UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: January 31, 2024

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

Commission file number: 001-41443

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 MA 02111

(Address of principal executive offices)

(781) 925-1700

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, par value $0.001 per share	NCPL	The Nasdaq Stock Market LLC
Redeemable warrants exercisable for one share of Common Stock at an exercise price of $5.19	NCPLW	The Nasdaq Stock Market LLC

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 ☒ 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 ☒ 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 ☒	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 ☒

As of March 18, 2024 the registrant had 20,011,132 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.	5
Condensed Consolidated Balance Sheets as of January 31, 2024 (unaudited) and April 30, 2023	5
Condensed Consolidated Statements of Operations for the three and nine months ended January 31, 2024 and 2023 (unaudited)	6
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended January 31, 2024 and the year ended April 30, 2023 (unaudited)	7
Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, 2024 and 2023 (unaudited)	8
Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	23

Item 3. Quantitative and Qualitative disclosures about Market Risk.	29

Item 4. Controls and Procedures.	29

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.	30

Item1A. Risk Factors.	30

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	31

Item 3. Defaults Upon Senior Securities.	31

Item 4. Mine Safety Disclosures.	32

Item 5. Other Information.	32

Item 6. Exhibits.	32

Signatures.	33

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

●	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 anticipated 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 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;

●	challenges related to hiring and training fintech employees at competitive wage rates;

●	difficulties in increasing the average number of investments made per investor;

●	shortages or interruptions in the supply of quality issuers;

●	our dependence on a small number of large issuers to generate revenue;

●	negative publicity relating to any one of our issuers;

●	competition from other online capital portals with significantly greater resources than we have;

●	changes in investor tastes and purchasing trends;

●	our inability to manage our 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;

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●	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 with any cloud partner;

●	our vulnerability to increasing labor costs;

●	the impact of 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; and

●	inadequately protecting our intellectual property or breaches of security of confidential user information.

You are cautioned that all forward-looking statements involve risks and uncertainties. We undertake no obligation to amend this Form 10-Q or our annual report on 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.

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q may include market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications are reliable, we have not independently verified market and industry data from third-party sources.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NETCAPITAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	January 31, 2024 (Unaudited)		April 30, 2023 (Audited)
Assets:
Cash and cash equivalents	$	2,172,099	$	569,441
Accounts receivable net		3,701,501		1,388,500
Note receivable		20,000		-
Prepaid expenses		158,465		583,030
Total current assets		6,052,065		2,540,971

Deposits		6,300		6,300
Notes receivable - related parties		202,000		202,000
Purchased technology, net		15,790,304		15,875,297
Investment in affiliate		240,080		240,080
Equity securities		21,844,698		22,955,445
Total assets	$	44,135,447	$	41,820,093

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Trade	$	828,836	$	578,331
Related party		75,204		75,204
Accrued expenses		394,911		285,065
Stock subscription payable		10,000		10,000
Deferred revenue		487		661
Interest payable		88,084		98,256
Current taxes payable		-		174,000
Deferred tax liability, net		-		1,657,000
Related party debt		15,000		15,000
Secured note payable		-		350,000
Current portion of SBA loans		1,885,800		1,885,800
Loan payable - bank		34,324		34,324
Total current liabilities		3,332,646		5,163,641

Long-term liabilities:
Long-term SBA loans, less current portion		500,000		500,000
Total liabilities		3,832,646		5,663,641

Commitments and contingencies		-		-

Stockholders’ equity:
Common stock, $.001 par value; 900,000,000 shares authorized, 17,231,132 and 6,440,527 shares issued and outstanding		17,231		6,441
Shares to be issued		122,124		183,187
Capital in excess of par value		37,077,147		30,500,944
Retained earnings		3,086,299		5,465,880
Total stockholders’ equity		40,302,801		36,156,452
Total liabilities and stockholders’ equity	$	44,135,447	$	41,820,093

See Accompanying Notes to the Condensed Consolidated Financial Statements

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NETCAPITAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	January 31, 2024			January 31, 2023			January 31, 2024			January 31, 2023

Revenues	$	1,042,793		$	2,260,414		$	4,604,260		$	5,379,960
Costs of services		58,875			4,305			97,062			61,603
Gross profit		983,918			2,256,109			4,507,198			5,318,357

Costs and expenses:
Consulting expense		175,357			130,500			544,033			455,892
Marketing		32,198			23,549			320,817			64,211
Rent		19,544			17,187			57,533			51,586
Payroll and payroll related expenses		869,517			946,043			2,957,394			2,592,891
General and administrative costs		1,092,459			568,253			2,529,378			1,241,365
Total costs and expenses		2,189,075			1,685,532			6,409,155			4,405,945
Operating income (loss)		(1,205,157	)		570,577			(1,901,957	)		912,412

Other income (expense):
Interest expense		(11,918	)		(17,632	)		(35,784	)		(76,922	)
Gain on debt conversion		-			-			-			224,260
Amortization of intangible assets		(28,331	)		(25,914	)		(84,993	)		(68,076	)
Unrealized gain (loss) on equity securities		(2,696,135	)		1,866,468			(2,696,135	)		1,857,500
Realized loss on sale of investment		-			-			-			(406,060	)
Total other income (expense)		(2,736,384	)		1,822,922			(2,816,912	)		1,530,702
Net income (loss) before taxes		(3,941,541	)		2,393,499			(4,718,869	)		2,443,114
Income tax expense (benefit)		(1,713,999	)		697,000			(2,339,288	)		499,000
Net income (loss)	$	(2,227,542	)	$	1,696,499		$	(2,379,581	)	$	1,944,114

Basic earnings (loss) per share	$	(0.19	)	$	0.33		$	(0.25	)	$	0.46
Diluted earnings (loss) per share	$	(0.19	)	$	0.33		$	(0.25	)	$	0.46

Weighted average number of common shares outstanding:
Basic		11,466,523			5,166,299			9,457,740			4,208,216
Diluted		11,466,523			5,166,549			9,457,740			4,208,466

See Accompanying Notes to the Condensed Consolidated Financial Statements

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NETCAPITAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

For the Nine Months Ended January 31, 2024 and the Year Ended April 30, 2023


	Common Stock				Shares to			Capital in Excess of		Retained		Total
	Shares		Amount		Be Issued			Par Value		Earnings		Equity
Balance, April 30, 2022		2,934,344	$	2,934	$	244,250		$	22,479,769	$	2,510,908	$	25,237,861

Shares issued for debt conversion		133,333		134		-			379,852		-		379,986
Sale of common stock		1,205,000		1,205		-			3,947,912		-		3,949,117
Vesting of stock options		-		-		-			32,953		-		32,953
Net income for July 31, 2022 quarter		-		-		-			-		64,477		64,477
Balance, July 31, 2022		4,272,677		4,273		244,250			26,840,486		2,575,385		29,664,394

Sale of common stock		2,600		3		-			23,397		-		23,400
Purchase of equity interest		37,500		37		-			366,338		-		366,375
Vesting of stock options		-		-		-			32,953		-		32,953
Net income for Oct. 31, 2022 quarter		-		-		-					183,138		183,138
Balance October 31, 2022		4,312,777		4,313		244,250			27,263,174		2,758,523		30,270,260

Sale of common stock		1,434,000		1,434		-			1,620,025		-		1,621,459
Purchase of equity interest		18,750		19		-			171,105		-		171,124
Purchase of intellectual property		300,000		300		-			434,700		-		435,000
Reduction in shares to be issued		6,250		6		(61,063	)		61,057		-		-
Vesting of stock options		-		-		-			63,057		-		63,057
Net income for Jan. 31, 2023 quarter		-		-		-			-		1,696,499		1,696,499
Balance January 31, 2023		6,071,777		6,072		183,187			29,613,118		4,455,022		34,257,399

Purchase of equity interest		18,750		19		-			195,233		-		195,252
Vesting of stock options		-		-		-			132,943		-		132,943
Stock-based compensation		350,000		350		-			559,650		-		560,000
Net income Q4		-		-		-

SEC Form 10-Q filed by Netcapital Inc.