Netcapital Inc. ($NCPL)

Good day, and welcome to the Netcapital Inc. shareholder update call. At this time, all participants have been placed on a listen-only mode. It's now my pleasure to turn the floor over to your host, Todd Violette. Todd, the floor is yours.

Good afternoon, everyone, and thank you for joining us today. My name is Todd Violette. I'm the Chief Executive Officer of Netcapital Inc., and I appreciate you taking your time to be with us today. Before I begin, I need to remind everyone that some of the statements that I make today may be forward-looking statements within the meanings of the federal securities law. These statements are based upon current expectations, assumptions and beliefs, and they involve risks and uncertainty that may cause results to differ materially from what we discuss today. I encourage everyone to review the SEC filings, including our most recent annual report, quarterly report, current reports and fuller discussion of those risks and uncertainties. Today's call is being conducted in a lecture format. I'm going to walk you through where the company is, what we've done, why we've done it, and where we believe we're going. We're not conducting a live Q&A on this call. If shareholders, investors or other interested parties would like to submit questions or comments, they may do so at e-mail at [email protected]. We will review those questions carefully. And where appropriate, we will address matters through public disclosure, SEC filings and after, review with counsel and other appropriate internal teams. With that, let me begin. The company reset when I stepped in into the CEO role. I believe very strongly that this company was undervalued by the market and frankly, undermonetized internally. Netcapital has a real platform, a real regulatory footprint, a real operating history and a real strategic asset, but the company was not being positioned in a way to fully reflect those strengths. We are a NASDAQ-listed company with an established role in online capital formation. We have a regulatory infrastructure, operating systems, issuer relationships, investor-related data developed over a long period of time. Those are meaningful assets in my judgment. The market price of the company did not reflect the value of those assets nor does the company's prior pricing strategy reflect the real value of what we're capable of delivering. So from the beginning, my view has been that the company needs a reset, not a cosmetic reset, a real operational strategic revenue model reset. And this is what we've been working on and is what we're going to see now. The strategic shift. Earlier this month, we announced a strategic shift in the business. That shift is important because it now defines how we think about Netcapital going forward. Historically, the company has largely been viewed through the lens of a transactional-based crowd funding platform. That's too narrow. Our objective now is to build Netcapital into an AI-enabled capital markets infrastructure that can serve issuers across multiple levels of needs from highly automated entry-level onboarding all the way up to premium white glove service. In other words, we're not just trying to be a portal. We're building an operating system around the capital formation, issuer engagement, workflow management, compliance support and scalable service delivery. We believe that the future belongs to the business that combines automation with judgment, software with service and technology with human execution. And that's the lane we're moving into. NetNudge deal. Today, the 8-K announced an important step in our strategy. We have acquired substantially all the assets related to NetNudge AI agent platform from Codesharp Corporation. Let me explain what this means in practical terms. NetNudge is an AI agent platform designed to help business automate, manage operations, customer engagement, workflow process, analytics and decision support. The assets acquired include intellectual property, source code, object code repositories, documents, prompts, libraries, automation logic, APIs, training materials, data sets, marketing material and related business development assets. We acquired an infrastructure layer that we believe can help power the next phase of Netcapital. Why now? So why did we do this deal now? The answer is simple, timing and value. When the deal was structured, our stock was trading at $0.36, but we also created an opportunity. If you believe, as I do, that AI-driven automation economics of this business, then acquiring a platform like NetNudge at this point in time made a strategic sense. The broader market is also moving rapidly towards AI agents and enterprise automation. Industry coverage this year has consistently highlighted agentic AI as one of the fastest-growing segments in enterprise software and workflow automation. We are not trying to chase the hype. We are trying to put useful infrastructure in place before the market fully recognizes its value. Deal structure. I also want to spend a moment on the structure of this transaction because I know shareholders pay close attention to dilution and they should. We structured this transaction to be shareholder-friendly and protective. The initial consideration was 600,000 shares of Series A convertible preferred with a stated value of $1.50 for the initial stated value of $900,000. There is an additional contingent component of 600,000 more preferred share, but those only become issuable if specific performance milestones are met. Cumulative GAAP revenue of the acquired business unit must equal or exceed $3 million over the period from June 1, 2026, through May 31, 2029, as reflected in our audited consolidated financial statements and confirmed in writing by our independent auditor. That's extremely important. The additional issuance is not automatic. It's performance-based. The preferred stock is also convertible into common stock only at the company's election on a one-for-one basis, subject to customary adjustments. The holders do not have the right to require conversion. That means the company controls conversion. That's a meaningful shareholder protection. The initial preferred carries voting rights while outstanding as preferred stock. But I want to be clear, this is not an indiscriminate common stock issuance. It was a carefully structured preferred equity transaction with company-controlled conversions and performance gated earn-outs. In my view, that's exactly the right way to do this type of acquisition. Price overhauling. Let me now turn to one of the most important operational changes we are making in pricing. Historically, our pricing model has not reflected the value of our services. We have effectively offered a lower price entry point that, in my opinion, left too much money on the table and did not properly segment clients based upon the service needs. Beginning June 15th, we are changing that. We are moving to 4 pricing levels. Our entry level will be $7,500 with a 7% commission. Above that, we will then have a $25,000 product, a $50,000 product and a $100,000 product, each with a 4.99 commission structure. This is not just a price increase. This is a business model redesign. The entry-level product is designed to become increasingly automated over time. Our goal is for the company to enter into this level and move through a highly automated process supported by AI systems and agent that improves scalability, consistency and margin. The higher-priced products we will deploy require human capital. One of the real strengths of our company is our people. We believe that we offer one of the best white glove service experiences in the regulated crowdfunding portal business by assigning trained personnel direct phone access, higher touch execution to the $25,000, $50,000 and $100,000 offerings. So the logic is straightforward: AI handles the volume layer, people handle the premium layer. Competitive pricing. This price shift also is sensible in the context of the market. Third-party comparisons continue to show that major equity crowd funding platforms generally operate with a fee structure in the higher single digits and in many cases, with additional issuer or investor charges layered in. So for us, moving from 5,000 to 4.99 model towards a more segmented value-based structure is not an outlier move. It's a move towards rational pricing. That's exactly what we're doing. Human plus AI model. I want to emphasize this point because I think it's central to the future of the company. We are not pursuing an AI replace people model. We are pursuing an AI improved economics and people improved outcome model. That distinction matters. For smaller issuers and more standardized workflow, automation is the right answer. It's a lower cost, speed response time and improves consistency. For larger issuers, more complex raises and clients who want a trusted team that they can reach directly, human service remains a competitive advantage. Our vision is to combine the two. NetNudge gives us an infrastructure to automate and scale the lower end of the market. Our people give us the ability to differentiate at the higher end of the market. Together, that lets us service more issuers at better economics with stronger service segments. Building our own AI from with inside out. I want to talk a moment about something that we've been doing internally over the past month that I believe is genuinely important, and that's the most -- most companies in our space are not doing. One of our first decisions I made when I came on to the role was to give our entire staff access to the Google AI environment. Every person on our team, not just the technology people, not just management, everyone. I gave them specific assignments. I asked them to take real projects they work on every day, the actual workflow, the actual client scenarios, the actual problems that they solve and begin building from them, creating videos, writing transcripts, building PowerPoints and script, designing real-world training scenarios based upon actual work the company does. The capital formation compliance workflow, the issuer onboarding process, investor communication sequence, the kind of things our team has been executing in real world for years. Now why does that matter? Let me explain. Most AI systems are trained on data scrape from the public Internet. That data is generic. It's widely available, anyone can build on top of it. There's no competitive advantage in trading a system on the same public information your competitors have access to. We are building is different. We are generating proprietary training data. We're building the actual operating experience of the company and its people, real capital market workflows, real compliance scenarios, real issuers and investor engagement patterns, content that doesn't exist anywhere because it became from us. When that content is used to train and refine our AI systems, including the NetNudge platform we acquired, the result is an AI that understands the specific business and specific regulatory environment and a specific client base at the levels that generically trained systems simply cannot match. That is the foundation of our defensible competitive advantage. Here is the other thing I want to share with the shareholders. This initiative has cost us very little. We have used tools our team already has access to. We use knowledge that already exists inside the company, and we created an asset of growing library of proprietary content and structured data that will become more valuable over time as we continue to build on it and integrate it into our AI infrastructure. This is not a project. This is a practice and we are building it on how this company is going to operate in the future. I'm sure people -- because people have questions, we want to make sure that if you have questions that you can -- because we want to make sure that communication is accurate and consistent and legally compliant, we're going to engage -- we are not going to engage in informal written commentary on the website, message board or ad hoc written Q&A questions. Instead, we are asking that questions and comments be submitted to [email protected], and we will review those questions carefully. To the extent there are matters that we can and should address publicly, we will do so through the SEC filings and formal public disclosure channels after we review them with our attorneys and internal compliance. This system we are using is intended to provide fairness for company shareholders and to help ensure that we speak and we do accurately on an equal basis to the market. That brings me to what is actually the big picture of where we're at -- so that when you ask the questions. When I look ahead, I see a company that has a chance to become much more than what the market has recently assumed. We have a public company platform. We have a regulatory infrastructure, we have a brand, we have people, we have data set. And now we are adding AI capabilities that we believe can materially improve our scalability and our economics. The opportunity in front of us is not simple process transactions, it is to build a smarter, more segmented, better priced, higher service capital formation platform. We believe that there's room in the market for the company that combine automation, compliance, service, strategic guidance in one offering. We believe that the entry tier can become scalable and efficient through AI. We believe that the premium tiers can become more valuable and more defensible through people. And we believe that over time, the combination can produce a much stronger company than the one that the market saw before this transaction. I also want to say this clearly. What you are seeing today is not a full picture. I want to speak to something that I think is about Netcapital actually from a technology and a regulatory standpoint. We are working to make our portable scalable. That's just not a buzzword. It's a structural reality. We have built, we have operated a regulated crowd funding infrastructure that has processed real capital raise, onboarded real issuers and serviced real investors. That infrastructure, the technology, the compliance system, the regulatory framework, the investor base is not limited to one type of product. We are actively exploring to expand the range of products and services that can be offered through the portal. Regulation crowd funding is where we started. It's not necessarily the ceiling of what we believe this platform can support. As issuers grow, their capital needs grow. As investors engage with early-stage companies, their appetite for related products and services grow. A scalable portal, one that's with regulatory underpinning we have is positioned to serve a full spectrum over time. We will communicate specifically through our public disclosures as those opportunities develop. But I want shareholders to understand the platform we have built is broader in its potential than what we have seen it used for to date. We have additional items in development. We have transactions we're working on. Not in a position to speak to the specifics of those at this time, but those will be disclosed through the appropriate SEC filings and public announcements as they're ready. We look ahead and we continue to evaluate opportunities that are consistent with our strategic direction. We will communicate the developments through our SEC filings and public disclosures, as appropriate. In closing, we have moved quickly to reset Netcapital's strategic pricing model, its operational direction. We are early in the execution, but we believe the steps that we are taking are designed to create a more scalable, better segmented and higher-value capital formation platform. Thank you for your continued interest and support. Questions can be submitted to [email protected]. And where appropriate, we will address them through formal public disclosures following legal review. There's more work ahead. We are still in the early stages of execution, but I believe strongly that the direction is right. Thank you for joining us today, and thank you very much for your time.

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