Netcapital Inc 10-Q for FY2021 Q2

Netcapital Inc. (NCPL)

10-Q 2020-12-15 For: 2020-10-31

Added on April 06, 2026

About this 10-Q

Netcapital Inc filed this 10-Q on December 15, 2020, covering the quarter ended October 31, 2020 (FY2021 Q2).

Headline figures

Quarter ended October 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $731.16K; up 2.0% from $716.99K a year earlier
Net income: $30.02K; down 94.5% from net income of $542.45K a year earlier
Diluted EPS: $0.07; down 94.7% from $1.31 a year earlier

Search and read filings like this one from Claude or ChatGPT with the SEC filings MCP server →

Large accelerated filer [ ]	Accelerated filer [ ]	Non-accelerated filer [X]	Smaller reporting company [X]
			Emerging growth company [ ]

	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

Item 3. Quantitative and Qualitative disclosures about Market Risk.	21

Item 4. Controls and Procedures.	21

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.	22

Item1A. Risk Factors.	22

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	22

Item 3. Defaults Upon Senior Securities.	22

Item 4. Mine Safety Disclosures.	22

Item 5. Other Information.	22

Item 6. Exhibits.	22

Signatures.	23


	October 31, 2020			April 30, 2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	455,994		$	11,206
Accounts receivable		40,671			—
Prepaid expenses		374,230			465,555
Total current assets		870,895			476,761
Deposits		6,300			6,300
Deferred income tax asset		157,602			180,000
Non-current prepaid expenses		—			143,455
Investments at cost		3,721,514			1,406,982
Total assets	$	4,756,311		$	2,213,498

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable
Trade	$	278,752		$	278,752
Related party		51,170			16,680
Accrued expenses		180,350			149,835
Deferred revenue		5,507			656
Notes payable – related parties		15,000			15,000
Secured noted payable to related party		1,000,000			1,000,000
Interest payable – related parties		37,536			31,235
Current portion of long-term debt		1,264,519			—
Loan payable – bank		34,324			34,324
Demand notes payable		7,860			7,860
Total current liabilities		2,875,018			1,534,342

Small Business Administration loans payable, net of current portion		1,121,281			—
Total liabilities		3,996,299			1,534,342

Commitments and Contingencies		—			—

Stockholders’ equity:
Common stock, $.001 par value; 900,000,000 shares authorized, 419,455 and 417,059 shares issued and outstanding at Oct. 31, 2020 and April 30, 2020, respectively		419			417
Capital in excess of par value		3,160,982			3,141,021
Accumulated deficit		(2,401,389	)		(2,462,282	)
Total stockholders’ equity		760,012			679,156
Total liabilities and stockholders’ equity	$	4,756,311		$	2,213,498

	For the Six Months Ended						For the Three Months Ended
	October 31, 2020			October 31, 2019			October 31, 2020			October 31, 2019

Revenues	$	2,493,486		$	835,725		$	731,164		$	716,993
Cost of revenues		714,224			4,848			283,205			2,482
Gross profit		1,779,262			830,877			447,959			714,511

Costs and expenses:
Stock-based compensation		259,909			108,531			138,531			80,021
Consulting fees		5,085			80,200			3,094			41,000
Marketing		8,782			6,602			4,681			3,063
Rent		26,798			25,721			12,719			13,192
Wages and payroll expense		1,296,333			—			200,213			—
Selling, general and administrative		75,500			33,283			34,361			29,903
Total costs and expenses		1,672,407			254,337			393,599			167,179

Income from operations		106,855			576,540			54,360			547,332

Other income (expense):
Interest expense		(23,564	)		(9,614	)		(13,281	)		(4,881	)
Other income		—			—			—			—
Total other income (expense)		(23,564	)		(9,614	)		(13,281	)		(4,881	)
Net income before taxes		83,291			566,926			41,079			542,451
Income tax		22,398			—			11,057			—
Net income	$	60,893		$	566,926		$	30,022		$	542,451

Basic earnings per share	$	0.15		$	1.43		$	0.07		$	1.31
Diluted earnings per share	$	0.15		$	1.43		$	0.07		$	1.31

Weighted average number of common shares outstanding:
Basic		415,726			395,765			415,815			415,254
Diluted		415,726			395,765			415,815			415,254

Balance, April 30, 2018	367,273	$	367	$	2,165,655	$	(3,650,013	)	$	(1,483,991	)
Net loss, July 31, 2018	—		—		—		(7,207	)		(7,207	)
Q1 stock-based compensation	1,969		2		6,693		—			6,695
Q1 stock issued for purchase	100		—		700		—			700
Balance, July 31, 2018	369,342		369		2,173,048		(3,657,220	)		(1,483,803	)
Net loss, October 31, 2018	—		—		—		(20,355	)		(20,355	)
Q2 stock-based compensation	4,131		5		12,203		—			12,208
Q2 sale of common stock	1,400		1		4,999		—			5,000
Balance, October 31, 2018	374,873		375		2,190,250		(3,677,575	)		(1,486,950	)
Net income, January 31, 2019	—		—		—		12,391			12,391
Q3 stock-based compensation	1,406		1		3,374		—			3,375
Balance, January 31, 2019	376,279		376		2,193,624		(3,665,184	)		(1,471,184	)
Net income, April 30, 2019	—		—		—		598,051			598,051
Q4 stock-based compensation	1,406		2		7,873		—			7,875
Balance, April 30, 2019	377,685		378		2,201,497		(3,067,133	)		(865,258	)
Net income, July 31, 2019	—		—		—		24,475			24,475
Q1 stock-based compensation	1,406		1		19,687		—			19,688
Balance, July 31, 2019	379,091		379		2,221,184		(3,042,658	)		(821,095	)
Net income, October 31, 2019	—		—		—		542,451			542,451
Q2 stock-based compensation	37,656		38		917,305		—			917,343
Balance, October 31, 2019	416,747		417		3,138,489		(2,500,207	)		638,699
Net income, January 31, 2020	—		—		—		595,174			595,174
Q3 stock-based compensation	156		—		1,500		—			1,500
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
Net income July 31, 2020	—		—		—		30,871			30,871
Q1 stock-based compensation	156		—		1,406		—			1,406
Balance July 31, 2020	417,215		417		3,142,427		(2,431,411	)		711,433
Net income October 31, 2020	—		—		—		30,022			30,022
Q2 stock-based compensation	2,240		2		18,555		—			18,557
Balance, October 31, 2020	419,455	$	419	$	3,160,982	$	(2,401,389	)	$	760,012

	Six Months			Six Months
	Ended			Ended
	October 31,			October 31,
	2020			2019

Operating activities
Net income	$	60,893		$	566,926
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation		259,909			108,531
Changes in deferred tax assets		22,398			—
Non-cash revenue from receipt of equity		(2,314,532	)		(653,864	)
Changes in non-cash working capital balances
Accounts receivable		(40,671	)		6,000
Contracts receivable		—			15,000
Prepaid expense		(5,166	)		—
Accrued expenses		30,515			(19,239	)
Accounts payable – related party		34,490
Interest payable – related party		6,301			8,122
Deferred revenue		4,851			(15,044	)
Cash provided by (used in) operating activities		(1,941,012	)		16,432

Financing activities
Proceeds from SBA loans		2,385,800			—
Payment on related party note		—			(4,300	)
Cash provided by (used in) financing activities		2,385,800			(4,300	)

Increase in cash and cash equivalents during the period		444,788			12,132
Cash and cash equivalents, beginning of the period		11,206			19,110
Cash and cash equivalents, end of the period	$	455,994		$	31,242


Cash paid for:
Interest	$	1,113		$	1,492
Income taxes	$	—		$	—
Non-cash financing activities
Common stock issued as prepaid compensation	$	—		$	915,000

	Six Months Ended October 31, 2020		Six Months Ended October 31, 2019		Three Months Ended October 31, 2020		Three Months Ended October 31, 2019
Net income attributable to common stockholders – basic	$	60,893	$	566,926	$	30,022	$	542,451
Adjustments to net income		—		—		—		—
Net income attributable to common stockholders – diluted	$	60,893	$	566,926	$	30,022	$	542,451

Weighted average common shares outstanding – basic		415,726		395,765		415,815		415,254
Effect of dilutive securities		—		—		—		—
Weighted average common shares outstanding – diluted		415,726		395,765		415,815		415,254

Earnings per common share – basic	$	0.15	$	1.43	$	0.07	$	1.31
Earnings per common share – diluted	$	0.15	$	1.43	$	0.07	$	1.31

	October 31, 2020		April 30, 2020		Interest Rate

Secured lender (affiliate)	$	1,000,000	$	1,000,000		1.25	%
Notes payable – related parties		15,000		15,000		0.0	%
Demand notes payable		7,860		7,860		0.0	%
U.S. SBA loan		500,000		—		3.75	%
U.S. SBA loan		1,885,800		—		1.0	%
Loan payable – bank		34,324		34,324		5.5	%
Total Debt	$	3,442,984	$	1,057,184

Stock-based compensation expense	Six Months Ended October 31, 2020		Six Months Ended October 31, 2019		Three Months Ended October 31, 2020		Three Months Ended October 31, 2019
Chief Executive Officer	$	81,216	$	31,702	$	40,608	$	22,952
Chief Financial Officer		81,216		31,702		40,608		22,952
Chief Marketing Officer		2,453		4,531		1,047		2,343
Related party consultant		38,757		11,476		19,379		11,476
Director of Business Development		17,510		—		17,510		—
Marketing consultant		—		17,644		—		8,822
Business consultant		38,757		11,476		19,379		11,476
Total stock-based compensation expense	$	259,909	$	108,531	$	138,531	$	80,021


Description	October 31, 2020		April 30, 2020
Chief Executive Officer	$	120,499	$	201,715
Chief Financial Officer		120,499		201,715
Related party consultant		64,033		102,790
Business consultant		64,033		102,790
Total	$	369,064	$	609,010

	October 31, 2020		April 30, 2020


Netcapital Systems LLC	$	48,128	$	44,482
Watch Party LLC		235,400		—
Zelgor Inc.		1,400,000		—
ChipBrain LLC		660,486		—
Vymedic, Inc.		15,000		—
Deuce Drone LLC		822,500		822,500
Kingscrowd LLC		540,000		540,000
Total Investments at cost	$	3,721,514	$	1,406,982

Consideration: 1,666,360 shares of common stock of the Company	$	11,331,248

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	$	358,634
Prepaid expenses		6,070
Receivable from Netcapital Systems		295,000
Accounts payable		(31,269	)
Platform users		5,118,857
Platform investors		4,546,318
Platform issuers		652,932
Unpatented technology		384,706
Total identifiable net assets	$	11,331,248

	Revenues		Earnings

Supplemental pro forma for 4/1/20 – 10/31/20	$	2,866,063	$	282,264
Supplemental pro forma for 4/1/19 – 10/31/19	$	1,018,200	$	680,212


Date: December 15, 2020	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

1.	I have reviewed this quarterly report on Form 10-Q of Netcapital Inc..;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;

4.	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)	Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: December 15, 2020			By:	/s/ Cecilia Lenk
				Cecilia Lenk
				Principal Executive Officer, Netcapital Inc.


Date: December 15, 2020	By:	/s/ Coreen Kraysler
		Coreen Kraysler
		Principal Financial Officer Netcapital Inc.