UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: April 30 2021, 2022

 

◻ ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 000-55036

 

NETCAPITAL INC.
(Exact name of registrant as specified in its charter)

 

Utah 87-0409951
(State or other jurisdiction of  incorporation or organization) (I.R.S. Employer Identification No.)

 

1 Lincoln Street

Boston, MA02111

(Address of Principal Executive Offices)

 

(781) (781) 925-1700
(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

 

Title of each classTrading
Symbol(s)		Name of each exchange on which registered
NoneCommon Stock, par value $0.001 per shareNCPLNot applicableThe Nasdaq Stock Market LLC
Redeemable warrants exercisable for one share of Common Stock at an exercise price of $5.19NCPLWThe Nasdaq Stock Market LLC

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $0.001 per share None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]☐ No[X] ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]☐ No[X] ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes[X] ☒ No [ ]☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes[X] ☒ No [ ]

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☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ◻☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  ☐Accelerated filer  ☐Non-accelerated Filer  ☒Smaller reporting company  ☒
Emerging growth company  ☐   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]☐ No[X] ☒

 

The aggregate market value of registrant’s voting and non-voting common equity held by non-affiliates (as defined by Rule 12b-2 of the Exchange Act) computed by reference to the average bid and asked price of such common equity on October 31, 20202021 was $1,336,67410,518,864.  

 

As of August 31, 20215, 2022 the registrant has one class of common equity, and the number of shares outstanding of such common equity was 2,717,4364,272,677.

 

Documents Incorporated By Reference: None.

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TABLE OF CONTENTS

 

PART I   
    
Item 1.Business.2
Item 1A.Risk Factors. 4
Item 1B.1A.Unresolved Staff Comments.Risk Factors. 913 
Item 2.1B.Properties.Unresolved Staff Comments. 927 
Item 3.2.Legal Proceedings.Properties. 927 
Item 4.3.Mine Safety Disclosures.Legal Proceedings. 927 
Item 4.Mine Safety Disclosures.27 
   
PART II  28 
See  
Item 5.Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.28 
Item 6.Selected Financial Data.29 
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.29 
Item 7A.Quantitative and Qualitative Disclosures About Market Risk.36 
Item 8.Financial Statements.36 
Item 9.Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.36 
Item 9A.Controls and Procedures.36 
Item 9B.Other Information.36 
Item 9C.Disclosures Regarding Foreign Jurisdictions that Prevent Inspections.37 
PART III 37 
Item 10.Directors, Executive Officers and Corporate Governance.37 
Item 11.Executive Compensation.43 
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.49 
Item 13.Certain Relationships and Related Transactions, and Director Independence.50 
Item 14.Principal Accounting Fees and Services.52 
PART IV 53 
Item 15.Exhibits, Financial Statements Schedules.53 
    
Item 5.Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.SIGNATURES 10
Item 6.Selected Financial Data.11
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.11
Item 7A.Quantitative and Qualitative Disclosures About Market Risk.15
Item 8.Financial Statements.15
Item 9.Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.15
Item 9A.Controls and Procedures.15
Item 9B.Other Information.15
PART III
Item 10.Directors, Executive Officers and Corporate Governance.16
Item 11.Executive Compensation.19
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.20
Item 13.Certain Relationships and Related Transactions, and Director Independence.20
Item 14.Principal Accounting Fees and Services.21
PART IV
Item 15.Exhibits, Financial Statements Schedules.22
SIGNATURES2255 

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FORWARD-LOOKING STATEMENTS

 

We caution readers that this Form 10-K contains forward-looking statements as that term is defined in the Exchange Act. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. We hereby qualify all our forward-looking statements by the following cautionary statements. Forward-looking statements are predictions and not guarantees of future performance or events. Forward-looking statements are based on current expectations rather than historical facts and relate to future events or future financial performance. Such statements are based on currently available financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from historical experience and present expectations. Our actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with our business. Undue reliance should not be placed on forward-looking statements as such statements speak only as of the date on which they are made. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could affect our financial performance, cause actual results to differ from our estimates, or underlie such forward-looking statements, are set forth below and in various places in this Form 10-K, including under the headings Item 1. “Business” and Item 1A. “Risk Factors” in this Form 10-K. These factors include:

 

●∙capital requirements and the availability of capital to fund our growth and to service our existing debt;
●difficulties executing our growth strategy, including attracting new issuers and investors;
●our future capital needsanticipated use of the net proceeds from our recent public offering;
●

economic uncertainties and business interruptions resulting from the coronavirus COVID-19 global pandemic and its aftermath;

●

as restrictions related to the coronavirus COVID-19 global pandemic are removed and face-to-face economic activities normalize, it may be difficult for us to maintain the recent sales gains that we have experienced; 

●

all the risks of acquiring one or more complementary businesses, including identifying a suitable target, completing comprehensive due diligence uncovering all information relating to the target, the financial stability of the target, the impact on our financial condition of the debt we may incur in acquiring the target, the ability to integrate the target’s operations with our existing operations, our ability to obtain financing;retain management and key employees of the target, among other factors attendant to acquisitions of small, non-public operating companies;

●∙difficulties in increasing revenue per issuer;
●anticipatedchallenges related to hiring and unanticipated trends and conditions in our industry, including the impact of recent or future regulatory environment;training fintech employees at competitive wage rates;

●∙difficulties in increasing the average number of investments made per investor;
●recent and future economic conditions, including turmoilshortages or interruptions in the financial and credit markets;supply of quality issuers;

∙the effectiveness of our marketing to maintain existing and attract new customers;

∙●our abilitydependence on a small number of large issuers to contain costs;generate revenue;

●∙negative publicity relating to any one of our issuers;
●our ability to predict consumer preferences and changes in trends, technology and consumer acceptance of both new designs and newly introduced products;competition from other online capital portals with significantly greater resources than we have;

∙●changes in the costs of laborinvestor tastes and advertising;purchasing trends;

∙●our abilityinability to carry outmanage our business strategies;growth;

●∙our inability to maintain an adequate level of cash flow, or access to capital, to meet growth expectations;
●

changes in senior management, loss of one or more key personnel or an inability to attract, hire, integrate and retain skilled personnel;

●

labor shortages, unionization activities, labor disputes or increased labor costs, including increased labor costs resulting from the demand for qualified employees;

●our vulnerability to increased costs of running an online portal on Amazon Web Services;
●our vulnerability to increasing labor costs;
●the levelimpact of consumer investing in private equity markets;governmental laws and regulation;

●∙failure to obtain or maintain required licenses;
●

changes in economic or regulatory conditions and other unforeseen conditions that prevent or delay the development of a secondary trading market for shares of equity that are sold on our online portal;

●inadequately protecting our intellectual property or breaches of security of confidential user information; and
●our ability to attract early-stage companies to sell private equity securities;

∙general economic conditions; and

∙other factors set forth in this Form 10-K.expectations regarding having our securities trading on The Nasdaq Capital Market.

 

You are cautioned that all forward-looking statements involve risks and uncertainties. We undertake no obligation to amend this Form 10-K or revise publicly these forward-looking statements (other than pursuant to reporting obligations imposed on registrants pursuant to applicable federal securities laws) to reflect subsequent events or circumstances.

 

RISK FACTOR SUMMARY

Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors,” together with the other information in this Annual Report on Form 10-K. If any of the following risks actually occurs (or if any of those listed elsewhere in this Annual Report on Form 10-K occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.

Risks Related to our Business and Growth Strategy

●We have a limited operating history cannot assure you that our business will maintain profitability.
●We operate in a highly regulated industry and those regulations are constantly evolving and may be interpreted in ways that could impact our business.
●Our wholly-owned subsidiary, Netcapital Funding Portal Inc. has licensed the technology necessary to operate our funding portal and if Netcapital Funding Portal Inc. fails to comply with any obligations under this license agreement, it may be subject to termination which could severely impact our ability to operate our funding portal and would adversely affect our business, financial position and results of operations.
●Our products will face significant competition, and if they are unable to compete successfully, our business will suffer.

Risks Related to Receipt of Securities for Services

●We are not, and do not intend to become, regulated as an investment company under the U.S. Investment Company Act of 1940, as amended, or the 40 Act, (and similar legislation in other jurisdictions) and if we are deemed an “investment company” under the 40 Act applicable restrictions would make it impractical for us to operate as contemplated.

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Risk Factors Related to Our Common Stock

●If we are unable to maintain listing of our securities on The Nasdaq Capital Market or any stock exchange, our stock price could be adversely affected and the liquidity of our stock and our ability to obtain financing could be impaired.
●The market price of our common stock is highly volatile and could be subject to volatility related or unrelated to our operations.
●Market and economic conditions may negatively impact our business, financial condition and share price.
●Future sales and issuances of our securities could result in additional dilution of the percentage ownership of our shareholders and could cause our share price to fall.
●Our common stock may be subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which could make transactions in the stock cumbersome and may reduce the value of an investment in the stock.
●We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.

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ITEM 1.BUSINESS.

 

Overview

 

We areNetcapital Inc. is a fintech company with a scalable technology platform that allows private companies to raise capital online from accredited and providesnon-accredited investors. We give all investors the opportunity to access investments in private companies. Our model is disruptive to traditional private equity investment opportunities to investors. The company'sinvesting and is based on Title III, Reg CF of the JOBS Act. We generate fees from listing private companies on our portals. Our consulting group, Netcapital Advisors, deliversprovides marketing and strategic advice in exchange for cash and takes equity positions in select companies with disruptive technologies.positions. The Netcapital funding portal is registered with the U.S. Securities & Exchange Commission (SEC) andSEC, is a member of the Financial Industry Regulatory Authority, (FINRA),or FINRA, a registered national securities association.

We specializeassociation, and provides investors with opportunities to invest in Regulation Crowdfunding (“Reg CF”), under the provisions of Title III of the JOBS Act of 2012. We believe that new capital raising techniques, such as Reg CF, democratize capital raising, similar to the way that social networks democratize broadcast mechanisms that once belonged only to traditional media. Reg CF is one of three securities exemptions that enable online capital formation. Reg D 506(c) allows an unlimited amount of money to be raised from accredited investors. Reg A+ enables an issuer to raise up to $75 million online from anyone. Reg CF, the smallest of the crowdfunding exemptions, allows issuers to raise up to $5 million from non-accredited investors every 12 months.

The $5 million limit was increased on March 15, 2021 by the Securities and Exchange Commission (the "SEC") from the previous level of $1.07 million. We believe this change has already impacted the number of issuers and users on our website and consequently increased our sales. Our website is posting a record number of users and dollars invested in June and July of 2021. We also see from industry statistics that investment commitments of Reg CF funding portals increased by $71 million, or 154%, to $117 million for the quarter ended June 30, 2021, as compared to investment commitments of $46 million for the quarter ended June 30, 2020.

We are encouraged by our growth over the past year, as the market share earned by the Netcapital funding portal in the quarter ended June 30, 2021 was 7.0% of the industry investment commitments, as compared to 2.2% of the industry investment commitments in the quarter ended June 30, 2020. We believeour increase in revenues and our gain in market share over the past year is a trend we can continue. However, our limited operating history and the uncertain nature of our future operations and the markets we address or intend to address make predictions of our future results of operations difficult.   

private companies.

Development of Business

 

We wereThe Company was incorporated in the State of Utah in April 1984 under our previous name,as DBS Investments, Inc. A change of control of our company occurred, or DBS. DBS merged with ValueSetters L.L.C. in December 2003 and we changed ourits name to ValueSetters, Inc., when we, in conjunction with a plan In November 2020, the Company purchased Netcapital Funding Portal Inc. (the “Funding Portal”) and changed the name of reorganization, merged with Valuesetters L.L.C., an Arizona limited liability corporation.the Company from ValueSetters, Inc. to Netcapital Inc. 

 

The Company has three operating subsidiaries. The Funding Portal provides private companies with access to investments from accredited and non-accredited retail investors through our online portal (www.netcapital.com). The Funding Portal charges a $5,000 engagement fee and a 4.9% success fee for capital raised at closing. In orderaddition, the Funding Portal generates fees for other ancillary services, such as rolling closes. Netcapital Advisors Inc. generates fees and equity stakes from consulting in select portfolio and non-portfolio clients. MSG Development Corp. provides corporate valuation services to take advantage ofbusinesses and individuals.

Funding Portal

Netcapital.com is an SEC-registered funding portal that enables private companies to raise capital online, while investors are able to invest from anywhere in the increasing game activitiesworld, at any time, with just a few clicks. Securities offerings on the Internet,portal are accessible through individual offering pages, where companies include product or service details, market size, competitive advantages, and financial documents. Companies can accept investment from anyone, including friends, family, customers, employees, etc. Customer accounts on November 23, 2010, we signed a contractour platform will not be permitted to purchasehold digital securities.

In addition to access to the funding portal, the Netcapital funding portal provides the following services:

●a fully automated onboarding process;
●automated filing of required regulatory documents;
●compliance review;
●custom-built offering page on our portal website;
●third party transfer agent and custodial services;
●email marketing to our proprietary list of investors;
●rolling closes, which provide potential access to liquidity before final close date of offering;
●assistance with annual filings; and
●direct access to our team for ongoing support.

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Consulting Business

Our consulting group, Netcapital Advisors helps companies at all stages to raise capital. Netcapital Advisors provides strategic advice, technology consulting and online marketing services to assist with fundraising campaigns on the assetsNetcapital platform. We also act as an incubator and accelerator, taking equity stakes in select disruptive start-ups.

Netcapital Advisors’ services include:

●incubation of technology start-ups;
●investor introductions;
●online marketing;
●website design, software and software development;
●message crafting, including pitch decks, offering pages, and ad creation;
●strategic advice; and
●technology consulting.

Valuation Business

Our valuation group, MSG Development Corp. prepares valuations that are always reviewed by an Accredited Senior Business Appraiser licensed by the American Society of NetGames.com, a company that owned several websites and operated a small Internet-based chess game known as Chess.net.Appraisers.

The valuation services include:

●business valuations;
●fairness and solvency opinions;
●ESOP feasibility and valuation;
●non-cash charitable contributions;
●economic analysis of damages;
●intellectual property appraisals; and
●compensation studies.

 

As noted above, in 2014, we began our consulting business, and we now own a portion of several companies as a result of our consulting work. Many of these businesses operate solely on the Internet and many use the Internet to raise capital. We believe the value of our ownership interests in several of these companies may be significant. In 2016, we began consulting for companies seeking to raise capital via Reg CF. In 2020, we purchased Netcapital Funding Portal Inc., a regulated funding portal operating under the provisions of Reg CF. On November 5, 2020, we changed our name to Netcapital Inc. to leverage the strength of Netcapital’s well-established brand and unique private capital markets platform.

 

Competition

 

We compete with a number of public and private companies that provide assistance with capital raising, strategy, technology consulting, and digital marketing. Most of our competitors have significant financial resources and occupy entrenched positions in the market with name-brand recognition. The majority of our capital raising and digital marketing business is on the Internet.

 

The barriers to entry into most Internet markets are relatively low, making them accessible to a large number of entities and individuals. We believe the principal competitive factors in our industry that create certain barriers to entry include but are not limited to reputation, technology, financial stability and resources, proven track record of successful operations, critical mass, and independent oversight and transparency of business practices. Obtaining approval from FINRA to operate as a funding portal is also a barrier to entry due to the significant internal control and capital requirements. While these barriers will limit those able to enter or compete effectively in the market, it is likely that new competitors as well as laws and regulations of governmental authority will be established in the future, in addition to our known current competitors.

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We face significant competition in every aspect of our business, including from companies that facilitate online capital formation and the sharing of content and information, companies that enable marketers to display advertising, companies that distribute video and other forms of media content, and companies that provide development platforms for applications developers. We compete to attract, engage, and retain customers, to attract and retain marketers, and to attract and retain developers to build compelling applications that integrate with our products.

 

Increased competition from current and future competitors may in the future materially adversely affect our business, revenues, operating results and financial condition.

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Industry Regulation

In an effort to enhance economic growth and to democratize access to private investment opportunities, Congress finalized the Jumpstart Our Business Startups Act (JOBS Act) in 2016. Title III of the JOBS Act enabled early-stage companies to offer and sell securities to the general public for the first time. The SEC then adopted Regulation Crowdfunding, or Reg CF, in order to implement the JOBS Act’s crowdfunding provisions.

Reg CF has several important features that changed the landscape for private capital raising and investment. For the first time, this regulation:

●Allowed the general public to invest in private companies, no longer limiting early-stage investment opportunities to less than 10% of the population;

●Enabled private companies to advertise their securities offerings to the public (general solicitation); and

●Conditionally exempted securities sold under Section 4(a)(6) from the registration requirements of the Securities and Exchange Act of 1934.

 

We are subject, both directly and indirectly, to various laws and regulations relating to our business. If any of the laws are amended, compliance could become more expensive and directly affect our income. We intend to comply with such laws, but new restrictions may arise that could materially adversely affect our Company. Specifically, the SEC regulates our funding portal business, and our funding portal is also a member of FINRA and is regulated by FINRA. We are also subject to the USA Patriot Act of 2001, which contains anti-money laundering and financial transparency laws and mandates various regulations applicable to financial services companies, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities. Anti-money laundering laws outside of the United States contain some similar provisions. Our failure to comply with these requirements as applicable to us could have a material adverse effect on us.

 

ResearchOur Market

The traditional funding model restricts access to capital, investments and liquidity.  According to Harvard Business Review, VCs invest in fewer than 1% of the companies they consider and only 10% of VC meetings are obtained through cold outreach.  In addition, under 5% of VC funding went to women and minority-owned firms in 2020, according to Forbes.

Furthermore, under the traditional model, the average investor lacked access to early-stage investments.  Prior to the JOBS Act, almost 90% of U.S. households were precluded from investing in private deals, per dqydj.com.  Liquidity has also been an issue, as private investments are generally locked up until IPO or takeout.

The JOBS Act helped provide a solution to these issues by establishing the funding portal industry which is currently in its infancy. Title III of the JOBS Act outlines Reg CF, which traditionally allowed private companies to raise up to $1.07 million from all Americans. In March 2021, regulatory enhancements by the SEC went into effect and increased the limit to $5 million. These amendments increased the offering limits for Reg CF, Regulation A and Regulation D Rule 504 offerings as follows; Reg CF increased to $5 million, Regulation D, Rule 504 increased to $10 million from $5 million; and Regulation A Tier 2 increased to $75 million from $50 million.

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Reg CF private company investments accounted for approximately $490 million in 2021, according to KingsCrowd, versus $205 million during 2020. We believe a significant opportunity exists to disrupt private capital markets via the Netcapital funding portal.

Private capital markets reached $7.4 trillion at the end of 2020, per Morgan Stanley, and this number is expected to reach $13 trillion over the next five years. Within this market, private equity represents the largest share, with assets in excess of $3 trillion and a 10-year CAGR of 10%. Since 2000, global PE net asset value has increased almost tenfold, nearly three times faster than the size of the public equity market. Both McKinsey and Boston Consulting Group predict that this strong growth will continue, as investors allocate increasing amounts to private equity, due to historically higher returns and lower volatility than public markets. In addition, Boston Consulting Group estimates that there are $42 trillion held in retail investment accounts, which we believe represents a large pool of potential account holders for us.

Our Technology

The Netcapital platform is a scalable, real-time, transaction processing engine that runs without human intervention, 24 hours a day, seven days a week. For companies raising capital, the technology provides fully automated onboarding with integrated regulatory filings. Funds are collected from investors and held in escrow until the offering closes.

For entrepreneurs, the technology facilitates access to capital at low cost. For investors, the platform provides access to investments in private, early-stage companies that were previously unavailable to the general public. Both entrepreneurs and investors can track and view their investments through their dashboard on netcapital.com. The platform currently has almost 100,000 users.

Scalability was demonstrated in November 2021, when the platform processed more than 2,000 investments in less than two hours, totaling more than $2 million.

Our infrastructure is designed in a way that can horizontally scale to meet our capacity needs. Using Docker containers and Amazon ECS, we are able to automate the creation and launch of our production web and API endpoints in order to replicate them as needed behind Elastic Load Balancers (ELBs).

Additionally, all of our public facing endpoints live behind CloudFlare to ensure protection from large scale traffic fluctuations (including DDoS attacks).

Our main database layer is built on Amazon RDS and features a Multi-AZ deployment that can also be easily scaled up or down as needed. General queries are cached in our API layer, and we monitor to optimize very complex database queries that are generated by the API. Additionally, we cache the most complex queries (such as analytics data) in our NoSQL (Mongo) data store for improved performance.

Most of our CPU intensive data processing happens asynchronously through a worker/jobs system managed by AWS ElastiCache’s Redis endpoint. This component can be easily fine-tuned for any scale necessary.

The technology necessary to operate our funding portal is licensed from our affiliate, Netcapital Systems LLC under a license agreement with our wholly owned subsidiary Netcapital Funding Portal Inc., where we have the exclusive right to use the technology with respect to our funding portal, for an annual license fee of $380,000 paid in quarterly installments.

Competitive Advantages

We believe we provide the lowest cost solution for online capital raising versus our peer group (StartEngine Crowdfunding, Inc., Wefunder Inc.and Republic Core LLC. We also believe that our access and onboarding of new clients are superior due to our facilitated technology platforms. Our network is rapidly expanding as a result of our enhanced marketing and broad distribution to reach new investors. Given the rapid growth in the industry and its potential to disrupt the multi-billion dollar private capital market, we believe there is sufficient room for multiple players.

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Our Strategy

Three major tailwinds are driving accelerated growth in the shift to the use of online funding portals: (i) the COVID-19 pandemic; (ii) the increase in funding limits under Reg CF; and (iii) the recent private equity outperformance of public markets. The pandemic drove a rapid need to bring as many processes as possible online. With travel restrictions in place and most people in lockdown, entrepreneurs were no longer able to fundraise in person and have increasingly turned to online capital raising through funding portals.

There are numerous industry drivers and tailwinds that complement investor demand for access to investments in private companies. To capitalize on these, our strategy is to:

●Generate New Investor Accounts. Growing the number of investor accounts on our platform is a top priority. Investment dollars continuing to flow through our platform is a key revenue driver. When issuers advertise their offerings, they are generating new investor accounts for us at no cost to Netcapital. We plan to supplement our issuers’ spend on advertising by increasing our online marketing spend as well, which may include virtual conferences going forward.

●Hire Additional Business Development Staff. We seek to hire additional business development staff that is technology and financially passionate about capital markets to handle our growing backlog of potential customers.

●Increase the Number of Companies on Our Platform via Marketing. When a new company lists on our platform, they bring their customers, supporters, and brand ambassadors as new investors to Netcapital. We plan to increase our marketing budget to help grow our portal and advisory clients.

●Invest in Technology. Technology is critical to everything that we do. We plan to invest in developing innovative technologies that enhance our platform and allow us to pursue additional service offerings. For example, we plan on developing a dedicated mobile app to make our platform more accessible.

●Incubate and Accelerate Our Advisory Portfolio Clients. The advisory portfolio and our equity interests in select advisory clients represent potential upside for our shareholders. We seek to grow this model of advisory clients.

●Expand Internationally. We believe there is a significant opportunity to expand into Europe and Asia as an appetite abroad grows for U.S. stocks.

●Open ATS/Secondary Transfer Feature. Lack of liquidity is a key issue for investors in private companies as private markets lack a liquidity feature in our targeted market. We plan to open a Secondary Transfer Feature and are exploring various alternatives to provide potential liquidity for secondary offerings to investors who participate in our primary offerings on the Netcapital platform.

●New Verticals Represent a Compelling Opportunity. We operate in a regulated market supported by the JOBS Act. We may pursue expansion to our model to include Regulation A and Regulation D offerings.

Industry Tailwinds

 

Two major tailwinds are driving accelerated growth in the shift to digital fundraising: the COVID-19 pandemic and regulatory enhancements to the Jobs Act. The pandemic drove a rapid need to bring as many processes as possible online. With travel restrictions in place and most people in lockdown, entrepreneurs were no longer able to fundraise in person and have increasingly turned to online capital raising through funding portals.

In addition, exempt offering regulatory enhancements proposed by the SEC in 2020 went into effect in March 2021. These amendments increased the offering limits for Reg CF, Regulation A and Rule 504 of Regulation D offerings as follows: the Reg CF limit increased to $5 million from $1.07 million, every twelve months. Rule 504 of Regulation D moved to $10 million from $5 million and Regulation A Tier 2 rose to $75 million from $50 million.

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Propelled by this rule change, Reg CF commitments of $56 million in March 2021 were more than five times higher than in March of the previous year. We do not currentlybelieve that the recent increase in offering limits in combination with pandemic-driven acceleration in the need for digital fundraising have been the primary drivers of the increase in Reg CF commitments.-. We expect these changes to continue to have a budget specifically allocatedsignificant, positive impact on demand as they increase the attractiveness of digital fundraising options and pave the way for research andlarger companies to utilize the exempt framework. This could also potentially drive higher demand for Netcapital Advisors’ services.

In another important regulatory development, purposes.the U.S. Department of Labor, or DOL, recently expressed their support for retail investment in private equity. In 2020, the DOL released an information letter backing private equity as an investment option for defined contribution plans. As a result, large asset managers are working on adding private investment choices to their retirement products, according to a study conducted by BCG.

Investment Portfolio

A key part of our story involves the potential value creation driven by our portfolio companies. In our portfolio, we focus on companies with emerging, disruptive technologies. A partial list of our investment portfolio is described below:

 

KingsCrowd

Industry: Fintech

Trusted by over 300,000 investors to vet startup investments, KingsCrowd, Inc. is a leader in ratings and analytics for online private markets. The company aggregates, analyzes, and rates companies raising on platforms like Netcapital to help investors make more informed decisions.

ChipBrain

Industry: AI

Effective communicators close more deals. ChipBrain LLC’s emotionally intelligent AI assistant provides real-time emotion, tone, and facial expression feedback in live conversations across text, voice, and video. Taking the guesswork out of identifying conversational cues, the company’s technology enables sales professionals to see at a glance how they are coming across to customers.

Deuce Drone

Industry: Drone Delivery Technology

Deuce Drone LLC solves the last mile delivery problem for “brick and mortar” retailers. The company designs, builds, and operates drone delivery systems, transforming retail stores into customer fulfillment centers. Deuce Drone LLC provides a cost-effective, technology-driven solution for same-day delivery that allows retailers to compete with major e-commerce players.

Zelgor

Industry: Mobile Games

Backed by famous venture capitalist Tim Draper, napster founder, Shawn Fanning, and co-creator of Guitar Hero, Kai Huang, Zelgor Inc. is an interactive entertainment company featuring a new species of rambunctious alien characters called The Noobs. The Noobs are a unique and original intellectual property introduced to the world through mobile games, multimedia content, and strategic partnerships.

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MustWatch

Industry: Technology

MustWatch LLCbrings your friends and favorite shows together all in one place. The Watch Party app makes it easy to find new shows, see what your friends are watching, and recommend great shows to each other. The company’s platform delivers targeted show recommendations based on the television viewing tastes of users’ friends and family. It’s not a single streaming platform’s media catalog, but a cross-platform television guide, crowdsourced from your friends and family.

C-Reveal Therapeutics

Industry: Cancer Immunotherapy

C-Reveal Therapeutics’s proprietary technology, developed at Massachusetts General Hospital and Harvard University, helps the body's immune system to identify and destroy cancer cells by inhibiting key enzymes that conceal the disease. This patent pending approach is designed to improve the efficacy of treating a broad range of cancers.

Hiveskill LLC

Industry: AI

The product is an AI-powered database and CRM hybrid that uses data and emotionally intelligent AI to boost direct one-to-one marketing efforts. It also provides specialized experts who know how to leverage your company’s data.

Caesar Media Group Inc.

Industry: Marketing

Caesar Media Group, Inc. is an advanced marketing and technology solutions provider. Caesar Media Group is designed to leverage its technology and data to provide lead generation, search engine optimization (SEO) website development, project development, digital marketing, content management, customer service, and sales management. 

Investment Portfolio Company Progress

KingsCrowd, Inc., a fintech company that provides ratings and analytics for online private markets, grew their subscriber base to 350,000, generated almost half a million in revenues last year, rated over half a billion dollars in transactions with their proprietary rating algorithm, and launched a $15 million Reg A+ round at a $45 million pre-money valuation.

Deuce Drone recently secured an exclusive contract for food delivery at the BB&T Center, in Mobile, Alabama. They successfully completed their first food delivery run: Operation Smoothie. The Deuce Drone team was joined by several notable community leaders for the demo, including Representative Jerry Carl, the chief executive officer of the Mobile Chamber of Commerce, staff from Senator Tommy Tuberville’s office, and representatives from Innovation Portal, a local incubator that recently invested in the company. Local Fox 10 News and Alabama.com covered the event.

MustWatch launched their television show recommendation app in the Apple app store, which has been awarded a 5-star rating by users. They also added acclaimed Hollywood producer and screenwriter Jason Keller to their team. Keller brings nearly two decades of experience in the film and entertainment industry to the MustWatch team. Most recently Keller wrote the Oscar winning film Ford vs. Ferrari (starring Christian Bale and Matt Damon) which was nominated for four Academy Awards, including Best Picture. His other notable writing credits include Mirror, Mirror (starring Julia Roberts), Escape Plan (starring Arnold Schwarzenegger and Sylvester Stallone) and Machine Gun Preacher (starring Gerard Butler), as well as an executive producer for the fifth movie in the Die Hard franchise, A Good Day to Die Hard (starring Bruce Willis).

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Zelgor completed a stability test launch of their first mobile game, Noobs in Space, and generated thousands of downloads in the first 48 hours. They sold out their recent offering on the Netcapital platform.

ChipBrain, which develops emotionally intelligent AI, has built out their core machine learning models and performed pilot programs with multiple customers. With the help of Netcapital Advisors, the Company sold out two rounds of financing on Netcapital, and just closed a venture round at a $20 million pre-money valuation.

Working with Netcapital Advisors, C-Reveal raised over $1 million on the Netcapital platform, and then closed a $3 million venture round.

Major Customers

 

For the year ended April 30, 2022, the Company had one customer that constituted 22% of its revenues, a second customer that constituted 22% of its revenues, and a third customer that constituted 18% of its revenues. For the year ended April 30, 2021, the Company had one customer that constituted 30% of its revenues, a second customer that constituted 15% of its revenues, a third customer that constituted 14% of its revenues and a fourth customer that accounted for 11% of its revenues. For the year ended April 30, 2020, the Company had one customer that constituted 47% of its revenues, a second customer that constituted 31% of its revenues and a third customer that accounted for 13% of its revenues.

Recent Developments

Nasdaq Uplist Offering

 

On July 15, 2022, we completed an underwritten public offering of 1,205,000 shares of our common stock and warrants to purchase 1,205,000 shares of our common stock at a combined public offering price of $4.15 per share and warrant. The gross proceeds from the offering were $5,000,750 prior to deducting underwriting discounts, commissions, and other offering expenses. The warrants have a per share exercise price of $5.19, are exercisable immediately, and expire five years from the date of issuance.

In conjunction with this offering, the shares and warrants began trading on The Nasdaq Capital Market on July 13, 2022, under the ticker symbols “NCPL” and “NCPLW,” respectively.

In addition, we granted the underwriter a 45-day option to purchase up to an additional 180,750 shares of common stock and/or up to 180,750 additional warrants to cover over-allotments, if any. In connection with the closing of the offering, the underwriter partially exercised its over-allotment option and purchased an additional 111,300 warrants. The underwriter retains the right to exercise the balance of its over-allotment option within the 45-day period.

Repayment of Secured Debt

On July 21, 2022 the company paid $1 million to its secured lender, Vaxstar LLC, to reduce the principal balance on its debt from $1,400,000 to $400,000.

Corporate Information

The Company was incorporated in Utah in 1984 as DBS Investments, Inc., or DBS. DBS merged with Valuesetters L.L.C. in December 2003 and changed its name to Valuesetters, Inc. In November 2020, the Company purchased Netcapital Funding Portal Inc. from Netcapital Systems LLC and changed the name of the Company from Valuesetters, Inc. to Netcapital Inc. 

Our principal executive offices are located at State Street Financial Center, One Lincoln Street, Boston, Massachusetts and our telephone number is 781-925-1700. We maintain a website at www.netcapitalinc.com. Information contained on or accessible through our website is not, and should not be considered, part of, or incorporated by reference into, this prospectus and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus in deciding whether to purchase our securities.

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We maintain a corporate website with the address http://www.netcapitalinc.com, our funding portal maintains a website with the address http://www.netcapital.com, and Netcapital Advisors maintains a website at http://www.netcapitaladvisors.com.www.netcapitaladvisors.com and our valuation business maintains a website at https://valucorp.com/. We have not incorporated by reference into this Report on Form 10-K the information on any of our websites and you should not consider any of such information to be a part of this document. Our website addresses are included in this document for reference only.

 

We make available free of charge through our corporate website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports through a link to the EDGAR database as soon as reasonably practicable after we electronically file such material with, or furnish such material to the SEC.  You can also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1.800.SEC.0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including all of our filings.

 

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ItemITEM 1A.RISK FACTORS.

 

An investmentInvesting in our common stocksecurities involves a high degree of risk. You should carefully consider the risks described below, andtogether with the other information contained in this Form 10-Kprospectus, including our financial statements and the related notes appearing at the end of this prospectus, before investingmaking your decision to invest in our common stock.securities. We cannot assure you that any of the events discussed in the risk factors below will not occur. These risks could have a material and adverse impact on our business, results of operations, financial condition and cash flows and, if so, our prospects would likely be materially and adversely affected. If any of such events were to happen, the following risks occur,trading price of our business, operating resultssecurities in any market that may develop for our securities could decline and financial conditionyou could be seriously harmed.lose all or part of your investment.

 

Risks Related to Our Business and Growth Strategy

We have a limited operating history that you can use to evaluate us, and our profits have been generated primarily by unrealized gains from equity securities we own in other companies. Although we have been profitable, the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company.

We were incorporated in the State of Utah in April 1984. TheAlthough we have reported earnings in the years ended April 30, 2022 and 2021, the majority of our earnings came from unrealized gains in equity securities that we own. These securities have observable prices but are not liquid. Furthermore, the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company starting a new business enterprise and the highly competitive environment in which we will operate. Since we have a limited operating history, we cannot assure you that our business will maintain profitability.

Major health epidemics, such as the outbreak caused byWe have substantial customer concentration, with a coronavirus (COVID-19), and other outbreaks or unforeseen or catastrophic events could continue to disrupt and adversely affectlimited number of customers accounting for a substantial portion of our operations, financial condition, and business.revenues.

Public health epidemics or outbreaks could adversely impactWe currently derive a significant portion of our business. In Julyrevenues from a limited number of customers. For the year ended April 30, 2022, the Company had one customer that constituted 22% of its revenues, a second customer that constituted 22% of its revenues, and a third customer that constituted 18% of its revenues. For the year ended April 30, 2021, the global tallyCompany had one customer that constituted 30% of confirmed casesits revenues, a second customer that constituted 15% of its revenues, a third customer that constituted 14% of its revenues and a fourth customer that accounted for 11% of its revenues. There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers. It is not possible for us to predict the coronavirus-borne illness COVID-19 exceeded 180 million. The extentfuture 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 whichmarket, economic or competitive conditions, we could be pressured to reduce the coronavirus impactsprices we charge for our operations will depend on future developments,products which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus and the emergence of variants, among others. In particular, the spread and treatment of the coronavirus globally could adversely impact our operations and could have an adverse impacteffect on our businessmargins and financial position and could negatively affect our financial results.revenues and results of operations and/or trading price of our common stock. 

 

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, and other applicable securities rules and regulations. Compliance with these rules and regulations increases our legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and increases demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, and such attention could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants who will increase our costs and expenses.

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In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors.

We may need to raise additional funds through public or private debt or sale of equity to pay for the costs we incur as a public company. Such financing may not be available when needed. Even if such financing is available, it may be on terms that are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. No assurance can be given that such funds will be available or, if available, will be on commercially reasonable terms satisfactory to us. There can be no assurance that we will be able to obtain financing if and when it is needed on terms we deem acceptable. If we are unable to obtain financing on reasonable terms, we could be forced to discontinue our public reporting.

As a result of disclosure of information in this report and in future filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

We operate in a regulatory environment that is evolving and uncertain.

The regulatory framework for online capital formation or crowdfunding is very new. The regulations that govern our operations have been in existence for a very few years. Further, there are constant discussions among legislators and regulators with respect to changing the regulatory environment. New laws and regulations could be adopted in the United States and abroad. Further, existing laws and regulations may be interpreted in ways that would impact our operations, including how we communicate and work with investors and the companies that use our services and the types of securities that our clients can offer and sell on our platform.

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We operate in a highly regulated industry.

We are subject to extensive regulation and failure to comply with such regulation could have an adverse effect on our business. Further, our subsidiary Netcapital Funding Portal Inc is registered as a funding portal. As a funding portal we have to comply with stringent regulations, and the operation of our funding portal is frequently subject to examination, constraints on its business, and in some cases fines. In addition, some of the restrictions and rules applicable to our subsidiary could adversely affect and limit some of our business plans.

 

We may be liable for misstatements made by issuers.

Under the Securities Act of 1933 and the Exchange Act of 1934, issuers making offerings through ourOur funding portal may be liable for inappropriate disclosures, including untrue statements of material facts or for omitting information that could make the statements misleading. This liability may also extend in Regulation Crowdfunding offerings to funding portals, such as our subsidiary. Even though due diligence defenses may be available, there can be no assurance that if we were sued, we would prevail. Further, even if we do succeed, lawsuits are time consuming and expensive, and being a party to such actions may cause us reputational harm that would negatively impact our business. Moreover, even if we are not liable or a party to a lawsuit or enforcement action, some of our clients have been and will be subject to such proceedings. Any involvement we may have, including responding to document production requests, may be time-consuming and expensive as well.

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Our compliance is focused on U.S. laws and we have not analyzed foreign laws regarding the participation of non-U.S. residents.

Some of the investment opportunities posted on our platform are open to non-U.S. residents. We have not researched all the applicable foreign laws and regulations, and we have not set up our structure to be compliant with foreign laws. It is possible that we may be deemed in violation of those laws, which could result in fines or penalties as well as reputational harm. Any violation of foreign laws may limit our ability in the future to assist companies in accessing money from those investors, and compliance with those laws and regulations may limit our business operations and plans for future expansion.

Netcapital Funding Portal’s productportal’s service offerings are relatively new in an industry that is still quickly evolving.

The principal securities regulations that we work with, Rule 506(c) and Regulation Crowdfunding,Reg CF, have only been in effect in their current form since 2013 and 2016, respectively. Our ability to continue to penetrate the market remains uncertain as potential issuer companies may choose to use different platforms or providers (including, in the case of Rule 506(c) and Regulation A, using their own online platform), or determine alternative methods of financing. Investors may decide to invest their money elsewhere. Further, our potential market may not be as large, or our industry may not grow as rapidly as anticipated. Success will likely be a factor of investing in the development and implementation of marketing campaigns, repeat business from both issuer companies and investors, and favorable changes in the regulatory environment.

We have an evolving business model.

Our business model is one of innovation, including continuously working to expand our product lines and services to our clients. For example, we are evaluating an expansion into the transfer agent and broker-dealer space as well as our foray into becoming an alternative trading system. It is unclear whether these services will be successful. Further, we continuously try to offer additional types of services, and we cannot offer any assurance that any of them will be successful. From time to time, we may also modify aspects of our business model relating to our service offerings. We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to the business. We may not be able to manage growth effectively, which could damage our reputation, limit our growth, and negatively affect our operating results.

 

We may be liable for misstatements made by issuers.

Under the Securities Act and the Securities Exchange Act of 1934 (the “Exchange Act”), issuers making offerings through our funding portal may be liable for inappropriate disclosures, including untrue statements of material facts or for omitting information that could make the statements misleading. This liability may also extend in Reg CF offerings to funding portals, such as our subsidiary. Even though due diligence defenses may be available, there can be no assurance that if we were sued, we would prevail. Further, even if we do succeed, lawsuits are time consuming and expensive, and being a party to such actions may cause us reputational harm that would negatively impact our business. Moreover, even if we are not liable or a party to a lawsuit or enforcement action, some of our clients have been and will be subject to such proceedings. Any involvement we may have, including responding to document production requests, may be time-consuming and expensive as well.

Our compliance is focused on U.S. laws and we have not analyzed foreign laws regarding the participation of non-U.S. residents.

Some of the investment opportunities posted on our platform are open to non-U.S. residents. We have not researched all the applicable foreign laws and regulations, and we have not set up our structure to be compliant with foreign laws. It is possible that we may be deemed in violation of those laws, which could result in fines or penalties as well as reputational harm. Any violation of foreign laws may limit our ability in the future to assist companies in accessing money from those investors, and compliance with those laws and regulations may limit our business operations and plans for future expansion.

Our cash flow is reliant on one main type of service.

Most of our cash-flow generating services are variants on one type of service: providing a platform for online capital formation. Our revenues are therefore dependent upon the market for online capital formation. As such, any downturn in the market could have a material adverse effect of our business and financial condition.

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We depend on key personnel and face challenges recruiting needed personnel.

Our future success depends on the efforts of a small number of key personnel, including the founder of our subsidiary, Netcapital Funding Portal Inc. and Chief Executive Officer, and our compliance, engineering and marketing teams. Our software engineer team, as well as our compliance team and our marketing team are critical to continually innovate and improve our products while operating in a highly regulated industry. In addition, due to the specialized expertise required, we may not be able to recruit the individuals needed for our business needs. There can be no assurance that we will be successful in attracting and retaining the personnel we require to operate and be innovative.

We are vulnerable to hackers and cyber attacks.

As an internet-based business, we may be vulnerable to hackers who may access the data of our investors and the issuer companies that utilize our platform. Further, any significant disruption in service on our funding portal platform or in our computer systems could reduce the attractiveness of our platform and result in a loss of investors and companies interested in using our platform. Further, we rely on a third-party technology provider to provide some of our back-up technology as well as act as our escrow agent. Any disruptions of services or cyber-attacks either on our technology provider, escrow agent, or on us could harm our reputation and materially negatively impact our financial condition and business.



Our funding portal relies on one escrow agent to hold investment commitments for issuers.

We currently rely on Silicon Valley Bank to provide all escrow services related to offerings on our platform. Any change in this relationship will require us to find another escrow agent and escrow bank. This change may cause us delays as well as additional costs in transitioning our technology. We are not allowed to operate our funding portal business without a qualified third-party escrow bank. There are a limited number of banks that provide this service. As such, if our relationship with our escrow agent is terminated, we may have difficulty finding a replacement which could have a material adverse effect on our business and results of operations.

If our wholly-owned subsidiary, Netcapital Funding Portal Inc., fails to comply with its obligations under the license agreement with Netcapital Systems LLC under which the technology to operate our funding portal is licensed to Netcapital Funding Portal Inc., we could lose rights necessary to operate our funding portal which are important to our business.

Our wholly owned subsidiary, Netcapital Funding Portal Inc. has licensed the technology necessary to operate our funding portal from our majority stockholder, Netcapital Systems LLC, of which Mr. Frishman owns a 29% interest. These rights are extremely important to our business. If Netcapital Funding Portal Inc. fails to comply with any obligations under this license agreement, such license agreement may be subject to termination in whole or in part, which could severely impact our ability to operate our funding portal which would have a material adverse effect on our business, financial position, and results of operations.

In addition, disputes may arise regarding the technology subject to a license agreement, including:

●the scope of rights granted under the license agreement and other interpretation-related issues;

●the extent to which our processes infringe on the technology of Netcapital Systems LLC that is not subject to the license agreement;

●the ownership of inventions and know-how resulting from the joint creation or use of technology by Netcapital Systems LLC and us.

Disputes over technology under the license agreement with Netcapital Systems LLC may prevent or impair our ability to maintain our current license agreement on acceptable terms, and we may be unable to successfully operate our funding portal. In addition, any failure of Netcapital Systems LLC to service the technology subject to the license agreement or to operate its website could result in our inability to operate our funding portal which would have a material adverse effect on our business, financial condition, and results of operations.

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Netcapital 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.

Netcapital Systems LLC relies on software licensed from third parties for the technology subject to the license agreement with Netcapital Funding Portal Inc. This software may not continue to be available at reasonable prices or on commercially reasonable terms, or at all. Any loss by Netcapital Systems LLC of the right to use any of this software could significantly increase our expenses and otherwise result in delays in the provisioning of our funding portal until equivalent technology is either developed by us or Netcapital Systems LLC, or, if available, is identified, obtained, and integrated, which could harm our business. Any errors or defects in third-party software could result in errors or a failure of our funding portal which could harm our business.

Our strategy to purchase a portion of early-stage companies may provide us with investments that have no liquidity.

It is our strategy to sometimes purchase, at an affordable price, part or all of early-stage companies and cross pollinate the ideas, technology and expertise within these companies to enhance the operations, profits and market share of all the entities. That strategy may result in us diverting management attention and advisory resources to do work for early-stage companies that pay for the work with equity, which becomes impaired in value or never becomes a liquid asset. For all of these early-stage companies, the future liquidity and value of our investments cannot be guaranteed, and no market may exist for us to generate gains from our investments in early-stage companies.

Our business depends on the reliability of the infrastructure that supports the Internet and the viability of the Internet.

The growth of Internet usage has caused frequent interruptions and delays in processing and transmitting data over the Internet. There can be no assurance that the Internet infrastructure or the Company’s own network systems will continue to be able to support the demands placed on it by the continued growth of the Internet, the overall online securities industry or that of our customers.

The Internet’s viability could be affected if the necessary infrastructure is not sufficient, or if other technologies and technological devices eclipse the Internet as a viable channel.

End-users of our software depend on Internet Service Providers (“ISPs”), online service providers and our system infrastructure for access to the Internet sites that we operate. Many of these services have experienced service outages in the past and could experience service outages, delays and other difficulties due to system failures, stability or interruption. As a result, we may not be able to meet a level of service that we have promised to our subscribers, and we may be in breach of our contractual commitments, which could materially adversely affect our business, revenues, operating results and financial condition.

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We are dependent on general economic conditions.

 

Our business model is dependent on investors investing in the companies presented on our platforms. Investment dollars are disposable income. Our business model is thus dependent on national and international economic conditions. Adverse national and international economic conditions may reduce the future availability of investment dollars, which would negatively impact our revenues and possibly our ability to continue operations. It is not possible to accurately predict the potential adverse impacts on the Company, if any, of current economic conditions on its financial condition, operating results and cash flow.

 

We face significant market competition.

We facilitate online capital formation. Though this is a new market, we compete against a variety of entrants in the market as well likely new entrants into the market. Some of these follow a regulatory model that is different from ours and might provide them competitive advantages. New entrants could include those that may already have a foothold in the securities industry, including some established broker-dealers. Further, online capital formation is not the only way to address helping start-ups raise capital, and the Company has to compete with a number of other approaches, including traditional venture capital investments, loans and other traditional methods of raising funds and companies conducting crowdfunding raises on their own websites. Additionally, some competitors and future competitors may be better capitalized than us, which would give them a significant advantage in marketing and operations.

Moreover, as we continue to expand our offerings, we will continue to face headwinds and compete with companies that are more established and/or have more financial resources than we do and/or new entrants bringing disruptive technologies and/or ideas.

Intense competition could prevent us from increasing our market share and growing our revenues.

We compete with a number of public and private companies and most of our competitors have significant financial resources and occupy entrenched positions in the market with name-brand recognition. We also face challenges from new Internet sites that aim to attract subscribers who seek to play interactive games or invest in public or private securities. Such companies may be able to attract significantly more subscribers because of new marketing ideas and user interface concepts.

Increased competition from current and future competitors may in the future materially adversely affect our business, revenues, operating results and financial condition.

We will require our secured lender to cooperate with us and, among other things, not demand repayments of principal and interest until the business is capable of making such payments.

We owe our secured lender, or the Lender, $400,000 in principal as of the date of this Report. Our Lender holds a term note bearing interest at an annual rate of 8%. We have not paid interest on the note and it accrues each month. We have a loan and security agreement, or the Loan, with the Lender with a maturity date of April 30, 2023.

To secure the payment of all obligations to the Lender, the Company granted to the Lender a continuing security interest and first lien on all of the assets of the Company.

In connection with the Loan, the Company has agreed to certain restrictive covenants, including, among others, that the Company may not convey, sell lease, transfer or otherwise dispose of any part of its business or property, except as permitted in the agreement, dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, incur any indebtedness except as defined in the agreement, create or allow a lien on any of its assets or collateral that has been pledged to the Lender, make any loans to any person, except for prepaid items or deposits incurred in the ordinary course of business, or make any material capital expenditures. If we default on our loan obligations with the Lender, it could exercise their rights and remedies under the applicable agreements, which could include seizing all of our assets. Any such action would have a material adverse effect on our business and prospects.

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The Loan contains numerous restrictive covenants which limit management’s discretion to operate our business.

In order to obtain the Loan, we agreed to certain covenants that place significant restrictions on, among other things, our ability to incur additional indebtedness, to create liens or other encumbrances, to make certain payments and investments, and to sell or otherwise dispose of assets and merge or consolidate with other entities. Any failure to comply with the covenants included in the Loan could result in an event of default, which could trigger an acceleration of the related debt. If we were unable to repay the debt upon any such acceleration, the Lender could seek to foreclose on our assets in an effort to seek repayment under the loans.  If the Lender was successful, we would be unable to conduct our business as it is presently conducted and our ability to generate revenues and fund our ongoing operations would be materially adversely affected.

We may require additional financing in the future to fund our operations.

We may need additional capital in the future to continue to execute our business plan. Therefore, we will be dependent upon additional capital in the form of either debt or equity to continue our operations. At the present time, we do not have arrangements to raise all of the needed additional capital, and we will need to identify potential investors and negotiate appropriate arrangements with them. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue our operations.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish certain rights.

We may seek additional capital through a combination of equity offerings, debt financings, strategic collaborations and alliances or licensing arrangements. To the extent that we raise additional capital through the sale of equity, convertible debt securities or other equity-based derivative securities, your ownership interest will be diluted and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Any indebtedness we incur could involve restrictive covenants, such as limitations on our ability to incur additional debt, acquire or license intellectual property rights, declare dividends, make capital expenditures and other operating restrictions that could adversely impact our ability to conduct our business. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline. If we raise additional funds through strategic collaborations and alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to future therapeutic candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our future therapeutic candidates that we would otherwise prefer to develop and market ourselves.

Our debt level could negatively impact our financial condition, results of operations and business prospects.

 

As of April 30, 2021, we continue to owe $1,000,000 in secured debt and we have borrowed money on three occasions from the U.S. Small Business Administration. Our level of debt could have significant consequences to our shareholders, including the following:

 

-●requiring the dedication of a substantial portion of cash flow from operations to make payments on debt, thereby reducing the availability of cash flow for working capital, capital expenditures and other general business activities;

 
-●requiring a substantial portion of our corporate cash reserves to be held as a reserve for debt service, limiting our ability to invest in new growth opportunities;

 

-●limiting the ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate and other activities;

 
-●limiting the flexibility in planning for, or reacting to, changes in the business and industry in which we operate;

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-●increasing our vulnerability to both general and industry-specific adverse economic conditions;

 
-●putting us at a competitive disadvantage vs. less leveraged competitors; and

 
-●increasing vulnerability to changes in the prevailing interest rates.

 

Our ability to make payments of principal and interest, or to refinance our indebtedness, depends on our future performance, which is subject to economic, financial, competitive and other factors. Our business may not generate sufficient cash flow in the future to service our debt because of factors beyond our control, including but not limited to our ability to market our products and expand our operations. If we are unable to generate sufficient cash flows, we may be required to adopt one or more alternatives, such as restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

 

We will require our secured lender to cooperate with us and, among other things, not demand repayments of principal and interest until the business is capable of making such payments.

We owe our secured lender $1,000,000 at April 30, 2021. Our lender holds a term note bearing interest at an annual rate of 8%. We have not paid interest on the note and it accrues each month. We have a loan and security agreement (the “Loan”) with the lender for a maximum amount of $1,250,000. The maturity date of our loan from the lender is April 30, 2022.

To secure the payment of all obligations to the lender, the Company granted to the lender a continuing security interest and first lien on all of the assets of the Company.

In connection with the Loan, the Company has agreed to certain restrictive covenants, including, among others, that the Company may not convey, sell lease, transfer or otherwise dispose of any part of its business or property, except as permitted in the agreement, dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, incur any indebtedness except as defined in the agreement, create or allow a lien on any of its assets or collateral that has been pledged to the lender, make any loans to any person, except for prepaid items or deposits incurred in the ordinary course of business, or make any material capital expenditures.

We may make acquisitions or form joint ventures that are unsuccessful.

 

Our ability to grow is partially dependent on our ability to successfully acquire other companies, which creates substantial risk. In order to pursue a growth by acquisition strategy successfully, we must identify suitable candidates for these transactions; however, because of our limited funds, we may not be able to purchase those companies that we have identified as potential acquisition candidates. Additionally, we may have difficulty managing post-closing issues such as the integration into our corporate structure. Integration issues are complex, time consuming and expensive and, without proper planning and implementation, could significantly disrupt our business, including, but not limited to, the diversion of management's attention, the loss of key business and/or personnel from the acquired company, unanticipated events, and legal liabilities.

 

Our future growth depends on our ability to develop and retain customers.

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Our future growth depends to a large extent on our ability to effectively anticipate and adapt to customer requirements and offer services that meet customer demands. If we are unable to attract new customers and/or retain new customers, our business, results of operations and financial condition may be materially adversely affected.

 

We will need to attract, train and retain additional highly qualified senior executives and technical and managerial personnel in the future.

We continue to seek technical and managerial staff members, although we have limited resources to compensate them until we have raised additional capital or developed a business that generates consistent cash flow from operations. We believe it is important to negotiate with potential candidates and, if appropriate, engage them on a part-time basis or on a project basis and compensate them at least partially, with stock-based compensation, when appropriate. There is a high demand for highly trained and managerial staff members. If we are not able to fill these positions, it may have an adverse effect on our business.

Major health epidemics, such as the outbreak caused by the COVID-19 pandemic, and other outbreaks or unforeseen or catastrophic events could continue to disrupt and adversely affect our operations, financial condition and business.

Public health epidemics or outbreaks could adversely impact our business. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus and the emergence of variants, among others. In particular, the spread and treatment of the coronavirus globally could adversely impact our operations and could have an adverse impact on our business and our financial results. To date, our business has not been impacted by COVID-19 but it could be in the future.

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We may not be able to protect all of our intellectual property.

Our profitability may depend in part on our ability to effectively protect our proprietary rights, including obtaining trademarks for our brand names, protecting our products and websites, maintaining the secrecy of our internal workings and preserving our trade secrets, as well as our ability to operate without inadvertently infringing on the proprietary rights of others. There can be no assurance that we will be able to obtain future protections for our intellectual property or defend our current trademarks and future trademarks and patents. Further, policing and protecting our intellectual property against unauthorized use by third parties is time-consuming and expensive, and certain countries may not even recognize our intellectual property rights. There can also be no assurance that a third party will not assert infringement claims with respect to our products or technologies. Any litigation for both protecting our intellectual property or defending our use of certain technologies could have material adverse effect on our business, operating results and financial condition, regardless of the outcome of such litigation.

Our revenues and profits are subject to fluctuations.

It is difficult to accurately forecast our revenues and operating results, and these could fluctuate in the future due to a number of factors. These factors may include adverse changes in: number of investors and amount of investors’ dollars, the success of world securities markets, general economic conditions, our ability to market our platform to companies and investors, headcount and other operating costs, and general industry and regulatory conditions and requirements. The Company's operating results may fluctuate from year to year due to the factors listed above and others not listed. At times, these fluctuations may be significant and could impact our ability to operate our business.

Natural disasters and other events beyond our control could materially adversely affect us.

Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers and could decrease demand for our services. Since the spring of 2020, large segments of the U.S. and global economies were impacted by COVID-19, a significant portion of the U.S. population were subject to “stay at home” or similar requirements. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers (both issuers using our services and investors investing on our platform) and our sales cycles, impact on our customer, employee or industry events, and effect on our vendors, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact our financial condition or results of operations is uncertain. To date, the COVID-19 outbreak, has significantly impacted global markets, U.S. employment numbers, as well as the business prospects of many small business (our potential clients). A significant part of our business model is based on receiving a percentage of the investments made through our platform and services. Further, we are dependent on investments in our offerings to fund our business. However, to date, other than working remotely, COVID-19 has not had a negative impact on the Company. While our business has not yet been impacted by COVID-19, to the extent COVID-19 continues and limits investment capital or personally impacts any of our key employees, it may have significant impact on our results and operations.

Acquisitions may have unanticipated consequences that could harm our business and our financial condition.

Any acquisition that we pursue, whether successfully completed or not, involves risks, including:

•material adverse effects on our operating results, particularly in the fiscal quarters immediately following the acquisition of acquired entities that are integrated into our operations;
•risks associated with entering into markets or conducting operations where we have no or limited prior experience;
•problems retaining key personnel;

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•potential impairment of tangible and intangible assets and goodwill acquired in the acquisition;
•potential unknown liabilities;
•difficulties of integration and failure to realize anticipated synergies; and
•disruption of our ongoing business, including diversion of management’s attention from other business concerns.

Future acquisitions may be accomplished through a cash purchase transaction, the issuance of our equity securities or a combination of both, could result in potentially dilutive issuances of our equity securities, the incurrence of debt and contingent liabilities and impairment charges related to goodwill and other intangible assets, any of which could harm our business and financial condition.

If 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.

In connection with credit and debit card sales, we transmit confidential credit and debit card information by way of secure online networks. Although we use private networks, third parties may have the technology or know-how to breach the security of the customer information transmitted in connection with credit and debit card sales, and our security measures and those of our technology vendors may not effectively prohibit others from obtaining improper access to this information. If a person were able to circumvent these security measures, he or she could destroy or steal valuable information or disrupt our operations. Any security breach could expose us to risks of data loss, litigation and liability and could seriously disrupt our operations and any resulting negative publicity could significantly harm our reputation.

We could be harmed by improper disclosure or loss of sensitive or confidential Company, employee, associate or customer data, including personal data.

In connection with the operation of our business, we plan to store, process and transmit data, including personal and payment information, about our employees, customers, associates and candidates, a portion of which is confidential and/or personally sensitive. Unauthorized disclosure or loss of sensitive or confidential data may occur through a variety of methods. These include, but are not limited to, systems failure, employee negligence, fraud or misappropriation, or unauthorized access to or through our information systems, whether by our employees or third parties, including a cyberattack by computer programmers, hackers, members of organized crime and/or state-sponsored organizations, who may develop and deploy viruses, worms or other malicious software programs.

Such disclosure, loss or breach could harm our reputation and subject us to government sanctions and liability under our contracts and laws that protect sensitive or personal data and confidential information, resulting in increased costs or loss of revenues. It is possible that security controls over sensitive or confidential data and other practices we and our third-party vendors follow may not prevent the improper access to, disclosure of, or loss of such information. The potential risk of security breaches and cyberattacks may increase as we introduce new services and offerings, such as mobile technology. Further, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions in which we provide services. Any failure or perceived failure to successfully manage the collection, use, disclosure, or security of personal information or other privacy related matters, or any failure to comply with changing regulatory requirements in this area, could result in legal liability or impairment to our reputation in the marketplace.

Failure to recognize, respond to and effectively manage the accelerated impact of social media could adversely impact our business.

In recent years, there has been a marked increase in the use of social media platforms, including blogs, chat platforms, social media websites, and other forms of Internet based communications which allow individuals access to a broad audience of consumers and other interested persons. The rising popularity of social media and other consumer-oriented technologies has increased the speed and accessibility of information dissemination. Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to our interests and/or may be inaccurate. The dissemination of information via social media could harm our business, reputation, financial condition, and results of operations, regardless of the information’s accuracy. The damage may be immediate without affording us an opportunity for redress or correction.

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In addition, social media is frequently used to communicate with our customers and the public in general. Failure by us to use social media effectively or appropriately, particularly as compared to our brands’ respective competitors, could lead to a decline in brand value, customer visits and revenue. Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about our brands, exposure of personally identifiable information, fraud, hoaxes or malicious dissemination of false information. The inappropriate use of social media by our customers or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation and adversely affect our results of operations.

Risks Related to Receipt of Securities for Services

We are not, and do not intend to become, regulated as an investment company under the U.S. Investment Company Act of 1940, as amended, or the 40 Act, (and similar legislation in other jurisdictions) and if we are deemed an “investment company” under the 40 Act applicable restrictions would make it impractical for us to operate as contemplated.

The 40 Act and the rules thereunder (and similar legislation in other jurisdictions) provide certain protections to investors and impose certain restrictions on companies that are registered as investment companies. Among other things, such rules limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities and impose certain governance requirements. We have not been and do not intend to become regulated as an investment company and we intend to conduct our activities so we will not be deemed to be an investment company under the 40 Act (and similar legislation in other jurisdictions). In order to ensure that we are not deemed to be an investment company, we may be required to materially restrict or limit the scope of our operations or plans related to us, we will be limited in the types of acquisitions that we may make and we may need to modify our organizational structure or dispose of assets that we would not otherwise dispose of. Moreover, if anything were to happen which would potentially cause us to be deemed an investment company under the 40 Act, it would be impractical for us to operate as intended pursuant to our platform and our business, financial condition and results of operations would be materially adversely affected. Accordingly, we would be required to take extraordinary steps to address the situation, such as the modification and restructuring of our platform, which would materially adversely affect our ability to derive revenue.

Our consulting and advisory services are primarily paid for in restricted shares of stock of our customers, which are often private companies with no established trading market for their securities.

For our consulting and advisory services, payment is often made through equity securities of customers instead of cash. The securities issued are in private companies with no established trading market for their securities In the absence of a trading market, we may be unable to liquidate our investment, which will result in the loss of our investment.

Risk Factors Related to our Common Stock

Concentration of ownership among our majority stockholders may prevent new investors from influencing significant corporate decisions.

As of July 29 2022, Netcapital Systems LLC, our largest stockholder, beneficially owned, in the aggregate, approximately 40% of our outstanding shares of common stock. As a result, this stockholder will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders.

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There 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 de-listing of our common stock and warrants.

Nasdaq requires that the trading price of a company’s listed stock on Nasdaq remain above one dollar in order for such stock to remain listed. If a listed stock trades below one dollar for more than 30 consecutive trading days, then it is subject to delisting from Nasdaq. In addition, to maintain a listing on Nasdaq, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, and certain corporate governance requirements. If we are unable to satisfy these requirements or standards, we could be subject to delisting, which would have a negative effect on the price of our common stock and warrants and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would expect to take actions to restore our compliance with the listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the minimum bid price requirement, or prevent future non-compliance with the listing requirements.

We recently sold a substantial number of shares of our common stock and warrants to purchase common stock in a public offering, which could cause the price of our common stock to decline.

In a recent offering, we sold 1,205,000 shares of common stock. Additionally, we sold an equal number of warrants to purchase shares of common stock. The existence of the potential additional shares of our common stock in the public market, or the perception that such additional shares may be in the market, could adversely affect the price of our common stock. We cannot predict the effect, if any, that market sales of those shares of common stock or the availability of those shares of common stock for sale will have on the market price of our common stock. Any decline in the price of a share of common stock will also have a negative effect on the price in the market of a warrant.

We do not expect to pay dividends and investors should not buy our common stock expecting to receive dividends.

We have not paid any dividends on our common stock in the past, and do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your investment in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends. Since we do not pay dividends, and if we are not successful in having our shares listed or quoted on an exchange, then you may have a limited ability to liquidate or receive any payment on your investment. Therefore, our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we do not pay dividends we may have trouble raising additional funds, which could affect our ability to expand our business operations.

Our future growth depends on our ability to develop and retain customers.

Our future growth depends to a large extent on our ability to effectively anticipate and adapt to customer requirements and offer services that meet customer demands. If we are unable to attract new customers and/or retain new customers, our business, results of operations and financial condition may be materially adversely affected.

We will need to attract, train and retain additional highly qualified senior executives and technical and managerial personnel in the future.

We continue to seek technical and managerial staff members, although we have limited resources to compensate them until we have raised additional capital or developed a business that generates consistent cash flow from operations. We believe it is important to negotiate with potential candidates and, if appropriate, engage them on a part-time basis or on a project basis and compensate them at least partially, with stock-based compensation, when appropriate. There is a high demand for highly trained and managerial staff members. If we are not able to fill these positions, it may have an adverse effect on our business.

We may conduct future offerings of our common stock and pay debt obligations with our common and preferred stock which may diminish our investors’ pro rata ownership and depress our stock price.

We reserve the right to make future offers and sales, either public or private, of our securities, including shares of our common stock or securities convertible into common stock at prices differing from the price of the common stock previously issued. In the event that any such future sales of securities are affected or we use our common stock to pay principal or interest on our debt obligations, an investor’s pro rata ownership interest may be reduced to the extent of any such future sales.

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The market price of our common stock is highly volatile and could be subject to volatility related or unrelated to our operations.

You should consider an investment in our securities to be risky, and you should invest in our securities only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this prospectus, are:

●actual or anticipated fluctuations in quarterly funding portal revenues or operating results, whether in our operations or in those of our competitors;
●changes in financial estimates or opinions by research analysts, either with respect to us or other fintech companies;
●our failure to accelerate user growth or new issuer growth;
●any failure to meet investor or analyst expectations;
●the public’s reaction to our press releases, other public announcements and our filings with the SEC;
●actual or anticipated changes in domestic or worldwide economic, political or market conditions, such as recessions;
●changes in the consumer spending environment;
●terrorist acts;
●changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to our business;
●changes in accounting standards, policies, guidance, interpretations or principles;
●short sales, hedging and other derivative transactions in the shares of our common stock;
●future sales or issuances of our common stock, including sales or issuances by us, our directors or executive officers and our significant stockholders;
●our dividend policy;
●changes in the market valuations of other fintech companies;
●actions by stockholders;
●various market factors or perceived market factors, including rumors, involving us, our vendors and clients, whether accurate or not;
●announcements by us or our competitors of new locations, technological advances, significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives; and
●a loss of a key member of management.

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may adversely affect the trading price of our common stock in any market that develops for it. In addition, our stock price may be influenced by trading activity in our common stock as a result of market commentary (including commentary that may be unreliable or incomplete in some cases); changes in expectations about our business, our creditworthiness or investor confidence generally; or actions by stockholders and others seeking to influence our business strategies.

In the past, following periods of volatility in the market price of a company’s securities, stockholders have instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and a diversion of management attention and resources, which would significantly harm our profitability and reputation.

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Our common stock may be subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which could make transactions in the stock cumbersome and may reduce the value of an investment in the stock.

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our securities.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. The FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our common stock or our warrants, which may have the effect of reducing the level of trading activity in our securities. As a result, fewer broker-dealers may be willing to make a market in our common stock or our warrants, reducing a stockholder’s ability to resell shares of our common stock and warrants.

If 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.

The trading market for our common stock may be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our securities adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock or warrants would likely decline. If any analyst who may cover us was to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our common stock or warrants or trading volume to decline.

Our issuance of common stock upon the exercise of options granted under our 2021 Equity Incentive Plan may dilute all other stockholders.

We have issued options to purchase 271,000 shares of common stock under our 2021 Equity Incentive Plan and we expect to issue options to purchase the remaining 29,000 shares of common stock in the future to officers, directors, employees and consultants under our 2021 Equity Incentive Plan. Any such issuances of common stock underlying stock options may cause stockholders to experience dilution of their ownership interests and the per share value of our common stock to decline.

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Our 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.

As a publicly reporting company, we are faced with expensive, complicated and evolving disclosure, governance and compliance laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and the Dodd-Frank Act, and, following this offering, Nasdaq rules. As a result of the complexity involved in complying with the applicable rules and regulations, our management’s attention may be diverted from other business concerns, which could harm our business, results of operations and financial condition. We may need to hire more personnel in the future or engage outside consultants, which will increase our operating expenses, to assist us in complying with these requirements.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest substantial resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.

Failure 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.

We are required pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to maintain internal control over financial reporting and to assess and report on the effectiveness of those controls. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies in which case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our 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.

In addition, as permitted by the Utah Business Corporation Act, our bylaws and the indemnification agreements that we have entered into with our directors and officers provide that:

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●we will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Utah law. Utah law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful;
●we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;
 

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●we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;
●we will not be obligated pursuant to our bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors, or Board, or brought to enforce a right to indemnification;
●the rights conferred in our bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and
●we may not retroactively amend our bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.

Limitations on liability and indemnification matters.

As permitted by the corporate laws of the state of Utah, our articles of incorporation include a provision to eliminate the personal liability of our directors for monetary damages for breach or alleged breach of their fiduciary duties as directors, subject to certain exceptions. In addition, our bylaws provide that we are required to indemnify our officers and directors under certain circumstances, including those circumstances in which indemnification would otherwise be discretionary, and we will be required to advance expenses to our officers and directors as incurred in connection with proceedings against them for which they may be indemnified. If we are required to indemnify, both for the costs of their defense in any action or to pay monetary damages upon a finding of a court or in any settlement, our business and financial condition could be materially and adversely affected.

ItemITEM 1B.UNRESOLVED STAFF COMMENTS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.

 

ITEM 2.PROPERTIES

  

We utilize an office at 1 Lincoln Street in Boston, Massachusetts. We currently pay renta membership fee of approximately $3,600$5,700 a month, under a agreement that expires in September 2023, for a mailing address and our rent agreement is through March 2022 for approximately 400 square feeta virtual office in an office-suite location. The majority of ourOur employees work remotely. We believe our arrangements are suitable and adequate for business purposes and our near-term expansion plans.

ITEM 3.

LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not involved inaware of any litigationsuch legal proceedings or claims that we believe couldwill have, individually or in the aggregate, a materiallymaterial adverse effect on our business, financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.operating results.

  

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable

 

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PART II

 

ItemITEM 5.  Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

(a) Market Information

 

Our common stock is currentlywas quoted on the OTCQX marketplace under the symbol NCPL. The high and low closing price for each quarterly period of“NCPL” before our last two fiscal years are listed below.

Fiscal Quarter endedHigh Price Low Price
1st Quarter – May – July 2019$18.40 $4.40
2nd Quarter – August – October 2019$33.00 $8.20
3rd Quarter – November 2019 – January 2020$33.00 $8.20
4th Quarter – February – April 2020$15.80 $4.20
1st Quarter – May – July 2020$14.00 $6.00
2nd Quarter – August – October 2020$16.00 $6.00
3rd Quarter – November 2020 – January 2021$11.00 $5.01
4th Quarter – February – April 2021$13.95 $6.66

Thelisting on Nasdaq in July 2022. Any over-the-counter quotations set forth in the table above reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

 

Our common stock and warrants trade on the Nasdaq Capital Market under the symbols “NCPL” and “NCPLW,” respectively. Our common stock and warrants commenced trading on Nasdaq on July 13, 2022.

Recent Issuances of Unregistered Securities

 

None37,500 shares of common stock were issued on April 28, 2022, in conjunction with an agreement to purchase a 10% equity interest in Caesar Media Group, Inc. We did not receive any proceeds from issuance. The issuance was exempt under Section 4(a)(2) of the Securities Act of 1933, as amended.

 

(b) Holders

 

There are 230293 shareholders of record of our common stock.stock as of July 29, 2022.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Equity Stock Transfer LLC with its business address at 237 W 37th Street, Suite 602, New York, NY 10018.

Its telephone number is (212) 575-5757 and its email address is info@equitystock.com.

(c) Dividends

 

 

We have never paid dividends on our common stock and do not expect to do so in the foreseeable future.

 

(d) Securities Authorized for Issuance under Equity Compensation Plans

 

We currently have no equity compensation plan either approved2021 Equity Incentive Plan. In November 2021, our Board adopted the 2021 Equity Incentive Plan, or not approved by security holders,the Plan. An aggregate of 300,000 shares of our common stock is reserved for issuance and available for awards under the Plan, including incentive stock options granted under the Plan. The Plan administrator may grant awards to any employee, director, consultant or other person providing services to us or our affiliates. As of July 29, 2022, we had awarded an aggregate of 271,000 options to purchase shares of common stock to directors and there are no securities currently authorizedremain 29,000 shares for issuancegrant under any equity compensation plan. However,the Plan.

The Plan is administered by our Board of DirectorsBoard. The Plan administrator has previously approved share-based compensation in lieu of cash compensationthe authority to various consultants and employees. Such share-based compensation is recognized atdetermine, within the time of grant equal to the fair valuelimits of the stock award at the timeexpress provisions of the grantPlan, the individuals to whom awards will be granted, the nature, amount and terms of such awards and the objectives and conditions for earning such awards. Our Board may at any time amend or atterminate the timePlan, provided that no such action may be taken that adversely affects any rights or obligations with respect to any awards previously made under the award vests, if there is a vesting period. Plan without the consent of the recipient. No awards may be made under the Plan after the tenth anniversary of its effective date.

Awards under the Plan may include incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted shares of common stock, restricted stock units, performance share awards, stock bonuses and other stock-based awards and cash-based incentive awards.

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ItemITEM 6.  Selected Financial Data.[RESERVED].

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.

 

ItemITEM 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE.  THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS.

 

Overview

 

We areNetcapital Inc. is a fintech company with a scalable technology platform that enablesallows private companies to raise capital online from accredited and providesnon-accredited investors. We give all investors the opportunity to access investments in private companies. Our model is disruptive to traditional private equity investment opportunities to investors.investing and is based on Title III, Reg CF of the JOBS Act. We generate fees from listing private companies on our portal. Our consulting group, Netcapital Advisors, provides marketing and strategic advice and takesin exchange for equity positions in select companies that we believe possess disruptive technologies. Ourand cash fees. The Netcapital funding portal Netcapital Funding Portal Inc., is registered with the SEC, and is a member of FINRA and provides investors with opportunities to invest in private companies.

We provide private company investment access to accredited retail and non-accredited retail investors through our online portal (www.netcapital.com). The Netcapital funding portal charges a $5,000 engagement fee and a 4.9% success fee for capital raised at closing. In addition, the Financial Industry Regulatory Authority (FINRA),portal generates fees for other ancillary services, such as rolling closes. Netcapital Advisors generates fees and equity stakes from consulting in select portfolio and non-portfolio clients.

Netcapital.com is an SEC-registered funding portal that enables private companies to raise capital online, while investors are able to invest from anywhere in the world, at any time, with just a registered national securities association.few clicks. Securities offerings on the portal are accessible through individual offering pages, where companies include product or service details, market size, competitive advantages, and financial documents. Companies can accept investment from anyone, including friends, family, customers, employees, etc.

In addition to access to the funding portal, Netcapital provides the following services:

●a fully automated onboarding process;
●automated filing of required regulatory documents;
●compliance review;
●custom-built offering page on our portal website;
●third party transfer agent and custodial services;
●email marketing to our proprietary list of investors;
●rolling closes, which provide potential access to liquidity before final close date of offering;
●assistance with annual filings; and
●direct access to our team for ongoing support.

 

We sometimes take equity stakes in promising technology start-ups. We play an active role in growing theseOur consulting group, Netcapital Advisors helps companies by providingat all stages to raise capital. Netcapital Advisors provides strategic advice, technology consulting and helponline marketing services to assist with capital raising.

We specialize in Reg CF offerings, under the provisions of Title III of the JOBS Act of 2012. We believe that new capital raising techniques, such as Reg CF, democratize capital raising, similar to the way that social networks democratize broadcast mechanisms that once belonged only to traditional media. We purchased Netcapital Funding Portal Inc., a registered Reg CF funding portal, effective November 5, 2020, and we changed the name of our company to Netcapital Inc. to reflect our commitment to help companies raise capitalfundraising campaigns on the internet. Reg CF is one of three securities exemptions that enable online capital formation. Reg CF allows issuers to raise up to $5 million from accredited or non-accredited investors every 12 months.Netcapital platform. The Company also acts as an incubator and accelerator, taking equity stakes in select disruptive start-ups.

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Our limited operating history and the uncertain nature of our future operations and the markets we address or intend to address make predictions of our future results of operations difficult. Our operations may never generate significant revenues, and we may not consistently achieve profitable operations.   

 

Recent Developments

Nasdaq Uplist Offering

On July 15, 2022, we completed an underwritten public offering of 1,205,000 shares of our common stock and warrants to purchase 1,205,000 shares of our common stock at a combined public offering price of $4.15 per share and warrant. The gross proceeds from the offering were $5,000,750 prior to deducting underwriting discounts, commissions, and other offering expenses. The warrants have a per share exercise price of $5.19, are exercisable immediately, and expire five years from the date of issuance.

In conjunction with this offering, the shares and warrants began trading on The Nasdaq Capital Market on July 13, 2022, under the ticker symbols “NCPL” and “NCPLW,” respectively.

In addition, we granted the underwriter a 45-day option to purchase up to an additional 180,750 shares of common stock and/or up to 180,750 additional warrants to cover over-allotments, if any. In connection with the closing of the offering, the underwriter partially exercised its over-allotment option and purchased an additional 111,300 warrants. The underwriter retains the right to exercise the balance of its over-allotment option within the 45-day period.

Repayment of Secured Debt

On July 21, 2022 the company paid $1 million to its secured lender, Vaxstar LLC, to reduce the principal balance on its debt from $1,400,000 to $400,000.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this Form 10-K. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

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Results of Operations

 

Fiscal Year 20212022 Compared to Fiscal Year 20202021

 

Our revenues for fiscal 20212022 increased by $2,967,445,$759,832, or 169%16%, to $4,721,003$5,480,835 as compared to $1,753,558$4,721,003 reported for fiscal 2020.2021. The increase in revenues is primarily attributable to our consulting services. We expanded our consulting business, which concentrates on providing assistance with capital raising, strategy, technology consulting and marketing. We also received additionalincreased revenues in fiscal 2021 from our funding portal, which we did not haverecorded an increase of portal fees of $681,966, or 130% to $1,206,957 in fiscal 2020.2022 as compared to $524,991 in fiscal 2021, in addition to an increase in listing fees of $92,500, or 31%, to $394,490 is fiscal 2022, as compared to $301,990 in fiscal 2021. The components of revenue are as follows:

  April 30, 2022  April 30, 2021 
Consulting services for equity securities $3,375,000  $3,547,032 
Consulting revenue  503,233   338,990 
Portal fees  1,206,957   524,991 
Listing fees  394,490   301,990 
Other revenue  1,155   8,000 
Total $5,480,835  $4,721,003 

 

Our costs of revenues increaseddecreased by $748,053,$649,043, or 6,736%85%, to $110,115 in fiscal 2022, from $759,158 in fiscal 2021, from $11,105 in fiscal 2020.2021. The increasedecrease is primarily attributable to labor costs that were incurred for revenue-generating projects in fiscal 2021 that were not required for our increased revenues and the changecustomers in our strategy of how we accelerate the product development for the companies we invest in.fiscal 2022.

 

Stock-based compensationConsulting expense increased by $324,359,$205,376, or 91%30%, to $680,611$892,567 for fiscal 20212022 from $356,252$687,191 reported in the prior fiscal year. The increase is primarily attributableattributed to higher values of the price per share of our common stockan increase in contractors in fiscal 2021, as compared to fiscal 2020. In addition, two new marketing consultants were hired in fiscal 2021that accounted2022 for $147,654 in stock-based compensation.

Consulting expense decreased by $96,020, or 94%, to $6,580 for fiscal 2021 from $102,600 reported in the prior fiscal year. The decrease is attributed to our increase in wages in fiscal 2021.back-office support.

 

Payroll and payroll related expenses increased by $646,770, or 21%, to $3,763,845 in fiscal 2022, as compared to $3,117,075 in fiscal 2021. In fiscal 2020 compensation was paid throughAdditional payroll expenses are attributable to the issuance of common stock grantsneed for more personnel to support the increased issuers, investors and cash payments to consultants. Payroll expense also increasedusers in fiscal 2021 due to the acquisition of Netcapital Funding Portal Inc., which had approximately 20 employees.2022.

 

General and administrative expenses increased by $392,208,$1,137,076, or 539%245%, to $464,955$1,602,031 for the year ended April 30, 2021,2022, as compared to $72,747$464,955 for the prior fiscal year. The primary increase in expenses is attributable to legal costs, of approximately $224,000professional fees and software usage fees of $100,000.fees.

 

Interest expense increased by $68,454$39,039 to $87,333$126,372 for the year ended April 30, 2021,2022, as compared to $18,879$87,333 for the prior fiscal year. OurAlthough our debt balances decreased from $5,328,784 as of April 30, 2021 to $4,142,984 as of April 30, 2022 due to the forgiveness of an SBA loan of $1,904,296, bearing interest at an annual rate of 1%, we increased significantly slightlyour borrowings in fiscal 2021 due to $4,271,600 in2022 by $700,000 with new borrowings during the year andthat carried an increase in theannual interest rate on our $1,000,000 secured loan, effective October 31, 2020, from 1.25% toof 8%.

In fiscal 2020 we incurred a loss on the sale of investments of $527,540. We sold equity we had earned in one of our consulting engagements primarily to take advantage of a realized loss for tax purposes. No realized gains or losses were recognized Debt forgiveness was $0 in fiscal 2021.

 

In fiscal 20202022, we incurredidentified that one of our equity holdings had an impairment lossobservable price change. The result of $185,952, whereas no impairment lossesthe price change was an increase in the fair value of the equity securities totaling $3,275,745 in the fiscal year ended April 30, 2022, which was recorded in the income statement as an unrealized gain on equity securities. In fiscal 2021, there were recognized in fiscal 2021. We monitor all our assets for anyobservable price changes in observable prices from orderly transactions and we recordtwo securities. The result of these price changes was an impairment expense when appropriate.increase in the fair value of the equity securities totaling $2,571,494 in the fiscal year ended April 30, 2021, which was recorded in the income statement as an unrealized gain on equity securities.

         

Liquidity and Capital Resources

 

As of April 30, 2021,2022, we had cash and cash equivalents of $473,925 and negative working capital of $3,113,403 as compared to cash and cash equivalents of $2,473,959 and negative working capital of $4,666,833 as compared to cash and cash equivalents of $11,206 and negative working capital of $1,057,581 as of April 30, 2020.2021.

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We have been successful in raising capital by selling restricted common stock in private placements and by borrowing funds fromcompleting a public offering of our common stock.

On July 15, 2022, the U.S. Small Business Administration. The negative working capital balance asCompany completed an underwritten public offering of April 30, 2021 has been eliminated by converting approximately $5 million in current liabilities into1,205,000 shares of the Company’s common stock and warrants to purchase 1,205,000 shares of the Company’s common stock at a combined public offering price range of $9.00 to $9.74$4.15 per share. In addition to the settlement of $5 million in current liabilities, we anticipate a $1.8 million SBA loan will be forgiven this summershare and we raised an additional $300,000warrant. The gross proceeds from the saleoffering were $5,000,750 prior to deducting underwriting discounts, commissions, and other offering expenses. The warrants have a per share exercise price of shares$5.19, are exercisable immediately, and expire five years from the date of common stock in May 2021.issuance. With the use of proceeds, we paid $1 million of debt to our secured lender, to reduce the outstanding principal balance to $400,000.

 

We believe that our existing cash investment balances, and our anticipated cash flows from operations will be sufficient to meet our working capital and expenditure requirements for the next 12 months. Although we believe we have adequate sources of liquidity over the next 12 months, the success of our operations, the global economic outlook, and the pace of sustainable growth in our markets, in each case, in light of the market volatility and uncertainty as a result of the COVID-19 pandemic, among other factors, could impact our business and liquidity. Up to this point in time, we believe the pandemic has helped drive people to online investing, as we see regular monthly increases in users and dollars invested, and an increase in issuers seeking to use online fund-raising services in lieu of face-to-face meetings.

 

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Year over Year Changes

 

Net cash used in operating activities amounted to $3,250,868$3,006,667 in fiscal 2021,2022, as compared to net cash used in operating activities of $3,604$3,250,868 in fiscal 2020. 2021.

In fiscal 2021,2022, the primary usessources of cash were net income of $3,503,530 and stock-based compensation of $1,176,058. However, these items were offset by non-cash revenue from the receipt of equity of $2,387,500, an unrealized gain on equity securities of $2,571,494,$3,275,745 debt forgiveness of $1,904,302 and an increase in accounts receivable of $1,153,598. In fiscal 2021, the primary sources of cash were net income of $1,469,660 and stock-based compensation of $680,611. However, these items were offset by non-cash revenue from the receipt of equity of $2,319,532, an unrealized gain on equity securities of $2,571,494 and an increase in accounts receivable of $1,417,257. These uses of cash were partially offset by net income of $1,469,660, stock-based compensation of $680,611, a change in deferred taxes of $613,000 and an increase in accounts payable and accrued expenses of $172,204.

 

In fiscal 2020, the principal source2022, net cash used in investing activities amounted to $319,166, consisting of cash from operating activities was net incomeloans to affiliates of $604,851, adjusted by stock-based compensation$202,000 and an investment in an affiliate of $356,252, a loss on the sale of investments of $527,540 and asset impairment of $185,952. These sources of cash from operating activities were offset by investments of $1,538,980 because of non-cash contract revenue with major customers.

$117,166. In fiscal 2021, net cash provided by investing activities amounted to $242,025. Proceeds from the purchase of a subsidiary provided cash of $364,939, which was offset by a use of cash of $122,914 as an investment in an affiliate. There was no investing activity in fiscal 2019.

 

NetIn fiscal 2022, net cash provided by financing activities amounted to $1,325,799. Cash proceeds were received of $300,000 from the sale of two convertible notes, $400,000 from borrowing from our secured lender and $625,799 from the sale of stock subscriptions. In fiscal 2021, net cash provided by financing activities totaled $5,471,596. Proceeds from loans amounted to $4,271,600 and proceeds from stock subscriptions totaled $1,199,996. Net cash used in financial activities in fiscal 2020 consisted of principal payments on a related party note totaling $4,300.

 

In fiscal 20212022 and 2020,2021, there were no expenditures for capital assets. We do not anticipate any capital expenditures in the next fiscal year.

 

New Accounting Standards

 

The new accounting pronouncements in Note 1 to our financial statements, which are included in this Report, are incorporated herein by reference thereto.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates include:

●revenue recognition and estimating allowance for doubtful accounts;

●valuation of long-lived and indefinite-lived assets; and

●income tax valuation of investments and identification of observable price changes.allowance.

 

We continually evaluate our accounting policies and the estimates we use to prepare our financial statements. In general, the estimates are based on historical experience, on information from third party professionals and on various other sources and assumptions that are believed to be reasonable under the facts and circumstances at the time such estimates are made. Management considers an accounting estimate to be critical if:

 

●it requires assumptions to be made that were uncertain at the time the estimate was made; and

●changes in the estimate, or the use of different estimating methods, could have a material impact on our consolidated results of operations or financial condition.

 

Actual results could differ from those estimates. Significant accounting policies are described in Note 1 to our financial statements, which are included in this Report. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

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Certain of our accounting policies are deemed “critical”, as they require management's highest degree of judgment, estimates and assumptions. The following critical accounting policies are not intended to be a comprehensive list of all of our accounting policies or estimates:

 

Revenue Recognition

 

The Company recognizes service revenue from its consulting contracts and its game website using the five-step model as prescribed by ASC 606:

 

• Identification of the contract, or contracts, with a customer;

• Identification of the performance obligations in the contract;

• Determination of the transaction price;

• Allocation of the transaction price to the performance obligations in the contract; and

• Recognition of revenue when or as, the Company satisfies a performance obligation.

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Allowance for Doubtful Accounts

 

In order to record the Company’s accounts receivable at their net realizable value, the Company must assess their collectability.  A considerable amount of judgment is required in order to make this assessment, including an analysis of historical bad debts and other adjustments, a review of the aging of the Company’s receivables, and the current creditworthiness of the Company’s customers.  Generally, when a customer account reaches a certain level of delinquency, the Company provides an allowance for the related amount receivable from the customer.  The Company writes off the accounts receivable balance from a customer and the related allowance established when it believes it has exhausted all reasonable collection efforts. AccountsNet accounts receivable of $1,356,932$2,433,900 and $0$1,356,932 were recorded at April 30, 20212022 and 2020,2021, respectively, and an allowance for doubtful accounts of $60,325$136,955 and $0$60,325 were recorded at April 30, 2022 and 2021, and 2020, respectively.

 

Impairment of Long-Lived Assets

 

Financial Accounting Standards Board (“FASB”) authoritative guidance requires that certain assets be reviewed for impairment and, if impaired, remeasured at fair value whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment loss estimates are primarily based upon management’s analysis and review of the carrying value of long-lived assets at each balance sheet date, utilizing an undiscounted future cash flow calculation. We recognizeddid not recognize an impairment loss of $0 and $185,952 in fiscal 20212022 and 2020, respectively, as we concluded the carrying amount of the equity that we owned in an early-stage company was not recoverable and we wrote down the value of our investment.2021.

 

Income Taxes

 

We estimate the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined that such assets will more likely than not go unused. If it becomes more likely than not that a tax asset or loss carry-forward will be used, the related valuation allowance on such assets is reversed. Based upon several profitable quarters over the past two years, and our ability to generate operating income of $1,147,222 and $624,433 in fiscal 2020 and 2019, respectively, and taxable income in both fiscal years, we reversed the valuation allowance from April 30, 2019 and recorded a current deferred tax asset as of April 30, 2020, and a deferred tax liability as of April 30, 2021.

 

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Information About Market Risk

We are not subject to fluctuations in interest rates, currency exchange rates or other financial market risks. We have not made any sales, purchases or commitments with foreign entities which would expose us to currency risks.

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ItemITEM 7A.  Quantitative and Qualitative Disclosures about Market Risk.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information under this item.

 

ItemITEM 8.  Financial Statements and Supplementary Data.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Our Consolidated Financial Statements required by this Item are included herein, commencing on page F-1.

 

ItemITEM 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

Not applicable.

 

ItemITEM 9A. Controls and Procedures.CONTROLS AND PROCEDURES.

 

(a) Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Principal Executive Officer (the “PEO”) and Principal Financial Officer (the “PFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) as of April 30, 2021.2022. Based on that evaluation, the PEO and the PFO concluded that, as of April 30, 2021,2022, such controls and procedures were effective.

 

(b) Management’s Assessment of Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f).  A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

Under the supervision and with the participation of management, including the PEO and the PFO, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of April 30, 2021,2022, based on the criteria established in a report entitled “2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission in Release No. 34-55929.  Based on this evaluation, the Company’s management has evaluated and concluded that the Company’s internal control over financial reporting was effective as of April 30, 2021.2022.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.  The Company’s registered public accounting firm was not required to issue an attestation on its internal controls over financial reporting pursuant to the rules of the SEC.  The Company will continue to evaluate the effectiveness of internal controls and procedures on an ongoing basis.

 

(c) Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended April 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ItemITEM 9B.  Other Information.OTHER INFORMATION.

 

None.

 

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ITEM 9C.  DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not Applicable.

PART III

 

ItemITEM 10.  Directors, Executive Officers and Corporate Governance.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Directors and Executive Officers

 

The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers as of August 31, 2021.July 29, 2022.

 

Our executive officers and directors are as follows:

    
   Officer or
NameAgePositionDirector Since
    
Cecilia Lenk6667Chairman of the Board, President and Chief
Executive Officer		July 2017
    
Thomas H CarmodyMartin Kay7458DirectorAugust 2010May 2022
    
Avi Liss4142Secretary and DirectorAugust 2010
    
Steven Geary5355DirectorJune 2006
    
Coreen Kraysler5758Chief Financial OfficerSeptember 2017
    
Carole MurkoJason Frishman5929Chief Marketing OfficerCEO of Netcapital Funding Portal Inc.January 2021November 2020

 

Our directors serve in such capacity until the first annual meeting of our shareholders and until their successors have been elected and qualified. Our officers serve at the discretion of our board of directors, until their death, or until they resign or have been removed from office.

 

Executive Officers and Directors

 

Cecilia Lenk, Chairman of the Board, President and Chief Executive Officer

 

Cecilia Lenk is thehas served as our Chairman of the Board and Chief Executive Officer. She accepted the position onOfficer since July 28, 2017. For the previous five years2017 and was appointed President in June 2022. Prior to that, she worked as a self-employed business consultant and a town councilor in Watertown, MA.MA for five years.

 

Ms. Lenk has specialized in technology and health care. Formerly Vice President of Technology and Digital Design at Decision Resources Inc., a global company serving the biopharmaceutical market, she oversaw the implementation of new technologies, products, and business processes. Prior to joining Decision Resources, Cecilia founded a technology firm that built a patented platform for online research. She has managed large-scale technology projects for leading corporations, universities, government agencies, and major non-profit organizations.

 

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Ms. Lenk has a Ph.D. in Biology from Harvard University and a B.A. from Johns Hopkins University in Geography and Environmental Engineering. She has served on a number of non-profit boards, including Chair of the Johns Hopkins Engineering Alumni. She is currently on the Alumni Advisory Board for the Hopkins School of Engineering.

 

Ms. Lenk brings to our board of directorsBoard key leadership experience in high-growth technology companies and possesses a strong mix of strategic, finance, and operating skills.

 

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Thomas Carmody,Martin Kay, Director

 

Thomas CarmodyMartin Kay has served as a Director of the Company since August 2010. He has over 40 years experience asMay 2022. Mr. Kay is currently a marketing executive. For the past five yearsManaging Director at Accenture Strategy, a position he has worked asheld since October 2015. Mr. Kay holds a self-employed marketing consultant for Summit International LLC. He currently serves on the BoardBA in physics from Oxford University and an MBA from Stanford University Graduate School of Directors of Continental Materials Corporation, Chicago, Illinois, and serves on that company’s audit committee. Mr. Carmody also served as the Vice President of U.S. Operations and Vice President of the sports division at Reebok International Inc. from 1988 to 1996.Business.

 

As a long-term marketing expert, Mr. Carmody brings strategic insightKay is an experienced C-suite advisor and extensivedigital media entrepreneur, working at the intersection of business and technology. His experience with product distribution toincludes oversight of our board of directors. He also has significant experience servingfunding portal when he served on the board of another public company.managers of Netcapital Systems LLC from 2017 – 2021.

Avi Liss, Director and Secretary

 

Avi Liss has served as a Director and Secretary of the Company since August 2010. From August 2009 to present, he has served as the President of Liss Law, LLC, a law firm specializing in real estate conveyances. Prior to founding Liss Law, he worked as a judicial law clerk for the Honorable Stephen S. Mitchell, a bankruptcy court judge for the Eastern District of Virginia.

 

Mr. Liss is well qualified to serve as a director of the company due to his knowledge and working experience with legal governance matters.

Steven Geary, Director

 

Steven Geary has served as a Director of the Company since June 2006. Since 2009, he has served in several management positions at Statera and is currently the Vice President of Strategy and Business Development. From 2008 to 2009, he was the Chief Executive Officer of ImproveSmart, Inc. From April 2006 to June 2008, he served as our President and Chief Operating Officer, and as our Chief Executive Officer from June 2008 to December 2009.

 

Mr. Geary has significant business development and brand marketing expertise in consumer products and services.

 

Coreen Kraysler, CFA, Chief Financial Officer

Coreen Kraysler has served as the Chief Financial Officer of the Company since September 2017.

Ms. Kraysler is a Chartered Financial Analyst with over 30 years of investment experience. Formerly a Senior Vice President and Principal at Independence Investments, she managed several 5-star rated mutual funds as well as institutional accounts and served on the Investment Committee. She also worked at Eaton Vance as a Vice President, Equity Analyst on the Large and Midcap Value teams. A specialist in financial services, household and consumer products, she guest lectures at local colleges and universities. She received a B.A. in Economics and French, Cum Laude, from Wellesley College and a Master of Science in Management from MIT Sloan.

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Carole Murko, CFA, Chief Marketing OfficerJason Frishman, CEO of Netcapital Funding Portal Inc.

 

Ms. MurkoJason Frishman is the founder and CEO of Netcapital Funding Portal Inc. and serves as a Chartered Financial Analyst who spent nearly 20 yearsmentor and advisor for early stage companies in order to help reduce the systemic inefficiencies early-stage companies face in securing capital. He currently holds advisory positions at leading organizations in the financial services industrytechnology ecosystem and has spoken as an external expert at Morgan Stanley, University of Michigan, YPO, and others. Jason has a background in the life sciences and previously conducted research in medical oncology at the Dana Farber Cancer Institute and cognitive neuroscience at the University of Miami, where he graduated summa cum laude with her primary focus on marketing complex equity and fixed income strategies to the institutional marketplace for PCM International, State Street Global Advisors and Independence Investments. She has an ABa B.S. in Economics from Smith College and an MA in International Economics from NYU.Neuroscience.

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Term of Office

 

Ms. Murko’s principal occupationAll our directors will hold office until their successors have been elected and employment duringqualified or appointed or the past five years was as Membership Director for The Westmoor Club, a private field club on Nantucket. The Westmoor Club is neither a parent, subsidiaryearlier of their death, resignation or affiliateremoval. Executive officers are appointed and serve at the discretion of the Company.Board.

Family Relationships

There are no family relationships among our directors or officers.

Board Composition

Our bylaws provide that the size of our Board will be determined from time to time by resolution of our Board. Currently, the board comprises four members, three of whom qualify as “independent” directors under any applicable standard.

Election of Directors

Our bylaws provide that members of our board or directors will be elected by a majority vote of our stockholders.

 

Director Independence

Our common stock is currently quoted on the OTCQX market. To be eligible forNasdaq Capital Market. Nasdaq Rule 5065(b) requires that “[a] majority of the OTCQX market, the Company is required to have a board of directors that includes at least 2 independent directors, and the Company must have an audit committee, a majoritybe comprised of the members of which are independent directors.Independent Directors as defined in Rule 5605(a)(2).” Pursuant to these requirements, Avi Liss, Thomas Carmody,Martin Kay, and Steven Geary are independent members of our Board of Directors.Board.

Arrangements between Officers and Directors

Except as set forth herein, to our knowledge, there is no arrangement or understanding between any of our officers or directors and any other person pursuant to which the officer or director was selected to serve as an officer or director.

Involvement in Certain Legal Proceedings

 

OurWe are not aware of any of our directors executiveor officers and control persons have not beenbeing involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses), or being subject to any of the following events during the past five years:

∙Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

∙Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

∙Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and

∙Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

items set forth under Item 401(f) of Regulation S-K.

Board Meetings and Committees; Management Matters

Board Committees

 

The Company’s Board has three standing Nasdaq compliance committees: Audit, Compensation, and Nominating and Corporate Governance. Our boardaudit committee consists of directorsAvi Liss, Martin Kay, and Steven Geary. Each of the committees operates pursuant to its charter. The committee charters are reviewed annually by the Nominating and Corporate Governance Committee. If appropriate, and in consultation with the chairs of the other committees, the Nominating and Corporate Governance Committee may propose revisions to the charters. The responsibilities of each committee are described in more detail below.

Our Board took actions by written consent on five occasions during the fiscal year ended April 30, 2021.2022. No fees are paid to directors for attendance at meetings or for agreeing to a unanimous consent or the board of directors.Board.

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Compensation Committee

 

Our Compensation Committee consists of Avi Liss, Martin Kay, and Steven Geary.

The Compensation Committee oversees our compensation policies, plans and programs, and to review and determine the compensation to be paid to our executive officers and directors. In addition, the Compensation Committee has the authority to act on behalf of the Board in fulfilling the Board’s responsibilities with respect to compensation-based and related disclosures in filings as required by the Securities and Exchange Commission. This committee had no meetings in fiscal 2022.

Nominating and Corporate Governance Committee

Our Nominating and Governance Committee consists of Avi Liss, Martin Kay, and Steven Geary.

The Nominating and Corporate Governance Committee (i) oversees our corporate governance functions on behalf of the Board; (ii) makes recommendations to the Board regarding corporate governance issues; (iii) identifies and evaluates candidates to serve as our directors consistent with the criteria approved by the Board and reviews and evaluates the performance of the Board; (iv) serves as a focal point for communication between director candidates, non-committee directors and management; (v) selects or recommends to the Board for selection candidates to the Board, or, to the extent required below, to serve as nominees for director for the annual meeting of shareholders; and (vi) makes other recommendations to the Board regarding affairs relating to our directors. This committee held no meetings in fiscal 2022.

Audit Committee

Our Audit Committee members consist of Martin Kay, Avi Liss and Steven Geary. Each of the members of our Audit Committee is an independent director under the Nasdaq listing rules, satisfies the additional independence criteria for Audit Committee members and satisfies the requirements for financial literacy under the Nasdaq listing rules and Rule 10A-3 of the Exchange Act, as applicable.

 

Our board has also determined that Mr. Geary qualifies as an Audit Committee financial expert within the meaning of directors does not have a compensation committee. 

Nominating Committeethe applicable rules and regulations of the SEC and satisfies the financial sophistication requirements of the Nasdaq listing rules.

 

Our boardAudit Committee oversees our corporate accounting and financial reporting process and assists our Board in monitoring our financial systems and our legal and regulatory compliance. Our Audit Committee also:

●oversees the work of our independent auditors;

●approves the hiring, discharging and compensation of our independent auditors;

●approves engagements of the independent auditors to render any audit or permissible non-audit services;

●reviews the qualifications, independence and performance of the independent auditors;

●reviews our financial statements and our critical accounting policies and estimates;

●reviews the adequacy and effectiveness of our internal controls;

●reviews our policies with respect to risk assessment and risk management;

●reviews and monitors our policies and procedures relating to related person transactions; and

●reviews and discusses with management and the independent auditors the results of our annual audit, our quarterly financial statements and our publicly filed reports.

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Our Audit Committee operates under a written charter approved by our Board and that satisfies the applicable rules and regulations of the SEC and the listing requirements of Nasdaq. The charter is available on the corporate governance section of our website, which is located at www.netcapitalinc.com

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Code of Ethics

We have adopted a Code of Ethics and Business Conduct applicable to our directors, does notofficers and employees, in accordance with Section 406 of the Sarbanes-Oxley Act, the rules of the SEC promulgated thereunder, and the Nasdaq listing rules. We have filed a nominating committee.  Our entire boardcopy of directors is responsible for this function.  Dueour form of the Code of Ethics and Business Conduct as an exhibit to the relatively small sizeregistration statement of our company and the resulting efficiency ofwhich this prospectus is a board of directors that is also limited in size, our board of directors has determined that it is not necessary or appropriate at this time to establish a separate nominating committee.  Our board of directors intendspart. You will be able to review periodically whetherthis document by accessing our public filings at the SEC’s website at www.sec.gov. In addition, a copy of the Code of Ethics and Business Conduct will be provided without charge upon request from us. See the section of this prospectus entitled “Where You Can Find Additional Information.” If we make any amendments to our Code of Ethics and Business Conduct other than technical, administrative or other non-substantive amendments, or grant any waiver, including any implicit waiver, from a provision of the Code of Ethics and Business Conduct applicable to our principal executive officer, principal financial officer principal accounting officer or controller or persons performing similar functions requiring disclosure under applicable SEC or Nasdaq rules, we will disclose the nature of such amendment or waiver in a nominating committee should be established.Current Report on Form 8-K. We also intend to post any amendments to our Code of Ethics and Business Conduct, or any waivers of its requirements, on our website, www.netcapitalinc.com.

Limitation of liability and indemnification matters

 

Our boardarticles of directors uses a variety of methods for identifying and evaluating nominees for director.  It regularly assessesincorporation contain provisions that limit the appropriate size of the board of directors and whether any vacancies exist or are expected due to retirement or otherwise. If vacancies exist, are anticipated or otherwise arise, our board of directors considers various potential candidates for director.  Candidates may come to their attention through current membersliability of our boarddirectors for monetary damages to the fullest extent permitted by Utah law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, unless the director engaged in gross negligence, willful misconduct or intentional infliction of harm on the corporation or its shareholders, or other persons.  These candidates are evaluated at regular or special meetingsan intentional violation of our board of directors and may be considered at any point during the year.

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Qualifications for consideration as a director nominee may vary according to the particular areas of expertise that may be desired in order to complement the qualifications that already exist among our board of directors.  Among the factors that our directors consider when evaluating proposed nominees are their independence, financial literacy, business experience, character, judgment and strategic vision.  Other considerations would be their knowledge of issues affecting our business, their leadership experience and their time available for meetings and consultation on company matters.  Our directors seek a diverse group of candidates who possess the background skills and expertise to make a significant contribution to our board of directors, our company and our shareholders.criminal law.

 

Audit CommitteeWe have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our Board. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these provisions in our articles of incorporation and the indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

 

Our boardThe limitation of liability and indemnification provisions included in our articles of incorporation may discourage stockholders from bringing a lawsuit against our directors formedand officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an audit committee in 2021 consisting of two independent directors, Thomas Carmody and Avi Liss,action, if successful, might benefit us and our Chief Executive Officer, Cecilia Lenk. The audit committee did not meet until after April 30, 2021. stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act of 1934, requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities (“10% Shareholders”), to file with the Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and 10% Shareholders are required by Commission regulation to furnish us with copies of all Section 16(a) forms they file.

 

BasedTo our knowledge, based solely on ourupon a review of Form 3, 4, and 5 filed with the copies of such reports received by us,SEC during the fiscal year ended April 30, 2022, we believe that, except as set forth below, our directors, executive officers, and greater than 10% Shareholders have complied with all applicable filing requirements for the fiscal year ended April 30, 2021, that our directors and 10% shareholders did comply with Section 16(a) filing requirements.2022.

 

Code of Ethics

●Avi Liss failed to timely report 1 transaction on a Form 4.
●Avi Liss failed to report his insider status on time on a Form 3.
●Steven Geary failed to report his insider status on time on a Form 3.
●Steven Geary failed to timely report 1 transaction on a Form 4.
●Martin Kay failed to report his insider status on time on a Form 3.

 

We have adopted a code of business conduct and ethics for our directors, officers and employees, including our Chief Executive Officer. The text of our code is posted on our Internet website at www.netcapitalinc.com.

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ItemITEM 11.  Executive Compensation.EXECUTIVE COMPENSATION.

 

The following table sets forth, for the fiscal years indicated, all compensation awarded to, earned by or paid to Cecilia Lenk, our Chief Executive Officer, Coreen Kraysler, our Chief Financial Officer, and Carole Murko, our former Chief Marketing Officer (collectively,and Jason Frishman, Chief Executive Officer of our wholly owned subsidiary Netcapital Funding Portal, Inc., or, collectively, the “Named Executives”).  We have no other executive officers.Named Executive Officers, or NEOs.

 

Summary Executive Compensation Table

                           
 

 

 

 

Non-equity

Change in pension value and nonqualified             Non-equity Change in pension value and nonqualified      
Name incentivedeferred             incentive deferred      
and StockOptionplancompensationAll other         Stock Option plan compensation All other    
principal SalaryBonusawardscompensationearningscompensationTotal    Salary Bonus awards awards compensation earnings compensation Total 
positionYear($)($)(1)($) Fiscal Year  ($)  ($)  ($)(1)  ($)  ($)  ($)  ($)  ($) 
                    
Cecilia2021 81,4310161,1070242,538  2022   96,000   0   40,608   5,825   0   0   0   142,433 
Lenk, CEO2020 05,000112,0350117,035  2021   81,431   0   161,107   0   0   0   0   242,538 
                                      
Coreen202181,4310161,107 00242,538  2022   96,000   0   40,608   11,649   0   0   0   148,257 
Kraysler, CFO2020015,000112,035 00127,035  2021   81,431   0   161,107   0   0   0   0   242,538 
                                      
Carole202188,431031,693 00120,124                                    
Murko, CMO202007,061 007,061
Murko, former CMO (until January 7, 2022)(2)  2022   73,688   0   109,547   0   0   0   0   183,235 
  2021   88,431   0   31,693   0   0   0   0   120,124 
Jason Frishman, CEO Netcapital Funding Portal  2022   96,000   0   0   11,649   0   0   0   107,649 
  2021   114,284   0   0   0   0   0   0   114,284 

(1)Represents the dollar amount of vested equity awards during the fiscal year.

 

(2)Ms. Murko received severance of $7,384.50 and her 8,885 unvested shares vested upon termination, both pursuant to a separation agreement.

(1) Represents the dollar amount of vested equity awards during the fiscal year.

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We have no retirement, pension, profit sharing, stock option or insurance programs or other similar programs for the benefit of our officers and directors.

 

Outstanding Equity Awards at Fiscal YearAt End Of 2022

 

Carole Murko received a grantThe following table provides information about outstanding stock options issued by the Company held by each of 12,500our NEOs as of April 30, 2022. None of our NEOs held any other equity awards from the Company as of April 30, 2022.

  Option Awards Stock Awards 
Name Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable		  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable		  Option
Exercise
Price
($)		  Option
Expiration
Date		 

Number of

Shares of

Stock That

Has Not

Yet Vested

  

Market Value

of Stock

that has not

Yet Vested

 
Cecilia Lenk  625   9,375   10.50  2/9/2032  0   0 
                       
Coreen Kraysler  1,250   18,750   10.50  2/9/2032  0   0 
                       
Jason Frishman  1,250   18,750   10.50  2/9/2032  0   0 

Director Compensation

We have not paid any cash compensation to our directors in their capacity as such.

On February 9, 2022, we issued to each of our then three independent board members, options to purchase 5,000 shares of common stock under the 2021 Equity Incentive Plan which will be exercisable at a per share exercise price of $10.50, that vests overis out-of-the-money at time of issuance and expire ten years after the date of grant.    

We issued Avi Liss 10,000 shares of our common stock valued at $7.50 per share on November 18, 2021 in consideration of his services as a 48-month period. Asdirector of April 30, 2021, 8,855 shares remain unvested.the Company

 

Stock Option GrantsOfficer Compensation

 

There were no stock option grants or exercisesBeginning in fiscal 2021, we pay each of our Named Executives Officers an annual salary of $96,000 per annum. Each Named Executive Officer has also received varying amounts of equity awards for Named Executives.their services. In addition to base pay, Carole Murko earned commissions on certain transactions.

 

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Compensation of Directors

We currently do not compensate our directors for their services as directors.


Employment Agreements

 

We currently have employment agreements with Cecilia Lenk, Coreen Kraysler and Jason Frishman as described below. Prior to the termination of Carole Murko on January 7, 2022, we had an employment agreement in place with her as described below:

Employment Agreement with Cecilia Lenk

We entered into an employment agreement with Cecilia Lenk on June 23, 2022 pursuant to which we employ Ms. Lenk as our President and Chief Executive OfficerOfficer. The term of her agreement ends on June 23, 2025. The Agreement provides for an annual base salary during the term of the agreement of $96,000, which will be increased to $150,000 upon completion of this offering. Ms. Lenk is eligible for periodic bonuses or for additional salary in addition to her base salary, as may be determined by our board of directors or the compensation committee.

The agreement also contains the following material provisions: eligible to participate in all employee fringe benefits and any pension and/or profit share plans; eligible to participate in any medical and health plans; entitled to sick leave, sick pay and disability benefits; entitled to reimbursement for all reasonable and necessary business expenses. Ms. Lenk agreed to non-compete and non-solicit terms under her agreement.

44 

Employment Agreement with Coreen Kraysler

We entered into an employment agreement with Coreen Kraysler on June 23, 2022 pursuant to which we employ Ms. Kraysler as our Chief Financial Officer. The agreements expireterm of her agreement ends on July 31, 2021June 23, 2025. The agreement provides for an annual base salary during the term of the agreement of $96,000, which will be increased to $150,000 upon completion of this offering. Ms. Kraysler is eligible for periodic bonuses or for additional salary in addition to her base salary, as may be determined by our board of directors or the compensation committee.

The agreement also contains the following material provisions: eligible to participate in all employee fringe benefits and are incorporated by referenceany pension and/or profit share plans; eligible to Exhibit 10.1participate in any medical and Exhibit 10.2health plans; entitled to our Quarterly Reportsick leave, sick pay and disability benefits; entitled to reimbursement for the quarterly period ended July 31, 2019. all reasonable and necessary business expenses. Ms. Kraysler agreed to non-compete and non-solicit terms under her agreement.

Employment Agreement with Jason Frishman

We haveentered into an employment agreement with Jason Frishman on June 23 2022 pursuant to which we employ Mr. Frishman as Chief Executive Officer of Netcapital Funding Portal, Inc. The term of his agreement ends on June 23, 2025. The Agreement provides for an annual base salary during the term of the agreement of $96,000, which will be increased to $150,000 upon completion of this offering. Mr. Frishman is eligible for periodic bonuses or for additional salary in place withaddition to his base salary, as may be determined by our Chief Marketing Officer. board of directors or the compensation committee.

The agreement expiresalso contains the following material provisions: eligible to participate in all employee fringe benefits and any pension and/or profit share plans; eligible to participate in any medical and health plans; entitled to sick leave, sick pay and disability benefits; entitled to reimbursement for all reasonable and necessary business expenses. Mr. Frishman agreed to non-compete and non-solicit terms under his agreement.

Employment Agreement with Carole Murko

We entered into an employment agreement with Carole Murko on March 10, 20242020 pursuant to which we employed Ms. Murko as our Director of Business Development. The agreement was for an initial term of four years. The agreement provided for an annual base salary during the term of the agreement of $1.00 plus a commission of 20% of the cash collected from revenues generated directly by Ms. Murko plus an unvested grant of stock-based compensation of 12,500 shares (after giving effect to the November 2020 1-for-2000 reverse stock split) of restricted stock. The stock vested over a 48 month period in equal installments of 260 shares per month. Ms. Murko is eligible for periodic bonuses or for additional salary in addition to her base salary.

The agreement also contained the following material provisions: eligible to participate in all employee fringe benefits and any pension and/or profit share plans; eligible to participate in any medical and health plans; entitled to up to eight weeks of paid time off; entitled to sick leave, sick pay and disability benefits; entitled to reimbursement for all reasonable and necessary business expenses. If Ms. Murko was to be terminated for any reason other than “cause” prior to the end of her term, then the Company will have no claim on the unvested portion of her 12,500 shares. If Ms. Murko resigned without “good reason” or retired before the end of her term, the unvested shares would have been returned to the Company. Ms. Murko agreed to non-compete and non-solicit terms under her agreement.

Potential Payments Upon Termination Or Change In Control

In the event that Ms. Lenk’s employment is incorporatedterminated by referenceus for any reason other than “cause” or by Ms. Lenk for “good reason,” then we will have no claims to Exhibit 10.1the 10,000 shares of common stock underlying the stock option grant (and all unvested options under such grant shall immediately and fully vest) issued to Ms. Lenk in February 2022. 

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In the event that Ms. Kraysler’s employment is terminated by us for any reason other than “cause” or by Ms. Kraysler for “good reason,” then we will have no claims to the 20,000 shares of common stock underlying the stock option grant (and all unvested options under such grant shall immediately and fully vest) issued to Ms. Kraysler in February 2022.

In the event that Mr. Frishman’s employment is terminated by us for any reason other than “cause” or by Mr. Frishman for “good reason,” then we will have no claims to the 20,000 shares of common stock underlying the stock option grant (and all unvested options under such grant shall immediately and fully vest) issued to Mr. Frishman in February 2022.

The following table sets forth quantitative information with respect to potential payments to be made to either Ms. Lenk, Ms. Kraysler or Mr. Frishman upon termination in various circumstances. The potential payments are based on the terms of each of the employment agreements discussed above. For a more detailed description of the employment agreements, see the “Employment Agreements” section above.

Name Potential
Payment
Upon
Termination		 
  Option
Awards (#)		 
Cecilia Lenk  9,375(1)
Coreen Kraysler  18,750(2)
Jason Frishman  18,750(3)

(1)Represents the number of unvested options at April 30, 2022. Ms. Lenk’s options vest equally over a 48-month period. At April 30, 2022, there were 45 months remaining in her vesting schedule. The potential payment of shares subject to Ms. Lenk’s unvested options will reduce every month as her options vest and the value of her unvested options will be based on our market price at such time.
(2)Represents the number of unvested options at April 30, 2022. Ms. Kraysler’s options vest equally over a 48-month period. At April 30, 2022, there were 45 months remaining in her vesting schedule. The potential payment of shares subject to Ms. Kraysler’s unvested options will reduce every month as her options vest and the value of her unvested options will be based on our market price at such time.
(3)Represents the number of unvested options at April 30, 2022. Mr. Frishman’s options vest equally over a 48-month period. At April 30, 2022, there were 45 months remaining in his vesting schedule. The potential payment of shares subject to Mr. Frishman’s unvested options will reduce every month as her options vest and the value of his unvested options will be based on our market price at such time.

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Compensation Plans

2021 Equity Incentive Plan

The following table shows information regarding our Current Report dated January 7, 2021.equity compensation plans as of April 30, 2022.

Plan Category 

Number of

securities to be

issued upon
exercise of

outstanding
options,

warrants and
rights (a)

  

Weighted
average

exercise price

of outstanding
options,

warrants and
rights (b)

  

Number of
securities

remaining
available

for future
issuance

under equity

compensation
plans

(excluding
securities

reflected in
column (c)

 
Equity compensation plans approved by security holders  —   —   — 
Equity compensation plans not approved by security holders (1)  271,000  $ 10.50   29,000 
Total  271,000  $10.50   29,000 

(1) 2021 Equity Incentive Plan. In November 2021, our Board adopted the 2021 Equity Incentive Plan, or the Plan. An aggregate of 300,000 shares of our common stock is reserved for issuance and available for awards under the Plan, including incentive stock options granted under the Plan. The Plan administrator may grant awards to any employee, director, consultant or other person providing services to us or our affiliates. As of June 23, 2022, we had awarded an aggregate of 271,000 options to purchase shares of common stock to directors and there remain 29,000 shares for grant under the Plan.

Options vest over a 48-month period, and the Company has a policy to estimate forfeitures of option awards based upon the requisite service. The pre-vesting forfeiture rate is applied beginning on the date of an option grant. The forfeiture estimate impacts the estimated amount of compensation expense to be recorded over the requisite service period.

The Plan is administered by our Board. The Plan administrator has the authority to determine, within the limits of the express provisions of the Plan, the individuals to whom awards will be granted, the nature, amount and terms of such awards and the objectives and conditions for earning such awards. Our Board may at any time amend or terminate the Plan, provided that no such action may be taken that adversely affects any rights or obligations with respect to any awards previously made under the Plan without the consent of the recipient. No awards may be made under the Plan after the tenth anniversary of its effective date.

Awards under the Plan may include incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted shares of common stock, restricted stock units, performance share awards, stock bonuses and other stock-based awards and cash-based incentive awards.

Stock Options. The Plan administrator may grant to a participant options to purchase our common stock that qualify as incentive stock options for purposes of Section 422 of the Internal Revenue Code (“incentive stock options”), options that do not qualify as incentive stock options (“non-qualified stock options”) or a combination thereof. The terms and conditions of stock option grants, including the quantity, price, vesting periods, and other conditions on exercise will be determined by the Plan administrator. The exercise price for stock options will be determined by the Plan administrator in its discretion, but non-qualified stock options and incentive stock options may not be less than 100% of the fair market value of one share of our company’s common stock on the date when the stock option is granted. Additionally, in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of our stock on the date of grant, the exercise price may not be less than 110% of the fair market value of one share of common stock on the date the stock option is granted. Stock options must be exercised within a period fixed by the Plan administrator that may not exceed ten years from the date of grant, except that in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of our stock on the date of grant, the exercise period may not exceed five years. At the Plan administrator’s discretion, payment for shares of common stock on the exercise of stock options may be made in cash, shares of our common stock held by the participant or in any other form of consideration acceptable to the Plan administrator (including one or more forms of “cashless” or “net” exercise).

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Stock Appreciation Rights. The Plan administrator may grant to a participant an award of SARs, which entitles the participant to receive, upon its exercise, a payment equal to (i) the excess of the fair market value of a share of common stock on the exercise date over the SAR exercise price, times (ii) the number of shares of common stock with respect to which the SAR is exercised. The exercise price for a SAR will be determined by the Plan administrator in its discretion; provided, however, that in no event shall the exercise price be less than the fair market value of our common stock on the date of grant.

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Restricted Shares and Restricted Units. The Plan administrator may award to a participant shares of common stock subject to specified restrictions (“restricted shares”). Restricted shares are subject to forfeiture if the participant does not meet certain conditions such as continued employment over a specified forfeiture period and/or the attainment of specified performance targets over the forfeiture period. The Plan administrator also may award to a participant units representing the right to receive shares of common stock in the future subject to the achievement of one or more goals relating to the completion of service by the participant and/or the achievement of performance or other objectives (“restricted units”). The terms and conditions of restricted share and restricted unit awards are determined by the Plan administrator.

Stock Bonuses. Stock bonuses may be granted as additional compensation for service or performance and may be settled in the form of common stock, cash or a combination thereof, and may be subject to restrictions, which may vest subject to continued service and/or the achievement of performance conditions.

Performance Awards. The Plan administrator may grant performance awards to participants under such terms and conditions as the Plan administrator deems appropriate. A performance award entitles a participant to receive a payment from us, the amount of which is based upon the attainment of predetermined performance targets over a specified award period. Performance awards may be paid in cash, shares of common stock or a combination thereof, as determined by the Plan administrator.

Other Stock-Based Awards. The Plan administrator may grant equity-based or equity-related awards, referred to as “other stock-based awards,” other than options, SARs, restricted shares, restricted units, or performance awards. The terms and conditions of each other stock-based award will be determined by the Plan administrator. Payment under any other stock-based awards will be made in common stock or cash, as determined by the Plan administrator.

ItemITEM 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth information with respect to the beneficial ownership of shares of our common stock as of August 31, 2021July 29, 2022 by:

 

●       each person whom we know beneficially owns more than 5% of any class of equity security;
●       each of our directors individually;
●       each of our named executive officers individually; and
●       all of our current directors and executive officers as a group.

 

Unless otherwiseWe have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to such securities. In addition, pursuant to such rules, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of July 29, 2022. We did not deem such shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Except as indicated by the footnotes below, we believe, based on the information furnished to our knowledge, all persons listedus, that the beneficial owners named in the table below have sole voting and investment power with respect to theirall shares of common stock. Shares ofour common stock that they beneficially own, subject to applicable community property laws. The inclusion in the table below of any shares deemed beneficially owned does not constitute an individual or group has the right to acquire within 60 daysadmission of August 31, 2021, pursuant to the exercise of options or restricted stock are, deemed to be outstanding for the purpose of computing the percentagebeneficial ownership of such person or group, but are not deemedthose shares.

49 

   
Name and Address
of Beneficial Owner (1)		Amount of Shares and Nature
of Beneficial Ownership of Common
Stock		  Percent of Common Stock*
Netcapital Systems LLC (2)1,711,261  40.0%
Cecilia Lenk (3)27,109  **%
Coreen Kraysler25,417  **%
Steven Geary (3)11,029  **%
Martin Kay—  **%
Avi Liss (3)11,729  **%
Officers and Directors as a group (6 persons)75,284  2.3%

* Based on 4,272,677 shares outstanding for the purposeas of calculating the percentage owned by any other person listed.July 29, 2022.

    
Name and AddressAmount of Shares and Nature  
of Beneficial Owner (1)of Beneficial Ownership Percent of Class*
Netcapital Systems LLC1,671,360 61.5%
Cecilia Lenk (3)22,500 **%
Coreen Kraysler22,500 **%
Steven Geary (3)10,300 **%
Tom Carmody (3)2,500 **%
Avi Liss (2,3)1,000 **%
Carole Murko (4)

4,947

 

 **%
Officers and Directors as a group (6 persons)63,747 2.3%

_________________

* Based on 2,717,436 shares of common stock outstanding as of August 31, 2021.

** Less than 1%

(1)

Unless otherwise noted, the business address of each member of our Board of Directors is c/o Netcapital Inc. 1 Lincoln Street, Boston Massachusetts 0211102111.

(2)

Mr. LissThe natural person with investment control over the securities held by Netcapital DE LLC is our Secretary.

(3)

(4)

Such individual is a current memberJason Frishman. Netcapital Systems LLC has agreed to vote its shares of common stock to support the resolutions of the Board of Directors.Netcapital Inc. on any matters that are brought to a shareholder vote.

(3)

Includes 5211,458 shares of common stock subject to stock options that vestare presently exercisable or exercisable within 60 days of August 31, 2021.

after July 29, 2022.
(4)Includes 2,917 shares of common stock subject to stock options that are presently exercisable or exercisable within 60 days after July 29, 2022.
(5)Includes 729 shares of common stock subject to stock options that are presently exercisable or exercisable within 60 days after July 29, 2022.

ItemITEM 13.  Certain RelationshipsCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Policies and Procedures for Transactions with Related Parties

Our Chief Executive Officer or our Chief Financial Officer must review and approve certain transactions between us and Related Parties (as defined below). A “Related-Party Transaction” is defined as a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we (including any of our subsidiaries) were, are or will be a participant.

For the purposes of our Related-Party Transactions, a “Related Party” is defined as: any person who is, or at any time since the beginning of our last two fiscal years was, a director or executive officer or a nominee to become a director; any person who is known to be the beneficial owner of more than ten percent of our common stock; any immediate family member of any of the foregoing persons, including any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and Director Independence.any person (other than a tenant or employee) sharing the household of any of the foregoing persons; and any firm, corporation or other entity in which any of the foregoing persons is a general partner or, for other ownership interests, a limited partner or other owner in which such person has a beneficial ownership interest of 10% or more.

50 

Transactions with Related Parties

 

The Company’s majority shareholder, Netcapital Systems LLC, ownsowned 1,671,360 shares of common stock, or 76.7%57.7% of the Company as of April 30, 2021.2022. The Company has a demand note payable to Netcapital Systems LLC of $4,600 and a demand note payable to one of its former managers of $3,200. In addition, as of April 30, 2021, the Company has accrued a payable of $3,817,516 for supplemental consideration owed in conjunction with its purchase of Netcapital Funding Portal Inc. In total the Company owed its largest shareholder $3,822,176, which was reduced to $294,054 as of April 30, 2021. January 31, 2022, because of the issuance to 361,736 shares of common stock, valued at $3,523,462. Of the 361,736 shares that were issued, a total of 32,458 shares, representing a reduction in the payable amount of $346,821, were issued to managers of Netcapital Systems LLC, and 3,151 shares, representing a reduction in the payable amount of $30,691, were issued to our Chief Executive Officer.

The company paid its majority shareholder $100,000$357,429 and $200,000 in fiscalthe years ended April 30, 2022 and 2021, respectively, for use of the software that runs the website www.netcapital.com. The Company also had a sale of $15,000 for consulting services to its majority shareholder during fiscal 2022.

The Company received revenues of $39,360 and $660,486 for the years ended April 30, 2022 and 2021, respectively from ChipBrain, Inc. Our Chief Executive Officer is a member of the board of directors of ChipBrain, Inc. The Company owns 710,200 shares of ChipBrain, Inc., valued at $1,704,480.

Our Chief Executive Officer is a member of the board of directors of KingsCrowd Inc. The Company owns 3,815,745 shares of KingsCrowd Inc., valued at $3,815,745.

Our Chief Executive Officer is a member of the board of directors of Deuce Drone LLC. The Company owns 2,350,000 membership interest units of Deuce Drone LLC., valued at $2,350,000. The Company has notes receivable aggregating $152,000 from Deuce Drone LLC as of April 30, 2022.

 

Compensation to officers in the years ended April 30, 20212022 and 20202021 consisted of common stock valued at $190,763 and $353,907, and $231,131, respectively, and cash compensation of $265,688 and $332,724, respectively, and $72,000,options to purchase common stock valued at $3,147 and $0, respectively.

 

Compensation to a related party consultant in the years ended April 30, 20212022 and 20202021 consisted of common stock valued at $76,882$25,908 and $49,711,$76,882, respectively, and cash compensation of $60,000 and $81,431, and $26,200, respectively. This consultant is also the controlling shareholder of Zelgor Inc. and the Company earned revenues from Zelgor Inc. of $5,500 and $1,400,000 in the yearyears ended April 30, 2021.2022 and 2021, respectively. The Company owns 1,400,000 shares of Zelgor Inc., valued at $1,400,000 and holds a note receivable of $50,000 as of April 30, 2022.

 

20

Compensation to two board membersthe President of Netcapital Systems LLC amounted to $162,123$96,000 and $0$114,284 in the years ended April 30, 20212022 and 2020, respectively. One of these board members also received stock-based compensation of $76,882 and $49,711 for the years ended April 30, 2021, and 2020, respectively.

 

We owe Steven Geary, a director, $31,680 as of April 30, 20212022 and 2020.2021. This obligation is not interest bearing. $16,680 is recorded as a related party trade accounts payable and $15,000 as a related party note payable. We have no signed agreements for the indebtedness to Mr. Geary.

 

The Company made an investment of $122,914$240,080 in an affiliate, 6A Aviation Alaska Consortium, Inc., in conjunction with a land lease in an airport in Alaska. Our Chief Executive Officer is also the Chief Executive Officer of 6A Aviation Alaska Consortium, Inc. As a result of the investment, the Company is a 10% owner of 6A Aviation Consortium Inc.

 

As of April 30, 20212022 and 2020,2021, we owed $9,490$0 and $0$9,490 to a company controlled by one of our former directors. We paid cash compensation of $29,738$0 and $0$29,738 to this former director for the years ended April 30, 2022 and 2021, and 2020, respectively. On April 30, 2020, we sold 722 membership interest units (the "Units") of Netcapital Systems LLC ("Netcapital") to the company controlled by this related party at a price of $91.15 per Unit for a total of $65,823, which paid off all debt and accrued interest payable to the related party as of that date. The price per Unit was similar to an offer to purchase Units directly from Netcapital.

 

We currently have no equity compensation plan either approved or not approved by security holders, and there are no securities currently authorized for issuance under any equity compensation plan. However,In November 2021, we issued a member of our Board 10,000 shares of Directorscommon stock for his service as a member of our board and audit committee, valued at $100,000.

51 

On February 2, 2022, the Company granted to members of our Board an aggregate of 25,000 options to purchase shares of our common stock at an exercise price of $10.50 per share. An option to purchase 10,000 shares of common stock was granted to the Chairman of the Board and each of the three independent board members received an option to purchase 5,000 shares of common stock. The options vest on a monthly basis over 48 months and expire in 10 years.

Coreen Kraysler, our Chief Financial Officer, has previously approved share-based compensation in lieupersonally guaranteed a $500,000 promissory note from the U.S. Small Business Administration. The note bears interest at an annual rate of cash compensation3.75%, has a 30-year term, and monthly payments of $2,594 are scheduled to various consultants and employees. Such share-based compensation is recognized at the time the shares vest.begin on December 17, 2022.

 

ItemITEM 14.  Principal Accounting Fees and Services.PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

Fruci & Associates II, PLLC is the Company’s independent registered public accounting firm.

 

The following table presents fees for professional audit services rendered by our independent registered public accounting firm during the past two fiscal years.

 

 Fiscal 2021 Fiscal 2020 Fiscal 2022 Fiscal 2021 
Audit fees $24,000  $21,000  $53,325  $24,000 
Audit related fees                
Tax fees                
All other fees                
Total $24,000  $21,000  $53,325  $24,000 

 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

 

Consistent with SEC policies regarding auditor independence, our board of directors has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, the board of directors has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.

 

Prior to engagement of the independent auditor for the next year's audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the board of directors for approval.

 

1. Audit services include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters and reviews of our financial statements included in our Quarterly Reports on Form 10-Q.

  

2. Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.

 

3. Tax services include all services performed by the independent auditor's tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.

 

4. Other services are those associated with services not captured in the other categories. We generally do not request such services from the independent auditor.

 

52 

21

 

PART IV

ITEM 15.FINANCIAL STATEMENTS AND EXHIBITS.

Exhibit
Number		 
NumberDescription
1.1 Underwriting Agreement, incorporated by reference to Exhibit 1.1 to our Form S-1/A dated June 28, 2022
2.1Asset Purchase Agreement dated November 23, 2010 between Valuesetters,ValueSetters, Inc. and NetGames.com, incorporated by reference to Exhibit 2.1 to our Form 10/A dated July 25, 2014.2014
3.12.2Articles of Incorporation of Valuesetters, Inc. filed on April 25, 1984, incorporated by reference to Exhibit 3.1 to our Form 10 dated September 3, 2013.
3.2Amendment to Articles of Incorporation of Valuesetters, Inc. filed on September 7, 1999, incorporated by reference to Exhibit 3.2 to our Form 10 dated September 3, 2013.
3.3Amendment to Articles of Incorporation of Valuesetters, Inc. filed on December 4, 2003, incorporated by reference to Exhibit 3.3 to our Form 10 dated September 3, 2013.
3.4By-Laws of Valuesetters, Inc, incorporated by reference to Exhibit 3.4 to our Form 10 dated September 3, 2013.
3.5

Amendment to Articles of Incorporation of Netcapital Inc. filed on September 29, 2020, incorporated by reference to Exhibit 3.1 to our Form 8-K dated November 5, 2020.

10.1Amended Secured Lending Agreement between Valuesetters, Inc. and Vaxstar LLC incorporated by reference to Exhibit 10.1 to our Form 10/A dated July 25, 2014 and to our Current Report on Form 8-K dated October 31, 2017.
10.2

Agreement and Plan of Merger by and Among Netcapital Funding Portal Inc., ValueSetters Inc. and Netcapital Acquisition Vehicle Inc., incorporated by reference to our Current Report on Form 8-K dated August 23, 2020

3.1Articles of Incorporation filed on April 25, 1984, incorporated by reference to Exhibit 3.1 to our Form 10 dated September 3, 2013
3.1.1Amendment to Articles of Incorporation filed on September 7, 1999, incorporated by reference to Exhibit 3.2 to our Form 10 dated September 3, 2013
3.1.2Amendment to Articles of Incorporation filed on December 4, 2003, incorporated by reference to Exhibit 3.2 to our Form 10 dated September 3, 2013
3.1.3Amendment to Articles of Incorporation filed on April 13, 2015, incorporated by reference to Exhibit 3.1.3 to our Form S-1 dated February 14, 2022
3.1.4Amendment to Articles of Incorporation filed on September 29, 2020, incorporated by reference to Exhibit 3.1 to our Form 8-K dated November 5, 2020
3.2By-Laws of ValueSetters, Inc, incorporated by reference to Exhibit 3.4 to our Form 10 dated September 3, 2013
4.1Specimen stock certificate evidencing shares of common stock, incorporated by reference to Exhibit 4.1 to our Form S-1/A dated April 8, 2022
4.2Form of Representative’s Warrant (Included in Exhibit 1.1)
4.3Form of Unsecured Convertible Notes, incorporated by reference to Exhibit 4.3 to our Form S-1 dated February 14, 2022
4.4Form of Warrant Agent Agreement incorporated by reference to Exhibit 4.4 to our Form S-1/A dated June 28, 2022
4.5Form of Warrant (Included in Exhibit 4.4)
4.6Form of Pre-Funded Warrant, incorporated by reference to Exhibit 4.6 to our Form S-1/A dated June 28, 2022
4.7*Description of capital stock
10.1+2021 Equity Incentive Plan, filed as Exhibit 4.1 to the registrant’s registration statement on Form S-8 on January 27, 2022, and incorporated herein by reference.
10.2Promissory Note dated April 28, 2011, as amended, in the principal amount of $1,000,000 made by the registrant in favor of Vaxstar LLC, incorporated by reference to Exhibit 2.1 to our Form 10/A filed on July 28, 2014
10.3Amended Secured Lending Agreement between ValueSetters, Inc. and Vaxstar LLC, incorporated by reference to Exhibit 10.1 to our Form 10/A filed on July 28, 2014.
10.4Purchase and Assignment Agreement between ValueSetters, Inc. and Vaxstar LLC, filed as Exhibit 10.2 to our Current Report on Form 8-K dated September 30, 2014, and incorporated herein by reference.
10.5Amended Loan and Security Agreement between ValueSetters, Inc. and Vaxstar LLC dated October 31, 2017, filed as an Exhibit 10.1 to our Current Report on Form 8-K dated August 23,October 31, 2017, and incorporated herein by reference.

53 

10.6Amendment to Revolving Loan and Security Agreement between ValueSetters, Inc. and Vaxstar LLC dated October 30, 2020.

31.110.7Amendment to Revolving Loan and Security Agreement between Netcapital Inc. and Vaxstar LLC dated January 31, 2021.
10.8Amendment to Revolving Loan and Security Agreement dated April 30, 2021 between Netcapital Inc. and Vaxstar LLC.
10.9Amendment to Revolving Loan and Security Agreement dated January 28, 2022 between Netcapital Inc. and Vaxstar LLC, filed as Exhibit 10.1 to our Current Report on Form 8-K dated January 28, 2022 and incorporated by reference herein.
10.10Amendment to Revolving Loan and Security Agreement dated February 3, 2022 between Netcapital Inc. and Vaxstar LLC, filed as Exhibit 10.2 to our Current Report on Form 8-K dated January 28, 2022 and incorporated by reference herein.
10.11+Employment Agreement with Carole Murko, incorporated by reference to Exhibit 10.12 to our Form S-1 dated February 14, 2022
10.12+Separation Agreement with Carole Murko, incorporated by reference to Exhibit 10.13 to our Form S-1 dated February 14, 2022
10.13Form of Note Purchase Agreement, incorporated by reference to Exhibit 10.14 to our Form S-1 dated February 14, 2022
10.14License Agreement between Netcapital Systems LLC, a Delaware limited liability company, and Netcapital Funding Portal Inc., filed as Exhibit 10.1 to our Current Report on Form 8-K dated April 18, 2022 and filed on June 28, 2022 and incorporated by reference herein.
10.15+Employment Agreement with Cecilia Lenk, filed as Exhibit 10.2 to our Current Report on Form 8-K dated April 18, 2022 and filed on June 28, 2022 and incorporated by reference herein.
10.16+Employment Agreement with Coreen Kraysler, filed as Exhibit 10.3 to our Current Report on Form 8-K dated April 18, 2022 and filed on June 28, 2022 and incorporated by reference herein.
10.17+Employment Agreement with Jason Frishman, filed as Exhibit 10.4 to our Current Report on Form 8-K dated April 18, 2022 and filed on June 28, 2022 and incorporated by reference herein.
14.1Code of Ethics, incorporated by reference to Exhibit 14.1 to our Form S-1/A dated April 8, 2022
23.1*Consent of Independent Registered Public Accounting Firm
31.1*Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
31.231.2*Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*
32.132.1*Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.232.2*Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith.

* filed herewith

+ Indicates a management contract or compensatory plan or arrangement.  

54 

22

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

  
Date: August 31, 20215, 2022NETCAPITAL INC.
  
 By:/s/ Cecilia Lenk
 Cecilia Lenk
 Chairman of the Board and Chief Executive Officer
      (Principal(Principal Executive Officer)

 

 By:/s/ Coreen Kraysler  
 Coreen Kraysler
 Chief Financial Officer
      (Principal(Principal Financial and Accounting Officer)

     
/s/ Avi Liss Secretary and Director August 31, 20215, 2022
Avi Liss    
    
/s/ Martin KayDirector August 5, 2022
Martin Kay   

/s/ Thomas CarmodyDirectorAugust 31, 2021
Thomas Carmody

     
/s/ Steven Geary Director August 31, 20215, 2022
Steven Geary    

 

55 

 

23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of NetCapitalNetcapital Inc. (f/k/a Valuesetters, Inc.) and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of NetCapitalNetcapital Inc. and Subsidiaries (“the Company”) as of April 30, 20212022, and 2020,2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years thenin the two-year period ended April 30, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 20212022, and 2020,2021, and the results of its operations and its cash flows for the each of the years in the two-year period ended April 30, 2021,2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Investments

Description of the Critical Audit Matter

As discussed in Note 10 to the consolidated financial statements, the Company has investments in several entities which require the Company to initially value based on offering prices that are not considered observable and to periodically evaluate potential impairment by assessing whether the carrying value of the investments exceeds the estimated fair value, or by monitoring observable price changes from orderly transactions to measure estimated fair value. Auditing management'smanagement’s analysis includes tests that are complex and highly judgmental due to the estimation required to determine the fair value of each of the underlying investees. In particular, fair value estimates are sensitive to significant assumptions and factors such as expectations about future market and economic conditions, revenue growth rates, strategic plans, and historical operating results, among others.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures to evaluate management’s valuation of investments consisted of the following, among others:

1.Obtain and test management assumptions and analysis.
2.Obtain and review third-party market data, public filings, and funding activities of the investee entities.
3.

1. Obtain and test management assumptions and analysis.

2. Obtain and review third-party market data, public filings, and funding activities of the investee entities.

3. Performed a recalculation of significant inputs used in the valuation for reasonableness.

4. Assess management’s key indicators of the investee operations, including analysis of operational growth, public filings, and future strategic and funding plans.

Valuation of Intangibles

Description of the Critical Audit Matter

As discussed in Note 11 to the consolidated financial statements, the Company recognized $14.8 million of intangibles during November 2020, related to consideration paid for the acquisition of Netcapital Funding Portal Inc.

Management's intangible valuation was complex and highly judgmental due to the significant estimation required to determine the fair value of the identifiable intangible assets acquired within the underlying business unit. In particular, the fair value estimate was sensitive to significant assumptions, such as the Company’s financial forecast, revenue growth rate, and operating costs, which are impacted by expectations about future market and economic conditions, along with the Company’s historical operating results.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures to evaluate management’s valuation of intangibles consisted of the following, among others:

1.Obtain and review management’s analysis and projections of future growth rates, including assessing methodologies and testing significant assumptions underlying the data.
2.Obtain and review data used in management’s analysis from third-party and public sources.
3.Assess the historical basis for estimates of future operating results, including data based on our audit results and knowledge of the Company’s historical activity.
4.Test the fair value of consideration exchanged and overall valuation of business combination.

 

 

We have served as the Company’s auditor since 2017.

 

Spokane, Washington

August 31, 20215, 2022 

  

Fruci & Associates II, PLLC5525

F-1 

F-1

NETCAPITAL INC.

YEARS ENDED APRIL 30, 20212022 AND 20202021

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

CONTENTS

 

  Page
   
Consolidated Financial Statements  F-2
   
Consolidated Financial Statements
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations F-4
   
Consolidated Statements of Stockholders’ Equity F-5
   
Consolidated Statements of Cash Flows F-6
   
Notes to Consolidated Financial Statements F-7 – F-15F-27

F-2 

F-2

NETCAPITAL INC.

Consolidated Balance Sheets

         
       
Assets: April 30, 2022  April 30, 2021 
  Cash and cash equivalents $473,925  $2,473,959 
  Related party receivable  668   — 
  Accounts receivable net  2,433,900   1,356,932 
  Prepaid expenses  5,694   653,861 
Total current assets  2,914,187   4,484,752 
         
   Deposits  6,300   6,300 
   Note receivable – related parties  202,000   — 
   Purchased technology  15,536,704   14,803,954 
   Investment in affiliate  240,080   122,914 
  Equity securities at fair value  12,861,253   6,298,008 
Total assets $31,760,524  $25,715,928 
         
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable        
   Trade $536,508  $308,506 
   Related party  378,077   3,843,686 
Accrued expenses  229,867   306,308 
Stock subscription payable  33,400   1,199,996 
Deferred revenue  2,532   622 
Interest payable  222,295   116,483 
Deferred tax liability  977,000   433,000 
Related party debt  22,860   22,860 
Secured note payable  1,400,000   1,000,000 
Current portion of SBA loans  1,890,727   1,885,800 
Loan payable - bank  34,324   34,324 
Convertible notes payable  300,000   — 
Total current liabilities  6,027,590   9,151,585 
         
Long-term liabilities:        
Long-term SBA loans, less current portion  495,073   2,385,800 
Total Liabilities  6,522,663   11,537,385 
         
Commitments and contingencies  —   — 
         
Stockholders' equity:        
Common stock, $.001 par value; 900,000,000 shares authorized, 2,934,344 and 2,178,766 shares issued and outstanding  2,934   2,178 

Common stock to be issued

  244,250   — 
  Capital in excess of par value  22,479,769   15,168,987 
  Accumulated deficit  2,510,908   (992,622)
Total stockholders' equity  25,237,861   14,178,543 
Total liabilities and stockholders' equity $31,760,524  $25,715,928 

 

See Accompanying Notes to the Financial Statements

         
Assets: April 30, 2021 April 30, 2020
  Cash and cash equivalents $2,473,959  $11,206 
  Accounts receivable net  1,356,932   —   
  Prepaid expenses  653,861   465,555 
Total current assets  4,484,752   476,761 
         
   Deposits  6,300   6,300 
   Deferred  tax assets  —     180,000 
   Purchased technology  14,803,954   143,455 
   Investment in affiliate  122,914   —   
   Equity securities at fair value  6,298,008   1,406,982 
Total assets $25,715,928  $2,213,498 
         
Liabilities and Stockholders' Equity        
Current liabilities:        
Accounts payable        
   Trade $308,506  $278,752 
   Related party  3,843,686   16,680 
Accrued expenses  306,308   149,835 
Stock subscription payable  1,199,996   —   
Deferred revenue  622   656 
Interest payable  116,483   31,235 
Deferred tax liability  433,000   —  
Related party debt  22,860   15,000 
Secured note payable  1,000,000   1,000,000 
Current portion of SBA loans  1,885,800   —   
Loan payable - bank  34,324   34,324 
Demand notes payable  —     7,860 
Total current liabilities  9,151,585   1,534,342 
         
Long-term liabilities:        
Long-term SBA loans, less current portion  2,385,800   —   
Total Liabilities  11,537,385   1,534,342 
         
Commitments and contingencies  —     —   
         
Stockholders' equity:        
  Common stock, $.001 par value; 900,000,000 shares   authorized,   2,178,766 and 417,059 shares issued and outstanding  2,178   417 
  Capital in excess of par value  15,168,987   3,141,021 
  Accumulated deficit  (992,622)  (2,462,282)
Total stockholders' equity  14,178,543   679,156 
Total liabilities and stockholders' equity $25,715,928  $2,213,498 

 

F-3 

NETCAPITAL INC.
Consolidated Statements of Operations

       
  Year Ended  Year Ended 
  April 30, 2022  April 30, 2021 
       
Revenues $5,480,835  $4,721,003 
Costs of services  110,115   759,158 
Gross profit  5,370,720   3,961,845 
         
Costs and expenses:        
Consulting expense  892,567   687,191 
Marketing  95,753   44,929 
Rent  47,670   49,196 
Payroll and payroll related expenses  3,763,845   3,117,075 
General and administrative costs  1,602,031   464,955 
               Total costs and expenses  6,401,866   4,363,346 
Operating income (loss)  (1,031,146)  (401,501)
         
Other income (expense):        
Interest expense  (126,372)  (87,333)
Debt forgiveness  1,904,296   — 
Unrealized gain on equity securities  3,275,745   2,571,494 
Other income  25,007   — 
Total other income (expense)  5,078,676   2,484,161 
               Net income before taxes  4,047,530   2,082,660 
         
Income tax (expense) benefit  (544,000)  (613,000)
Net income $3,503,530  $1,469,660 
         
Basic earnings per share $1.31  $1.18 
Diluted earnings per share $1.27  $0.89 
         
Weighted average number of common shares outstanding:        
Basic  2,666,173   1,250,002 
Diluted  2,748,480   1,647,295 

 

See Accompanying Notes to the Financial Statements

 

F-4 

F-3

 

NETCAPITAL INC.
Consolidated Statements of Operations

         
  Year Ended Year Ended
  April 30, 2021 April 30, 2020
     
Revenues $4,721,003  $1,753,558 
Costs of services  759,158   11,105 
Gross profit  3,961,845   1,742,453 
         
Costs and expenses:        
Stock-based compensation  680,611   356,252 
Consulting expense  6,580   102,600 
Marketing  44,929   12,863 
Rent  49,196   50,769 
Payroll and payroll related expenses  3,117,075   —   
General and administrative closts  464,955   72,747 
               Total costs and expenses  4,363,346   595,231 
Operating income (loss)  (401,501)  1,147,222 
         
Other income (expense):        
Interest expense  (87,333)  (18,879)
Realized loss on sale of investments  —     (527,540)
Unrealized gain on equity securities  2,571,494   (185,952)
Other income  —     10,000 
Total other income (expense)  2,484,161  (722,371)
               Net income before taxes  2,082,660  424,851 
Net income tax (expense) benefit:        
  Income taxes  (613,000)   (129,000)
  Change in deferred tax assets  —    309,000 
Net income tax (expense) benefit  (613,000)   180,000 
Net income $1,469,660 $604,851 
         
Basic earnings per share $1.18 $1.50 
Diluted earnings per share $0.89 $1.50 
         
Weighted average number of common shares outstanding:        
Basic  1,250,002   402,284 
Diluted  1,647,295   402,284 

See Accompanying Notes to the Financial Statements

F-4

 

NETCAPITAL INC.
Consolidated Statements of Stockholders' Equity

For the Years Ended April 30, 20212022 and 20202021

 

                     
      Capial in    
  Common Stock  Excess of Accumulated Total
  Shares Amount Par Value Deficit Equity
Balance, April 30, 2019  377,685  $378  $2,201,497  $(3,067,133) $(865,258)
Q1 stock-based compensation  1,406   1   19,687   —     19,688 
Net income, July 31, 2019  —     —     —     24,475   24,475 
Balance, July 31, 2019  379,091   379   2,221,184   (3,042,658)  (821,095)
                     
Q2 stock-based compensation  37,656   38   917,305   —     917,343 
Net income, October 31, 2019  —             542,451   542,451 
Balance, October 31, 2019  416,747   417   3,138,489   (2,500,207)  638,699 
                     
Q3 stock-based compensation  156   —     1,500   —     1,500 
Net income, January 31, 2020  —     —     —     595,174   595,174 
Balance, January 31, 2020  416,903   417   3,139,989   (1,905,033)  1,235,373 
                     
Q4 stock-based compensation  156   —     1,032   —     1,032 
Net loss, April 30, 2020  —     —     —     (557,249)  (557,249)
Balance, April 30, 2020  417,059   417   3,141,021   (2,462,282)  679,156 
                     
Q1 stock-based compensation  156   —     1,406   —     1,406 
Net income, July 31, 2020  —     —     —     30,871   30,871 
Balance, July 31, 2020  417,215   417   3,142,427   (2,431,411)  711,433 
                     
Q2 stock-based compensation  2,240   2   18,555   —     18,557 
Net income, October 31, 2020  —     —     —     30,022   30,022 
Balance, October 31, 2020  419,455   419   3,160,982   (2,401,389)  760,012 
                     
Shares issued to acquire funding portal  1,666,360   1,666   11,329,582   —     11,331,248 
Return of shares of common stock  (5,000)  (5)  5   —     —   
Q3 stock-based compensation  937   1   6,239   —     6,240 
Net income, January 31, 2021  —     —     —     42,642   42,642 
Balance, January 31, 2021  2,081,752   2,081   14,496,808   (2,358,747)  12,140,142 
                     
Q4 stock-based compensation  95,937   96   657,180   —     657,276 
Shares issued for debt settlement  1,077   1   14,999   —     15,000 
Net income, April 30, 2021              1,366,125  1,366,125
Balance, April 30, 2021  2,178,766  $2,178  $15,168,987  $(992,622) $14,178,543 

                        
           Capital in  Retained    
  Common Stock 

Common Stock

  Excess of  Earnings  Total 
  Shares  Amount 

To Be Issued

  Par Value  (Deficit)  Equity 
Balance, April 30, 2020  417,059  $417 $—  $3,141,021  $(2,462,282) $679,156 
Q1 stock-based compensation  156   —      1,406   —   1,406 
Net income, July 31, 2020  —   —   —   —   30,871   30,871 
Balance, July 31, 2020  417,215   417   —   3,142,427   (2,431,411)  711,433 
                        
Q2 stock-based compensation  2,240   2      18,555   —   18,557 
Net income, October 31, 2020  —   —  —   —   30,022   30,022 
Balance, October 31, 2020  419,455   419   —   3,160,982   (2,401,389)  760,012 
                        
Shares issued to acquire funding portal  1,666,360   1,666      11,329,582   —   11,331,248 
Return of shares of common stock  (5,000)  (5)     5   —   — 
Q3 stock-based compensation  937   1      6,239   —   6,240 
Net income, January 31, 2021  —   —   —   —   42,642   42,642 
Balance, January 31, 2021  2,081,752   2,081   —   14,496,808   (2,358,747)  12,140,142 
                        
Q4 stock-based compensation  95,937   96      657,180   —   657,276 
Shares issued for debt settlement  1,077   1      14,999   —   15,000 
Net income, April 30, 2021  —   —   —   —   1,366,125   1,366,125 
Balance, April 30, 2021  2,178,766   2,178   —   15,168,987   (992,622)  14,178,543 
                        
Q1 stock-based compensation  937   2      14,054   —   14,056 
Sale of common stock  176,934   176      1,592,219   —   1,592,395 
Shares issued to settle related party accounts payable  361,736   362      3,523,100   —   3,523,462 
Net income, July 31, 2021  —   —   —   —   1,457,410   1,457,410 
Balance, July 31, 2021  2,718,373   2,718   —   20,298,360   464,788   20,765,866 
                        
Q2 stock-based compensation  937   1      10,072   —   10,073 
Net loss, October 31, 2021  —   —   —   —   (274,156)  (274,156)
Balance, October 31, 2021  2,719,310   2,719   —   20,308,432   190,632   20,501,783 
                        
Q3 stock-based compensation  55,312   55      553,967   —   554,022 
Purchase of equity interest  50,000   50      499,950   —   500,000 
Purchase of MSG Development Corp.  50,000   50                       244,250   488,450   —   732,750 
Sale of common stock  22,222   22      199,978   —   200,000 
Net income, January 31, 2022  —   —   —   —   1,821,006   1,821,006 
Balance, January 31, 2022  2,896,844   2,896  

                     244,250

   22,050,777   2,011,638   24,309,561 
                        
Q4 stock-based compensation  —   —      29,030   —   29,030 
Purchase of equity interest  37,500   38      399,962   —   400,000 
Net income, April 30, 2022  —   —  —   —   499,270   499,270 
Balance, April 30, 2022  2,934,344  $2,934 $ 244,250  $22,479,769  $2,510,908  $25,237,861 

 

See Accompanying Notes to the Financial Statements 

F-5 

 

F-5

 
NETCAPITAL INC.

Consolidated Statements of Cash Flows

     
         
  April 30, 2021 April 30, 2020
OPERATING ACTIVITIES        
Net income $1,469,660 $604,851 
Adjustment to reconcile net income (loss) to net cash used in operating activities:        
Stock-based compensation  680,611   356,252 
Non-cash revenue from the receipt of equity  (2,319,532)  (1,538,980)
Provision for bad debts  60,325   —   
Impairment of assets  —     185,952 
Unrealized gain on equity securities  (2,571,494)   527,540 
Changes in deferred taxes  613,000   (180,000)
Changes in non-cash working capital balances:        
Accounts receivable  (1,417,257)  6,000 
Contract receivable  —     15,000 
Prepaid expenses  (35,913)  —   
Accounts payable and accrued expenses  172,204   18,680 
Deferred revenue  (34)  (15,055)
Accrued interest payable  85,248   — �� 
Related party payable  12,314   16,156 
Net cash used in operating activities  (3,250,868)  (3,604)
         
INVESTING ACTIVITIES        
Proceeds from purchase of funding portal subsidiary  364,939   —   
Investment in affiliate  (122,914)  —   
Net cash provided by investing activities  242,025   —   
         
FINANCING ACTIVITIES        
   Proceeds from SBA loans  4,271,600   —   
Proceeds from stock subscriptions  1,199,996   —   
Payment on related party note  —     (4,300)
Cash flow provided by (used in) financing activities  5,471,596   (4,300)
         
Net increase (decrease) in cash  2,462,753   (7,904)
Cash and cash equivalents, beginning of the period  11,206   19,110 
Cash and cash equivalents, end of the period $2,473,959  $11,206
         
Supplemental disclosure of cash flow information:        
Cash paid for taxes $4,988  $—   
Cash paid for interest $2,067  $2,723 
         
Supplemental Non-Cash Investing and Financing Information:        
Common stock issued as prepaid compensation $646,500  $—   
Common stock issued to purchase subsidiary $11,331,248  $—   

         
  April 30, 2022  April 30, 2021 
OPERATING ACTIVITIES        
Net income $3,503,530  $1,469,660 
Adjustment to reconcile net income (loss) to net cash used in operating activities:        
Stock-based compensation  1,176,058   680,611 
Non-cash revenue from the receipt of equity  (2,387,500)  (2,319,532)
Allowance for credit losses  76,630   60,325 
Debt forgiveness  (1,904,302)  — 
Unrealized gain on equity securities  (3,275,745)  (2,571,494)
Changes in deferred taxes  544,000   613,000 
Changes in non-cash working capital balances:        
Accounts receivable  (1,153,598)  (1,417,257)
Related party receivable  (668)  — 
Prepaid expenses  16,290   (35,913)
Accounts payable and accrued expenses  281,904   172,204 
Deferred revenue  1,910   (34)
Accrued interest payable  124,314   85,248 
Accounts payable – related party  (9,490)  12,314 
Net cash used in operating activities  (3,006,667)  (3,250,868)
         
INVESTING ACTIVITIES        
Proceeds from purchase of funding portal subsidiary  —   364,939 
Loans to affiliate  (202,000)  — 
Investment in affiliate  (117,166)  (122,914)
Net cash provided by (used in) investing activities  (319,166)  242,025 
         
FINANCING ACTIVITIES        
   Proceeds from SBA loans  —   4,271,600 
   Proceeds from secured lender  400,000   — 
Proceeds from stock subscriptions  625,799   1,199,996 
Proceeds from convertible notes  300,000   — 
Cash flow provided by financing activities  1,325,799   5,471,596 
         
Net increase (decrease) in cash  (2,000,034)  2,462,753 
Cash and cash equivalents, beginning of the period  2,473,959   11,206 
Cash and cash equivalents, end of the period $473,925  $2,473,959 
         
Supplemental disclosure of cash flow information:        
Cash paid for taxes $—  $4,988 
Cash paid for interest $2,064  $2,067 
         
Supplemental Non-Cash Investing and Financing Information:        
Common stock issued as prepaid compensation $—  $646,500 
Common stock issued to reduce related party payable $3,523,462  $— 
Common stock issued to purchase 10% interest in Caesar Media Group Inc. $900,000  $— 
Common stock for purchase of MSG Development Corp. $732,750  $11,331,248 

 

See Accompanying Notes to the Financial Statements

 

F-6 

F-6

 

NETCAPITAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED APRIL 30, 20212022 AND 20202021

 

1. Description of Business and Summary of Accounting Principles

 

Description of Business and Concentrations

 

Netcapital Inc. (“Netcapital,” “we,” “our,” or the “Company”) is a fintech company with a scalable technology platform that allows private companies to raise capital online and provides private equity investment opportunities to investors. The company's consulting group, Netcapital Advisors, provides marketing and strategic advice and takes equity positions in select companies with disruptive technologies. The Netcapital funding portal is registered with the U.S. Securities & Exchange Commission (SEC) and is a member of the Financial Industry Regulatory Authority (FINRA), a registered national securities association.

 

The consolidated financial statements are presented in United States dollars and have been prepared in accordance with generally accepted accounting principles in the United States of America.  The Company’s fiscal year end is April 30.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of significant intercompany balances and transactions. The wholly owned subsidiaries are Netcapital Funding Portal Inc., an equity-based funding portal registered with the SEC, Netcapital Advisors Inc., which provides marketing and strategic advice to select companies, and AthenaSoft Corp.,MSG Development Corp, which has been inactive for the past two years.was acquired in November 2021.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method in accordance with ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.

 

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in income tax expense. The Company has determined that it had no significant uncertain tax positions requiring recognition or disclosure. 

 

Revenue Recognition under ASC 606

The Company recognizes service revenue from its consulting contracts, funding portal and game website using the five-step model as prescribed by ASC 606:

 

• Identification of the contract, or contracts, with a customer;

• Identification of the performance obligations in the contract;

• Determination of the transaction price;

• Allocation of the transaction price to the performance obligations in the contract; and

F-7 

• Recognition of revenue when or as, the Company satisfies a performance obligation.

 

The Company identifies performance obligations in contracts with customers, which primarily are professional services, listing fees on our funding portal, and a portal fee of 4.9% of the money raised on the funding portal. The transaction price is determined based on the amount the Company expects to be entitled to receive in exchange for transferring the promised services to the customer. The transaction price in the contract is allocated to each distinct performance obligation in an amount that represents the relative amount of consideration expected to be received in exchange for satisfying each performance obligation. Revenue is recognized when performance obligations are satisfied. The Company usually bills its customers before it provides any services and begins performing services after the first payment is received. Contracts are typically one year or less. For larger contracts, in addition to the initial payment, the Company may allow for progress payments throughout the term of the contract.

 

Judgments and Estimates

The estimation of variable consideration for each performance obligation requires the Company to make subjective judgments. The Company enters into contracts with customers that regularly include promises to transfer multiple services, such as digital marketing, web-based videos, offering statements, and professional services. For arrangements with multiple services, the Company evaluates whether the individual services qualify as distinct performance obligations. In its assessment of whether a service is a distinct performance obligation, the Company determines whether the customer can benefit from the service on its own or with other readily available resources, and whether the service is separately identifiable from other services in the contract. This evaluation requires the Company to assess the nature of each individual service offering and how the services are provided in the context of the contract, including whether the services are significantly integrated, highly interrelated, or significantly modify each other, which may require judgment based on the facts and circumstances of the contract.

 

F-8 

F-7

When agreements involve multiple distinct performance obligations, the Company allocates arrangement consideration to all performance obligations at the inception of an arrangement based on the relative standalone selling prices (SSP) of each performance obligation. Where the Company has standalone sales data for its performance obligations which are indicative of the price at which the Company sells a promised service separately to a customer, such data is used to establish SSP. In instances where standalone sales data is not available for a particular performance obligation, the Company estimates SSP by the use of observable market and cost-based inputs. The Company continues to review the factors used to establish list price and will adjust standalone selling price methodologies as necessary on a prospective basis.

 

Service Revenue

Service revenue from subscriptions to the Company's game website is recognized over time on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer. Payments received in advance of subscription services being rendered are recorded as a deferred revenue. Professional services revenue is recognized over time as the services are rendered.

 

When a contract with a customer is signed, the Company assesses whether collection of the fees under the arrangement is probable. The Company estimates the amount to reserve for uncollectible amounts based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded as operating expenses against the contract asset (Accounts Receivable).

 

Contract Assets

Contract assets are recorded for those parts of the contract consideration not yet invoiced but for which the performance obligations are completed. The revenue is recognized when the customer receives services. Contract assets are included in other current assets in the consolidated balance sheets and will be recognized during the succeeding twelve-month period.

 

Deferred Revenue

Deferred revenues represent billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual plan subscription services and professional services not yet provided as of the balance sheet date. Deferred revenues that will be recognized during the succeeding twelve-month period are recorded as current deferred revenues in the consolidated balance sheets, with the remainder recorded as other non-current liabilities in the consolidated balance sheets.

 

Costs to Obtain a Customer Contract

Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized as other current or non-current assets and amortized on a straight-line basis over the life of the contract, which approximates the benefit period. The benefit period was estimated by taking into consideration the length of customer contracts, technology lifecycle, and other factors.

 

All sales commissions are recorded as consulting fees within the Company's consolidated statement of operations.

 

Remaining Performance Obligations

The Company's subscription terms are typically less than one year. All of the Company’s revenues in the years ended April 30, 20212022 and 2020,2021, which amounted to $4,721,0035,480,835 and $1,753,5584,721,003, respectively, are considered contract revenues. Contract revenue as of April 30, 20212022 and 2020,2021, which has not yet been recognized, amounted to $6222,532 and $656622, respectively, and is recorded on the balance sheet as deferred revenue. The Company expects to recognize revenue on all of its remaining performance obligations over the next 12 months.  

 

F-9 

Disaggregation of Revenue

Our revenue is from U.S.-based companies with no notable geographical concentrations in any area. A distinction exists in revenue source; our revenues are either generated online or from personal services.

Revenues disaggregated by revenue source consist of the following:

Schedule of Disaggregation of Revenue        
  Year Ended
April 30, 2022		  Year Ended
April 30, 2021		 
Consulting services $3,878,233  $3,886,022 
Fees from online services  1,602,602   834,981 
Total revenues $5,480,835  $4,721,003 

Costs of Services

 

Costs of services consist of direct costs that we pay to third parties in order to provide the services that generate revenue.

 

Earnings Per Share

 

EarningsBasic net income per share is computed by dividing net income available to common stockholders by the weighted-averageweighted average number of vested, unrestricted common shares outstanding. The Company has no stock options, warrants or convertible debt, but has a contingent consideration liability that requires it to issue up to 397,293outstanding during the period. Diluted net income per share is computed based on the weighted average number of shares of common stock and is dilutive.outstanding plus the effect of dilutive potential common shares outstanding during the period using the if-converted method.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company did not have any cash equivalents during fiscal 20212022 and 2020.2021. The Company uses three financial institutions for its cash balances and has maintained cash balances that exceed federally insured limits.

 

Accounts Receivable

 

The Company extends credit to its customers in the normal course of business and performs ongoing credit evaluations of its customers, maintaining an allowance for potential credit losses. Accounts receivable is reported net of the allowance for doubtful accounts. The allowance is based on management’s estimate of the amount of receivables that will be collected. The Company recorded an allowance for doubtful accounts of $60,325 $136,955and $0 $60,325 as of April 30, 2022 and 2021, and 2020, respectively.

 

Stock-Based CompensationNotes Receivable

 

The Company lends money to companies in limited instances, performs ongoing credit evaluations of its notes receivable and establishes an allowance for potential credit losses when appropriate.

Intangible Assets

Intangible assets with defined useful lives are generally measured at cost less straight-line amortization. The useful life is determined using the period of the underlying contract or the period of time over which the intangible asset can be expected to be used. Impairments are recognized if the recoverable amount of the asset is lower than the carrying amount. The recoverable amount is the higher of either the fair value less costs to sell or the value in use. The value in use is determined on the basis of future cash inflows and outflows, and the weighted average cost of capital. Intangible assets with indefinite useful lives, such as trade names and trademarks, that have been acquired as part of acquisitions are measured at cost and tested for impairment annually, or if there is an indication that their value has declined.

The following table sets forth the major categories of the intangible assts as of April 30, 2022 and 2021 

Schedule of intangible assets        
  April 30, 2022  April 30, 2021 
       
Acquired users $14,288,695  $14,271,836 
Acquired brand  583,429   532,118 
Professional practice  556,830   — 
Literary works and contracts  107,750   — 
Total intangible assets $15,536,704  $14,803,954 

F-10 

Impairment of Long-Lived Assets

Authoritative guidance requires that certain assets be reviewed for impairment and, if impaired, remeasured at fair value whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment loss estimates are primarily based upon management’s analysis and review of the carrying value of long-lived assets at each balance sheet date, utilizing an undiscounted future cash flow calculation. The Company did not recognize an impairment loss in fiscal 2022 and 2021.

Stock-Based Compensation

  

The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including the vesting of restricted stock grants to employees, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to common stock and capital in excess of par value during the period during which services are rendered.

The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for common stock issued to consultants and other non-employees. These shares of common stock are issued as compensation for services provided to the Company and are accounted for based upon the fair market value of the common stock. The fair value of the equity instrument is charged directly to compensation expense, or to prepaid expenses in instances where stock was issued under a contractual arrangement to a consultant who agreed to provide services over a period of time.

 

F-11 

F-8

Advertising Expenses

 

Advertising and marketing expenses are recorded separately in the Statements of Operations and are expensed as incurred.

 

Equity Securities

All investments in equity securities are initially measured at cost. Cost is based upon either the cost of the investment, the fair value of the services provided or the estimated market value of the investment at the time it was acquired, whichever can be more clearly determined. If the Company identifies an observable price change in an orderly transaction for an identical or similar investment of the same issuer, the Company measures the equity security at fair value as of the date that the observable transaction occurred.

 

Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimate relates to investments, the allowance for doubtful accounts and the income tax valuation allowance.calculation of stock-based compensation for the stock options. On a continual basis, management reviews its estimates, utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Determination of Fair Value

Cash and cash equivalents, accounts receivable, and accounts payable

In general, carrying amounts approximate fair value because of the short maturity of these instruments.

Deferred Revenue

Deferred Revenue represents revenues collected but not earned as of the year end. The Company renders services, or rights to use its software, over a specific time period and revenues are recognized as earned as time passes.

Debt

At April 30, 2021 and 2020, the Company’s secured and unsecured debt was carried at its face value plus accrued interest.

The Company has no instruments with significant off balance sheet risk.

  

Recent Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments-Credit Losses.  The new guidance provides better representation about expected credit losses on financial instruments. This update requires the use of a methodology that reflects expected losses and requires consideration of a broader range of reasonable and supportive information to inform credit loss estimates.  This ASU is effective for reporting periods beginning after December 15, 2022, with early adoption permitted.  The company is studying the impact of adopting the ASU in fiscal year 2023, and what effect it could have. The Company believes the accounting change would not have a material effect on the financial statements.

  

In June 2018, the FASB issued ASU 2018-07, Improvement to Nonemployee Share-based Payment Accounting, which simplifies the accounting for share-based payments. The company elected early adoption of this ASU, using the modified retrospective approach, so that all stock compensation to employees and nonemployees is treated under the same guidance as in ASC 718.

In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income Taxes(Topic 740):Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for us in the first quarter of fiscal 2022 on a prospective basis, and early adoption is permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

2. Concentrations 

 

For the year ended April 30, 2022, the Company had one customer that constituted 22% of its revenues, a second customer that constituted 22% of its revenues, and a third customer that constituted 18% of its revenues. For the year ended April 30, 2021, the Company had one customer that constituted 3030% % of its revenues, a second customer that constituted 1515% % of its revenues, a third customer that constituted 1414% % of its revenues and a fourth customer that accounted for 1111% % of its revenues. For the year ended April 30, 2020, the Company had one customer that constituted 47% of its revenues, a second customer that constituted 31% of its revenues and a third customer that accounted for 13% of its revenues.

F-12 

F-9

 

 

3. Debt

 

The following table summarizes components debt as of April 30, 20212022 and 2020:2021:

Schedule of Debt                   
      
 2021 2020 Interest Rate 2022 2021 Interest Rate 
             
Secured lender $1,000,000  $1,000,000   8.00% $1,400,000  $1,000,000   8.0%
Notes payable – related parties  22,860   15,000   0.0%  22,860   22,860   0.0%
Demand notes payable  —     7,860   0.0%
Convertible promissory notes  300,000   0   8.0%
U.S. SBA loan  1,885,800   —     1.0%  —   1,885,800   1.0%
U.S. SBA loan  500,000   —     3.75%  500,000   500,000   3.75%
U.S. SBA loan  1,885,800   —     1.0%  1,885,800   1,885,800   1.0%
Loan payable – bank  34,324   34,324   5.5%  34,324   34,324   7.0%
Total debt  5,328,784   1,057,184       4,142,984   5,328,784     
Less: current portion of long-term debt  2,942,984   1,057,184       3,647,911   2,942,984     
Total long-term debt $2,385,800  $—        $495,073  $2,385,800     

  

As of April 30, 20212022 and 2020,2021, the Company owed its principal lender (“Lender”) $1,000,000 $1,400,000 and $1,000,000, respectively, under a loan and security agreement (“Loan”) dated April 28, 2011, that was amended on July 26, 2014 and again on October 31, 2017, October 31, 2020, January 31, 2021 and April 30, 2021. The Lender was the largest shareholder of the Company owning 32.6% of the shares issued and outstanding as of April 30, 2020. However, with the purchase of Netcapital Funding Portal Inc., the Lender owns less than 10% of the Company and is no longer considered a related party.

The Loan was amended on October 31, 2020 to changeseveral times thereafter so that the maturity date to January 31, 2021, and increase the interest rate from 1.25% to 8% per annum. The Loan has been further amended to change the maturity date tois now April 30, 2022.2023.

 

In connection with the financing, the Company has agreed to certain restrictive covenants, including, among others, that the Company may not convey, sell, lease, transfer or otherwise dispose of any part of its business or property, except as permitted in the agreement, dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, incur any indebtedness except as defined in the agreement, create or allow a lien on any of its assets or collateral that has been pledged to the Lender, make any loans to any person, except for prepaid items or deposits incurred in the ordinary course of business, or make any material capital expenditures. To secure the payment of all obligations to the Lender, the Company granted to the Lender a continuing security interest and first lien on all of the assets of the Company.

 

On February 9, 2022, the Company issued and sold in a private placement $300,000 of unsecured convertible promissory notes (the “February 2022 Notes”). These notes bear interest at a rate of 8% per annum and have a maturity date of February 9, 2023. In addition, the February 2022 Notes will automatically convert simultaneously with the closing of a Qualified Equity Financing (as defined below) into a number of securities sold in the Qualified Equity Financing equal to the quotient obtained by dividing (a) an amount equal to the amount of the February 2022 Notes outstanding on the closing date of such Qualified Equity Financing by (b) a conversion price equal to the lesser of (1) $10.00 and (2) 80% of the price per share paid for securities sold in such Qualified Equity Financing upon the closing of such Qualified Equity Financing. A “Qualified Equity Financing” means the offer and sale for cash by us of any of our equity securities with the principal purpose of raising capital and that results in aggregate gross proceeds to us of at least $5,000,000. As of April 30, 2022 and 2021, unsecured convertible promissory notes totaled $300,000 and 2020,0, respectively.

As of April 30, 2022 and 2021, the Company’s related-party unsecured notes payable totaled $22,860 and $15,000$22,860., respectively. Demand notes payable totaled $0 and $7,860as of April 30, 2021 and 2020. The demand notes totaling $7,860 were determined to be related party notes as of the date of the acquisition of Netcapital Funding Portal Inc. (“Funding Portal”) because the notes are from a board member of the Funding Portal and the former parent of the Funding Portal, which is now the Company’s largest shareholder, owning 1,671,360 shares of common stock of the Company, or 76.7% as of April 30, 2021.

 

The Company also owes $34,324 as of April 30, 20212022 and 20202021 to Chase Bank. For the loan from Chase Bank, the Company pays interest only on a monthly basis, which is calculated at a rate of 5.5%7.0% per annum.

F-13 

 

On May 6, 2020, the Company borrowed $1,885,800 (the “May Loan”), on June 17, 2020 the Company borrowed $500,000 (the “June Loan”), and on February 2, 2021, the Company borrowed $1,885,800 (the “February Loan”) from an SBAa U.S. Small Business Administration (“SBA”) loan program.

 

The May loan bearsbore interest at a rate of 1% per annum and the SBA has postponed any installment payments until September 6, 2021. The Company is applying for forgiveness ofIn November 2021 the May Loan and believes it will bewas forgiven in its entirety.entirety, including accrued interest of $18,502. As a result, the Company recognized debt forgiveness of $1,904,296 in the year ended April 30, 2022.

 

The June Loan requiresrequired installment payments of $2,437$2,594 monthly, beginning on June 17, 2021, over a term of thirty years. However, the SBA has postponed the first installment payment for 1218 months. Interest accrues at a rate of 3.75% per annum. The Company agreed to grant a continuing security interest in its assets to secure payment and performance of all debts, liabilities, and obligations to the SBA. The June Loan was personally guaranteed by the Company’s Chief Financial Officer.

 

The February loan bears interest at a rate of 1% per annum and the due date of the first payment is May 22, 2022. Thehas been postposed by the SBA because the Company plans to applyhas applied for forgiveness of the February Loan and believes will be forgiven in its entirety.

In fiscal 2020, the Company received a $10,000 advance from the U.S. Small Business Administration (“SBA”) in conjunction with an Economic Injury Disaster Loan application. Based upon SBA information regarding the advance payments that were made to U.S. businesses, the Company considers the $10,000 received as a grant and recorded the $10,000 as other income.

  

As of April 30, 20212022, future payments under debt obligations over each of the next five years and thereafter were as follows:

 

Schedule of future payments under short-and long-term debt agreements  
Schedule of future payments under debt obligations   
Twelve months ended April 30:Twelve months ended April 30:     
2022  $2,942,984 
2023   1,895,950 
2024   11,478 
2025   11,916 
2026   12,370 
Thereafter   454,086 
Minimum future payments of principal  $5,328,800 
     
2023  $3,647,911 
2024   12,126 
2025   12,563 
2026   13,016 
2027   13,485 
Thereafter   443,883 
Minimum future payments of principal  $4,142,984 

 

F-14 

F-10

 

4. Fair Value Measurements

 

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures of financial instruments on a recurring basis.

Cash and cash equivalents, accounts receivable, and accounts payable

In general, carrying amounts approximate fair value because of the short maturity of these instruments.

 

Fair Value Hierarchy

 

The Fair Value Measurements Topic of the FASB Accounting Standards Codification establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3 inputs are unobservable inputs for the asset or liability.

 

Financial assets measured at fair value on a recurring basis are summarized below as of April 30, 20212022 and 2020:2021:

Schedule of Financial assets measured at fair value on a recurring basis                         
 Level 1  Level 2  Level 3  Total 
April 30, 2022                
Equity securities at fair value $—  $12,861,253  $—  $12,861,253 
 Level 1 Level 2 Level 3 Total                
April 30, 2021                                
Equity securities at fair value $—    $6,298,008    $—   $6,298,008  $—  $6,298,008  $—  $6,298,008 
                
April 30, 2020                
Equity securities at fair value $—    $1,406,982    $—   $1,406,982 

  

Determination of Fair Value

 

Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the Company bases its fair value on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data and, therefore, are based primarily upon management’s own estimates, are often calculated based on current pricing policy, the economic and competitive environment, the characteristics of the asset or liability and other such factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results of current or future value.

 

See Note 1 for a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value where it is practicable to do so for financial instruments not recorded at fair value (disclosures required by the Fair Value Measurements Topic of the FASB Accounting Standards Codification).

 

5. Income Taxes

F-15 

 

The Tax Cuts and Jobs Act ("Tax Act") was enacted on December 22, 2017. Among numerous provisions, the Tax Act reduced the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. As a result of the Tax Act, the Company re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%.5. Income Taxes

 

As of April 30, 2021,2022, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $890,0001,108,000 expiring in the years of 20222023 through 2035.2042. Utilization of the net operating losses may be subject to annual limitations provided by Section 382 of the Internal Revenue Code and similar state provisions.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of April 30, 20212022 and 20202021 were as follows:

 

Schedule of Income Taxes         
 2021 2020 2022 2021 
         
Deferred tax assets, net:                
Net operating loss carryforwards $141,000  $140,000  $322,000  $141,000 
Bad debt expense  17,000   0     40,000   17,000 
Stock-based compensation  155,000   —     357,000   155,000 
Asset impairment loss  0    40,000   —   — 
Deferred tax assets  313,000   180,000   719,000   313,000 
                
Deferred tax liability                
Unrealized gain  746,000   —    1,696,000   746,000 
Total deferred tax liability  746,000   —    1,696,000   746,000 
                
                
Total net deferred tax assets (liabilities) $(433,000)  $180,000  $(977,000) $(433,000)

 

F-16 

F-11

The valuation allowance is

For fiscal 2022, our income tax expense was $0544,000as, with an effective tax rate of April 30,13%. Our effective tax rate and the resulting provision for income taxes were impacted by tax benefits related to a net operating loss carryforward of $1.1 million and non-taxable debt forgiveness of $1.9 million. For fiscal 2021, our income tax expense was $613,000, with an effective tax rate of 29%, similar to the statutory rate for federal and April 30, 2020. . Company management believes that historical, current and expected earnings are sufficient to meet the more likely than not standard to enable the Company to utilize the deferred tax asset.state taxes. 

 

The Company did not have any material unrecognized tax benefits as of April 30, 20212022 and 2020.2021. The Company does not expect the unrecognized tax benefits to significantly increase or decrease within the next twelve months.  The Company recorded no interest and penalties relating to unrecognized tax benefits as of and during the years ended April 30, 20212022 and 2020.2021. The Company is subject to U.S. federal income tax, as well as taxes by various state jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ending April 30, 20192020 through 2021.2022.

 

6. Commitments and Contingencies

 

Litigation

 

The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, is not likely to have a material effect on the financial condition, results of operations or liquidity of the Company. However, as the outcome of litigation or legal claims is difficult to predict, significant changes in the estimated exposures could occur. There are no known legal complaints or claims against the Company.

 

The Company utilizes virtual office space in Boston, Massachusetts, at a cost of approximately $3,600$5,700 per month one-yearunder a membership agreement that ends on March 31, 2022.September 30, 2023. The membership agreement includes a deposit of $6,300.

 

A novel strain of coronavirus, or COVID-19, has spread throughout the world and has been declared to be a pandemic by the World Health Organization. As of the date this report was issued, our operations have not been significantly impacted by the COVID-19 outbreak. The number of people establishing accounts on our website Netcapital.com has more than doubled during the pandemic. Most of our employees work remotely from a home office to access our technology, which runs 24 hours a day on the internet. However, we cannot at this time predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on our financial condition, operations, and business plans for fiscal year 2022.2023. Our operations have adapted social distancing practices, and the next expected milestones of our product may be impacted, and we may experience delays in anticipated timelines and milestones.

  

7. Stockholders’ Equity

 

The Company is authorized to issue 900,000,000 shares of its common stock, par value $0.001. 2,178,766 and 417,059 shares were outstanding asAs of April 30, 2022 and 2021, there were 2,934,344 and 2020,2,178,766 shares outstanding, respectively.

In August 2020, the board of directors authorized a reverse split of the common stock on a 1-for-2,000 basis, whereby the Company issued to each of its stockholders one share of Common Stock for every 2,000fiscal 2022, 57,186 shares of common stock held by such stockholder. The reverse split was effective on November 5, 2020. The financial statementswere issued for the year ended April 30, 2020 have been adjusted to give effect to the reverse split. Asstock-based compensation, 361,736 shares of April 30, 2020, the balance sheet accounts for capital in excess of par value and for common stock were increasedissued to settle related party liabilities in conjunction with the purchase Netcapital Funding Portal Inc., 199,156 shares of common stock were sold in a private placement to accredited investors at a price of $9 per share, 50,000 shares of common stock were issued to purchase MSG Development Corp. and decreased by $830,852, respectively.87,500 shares were issued in conjunction with the purchase of a 10% interest in Caesar Media Group Inc.

 

In fiscal 2021, 99,270 shares of common stock were issued for stock-based compensation, 1,666,360 shares of common stock were issued to purchase Netcapital Funding Portal Inc., and 5,000 shares of common stock were returned to the Company in exchange for a 20% ownership of AthenaSoft Corp. that was acquired by the Company during fiscal 2018. The book value of the AthenaSoft Corp. shares surrendered by the Company was zero dollars, as the Company had recognized an impairment loss in a prior year. The Company also issued 1,077 shares of common stock, valued at $15,000, to pay a $15,000 liability.

 

In fiscal 2020, 39,375 shares of common stock were issued for stock-based compensation.F-17 

 

For the years ended April 30, 20212022 and 2020,2021, the Company recorded $680,611 $1,176,058 and $356,252,$680,611, respectively, in stock-based compensation expense. As of April 30, 20212022 and 2020,2021, there was $631,878 $0 and $609,010 $631,878 of prepaid stock-based compensation expense.

 

The table below presents the components of stock-based compensation expense for the years ended April 30, 20212022 and 2020.2021.

 

Schedule of stock-based compensation expense         
Description April 30, 2021 April 30, 2020 April 30, 2022 April 30, 2021 
Chief Executive Officer $161,107  $112,035  $40,608  $161,107 
Chief Financial Officer  161,107   112,035   40,608   161,107 
Chief Marketing Officer  31,693   7,061   109,547   31,693 
Related party consultant  76,882   49,711   25,908   76,882 
Marketing consultant  5,286   —     5,603   5,286 
Marketing consultant  119,059   —     380,441   119,059 
Marketing consultant  20,000   —     —   20,000 
Marketing consultant  28,595   —     118,405   28,595 
Business consultant  76,882   49,711   25,908   76,882 
Company secretary and director  100,000   — 
Business development manager  300,000   — 
Employee stock options  29,030   — 
Total $680,611  $356,252  $1,176,058  $680,611 

 

The table below presents the number of shares issued as compensation for the years ended April 30, 20212022 and 2020:2021:

 

     
  Year Ended Year Ended
Description April 30, 2021 April 30, 2020
Chief Executive Officer  —     13,125 
Chief Financial Officer  —     13,125 
Chief Marketing Officer  3,646   625 
Related party consultant  —     6,250 
Business consultant  —     6,250 
Marketing consultant  625   —   
Marketing consultant  20,000   —   
Marketing consultant  75,000   —   
Total  99,270   39,375 


  Year Ended  Year Ended 
Description April 30, 2022  April 30, 2021 
Company secretary and director  10,000   — 
Business development manager  30,000   — 
Chief Marketing Officer  10,417   3,646 
Marketing consultant  469   624 
Marketing consultant  —   20,000 
Marketing consultant  —   75,000 
Total  50,886   99,270 

 

The table below presents the prepaid stock-based compensation expense as of April 30, 20212022 and 2020:2021:

 

    
 Year Ended Year Ended Year Ended Year Ended 
Description April 30, 2021 April 30, 2020 April 30, 2022 April 30, 2021 
Chief Executive Officer $40,608  $201,715  $—  $40,608 
Chief Financial Officer  40,608   201,715   —   40,608 
Related party consultant  25,908   102,790   —   25,908 
Business consultant  25,908   102,790   —   25,908 
Marketing consultant  380,441   —     —   380,441 
Marketing consultant  118,405   —     —   118,405 
Total $631,878  $609,010  $0  $631,878 

 


F-18 

F-12

The following tables summarize information about stock options outstanding as of April 30, 2022 and 2021:

 Schedule of stock options outstanding                    
  Options Outstanding   Options Exercisable 
     Weighted-          
     Average  Weighted-     Weighted- 
Range of    Remaining  Average     Average 
Exercise Number  Contractual  Exercise  Number  Exercise 
Prices Outstanding  Life (Years)  Price  Outstanding  Price 
                
As of April 30, 2022               
$10.50 - $10.50  271,000   9.79  $10.50   16,945  $10.50 
                     
As of November 30, 2021                    
   —   —  $—   —  $— 

 Schedule of stock options activity             
   Number of
Shares		  Exercise Price
Per Share		  Average
Exercise
Price		 
Outstanding May 1, 2020   —   —  $— 
              
Issued during year ended April 30, 2021   —   —  $— 
              
Exercised/canceled during year ended April 30, 2021   —   —  $— 
              
Outstanding April 30, 2021   —   —  $— 
              
Issued during year ended April 30, 2022   272,000   $10.50 - $10.50  $10.50 
              
Exercised/canceled during year ended April 30, 2022   1,000   $10.50 - $10.50  $10.50 
              
Options outstanding April 30, 2022   271,000   $10.50 - $10.50  $10.50 
              
Options exercisable, April 30, 2022   16,945   $10.50 - $10.50  $10.50 

F-19 

8. Earnings Per Common Share

 

Earnings per common share data was computed as follows:

Schedule of earnings per share         
 2021 2020 2022 2021 
         
Net income (loss) $1,469,660 $604,851 
Net income $3,503,530  $1,469,660 
                
Weighted average common shares outstanding  1,250,002   402,284   2,666,173   1,250,002 
Effect of dilutive securities  397,293   —     82,307   397,293 
Weighted average dilutive common shares outstanding  1,647,295   402,284   2,748,480   1,647,295 
                
Earnings per common share – basic $1.18 $1.50  $1.31  $1.18 
                
Earnings per common share – diluted $0.89 $1.50  $1.27  $0.89 


 

397,293Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of vested, unrestricted common shares outstanding during the period. Diluted net income per share is computed based on the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the if-converted method. Dilutive potential common shares include 39,901 and 397,296 shares, for the years ended April 30, 2022 and 2021, respectively, that are issuable to satisfy a supplemental consideration liabilityliability. In fiscal 2022, the Company also had $300,000 in convertible promissory notes plus $5,326 in accrued interest payable that could convert, at a price per share of $7.20, into 42,406 shares of common stock. Outstanding stock options, totaling 271,000 and 0 for the years ended April 30, 2022 and 2021, respectively, were not included forin the calculation of earnings per share for the year ended April 30, 2021dilutive securities because their effect is dilutive. No dilutive securities existed as of April 30, 2020.

was anti-dilutive.

 

9. Related Party Transactions

 

The Company’s majority shareholder, Netcapital Systems LLC, owns 1,671,360 shares of common stock, or 76.7%57.7% of the Company as of April 30, 2021.2022. The Company has a demand note payable to Netcapital Systems LLC of $4,600 and a demand note payable to one of its former managers of $3,200. In addition, as of April 30, 2021, the Company has accrued a payable of $3,817,516 for supplemental consideration owed in conjunction with its purchase of Netcapital Funding Portal Inc. See Note 12 for details of an issuance of common stock, which was reduced to pay off $3,461,462 of this liability. In total the Company owed its largest shareholder $3,822,116$294,054 as of April 30, 2021. 2022, because of the issuance to 361,736 shares of common stock, valued at $3,523,462. Of the 361,736 shares that were issued, a total of 32,458 shares, representing a reduction in the payable amount of $346,821, were issued to managers of Netcapital Systems LLC, and 3,151 shares, representing a reduction in the payable amount of $30,691, were issued to our Chief Executive Officer.

The company paid its majority shareholder $100,000$357,429 and $200,000 in fiscalthe years ended April 30, 2022 and 2021, respectively, for use of the software that runs the website www.netcapital.com. The Company also had a sale of $15,000 for consulting services to its majority shareholder during fiscal 2022.

 

The Company received revenues of $39,360 and $660,486 for the years ended April 30, 2022 and 2021, respectively from ChipBrain, Inc. Our Chief Executive Officer is a member of the board of directors of ChipBrain, Inc. The Company owns 710,200 shares of ChipBrain, Inc., valued at $1,704,480.

Our Chief Executive Officer is a member of the board of directors of KingsCrowd Inc. The Company owns 3,815,745 shares of KingsCrowd Inc., valued at $3,815,745.

Our Chief Executive Officer is a member of the board of directors of Deuce Drone LLC. The Company owns 2,350,000 membership interest units of Deuce Drone LLC., valued at $2,350,000. The Company has notes receivable aggregating $152,000 from Deuce Drone LLC as of April 30, 2022.

F-20 

Compensation expense to officers in the years ended April 30, 20212022 and 20202021 consisted of common stock valued at $190,763 and $353,907, and $231,131, respectively, and cash compensation of $265,688 and $332,724, respectively, and $72,000,options to purchase common stock valued at $3,147 and $0, respectively.

 

Compensation to a related party consultant in the years ended April 30, 20212022 and 20202021 consisted of common stock valued at $76,882$25,908 and $49,711,$76,882, respectively, and cash compensation of $81,431$60,000 and $26,200,$81,431, respectively. This consultant is also the controlling shareholder of Zelgor Inc., and the Company earned revenues from Zelgor Inc. of $5,500 and $1,400,000 in the yearyears ended April 30, 2022 and 2021. The Company owns 1,400,000 shares of Zelgor Inc., valued at $1,400,000 and holds a note receivable of $50,000 as of April 30, 2022.

 

Compensation to two board membersthe President of Netcapital Systems LLC amounted to $162,123$96,000 and $0$114,284 in the years ended April 30, 20212022 and 2020, respectively. One of these board members also received stock-based compensation of $76,882 and $49,711 for the years ended April 30, 2021, and 2020, respectively.

 

We owe Steven Geary, a director, $31,680 as of April 30, 20212022 and 2020.2021. This obligation is not interest bearing. $16,680 $16,680 is recorded as a related party trade accounts payable and $15,000 as a related party note payable. We have no signed agreements for the indebtedness to Mr. Geary.

 

The Company made an investment of $122,914$240,080 in an affiliate, 6A Aviation Alaska Consortium, Inc., in conjunction with a land lease in an airport in Alaska. Our Chief Executive Officer is also the Chief Executive Officer of 6A Aviation Alaska Consortium, Inc. As a result of the investment, the Company is a 10%19% owner of 6A Aviation Consortium Inc.

 

As of April 30, 20212022 and 2020,2021, we owed $9,490$0 and $0$9,490 to a company controlled by one of our former directors. We paid cash compensation of $29,738$0 and $0$29,738 to this former director for the years ended April 30, 2022 and 2021, respectively.

In November 2021, we issued a member of our Board 10,000 shares of common stock for his service as a member of our board and 2020, respectively. audit committee, valued at $100,000.

On April 30, 2020, we sold 722 membership interest units (the "Units")February 2, 2022, the Company granted to members of Netcapital Systems LLC ("Netcapital")our Board an aggregate of 25,000 options to purchase shares of our common stock at an exercise price of $10.50 per share. An option to purchase 10,000 shares of common stock was granted to the company controlled by this related party at a priceChairman of $91.15 per Unit for a totalthe Board and each of $65,823, which paid off all debt and accrued interest payable to the related party as of that date. The price per Unit was similar tothree independent board members received an offeroption to purchase Units directly5,000 shares of common stock. The options vest on a monthly basis over 48 months and expire in 10 years.

Coreen Kraysler, our Chief Financial Officer, has personally guaranteed a $500,000 promissory note from Netcapital.the U.S. Small Business Administration. The note bears interest at an annual rate of 3.75%, has a 30-year term, and monthly payments of $2,594 are scheduled to begin on June 17, 2022.

 

The carrying amountCompany recorded $19,844 in revenues from a company that Cecilia Lenk, our Chief Executive Officer, serves as a member of the 722 Units was $659,186, and the sale resulted in a realized lossboard of $593,363. Based upon the price of $91.15 per Unit, for the year ended April 30, 2020, the Company recorded an impairment loss of $185,952, which is not tax deductible, on the remaining Units in its possession.managers.

 

10. Investments

In April 2022, the Company received 3,000,000 units of Cust Corp. as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.40 per unit based on a sales price of $0.40 per unit on an online funding portal. The receipt of the units satisfied an accounts receivable balance of $1,200,000. As of April 30, 2022, the Company owned 3,000,000 units which are valued at $1,200,000.

In January 2022, the Company received 1,700,000 units of ScanHash LLC as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.25 per unit based on a sales price of $0.25 per unit on an online funding portal. The receipt of the units satisfied $425,000 of an accounts receivable balance. As of April 30, 2022, the Company owned 1,700,000 units which are valued at $425,000.

F-21 

In January 2022, the Company received 2,850,000 units of Hiveskill LLC as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.25 per unit based on a sales price of $0.25 per unit on an online funding portal. The receipt of the units satisfied an accounts receivable balance of $712,500. As of April 30, 2022, the Company owned 2,850,000 units which are valued at $712,500.

In fiscal 2022, the Company purchased a 10% interest, or 400 shares of common stock, in Caesar Media Group Inc. (“Caesar”) for an initial purchase price of 50,000 shares of the Company’s common stock, valued at $500,000. Caesar is a marketing and technology solutions provider. The purchase agreement includes additional contractual requirements for the Company and Caesar, including the issuance of an additional 150,000 shares of common stock of the Company over a two-year period. The Company issued 37,500 shares of its common stock in April 2022 as part of its contractual payment obligations. As of April 30, 2022, there have been no observable price changes in the value of the Caesar’s common stock and the Company has valued its ownership in Caesar at cost, which is $900,000.

 

In May 2020, the Company entered a consulting contract with Watch Party LLC (“WP”), which allowed the Company to receive up to 110,000 membership interest units of WP in return for consulting services. The WP units are valued at $2.14 per unit based on a sales price of $2.14 per unit on an online funding portal, resulting in revenues of $235,400 for the year ended April 30, 2021. As of April 30, 2022 and 2021, the Company owned 110,000 WP units, which are valued at $235,400.

 

In May 2020, the Company entered a consulting contract with ChipBrain LLC (“ChipBrain”Chip”), which allowed the Company to receive up to 710,200 membership interest units of ChipBrainChip in return for consulting services. The ChipBrainCompany earned 500,000 membership interest units arein the quarter ended July 31, 2020 and earned the remaining units in the quarter ending October 31, 2020. The Chip units were initially valued at $0.93 per unit based on a sales price of $0.93 per unit on an online funding portal, resulting in revenues of $660,486 $660,486 for the year ended April 30, 2021. Subsequently, ChipBrain subsequently sold identical ChipBrain units for $2.40 per unit, on an online funding portal.and as of April 30, 2022 and 2021, the units owned by the Company are valued at $1,704,480.

 

In May 2020, the Company entered a consulting contract with a related party, Zelgor Inc. (“Zelgor”), which allowed the Company to receive up to 1,400,000 shares of common stock of Zelgor in return for consulting services. The Company earned 1,050,000 shares in the quarter ended July 31, 2020 and 350,000 shares in the quarter ending October 31, 2020. The Zelgor shares are valued at $1.00 per share based on a sales price of $1.00 per share on an online funding portal, resulting in revenues of $1,400,000 for the year ended April 30, 2021. The $1.00 per share valuation was derived based on a combination of multiple transactions on a secondary trading platform in which shares were purchased at $1.00 per share, and two private offerings of shares, one at a selling price of $0.50 per share and the other at $2.00 per share.

 

On January 2, 2020, the Company entered a consulting contract with Deuce Drone LLC (“Drone”), which allowed the Company to receive up to 2,350,000 membership interest units of Drone in return for consulting services. The Company earned all 2,350,000 membership interest units in fiscal 2020. The Drone units arewere valued at $0.35 per unit based on a sales price of $0.35 per unit when the units were earned, or $822,500. Drone subsequently sold identical Drone units for $1.00 per unit on an online funding portal.portal and as of April 30, 2022 and 2021, the units owned by the Company are valued at $2,350,000

 

In August 2019, the Company entered a consulting contract with KingsCrowd LLC (“KingsCrowd”), which allowed the Company to receive 300,000 membership interest units of KingsCrowd in return for consulting services. The KingsCrowd units were valued at $1.80 per unit based on a sales price of $1.80 per unit when the units were earned, or $540,000. In December 2020, KingsCrowd converted from a limited liability company to a corporation to facilitate raising capital under Regulation A. KingsCrowd filed a Form 1-A Offering Statement under the Securities Act of 1933.1933 and is selling shares at $1.00 per share. In connection with the conversion to a corporation, each membership interest unit converted into 12.71915 shares of common stock. As of April 30, 2022 and 2021, the Company ownsowned 3,815,745 shares of KingsCrowd Inc. The selling price, valued at $3,815,745 as of the stock is set at $1.00 per share in the preliminary offering circular.April 30, 2022 and $540,000 as of April 30, 2021.

 

During fiscal 2019, the Company entered a consulting contract with Netcapital Systems LLC (“Netcapital”), which allowed the Company to receive up to 1,000 membership interest units of Netcapital in return for consulting services. The Company earned 40 units in the quarter ended July 31, 2020, at a value of $91.15 per unit, or $3,646. The Company earned all 1,000 Netcapital units but sold a portion of the units in fiscal 2020 at a sales price of $91.15 per unit. As of April 30, 2022 and 2021, the Company ownsowned 528 Netcapital units, at a value of $48,128.

F-22 

 

On July 20, 2020 the Company entered a consulting agreement with Vymedic, Inc. for a $40,000 fee over a 5-month period. Half the fee iswas payable in stock and half is payable in cash. As of April 30, 2022 and 2021, the Company earnedowned $20,000 worth of stock.

 

F-23 

F-13

 

The following table summarizes the components of equity securities as of April 30, 20212022 and 2020:2021:

 

Schedule of investments            
 April 30, 2021 April 30, 2020
     April 30, 2022 April 30, 2021 
         
Netcapital Systems LLC $48,128  $44,482  $48,128  $48,128 
Watch Party LLC  235,400   —     235,400   235,400 
Zelgor Inc.  1,400,000   —     1,400,000   1,400,000 
ChipBrain LLC  1,704,480   —     1,704,480   1,704,480 
Vymedic, Inc.  20,000   —   
Vymedic Inc.  20,000   20,000 
C-Reveal Therapeutics LLC  50,000   — 
Deuce Drone LLC  2,350,000   822,500   2,350,000   2,350,000 
KingsCrowd LLC  540,000   540,000 
Total Investments at cost $6,298,008  $1,406,982 
Hiveskill LLC  712,500   — 
ScanHash LLC  425,000   — 
Caesars Media Group Inc.  900,000   — 
Cust Corp.  1,200,000   — 
Kingscrowd Inc.  3,815,745   540,000 
Total $12,861,253  $6,298,008 

 

The above investments in equity securities are within the scope of ASC 321. The Company monitors the investments for any changes in observable prices from orderly transactions. All investments are initially measured at cost and evaluated for impairment. ImpairmentNo impairment expense of $0 and $185,952 was recognized in the years ended April 30, 20212022 and 2020, respectively. The2021. In fiscal 2022, the Company identified that Kingscrowd Inc. had an observable price change. The result of the price change was an increase in the fair value of the equity securities totaling $3,275,745 in the fiscal year ended April 30, 2022, which was recorded in the income statement as an unrealized gain on equity securities. In fiscal 2021, there were observable price changes in two securities, ChipBrain LLC and Deuce Drone LLC, that had an observable price change.LLC. The result of these price changes was an increase in the fair value of the equity securities totaling $2,571,494 in the fiscal year ended April 30, 2021, which was recorded in the income statement as an unrealized gain on equity securities.

 

11. Business Acquisition

On November 2, 2021, the owners of ValuCorp Inc. (“ValuCorp”), a business valuation firm, formed a new company MSG Development Corp. (“MSG”) and transferred most of the assets of ValuCorp to MSG. The Company entered into an exchange agreement (“Agreement”) whereby the Company received 100% of the outstanding shares of MSG in exchange for 75,000 shares of common stock of the Company. 50,000 shares of the Company’s common stock were issued in December 2021 and four annual installments of 6,250 shares are due over the next four years.

The Company finalized the allocation of the purchase price of the assets acquired in the purchase of MSG. The value assigned to the professional practice was derived using multi-period excess earnings methods under the income approach. This approach estimates the excess earnings generated over the lives of the customers that existed as of the acquisition date and discounts such earnings to present value. The customers, the business practice and other intangible assets are deemed to have a useful life of fifteen years and will be amortized on a straight-line basis over the useful life.

MSG’s assets were less than 20% of the value of the Company’s assets and the Company’s investment in MSG is less than 20% of the Company’s market value. Furthermore, the revenue and operating income of MSG’s predecessor, ValuCorp, for the prior two years, is less than 20% of the revenue and operating income of the Company. Upon evaluation of the components of the business combination, including the relative voting rights in the combined entity, the composition of the governing body and senior management of the combined entity, the relative size of each entity and the terms of the exchange of equity interests, the Company recorded the transaction in the third quarter of fiscal 2022 as a purchase.

F-24 

The following table summarizes the value of the consideration for MSG and the amounts of the assets acquired in conjunction with the Agreement. MSG had no liabilities.

 Schedule of Merger agreement    
Total consideration: 75,000 shares of common stock of the Company $732,750 
     
Recognized amounts of identifiable assets acquired:    
Professional practice intangible $556,830 
Technology-related intangibles  36,650 
Marketing-related intangibles  14,660 
Computer-related intangibles  49,111 
Customer-related intangibles  16,859 
Contract-related intangibles  36,650 
Human capital and artistic-related intangibles  21,990 
Total identifiable net assets $732,750 

The fair value of the common shares issued as the consideration for MSG was determined by the most recent closing price of the Company’s common shares at the time the shares were issued. Seven identifiable intangible assets were valued, as noted in the above table (the “Intangible Assets”). The estimated market value of the Intangible Assets on the date of purchase was $1,000,000, and the value of the 75,000 shares of common stock of the Company, payable as consideration was $9.77 per share, or $732,750. The value of the Intangible Assets has been recorded at an aggregate value of $732,750.

None of MSG’s revenues and earnings are included in the Company’s consolidated income statements through the day of closing of November 8, 2021. The consolidated income statements for the year ended April 30, 2022, include $250,100 in revenues from MSG for the period November 8, 2021 to April 30, 2022. MSG was a newly formed company with no operations when it was purchased. It had intangible assets that were contributed by its founder (the “Founder”) and no liabilities. Consequently, there are no supplemental pro forma revenues and earnings to report. In conjunction with the purchase of MSG, the Company retained the Founder, who is a valuation professional, to operate the business. The parties agreed that Founder shall receive the first $360,000 in gross profits per year as his compensation, that the Company would receive the next $720,000 per year in gross profits and any gross profits beyond $1,080,000 per year shall be split one-third to the Founder and two-thirds to the Company.

On August 23, 2020, the Company entered into an Agreement and Plan of Merger (“Agreement”) whereby Netcapital Systems LLC (“Systems”) would become an 80% owner of the Company. Pursuant to the requirements of this agreement, the Company filed a definitive information statement on Form 14C on September 21, 2020 to change the Company’s corporatecorporate name from ValueSetters, Inc. to Netcapital Inc Inc. and to amendamend the Company’s Articles of Incorporation to effect a stock combination, or reverse stock split, pursuant to which 2,000 shares of the Company’s common stock would be exchanged for one new share of common stock. In conjunction with the merger agreement, the Company issued 1,666,360 shares of common stock to Systems on November 5, 2020.

 

The Agreement iswas a tax-free merger of Netcapital Funding Portal Inc. (“FP”), a wholly owned subsidiary of Systems, with Netcapital Acquisition Vehicle Inc., an indirect wholly owned subsidiary of the Company, wherein FP was the surviving corporation. This transaction iswas designed to enhance the Company’s revenues and ability to provide services to democratize the private capital markets while helping companies at all stages to build, grow and fund their businesses with a full range of services from strategic advice to raising capital. As a result of the transaction, the companyCompany is expected to be a leading provider of private capital transactions for entrepreneurs seeking to raise money under the exemption provided by section 4(a)(6) of the Securities Act of 1933, which allows private companies to raise up to $5 million every 12 months.

ASC 805-10-25-4 requires the identification of one of the combining entities in each business combination as the acquirer. Upon evaluation of the components of the business combination, including the relative voting rights in the combined entity, the composition of the governing body and senior management of the combined entity, the relative size of each entity and the terms of the exchange of equity interests, the Company recorded the transaction in the third quarter of fiscal 2021 as a purchase. In conjunction with the purchase, Systems agreed to vote all of its shares of common stock to support the resolutions of the existing board of directors of the Company.

F-25 

The following table summarizes the value of the consideration for FP and the amounts of the assets acquired and liabilities assumed in conjunction with the Agreement.

Schedule of Merger agreement        
Consideration:
1,666,360 shares of common stock of the Company		 $11,331,248 
Consideration:    
1,666,360 shares of common stock of the Company $11,331,248 
Payment of promissory notes and interest  3,817,516   3,817,516 
Total consideration $15,148,764  $15,148,764 
        
Recognized amounts of identifiable assets acquired and liabilities assumed:    
Recognized amounts of identifiable assets acquired, and liabilities assumed:    
Cash $358,634  $358,634 
Current assets  8,894   8,894 
Accounts payable  (29,023)  (22,718)
Platform users  7,080,319   7,080,319 
Platform investors  6,288,392   6,288,392 
Platform issuers  903,125   903,125 
Unpatented technology  532,118   532,118 
Total identifiable net assets $15,148,764  $15,148,764 

 

The fair value of the common shares issued as the consideration for FP was determined by the most recent (the prior day’s) closing price of the Company’s common shares at the time the shares were issued. The fair value of the assets and the liabilities of FP equaled their book value. Four identifiable intangible assets were valued; platform users, platform investors, platform issuers and unpatented technology (collectively the “Intangible Assets”). The estimated market value of the Intangible Assets is approximately $27,800,000. This amount is derived from valuing the IP functionality, brand, and license of FP at $1,000,000; valuing current issuers and pipeline issuers at approximately $14,000 each; valuing platform users at $382 each; and valuing investors at $1,025 each. These values are derived from comparing the FP Intangible Assets to the values recorded by funding portal offerings of FP’s competitors in public filings via RegulationsRegulation CF and Regulation A.

The excess of purchase price over the total identifiable tangible net assets of $344,810, leaves an aggregate value of $14,803,954 to be assigned to the Intangible Assets. The estimated value of the $27,800,000 of Intangible Assets is allocated on a percentage basis in the above table to equal $14,803,954.

None of FP’s revenues and earnings are included in the Company’s consolidated income statements through the day of closing of November 5, 2020. The consolidated income statements for the year ended April 30, 2021 include $834,981 in revenues from FP. If the entities had been combined for the two reporting periods, the supplemental pro forma revenues and earnings are as follows:

F-14

Schedule of Pro forma revenue and earnings        
  Revenues  Earnings 
Supplemental pro forma for 4/1/20 – 11/04/20 $2,866,063  $282,264 
Supplemental pro forma for 4/1/19 – 11/04/19 $1,018,200  $680,212 

 

Included in the supplemental pro forma information above is revenue earned by the Company from Netcapital Systems LLC of $18,646 and $152,864 in the periods ended November 4, 2020 and 2019, respectively.

Each quarter the Company reviews events and circumstances to determine if impairment of indefinite-lived intangible assets is indicated. During the years ended April 30, 2022 and 2021, we did not identify any triggering events or circumstances, including impacts due to COVID-19, which would indicate an impairment of indefinite-lived intangible assets.

F-26 

12. Subsequent Events

 

The Company evaluated subsequent events through the date these financial statements were available to be issued.

 

On June 2, 2021,July 14, 2022, the Company loaned $50,000paid in full two outstanding convertible promissory notes and accrued interest payable totaling $310,192 by the issuance of 93,432 shares of common stock of the Company. The Company also issued 39,901 shares of common stock to a related party. The unpaid principalpay off the $294,054 balance on the note is subjectof supplemental consideration due to an interest rate of 5% per annum and matures on June 2, 2022.Netcapital Systems LLC. See Note 9.

 

On June 30, 2021,July 15, 2022, the Company loaned $50,000completed an underwritten public offering of 1,205,000 shares of the Company’s common stock and warrants to purchase 1,205,000 shares of the Company’s common stock at a related party.combined public offering price of $4.15 per share and warrant. The unpaid principal balance ongross proceeds from the note is subjectoffering were $5,000,750 prior to an interest ratededucting underwriting discounts, commissions, and other offering expenses. The warrants have a per share exercise price of 8% per annum$5.19, are exercisable immediately, and matures on June 30, 2022.expire five years from the date of issuance.

 

In conjunction with this offering, the shares and warrants began trading on The Nasdaq Capital Market on July 2021,13, 2022, under the Company issued 361,736 shares of its common stock as payment of $3,523,462 of supplemental consideration that was owed to its affiliate, Netcapital Systems Inc. The 361,736 shares of common stock include an aggregate of 32,458 shares of common stock, that paid off liabilities totaling $316,130, that were made to a company controlled by a member of the board of managers of Netcapital Systems LLCticker symbols “NCPL” and to an individual manager.“NCPLW,” respectively.

 

In July 2021,addition, the Company completedgranted the underwriter a 45-day option to purchase up to an offering for gross proceeds of $1,592,400 in conjunction with the sale of restrictedadditional 180,750 shares of common stock at a priceand/or up to 180,750 additional warrants to cover over-allotments, if any. In connection with the closing of $9.00 per share. A totalthe offering, the underwriter partially exercised its over-allotment option and purchased an additional 111,300 warrants. The underwriter retains the right to exercise the balance of 176,934 shares of common stock were issued.

F-15

its over-allotment option within the 45-day period.

 

On July 21, 2022 the company paid $1 million to its secured lender, Vaxstar LLC, to reduce the principal balance on its debt from $1,400,000 to $400,000.

 

F-27