Netcapital Q1 2025 Earnings Call Transcript

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September 17, 2024

There are 7 speakers on the call.

Operator

Good day, everyone, and welcome to the Nett Capital Inc. Quarterly Earnings Call. At this time, all participants have been placed on a listen only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Corinne Kreisler. Ma'am, the floor is yours.

Speaker 1

Thank you, Matt. Good morning, everyone, and thank you for joining NET Capital's Q1 fiscal 2025 financial results conference call. This is Corinne Kreisler, CFO of NET Capital Inc. I will begin with a review of our financial results. Following that, our Chief Executive Officer, Martin Kaye, will deliver his prepared remarks before we open up the Q and A portion of our call.

Speaker 1

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. Net Capital 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.

Speaker 1

With that said, I'd like to now turn to our financial results for the Q1 of fiscal 2025. Revenues for the Q1 of fiscal 2025 for the period ending July 31, 2024, decreased by almost $1,400,000 or approximately 91 percent to $142,227 compared to approximately $1,500,000 in the Q1 of 2024. The decline in revenues 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 $1,100,000 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.

Speaker 1

Total funding portal revenues declined by $233,800 or approximately 62 percent to 2 100 and $6 during the Q1 of fiscal 2025. Total funding portal revenues consist 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 80,400 and $29 from $221,856 in the 3 months ended July 31, 2023. Revenues from portal fees consist of a 4 0.9% fee of the total capital raised by an issuer, plus fixed miscellaneous partners for administrative fees, such as the rolling code or the filing of an amended offering statement. The decline in portal fees is a result of the decrease in the amount of capital raised on our funding portal during the period.

Speaker 1

Total funds raised in the offerings decreased by almost $1,800,000 or approximately 60% in the 3 month period ending July 31, 2024, to approximately $1,200,000 as compared to approximately $2,960,000 in the same period of 2023. Revenue from listing fees decreased by $111,700 or approximately $52,500 in the 3 months ended July 30 1, 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 experienced sales persons who

Operator

And Karine, I do apologize. This is the operator. Your line is breaking up. I'm going to attempt to dial out to your line, so I can get a clear connection.

Speaker 1

Okay. Thank you. We had an operating loss of approximately $2,500,000 for the Q1 of fiscal 2025 as compared to an operating loss of $749,020 for the Q1 of fiscal 2024. Our net loss for the Q1 fiscal 2025 was 2,520,770 as compared to $491,655 for the same period prior. We reported a loss per share of $5.10 for the Q1 ended July 31, 2024, compared to a loss per share of $4.61 for the same period in the prior year.

Speaker 1

I'll now turn the call over to our CEO, Martin Kaye.

Speaker 2

Thank you, Corine. I'd like to thank everyone for showing their interest in being on this call today. We did see some challenges during the quarter, especially in regard to our operational and financial metrics. The climate for fundraising does slow down during the summertime and there is of course some cyclicality and some unpredictability in our business. With that said, we've taken some important steps this quarter.

Speaker 2

First, the beta version launch of our secondary trading platform through the Templim ATS, which may offer investors another way to trade through the Net Capital Funding portal. Templim ATS is now for broker dealer registration with FINRA, which Corinne mentioned. We intend to use this to offer Reg A plus and Reg D deals and form broker dealer partnerships. This may help grow our revenues through hosting and fees and enhance our distribution capabilities, which may expand our current ecosystem and our addressable market. During the quarter, we also put in place an ATM agreement and regained compliance with NASDAQ's Listing Rule 5,550A2 known as the bid price rule, which will allow us to continue trading on NASDAQ.

Speaker 2

It's important for us to maintain our NASDAQ listing to further support shareholder value and confidence. So despite the challenges we face, we very much remain committed to our vision of empowering entrepreneurs and investors by providing a streamlined platform for capital raising and investing in early stage and growth stage companies. Our portal facilitates access to capital through equity crowdfunding and other investment opportunities, democratizing the investment process and fostering innovation and growth. By focusing on transparency, efficiency and user engagement, Net Capital seeks to create a more inclusive financial ecosystem that benefits both issuers and investors. Again, and as always, thank you for your interest and support of Net Capital.

Speaker 2

Operator, we are ready for questions.

Operator

Certainly. Everyone at this time will be conducting a question and answer session. Your first question is coming from John Gillian from Point Clear.

Speaker 3

Could you give us an idea of the launch date of the secondary trading portal, where it will be fully available to retail investors?

Speaker 2

I'm sorry, I didn't quite catch the question there. My phone bleeped. You were asking about the secondary?

Speaker 3

Asking about the launch date of the trading platform, the secondary trading platform, yes. When will it be available for retail investors?

Speaker 2

Got it, great. Thanks. 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.

Speaker 2

So we have we're holding off for now on launching that more broadly.

Speaker 3

At the Wainwright Conference, you mentioned it would launch soon. I guess what I'm looking for is ballpark idea. Are we talking Q4? Are we talking 20 25, calendar year 2025? Just a ballpark idea.

Speaker 2

I can't give you anything too specific, but we're moving as quickly as we can with both the regulators and our customers, our issuers and investors to make sure that we get that we launch that to have its maximum effect in the

Speaker 3

place. That's not very good answer. Really looking for, I mean, is it going to be in the next year? Is it going to be 2 years?

Speaker 2

It's certainly not going to be

Speaker 3

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?

Speaker 2

It's a very fair question. And again, we have had as we've announced, we've had the end to end platform in partnership with the ATS Templum. We've had that technology and that platform built out for some months now. We've been doing some testing with a closed group of beta users. I think our I would like to be able to we'd hope to be able to launch before the end of this calendar year, but again, there are factors as we've stated in all of the filings we've made on this topic, there are factors that are somewhat beyond our control with respect to regulations.

Speaker 2

And so I can't really be much more specific than that unfortunately.

Speaker 3

All right. With regard to the companies that are listed on our balance sheet as 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?

Speaker 2

That is the intention, yes. That's what we have stated in our filings.

Operator

Thank you. Your next question is coming from Patrick Rooney from Crosby Capital. Your line is live.

Speaker 4

Hi, Martin.

Speaker 5

On your ATM,

Speaker 4

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?

Speaker 2

And I think you meant the ATM, right, Pat, you were asking about that? Yes.

Speaker 4

The ATM, in other words, if it gets partially done, you do not $2,100,000 but you do $300,000 will you make a press release or no?

Speaker 1

We do not announce usage of the ATM. You will see it in our quarterly filings.

Speaker 4

You will not make an announcement if you're successfully

Speaker 1

We don't put out we're not required to put out a press release or an 8 ks when we use the ATM, but we do disclose the ATM usage in our quarterly filings.

Speaker 4

Okay. And the burn rate, I assume that well, go ahead.

Speaker 1

We've said in the past that our burn rate is $300,000 plus a month.

Speaker 4

Okay. All right. I appreciate it. Thanks.

Operator

Thank you. Your next question is coming from Robert Topping from Topping Capital. Your line is live.

Speaker 6

Hey, everybody. 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 ACS system, do you see that curtailing?

Speaker 6

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?

Speaker 2

I'll start it off and Karim can jump in for sure. With respect to the secondary and the burn, yes, there is some relationship. I would say, one of the things that we're doing is we're spending a lot of time and resources and energy of our own and with third parties educating regulators on what we're doing, why we're doing it, why we're allowed to do it, why it's part of the regulatory framework that we operate within. So, yes, I think Rob, and thanks for the questions. I think there's a relationship there, but maybe not the one you suspected around building out the platform.

Speaker 2

A lot of the all of the technology is I mean, as you guys know, it's never done. A product is never done. There's always improvements. There's always enhancements. But we have a launch ready beta.

Speaker 2

That's why we announced it to a closed group. So there's always work to be done to enhance the product as we go forward and there always will be. But a lot of what we're spending time and money on right now is making sure that from a regulatory perspective, the various regulators we deal with understand what we're doing, why we're doing it. Does that answer part of your question? I'm sorry.

Speaker 6

Yes, it does. I was on mute. Sorry about that. And I'll circle back with my other questions here.

Speaker 2

And with respect to the burn, just I think you had a question about that Rob as well. Again, as we've talked about in May, we announced our broker dealer application process that's in attempt to move upscale into bigger transactions. And so obviously, our burn is a function of revenue minus cost. And so we expect and hope that that will allow us to generate incremental revenue streams beyond where we are today.

Speaker 6

But it seems like from what Kareem had said, I think is I mean, dollars 1,000,000 a quarter burn is kind of a fair 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 a month. So, if I was just mindset of $1,000,000 a quarter, that would be maybe a good number on the operating burn?

Speaker 2

I think that's right. I think the I'm not going to say wildcards, but the things that can change that for us on the revenue side are it is a little unpredictable. We have whales that come through our model and raise big amounts of capital in certain quarters. So that can make a difference. And then, yes, we have responses to regulatory inquiries as everyone does in both financial services in general and in our industry specifically that tap resources.

Speaker 2

But your general rule of thumb, yes, that's what we've said in the past and that's still

Speaker 5

true.

Operator

Your next question is coming from John Wheeler from Resurgent Realty. Your line is live.

Speaker 5

Good morning, ladies and gentlemen. Martin, this question is for you, sir. How are you doing this morning?

Speaker 2

Good, John. Good to talk to

Speaker 5

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. Can you hear me? Hello?

Speaker 1

I'll answer that. John, are you there?

Speaker 5

Yes. I think you all we've had a bad connection all morning. So can you hear me now?

Speaker 1

I can hear you. So my answer to your question would be thus, 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?

Speaker 5

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 cost 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, dollars 2,000,000 extreme dilution, and now you've put up a 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 2.

Speaker 2

Again, hey, John, sorry, I lost you for a little bit there on your last question, but I heard that one. Look, for us, we as I said in the past, we are 100% committed to our vision in this business. We believe in the business and we believe in the value that we can create and can be created in the business. So we're in this for the long term. We succeed when our issuers succeed.

Speaker 2

Every quarter there are more examples of our issuers coming out of the I like to say the back end of our process and having success in progressing to the next level. We had a company, Avidane, that raised I think $4,500,000 on our platform in the fall and just announced a couple of weeks ago they're in the graphene business that supplies electric vehicle companies and they just added Henry Ford III to their board who is as the Chairman of their board and he is obviously on the board of the Ford Motor Company. So that along with the others that we always talk about and the others that are getting added is examples from our perspective of growing market awareness, more success stories, this becoming more of a mainstream market and something again where we really believe in the long term value here. And we appreciate the investors, the shareholders who have stuck with us along this process. To your question of when does it change, yes, there's a gradual there's a momentum, a swelling momentum that I just talked about in the industry and in the marketplace.

Speaker 2

There are also obviously we have a portfolio of minority positions. We've also started as of FY 'twenty four taking 1% of equity issued from every issuer on our platform. So I believe I'm right in saying I think we have 37 of those small equity positions alongside the 22 portfolio, what we call portfolio companies. So there are obviously there's optionality in all of that portfolio, especially as we broaden it now to include everyone who comes through our platform. So any one of those minority positions becoming liquid or getting to the next level is obviously a way that sort of proves out our model to those that don't believe it and generates liquidity for us.

Speaker 2

In the same way, in the core business, we're talking to some marquee, what I call marquee issuers. So folks who would be newsworthy and noteworthy as participants on our platform. So there are sort of there are quantum steps that we can take as we progress down this path. And obviously, I can't necessarily predict any of those. But what I can say is that the groundswell of activity in our space is maturing.

Speaker 2

And as it matures, these are early stage private companies. It takes a while. But they do get there and some subset of them will be successful and that's what will drive the value that we're creating.

Operator

Thank you. That concludes our Q and A session. I will now hand the conference back to our host for closing remarks. Please go ahead.

Speaker 1

Thank you for joining everyone. We really appreciate your support and we look forward to speaking with you again soon. Thank you.

Speaker 2

Thank you all.

Operator

Everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

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Earnings Conference Call
Netcapital Q1 2025
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