10-Q: Netcapital Q2 2026: Revenue Plummets, Leadership Shifts, Going Concern Doubt

Netcapital Inc. reports a significant revenue decline in Q2 2026, alongside a CEO change, new General Counsel appointment, and ongoing substantial doubt about its ability to continue as a going concern.

Summary

• Net loss for the six months ended October 31, 2025, increased to $5,771,541 from $4,747,671 in the prior year period.
• Revenues for the three months ended October 31, 2025, decreased by 70% to $51,076, compared to $170,528 in the same period last year.
• Revenues for the six months ended October 31, 2025, decreased by 23% to $241,134, compared to $312,755 in the prior year period.
• The decrease in revenue is primarily attributed to a significant drop in new issuers launching crowdfunding campaigns, with only 5 in the three months and 10 in the six months ended October 31, 2025, compared to 16 and 37 respectively in the prior year.
• Cash and cash equivalents increased to $1,684,188 as of October 31, 2025, from $289,428 as of April 30, 2025, largely due to financing activities.
• Negative working capital improved to $1,500,153 as of October 31, 2025, from $5,096,155 as of April 30, 2025, but remains a concern.
• Net cash used in operating activities significantly increased to $6,792,561 for the six months ended October 31, 2025, from $3,451,087 in the prior year period.
• The company acquired a perpetual software license from Horizon Globex GmbH for 500,000 shares of common stock, valued at $2,840,000, on June 26, 2025.
• Martin Kay resigned as CEO on December 3, 2025, and Rich Wheeless was appointed CEO on December 7, 2025.
• Kevin Kilduff was appointed General Counsel on December 7, 2025, and granted 1,000,000 shares of Restricted Stock with performance-based vesting.
• The company acquired substantially all assets of Rivetz Corp. related to its hardware-based cybersecurity developer platform for 950,000 shares of common stock and up to $100,000 in assumed liabilities on December 3, 2025.
• Substantial doubt exists about the company's ability to continue as a going concern.

Sentiment

Score: 3

Explanation: The company faces significant financial challenges, including declining revenues, increasing net losses, and substantial doubt about its going concern ability. While there have been successful capital raises and strategic acquisitions, these are overshadowed by operational underperformance and a heavy reliance on external financing to sustain operations.

Positives

• Cash and cash equivalents significantly increased to $1,684,188 as of October 31, 2025, from $289,428 as of April 30, 2025.
• Negative working capital improved to $1,500,153 as of October 31, 2025, from $5,096,155 as of April 30, 2025.
• Total liabilities decreased to $4,002,600 as of October 31, 2025, from $5,995,767 as of April 30, 2025.
• Successful capital raises through common stock offerings, including $3 million on July 17, 2025, and $5 million on July 7, 2025.
• FINRA approval for Netcapital Securities Inc. as a broker-dealer in November 2024, enabling expansion into Reg A and Reg D offerings.
• Remediation of previously identified material weakness in internal control over financial reporting related to legal expenses and a significant deficiency related to investment valuation.
• Acquisition of a perpetual software license from Horizon Globex GmbH, valued at $2,840,000, enhancing technology platform.
• Acquisition of Rivetz Corp.'s cybersecurity developer platform assets, potentially expanding service offerings.
• Unrealized gain of $44,945 on equity securities for the six months ended October 31, 2025.

Negatives

• Revenues for the three months ended October 31, 2025, decreased by 70% to $51,076 compared to $170,528 in the prior year.
• Revenues for the six months ended October 31, 2025, decreased by 23% to $241,134 compared to $312,755 in the prior year.
• Net loss for the six months ended October 31, 2025, increased to $5,771,541 from $4,747,671 in the prior year.
• Net cash used in operating activities significantly increased to $6,792,561 for the six months ended October 31, 2025, from $3,451,087 in the prior year.
• The decrease in revenue is primarily due to a significant reduction in new issuers launching offerings on the funding portal (5 vs 16 for three months, 10 vs 37 for six months).
• Substantial doubt about the company's ability to continue as a going concern due to negative working capital and ongoing operating losses.
• High customer concentration, with one customer constituting 58% of revenues for the six months ended October 31, 2025.
• Significant portion of total assets held in illiquid equity securities of early-stage companies, subject to volatility and potential impairment.
• Consulting services revenue was $0 for both the three and six months ended October 31, 2025 and 2024.
• Payroll and payroll related expenses increased by 41% to $2,649,883 for the six months ended October 31, 2025, attributed to salary increases and bonuses for employee retention.
• Interest expense increased by 141% to $48,271 for the six months ended October 31, 2025, due to short-term borrowings.

Risks

• Substantial doubt about the ability to continue as a going concern due to negative working capital of $1,500,153, an operating loss of $5,405,105, and net cash used in operating activities of $6,792,561 for the six months ended October 31, 2025.
• Inability to achieve sufficient revenues or secure additional financing (private placements, public offerings, bank financing) to support working capital and growth.
• Difficulties in executing growth strategy, including attracting new issuers and investors.
• Risks associated with acquiring complementary businesses, such as identifying suitable targets, due diligence, financial stability of targets, integration challenges, and retaining key employees.
• Difficulties in increasing revenue per issuer.
• Challenges related to hiring and training fintech employees at competitive wage rates and retaining skilled personnel.
• Difficulties in increasing the average number of investments made per investor.
• Shortages or interruptions in the supply of quality issuers.
• Dependence on a small number of large issuers/customers to generate revenue (one customer constituted 58% of revenues for the six months ended October 31, 2025).
• Negative publicity relating to any one of the issuers on the platform.
• Competition from other online capital portals with significantly greater resources.
• Changes in investor tastes and purchasing trends.
• Inability to manage growth effectively.
• Inability to maintain adequate cash flow or access to capital to meet growth expectations.
• Vulnerability to increasing labor costs, including demand for qualified employees.
• Vulnerability to increased costs of running an online portal with any cloud partner.
• Impact of governmental laws and regulations.
• Failure to obtain or maintain required licenses.
• Changes in economic or regulatory conditions and other unforeseen conditions that prevent or delay the development of a secondary trading market for shares of equity sold on the online portal.
• Inadequately protecting intellectual property or breaches of security of confidential user information.
• Potential for substantial costs, diversion of management attention, and negative impact on stock price due to securities litigation or shareholder activism.
• Exposure to litigation, regulatory proceedings, inquiries, audits, inspections, and potential fines from SEC, FINRA, and Nasdaq.
• Significant portion of total assets held in illiquid, volatile equity securities of early-stage companies, subject to unpredictable value changes and potential impairment.

Future Outlook

The company plans to expand its platform to support compliant blockchain-based digital assets, including tokenized securities and real-world assets. It also aims to leverage its FINRA-approved broker-dealer subsidiary to expand into Regulation A and Regulation D offerings. However, management believes that existing cash, anticipated cash flows, and other liquidity sources may not be sufficient to meet working capital requirements for the next 12 months, raising substantial doubt about its ability to continue as a going concern.

Management Comments

• "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."
• "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..."
• "The decrease in revenues was attributed to the lack of new issuers signing up for funding portal services."
• "The increase [in payroll and payroll related expenses] was attributed to the salary increases for certain key positions, to assist with employee retention."

Industry Context

The company operates in the evolving fintech sector, specifically in online capital raising for private companies (crowdfunding, Reg A, Reg D). Its recent FINRA broker-dealer approval and plans to integrate blockchain-based digital assets align with broader industry trends towards tokenization and diversified funding mechanisms. However, the significant decline in new issuers on its funding portal suggests challenges in a competitive market, potentially indicating a broader slowdown in early-stage private capital demand or increased competition from platforms with greater resources. The focus on retaining key employees through salary increases also points to a competitive talent market within fintech.

Comparison to Industry Standards

• The significant decline in new issuers (from 37 to 10 in six months) and corresponding revenue drop (23% for six months, 70% for three months) suggests underperformance relative to a healthy growth trajectory expected in a dynamic fintech sector, especially compared to platforms that are successfully scaling their issuer base.
• The ongoing "going concern" doubt, despite recent capital raises, indicates a fundamental challenge in achieving sustainable profitability and cash flow, which is a critical benchmark for any publicly traded company, particularly in comparison to more established or rapidly growing fintech peers.
• The high customer concentration (one customer accounting for 58% of six-month revenue) is a significant vulnerability, contrasting with diversified revenue streams typically sought by robust financial platforms to mitigate risk.
• The acquisition of Rivetz Corp.'s cybersecurity assets and plans for blockchain integration position the company to potentially align with emerging industry trends in tokenized assets, but the immediate financial impact and successful integration remain to be seen, especially given the current financial challenges.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently a party to any material legal proceedings and is not aware of any pending or threatened legal proceeding that could have a material adverse effect.
• The company is subject to extensive regulations (SEC, FINRA, Nasdaq) and may be subject to various regulatory inquiries, governmental investigations, or other claims in the ordinary course of business.
• Regulatory inquiries can incur significant legal fees and divert resources, with uncertain outcomes that could materially affect the business.
• The company expects to be subject to regulatory fines on various topics on an ongoing basis, consistent with other regulated financial services businesses.

Related Party Transactions

• Payments to Systems DE (29% owned by Founder Jason Frishman) for software use: $0 for three months ended Oct 31, 2025; $285,000 for six months ended Oct 31, 2025. Accounts payable to Systems DE: $190,000 as of Oct 31, 2025.
• Cecilia Lenk (CEO of Netcapital Advisors) is a board member of KingsCrowd Inc. (Company owns 3,209,685 shares valued at $577,743).
• Cecilia Lenk is a board member of Deuce Drone LLC (Company owns 2,350,000 units valued at $0).
• Compensation to John Fanning Jr. (son of CFO, controlling shareholder of Zelgor Inc.): Cash wages of $11,600 for three months and $25,700 for six months ended Oct 31, 2025.
• Note receivable of $50,000 from Zelgor Inc. (John Fanning Jr. controlling shareholder), with accrued interest receivable of $11,041. Company owns 1,400,000 shares of Zelgor valued at $1,400,000.
• Stock options granted to Martin Kay (former CEO) and Coreen Kraysler (CFO) on June 8, 2025 (55,000 shares each at $2.68 exercise price).
• Coreen Kraysler (CFO) personally guaranteed a $500,000 SBA promissory note.
• John Fanning (advisor, husband of CFO) provides advice to portfolio companies like KingsCrowd and Zelgor.

Stakeholder Impact

• Shareholders: Significant dilution from recent capital raises and stock-based compensation. Ongoing "going concern" doubt poses a substantial risk to investment value. Potential for future dilution from preferred stock authorization and performance-based stock awards.
• Employees: Salary increases and bonuses for key positions indicate efforts for retention, but overall financial instability could impact job security or future compensation. New CEO and General Counsel appointments signal a leadership restructuring.
• Customers (Issuers): Decline in new issuers suggests reduced demand for the funding portal's services, potentially impacting the platform's ecosystem and value proposition.
• Creditors: The company's "going concern" doubt raises concerns about its ability to repay existing debt, although some short-term notes were prepaid. The CFO's personal guarantee on an SBA loan highlights specific creditor risk.
• Suppliers/Vendors: Accounts payable to Systems DE (a related party) indicates ongoing operational relationships, but overall financial health could affect payment terms or future engagements.

Next Steps

• Expand platform to support compliant blockchain-based digital assets (tokenized securities and real-world assets).
• Leverage FINRA-approved broker-dealer subsidiary (Netcapital Securities Inc.) to host and generate fees from Regulation A and Regulation D offerings.
• Continue efforts to raise additional working capital through private placements, public offerings, and/or bank financing.
• Work towards achieving business plan objectives and maintaining cash-flow-positive operating results.
• Kevin Kilduff's Restricted Stock will vest on March 15, 2027, based on revenue targets for the period February 1, 2026, to January 31, 2027.
• Monthly payments on the $500,000 June Loan will begin to be applied to the outstanding principal balance starting August 17, 2026.
• Evaluate the impact of ASU 2024-03 (Income Statement Reporting Comprehensive Income) for fiscal years beginning after December 15, 2026.
• Evaluate the impact of ASU 2024-01 (Compensation Stock Compensation) for fiscal years beginning after December 15, 2024.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a significant decline in revenue (70% quarterly, 23% semi-annually), an increasing net loss, and a substantial increase in cash used in operating activities. The explicit "substantial doubt about our ability to continue as a going concern" is a critical red flag. While recent capital raises have boosted cash, they also resulted in significant shareholder dilution and are primarily used to offset operational burn, not to fund profitable growth. The high customer concentration and reliance on illiquid equity investments further exacerbate risk. Despite new leadership and strategic acquisitions, the core business is struggling to attract new issuers, and the path to sustainable profitability is highly uncertain. The risks far outweigh any potential upside, making it a strong sell for investors.

Keywords

Fintech, Crowdfunding, Regulation CF, Regulation A, Reg A, Reg D, SEC Filing, 10-Q, Capital Raise, Startup Funding, Investment Platform, Broker-Dealer, Going Concern, Equity Securities, Risk Factors, Corporate Governance, Management Change, Digital Assets, Tokenized Securities, Rivetz Network, Netcapital