Netcapital Inc.

ITEM 1A. RISK FACTORS.

Risk factors that affect our business and financial results are discussed in Part I, Item 1A Risk Factors, in our Annual Report on Form 10-K for the year ended April 30, 2025 as filed with the SEC on August 12, 2025 (Annual Report). There have been no material changes in our risk factors from those previously disclosed in our Annual Report, except as discussed below. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.

Our financial situation creates doubt wheWe are involved in an ongoing SEC investigation, which could divert managements focus, result in substantial investigation expenses and have an adverse impact on our reputation, financial condition, results of operations and cash flows

On March 4, 2026, the Company and certain of its current and former officers and other parties associated with it, including the Companys former Chief Executive Officer and director and current consultant, Coreen Kraysler, Chief Financial Officer of the Company, John Fanning Sr., husband of Coreen Kraysler and advisor to the Company, Cecilia Lenk, director of the Company and Chief Executive Officer of the Companys Netcapital Advisors Inc. subsidiary and Paul Riss, a director of the Companys Netcapital Funding Portal, Inc. subsidiary, received Wells Notices from the staff of the SEC (the SEC Staff) stating that the SEC Staff made a preliminary determination to recommend that the SEC file an enforcement action against the Company and the individuals alleging, in the case of the Company violations of Section 17(a) of the Securities Act of 1933 (the Securities Act) and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(3)(B) of the Securities Exchange Act of 1934 (the Exchange Act) and Rules 10b-5, 12b-20, 12a-1, 13a-11, and 13a-13 thereunder, and in the case of the individuals violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, and 13b2-1 thereunder, as well as aiding and abetting the Company in ther we will continue as a goir violations. The Wells Notices informed the Company and the individuals that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company and each of the individuals that would allege certain violations of the federal securities laws. A Wells Notice is neither a formal allegation nor a finding of wrongdoing. Instead, it is a preliminary determination by the SEC Staff to recommend that the SEC file a civil enforcement action or administrative proceeding against the recipient. Under the SECs procedures, a recipient of a Wells Notice has an opportunity to respond in the form of a Wells submission that seeks to persuade the SEC that such an action should not be brought. According concern.

ly, the Company intends to make a submission to the SEC Staff in response to the Wells Notice setting forth why the factual record does not support the enforcement action recommended by the SEC Staff all of our transactions and filings were entered into and made in good faith. Although the Company intends to defend itself vigorously should the SEC authorize any legal action that does not comport with our view of the facts, we cannot predict the outcome of any legal action or whether the matters will result in any settlement. The ultimate outcome of the SEC investigation, any legal action by the SEC or any settlement could have a material adverse effect on our financial condition, results of operations and/or cash flows.

The Company cannot predict the results of the investigation and the Wells Notice process and any corresponding enforcement action against the Company and/or any of the identified individuals, and the costs, timing and other potential consequences of responding and complying therewith with any certainty. If the final determination is detrimental to the Company, we may lose business cooperation with our actual and/or potential customers and vendors, and it may be more difficult for the Company to obtain additional financing on favorable terms, if at all. Further, it may become more difficult for the Company to attract and retain key members of management, our board of directors and other key employees. The investigation, including any potential SEC enforcement action, continues to be expensive and disruptive, and the Company is obligated to indemnify each of the individuals for their costs associated with the investigation, the Wells Notices, and any resulting litigation with the SEC or related litigation brought by other parties, which may cause financial distress to the Company. Our insurance, to the extent maintained, may not cover all claims that may be asserted against the Company or the specified individuals, and the Company is unable to predict how long the investigation and any potential SEC enforcement action will continue. In addition, because the Company depends on Messrs. Fanning and Riss and Mss. Kraysler and Lenk, the loss of their services may adversely impact the achievement of the Companys objectives. At October n unfavorable outcome may have an adverse impact on the Companys business, financial condition, results of operations, prospects, reputation and/or the Companys stock price. In addition, Nasdaq has broad discretion and may determine to delist our securities from the Nasdaq Capital Market or other applicable trading market within the U.S. Any proceeding could also negatively impact our reputation among our stakeholders.

Our financial situation creates doubt whether we will continue as a going concern.

At January 31, 20256, we had negative working capital of $1,500,152,922,843 and for the sixnine months ended OctoberJanuary 31, 20256, we had an operating loss of $5,405,1057,579,440 and net cash used in operating activities amounted to $6,792,5617,661,306. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements. Our management has turned our focus to our funding portal business, and we plan to use our funding portal experience to build a broker-dealer business, initially for Regulation A and Regulation D offerings. We plan to continue to seek to raise money from private placements, public offerings and/or bank financing. Our management has determined, based on its recent history and the negative cash flow from operations, that it is unlikely that its plan will sufficiently alleviate or mitigate, to a sufficient level, the relevant conditions or events noted above. To the extent that funds generated from any private placements, public offerings and/or bank financing, if available, are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms. Accordingly, our management has concluded that these conditions raise substantial doubt about our ability to continue as a going concern. There can be no assurance that we will be able to achieve our business plan objectives or be able to achieve or maintain cash-flow-positive operating results. If we are unable to generate adequate funds from operations or raise sufficient additional funds, we may not be able to repay our existing debt, continue to operate our business network, respond to competitive pressures or fund our operations. As a result, we may be required to significantly reduce, reorganize, discontinue or shut down our operations.

Our business and operations We recently recognized impairments totaling $19.9 million to the value of several of our portfolio company investments. If we are required to impair the value of additional portfolio companies in the future, it could have a material adverse effect on our financial condition and result of operations.

On April 30, 2025, we conducted its quarterly evaluation of equity investments under Accounting Standards Codification (ASC) Topic 321, Investments Equity Securities. Based on this review, we identified multiple investments that were impaired and recognized a total impairment expense of approximately $17.9 million and we recorded a total impairment expense of approximately $19.9 million in the year ended April 30, 2025. These impairments were based on qualitative indicators including the resignation of key personnel, cessation of operations, regulatory setbacks, failure to file required annual reports, or technological obsolescence, depending on the specific issuer. If we are required to impair the value of additional portfolio companies in the future, it could be negatively affected if have a material adverse effect on our financial condition and result of operations.

Fluctuations in the Fair Value of Our Portfolio Company Investments Could Cause Significant Volatility in Our Financial Results and May Not Be Indicative of Operating Performance.

We hold minority equity interests in companies that were received as consideration for services, including equity securities received by our funding portal as a 1% equity fee from issuers that raise capital on our platform. These equity interests are generally illiquid, represent minority positions in early-stage companies, and are not traded on active public markets. Under U.S. GAAP, we measure these securities at fair value based on observable transaction prices when available, with changes in fair value recognized in earnings.

As of January 31, 2026, we owned equity interests in a total of 91 companies. Of these investments, 12 equity securities were determined to be impaired and carried at a fair value of $0. The remaining equity securities had an aggregate fair value of $5,810,496, including $282,185 attributable to issuers that paid a 1% equity fee to the funding portal.

The fair value of these investments may fluctuate materially from period to period due to changes in observable prices, issuer-specific developments, market conditions, and the limited nature of observable transactions for many of these securities. Because many of these investments lack active markets, the prices used to determine fair value may not reflect the amounts we become subcould realize in an actual sale, if any, and declines in fair value could require us to recognize additional losses that materially and adversely affect our results of operations.

We recently stopped taking equity from portfolio clients, and if we are unable to replace the revenue generated by taking equity in select portfolio clients, it could have a material adverse effect on our financial position and results of operations

We recently stopped taking equity positions in select portfolio clients. We generated $3,440,000 in revenue from consulting services for equity securities in the fiscal year ended April 30, 2024 as compared to $0 in the fiscal year ended April 30, 2025. We have focused on online revenue products in fiscal 2025 and will continue to do so in fiscal 2026. However, if we are unable to replace the revenue we received from taking equity in select portfolio clients, it could have a material adverse effect on our financial position and results of operations.

We have experienced net losses in every fiscal period since July 31, 2023. We cannot assure you that we can or will be able to operate profitably.

We have incurred net losses in every fiscal period since July 31, 2023. During the nine months ended January 31, 2026 and the years ended April 30, 2025 and 2024, we incurred net losses of approximately $7.6 million, $28.3 million and $4.98 million, respectively, on a consolidated basis. There can be no assurance that we will not continue to incur net losses in the future. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress our value and could impair our ability to raise capital, expand our business, or even continue our operations.

Our business and operations could be negatively affected if we become subject to any securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of business and growth strategy and impact our stock price.

In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been brought against that company. Shareholder activism, which could take many forms or arise in a variety of situations, has been increasing recently. Volatility in the stock price of our Common Stock or other reasons may in the future cause us to become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert managements attention and the attention and resources of our board of directors (our Board) from our business. Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and activist shareholder matters. Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism.

Regulatory and legal uncertainties could harm our business.

From time to time, we may become involved in litigation or regulatory proceedings in the ordinary course of our business, including litigation or regulatory proceedings that could be material to our business.

In addition, the securities industry is highly regulated and many aspects of our business involve substantial risk of liability. In past years, there has been an increasing incidence of litigation involving the securities industry, including class action suits that generally seek substantial damages, including in some cases punitive damages. Compliance problems that are reported to federal, state and provincial regulators, exchanges or other self-regulatory organizations by dissatisfied customers are investigated by such regulatory bodies, and, if pursued by such regulatory bodyies or such customers, may rise to the level of arbitration or disciplinary action. We are also subject to periodic regulatory audits and inspections for various federal, self-regulatory and state regulators. Any such audits and inspections could require significant amounts of management time, result in the diversion of significant operational resources, require us to change our business practices or products, result in sanctions being levied against us, including fines and censures, suspension or expulsion from a certain jurisdiction or market or the revocation or limitation of licenses, result in negative publicity, or otherwise harm our business and financial results.

Pending Regulatory Inquiries

Our businesses are heavily regulated by state and federal regulatory agencies as well as the Securities Exchange Commission, the Nasdaq Stock Market and FINRA. In the current era of heightened regulatory scrutiny of financial institutions, we have incurred increased legal and compliance costs, along with the industry as a whole. Increased regulation also creates increased barriers to entry.

We receive many regulatory inquiries each year in addition to being subject to frequent regulatory examinations. The great majority of these inquiries do not lead to fines or any further action against us. We are routinely the subject of regulatory inquiries regarding subjects including, but not limited to: anti-money laundering, compliance, registration, record-keeping, disclosure and other topics of recent regulatory interest. We have procedures for evaluating whether potential regulatory fines are probable, estimable and material and for updating its contingency reserves and disclosures accordingly. In the current climate, we expect that we may, from time to time, be subject to regulatory fines on various topics on an ongoing basis, as other regulated financial services businesses do. The amount of any fines, and or operating restrictions on any or all of our licensed operations, and when and if they will be incurred, typically is impossible to predict given the nature of the regulatory process, and the cost of responding to such inquiries and matters can be significant.

An adverse proceeding or settlement as a result of regulatory inquiries could result in our with the SEC Uniform Net Capital Rule, which specifies minimum capital requirements intended to ensure general financial soundness and adequate liquidity Our failure to maintain the required net capital levels and protect customer assets could potentially result in immediate suspension of securities activities, suspension or expulsion by the SEC or FINRA, restrictions on our ability to expand our existing business or to commence new businesses, and could ultimately lead to the liquidation of our broker-dealer entity and winding down of our broker-dealer business. In addition, adverse proceedings or settlement as a result of regulatory inquiries could result in the loss of our registration as a funding portal at which point we would not be able to help issuers raise capital online which could have a material adverse effect on our business.

We have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenues.

We currently derive a significant portion of our revenues from a limited number of customers. There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers. For the three months ended July 31, 2025, we had one customer that constituted 73% of our revenues. For the three months ended OctoberJanuary 31, 2025, the 6, we had one customer that constituted 23% of revenues, a second customer that constituted 13% of revenues and a third customer that accounted for 10% of revenues. For the sixnine months ended OctoberJanuary 31, 20256, we had one customer that constituted 58% of revenues. For the three and sixnine months ended OctoberJanuary 31, 20245, we had one customer that constituted 44% and 24% of revenues, respectively.

It is not possible for us to predict the future level of demand for our services that will be generated by these customers or new customers, or the future demand for the products and services of these customers or new customers. If any of these customers experience declining or delayed sales due to market, economic or competitive conditions, we could be pressured to reduce the prices we charge for our products which could have an adverse effect on our margins and financial position and could negatively affect our revenues and results of operations and/or trading price of our common stock.

A significant portion of our total assets are held in equity securities of early-stage companies, which securities are illiquid and subject to volatility, which factors cocould have a material adverse effect on our financial condition and results of operations.

Payment related to the consulting and advisory services provided by Netcapital Advisors was often made through equity stakes from such customers. As of OctoberJanuary 31, 20256 and April 30, 2025, approximately $5,856,70010,495 and $5,748,050, respectively, of our holdings are issued by companies whose securities do not trade on public markets. The securities issued are typically in private companies with no established trading market for their securities, that often have limited operating histories, limited operating cash, and negative cash flows. Additionally, these securities are primarily restricted and are subject to legal holding periods pursuant to Rule 144 or other applicable exemptions. The stock price of such issuers is often volatile, unpredictable, and with limited liquidity, and the value of such securities on the date of receipt compared to the date when we are able to legally sell the securities may decrease significantly. The value ascribed to our assets in our financial statements as of a particular date may be materially greater than or less than the value that would be realized if our assets were to be liquidated as of such date. Accordingly, the value of such holdings may change over time due to factors that we do not control, such as issuance of securities by such companies at lower prices or other market factors. One such example of a change in value occurred in the period ended January 31, 20245, we recognized an unrealized loss of approximately $2.7 million on the value of our equity securities due to the decline in value of a single issuer, which represented an impairment of more than 80% of the previous value of our holdings in such issuer, which resulted in a reduction of our retained earnings. Changes to the value of our holdings could have a material adverse effect on our financial condition and results of operations.

If we do not maintain the net capital levels required by regulators, our broker-dealer business may be restricted and we may be fined or subject to other disciplinary or corrective actions.

The SEC, FINRA, and various state regulators have stringent rules with respect to the maintenance of specific levels of net capital by securities broker-dealers. For example, our broker dealer is subject to the SEC Uniform Net Capital Rule, which specifies minimum capital requirements intended to ensure general financial soundness and adequate liquidity. Our failure to maintain the required net capital levels and protect customer assets could potentially result in immediate suspension of securities activities, suspension or expulsion by the SEC or FINRA, restrictions on our ability to expand our existing business or to commence new businesses, and could ultimately lead to the liquidation of our broker-dealer entities and winding down of our broker-dealer business. If such net capital rules are changed or expanded, if there is an unusually large charge against net capital, or if we make changes in our business operations that increase our capital requirements, capital-intensive operations could be limited. A large operating loss or charge against net capital could adversely affect our ability to maintain or expand our business.

The market for securities and real-world asset tokenization is highly competitive and fragmented.

The market for tokenization of securities and RWAs is highly competitive, rapidly evolving, and fragmented. Numerous established financial institutions, fintech companies, and emerging blockchain platforms are seeking to develop and commercialize tokenization products and services. While we believe our technology, experienced personnel, and reputation with customers provide competitive advantages, there can be no assurance that we will be able to achieve or maintain the market position we anticipate. Some of our competitors currently or may in the future have significantly greater financial, technical, and marketing resources, broader customer bases, and longer operating histories. As competition intensifies, we may be required to increase expenditures on research and development, marketing, or incentives, which could adversely affect our profitability. If we are unable to differentiate our offerings or maintain customer confidence in our platform, our growth prospects, financial condition, and results of operations could be materially and adversely affected.

Tokenization of securities and RWAs involves novel technological, operational, and cybersecurity risks.

Our efforts to tokenize securities and RWAs rely on emerging technologies that are untested at scale and subject to significant uncertainty. These activities expose us to risks including technological and operational risk, as blockchain networks, smart contracts, and related infrastructure may fail, contain errors, or become obsolete; (iii) cybersecurity and fraud risk, as tokenized assets and underlying blockchains may be targeted by malicious actors, subject to vulnerabilities, or used in connection with illicit activity; and (iv) valuation and volatility risk, as tokenized securities and RWAs may not maintain or increase in value and may be difficult to price accurately.

Transaction fees, network congestion, or failures in smart contract code could also impair our ability to support tokenized securities and RWAs. Any such technological or operational failures could lead to financial losses, customer disputes, or reputational damage, and could materially and adversely affect our business and prospects