Convertible note and warrant financing for Netcapital (NASDAQ: NCPL) with Labrys
Filing Impact
Filing Sentiment
Form Type
8-K
Rhea-AI Filing Summary
Netcapital Inc. entered a financing deal with Labrys Fund II, L.P., issuing a $145,000 unsecured convertible promissory note and a warrant for 125,000 common shares at $0.50 per share. After original issue discount and fees, the company received $111,250 in net cash proceeds.
The note carries a one-time 12% interest charge ($17,400), matures on June 3, 2027, and requires an initial amortization payment of $81,200 on December 3, 2026, followed by five monthly payments of $13,533.33. It is convertible at the holder’s option after specified triggers at a price equal to 75% of the lowest closing bid over the prior ten trading days, with a $0.10 floor that falls away after an event of default.
The warrant is exercisable from December 3, 2026 until June 3, 2029 and, if no effective resale registration is available, may be exercised on a cashless basis. Both the note and warrant include 4.99% beneficial ownership limits, adjustable up to 9.99%. Total shares issuable under the instruments are capped at 1,569,579 shares unless shareholders approve more under Nasdaq Rule 5635(d). Extensive registration, listing, covenant and shareholder approval failures are defined as events of default, which can accelerate the note at 150% of outstanding amounts plus interest and costs.
Positive
- None.
Negative
- None.
8-K Event Classification
4 items: 1.01, 2.03, 3.02, 9.01
4 items
Item 1.01
Entry into a Material Definitive Agreement
Business
The company signed a significant contract such as a merger agreement, credit facility, or major partnership.
Item 2.03
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement
Financial
The company incurred a new significant debt or off-balance-sheet obligation.
Item 3.02
Unregistered Sales of Equity Securities
Securities
The company sold equity securities in a private placement or other unregistered transaction.
Item 9.01
Financial Statements and Exhibits
Exhibits
Financial statements, pro forma financial information, and exhibit attachments filed with this report.
Key Figures
Convertible note principal: $145,000
Net cash proceeds: $111,250
Warrant shares: 125,000 shares at $0.50
+5 more
8 metrics
Convertible note principal
$145,000
Promissory note issued to Labrys Fund II, L.P.
Net cash proceeds
$111,250
Cash received by Netcapital after discount and fees
Warrant shares
125,000 shares at $0.50
Common stock purchase warrant issued to Labrys
One-time interest charge
$17,400 (12%)
Interest on note principal earned as of June 3, 2026
Initial amortization payment
$81,200
Due December 3, 2026 under the note
Follow-on amortization payments
$13,533.33
Five monthly payments from January 3 to May 3, 2027
Aggregate share cap
1,569,579 shares
Maximum issuable under note and warrant absent shareholder approval
Conversion discount
75% of lowest closing bid
Conversion price formula with $0.10 floor pre-default
Key Terms
original issue discount, beneficial ownership limitation, Nasdaq Rule 5635(d), Section 4(a)(2) of the Securities Act of 1933, +2 more
6 terms
original issue discount financial
"The Note was issued for a purchase price of $125,000 and reflects an original issue discount of $20,000."
Original issue discount (OID) is the difference between a debt security’s face value and the lower price at which it is first sold, treated as additional interest that accrues over the life of the instrument. For investors it matters because OID raises the effective yield and changes taxable income and the holding’s cost basis over time — think of buying a $100 voucher for $90 and recognizing the $10 gain as earned interest as the voucher approaches maturity.
beneficial ownership limitation financial
"The Note contains a 4.99% beneficial ownership limitation, which the holder may increase or decrease upon notice to the Company, provided that the limitation may not exceed 9.99%."
A beneficial ownership limitation is a rule that caps the percentage of a company’s shares an investor can be treated as owning or controlling for voting, regulatory or tax purposes. It matters to investors because it can restrict how many shares a person or group can buy or vote, affect takeover chances, and influence share liquidity and value — like a speed limit that prevents any single driver from taking over the whole road.
Nasdaq Rule 5635(d) regulatory
"The Purchase Agreement requires the Company to seek shareholder approval in accordance with Nasdaq Rule 5635(d) no later than 180 calendar days after June 3, 2026."
Section 4(a)(2) of the Securities Act of 1933 regulatory
"The Securities were offered and sold in a private placement in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended."
event of default financial
"The Note contains events of default including, without limitation, payment defaults, breach of covenants, breach of representations and warranties, failure to deliver conversion shares, bankruptcy or insolvency events, cessation of operations..."
An event of default is a specific breach of a loan or bond agreement—such as missed payments or breaking agreed rules—that gives lenders the legal right to act, for example by demanding immediate repayment, seizing collateral, or accelerating other obligations. For investors, it’s a red flag because it can sharply reduce a company’s ability to operate or raise money, like a car lender repossessing a vehicle after missed payments, and often leads to falling share or bond prices.
cashless basis financial
"If, at the time of exercise, there is no effective registration statement registering ... the Warrant may be exercised on a cashless basis."
An agreement executed on a cashless basis lets a holder convert or exercise a security (like options, warrants, or conversion rights) without paying money upfront; instead the holder receives a smaller number of shares equal in value to what the cash would have purchased. Think of trading a coupon for fewer slices of a cake rather than handing over cash for the full slice. For investors, it affects how much ownership and dilution occur and avoids immediate cash outlays.
FAQ
What financing transaction did Netcapital Inc. (NCPL) enter with Labrys Fund II, L.P.?
Netcapital entered a Securities Purchase Agreement with Labrys Fund II, issuing a $145,000 unsecured convertible promissory note and a warrant for 125,000 common shares at $0.50 per share, in a private placement exempt under Section 4(a)(2) of the Securities Act.
How much cash did Netcapital Inc. (NCPL) actually receive from the Labrys note?
Netcapital received net cash proceeds of $111,250. This reflects a $145,000 principal amount note sold for $125,000 after a $20,000 original issue discount, less $4,000 for Labrys’ legal fees, $1,000 for due diligence, and $8,750 for the placement agent.
What are the key terms of Netcapital’s $145,000 convertible note issued to Labrys?
The unsecured note carries a one-time 12% interest charge of $17,400, matures on June 3, 2027, and requires an $81,200 payment on December 3, 2026 plus five monthly payments of $13,533.33. It becomes convertible at a 75% discounted price after specified triggers.
How is the conversion price determined for Netcapital’s convertible note with Labrys?
The conversion price equals 75% of the lowest closing bid price of Netcapital common stock during the ten trading days before each conversion date, with a $0.10 per-share floor price. The floor does not apply after an event of default under the note.
What are the main features of the warrant issued by Netcapital Inc. (NCPL) to Labrys?
The warrant allows Labrys to purchase 125,000 Netcapital common shares at $0.50 per share. It becomes exercisable on December 3, 2026 and expires on June 3, 2029. If no effective resale registration exists, the warrant can be exercised on a cashless basis.
What events of default could accelerate Netcapital’s Labrys convertible note?
Events of default include payment failures, covenant breaches, registration statement failures, delisting or trading suspension, failure to obtain shareholder approval within 180 days after June 3, 2026, and various operational or insolvency events. On default, the note accelerates at 150% of outstanding amounts plus accrued interest and costs.