UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~[X]~~☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ~~ended:~~ ended: ~~July~~October 31, 2021

☐

~~[ ]~~ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-55036

NETCAPITAL INC.

(Exact name of registrant as specified in its charter)

~~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

~~1 Lincoln Street~~

BostonMA02111

(Address of principal executive offices)

~~Boston~~MA~~02111~~

~~(Address of principal executive offices)~~

(781)

(~~781~~) 925-1700

~~(Registrant’s telephone number, including area code)~~

(Registrant’s telephone number, including area code)

Indicate by check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities and 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 ~~Yes~~☒~~[X]~~ No ~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer ~~[ ]~~☐	Accelerated filer ~~[ ]~~☐	Non-accelerated filer ~~[X]~~☒	Smaller reporting company ~~[X]~~☒
			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[ ]~~Yes ☐ No ~~[X]~~☒

As of ~~September~~December 14, 2021 the Company had ~~2,718,373~~2,865,610 ~~shares~~Shares of its common stock, par value $0.001 per share, issued and outstanding.

TABLE OF CONTENTS

	Page
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.	3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	17 19

Item 3. Quantitative and Qualitative disclosures about Market Risk.	19 22

Item 4. Controls and Procedures.	19 22

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.	21 25

Item1A. Risk Factors.	21 25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	21 25

Item 3. Defaults Upon Senior Securities.	21 25

Item 4. Mine Safety Disclosures.	21 25

Item 5. Other Information.	21 25

Item 6. Exhibits.	21 25

Signatures.	22 26

NETCAPITAL INC.

~~NETCAPITAL INC.~~

Condensed Consolidated Balance Sheets


Assets:	(Unaudited) October 31, 2021		(Audited) April 30, 2021
Cash and cash equivalents	$	940,966	$	2,473,959
Accounts receivable net		2,149,674		1,356,932
Receivable from bank		212,252		—
Prepaid expenses		177,940		653,861
Total current assets		3,480,832		4,484,752

Deposits		6,300		6,300
Notes receivable - related parties		130,000		—
Purchased technology		14,803,954		14,803,954
Investment in affiliate		240,080		122,914
Equity securities at fair value		9,623,753		6,298,008
Total assets	$	28,284,919	$	25,715,928

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Trade	$	357,623	$	308,506
Related party		320,224		3,843,686
Accrued expenses		316,285		306,308
Stock subscription payable		219,900		1,199,996
Deferred revenue		670		622
Interest payable		185,650		116,483
Deferred tax liability, net		1,054,000		433,000
Related party debt		22,860		22,860
Secured note payable		1,000,000		1,000,000
Current portion of SBA loans		2,518,965		1,885,800
Loan payable - bank		34,324		34,324
Demand notes payable		—		—
Total current liabilities		6,030,501		9,151,585

Long-term liabilities:
Long-term SBA loans, less current portion		1,752,635		2,385,800
Total Liabilities		7,783,136		11,537,385

Commitments and contingencies		—		—

Stockholders’ equity:
Common stock, $.001 par value; 900,000,000 shares authorized, 2,719,310 and 2,178,766 shares issued and outstanding		2,719		2,178
Capital in excess of par value		20,308,432		15,168,987
Retained earnings (deficit)		190,632		(992,622	)
Total stockholders’ equity		20,501,783		14,178,543
Total liabilities and stockholders’ equity	$	28,284,919	$	25,715,928

Assets:
July 31, 2021
(Unaudited)

April 30, 2021
(Audited)
  Cash and cash equivalents $ 2,059,216 $ 2,473,959
  Accounts receivable net 1,332,218 1,356,932
  Prepaid expenses 431,795 653,861
Total current assets 3,823,229 4,484,752

   Deposits 6,300 6,300
   Notes receivable - related parties 100,000 —
   Purchased technology 14,803,954 14,803,954
   Investment in affiliate 127,415 122,914
   Equity securities at fair value 9,623,753 6,298,008
Total assets $ 28,484,651 $ 25,715,928

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
   Trade $ 309,115 $ 308,506
   Related party 320,224 3,843,686
Accrued expenses 283,795 306,308
Stock subscription payable 185,000 1,199,996
Deferred revenue 613 622
Interest payable 151,254 116,483
Deferred tax liability, net 1,140,000 433,000
Related party debt 22,860 22,860
Secured note payable 1,000,000 1,000,000
Current portion of SBA loans 1,887,620 1,885,800
Loan payable - bank 34,324 34,324
Total current liabilities 5,334,805 9,151,585

Long-term liabilities:
Long-term SBA loans, less current portion 2,383,980 2,385,800
Total Liabilities 7,718,785 11,537,385

Commitments and contingencies —   —

Stockholders' equity:

  Common stock, $.001 par value; 900,000,000 shares authorized, 2,718,373 and 2,178,766 shares issued and outstanding 2,718 2,178
  Capital in excess of par value 20,298,360 15,168,987
  Retained earnings (deficit) 464,788 (992,622 )
Total stockholders' equity 20,765,866 14,178,543
Total liabilities and stockholders' equity $ 28,484,651 $ 25,715,928

See Accompanying Notes to the ~~Condensed~~ Consolidated Financial Statements

NETCAPITAL INC.

~~Condensed Consolidated Statements of Operations~~

~~(Unaudited)~~

Three Months Ended Three Months Ended
July 31, 2021 July 31, 2020

Revenues $ 625,187 $ 1,762,322
Costs of services 28,305 431,019
Gross profit 596,882 1,331,303

Costs and expenses:
Stock-based compensation 296,980 121,378
Consulting expense 19,651 1,991
Marketing 21,826 4,101
Rent 12,130 14,079
Payroll and payroll related expenses 927,333 1,096,120
General and administrative costs 395,052 41,139
               Total costs and expenses 1,672,972 1,278,808
Operating income (loss) (1,076,090 ) 52,495

Other income (expense):
Interest expense (35,245 ) (10,283 )
Unrealized gain on equity securities 3,275,745 —
Total other income (expense) 3,240,500 (10,283 )
               Net income before taxes 2,164,410 42,212
  Income taxes (707,000 ) (11,341 )
Net income $ 1,457,410 $ 30,871

Basic earnings per share $ 0.66 $ 0.07
Diluted earnings per share $ 0.65 $ 0.07

Weighted average number of common shares outstanding:
Basic 2,206,118 415,636
Diluted 2,241,675 415,636

Condensed Consolidated Statements of Operations

(Unaudited)


	Six Months Ended October 31, 2021			Six Months Ended October 31, 2020			Three Months Ended October 31, 2021			Three Months Ended October 31, 2020

Revenues	$	1,825,009		$	2,493,486		$	1,199,822		$	731,164
Costs of services		46,080			714,224			17,775			283,205
Gross profit		1,778,929			1,779,262			1,182,047			447,959

Costs and expenses:
Consulting expense		365,635			5,085			183,030			3,094
Marketing		43,826			8,782			22,000			4,681
Rent		22,611			26,798			10,481			12,719
Payroll and payroll related expenses		1,791,655			1,556,242			730,296			338,744
General and administrative costs		956,422			75,500			561,370			34,361
Total costs and expenses		3,180,149			1,672,407			1,507,177			393,599
Operating income (loss)		(1,401,220	)		106,855			(325,130	)		54,360

Other income (expense):
Interest expense		(70,271	)		(23,564	)		(35,026	)		(13,281	)
Unrealized gain on equity securities		3,275,745			—			—			—
Total other income (expense)		3,205,474			(23,564	)		(35,026	)		(13,281	)
Net income before taxes		1,804,254			83,291			(360,156	)		41,079
Income tax provision (benefit)		621,000			22,398			(86,000	)		11,057
Net income	$	1,183,254		$	60,893		$	(274,156	)	$	30,022

Basic earnings per share	$	0.48		$	0.15		$	(0.10	)	$	0.07
Diluted earnings per share	$	0.47		$	0.15		$	(0.10	)	$	0.07

Weighted average number of common shares outstanding:
Basic		2,462,251			415,726			2,718,383			415,815
Diluted		2,497,808			415,726			2,718,383			415,815

See Accompanying Notes to the ~~Condensed~~ Consolidated Financial Statements

NETCAPITAL INC.

Statements of Changes in Stockholders’ Equity (Unaudited)

For the Six Months Ended October 31, 2021 and the Years Ended April 30, 2021 and 2020

~~NETCAPITAL INC.~~

~~Condensed Consolidated Statements of Stockholders' Equity~~

~~For the Three Months Ended July 31, 2021 and the Years Ended April 30, 2021, and 2020~~

~~(Unaudited)~~


		Common Stock						Capital in Excess of		Retained Earnings			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

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 acquire funding portal		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

Capital in Retained
Common Stock Excess of Earnings 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

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 acquire funding portal 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

See Accompanying Notes to the ~~Condensed~~ Consolidated Financial Statements

NETCAPITAL INC.

~~NETCAPITAL INC.~~

Condensed Consolidated Statements of Cash Flows

~~(Unaudited)~~

Three Months Ended
July 31, 2021

Three Months Ended
July 31, 2020
OPERATING ACTIVITIES
Net income $ 1,457,410 $ 30,871
Adjustment to reconcile net income to net cash used in operating activities:
Stock-based compensation 296,980 121,378
Non-cash revenue from the receipt of equity (50,000 ) (1,754,046 )
Unrealized gain on equity securities (3,275,745 ) —
Changes in deferred taxes 707,000 11,341
Changes in non-cash working capital balances:
Accounts receivable 24,714 (6,000 )
Prepaid expenses (60,858 ) (13,172 )
Accounts payable and accrued expenses (21,904 ) 48,571
Deferred revenue (9 ) 34,916
Accrued interest payable 34,771 3,151
Net cash used in operating activities (887,641 ) (1,522,990 )

INVESTING ACTIVITIES
Loans to affiliates (100,000 ) —
Investment in affiliate (4,501 ) —
Net cash used in investing activities (104,501 ) —

FINANCING ACTIVITIES
     Proceeds from SBA loans —   2,385,800
Proceeds from stock subscriptions 577,399 —
Net cash provided by financing activities 577,399 2,385,800

Net increase (decrease) in cash (414,743 ) 862,810
Cash and cash equivalents, beginning of the period 2,473,959 11,206
Cash and cash equivalents, end of the period $ 2,059,216 $ 874,016

Supplemental disclosure of cash flow information:
Cash paid for taxes $ —   $ —
Cash paid for interest $ 477 $ 480

Supplemental Non-Cash Financing Information:
Common stock issued to reduce related party payable $ 3,523,462 $ —

(Unaudited)


	Six Months Ended October 31, 2021			Six Months Ended October 31, 2020
OPERATING ACTIVITIES
Net income	$	1,183,254		$	60,893
Adjustment to reconcile net income to net cash used in operating activities:
Stock-based compensation		483,067			259,909
Non-cash revenue from the receipt of equity		(50,000	)		(2,314,532	)
Unrealized gain on equity securities		(3,275,745	)		—
Changes in deferred taxes		621,000			22,398
Changes in non-cash working capital balances:
Accounts receivable		(792,742	)		(40,671	)
Receivable from bank		(212,252	)		—
Prepaid expenses		16,983			(5,166	)
Accounts payable and accrued expenses		59,094			30,515
Deferred revenue		48			4,851
Accrued interest payable		69,167			40,791
Net cash used in operating activities		(1,898,126	)		(1,941,012	)

INVESTING ACTIVITIES
Loans to affiliates		(130,000	)		—
Investment in affiliate		(117,166	)		—
Net cash used in investing activities		(247,166	)		—

FINANCING ACTIVITIES
Proceeds from SBA loans		—			2,385,800
Proceeds from stock subscriptions		612,299			—
Net cash provided by financing activities		612,299			2,385,800

Net increase (decrease) in cash		(1,532,993	)		444,788
Cash and cash equivalents, beginning of the period		2,473,959			11,206
Cash and cash equivalents, end of the period	$	940,966		$	455,994

Supplemental disclosure of cash flow information:
Cash paid for taxes	$	—		$	—
Cash paid for interest	$	1,110		$	1,113

Supplemental Non-Cash Financing Information:
Common stock issued to reduce related party payable	$	3,523,462		$	—

See Accompanying Notes to the ~~Condensed~~ Consolidated Financial Statements

NETCAPITAL INC.

~~NETCAPITAL INC.~~

Notes To Condensed Consolidated Financial Statements (Unaudited)

Note 1–Basis of Presentation

The accompanying unaudited condensed ~~consolidated~~ financial statements of Netcapital Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six- and three-month ~~period~~periods ended ~~July~~October 31, 2021, are not necessarily indicative of the results that may be expected for the fiscal year ended April 30, 2022. For further information, refer to the audited financial statements and footnotes thereto in our Annual Report on Form 10-K for the year ended April 30, 2021.

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 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 had no impact 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.

Note 2 –Concentrations

For the six- and three-month ~~period~~periods ended ~~July~~October 31, 2021, the Company had one customer that constituted 1928% and 42% of revenues and a second customer that constituted 1622% and 33% of ~~revenues.~~revenues, respectively. For the six- and three-month ~~period~~periods ended ~~July~~October 31, 2020, the Company had one customer that constituted 6056% and 48% of its revenues, respectively, and a second customer that constituted 26% ~~of revenues~~ and ~~a third customer that constituted~~ 1227% of ~~revenues.~~its revenues, respectively.

Note 3 – Revenue Recognition

Revenue Recognition under ASC 606

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.

The Company identifies performance obligations in contracts with customers, which primarily are professional services, listing fees on our funding portal, and a success 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.

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~~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 isare 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~~Company’s consolidated statement of operations.

Remaining Performance Obligations

The ~~Company's~~Company’s subscription terms are typically less than one year. All of the Company’s revenues in the six- and three-month periods ended ~~July~~October 31, 2021, which amounted to $1,825,009and $1,199,822, respectively, and for the six- and three-month periods ended October 31, 2020, which amounted to $~~625,187~~2,493,486 and $~~1,762,322~~731,164, respectively are considered contract revenues. Contract revenue as of ~~July~~October 31, 2021 and April 30, 2021, which has not yet been recognized, amounted to $~~613~~670 and $622, 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.

Note 4 – Earnings Per Common Share

~~Income~~Net income (loss) per common and diluted share ~~data was computed~~share were calculated as ~~follows:~~follows for the six- and three-month periods ended October 31, 2021 and 2020:

Schedule of earnings per share

Schedule of earnings per share
Three Months Ended
July 31, 2021 Three Months Ended
July 31, 2020
Net income attributable to common stockholders – basic $ 1,457,410 $ 30,871
Adjustments to net income — —
Net income attributable to common stockholders – diluted $ 1,457,410 $ 30,871

Weighted average common shares outstanding – basic 2,206,118 415,636
Effect of dilutive securities 35,557 —
Weighted average common shares outstanding – diluted 2,241,675 415,636

Earnings per common share – basic $ 0.66 $ 0.07
Earnings per common share – diluted $ 0.65 $ 0.07


	Six Months Ended Oct. 31, 2021		Six Months Ended Oct 31, 2020		Three Months Ended Oct. 31, 2021			Three Months Ended Oct. 31, 2020
Net income (loss) attributable to common stockholders – basic	$	1,183,254	$	60,893	$	(274,156	)	$	30,022
Adjustments to net loss		—		—		—			—
Net income (loss) attributable to common stockholders – diluted	$	1,183,254	$	60,893	$	(274,156	)	$	30,022

Weighted average common shares outstanding - basic		2,462,251		415,726		2,718,383			415,815
Effect of dilutive securities		35,557		—		—			—
Weighted average common shares outstanding – diluted		2,497,808		415,726		2,718,383			415,815

Earnings (loss) per common share - basic	$	0.48	$	0.15	$	(0.10	)	$	0.07
Earnings (loss) per common share - diluted	$	0.47	$	0.15	$	(0.10	)	$	0.07

35,557 shares that are issuable to satisfy a supplemental consideration liability were included for the calculation of earnings per share for the ~~three~~six months ended ~~July~~October 31, 2021 because their effect is dilutive. 35,557 shares that are issuable to satisfy a supplemental consideration liability were excluded for the calculation of loss per share for the three months ended October 31, 2021 because their effect is antidilutive. No dilutive securities existed for the ~~three months~~six- and three-month periods ended ~~July~~October 31, 2020.

Note 5 – Principal Financing Arrangements

The following table summarizes components debt as of ~~July~~October 31, 2021 and April 30, 2021:

Schedule of debt

Schedule of debt

	July 31, 2021		April 30, 2021		Interest Rate			October 31, 2021		April 30, 2021		Interest Rate

Secured lender	$	1,000,000	$	1,000,000		8.0	%	$	1,000,000	$	1,000,000		8.0	%
Notes payable – related parties		22,860		22,860		0.0	%		22,860		22,860		0.0	%
U.S. SBA loan		1,885,800		1,885,800		1.0	%		1,885,800		1,885,800		1.0	%
U.S. SBA loan		500,000		500,000		3.75	%		500,000		500,000		3.75	%
U.S. SBA loan		1,885,800		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		5.5	%
Total Debt		5,328,784		5,328,784					5,328,784		5,328,784
Less: current portion of long-term debt		2,944,804		2,942,984					3,576,149		2,942,984
Total long-term debt	$	2,383,980	$	2,385,800				$	1,752,635	$	2,385,800

As of October 31, 2021 and April 30, 2021, ~~and 2020,~~ the Company owed its principal lender (“Lender”) $~~1,000,000~~ $1,000,000 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 until the Company purchased Netcapital Funding Portal Inc. on November 5, 2020. 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 change 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 to April 30, 2022.

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.

As of ~~July~~October 31, 2021 and April 30, 2021, the Company’s related-party unsecured notes payable totaled $~~22,860~~. $22,860.

The Company also owes $~~34,324~~$34,324 as of ~~July~~October 31, 2021 and April 30, 2021 to Chase Bank. The Company pays interest expense to Chase Bank, which is calculated at a rate of ~~5.5~~%5.5% per annum.

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 a U.S. Small Business Administration (“SBA”) loan program.

The May loan bears interest at a rate of 1% per annum and the SBA ~~has~~ postponed any installment payments until September 6, 2021. ~~The~~In September and October of 2021, the SBA debited the Company’s bank account for a total of $212,252 even though the Company ~~has~~had applied for forgiveness of the May Loan. In November 2021 the May Loan ~~and believes it will be~~was forgiven in its ~~entirety.~~entirety, including accrued interest, and the payments of $212,252, which are reflected on the balance sheet as a receivable from the bank, were returned to the Company.

The June Loan required installment payments of $2,594 monthly, beginning on June 17, 2021, over a term of thirty years. However, the SBA has postponed the first installment payment for 12 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. The Company ~~plans to apply~~has applied for forgiveness of the February Loan and believes it will be forgiven in its entirety.

Note 6 –Income Taxes

As of ~~July~~October 31, 2021 and April 30, 2021, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $~~1,649,000~~2,010,000 and $890,000, respectively, expiring in the years of 2022 through ~~2036.~~2041.

For the ~~three months~~six- and three-month periods ended ~~July~~October 31, 2021, the Company recorded income tax expense of $~~707,000~~$621,000 and ~~increased its net deferred~~a tax ~~liability to $1,140,000, from a balance~~benefit of $~~433,000~~ ~~as of April 30, 2021.~~$86,000, respectively. For the ~~three months~~six- and three- month periods ended ~~July~~October 31, 2020, the Company recorded income tax expense of $~~11,341~~.$22,398 and $11,057, respectively.

As of ~~July~~October 31, 2021 and April 30, 2021, the Company had net deferred tax assets calculated at an expected federal rate of 21%, and a state rate of 8%, when applicable, or approximately ~~$556,000~~$642,000 and $313,000, respectively. As a result of unrealized book gains on equity securities, the Company also has a deferred tax liability of $~~1,696,000~~$1,696,000 and $~~746,000~~$746,000 as of ~~July~~October 31, 2021 and April 30, 2021, respectively. 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 ~~July~~October 31, 2021 and April 30, 2021 were as follows:

Schedule of income taxes

Schedule of Income Taxes

	July 31, 2021			April 30, 2021			October 31, 2021			April 30, 2021

Deferred tax assets, net:
Net operating loss carryforwards	$	346,000		$	141,000		$	422,000		$	141,000
Bad debt allowance		17,000			17,000			27,000			17,000
Stock-based compensation		193,000			155,000			193,000			155,000
Deferred tax assets		556,000			313,000			642,000			313,000

Deferred tax liability
Unrealized gain		1,696,000			746,000			1,696,000			746,000

Net deferred tax liability	$	(1,140,000	)	$	(433,000	)	$	(1,054,000	)	$	(433,000	)

Note 7 – Related Party Transactions

The Company’s majority shareholder, Netcapital Systems LLC, owns 1,671,360 shares of common stock, or 61.5% of the Company as of ~~July~~October 31, 2021. The Company has a demand note payable to Netcapital Systems LLC of ~~$4,600~~$4,660 and a demand note payable to one of its managers of $3,200. In addition, as of April 30, 2021, the Company accrued a payable of $3,817,516 for supplemental consideration owed in conjunction with its purchase of Netcapital Funding Portal Inc., which was reduced to $294,054 as of ~~July~~October 31, 2021, because of the issuance to 361,736 shares of common stock, valued at $3,523,462. In total, the Company owed its largest shareholder $298,714 and $3,822,116 as of ~~July~~October 31, 2021 and April 30, 2021, respectively. The company paid its majority shareholder ~~$50,000~~$157,429 and $107,429 in the ~~first quarter of fiscal 2022~~six- and three-month periods ended October 31, 2021, respectively, for use of the software that runs the website www.netcapital.com.

Compensation to officers in the six- and three-month periods ended ~~July~~October 31, 2021 consisted of common stock valued at $101,327 and $8,396, respectively, and cash salary of $144,000 and $72,000, respectively. Compensation to officers in the six- and three-month periods ended October 31, 2020 consisted of common stock valued at ~~$92,931~~$164,885 and ~~$82,622,~~$82,263 respectively, and cash ~~payments~~wages of ~~$77,538~~$138,462 and ~~$66,462,~~$72,000, respectively.

Compensation to a related party consultant in the six- and three-month periods ended ~~July~~October 31, 2021 consisted of common stock valued at $25,908 and $6,530 respectively, and cash wages of $30,000 and $15,000, respectively. Compensation to a related party consultant in the six- and three-month periods ended October 31, 2020 consisted of common stock valued at ~~$19,378~~$38,757 and ~~$19,378~~$19,379 respectively, and cash ~~payments~~wages of ~~$25,846~~$46,154 and ~~$22,154,~~$24,000, respectively. This consultant is also the controlling shareholder of Zelgor Inc. and ~~$1,050,000~~$1,400,000 and $350,000 of the Company’s revenues in the ~~quarter~~six- and three-month periods ended ~~July~~October 31, 2020 were from Zelgor Inc.

Compensation to managers of Netcapital Systems LLC in the six and three-month periods ended ~~July~~October 31, 2021 ~~and 2020~~ consisted of common stock valued at $19,378 and ~~$19,378,~~$0, respectively, and cash ~~payments~~wages of ~~$51,692~~$72,000 and ~~$0,~~$24,000, respectively. Compensation to managers of Netcapital Systems LLC in the six and three-month periods ended October 31, 2020 consisted of common stock valued at $38,757 and $19,379, respectively, and cash wages of $93,308 and $48,000, respectively.

The Company owes a director $16,680 as of ~~July~~October 31, 2021 and April 30, 2021, which is recorded as accounts payable, plus $15,000 in a non-interest-bearing note payable.

Note 8 – Stockholders’ Equity

The Company is authorized to issue 900,000,000 shares of its common stock, par value $0.001. ~~2,718,373~~2,719,310 and 2,178,766 shares were outstanding as of ~~July~~October 31, 2021 and April 30, 2021, 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 2,000 shares of common stock held by such stockholder. The reverse split was effective on November 5, 2020. The financial statements for the ~~three months~~six- and three-month periods ended ~~July~~October 31, 2020 have been adjusted to give effect to the reverse split.

On July 26, 2021, 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 LLC. The 361,736 shares of common stock include an aggregate of 35,609 shares of common stock, that paid off liabilities totaling $346,821, that were made to our Chief Executive Officer, a company controlled by a member of the board of managers of Netcapital Systems LLC and to an individual manager.

On July 27, 2021, the Company completed an offering for gross proceeds of $1,592,395 in conjunction with the sale of restricted shares of common stock at a price of $9.00 per share. A total of 176,934 shares of common stock were issued.

Effective October 31, 2021 and July 31, 2021, the Company issued an aggregate of 937 shares of restricted stock to two employees. The shares were valued at ~~$14,056.~~$10,073 and $14,056, respectively.

Note 9 – Fair Value

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 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 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.~~

●

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

Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, we base 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 our 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.

Note 10 – Stock-Based Compensation Plans

The Company entered consulting agreements to issue common stock and recorded the applicable non-cash expense in accordance with the authoritative guidance of the Financial Accounting Standards Board. For the six- and three-month periods ended ~~July~~October 31, 2021, the Company recorded $483,067 and $186,087, respectively, in stock-based compensation expense and for the six- and three-month periods ended October 31, 2020, the Company recorded $~~296,980~~$259,909 and $~~121,378~~,$138,531, respectively, in stock-based compensation expense.

As of ~~July~~October 31, 2021 and April 30, 2021, there was $~~348,953~~$172,939 and $~~631,878~~,$631,878, respectively of prepaid stock-based compensation expense for services. As of ~~July~~October 31, 2021, ~~four~~two consulting agreements are ~~effective. Two agreements expire on August 31, 2021 and two~~effective, which expire in February 2022.

As of ~~July~~October 31, 2021, an aggregate of ~~8,543~~7,607 shares of common stock can be earned by the Company’s employees from unvested stock grants. ~~156~~157 shares vest quarterly over the next ~~three~~two quarters and 781 shares vest quarterly over the next ~~10.3~~9.3 quarters.

The table below presents the components of stock-based compensation expense for the six- and three-month periods ended ~~July~~October 31, 2021 and 2020.

Schedule of stock-based compensation expense
Description July 31, 2021 July 31, 2020
Chief Executive Officer $ 40,608 $ 40,608
Chief Financial Officer 40,608 40,608
Chief Marketing Officer 11,715 1,406
Marketing employee 2,340 —
Marketing consultant 37,052 —
Marketing consultant 125,901 —
Related party consultant 19,378 19,378
Business consultant 19,378 19,378
Total $ 296,980 $ 121,378

The components of the stock-based compensation expense are presented in the following table:

Schedule of stock based compensation expense


Stock-based compensation expense	Six Months Ended Oct. 31, 2021		Six Months Ended Oct. 31, 2020		Three Months Ended Oct. 31, 2021		Three Months Ended Oct. 31, 2020
Chief Executive Officer	$	40,608	$	81,216	$	—	$	40,608
Chief Financial Officer		40,608		81,216		—		40,608
Chief Marketing Officer		20,111		2,453		8,396		1,047
Related party consultant		25,908		38,757		6,530		19,379
VP of Digital Strategy		4,017		17,510		1,677		17,510
Marketing consultant		74,104		—		37,052		—
Marketing consultant		251,803		—		125,902		—
Business consultant		25,908		38,757		6,530		19,379
Total stock-based compensation expense	$	483,067	$	259,909	$	186,087	$	138,531

The table below presents the prepaid compensation expense as of ~~July~~October 31, 2021 and April 30, 2021:

Schedule of prepaid compensation

Schedule of prepaid compensation

Description	July 31, 2021		April 30, 2021			Oct. 31, 2021		April 30, 2021
Chief Executive Officer	$	—	$	40,608	$	—	$	40,608
Chief Financial Officer		—		40,608		—		40,608
Related party consultant		6,530		25,908		—		25,908
Business consultant		6,530		25,908		—		25,908
Marketing consultant		254,540		380,441		128,638		380,441
Marketing consultant		81,353		118,405		44,301		118,405
Total	$	348,953	$	631,878	$	172,939	$	631,878

For the six- and three-month periods ended October 31, 2021, $325,907 and 162,954 of stock-based compensation was recorded as consulting expense, respectively, and $157,160 and 23,133 was recorded as payroll and payroll related expenses. For the six- and three-month periods ended October 31, 2020, all of the stock-based compensation was recorded as a component of payroll and payroll related expenses.

Note 11 – Deposits and Commitments

The Company utilizes office space in Boston, Massachusetts, under a month-to-month lease agreement that allows to company to end its lease by providing 30-day written notice. The lease agreement includes a deposit of $6,300.

Note 12 –Business Acquisition

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 September 21, 2020 to change the Company’s corporate name from ValueSetters, Inc. to Netcapital Inc. and to amend 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 is 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 is 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 company 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.

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
Payment of promissory notes and interest 3,817,516
Total consideration $ 15,148,764

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash $ 358,634
Current assets 8,894
Accounts payable (22,718 )
Platform users 7,080,319
Platform investors 6,288,392
Platform issuers 903,125
Unpatented technology 532,118
Total identifiable net assets $ 15,148,764

Schedule of merger agreement


Consideration: 1,666,360 shares of common stock of the Company	$	11,331,248
Payment of promissory notes and interest		3,817,516
Total consideration	$	15,148,764

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	$	358,634
Current assets		8,894
Accounts payable		(22,718	)
Platform users		7,080,319
Platform investors		6,288,392
Platform issuers		903,125
Unpatented technology		532,118
Total identifiable net assets	$	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~~.$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 Regulations 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:

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

Schedule of pro forma 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.

Note 13 – Investments

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 Company earned 97,500 membership interest units in the quarter ended July 31, 2020. 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 and $208,650 for the ~~three-months~~six- and three-month periods ended ~~July~~October 31, 2020. As of ~~July~~October 31, 2021 and April 30, 2021, the Company owns 110,000 WP units, which are valued at $235,400.

In May 2020, the Company entered a consulting contract with ChipBrain LLC (“Chip”), which allowed the Company to receive up to 710,200 membership interest units of Chip in return for consulting services. The Company earned 500,000 membership interest units in 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 $465,000 and $0 for the ~~three-months~~six and three-month periods ended ~~July~~October 31, 2020. Subsequently, ChipBrain sold identical units for $2.40 per unit, and as of ~~July~~October 31, 2021 and April 30, 2021, the units owned by the Company are valued at $1,704,480.

In May 2020, the Company entered a consulting contract with 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 earned the remaining 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 $~~1,050,000~~$1,400,000 and $350,000 for the ~~three-months~~six- and three-month periods ended ~~July~~October 31, 2020. The $1.00 per share valuation continues to be the observable price at which the shares trade and the Zelgor shares are valued at $1,400,000 as of ~~July~~October 31, 2021 and April 30, 2021.

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 were initially 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 and as of ~~July~~October 31, 2021 and April 30, 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 initially 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. In connection with the conversion to a corporation, each membership interest unit converted into 12.71915 shares of common stock. As of ~~July~~October 31, 2021 and April 30, 2021, the Company owns 3,815,745 shares of KingsCrowd Inc. In July 2021, KingsCrowd subsequently sold identical shares of common stock for $1.00 per share, and as of ~~July~~October 31, 2021 and April 30, 2021, the units owned by the Company are valued at $~~3,815,745~~$3,815,745 and $540,000, respectively.

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 ~~July~~October 31, 2021 and April 30, 2021, the Company owns 528 Netcapital units, at a value of $48,128.

In July 2020 the Company entered a consulting agreement with Vymedic, Inc. for a $40,000 fee over a 5-month period. Half the fee is payable in stock and half is payable in cash. As of April 30, 2021, the Company earned $20,000 worth of stock. As of ~~July~~October 31, 2021 and April 30, 2021, the Company owns 4,000 units, at a value of $20,000.

In August 2020 the Company entered a consulting agreement with C-Reveal Therapeutics LLC (“CRT”). for a $120,000 fee over a 12-month period. $50,000 of the fee is payable in CRT units. The Company earned the units in fiscal 2021 and received them in the first quarter of fiscal 2022. As of ~~July~~October 31, 2021 the Company owns 5,000 units, at a value of $50,000.

The following table summarizes the components of investments as of ~~July~~October 31, 2021 and April 30, 2021:

Schedule of investments

Schedule of investments
	July 31, 2021		April 30, 2021		Oct. 31, 2021		April 30, 2021

Netcapital Systems LLC	$	48,128	$	48,128	$	48,128	$	48,128
Watch Party LLC		235,400		235,400		235,400		235,400
Zelgor Inc.		1,400,000		1,400,000		1,400,000		1,400,000
ChipBrain LLC		1,704,480		1,704,480		1,704,480		1,704,480
Vymedic Inc.		20,000		20,000		20,000		20,000
C-Reveal		50,000		—		50,000		—
Deuce Drone LLC		2,350,000		2,350,000		2,350,000		2,350,000
Kingscrowd Inc.		3,815,745		540,000		3,815,745		540,000
Total Investments at cost	$	9,623,753	$	6,298,008	$	9,623,753	$	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 changes in estimated fair value. During the ~~three~~six months ended ~~July~~October 31, 2021, the Company identified that one security, 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 ~~three~~six months ended ~~July~~October 31, 2021, which was recorded in the income statement as an unrealized gain on equity securities.

Note 14 – Subsequent Events

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.

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.

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 assets acquired


Total consideration: 75,000 shares of common stock of the Company	$	750,000

Recognized amounts of identifiable assets acquired:
Professional practice goodwill	$	570,000
Technology-related intangibles		37,500
Marketing-related intangibles		15,000
Computer-related intangibles		50,250
Customer-related intangibles		17,250
Contract-related intangibles		30,000
Human capital and artistic-related intangibles		30,000
Total identifiable net assets	$	750,000

The fair value of the common shares issued as the consideration for MSG 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.

In November 2021, the Company received notice that an SBA loan (see Note 5 the “May Loan”) was forgiven in its entirety.

In November 2021, the Company issued 46,300 shares of its common stock as stock-based compensation.

In December 2021, the company issued 50,000 shares of its common stock in conjunction with the purchase of a ten percent interest in Caesar Media Group, Inc., a marketing and technology solutions provider.

The Company evaluated subsequent events through the date these financial statements were available to be issued. There were no material subsequent events that required recognition or additional disclosure in these financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the U.S. Securities and Exchange Commission (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

Overview

We are 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~~company’s consulting group, Netcapital Advisors, delivers 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.

We specialize 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 posted a record number of users and dollars invested in June, ~~and July of 2021. We also see from industry statistics that~~as investors made 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~~more than $2.9 million. Monthly investment commitments ~~of $46 million for the~~decreased in our second quarter ~~ended June 30, 2020.~~but reached an all-time high in November 2021 when investment commitments exceeded $4.3 million.

We are encouraged by our growth over the past ~~year, as the market share earned by the Netcapital~~year. The investments made on our funding portal infor the ~~three~~first seven months ~~ended July 31,~~of fiscal 2022, are 156% higher than the first seven months of fiscal 2021, ~~was 7.4%~~an increase of the industry investment commitments, as compared to 4.0% of the industry investment commitments in the three months ended July 31, 2020. For the month of July 2021, Netcapital funding portal’s market share amounted to 8.2% of the industry investment commitments.more than $8.5 million. We believe our 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.

Results of Operations

For the ~~Three~~Six Months Ended ~~July~~October 31, 2021 Compared to the ~~Three~~Six Months Ended ~~July~~October 31, 2020

Our revenues for the ~~three-months~~six months ended ~~July~~October 31, 2021 decreased by ~~$1,137,135,~~$668,476, or ~~65%~~27%, to ~~$625,187,~~$1,825,009, as compared to ~~$1,762,322~~$2,493,486 reported for the ~~three~~six months ended ~~July~~October 31, 2020. The decrease in revenues is attributable to a decrease of $1,412,358 in non-cash revenue from the receipt of equity, which amounted to ~~$50,000~~$902,174 in the ~~quarter~~six months ended ~~July~~October 31, 2021, as compared to ~~$1,754,046~~$2,314,532 in the ~~quarter~~six months ended ~~July~~October 31, 2020. This decrease was offset by revenues from our funding portal, ~~and by an unrealized gain~~which we did not have in the ~~equity~~six-month period ended October 31, 2020. Funding portal revenues consisted of a listing fee that we ~~received in prior quarters~~charge when an issuer signs an engagement letter to raise capital on our funding portal, and portal fees that are equal to 4.9% of ~~$3,275,745, as a result~~the capital that was raised by the issuers. The components of ~~observable price increases in our equity holdings. We recorded other income consisting of unrealized gains of $3,275,745 in~~revenue for the ~~three months~~six-month periods ended ~~July~~October 31, 2021 and 2020 are as ~~compared to $0 in the three months ended July 31, 2020.~~follows:

	Oct. 31, 2021		Oct. 31, 2020
Receipt of equity from customers for consulting services	$	902,174	$	2,314,532
Consulting revenue		104,021		178,522
Portal fees		606,428		—
Listing fees		212,000		—
Other revenue		386		432
Total	$	1,825,009	$	2,493,486

Costs of revenues decreased by ~~$402,714~~$668,144 to ~~$28,305~~$46,080 for the ~~three-months~~six-months ended ~~July~~October 31, 2021 from ~~$431,019~~$714,224 reported in the ~~three-months~~six-months ended ~~July~~October 31, 2020. The decrease is attributable to ~~our~~a decrease in non-cash revenues from the receipt of equity.

Payroll and payroll related expenses ~~decreased~~increased by ~~$168,787,~~$235,413, or 15%, to ~~$927,333~~$1,791,655 for the ~~three~~six months ended ~~July~~October 31, 2021, as compared to ~~$1,096,120~~$1,556,242 reported for the ~~three~~six months ended ~~July~~October 31, 2020. The ~~decrease~~increase is attributable to ~~a reduction~~an increase in staff.

Marketing expense increased by ~~$17,725,~~$35,044, or ~~432%~~399%, to ~~$21,826~~$43,826 for the ~~three~~six months ended ~~July~~October 31, 2021, as compared to ~~$4,101~~$8,782 reported for the ~~three~~six months ended ~~July~~October 31, 2020. The increase in expense is due to additional marketing outlets that we utilized in the ~~three~~six months ended ~~July~~October 31, 2021.

Rent expense decreased by ~~$1,949,~~$4,187, or ~~14%~~16%, to ~~$12,130~~$22,611 for the ~~three~~six months ended ~~July~~October 31, 2021, as compared to ~~$14,079~~$26,798 reported for the ~~three~~six months ended ~~July~~October 31, 2020. The decrease in expense is a result of discounts available to us in ~~the three-month period ended July 31, 2021~~fiscal 2022 and our ability to have personnel work from home.

General and administrative expenses increased by ~~$353,913,~~$880,992, or ~~860%~~1,167%, to ~~$395,052~~$956,422 for the ~~three~~six months months ended ~~July~~October 31, 2021, from ~~$41,139~~$75,500 for the ~~three~~six months ended ~~July~~October 31, 2020. The increase is primarily attributed to additional expenses we incurred in the current fiscal year for our newly acquired funding portal business.

~~Stock-based compensation~~Consulting expense increased by ~~$175,602,~~$360,550, to ~~$296,980,~~$365,635, or ~~145%~~7,090%, for the ~~three-months~~six months ended ~~July~~October 31, 2021 from ~~$121,378~~$5,085 reported in the ~~three-months~~six months ended ~~July~~October 31, 2020. The increase in expense is ~~primarily~~ due to issuance of stock-based compensation to two outside consulting firms. Stock-based consulting compensation amounted to $325,907 in the ~~higher price per share of our common stock when shares were issued.~~

~~Interest expense increased by $24,962 to $35,245 for the three-months~~six-month period ended ~~July~~October 31, 2021, as compared to ~~$10,283~~$0 in the six-month period ended October 31, 2020.

Interest expense increased by $46,707 to $70,271 for the ~~three~~six months ended ~~July~~October 31, 2021, as compared to $23,564 for the six months ended October 31, 2020. The increase in interest expense is attributable to higher debt amounts and a higher interest rate on our secured debt.

For the Three Months Ended October 31, 2021 Compared to the Three Months Ended October 31, 2020

Our revenues for the three months ended October 31, 2021 increased by $468,658, or 64%, to $1,199,821, as compared to $731,164 reported for the six months ended October 31, 2020. The increase in revenues is attributable to an increase of $315,938 in non-cash revenue from the receipt of equity, offset by a decrease of $113,384 in consulting fees. Funding portal revenues also contributed to the increase in revenues in the six months ended October 31, 2021. Funding portal revenues consisted of a listing fee that we charge when an issuer signs an engagement letter to raise capital on our funding portal, and portal fees that are equal to 4.9% of the capital that was raised by the issuers. The components of revenue for the three-month periods ended October 31, 2021 and 2020 are as follows:

Oct. 31, 2021

Oct. 31, 2020

Receipt of equity from customers for consulting services

$
902,174

$
587,236

Consulting revenue

12,334

143,718

Portal fees

169,111

—

Listing fees

116,000

—

Other revenue

203

210

Total

$
1,199,821

$
731,164

Costs of revenues decreased by $265,430, or 94%, to $17,775 for the three-months ended October 31, 2021 from $283,205 reported in the three-months ended October 31, 2020. The decrease is attributable to one consulting customer in the quarter ended October 31, 2020 that required large expenditures for us to earn our revenues.
Payroll and payroll related expenses increased by $391,552, or 116%, to $730,296 for the three months ended October 31, 2021, as compared to $338,744 reported for the three months ended October 31, 2020. The increase is attributable to an increase in staff.
Marketing expense increased by $17,319, or 370%, to $22,000 for the three months ended October 31, 2021, as compared to $4,681 reported for the three months ended October 31, 2020. The increase in expense is due to additional marketing outlets that we utilized in the three months ended October 31, 2021.
Rent expense decreased by $2,238, or 18%, to $10,481 for the three months ended October 31, 2021, as compared to $12,719 reported for the three months ended October 31, 2020. The decrease in expense is a result of discounts available to us in the three-month period ended October 31, 2021 and our ability to have personnel work from home.
General and administrative expenses increased by $527,009, or 1,534%, to $561,370 for the three months ended October 31, 2021, from $34,361 for the three months ended October 31, 2020. The increase is primarily attributed to additional expenses we incurred in the current fiscal year for our newly acquired funding portal business.
Consulting expense increased by $179,936, to $183,030, or 5,816%, for the three months ended October 31, 2021 from $3,094 reported in the three months ended October 31, 2020. The increase in expense is due to issuance of stock-based compensation to two outside consulting firms. Stock-based consulting compensation amount to $162,954 in the three-month period ended October 31, 2021, as compared to $0 in the six-month period ended October 31, 2020.
21
Interest expense increased by $21,745 to $35,026 for the three-months ended October 31, 2021, as compared to $13,281 for the three months ended October 31, 2020. The increase in interest expense is attributable to higher debt amounts and a higher interest rate on our secured debt.

Liquidity and Capital Resources

At ~~July~~October 31, 2021, we had cash and cash equivalents of ~~$2,059,216~~$940,966 and negative working capital of ~~$1,511,576~~$2,549,669 as compared to cash and cash equivalents of ~~$2,473,956~~$2,473,959 and negative working capital of $4,666,833 at April 30, 2021.

We have been successful in raising capital by selling restricted common stock in private placements and by borrowing funds from the U.S. Small Business Administration. The negative working capital balance as of ~~April 30,~~October 31, 2021 has been significantly reduced by ~~converting approximately $5 million~~the forgiveness of $1,885,800 in ~~current liabilities into shares of common stock at a price range of $9.00 to $9.74 per share.~~borrowings from the SBA in November 2021, and we believe an additional loan from the SBA, also totaling $1,885,800 will be forgiven.

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.

Net cash used in operating activities amounted to ~~$887,641~~$1,898,126 and ~~$1,522,990~~$1,941,012 in the ~~three~~six months ended ~~July~~October 31, 2021 and 2020, respectively. The principal source of cash from operating activities in the ~~three~~six months ended ~~July~~October 31, 2021 was net income of ~~$1,457,410~~$1,183,254 and a non-cash item, stock-based compensation of ~~$296,980.~~$483,067. However, these sources of cash were offset by an unrealized gain on equity securities of ~~$3,275,745.~~$3,275,745, an increase in accounts receivable of $792,742 and a bank receivable of $212,252. The principal source of cash from operating activities in the ~~three~~six months ended ~~July~~October 31, 2020 was net income of ~~$30,781~~$60,893 and a non-cash item, stock-based compensation of ~~$121,738.~~$259,909. However, these items were offset by changes in non-cash revenue from the receipt of equity of ~~$1,754,046.~~$2,314,532.

Net cash used in investing activities amounted to ~~$104,501~~$247,166 in the ~~three~~six months ended ~~July~~October 31, 2021. The use of cash consisted of loans to affiliates of ~~$100,000~~$130,000 and an investment in an affiliate of ~~$4,501.~~$117,166. There was no investing activity in the ~~three-months~~six months ended ~~July~~October 31, 2020.

For the ~~three~~six months ended ~~July~~October 31, 2021, cash provided financing activities amounted to ~~$577,399,~~$612,299, which consisted of proceeds from stock subscriptions for the sale of common stock. For the ~~three~~six months ended ~~July~~October 31, 2020, cash provided by financing activities amounted to $2,385,800, which consisted of two loans from the U.S. Small Business Administration.

In the ~~three~~six months ended ~~July~~October 31, 2021 and 2020, there were no expenditures for capital assets. We do not anticipate any capital expenditures in fiscal 2022.

~~Item~~em 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide information under this item.

Ite~~Item~~m 4. Controls and Procedures.

(a) 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 ~~July~~October 31, 2021. Based on that evaluation, the PEO and the PFO concluded that, as of ~~July~~October 31, 2021, 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 ~~July~~October 31, 2021, 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 ~~July~~October 31, 2021.

The Company’s annual report on Form 10-K for the year ended April 30, 2021 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 ~~July~~October 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Ite~~Item~~m 1. Legal Proceedings.

We are currently not involved in any litigation that we believe could have a material adverse effect on our 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 companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Ite~~Item~~m 1A. Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide information under this item.

Ite~~Item~~m2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the three-month period ended ~~July~~October 31, 2021, we issued 937 shares of unregistered common stock as stock-based compensation, for services rendered to the Company. We sold 176,934 shares of unregistered common stock to accredited investors at a sale price of $9.00 per share. We also issued 361,736 shares of unregistered common stock in conjunction with our purchase of Netcapital Funding Portal Inc.

It~~Item~~em 3. Defaults Upon Senior Securities.

None.

Item 4. ~~Mine~~Mine Safety Disclosures.

Not applicable.

It~~Item~~em 5. Other Information.

None.

It~~Item~~em 6. Exhibits.

31 Rule 13a-14(a) Certification

32 Rule 13a-14(b) Certification

~~101.INS~~

~~XBRL Instance~~

~~101.SCH~~

~~XBRL Schema~~

101.INSXBRL Instance

101.SCHXBRL Schema

101.CAL XBRL Calculation

~~101.DEF~~

~~XBRL~~

101.DEFXBRL Definition

~~101.LAB~~

~~XBRL Label~~

~~101.PRE~~

~~XBRL Presentation~~

101.LABXBRL Label

101.PREXBRL Presentation

SIGN~~SIGNATURES~~ATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


Date: ~~September~~December 14, 2021	NETCAPITAL INC.

	By:	/s/ Cecilia Lenk
		Cecilia Lenk
	Chairman of the Board and Chief Executive Officer

	By:	/s/ Coreen Kraysler
		Coreen Kraysler
	Principal Financial Officer


Assets:	July 31, 2021 (Unaudited)		April 30, 2021 (Audited)
Cash and cash equivalents	$	2,059,216	$	2,473,959
Accounts receivable net		1,332,218		1,356,932
Prepaid expenses		431,795		653,861
Total current assets		3,823,229		4,484,752

Deposits		6,300		6,300
Notes receivable - related parties		100,000		—
Purchased technology		14,803,954		14,803,954
Investment in affiliate		127,415		122,914
Equity securities at fair value		9,623,753		6,298,008
Total assets	$	28,484,651	$	25,715,928

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Trade	$	309,115	$	308,506
Related party		320,224		3,843,686
Accrued expenses		283,795		306,308
Stock subscription payable		185,000		1,199,996
Deferred revenue		613		622
Interest payable		151,254		116,483
Deferred tax liability, net		1,140,000		433,000
Related party debt		22,860		22,860
Secured note payable		1,000,000		1,000,000
Current portion of SBA loans		1,887,620		1,885,800
Loan payable - bank		34,324		34,324
Total current liabilities		5,334,805		9,151,585

Long-term liabilities:
Long-term SBA loans, less current portion		2,383,980		2,385,800
Total Liabilities		7,718,785		11,537,385

Commitments and contingencies		—		—

Stockholders' equity:

Common stock, $.001 par value; 900,000,000 shares authorized, 2,718,373 and 2,178,766 shares issued and outstanding		2,718		2,178
Capital in excess of par value		20,298,360		15,168,987
Retained earnings (deficit)		464,788		(992,622	)
Total stockholders' equity		20,765,866		14,178,543
Total liabilities and stockholders' equity	$	28,484,651	$	25,715,928


	Three Months Ended			Three Months Ended
	July 31, 2021			July 31, 2020

Revenues	$	625,187		$	1,762,322
Costs of services		28,305			431,019
Gross profit		596,882			1,331,303

Costs and expenses:
Stock-based compensation		296,980			121,378
Consulting expense		19,651			1,991
Marketing		21,826			4,101
Rent		12,130			14,079
Payroll and payroll related expenses		927,333			1,096,120
General and administrative costs		395,052			41,139
Total costs and expenses		1,672,972			1,278,808
Operating income (loss)		(1,076,090	)		52,495

Other income (expense):
Interest expense		(35,245	)		(10,283	)
Unrealized gain on equity securities		3,275,745			—
Total other income (expense)		3,240,500			(10,283	)
Net income before taxes		2,164,410			42,212
Income taxes		(707,000	)		(11,341	)
Net income	$	1,457,410		$	30,871

Basic earnings per share	$	0.66		$	0.07
Diluted earnings per share	$	0.65		$	0.07

Weighted average number of common shares outstanding:
Basic		2,206,118			415,636
Diluted		2,241,675			415,636


					Capital in		Retained
	Common Stock				Excess of		Earnings			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

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 acquire funding portal		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


	Three Months Ended July 31, 2021			Three Months Ended July 31, 2020
OPERATING ACTIVITIES
Net income	$	1,457,410		$	30,871
Adjustment to reconcile net income to net cash used in operating activities:
Stock-based compensation		296,980			121,378
Non-cash revenue from the receipt of equity		(50,000	)		(1,754,046	)
Unrealized gain on equity securities		(3,275,745	)		—
Changes in deferred taxes		707,000			11,341
Changes in non-cash working capital balances:
Accounts receivable		24,714			(6,000	)
Prepaid expenses		(60,858	)		(13,172	)
Accounts payable and accrued expenses		(21,904	)		48,571
Deferred revenue		(9	)		34,916
Accrued interest payable		34,771			3,151
Net cash used in operating activities		(887,641	)		(1,522,990	)

INVESTING ACTIVITIES
Loans to affiliates		(100,000	)		—
Investment in affiliate		(4,501	)		—
Net cash used in investing activities		(104,501	)		—

FINANCING ACTIVITIES
Proceeds from SBA loans		—			2,385,800
Proceeds from stock subscriptions		577,399			—
Net cash provided by financing activities		577,399			2,385,800

Net increase (decrease) in cash		(414,743	)		862,810
Cash and cash equivalents, beginning of the period		2,473,959			11,206
Cash and cash equivalents, end of the period	$	2,059,216		$	874,016

Supplemental disclosure of cash flow information:
Cash paid for taxes	$	—		$	—
Cash paid for interest	$	477		$	480

Supplemental Non-Cash Financing Information:
Common stock issued to reduce related party payable	$	3,523,462		$	—

Schedule of earnings per share
	Three Months Ended July 31, 2021		Three Months Ended July 31, 2020
Net income attributable to common stockholders – basic	$	1,457,410	$	30,871
Adjustments to net income		—		—
Net income attributable to common stockholders – diluted	$	1,457,410	$	30,871

Weighted average common shares outstanding – basic		2,206,118		415,636
Effect of dilutive securities		35,557		—
Weighted average common shares outstanding – diluted		2,241,675		415,636

Earnings per common share – basic	$	0.66	$	0.07
Earnings per common share – diluted	$	0.65	$	0.07