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, 2023. Based on that evaluation, the PEO and the PFO concluded that, as of April 30, 2023, 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, 2023, 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, 2023. 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not Applicable. 37 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 26, 2023. Our executive officers and directors are as follows: Officer or Name Age Position Director Since Martin Kay 59 President and Chief Executive Officer, Director May 2022 Cecilia Lenk 68 Director, CEO of Netcapital Advisors Inc. July 2017 Avi Liss 43 Secretary and Director August 2010 Steven Geary 56 Director June 2006 Arnold Scott 80 Director November 2022 Coreen Kraysler 59 Chief Financial Officer September 2017 Jason Frishman 30 Founder 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 Martin Kay, Director and Chief Executive Officer Martin Kay has served as a Director of the Company since May 2022 and as our Chief Executive Officer since January 2023. He was formerly a Managing Director at Accenture Strategy, a position he held from October 2015 until December 2022 and 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. Cecilia Lenk, Director and CEO of Netcapital Advisors Inc. Cecilia Lenk has served as a director since July 2017. She served as our Chief Executive Officer from July 2017 to January 2023 and currently serves as the Chief Executive Officer of our wholly owned subsidiary, Netcapital Advisors Inc. Prior to that, she worked as a self-employed business consultant and a town councilor in Watertown, MA for five years. 38 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. 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. Arnold Scott, Director Arnold Scott has served as a Director of the Company since December 2022. In addition, Mr. Scott currently serves as a founding member of the Boston Chapter of the Private Directors Association, a position he has held since 2020. Previously, he served as a director of ChipBrain, a position he held from 2021 - 2022, a director and Vice Chairman of First Commons Bank from 2008-2017, as a director of Perillon Software from 2015-2019 and as a manager on the board of managers of Netcapital Systems LLC from 2017 - 2020, an affiliate and shareholder of Netcapital Inc. In addition, he previously has served as a member of the board of trustees of Alderson Broaddus University from 2013 to 2020. He has also served on several advisory boards including Vestmark, Successimo, ai Resources, and The Capital Network. 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 CFA Charterholder 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, Founder of Netcapital Funding Portal Inc. Jason Frishman is the Founder and former Chief Executive Officer of our funding portal subsidiary, Netcapital Funding Portal Inc. Mr. Frishman founded Netcapital Funding Portal Inc. 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. Mr. Frishman 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. 39 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 five 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, Arnold Scott, 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, Arnold Scott, 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 committees took actions by written consent on three occasions during the fiscal year ended April 30, 2023. No fees are paid to directors for attendance at meetings or for agreeing to a unanimous consent or the Board. 40 Compensation Committee Our Compensation Committee consists of Avi Liss, Arnold Scott, 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 took action by written consent on two occasions during the fiscal year ended April 30, 2023. Nominating and Corporate Governance Committee Our Nominating and Governance Committee consists of Avi Liss, Arnold Scott, 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 took actions by written consent on fifteen occasions during the fiscal year ended April 30, 2023. No fees are paid to directors for attendance at meetings or for agreeing to a unanimous consent. Audit Committee Our Audit Committee members consist of Arnold Scott, 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. 41 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 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 on Form S-1/A filed on April 8, 2022. 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. 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, 2023, 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, 2023. ● Avi Liss failed to timely report one transaction on a Form 4, which report has now been filed. ● Steven Geary failed to timely report two transactions on a Form 4, which reports have now been filed. ● Arnold Scott failed to timely report one transaction on a Form 4, which report has now been filed. ● Cecilia Lenk failed to timely report one transaction on a Form 4, which report has now been filed. 42 ITEM 11. EXECUTIVE COMPENSATION. Summary Compensation Table The following table sets forth, for the fiscal years indicated, all compensation awarded to, earned by or paid to Martin Kay, our CEO (since January 3, 2023), Cecilia Lenk, our former chief executive officer (until January 3, 2023), Coreen Kraysler, our CFO, Carole Murko, our former Chief Marketing Officer and Jason Frishman, Founder and former Chief Executive Officer of our wholly owned subsidiary Netcapital Funding Portal, Inc., or, collectively, the Named Executive Officers, or NEOs. We have no other executive officers. 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 ($) ($) ($)(1) ($) ($) ($) ($) ($) Martin Kay, CEO ( Since January 3, 2023 ) 2023 94,615 — 0 81,309 — — — 175,924 Cecilia Lenk CEO ( until January 3, 2023 and CEO of Netcapital Advisors since January 3, 2023 ) 2023 142,500 — — 4,833 — — — 147,333 2022 96,000 — 40,608 5,825 — — — 142,433 Coreen 2023 164,135 25,000 0 25,927 0 0 0 215,062 Kraysler, CFO 2022 96,000 0 40,608 11,649 0 0 0 148,257 Carole Murko, former CMO ( until January 7, 2022 )(2) 2022 73,688 — 109,547 — — — — 183,235 Jason Frishman, Founder, (and former CEO of Netcapital Funding Portal, until February 9, 2023) 2023 166,173 25,000 — 25,927 — — — 217,100 2022 96,000 0 0 11,649 0 — — 107,649 43 (1) Represents the dollar amount of vested equity awards during the fiscal year. (2) Ms. Murko received severance of $7,384.50 and her 8,885 unvested shares vested upon termination, both pursuant to a separation agreement. Outstanding Equity Awards At End Of 2023 The following table provides information about outstanding stock options issued by the Company held by each of our NEOs as of April 30, 2023. None of our NEOs held any other equity awards from the Company as of April 30, 2023. Option Awards Stock Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Number of Shares of Stock That Has Not Yet Vested Market Value of Stock that has not Yet Vested Martin Kay 83,332 916,668 1.43 1/3/2033 0 0 Cecilia Lenk 417 19,583 1.40 4/25/2033 0 0 3,120 6,880 10.50 2/9/2032 0 0 Coreen Kraysler 16,668 183,332 1.43 1/3/2033 0 0 6,255 13,745 10.50 2/9/2032 0 0 Jason Frishman 16,668 183,332 1.43 1/3/2033 0 0 6,255 13,745 10.50 2/9/2032 0 0 44 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 was out-of-the-money at time of issuance and expires ten years after the date of grant. On April 25, 2023, we granted to each of our three current independent board members, options to purchase 20,000 shares of common stock under the 2023 Omnibus Equity Incentive Plan which will be exercisable at a per share exercise price of $1.40, that was out-of-the-money at time of issuance and expires 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 We pay each of our Named Executives Officers a combination of a cash salary and equity awards for their services. Employment Agreements We currently have employment agreements with Martin Kay and Coreen Kraysler. Prior to the resignations of Cecilia Lenk on January 3, 2023 and Jason Frishman on February 9, 2023, we and our Netcapital Funding Portal subsidiary had employment agreements with each of them, respectively. Cecilia Lenk is currently the Chief Executive Officer of our wholly owned subsidiary and Jason Frishman holds the position of Founder of Netcapital Inc. The former employment agreements of Cecilia Lenk and Jason Frishman are 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 Martin Kay We entered into an employment agreement with Martin Kay on January 3, 2023, pursuant to which we employ Mr. Kay as our Chief Executive Officer. Under the Employment Agreement, Mr. Kay is eligible to (a) receive an annual base salary of $300,000; (b) receive an option grant to purchase 100,000 fully vested shares of the Company pursuant to the 2023 Plan and an option grant to purchase 1,000,000 shares of the Company, which vest monthly over four (4) years pursuant to an option award agreement, described below, and in each case subject to the 2023 Plan; (c) receive periodic bonuses or additional salary in the discretion of the Board or compensation committee; (d) receive .005 times the gross revenue paid in cash annually so long as the Company reports positive earnings after the bonus is paid; (d) participate in the Company’s fringe benefits, health and welfare plans, and pension and/ or profit sharing plans provided to executives; (e) receive reimbursement for all reasonable business expenses; and f) receive sick leave, sick pay, and disability benefits in accordance with Company policy. Mr. Kay’s employment agreement, which has a three-year term, may be terminated upon the occurrence of the death of Mr. Kay, at any time by Mr. Kay, by the Company due to disability, by the Company for “cause”, and by Mr. Kay for “good reason”. Mr. Kay’s employment agreement also contains provisions regarding, among other things, a six (6)-month non-competition provision, confidential information, governing law, and covenants governing Mr. Kay’s conduct. Employment Agreement with Cecilia Lenk We entered into an employment agreement with Cecilia Lenk on June 23, 2022 pursuant to which we employed Ms. Lenk as CEO of our wholly owned subsidiary. The term of her agreement ends on June 23, 2025. The agreement provided for an annual base salary during the term of the agreement of $96,000, which was increased to $150,000 upon completion of a public offering in July 2022. Ms. Lenk was 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 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 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. 45 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 was increased to $150,000 upon completion of a public offering in July 2022, and increased to $225,000 in January 2023. 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 employed Mr. Frishman, our Founder, as Chief Executive Officer of Netcapital Funding Portal, Inc. The term of his agreement ends on June 23, 2025. The Agreement provided for an annual base salary during the term of the agreement of $96,000, which was increased to $150,000 upon completion of a public offering in July 2022, and increased to $225,000 in January 2023. 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 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 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 was 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. 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 and 200,000 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 and January 2023, respectively. The following table sets forth quantitative information with respect to potential payments to be made to Ms. Kraysler 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 Ms. Kraysler’s employment agreement, see the “Employment Agreements” section above. 46 Name Potential Payment Upon Termination Option Awards (#) Coreen Kraysler 197,077 (1) (1) Represents the number of unvested options at April 30, 2023. Ms. Kraysler’s options vest equally over a 48-month period. At April 30, 2023, there were 33 months remaining in her vesting schedule for the options granted in February 2022 and 44 months remaining in her vesting schedule for the options granted in January 2023. 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. Pay Versus Performance As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between executive compensation and certain financial performance metrics. The disclosure included in this section is prescribed by SEC rules and does not necessarily align with how we or the compensation committee view the link between financial performance and the compensation actually received or realized by our named executive officers. All information provided above under the “Pay Versus Performance” heading will not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing, except to the extent the Company specifically incorporates such information by reference. The table below presents information on the compensation of CEO and other named executive officers in comparison to certain performance metrics for 2023 and 2022. Martin Kay has been our CEO since January 3, 2023 and Cecilia Lenk was CEO for all of 2022 and through January 3, 2023. These metrics are not those that the compensation committee uses when setting executive compensation. The use of the term Compensation Actually Paid (CAP) is required by the rules and regulations of the SEC, and under such rules, CAP was calculated by adjusting the Summary Compensation Table, or SCT. Total values for the applicable year as described in the footnotes to the table. Year Summary Compensation Table Total for First PEO (Cecilia Lenk) (1) Summary Compensation Table Total for Second PEO (Martin Kay) (1) Compensation Actually Paid to First PEO (1) Compensation Actually Paid to Second PEO (1) Average Summary Compensation Table Total for Non-PEO Name Executive Officers (1)(2) Average Compensation Actually Paid to Non-PEO Name Executive Officers (3) Value of Initial Fixed $100 Investment Based on Total Shareholder Return Net Income (a) (b) (a) (b) (c) (d) 2023 $ 93,461 175,924 $ 43,059 $ 1,045,940 $ 193,165 $ 256,879 $ 10 $ 2,954,972 2022 $ 142,433 $ — $ 154,095 $ — $ 146,380 $ 166,022 $ 68 3,503,530 47 (1) The Principal Executive Officer (“PEO”) information reflected in columns (a) and (b) relates to our CEO, Cecilia Lenk (until January 3, 2023), or First PEO, and Martin Kay (from January 3. 2023 until April 30, 2023), or Second PEO. The non-Principal Executive Officer (“non-PEO”) NEOs information reflected in columns (c) and (d) above relates to our CFO Coreen Kraysler and founder of our Netcapital Funding Portal Subsidiary, Jason Frishman. (2) The amounts shown in this column are the average total compensation reported for the non-PEO NEOs, as applicable, for each corresponding year in the “Total” column of the Summary Compensation. Please refer to “Executive Compensation—Compensation Tables—Summary Compensation Table.” (3) The amounts shown have been calculated in accordance with Item 402(v) of Regulation S-K and do not reflect compensation actually realized or received by the Company’s PEO and non-PEO NEOs. In accordance with the requirements of Item 402(v) of Regulation S-K, adjustments were made to Ms. Lenk’s and Mr. Kay’s total compensation, as applicable, or the average total compensation of the non-PEO NEOs, as applicable, as described in the tables below. First PEO (Cecilia Lenk) SCT Total to CAP Reconciliation Year Summary Compensation Total Less Stock Awards Less Option Awards Fair Value Adjustments to SCT Total CAP 2023 $ 93,461 $ — $ (4,833 ) $ (45,569 ) $ 43,059 2022 142,433 (40,608 ) (5,825 ) 58,095 154,095 Second PEO (Martin Kay) SCT Total to CAP Reconciliation Year Summary Compensation Total Less Stock Awards Less Option Awards Fair Value Adjustments to SCT Total CAP 2023 $ 175,924 $ — $ (81,309 ) $ 951,325 $ 1,405,940 2022 — — — — — Average Non-PEO NEOs SCT Total to CAP Reconciliation Year Summary Compensation Total Less Stock Awards Less Option Awards Fair Value Adjustments to SCT Total CAP 2023 $ 193,165 $ — $ (17,285 ) $ 80,999 $ 256,879 2022 146,380 (50,052 ) (7,766 ) 77,459 166,022 48 First PEO (Cecilia Lenk) Equity Component of CAP Year Fair Value of Current Year Equity Awards at December 31, Change in Fair Value of Prior Years’ Awards Unvested at December 31, Change in Fair Value of Prior Years’ Awards Vested through the Year Ended December 31, Change in Fair Value of Prior Years’ Awards Failed to Vest through the Year Ended December 31, Equity Value Included in CAP (a) (b) (c) (d) (e) = (a)+(b)+(c)+(d) 2023 $ — $ (33,417 ) $ — $ (12,152 ) $ (45,569 ) 2022 54,464 — 3,631 — 58,095 Second PEO (Martin Kay) Equity Component of CAP Year Fair Value of Current Year Equity Awards at December 31, Change in Fair Value of Prior Years’ Awards Unvested at December 31, Change in Fair Value of Prior Years’ Awards Vested through the Year Ended December 31, Change in Fair Value of Prior Years’ Awards Failed to Vest through the Year Ended December 31, Equity Value Included in CAP (a) (b) (c) (d) (e) = (a)+(b)+(c)+(d) 2023 $ 872,048 $ — $ 79,277 $ — $ 951,325 2022 — — — — — Average Non-PEO NEOs Equity Component of CAP Year Fair Value of Current Year Equity Awards at December 31, Change in Fair Value of Prior Years’ Awards Unvested at December 31, Change in Fair Value of Prior Years’ Awards Vested through the Year Ended December 31, Change in Fair Value of Prior Years’ Awards Failed to Vest through the Year Ended December 31, Equity Value Included in CAP (a) (b) (c) (d) (e) = (a)+(b)+(c)+(d) 2023 $ 130,998 $ (44,556 ) $ 10,759 $ (16,202 ) $ 80,999 2022 72,618 — 4,841 — 77,459 49 Compensation Plans 2021 Equity Incentive Plan and 2023 Omnibus Equity Incentive Plan The following table shows information regarding our equity compensation plans as of April 30, 2023. 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 (1) 1,950,000 $ 1.42 50,000 Equity compensation plans not approved by security holders (2) 252,000 $ 10.50 48,000 Total 2,202,000 $ 2.46 98,000 (1) 2023 Omnibus Equity Incentive Plan . On January 3, 2023, the Board of Directors of the Company approved and adopted the Netcapital Inc., 2023 Omnibus Equity Incentive Plan (the “2023 Plan”), subject to the approval of the 2023 Plan by the Company’s stockholders. The total number of Shares of Common Stock authorized for issuance under the 2023 Plan is (i) 2,000,000 Shares of Common Stock plus (ii) an annual increase on the first day of each calendar year beginning with May 1, 2024 and ending with the last May 1 during the initial ten-year term of the 2023 Plan, equal to the lesser of (A) five percent (5%) of the Shares of Common Stock outstanding (on an as-converted basis, which shall include Shares issuable upon the exercise or conversion of all outstanding securities or rights convertible into or exercisable for Shares of Common Stock, including without limitation, preferred stock, warrants and employee options to purchase any Shares of Common Stock) on the final day of the immediately preceding calendar year and (B) such lesser number of Shares of Common Stock as determined by the Board; provided, that, Shares of Common Stock issued under the 2023 Plan with respect to an Exempt Award shall not count against such share limit. No more than 2,000,000 Shares, and as increased on an annual basis, on the first day of each calendar year beginning with May 1, 2024 and ending with the last May 1 during the initial ten-year term of the Plan, by the lesser of (A) five percent (5%) of the shares of Common Stock outstanding (on an as-converted basis, which shall include Shares of Common Stock issuable upon the exercise or conversion of all outstanding securities or rights convertible into or exercisable for shares of Common Stock, including without limitation, preferred stock, warrants and employee options to purchase any shares of Common Stock) on the final day of the immediately preceding calendar year; (B) 300,000 shares of Common Stock, and (C) such lesser number of shares of Common Stock as determined by the Board, shall be issued pursuant to the exercise of ISOs. As of April 30, 2023, we had awarded an aggregate of 1,950,000 options to purchase shares of common stock to directors and there remain 50,000 shares for grant under the 2023 Plan. Administration. The 2023 Plan will be administered by the Board or a committee to which the Board delegates such responsibility (the “Administrator”). The 2023 Plan will be administered by the Administrator in accordance with Rule 16b-3 of the Securities Exchange Act of 1934, as amended. The Administrator may interpret the 2023 Plan and may prescribe, amend and rescind rules and make all other determinations necessary or desirable for the administration of the 2023 Plan. The 2023 Plan permits the Administrator to select the eligible recipients who will receive awards (“Awards”), to determine the terms and conditions of those awards, including but not limited to the exercise price or other purchase price of an award, the number of shares of common stock or cash or other property subject to an award, the term of an award and the vesting schedule applicable to an award, to determine the terms and conditions of written instruments evidencing such awards (an “Award Agreement”) and to amend the terms and conditions of outstanding awards. 50 Eligibility. Employees, directors and independent contractors of the Company or any of its affiliates of the Company will be eligible to receive Awards under the 2023 Plan, subject to certain limitations to avoid accelerated taxation and/or tax penalties under Section 409A of the Code. The participants in the 2023 Plan shall be selected from time to time by the Administrator, in its sole discretion, from those individuals that qualify as eligible recipients. Consideration for Awards. The purchase price for any Award granted under the 2023 Plan or the Common Stock to be delivered pursuant to any such Award, as applicable, may be paid by means of any lawful consideration as determined by the Administrator, including, without limitation, one or a combination of the following methods: ● services rendered by the recipient of such Award; ● cash, check payable to the order of the Company, or electronic funds transfer; ● notice and third party payment in such manner as may be authorized by the Administrator; ● the delivery of previously owned and fully vested Shares of Common Stock; ● by a reduction in the number of Shares otherwise deliverable pursuant to the Award; or ● subject to such procedures as the Administrator may adopt, pursuant to a “cashless exercise” with a third party who provides financing for the purposes of (or who otherwise facilitates) the purchase or exercise of Awards. Awards. The 2023 Plan permits the grant of: (a) stock options, which may be intended as incentive stock options (“ISOs”) or as nonqualified stock options (options not meeting the requirements to qualify as ISOs); (b) stock appreciation rights (“SARs”); (c) restricted stock; (d) restricted stock units; (e) cash incentive awards; or (f) other awards, including: (i) stock bonuses, performance stock, performance units, dividend equivalents, or similar rights to purchase or acquire Shares, whether at a fixed or variable price or ratio related to the Common Stock, upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof; or (ii) any similar securities with a value derived from the value of or related to the Common Stock and/or returns thereon. Adjustments. To the extent necessary to preserve the economic intent of an Award or of the 2023 Plan, following a “Change in Capitalization”, such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. A “Change in Capitalization” means any of the following: (i) merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase or other reorganization or corporate transaction or event, (ii) special or extraordinary dividend or other extraordinary distribution (whether in the form of cash, Common Stock or other property), stock split, reverse stock split, share subdivision or consolidation, (iii) combination or exchange of shares or (iv) other change in corporate structure, which, in any such case, the Administrator determines, in its sole discretion, affects the Shares such that an adjustment would be appropriate. Options. Options granted under the 2023 Plan shall be designated as nonqualified stock options or ISOs. Each participant (“Participant”) who is granted an option (“Option”) shall enter into an Award Agreement with the Company, containing such terms and conditions as the Administrator shall determine, in its sole discretion, including, among other things, the Exercise Price (as defined in the 2023 Plan) of the Option, the term of the Option and provisions regarding exercisability of the Option, and whether the Option is intended to be an ISO or a nonqualified stock option (and in the event the Award Agreement has no such designation, the Option shall be a nonqualified stock option). The provisions of each Option need not be the same with respect to each Participant. More than one Option may be granted to the same Participant and be outstanding concurrently hereunder. The Exercise Price of Shares purchasable under an Option shall be determined by the Administrator in its sole discretion at the time of grant, but in no event shall the exercise price of an Option be less than one hundred percent (100%) of the Fair Market Value of a Share of Common Stock on the date of grant. The maximum term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten (10) years after the date such Option is granted. The Administrator shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as the Administrator, in its sole discretion, deems appropriate. Each Option shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of performance goals, as shall be determined by the Administrator in the applicable Award Agreement. 51 The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion. The Administrator shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as the Administrator, in its sole discretion, deems appropriate. Notwithstanding anything to the contrary in the 2023 Plan, if an ISO is granted to a participant who owns Shares representing more than ten percent (10%) of the voting power of all classes of Shares of the Company at the time of grant, its “parent corporation” (as such term is defined in Section 424(e) of the Code) or a subsidiary of the Company, the term of the ISO shall not exceed five (5) years from the time of grant of such ISO and the Exercise Price shall be at least one hundred and ten percent (110%) of the Fair Market Value of the Shares on the date of grant. A Participant shall have no rights to dividends, dividend equivalents or distributions or any other rights of a stockholder with respect to the Shares subject to an Option until the Participant has given written notice of the exercise thereof, and has paid in full for such Shares and has satisfied the requirements of the 2023 Plan. Treatment of an Option upon termination of employment of a Participant shall be provided for by the Administrator in the Award Agreement. An Option shall be affected, both with regard to vesting schedule and termination, by leaves of absence, including unpaid and un-protected leaves of absence, changes from full-time to part-time employment, partial disability or other changes in the employment status or service status of a Participant, in the discretion of the Administrator. Stock Appreciation Rights. The Administrator will be authorized to award SARs under the 2023 Plan. SARs will be subject to the terms and conditions established by the Administrator and reflected in the Award Agreement. A SAR is a contractual right that allows a participant to receive, in the form of either cash, Shares or any combination of cash and Shares, the appreciation, if any, in the value of a Share over a certain period of time. An option granted under the 2023 Plan may include SARs, and SARs may also be awarded to a participant independent of the grant of an option. SARs granted in connection with an option shall be subject to terms similar to the option corresponding to such SARs. Restricted Stock and Restricted Stock Units (RSUs). The Administrator will be authorized to award restricted stock or RSUs under the 2023 Plan. Awards of restricted stock and RSUs will be subject to the terms and conditions established by the Administrator at its sole discretion. Other Stock-Based Awards. Other Stock-Based Awards may be issued under the 2023 Plan. Subject to the provisions of the 2023 Plan, the Administrator shall have sole and complete authority to determine the individuals to whom and the time or times at which such Other Stock-Based Awards shall be granted. An example of an Other Stock-Based Award is a performance bonus payable as Company Common Stock. Change in Control. In the event that a change in control occurs, as defined in the 2023 Plan to include, among other things, the acquisition by a person of more than 50% of the voting power of the Company, the Administrator may, at its sole discretion, modify any unvested and un-exercisable portion of any Award to make it fully vested and exercisable. Amendment and Termination. The Board may amend, alter or terminate the 2023 Plan at any time, but no amendment, alteration or termination shall be made that would impair the rights of a participant under any Award theretofore granted without such participant’s consent. The Board shall obtain approval of the Company’s stockholders for any amendment that would require such approval in order to satisfy the requirements of any rules of the stock exchange on which the Common Stock is traded or other applicable law. The foregoing description of the 2023 Plan does not purport to be complete and is qualified in its entirety by reference to the full text of the 2023 Plan, a copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference. (2) 2021 Equity Incentive Plan . In November 2021, our Board adopted the 2021 Equity Incentive Plan, or the 2021 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 2021 Plan. The 2021 Plan administrator may grant awards to any employee, director, consultant or other person providing services to us or our affiliates. As of April 30, 2023, we had awarded an aggregate of 252,000 options to purchase shares of common stock to directors and there remain 48,000 shares for grant under the 2021 Plan. 52 The 2021 Plan is administered by our Board. The 2021 Plan administrator has the authority to determine, within the limits of the express provisions of the 2021 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 2021 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 2021 Plan without the consent of the recipient. No awards may be made under the 2021 Plan after the tenth anniversary of its effective date. Awards under the 2021 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 2021 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 2021 Plan administrator. The exercise price for stock options will be determined by the 2021 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 2021 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 2021 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 2021 Plan administrator (including one or more forms of “cashless” or “net” exercise). Stock Appreciation Rights . The 2021 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 2021 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. Restricted Shares and Restricted Units . The 2021 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 2021 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 2021 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 2021 Plan administrator may grant performance awards to participants under such terms and conditions as the 2021 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 2021 Plan administrator. 53 Other Stock-Based Awards . The 2021 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 2021 Plan administrator. Payment under any other stock-based awards will be made in common stock or cash, as determined by the 2021 Plan administrator. Board Diversity Matrix Our Nominating and Corporate Governance Committee is committed to promoting diversity on our Board of Directors. We have surveyed our current directors and asked each director to self-identify their race, ethnicity, and gender using one or more of the below categories. The results of this survey as of July 26, 2023 are included in the matrix below. Board Diversity Matrix (As of July 26, 2023) Total Number of Directors: 5 Part I: Gender Identity Female Male Non-Binary Did Not Disclose Gender Directors 1 4 Part II: Demographic Background African American or Black Alaskan Native or Native American Asian Hispanic or Latinx Native Hawaiian or Pacific Islander White 1 3 Two or More Races or Ethnicities LGBTQ+ Did Not Disclose Demographic Background 1 54 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 26, 2023 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 26, 2023. 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. Name and Address Amount of Shares and Nature of Beneficial Owner (1) of Beneficial Ownership of Common Stock Percent of Common Stock* Netcapital Systems LLC (2) 1,711,261 18.2 % Bard Associates LLC (3) 1,494,838 15.5 % Martin Kay (4) 187,500 2.0 % Arnold Scott (5) 88,640 ** % Coreen Kraysler (6) 68,333 ** % Cecilia Lenk (7) 32,318 ** % Steven Geary (8) 14,883 ** % Avi Liss (8) 15,583 ** % Officers and Directors as a group (6 persons) 407,257 4.2 % _________________ * Based on 9,415,382 shares outstanding as of July 26, 2023. ** 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 Systems 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) Based solely on a Schedule 13D/A filed with the SEC on May 26, 2023, Bard Associates Inc. is an investment manager and beneficially owns 1,494,835 shares of our common stock (including 233,525 shares of common stock under presently exercisable warrants), including sole voting power over 73,000 shares, sole dispositive power over 73,000 shares, shared dispositive power over 1,421,835 shares; and Timothy Johnson has sole dispositive power over 101,000 shares. The address for Bard Associates Inc. and Timothy Johnson is 135 South LaSalle Street, Suite 3700, Chicago, IL 60603. ( 4) Includes 187,500 shares of common stock subject to stock options that are presently exercisable or exercisable within 60 days after July 26, 2023. 55 (5) Includes 2,500 shares of common stock subject to stock options that are presently exercisable or exercisable within 60 days after July 26, 2023. (6) Includes 45,833 shares of common stock subject to stock options that are presently exercisable or exercisable within 60 days after July 26, 2023. (7) Includes 6,667 shares of common stock subject to stock options that are presently exercisable or exercisable within 60 days after July 26, 2023. (8) Includes 4,583 shares of common stock subject to stock options that are presently exercisable or exercisable within 60 days after July 26, 2023. 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. Transactions with Related Parties The Company’s largest shareholder, Netcapital Systems LLC (“Systems”), owns 1,711,261 shares of common stock, or 26.6% of the Company’s 6,440,527 outstanding shares as of April 30, 2023 (and approximately 18.2% of the Company’s outstanding stock as of July 26, 2023). As of April 30, 2022, the Company accrued a payable to Systems of $294,054 for supplemental consideration owed in conjunction with its purchase of Netcapital Funding Portal Inc., which was paid in full on July 14, 2022, with the issuance to Systems of 39,901 shares of the Company’s common stock. The Company provided professional services to Systems in the years ended April 30, 2023 and 2022 and recorded revenue of $4,660 and $15,000, respectively, for those services. In total, the Company owed Systems $0 and $294,054 as of April 30, 2023 and 2022, respectively. The company paid Systems $430,000 and $357,429 in the years ended April 30, 2023 and 2022, respectively, for use of the software that runs the website www.netcapital.com. The Chief Executive Officer of our wholly owned subsidiary, Netcapital Advisors Inc., is a member of the board of directors of KingsCrowd Inc. The Company sold 606,060 shares of KingsCrowd in June 2022 for proceeds of $200,000 and recorded a realized loss on the sale of the investment of $406,060. As of April 30, 2023 and 2022, the Company owned 3,209,685 and 3,815,745 shares of KingsCrowd Inc., valued at $3,209,685 and $3,815,745, respectively. The Chief Executive Officer of our wholly owned subsidiary, Netcapital Advisors Inc. is a member of the board of directors of Deuce Drone LLC. As of April 30, 2023 and 2022, the Company owned 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, 2023 and 2022. 56 Compensation expense to officers in the years ended April 30, 2023 and 2022 consisted of common stock valued at $0 and $190,763, respectively, cash compensation of $598,077 and $265,688, respectively, and options to purchase common stock valued at $137,994 and $3,147, respectively. Compensation to a related party consultant in the years ended April 30, 2023 and 2022 consisted of common stock valued at $0 and $25,908, respectively, and cash compensation of $60,039 and $60,000, respectively. This consultant is also the controlling shareholder of Zelgor Inc., and the Company earned revenues from Zelgor Inc. of $66,000 and $5,500 in the years ended April 30, 2023 and 2022. 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, 2023. Cash compensation to the President of Netcapital Systems LLC amounted to $184,808 and $96,000, and stock-based compensation amounted to $25,927 and $0, in the years ended April 30, 2023 and 2022, respectively. We owe Steven Geary, a director, $31,680 as of April 30, 2023 and 2022. 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. 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 members of our board of directors 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 Chief Executive Officer of Netcapital Advisors Inc., who is also a director, and each of the three independent board members received an option to purchase 5,000 shares of common stock. The options vest on a straight-line basis over 48 months and expire in 10 years. On April 25, 2023, the Company also granted the same four members of our board of directors an aggregate of 80,000 options, or 20,000 for each board member, to purchase shares of our common stock at an exercise price of $1.40 per share. The options vest monthly on a straight-line basis over a 4-year period and expire in 10 years. In January 2023 we granted stock options to purchase an aggregate of 1,600,000 shares of our common stock to four related parties as follows: Our Chief Executive Officer, 1,000,000 shares; our Chief Financial Officer, 200,000 shares; our Founder, 200,000 shares; and a director of one of our subsidiaries, 200,000 shares. The options have an exercise price of $1.43, vest monthly on a straight-line basis over a 4-year period 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 began 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 2023 Fiscal 2022 Audit fees $ 84,113 $ 53,325 Audit related fees Tax fees All other fees Total $ 84,113 $ 53,325 57 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. 58 PART IV ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS. Exhibit Number Description 1.1 Underwriting Agreement between the registrant and ThinkEquity LLCincorporated by reference to Exhibit 1.1 to our Current Report on Form 8-K dated July 12, 2022. 1.2 Underwriting Agreement dated July 19, 2023 between the Registrant and ThinkEquity LLC, incorporated by reference to our Current Report on Form 8-K dated July 19, 2023. 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 3.2 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 3.3 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 3.4 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 3.5 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 3.6 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 Unsecured Convertible Notes, incorporated by reference to Exhibit 4.3 to our Form S-1 dated February 14, 2022 4.3 Form of Representative’s Warrant incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated July 15, 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 Public Warrant, incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated July 15, 2022 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 Form of Representative’s Warrant incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated July 15, 2022. 4.8 Form of Unsecured Convertible Notes incorporated by reference to our Current Report on Form 8-K dated July 15, 2022. 4.9 Form of Representative Warrant (included as Exhibit A to Exhibit 1.1) incorporated by reference to our Current Report on Form 8-K dated December 16, 2022. 59 4.10 Form of Placement Agent Warrant, incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated May 23, 2023. 4.11 Form of Representative Warrant, incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K dated July 19, 2023. 4.12* 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+ Employment Agreement with Carole Murko, incorporated by reference to Exhibit 10.12 to our Form S-1 dated February 14, 2022 10.3+ Separation Agreement with Carole Murko, incorporated by reference to Exhibit 10.13 to our Form S-1 dated February 14, 2022 10.4 Form of Note Purchase Agreement, incorporated by reference to Exhibit 10.14 to our Form S-1 dated February 14, 2022 10.5 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. 10.6+ 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. 10.7+ 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. 10.8+ 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. 10.9+ Netcapital Inc 2023 Omnibus Equity Incentive Plan incorporated by reference to our Current Report on Form 8-K dated January 5, 2023. 10.10 Employment Agreement with Martin Kay dated January 3, 2023 incorporated by reference to our Current Report on Form 8-K dated January 5, 2023. 10.11 Form of Stock Option Agreement incorporated by reference to our Current Report on Form 8-K dated January 5, 2023. 10.12 Software License and Services Agreement between Templum, Inc. and Netcapital Systems LLC dated January 2, 2023 incorporated by reference to our Current Report on Form 8-K dated January 6, 2023. 10.13 Form of Securities Purchase Agreement between Netcapital Inc. and certain institutional investors dated May 23, 2023, incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated May 23, 2023. 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. 60 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 . NETCAPITAL INC . Date: July 26, 2023 By: /s/ Martin Kay Martin Kay Chief Executive Officer and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ Martin Kay Chief Executive Officer and Director July 26, 2023 Martin Kay (Principal Executive Officer) /s/ Coreen Kraysler Chief Financial Officer, July 26, 2023 Coreen Kraysler (Principal Accounting and Financial Officer) /s/ Avi Liss Director July 26, 2023 Avi Liss /s/ Cecilia Lenk Director July 26, 2023 Cecilia Lenk /s/ Arnold Scott Director July 26, 2023 Arnold Scott /s/ Steven Geary Director July 26, 2023 Steven Geary 61 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders 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, 2023, and 2022, 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, 2023, 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, 2023, and 2022, and the results of its operations and its cash flows for the years in the two-year period ended April 30, 2023, 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, including review of third-party market data, public flings, and funding activities of investee entities. 2. Confirmed investee shares held by the Company, relative ownership percentages, and active reported share prices. 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. Fruci & Associates , PLLC – PCAOB ID # 5525 We have served as the Company’s auditor since 2017. Spokane, Washington July 26, 2023 F- 1 NETCAPITAL INC. YEARS ENDED APRIL 30, 2023 AND 2022 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONTENTS Page Consolidated Financial Statements 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-25 F- 2 NETCAPITAL INC. Consolidated Balance Sheets Assets: April 30, 2023 April 30, 2022 Cash and cash equivalents $ 569,441 $ 473,925 Related party receivable — 668 Accounts receivable, net 1,388,500 2,433,900 Prepaid expenses 583,030 5,694 Total current assets 2,540,971 2,914,187 Deposits 6,300 6,300 Note receivable – related parties 202,000 202,000 Purchased technology 15,875,297 15,536,704 Investment in affiliate 240,080 240,080 Equity securities at fair value 22,955,445 12,861,253 Total assets $ 41,820,093 $ 31,760,524 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Trade $ 578,331 $ 536,508 Related party 75,204 378,077 Accrued expenses 285,065 229,867 Stock subscription payable 10,000 33,400 Deferred revenue 661 2,532 Interest payable 98,256 222,295 Income taxes payable 174,000 — Deferred tax liability, net 1,657,000 977,000 Related party debt 15,000 22,860 Secured note payable 350,000 1,400,000 Current portion of SBA loans 1,885,800 1,890,727 Loan payable - bank 34,324 34,324 Convertible notes payable — 300,000 Total current liabilities 5,163,641 6,027,590 Long-term liabilities: Long-term SBA loans, less current portion 500,000 495,073 Total Liabilities 5,663,641 6,552,663 Commitments and contingencies — — Stockholders’ equity: Common stock, $ .001 par value; 900,000,000 shares authorized, 6,440,527 and 2,934,344 shares issued and outstanding 6,441 2,934 Capital in excess of par value 30,500,944 22,479,769 Shares to be issued 183,187 244,250 Retained earnings 5,465,880 2,510,908 Total stockholders’ equity 36,156,452 25,237,861 Total liabilities and stockholders’ equity $ 41,820,093 $ 31,760,524 See Accompanying Notes to the Financial Statements F- 3 NETCAPITAL INC. Consolidated Statements of Operations Year Ended Year Ended April 30, 2023 April 30, 2022 Revenues $ 8,493,985 $ 5,480,835 Costs of services 85,038 110,115 Gross profit 8,408,947 5,370,720 Costs and expenses: Consulting expense 589,349 892,567 Marketing 85,482 95,753 Rent 75,052 47,670 Payroll and payroll related expenses 3,646,490 3,763,845 General and administrative costs 1,740,698 1,602,031 Total costs and expenses 6,137,071 6,401,866 Operating income (loss) 2,271,876 ( 1,031,146 ) Other income (expense): Interest expense ( 93,842 ) ( 126,372 ) Debt forgiveness — 1,904,296 Gain on debt conversion 224,260 — Amortization of intangible assets ( 96,407 ) — Realized loss on sale of investment ( 406,060 ) — Unrealized gain on equity securities 1,857,500 3,275,745 Other income 51,645 25,007 Total other income 1,537,096 5,078,676 Net income before taxes 3,808,972 4,047,530 Income tax expense 854,000 544,000 Net income $ 2,954,972 $ 3,503,530 Basic earnings per share $ 0.63 $ 1.31 Diluted earnings per share $ 0.63 $ 1.27 Weighted average number of common shares outstanding: Basic 4,677,214 2,666,173 Diluted 4,677,464 2,748,480 See Accompanying Notes to the Financial Statements F- 4 NETCAPITAL INC. Consolidated Statements of Stockholders’ Equity For the Years Ended April 30, 2023 and 2022 Capital in Retained Common Stock Shares To Excess of Earnings Total Shares Amount Be Issued Par Value (Deficit) Equity Balance, April 30, 2021 2,178,766 $ 2,178 $ — $ 15,168,987 $ ( 992,622 ) $ 14,178,543 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 acquire funding portal 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 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 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 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 Shares issued for debt conversion 133,333 134 — 379,852 — 379,986 Sale of common stock 1,205,000 1,205 — 3,947,912 — 3,949,117 Vesting of stock options — — — 32,953 — 32,953 Net income July 31, 2022 — — — — 64,477 64,477 Balance, July 31, 2022 4,272,677 4,273 244,250 26,840,486 2,575,385 29,664,394 Sale of common stock 2,600 3 — 23,397 — 23,400 Purchase of equity interest 37,500 37 — 366,338 — 366,375 Vesting of stock options — — — 32,953 — 32,953 Net income Oct. 31, 2022 — — — — 183,138 183,138 Balance October 31, 2022 4,312,777 4,313 244,250 27,263,174 2,758,523 30,270,260 Sale of common stock 1,434,000 1,434 — 1,620,025 — 1,621,459 Purchase of equity interest 18,750 19 — 171,105 — 171,124 Purchase of intellectual property 300,000 300 — 434,700 — 435,000 Reduction in shares to be issued 6,250 6 ( 61,063 ) 61,057 — — Vesting of stock options — — — 63,057 — 63,057 Net income January 31, 2023 1,696,499 1,696,499 Balance January 31, 2023 6,071,777 6,072 183,187 29,613,118 4,455,022 34,257,399 Purchase of equity interest 18,750 19 195,233 — 195,252 Vesting of stock options — — — 132,943 — 132,943 Stock-based compensation 350,000 350 — 559,650 — 560,000 Net income April 30, 2023 — — — — 1,010,858 985,456 Balance, April 30, 2023 6,440,527 $ 6,441 $ 183,187 $ 30,500,944 $ 5,465,880 $ 36,156,452 See Accompanying Notes to the Financial Statements F- 5 NETCAPITAL INC. Consolidated Statements of Cash Flows Year Ended April 30, 2023 Year Ended April 30, 2022 OPERATING ACTIVITIES Net income $ 2,954,972 $ 3,503,530 Adjustment to reconcile net income (loss) to net cash used in operating activities: Stock-based compensation 269,577 1,176,058 Non-cash revenue from the receipt of equity ( 8,110,000 ) ( 2,387,500 ) Allowance for credit losses 5,443 76,630 Debt forgiveness — ( 1,904,302 ) Amortization of intangible assets 96,407 — Realized loss on investment 406,060 — Gain on debt conversion ( 224,260 ) — Unrealized gain on equity securities ( 1,857,500 ) ( 3,275,745 ) Changes in deferred taxes 680,000 544,000 Changes in non-cash working capital balances: Accounts receivable 1,039,957 ( 1,153,598 ) Related party receivable 668 ( 668 ) Prepaid expenses ( 25,007 ) 16,290 Accounts payable and accrued expenses 97,020 281,904 Deferred revenue ( 1,871 ) 1,910 Income taxes payable 174,000 — Accrued interest payable ( 113,847 ) 124,314 Accounts payable – related party ( 8,819 ) ( 9,490 ) Net cash used in operating activities ( 4,617,200 ) ( 3,006,667 ) INVESTING ACTIVITIES Proceeds from sale of investment 200,000 — Loans to affiliate — ( 202,000 ) Investment in affiliate — ( 117,166 ) Net cash provided by (used in) investing activities 200,000 ( 319,166 ) FINANCING ACTIVITIES Payment of related party note ( 7,860 ) — Proceeds from sale of common stock 5,570,576 — Proceeds from (payments to) secured lender ( 1,050,000 ) 400,000 Proceeds from stock subscriptions — 625,799 Proceeds from convertible notes — 300,000 Cash flow provided by financing activities 4,512,716 1,325,799 Net increase (decrease) in cash 95,516 ( 2,000,034 ) Cash and cash equivalents, beginning of the period 473,925 2,473,959 Cash and cash equivalents, end of the period $ 569,441 $ 473,925 Supplemental disclosure of cash flow information: Cash paid for taxes $ — $ — Cash paid for interest $ 207,690 $ 2,064 Supplemental Non-Cash Investing and Financing Information: Common stock issued as prepaid compensation $ 552,329 $ — Common stock issued to pay related party payable $ 113,714 $ 3,523,462 Common stock issued to pay promissory notes $ 266,272 $ — Common stock issued to purchase intellectual property $ 435,000 $ — Common stock issued to purchase 10% interest in Caesar Media Group Inc. $ 732,751 $ 900,000 Common stock for the purchase of MSG Development Corp. $ — $ 732,750 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, 2023 AND 2022 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 ends April 30. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after the 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, and provides business valuation services. 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. F- 7 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 ● 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, 2023 and 2022, which amounted to $8,493,985 and $5,480,835, respectively, are considered contract revenues. Contract revenue as of April 30, 2023 and 2022, which has not yet been recognized, amounted to $661 and $2,532, 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, 2023 Year Ended April 30, 2022 Consulting services $ 7,560,320 $ 3,878,233 Fees from online services 933,665 1,602,602 Total revenues $ 8,493,985 $ 5,480,835 Costs of Services Costs of services consist of direct costs that we pay to third parties 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 2023 and 2022. 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 $ 91,955 and $ 136,955 as of April 30, 2023 and 2022, respectively. F- 10 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. 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 2023 and 2022. 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. The Company follows ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for common stock issued to consultants and other non-employees. These shares of common stock are issued as compensation for services provided to the Company and are accounted for based upon the fair market value of the common stock. The fair value of the equity instrument is charged directly to compensation expense, or to prepaid expenses in instances where stock was issued under a contractual arrangement to a consultant who agreed to provide services over a period of time. F- 11 Advertising Expenses Advertising and marketing expenses are recorded separately in the Consolidated 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, 2023, the Company had one customer that constituted 25% of its revenues, and four customers that each constituted 14% of its revenues. 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. F- 12 3. Debt The following table summarizes components debt as of April 30, 2023 and 2022: Schedule of Debt 2023 2022 Interest Rate Secured lender $ 350,000 $ 1,400,000 8.0% – 12.0 % Notes payable – related parties 15,000 22,860 0.0 % Convertible promissory notes — 300,000 8.0 % 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 10.0 % Total debt 2,785,124 4,142,984 Less: current portion of long-term debt 2,285,124 3,647,911 Total long-term debt $ 500,000 $ 495,073 As of April 30, 2023 and 2022, the Company owed its principal lender (“Lender”) $350,000 and $1,400,000, respectively, under a loan and security agreement (“Loan”) dated April 28, 2011, that was amended on July 26, 2014 and several times thereafter to extend the maturity date to October 31, 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 the Lender a continuing security interest and first lien on all of the assets of the Company. As of April 30, 2023 and 2022, the Company’s related-party unsecured notes payable totaled $15,000 and $22,860, respectively. As of April 30, 2023 and 2022, the company owed $0 and $300,000 in convertible notes payable. On July 14, 2022, the Company issued 93,432 shares of common stock valued at $266,272 to retire the $300,000 in convertible promissory notes plus accrued interest of $10,192. The Company also owes $34,324 as of April 30, 2023 and 2022 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 10.0% per annum as of April 30, 2023. 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 postponed the first installment payment for 18 months and the first payment became due on December 17, 2022. The monthly payments of $2,594 are first applied to accrued interest payable. The monthly payments will not be applied to any of the outstanding principal balance until August of 2026. Consequently, the entire loan balance of $500,000 is classified as a long term liability. 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 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, 2023, 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: 2024 $ 2,285,124 2025 — 2026 — 2027 9,837 2028 13,971 Thereafter 476,192 Minimum future payments of principal $ 2,785,124 F- 13 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, 2023 and 2022: Schedule of Financial assets measured at fair value on a recurring basis Level 1 Level 2 Level 3 Total April 30, 2023 Equity securities at fair value $ — $ 22,955,445 $ — $ 22,955,445 April 30, 2022 Equity securities at fair value $ — $ 12,861,253 $ — $ 12,861,253 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). 5. Income Taxes 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, 2023 and 2022 were as follows: Schedule of Income Taxes 2023 2022 Deferred tax assets, net: Net operating loss carryforwards $ — $ 322,000 Bad debt allowance 27,000 40,000 Stock-based compensation 433,000 357,000 Deferred tax assets 460,000 719,000 Deferred tax liability Unrealized gain 2,117,000 1,696,000 Total deferred tax liability 2,117,000 1,696,000 Total net deferred tax assets (liabilities) $ ( 1,657,000 ) $ ( 977,000 ) F- 14 For fiscal 2023, our income tax expense was $ 854,000 , with an effective tax rate of 22%, Our effective tax rate and the resulting provision for income taxes were impacted by tax benefits related to a net operating loss carryforward of $1.6 million. 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. The Company did not have any material unrecognized tax benefits as of April 30, 2023 and 2022. 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, 2023 and 2022. 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 2023. 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, 2023 and 2022, there were 6,440,527 and 2,934,344 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. On January 27, 2022, the Company filed a Form S-8 registration statement for securities to be offered in employee benefit plans, to register 300,000 shares of common stock from the Company’s 2021 Equity Incentive Plan. On February 2, 2022, the Company granted an aggregate of 272,000 options to purchase shares of common stock of the company at a price of $10.50 per share. The options were granted to employees, consultants, and members of the board of directors. The options vest monthly on a straight-line basis over a 4-year period and expire in 10 years. As of April 30, 2023 and 2022, 252,000 and 271,000 options, respectively, were outstanding. F- 15 During the quarter ended July 31, 2022, the Company issued 39,901 shares of common stock with a value of $113,714 to settle a related party payable of $294,054. The Company also issued 93,432 shares of common stock valued at $266,272 to retire $300,000 of convertible promissory notes plus accrued interest of $10,192. The convertible note holders also received warrants to purchase shares of common stock at a per share exercise price of $5.19, that are exercisable immediately, and expire five years from the date of issuance. These equity issuances resulted in a gain from the conversion of debt totaling $224,260, which is recorded as other income in the income statement. 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, which resulted in net proceeds of $3,949,117. The warrants have a per share exercise price of $5.19, are exercisable immediately, and expire five years from the date of issuance. 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, and the Company issued an aggregate of warrants to purchase 60,250 shares of our common stock to the underwriter and its designees. On December 16, 2022 the Company completed an underwritten public offering of 1,247,000 shares of the Company’s common stock, at a price to the public of $1.40 per share. Pursuant to the terms of an underwriting agreement, the Company also granted the underwriters a 45-day option to purchase up to an additional 187,000 shares of common stock solely to cover over-allotments, at the same price per share of $1.40, less the underwriting discounts and commissions. In conjunction with this offering, the Company issued the underwriter and its designees warrants to purchase 62,350 shares of our common stock at an exercise price of $1.75. The underwriters exercised their over-allotment option and on January 5, 2023, the Company issued an additional 187,000 shares of its common stock. The Company received net proceeds of $1,621,459 for the issuance of a total of 1,434,000 shares of common stock for both the initial and over-allotment offering. In conjunction with the exercise of the over-allotment, the Company issued the underwriter and its designees warrants to purchase 9,350 shares of our common stock with an exercise price of $1.75. The Securities were offered, issued and sold to the public pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-267921) previously filed with the Securities and Exchange Commission (the “Commission”) on October 18, 2022 and declared effective by the Commission on October 26, 2022 and related prospectus supplements dated December 13, 2022, as amended on December 16, 2022. F- 16 The following tables summarize information about warrants outstanding as of April 30, 2023 and 2022: Schedule of warrants outstanding Warrants Outstanding Warrants 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, 2023 $ 1.75 - $5.19 1,541,682 4.25 $ 5.03 1,469,982 $ 5.19 As of April 30, 2022 — — — $ — — $ — Schedule of Warrants activity Number of Shares Exercise Price Per Share Average Exercise Price Outstanding May 1, 2021 — — $ — Issued during year ended April 30, 2022 — — $ — Exercised/canceled during year ended April 30, 2022 — — $ — Outstanding April 30, 2022 — — $ — Issued during year ended April 30, 2023 1,541,682 $ 1.75 - $ 5.19 $ 5.03 Exercised/canceled during year ended April 30, 2023 — — $ — Warrants outstanding April 30, 2023 1,541,682 $ $ 1.75 - $ 5.19 $ 5.03 Warrants exercisable, April 30, 2023 1,469,982 $ 5.19 $ 5.19 F- 17 As a result of the two offerings, the company has warrants outstanding, with a five-year term, to purchase a total of 1,469,982 shares of its common stock at an exercise price of $5.19 and 71,700 shares of its common stock at an exercise price of $1.75. The warrants issued to the underwriter’s representatives and to the underwriter were not part of a unit, consisting of one share of common stock and one warrant and are valued based upon unadjusted quoted prices on the Nasdaq market. During the year ended April 30, 2023, in addition to the public offerings, the Company issued 75,000 shares of common stock, valued at $732,751, in conjunction with the purchase of a 10% equity stake in Caesar Media Group, Inc., 300,000 shares of common stock, valued at $435,000 to purchase the website and intellectual property of a real-time video conferencing website, 2,600 shares of common stock in conjunction with a stock subscription agreement with accredited investors, valued at $23,400, and 6,250 shares of common stock in conjunction with an acquisition agreement that requires shares to be issued by the Company. As a result of this issuance, the value of the balance sheet account for shares to be issued decreased by $61,063 to $183,187 as of April 30, 2023, from a balance of $244,250 as of April 30, 2022. On January 5, 2023, the Company filed a Current Report on Form 8-K and announced the formation of the Netcapital Inc. 2023 Omnibus Equity Incentive Plan (the “Plan”), which has subsequently been approved by a vote of the shareholders. The purposes of the Plan are to (i) provide an additional incentive to selected employees, directors, and independent contractors of the Company or its affiliates whose contributions are essential to the growth and success of the Company, (ii) strengthen the commitment of such individuals to the Company and its affiliates, (iii) motivate those individuals to faithfully and diligently perform their responsibilities and (iv) attract and retain competent and dedicated individuals whose efforts will result in the long-term growth and profitability of the Company. In conjunction with these purposes, the Company granted stock options to four individuals to purchase an aggregate of 1,600,000 of the Company’s common stock at a price of $1.43 per share. See Note 9. The Company also granted 350,000 stock options under the Plan to employees, consultants, and directors on April 25, 2023 at an exercise price of $1.40 per share. All stock options in the Plan vest monthly on a straight-line basis over a 4-year period and expire in 10 years. For the years ended April 30, 2023 and 2022, the Company recorded $269,577 and $1,176,058, respectively, in stock-based compensation expense. As of April 30, 2023 and 2022, there was $552,329 and $0 of prepaid stock-based compensation expense. The prepaid balance of $552,329 is the result of the issuance of 350,000 shares of common stock to a third-party business consultant. The table below presents the components of stock-based compensation expense for the years ended April 30, 2023 and 2022. Schedule of stock-based compensation expense Description April 30, 2023 April 30, 2022 Chief Executive Officer, Netcapital Inc. $ 81,309 $ — Chief Financial Officer 25,927 40,608 Chief Executive Officer, Netcapital Advisors Inc. 4,833 40,608 Founder 25,927 — Chief Marketing Officer — 109,547 Related party consultant — 25,908 Marketing consultant — 5,603 Marketing consultant — 380,441 Marketing consultant — 118,405 Business consultant — 25,908 Company secretary and director — 100,000 Business development manager — 300,000 Employee and director stock options 131,581 29,030 Total $ 269,577 $ 1,176,058 The table below presents the number of shares issued as compensation for the years ended April 30, 2023 and 2022: Year Ended Year Ended Description April 30, 2023 April 30, 2022 Company secretary and director — 10,000 Business development manager — 30,000 Chief Marketing Officer — 10,417 Business consultants 350,000 469 Total 350,000 50,886 F- 18 The following tables summarize information about stock options outstanding as of April 30, 2023 and 2022: 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, 2023 $1.40 - $10.50 2,202,000 9.63 $ 2.46 294,333 $ 3.69 As of April 30, 2022 $10.50 - $10.50 271,000 9.79 $ 10.50 16,945 $ 10.50 Schedule of stock options activity Number of Shares Exercise Price Per Share Average Exercise Price 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 Issued during year ended April 30, 2023 1,950,000 $ 1.40 - $ 1.43 $ 1.42 Exercised/canceled during year ended April 30, 2023 ( 19,000 ) $ 10.50 - $ 10.50 $ 10.50 Options outstanding April 30, 2023 2,202,000 $ 1.40 - $ 10.50 $ 2.46 Options exercisable, April 30, 2023 294,333 $ 1.40 - $ 10.50 $ 3.69 F- 19 8. Earnings Per Common Share Earnings per common share data was computed as follows: Schedule of earnings per share 2023 2022 Net income $ 2,954,972 $ 3,503,530 Weighted average common shares outstanding 4,677,214 2,666,173 Effect of dilutive securities 250 82,307 Weighted average dilutive common shares outstanding 4,677,464 2,748,480 Earnings per common share – basic $ 0.63 $ 1.31 Earnings per common share – diluted $ 0.63 $ 1.27 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 250 shares and 82,307 shares, respectively for the years ended April 30, 2023 and 2022. As of April 30, 2022, 39,901 shares were issuable to satisfy a supplemental consideration liability, in addition to $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 2,202,000 and 271,000 for the years ended April 30, 2023 and 2022, respectively, were not included in the calculation of dilutive securities because their effect was anti-dilutive. Vested warrants totaling 1,469,982 and 0 shares, for the years ended April 30, 2023 and 2022, were also not included in the calculation of dilutive securities because their effect was anti-dilutive. 9. Related Party Transactions The Company’s largest shareholder, Netcapital Systems LLC (“Systems”), owns 1,711,261 shares of common stock, or 26.6% of the Company’s 6,440,527 outstanding shares as of April 30, 2023. As of April 30, 2022, the Company accrued a payable to Systems of $294,054 for supplemental consideration owed in conjunction with its purchase of Netcapital Funding Portal Inc., which was paid in full on July 14, 2022, with the issuance to Systems of 39,901 shares of the Company’s common stock. The Company provided professional services to Systems in the years ended April 30, 2023 and 2022 and recorded revenue of $4,660 and $15,000, respectively, for those services. In total, the Company owed Systems $0 and $294,054 as of April 30, 2023 and 2022, respectively. The company paid Systems $430,000 and $357,429 in the years ended April 30, 2023 and 2022, respectively, for use of the software that runs the website www.netcapital.com. F- 20 The Chief Executive Officer of our wholly owned subsidiary, Netcapital Advisors Inc., is a member of the board of directors of KingsCrowd Inc. The Company sold 606,060 shares of KingsCrowd in June 2022 for proceeds of $200,000 and recorded a realized loss on the sale of the investment of $406,060. As of April 30, 2023 and 2022, the Company owned 3,209,685 and 3,815,745 shares of KingsCrowd Inc., valued at $3,209,685 and $3,815,745, respectively. The Chief Executive Officer of our wholly owned subsidiary, Netcapital Advisors Inc. is a member of the board of directors of Deuce Drone LLC. As of April 30, 2023 and 2022, the Company owned 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, 2023 and 2022. Compensation expense to officers in the years ended April 30, 2023 and 2022 consisted of common stock valued at $0 and $190,763, respectively, cash compensation of $598,077 and $265,688, respectively, and options to purchase common stock valued at $137,994 and $3,147, respectively. Compensation to a related party consultant in the years ended April 30, 2023 and 2022 consisted of common stock valued at $0 and $25,908, respectively, and cash compensation of $60,039 and $60,000, respectively. This consultant is also the controlling shareholder of Zelgor Inc., and the Company earned revenues from Zelgor Inc. of $66,000 and $5,500 in the years ended April 30, 2023 and 2022. 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, 2023. Cash compensation to the President of Netcapital Systems LLC amounted to $184,808 and $96,000, and stock-based compensation amounted to $25,927 and $0, in the years ended April 30, 2023 and 2022, respectively. We owe Steven Geary, a director, $31,680 as of April 30, 2023 and 2022. 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. 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 members of our board of directors 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 Chief Executive Officer of Netcapital Advisors Inc., who is also a director, and each of the three independent board members received an option to purchase 5,000 shares of common stock. The options vest on a straight-line basis over 48 months and expire in 10 years. On April 25, 2023, the Company also granted the same four members of our board of directors an aggregate of 80,000 options, or 20,000 for each board member, to purchase shares of our common stock at an exercise price of $1.40 per share. The options vest monthly on a straight-line basis over a 4-year period and expire in 10 years. In January 2023 we granted stock options to purchase an aggregate of 1,600,000 shares of our common stock to four related parties as follows: Our Chief Executive Officer, 1,000,000 shares; our Chief Financial Officer, 200,000 shares; our Founder, 200,000 shares; and a director of one of our subsidiaries, 200,000 shares. The options have an exercise price of $1.43, vest monthly on a straight-line basis over a 4-year period 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 began on December 17, 2022. F- 21 10. Investments In April 2023, the Company received 2,853,659 units of HeadFarm LLC as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.41 per unit based on a sales price of $0.41 per unit on an online funding portal. The receipt of the units satisfied an accounts receivable balance of $1,170,000. As of April 30, 2023, the Company owned 2,856,659 units which are valued at $1,170,000. In April 2023, the Company received 2,853,659 units of CupCrew LLC as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.41 per unit based on a sales price of $0.41 per unit on an online funding portal. The receipt of the units satisfied an accounts receivable balance of $1,170,000. As of April 30, 2023, the Company owned 2,856,659 units which are valued at $1,170,000. In April 2023, the Company received 2,853,659 units of CountSharp LLC as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.41 per unit based on a sales price of $0.41 per unit on an online funding portal. The receipt of the units satisfied an accounts receivable balance of $1,170,000. As of April 30, 2023, the Company owned 2,856,659 units which are valued at $1,170,000. In January 2023, the Company received 2,100,000 units of Dark LLC as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $1.00 per unit based on a sales price of $1.00 per unit on an online funding portal. The receipt of the units satisfied an accounts receivable balance of $2,100,000. As of April 30, 2023, the Company owned 2,100,000 units which are valued at $2,100,000. In August 2022, the Company received 1,911,765 units of NetWire LLC as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.68 per unit based on a sales price of $0.68 per unit on an online funding portal. The receipt of the units satisfied an accounts receivable balance of $1,300,000. As of April 30, 2023, the Company owned 1,911,765 units which are valued at $1,300,000. In May 2022, the Company received 1,764,706 units of Reper LLC as a payment for services rendered in conjunction with a crowdfunding offering. The units are valued at $0.68 per unit based on a sales price of $0.68 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, 2023, the Company owned 1,764,706 units which are valued at $1,200,000. 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, 2023 and 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, 2023 and 2022, the Company owned 1,700,000 units which are valued at $425,000. In January 2022, the Company received 2,850,000 units of Hiveskill LLC as 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, 2023 and 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, 25,000 shares of its common stock in September 2022, 12,500 shares of its common stock in October 2022, 18,750 shares of its common stock in January 2023 and 18,750 shares of its common stock in April 2023, as part of its contractual payment obligations. As of April 30, 2023 and 2022, there have been no observable price changes in the value of Caesar’s common stock and the Company has valued its ownership in Caesar at cost, which amounted to $1,632,751 and $900,000 as of April 30, 2023 and 2022, respectively. F- 22 In August 2020 the Company entered a consulting agreement with C-Reveal Therapeutics LLC (“CRT”). for a $120,000 fee over a 12-month period. $50,000 of the fee was payable in CRT units. As of April 30, 2023 and 2022, the Company owned 5,000 units, at a value of $50,000. In May 2020, the Company entered a consulting contract with MustWatch LLC (“MW”), which allowed the Company to receive 110,000 membership interest units of MW in return for services rendered in conjunction with a crowdfunding offering. The Company earned 97,500 membership interest units in the quarter ended July 31, 2020, valued at $2.14 per unit, or $235,400. As of April 30, 2023, the MW units are valued at $4 per unit based on a sales price of $4 per unit on an online funding portal. As of April 30, 2023 and 2022, the Company owned 110,000 MW units, which are valued at $440,000 and $235,400, respectively. The $204,600 increase in value of the MW units owned by the Company is recorded as an unrealized gain in the year ended April 30, 2023. In May 2020, the Company entered into a consulting contract with ChipBrain LLC (“Chip”), which allowed the Company to receive 710,200 membership interest units of Chip in return for services rendered in conjunction with a crowdfunding offering. 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. Subsequently, Chip sold identical units for $4.74 per unit, and as of April 30, 2023 and April 30, 2022, the 710,200 units owned by the Company are valued at $3,366,348 and $1,704,480, respectively. The $1,661,868 increase in value of the Chip units owned by the Company was recorded as an unrealized gain in the year ended April 30, 2023. In May 2020, the Company entered a consulting contract with a related party, Zelgor Inc. (“Zelgor”), which allowed the Company to receive 1,400,000 shares of common stock of Zelgor in return for services rendered in conjunction with a crowdfunding offering. 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. As of April 30, 2023 and 2022, the Company owned 1,400,000 shares which are valued at $1,400,000. 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, 2023 and 2022, 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 services rendered in conjunction with a crowdfunding offering. 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 sold 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, and the Company recorded an unrealized gain of $3,275,745 for the year ended April 30, 2022. The Company sold 606,060 shares of KingsCrowd in June 2022 for proceeds of $200,000 and recorded a realized loss on the sale of the investment of $406,060. KingsCrowd filed a post qualification offering circular amendment on July 21, 2022 and continued to sell shares of stock to the public for $1.00 per share. As of April 30, 2023 and 2022, the Company owned 3,209,685 and 3,815,745 shares of KingsCrowd, valued at $3,209,685 and $3,815,745, respectively. During fiscal 2019, the Company entered into a consulting contract with Netcapital Systems LLC, a related party, and earned membership interest units. As of April 30, 2023 and 2022, the Company owned 528 units, at a value of $48,128. In July 2020 the Company entered into 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 was payable in cash. As of April 30, 2023 and 2022, the Company owned 4,000 units, at a value of $11,032 and $20,000, respectively. Based upon recent sales of shares of common stock of Vymedic Inc., the per share value dropped from $5.00 per share to $2.758 per share, and the Company recorded an unrealized loss on equity securities of $8,968 for the year ended April 30, 2023. This unrealized loss of $8,968 is netted with the unrealized gains of $204,600 and $1,661,868 in the MW and Chip securities, respectively, and results in an unrealized gain in equity securities of $1,857,500 in the year ended April 30, 2023. F- 23 The following table summarizes the components of equity securities as of April 30, 2023 and 2022: Schedule of investments April 30, 2023 April 30, 2022 Netcapital Systems LLC $ 48,128 $ 48,128 Watch Party LLC 440,000 235,400 Zelgor Inc. 1,400,000 1,400,000 ChipBrain LLC 3,366,348 1,704,480 Vymedic Inc. 11,032 20,000 C-Reveal Therapeutics LLC 50,000 50,000 Deuce Drone LLC 2,350,000 2,350,000 Hiveskill LLC 712,500 712,500 ScanHash LLC 425,000 425,000 Caesar Media Group Inc. 1,632,751 900,000 Cust Corp. 1,200,000 1,200,000 Kingscrowd Inc. 3,209,685 3,815,745 Reper LLC 1,200,000 — Dark LLC 2,100,000 — Netwire LLC 1,300,000 — CountSharp LLC 1,170,000 — CupCrew LLC 1,170,000 — HeadFarm LLC 1,170,000 — Total $ 22,955,444 $ 12,861,253 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, 2023 and 2022. In fiscal 2023, there were observable price changes in three securities, ChipBrain LLC, MustWatch LLC and Vymedic Inc. The result of these price changes was an increase in the fair value of the equity securities totaling $ 1,857,500 in the fiscal year ended April 30, 2023, which was recorded in the income statement as an unrealized gain on equity securities. 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. 11. 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. In December 2022, the Company purchased the website, intellectual property, source code and domain names of 1ON1.FANS and ONEONONE.FANS (the “Assets”). Pursuant to the guidance of Topic 805, it was determined that the purchase of the Assets did not meet the definition of a business and the asset purchase was accounted for as an asset acquisition. The fair value of the consideration, consisting of 300,000 shares of the Company’s common stock, valued at $435,000, was attributed to a single asset and is classified as acquired intellectual property and website. The following table sets forth the major categories of the intangible assets as of April 30, 2023 and 2022 F- 24 Schedule of intangible assets April 30, 2023 April 30, 2022 Acquired users $ 14,288,695 $ 14,288,695 Acquired brand 583,429 583,429 Acquired intellectual property and website 435,000 — Professional practice 556,830 556,830 Literary works and contracts 107,750 107,750 Total intangible assets $ 15,971,704 $ 15,536,704 As of April 30, 2023, the weighted average remaining useful life for technology, trade names, professional practice, literary works and domains is 14.16 years. Accumulated amortization amounted to $ 96,407 as of April 30, 2023, resulting in net intangible assets of $ 15,875,297 . 12. Subsequent Events The Company evaluated subsequent events through the date these financial statements were available to be issued. On May 23, 2023the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors, pursuant to which the Company agreed to issue and sell to such investors, in a registered direct offering (the “Offering”), 1,100,000 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a price of $1.55 per Share, for aggregate gross proceeds of $1,705,000, before deducting the placement agent’s fees and other offering expenses payable by the Company. The Offering closed on May 25, 2023. The Shares were offered and issued and sold pursuant to the Company’s shelf registration statement on Form S-3 (File 333-267921) (the “Shelf Registration Statement”), filed by the Company with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), on October 18, 2022 and declared effective on October 26, 2022. Also in connection with the Offering, on May 23, 2023, the Company entered into a placement agency agreement (the “Placement Agency Agreement”) with ThinkEquity LLC (the “Placement Agent”), pursuant to which (i) the Placement Agent agreed to act as placement agent on a “best efforts” basis in connection with the Offering, (ii) the Company agreed to pay the Placement Agent an aggregate fee equal to 8.0% of the gross proceeds raised in the Offering, and to reimburse the Placement Agent for certain expenses, and (iii) the Company agreed to issue to the Placement Agent warrants to purchase up to 55,000 shares of common stock at an exercise price of $1.94 (the “Placement Agent Warrants”), which were issued on May 25, 2023. The Placement Agent Warrants (and the shares of Common Stock issuable upon the exercise of the Placement Agent Warrants) were not registered under the Securities Act and were offered pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder. The Placement Agency Agreement and the Purchase Agreement contain customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company, the Placement Agent, or the investors, as the case may be, other obligations of the parties and termination provisions. In conjunction with the above noted Offering, the Company paid off its secured lender, Vaxstar LLC, $350,000 in principal plus accrued interest of $17,167.23 to retire all outstanding obligations to Vaxstar LLC. In July 2023, the Company issued 49,855 shares of its common stock in consideration of a release from an unrelated third party in conjunction with the settlement of an outstanding debt between such third party and Netcapital Systems LLC. On July 24, 2023 the Company completed an underwritten public offering of 1,725,000 shares of the Company’s common stock, at a price to the public of $0.70 per share for aggregate gross proceeds of $1,207,500, before deducting underwriting discounts and offering expenses payable by the Company. In conjunction with this offering, the Company issued the underwriter, and its designees, warrants to purchase 86,250 shares of our common stock at an exercise price of $0.875. F-25