DEF: Netcapital Seeks Shareholder Vote on Governance, Equity Plan

Netcapital Inc. is soliciting shareholder proxies for its September 11, 2025 Annual Meeting to vote on director elections, auditor ratification, executive compensation, equity plan amendments, and reincorporation to Nevada.

Summary

• The Annual Meeting of Shareholders will be held virtually on September 11, 2025, at 10:30 am ET.
• Shareholders will vote on the election of five directors, the ratification of Fruci & Associates II, PLLC as the independent registered public accounting firm for fiscal year ending April 30, 2026, and a non-binding advisory vote on named executive officer compensation (Say on Pay Proposal).
• Other key proposals include approving amendments to the 2023 Omnibus Equity Incentive Plan and authorizing the reincorporation of the Company from Utah to Nevada.
• The Board unanimously recommends voting FOR all proposals.
• As of the record date, July 3, 2025, there were 3,040,380 shares of common stock issued and outstanding, with a quorum requiring 1,520,191 shares.
• The proposed Equity Plan Amendments seek to increase the share reserve to 3,500,000 and modify the evergreen provision to allow an annual increase of up to 10% of outstanding shares, with an ISO limit increase of no more than 400,000 shares per year.
• The reincorporation to Nevada is intended to leverage the state's flexible corporate laws and established legal precedents.

Sentiment

Score: 2

Explanation: The company reported substantial net losses and a drastic decline in Total Shareholder Return over the past two fiscal years, indicating severe financial underperformance and significant value destruction for shareholders. While corporate governance practices are highlighted, the core financial results are highly concerning.

Positives

• The company has adopted a Code of Ethics and established charters for its Audit, Compensation, and Nominating and Corporate Governance committees, demonstrating a commitment to good corporate governance.
• A majority of the Board members (Avi Liss, Arnold Scott, and Steven Geary) are independent directors, meeting Nasdaq listing requirements.
• The director compensation program is equity-based, aligning the long-term interests of non-employee directors with those of stockholders.
• The Audit Committee includes a financial expert, Steven Geary, and all members are independent and financially literate.
• The company utilizes equity incentive plans (2023 and 2021 Plans) to attract, retain, and incentivize key personnel by aligning their interests with shareholder value creation.
• The reincorporation to Nevada is presented as a strategic move to benefit from more comprehensive, modern, and flexible corporate laws, potentially leading to greater predictability in legal affairs.

Negatives

• The company reported a significant net loss of $(27,969,279) for fiscal year 2025, worsening from a loss of $(4,986,317) in fiscal year 2024, and a decline from a net income of $2,954,972 in fiscal year 2023.
• The Total Shareholder Return (TSR) for an initial $100 investment drastically declined to $0.29 in 2025, from $1.47 in 2024 and $15.11 in 2023, indicating substantial value destruction.
• The investment in Deuce Drone LLC, valued at $2,350,000 in 2024, was valued at $0 as of April 30, 2025, with a full credit loss reserve of $152,000 recorded against notes receivable from this entity.
• An investment of $240,080 in 6A Aviation Alaska Consortium, Inc. was fully written off in fiscal year 2025 due to impairment.
• The company owes Netcapital Systems LLC $285,000 in unpaid invoices as of April 20, 2025, for software use.
• The reincorporation to Nevada may introduce certain anti-takeover implications, such as a higher voting threshold for director removal (two-thirds vote in Nevada vs. majority in Utah) and less extensive shareholder dissenters' and appraisal rights compared to Utah law.

Risks

• Failure to approve the Equity Plan Amendments could limit the company's ability to offer competitive equity-based compensation, potentially hindering talent attraction and retention.
• The reincorporation to Nevada may be disadvantageous to shareholders due to differences in corporate law, including higher voting thresholds for director removal, less extensive shareholder dissenters' and appraisal rights, and stricter requirements for corporate record inspection.
• Broker non-votes are not counted in the tabulation of voting results for non-routine proposals (director election, Say on Pay, Equity Plan Amendments, Reincorporation), which could impact the approval of these proposals if shareholders do not provide specific instructions.
• There is a risk of not achieving a quorum at the Annual Meeting, which would necessitate an adjournment to solicit additional proxies.
• The company does not have a written policy regarding the timing of equity award grants in relation to the release of material non-public information, which could pose a risk of perceived or actual insider trading issues.
• Executive compensation is subject to clawback provisions in the event of financial restatements due to material noncompliance with financial reporting requirements.

Future Outlook

The company intends to continue providing equity incentive awards to attract and retain talented employees, aligning their long-term interests with those of shareholders to execute strategic objectives and maximize stockholder investment. The proposed reincorporation to Nevada is expected to provide greater predictability in legal affairs due to Nevada's comprehensive and flexible corporate laws.

Management Comments

• "Our Board unanimously recommends that you vote: FOR the election of our Boards director nominees (Proposal 1); FOR the ratification of the appointment of Fruci as our independent registered public accounting firm for the fiscal year ending April 30, 2026 (Proposal 2); FOR the approval of the Say on Pay Proposal (Proposal 3); FOR the approval of the Equity Plan Amendments Proposal (Proposal 4); FOR the approval of the Reincorporation Proposal (Proposal 5)and FOR the approval of the Adjournment Proposal (Proposal 6)."
• "We are pleased to offer our shareholders a completely virtual Annual Meeting, which provides worldwide access, improved communication and cost savings for our shareholders and the Company."
• "While our Board and the compensation committee believe that equity and equity-based awards are an important component of our overall compensation program, the compensation committee prioritizes stockholder interests in evaluating awards to be granted to executives and other employees in its administration of the 2023 Plan."
• "The increase in the number of shares of common stock available under the 2023 Plan pursuant to the Plan Amendments as described below will allow us to continue to provide equity incentive awards as part of our compensation objectives to attract and retain talented employees and provide them with the right incentives to execute our strategic objectives will maximizing our stockholders investment in our company."

Industry Context

This proxy statement reflects standard corporate governance practices for a publicly traded company, including annual shareholder meetings for director elections and auditor ratification. The company's reliance on equity compensation and its proposed expansion of equity incentive plans are common in growth-oriented or technology-focused sectors aiming to attract and retain talent. The reincorporation to Nevada is a notable trend among companies seeking more business-friendly corporate laws, often perceived as offering greater flexibility and predictability in corporate legal matters compared to other states. However, the significant financial losses and write-offs of investments in portfolio companies suggest challenges in its investment strategy or the performance of its portfolio, which is a risk inherent in venture-style investment models often associated with funding portals.

Comparison to Industry Standards

• The shift to a virtual annual meeting aligns with modern corporate practices, offering cost savings and broader shareholder access, a trend accelerated by recent global events.
• The director compensation program, being solely equity-based, is a strong alignment mechanism often seen in growth-oriented companies, though cash compensation is more prevalent in mature industries.
• The proposed increase in the equity incentive plan share reserve to 3,500,000 shares, with an evergreen provision of 10% of outstanding shares annually (max 400,000 ISO limit), is substantial relative to the current shares outstanding (3,040,380 shares). This could lead to significant dilution if fully utilized, a common concern for investors in high-growth or struggling companies that rely heavily on equity compensation.
• The negative net income of $(27,969,279) in FY2025 and the drastic decline in Total Shareholder Return (TSR) from $15.11 in 2023 to $0.29 in 2025 are substantially worse than industry benchmarks for profitable or even stable companies, indicating severe operational or market challenges.
• The write-off of investments like Deuce Drone LLC ($2,350,000 valuation drop) and 6A Aviation Alaska Consortium, Inc. ($240,080 write-off) highlights a high-risk investment portfolio, typical of venture capital or early-stage investment firms, but unusual for a publicly traded company unless its core business is investment. This suggests a lack of successful exits or significant impairments in their portfolio, which is a red flag compared to successful investment firms.

Management Changes

Corporate Governance

Related Party Transactions

• Netcapital Systems LLC, an entity in which Jason Frishman (Founder) owns a 29% interest, was paid $95,000 in FY2025 and $175,000 in FY2024 for software use, and is owed $285,000 in unpaid invoices as of April 20, 2025.
• Cecilia Lenk (CEO of Netcapital Advisors Inc.) is a director of KingsCrowd Inc., in which the company holds 3,209,685 shares valued at $577,743 (FY2025).
• Cecilia Lenk is a director of Deuce Drone LLC, in which the company held 2,350,000 membership interest units valued at $0 (FY2025) and $2,350,000 (FY2024), with notes receivable of $152,000 fully reserved in FY2025.
• John Fanning Jr., son of CFO Coreen Kraysler, received $44,991 (FY2025) and $54,880 (FY2024) as a related party consultant.
• Zelgor Inc., where John Fanning Jr. is the controlling shareholder, generated $0 (FY2025) and $33,000 (FY2024) in revenue for the company, which owns 1,400,000 shares valued at $1,400,000.
• The company invested $240,080 in 6A Aviation Alaska Consortium, Inc., where Cecilia Lenk is CEO, and this investment was fully written off in FY2025.
• On April 24, 2024, director Steven Geary received 3,419 shares ($31,680 value) in satisfaction of debt.
• On April 24, 2024, Paul Riss, a director of Netcapital Funding Portal Inc., received 6,315 shares ($58,524 value) in satisfaction of debt.
• Coreen Kraysler, CFO, personally guaranteed a $500,000 promissory note from the U.S. Small Business Administration.
• John Fanning, husband of CFO Coreen Kraysler, was an employee until September 20, 2023, and continues to serve as an advisor, providing advice to portfolio companies like Kingscrowd, Deuce Drone, ChipBrain, and Zelgor.

Stakeholder Impact

• Shareholders: Will directly vote on key corporate governance matters, including director elections, executive compensation, equity plan amendments (which could lead to dilution), and the reincorporation to Nevada, which will alter their rights under corporate law. The significant financial losses and value destruction directly impact shareholder returns.
• Employees and Executives: Are impacted by the company's compensation practices, particularly the equity incentive plans, which are designed to attract and retain talent. Executive compensation is subject to clawback provisions.
• Creditors: The company's financial health, including significant losses and unpaid invoices to a related party, could impact its ability to meet future obligations. The CFO's personal guarantee on a $500,000 promissory note is also relevant to creditors.
• Portfolio Companies: The company's investments in entities like KingsCrowd Inc., Deuce Drone LLC, and Zelgor Inc. indicate a direct financial relationship, and the write-offs of some investments reflect the performance and risk associated with these ventures.

Next Steps

• The Annual Meeting of Shareholders will be held on September 11, 2025, for voting on the proposed matters.
• Fruci & Associates II, PLLC is expected to serve as the independent registered public accounting firm for the fiscal year ending April 30, 2026, if ratified.
• The company will reincorporate from Utah to Nevada if the Reincorporation Proposal is approved by shareholders.
• Voting results will be reported in a Current Report on Form 8-K filed with the SEC within four business days following the Annual Meeting.
• Future grants under the 2023 Equity Incentive Plan will be made at the discretion of the plan administrator, contingent on the approval of the Plan Amendments.

Key Dates

Recommendation

The company has demonstrated severe financial underperformance, with substantial net losses of $(27,969,279) in FY2025 and a drastic decline in Total Shareholder Return, indicating significant value destruction for shareholders. The write-offs of substantial investments further highlight poor capital allocation or high-risk ventures. While corporate governance efforts are noted, they do not offset the fundamental financial deterioration. The proposed equity plan amendments, while intended to retain talent, could lead to further dilution without a clear path to profitability. Given the consistent and substantial negative financial results and value destruction, a seasoned investor would likely recommend a strong sell.

Keywords

SEC filing, Proxy Statement, Corporate Governance, Executive Compensation, Equity Incentive Plan, Reincorporation, Nevada Law, Utah Law, Shareholder Meeting, Director Election, Auditor Ratification, Say on Pay, Stock Options, Related Party Transactions, Financial Performance, Netcapital Inc.