Business Context and Reporting Period
Company: Netcapital Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: June 4, 2026
Event: Entry into a Material Definitive Agreement and unregistered sale of equity securities.
On June 4, 2026, Netcapital Inc. closed a transaction with Labrys Fund II, L.P. ("Labrys") involving the issuance of a convertible promissory note and a common stock purchase warrant. This follows a similar transaction with the same investor on May 12, 2026.
Key Financial Metrics and Transaction Details
| Metric | Value |
|---|---|
| Principal Amount of Note | $145,000 |
| Purchase Price Paid | $125,000 |
| Original Issue Discount | $20,000 |
| One-Time Interest Charge | $17,400 (12% of principal) |
| Net Cash Proceeds Received | $111,250 |
| Warrant Shares Issued | 125,000 shares |
| Warrant Exercise Price | $0.50 per share |
| Maximum Dilution (Note + Warrant) | 1,569,579 shares (subject to shareholder approval) |
Use of Proceeds: Business development and general working capital.
Material Changes and Debt Structure
The filing details the creation of a new direct financial obligation. The Note is an unsecured obligation maturing on June 3, 2027. Key structural terms include:
- Amortization Schedule: Payments begin December 3, 2026. An initial payment of $81,200 is required, followed by five monthly payments of $13,533.33. The remaining balance is due at maturity.
- Prepayment Terms: The Note may be prepaid before the 181st day with a penalty ranging from 96% to 98% of the outstanding principal and accrued interest, depending on the timing.
- Default Interest: Late payments bear interest at the lesser of 22% per annum or the maximum permitted by law.
- Conversion Trigger: The Note becomes convertible at the holder's option upon default, after 180 days, or upon registration of shares for resale.
- Conversion Price: 75% of the lowest closing bid price during the 10 trading days preceding conversion, with a floor of $0.10 per share (waived upon default).
Default Provisions
Events of default include failure to file or maintain an effective registration statement, payment defaults, bankruptcy, or failure to obtain shareholder approval within 180 days. Upon default, the outstanding amount (principal + accrued interest) is multiplied by 150% and becomes immediately due and payable.
Guidance, Risks, and Contingencies
- Shareholder Approval Requirement: The Company must seek shareholder approval for the issuance of shares under the Note and Warrant no later than 180 calendar days after June 3, 2026, in accordance with Nasdaq Rule 5635(d).
- Registration Obligations: The Company must file a registration statement for the resale of conversion and warrant shares within 60 days of closing and have it become effective within 120 days. Failure to do so constitutes an event of default.
- Beneficial Ownership Limitations: Both the Note and Warrant contain a 4.99% beneficial ownership limitation, adjustable up to 9.99% with notice.
- Insurance Requirement: The Company is required to purchase directors' and officers' insurance within 60 days of closing.
Investor Verification Checklist
- Verify the Company's ability to file and maintain an effective registration statement within the 60-day and 120-day deadlines to avoid immediate default.
- Confirm the timeline and outcome of the required shareholder vote for the issuance of up to 1,569,579 shares.
- Assess the Company's liquidity position against the immediate amortization payment of $81,200 due on December 3, 2026.
- Review the impact of the 75% conversion discount and the $0.10 floor price on potential future dilution.
- Check for any subsequent filings regarding the status of the directors' and officers' insurance requirement.