Prepared remarks
Good day, everyone, and welcome to the Netcapital Inc. Second Quarter Fiscal 2025 Conference Call. It is now my pleasure to turn the floor over to your host, Coreen Kraysler, CFO of Netcapital Inc. Ma'am, the floor is yours.
Thank you, Matthew. Good morning, everyone, and thank you for joining Netcapital's Second Quarter Fiscal 2025 Financial Results Conference Call. I'm Coreen Kraysler, CFO of Netcapital Inc. I will begin by reviewing our financial results and then our Chief Executive Officer, Martin Kay, will share his prepared remarks before we open up the Q&A portion of our call. Before we begin, I'd like to remind everyone of the 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 second quarter fiscal 2025. Revenues for Q2 fiscal 2025 for the period ended October 31, 2024, decreased by approximately $1.9 million or approximately 92% to $170,528 as compared to approximately $2.04 million in Q2 fiscal 2024. The decline in revenues was attributed to the lack of consulting service revenue in Q2 2025 as compared to revenue of approximately $1.5 million for consulting services for equity securities and $62,000 for consulting revenue in Q2 2024. I'm pleased to report that as of November 22, 2024, we received approval from FINRA for our broker-dealer subsidiary, which will be a focus for the company moving forward.
We reported an operating loss of $2.2 million approximately for the second quarter fiscal 2025 as compared to an operating profit of $52,220 for the second quarter fiscal 2024. Our net loss for the second quarter fiscal 2025 was approximately $2,220,501 as compared to a net profit of approximately $339,616 for the same period in the prior year. We reported a loss per share of $2.34 for the second quarter ended October 31, 2024, compared to earnings per share of $2.52 for the same period in the prior year. As of October 31, 2024, the company had cash and cash equivalents of $1,346,739. I'll now turn the call over to our CEO, Martin Kay.
Thank you, Coreen. I'd like to also thank everyone for being on this call today and for your interest and support of Netcapital. As Coreen mentioned, during the quarter, we saw a decrease in revenue, primarily due to the shift away from what is primarily noncash consulting service revenue. So with our focus on the broker-dealer subsidiary, we believe that we will see greater potential and value added in that area. And as such, we've not been pursuing equity-based revenue contracts. Recently, as Coreen mentioned, we were pleased to announce that our wholly owned subsidiary, Netcapital Securities, Inc., had received approval from the Financial Industry Regulatory Authority, or FINRA, to become a FINRA member broker-dealer. This marks a significant achievement for the company and it begins to open new opportunities for more revenue streams. We believe that by having Netcapital Securities, Inc. as a registered broker-dealer, it could create new 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.
This positions the company to support larger fundraises and potentially expand the range of investment opportunities available to its investor base. Our broker-dealer license allows us to conduct private placements of securities and referral business, support companies raising equity capital, as I mentioned, under Regulation A and Regulation D; partner with other broker-dealers to syndicate deals; charge fees on capital raised under Reg A and Reg D as well as enter into fee sharing agreements with other broker-dealers. Thank you for your continued interest and support of Netcapital, and we look forward to keeping you informed of our progress. Operator, we're ready for questions.
Questions and answers
Your first question is coming from Kal Malhi from BullRun Capital.
Hello. Who is this?
You have Martin Kay, the CEO; and Coreen Kraysler, our CFO.
Okay. Martin, I'm an investor, and I also do a lot of start-ups, and we've looked at crowdfunding or what have you. But more so, I'm curious to see what is your capital structure. I know online it says you've got a limited number of shares, but you guys trade crazy volumes based on what you have. Can you kind of provide an update on what that structure is?
It's all common stock. There's nothing really complex about it. We trade on NASDAQ, and we have a diversified shareholder base, which is not uncommon for that to experience large volumes periodically.
How many shares are outstanding now?
I think I'll defer to Coreen, but I think it's approximately 1.8 million shares outstanding.
Okay. And then you have a number of warrants or what have you. What are the cheapest warrants that are out there and how many are out?
I don't know, Coreen, if you have that in front of you.
I don't have that in front of me.
Okay. And what's your net assets right now? I know you have a number of investments in other companies. What would you say your net asset value is?
Well, if you're talking about the portfolio of equity securities, and we talked about the business we had been in of taking equity in return for consulting services, that portfolio of equity positions is, I believe, on the balance sheet we just disclosed is a little over $25 million worth of net asset value in those equity positions.
And what's your cash position and payables or liabilities?
Again, cash and cash equivalents at the end of the quarter, a little over $1.3 million.
And we're going to have to move on to the next questioner after this.
Your next question is coming from Chris Sakai from Singular Research.
Just really wanted to get a sense and idea of what differentiates Netcapital Securities from other broker-dealers.
There are several factors to consider. We have the capability to support Reg A fundraising using our existing Netcapital platform, where we have established a unique ecosystem and marketplace that connects investors with issuers. This creates a distinctive platform in the equity crowdfunding industry, setting us apart from traditional broker-dealer operations. We currently have over 115,000 investor accounts and strong relationships with digital marketing providers, along with a knowledgeable team that knows how to match the right investors with the right deals in this model, which is relatively rare. While we do face a few competitors in our space, we are not operating like a traditional broker-dealer.
Okay. Does this new registration for broker-dealer provide any revenue visibility? Can you identify any new revenue streams from that? How much do you estimate that would be?
We haven't specifically disclosed our forecast. However, as mentioned in our remarks, this certainly opens up opportunities for new revenue streams. For instance, Reg A allows issuers to raise up to $75 million in a 12-month period, compared to $5 million under the Reg CF exemption. This larger raise allows us, as a broker-dealer, to structure a fee arrangement that is likely based on a percentage of the total amount raised instead of a flat fee. We intend to pursue this approach.
Do you see any large deals like that coming up?
We haven't disclosed the specifics of the deals we are pursuing, but it's safe to say that we are actively engaging with issuers in the marketplace. We have successfully raised funds for nearly 300 companies on our platform. Many of those companies have gone on to secure additional rounds of capital and are potential candidates for Reg A. We are currently involved in ongoing discussions with companies interested in raising more capital than what is allowed under the Reg CF exemption.
Your next question is coming from John Gilliam from Point Clear Strategic Capital.
Yes, last quarter, you indicated that you expected the Templum ATS exchange to open up from the beta to a full launch in the quarter ended this month. And I want to just get an update there if it's still expected to launch in '24.
Well, what I can say and what we've said, I think, previously is the technical and product build-out is complete, as you mentioned, in partnership with the Templum ATS. But I think it's safe to say we're still working through some details of the regulatory framework governing secondary exchanges. And it's really important to us to make sure that we don't roll out or open up to everyone a capability that we're still wanting to get to be exactly right. So we're still working on that. And again, I think it's prudent for us to not do anything before we feel 100% comfortable that we have the best product experience and that we're operating within the regulatory framework in a way that we need to. So again, we haven't really talked or disclosed an official timeline for launching that secondary transfer functionality, but that's all I can say at this point.
On the previous call, you mentioned you thought it would be in the calendar year ending in 2024. Are you feeling like that's now pushed into the past, possibly the end of Q3 into Q4?
I think that's right.
How far out do you think we're looking?
Again, I don't think I can confidently predict that at this point.
That concludes our Q&A session. I'll now hand the conference back to CFO, Coreen Kraysler, for closing remarks. Please go ahead.
Thank you, everyone, for joining our call today. We really appreciate you as shareholders and potential shareholders. We are excited about the prospects ahead for our new broker-dealer subsidiary and wish you all a wonderful holiday season. 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.