategic evolution must be carefully weighed against its current financial vulnerabilities and the intense competitive landscape.