Netcapital (NCPL) risk factors, FY2025 10-K

Risks Related to Financial Position

1. 01Our financial situation creates doubt whether we will continue as a going concern
2. 02Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish certain rights
3. 03Our obligations to the U.S. Small Business Administration is secured by security interests in our assets, so if we default on those obligations, they could foreclose on some or all of our assets
4. 04We recently recognized impairments totaling $17.9 million to the value of several of our portfolio company investments, which may adversely affect our financial condition and the value of our securities

Risks Related to Our Business and Growth Strategy

1. 05We have a limited operating history and our profits were previously generated primarily by unrealized gains from equity securities we own in other companies. Although we were previously profitable, we have suffered losses the last few years and there is no guarantee that we will return to profitability
2. 06We have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenues
3. 07Our debt level could negatively impact our financial condition, results of operations and business prospects
4. 08We operate in a highly regulated industry
5. 09Our funding portal’s service offerings are relatively new in an industry that is still quickly evolving
6. 10We may be liable for misstatements made by issuers in offerings through our funding portal
7. 11We operate in a regulatory environment that is evolving and uncertain
8. 12We have an evolving business model
9. 13Our cash flow is reliant on one main type of service
10. 14We depend on key personnel and face challenges recruiting needed personnel
11. 15We are vulnerable to hackers and cyber-attacks
12. 16Our funding portal relies on one escrow agent to hold investment commitments for issuers
13. 17Netcapital Systems LLC relies on third-party software for the technology subject to the license agreement with Netcapital Funding Portal Inc. that may be difficult to replace, or which could cause errors or failures of our funding portal
14. 18We may not be able to protect all of our intellectual property
15. 19Our strategy to purchase a portion of early-stage companies may provide us with investments that have no liquidity
16. 20Our business depends on the reliability of the infrastructure that supports the Internet and the viability of the Internet
17. 21We are dependent on general economic conditions
18. 22We face significant market competition
19. 23Intense competition could prevent us from increasing our market share and growing our revenues
20. 24We may require additional financing in the future to fund our operations
21. 25We may make acquisitions or form joint ventures that are unsuccessful
22. 26Our future growth depends on our ability to develop and retain customers
23. 27We will need to attract, train and retain additional highly qualified senior executives and technical and managerial personnel in the future
24. 28Our revenues and operating results are subject to fluctuations
25. 29Natural disasters and other events beyond our control could materially adversely affect us
26. 30Acquisitions may have unanticipated consequences that could harm our business and our financial condition
27. 31If we do not effectively protect our customers’ credit and debit card data, or other personal information, we could be exposed to data loss, litigation, liability and reputational damage
28. 32We could be harmed by improper disclosure or loss of sensitive or confidential Company, employee, associate or customer data, including personal data
29. 33Failure to recognize, respond to and effectively manage the accelerated impact of social media could adversely impact our business

Risks Related to Receipt of Securities for Services

1. 34A significant portion of our total assets are held in equity securities of early-stage companies, which are illiquid and subject to volatility, and could have a material adverse effect on our financial condition and results of operations
2. 35Our consulting and advisory services have primarily been paid for in restricted shares of stock of our customers, which are often private companies with no established trading market for their securities

Risks Related to Operation of our Proposed Secondary Trading Platform

1. 36Our customers may encounter difficulties with investing through our proposed secondary trading platform
2. 37We may become involved in disputes or litigation matters between customers with respect to failed transactions on our proposed secondary trading platform (such as in the event of delayed delivery or a failure to deliver securities)

Risks Related to our Broker-Dealer Activities

1. 38Regulatory and legal uncertainties could harm our business
2. 39Netcapital Securities Inc. may be fined or subject to other disciplinary or corrective actions if it does not maintain the capital and liquidity levels required by regulators
3. 40Our ability to have our securities traded on the Nasdaq Capital Market is subject to us meeting applicable listing criteria
4. 41There can be no assurance that we will be able to comply with Nasdaq’s continued listing standards, a failure of which could result in a delisting of our common stock and warrants
5. 42We do not expect to pay dividends and investors should not buy our common stock expecting to receive dividends
6. 43We may conduct future offerings of our common stock and pay debt obligations with our common stock which may diminish our investors’ pro rata ownership and depress our stock price
7. 44The market price of our common stock is highly volatile and could be subject to volatility related or unrelated to our operations
8. 45FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our securities
9. 46If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our securities adversely, the price of our common stock or warrants and trading volume could decline
10. 47Our issuance of common stock upon the exercise of options granted under our 2021 Equity Incentive Plan and our 2023 Omnibus Equity Incentive Plan may dilute all other stockholders
11. 48Our compliance with complicated U.S. regulations concerning corporate governance and public disclosure is expensive and diverts management’s attention from our core business, which could adversely affect our business, results of operations, and financial condition
12. 49Failure to maintain effective internal control over our financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could cause our financial reports to be inaccurate
13. 50Our articles of incorporation and bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Utah law
14. 51Limitations on liability and indemnification matters