Filed Pursuant to Rule 424(b)(3)
Registration No. 333-259731
PROSPECTUS SUPPLEMENT NO. 2
(To the Prospectus dated May 19, 2022)
Up to 64,020,756 Shares of Common Stock
Up to 13,824,992 Shares of Common Stock Issuable Upon Exercise of Warrants
Up to 5,200,000 Warrants to Purchase Common Stock
This prospectus supplement supplements the prospectus, dated May 19, 2022 (the “Prospectus”), which forms a part of our registration statement on Form S-1 (No. 333-259731). This prospectus supplement is being filed to update and supplement the information in the Prospectus with certain information contained in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 14, 2022 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.
The Prospectus and this prospectus supplement relate to the issuance by us of an aggregate of up to 13,824,992 shares of our common stock, $0.0001 par value per share (the “common stock”), which consists of (i) up to 5,200,000 shares of common stock that are issuable upon the exercise of 5,200,000 warrants (the “Private Warrants”) originally issued in a private placement to LGL Systems Acquisition Holding Company, LLC (the “Sponsor”) in connection with the initial public offering of LGL Systems Acquisition Corp. (“LGL”) and (ii) up to 8,624,992 shares of common stock that are issuable upon the exercise of 8,624,992 warrants (the “Public Warrants” and, together with the Private Warrants, the “Warrants”) originally issued in the initial public offering of LGL.
The Prospectus and this prospectus supplement also relate to the offer and sale from time to time by the selling securityholders named in the Prospectus or their permitted transferees (the “selling securityholders”) of (i) up to 64,020,756 shares of common stock consisting of (a) up to 12,500,000 shares of common stock issued in a private placement pursuant to subscription agreements (the “Subscription Agreements”) entered into on March 15, 2021, (b) up to 2,904,375 shares of common stock issued in a private placement to the Sponsor in connection with the initial public offering of LGL (the “Founder Shares”), (c) up to 5,200,000 shares of common stock issuable upon exercise of the Private Warrants and (d) up to 43,416,381 shares of common stock (including up to 81,412 shares of common stock issuable pursuant to outstanding options, 7,465,923 shares of common stock issuable in connection with the vesting and settlement of restricted stock units, and 560,703 shares of common stock that were issued as Earnout Shares on September 17, 2021) pursuant to that certain Amended and Restated Registration Rights Agreement, dated August 26, 2021, between us and the selling securityholders granting such holders registration rights with respect to such shares and (ii) up to 5,200,000 Private Warrants.
The common stock and Warrants are listed on the New York Stock Exchange (“NYSE”) under the symbols “IRNT” and “IRNT.WS,” respectively. On June 14, 2022, the last reported sales price of our common stock on NYSE was $2.55 per share and the last reported sales price of our Warrants was $0.4199 per warrant.
This prospectus supplement should be read in conjunction with the Prospectus, including any amendments or supplements thereto, which is to be delivered with this prospectus supplement. This prospectus supplement is qualified by reference to the Prospectus, including any amendments or supplements thereto, except to the extent that the information in this prospectus supplement updates and supersedes the information contained therein.
This prospectus supplement is not complete without, and may not be delivered or utilized except in connection with, the Prospectus, including any amendments or supplements thereto.
We are an “emerging growth company” as defined under U.S. federal securities laws and, as such, have elected to comply with reduced public company reporting requirements. The Prospectus complies with the requirements that apply to an issuer that is an emerging growth company.
Investing in our securities involves a high degree of risk. You should review carefully the risks and uncertainties described in the section titled “Risk Factors” beginning on page 8 of the Prospectus and under similar headings in any amendments or supplements to the Prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or passed upon the accuracy or adequacy of this prospectus supplement or the Prospectus. Any representation to the contrary is a criminal offense.
Prospectus Supplement dated June 14, 2022
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 $0.0001 per share, outstanding as of June 14, 2022.
IronNet, Inc.
Table of Contents
FORM 10‑Q
|
|
Page |
|
2 | |
|
2 | |
|
2 | |
|
3 | |
Unaudited Condensed Consolidated Statements of Comprehensive Loss |
|
4 |
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity |
|
5 |
|
6 | |
Notes to Unaudited Condensed Consolidated Financial Statements |
|
7 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
15 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
|
23 |
|
24 | |
|
24 | |
|
25 | |
|
25 | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
|
30 |
|
30 | |
|
30 | |
|
30 | |
|
31 | |
|
32 |
1
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
IronNet, Inc.
Condensed Consolidated Balance Sheets
($ 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)
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.
Pursuant to the terms of the Purchase Agreement, at the time the Purchase Agreement and the Registration Rights Agreement were signed, the Company paid a cash fee of $1,750, or 1% of the Total Commitment, to Tumim as consideration for its commitment to purchase shares of the Company's common stock under the Purchase Agreement. The cash paid related to the Commitment Fee was recorded in the condensed consolidated statement of cash flows as a financing activity. This fee will be recognized over the period of the agreement as a component of other expense and a corresponding reduction to additional paid in capital.
As of April 30, 2022, there have been no purchases of common stock under the Purchase Agreement.
Preferred Stock
The Company is authorized to issue 100,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. At April 30, 2022, there were no shares of preferred stock issued or outstanding.
Public Warrants
Public Warrants may only be exercised for a whole number of shares at a price of $11.50 per share. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants became exercisable in September 2021 and expire in September 2026 or earlier upon redemption or liquidation.
The Company may redeem the Public Warrants:
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the Warrant Agreement.
As of April 30, 2022, the Company had 8,596 Public Warrants outstanding and not exercised.
4. Stock Incentive Plan
Legacy IronNet’s Board of Directors adopted, and its stockholders approved Legacy IronNet’s 2014 Stock Incentive Plan (the “2014 Plan”) on September 29, 2014, and on October 17, 2014, respectively. The 2014 Plan was periodically amended, most recently on June 7, 2019. The 2014 Plan permitted the grant of incentive stock options (“ISOs"), non-qualified stock options (“NSOs"), stock appreciation rights, restricted stock, restricted stock units (“RSUs"), and other stock-based awards. ISOs were only able to be granted to Legacy IronNet’s employees and to Legacy IronNet’s subsidiary corporations’ employees. All other awards could be granted to employees, directors and consultants of Legacy IronNet and to any of Legacy IronNet’s parent or subsidiary corporation’s employees or consultants. As of August 26, 2021, the closing date of the Merger, no additional awards will be granted under the 2014 Plan. The terms of the 2014 Plan will continue to govern the terms of outstanding equity awards that were granted prior to the closing date.
On August 26, 2021, per the Merger Agreement, the outstanding Legacy IronNet ISO and RSU grants issued under the 2014 Plan were converted to their post-transaction equivalents based on the conversion ratio, totaling 18,972 shares in the Company when exercised or converted.
The 2021 Equity Incentive Plan (the “2021 Plan”) was approved by Legacy LGL’s board of directors and by its stockholders on August 26, 2021. Under the 2021 Plan, upon its effectiveness, the Company was able to grant ISOs, RSUs and other equity securities to acquire, to convert into, or to receive up to 13,500 shares of common stock. The terms of the 2021 Plan include an evergreen provision that provides for an automatic share increase on February 1 of each year, in an amount equal to 5.0% of the sum of (a) the total number of shares of the Company’s common stock outstanding on January 31 of the immediately preceding fiscal year, plus (b) the number of shares of common stock reserved for issuance under the 2021 Plan as of January 31 of the immediately preceding fiscal year, but which have not yet been issued. In accordance with the evergreen provision, on February 1, 2022, the number of shares that can be issued under the 2021 Plan increased by 4,934 shares, with a new limit following the increase of 18,434 shares.
As of April 30, 2022, 8,028 shares remained available to issue under the 2021 Plan.
All awards under the 2014 Plan and the 2021 Plan (together, the “Stock Incentive Plans”) normally vest over a forty-eight month period, some of which have a first year cliff vest for the first 25% of their vesting, during which time no vesting occurs. In limited cases, vesting as short as twelve months with no cliff, vesting based on performance criteria and acceleration under certain events have also been permitted; however, such exceptions apply to less than 20% of the shares underlying awards currently outstanding under the Stock Incentive Plans.
Stock Options
10
The exercise price of each ISO granted under the Stock Incentive Plans may not be less than the fair market value per share of the underlying common stock on the date of grant. The Board of Directors establishes the term and the vesting of all options issued under the Stock Incentive Plans; however, in no event will the term exceed ten years.
Presented below is a summary of stock options under the 2014 Stock Incentive Plan, as no stock options have been granted under the 2021 Plan:
|
|
Number of Shares |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term (Years) |
|
Intrinsic Value of Outstanding Options |
| ||||
Outstanding at February 1, 2022 |
|
|
1,317 |
|
|
$ |
0.55 |
|
|
|
4.9 |
|
$ |
3,773 |
|
Granted |
|
- |
|
|
- |
|
|
- |
|
- |
| ||||
Exercised |
|
|
(291 |
) |
|
|
0.50 |
|
|
|
4.6 |
|
|
635 |
|
Forfeited or expired |
|
|
(1 |
) |
|
|
0.54 |
|
|
|
5.4 |
|
- |
| |
Outstanding at April 30, 2022 |
|
|
1,025 |
|
|
$ |
0.56 |
|
|
|
4.7 |
|
$ |
2,174 |
|
Exercisable at April 30, 2022 |
|
|
1,025 |
|
|
$ |
0.56 |
|
|
|
4.7 |
|
$ |
2,174 |
|
For the three months ended April 30, 2022 and 2021, the Company recorded an insignificant amount and $17 of compensation cost related to stock options, respectively. The fair value of the shares under stock options granted that vested, net of forfeitures, during the three month periods ended April 30, 2022 and 2021 totaled $(635) and $(2,951), respectively, primarily as a result of the forfeitures recognized during the periods exceeding previous estimates.
Stock compensation expense for stock options is recognized on a straight line basis and with a provision for forfeitures matched to historical experience for matured grant cohorts. At April 30, 2022, there was no unrecognized compensation cost related to unvested stock options.
The Company uses the Black-Scholes option pricing model to estimate the fair value of options granted. The Black-Scholes model takes into account the fair value of an ordinary share and the contractual and expected term of the stock option, expected volatility, dividend yield, and risk-free interest rate. Prior to becoming a public company, the fair value of the Company’s common stock was determined utilizing an external third-party pricing specialist.
Restricted Stock Units
In addition to the applicable time or performance-based vesting criteria, the RSUs granted under the 2014 Plan contained an additional vesting requirement that required the occurrence of a liquidity event. On August 26, 2021, the date of the Merger, the Board of Directors resolved that the Merger constituted a liquidity event, which triggered the liquidity event criteria for vesting under then outstanding RSU awards.
Presented below is a summary of the status of outstanding RSUs:
|
|
Number of Shares |
|
|
Weighted Average Grant Date Fair Value |
| ||
Non-vested at February 1, 2022 |
|
|
10,310 |
|
|
$ |
9.57 |
|
Granted |
|
|
6,908 |
|
|
3.82 |
| |
Vested |
|
|
(1,806 |
) |
|
11.54 |
| |
Forfeited or expired |
|
|
(463 |
) |
|
9.18 |
| |
Non-vested at April 30, 2022 |
|
|
14,949 |
|
|
$ |
6.04 |
|
For the three months ended April 30, 2022, the Company recorded $11,441 of stock-based compensation expense, net of actual forfeitures, related to RSUs, of which $8,588 is associated with RSUs on a graded vesting schedule and $2,853 is associated with RSUs on a straight-line vesting schedule. No stock-based compensation was recognized associated with RSUs in the three months ended April 30, 2021.
Subsequent to the closing of the Merger, the fair value of RSUs is based on the fair value of the Company’s common stock on the date of the grant or any further modification.
Stock compensation expense for RSUs granted under the 2014 Plan, which contain both service and performance conditions, is recognized on a graded-scale basis, recognizing expense over the respective vesting period for each tranche of shares under each award granted. Stock compensation expense for RSUs granted under the 2021 Plan have only service vesting conditions and expense will be recognized on a straight-line basis for all RSU awards with only service conditions. In the event that an RSU holder is terminated before the award is fully vested for RSUs granted under either Plan, the full amount of the unvested portion of the award will be recognized as a forfeiture in the period of termination.
The Company's default tax withholding method for RSUs is the sell-to-cover method, under which shares with a market value equivalent to the tax withholding obligation are sold on behalf of the holder of the RSUs upon vesting and settlement to cover the tax withholding liability and the cash proceeds from such sales are then remitted by the Company to taxing authorities.
As of April 30, 2022, there was $57,215 of unrecognized compensation cost related to unvested RSUs without performance obligations. The weighted average remaining vesting period was 3.38 years.
Employee Stock Purchase Plan ("ESPP")
In August 2021, Legacy LGL’s Board of Directors adopted, and its stockholders approved, the ESPP. The ESPP became effective immediately upon the Closing of the Merger.
The purpose of the ESPP is to provide a means by which our eligible employees and certain designated companies may be given an opportunity to purchase shares of our common stock, to assist us in retaining the services of eligible employees, to secure and retain the services of new employees and to provide incentives for such persons to exert maximum efforts for our success.
The Plan includes two components: a 423 Component and a Non-423 Component. We intend that the 423 Component will qualify as options issued under an “employee stock purchase plan” as that term is defined in Section 423(b) of the Code. Except as otherwise provided in the ESPP or determined by our board of directors, the Non-423 Component will operate and be administered in the same manner as the 423 Component.
The ESPP contains an evergreen provision that provides for an automatic annual share increase on February 1 of each year, in an amount equal to the lesser of (i) 1% of the total number of shares of common stock outstanding on January 31st of the preceding fiscal year, and (ii) 2,000 shares of Common Stock. In accordance with the evergreen provision, the number of shares of common stock reserved for issuance under the ESPP increased by 889 shares on February 1, 2022, Inclusive of the prior limit of 2,700 shares, the new limit following the increase was 3,589 shares.
As of April 30, 2022, there were no purchases of shares for any eligible employee.
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5. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset in an orderly transaction or paid to settle a liability in an orderly transaction between market participants at the measurement date. Accounting standards utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels, which are described below:
Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Observable inputs other than quoted prices that are either directly or indirectly observable for the asset or liability.
Level 3 – Unobservable inputs that are supported by little or no market activity.
These levels are not necessarily an indication of the risk of liquidity associated with the financial assets or liabilities disclosed. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement, as required under ASC 820-10 “Fair Value Measurement.”
The Company’s Private Warrants have similar terms and are subject to substantially the same redemption features as the Public Warrants, as the transfer of a Private Warrant to anyone who is not a permitted transferee would result in the Private Warrant being converted to a Public Warrant. The Company determined that the fair value of each Private Warrant is equivalent to that of a Public Warrant. There have been observable transactions in the Company's Public Warrants and the Public Warrants had adequate trading volume between independent investors on the public market to provide a reliable indication of value. As of April 30, 2022, the fair value of the Private Warrants was equal to that of the Public Warrants as they had substantially the same terms. However, as they are not actively traded, they are listed as a Level 2 in the fair value hierarchy table below.
Investments with an original maturity of three months or less at the date of purchase are considered cash equivalents, while all other investments are classified as short-term or long-term based on their maturities and their availability for use in current operations.
The following table presents our assets measured at fair value on a recurring basis:
|
|
April 30, 2022 |
|
|
January 31, 2022 |
| ||||||||||||||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
| ||||||||
Cash equivalents |
|
$ |
102 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
102 |
|
|
$ |
102 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
102 |
|
Warrants |
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
7 |
|
Total assets |
|
$ |
102 |
|
|
$ |
7 |
|
|
$ |
— |
|
|
$ |
109 |
|
|
$ |
102 |
|
|
$ |
7 |
|
|
$ |
— |
|
|
$ |
109 |
|
6. Supplemental Balance Sheet Information
Accrued Expenses
Accrued expenses consisted of the following:
|
|
April 30, |
|
|
January 31, |
| ||
|
|
2022 |
|
|
2022 |
| ||
Accrued expenses |
|
$ |
1,979 |
|
|
$ |
2,438 |
|
Taxes payable on behalf of employees related to vested RSUs |
|
|
7,885 |
|
|
- |
| |
Unvouched payables |
|
|
2,769 |
|
|
|
2,271 |
|
|
|
$ |
12,633 |
|
|
$ |
4,709 |
|
The increase in accrued expenses is primarily comprised of the cash proceeds from the sale of shares on behalf of the holders of vested RSUs to cover the associated tax withholding liability under the sell-to-cover method, which will be remitted by the Company to the appropriate taxing authorities.
7. Commitments and Contingencies
Contingencies
In the ordinary course of business, the Company and its subsidiaries may become defendants in certain shareholder claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. To date, no such liability has been recorded.
8. Leases
The Company leases certain office space and equipment and determines if an arrangement is a lease at inception. ROU assets for operating leases are included in the deposits and other assets caption and ROU assets associated with finance leases are included within the property and equipment, net caption of the condensed consolidated balance sheet. The current portions of operating and finance lease liabilities are included in the other current liabilities caption and the long-term portion of operating lease liabilities is presented in the other long-term liabilities payable caption of the condensed consolidated balance sheet.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The ROU asset is adjusted for any lease payments made and excludes lease incentives and initial direct costs incurred. If the leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest that the Company would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company uses quoted interest rates obtained from financial institutions as an input to derive its incremental borrowing rate as the discount rate for the lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company combines lease and non-lease components.
The Company leases office space under the terms of noncancelable operating leases that expire at various dates through November 2026. Certain operating lease agreements provide for an annual 2.75% escalation of the base rent. The Company is also responsible for operating expenses, which are classified as variable lease costs. Lease terms may include options to extend or terminate the lease, typically at the Company’s own discretion. Renewal options are regularly evaluated and the renewal period will be included in the lease term when exercise of the renewal option is considered reasonably certain. There are not active leases that have a renewal option that is reasonably certain of being exercised.
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