Netcapital Inc. Reports 92% Revenue Decline and Faces Liquidity Concerns

Netcapital Inc. reported a significant decline in financial performance for the three and six months ended October 31, 2024, as detailed in its latest 10-Q filing. The company generated revenues of $170,528 for the third quarter, a decrease of approximately 92% from $2,041,658 in the same period last year. For the first half of the fiscal year, revenues fell to $312,755, down from $3,561,467 in the prior year. The sharp decline in revenue was primarily attributed to the absence of consulting service revenue, which had previously contributed significantly to the company's income.

In terms of operational metrics, Netcapital's funding portal revenues also saw a decline, totaling $170,372 in the latest quarter compared to $462,706 in the previous year. The number of new offerings launched on the portal decreased from 16 to 13 year-over-year. The company has shifted its focus towards establishing a broker-dealer subsidiary, which received approval from FINRA on November 22, 2024, in hopes of diversifying its revenue streams. This strategic move is expected to enhance the company's capabilities in supporting larger fundraises and expanding investment opportunities.

Netcapital's expenses reflected a mixed trend, with total costs and expenses rising to $2,353,178 in the latest quarter, up from $1,969,304 a year earlier. Notably, general and administrative expenses surged by approximately 130% to $1,492,182, largely due to professional and legal fees associated with the launch of the broker-dealer subsidiary. Conversely, payroll expenses decreased by about 29% as the company reduced its workforce in response to declining revenues.

As of October 31, 2024, Netcapital reported cash and cash equivalents of $1,346,739, an increase from $863,182 at the end of the previous fiscal year. However, the company also faced negative working capital of $2,615,585, raising concerns about its liquidity and ability to sustain operations. The management has indicated that while they are actively seeking additional financing through public offerings and private placements, there is substantial doubt about the company's ability to continue as a going concern without generating adequate cash flow from operations.

Looking ahead, Netcapital aims to stabilize its financial position by focusing on its funding portal business, which has shown quarter-to-quarter revenue growth. The company plans to operate with lower fixed overhead costs and is exploring various avenues for raising capital. However, management has cautioned that achieving these objectives may be challenging, and there are no guarantees that the company will be able to meet its working capital requirements or repay existing debts.