10-K: Netcapital Faces Going Concern Doubt Amidst Revenue Plunge

Netcapital Inc. reports an 82% revenue decline and $28.3 million net loss in fiscal 2025, raising substantial doubt about its ability to continue as a going concern despite recent capital raises.

Summary

• Netcapital Inc. reported a significant revenue decrease of 82.4% to $869,460 in fiscal year 2025, down from $4,951,435 in fiscal year 2024.
• The company incurred a net loss of $28,301,325 in fiscal year 2025, a substantial increase from the $4,986,317 net loss in fiscal year 2024.
• Operating loss widened to $8,321,317 in fiscal year 2025 from $3,442,388 in the prior fiscal year.
• Recognized impairment losses totaling $19,915,556 on equity investments in fiscal year 2025, compared to $1,048,430 in fiscal year 2024.
• Cash and cash equivalents decreased to $289,428 as of April 30, 2025, from $863,182 as of April 30, 2024.
• Negative working capital increased to $5,204,109 as of April 30, 2025, from $2,074,163 as of April 30, 2024.
• Net cash used in operating activities amounted to $5,339,211 in fiscal year 2025.
• Total dollars invested through the funding portal decreased by 29% to $10.6 million in fiscal year 2025 from $14.8 million in fiscal year 2024.
• New offerings launched on the funding portal decreased by 54% to 38 in fiscal year 2025 from 82 in fiscal year 2024.
• The average amount raised per offering on the Netcapital funding portal decreased to $215,745 in fiscal year 2025 from $280,978 in fiscal year 2024.
• The company completed several capital raises in May, June, and July 2025, including two registered direct offerings totaling approximately $8 million in gross proceeds, an ATM offering for $944,067 net proceeds, and a private placement for $475,000 gross proceeds.
• The company paused further development and roll-out of its proposed secondary trading platform with Templum Markets LLC to reevaluate market conditions.

Sentiment

Score: 2

Explanation: The company faces severe financial challenges, including substantial losses, negative working capital, and significant asset impairments, raising substantial doubt about its ability to continue as a going concern. While it has recently raised capital, the underlying business performance (revenue decline, fewer new listings) is deteriorating, and a key strategic initiative (secondary trading platform) is delayed.

Positives

• Expanded model to include Regulation A (Reg A) and Regulation D (Reg D) offerings through its newly approved FINRA-member broker-dealer subsidiary, Netcapital Securities Inc., which received approval in November 2024.
• Successfully raised significant capital through recent public offerings and private placements, including approximately $8 million in gross proceeds from two registered direct offerings in July 2025, $944,067 in net proceeds from an At-The-Market (ATM) offering in June 2025, and $475,000 from a private placement in June 2025.
• Formed two strategic advisory boards, the Crypto Advisory Board and the Game Advisory Board, to provide sector-specific strategic guidance, marketing insight, and partnership referrals.
• Secured a royalty-free, paid-up, non-exclusive, perpetual, irrevocable, unrestricted license from Horizon Globex GmbH for capital-raising and secondary trading services in the United States, in consideration for 500,000 shares of common stock.
• Maintains a scalable, real-time, transaction-processing technology platform with over 100,000 users, demonstrated by processing over 2,000 investments totaling more than $2 million in less than two hours in November 2021.
• Believes it provides the lowest cost solution for online capital raising compared to its peer group, including StartEngine Crowdfunding, Inc., Wefunder Inc., and Republic Core LLC.
• The broader Reg CF funding market grew by 360% from $74.8 million in 2018 to $343.6 million in 2024, and the number of Reg CF raises reached a new high of 569 in December 2024, indicating a growing industry.

Negatives

• Experienced a severe 82.4% decline in revenues in fiscal year 2025 to $869,460, primarily due to discontinuing consulting services for equity securities.
• Reported a substantial net loss of $28,301,325 in fiscal year 2025, significantly worse than the $4,986,317 loss in fiscal year 2024.
• Recognized massive impairment losses totaling $19,915,556 on equity investments in fiscal year 2025, indicating significant failures or devaluation of portfolio companies.
• Negative working capital increased to $5,204,109 as of April 30, 2025, highlighting severe liquidity challenges.
• Net cash used in operating activities increased to $5,339,211 in fiscal year 2025, indicating continued cash burn from operations.
• Total capital invested through the funding portal decreased by 29% to $10.6 million in fiscal year 2025.
• New offerings launched on the funding portal decreased by 54% to 38 in fiscal year 2025.
• The average amount raised per offering on the funding portal decreased to $215,745 in fiscal year 2025.
• The company has paused further development and roll-out of its proposed secondary trading platform (ATS) with Templum Markets LLC, delaying a key liquidity feature for investors.
• Identified a material weakness in internal controls over financial reporting related to the over-accrual of legal expenses and a significant deficiency in evaluating impairment evidence for equity investments.
• Faces substantial doubt about its ability to continue as a going concern due to negative working capital, operating losses, and negative cash flows from operations.
• Maintains significant customer concentration, with one customer accounting for 20% of revenues and another for 11% in fiscal year 2025.

Risks

• Substantial doubt about the ability to continue as a going concern due to negative working capital, operating losses, and negative cash flows from operations.
• Obligations to the U.S. Small Business Administration (SBA) are secured by company assets, risking foreclosure upon default.
• Restrictive covenants on SBA loans limit management's discretion and could trigger debt acceleration upon non-compliance.
• Recent impairment losses totaling $19.9 million on portfolio company investments materially reduced total assets and shareholders' equity, with potential for further impairments.
• Limited operating history and a history of losses, with no guarantee of future profitability.
• Significant customer concentration, with a limited number of customers accounting for a substantial portion of revenues.
• High debt level could negatively impact financial condition, reduce cash flow for operations, and limit future financing options.
• Operates in a highly regulated industry with constantly evolving regulations, potentially leading to increased compliance costs, fines, or business restrictions.
• Dependence on a third-party (Netcapital Systems LLC) for the technology necessary to operate the funding portal, with risk of license termination or disruption.
• Products face significant competition from companies with greater resources and entrenched market positions.
• A significant portion of total assets are held in illiquid and volatile equity securities of early-stage companies.
• Risk of being deemed an investment company under the U.S. Investment Company Act of 1940, which would impose impractical restrictions on operations.
• Dependence on a third-party (Templum Markets LLC) for the proposed secondary trading platform, with no guarantee of official launch or service continuity.
• Potential for disputes or litigation regarding failed transactions on the proposed secondary trading platform.
• Failure to launch the proposed secondary trading platform could result in continued lack of liquidity for investors, reducing interest in the platform.
• As a licensed broker-dealer, Netcapital Securities Inc. is subject to stringent regulatory scrutiny and capital requirements, risking fines or disciplinary actions.
• Ability to maintain Nasdaq listing is subject to meeting applicable criteria, including minimum stock price, with a history of non-compliance.
• Future sales and issuances of securities could result in additional dilution of percentage ownership and depress stock price.
• No intention to pay cash dividends on common stock, limiting investor returns to share price appreciation.
• Market price of common stock is highly volatile and subject to factors unrelated to operations.
• Challenges in recruiting and retaining highly qualified senior executives and technical/managerial personnel.
• Vulnerability to hackers and cyber-attacks, risking data loss, litigation, and reputational damage.
• Reliance on a single escrow agent (Luminate Bank) for funding portal operations, with potential for delays or disruptions if the relationship terminates.
• Inability to protect all intellectual property, risking infringement claims or unauthorized use by third parties.
• Cash flow is reliant on one main type of service (online capital formation), making it vulnerable to market downturns.
• Potential for unanticipated consequences from acquisitions or joint ventures, including integration difficulties and unknown liabilities.
• Failure to effectively protect customer credit/debit card data or other personal information could lead to data loss, litigation, and reputational damage.
• Improper disclosure or loss of sensitive Company, employee, or customer data could result in government sanctions and legal liability.
• Failure to recognize, respond to, and effectively manage the accelerated impact of social media could adversely impact the business.
• Compliance with complicated U.S. regulations concerning corporate governance and public disclosure is expensive and diverts management's attention.
• Failure to maintain effective internal control over financial reporting could cause financial reports to be inaccurate.
• Claims for indemnification by directors and officers may reduce available funds to satisfy third-party claims.

Future Outlook

The company plans to expand its revenue base by hosting Regulation A and Regulation D offerings through its newly approved broker-dealer subsidiary, Netcapital Securities Inc. Its strategy includes generating new investor accounts, hiring additional business development staff, increasing the number of companies on its platform via marketing, and investing in innovative technologies. The company is exploring ways to provide a secondary trading feature for its clients, although development with Templum Markets LLC is currently paused. Management does not anticipate any capital expenditures in the next fiscal year and believes that existing cash, anticipated cash flows from operations, and other liquidity sources may not be sufficient to meet working capital and expenditure requirements for the next 12 months, indicating a continued need for additional financing.

Management Comments

• "The current policy of our Board is to retain earnings, if any, for operations and growth."
• "Given our limited staff, we did not seek consulting engagements in fiscal 2025 and we do not plan to seek them in fiscal 2026."
• "We believe that by having a registered broker-dealer, it may create 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..."
• "As of the date of this report, we have paused further development and roll-out while we reevaluate evolving market conditions and customer expectations."
• "We believe that lack of liquidity is a key issue for investors in private companies in our targeted market."
• "Our management has determined, based on its recent history and the negative cash flow from operations, that it is unlikely that its plan will sufficiently alleviate or mitigate, to a sufficient level, the relevant conditions or events noted above. To the extent that funds generated from any private placements, public offerings and/or bank financing, if available, are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms. Accordingly, the Company's management has concluded that these conditions raise substantial doubt about our ability to continue as a going concern."
• "Management is committed to remediate the identified material weakness and significant deficiency, as well as the improvement of the Company's overall internal control over financial reporting."

Industry Context

The company operates in the fintech industry, specifically in online capital formation, which has been significantly shaped by the Jumpstart Our Business Startups Act (JOBS Act). This market is described as being in its infancy but experiencing rapid growth, with Regulation Crowdfunding (Reg CF) funding increasing by 360% from 2018 to 2024. The industry aims to democratize access to private investment opportunities, traditionally restricted to a small percentage of the population. The company faces significant competition from established players like StartEngine Crowdfunding, Inc., Wefunder Inc., and Republic Core LLC, many of whom possess greater financial resources. A key challenge in the private capital market is the lack of liquidity for investors, which the company aims to address through a proposed secondary trading platform.

Comparison to Industry Standards

• The company's average amount raised per offering on its Netcapital funding portal was $215,745 in fiscal 2025, which is significantly lower than the increased Reg CF limit of $5 million and the Reg A+ average raise of $7.7 million in 2024, suggesting it may be attracting smaller offerings or struggling to maximize capital raised per offering compared to the broader market potential.
• The company claims to provide the lowest cost solution for online capital raising compared to its peer group, which includes StartEngine Crowdfunding, Inc., Wefunder Inc., and Republic Core LLC.
• While the Reg CF market saw a 360% increase in funding from 2018 to 2024, and the number of raises reached a new high of 569 in December 2024, Netcapital's total dollars invested through its portal decreased by 29% in fiscal 2025, indicating it is not fully capitalizing on the overall market growth.

Corporate Governance

Legal Proceedings

• The company may become involved in litigation or regulatory proceedings in the ordinary course of business, including class action suits seeking substantial damages.
• The securities industry is highly regulated, and the company is subject to periodic regulatory audits and inspections by federal, state, and self-regulatory bodies (SEC, FINRA, Nasdaq Stock Market).
• Regulatory inquiries are received frequently, covering topics such as anti-money laundering, compliance, registration, and record-keeping, which can result in fines or disciplinary actions.

Related Party Transactions

• Netcapital Systems LLC (Systems DE), of which Jason Frishman (Company Founder) owns a 29% interest, licensed the technology for www.netcapital.com to the company. Payments to Systems DE were $95,000 in FY2025 and $175,000 in FY2024, with $285,000 owed as of April 20, 2025.
• Cecilia Lenk, CEO of Netcapital Advisors Inc. (wholly owned subsidiary), is a board member of KingsCrowd Inc., in which the company holds 3,209,685 shares valued at $577,743 as of April 30, 2025.
• Cecilia Lenk also serves as a board member of Deuce Drone LLC, in which the company held 2,350,000 membership units (valued at $0 as of April 30, 2025, due to full impairment) and had notes receivable totaling $152,000 (fully reserved for credit loss).
• Compensation to officers in FY2025 included $369,545 in stock-based compensation and $927,288 in cash salary.
• Compensation to John Fanning Jr. (son of the CFO) as a consultant was $44,991 in FY2025 and $54,880 in FY2024. He is also the controlling shareholder of Zelgor Inc., from which the company had $0 revenue in FY2025 and $33,000 in FY2024, and holds 1,400,000 shares valued at $1,400,000.
• The company invested $240,080 in 6A Aviation Alaska Consortium, Inc., an affiliated entity where Cecilia Lenk also serves as CEO (fully written off as impaired in FY2025).
• Director Steven Geary was issued 3,419 shares of common stock on April 24, 2024, in satisfaction of a $31,680 obligation.
• Paul Riss, a director of Netcapital Funding Portal Inc., was issued 6,315 shares of common stock on April 24, 2024, in satisfaction of a $58,524 obligation.
• Coreen Kraysler, the CFO, personally guaranteed a $500,000 promissory note from the U.S. Small Business Administration.
• John Fanning (husband of the CFO) provides advice to companies in which the company holds equity, lists offerings, or are vendors, and has been involved with portfolio companies like KingsCrowd, Deuce Drone, ChipBrain, and Zelgor, without a formal advisory contract.

Stakeholder Impact

• **Shareholders**: Face significant dilution from recent and potential future equity offerings. Experience substantial losses in shareholder equity due to large impairment charges on investments. The 'going concern' warning indicates a high risk of losing their entire investment. Lack of dividends means returns are solely dependent on stock price appreciation.
• **Employees**: The company had approximately 20 full-time employees as of April 30, 2025. Stock-based compensation is a significant part of their remuneration, but the decline in stock value and the 'going concern' risk could impact morale and retention. The company faces challenges in recruiting and retaining skilled personnel.
• **Customers (Issuers)**: The decrease in total dollars invested through the portal and fewer new offerings launched suggest a less effective platform for capital raising, potentially impacting their ability to secure funding. The delay in the secondary trading platform means continued illiquidity for their investors.
• **Customers (Investors)**: Face significant risks due to the company's financial instability, the illiquid nature of early-stage company securities, and the potential for failed transactions on the proposed secondary trading platform. The substantial impairment losses on portfolio companies directly impact the value of their investments.
• **Creditors**: The company's negative working capital and 'going concern' status indicate a heightened risk for creditors, particularly unsecured lenders. Obligations to the SBA are secured by assets, providing some protection for those specific loans.

Next Steps

• Expand revenue base by hosting Regulation A and Regulation D offerings via Netcapital Securities Inc.
• Generate new investor accounts and increase online marketing spend, potentially including virtual conferences.
• Hire additional business development staff to attract new crowdfunding clients.
• Increase the number of companies on the platform via marketing efforts.
• Invest in developing innovative technologies to enhance the platform and pursue additional service offerings.
• Accelerate advisory portfolio clients to realize potential upside from equity interests.
• Explore ways to provide a secondary trading feature for clients, despite current pause in Templum ATS development.
• Remediate identified material weakness and significant deficiency in internal controls over financial reporting, including enhanced period-end closing procedures and updated investment valuation policies.
• Seek additional financing through private placements, public offerings, and/or bank financing to support working capital requirements.

Key Dates

Recommendation

The company's financial health is in severe decline, marked by an 82.4% revenue drop, a widening net loss of $28.3 million, and a substantial $19.9 million in asset impairments. The 'going concern' warning from management and auditors indicates a high risk of business failure. While recent capital raises provide short-term liquidity, they are dilutive and do not address the fundamental deterioration of the core business, which is experiencing reduced capital raised and fewer new listings. The delay in the secondary trading platform, a crucial liquidity solution, further compounds the negative outlook. The high customer concentration and reliance on illiquid equity investments add to the speculative nature of the stock.

Keywords

Fintech, Crowdfunding, SEC filings, Reg CF, Reg A, Broker-dealer, Capital raising, Private equity, Investment platform, Startup funding, Online investing, Financial technology, SEC, FINRA, JOBS Act, Secondary trading platform, Equity investments, Going concern, Nasdaq listing