Prepared remarks
Good day, everyone, and welcome to the Netcapital Inc. Quarterly Earnings Call. It is now my pleasure to turn the floor over to your host, Coreen Kraysler. Ma'am, the floor is yours.
Thank you, Matt. Good morning, everyone, and thank you for joining Netcapital's First Quarter Fiscal 2025 Financial Results Conference Call. This is Coreen Kraysler, CFO of Netcapital Inc. I will begin with a review of our financial results. Following that, our Chief Executive Officer, Martin Kay, will deliver his prepared remarks before we open up the Q&A portion of our call. Before we begin, I'd like to draw your attention to the customary safe harbor disclosure regarding forward-looking information. Management's discussion may include forward-looking statements. These statements relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Any forward-looking statements reflect management's current views with respect to operations, results of operations, growth strategy, liquidity and future events. Netcapital assumes no obligation to publicly update or revise these forward-looking statements for any reason or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. With that said, I'd like to now turn to our financial results for the first quarter of fiscal 2025. Revenues for the first quarter of fiscal 2025 for the period ending July 31, 2024, decreased by almost $1.4 million or approximately 91% to $142,227 compared to approximately $1.5 million in the first quarter of 2024. The decline in revenue was primarily attributed to a decrease in revenues for the services that we provide in exchange for equity securities during the quarter.
We had no revenues from equity-based contracts as compared to over $1.1 million in such revenues in the 3 months ended July 31, 2023. We are focusing on establishing a broker-dealer subsidiary so that the company may have additional sources of revenue, and we have not been pursuing equity-based revenue contracts. Total funding portal revenues declined by $233,800 or approximately 62% to $242,056 during the first quarter of fiscal 2025. Total funding portal revenue consists of portal fees, listing fees and a 1% equity fee. Revenue from portal fees decreased by $132,427 or approximately 60% in the 3 months ended July 31, 2024, to $89,429 from $221,856 in the 3 months ended July 31, 2023. Revenues from portal fees consist of a 4.9% fixed fee of the total capital raised by the issuer plus fixed miscellaneous charges for administrative fees, such as the rolling close or the filing of an amended offering statement.
The decline in portal fees is a result of a decrease in the amount of capital that we raised on our funding portal during the period. Total funds raised in offerings decreased by almost $1.8 million or approximately 60% in the 3-month period ending July 31, 2024, to approximately $1.2 million as compared to approximately $2.96 million in the same period of 2023. Revenue from listing fees decreased by $111,500 or approximately 72% to $42,500 in the 3 months ended July 31, 2024, as compared to $154,000 in the 3 months ended July 31, 2023. Listing fees are typically $5,000 per issuer and they are the first form of revenue earned by our funding portal when an issuer signs a contract with us to sell securities on the portal. The drop in listing fees can be attributed to our loss of an experienced salesperson.
Coreen, I do apologize. This is the operator. Your line is breaking up. I'm going to attempt to dial up to your line, so I can get a clear connection.
Okay.
Coreen, your line is live.
Thank you. We had an operating loss of approximately $2.5 million for the first quarter of fiscal 2025 as compared to an operating loss of $749,020 for the first quarter of fiscal 2024. Our net loss for the first quarter of fiscal 2025 was $2,527,170 as compared to $491,665 for the same period prior. We reported a loss per share of $5.10 for the first quarter ended July 31, 2024, compared to a loss per share of $4.61 for the same period in the prior year. I'll now turn the call over to our CEO, Martin Kay.
Thank you, Coreen. I appreciate everyone's interest and attendance on this call today. We encountered some challenges during the quarter, particularly regarding our operational and financial metrics. The fundraising environment tends to slow during the summer, and there are inherent cycles and unpredictability in our business. However, we have made some significant strides this quarter. First, we launched the beta version of our secondary trading platform through the Templum ATS, which may provide investors with an additional method to trade through the Netcapital funding portal. Templum ATS is now approved in over 50 U.S. states and territories, and this collaboration could enhance liquidity for our investors in secondary trading. Another important initiative is our application for broker-dealer registration with FINRA, as Coreen mentioned. We plan to use this to offer Reg A+ and Reg D deals and establish broker-dealer partnerships, which may help us increase our revenues from hosting and fees and improve our distribution capabilities, potentially broadening our current ecosystem and addressable market.
During the quarter, we also implemented an ATM agreement and regained compliance with NASDAQ's Listing Rule 5550(a)(2), known as the bid price rule, which will enable us to keep trading on NASDAQ. Maintaining our NASDAQ listing is crucial for supporting shareholder value and confidence. Despite the challenges we face, we remain dedicated to our vision of empowering entrepreneurs and investors by providing a streamlined platform for raising capital and investing in early-stage and growth-stage companies. Our portal promotes access to capital through equity crowdfunding and other investment opportunities, democratizing the investment process and encouraging innovation and growth. By prioritizing transparency, efficiency, and user engagement, Netcapital aims to create a more inclusive financial ecosystem that benefits both issuers and investors. Thank you once again for your interest and support of Netcapital. Operator, we are ready for questions.
Questions and answers
Your first question is coming from John Gilliam from Point Clear.
Yes, Martin. Could you give us an idea of the launch date of the secondary trading portal where it will be fully available to retail investors?
I'm sorry, I didn't quite catch the question there. My phone bleeped. You were asking about the secondary?
Asking about the launch date of the trading platform, the secondary trading platform. Yes. When will it be available for retail investors?
Got it. Great question. And that's not something that we have specifically stated to the market at this point. We're still working through some issues with usability and so on, and we want to make sure that when we go live with it to a broader group outside of our closed beta that we get the most impact from that launch. So we're holding off for now on launching that more broadly.
At the Wainwright conference, you mentioned it would launch soon. I guess what I'm looking for is a ballpark idea. Are we talking Q4? Are we talking 2025, calendar year 2025? Just a ballpark idea.
I can't provide too many specifics. However, we are working as quickly as possible with regulators, customers, issuers, and investors to ensure that when we launch, it has the maximum impact in the marketplace.
That's not a very good answer. Really looking for, I mean, is it going to be in the next year? Is it going to be 2 years?
It's certainly not going to be...
It's been 18 months since it was announced, 18 months ago, thereabouts is when it was announced. So just trying to get an idea. I mean, what are we looking at?
It's a very fair question. We have had, as we've announced, the end-to-end platform in partnership with the ATS Templum. That technology and platform has been built out for some months now, and we've been testing with a closed group of beta users. We hope to launch before the end of this calendar year. However, as stated in all of our filings on this topic, there are factors beyond our control related to regulations. Unfortunately, I can't provide more specific information than that.
All right. With regard to the companies that are listed on our balance sheet at the price that they've had offerings recently, will all of those securities be available to trade on the secondary trading platform when it opens?
That is the intention, yes. That's what we have stated in our filings.
Your next question is coming from Patrick Rooney from Crosby Capital.
On your ATM, do you intend to do a press release as you partially complete that or only when it's totally complete? That's one. Second question, what is your monthly burn rate?
And I think you meant the ATM, right, Pat, you were asking about that or...?
Yes, the ATM. In other words, if it gets partially done, you do not $2.1 million, but you do $300,000. Will you make a press release or no?
We do not announce usage of the ATM. You will see it in our quarterly filings.
You will not make an announcement if you're successfully...
We are not required to issue a press release or file an 8-K when we use the ATM, but we do report the ATM usage in our quarterly filings.
Okay. And the burn rate, I assume that no, go ahead, monthly burn rate...
We've said in the past that our burn rate is $300,000 plus a month.
Your next question is coming from Robert Topping from Topping Capital.
Sorry for the background noise here. I'm on the street. But I'll probably just kind of extend to the 2 earlier questions in another manner. But on the operating burn, given all the investments in the ATS system, do you see that curtailing? I mean when you effectively do a full launch, does the burn on that slow down pretty dramatically? I mean how much of that $300,000 a month is dedicated towards that? And then the other question I had, and I may circle back with 2 more. But the other question I had is on the ATS launch, is some of the friction regulatory? Or is it just the beta group and the technology and working through that?
I'll start, and Coreen can definitely add on. Regarding the secondary and the burn, there is a connection. We're investing significant time, resources, and energy with both our team and third parties to educate regulators about our actions, the reasoning behind them, and how they fit into the regulatory framework. So yes, I agree there is a connection, but it may not be the one you anticipated related to platform development. As you know, technology is never truly complete; there's always room for improvement and enhancement. We have a launch-ready beta that we've shared with a select group. Continuous work is needed to improve the product moving forward, and that will always be the case. Currently, a significant portion of our time and budget is focused on ensuring that the regulators understand our initiatives and their purposes. Does that address part of your question? I'm sorry if...
Yes, it does. I was on mute. Sorry about that. And I'll circle back with my other questions here, give somebody else a chance.
Regarding the burn, you raised a question about that, Rob. As we've mentioned, we announced our broker-dealer application process in May to pursue larger transactions. Our burn rate is essentially revenue minus costs, and we anticipate that this will help us create additional revenue streams beyond our current levels.
But it seems like from what Coreen has said, I think, is I mean $1 million a quarter burn is kind of a fair or a conservative amount. Is that correct? Because there's operating and then a lot of other numbers that show up. But I think I just heard $300,000 a month. So if I was just mindset of $1 million a quarter, that would be good number on the operating burn?
I think that's correct. The factors that can affect our revenue are somewhat unpredictable. We sometimes have significant contributions from large clients in certain quarters, which can influence our earnings. Additionally, we are dealing with regulatory inquiries that, like in all financial services, require resources. However, your general rule of thumb is accurate; what we have mentioned previously still holds true.
Your next question is coming from Jon Wheeler from Resurgent Realty.
Martin, this question is for you. So I have a couple of questions. And I think the first question would be at the current stock price, why is management and the Board of Directors not really stepping up to buy the shares to support the company at this time? So I'm not going to give you 2 or 3 questions at one time, but if you could answer that question, that's my first question. Hello?
I'll answer that. Jon, are you there?
Yes, I think we've had a bad connection all morning. Can you hear me now?
I can hear you. So my answer to your question would be both. We're severely restricted in what we can do in terms of management purchasing shares themselves due to the nature of the fundraising that we have been doing. So we've been very severely restricted in doing that so far. What's your next question, please?
So the next question is, you're publicly traded, and it seems to be at some point in time dealing with reality and the associated public costs to be publicly traded, your $300,000 per month burn rate, when I looked at your last filing, it says you have a little over $800,000 cash on hand, what point in time do you all face reality from the standpoint maybe it's not best to be in a public platform and more so private, maybe more so associated with some of your peer groups because I feel like every 6 months, there's another warrant to conversion, $2 million extreme dilution. And now you've put up an ATM with Wainwright, which will be another dilution. At what point in time does the treadmill stop from potentially moving from public to private? That's question two.
I apologize for missing part of your last question, but I caught your main point. We remain fully dedicated to our vision for the business. We believe in our mission and in the value we can create. Our commitment is for the long term, and our success is directly tied to the success of our issuers. Each quarter brings more examples of our issuers successfully progressing through our process. For instance, the company Avadain raised $4.5 million on our platform last fall. They recently made headlines by adding Henry Ford III to their Board, which highlights their credibility in the electric vehicle supply industry. These successes, along with others, show that market awareness is growing, and we see this becoming a more mainstream market. We value the investors and shareholders who have supported us throughout this journey. As for when change will occur, there's a gradual momentum building in the industry and marketplace.
We have a diverse portfolio with minority positions, and since FY '24, we’ve begun taking 1% equity from every issuer on our platform. Currently, we hold 37 of these minor equity positions in addition to 22 portfolio companies. The potential success of any of these positions can validate our model and enhance our liquidity. We're also engaging with notable issuers who can attract attention on our platform. While I can't predict specific outcomes, I can say that the increase in activity in our sector is progressing. These early-stage private companies take time to develop, but we believe some will succeed, ultimately driving the value we aim to create.
Thank you. That concludes our Q&A session. I will now hand the conference back to our host for closing remarks. Please go ahead.
Thank you for joining, everyone. We really appreciate all your support, and we look forward to speaking with you again soon. Thank you.
Thank you all.
Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.