Netcapital Inc
For the period ended Jul 31, 2024. Filed Sep 16, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jul 31, 2024 · Filed Sep 16, 2024
NCPL$1.26-3.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-01-31; filed 2024-03-18.
0001493152-24-010353
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-07-31; filed 2024-09-16.
0001493152-24-036373
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 57 previous paragraphs and 61 current paragraphs.
16 unchanged; 10 reworded; 32 added; 29 removed; 2 previous and 3 current paragraphs rearranged.
Tables are not compared: 4 previous and 3 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (32)
Current report
Proposed Broker-Dealer Business
Current report
Our recently formed wholly owned subsidiary, Netcapital Securities Inc. has applied for broker-dealer registration with the Financial Industry Regulatory Authority (“FINRA”). We believe that by having a registered broker-dealer, it may create opportunities to expand the Company’s revenue base by hosting and generating additional fees from Reg A+ and Reg D offerings on the Netcapital platform;, earning additional fees in connection with offerings that may result from the introduction of clients to other FINRA broker-dealers and expanding our distribution capabilities by leveraging strategic partnerships with other broker-dealers to distribute offerings of issuers that utilize the Netcapital platform to a wider range of investors in order to maximize market penetration and optimize capital raising efforts. Netcapital Securities Inc.’s application to become a registered broker-dealer remains subject to regulatory approval and/or licensing from the Financial Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). No assurance can be given as to when or if such approvals may be granted or when, if at all, Netcapital will be able to expand the services it offers. As of the date of this Quarterly Report, Netcapital Securities Inc. has not conducted any business activities
Current report
At-The-Market Agreement
Current report
On August 23, 2024, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), to sell shares of its common stock, par value $0.001 per share, (the “Shares”) having an aggregate sales price of up to $2,100,000, from time to time, through an “at the market offering” program under which Wainwright will act as sales agent. The sales, if any, of the Shares made under the ATM Agreement will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The Company will pay Wainwright a commission rate equal to 3.0% of the aggregate gross proceeds from each sale of Shares. As of the date of this filing, the Company has sold 56,000 shares of its common stock pursuant to the ATM Agreement for net proceeds of approximately $148,294.
Current report
Regained Compliance with Nasdaq Continued Listing Requirements
Current report
On August 19, 2024, we received a notice from The Nasdaq Stock Market, LLC (“Nasdaq”), dated August 19, 2024, informing us that we had regained compliance with Nasdaq’s Listing Rule 5550(a)(2) (the “Bid Price Rule”) for continued listing on The Nasdaq Capital Market, as the bid price of our common stock closed at or above $1.00 per share for a minimum of 10 consecutive business days since August 2, 2024.
Current report
As previously disclosed on a Current Report on Form 8-K filed by us, Nasdaq had previously notified us on September 1, 2023 that we were not in compliance with the Bid Price Rule because our common stock failed to maintain a minimum bid price of $1.00 per share for 30 consecutive business days. Further as of July 22, 2024, Nasdaq determined that that our securities had a closing bid price of $0.10 or less for ten consecutive trading days and as a result, Nasdaq delivered written notice to the Company on July 23, 2024 under which it advised us that Nasdaq has determined to delist our securities from The Nasdaq Capital Market. We requested a hearing to appeal Nasdaq’s delisting determination, but since the Company has regained compliance with Nasdaq’s continued listing requirements as described above, the hearing was cancelled.
Current report
On July 29, 2024, following shareholder approval we filed articles of amendment (the “Articles of Amendment”) to our Articles of Incorporation, as amended, with the Utah Department of Commerce, Division of Corporations and Commercial Code to effectuate a 1-for-70 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding shares of common stock, which Articles of Amendment became effective on August 1, 2024. The Reverse Stock Split became effective at 4:01pm Eastern Time on August 1, 2024, and our common stock began trading on a split-adjusted basis at the open of trading on The Nasdaq Capital Market on August 2, 2024. Upon effectiveness of the Reverse Stock Split, every seventy (70) shares of our common stock issued and outstanding were automatically reclassified and combined into one share of our common stock, without any change in the par value per share. Additionally, equitable adjustments corresponding to the Reverse Stock Split ratio were made (i) the exercise prices of and number of shares of Common Stock underlying the Company’s public and private warrants in accordance with their terms, (ii) the number of shares of Common Stock underlying the Company’s outstanding equity awards in accordance with their terms, and (iii) the number of shares of Common Stock issuable under the Company’s equity incentive plan. No fractional shares were issued in connection with the Reverse Stock Split. Any stockholder who would otherwise be entitled to receive a fractional share instead became entitled to receive one whole share of Common Stock in lieu of such fractional share. Following the Reverse Stock Split, we had 718,934 shares of our common stock outstanding, which includes 139,781 shares of our common stock that were issued for rounding up fractional shares resulting from the Reverse Stock Split. The Reverse Stock Split is retroactively reflected in the Company’s condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statements of changes in shareholders’ equity and loss per share data.
Current report
Launch of Beta Version for Secondary Trading Platform
Current report
In July 2024, we announced the launch of our beta version of a secondary trading platform through the Templum ATS to a closed group of users. This secondary trading platform has been designed to provide investors who purchase stock through the Netcapital funding portal with the potential for secondary trading through access to the Templum ATS.
Current report
May 2024 Warrant Inducement
Current report
On May 24, 2024, we entered into inducement offer letter agreements with certain investors that held certain outstanding Series A-2 warrants to purchase up to an aggregate of 204,572 shares of our common stock with an exercise price of $17.50 per share, originally issued in December 2023 at a reduced exercise price of $10.85 per share (which reduced exercise price was granted to all holders on Series A-2 warrants by the board on May 24, 2024) in partial consideration for the Company’s agreement to issue in a private placement (i) new Series A-3 common stock purchase warrants to purchase up to 253,947 shares of our common stock at an exercise price of $8.74 per share and (ii) new Series A-4 common stock purchase warrants to purchase up to 253,947 shares of our common stock at an exercise price of $8.74 per share for aggregate gross proceeds of approximately $2.2 million from the exercise of the existing warrants, before deducting placement agent fees and other expenses payable by the Company. The Series A-3 Warrants and Series A-4 Warrants are exercisable beginning on the effective dates of stockholder approval of the issuance with such warrants expiring on (i) the five year anniversary of the initial exercise date for the Series A-3 Warrants and (ii) the eighteen month anniversary of the initial exercise date for the Series A-4 Warrants. This transaction closed on May 29, 2024. H.C. Wainwright was the exclusive agent for the transaction for which we paid them a cash fee equal to 7.5% from the exercise of the Series A-2 warrant at the reduced exercise price and a management fee equal to 1.0% of such aggregate gross proceeds. We also issued warrants to designees of H.C. Wainwright to purchase up to 19,048 shares of our common stock at an exercise price of $10.93 per share.
Current report
Application for Broker-Dealer License
Current report
In May 2024, we announced that our wholly-owned subsidiary, Netcapital Securities Inc. applied for broker-dealer registration with the Financial Industry Regulatory Authority (“FINRA”). We believe that by having a registered broker-dealer, it could create opportunities to expand revenue base by hosting and generating additional fees from Reg A+ and Reg D offerings on the Netcapital platform;, earning additional fees in connection with offerings that may result from the introduction of clients to other FINRA broker-dealers and expanding our distribution capabilities by leveraging strategic partnerships with other broker-dealers to distribute offerings of issuers that utilize the Netcapital platform to a wider range of investors in order to maximize market penetration and optimize capital raising efforts. Netcapital Securities Inc.’s application to become a registered broker-dealer remains subject to regulatory approval and/or licensing from the Financial Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). No assurance can be given as to when or if such approvals may be granted or when, if at all, Netcapital will be able to expand the services it offers.
Current report
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Current report
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this Form 10-Q. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Current report
Our revenues for the three months ended July 31, 2024, decreased by $1,377,582, or approximately 91%, to $142,227 as compared to $1,519,809 during the three months ended July 31, 2023. The decrease in revenues was primarily attributed to a decrease in revenues for the services that we provide in exchange for equity securities during the quarter ended July 31, 2024, as compared to the quarter ended July 31, 2023. In the three months ended July 31, 2024, we had no revenues from equity-based contracts, as compared to $1,110,000 in such revenues in the three months ended July 31, 2023. Management is focusing on establishing a broker-dealer subsidiary so that the Company may have additional sources of revenue, and we have not been pursuing the equity-based revenue contracts.
Current report
The decrease of $1,110,000 in revenue from consulting services for equity securities in the three months ended July 31, 2024, as compared to the three months ended July 31, 2023, occurred because we provided no consulting services in exchange for equity in the July 31, 2024 quarter, as compared to 2 companies that received such services in the three months ended July 31, 2023. These services were provided by our consulting subsidiary, Netcapital Advisors, Inc. (“Advisors”), and Advisors did not earn any equity securities from consulting work in the first quarter of fiscal 2025. However, our subsidiary Netcapital Funding Portal Inc. (“Funding Portal”) began charging a fee of 1% of the equity raised by issuers that engage with the Funding Portal and the Funding Portal earned equity securities from 7 clients in the three-months ended July 31, 2024, with an aggregate value of $10,127, as compared to $0 in the three months ended July 31, 2023.
Current report
Consulting revenue consists of fees earned by Advisors. Revenue generated by Advisors decreased by $33,700 to $0 in the three months ended July 31, 2024, from $33,700 in the three months ended July 31, 2023.The decrease in consulting fees from Advisors in fiscal 2025 is the result of their focus on assisting with the launch of the proposed broker-dealer business.
Current report
Revenue from portal fees decreased by $132,427, or 60%, in the three months ended July 31, 2024, to $89,429, from $221,856 in the three months ended July 31, 2023. Revenue from portal fees consists of a 4.9% fee of the total capital raised by an issuer plus fixed miscellaneous charges for administrative fees, such as a rolling close, or the filing of an amended offering statement. The decrease in portal fees is attributable to the decrease in the amount of capital raised on the Funding Portal. In the three-month periods ended July 31, 2024 and 2023, total dollars raised in offerings decreased by $1,790,844, or 60%, to $1,169,917 in the July 2024 quarter, from $2,960,761 in the July 2023 quarter. The total number of issuers on the Funding Portal in the three months ended July 31, 2024 and 2023 that successfully closed an offering was 11 and 4, respectively.
Current report
The number of successful closings in a quarter is defined as an issuer that raised more than the targeted amount in its offering statement and stopped selling securities on the Funding Portal (a “Final Closing”). This number is not necessarily an indicator of quarterly revenue because an issuer may have several rolling closes in previous quarters before the Final Closing, and the Funding Portal receives its 4.9% portal fee for each rolling close.
Current report
Revenue from listing fees decreased by $111,500, or approximately 72%, to $42,500 in the three months ended July 31, 2024 as compared to $154,000 in the three months ended July 31, 2023. Listing fees are typically $5,000 per issuer, and they are the first form of revenue earned by our Funding Portal when an issuer signs a contract with us to sell securities on the funding portal. The drop in listing fees can be attributed to our loss of an experienced salesperson whose replacement has not yet been fully trained. After the listing contract is signed, an issuer typically takes two months before it is ready to launch an offering. Most issuers remain on the funding portal, marketing their offering, for a period of six to nine months.
Current report
Costs of revenues decreased by $7,833 to $10,220, or approximately 43% for the three months ended July 31, 2024 from $18,053 during the three months ended July 31, 2023. The decrease was attributed to the decline in Funding Portal revenues.
Current report
Marketing expense decreased by $234,990, or approximately 97%, to $6,898 for the three months ended July 31, 2024, as compared to $241,888 during the three months ended July 31, 2023. The decrease in expense was primarily attributed to a special marketing program that was instituted in the July 31, 2023 quarter that was not repeated in the quarter ended July 31, 2024.
Current report
Rent expense decreased by $494, or approximately 3%, to $19,116 for the three months ended July 31, 2024, as compared to $19,610 during the three months ended July 31, 2023. The decrease was primarily attributed to a decrease in variable costs charged to us in the current fiscal year.
Current report
Consulting expense decreased by $66,561, or approximately 41%, to $97,381 for the three months ended July 31, 2024 from $163,942 during the three months ended July 31, 2023. The decrease was primarily attributed to a decrease in overseas programmers.
Current report
Amortization expense decreased by $19,462, or 69% to $8,869 for the three months ended July 31, 2024 from $28,331 during the three months ended July 31, 2023. The decrease is the result of an impairment loss recognized in the fourth quarter of fiscal 2024 that reduced the value of the amortizable asset as of July 31, 2024.
Current report
On December 27, 2023, the Company completed a public offering of (i) 68,572 shares of common stock, par value $0.001 per share, of the Company (the “Common Share”); (ii) 160,000 prefunded warrants (the “Prefunded Warrants”) to purchase 160,000 shares of Common Stock of the Company (the “Prefunded Warrant Shares”); (iii) 228,572 Series A-1 warrants (the “Series A-1 Common Warrants”) to purchase 228,572 shares of Common Stock of the Company (the “Series A-1 Common Warrant Shares”) and (iv) 228,572 Series A-2 warrants (the “Series A-2 Common Warrants,” together with the Series A-1 Warrants, the “Common Warrants”) to purchase 228,572 shares of Common Stock of the Company (the “Series A-2 Common Warrant Shares,” together with the Series A-1 Common Warrants Shares, the “Common Warrant Shares”). The offering price of each Common Share and accompanying Series A-1 Common Warrant and Series A-2 Common Warrant was $17.50, and the offering price of each Prefunded Warrant and accompanying Series A-1 Common Warrant and Series A-2 Common Warrant was $17.43. The Series A-1 Warrants have a current exercise price of $14.10 per share and are exercisable until February 23, 2029 and the Series A-2 Common Warrants have a current exercise price of $8.74 per share and are exercisable until August 23, 2025. Following adjustments in connection with the August 2024 reverse stock split, there are currently Series A-1 Warrants to purchase 283,752 shares of Common Stock outstanding and Series A-2 Warrant to purchase 28,386 shares of Common Stock outstanding.
Current report
On May 24, 2024, the Company entered into inducement offer letter agreements with certain investors that held certain outstanding Series A-2 warrants to purchase up to an aggregate of 204,572 shares of our common stock with an exercise price of $17.50 per share, originally issued in December 2023 at a reduced exercise price of $10.85 per share (which reduced exercise price was granted to all holders on Series A-2 warrants by the board on May 24, 2024) in partial consideration for the Company’s agreement to issue in a private placement (i) new Series A-3 common stock purchase warrants to purchase up to 253,947 shares of our common stock at an exercise price of $8.74 per share and (ii) new Series A-4 common stock purchase warrants to purchase up to 253,947 shares of our common stock at an exercise price of $8.74 per share for aggregate gross proceeds of approximately $2.2 million from the exercise of the existing warrants, before deducting placement agent fees and other expenses payable by the Company. The Series A-3 Warrants and Series A-4 Warrants are exercisable beginning on the effective dates of stockholder approval of the issuance with such warrants expiring on (i) the five year anniversary of the initial exercise date for the Series A-3 Warrants and (ii) the eighteen month anniversary of the initial exercise date for the Series A-4 Warrants. This transaction closed on May 29, 2024. H.C. Wainwright was the exclusive agent for the transaction for which we paid them a cash fee equal to 7.5% from the exercise of the Series A-2 warrant at the reduced exercise price and a management fee equal to 1.0% of such aggregate gross proceeds. We also issued warrants to designees of H.C. Wainwright to purchase up to 19,048 shares of our common stock at an exercise price of $10.93 per share.
Current report
Critical Accounting Policies and Significant Judgments and Estimates
Current report
Recently Issued Accounting Standards Not Yet Effective or Adopted
Current report
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying unaudited condensed consolidated financial statements.
Removed paragraphs (29)
Previous report
Extension Notice from Nasdaq to Regain Compliance with the Minimum Bid Price Rule
Previous report
As previously disclosed on a Current Report on Form 8-K filed by us on September 1, 2023, we received a notification from The Nasdaq Stock Market, LLC (“Nasdaq”) notifying us that we werenot in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Specifically, Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. We initially had 180 calendar days, or until February 28, 2024, to regain compliance with the minimum bid price requirement. We were unable to regain compliance with the minimum bid price requirement by February 28, 2024.
Previous report
On February 29, 2024, we received a letter (the “Extension Notice”) from Nasdaq notifying us that our request for an extension to regain compliance with theminimum bid price requirement has been granted, and we have an additional 180 calendar days, or until August 26, 2024, to regain compliance with the minimum bid price requirement. Nasdaq’s determination was based on us meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market with the exception of the bid price requirement, and our written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. The Extension Noticehas no immediate effect on the listing or trading of our common stock on The Nasdaq Capital Market and, at this time, our common stock will continue to trade on The Nasdaq Capital Market under the symbol “NCPL.”
Previous report
If at any time before August 26, 2024, the bid price of our common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will notify us that we are in compliance with theminimum bid price requirement. However, if compliance with theminimum bid price requirement cannot be demonstrated by August 26, 2024, Nasdaq will notify us that our common stock will be delisted from The Nasdaq Capital Market, at which time, we may appeal Nasdaq’s determination to a Hearings Panel.
Previous report
We intend to monitor the closing bid price of its common stock and may, if appropriate, consider implementing available options, including, but not limited to, implementing a reverse stock split of our outstanding securities during the second compliance period, to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules.
Previous report
December 2023 Public Offering
Previous report
On December 27, 2023, we completed a public offering of (i) 4,800,000 shares of our common stock; (ii) 11,200,000 prefunded warrants to purchase 11,200,000 shares of our common stock; (iii) 16,000,000 Series A-1 warrants to purchase 16,000,000 shares of our common and (iv) 16,000,000 Series A-2 warrants to purchase 16,000,000 shares of our common stock of the Company for gross proceeds of $4 million, before deducting underwriting discounts and offering expenses payable by us. The offering price of each common share and accompanying Series A-1 warrant and Series A-2 warrant was $0.25, and the offering price of each prefunded warrant and accompanying Series A-1 warrant and Series A-2 warrant was $0.249. Each Common Warrant has an exercise price of $0.25 per share. The Series A-1 Common Warrants will expire on February 23, 2029. The Series A-2 Common Warrants will expire August 23, 2025 following the date of Shareholder Approval. We received net proceeds of approximately $3.37 million from this offering, after deducting the estimated offering expenses payable by us, including the placement agent fees. We also issued warrants to designees of the H.C. Wainwright, who served as placement agent for this offering to purchase up to 1,200,000 shares of our common stock, which warrants have substantially the same terms as the Series A-1 warrants and Series A-2 warrants, except that warrants issued to the designees of the placement agent have an exercise price equal to $0.3125 per share and expire on December 27, 2028.
Previous report
Our revenues for the three months ended January 31, 2024, decreased by $1,217,621, or approximately 54%, to $1,042,793 as compared to $2,260,414 during the three months ended January 31, 2023. The decrease in revenues was primarily attributed to a decrease in revenues for consulting services that we provide in exchange for equity securities during the quarter ended January 31, 2024, as compared to the quarter ended January 31, 2023. In the three months ended January 31, 2024, revenues from equity-based contracts decreased by $1,087,654, or 56%, to $862,346, as compared to revenues of $1,950,000 in the three months ended January 31, 2023. A decrease of $52,245, or 23%, was also noted in funding portal revenues in the three months ended January 31, 2024, when compared to the prior year fiscal quarter. In the three months ended January 31, 2024, we recorded $179,588 in funding portal revenues, consisting of portal fees of $84,548 and listing fees of $95,040, as compared to funding portal revenues of $231,833 in the three months ended January 31, 2023, consisting of portal fees of $99,333 and listing fees of $132,500. The decrease in funding portal revenues in the three months ended January 31, 2024 is primarily attributable to fewer issuers listing to raise capital on the funding portal platform.
Previous report
Costs of revenues increased by $54,570 to $58,875, or approximately 1,268% for the three months ended January 31, 2024 from $4,305 during the three months ended January 31, 2023. The increase was attributed to additional costs for funding portal services.
Previous report
Marketing expense increased by $8,649, or approximately 37%, to $32,198 for the three months ended January 31, 2024, as compared to $23,549 during the three months ended January 31, 2023. The increase in expense was primarily attributed to an increase in marketing outlets that we utilized in the three months ended January 31, 2024.
Previous report
Rent expense increased by $2,357, or approximately 14%, to $19,544 for the three months ended January 31, 2024, as compared to $17,187 during the three months ended January 31, 2023. The increase was primarily attributed to a new office-space agreement that became effective in the current fiscal year.
Previous report
Consulting expense increased by $44,857, or approximately 34%, to $175,357 for the three months ended January 31, 2024 from $130,500 during the three months ended January 31, 2023. The increase was primarily attributed to an increase in overseas programmers.
Previous report
We recognized an unrealized loss in the value of our equity securities of $2,696,135 for the three months ended January 31, 2024, as compared to an unrealized gain of $1,866,468 in the value of our equity securities for the three months ended January 31, 2023. The loss in fiscal 2024 was attributable to a decrease in value to $0.16 per share from $1.00 per share for 3,209,685 shares that we own of KingCrowd, Inc. The gain in fiscal 2023 resulted from an increase in value of $204,000 for our 110,000 units of MustWatch LLC, from $2.14 per unit to $4.00 per unit, and an increase in value of $1,661,868 for our 710,200 units of ChipBrain LLC, from $0.93 per unit to $4.74 per unit
Previous report
Comparison of the Nine Months Ended January 31, 2024 and 2023
Previous report
Our revenues for the nine months ended January 31, 2024, decreased by $775,700, or approximately 14%, to $4,604,260, as compared to $5,379,960 during the nine months ended January 31, 2023. The decrease in revenues is attributable to a decrease in revenue of $885,987, or 20%, in consulting services that are provided in exchange for equity securities, and a decrease in cash-based consulting revenue of $313,450, or 77%. These decreases were offset by an increase in funding portal revenues in the nine-month period ended January 31, 2024, as compared to the nine-month period ended January 31, 2023, consisting of an increase in portal fees of $375,683, or 152%, and an increase in listing fees of $48,040, or 14%. The increase in funding portal revenues in the nine months ended January 31, 2024 is primarily attributable to increased offering activity on the platform that generated increased investments by investors who purchased securities on the portal.
Previous report
Costs of revenues increased by $35,459 to $97,062, or approximately 58%, for the nine months ended January 31, 2024 from $61,603 during the nine months ended January 31, 2023. The increase was primarily attributed to an increase in costs for the funding portal.
Previous report
Payroll and payroll related expenses increased by $364,503, or approximately 14%, to $2,957,394 for the nine months ended January 31, 2024, as compared to $2,592,891 during the nine months ended January 31, 2023. The increase was attributed to higher wages in the first half of the fiscal year and additional stock-based compensation.
Previous report
Marketing expense increased by $256,606, or approximately 400%, to $320,817 for the nine months ended January 31, 2024, as compared to $64,211 during the nine months ended January 31, 2023. The increase was to bring awareness to the funding portal operations and the Company to attract new issuers and investors.
Previous report
Rent expense increased by $5,947, or approximately 12%, to $57,533 for the nine months ended January 31, 2024, as compared to $51,586 during the nine months ended January 31, 2023. The increase was primarily attributed to a new office-space agreement that became effective in the current fiscal year.
Previous report
General and administrative expenses increased by $1,288,013, or approximately 104%, to $2,529,378 for the nine months ended January 31, 2024, from $1,241,365 during the nine months ended January 31, 2023. The increase was primarily attributed to professional fees, including stock-based compensation.
Previous report
Consulting expense increased by $88,141, or 19%, to $544,033 for the nine months ended January 31, 2024 from $455,892 during the nine months ended January 31, 2023. The increase was primarily attributed to increased payments to software engineers.
Previous report
We recognized an unrealized loss in the value of our equity securities of $2,696,135 for the nine months ended January 31, 2024, as compared to an unrealized gain of $1,857,500 in the value of our equity securities for the nine months ended January 31, 2023. The loss in fiscal 2024 was attributable to a decrease in value to $0.16 per share from $1.00 per share for 3,209,685 shares of common stock that we own of KingCrowd, Inc. The gain in fiscal 2023 resulted from an increase in value of $204,000 for our 110,000 units of MustWatch LLC, from $2.14 per unit to $4.00 per unit, and an increase in value of $1,661,868 in our 710,200 units of ChipBrain LLC, from $0.93 per unit to $4.74 per unit, less an unrealized loss of $8,968 in the value of the 4,000 shares of Vymedic Inc. from $5.00 per share to $2.76 per share.
Previous report
On July 15, 2022, we completed an underwritten public offering of 1,205,000 shares of our common stock and warrants to purchase 1,205,000 shares of our common stock at a combined public offering price of $4.15 per share and warrant. The gross proceeds from the offering were $5,000,750 prior to deducting underwriting discounts, commissions, and other offering expenses. The warrants have a per share exercise price of $5.19, are exercisable immediately, and expire five years from the date of issuance. With the use of proceeds, we paid $1 million of debt to our secured lender, to reduce the outstanding principal balance to $400,000.
Previous report
On December 16, 2022 we completed an underwritten public offering of 1,247,000 shares of our common stock, at a price to the public of $1.40 per share. In conjunction with this offering, we issued the underwriter and its designees warrants to purchase 62,350 shares of our common stock at an exercise price of $1.75. The underwriters exercised their over-allotment option and on January 5, 2023, we issued an additional 187,000 shares of its common stock at a price of $1.40 per share. We received net proceeds of $1,621,459 for the issuance of a total of 1,434,000 shares of common stock in both the initial and over-allotment offering. In conjunction with the exercise of the over-allotment, the Company issued the underwriter and its designees warrants to purchase 9,350 shares of our common stock with an exercise price of $1.75.
Previous report
On May 23, 2023, we entered into a securities purchase agreement with certain institutional investors, pursuant to which sold to such investors, in a registered direct offering (the “Offering”), 1,100,000 shares of our common stock, at a price of $1.55 per share, for aggregate gross proceeds of $1,705,000, before deducting the placement agent’s fees and other offering expenses payable by us. This offering closed on May 25, 2023.
Previous report
With the use of proceeds, we paid our secured lender $350,000 in principal plus accrued interest of $17,167.23 to retire all outstanding obligations to the secured lender.
Previous report
On July 24, 2023 we completed an underwritten public offering of 1,725,000 shares of our common stock, at a price to the public of $0.70 per share for aggregate gross proceeds of $1,207,500, before deducting underwriting discounts and offering expenses payable by us. In conjunction with this offering, we issued the underwriter, and its designees, warrants to purchase 86,250 shares of our common stock at an exercise price of $0.875.
Previous report
On December 27, 2023, we completed a public offering of (i) 4,800,000 shares of our common stock; (ii) 11,200,000 prefunded warrants to purchase 11,200,000 shares of our common stock; (iii) 16,000,000 Series A-1 warrants to purchase 16,000,000 shares of our common and (iv) 16,000,000 Series A-2 warrants to purchase 16,000,000 shares of our common stock of the Company for gross proceeds of $4 million, before deducting underwriting discounts and offering expenses payable by us. The offering price of each common share and accompanying Series A-1 warrant and Series A-2 warrant was $0.25, and the offering price of each prefunded warrant and accompanying Series A-1 warrant and Series A-2 warrant was $0.249. Each Common Warrant has an exercise price of $0.25 per share. The Series A-1 Common Warrants will expire on February 23, 2029. The Series A-2 Common Warrants will expire August 23, 2025 following the date of Shareholder Approval. We received net proceeds of approximately $3.37 million from this offering, after deducting the estimated offering expenses payable by us, including the placement agent fees. We also issued warrants to designees of the H.C. Wainwright, who served as placement agent for this offering to purchase up to 1,200,000 shares of our common stock, which warrants have substantially the same terms as the Series A-1 warrants and Series A-2 warrants, except that warrants issued to the designees of the placement agent have an exercise price equal to $0.3125 per share and expire on December 27, 2028.
Previous report
Net cash used in investing activities in the nine months ended January 31, 2024 of $20,000 is a note receivable. Net cash provided by investing activities in the nine months ended January 31, 2023 consisted of proceeds of $200,000 from the sale of 606,060 shares of an investment in KingsCrowd Inc.
Reworded paragraphs (10)
Previous wording
Netcapital Inc. is a fintech company with a scalable technology platform that allows private companies to raise capital online from accredited and non-accredited investors. We give investors the opportunity to access investments in private companies. We believe our model is disruptive to traditional private equity investing and is based on Title III, Reg CF of the JOBS Act. In addition, we have recently expanded our model to include Regulation A (“Reg A”) offerings. We generate fees from listing private companies on our funding portal located at www.netcapital.com. We generate fees from listing private companies on netcapital.com. We also generate fees from advising companies with respect to their Reg A offerings posted on www.netcapital.com. Our consulting group, Netcapital Advisors, Inc. (Netcapital Advisors), which is a wholly-owned subsidiary, provides marketing and strategic advice in exchange for equity positions and/or cash fees. The Netcapital funding portal is registered with the SEC, is a member of the Financial Industry Regulatory Authority, or FINRA, a registered national securities association, and provides investors with opportunities to invest in private companies. Neither Netcapital Advisors, nor any Netcapital entity or subsidiary, is a broker- dealer, nor do any of such entities operate as a broker-dealer with respect to any Reg A offering listed on the www.netcapital.com website.
Current wording
Netcapital Inc. is a fintech company with a scalable technology platform that allows private companies to raise capital online from accredited and non-accredited investors. We give investors the opportunity to access investments in private companies. We believe our model is disruptive to traditional private equity investing and is based on Title III, Reg CF of the JOBS Act. In addition, we have recently expanded our model to include Regulation A (“Reg A”) offerings. We generate fees from listing private companies on our funding portal located at www.netcapital.com. We generate fees from listing private companies on netcapital.com. We also generate fees from advising companies with respect to their Reg A offerings posted on www.netcapital.com. Our consulting group, Netcapital Advisors, Inc. (Netcapital Advisors), which is a wholly-owned subsidiary, provides marketing and strategic advice in exchange for equity positions and/or cash fees. The Netcapital funding portal is registered with the SEC, is a member of the Financial Industry Regulatory Authority, or FINRA, a registered national securities association, and provides investors with opportunities to invest in private companies. Neither Netcapital Advisors, nor any Netcapital entity or subsidiary, is a broker- dealer, nor do any of such entities operate as a broker-dealer with respect to any Reg A offering listed on the www.netcapital.com website. In May 2024, we announced that our wholly owned subsidiary, Netcapital Securities Inc. applied for broker-dealer registration. Netcapital Securities Inc.’s application to become a registered broker-dealer remains subject to regulatory approval and/or licensing from the Financial Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). No assurance can be given as to when or if such approvals may be granted or when, if at all, Netcapital will be able to expand the services it offers.
Previous wording
We provide private company investment access to accredited and non-accredited investors through our online portal (www.netcapital.com), which is operated by our wholly owned subsidiary Netcapital Funding Portal, Inc. The Netcapital funding portal charges a $5,000 engagement fee and a 4.9% success fee for capital raised at closing. In addition, the portal generates fees for other ancillary services, such as rolling closes. Netcapital Advisors generates fees and equity stakes from consulting in select portfolio and non-portfolio clients. With respect to its services for Reg A offerings, Netcapital Advisors charges a monthly flat fee for each month the offering is listed on the netcapital.com website as well as a nominal administrative flat fee for each investor that is processed to cover out-of-pocket costs.
Current wording
We provide private company investment access to accredited and non-accredited investors through our online portal (www.netcapital.com), which is operated by our wholly owned subsidiary Netcapital Funding Portal, Inc. The Netcapital funding portal charges a $5,000 listing fee and a 4.9% portal fee for capital raised at closing, and beginning in fiscal year 2024, a 1% success fee paid for with equity of the funding portal customer. In addition, the portal generates fees for other ancillary services, such as rolling closes. Netcapital Advisors generates fees and equity stakes from consulting in select portfolio (“Portfolio Companies”) and non-portfolio clients. With respect to its services for Reg A offerings, Netcapital Advisors charges a monthly flat fee for each month the offering is listed on the netcapital.com website as well as a nominal administrative flat fee for each investor that is processed to cover out-of-pocket costs.
Previous wording
We generated revenues of $4,604,260, with costs of service of $97,062, in the nine months ended January 31, 2024 for a gross profit of $4,507,198 (consisting of $3,489,013 in equity securities for payment of services and $1,115,247 in cash-based revenues, offset by $97,062 for costs of services) in the nine months ended January 31, 2024 as compared to revenues of $5,379,960 with costs of service of $61,603 in the nine months ended January 31, 2023 for a gross profit of $5,318,357 (consisting of $4,375,000 in equity securities for the payment of services and $1,004,960 in cash-based revenues, offset by $61,603 for costs of services) in the nine months ended January 31, 2023. Our cash-based gross profits as a percentage of gross profits were approximately 7% and 2%, respectively in the nine month periods ended January 31, 2024 and 2023, entities (for which we performed services) in which we own equity during such periods. The total number of offerings on the Netcapital funding portal in the nine months ended January 31, 2024 and 2023 that closed was 36 and 30, respectively, of which 11 and 7 offerings hosted on the Netcapital funding platform in the nine months ended January 31, 2024 and 2023, respectively, terminated their listings without raising the required minimum dollar amount of capital. The total number of offerings on the Netcapital funding portal in fiscal 2023 and 2022 that closed was 63 and 81, respectively, of which 13 and 17 offerings hosted on the Netcapital funding platform in fiscal 2023 and 2022, respectively, terminated their listings without raising the required minimum dollar amount of capital. As of the date of this report, we own minority equity positions in 25 portfolio companies that have utilized the funding portal to facilitate their offerings, which equity was received as payment for services.
Current wording
We generated revenues of $142,227, with costs of service of $10,220, in the three months ended July 31, 2024 for a gross profit of $132,007 (consisting of $10,127 in equity securities for payment of services and $132,100 in cash-based revenues, offset by $10,220 for costs of services), as compared to revenues of $1,519,809 with costs of service of $18,053 in the three months ended July 31, 2023 for a gross profit of $1,501,756 (consisting of $1,110,000 in equity securities for the payment of services and $409,809 in cash-based revenues, offset by $18,053 for costs of services). Our cash-based gross profits as a percentage of gross profits were approximately 0% and 2%, respectively in the three month periods ended July 31, 2024 and 2023, for Portfolio Companies. The total number of offerings on the Netcapital funding portal in the three months ended July 31, 2024 and 2023 that closed was 16 and 7, respectively, of which 4 and 3 offerings hosted on the Netcapital funding platform in the three months ended July 31, 2024 and 2023, respectively, terminated their listings without raising the required minimum dollar amount of capital.
Previous wording
Payroll and payroll related expenses decreased by $76,526, or 8%, to $869,517 for the three months ended January 31, 2024, as compared to $946,043 during the three months ended January 31, 2023. The decrease was attributed to the elimination of certain positions during the quarter ended January 31, 2024.
Current wording
Payroll and payroll related expenses increased by $99,551, or 10%, to $1,136,593 for the three months ended July 31, 2024, as compared to $1,037,042 during the three months ended July 31, 2023. The increase was attributed to the salary increases and bonuses for certain key positions, to assist with employee retention, during the quarter ended July 31, 2024.
Previous wording
General and administrative expenses increased by $524,206, or 92%, to $1,092,459 for the three months ended January 31, 2024, from $568,253 during the three months ended January 31, 2023. The increase was primarily attributed to stock-based compensation utilized to pay for professional fees and increased legal costs.
Current wording
General and administrative expenses increased by $591,962, or 75%, to $1,380,256 for the three months ended July 31, 2024, from $788,294 during the three months ended July 31, 2023. The increase was primarily attributed to increased legal costs and proxy solicitation fees.
Previous wording
Interest expense decreased by $5,714 to $11,918, or approximately 32%, for the three months ended January 31, 2024, as compared to $17,632 during the three months ended January 31, 2023. The decrease in interest expense was primarily attributed to lower debt amounts that resulted from paying off a secured term loan.
Current wording
Interest expense decreased by $2,840 to $10,464, or approximately 21%, for the three months ended July 31, 2024, as compared to $13,304 during the three months ended July 31, 2023. The decrease in interest expense was primarily attributed to lower debt amounts that resulted from paying off a secured term loan.
Previous wording
As of January 31, 2024, we had cash and cash equivalents of $2,172,099 and working capital of $2,719,419 as compared to cash and cash equivalents of $569,441 and negative working capital of $2,622,670 at April 30, 2023.
Current wording
As of July 31, 2024, we had cash and cash equivalents of $855,181 and negative working capital of $2,507,576 as compared to cash and cash equivalents of $863,182 and negative working capital of $2,074,163 as of April 30, 2023.
Previous wording
Net cash used in operating activities amounted to $3,565,953 and $3,414,714 for the nine months ended January 31, 2024 and 2023, respectively. The principal sources of cash from operating activities in the nine months ended January 31, 2024 were an unrealized loss on equity securities of $2,696,135 and stock-based compensation of $1,044,395. However, the sources of cash were offset by a net loss of $2,379,581, a receipt of equity in lieu of cash of $1,219,012, changes in deferred taxes of $1,657,000 and an increase in accounts receivable of $2,319,001. The principal sources of cash from operating activities for the nine months ended January 31, 2023 was net income of $1,944,114, a realized loss on investments of $406,060, a change in deferred taxes of $499,000, and stock-based compensation of $128,963. However, these sources of cash were offset by the receipt of equity securities in lieu of cash of $4,600,000, a gain on a debt conversion of $224,260, and an unrealized gain on equity securities of $1,857,500.
Current wording
Net cash used in operating activities amounted to $1,963,645 and $1,464,023 for the three months ended July 31, 2024 and 2023, respectively. The principal sources of cash from operating activities in the three months ended July 31, 2024 were increase in account payable and accrued expense of $313,620, collection of accounts receivable of $134,849, and stock-based compensation of $139,371. However, the sources of cash were offset by a net loss of $2,527,170, a receipt of equity in lieu of cash of $10,127, and an increase in prepaid expenses of $24,856. The principal uses of cash from operating activities in the three months ended July 31, 2023 were a net loss of $491,655 and the receipt of equity securities in lieu of cash amounting to $1,170,000. These uses of cash were partially offset by a non-cash item, stock-based compensation of $483,351.
Previous wording
For the nine months ended January 31, 2024, net cash provided by financing activities amounted to $5,188,611, which consisted of proceeds from the sale of common stock of $5,538,611, which was offset by repayment of $350,000 in principal to our secured lender. For the nine months ended January 31, 2023, net cash provided from financing activities amounted to $4,512,716, which included proceeds from the sale of common stock of $5,570,576, which was offset by a payment of $7,860 for a related party note, and payment of $1,050,000 to a secured lender.
Current wording
For the three months ended July 31, 2024, net cash provided by financing activities amounted to $1,955,644, which consisted of proceeds from the exercise of warrants. For the three months ended July 31, 2023, cash provided by financing activities amounted to $1,925,200, which consisted of proceeds of $2,275,200 for the sale of common stock, offset by a $350,000 payment to retire debt from a secured lender.
Previous wording
In the nine months ended January 31, 2024 and 2023, there were no expenditures for capital assets. We do not anticipate any capital expenditures in fiscal 2024.
Current wording
In the three months ended July 31, 2024 and 2023, there were no expenditures for capital assets. We do not anticipate any capital expenditures in fiscal 2024.
Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
In fiscal 2024 and 2023, the average amount raised in an offering on the Netcapital funding portal was $280,978 and $128,170, respectively. The total number of offerings on the Netcapital funding portal in fiscal 2024 and 2023 that closed was 70 and 63, respectively, of which 17 and 13 offerings hosted on the Netcapital funding platform in fiscal 2024 and 2023, respectively, terminated their listings without raising the required minimum dollar amount of capital. As of the date of this report, we own minority equity positions in 20 Portfolio Companies that have utilized the funding portal to facilitate their offerings, for which equity was received as payment for services.
Current report — wording carried from elsewhere
In the three months ended July 31, 2024 and 2023, there were no investing activities.
Current report — wording carried from elsewhere
Our condensed consolidated financial statements are prepared in accordance with GAAP. These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. For a discussion of our critical accounting estimates, please read Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended April 30, 2024 filed with the SEC on July 29, 2024. There have been no material changes to the critical accounting estimates previously disclosed in such report.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
The components of revenue were as follows:
Previous report — wording carried elsewhere
Interest expense decreased by $41,138 to $35,784, or approximately 54%, for the nine months ended January 31, 2024, as compared to $76,922 during the nine months ended January 31, 2023. The decrease in interest expense was primarily attributed to lower debt amounts that resulted from paying off a secured term loan.