Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere herein and in our consolidated financial statements.
In addition to our consolidated financial statements, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See “Forward-Looking Statements” and “Item 1A. Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements.
Our Company
StartEngine Crowdfunding, Inc. was incorporated on March 19, 2014 in the State of Delaware. The Company was originally incorporated as StartEngine Crowdsourcing, Inc., but changed to the current name on May 8, 2014. The Company’s revenue-producing activities commenced in 2015 with the effectiveness of the amendments to Regulation A under the Securities Act adopted in response to Title IV of the JOBS Act. Operations expanded in 2016, as Regulation Crowdfunding, adopted in response to Title III of the JOBS Act, went into effect. On June 10, 2019, our subsidiary, StartEngine Primary LLC, was approved for membership as a broker-dealer with FINRA. The Company’s subsidiary, StartEngine Adviser LLC filed as an exempt reporting advisor with the SEC on January 8, 2024.
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Business and Trends
For Regulation A offerings, our broker-dealer subsidiary is permitted to charge commissions to the companies that raise funds on our platform. Regulation A offerings are subject to a commission ranging between 4% and 7% and usually include warrants to purchase shares of the Company or the securities that are the subject of the offering. The amount of commission is based on the risks and other factors associated with the offering.
Through StartEngine Primary, we can also charge commissions on Regulation D offerings hosted on our platform. During the periods covered in these financial statements we did not receive any Regulation D commissions. In Regulation Crowdfunding offerings, our funding portal subsidiary is permitted to charge commissions to the companies that raise funds on our platform. We typically charge 6% to 10% for Regulation Crowdfunding offerings on our platform.
We also generate revenue from services, which include a consulting package for Regulation Crowdfunding issuers called StartEngine Premium priced at $20,000 to help companies who raise capital with Regulation Crowdfunding, as well as transfer agent services marketed as StartEngine Secure. In Q2 2024, the Company shifted the Secure billing from annual invoices at $10 per user to tiered service annual contract for $250 or $350 per month. We additionally charge a $1,000 fee for certain amendments we file on behalf of companies raising capital under Regulation Crowdfunding as well as fees to run the required bad actor checks for companies utilizing our services.
The Company also receives revenues from other programs such as the StartEngine Venture club program and StartEngine Secondary. Our annual memberships for the StartEngine Venture Club bonus program are $275 per year.
The Company also provides a service named StartEngine Gold, which launched in July 2025. This service provides dedicated crowdfunding marketing support and access to licensed registered representatives who engage with leads and investors within an issuer’s proprietary funnel to help facilitate additional investments in the offering, where appropriate at a cost of $7,500 per month.
We launched StartEngine Secondary on May 18, 2020 and generate revenues by charging trade commissions to the sellers of the shares. Through December 31, 2025, the Company itself as well as twenty-four additional companies have been quoted on this platform.
In Q3 2023 the Company began providing accredited investors the opportunity to purchase membership interests in funds (“SE Funds”) which own shares of venture capital backed, late-stage private companies via its StartEngine Private product offering. The SE Funds are managed by StartEngine Private Manager LLC and advised by StartEngine Adviser LLC, an exempt reporting adviser.
Trend Information
We are operating in a relatively new industry and there is a level of uncertainty about how fast the volume of activity will increase and how future regulatory requirements may change the landscape. We continue to innovate and introduce new products to include in our current mix as well as continuing to improve our current services such as providing liquidity for our investors and issuers.
As we are a financial services company, our business, results of operations, and reputation are directly affected by elements beyond our control, such as economic and political conditions including unemployment rates, inflation and tax and interest rates, financial market volatility, war and fears of war (including the recent conflict with Iran), outbreaks of disease, broad trends in business and finance, and changes in the markets in which such transactions occur (such as the bear markets that developed for equities in the second and third quarter of 2022), we might be disproportionately affected by declines in investor confidence caused by adverse economic conditions.
On August 6, 2023, the Company launched “StartEngine Private”, a venture to provide accredited investors the opportunity to purchase membership interests in series which own shares of VC backed, and generally late-stage private companies(the “underlying securities”). The Company treats the amount it receives for selling underlying securities as revenues, and the acquisition cost related to such underlying securities as cost of revenues. To date, StartEngine Private has become our largest source of revenue. While StartEngine Private offerings have been successful in 2025 and the Company expects that it will continue as its largest revenue source in foreseeable future, the Company has experienced an expected slowdown in revenue from this line of business due to limited availability of stock for purchase of in demand companies, and limited purchase slots available for each offering. In both Q1 2025 and Q2 2025, the underlying securities for the offering were of the world’s largest privately held companies.
Comparatively, during Q3 2025, many of the companies on the Platform were smaller and lesser known. The Company anticipates that the short term revenue will continue closer to the level in Q3 2025, while actively pursuing opportunities for growth in future periods. The Company continues to invest in this line of business and anticipate that expenses related to the purchases and sales of StartEngine Private securities will change in tandem with the revenue generated. As of December 31, 2025, Company hired 7 sales associates
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dedicated to selling investments in StartEngine Private offerings. During Q3 2025, the Company hired 2 additional sales associates. The Company intends to continue evaluating staffing needs as StartEngine Private expands the number of its offerings.
As a Company, we are always reevaluating processes and procedures as it pertains to the success of the business. As such, the Company remains agile on changes in the market as well as the demand for services provided by the Crowdfunding industry. At the end of 2024, the Company determined that a reduction in workforce was necessary as the staffing required to support current issuer activity on the platform . This adjustment reflects the Company’s strategic focus on higher-growth business lines that require fewer personnel .
In 2024, the Company began hosting its new Regulation Crowdfunding issuances with the broker-dealer entity for regulatory and compliance reasons. As the legacy Regulation Crowdfunding raises complete their issuance, the remaining revenue from them will be booked to the current StartEngine Capital entity, which is not a broker-dealer. We expect that this transition to all Regulation A and Crowdfunding raises will be complete by the end of 2025. As of December 31, 2025, all of our current crowdfunding raises are conducted through our broker-dealer.
In March 2026, the company acquired Vinovest, Inc., a leading platform for fine wine and whiskey investment. Vinovest uses data and industry expertise to source, authenticate, and store high-quality bottles in bonded warehouses. The platform handles portfolio management, insurance, and logistics, while investors can track performance over time and choose to sell or take delivery of their holdings. Vinovest has also developed relationships in the wine industry, allowing top wineries from around the world to reach the next generation of collectors and investors in the company’s network. The Company has onboarded 4 employees from Vinovest to StartEngine and has begun integrating systems and customer lists. Vinovest will continue to operate independent of the Company to offer products to investors.
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Operating Results
Year Ended December 31, 2025 Compared with the Year Ended December 31, 2024
The following table summarizes the results of our operations for the fiscal year ended December 31, 2025 as compared to the fiscal year ended December 31, 2024 and includes Adjusted EBITDA. For discussion of Adjusted EBITDA and reconciliation to the most comparable U.S. GAAP financial measures, see “Non-U.S. GAAP Financial Measures” below.
Year Ended December 31,
$ Change
Revenues
Cost of revenues
Gross profit
Operating expenses:
General and administrative
Sales and marketing
Research and development
Change in fair value of warrants received for fees
Change in fair value of shares received for fees
Total operating expenses
Operating income (loss)
Other income (expense)
Other income (expense), net
Total other income (expense), net
Income (loss) before provision for income taxes
Taxes - Other
Net income (loss)
Adjusted EBITDA
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Revenues
Our revenues during the fiscal year ended December 31, 2025 were $-, compared to $48,625,508 for the fiscal year ended December 31, 2024, which represented an increase of $48,625,508, or 100%. The table below represents the major components of our revenues during the year ended December 31, 2025 and 2024:
Year Ended
Year Ended
Ended December 31,
Ended December 31,
$ Change
Regulation Crowdfunding platform fees
Regulation A commissions
StartEngine Premium
StartEngine Secure
StartEngine Private
Venture Club (formerly OWNers Bonus) revenue
Other service revenue
Total revenues
The increase in total revenues in year ended December 31, 2025 as compared to the same period in 2024 is primarily due to StartEngine Private. The growth in 2025 is primarily due to the Company acquiring the stock of some of the most coveted privately held stock in the market. The $86,603,559 represents closings on 41 StartEngine Private offerings, and the Company plans to continue growing this revenue source in the future, though growth of this revenue stream may be bound by factors such as limited availability of stock for purchase of in demand companies, and limited purchase slots available for each offering. The Company continues to look for avenues to explore growth of this revenue stream. Though this is a significant increase in revenues we note this is a lower margin product, see “Cost of Revenue” below.
Specifically, for the year ended December 31, 2025, compared to the same period in 2024, the Company observed the following revenue trends across its other product lines:
Increase in Regulation Crowdfunding platform fees of $8,672,825 : The increase in Regulation Crowdfunding platform fees was primarily driven by higher raise totals for issuers within the period. In 2025, the Company hosted raises of more successful issuers that had increased demand from issuers compared to 2024.*
Decrease in Regulation A commissions of $2,711,712: The decrease is due primarily to lower amounts raised in Regulation A offerings for its issuers. Regulation A revenue is more sensitive to revenue variance based on the limited number of Regulation A raises hosted on the platform, and as such will experience a higher rate of variance based on the success of these issuers.
Increase in StartEngine Premium revenue of $2,455,425: The increase is due to several factors, including shift in payment strategy; more issuers utilizing the services; and price increases.
Increase in StartEngine Venture Club revenue of $5,352,347: This increase is primarily due to increased sales of Venture Club during 2025 as the Company adds greater focus towards growing this revenue source. Venture Club memberships are annual packages, see Note 2 – “Revenue Recognition” to the accompanying financial statements.
Increase in other service revenue of $183,554 : The increase is due to the addition of the StartEngine Gold service line which began in 2025 and posted $357,500 of revenue within the period.
* Offerings can span multiple periods and the amount raised during a period is based on the amounts closed on during that period.
Cost of Revenues
Cost of revenues consists of internal employees, hosting fees, processing fees, certain software subscription fees that are required to provide services to our issuers, and for StartEngine Private acquisition costs related to underlying securities that it has sold to an SE Fund. Specifically, cost of revenues for StartEngine Private were $59,832,368 and $ 17,281,432 for year ended 2025 and 2024, respectively. Our total cost of revenues during the year ended December 31, 2025 and 2024 was $71,699,643 and $25,873,241,
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respectively . The increase was primarily due to the increase in price of the underlying securities for StartEngine Private in addition to increases in costs associated with selling StartEngine Private products such as sales commission.
Operating Expenses
The Company’s total operating expenses during the year ended December 31, 2025 amounted to $36,433,224, which represented a decrease of $2,455,646 or 6%, from the expenses in the same period in 2024. The decrease in operating expenses is primarily due to the following:
Increase in general and administrative expenses of $1,862,972 : Primarily due to an increase in compensation for employees related to the success of the Company in 2025 as well as the increase in software expenses as the Company began utilizing artificial intelligence applications for increased efficiency, and finally increased legal costs as the Company began exploring opportunities for international offerings.
Sales and marketing expenses decreased by $3,615,159 for the year ended December 31, 2025: Primarily due to lower headcount within the department which led to lower compensation and accrual for 2025 performance bonuses. Additionally, the Company reduced advertising expense and market research cost as the Company focused on reducing expense in 2025.
Decrease in research and development expenses of $2,440,097: D ue to decrease in employee payroll as the Company reduced headcount at the end of 2024 as the Company focused efforts on increasing productivity with AI and less headcount.
These decreases were partially offset by an increase in write down of shares received for fees by $1,865,939 as the Company had a larger write down of share expense in 2025 due to more write down of historically held stock.
Other Expense (Income), net
Our other inocme, net during the year ended December 31, 2025 amounted to $119,745, which represented cashback earned from our credit cards during the period as well as interest earned in the Company’s money-market accounts. During the same period in 2024 our other expense, net was $400,055 due to the sale of a real estate investment.
Net Income (Loss)
Net income totaled $1,472,852 for the year ended December 31, 2025, an increase of $18,009,510 compared to a net loss of $16,536,658 recognized during the year ended December 31, 2024.
Adjusted EBITDA
Adjusted EBITDA totaled $14,040,204 for the year ended December 31, 2025, an increase of $15,853,105 compared to adjusted EBITDA loss of $1,812,901 in Adjusted EBITDA during the year ended December 31, 2024.
Critical Accounting Policies
See Note 2 in the accompanying financial statements.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amount of expenses during the reporting periods. Significant estimates include the value of marketable securities; the value of stock and warrants received as compensation and collectability of accounts receivable. Actual results could materially differ from these estimates. It is reasonably possible that changes in estimates will occur in the near term.
A significant portion of the Company’s assets relate to investments in stock and previously warrants received as compensation from issuer companies undertaking Regulation Crowdfunding or Regulation A offerings. As described in Note 2, in the accompanying financial statements, stock and warrants require significant unobservable inputs, primarily related to the underlying stock price of the
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security received which may include marketability discounts. Warrants have further unobservable inputs related to the estimated life. In all cases, there were sales of the stock to the public through Regulation Crowdfunding or Regulation A funding mechanism, but such sales are often not to the level that an active market existed or exists. Once the funding round is concluded it is difficult to ascertain the fair value of the issuer shares or the status of the issuer’s financial health, unless additional rounds of financing are undertaken in a public setting, or the issuer reports reliable and regular information publicly. Any change in the underlying shares would impact on the valuation of the related investments. Shares held are generally illiquid. Valuations require significant management judgment related to these unobservable inputs.
As many of the companies that undertaking Regulation Crowdfunding and Regulation A are considered emerging growth companies, require significant capital to maintain or commence operations, and often contain warnings regarding substantial doubt about the Company’s ability to continue as a going concern, it is reasonable to conclude that through the passage of time, a significant portion of the stock and warrants held by the Company will ultimately be deemed worthless, decline in value, or in the case of warrants, expire without exercise. Similar to traditional venture capital results, it is reasonable to conclude that only a small portion of each investment may ever increase in value.
Investments – Stock
In connection with negotiated platform fee agreements, the Company obtains shares of stock in its customers. Our accounting for investment in our customers stock depends on several factors, including the level of ownership, and power to control. We base our accounting for such securities on: (i) fair value accounting, (ii) equity method accounting, and (iii) cost method accounting. As the stock received from customers have no readily determinable fair values and generally represent small amounts of ownership in our customers, the Company accounts for this stock received using the cost method, less adjustments for impairment in accordance with ASC 321 10 35 2. During the year ended December 31, 2025 and 2024, the Company received stock with a cost of $1,854,519 and $2,429,556, respectively, as payment for fees. During the year ended December 31, 2025 and 2024, write down expense related to shares received amounted to $2,590,872 and $724,933, respectively. The basis for writing down this stock is to evaluate if the issuer has performed a raise on the Company’s platform within the last year. If the Company has, the stock value is updated to the current issuance price. If there has not been a raise, the Company writes down the value of the shares by 33%. This has been deemed reasonable as the shares of privately traded illiquid stocks are difficult to price, and the Company has determined through research that a markdown of this amount is reasonable due to assumed in value based on no new raises being hosted.
Stock-Based Compensation
Stock-based compensation is measured at the grant date based on the estimated fair value of the award and recognized as expense over the requisite service period, which is generally the vesting period. The Company grants equity awards with a four-year vesting schedule, consisting of a 12-month cliff under which 25% of the award vests upon the first anniversary of the grant date, and the remaining 75% vests ratably over the subsequent 36 months. The fair value of stock-based awards is estimated using the Black-Scholes option pricing model, which requires the use of subjective assumptions, including expected volatility, expected term, risk-free interest rate, and expected dividend yield. These assumptions involve significant management judgment and may differ from actual results. Accordingly, the Company recognizes stock-based compensation expense on a straight-line basis over the service period, adjusted for estimated forfeitures, and revises its estimates as necessary if actual forfeitures differ from initial expectations.
Collectibles
The Company records collectibles at cost in accordance with the Company’s policy. These long-lived assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, we believe that we purchase these assets in arms-length transactions at fair value and such transactions are evidence of fair market value in the near term. For collectibles, over time, and as trends change and economic factors affect various markets for which we hold assets, the estimation of certain assets that do not trade in a regular market may be difficult to assess for fair value. Certain assets may be subject to market manipulation or overproduction that could affect the underlying value of like or similar items. The quality of authentication bodies may affect future valuation. If there are limited data points to assess fair value, especially for one-of-a-kind collectibles, we may not identify impairments in a timely manner. Many of the collectibles have value that is in the eye of the beholder. Accordingly, there is significant uncertainty to what these assets would be valued at in subsequent arms-length transactions.
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Liquidity and Capital Resources
Statement of Cash Flows
The following table summarizes, for the periods indicated, selected items in our Statements of Cash Flows:
Year Ended
December 31,
$ Change
Net cash provided by (used in) operating activities
Net cash provided by investing activities
Net cash provided by financing activities
Our net income during the year ended December 31, 2025 was $1,472,852, as compared to a net loss of $16,536,658 during the year ended December 31, 2024.
Cash provided by operating activities for the year ended December 31, 2025 was $12,285,480 as compared to cash used by operating activities of $4,275,484 for the same period in 2024. The increase in cash provided by operating activities in 2025 was primarily due to the increase in net income as well as the increase of accounts receivable by $4,252,374 offset by the increase in the net purchase of Private assets by $9,029,436 from 2024 to 2025.
Cash received from investing activities for the year ended December 31, 2025 was $1,467,604 and $202,892 for the year ended December 31, 2025 and December 31, 2024, respectively. The increase due to the sale of the residential building formerly held by the Company for a cash inflow of $1,479,310.
Cash provided by financing activities was $3,791,880 and $2,258,591 for the year ended December 31, 2025 and December 31, 2024, respectively. The increase of cash inflow is primarily due to the increase in the net proceeds from sale of common stock of $947,331.
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Balance Sheet
The following table summarizes our assets and liabilities as of December 31, 2025 as compared as of December 31, 2024:
December 31,
December 31,
Assets
Current assets:
Cash
Marketable securities
Accounts receivable, net of allowance
Other current assets
Total current assets
Property and equipment, net
Investments - warrants
Investments - stock
Investments - Private
Investments - Collectibles
Investments - Real Estate
Due from related party
Intangible assets
Other assets
Total assets
Liabilities
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Total current liabilities
Total liabilities
The Company’s current assets increased by $15,700,571 from December 31, 2024 to December 31, 2025. The increase was primarily driven by an increase in cash of $17,544,964 offset by a corresponding decrease in accounts receivable by $1,740,787.
The Company’s long-term assets increased by $3,213,483 from December 31, 2024 to December 31, 2025. This was driven primarily by an increase in Private assets of $9,289,151 due to purchases of shares to sell in future offerings. This increase was offset by a $3,428,571 decrease in intangible assets from the purchase of SeedInvest assets less the amortization for the period as well as $1,479,310 decrease in real estate investment as the Company sold its remaining membership of the building in 2025.
Current liabilities increased by $4,608,268 which is primarily due to an increase in accrued liabilities, specifically an increase in investor deposits of $558,393 as well as an increase of accrued liabilities of $697,105 related to year end commission and bonus payment. As the StartEngine Private business continues to scale, we expect these liabilities to be recurring for future periods. Additionally, deferred revenue increase by $689,134 due to the addition of the upfront fee deferrals of $15,000 per issuer.
Liquidity and Capital Resources
We do not currently have any significant loans or available credit facilities. As of December 31, 2025, the Company’s current assets were $30,426,536. To date, our activities have been funded from our revenues, investments from our founders, the previous sale of Series Seed Preferred Shares, Series A Preferred Shares, Series T Preferred Shares, and our Regulation A and Regulation CF offerings.
We have no off-balance sheet arrangements, including arrangements that would affect the liquidity, capital resources, market risk support, and credit risk support or other benefits.
The Company currently has no material commitments for capital expenditures.
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We believe we have the cash, marketable securities through future fundraising rounds, other current assets available, revenues, and access to funding that will be sufficient to fund operations until the Company starts generating positive cash flows from normal operations.
Non-U.S. GAAP Financial Measures
We are presenting a non-GAAP financial measure “Adjusted EBITDA”, which is a measure adjusted for the impact of specified items and are not in accordance with GAAP.
We define Adjusted EBITDA as net income (loss) calculated in accordance with GAAP adjusted to exclude interest expense, interest income, income taxes, depreciation, and amortization, and stock based compensation. We present Adjusted EBITDA because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans and make strategic decisions. We believe Adjusted EBITDA provides useful information to investors regarding our operational performance and our ability to generate cash flows. Non-GAAP information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP financial measures presented by other companies.
The following table reconciles net income (loss), the most directly comparable U.S. GAAP measure, to Adjusted EBITDA for the periods presented:
Twelve Months Ended December 31, 2025
Twelve Months Ended December 31, 2024
Net Income (Loss)
Interest Income
Income Taxes
Depreciation and Amortization
Stock Based Compensation
Adjusted EBITDA
