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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-39125

 

IronNet, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

83-4599446

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification No.)

 

 

 

7900 Tysons One Place, Suite 400

 

 

McLean, VA

 

22102

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (443) 300-6761

(Former Name or Former Address, if Changed Since Last Report)

 

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.0001 per share

 

IRNT

 

The New York Stock Exchange

Warrants to purchase common stock

 

IRNT.WS

 

The New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

Non-accelerated Filer

Smaller reporting company

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

There were 101,146,144 shares of Common Stock, par value $0.0001 per share, outstanding as of June 14, 2022.

 

 


 

IronNet, Inc.

Table of Contents

FORM 10‑Q

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

2

Item 1. Financial Statements

 

2

Unaudited Condensed Consolidated Balance Sheets

 

2

Unaudited Condensed Consolidated Statements of Operations

 

3

Unaudited Condensed Consolidated Statements of Comprehensive Loss

 

4

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

 

5

Unaudited Condensed Consolidated Statements of Cash Flows

 

6

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

23

Item 4. Controls and Procedures

 

24

PART II — OTHER INFORMATION

 

24

Item 1. Legal Proceedings

 

25

Item 1A. Risk Factors

 

25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

30

Item 3. Defaults upon Senior Securities

 

30

Item 4. Mine Safety Disclosures

 

30

Item 5. Other Information

 

30

Item 6. Exhibits

 

31

SIGNATURES

 

32

 

1


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

IronNet, Inc.

Condensed Consolidated Balance Sheets

($ and share data in thousands, except par value per share)

(unaudited)

 

 

 

April 30,

 

 

January 31,

 

 

 

2022

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

31,390

 

 

$

47,673

 

Accounts receivable

 

 

10,213

 

 

 

1,991

 

Unbilled receivables

 

 

1,198

 

 

 

4,637

 

Related party receivables and loan receivables

 

 

3,233

 

 

 

3,233

 

Accounts, related party and loans receivable

 

 

14,644

 

 

 

9,861

 

Inventory

 

 

5,416

 

 

 

4,581

 

Deferred costs

 

 

2,349

 

 

 

2,599

 

Prepaid warranty

 

 

1,138

 

 

 

829

 

Prepaid expenses

 

 

3,130

 

 

 

3,660

 

Other current assets

 

 

2,081

 

 

 

1,458

 

Total current assets

 

$

60,148

 

 

$

70,661

 

Deferred costs

 

 

3,838

 

 

 

3,243

 

Property and equipment, net

 

 

6,077

 

 

 

5,606

 

Prepaid warranty

 

 

1,294

 

 

 

1,229

 

Deposits and other assets

 

 

2,811

 

 

 

493

 

Total assets

 

$

74,168

 

 

$

81,232

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

1,687

 

 

$

2,348

 

Accrued expenses

 

 

12,633

 

 

 

4,709

 

Deferred revenue

 

 

19,680

 

 

 

16,049

 

Deferred rent

 

 

-

 

 

 

159

 

Income tax payable

 

 

523

 

 

 

542

 

Other current liabilities

 

 

1,651

 

 

 

689

 

Total current liabilities

 

 

36,174

 

 

 

24,496

 

Deferred rent

 

 

-

 

 

 

769

 

Deferred revenue

 

 

18,851

 

 

 

17,517

 

   Warrants

 

 

7

 

 

 

7

 

   Other long-term liabilities

 

 

2,505

 

 

 

-

 

Total liabilities

 

$

57,537

 

 

$

42,789

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 100,000 shares authorized; none issued or outstanding

 

 

-

 

 

 

-

 

Common stock; $0.0001 par value; 500,000 shares authorized; 100,426 and 88,876  shares issued and outstanding at April 30, 2022 and January 31, 2022, respectively

 

 

10

 

 

 

9

 

Additional paid-in capital

 

 

467,296

 

 

 

455,849

 

Accumulated other comprehensive income

 

 

179

 

 

 

271

 

Accumulated deficit

 

 

(450,854

)

 

 

(417,686

)

Total stockholders’ equity

 

 

16,631

 

 

 

38,443

 

Total liabilities and stockholders' equity

 

$

74,168

 

 

$

81,232

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


 

IronNet, Inc.

Condensed Consolidated Statements of Operations

($ in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended April 30,

 

 

 

2022

 

 

2021

 

Product, subscription and support revenue

 

$

6,443

 

 

$

6,137

 

Professional services revenue

 

 

245

 

 

 

240

 

Total revenue

 

 

6,688

 

 

 

6,377

 

Cost of product, subscription and support revenue

 

 

2,330

 

 

 

1,754

 

Cost of professional services revenue

 

 

165

 

 

 

184

 

Total cost of revenue

 

 

2,495

 

 

 

1,938

 

Gross profit

 

 

4,193

 

 

 

4,439

 

Operating expenses

 

 

 

 

 

 

Research and development

 

 

10,727

 

 

 

6,891

 

Sales and marketing

 

 

10,667

 

 

 

7,149

 

General and administrative

 

 

15,586

 

 

 

5,720

 

Total operating expenses

 

 

36,980

 

 

 

19,760

 

Operating loss

 

 

(32,787

)

 

 

(15,321

)

Other income

 

 

10

 

 

 

8

 

Other expense

 

 

(380

)

 

 

(129

)

Loss before income taxes

 

 

(33,157

)

 

 

(15,442

)

Provision for income taxes

 

 

(11

)

 

 

(58

)

Net loss

 

$

(33,168

)

 

$

(15,500

)

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

 

(0.33

)

 

 

(0.23

)

Weighted average shares outstanding, basic and diluted

 

 

99,305

 

 

 

67,182

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

IronNet, Inc.

Condensed Consolidated Statements of Comprehensive Loss

($ in thousands) (unaudited)

 

 

 

Three Months Ended April 30,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(33,168

)

 

$

(15,500

)

Foreign currency translations adjustment, net of tax

 

 

(92

)

 

 

(2

)

     Comprehensive loss

 

$

(33,260

)

 

$

(15,502

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

IronNet, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended April 30, 2022 and 2021

($ in thousands, number of common stock in thousands)

(unaudited)

 

 

 

Common Stock

 

 

Additional Paid- In Capital

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive Income

 

 

Subscription Notes Receivable

 

 

Total Stockholders' Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2022

 

 

88,876

 

 

$

9

 

 

$

455,849

 

 

$

(417,686

)

 

$

271

 

 

 

-

 

 

$

38,443

 

Exercise of stock options and delivery of vested restricted stock units

 

 

11,565

 

 

 

1

 

 

 

92

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

93

 

Statutory tax withholding related to net-share settlement of restricted stock units

 

 

(15

)

 

-

 

 

 

(91

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(91

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

11,446

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11,446

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(33,168

)

 

 

-

 

 

 

-

 

 

 

(33,168

)

Foreign currency translation adjustment, net of tax of $0

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(92

)

 

-

 

 

 

(92

)

Balance at April 30, 2022

 

 

100,426

 

 

$

10

 

 

$

467,296

 

 

$

(450,854

)

 

$

179

 

 

-

 

 

$

16,631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2021 as recasted (1)

 

 

66,934

 

 

$

7

 

 

$

180,853

 

 

$

(175,039

)

 

$

40

 

 

$

(835

)

 

$

5,026

 

 Issuance of common stock

 

 

414

 

 

 

-

 

 

 

209

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

209

 

Interest earned on subscription notes receivable

 

 

-

 

 

 

-

 

 

 

4

 

 

 

-

 

 

 

-

 

 

 

(4

)

 

 

-

 

Payments on subscription notes receivable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

62

 

 

 

62

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

17

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

17

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,500

)

 

 

-

 

 

 

-

 

 

 

(15,500

)

Foreign currency translation adjustment, net of tax of $0

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2

)

 

 

-

 

 

 

2

 

Balance at April 30, 2021

 

 

67,348

 

 

$

7

 

 

$

181,083

 

 

$

(190,539

)

 

$

38

 

 

$

(777

)

 

$

(10,189

)

 

(1) The shares of the Company’s Class A Common Stock, prior to the Merger, have been recast as shares of Common Stock reflecting the exchange ratio established in the Merger of approximately 0.8141070 as further discussed in Footnote 1.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5


 

IronNet, Inc.

Condensed Consolidated Statements of Cash Flows

($ in thousands)

(unaudited)

 

 

 

Three Months Ended April 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(33,168

)

 

$

(15,500

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

628

 

 

 

224

 

Gain on sale of fixed assets

 

 

(3

)

 

 

-

 

Employee stock based compensation

 

 

11,446

 

 

 

17

 

Non-cash interest expense

 

 

90

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts, related party, and loans receivable

 

 

(4,783

)

 

 

231

 

Deferred costs

 

 

(346

)

 

 

(929

)

Inventories

 

 

(835

)

 

 

83

 

Prepaid expenses

 

 

529

 

 

 

(687

)

Other current assets

 

 

265

 

 

-

 

Prepaid warranty

 

 

(373

)

 

 

201

 

Deposits and other assets

 

 

382

 

 

 

(44

)

Accounts payable

 

 

(661

)

 

 

1,355

 

Accrued expenses

 

 

(50

)

 

 

728

 

Income tax payable

 

 

(19

)

 

 

58

 

Other current liabilities

 

 

99

 

 

 

 

Deferred rent

 

-

 

 

 

(33

)

Deferred revenue

 

 

4,965

 

 

 

2,184

 

Other long-term liabilities

 

 

(350

)

 

 

-

 

Net cash used in operating activities

 

 

(22,184

)

 

 

(12,112

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(912

)

 

 

(741

)

Proceeds from the sale of fixed assets

 

 

2

 

 

 

-

 

Net cash used in investing activities

 

 

(910

)

 

 

(741

)

Cash flows from financing activities

 

 

 

 

 

 

Exercise of stock options and vesting of restricted stock units

 

 

93

 

 

 

209

 

Statutory tax withholding related to net-share settlement of restricted stock units

 

 

(91

)

 

-

 

Cash received to fund employee's tax obligation for vested RSUs

 

 

17,909

 

 

-

 

Cash remitted to fund employee's tax obligation for vested RSUs

 

 

(9,066

)

 

-

 

Payment of commitment fee

 

 

(1,750

)

 

-

 

Payment of common stock issuance costs

 

 

(96

)

 

-

 

Payment of finance lease obligations

 

 

(96

)

 

-

 

Proceeds from stock subscriptions

 

-

 

 

 

62

 

Net cash provided by financing activities

 

 

6,903

 

 

 

271

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(92

)

 

 

11

 

Net change in cash and cash equivalents

 

 

(16,283

)

 

 

(12,570

)

Cash and cash equivalents

 

 

 

 

 

 

Beginning of the period

 

 

47,673

 

 

 

31,543

 

End of the period

 

$

31,390

 

 

$

18,973

 

Supplemental disclosures of non-cash investing and financing activities

 

 

 

 

 

 

Payments on subscription notes receivable

 

-

 

 

 

62

 

Interest earned on subscription notes receivable

 

-

 

 

 

4

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


 

IronNet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(shares and dollars in thousands, unless stated otherwise)

 

1.
Organization and Summary of Changes in Significant Accounting Policies

 

IronNet, Inc., formerly known as LGL Systems Acquisition Corporation (“Legacy LGL”), was incorporated in the state of Delaware on April 30, 2019 for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities.

On March 15, 2021, Legacy LGL entered into an Agreement and Plan of Reorganization and Merger (“Merger Agreement”), as amended on August 6, 2021, by and among Legacy LGL, LGL Systems Merger Sub Inc. (the “Merger Sub”) and IronNet Cybersecurity, Inc. (“Legacy IronNet”). On August 26, 2021, the Merger Agreement was consummated and the Merger was completed (the “Merger”). In connection with the Merger, Legacy LGL changed its name to IronNet, Inc., and the New York Stock Exchange (“NYSE”) ticker symbols for its Class A common stock and warrants were changed to “IRNT” and “IRNT.WS” respectively.

The Merger was accounted for as a reverse recapitalization. Under this method of accounting, Legacy LGL has been treated as the acquired company for financial reporting purposes. This determination was primarily based on Legacy IronNet's existing stockholders being the majority stockholders and holding majority voting power in the combined company, Legacy IronNet's senior management comprising the majority of the senior management of the combined company, and Legacy IronNet's ongoing operations comprising the ongoing operations of the combined company. Accordingly, for accounting purposes, the Merger was treated as the equivalent of Legacy IronNet issuing shares for the net assets of Legacy LGL, accompanied by a recapitalization. The net assets of Legacy LGL were recognized at fair value (which was consistent with carrying value), with no goodwill or other intangible assets recorded. As a result of Legacy IronNet being the accounting acquirer in the Merger, the financial reports filed with the SEC by the Company subsequent to the Merger are prepared as if Legacy IronNet is the accounting predecessor of the Company. The historical operations of Legacy IronNet are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Legacy IronNet prior to the Merger; (ii) the consolidated results of the Company, following the Merger on August 26, 2021; (iii) the assets and liabilities of Legacy IronNet at their historical cost; and (iv) the Company’s equity structure for all periods presented. The recapitalization of the number of shares of common stock is reflected retroactively to the earliest period presented based on the exchange ratio established in the Merger and will be utilized for calculating loss per share in all prior periods presented. The exchange ratio in the Merger was 0.8141070 of a share of Company common stock per fully-diluted share of Legacy IronNet common stock.

Throughout the notes to the consolidated financial statements, unless otherwise noted, "we," "us," "our," "IronNet," the "Company," and similar terms refer to Legacy IronNet and its subsidiaries prior to the consummation of the Merger, and IronNet, Inc. and our subsidiaries after the Merger.

Basis of Presentation and Principles of Consolidation

The interim condensed consolidated financial statements and accompanying notes are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements of IronNet, Inc. and accompanying notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 31, 2022. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The Company’s fiscal year ends on January 31. References to fiscal 2023, for example, refer to the fiscal year ending January 31, 2023. The results of operations for the three months ended April 30, 2022 are not necessarily indicative of the operating results that may be expected for the full fiscal year ending January 31, 2023 or any future period.

The accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments (except as otherwise noted), necessary for a fair statement of the Company’s financial position as of April 30, 2022, its results of operations for the three months ended April 30, 2022 and 2021, changes in stockholders’ equity for the three months ended April 30, 2022 and 2021, and cash flows for the three months ended April 30, 2022 and 2021.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions include, but are not limited to, the period of benefit for deferred commissions, the useful life of property and equipment, stock-based compensation expense, fair value of warrants, and income taxes. If the underlying estimates and assumptions upon which the financial statements are based change in future periods, actual amounts may differ from those included in the accompanying condensed consolidated financial statements.

Liquidity

As of April 30, 2022, the Company had cash and cash equivalents of $31,390 and collectable receivables of $14,644 and no debt. The Company has also secured an equity line with Tumim Stone Capital, LLC, under which the Company may sell shares of its common stock for proceeds of up to $175,000, subject to various conditions and limitations set forth in the purchase agreement with Tumim, which amounts may be available to the Company to fund future operations in the absence of any material adverse conditions. The Company, based on its cash on hand and its financial forecast, as well as plans which could be executed to moderate internal and external expenditures as needed, has concluded that it has sufficient liquidity to fund its planned operations for a period of at least 12 months from the issuance of these financial statements. The Company’s future capital requirements will depend on many factors, including, but not limited to the rate of our growth, its ability to attract and retain customers and their willingness and ability to pay for the Company's products and services, and the timing and extent of spending to support its multiple and ongoing efforts to market and continue to develop its products. Further, the Company may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies. As such, the Company may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, the Company may not be able to raise it on terms acceptable to it or at all. If additional funds are not available to the Company on acceptable terms, or at all, our business, financial condition, and results of operations could be adversely affected. The financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.

Recent Accounting Pronouncements not Yet Adopted

In June 2016, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). This standard requires a new method for recognizing credit losses that is referred to as the current expected credit loss

7


 

(“CECL”) method. The CECL method requires the recognition of all losses expected over the life of a financial instrument upon origination or purchase of the instrument, unless the Company elects to recognize such instruments at fair value with changes in profit and loss (the fair value option). This standard is effective for the Company for the earlier of the fiscal years beginning after December 15, 2022 or the time at which the Company no longer qualifies as an emerging growth company ("EGC") under SEC rules. Management is currently evaluating the potential impact of this guidance on its financial statements.

New Accounting Pronouncement Adopted in Fiscal 2023

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“Topic 842”), which outlines a comprehensive lease accounting model that supersedes the previous lease guidance. The guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) - Targeted Improvements, which provides the option of an additional transition method that allows entities to initially apply the new lease guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the standard on February 1, 2022 using the modified retrospective basis. Using the modified retrospective approach, the Company determined an incremental borrowing rate at the date of adoption based on the total lease term and total minimum rental payments.

The modified retrospective approach provides a method for recording existing leases at adoption with a cumulative adjustment to retained earnings. The Company elected the package of practical expedients which permits the Company to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for any expired or existing leases as of the effective date. The Company also elected the practical expedient to use hindsight when determining the lease term, and the practical expedient lease considerations to not allocate lease considerations between lease and non-lease components for real estate leases. As such, real estate lease considerations are treated as a single lease-component and accounted for accordingly. The Company excludes leases with an initial term of 12 months or less from the application of Topic 842.

Adoption of the new standard resulted in the recording of $974 and $2,654 of current operating lease liabilities and long-term operating lease liabilities, respectively, and $2,685 in corresponding right-of-use (“ROU”) lease assets on that date. The difference between the approximate value of the ROU lease assets and lease liabilities is attributable to deferred rent, which is comprised of tenant improvement allowance and rent abatement. The adoption of the new standard also resulted in recording $187 in current finance lease liabilities and $182 in corresponding ROU assets for finance leases as of the adoption date. The difference between the finance lease ROU lease assets and lease liabilities is not significant. The cumulative change in the beginning accumulated deficit was $0.02 million due to the adoption of Topic 842 and there was no material impact on the Company’s consolidated statement of operations or consolidated statement of cash flows. The Company’s comparative periods continue to be presented and disclosed in accordance with legacy guidance in Topic 840. Refer to Note 8 for additional information.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2023 or the time at which the Company no longer qualifies as an EGC, with early adoption permitted. The Company has elected to early adopt this ASU as of February 1, 2022 using the modified retrospective method. The adoption of ASU 2020-06 had an immaterial impact on the Company’s condensed consolidated financial statements and related disclosures for the three-month period ended April 30, 2022.

Segment and Geographic Information

Segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and assess performance. The CODM reviews financial information presented on a consolidated basis for the purposes of allocating resources and evaluating financial performance. Accordingly, management has determined that the Company operates as one operating segment.

The following table presents revenue by geographic location:

 

 

 

Three Months Ended April 30,

 

 

 

2022

 

 

2021

 

United States

 

$

6,109

 

 

$

5,462

 

International

 

 

579

 

 

 

915

 

Total

 

$

6,688

 

 

$

6,377

 

 

Substantially all of the Company’s long-lived assets are located in the United States.

 

2. Revenue

Software, Subscription and Support Revenue

The Company sells a collective defense software solution that provides a near real time collective defense infrastructure that is comprised of two product offerings, IronDefense and IronDome. The software platform is delivered through both on-premises licenses bundled with on-premises hardware and through subscription software.

Our security appliance deliverables include proprietary operating system software and hardware together with regular threat intelligence updates and support, maintenance, and warranty. We combine intelligence dependent hardware and software licenses with the related threat intelligence and support and maintenance as a single performance obligation, as it delivers the essential functionality of our cybersecurity solution. As a result, we recognize revenue for this single performance obligation ratably over the expected term with the customer. Judgment is required for the assessment of material rights relating to renewal options associated with our contracts.

Revenue from subscriptions, which allow customers to use our security software over a contracted period without taking possession of the software, and managed services, where we provide managed detection and response services for customers, is recognized over the contractual term. The cloud- based subscription revenue, where we also provide hosting, recognized for the three months ended April 30, 2022 and 2021 was $5,215 and $4,014, respectively. Overall software, subscription, and support revenue recognized for the three months ended April 30, 2022 and 2021, were $6,443 and $6,137, respectively.

Professional Services Revenue

The Company sells professional services, including cyber operations monitoring, security, training and tailored maturity assessments. Revenue derived from these services is recognized as the services are delivered.

8


 

Customer Concentration

For the three months ended April 30, 2022, two customers accounted for 22% or $1,463 of the Company's revenue, and for the three months ended April 30, 2021, three customers accounted for 32%, or $2,045, of the Company’s revenue. Two customers represented 48% and 49% of the total accounts receivable balance as of April 30, 2022 and January 31, 2022, respectively.

Significant customers are those which represent at least 10% of the Company’s total revenue for a period. The following table presents customers that represented 10% or more of the Company’s total revenue in the respective periods:

 

 

For the Three Months Ended April 30,

 

 

2022

 

 

2021

 

Customer A

*

 

 

 

12

%

Customer B

*

 

 

 

10

%

Customer C

 

11

%

 

 

10

%

Customer D

 

11

%

 

*

 

 

 

22

%

 

 

32

%

 

* - less than 10%

Deferred Costs

Deferred costs consists of deferred contract fulfillment costs and deferred commissions. The Company defers contract fulfillment costs that include appliance hardware. The balances in deferred costs are as follows:

 

Balance at February 1, 2021

 

$

2,805

 

Amounts recognized in cost of revenue

 

 

(388

)

Costs deferred

 

 

229

 

Balance at April 30, 2021

 

$

2,646

 

 

 

 

 

Balance at February 1, 2022

 

$

4,604

 

Amounts recognized in cost of revenue

 

 

(610

)

Costs deferred

 

 

100

 

Balance at April 30, 2022

 

$

4,094

 

 

The balance of deferred commissions at April 30, 2022 and January 31, 2022 were $2,093 and $1,238, respectively. Deferred commissions are included in the deferred costs on the condensed consolidated balance sheets, of which $728 is current and $1,365 is long-term as of April 30, 2022.

Deferred Revenue

Deferred revenue represents amounts received from and/or billed to customers in excess of revenue recognized. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue depending on whether the revenue recognition criteria have been met.

The balance in deferred revenue is as follows:

 

Balance at February 1, 2021

 

$

34,044

 

Revenue recognized

 

 

(5,143

)

Amounts deferred

 

 

7,480

 

Foreign exchange

 

 

(151

)

Balance at April 30, 2021

 

$

36,230

 

 

 

 

 

Balance at February 1, 2022

 

$

33,566

 

Revenue recognized

 

 

(6,680

)

Amounts deferred

 

 

11,645

 

Balance at April 30, 2022

 

$

38,531

 

 

Remaining Performance Obligations

As of April 30, 2022, the remaining performance obligations totaled $48,527. The Company’s future recognition of revenue will be as follows:

 

Years Ending January 31,

 

 

 

2023 (9 months)

 

$

18,540

 

2024

 

 

16,505

 

2025

 

 

10,806

 

2026

 

 

2,676

 

 

 

$

48,527

 

 

3. Equity

Common Stock

As of April 30, 2022, the Company had 500,000 shares of common stock authorized and 100,426 shares of common stock issued and outstanding with a par value of $0.0001 per share.

Each share of Common Stock has 1 vote.

Common Stock Purchase Agreement

9


 

On February 11, 2022, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Tumim Stone Capital, LLC (“Tumim”), pursuant to which Tumim has committed to purchase up to $175,000 of common stock (the “Total Commitment”), at the Company's direction from time to time, subject to the satisfaction of the conditions in the Purchase Agreement. Also on February 11, 2022, the Company entered into a registration rights agreement with Tumim (the “Registration Rights Agreement”), pursuant to which the Company filed with the SEC a registration statement to register for resale under the Securities Act (the “ELOC Registration Statement”), the shares of common stock that may be issued to Tumim under the Purchase Agreement. The SEC declared the ELOC Registration Statement effective on March 17, 2022.

The sales of common stock to Tumim under the Purchase Agreement, if any, are subject to certain limitations and may occur, from time to time at the Company's sole discretion, over the approximately 36-month period commencing upon the initial satisfaction of all conditions to Tumim’s purchase obligations set forth in the Purchase Agreement (the “Commencement Date”).

From and after the Commencement Date, the Company has the right, but not the obligation from time to time to direct Tumim to purchase amounts of common stock, subject to certain limitations in the Purchase Agreement, specified in purchase notices that will be delivered to Tumim under the Purchase Agreement (each such purchase, a “Purchase”). Shares of common stock will be issued from the Company to Tumim at either a (i) 3% discount to the average daily volume weighted average price (the “VWAP”) of the common stock during the three consecutive trading days from the date that a purchase notice with respect to a particular purchase (a “VWAP Purchase Notice”) is delivered from the Company to Tumim (a “Forward VWAP Purchase”), or (ii) 5% discount to the lowest daily VWAP during the three consecutive trading days from the date that a VWAP Purchase Notice with respect to a particular purchase is delivered from the Company to Tumim (an “Alternative VWAP Purchase”). There is no upper limit on the price per share that Tumim could be obligated to pay for the common stock under the Purchase Agreement. The purchase price per share of common stock to be sold in a Purchase will be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction.