NCPLW Netcapital Inc.

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Executive Summary

Netcapital Inc. issued a $182,120 convertible promissory note to Vanquish Funding Group Inc. for net proceeds of $150,000 ($157,000 purchase price less $7,000 expenses), reflecting a $25,120 original issue discount. The note carries high-cost financing (effective ~65% on $150k net proceeds for a ~10-month term) including 13% upfront interest, 22% default interest, and a deeply discounted 65%-of-lowest-20-day-VWAP conversion price exercisable only after a default. The filing also reveals net proceeds of only $150,000 on an already modest $157,000 gross, underscoring acute cash needs as the company pursues a potential acquisition of Resmac, Inc. referenced in the note's asset-sale covenant.

Key Financial Metrics

Actionable Insight

Key Facts

• Issued $182,120 principal convertible note for $157,000 purchase price ($25,120 OID), net proceeds $150,000 after $7,000 expense reimbursement
• Maturity March 30, 2027; five mandatory payments totaling $205,795 (e.g., $71,250 due Nov 30, 2026)
• Conversion price after default: 65% of lowest trading price during 20 prior trading days (floor $1.00 during first 6 months)
• Default triggers: payment failure (5-day grace), covenant breach, bankruptcy, delisting, failure to maintain Exchange Act reporting, cross-default with other debt to Buyer
• Upon default, principal accelerates at 150% of outstanding (200% if also defaults on share issuance obligations)
• Company has 7,847,899 shares outstanding as of issuance
• Proceeds for general working capital; note restricts asset sales except for previously disclosed LOI with Resmac, Inc.

Financial Impact

Net cash proceeds of $150,000 against total payback obligation of $205,795 (including 13% interest charge of $23,675) within approximately 10 months. Conversion terms are severely dilutive post-default: 65%-of-lowest-20-day-price floor, a typical toxic-convertible structure that could result in substantial dilution if the stock trades low.

Risk Factors

• Potential default on scheduled note payments starting November 2026, triggering severe dilution via 65%-of-lowest-20-day-price conversion
• Deeply discounted conversion structure (65% of lowest 20-day price) could lead to significant shareholder dilution and downward price spiral
• Cross-default clause linking this note to other Vanquish debt amplifies default risk across the capital structure
• Use of proceeds for general working capital rather than growth indicates operating cash burn and limited financial flexibility
• Small absolute cash infusion ($150K) relative to total payback ($205K) signals expensive stopgap financing

Market Snapshot

Documents Analyzed

This report is based on 6 SEC documents filed with EDGAR.

US Market Status

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