S-1: Netcapital Inc. Registers Shares for Resale, Faces Revenue Decline

Netcapital Inc. filed an S-1 registration statement for the resale of up to 1.88 million common shares, including those from recent warrant exercises, while reporting a significant revenue drop and a substantial non-cash loss in fiscal year 2025.

Summary

• Netcapital Inc. is registering up to 1,879,090 shares of common stock for resale by selling shareholders, comprising 118,750 shares from a June 2025 private placement and 1,760,340 shares issuable upon warrant exercises.
• The company will not receive proceeds from the resale of shares by selling shareholders, but could receive approximately $9.21 million if all 1,760,340 warrants are exercised for cash.
• Revenue for the year ended April 30, 2025, was $869,460 with a gross profit of $829,116, a significant decrease from $4,951,435 revenue and $4,843,375 gross profit in the prior fiscal year.
• The decline in fiscal 2025 revenue is primarily due to not providing consulting services in exchange for equity, which accounted for approximately $3.5 million in fiscal 2024.
• Portal fees decreased by 33% to $589,074 in fiscal 2025, and total capital invested through the portal decreased by 29% from $14.8 million in fiscal 2024 to $10.6 million in fiscal 2025.
• Listing fees decreased by 53% to $207,500 in fiscal 2025, with new listings dropping from 82 in fiscal 2024 to 38 in fiscal 2025.
• The company recorded a non-cash loss of over $19.9 million from investments in twelve failed portfolio companies.
• A 1-for-70 reverse stock split was effectuated on August 1, 2024, adjusting all share and exercise price data retroactively.
• Netcapital Inc. operates a fintech platform allowing private companies to raise capital online via its SEC-registered funding portal (Reg CF) and its FINRA-licensed broker-dealer subsidiary (Reg A/D).
• Recent capital raising activities include a June 2025 private placement ($475,000 gross), January and March 2025 warrant inducements (totaling ~$630,200 gross from exercises), July 2025 registered direct offerings (totaling ~$8 million gross), and an At-The-Market (ATM) offering in June 2025 ($974,747 gross).
• The company also completed May 2025 debt financings, issuing convertible promissory notes and an unsecured non-convertible note for total gross proceeds of $308,000, which were largely prepaid by July 8, 2025.

Sentiment

Score: 3

Explanation: The company experienced a severe decline in revenue and gross profit in fiscal year 2025, coupled with a substantial non-cash loss from failed investments. Key operational metrics for its core funding portal business also deteriorated. The auditor's going concern warning is a significant red flag. While there are strategic initiatives and capital raises, the current financial performance and the pause in the secondary trading platform development indicate a challenging outlook and high operational risk.

Positives

• Expanded business model to include Regulation A (Reg A) and Regulation D (Reg D) offerings through its FINRA-member broker-dealer subsidiary, Netcapital Securities Inc., approved in November 2024.
• Technology platform is scalable, demonstrated by processing over 2,000 investments totaling more than $2 million in less than two hours in November 2021.
• Claims to offer the lowest cost solution for online capital raising compared to competitors like StartEngine Crowdfunding, Inc., Wefunder Inc., and Republic Core LLC.
• Maintains a rapidly expanding network with over 100,000 users on its platform.
• Formed two strategic advisory boards, Crypto Advisory Board and Game Advisory Board, to provide sector-specific guidance and partnership referrals.
• Holds equity positions in ten portfolio companies valued at approximately $6 million, representing potential upside for shareholders.

Negatives

• Total revenues decreased significantly from $4,951,435 in fiscal 2024 to $869,460 in fiscal 2025, primarily due to the cessation of equity-based consulting services.
• Incurred a non-cash loss of over $19.9 million from investments in twelve failed portfolio companies.
• Portal fees decreased by 33% and total dollars invested through the portal decreased by 29% in fiscal 2025.
• Listing fees decreased by 53% and new offerings launched dropped by 54% in fiscal 2025.
• The average amount raised per offering on the funding portal decreased by 23% in fiscal 2025.
• Development and roll-out of the proposed secondary trading platform (ATS) with Templum Markets LLC has been paused due to reevaluation of market conditions and customer expectations.
• The company's auditor's report includes an emphasis of matter paragraph regarding substantial doubt about the company's ability to continue as a going concern.

Risks

• Selling Shareholders may sell shares at prices below the current market price, which could adversely affect the market price of common stock.
• A large number of shares of common stock may be sold in the market following this offering, potentially depressing the market price.
• Future dilution may occur as a result of the issuance of shares, future equity offerings, and other issuances of common stock or other securities.
• Investment in the company's common stock is highly speculative and involves substantial risk.
• Regulatory changes could make compliance more expensive and materially adversely affect income.
• Failure to comply with the Uniform Net Capital Rule (Rule 15c3-1) could have a material adverse effect.
• Private companies are not required to make periodic public filings, meaning certain capitalization, operational, and financial information may not be available for evaluation by investors on a secondary trading platform.
• Investments in private companies are generally highly illiquid, often subject to transfer restrictions, and no public market exists for such securities.
• Transactions on a proposed secondary trading platform may fail to settle, potentially harming the company's reputation.
• The company may become involved in disputes and litigation matters between customers regarding secondary trading transactions, which could be expensive and time-consuming.
• There is no assurance that the company will receive any meaningful cash proceeds from the exercise of warrants, as they may expire unexercised or be exercised on a cashless basis.

Future Outlook

The company plans to expand its revenue base by hosting and generating additional fees from Regulation A and Regulation D offerings on the Netcapital platform. It intends to hire additional business development staff, increase its online marketing spend, and invest in developing innovative technologies to enhance its platform and pursue additional service offerings. The company also aims to accelerate its advisory portfolio clients and explore international expansion into Europe and Asia. While a secondary trading feature is being explored, its development and roll-out are currently paused for reevaluation of market conditions and customer expectations. The company does not plan to seek consulting engagements in fiscal 2026.

Management Comments

• "Our model is disruptive to traditional private equity investing and is based on Title III, Regulation Crowdfunding (Reg CF) of the Jumpstart Our Business Startups Act (JOBS Act)."
• "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."
• "We believe a significant opportunity exists to disrupt private capital markets via the Netcapital funding portal."
• "We believe that lack of liquidity is a key issue for investors in private companies in our targeted market."
• "Our network continues to rapidly expand as a result of our enhanced marketing and broad distribution to reach new investors."
• "Technology is critical to everything that we do. We plan to invest in developing innovative technologies that enhance our platform and allow us to pursue additional service offerings."
• "The advisory portfolio and our equity interests in select advisory clients represent potential upside for our shareholders."
• "We believe there is a significant opportunity to expand into Europe and Asia as an appetite abroad grows for U.S. stocks."
• "New Verticals Represent a Compelling Opportunity. We operate in a regulated market supported by the JOBS Act. We are working on expanding our model to include Regulation A and Regulation D offerings."

Industry Context

The company operates in the fintech sector, leveraging the Jumpstart Our Business Startups Act (JOBS Act) to democratize access to private investment opportunities. It addresses the traditional funding model's restrictions, such as venture capital firms investing in less than 1% of considered companies and limited access for the general public to early-stage investments. The industry is in its infancy but has seen significant growth, with Reg CF funding increasing by 360% from $74.8 million in 2018 to $343.6 million in 2024. Regulatory enhancements in March 2021 increased offering limits for Reg CF to $5 million and Reg A Tier 2 to $75 million, boosting attractiveness for later-stage issuers. The COVID-19 pandemic also accelerated the shift to online fundraising. The company believes there is sufficient room for multiple players in this rapidly growing market.

Comparison to Industry Standards

• Claims to provide the lowest cost solution for online capital raising compared to its peer group, including StartEngine Crowdfunding, Inc., Wefunder Inc., and Republic Core LLC.
• Believes its access and onboarding of new clients are superior due to its facilitated technology platforms, based on internal assessment and client feedback.

Corporate Governance

Legal Proceedings

• The company may become involved in disputes and litigation matters between customers with respect to transactions on its proposed secondary trading platform, particularly concerning delayed and/or broken trades or failure of sellers to deliver securities.
• Any such litigation could be expensive and time-consuming, regardless of the outcome, and may incentivize settlements that could harm reputation or materially adversely affect business or operations.

Related Party Transactions

• A 1-for-70 reverse stock split was effectuated on August 1, 2024, impacting all outstanding shares and convertible securities.
• Paid Netcapital Systems LLC (29% owned by Founder Jason Frishman) $95,000 in FY2025 and $175,000 in FY2024 for software licensing, with $285,000 in unpaid invoices 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 a significant equity interest valued at $577,743 as of April 30, 2025.
• Cecilia Lenk is also a board member of Deuce Drone LLC, an entity in which the company holds an equity interest (valued at $0 as of April 30, 2025, down from $2,350,000 in FY2024) and had notes receivable totaling $152,000, for which a full credit loss reserve was recorded in FY2025.
• Compensation to John Fanning Jr. (son of CFO Coreen Kraysler) as a consultant amounted to $44,991 in cash wages in FY2025 and $54,880 in FY2024.
• The company generated $0 revenue from Zelgor Inc. (controlled by John Fanning Jr.) in FY2025, down from $33,000 in FY2024, while holding 1,400,000 shares valued at $1,400,000.
• Paid Steven Geary (director) and Paul Riss (director of Netcapital Funding Portal Inc.) $90,204 in outstanding indebtedness by issuing 9,734 shares of common stock on April 24, 2024.
• Granted stock options to purchase common stock to several related parties, including CEO Martin Kay, CFO Coreen Kraysler, Founder Jason Frishman, and various directors, with exercise prices ranging from $98.00 to $100.10.
• CFO Coreen Kraysler personally guaranteed a $500,000 promissory note from the U.S. Small Business Administration.
• John Fanning (husband of CFO) provides informal advice to portfolio companies, some of which conducted offerings on the company's funding portal (Kingscrowd, Deuce Drone, ChipBrain, and Zelgor).

Stakeholder Impact

• Shareholders face potential dilution from the exercise of warrants and future equity offerings, as well as potential downward pressure on share price due to the large number of shares registered for resale.
• Investors on the Netcapital platform gain access to a broader range of private investment opportunities through the expansion into Reg A and Reg D offerings via the new broker-dealer subsidiary.
• Employees benefit from the company's equity incentive plan, which has been amended to increase the share reserve, potentially enhancing retention and motivation.
• Customers (companies seeking capital) benefit from the company's low-cost capital raising solution, enhanced technology platform, and expanded distribution capabilities through the broker-dealer.
• Creditors may be impacted by the company's financial performance and its ability to continue as a going concern, as highlighted by the auditor's report.
• The pause in the secondary trading platform development may delay potential liquidity options for investors in private companies on the platform.

Next Steps

• Selling Shareholders will offer and sell registered shares from time to time.
• Proceeds from warrant exercises will be used for working capital and general corporate purposes, including investments in sales and marketing in the United States and internationally.
• Seek stockholder approval for the First and Second Amendments to the 2023 Omnibus Equity Incentive Plan to increase the share reserve.
• Reevaluate evolving market conditions and customer expectations for the proposed secondary trading feature (ATS).
• Potentially incorporate a revenue model for the ATS in the future, ensuring strict compliance with regulatory guidelines.
• Continue efforts to generate new investor accounts and increase the number of companies on the platform via marketing.
• Hire additional business development staff.
• Invest in developing innovative technologies to enhance the platform and pursue additional service offerings.
• Assist advisory portfolio clients to accelerate their growth.
• Explore international expansion opportunities into Europe and Asia.

Key Dates

Recommendation

The company's financial performance in fiscal year 2025 shows a drastic decline in revenue and gross profit, primarily due to a strategic shift away from equity-based consulting, coupled with a substantial non-cash loss from failed investments. Key operational metrics for its core funding portal business also deteriorated significantly. The auditor's explicit statement of 'substantial doubt as to the Company's ability to continue as a going concern' is a critical warning. While the company is pursuing new verticals and has raised capital through dilutive means, the current financial instability, the pause in a key strategic initiative (ATS), and the ongoing need for capital raises suggest a highly precarious position. A seasoned investor would likely view these factors as indicative of severe financial distress and a high risk of further value erosion.

Keywords

Fintech, Crowdfunding, Reg CF, Reg A, Reg D, SEC Filing, S-1, Warrants, Private Placement, Capital Raise, Online Funding Portal, Broker-Dealer, Secondary Trading, JOBS Act, Investment Platform