Netcapital Inc. Secures \$145,000 Financing Through Convertible Note and Warrant Deal with Labrys Fund II, L.P.
Key Developments
- Netcapital Inc. (NASDAQ: NCPL) has entered into a Securities Purchase Agreement with Labrys Fund II, L.P., a Delaware limited partnership, raising \$145,000 through a convertible promissory note and a warrant.
- The transaction closed on June 4, 2026, following the company’s receipt of funds.
- In exchange, Netcapital issued:
- A promissory note dated June 3, 2026, with a principal amount of \$145,000.
- A common stock purchase warrant granting Labrys the right to purchase 125,000 shares of Netcapital common stock at an initial exercise price of \$0.50 per share.
- The securities were sold via private placement under Section 4(a)(2) of the Securities Act, with Labrys representing itself as an accredited investor.
- Enclave Capital LLC served as placement agent, with \$8,750 withheld from proceeds to cover placement fees.
Material Details and Shareholder-Important Information
- Share Issuance Limit: The aggregate number of shares issuable under the note and warrant is capped at 1,569,579 shares, unless shareholder approval is obtained. This limit is subject to adjustment and other terms within the transaction documents.
- Shareholder Approval Deadline: Netcapital is required to seek shareholder approval as per Nasdaq Rule 5635(d) within 180 days of June 3, 2026. Failure to secure this approval is an event of default.
- Convertible Note Terms:
- The note is convertible into common stock at the “Conversion Price,” which is set at 75% of the lowest closing bid price of Netcapital’s common stock on the principal market during the 10 trading days prior to conversion, subject to adjustments.
- Events of default include failure to register the resale of shares, failure to file or keep effective a registration statement, payment defaults, breach of covenants, and failure to deliver conversion shares.
- Upon default, the note becomes immediately due and payable at 150% of the then outstanding principal plus accrued interest and costs.
- Labrys has sole discretion to convert all or part of the note—including any default amounts—into common stock.
- Warrant Terms:
- The warrant covers 125,000 shares with an initial exercise price of \$0.50 per share.
- Initial exercise date is December 3, 2026.
- Adjustments are made for stock splits, dividends, and certain corporate transactions (“fundamental transactions”).
- Warrants are subject to beneficial ownership limitations and cannot be exercised if it would result in the holder exceeding such limitations.
- Registration Requirements:
- Netcapital must file a registration statement covering the resale of all conversion shares and warrant shares within 60 calendar days of June 3, 2026.
- The registration statement must become effective within 120 days and remain effective as long as Labrys holds any part of the note, warrants, or the underlying shares.
- Failure to comply constitutes an event of default with severe financial penalties.
- Other Covenants:
- Netcapital is required to purchase directors’ and officers’ insurance within 60 days of closing.
- Restrictions are placed on certain capital stock distributions and asset sales.
- Any proceeds from equity or debt issuance, or asset sales, prior to full repayment/conversion of the note, may require up to 5% of such proceeds to be applied to repayment of the note at Labrys’ discretion.
- Default Triggers:
- Payment defaults, breaches, bankruptcy, cessation of operations, transfer-agent failures, transmission of material non-public information not cured by same-day Form 8-K, delisting, trading suspensions, and failure to obtain required shareholder approval or registration statement failures.
- On default, Labrys can demand immediate repayment at a significant premium, or convert the default amount into shares at the conversion price, potentially leading to material dilution.
- Transfer Restrictions: The securities and any shares issued upon conversion or exercise are restricted and may not be offered or sold without registration or an exemption from registration. They may, however, be pledged as collateral for bona fide margin or financing arrangements.
Potential Share Price Impact and Price-Sensitive Elements
- Potential Dilution: The conversion features and warrant could result in substantial dilution for existing shareholders, especially if the note is converted at a discount to market price or upon a default event.
- Registration and Shareholder Approval Risks: Failure to meet registration or approval deadlines could trigger default, leading to severe financial penalties and/or forced conversion at a discount, potentially impacting the share price negatively.
- Default Risk: The note’s default provisions significantly favor the holder and could result in accelerated obligations or large-scale share issuances, both of which are likely to be highly price-sensitive for current investors.
- Use of Proceeds: The company’s obligation to use proceeds from future financings or asset sales for repayment may affect its capital flexibility and future funding activities.
- Market Overhang: Registration of a large number of new shares and a significant warrant overhang may create selling pressure in the market upon effectiveness of the registration statement or exercise of the warrants.
- Nasdaq Compliance: The requirement to obtain shareholder approval is tied to continued Nasdaq listing standards. Failure to comply could risk delisting, which would materially affect share value.
Conclusion
This transaction provides Netcapital Inc. with near-term funding but introduces significant potential dilution and a variety of default triggers that could materially increase the number of shares outstanding. Investors should monitor for upcoming shareholder votes, registration statements, and any indications of covenant breaches or defaults. The terms of the deal are heavily weighted in favor of the investor, Labrys Fund II, L.P., and represent meaningful risks—and opportunities—for current shareholders.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should perform their own due diligence and consult with a financial advisor before making investment decisions. The information herein is based on the company’s public SEC filing and may be subject to change or updates not reflected in this article.
