Netcapital Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. (a) Evaluation of 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 April 30, 2022. Based on that evaluation, the PEO and the PFO concluded that, as of April 30, 2022, 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 April 30, 2022, 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 April 30, 2022. This annual report 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 April 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. None. 36 ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not Applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Directors and Executive Officers The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers as of July 29, 2022. Our executive officers and directors are as follows: Officer or Name Age Position Director Since Cecilia Lenk 67 Chairman of the Board, President and Chief Executive Officer July 2017 Martin Kay 58 Director May 2022 Avi Liss 42 Secretary and Director August 2010 Steven Geary 55 Director June 2006 Coreen Kraysler 58 Chief Financial Officer September 2017 Jason Frishman 29 CEO of Netcapital Funding Portal Inc. November 2020 Our directors serve in such capacity until the first annual meeting of our shareholders and until their successors have been elected and qualified. Our officers serve at the discretion of our board of directors, until their death, or until they resign or have been removed from office. Executive Officers and Directors Cecilia Lenk, Chairman of the Board, President and Chief Executive Officer Cecilia Lenk has served as our Chairman of the Board and Chief Executive Officer since July 2017 and was appointed President in June 2022. Prior to that, she worked as a self-employed business consultant and a town councilor in Watertown, MA for five years. Ms. Lenk has specialized in technology and health care. Formerly Vice President of Technology and Digital Design at Decision Resources Inc., a global company serving the biopharmaceutical market, she oversaw the implementation of new technologies, products, and business processes. Prior to joining Decision Resources, Cecilia founded a technology firm that built a patented platform for online research. She has managed large-scale technology projects for leading corporations, universities, government agencies, and major non-profit organizations. Ms. Lenk has a Ph.D. in Biology from Harvard University and a B.A. from Johns Hopkins University in Geography and Environmental Engineering. She has served on a number of non-profit boards, including Chair of the Johns Hopkins Engineering Alumni. She is currently on the Alumni Advisory Board for the Hopkins School of Engineering. Ms. Lenk brings to our Board key leadership experience in high-growth technology companies and possesses a strong mix of strategic, finance, and operating skills. 37 Martin Kay, Director Martin Kay has served as a Director of the Company since May 2022. Mr. Kay is currently a Managing Director at Accenture Strategy, a position he has held since October 2015. Mr. Kay holds a BA in physics from Oxford University and an MBA from Stanford University Graduate School of Business. Mr. Kay is an experienced C-suite advisor and digital media entrepreneur, working at the intersection of business and technology. His experience includes oversight of our funding portal when he served on the board of managers of Netcapital Systems LLC from 2017 – 2021. Avi Liss, Director and Secretary Avi Liss has served as a Director and Secretary of the Company since August 2010. From August 2009 to present, he has served as the President of Liss Law, LLC, a law firm specializing in real estate conveyances. Prior to founding Liss Law, he worked as a judicial law clerk for the Honorable Stephen S. Mitchell, a bankruptcy court judge for the Eastern District of Virginia. Mr. Liss is well qualified to serve as a director of the company due to his knowledge and working experience with legal governance matters. Steven Geary, Director Steven Geary has served as a Director of the Company since June 2006. Since 2009, he has served in several management positions at Statera and is currently the Vice President of Strategy and Business Development. From 2008 to 2009, he was the Chief Executive Officer of ImproveSmart, Inc. From April 2006 to June 2008, he served as our President and Chief Operating Officer, and as our Chief Executive Officer from June 2008 to December 2009. Mr. Geary has significant business development and brand marketing expertise in consumer products and services. Coreen Kraysler, CFA, Chief Financial Officer Coreen Kraysler has served as the Chief Financial Officer of the Company since September 2017. Ms. Kraysler is a Chartered Financial Analyst with over 30 years of investment experience. Formerly a Senior Vice President and Principal at Independence Investments, she managed several 5-star rated mutual funds as well as institutional accounts and served on the Investment Committee. She also worked at Eaton Vance as a Vice President, Equity Analyst on the Large and Midcap Value teams. A specialist in financial services, household and consumer products, she guest lectures at local colleges and universities. She received a B.A. in Economics and French, Cum Laude, from Wellesley College and a Master of Science in Management from MIT Sloan. Jason Frishman, CEO of Netcapital Funding Portal Inc. Jason Frishman is the founder and CEO of Netcapital Funding Portal Inc. and serves as a mentor and advisor for early stage companies in order to help reduce the systemic inefficiencies early-stage companies face in securing capital. He currently holds advisory positions at leading organizations in the financial technology ecosystem and has spoken as an external expert at Morgan Stanley, University of Michigan, YPO, and others. Jason has a background in the life sciences and previously conducted research in medical oncology at the Dana Farber Cancer Institute and cognitive neuroscience at the University of Miami, where he graduated summa cum laude with a B.S. in Neuroscience. 38 Term of Office All our directors will hold office until their successors have been elected and qualified or appointed or the earlier of their death, resignation or removal. Executive officers are appointed and serve at the discretion of the Board. Family Relationships There are no family relationships among our directors or officers. Board Composition Our bylaws provide that the size of our Board will be determined from time to time by resolution of our Board. Currently, the board comprises four members, three of whom qualify as “independent” directors under any applicable standard. Election of Directors Our bylaws provide that members of our board or directors will be elected by a majority vote of our stockholders. Director Independence Our common stock is currently quoted on the Nasdaq Capital Market. Nasdaq Rule 5065(b) requires that “[a] majority of the board of directors must be comprised of Independent Directors as defined in Rule 5605(a)(2).” Pursuant to these requirements, Avi Liss, Martin Kay, and Steven Geary are independent members of our Board. Arrangements between Officers and Directors Except as set forth herein, to our knowledge, there is no arrangement or understanding between any of our officers or directors and any other person pursuant to which the officer or director was selected to serve as an officer or director. Involvement in Certain Legal Proceedings We are not aware of any of our directors or officers being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses), or being subject to any of the items set forth under Item 401(f) of Regulation S-K. Board Meetings and Committees; Management Matters Board Committees The Company’s Board has three standing Nasdaq compliance committees: Audit, Compensation, and Nominating and Corporate Governance. Our audit committee consists of Avi Liss, Martin Kay, and Steven Geary. Each of the committees operates pursuant to its charter. The committee charters are reviewed annually by the Nominating and Corporate Governance Committee. If appropriate, and in consultation with the chairs of the other committees, the Nominating and Corporate Governance Committee may propose revisions to the charters. The responsibilities of each committee are described in more detail below. Our Board took actions by written consent on five occasions during the fiscal year ended April 30, 2022. No fees are paid to directors for attendance at meetings or for agreeing to a unanimous consent or the Board. 39 Compensation Committee Our Compensation Committee consists of Avi Liss, Martin Kay, and Steven Geary. The Compensation Committee oversees our compensation policies, plans and programs, and to review and determine the compensation to be paid to our executive officers and directors. In addition, the Compensation Committee has the authority to act on behalf of the Board in fulfilling the Board’s responsibilities with respect to compensation-based and related disclosures in filings as required by the Securities and Exchange Commission. This committee had no meetings in fiscal 2022. Nominating and Corporate Governance Committee Our Nominating and Governance Committee consists of Avi Liss, Martin Kay, and Steven Geary. The Nominating and Corporate Governance Committee (i) oversees our corporate governance functions on behalf of the Board; (ii) makes recommendations to the Board regarding corporate governance issues; (iii) identifies and evaluates candidates to serve as our directors consistent with the criteria approved by the Board and reviews and evaluates the performance of the Board; (iv) serves as a focal point for communication between director candidates, non-committee directors and management; (v) selects or recommends to the Board for selection candidates to the Board, or, to the extent required below, to serve as nominees for director for the annual meeting of shareholders; and (vi) makes other recommendations to the Board regarding affairs relating to our directors. This committee held no meetings in fiscal 2022. Audit Committee Our Audit Committee members consist of Martin Kay, Avi Liss and Steven Geary. Each of the members of our Audit Committee is an independent director under the Nasdaq listing rules, satisfies the additional independence criteria for Audit Committee members and satisfies the requirements for financial literacy under the Nasdaq listing rules and Rule 10A-3 of the Exchange Act, as applicable. Our board has also determined that Mr. Geary qualifies as an Audit Committee financial expert within the meaning of the applicable rules and regulations of the SEC and satisfies the financial sophistication requirements of the Nasdaq listing rules. Our Audit Committee oversees our corporate accounting and financial reporting process and assists our Board in monitoring our financial systems and our legal and regulatory compliance. Our Audit Committee also: ● oversees the work of our independent auditors; ● approves the hiring, discharging and compensation of our independent auditors; ● approves engagements of the independent auditors to render any audit or permissible non-audit services; ● reviews the qualifications, independence and performance of the independent auditors; ● reviews our financial statements and our critical accounting policies and estimates; ● reviews the adequacy and effectiveness of our internal controls; ● reviews our policies with respect to risk assessment and risk management; ● reviews and monitors our policies and procedures relating to related person transactions; and ● reviews and discusses with management and the independent auditors the results of our annual audit, our quarterly financial statements and our publicly filed reports. 40 Our Audit Committee operates under a written charter approved by our Board and that satisfies the applicable rules and regulations of the SEC and the listing requirements of Nasdaq. The charter is available on the corporate governance section of our website, which is located at www.netcapitalinc.com 41 Code of Ethics We have adopted a Code of Ethics and Business Conduct applicable to our directors, officers and employees, in accordance with Section 406 of the Sarbanes-Oxley Act, the rules of the SEC promulgated thereunder, and the Nasdaq listing rules. We have filed a copy of our form of the Code of Ethics and Business Conduct as an exhibit to the registration statement of which this prospectus is a part. You will be able to review this document by accessing our public filings at the SEC’s website at www.sec.gov. In addition, a copy of the Code of Ethics and Business Conduct will be provided without charge upon request from us. See the section of this prospectus entitled “Where You Can Find Additional Information.” If we make any amendments to our Code of Ethics and Business Conduct other than technical, administrative or other non-substantive amendments, or grant any waiver, including any implicit waiver, from a provision of the Code of Ethics and Business Conduct applicable to our principal executive officer, principal financial officer principal accounting officer or controller or persons performing similar functions requiring disclosure under applicable SEC or Nasdaq rules, we will disclose the nature of such amendment or waiver in a Current Report on Form 8-K. We also intend to post any amendments to our Code of Ethics and Business Conduct, or any waivers of its requirements, on our website, www.netcapitalinc.com. Limitation of liability and indemnification matters Our articles of incorporation contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Utah law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, unless the director engaged in gross negligence, willful misconduct or intentional infliction of harm on the corporation or its shareholders, or an intentional violation of criminal law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our Board. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these provisions in our articles of incorporation and the indemnification agreements are necessary to attract and retain qualified persons as directors and officers. The limitation of liability and indemnification provisions included in our articles of incorporation may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act of 1934, requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities (“10% Shareholders”), to file with the Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and 10% Shareholders are required by Commission regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely upon a review of Form 3, 4, and 5 filed with the SEC during the fiscal year ended April 30, 2022, we believe that, except as set forth below, our directors, executive officers, and greater than 10% Shareholders have complied with all applicable filing requirements for the fiscal year ended April 30, 2022. ● Avi Liss failed to timely report 1 transaction on a Form 4. ● Avi Liss failed to report his insider status on time on a Form 3. ● Steven Geary failed to report his insider status on time on a Form 3. ● Steven Geary failed to timely report 1 transaction on a Form 4. ● Martin Kay failed to report his insider status on time on a Form 3. 42 ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth, for the fiscal years indicated, all compensation awarded to, earned by or paid to Cecilia Lenk, our Chief Executive Officer, Coreen Kraysler, our Chief Financial Officer, Carole Murko, our former Chief Marketing Officer and Jason Frishman, Chief Executive Officer of our wholly owned subsidiary Netcapital Funding Portal, Inc., or, collectively, the Named Executive Officers, or NEOs. Summary Executive Compensation Table Non-equity Change in pension value and nonqualified Name incentive deferred and Stock Option plan compensation All other principal Salary Bonus awards awards compensation earnings compensation Total position Fiscal Year ($) ($) ($)(1) ($) ($) ($) ($) ($) Cecilia 2022 96,000 0 40,608 5,825 0 0 0 142,433 Lenk, CEO 2021 81,431 0 161,107 0 0 0 0 242,538 Coreen 2022 96,000 0 40,608 11,649 0 0 0 148,257 Kraysler, CFO 2021 81,431 0 161,107 0 0 0 0 242,538 Carole Murko, former CMO (until January 7, 2022)(2) 2022 73,688 0 109,547 0 0 0 0 183,235 2021 88,431 0 31,693 0 0 0 0 120,124 Jason Frishman, CEO Netcapital Funding Portal 2022 96,000 0 0 11,649 0 0 0 107,649 2021 114,284 0 0 0 0 0 0 114,284 (1) Represents the dollar amount of vested equity awards during the fiscal year. (2) Ms. Murko received severance of $7,384.50 and her 8,885 unvested shares vested upon termination, both pursuant to a separation agreement. 43 Outstanding Equity Awards At End Of 2022 The following table provides information about outstanding stock options issued by the Company held by each of our NEOs as of April 30, 2022. None of our NEOs held any other equity awards from the Company as of April 30, 2022. Option Awards Stock Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Number of Shares of Stock That Has Not Yet Vested Market Value of Stock that has not Yet Vested Cecilia Lenk 625 9,375 10.50 2/9/2032 0 0 Coreen Kraysler 1,250 18,750 10.50 2/9/2032 0 0 Jason Frishman 1,250 18,750 10.50 2/9/2032 0 0 Director Compensation We have not paid any cash compensation to our directors in their capacity as such. On February 9, 2022, we issued to each of our then three independent board members, options to purchase 5,000 shares of common stock under the 2021 Equity Incentive Plan which will be exercisable at a per share exercise price of $10.50, that is out-of-the-money at time of issuance and expire ten years after the date of grant. We issued Avi Liss 10,000 shares of our common stock valued at $7.50 per share on November 18, 2021 in consideration of his services as a director of the Company Officer Compensation Beginning in fiscal 2021, we pay each of our Named Executives Officers an annual salary of $96,000 per annum. Each Named Executive Officer has also received varying amounts of equity awards for their services. In addition to base pay, Carole Murko earned commissions on certain transactions. Employment Agreements We currently have employment agreements with Cecilia Lenk, Coreen Kraysler and Jason Frishman as described below. Prior to the termination of Carole Murko on January 7, 2022, we had an employment agreement with her as described below: Employment Agreement with Cecilia Lenk We entered into an employment agreement with Cecilia Lenk on June 23, 2022 pursuant to which we employ Ms. Lenk as our President and Chief Executive Officer. The term of her agreement ends on June 23, 2025. The Agreement provides for an annual base salary during the term of the agreement of $96,000, which will be increased to $150,000 upon completion of this offering. Ms. Lenk is eligible for periodic bonuses or for additional salary in addition to her base salary, as may be determined by our board of directors or the compensation committee. The agreement also contains the following material provisions: eligible to participate in all employee fringe benefits and any pension and/or profit share plans; eligible to participate in any medical and health plans; entitled to sick leave, sick pay and disability benefits; entitled to reimbursement for all reasonable and necessary business expenses. Ms. Lenk agreed to non-compete and non-solicit terms under her agreement. 44 Employment Agreement with Coreen Kraysler We entered into an employment agreement with Coreen Kraysler on June 23, 2022 pursuant to which we employ Ms. Kraysler as our Chief Financial Officer. The term of her agreement ends on June 23, 2025. The agreement provides for an annual base salary during the term of the agreement of $96,000, which will be increased to $150,000 upon completion of this offering. Ms. Kraysler is eligible for periodic bonuses or for additional salary in addition to her base salary, as may be determined by our board of directors or the compensation committee. The agreement also contains the following material provisions: eligible to participate in all employee fringe benefits and any pension and/or profit share plans; eligible to participate in any medical and health plans; entitled to sick leave, sick pay and disability benefits; entitled to reimbursement for all reasonable and necessary business expenses. Ms. Kraysler agreed to non-compete and non-solicit terms under her agreement. Employment Agreement with Jason Frishman We entered into an employment agreement with Jason Frishman on June 23 2022 pursuant to which we employ Mr. Frishman as Chief Executive Officer of Netcapital Funding Portal, Inc. The term of his agreement ends on June 23, 2025. The Agreement provides for an annual base salary during the term of the agreement of $96,000, which will be increased to $150,000 upon completion of this offering. Mr. Frishman is eligible for periodic bonuses or for additional salary in addition to his base salary, as may be determined by our board of directors or the compensation committee. The agreement also contains the following material provisions: eligible to participate in all employee fringe benefits and any pension and/or profit share plans; eligible to participate in any medical and health plans; entitled to sick leave, sick pay and disability benefits; entitled to reimbursement for all reasonable and necessary business expenses. Mr. Frishman agreed to non-compete and non-solicit terms under his agreement. Employment Agreement with Carole Murko We entered into an employment agreement with Carole Murko on March 10, 2020 pursuant to which we employed Ms. Murko as our Director of Business Development. The agreement was for an initial term of four years. The agreement provided for an annual base salary during the term of the agreement of $1.00 plus a commission of 20% of the cash collected from revenues generated directly by Ms. Murko plus an unvested grant of stock-based compensation of 12,500 shares (after giving effect to the November 2020 1-for-2000 reverse stock split) of restricted stock. The stock vested over a 48 month period in equal installments of 260 shares per month. Ms. Murko is eligible for periodic bonuses or for additional salary in addition to her base salary. The agreement also contained the following material provisions: eligible to participate in all employee fringe benefits and any pension and/or profit share plans; eligible to participate in any medical and health plans; entitled to up to eight weeks of paid time off; entitled to sick leave, sick pay and disability benefits; entitled to reimbursement for all reasonable and necessary business expenses. If Ms. Murko was to be terminated for any reason other than “cause” prior to the end of her term, then the Company will have no claim on the unvested portion of her 12,500 shares. If Ms. Murko resigned without “good reason” or retired before the end of her term, the unvested shares would have been returned to the Company. Ms. Murko agreed to non-compete and non-solicit terms under her agreement. Potential Payments Upon Termination Or Change In Control In the event that Ms. Lenk’s employment is terminated by us for any reason other than “cause” or by Ms. Lenk for “good reason,” then we will have no claims to the 10,000 shares of common stock underlying the stock option grant (and all unvested options under such grant shall immediately and fully vest) issued to Ms. Lenk in February 2022. 45 In the event that Ms. Kraysler’s employment is terminated by us for any reason other than “cause” or by Ms. Kraysler for “good reason,” then we will have no claims to the 20,000 shares of common stock underlying the stock option grant (and all unvested options under such grant shall immediately and fully vest) issued to Ms. Kraysler in February 2022. In the event that Mr. Frishman’s employment is terminated by us for any reason other than “cause” or by Mr. Frishman for “good reason,” then we will have no claims to the 20,000 shares of common stock underlying the stock option grant (and all unvested options under such grant shall immediately and fully vest) issued to Mr. Frishman in February 2022. The following table sets forth quantitative information with respect to potential payments to be made to either Ms. Lenk, Ms. Kraysler or Mr. Frishman upon termination in various circumstances. The potential payments are based on the terms of each of the employment agreements discussed above. For a more detailed description of the employment agreements, see the “Employment Agreements” section above. Name Potential Payment Upon Termination Option Awards (#) Cecilia Lenk 9,375 (1) Coreen Kraysler 18,750 (2) Jason Frishman 18,750 (3) (1) Represents the number of unvested options at April 30, 2022. Ms. Lenk’s options vest equally over a 48-month period. At April 30, 2022, there were 45 months remaining in her vesting schedule. The potential payment of shares subject to Ms. Lenk’s unvested options will reduce every month as her options vest and the value of her unvested options will be based on our market price at such time. (2) Represents the number of unvested options at April 30, 2022. Ms. Kraysler’s options vest equally over a 48-month period. At April 30, 2022, there were 45 months remaining in her vesting schedule. The potential payment of shares subject to Ms. Kraysler’s unvested options will reduce every month as her options vest and the value of her unvested options will be based on our market price at such time. (3) Represents the number of unvested options at April 30, 2022. Mr. Frishman’s options vest equally over a 48-month period. At April 30, 2022, there were 45 months remaining in his vesting schedule. The potential payment of shares subject to Mr. Frishman’s unvested options will reduce every month as her options vest and the value of his unvested options will be based on our market price at such time. 46 Compensation Plans 2021 Equity Incentive Plan The following table shows information regarding our equity compensation plans as of April 30, 2022. Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (c) Equity compensation plans approved by security holders — — — Equity compensation plans not approved by security holders (1) 271,000 $ 10.50 29,000 Total 271,000 $ 10.50 29,000 (1) 2021 Equity Incentive Plan . In November 2021, our Board adopted the 2021 Equity Incentive Plan, or the Plan. An aggregate of 300,000 shares of our common stock is reserved for issuance and available for awards under the Plan, including incentive stock options granted under the Plan. The Plan administrator may grant awards to any employee, director, consultant or other person providing services to us or our affiliates. As of June 23, 2022, we had awarded an aggregate of 271,000 options to purchase shares of common stock to directors and there remain 29,000 shares for grant under the Plan. Options vest over a 48-month period, and the Company has a policy to estimate forfeitures of option awards based upon the requisite service. The pre-vesting forfeiture rate is applied beginning on the date of an option grant. The forfeiture estimate impacts the estimated amount of compensation expense to be recorded over the requisite service period. The Plan is administered by our Board. The Plan administrator has the authority to determine, within the limits of the express provisions of the Plan, the individuals to whom awards will be granted, the nature, amount and terms of such awards and the objectives and conditions for earning such awards. Our Board may at any time amend or terminate the Plan, provided that no such action may be taken that adversely affects any rights or obligations with respect to any awards previously made under the Plan without the consent of the recipient. No awards may be made under the Plan after the tenth anniversary of its effective date. Awards under the Plan may include incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted shares of common stock, restricted stock units, performance share awards, stock bonuses and other stock-based awards and cash-based incentive awards. Stock Options . The Plan administrator may grant to a participant options to purchase our common stock that qualify as incentive stock options for purposes of Section 422 of the Internal Revenue Code (“incentive stock options”), options that do not qualify as incentive stock options (“non-qualified stock options”) or a combination thereof. The terms and conditions of stock option grants, including the quantity, price, vesting periods, and other conditions on exercise will be determined by the Plan administrator. The exercise price for stock options will be determined by the Plan administrator in its discretion, but non-qualified stock options and incentive stock options may not be less than 100% of the fair market value of one share of our company’s common stock on the date when the stock option is granted. Additionally, in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of our stock on the date of grant, the exercise price may not be less than 110% of the fair market value of one share of common stock on the date the stock option is granted. Stock options must be exercised within a period fixed by the Plan administrator that may not exceed ten years from the date of grant, except that in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of our stock on the date of grant, the exercise period may not exceed five years. At the Plan administrator’s discretion, payment for shares of common stock on the exercise of stock options may be made in cash, shares of our common stock held by the participant or in any other form of consideration acceptable to the Plan administrator (including one or more forms of “cashless” or “net” exercise). 47 Stock Appreciation Rights . The Plan administrator may grant to a participant an award of SARs, which entitles the participant to receive, upon its exercise, a payment equal to (i) the excess of the fair market value of a share of common stock on the exercise date over the SAR exercise price, times (ii) the number of shares of common stock with respect to which the SAR is exercised. The exercise price for a SAR will be determined by the Plan administrator in its discretion; provided, however, that in no event shall the exercise price be less than the fair market value of our common stock on the date of grant. 48 Restricted Shares and Restricted Units . The Plan administrator may award to a participant shares of common stock subject to specified restrictions (“restricted shares”). Restricted shares are subject to forfeiture if the participant does not meet certain conditions such as continued employment over a specified forfeiture period and/or the attainment of specified performance targets over the forfeiture period. The Plan administrator also may award to a participant units representing the right to receive shares of common stock in the future subject to the achievement of one or more goals relating to the completion of service by the participant and/or the achievement of performance or other objectives (“restricted units”). The terms and conditions of restricted share and restricted unit awards are determined by the Plan administrator. Stock Bonuses . Stock bonuses may be granted as additional compensation for service or performance and may be settled in the form of common stock, cash or a combination thereof, and may be subject to restrictions, which may vest subject to continued service and/or the achievement of performance conditions. Performance Awards . The Plan administrator may grant performance awards to participants under such terms and conditions as the Plan administrator deems appropriate. A performance award entitles a participant to receive a payment from us, the amount of which is based upon the attainment of predetermined performance targets over a specified award period. Performance awards may be paid in cash, shares of common stock or a combination thereof, as determined by the Plan administrator. Other Stock-Based Awards . The Plan administrator may grant equity-based or equity-related awards, referred to as “other stock-based awards,” other than options, SARs, restricted shares, restricted units, or performance awards. The terms and conditions of each other stock-based award will be determined by the Plan administrator. Payment under any other stock-based awards will be made in common stock or cash, as determined by the Plan administrator. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth information with respect to the beneficial ownership of shares of our common stock as of July 29, 2022 by: ● each person whom we know beneficially owns more than 5% of any class of equity security; ● each of our directors individually; ● each of our named executive officers individually; and ● all of our current directors and executive officers as a group. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting or investment power with respect to such securities. In addition, pursuant to such rules, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of July 29, 2022. We did not deem such shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the beneficial owners named in the table below have sole voting and investment power with respect to all shares of our common stock that they beneficially own, subject to applicable community property laws. The inclusion in the table below of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares. 49 Name and Address of Beneficial Owner (1) Amount of Shares and Nature of Beneficial Ownership of Common Stock Percent of Common Stock* Netcapital Systems LLC (2) 1,711,261 40.0% Cecilia Lenk (3) 27,109 **% Coreen Kraysler 25,417 **% Steven Geary (3) 11,029 **% Martin Kay — **% Avi Liss (3) 11,729 **% Officers and Directors as a group (6 persons) 75,284 2.3% * Based on 4,272,677 shares outstanding as of July 29, 2022. ** Less than 1% (1) Unless otherwise noted, the business address of each member of our Board is c/o Netcapital Inc. 1 Lincoln Street, Boston Massachusetts 02111. (2) The natural person with investment control over the securities held by Netcapital DE LLC is Jason Frishman. Netcapital Systems LLC has agreed to vote its shares of common stock to support the resolutions of the Board of Netcapital Inc. on any matters that are brought to a shareholder vote. (3) Includes 1,458 shares of common stock subject to stock options that are presently exercisable or exercisable within 60 days after July 29, 2022. (4) Includes 2,917 shares of common stock subject to stock options that are presently exercisable or exercisable within 60 days after July 29, 2022. (5) Includes 729 shares of common stock subject to stock options that are presently exercisable or exercisable within 60 days after July 29, 2022. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. Policies and Procedures for Transactions with Related Parties Our Chief Executive Officer or our Chief Financial Officer must review and approve certain transactions between us and Related Parties (as defined below). A “Related-Party Transaction” is defined as a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we (including any of our subsidiaries) were, are or will be a participant. For the purposes of our Related-Party Transactions, a “Related Party” is defined as: any person who is, or at any time since the beginning of our last two fiscal years was, a director or executive officer or a nominee to become a director; any person who is known to be the beneficial owner of more than ten percent of our common stock; any immediate family member of any of the foregoing persons, including any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and any person (other than a tenant or employee) sharing the household of any of the foregoing persons; and any firm, corporation or other entity in which any of the foregoing persons is a general partner or, for other ownership interests, a limited partner or other owner in which such person has a beneficial ownership interest of 10% or more. 50 Transactions with Related Parties The Company’s majority shareholder, Netcapital Systems LLC, owned 1,671,360 shares of common stock, or 57.7% of the Company as of April 30, 2022. The Company has a demand note payable to Netcapital Systems LLC of $4,600 and a demand note payable to one of its former managers of $3,200. In addition, as of April 30, 2021, the Company accrued a payable of $3,817,516 for supplemental consideration owed in conjunction with its purchase of Netcapital Funding Portal Inc., which was reduced to $294,054 as of January 31, 2022, because of the issuance to 361,736 shares of common stock, valued at $3,523,462. Of the 361,736 shares that were issued, a total of 32,458 shares, representing a reduction in the payable amount of $346,821, were issued to managers of Netcapital Systems LLC, and 3,151 shares, representing a reduction in the payable amount of $30,691, were issued to our Chief Executive Officer. The company paid its majority shareholder $357,429 and $200,000 in the years ended April 30, 2022 and 2021, respectively, for use of the software that runs the website www.netcapital.com. The Company also had a sale of $15,000 for consulting services to its majority shareholder during fiscal 2022. The Company received revenues of $39,360 and $660,486 for the years ended April 30, 2022 and 2021, respectively from ChipBrain, Inc. Our Chief Executive Officer is a member of the board of directors of ChipBrain, Inc. The Company owns 710,200 shares of ChipBrain, Inc., valued at $1,704,480. Our Chief Executive Officer is a member of the board of directors of KingsCrowd Inc. The Company owns 3,815,745 shares of KingsCrowd Inc., valued at $3,815,745. Our Chief Executive Officer is a member of the board of directors of Deuce Drone LLC. The Company owns 2,350,000 membership interest units of Deuce Drone LLC., valued at $2,350,000. The Company has notes receivable aggregating $152,000 from Deuce Drone LLC as of April 30, 2022. Compensation to officers in the years ended April 30, 2022 and 2021 consisted of common stock valued at $190,763 and $353,907, respectively, cash compensation of $265,688 and $332,724, respectively, and options to purchase common stock valued at $3,147 and $0, respectively. Compensation to a related party consultant in the years ended April 30, 2022 and 2021 consisted of common stock valued at $25,908 and $76,882, respectively, and cash compensation of $60,000 and $81,431, respectively. This consultant is also the controlling shareholder of Zelgor Inc. and the Company earned revenues from Zelgor Inc. of $5,500 and $1,400,000 in the years ended April 30, 2022 and 2021, respectively. The Company owns 1,400,000 shares of Zelgor Inc., valued at $1,400,000 and holds a note receivable of $50,000 as of April 30, 2022. Compensation to the President of Netcapital Systems LLC amounted to $96,000 and $114,284 in the years ended April 30, 2022 and 2021, respectively. We owe Steven Geary, a director, $31,680 as of April 30, 2022 and 2021. This obligation is not interest bearing. $16,680 is recorded as a related party trade accounts payable and $15,000 as a related party note payable. We have no signed agreements for the indebtedness to Mr. Geary. The Company made an investment of $240,080 in an affiliate, 6A Aviation Alaska Consortium, Inc., in conjunction with a land lease in an airport in Alaska. Our Chief Executive Officer is also the Chief Executive Officer of 6A Aviation Alaska Consortium, Inc. As a result of the investment, the Company is a 10% owner of 6A Aviation Consortium Inc. As of April 30, 2022 and 2021, we owed $0 and $9,490 to a company controlled by one of our former directors. We paid cash compensation of $0 and $29,738 to this former director for the years ended April 30, 2022 and 2021, respectively. In November 2021, we issued a member of our Board 10,000 shares of common stock for his service as a member of our board and audit committee, valued at $100,000. 51 On February 2, 2022, the Company granted to members of our Board an aggregate of 25,000 options to purchase shares of our common stock at an exercise price of $10.50 per share. An option to purchase 10,000 shares of common stock was granted to the Chairman of the Board and each of the three independent board members received an option to purchase 5,000 shares of common stock. The options vest on a monthly basis over 48 months and expire in 10 years. Coreen Kraysler, our Chief Financial Officer, has personally guaranteed a $500,000 promissory note from the U.S. Small Business Administration. The note bears interest at an annual rate of 3.75%, has a 30-year term, and monthly payments of $2,594 are scheduled to begin on December 17, 2022. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. Fruci & Associates II, PLLC is the Company’s independent registered public accounting firm. The following table presents fees for professional audit services rendered by our independent registered public accounting firm during the past two fiscal years. Fiscal 2022 Fiscal 2021 Audit fees $ 53,325 $ 24,000 Audit related fees Tax fees All other fees Total $ 53,325 $ 24,000 Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors Consistent with SEC policies regarding auditor independence, our board of directors has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, the board of directors has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor. Prior to engagement of the independent auditor for the next year's audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the board of directors for approval. 1. Audit services include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters and reviews of our financial statements included in our Quarterly Reports on Form 10-Q. 2. Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements. 3. Tax services include all services performed by the independent auditor's tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice. 4. Other services are those associated with services not captured in the other categories. We generally do not request such services from the independent auditor. 52 PART IV ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS. Exhibit Number Description 1.1 Underwriting Agreement, incorporated by reference to Exhibit 1.1 to our Form S-1/A dated June 28, 2022 2.1 Asset Purchase Agreement dated November 23, 2010 between ValueSetters, Inc. and NetGames.com, incorporated by reference to Exhibit 2.1 to our Form 10/A dated July 25, 2014 2.2 Agreement and Plan of Merger by and Among Netcapital Funding Portal Inc., ValueSetters Inc. and Netcapital Acquisition Vehicle Inc., incorporated by reference to our Current Report on Form 8-K dated August 23, 2020 3.1 Articles of Incorporation filed on April 25, 1984, incorporated by reference to Exhibit 3.1 to our Form 10 dated September 3, 2013 3.1.1 Amendment to Articles of Incorporation filed on September 7, 1999, incorporated by reference to Exhibit 3.2 to our Form 10 dated September 3, 2013 3.1.2 Amendment to Articles of Incorporation filed on December 4, 2003, incorporated by reference to Exhibit 3.2 to our Form 10 dated September 3, 2013 3.1.3 Amendment to Articles of Incorporation filed on April 13, 2015, incorporated by reference to Exhibit 3.1.3 to our Form S-1 dated February 14, 2022 3.1.4 Amendment to Articles of Incorporation filed on September 29, 2020, incorporated by reference to Exhibit 3.1 to our Form 8-K dated November 5, 2020 3.2 By-Laws of ValueSetters, Inc, incorporated by reference to Exhibit 3.4 to our Form 10 dated September 3, 2013 4.1 Specimen stock certificate evidencing shares of common stock, incorporated by reference to Exhibit 4.1 to our Form S-1/A dated April 8, 2022 4.2 Form of Representative’s Warrant (Included in Exhibit 1.1) 4.3 Form of Unsecured Convertible Notes, incorporated by reference to Exhibit 4.3 to our Form S-1 dated February 14, 2022 4.4 Form of Warrant Agent Agreement incorporated by reference to Exhibit 4.4 to our Form S-1/A dated June 28, 2022 4.5 Form of Warrant (Included in Exhibit 4.4) 4.6 Form of Pre-Funded Warrant, incorporated by reference to Exhibit 4.6 to our Form S-1/A dated June 28, 2022 4.7* Description of capital stock 10.1+ 2021 Equity Incentive Plan, filed as Exhibit 4.1 to the registrant’s registration statement on Form S-8 on January 27, 2022, and incorporated herein by reference. 10.2 Promissory Note dated April 28, 2011, as amended, in the principal amount of $1,000,000 made by the registrant in favor of Vaxstar LLC, incorporated by reference to Exhibit 2.1 to our Form 10/A filed on July 28, 2014 10.3 Amended Secured Lending Agreement between ValueSetters, Inc. and Vaxstar LLC, incorporated by reference to Exhibit 10.1 to our Form 10/A filed on July 28, 2014. 10.4 Purchase and Assignment Agreement between ValueSetters, Inc. and Vaxstar LLC, filed as Exhibit 10.2 to our Current Report on Form 8-K dated September 30, 2014, and incorporated herein by reference. 10.5 Amended Loan and Security Agreement between ValueSetters, Inc. and Vaxstar LLC dated October 31, 2017, filed as an Exhibit 10.1 to our Current Report on Form 8-K dated October 31, 2017, and incorporated herein by reference. 53 10.6 Amendment to Revolving Loan and Security Agreement between ValueSetters, Inc. and Vaxstar LLC dated October 30, 2020. 10.7 Amendment to Revolving Loan and Security Agreement between Netcapital Inc. and Vaxstar LLC dated January 31, 2021. 10.8 Amendment to Revolving Loan and Security Agreement dated April 30, 2021 between Netcapital Inc. and Vaxstar LLC. 10.9 Amendment to Revolving Loan and Security Agreement dated January 28, 2022 between Netcapital Inc. and Vaxstar LLC, filed as Exhibit 10.1 to our Current Report on Form 8-K dated January 28, 2022 and incorporated by reference herein. 10.10 Amendment to Revolving Loan and Security Agreement dated February 3, 2022 between Netcapital Inc. and Vaxstar LLC, filed as Exhibit 10.2 to our Current Report on Form 8-K dated January 28, 2022 and incorporated by reference herein. 10.11+ Employment Agreement with Carole Murko, incorporated by reference to Exhibit 10.12 to our Form S-1 dated February 14, 2022 10.12+ Separation Agreement with Carole Murko, incorporated by reference to Exhibit 10.13 to our Form S-1 dated February 14, 2022 10.13 Form of Note Purchase Agreement, incorporated by reference to Exhibit 10.14 to our Form S-1 dated February 14, 2022 10.14 License Agreement between Netcapital Systems LLC, a Delaware limited liability company, and Netcapital Funding Portal Inc., filed as Exhibit 10.1 to our Current Report on Form 8-K dated April 18, 2022 and filed on June 28, 2022 and incorporated by reference herein. 10.15+ Employment Agreement with Cecilia Lenk, filed as Exhibit 10.2 to our Current Report on Form 8-K dated April 18, 2022 and filed on June 28, 2022 and incorporated by reference herein. 10.16+ Employment Agreement with Coreen Kraysler, filed as Exhibit 10.3 to our Current Report on Form 8-K dated April 18, 2022 and filed on June 28, 2022 and incorporated by reference herein. 10.17+ Employment Agreement with Jason Frishman, filed as Exhibit 10.4 to our Current Report on Form 8-K dated April 18, 2022 and filed on June 28, 2022 and incorporated by reference herein. 14.1 Code of Ethics, incorporated by reference to Exhibit 14.1 to our Form S-1/A dated April 8, 2022 23.1* Consent of Independent Registered Public Accounting Firm 31.1* Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). 31.2* Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). 32.1* Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Filed herewith. + Indicates a management contract or compensatory plan or arrangement. 54 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: August 5, 2022 NETCAPITAL INC. By: /s/ Cecilia Lenk Cecilia Lenk Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ Coreen Kraysler Coreen Kraysler Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Avi Liss Director August 5, 2022 Avi Liss /s/ Martin Kay Director August 5, 2022 Martin Kay /s/ Steven Geary Director August 5, 2022 Steven Geary 55 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Netcapital Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Netcapital Inc. and Subsidiaries (“the Company”) as of April 30, 2022, and 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended April 30, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2022, and 2021, and the results of its operations and its cash flows for the years in the two-year period ended April 30, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Investments Description of the Critical Audit Matter As discussed in Note 10 to the consolidated financial statements, the Company has investments in several entities which require the Company to initially value based on offering prices that are not considered observable and to periodically evaluate potential impairment by assessing whether the carrying value of the investments exceeds the estimated fair value, or by monitoring observable price changes from orderly transactions to measure estimated fair value. Auditing management’s analysis includes tests that are complex and highly judgmental due to the estimation required to determine the fair value of each of the underlying investees. In particular, fair value estimates are sensitive to significant assumptions and factors such as expectations about future market and economic conditions, revenue growth rates, strategic plans, and historical operating results, among others. How the Critical Audit Matter Was Addressed in the Audit Our principal audit procedures to evaluate management’s valuation of investments consisted of the following, among others: 1. Obtain and test management assumptions and analysis. 2. Obtain and review third-party market data, public filings, and funding activities of the investee entities. 3. Performed a recalculation of significant inputs used in the valuation for reasonableness. 4. Assess management’s key indicators of the investee operations, including analysis of operational growth, public filings, and future strategic and funding plans. We have served as the Company’s auditor since 2017. Spokane, Washington August 5, 2022 Fruci & Associates II, PLLC 5525 F- 1 NETCAPITAL INC. YEARS ENDED APRIL 30, 2022 AND 2021 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONTENTS Page Consolidated Financial Statements F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders’ Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 – F-27 F- 2 NETCAPITAL INC. Consolidated Balance Sheets Assets: April 30, 2022 April 30, 2021 Cash and cash equivalents $ 473,925 $ 2,473,959 Related party receivable 668 — Accounts receivable net 2,433,900 1,356,932 Prepaid expenses 5,694 653,861 Total current assets 2,914,187 4,484,752 Deposits 6,300 6,300 Note receivable – related parties 202,000 — Purchased technology 15,536,704 14,803,954 Investment in affiliate 240,080 122,914 Equity securities at fair value 12,861,253 6,298,008 Total assets $ 31,760,524 $ 25,715,928 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Trade $ 536,508 $ 308,506 Related party 378,077 3,843,686 Accrued expenses 229,867 306,308 Stock subscription payable 33,400 1,199,996 Deferred revenue 2,532 622 Interest payable 222,295 116,483 Deferred tax liability 977,000 433,000 Related party debt 22,860 22,860 Secured note payable 1,400,000 1,000,000 Current portion of SBA loans 1,890,727 1,885,800 Loan payable - bank 34,324 34,324 Convertible notes payable 300,000 — Total current liabilities 6,027,590 9,151,585 Long-term liabilities: Long-term SBA loans, less current portion 495,073 2,385,800 Total Liabilities 6,522,663 11,537,385 Commitments and contingencies — — Stockholders' equity: Common stock, $ .001 par value; 900,000,000 shares authorized, 2,934,344 and 2,178,766 shares issued and outstanding 2,934 2,178 Common stock to be issued 244,250 — Capital in excess of par value 22,479,769 15,168,987 Accumulated deficit 2,510,908 ( 992,622 ) Total stockholders' equity 25,237,861 14,178,543 Total liabilities and stockholders' equity $ 31,760,524 $ 25,715,928 See Accompanying Notes to the Financial Statements F- 3 NETCAPITAL INC. Consolidated Statements of Operations Year Ended Year Ended April 30, 2022 April 30, 2021 Revenues $ 5,480,835 $ 4,721,003 Costs of services 110,115 759,158 Gross profit 5,370,720 3,961,845 Costs and expenses: Consulting expense 892,567 687,191 Marketing 95,753 44,929 Rent 47,670 49,196 Payroll and payroll related expenses 3,763,845 3,117,075 General and administrative costs 1,602,031 464,955 Total costs and expenses 6,401,866 4,363,346 Operating income (loss) ( 1,031,146 ) ( 401,501 ) Other income (expense): Interest expense ( 126,372 ) ( 87,333 ) Debt forgiveness 1,904,296 — Unrealized gain on equity securities 3,275,745 2,571,494 Other income 25,007 — Total other income (expense) 5,078,676 2,484,161 Net income before taxes 4,047,530 2,082,660 Income tax (expense) benefit ( 544,000 ) ( 613,000 ) Net income $ 3,503,530 $ 1,469,660 Basic earnings per share $ 1.31 $ 1.18 Diluted earnings per share $ 1.27 $ 0.89 Weighted average number of common shares outstanding: Basic 2,666,173 1,250,002 Diluted 2,748,480 1,647,295 See Accompanying Notes to the Financial Statements F- 4 NETCAPITAL INC. Consolidated Statements of Stockholders' Equity For the Years Ended April 30, 2022 and 2021 Capital in Retained Common Stock Common Stock Excess of Earnings Total Shares Amount To Be Issued Par Value (Deficit) Equity Balance, April 30, 2020 417,059 $ 417 $ — $ 3,141,021 $ ( 2,462,282 ) $ 679,156 Q1 stock-based compensation 156 — 1,406 — 1,406 Net income, July 31, 2020 — — — — 30,871 30,871 Balance, July 31, 2020 417,215 417 — 3,142,427 ( 2,431,411 ) 711,433 Q2 stock-based compensation 2,240 2 18,555 — 18,557 Net income, October 31, 2020 — — — — 30,022 30,022 Balance, October 31, 2020 419,455 419 — 3,160,982 ( 2,401,389 ) 760,012 Shares issued to acquire funding portal 1,666,360 1,666 11,329,582 — 11,331,248 Return of shares of common stock ( 5,000 ) ( 5 ) 5 — — Q3 stock-based compensation 937 1 6,239 — 6,240 Net income, January 31, 2021 — — — — 42,642 42,642 Balance, January 31, 2021 2,081,752 2,081 — 14,496,808 ( 2,358,747 ) 12,140,142 Q4 stock-based compensation 95,937 96 657,180 — 657,276 Shares issued for debt settlement 1,077 1 14,999 — 15,000 Net income, April 30, 2021 — — — — 1,366,125 1,366,125 Balance, April 30, 2021 2,178,766 2,178 — 15,168,987 ( 992,622 ) 14,178,543 Q1 stock-based compensation 937 2 14,054 — 14,056 Sale of common stock 176,934 176 1,592,219 — 1,592,395 Shares issued to settle related party accounts payable 361,736 362 3,523,100 — 3,523,462 Net income, July 31, 2021 — — — — 1,457,410 1,457,410 Balance, July 31, 2021 2,718,373 2,718 — 20,298,360 464,788 20,765,866 Q2 stock-based compensation 937 1 10,072 — 10,073 Net loss, October 31, 2021 — — — — ( 274,156 ) ( 274,156 ) Balance, October 31, 2021 2,719,310 2,719 — 20,308,432 190,632 20,501,783 Q3 stock-based compensation 55,312 55 553,967 — 554,022 Purchase of equity interest 50,000 50 499,950 — 500,000 Purchase of MSG Development Corp. 50,000 50 244,250 488,450 — 732,750 Sale of common stock 22,222 22 199,978 — 200,000 Net income, January 31, 2022 — — — — 1,821,006 1,821,006 Balance, January 31, 2022 2,896,844 2,896 244,250 22,050,777 2,011,638 24,309,561 Q4 stock-based compensation — — 29,030 — 29,030 Purchase of equity interest 37,500 38 399,962 — 400,000 Net income, April 30, 2022 — — — — 499,270 499,270 Balance, April 30, 2022 2,934,344 $ 2,934 $ 244,250 $ 22,479,769 $ 2,510,908 $ 25,237,861 See Accompanying Notes to the Financial Statements F- 5 NETCAPITAL INC. Consolidated Statements of Cash Flows April 30, 2022 April 30, 2021 OPERATING ACTIVITIES Net income $ 3,503,530 $ 1,469,660 Adjustment to reconcile net income (loss) to net cash used in operating activities: Stock-based compensation 1,176,058 680,611 Non-cash revenue from the receipt of equity ( 2,387,500 ) ( 2,319,532 ) Allowance for credit losses 76,630 60,325 Debt forgiveness ( 1,904,302 ) — Unrealized gain on equity securities ( 3,275,745 ) ( 2,571,494 ) Changes in deferred taxes 544,000 613,000 Changes in non-cash working capital balances: Accounts receivable ( 1,153,598 ) ( 1,417,257 ) Related party receivable ( 668 ) — Prepaid expenses 16,290 ( 35,913 ) Accounts payable and accrued expenses 281,904 172,204 Deferred revenue 1,910 ( 34 ) Accrued interest payable 124,314 85,248 Accounts payable – related party ( 9,490 ) 12,314 Net cash used in operating activities ( 3,006,667 ) ( 3,250,868 ) INVESTING ACTIVITIES Proceeds from purchase of funding portal subsidiary — 364,939 Loans to affiliate ( 202,000 ) — Investment in affiliate ( 117,166 ) ( 122,914 ) Net cash provided by (used in) investing activities ( 319,166 ) 242,025 FINANCING ACTIVITIES Proceeds from SBA loans — 4,271,600 Proceeds from secured lender 400,000 — Proceeds from stock subscriptions 625,799 1,199,996 Proceeds from convertible notes 300,000 — Cash flow provided by financing activities 1,325,799 5,471,596 Net increase (decrease) in cash ( 2,000,034 ) 2,462,753 Cash and cash equivalents, beginning of the period 2,473,959 11,206 Cash and cash equivalents, end of the period $ 473,925 $ 2,473,959 Supplemental disclosure of cash flow information: Cash paid for taxes $ — $ 4,988 Cash paid for interest $ 2,064 $ 2,067 Supplemental Non-Cash Investing and Financing Information: Common stock issued as prepaid compensation $ — $ 646,500 Common stock issued to reduce related party payable $ 3,523,462 $ — Common stock issued to purchase 10% interest in Caesar Media Group Inc. $ 900,000 $ — Common stock for purchase of MSG Development Corp. $ 732,750 $ 11,331,248 See Accompanying Notes to the Financial Statements F- 6 NETCAPITAL INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED APRIL 30, 2022 AND 2021 1. Description of Business and Summary of Accounting Principles Description of Business and Concentrations Netcapital Inc. (“Netcapital,” “we,” “our,” or the “Company”) is a fintech company with a scalable technology platform that allows private companies to raise capital online and provides private equity investment opportunities to investors. The company's consulting group, Netcapital Advisors, provides marketing and strategic advice and takes equity positions in select companies with disruptive technologies. The Netcapital funding portal is registered with the U.S. Securities & Exchange Commission (SEC) and is a member of the Financial Industry Regulatory Authority (FINRA), a registered national securities association. The consolidated financial statements are presented in United States dollars and have been prepared in accordance with generally accepted accounting principles in the United States of America. The Company’s fiscal year end is April 30. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of significant intercompany balances and transactions. The wholly owned subsidiaries are Netcapital Funding Portal Inc., an equity-based funding portal registered with the SEC, Netcapital Advisors Inc., which provides marketing and strategic advice to select companies, and MSG Development Corp, which was acquired in November 2021. Income Taxes The Company accounts for income taxes under the asset and liability method in accordance with ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the tax authorities. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties in income tax expense. The Company has determined that it had no significant uncertain tax positions requiring recognition or disclosure. Revenue Recognition under ASC 606 The Company recognizes service revenue from its consulting contracts, funding portal and game website using the five-step model as prescribed by ASC 606: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and F- 7 • Recognition of revenue when or as, the Company satisfies a performance obligation. The Company identifies performance obligations in contracts with customers, which primarily are professional services, listing fees on our funding portal, and a portal fee of 4.9% of the money raised on the funding portal. The transaction price is determined based on the amount the Company expects to be entitled to receive in exchange for transferring the promised services to the customer. The transaction price in the contract is allocated to each distinct performance obligation in an amount that represents the relative amount of consideration expected to be received in exchange for satisfying each performance obligation. Revenue is recognized when performance obligations are satisfied. The Company usually bills its customers before it provides any services and begins performing services after the first payment is received. Contracts are typically one year or less. For larger contracts, in addition to the initial payment, the Company may allow for progress payments throughout the term of the contract. Judgments and Estimates The estimation of variable consideration for each performance obligation requires the Company to make subjective judgments. The Company enters into contracts with customers that regularly include promises to transfer multiple services, such as digital marketing, web-based videos, offering statements, and professional services. For arrangements with multiple services, the Company evaluates whether the individual services qualify as distinct performance obligations. In its assessment of whether a service is a distinct performance obligation, the Company determines whether the customer can benefit from the service on its own or with other readily available resources, and whether the service is separately identifiable from other services in the contract. This evaluation requires the Company to assess the nature of each individual service offering and how the services are provided in the context of the contract, including whether the services are significantly integrated, highly interrelated, or significantly modify each other, which may require judgment based on the facts and circumstances of the contract. F- 8 When agreements involve multiple distinct performance obligations, the Company allocates arrangement consideration to all performance obligations at the inception of an arrangement based on the relative standalone selling prices (SSP) of each performance obligation. Where the Company has standalone sales data for its performance obligations which are indicative of the price at which the Company sells a promised service separately to a customer, such data is used to establish SSP. In instances where standalone sales data is not available for a particular performance obligation, the Company estimates SSP by the use of observable market and cost-based inputs. The Company continues to review the factors used to establish list price and will adjust standalone selling price methodologies as necessary on a prospective basis. Service Revenue Service revenue from subscriptions to the Company's game website is recognized over time on a ratable basis over the contractual subscription term beginning on the date that the platform is made available to the customer. Payments received in advance of subscription services being rendered are recorded as a deferred revenue. Professional services revenue is recognized over time as the services are rendered. When a contract with a customer is signed, the Company assesses whether collection of the fees under the arrangement is probable. The Company estimates the amount to reserve for uncollectible amounts based on the aging of the contract balance, current and historical customer trends, and communications with its customers. These reserves are recorded as operating expenses against the contract asset (Accounts Receivable). Contract Assets Contract assets are recorded for those parts of the contract consideration not yet invoiced but for which the performance obligations are completed. The revenue is recognized when the customer receives services. Contract assets are included in other current assets in the consolidated balance sheets and will be recognized during the succeeding twelve-month period. Deferred Revenue Deferred revenues represent billings or payments received in advance of revenue recognition and is recognized upon transfer of control. Balances consist primarily of annual plan subscription services and professional services not yet provided as of the balance sheet date. Deferred revenues that will be recognized during the succeeding twelve-month period are recorded as current deferred revenues in the consolidated balance sheets, with the remainder recorded as other non-current liabilities in the consolidated balance sheets. Costs to Obtain a Customer Contract Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. These costs are capitalized as other current or non-current assets and amortized on a straight-line basis over the life of the contract, which approximates the benefit period. The benefit period was estimated by taking into consideration the length of customer contracts, technology lifecycle, and other factors. All sales commissions are recorded as consulting fees within the Company's consolidated statement of operations. Remaining Performance Obligations The Company's subscription terms are typically less than one year. All of the Company’s revenues in the years ended April 30, 2022 and 2021, which amounted to $ 5,480,835 and $ 4,721,003 , respectively, are considered contract revenues. Contract revenue as of April 30, 2022 and 2021, which has not yet been recognized, amounted to $ 2,532 and $ 622 , respectively, and is recorded on the balance sheet as deferred revenue. The Company expects to recognize revenue on all of its remaining performance obligations over the next 12 months. F- 9 Disaggregation of Revenue Our revenue is from U.S.-based companies with no notable geographical concentrations in any area. A distinction exists in revenue source; our revenues are either generated online or from personal services. Revenues disaggregated by revenue source consist of the following: Schedule of Disaggregation of Revenue Year Ended April 30, 2022 Year Ended April 30, 2021 Consulting services $ 3,878,233 $ 3,886,022 Fees from online services 1,602,602 834,981 Total revenues $ 5,480,835 $ 4,721,003 Costs of Services Costs of services consist of direct costs that we pay to third parties in order to provide the services that generate revenue. Earnings Per Share Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of vested, unrestricted common shares outstanding during the period. Diluted net income per share is computed based on the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the if-converted method. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The Company did not have any cash equivalents during fiscal 2022 and 2021. The Company uses three financial institutions for its cash balances and has maintained cash balances that exceed federally insured limits. Accounts Receivable The Company extends credit to its customers in the normal course of business and performs ongoing credit evaluations of its customers, maintaining an allowance for potential credit losses. Accounts receivable is reported net of the allowance for doubtful accounts. The allowance is based on management’s estimate of the amount of receivables that will be collected. The Company recorded an allowance for doubtful accounts of $ 136,955 and $ 60,325 as of April 30, 2022 and 2021, respectively. Notes Receivable The Company lends money to companies in limited instances, performs ongoing credit evaluations of its notes receivable and establishes an allowance for potential credit losses when appropriate. Intangible Assets Intangible assets with defined useful lives are generally measured at cost less straight-line amortization. The useful life is determined using the period of the underlying contract or the period of time over which the intangible asset can be expected to be used. Impairments are recognized if the recoverable amount of the asset is lower than the carrying amount. The recoverable amount is the higher of either the fair value less costs to sell or the value in use. The value in use is determined on the basis of future cash inflows and outflows, and the weighted average cost of capital. Intangible assets with indefinite useful lives, such as trade names and trademarks, that have been acquired as part of acquisitions are measured at cost and tested for impairment annually, or if there is an indication that their value has declined. The following table sets forth the major categories of the intangible assts as of April 30, 2022 and 2021 Schedule of intangible assets April 30, 2022 April 30, 2021 Acquired users $ 14,288,695 $ 14,271,836 Acquired brand 583,429 532,118 Professional practice 556,830 — Literary works and contracts 107,750 — Total intangible assets $ 15,536,704 $ 14,803,954 F- 10 Impairment of Long-Lived Assets Authoritative guidance requires that certain assets be reviewed for impairment and, if impaired, remeasured at fair value whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment loss estimates are primarily based upon management’s analysis and review of the carrying value of long-lived assets at each balance sheet date, utilizing an undiscounted future cash flow calculation. The Company did not recognize an impairment loss in fiscal 2022 and 2021. Stock-Based Compensation The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation – Stock Compensation which requires all share-based payments to employees, including the vesting of restricted stock grants to employees, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to common stock and capital in excess of par value during the period during which services are rendered. F- 11 Advertising Expenses Advertising and marketing expenses are recorded separately in the Statements of Operations and are expensed as incurred. Equity Securities All investments in equity securities are initially measured at cost. Cost is based upon either the cost of the investment, the fair value of the services provided or the estimated market value of the investment at the time it was acquired, whichever can be more clearly determined. If the Company identifies an observable price change in an orderly transaction for an identical or similar investment of the same issuer, the Company measures the equity security at fair value as of the date that the observable transaction occurred. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimate relates to investments, the allowance for doubtful accounts and the calculation of stock-based compensation for the stock options. On a continual basis, management reviews its estimates, utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments-Credit Losses . The new guidance provides better representation about expected credit losses on financial instruments. This update requires the use of a methodology that reflects expected losses and requires consideration of a broader range of reasonable and supportive information to inform credit loss estimates. This ASU is effective for reporting periods beginning after December 15, 2022, with early adoption permitted. The company is studying the impact of adopting the ASU in fiscal year 2023, and what effect it could have. The Company believes the accounting change would not have a material effect on the financial statements. Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances. 2. Concentrations For the year ended April 30, 2022, the Company had one customer that constituted 22 % of its revenues, a second customer that constituted 22 % of its revenues, and a third customer that constituted 18 % of its revenues. For the year ended April 30, 2021, the Company had one customer that constituted 30 % of its revenues, a second customer that constituted 15 % of its revenues, a third customer that constituted 14 % of its revenues and a fourth customer that accounted for 11 % of its revenues. F- 12 3. Debt The following table summarizes components debt as of April 30, 2022 and 2021: Schedule of Debt 2022 2021 Interest Rate Secured lender $ 1,400,000 $ 1,000,000 8.0 % Notes payable – related parties 22,860 22,860 0.0 % Convertible promissory notes 300,000 — 8.0 % U.S. SBA loan — 1,885,800 1.0 % U.S. SBA loan 500,000 500,000 3.75 % U.S. SBA loan 1,885,800 1,885,800 1.0 % Loan payable – bank 34,324 34,324 7.0 % Total debt 4,142,984 5,328,784 Less: current portion of long-term debt 3,647,911 2,942,984 Total long-term debt $ 495,073 $ 2,385,800 As of April 30, 2022 and 2021, the Company owed its principal lender (“Lender”) $1,400,000 and $1,000,000, respectively, under a loan and security agreement (“Loan”) dated April 28, 2011, that was amended on July 26, 2014 and several times thereafter so that the maturity date is now April 30, 2023. In connection with the financing, the Company has agreed to certain restrictive covenants, including, among others, that the Company may not convey, sell, lease, transfer or otherwise dispose of any part of its business or property, except as permitted in the agreement, dissolve, liquidate or merge with any other party unless, in the case of a merger, the Company is the surviving entity, incur any indebtedness except as defined in the agreement, create or allow a lien on any of its assets or collateral that has been pledged to the Lender, make any loans to any person, except for prepaid items or deposits incurred in the ordinary course of business, or make any material capital expenditures. To secure the payment of all obligations to the Lender, the Company granted to the Lender a continuing security interest and first lien on all of the assets of the Company. On February 9, 2022, the Company issued and sold in a private placement $300,000 of unsecured convertible promissory notes (the “February 2022 Notes”). These notes bear interest at a rate of 8% per annum and have a maturity date of February 9, 2023. In addition, the February 2022 Notes will automatically convert simultaneously with the closing of a Qualified Equity Financing (as defined below) into a number of securities sold in the Qualified Equity Financing equal to the quotient obtained by dividing (a) an amount equal to the amount of the February 2022 Notes outstanding on the closing date of such Qualified Equity Financing by (b) a conversion price equal to the lesser of (1) $10.00 and (2) 80% of the price per share paid for securities sold in such Qualified Equity Financing upon the closing of such Qualified Equity Financing. A “Qualified Equity Financing” means the offer and sale for cash by us of any of our equity securities with the principal purpose of raising capital and that results in aggregate gross proceeds to us of at least $5,000,000. As of April 30, 2022 and 2021, unsecured convertible promissory notes totaled $300,000 and 0, respectively. As of April 30, 2022 and 2021, the Company’s related-party unsecured notes payable totaled $22,860. The Company also owes $34,324 as of April 30, 2022 and 2021 to Chase Bank. For the loan from Chase Bank, the Company pays interest only on a monthly basis, which is calculated at a rate of 7.0% per annum. F- 13 On May 6, 2020, the Company borrowed $1,885,800 (the “May Loan”), on June 17, 2020 the Company borrowed $500,000 (the “June Loan”), and on February 2, 2021, the Company borrowed $1,885,800 (the “February Loan”) from a U.S. Small Business Administration (“SBA”) loan program. The May loan bore interest at a rate of 1% per annum and the SBA postponed any installment payments until September 6, 2021. In November 2021 the May Loan was forgiven in its entirety, including accrued interest of $18,502. As a result, the Company recognized debt forgiveness of $1,904,296 in the year ended April 30, 2022. The June Loan required installment payments of $2,594 monthly, beginning on June 17, 2021, over a term of thirty years. However, the SBA has postponed the first installment payment for 18 months. Interest accrues at a rate of 3.75% per annum. The Company agreed to grant a continuing security interest in its assets to secure payment and performance of all debts, liabilities, and obligations to the SBA. The June Loan was personally guaranteed by the Company’s Chief Financial Officer. The February loan bears interest at a rate of 1% per annum and the due date of the first payment has been postposed by the SBA because the Company has applied for forgiveness of the February Loan in its entirety. As of April 30, 2022, future payments under debt obligations over each of the next five years and thereafter were as follows: Schedule of future payments under debt obligations Twelve months ended April 30: 2023 $ 3,647,911 2024 12,126 2025 12,563 2026 13,016 2027 13,485 Thereafter 443,883 Minimum future payments of principal $ 4,142,984 F- 14 4. Fair Value Measurements The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures of financial instruments on a recurring basis. Cash and cash equivalents, accounts receivable, and accounts payable In general, carrying amounts approximate fair value because of the short maturity of these instruments. Fair Value Hierarchy The Fair Value Measurements Topic of the FASB Accounting Standards Codification establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Financial assets measured at fair value on a recurring basis are summarized below as of April 30, 2022 and 2021: Schedule of Financial assets measured at fair value on a recurring basis Level 1 Level 2 Level 3 Total April 30, 2022 Equity securities at fair value $ — $ 12,861,253 $ — $ 12,861,253 April 30, 2021 Equity securities at fair value $ — $ 6,298,008 $ — $ 6,298,008 Determination of Fair Value Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the Company bases its fair value on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data and, therefore, are based primarily upon management’s own estimates, are often calculated based on current pricing policy, the economic and competitive environment, the characteristics of the asset or liability and other such factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results of current or future value. See Note 1 for a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value where it is practicable to do so for financial instruments not recorded at fair value (disclosures required by the Fair Value Measurements Topic of the FASB Accounting Standards Codification). F- 15 5. Income Taxes As of April 30, 2022, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $ 1,108,000 expiring in the years of 2023 through 2042. Utilization of the net operating losses may be subject to annual limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of April 30, 2022 and 2021 were as follows: Schedule of Income Taxes 2022 2021 Deferred tax assets, net: Net operating loss carryforwards $ 322,000 $ 141,000 Bad debt expense 40,000 17,000 Stock-based compensation 357,000 155,000 Asset impairment loss — — Deferred tax assets 719,000 313,000 Deferred tax liability Unrealized gain 1,696,000 746,000 Total deferred tax liability 1,696,000 746,000 Total net deferred tax assets (liabilities) $ ( 977,000 ) $ ( 433,000 ) F- 16 For fiscal 2022, our income tax expense was $ 544,000 , with an effective tax rate of 13 % . Our effective tax rate and the resulting provision for income taxes were impacted by tax benefits related to a net operating loss carryforward of $1.1 million and non-taxable debt forgiveness of $1.9 million. For fiscal 2021, our income tax expense was $ 613,000 , with an effective tax rate of 29 % , similar to the statutory rate for federal and state taxes. The Company did not have any material unrecognized tax benefits as of April 30, 2022 and 2021. The Company does not expect the unrecognized tax benefits to significantly increase or decrease within the next twelve months. The Company recorded no interest and penalties relating to unrecognized tax benefits as of and during the years ended April 30, 2022 and 2021. The Company is subject to U.S. federal income tax, as well as taxes by various state jurisdictions. The Company is currently open to audit under the statute of limitations by the federal and state jurisdictions for the years ending April 30, 2020 through 2022. 6. Commitments and Contingencies Litigation The Company is subject to legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, is not likely to have a material effect on the financial condition, results of operations or liquidity of the Company. However, as the outcome of litigation or legal claims is difficult to predict, significant changes in the estimated exposures could occur. There are no known legal complaints or claims against the Company. The Company utilizes virtual office space in Boston, Massachusetts, at a cost of approximately $5,700 per month under a membership agreement that ends on September 30, 2023. The membership agreement includes a deposit of $6,300. A novel strain of coronavirus, or COVID-19, has spread throughout the world and has been declared to be a pandemic by the World Health Organization. As of the date this report was issued, our operations have not been significantly impacted by the COVID-19 outbreak. The number of people establishing accounts on our website Netcapital.com more than doubled during the pandemic. Most of our employees work remotely from a home office to access our technology, which runs 24 hours a day on the internet. However, we cannot at this time predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on our financial condition, operations, and business plans for fiscal year 2023. Our operations have adapted social distancing practices, and the next expected milestones of our product may be impacted, and we may experience delays in anticipated timelines and milestones. 7. Stockholders’ Equity The Company is authorized to issue 900,000,000 shares of its common stock, par value $0.001. As of April 30, 2022 and 2021, there were 2,934,344 and 2,178,766 shares outstanding, respectively. In fiscal 2022, 57,186 shares of common stock were issued for stock-based compensation, 361,736 shares of common stock were issued to settle related party liabilities in conjunction with the purchase Netcapital Funding Portal Inc., 199,156 shares of common stock were sold in a private placement to accredited investors at a price of $9 per share, 50,000 shares of common stock were issued to purchase MSG Development Corp. and 87,500 shares were issued in conjunction with the purchase of a 10% interest in Caesar Media Group Inc. In fiscal 2021, 99,270 shares of common stock were issued for stock-based compensation, 1,666,360 shares of common stock were issued to purchase Netcapital Funding Portal Inc., and 5,000 shares of common stock were returned to the Company in exchange for a 20% ownership of AthenaSoft Corp. that was acquired by the Company during fiscal 2018. The book value of the AthenaSoft Corp. shares surrendered by the Company was zero dollars, as the Company had recognized an impairment loss in a prior year. The Company also issued 1,077 shares of common stock, valued at $15,000, to pay a $15,000 liability. F- 17 For the years ended April 30, 2022 and 2021, the Company recorded $1,176,058 and $680,611, respectively, in stock-based compensation expense. As of April 30, 2022 and 2021, there was $0 and $631,878 of prepaid stock-based compensation expense. The table below presents the components of stock-based compensation expense for the years ended April 30, 2022 and 2021. Schedule of stock-based compensation expense Description April 30, 2022 April 30, 2021 Chief Executive Officer $ 40,608 $ 161,107 Chief Financial Officer 40,608 161,107 Chief Marketing Officer 109,547 31,693 Related party consultant 25,908 76,882 Marketing consultant 5,603 5,286 Marketing consultant 380,441 119,059 Marketing consultant — 20,000 Marketing consultant 118,405 28,595 Business consultant 25,908 76,882 Company secretary and director 100,000 — Business development manager 300,000 — Employee stock options 29,030 — Total $ 1,176,058 $ 680,611 The table below presents the number of shares issued as compensation for the years ended April 30, 2022 and 2021: Year Ended Year Ended Description April 30, 2022 April 30, 2021 Company secretary and director 10,000 — Business development manager 30,000 — Chief Marketing Officer 10,417 3,646 Marketing consultant 469 624 Marketing consultant — 20,000 Marketing consultant — 75,000 Total 50,886 99,270 The table below presents the prepaid stock-based compensation expense as of April 30, 2022 and 2021: Year Ended Year Ended Description April 30, 2022 April 30, 2021 Chief Executive Officer $ — $ 40,608 Chief Financial Officer — 40,608 Related party consultant — 25,908 Business consultant — 25,908 Marketing consultant — 380,441 Marketing consultant — 118,405 Total $ — $ 631,878 F- 18 The following tables summarize information about stock options outstanding as of April 30, 2022 and 2021: Schedule of stock options outstanding Options Outstanding Options Exercisable Weighted- Average Weighted- Weighted- Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life (Years) Price Outstanding Price As of April 30, 2022 $10.50 - $10.50 271,000 9.79 $ 10.50 16,945 $ 10.50 As of November 30, 2021 — — $ — — $ — Schedule of stock options activity Number of Shares Exercise Price Per Share Average Exercise Price Outstanding May 1, 2020 — — $ — Issued during year ended April 30, 2021 — — $ — Exercised/canceled during year ended April 30, 2021 — — $ — Outstanding April 30, 2021 — — $ — Issued during year ended April 30, 2022 272,000 $ 10.50 - $ 10.50 $ 10.50 Exercised/canceled during year ended April 30, 2022 1,000 $ 10.50 - $ 10.50 $ 10.50 Options outstanding April 30, 2022 271,000 $ 10.50 - $ 10.50 $ 10.50 Options exercisable, April 30, 2022 16,945 $ 10.50 - $ 10.50 $ 10.50 F- 19 8. Earnings Per Common Share Earnings per common share data was computed as follows: Schedule of earnings per share 2022 2021 Net income $ 3,503,530 $ 1,469,660 Weighted average common shares outstanding 2,666,173 1,250,002 Effect of dilutive securities 82,307 397,293 Weighted average dilutive common shares outstanding 2,748,480 1,647,295 Earnings per common share – basic $ 1.31 $ 1.18 Earnings per common share – diluted $ 1.27 $ 0.89 Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of vested, unrestricted common shares outstanding during the period. Diluted net income per share is computed based on the weighted average number of shares of common stock outstanding plus the effect of dilutive potential common shares outstanding during the period using the if-converted method. Dilutive potential common shares include 39,901 and 397,296 shares, for the years ended April 30, 2022 and 2021, respectively, that are issuable to satisfy a supplemental consideration liability. In fiscal 2022, the Company also had $300,000 in convertible promissory notes plus $5,326 in accrued interest payable that could convert, at a price per share of $7.20, into 42,406 shares of common stock. Outstanding stock options, totaling 271,000 and 0 for the years ended April 30, 2022 and 2021, respectively, were not included in the calculation of dilutive securities because their effect was anti-dilutive. 9. Related Party Transactions The Company’s majority shareholder, Netcapital Systems LLC, owns 1,671,360 shares of common stock, or 57.7% of the Company as of April 30, 2022. The Company has a demand note payable to Netcapital Systems LLC of $4,600 and a demand note payable to one of its former managers of $3,200. In addition, as of April 30, 2021, the Company accrued a payable of $3,817,516 for supplemental consideration owed in conjunction with its purchase of Netcapital Funding Portal Inc., which was reduced to $294,054 as of April 30, 2022, because of the issuance to 361,736 shares of common stock, valued at $3,523,462. Of the 361,736 shares that were issued, a total of 32,458 shares, representing a reduction in the payable amount of $346,821, were issued to managers of Netcapital Systems LLC, and 3,151 shares, representing a reduction in the payable amount of $30,691, were issued to our Chief Executive Officer. The company paid its majority shareholder $357,429 and $200,000 in the years ended April 30, 2022 and 2021, respectively, for use of the software that runs the website www.netcapital.com. The Company also had a sale of $15,000 for consulting services to its majority shareholder during fiscal 2022. The Company received revenues of $39,360 and $660,486 for the years ended April 30, 2022 and 2021, respectively from ChipBrain, Inc. Our Chief Executive Officer is a member of the board of directors of ChipBrain, Inc. The Company owns 710,200 shares of ChipBrain, Inc., valued at $1,704,480. Our Chief Executive Officer is a member of the board of directors of KingsCrowd Inc. The Company owns 3,815,745 shares of KingsCrowd Inc., valued at $3,815,745. Our Chief Executive Officer is a member of the board of directors of Deuce Drone LLC. The Company owns 2,350,000 membership interest units of Deuce Drone LLC., valued at $2,350,000. The Company has notes receivable aggregating $152,000 from Deuce Drone LLC as of April 30, 2022. F- 20 Compensation expense to officers in the years ended April 30, 2022 and 2021 consisted of common stock valued at $190,763 and $353,907, respectively, cash compensation of $265,688 and $332,724, respectively, and options to purchase common stock valued at $3,147 and $0, respectively. Compensation to a related party consultant in the years ended April 30, 2022 and 2021 consisted of common stock valued at $25,908 and $76,882, respectively, and cash compensation of $60,000 and $81,431, respectively. This consultant is also the controlling shareholder of Zelgor Inc., and the Company earned revenues from Zelgor Inc. of $5,500 and $1,400,000 in the years ended April 30, 2022 and 2021. The Company owns 1,400,000 shares of Zelgor Inc., valued at $1,400,000 and holds a note receivable of $50,000 as of April 30, 2022. Compensation to the President of Netcapital Systems LLC amounted to $96,000 and $114,284 in the years ended April 30, 2022 and 2021, respectively. We owe Steven Geary, a director, $31,680 as of April 30, 2022 and 2021. This obligation is not interest bearing. $16,680 is recorded as a related party trade accounts payable and $15,000 as a related party note payable. We have no signed agreements for the indebtedness to Mr. Geary. The Company made an investment of $240,080 in an affiliate, 6A Aviation Alaska Consortium, Inc., in conjunction with a land lease in an airport in Alaska. Our Chief Executive Officer is also the Chief Executive Officer of 6A Aviation Alaska Consortium, Inc. As a result of the investment, the Company is a 19% owner of 6A Aviation Consortium Inc. As of April 30, 2022 and 2021, we owed $0 and $9,490 to a company controlled by one of our former directors. We paid cash compensation of $0 and $29,738 to this former director for the years ended April 30, 2022 and 2021, respectively. In November 2021, we issued a member of our Board 10,000 shares of common stock for his service as a member of our board and audit committee, valued at $100,000. On February 2, 2022, the Company granted to members of our Board an aggregate of 25,000 options to purchase shares of our common stock at an exercise price of $10.50 per share. An option to purchase 10,000 shares of common stock was granted to the Chairman of the Board and each of the three independent board members received an option to purchase 5,000 shares of common stock. The options vest on a monthly basis over 48 months and expire in 10 years. Coreen Kraysler, our Chief Financial Officer, has personally guaranteed a $500,000 promissory note from the U.S. Small Business Administration. The note bears interest at an annual rate of 3.75%, has a 30-year term, and monthly payments of $2,594 are scheduled to begin on June 17, 2022. The Company recorded $19,844 in revenues from a company that Cecilia Lenk, our Chief Executive Officer, serves as a member of the board of managers. 10. Investments In April 2022, the Company received 3,000,000 units of Cust Corp. as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.40 per unit based on a sales price of $0.40 per unit on an online funding portal. The receipt of the units satisfied an accounts receivable balance of $1,200,000. As of April 30, 2022, the Company owned 3,000,000 units which are valued at $1,200,000. In January 2022, the Company received 1,700,000 units of ScanHash LLC as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.25 per unit based on a sales price of $0.25 per unit on an online funding portal. The receipt of the units satisfied $425,000 of an accounts receivable balance. As of April 30, 2022, the Company owned 1,700,000 units which are valued at $425,000. F- 21 In January 2022, the Company received 2,850,000 units of Hiveskill LLC as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.25 per unit based on a sales price of $0.25 per unit on an online funding portal. The receipt of the units satisfied an accounts receivable balance of $712,500. As of April 30, 2022, the Company owned 2,850,000 units which are valued at $712,500. In fiscal 2022, the Company purchased a 10% interest, or 400 shares of common stock, in Caesar Media Group Inc. (“Caesar”) for an initial purchase price of 50,000 shares of the Company’s common stock, valued at $500,000. Caesar is a marketing and technology solutions provider. The purchase agreement includes additional contractual requirements for the Company and Caesar, including the issuance of an additional 150,000 shares of common stock of the Company over a two-year period. The Company issued 37,500 shares of its common stock in April 2022 as part of its contractual payment obligations. As of April 30, 2022, there have been no observable price changes in the value of the Caesar’s common stock and the Company has valued its ownership in Caesar at cost, which is $900,000. In May 2020, the Company entered a consulting contract with Watch Party LLC (“WP”), which allowed the Company to receive up to 110,000 membership interest units of WP in return for consulting services. The WP units are valued at $2.14 per unit based on a sales price of $2.14 per unit on an online funding portal, resulting in revenues of $235,400 for the year ended April 30, 2021. As of April 30, 2022 and 2021, the Company owned 110,000 WP units, which are valued at $235,400. In May 2020, the Company entered a consulting contract with ChipBrain LLC (“Chip”), which allowed the Company to receive up to 710,200 membership interest units of Chip in return for consulting services. The Company earned 500,000 membership interest units in the quarter ended July 31, 2020 and earned the remaining units in the quarter ending October 31, 2020. The Chip units were initially valued at $0.93 per unit based on a sales price of $0.93 per unit on an online funding portal, resulting in revenues of $660,486 for the year ended April 30, 2021. Subsequently, ChipBrain sold identical units for $2.40 per unit, and as of April 30, 2022 and 2021, the units owned by the Company are valued at $1,704,480. In May 2020, the Company entered a consulting contract with a related party, Zelgor Inc. (“Zelgor”), which allowed the Company to receive up to 1,400,000 shares of common stock of Zelgor in return for consulting services. The Company earned 1,050,000 shares in the quarter ended July 31, 2020 and 350,000 shares in the quarter ending October 31, 2020. The Zelgor shares are valued at $1.00 per share based on a sales price of $1.00 per share on an online funding portal, resulting in revenues of $1,400,000 for the year ended April 30, 2021. On January 2, 2020, the Company entered a consulting contract with Deuce Drone LLC (“Drone”), which allowed the Company to receive up to 2,350,000 membership interest units of Drone in return for consulting services. The Company earned all 2,350,000 membership interest units in fiscal 2020. The Drone units were valued at $0.35 per unit based on a sales price of $0.35 per unit when the units were earned, or $822,500. Drone subsequently sold identical Drone units for $1.00 per unit on an online funding portal and as of April 30, 2022 and 2021, the units owned by the Company are valued at $2,350,000 In August 2019, the Company entered a consulting contract with KingsCrowd LLC (“KingsCrowd”), which allowed the Company to receive 300,000 membership interest units of KingsCrowd in return for consulting services. The KingsCrowd units were valued at $1.80 per unit based on a sales price of $1.80 per unit when the units were earned, or $540,000. In December 2020, KingsCrowd converted from a limited liability company to a corporation to facilitate raising capital under Regulation A. KingsCrowd filed a Form 1-A Offering Statement under the Securities Act of 1933 and is selling shares at $1.00 per share. In connection with the conversion to a corporation, each membership interest unit converted into 12.71915 shares of common stock. As of April 30, 2022 and 2021, the Company owned 3,815,745 shares of KingsCrowd Inc., valued at $3,815,745 as of April 30, 2022 and $540,000 as of April 30, 2021. During fiscal 2019, the Company entered a consulting contract with Netcapital Systems LLC (“Netcapital”), which allowed the Company to receive up to 1,000 membership interest units of Netcapital in return for consulting services. The Company earned 40 units in the quarter ended July 31, 2020, at a value of $91.15 per unit, or $3,646. The Company earned all 1,000 Netcapital units but sold a portion of the units in fiscal 2020 at a sales price of $91.15 per unit. As of April 30, 2022 and 2021, the Company owned 528 Netcapital units, at a value of $48,128. F- 22 On July 20, 2020 the Company entered a consulting agreement with Vymedic, Inc. for a $40,000 fee over a 5-month period. Half the fee was payable in stock and half is payable in cash. As of April 30, 2022 and 2021, the Company owned $20,000 worth of stock. F- 23 The following table summarizes the components of equity securities as of April 30, 2022 and 2021: Schedule of investments April 30, 2022 April 30, 2021 Netcapital Systems LLC $ 48,128 $ 48,128 Watch Party LLC 235,400 235,400 Zelgor Inc. 1,400,000 1,400,000 ChipBrain LLC 1,704,480 1,704,480 Vymedic Inc. 20,000 20,000 C-Reveal Therapeutics LLC 50,000 — Deuce Drone LLC 2,350,000 2,350,000 Hiveskill LLC 712,500 — ScanHash LLC 425,000 — Caesars Media Group Inc. 900,000 — Cust Corp. 1,200,000 — Kingscrowd Inc. 3,815,745 540,000 Total $ 12,861,253 $ 6,298,008 The above investments in equity securities are within the scope of ASC 321. The Company monitors the investments for any changes in observable prices from orderly transactions. All investments are initially measured at cost and evaluated for impairment. No impairment expense was recognized in the years ended April 30, 2022 and 2021. In fiscal 2022, the Company identified that Kingscrowd Inc. had an observable price change. The result of the price change was an increase in the fair value of the equity securities totaling $3,275,745 in the fiscal year ended April 30, 2022, which was recorded in the income statement as an unrealized gain on equity securities. In fiscal 2021, there were observable price changes in two securities, ChipBrain LLC and Deuce Drone LLC. The result of these price changes was an increase in the fair value of the equity securities totaling $2,571,494 in the fiscal year ended April 30, 2021, which was recorded in the income statement as an unrealized gain on equity securities. 11. Business Acquisition On November 2, 2021, the owners of ValuCorp Inc. (“ValuCorp”), a business valuation firm, formed a new company MSG Development Corp. (“MSG”) and transferred most of the assets of ValuCorp to MSG. The Company entered into an exchange agreement (“Agreement”) whereby the Company received 100% of the outstanding shares of MSG in exchange for 75,000 shares of common stock of the Company. 50,000 shares of the Company’s common stock were issued in December 2021 and four annual installments of 6,250 shares are due over the next four years. The Company finalized the allocation of the purchase price of the assets acquired in the purchase of MSG. The value assigned to the professional practice was derived using multi-period excess earnings methods under the income approach. This approach estimates the excess earnings generated over the lives of the customers that existed as of the acquisition date and discounts such earnings to present value. The customers, the business practice and other intangible assets are deemed to have a useful life of fifteen years and will be amortized on a straight-line basis over the useful life. MSG’s assets were less than 20% of the value of the Company’s assets and the Company’s investment in MSG is less than 20% of the Company’s market value. Furthermore, the revenue and operating income of MSG’s predecessor, ValuCorp, for the prior two years, is less than 20% of the revenue and operating income of the Company. Upon evaluation of the components of the business combination, including the relative voting rights in the combined entity, the composition of the governing body and senior management of the combined entity, the relative size of each entity and the terms of the exchange of equity interests, the Company recorded the transaction in the third quarter of fiscal 2022 as a purchase. F- 24 The following table summarizes the value of the consideration for MSG and the amounts of the assets acquired in conjunction with the Agreement. MSG had no liabilities. Schedule of Merger agreement Total consideration: 75,000 shares of common stock of the Company $ 732,750 Recognized amounts of identifiable assets acquired: Professional practice intangible $ 556,830 Technology-related intangibles 36,650 Marketing-related intangibles 14,660 Computer-related intangibles 49,111 Customer-related intangibles 16,859 Contract-related intangibles 36,650 Human capital and artistic-related intangibles 21,990 Total identifiable net assets $ 732,750 The fair value of the common shares issued as the consideration for MSG was determined by the most recent closing price of the Company’s common shares at the time the shares were issued. Seven identifiable intangible assets were valued, as noted in the above table (the “Intangible Assets”). The estimated market value of the Intangible Assets on the date of purchase was $1,000,000, and the value of the 75,000 shares of common stock of the Company, payable as consideration was $9.77 per share, or $732,750. The value of the Intangible Assets has been recorded at an aggregate value of $732,750. None of MSG’s revenues and earnings are included in the Company’s consolidated income statements through the day of closing of November 8, 2021. The consolidated income statements for the year ended April 30, 2022, include $250,100 in revenues from MSG for the period November 8, 2021 to April 30, 2022. MSG was a newly formed company with no operations when it was purchased. It had intangible assets that were contributed by its founder (the “Founder”) and no liabilities. Consequently, there are no supplemental pro forma revenues and earnings to report. In conjunction with the purchase of MSG, the Company retained the Founder, who is a valuation professional, to operate the business. The parties agreed that Founder shall receive the first $360,000 in gross profits per year as his compensation, that the Company would receive the next $720,000 per year in gross profits and any gross profits beyond $1,080,000 per year shall be split one-third to the Founder and two-thirds to the Company. On August 23, 2020, the Company entered into an Agreement and Plan of Merger (“Agreement”) whereby Netcapital Systems LLC (“Systems”) would become an 80% owner of the Company. Pursuant to the requirements of this agreement, the Company filed a definitive information statement on Form 14C on September 21, 2020 to change the Company’s corporate name from ValueSetters, Inc. to Netcapital Inc. and to amend the Company’s Articles of Incorporation to effect a stock combination, or reverse stock split, pursuant to which 2,000 shares of the Company’s common stock would be exchanged for one new share of common stock. In conjunction with the merger agreement, the Company issued 1,666,360 shares of common stock to Systems on November 5, 2020. The Agreement was a tax-free merger of Netcapital Funding Portal Inc. (“FP”), a wholly owned subsidiary of Systems, with Netcapital Acquisition Vehicle Inc., an indirect wholly owned subsidiary of the Company, wherein FP was the surviving corporation. This transaction was designed to enhance the Company’s revenues and ability to provide services to democratize the private capital markets while helping companies at all stages to build, grow and fund their businesses with a full range of services from strategic advice to raising capital. As a result of the transaction, the Company is expected to be a leading provider of private capital transactions for entrepreneurs seeking to raise money under the exemption provided by section 4(a)(6) of the Securities Act of 1933, which allows private companies to raise up to $5 million every 12 months. ASC 805-10-25-4 requires the identification of one of the combining entities in each business combination as the acquirer. Upon evaluation of the components of the business combination, including the relative voting rights in the combined entity, the composition of the governing body and senior management of the combined entity, the relative size of each entity and the terms of the exchange of equity interests, the Company recorded the transaction in the third quarter of fiscal 2021 as a purchase. In conjunction with the purchase, Systems agreed to vote all of its shares of common stock to support the resolutions of the existing board of directors of the Company. F- 25 The following table summarizes the value of the consideration for FP and the amounts of the assets acquired and liabilities assumed in conjunction with the Agreement. Schedule of Merger agreement Consideration: 1,666,360 shares of common stock of the Company $ 11,331,248 Payment of promissory notes and interest 3,817,516 Total consideration $ 15,148,764 Recognized amounts of identifiable assets acquired, and liabilities assumed: Cash $ 358,634 Current assets 8,894 Accounts payable ( 22,718 ) Platform users 7,080,319 Platform investors 6,288,392 Platform issuers 903,125 Unpatented technology 532,118 Total identifiable net assets $ 15,148,764 The fair value of the common shares issued as the consideration for FP was determined by the most recent (the prior day’s) closing price of the Company’s common shares at the time the shares were issued. The fair value of the assets and the liabilities of FP equaled their book value. Four identifiable intangible assets were valued; platform users, platform investors, platform issuers and unpatented technology (collectively the “Intangible Assets”). The estimated market value of the Intangible Assets is approximately $27,800,000. This amount is derived from valuing the IP functionality, brand, and license of FP at $1,000,000; valuing current issuers and pipeline issuers at approximately $14,000 each; valuing platform users at $382 each; and valuing investors at $1,025 each. These values are derived from comparing the FP Intangible Assets to the values recorded by funding portal offerings of FP’s competitors in public filings via Regulation CF and Regulation A. The excess of purchase price over the total identifiable tangible net assets of $344,810, leaves an aggregate value of $14,803,954 to be assigned to the Intangible Assets. The estimated value of the $27,800,000 of Intangible Assets is allocated on a percentage basis in the above table to equal $14,803,954. None of FP’s revenues and earnings are included in the Company’s consolidated income statements through the day of closing of November 5, 2020. The consolidated income statements for the year ended April 30, 2021 include $834,981 in revenues from FP. If the entities had been combined for the two reporting periods, the supplemental pro forma revenues and earnings are as follows: Schedule of Pro forma revenue and earnings Revenues Earnings Supplemental pro forma for 4/1/20 – 11/04/20 $ 2,866,063 $ 282,264 Supplemental pro forma for 4/1/19 – 11/04/19 $ 1,018,200 $ 680,212 Included in the supplemental pro forma information above is revenue earned by the Company from Netcapital Systems LLC of $ 18,646 and $ 152,864 in the periods ended November 4, 2020 and 2019, respectively. Each quarter the Company reviews events and circumstances to determine if impairment of indefinite-lived intangible assets is indicated. During the years ended April 30, 2022 and 2021, we did not identify any triggering events or circumstances, including impacts due to COVID-19, which would indicate an impairment of indefinite-lived intangible assets. F- 26 12. Subsequent Events The Company evaluated subsequent events through the date these financial statements were available to be issued. On July 14, 2022, the Company paid in full two outstanding convertible promissory notes and accrued interest payable totaling $310,192 by the issuance of 93,432 shares of common stock of the Company. The Company also issued 39,901 shares of common stock to pay off the $294,054 balance of supplemental consideration due to Netcapital Systems LLC. See Note 9. On July 15, 2022, the Company completed an underwritten public offering of 1,205,000 shares of the Company’s common stock and warrants to purchase 1,205,000 shares of the Company’s 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. In conjunction with this offering, the shares and warrants began trading on The Nasdaq Capital Market on July 13, 2022, under the ticker symbols “NCPL” and “NCPLW,” respectively. In addition, the Company granted the underwriter a 45-day option to purchase up to an additional 180,750 shares of common stock and/or up to 180,750 additional warrants to cover over-allotments, if any. In connection with the closing of the offering, the underwriter partially exercised its over-allotment option and purchased an additional 111,300 warrants. The underwriter retains the right to exercise the balance of its over-allotment option within the 45-day period. On July 21, 2022 the company paid $1 million to its secured lender, Vaxstar LLC, to reduce the principal balance on its debt from $1,400,000 to $400,000. F- 27