# Netcapital Inc.: Form 10-Q for the period ended Jan 31, 2024

- Company: [Netcapital Inc.](/companies/ncpl.md) (CIK 1414767)
- Form: 10-Q
- Filed: 2024-03-18
- Accepted by EDGAR: Mar 18, 2024, 17:14 ET
- Period: 2024-01-31
- Accession: 0001493152-24-010353
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1414767/000149315224010353/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1414767/000149315224010353/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-01-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-11-01 to 2024-01-31 | $1.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-05-01 to 2024-01-31 | $4.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-11-01 to 2024-01-31 | $58.9k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-05-01 to 2024-01-31 | $97.1k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-11-01 to 2024-01-31 | $983.9k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-05-01 to 2024-01-31 | $4.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-11-01 to 2024-01-31 | $1.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-05-01 to 2024-01-31 | $2.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-11-01 to 2024-01-31 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-05-01 to 2024-01-31 | −$1.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-11-01 to 2024-01-31 | $11.9k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-05-01 to 2024-01-31 | $35.8k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-11-01 to 2024-01-31 | −$1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-05-01 to 2024-01-31 | −$2.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-11-01 to 2024-01-31 | −$2.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-05-01 to 2024-01-31 | −$2.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-11-01 to 2024-01-31 | −$0.19 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-05-01 to 2024-01-31 | −$0.25 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-11-01 to 2024-01-31 | −$0.19 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-05-01 to 2024-01-31 | −$0.25 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-11-01 to 2024-01-31 | 11,466,523 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-05-01 to 2024-01-31 | 9,457,740 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-05-01 to 2024-01-31 | −$3.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Current assets | at 2024-01-31 | $6.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-01-31 | $44.1m | us-gaap:Assets |
| Current liabilities | at 2024-01-31 | $3.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-01-31 | $3.8m | us-gaap:Liabilities |
| Long-term debt | at 2024-01-31 | $500.0k | us-gaap:LongTermDebt |
| Current portion of debt | at 2024-01-31 | $1.9m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2024-01-31 | $1.9m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-01-31 | $40.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,566 characters.

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

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

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

### Overview

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.

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.

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.

Netcapital.com is an SEC-registered funding portal that enables private companies to raise capital online, while investors are able to invest from almost anywhere in the world, at any time, with just a few clicks. Securities offerings on the portal are accessible through individual offering pages, where companies include product or service details, market size, competitive advantages, and financial documents. Companies can accept investments from virtually anyone, including friends, family, customers, and employees. Customer accounts on our platform are not permitted to hold or use digital securities to make an investment.

In addition to access to the funding portal, Netcapital provides the following services:

- a fully automated onboarding process;
- automated filing of required regulatory documents;
- compliance review;
- a custom-built offering page on our portal website;
- third party transfer agent and custodial services;
- email marketing to our proprietary list of investors;
- rolling closes, which provide potential access to liquidity before final close date of offering;
- assistance with annual filings; and
- direct access to our team for ongoing support.

Our consulting group, Netcapital Advisors helps companies at all stages to raise capital. Netcapital Advisors provides strategic advice, technology consulting and digital marketing services to assist with fundraising campaigns on the Netcapital platform. The company also acts as an incubator and accelerator for select disruptive start-ups.

Netcapital Advisors’ services include:

- incubation of technology start-ups;
- investor introductions;
- online marketing;
- website design, software and software development;
- message crafting, including pitch decks, offering pages, and ad creation;
- strategic advice; and
- technology consulting.
- 24-

### Recent Developments

#### Extension Notice from Nasdaq to Regain Compliance with the Minimum Bid Price Rule

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 were not 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.

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 the minimum 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 Notice has 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.”

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 the minimum bid price requirement. However, if compliance with the minimum 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.

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.

#### December 2023 Public Offering

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.

### Results of Operations

#### Comparison of the Three Months Ended January 31, 2024 and 2023

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.

The components of revenue were as follows:

|  | Jan. 31, 2024 | Jan. 31, 2023 |
| --- | ---: | ---: |
| Consulting services for equity securities | $862,346 | $1,950,000 |
| Consulting revenue | 500 | 78,260 |
| Portal fees | 84,548 | 99,333 |
| Listing fees | 95,040 | 132,500 |
| Other revenue | 359 | 321 |
| Total | $1,042,793 | $2,260,414 |

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.

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.

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.

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.

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.

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.

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

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.

#### Comparison of the Nine Months Ended January 31, 2024 and 2023

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.

The components of revenue were as follows:

|  | Jan. 31, 2024 | Jan. 31, 2023 |
| --- | ---: | ---: |
| Consulting services for equity securities | $3,489,013 | $4,375,000 |
| Consulting revenue | 96,200 | 409,650 |
| Portal fees | 623,610 | 247,927 |
| Listing fees | 394,540 | 346,500 |
| Other revenue | 897 | 883 |
| Total | $4,604,260 | $5,379,960 |

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.

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.

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.

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.

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.

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.

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.

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.

### Liquidity and Capital Resources

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.

We have been successful in raising capital by completing public offerings of our common stock.

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.

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.

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.

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.

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.

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.

We believe that our existing cash investment balances, our anticipated cash flows from operations and liquidity sources including offering of equity and/or debt securities and/or the sale of equity positions in certain portfolio companies for which we provide marketing and strategic advice may not be sufficient to meet our working capital and expenditure requirements for the next 12 months. Consequently, beginning in November 2023, we laid off some employees, and took other steps to reduce operating expenses. We plan to continue operating with lower fixed overhead amounts and seek to raise money from private placements, public offerings and/or bank financing. Our management has determined, based on its recent history and the negative cash flow from operations, that it is unlikely that its plan will sufficiently alleviate or mitigate, to a sufficient level, the relevant conditions or events noted above. To the extent that funds generated from any private placements, public offerings and/or bank financing, if available, are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms. Accordingly, the Company’s management has concluded that these conditions raise substantial doubt about our ability to continue as a going concern. There can be no assurance that we will be able to achieve our business plan objectives or be able to achieve or maintain cash-flow-positive operating results. If we are unable to generate adequate funds from operations or raise sufficient additional funds, we may not be able to repay our existing debt, continue to operate our business network, respond to competitive pressures or fund our operations. As a result, we may be required to significantly reduce, reorganize, discontinue or shut down our operations.

### Year over Year Changes

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.

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.

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.

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.

## Market risk

As filed, 162 characters.

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.

## Controls and procedures

As filed, 2,572 characters.

#### (a) Disclosure Controls and Procedures.

The Company’s management, with the participation of the Principal Executive Officer (the “PEO”) and Principal Financial Officer (the “PFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) as of January 31, 2024. Based on that evaluation, the PEO and the PFO concluded that, as of January 31, 2024, such controls and procedures were effective.

#### (b) Management’s Assessment of Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Under the supervision and with the participation of management, including the PEO and the PFO, the Company’s management has evaluated the effectiveness of its internal control over financial reporting as of January 31, 2024, based on the criteria established in a report entitled “2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission” and the interpretive guidance issued by the Commission in Release No. 34-55929. Based on this evaluation, the Company’s management has evaluated and concluded that the Company’s internal control over financial reporting was effective as of January 31, 2024.

The Company’s annual report on Form 10-K for the year ended April 30, 2023 does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. The Company’s registered public accounting firm was not required to issue an attestation on its internal controls over financial reporting pursuant to the rules of the SEC. The Company will continue to evaluate the effectiveness of internal controls and procedures on an ongoing basis.

#### (c) Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the quarter ended January 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 8,627 characters.

Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended April 30, 2023 as filed with the SEC on July 27, 2023 (“Annual Report”). There have been no material changes in our risk factors from those previously disclosed in our Annual Report, except as discussed below. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.

***Our financial situation creates doubt whether we will continue as a going concern.***

As of January 31, 2024, we had working capital of $2,719,419 and for the nine months ended January 31, 2024, we had an operating loss of $1,901,957 and net cash used in operating activities amounted to $3,565,953. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements. Our management has recently reduced its operating expenses and we have turned our focus to our funding portal business, which generates cash revenues and has seen a growth in revenues on a year-to-year basis. We plan to continue operating with lower fixed overhead amounts and seek to raise money from private placements, public offerings and/or bank financing. Our management has determined, based on its recent history and the negative cash flow from operations, that it is unlikely that its plan will sufficiently alleviate or mitigate, to a sufficient level, the relevant conditions or events noted above. To the extent that funds generated from any private placements, public offerings and/or bank financing, if available, are insufficient, we will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms. Accordingly, our management has concluded that these conditions raise substantial doubt about our ability to continue as a going concern. There can be no assurance that we will be able to achieve its business plan objectives or be able to achieve or maintain cash-flow-positive operating results. If we are unable to generate adequate funds from operations or raise sufficient additional funds, we may not be able to repay our existing debt, continue to operate our business network, respond to competitive pressures or fund our operations. As a result, we may be required to significantly reduce, reorganize, discontinue, or shut down our operations.

***Our ability to have our securities traded on the Nasdaq Capital Market is subject to us meeting applicable listing criteria.***

We are currently listed on the Nasdaq Stock Market, LLC (“Nasdaq”), a national securities exchange. The Nasdaq requires companies desiring to list their common stock to meet certain listing criteria including total number of shareholders: minimum stock price, total value of public float, and in some cases total shareholders’ equity and market capitalization. Our failure to meet such applicable listing criteria could prevent us from listing our common stock on the Nasdaq. In the event we are unable to have our shares traded on Nasdaq, our common stock could potentially trade on the OTCQX or the OTCQB, each of which is generally considered less liquid and more volatile than the Nasdaq. Our failure to have our shares traded on the Nasdaq could make it more difficult for you to trade our shares, could prevent our common stock trading on a frequent and liquid basis and could result in the value of our common stock being less than it would be if we were able to list our shares on the Nasdaq.

On September 1, 2023, we received written notice from Nasdaq that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price of our common stock had been below $1.00 per share for 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. On February 29, 2024, we received a letter from Nasdaq notifying us that our request for an extension to regain compliance with the minimum 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. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for at least 10 consecutive business days during this 180-calendar day period. In the event we do not regain compliance by August 26, 2024, then Nasdaq will notify us of its determination to delist our common stock, at which point we would have an option to appeal the delisting determination to a Nasdaq hearings panel. We intend to actively monitor the closing bid price of our common stock and may, if appropriate, consider implementing available options to regain compliance with the minimum bid price under the Nasdaq Listing Rules.

If we are unable to regain compliance with the Nasdaq minimum bid price requirement and Nasdaq delists our common stock and we are unable to obtain listing on another national securities exchange, a reduction in some or all of the following may occur, each of which could have a material adverse effect on our shareholders:

- the liquidity of our common stock;
- the market price of our common stock;
- our ability to obtain financing for the continuation of our operations;
- the number of institutional and general investors that will consider investing in our common stock;
- the number of investors in general that will consider investing in our common stock;
- the number of market makers in our common stock;
- the availability of information concerning the trading prices and volume of our common stock; and
- the number of broker-dealers willing to execute trades in shares of our common stock.

***A significant portion of our total assets are held in equity securities of early-stage companies, which securities are illiquid and subject to volatility, which factors could have a material adverse effect on our financial condition and results of operations.***

Payment related to the consulting and advisory services provided by Netcapital Advisors is often made through equity stakes from such customers. As of January 31, 2024 and April 30, 2023, approximately $21.8 million and $22.9 million, respectively, of our holdings are issued by companies whose securities do not trade on public markets. The securities issued are typically in private companies with no established trading market for their securities, that often have limited operating histories, limited operating cash, and negative cash flows. Additionally, these securities are primarily restricted, and are subject to legal holding periods pursuant to Rule 144 or other applicable exemptions. The stock price of such issuers is often volatile, unpredictable, and with limited liquidity, and the value of such securities on the date of receipt compared to the date when we are able to legally sell the securities may decrease significantly. The value ascribed to our assets in our financial statements as of a particular date may be materially greater than or less than the value that would be realized if our assets were to be liquidated as of such date. Accordingly, the value of such holding may change over time due to factors that we do not control, such as issuance of securities by such companies at lower prices or other market factors. For the period ended January 31, 2024, we recognized an unrealized loss of approximately $2.7 million on the value of our equity securities due to the decline in value of a single issuer, which represented an impairment of more than 80% of the previous value of our holdings in such issuer, which resulted in a reduction of our retained earnings. Changes to the value of our holdings could have a material adverse effect on our financial condition and results of operations.

Filed Mar 18, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-010353. Last ingested by Listed: Nov 9, 2026, 17:37 ET. No prices; not investment advice.