Netcapital Inc. issues convertible notes

Netcapital Inc., a finance services company based in Boston, Massachusetts, with a current market capitalization of $4.64 million and trading at $2.01 per share, has entered into two Securities Purchase Agreements with 1800 Diagonal Lending LLC, issuing convertible promissory notes totaling $126,320 on April 29, 2025. According to InvestingPro analysis, the company’s financial health score is currently rated as WEAK. The notes, carrying a 12% interest charge, are repayable in monthly installments starting from May 30, 2025, and are convertible into common stock subject to certain conditions.

The first note, with a principal amount of $61,360 and purchased at $52,000, matures on February 28, 2026, and includes a 25% discount on the market price for conversions post-default. The second note, with a principal of $64,960 and purchased for $56,000, shares the same maturity date and conversion terms.

Additionally, the company issued two unsecured, non-convertible promissory notes totaling $600,000 for gross proceeds of $300,000. These notes, with an 8% annual interest rate, mature in three months and can be prepaid without penalty. In case of default, the interest rate increases to 20%. InvestingPro data reveals a concerning current ratio of 0.15, indicating potential liquidity challenges, with short-term obligations exceeding liquid assets.

Proceeds from the notes will be used for general working capital purposes, particularly crucial given the company’s 89.47% revenue decline in the last twelve months. The issuance was made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933 and Rule 506 of Regulation D, to an accredited investor without general solicitation. For detailed analysis and additional insights, investors can access the comprehensive Pro Research Report available on InvestingPro, which covers this and 1,400+ other US stocks.

This financial move creates a direct financial obligation for Netcapital Inc., as reported in their SEC filing on May 5, 2025. The details of the agreements and notes are available in the exhibits attached to the filing.

In other recent news, Netcapital Inc. reported a substantial decline in revenue for the third quarter of fiscal year 2025, with an 85% drop compared to the same period last year, bringing in $152,682. The company also faced increased financial challenges, with a net loss widening to $3,006,537, though the net loss per share improved to $1.57 from $13.60. Despite these setbacks, Netcapital is shifting its focus towards its new broker-dealer subsidiary, Net Capital Securities Inc., which recently received regulatory approval to handle private placements of securities and support companies in raising equity capital. This strategic pivot aims to explore new revenue streams in private securities placements and capital raising.

In another development, Netcapital has amended its Articles of Incorporation to authorize the issuance of up to 10,000,000 shares of "blank check" preferred stock. This move, approved by the board and shareholders, is designed to provide the company with flexible financial instruments for various corporate purposes, including financing and strategic partnerships. The company has not yet disclosed specific plans for issuing these preferred shares. These recent developments underscore Netcapital’s efforts to enhance its financial flexibility and adapt to a challenging market environment.

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