Netcapital Announces Exercise of Warrants

Rhea-AI Summary

Netcapital (NASDAQ: NCPL) announced agreements for the immediate exercise of outstanding warrants to purchase 270,861 shares of common stock. The warrants, originally issued in December 2023 and May 2024 with a $10.85 exercise price, will be exercised at a reduced price of $1.80 per share.

The company expects to receive gross proceeds of approximately $487,549 before deducting fees and expenses. In exchange for the immediate exercise, Netcapital will issue new unregistered warrants: Series A-5 warrants for up to 361,148 shares and Series A-6 warrants for up to 180,574 shares, both with an exercise price of $2.07 per share.

The offering is expected to close around January 13, 2025, with H.C. Wainwright & Co. acting as exclusive placement agent. Netcapital plans to use the net proceeds for general working capital purposes.

Positive

• Immediate cash injection of $487,549 through warrant exercise
• Successfully negotiated warrant exercise at $1.80 vs original $10.85 price

Negative

• Significant reduction in warrant exercise price (83% decrease from $10.85 to $1.80)
• Additional dilution through issuance of new warrants totaling 541,722 shares
• New warrants priced at $2.07, indicating continued downward pressure on share value

Insights

Financial Analyst

This warrant exercise agreement reveals a concerning financial maneuver. The company is effectively refinancing existing warrants at significantly reduced terms - from $10.85 to $1.80 per share - representing an 83% reduction in exercise price. This substantial discount suggests serious challenges in raising capital through conventional means.

The deal structure is particularly telling: While generating immediate cash of $487,549, the company is issuing new warrants for 541,722 total shares (361,148 Series A-5 + 180,574 Series A-6) at $2.07 per share. This creates potential future dilution that's double the immediate shares being exercised (270,861). The short 18-month expiration on Series A-6 warrants indicates pressure for quick capital deployment.

For a company with a $3.8M market cap, this financing represents about 13% of its value, with the new warrants potentially affecting another 28%. The involvement of H.C. Wainwright suggests this was a last-resort financing option, as boutique investment banks typically handle higher-risk deals that larger institutions avoid.

Market Research Analyst

The market implications of this warrant restructuring are deeply problematic. Think of this like a homeowner refinancing their mortgage at a much higher interest rate - it might provide immediate cash but signals financial distress. The 83% reduction in warrant exercise price from $10.85 to $1.80 is particularly alarming for existing shareholders.

Breaking this down in simple terms: Netcapital is trading immediate cash for significantly more potential future dilution. The new warrants' exercise price of $2.07 is barely above the current restructured price, suggesting confidence in near-term share price appreciation. The six-month waiting period before these new warrants become exercisable indicates a regulatory minimum rather than strategic timing.

The timing of this announcement, coming just weeks after the original warrants were issued in December 2023, raises red flags about the company's capital planning and management's assessment of their financing options. This type of rapid restructuring typically indicates deteriorating market conditions or internal financial pressure that wasn't previously disclosed to investors.

Boston, Jan. 10, 2025 (GLOBE NEWSWIRE) -- Netcapital Inc. (the “Company”) (NASDAQ: NCPL, NPCLW), a digital private capital markets ecosystem, today announced the entry into definitive agreements for the immediate exercise of certain outstanding warrants to purchase up to an aggregate of 270,861 shares of common stock of the Company originally issued in December 2023 and May 2024, having an exercise price of $10.85 per share, at a reduced exercise price of $1.80 per share. The shares of common stock issuable upon exercise of the warrants are registered pursuant to an effective registration statement on Form S-1 (No. 333-282590). The gross proceeds to the Company from the exercise of the warrants are expected to be approximately $487,549, prior to deducting placement agent fees and estimated offering expenses.

H.C. Wainwright & Co. is acting as the exclusive placement agent for the offering.

In consideration for the immediate exercise of the warrants for cash, the Company will issue new unregistered Series A-5 warrants to purchase up to 361,148 shares of common stock and new unregistered Series A-6 warrants to purchase up to 180,574 shares of common stock. The Series A-5 new warrants will have an exercise price of $2.07 per share, will be exercisable six months after issuance, and will expire five years thereafter. The Series A-6 new warrants will have an exercise price of $2.07 per share, will be exercisable six months after issuance and will expire eighteen months thereafter.

The offering is expected to close on or about January 13, 2025, subject to satisfaction of customary closing conditions. The Company intends to use the net proceeds from the offering for general working capital purposes.

The new warrants described above were offered in a private placement pursuant to an applicable exemption from the registration requirements of the Securities Act of 1933, as amended (the “1933 Act”) and, along with the shares of common stock issuable upon their exercise, have not been registered under the 1933 Act, and may not be offered or sold in the United States absent registration with the Securities and Exchange Commission (“SEC”) or an applicable exemption from such registration requirements. The Company has agreed to file a registration statement with the SEC covering the resale of the shares of common stock issuable upon exercise of the new warrants.

This press release shall not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or jurisdiction.

About Netcapital Inc.

Netcapital Inc. is a fintech company with a scalable technology platform that allows private companies to raise capital online and provides private equity investment opportunities to investors. The Company's consulting group, Netcapital Advisors, provides marketing and strategic advice and takes equity positions in select companies. The Company’s funding portal, Netcapital Funding Portal, Inc. is registered with the U.S. Securities & Exchange Commission (SEC) and is a member of the Financial Industry Regulatory Authority (FINRA), a registered national securities association.

Forward Looking Statements

The information contained herein includes forward-looking statements. These statements relate to future events, including, but not limited to, statements relating to closing of the offering and satisfaction of closing conditions of the offering, the expected gross proceeds from the offering and statements regarding the anticipated use of proceeds from the offering, or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You should not place undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Investor Contacts

800-460-0815

ir@netcapital.com

FAQ

What is the reduced exercise price for NCPL's outstanding warrants in January 2025?

The warrants will be exercised at a reduced price of $1.80 per share, down from the original exercise price of $10.85 per share.

How much funding will NCPL receive from the warrant exercise in January 2025?

Netcapital expects to receive gross proceeds of approximately $487,549, before deducting placement agent fees and offering expenses.

How many new warrants will NCPL issue in exchange for the immediate warrant exercise?

NCPL will issue Series A-5 warrants for up to 361,148 shares and Series A-6 warrants for up to 180,574 shares, totaling 541,722 new warrants.

What is the exercise price of NCPL's new Series A-5 and A-6 warrants?

Both the Series A-5 and Series A-6 warrants will have an exercise price of $2.07 per share.

When will NCPL's new Series A-5 and A-6 warrants become exercisable?

Both warrant series will become exercisable six months after issuance, with Series A-5 expiring five years later and Series A-6 expiring eighteen months later.