Notes Payable

12 Months Ended

Dec. 31, 2023

Debt Disclosure [Abstract]

Notes Payable

6. Notes Payable

On March 10, 2022, Intrusion Inc. entered into a SPA with Streeterville whereby the Company issued two separate promissory notes of $5.4 million each, with an initial interest rate of 7%, subject to some increases in the case of among other things, an event of default. On March 10, 2022, the Company received $4.6 million in net funds from the first tranche (First Note) pursuant to a promissory note executed contemporaneously with the execution of the loan agreement. On June 29, 2022, the Company received an additional $4.7 million in net funds from the second tranche (Second Note) pursuant to a promissory note. Each note had an 18-month maturity, may be prepaid subject to varying prepayment premiums, and may be redeemed at any time after six months into the term of such note in amounts up to $0.5 million per calendar month upon the noteholder’s election. On January 11, 2023, the Company amended the promissory notes issued pursuant to the unsecured loan agreement with Streeterville whereby the noteholder agreed to waive their redemption rights through March 31, 2023, in exchange for a fee equal to 3.75% of the outstanding principal balance which increased the outstanding indebtedness due at maturity with Streeterville and increased the associated debt issuance costs recorded on the Consolidated Balance Sheets by $0.4 million. On August 2, 2023, the Company entered into a Forbearance Agreement with Streeterville which was subsequently amended on August 7, 2023. The Forbearance Agreement and amendment extend the maturity dates for each Note by twelve months to September 2024 and December 2024. In consideration of the extension of the maturity dates, the Company entered into a Security Agreement with Streeterville, dated August 2, 2023 (the “Security Agreement”), under which Streeterville was granted a first-position security interest in all assets of the Company.

The Company has the option, in its sole discretion, to satisfy any redemption demands in cash or shares of the Company’s common stock that will be issued in an amount equal to the dollar amount of the redemption demand divided by the number that represents 85% of the average of the two lowest daily volume weighted average prices of common stock over a fifteen-day trailing period. This option to settle in shares at a 15% discount is deemed a beneficial conversion feature (“BCF”). Any remaining indebtedness at maturity is payable in cash.

The Company evaluated both the First and Second Note in accordance with ASC Topic 480 “Distinguishing Liabilities from Equity” because the promissory note (1) embodies an unconditional obligation, (2) may require the Company to settle the optional redemption obligation by issuing a variable number of common shares, and (3) is based solely on a fixed monetary amount known at inception.

The lender does not benefit if the fair value of the Company’s common stock increases and does not bear the risk that the fair value of the Company’s common stock might decrease. In accordance with ASC Topic 480, the promissory notes have been recorded as a liability and the company is recording interest expense over the term of the promissory note, using the interest method from ASC Topic 835-30, to accrete the carrying amount of the promissory note up to the redemption common stock settlement amount.

In 2023 and 2022, the Company paid $0.4 million and $1.5 million in cash principal payments on the notes, respectively. The Company has recorded debt issue costs totaling $1.8 million associated with the issuance and amendment of the notes which are being amortized over their respective terms. As of December 31, 2023, the balance of unamortized debt issuance costs for both notes were $0.4 million.

On October 11, 2023, and October 17, 2023, the Company agreed to exchange $0.4 million in aggregate principal on the Streeterville First Note for 50.1 thousand shares of the Company’s common stock. On December 19, 2023, the Company exchanged an additional $0.2 million in principal for 43.5 thousand shares of common stock. The issuance of the shares was made pursuant to the exemption from the registration requirements afforded by the Securities Act.

For the years ended December 31, 2023, and 2022, the Company recorded $1.7 million and $2.3 million of interest expense, respectively, in the accompanying Consolidated Statement of Operations. The interest recorded associated with the promissory notes increases the associated notes payable on the accompanying Consolidated Balance Sheets. As a result of the Forbearance Agreement and subsequent amendment discussed above, the balance of the notes payable matures in September 2024 and December 2024. The effective interest rate of the notes payable including amortization of the debt issuance costs and accretion of BCF is 20.3% and 18.1% for the First and Second Note , respectively.

On March 7, 2024, the Company exchanged an additional $0.2 million in principal on the Streeterville First Note for 52.2 thousand shares of common stock. Additionally, on March 15, 2024, the Company exchanged $9.3 million in aggregate principal for 9,275 shares of newly designated Series A preferred stock. The issuance of both the common and preferred shares was made pursuant to the exemption from the registration requirements afforded by the Securities Act. This most recent exchange resulted in the Streeterville Second Note being paid in full and $0.5 million remaining outstanding on the Streeterville First Note.