Netcapital Inc 10-Q for FY2021 Q3

Netcapital Inc. (NCPL)

10-Q 2021-03-22 For: 2021-01-31

Added on April 06, 2026

About this 10-Q

Netcapital Inc filed this 10-Q on March 22, 2021, covering the quarter ended January 31, 2021 (FY2021 Q3).

Headline figures

Quarter ended January 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.28M
Net income: $42.64K; down 92.8% from net income of $595.17K a year earlier
Diluted EPS: $0.02

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	Page
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.	3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	18

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

	January 31, 2021			April 30, 2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	286,461		$	11,206
Accounts receivable, net of allowance of $29,000		972,586			—
Prepaid expenses		258,306			465,555
Total current assets		1,517,353			476,761
Deposits		6,300			6,300
Deferred income tax asset		137,712			180,000
Non-current prepaid expenses		—			143,455
Purchased technology and customers		14,803,954			—
Investments at cost		3,726,514			1,406,982
Total assets	$	20,191,833		$	2,213,498

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable
Trade	$	311,357		$	278,752
Related party		3,868,686			16,680
Accrued expenses		428,075			149,835
Deferred revenue		589			656
Notes payable – related parties		22,860			15,000
Secured noted payable		1,000,000			1,000,000
Interest payable – related parties		—			31,235
Current portion of long-term debt		1,584,115			—
Loan payable – bank		34,324			34,324
Demand notes payable		—			7,860
Total current liabilities		7,250,006			1,534,342

Small Business Administration loans payable		801,685			—
Total liabilities		8,051,691			1,534,342

Commitments and Contingencies		—			—

Stockholders’ equity:
Common stock, $.001 par value; 900,000,000 shares authorized, 2,081,752 and 417,059 shares issued and outstanding at Jan. 31, 2021 and April 30, 2020, respectively		2,081			417
Capital in excess of par value		14,496,808			3,141,021
Accumulated deficit		(2,358,747	)		(2,462,282	)
Total stockholders’ equity		12,140,142			679,156
Total liabilities and stockholders’ equity	$	20,191,833		$	2,213,498

	For the Nine Months Ended						For the Three Months Ended
	January 31, 2021			January 31, 2020			January 31, 2021			January 31, 2020

Revenues	$	3,770,813		$	1,593,130		$	1,277,327		$	757,405
Cost of revenues		730,343			8,210			16,119			3,362
Gross profit		3,040,470			1,584,920			1,261,208			754,043

Costs and expenses:
Stock-based compensation		386,121			232,461			126,212			123,930
Consulting fees		5,085			87,400			—			7,200
Marketing		21,620			9,665			12,838			3,063
Rent		39,516			38,050			12,718			12,329
Wages and payroll expense		2,153,561			—			857,228			—
Selling, general and administrative		235,054			40,941			159,554			7,658
Total costs and expenses		2,840,957			408,517			1,168,550			154,180

Income from operations		199,513			1,176,403			92,658			599,863

Other income (expense):
Interest expense		(53,690	)		(14,303	)		(30,126	)		(4,689	)
Total other income (expense)		(53,690	)		(14,303	)		(30,126	)		(4,689	)
Net income before taxes		145,823			1,162,100			62,532			595,174
Income tax		(42,288	)		—			(19,890	)		—
Net income	$	103,535		$	1,162,100		$	42,642		$	595,174

Basic earnings per share	$	0.11		$	2.89		$	0.02		$	1.43
Diluted earnings per share	$	0.11		$	2.89		$	0.02		$	1.43

Weighted average number of common shares outstanding:
Basic		948,058			402,284			2,012,723			415,324
Diluted		948,058			402,284			2,012,723			415,324

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
Shares issued to acquire funding portal	1,666,360			1,666			11,329,582		—			11,331,248
Net income January 31, 2021	—			—			—		42,642			42,642
Return of common stock	(5,000	)		(5	)		5		—			—
Q3 stock-based compensation	937			1			6,239		—			6,240
Balance, January 31, 2021	2,081,752		$	2,081		$	14,496,808	$	(2,358,747	)	$	12,140,142

	Nine Months			Nine Months
	Ended			Ended
	January 31,			January 31,
	2021			2020

Operating activities
Net income	$	103,535		$	1,162,100
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation		386,121			232,461
Non-cash revenue from receipt of equity		(2,319,532	)		(1,410,796	)
Provision for bad debts		29,000			—
Changes in deferred tax assets		42,288
Changes in non-cash working capital balances
Accounts receivable		(1,001,586	)		6,000
Contracts receivable		—			15,000
Prepaid expense		(3,144	)		—
Accrued expenses		250,587			(12,742	)
Accounts payable – related party		37,314			—
Interest payable – related party		—			12,183
Deferred revenue		(67	)		(15,086	)
Cash provided by (used in) operating activities		(2,475,484	)		(10,880	)

Investing activities
Proceeds from purchase of funding portal		364,939			—
Cash provided by investing activities		364,939			—

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 (decrease) in cash and cash equivalents during the period		275,255			(15,180	)
Cash and cash equivalents, beginning of the period		11,206			19,110
Cash and cash equivalents, end of the period	$	286,461		$	3,930


Cash paid for:
Interest	$	1,595		$	2,120
Income taxes	$	—		$	—
Non-cash financing activities
Common stock issued as prepaid compensation	$	—		$	915,000

	Nine Months Ended January 31, 2021		Nine Months Ended January 31, 2020		Three Months Ended January 31, 2021		Three Months Ended January 31, 2020
Net income attributable to common stockholders – basic	$	103,535	$	1,162,100	$	42,642	$	595,174
Adjustments to net income		—		—		—		—
Net income attributable to common stockholders – diluted	$	103,535	$	1,162,100	$	42,642	$	595,174

Weighted average common shares outstanding – basic		948,058		402,284		2,012,723		415,324
Effect of dilutive securities		—		—		—		—
Weighted average common shares outstanding – diluted		948,058		402,284		2,012,723		415,324

Earnings per common share – basic	$	0.11	$	2.89	$	0.02	$	1.43
Earnings per common share – diluted	$	0.11	$	2.89	$	0.02	$	1.43

	January 31, 2021		April 30, 2020		Interest Rate

Secured lender (affiliate)	$	1,000,000	$	1,000,000		8.00	%
Notes payable – related parties		22,860		15,000		0.0	%
Demand notes payable		-		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	Nine Months Ended January 31, 2021		Nine Months Ended January 31, 2020		Three Months Ended January 31, 2021		Three Months Ended January 31, 2020
Chief Executive Officer	$	121,824	$	69,827	$	40,608	$	38,125
Chief Financial Officer		121,824		69,827		40,608		38,125
Chief Marketing Officer		3,492		6,031		1,039		1,500
Related party consultant		58,135		30,539		19,379		19,063
Director of Business Development		22,711		—		5,201		—
Marketing consultant		—		25,698		—		8,054
Business consultant		58,135		30,539		19,378		19,063
Total stock-based compensation expense	$	386,121	$	232,461	$	126,212	$	123,930


Description	January 31,2021		April 30, 2020
Chief Executive Officer	$	79,891	$	201,715
Chief Financial Officer		79,891		201,715
Related party consultant		44,655		102,790
Business consultant		44,655		102,790
Total	$	249,092	$	609,010

	January 31, 2021		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.		20,000		—
Deuce Drone LLC		822,500		822,500
KingsCrowd LLC		540,000		540,000
Total Investments at cost	$	3,726,514	$	1,406,982

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		(29,023	)
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

	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


Date: March 22, 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

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: March 22, 2021			By:	/s/ Cecilia Lenk
				Cecilia Lenk
				Principal Executive Officer, Netcapital Inc.


Date: March 22, 2021	By:	/s/ Coreen Kraysler
		Coreen Kraysler
		Principal Financial Officer Netcapital Inc.