Intrusion borrowed $1.5m to buy the last 40 percent of a company it already controlled, and if the note is still outstanding in 90 days the balance becomes $1.9m

One million five hundred thousand dollars arrived. One million six hundred and fifteen thousand is owed. That gap is the original issue discount of $105,000 and $10,000 of transaction expenses, and it exists before a day of interest has run.

Intrusion Inc., a Nasdaq-listed cybersecurity company, issued the secured note to Streeterville Capital, LLC on Friday and used the proceeds the same day to pay the $1,300,000 that bought it the last 40 percent of OW Cyber, LLC.

The 90 day clause

Section 2 of the note is where the pricing lives. If the note is still outstanding on the ninetieth day after funding, the borrower is charged a one-time monitoring fee, described as covering the lender's accounting, legal and other costs of monitoring the loan. The fee is the outstanding balance divided by 0.85, less the outstanding balance. It is added automatically, with no action required from anyone.

The note supplies its own worked example. A balance of $1,000,000 on that date produces a fee of $176,471.

Run the same formula on this loan. $1,615,000 divided by 0.85 is $1,900,000 exactly, so the fee on the original principal alone would be $285,000. Interest accrues at 7 percent, compounded daily, so the real balance on day 90 will be higher and the fee correspondingly larger. Against the $1,500,000 that actually arrived, a balance of $1.9m is a rise of more than a quarter in three months.

The note matures on 28 August 2028. It is secured by a first-priority interest in every asset the company owns and, separately, in its intellectual property. OW Cyber, the subsidiary the money bought, guarantees it. From the sixth month, the lender may redeem up to $150,000 a month at its sole discretion, and may send more than one notice in a month.

What the money bought

The purchase agreement dates from 29 June and was always structured in two parts. The first closing took 60 percent of OW Cyber from VigilAigent Corp. that day. The second closing, the remaining 40 percent for $1,300,000 in cash, could not happen until shareholders approved issuing stock above the 19.9 percent Nasdaq threshold.

They did so on Thursday, at the annual meeting. Proposal Three passed with 4,392,822 shares in favour and 432,643 against, on 24,627 abstentions and 6,534,716 broker non-votes.

Holders of 13,608,357 shares were present, which the company puts at 59.79 percent of the eligible vote. The four tallies on Proposal Three add to 11,384,808, and the 2,223,549 share shortfall is accounted for on the face of the filing: those are the shares issued to the seller at the first closing, and Nasdaq Rule 5635 barred them from voting on the transaction that would pay them.

The second closing completed the next morning. OW Cyber is now wholly owned.