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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 October 31, 2023

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.)

 

 

 

6 Waelchli Ave, #7395

 

 

Halethorpe, MD

 

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

N/A

 

N/A

 

N/A

 

 

 

 

 

 

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 121,506,784 shares of Common Stock, par value $0.0001 per share, outstanding as of January 26, 2024.

 

 


 

IronNet, Inc.

Table of Contents

FORM 10‑Q

 

 

 

Page

PART I — FINANCIAL INFORMATION

 

5

Item 1. Financial Statements

 

5

Unaudited Condensed Consolidated Balance Sheets (Debtor-in-Possession)

 

5

Unaudited Condensed Consolidated Statements of Operations (Debtor-in-Possession)

 

6

Unaudited Condensed Consolidated Statements of Comprehensive Loss (Debtor-in-Possession)

 

7

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Debtor-in-Possession)

 

8

Unaudited Condensed Consolidated Statements of Cash Flows (Debtor-in-Possession)

 

10

Notes to Unaudited Condensed Consolidated Financial Statements (Debtor-in-Possession)

 

11

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

 

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

36

Item 4. Controls and Procedures

 

36

PART II — OTHER INFORMATION

 

37

Item 1. Legal Proceedings

 

37

Item 1A. Risk Factors

 

38

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

 

57

Item 3. Defaults upon Senior Securities

 

57

Item 4. Mine Safety Disclosures

 

57

Item 5. Other Information

 

57

Item 6. Exhibits

 

58

SIGNATURES

 

60

 

 

 

1


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”), including, without limitation, statements under the heading Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current or historical facts. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:

risks and uncertainties relating to the Chapter 11 Cases, including but not limited to:
o
our ability to obtain Bankruptcy Court approval with respect to motions in the Chapter 11 Cases, and our ability to satisfy the conditions precedent to any Chapter 11 plan;
o
the outcome of the Chapter 11 Cases in the Bankruptcy Court, including our ability to successfully market and sell all, substantially all or some of our assets and to develop, negotiate, confirm and consummate a Chapter 11 plan;
o
the effects of the Chapter 11 Cases on the Company and on the interests of various constituents;
o
Bankruptcy Court rulings in the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general;
o
the length of time we will operate under the Chapter 11 Cases and the continued availability of operating capital during the pendency of Chapter 11;
o
whether the period over which we anticipate our existing cash and cash equivalents will be sufficient to fund our Chapter 11 Cases, operating expenses and capital expenditure requirements;
o
risks associated with any third-party motions in the Chapter 11 Cases;
o
the potential adverse effects of the Chapter 11 Cases on our liquidity or results of operations and increased legal and other professional costs necessary to execute the Company’s reorganization;
o
the conditions to which the Company’s cash collateral is subject and the risk that these conditions may not be satisfied for various reasons, including for reasons outside of our control;
o
the consequences of the acceleration of our debt obligations;
o
the trading price and volatility of our common stock;
o
employee attrition and our ability to retain senior management and other key personnel due to the distractions and uncertainties of the Chapter 11 Cases;
o
our ability to maintain relationships with suppliers, customers, employees and other third parties as a result of the Chapter 11 Cases; and
o
the result of our post-petition marketing process is unknown, and there may be insufficient proceeds, if any, to make distributions to equity holders;
the effects of the delisting of our common stock from the New York Stock Exchange;
our ability to continue as a going concern;
changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;
the implementation, market acceptance and success of our business model and growth strategy;
our expectations and forecasts with respect to the size and growth of the cybersecurity industry and our products and services in particular;
the ability of our products and services to meet customers’ compliance and regulatory needs;
our ability to compete with others in the cybersecurity industry;
our ability to retain pricing power with our products;
our ability to grow our market share;
our ability to attract and retain qualified employees and management;
our ability to adapt to changes in consumer preferences, perception and spending habits and develop and expand our product offerings and gain market acceptance of our products, including in new geographies;
developments and projections relating to our competitors and industry;
our ability to develop and maintain our brand and reputation;
developments and projections relating to our competitors and industry;
the impact of health epidemics, including the COVID-19 pandemic, on our business and on the economy in general;
our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others;
expectations regarding our status as an emerging growth company under the JOBS Act;
our future capital requirements and sources and uses of cash;
our ability to obtain funding for our operations and future growth; and
our business, expansion plans and opportunities.

2


 

 


 

As previously announced, the Company voluntarily delisted from the New York Stock Exchange, and, as a result, our common stock trades exclusively in over-the-counter markets. The Company’s stockholders are cautioned that trading in shares of the Company’s common stock during the pendency of the Chapter 11 Cases remains highly speculative and will pose substantial risks. Trading prices for the Company’s common stock may bear little or no relation to actual recovery, if any, by holders thereof in the Chapter 11 Cases and the trading market (if any) may be very limited. Accordingly, the Company urges extreme caution with respect to existing and future investments in its common stock.

The forward-looking statements contained in this Quarterly Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in Part I, Item 1A. in our Annual Report on Form 10-K filed on May 16, 2023 (the “Annual Report”) as supplemented or restated under the heading “Risk Factors” in Part II, Item 1A. of this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, those results or developments may not be indicative of results or developments in subsequent periods.

 

3


 

SUMMARY OF RISK FACTORS


Below is a summary of material factors that make an investment in our securities speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under the section titled “Risk Factors” in this Quarterly Report on Form 10-Q. The below summary is qualified in its entirety by that more complete discussion of such risks and uncertainties. You should consider carefully the risks and uncertainties described under the section titled “Risk Factors” in this Quarterly Report on Form 10-Q as part of your evaluation of an investment in our securities:

We are subject to the risks and uncertainties associated with Chapter 11 proceedings.
We may not be able to obtain confirmation of a Chapter 11 plan of reorganization or complete any Bankruptcy Court-approved sales of our Company or assets, or we may not be able to realize adequate consideration for such sales.
We may be subject to claims that will not be discharged in the Chapter 11 proceedings, which could have a material adverse effect on our financial conditions and results of operations.
We have experienced, and may continue to experience, increased levels of employee attrition as a result of the Chapter 11 proceedings.
Our post-bankruptcy capital structure will be determined in accordance with the Chapter 11 plan and changes to our capital structure in accordance with the Chapter 11 plan will have a material adverse effect on existing debt and security holders, including holders of our common stock.
The Chapter 11 proceedings has caused our common stock to decrease in value materially or may render our common stock worthless.
Our common stock has been delisted from trading on the New York Stock Exchange, which has negatively impacted the trading price of our common stock and our stockholders and there may be risks involved with trading in an over-the-counter market.
There is substantial doubt about our ability to continue as a going concern for a period of twelve months from the date of this Quarterly Report on Form 10-Q.
Our management previously identified material weaknesses in our internal control over financial reporting, which resulted in a restatement of our unaudited condensed consolidated financial statements in a prior fiscal year. In the future, we may identify additional material weaknesses or otherwise fail to maintain effective internal control over financial reporting, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.
We have a history of losses and may not be able to achieve or sustain profitability in the future.
If organizations do not adopt cloud-enabled, and/or SaaS-delivered cybersecurity solutions that may be based on new and untested security concepts, our ability to grow our business and results of operations may be adversely affected.
Competition from existing or new companies could cause us to experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities and loss of market share.
If our solutions fail or are perceived to fail to detect or prevent incidents or have or are perceived to have defects, errors, or vulnerabilities, our brand and reputation would be harmed, which would adversely affect our business and results of operations.
We rely on third-party data centers and our own colocation data centers to host and operate our platform, and any disruption of or interference with our use of these facilities may negatively affect our ability to maintain the performance and reliability of our platform, which could cause our business to suffer.
A limited number of customers represent a substantial portion of our revenue. If we fail to retain these customers, our revenue could decline significantly.
If we are unable to maintain successful relationships with our distribution partners, or if our distribution partners fail to perform, our ability to market, sell and distribute our platform and solutions efficiently will be limited, and our business, financial position and results of operations will be harmed.
Our business depends, in part, on sales to government organizations, and significant changes in the contracting or fiscal policies of such government organizations could have an adverse effect on our business and results of operations.
The success of our business will depend in part on our ability to protect and enforce our intellectual property rights.
We are subject to laws and regulations, including governmental export and import controls, sanctions, and anti-corruption laws, that could impair our ability to compete in our markets and subject us to liability if we are not in full compliance with applicable laws.
Our international operations expose us to significant risks, and failure to manage those risks could adversely impact our business.


 

4


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

IronNet, Inc.

(Debtor-in-Possession)

Condensed Consolidated Balance Sheets

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

(unaudited)

 

 

October 31,

 

 

 

January 31,

 

 

 

2023

 

 

 

2023

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

787

 

 

 

$

7,568

 

Accounts receivable

 

 

234

 

 

 

 

3,373

 

Unbilled receivables

 

 

95

 

 

 

 

717

 

Accounts receivable

 

 

329

 

 

 

 

4,090

 

Inventory

 

 

872

 

 

 

 

2,669

 

Deferred costs

 

 

2,657

 

 

 

 

3,138

 

Prepaid warranty

 

 

1,040

 

 

 

 

1,218

 

Prepaid expenses

 

 

199

 

 

 

 

1,743

 

Other current assets

 

 

1,066

 

 

 

 

818

 

Total current assets

 

$

6,950

 

 

 

$

21,244

 

Deferred costs

 

 

926

 

 

 

 

2,975

 

Property and equipment, net

 

 

5,017

 

 

 

 

5,972

 

Prepaid warranty

 

 

400

 

 

 

 

1,141

 

Operating lease right-of-use assets, net

 

 

1,562

 

 

 

 

1,885

 

Deposits and other assets

 

 

224

 

 

 

 

442

 

Total assets

 

$

15,079

 

 

 

$

33,659

 

 

 

 

 

 

 

 

Liabilities and stockholders’ (deficit) equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

1,001

 

 

 

$

7,287

 

Accrued expenses

 

 

4,411

 

 

 

 

9,973

 

Deferred revenue

 

 

12,929

 

 

 

 

17,180

 

Related party notes payable

 

 

1,499

 

 

 

 

11,845

 

Convertible notes payable

 

 

 

 

 

 

8,128

 

Conversion features on convertible notes payable

 

 

 

 

 

 

734

 

Income tax payable

 

 

425

 

 

 

 

412

 

Other current liabilities

 

 

-

 

 

 

 

735

 

Total current liabilities

 

 

20,265

 

 

 

 

56,294

 

Deferred revenue

 

 

5,567

 

 

 

 

9,961

 

Other long-term liabilities

 

 

 

 

 

 

2,128

 

Total liabilities not subject to compromise

 

$

25,832

 

 

 

$

68,383

 

Liabilities subject to compromise (Note 12)

 

$

40,666

 

 

 

$

 

Total liabilities

 

$

66,498

 

 

 

$

68,383

 

Stockholders’ (deficit) 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; 121,507 and 111,466 shares issued and outstanding at October 31, 2023 and January 31, 2023, respectively

 

 

12

 

 

 

 

11

 

Additional paid-in capital

 

 

499,809

 

 

 

 

493,902

 

Accumulated other comprehensive income

 

 

51

 

 

 

 

59

 

Accumulated deficit

 

 

(551,291

)

 

 

 

(528,696

)

Total stockholders’ (deficit) equity

 

 

(51,419

)

 

 

 

(34,724

)

Total liabilities and stockholders' (deficit) equity

 

$

15,079

 

 

 

$

33,659

 

 

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

5


 

IronNet, Inc.

(Debtor-in-Possession)

Condensed Consolidated Statements of Operations

($ in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended October 31,

 

 

Nine Months Ended October 31,

 

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

    Product, subscription and support revenue

 

 

$

4,562

 

 

$

6,674

 

 

$

17,182

 

 

$

19,331

 

    Professional services revenue

 

 

 

-

 

 

 

314

 

 

 

172

 

 

 

952

 

Total revenue

 

 

 

4,562

 

 

 

6,988

 

 

 

17,354

 

 

 

20,283

 

    Cost of product, subscription and support revenue

 

 

 

3,828

 

 

 

4,206

 

 

 

8,746

 

 

 

8,875

 

    Cost of professional services revenue

 

 

 

4

 

 

 

83

 

 

 

92

 

 

 

397

 

Total cost of revenue

 

 

 

3,832

 

 

 

4,289

 

 

 

8,838

 

 

 

9,272

 

Gross profit

 

 

 

730

 

 

 

2,699

 

 

 

8,516

 

 

 

11,011

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

    Research and development

 

 

 

1,456

 

 

 

6,804

 

 

 

7,813

 

 

 

27,246

 

    Sales and marketing

 

 

 

1,001

 

 

 

7,774

 

 

 

4,069

 

 

 

27,194

 

    General and administrative

 

 

 

2,965

 

 

 

19,723

 

 

 

15,262

 

 

 

48,742

 

Total operating expenses

 

 

 

5,422

 

 

 

34,301

 

 

 

27,144

 

 

 

103,182

 

Operating loss

 

 

 

(4,692

)

 

 

(31,602

)

 

 

(18,628

)

 

 

(92,171

)

    Interest expense

 

 

 

(915

)

 

 

(320

)

 

 

(3,453

)

 

 

(482

)

    Other income

 

 

 

174

 

 

 

493

 

 

 

785

 

 

 

55

 

    Other expense

 

 

 

(65

)

 

 

(581

)

 

 

(266

)

 

 

(995

)

Change in fair value of warrants liabilities

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

6

 

Loss before reorganization items

 

 

 

(5,498

)

 

 

(32,007

)

 

 

(21,562

)

 

 

(93,587

)

Reorganization items (Note 13)

 

 

 

838

 

 

 

-

 

 

 

838

 

 

 

-

 

Loss before income taxes

 

 

 

(6,336

)

 

 

(32,007

)

 

 

(22,400

)

 

 

(93,587

)

Benefit (provision) for income taxes

 

 

 

1

 

 

 

(2

)

 

 

(13

)

 

 

(6

)

Net loss

 

 

 

(6,335

)

 

 

(32,009

)

 

 

(22,413

)

 

 

(93,593

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

 

 

(0.05

)

 

 

(0.30

)

 

 

(0.19

)

 

 

(0.92

)

Weighted average shares outstanding, basic and diluted

 

 

 

123,001

 

 

 

105,033

 

 

 

118,004

 

 

 

101,925

 

 

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

6


 

IronNet, Inc.

(Debtor-in-possession)

Condensed Consolidated Statements of Comprehensive Loss

($ in thousands)

(unaudited)

 

Three Months Ended October 31,

 

 

Nine Months Ended October 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net loss

$

(6,335

)

 

$

(32,009

)

 

$

(22,413

)

 

$

(93,593

)

Foreign currency translations adjustment, net of tax

 

(14

)

 

 

206

 

 

 

(8

)

 

 

(58

)

     Total Comprehensive loss

$

(6,349

)

 

$

(31,803

)

 

$

(22,421

)

 

$

(93,651

)

 

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

7


 

IronNet, Inc.

(Debtor-in-possession)

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended October 31, 2023 and 2022

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

(unaudited)

 

 

Common Stock

 

 

Additional Paid- In Capital

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive Income

 

 

Total Stockholders' (Deficit) Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2023

 

 

111,466

 

 

$

11

 

 

$

493,902

 

 

$

(528,696

)

 

$

59

 

 

$

(34,724

)

Cumulative effect adjustment for new accounting standard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(182

)

 

 

-

 

 

 

(182

)

Vesting of restricted stock units

 

 

1,337

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock issued for repayment of convertible debt

 

 

8,704

 

 

 

1

 

 

 

3,651

 

 

 

-

 

 

 

-

 

 

 

3,652

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

2,256

 

 

 

-

 

 

 

-

 

 

 

2,256

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,413

)

 

 

-

 

 

 

(22,413

)

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8

)

 

 

(8

)

 Balance at October 31, 2023

 

 

121,507

 

 

$

12

 

 

$

499,809

 

 

$

(551,291

)

 

$

51

 

 

$

(51,419

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 31, 2022

 

 

88,876

 

 

$

9

 

 

$

455,849

 

 

$

(417,686

)

 

$

271

 

 

$

38,443

 

Exercise of stock options and settlement of restricted stock units

 

 

14,847

 

 

 

1

 

 

 

271

 

 

 

-

 

 

 

-

 

 

 

272

 

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

 

 

(15

)

 

 

-

 

 

 

(91

)

 

 

-

 

 

 

-

 

 

 

(91

)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

33,075

 

 

 

-

 

 

 

-

 

 

 

33,075

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(93,593

)

 

 

-

 

 

 

(93,593

)

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(58

)

 

 

(58

)

 Balance at October 31, 2022

 

 

103,708

 

 

$

10

 

 

$

489,104

 

 

$

(511,279

)

 

$

213

 

 

$

(21,952

)

 

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

8


 

IronNet, Inc.

(Debtor-in-Possession)

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended October 31, 2023 and 2022

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

(unaudited)

 

 

Common Stock

 

 

Additional Paid- In Capital

 

 

Accumulated Deficit

 

 

Accumulated Other Comprehensive Income

 

 

Total Stockholders' (Deficit) Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2023

 

 

120,865

 

 

$

12

 

 

$

499,806

 

 

$

(544,956

)

 

$

65

 

 

$

(45,073

)

Vesting of restricted stock units

 

 

642

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

-

 

 

 

3

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,335

)

 

 

-

 

 

 

(6,335

)

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(14

)

 

 

(14

)

 Balance at October 31, 2023

 

 

121,507

 

 

$

12

 

 

$

499,809

 

 

$

(551,291

)

 

$

51

 

 

$

(51,419

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2022

 

 

101,649

 

 

$

10

 

 

$

474,547

 

 

$

(479,270

)

 

$

6

 

 

$

(4,707

)

Exercise of stock options and settlement of restricted stock units

 

 

2,059

 

 

 

-

 

 

 

66

 

 

 

-

 

 

 

-

 

 

 

66

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

14,492

 

 

 

-

 

 

 

-

 

 

 

14,492

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(32,009

)

 

 

-

 

 

 

(32,009

)

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

206

 

 

 

206

 

 Balance at October 31, 2022

 

 

103,708

 

 

$

10

 

 

$

489,104

 

 

$

(511,279

)

 

$

213

 

 

$

(21,952

)

 

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

 

9


 

IronNet, Inc.

(Debtor-in-Possession)

Condensed Consolidated Statements of Cash Flows

($ in thousands)

(unaudited)

 

 

Nine Months Ended October 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(22,413

)

 

$

(93,593

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

1,535

 

 

 

1,815

 

(Gain) Loss on sale of fixed assets

 

 

-

 

 

 

(11

)

Loss of disposal of fixed assets

 

 

4

 

 

 

64

 

Employee stock-based compensation

 

 

2,256

 

 

 

33,075

 

Change in fair value of warrant liabilities

 

 

-

 

 

 

(6

)

Change in fair value of conversion options

 

 

(734

)

 

-

 

Change in fair value of commitment fee

 

 

195

 

 

 

421

 

Conversion option accretion

 

 

443

 

 

 

106

 

Non-cash interest expense

 

 

3,021

 

 

 

381

 

Inventory adjustment to net realizable value

 

 

1,772

 

 

 

1,372

 

Non-cash reorganization items, net

 

 

125

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

3,579

 

 

 

5,572

 

Deferred costs

 

 

2,531

 

 

 

(1,105

)

Inventories

 

 

24

 

 

 

(908

)

Prepaid expenses

 

 

1,544

 

 

 

736

 

Other current assets

 

 

(443

)

 

 

(271

)

Prepaid warranty

 

 

920

 

 

 

(140

)

Deposits and other assets

 

 

538

 

 

 

753

 

Accounts payable and accrued expenses

 

 

850

 

 

 

2,525

 

Income tax payable

 

 

13

 

 

 

(178

)

Other liabilities

 

 

-

 

 

 

(3

)

Deferred revenue

 

 

(8,646

)

 

 

(3,331

)

Operating lease liability

 

 

(452

)

 

 

(831

)

Net cash used in operating activities

 

 

(13,338

)

 

 

(53,557

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

-

 

 

 

(2,100

)

Capitalized software development costs

 

 

(583

)

 

-

 

Proceeds from the sale of fixed assets

 

 

-

 

 

 

11

 

Net cash used in investing activities

 

 

(583

)

 

 

(2,089

)

Cash flows from financing activities

 

 

 

 

 

 

Exercise of stock options and settlement of restricted stock units

 

-

 

 

 

272

 

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

 

 

-

 

 

 

(91

)

Cash received to fund employee tax obligation for vested RSUs

 

 

77

 

 

 

19,607

 

Cash remitted to fund employee tax obligation for vested RSUs

 

 

(6,678

)

 

 

(11,398

)

Cash received for overpayment of tax obligation for vested RSUs

 

 

1,405

 

 

-

 

Payment of equity line commitment fee

 

-

 

 

 

(1,750

)

Proceeds from issuance of convertible notes

 

 

-

 

 

 

10,000

 

Proceeds from issuance of related party debt

 

 

12,350

 

 

-

 

Proceeds from DIP financing facility

 

 

1,499

 

 

-

 

Repayment of debt

 

 

(1,373

)

 

-

 

Payment of debt issuance costs

 

-

 

 

 

(284

)

Payment of finance lease obligations

 

 

(132

)

 

 

(96

)

Net cash provided by financing activities

 

 

7,148

 

 

 

16,260

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(8

)

 

 

(59

)

Net change in cash and cash equivalents

 

 

(6,781

)

 

 

(39,445

)

Cash and cash equivalents

 

 

 

 

 

 

Beginning of the period

 

 

7,568

 

 

$

47,673

 

End of the period

 

$

787

 

 

$

8,228

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for interest

 

$

142

 

 

-

 

Supplemental disclosures of non-cash investing and financing activities

 

 

 

 

 

 

Non-cash settlement of convertible debt for common stock

 

 

3,320

 

 

-

 

 

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

10


 

IronNet, Inc.

(Debtor-in-Possession)

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.

 

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 transactions associated with the Merger, and IronNet, Inc. and the Company's subsidiaries after the Merger.

Chapter 11 Cases

 

On October 12, 2023 ("Petition Date"), the Company and IronNet Cybersecurity, Inc. ("IronNet Cybersecurity"), the Company’s wholly-owned subsidiary (collectively, the “Debtors”), filed voluntary petitions for reorganization under the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court of Delaware ("Bankruptcy Court") (such cases, the “Chapter 11 Cases”). The Debtors and their subsidiaries continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Chapter 11 Cases are currently jointly administered under the caption In re IronNet, Inc. et al., Case No. 23-11710 (Bankr. D. Del. 2023). The filing of the petitions for the Chapter 11 Cases constituted an event of default under all of the Outstanding Indebtedness (as defined below).

 

Furlough and Temporary Cessation of Business Prior to Voluntary Chapter 11 Filings

 

As previously reported, on September 2, 2023, the Company furloughed almost all of the Company’s employees and substantially curtailed business operations as a result of the Company’s liquidity position. Subsequently, on September 29, 2023, given the unavailability of additional sources of liquidity and after considering strategic alternatives, the Company ceased substantially all of its business activities and terminated the remaining employees of the Company and its subsidiaries. The board of directors of the Company further authorized the Company to take such actions necessary to prepare for and, subject to final approval by the board of directors to be given at a subsequent meeting, file a voluntary petition for relief under the applicable provisions of the Bankruptcy Code in the Bankruptcy Court (the “Bankruptcy Filing”) as expeditiously as possible. The foregoing furlough and cessation of business operations constituted events of default under the Company’s outstanding indebtedness for borrowed money (collectively, the “Outstanding Indebtedness”), including the senior unsecured convertible note issued to 3i, LP ("3i" as discussed below) on September 15, 2022 in the principal amount of approximately $4,233 and the other transaction documents entered into in connection therewith, including the Securities Purchase Agreement and Registration Rights Agreement dated September 14, 2022, the various secured promissory notes and the C5 Notes (as defined below) in the aggregate principal amount of approximately $15,275 outstanding as of the commencement of the Chapter 11 Cases discussed below, the Director Notes (as defined below) issued in December 2022, April 2023, May 2023 and August 29, 2023 to a total of eight lenders, including seven lenders who are either directors of the Company or entities affiliated with directors of the Company in the aggregate principal amount of approximately $8,475 outstanding as of the commencement of the Chapter 11 Cases discussed below, and the amended and restated security agreement related thereto, and the secured promissory note dated July 21, 2023 issued to Korr Acquisitions Group, Inc. in the aggregate principal amount of $556 outstanding as of the commencement of the Chapter 11 Cases discussed below (the “Korr Note”).

 

DIP Facility

 

On October 10, 2023, the Debtors, and ITC Global Advisers LLC (“ITC GA”), and/or ITC GA’s designated affiliates and/or related funds or accounts, and such other lender parties that have agreed or may agree from time to time to provide commitments to fund the DIP Facility (as defined below) (the “DIP Facility Lender”) entered into a binding term sheet for debtor-in-possession financing (the “Term Sheet”), which sets forth the principal terms of a superpriority, senior secured debtor-in-possession credit facility (the “DIP Facility”, the credit agreement evidencing the DIP Facility, the “DIP Credit Agreement” and, together with the other definitive documents governing the DIP Facility and the DIP order, collectively, the “DIP Documents”), pursuant to which the DIP Facility Lender would provide the Company with a senior (priming) secured and superpriority debtor-in-possession delayed-draw term loan credit facility in an aggregate principal amount not to exceed $10,000 (the “Maximum Facility Amount”), consisting of up to $8,500 of term loans (the “DIP Term Loans”) and $1,499 of the Bridge Amount (as defined below) (collectively, the “DIP Loans”), subject to the terms and conditions set forth in the Term Sheet. Until the entry of a final order approving the DIP Facility by the Bankruptcy Court, a maximum amount of up to $4,500 of the DIP Facility (inclusive of the Bridge Amount) would be available on an interim basis.

Upon the execution of the Term Sheet, the DIP Facility Lender had advanced the Bridge Amount of $1,499 to the Company. The Bridge Amount is secured by all the assets of the Debtors. As of January 29, 2024, the DIP Facility Lender had advanced an aggregate of $9,999 to the Company.

 

AWS Reinstatement

 

In connection with the commencement of the Chapter 11 Cases, the Company filed a number of motions with the Bankruptcy Court. Among these was a motion authorizing the Debtors to enter into a reinstatement agreement with Amazon Web Services, Inc. (“AWS”) in order to reinstate and reactivate the cloud computing services provided by AWS (the “Reinstatement Agreement”), which had been previously terminated by AWS following the Company’s cessation of business activities on September 29, 2023. AWS’s termination of the cloud computing services constituted an event of default under certain of the Company’s contracts. On October 13, 2023, the Bankruptcy Court entered an interim order approving the motion authorizing the Debtors to enter into the Reinstatement Agreement, and the Reinstatement Agreement was executed and delivered by IronNet Cybersecurity and AWS. Pursuant to the Reinstatement Agreement, IronNet Cybersecurity agreed to assume pursuant to Section 365 of the Bankruptcy Code, and agreed to be bound by, all of the terms and conditions of the Reinstatement Agreement and the customer agreement between IronNet Cybersecurity and AWS dated March 30, 2021 (the “AWS Agreement”). Upon payment to AWS of invoice arrearages and the September 2023 invoice on October 13, 2023, AWS reinstated IronNet Cybersecurity’s account and the AWS services pursuant to the AWS Agreement. Further, pursuant to the Reinstatement Agreement, IronNet Cybersecurity will be required to make weekly advance payments to AWS of fees and charges in an amount equal to at least one fourth of the previous month’s fees and charges, subject to certain minimum amounts specified in the Reinstatement Agreement. Pursuant to the Reinstatement Agreement, AWS may suspend the AWS services under the Customer Agreement if IronNet Cybersecurity fails to make the advance payments as required or if it does not pay any invoice in full within two business days of invoice issuance.

 

Rehiring of Certain Employees

 

11


 

On October 13, 2023, certain employees were re-hired by the Company in connection with the Chapter 11 proceedings. Hiring subsequently occurred in the ordinary course of business and, as of January 29, 2024, the Company had 28 active employees.

First Day Motions

 

On October 13, 2023, the Bankruptcy Court approved a variety of “first day” motions seeking customary relief intended to enable the Debtors to continue ordinary course operations during the Chapter 11 Cases, including the motion relating to the Reinstatement Agreement as described in "— AWS Reinstatement" above and a motion to establish certain procedures to protect any potential value of the Debtor’s net operating loss carryforwards and other tax attributes (the “NOL Motion”). On October 13, 2023, the Bankruptcy Court entered an order approving the NOL Motion on an interim basis.

 

Filing of Joint Plan

 

On November 2, 2023, the Debtors filed a Joint Chapter 11 Plan of Reorganization of IronNet, Inc. and its Debtor Affiliates (as amended, the “Joint Plan”) and a related proposed disclosure statement. On January 18, 2024, the Bankruptcy Court entered the Findings of Fact, Conclusions of Law, and Order Confirming the Joint Plan, which approved and confirmed the Joint Plan (the “Confirmation Order”). Among other things, the Joint Plan will result in in all of the Company’s equity securities being automatically cancelled, the issuance of new common equity to holders of certain claims under the Joint Plan, the issuance of certain takeback notes, and the settlement of other claims. The Debtors expect that the Effective Date of the Joint Plan will occur as soon as all conditions precedent to the Joint Plan have been satisfied. Although the Debtors anticipate that all conditions will be satisfied, the Debtors can make no assurances as to when, or ultimately if, the Joint Plan will become effective.

 

Reorganization Accounting

 

Beginning on the Petition Date of the Chapter 11 Cases, the Company applied Financial Accounting Standards Board ("FASB") Codification Topic 852, Reorganizations (“ASC 852”) in preparing the condensed consolidated financial statements. ASC 852 requires the financial statements, for the periods subsequent to the Petition Date and up to and including the period of emergence from Chapter 11 (the “Effective Date”), to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain charges incurred during the bankruptcy proceedings, such as the write-off of unamortized debt issuance costs and premium on debt subject to compromise, legal and professional fees incurred directly as a result of the bankruptcy proceeding are recorded as Reorganization items, net in the condensed consolidated statements of operations and comprehensive loss. In addition, the balance sheet must distinguish between debtor pre-petition liabilities subject to compromise from pre-petition or post-petition liabilities that are not subject to compromise. Liabilities subject to compromise are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount. These amounts are classified on the condensed consolidated balance sheet as of October 31, 2023 as Liabilities subject to compromise. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, which may differ from the ultimate settlement amounts. Accordingly, the condensed consolidated financial statements for the three and nine months ended October 31, 2023 have been prepared in accordance with ASC 852. Additionally, the Company's condensed consolidated financial statements represent the Debtors and the Company's non-filing entities which are comprised primarily of the Company's international entities. The non-filing entities are not significant to the results of the Company and are not separately presented. These non-debtor subsidiaries are IronNet Australia Pty Ltd, IronNet Cybersecurity Japan, GK, IronNet Cybersecurity Singapore Pte Ltd, , IronNet Cybersecurity, UK, Ltd and IronNet Cybersecurity FZ-LLC. As of October 31, 2023, these entities held liabilities of $732, which are reflected in liabilities not subject to compromise on the condensed consolidated balance sheets.

 

Debtors-In-Possession

 

The Debtors are currently operating as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code. The Debtors have brought and will seek Bankruptcy Court approval of motions designed primarily to mitigate the impact of the Chapter 11 Cases on the Company’s operations, customers and employees. In general, as debtors-in-possession under the Bankruptcy Code, the Debtors are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. The Debtors have filed motions with the Bankruptcy Court to authorize the Debtors to conduct their business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing the Debtors to, among other things: (i) pay employees’ wages and related obligations; (ii) pay prepetition claims of certain lien claimants and critical vendors; (iii) continue to operate their cash management system in a form substantially similar to pre-petition practice (iv) continue to maintain and administer certain existing customer programs; (v) pay taxes in the ordinary course; (vi) maintain their insurance program and surety bond program in the ordinary course; (vii) pay utility providers in the ordinary course; and (viii) to use cash collateral.

 

Automatic Stay

 

Subject to certain specific exceptions under the Bankruptcy Code, the petitions for the Chapter 11 Cases automatically stayed most judicial or administrative actions against the Debtors and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. Absent an order from the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Bankruptcy Code.

 

Executory Contracts

 

Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, amend or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Debtors in this document, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease of the Debtors, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code.

 

Potential Claims

 

During October 2023, the Debtors (as defined below) filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith. These schedules and statements were subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline for general claims (the “Bar Date”) of December 22, 2023. Certain holders of pre-petition claims that are governmental units are required to file proofs of claim by the bar date of April 9, 2024.

 

As of January 18, 2024, the date of the Confirmation Order, the Debtors received approximately 108 proofs of claim, primarily representing general unsecured claims, for an amount of approximately $99,427. These claims will be reconciled to amounts recorded in the Company’s accounting records. Differences in amounts recorded and claims filed by creditors will be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Company may ask the Bankruptcy Court to disallow claims that the Company believes are duplicative, have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Company may identify additional liabilities that will need to be recorded or reclassified to Liabilities subject to compromise. In light of the number of claims filed, the claims resolution process may take time to complete and likely will continue after the Debtors emerge from bankruptcy.

 

12


 

Reorganization Items, Net

 

The Debtors have incurred and will continue to incur costs associated with the Chapter 11 Cases and the reorganization under the Joint Plan, primarily related to legal and professional fees. The amount of these costs, which since the Petition Date are being expensed as incurred, are expected to significantly affect the Company’s results of operations. The Company also wrote off $125 in pre-petition deferred financing costs and debt discount as of the Petition Date. In accordance with applicable guidance, costs associated with the bankruptcy proceedings have been recorded as Reorganization items, net within the Company's accompanying condensed consolidated statements of operations for the three and nine months ended October 31, 2023. See Note 13, Reorganization items, net.

 

Financial Statement Classification of Liabilities Subject to Compromise

 

The accompanying Consolidated Balance Sheet as of October 31, 2023 includes amounts classified as Liabilities subject to compromise, which represent liabilities the Company anticipates will be allowed as claims in the Chapter 11 Cases. These amounts represent the Debtors’ current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases, and may differ from actual future settlement amounts paid. Differences between liabilities estimated and claims filed, or to be filed, will be investigated, and resolved in connection with the claims resolution process. See Note 12, Liabilities subject to compromise.

 

Lease Termination

 

On November 30, 2023, the Company terminated its lease for its McLean, Virginia headquarters with immediate effect. The Company is seeking to establish a new office lease for a smaller facility more appropriate for the resized company in the Northern Virginia or Maryland area and is in active discussions with potential landlords regarding terms and lease language. This is expected to result in monthly savings for the Company. ROU assets and liabilities associated with this terminated lease in total amount to $1,525 and $2,150, respectively.

 

On December 18, 2023, the Company terminated an equipment lease for equipment primarily used to support Q&A and customer support of an older iteration of the IronDefense solution that is no longer in production. This lease was canceled through the Chapter 11 reorganization process, helping to reduce the Company's expenses. ROU assets and liabilities associated with this terminated lease in total amount to $77 and $82, respectively.

 

New York Stock Exchange Delisting

 

As previously disclosed, on July 17, 2023, the board of directors of the Company authorized the Company to voluntarily delist each class of its securities (including its warrants) from the New York Stock Exchange. On July 17, 2023, the Company delivered written notice to the New York Stock Exchange of its intention to voluntarily delist each class of its common stock and its redeemable warrants from the New York Stock Exchange. The Company filed a Form 25 with the Securities and Exchange Commission relating to the delisting on July 27, 2023, and the delisting of its securities became effective on August 6, 2023. As a result of the delisting, the Company’s securities are traded on over-the-counter markets. Upon the Effective Date of the Joint Plan, all of the Company’s securities outstanding prior to the Effective Date will be automatically cancelled without further action upon the Effective Date. The Debtors expect that the Effective Date of the Joint Plan will occur as soon as all conditions precedent to the Joint Plan have been satisfied. Although the Debtors anticipate that all conditions will be satisfied, the Debtors can make no assurances as to when, or ultimately if, the Joint Plan will become effective.

 

Letter Agreement with C5

 

On July 11, 2023, the Letter Agreement (the “Letter Agreement”) executed on June 16, 2023 between the Company and C5 CC Ferrous, LLC, a Delaware limited Liability company, as amended on July 11, 2023 was deemed executed and delivered by the Parties in accordance with its terms. The transactions contemplated by the Letter Agreement have been superseded by the Chapter 11 Cases.

 

Additional Indebtedness

 

On May 19, 2023, the Company issued a secured convertible promissory note in the principal amount of $475 to GEN Keith B. Alexander (Ret.). Such note has the same terms with respect to interest rate, maturity and conversion as the secured promissory notes previously issued to GEN Alexander and certain other members of the Board or entities affiliated with members of the Board of Directors and C5. As noted above, the furlough of the Company’s employees, cessation of business operations and the filing of the Chapter 11 Cases constitute events of default under this note.

 

Between December 2022 and May 2023, the Company entered into Convertible Secured Promissory Notes, in the aggregate principal amount of $20,770, with certain of its directors and officers and entities affiliated with C5. On June 30, 2023, the Company and the noteholders executed amendments to these notes to extend the maturity dates thereof from June 30, 2023 to December 31, 2023. As noted above, the furlough of the Company’s employees, cessation of business operations and the filing of the Chapter 11 Cases constitute events of default under these notes.

 

On July 21, 2023, the Company entered into the Korr Note with Korr Acquisitions Group, Inc. In the original principal amount of $556. The Korr Note was issued and funded with original issue discount of $55, which is 9.9% of the aggregate principal amount of the Korr Note. The unpaid principal amount of the Korr Note bears interest at a rate of 8% from July 21, 2023, calculated on an actual/360 basis. The Korr Note is secured by receivables owing from time to time to the Company under certain support, solutions or services contract(s), as designated in the Korr Note. As noted above, the furlough of the Company’s employees, cessation of business operations and the filing of the Chapter 11 Cases constitute events of default under the Korr Note.

 

On August 23, 2023, the Company received written notice delivered on behalf of 3i pursuant to the 3i Note and the other transaction documents entered into in connection therewith, stating that, among other things, the Company was in purported payment default and purported covenant default under the 3i Note and other transaction documents. Pursuant to such written notice, 3i made a demand for payment within five business days of the written notice of amounts purportedly owed to 3i by the Company as a result of such purported defaults. 3i indicated that it intended to pursue some or all of its rights and remedies against the Company if the Company did not repay the purported outstanding obligations under the 3i Note and the other transaction documents. As noted above, the furlough of the Company’s employees, cessation of business operations and the filing of the Chapter 11 Cases constitute events of default under the 3i Note.

 

On August 29, 2023, the Company issued secured promissory notes in an aggregate principal amount of $800 (the “August 2023 Notes”) to VADM Jan E. Tighe (Ret.) and Donald R. Dixon, members of the Company’s board of directors. The August 2023 Notes provided that the principal amount thereof was only to be used as follows: first, to satisfy accrued and unpaid employee payroll-related obligations of the Company; second, to pay an amount not to exceed $100 on account of employee, contractor or vendor expenses needed in the event the Company determined to prepare and file a bankruptcy proceeding; and third, to pay the premium for the Company’s director and officer tail insurance policy. The August 2023 Notes have a scheduled maturity date one year after issuance and bear interest at the rate of 13.8% per annum, payable at maturity. The Company’s obligations under the August 2023 Notes are secured by substantially all of the assets of the Company, excluding the Company’s intellectual property. As noted above, the furlough of the Company’s employees, cessation of business operations and the filing of the Chapter 11 Cases constitute events of default under these notes.

 

As of January 29, 2024, the Company had $4,788 in convertible debt outstanding and $23,750 in non-convertible debt outstanding.

 

Securities Litigation

13


 

On April 22, 2022, a federal securities class action lawsuit was filed by a purported stockholder in the United States District Court for the Eastern District of Virginia (the “Court”). On July 15, 2022, the Court appointed a lead plaintiff for the action, and ordered that the action bear the caption In re IronNet, Inc. Securities Litigation, No. 1:22-cv-004499-RDA-JFA. On August 29, 2022, the lead plaintiff filed an amended complaint on behalf of a proposed class consisting of those who acquired our securities between September 14, 2021 and December 15, 2021. The amended complaint names us, our current Chief Executive Officer, our former co-Chief Executive Officer, and our former Chief Financial Officer as defendants and asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“1934 Act”), as amended, for alleged misrepresentations and/or omissions in September 2021 regarding our financial guidance for fiscal year 2022 and a claim under Section 20A of the 1934 Act, as amended, for alleged trading on material nonpublic information by our current Chief Executive Officer. The amended complaint seeks an unspecified amount of damages on behalf of the putative class and an award of costs and expenses, including reasonable attorneys’ fees. On October 26, 2022, the defendants filed a motion to dismiss the amended complaint. On November 30, 2022, the lead plaintiff filed an opposition. On December 21, 2022, the defendants filed a reply in support of the motion to dismiss. The defendants’ motion to dismiss was denied on August 9, 2023. We believe the claims are without merit, intend to defend the case vigorously, and have not recorded a liability related to this lawsuit because, at this time, we are unable to estimate reasonably possible losses or determine whether an unfavorable outcome is probable.

 

Appointment of Certain Director

 

On October 10, 2023, Ivona Smith was elected as a director of the Board of the Company, effective upon the filing of the Chapter 11 Cases. Ms. Smith will serve as an independent director of the Company with respect to the Cases and pursuant to an Independent Director Agreement entered into between Ms. Smith and the Company on October 10, 2023 (the “Independent Director Agreement”). Pursuant to the Independent Director Agreement, Ms. Smith may only be removed as a director of the Company with the prior approval of the Bankruptcy Court. She may otherwise resign as a director at any time, and the Independent Director Agreement will otherwise terminate on the earlier of the effective date of a plan of liquidation of the Company pursuant to Chapter 11 of the Bankruptcy Code or the conversion of the Cases to cases under Chapter 7 of the Bankruptcy Code. Under the Independent Director Agreement, Ms. Smith’s compensation for service on the Board and on committees of the Board will consist of a monthly fee of $30 payable in advance each month, with the first monthly fee prorated for only that portion of the month remaining after October 10, 2023. Other than the Independent Director Agreement, there is no agreement or understanding between Ms. Smith and any other person pursuant to which she was selected as a director.

 

Liquidity and Going Concern

 

Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about the Company’s ability to meet our future obligations as they become due within one year of the financial statements being issued in this Quarterly Report on Form 10-Q.

 

As of October 31, 2023, the Company had cash and cash equivalents of $787 which is not legally restricted to use, collectable receivables of $329, and accounts payable and accrued expenses not subject to compromise of $5,412, including $1,313 due to taxing authorities.

 

In February 2022, the Company entered into an equity line with Tumim Stone Capital, LLC (“Tumim”) under which the Company may, in its discretion, sell shares of its common stock to Tumim subject to various conditions and limitations set forth in the purchase agreement with Tumim. On June 16, 2023, Tumim notified the Company of Tumim’s election to terminate the Purchase Agreement, effective as of June 20, 2023.

 

On September 14, 2022, the Company entered into a Securities Purchase Agreement ("SPA") with 3i, which is an affiliate of Tumim, pursuant to which the Company agreed to sell and issue senior unsecured convertible promissory notes (the "Convertible Notes") to 3i in the aggregate principal amount of up to $25,750. On September 15, 2022, the Company issued a Convertible Note to 3i in the principal amount of $10,300, net of discount for cash proceeds of $10,000. The Company initially borrowed approximately $10,300 and issued related Convertible Notes to 3i, including a 3% Original Issue Discount ("OID"), with an 18-month term. The Company prepaid approximately $6,067