| Restatement of Condensed Consolidated Financial Statements |
2. Restatement of Condensed Consolidated Financial Statements
IronNet has restated its previously issued unaudited condensed consolidated interim financial statements and related disclosures as of and for the three and nine months ended October 31, 2021 included in its Original Form 10-Q (as defined below) filed with the Securities and Exchange Commission (the “SEC”) in order to correct errors resulting from the incorrect application of generally accepted accounting principles relating to the recognition of stock-based compensation expense as it pertains to restricted stock unit awards (“RSUs”) granted under the 2014 Stock Incentive Plan. Additionally, the Company is also correcting for other previously identified immaterial errors. The applicable Notes were also updated to reflect the restatement.
Impact of Restatement
a) Correction of stock-based compensation expense: Subsequent to the issuance of the October 31, 2021 financial statements, it was determined that the Company considered the requisite service rendered by an employee to start from the original vesting commencement date of the award when calculating the stock-based compensation cost to recognize during the period for modified unvested awards for the three months ended October 31, 2021. Upon further evaluation, the Company determined that the correct expense recognition applicable under Accounting Standards Codification Topic 718, Stock Compensation for a Type III (improbable-to-probable) modification requires the use of a method that utilizes the date of modification (August 26, 2021) as the beginning of the requisite service period for unvested portions of the awards outstanding, rather than the original vesting commencement date of the award. The impact of correcting the requisite service period is to shift the recognition of stock-based compensation expense to later periods. The Company determined that the correction to stock-based compensation decreased stock-based compensation expense, as disclosed in Note 6. Stock Incentive Plan, and net loss by approximately $30.2 million for the three and nine months ended October 31, 2021.
These overstatements relate to stock-based compensation expense for certain of the Company’s RSUs granted pursuant to Legacy IronNet’s 2014 Stock Incentive Plan, which was approved in 2014 as part of Legacy IronNet’s overall compensation offerings.
b) Correction of immaterial errors related to the balances of accounts receivable, unbilled receivables, related party receivables, and deferred revenue: Subsequent to the issuance of the October 31, 2021 financial statements, an error was identified related to contracts with customers of approximately $2.4 million, $1.2 million, $0.6 million, and $4.2 million for the respective account as of October 31, 2021. The Company was previously reporting receivable balances only to the extent that basic criteria for revenue recognition had already been satisfied, and was netting the receivable associated with deferred revenue against the corresponding deferred revenue balance. The Company has corrected the unaudited condensed consolidated financial statements to increase the receivables and corresponding deferred revenue for which it has the unconditional right to receive the consideration as of October 31, 2021.
The following tables reflect the impact of the restatement adjustments to the specific line items presented in the Company’s previously issued unaudited condensed consolidated interim financial statements as of October 31, 2021 and for the three and nine months then ended (in thousands):
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As of October 31, 2021 |
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Balance Sheet |
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As Previously Reported |
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Adjustments |
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As Restated |
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Assets |
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Current assets: |
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Accounts receivable |
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$ |
2,246 |
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$ |
2,429 |
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$ |
4,675 |
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Unbilled receivables |
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3,885 |
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1,179 |
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5,064 |
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Related party receivables and loan receivables |
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3,521 |
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571 |
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4,092 |
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Account and loan receivable |
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9,652 |
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4,179 |
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13,831 |
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Total current assets |
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93,699 |
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4,179 |
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97,878 |
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Total assets |
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$ |
102,002 |
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$ |
4,179 |
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$ |
106,181 |
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Liabilities and stockholders' equity |
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Current liabilities: |
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Deferred Revenue |
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$ |
12,929 |
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$ |
3,450 |
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$ |
16,379 |
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Total current liabilities |
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24,483 |
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3,450 |
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27,933 |
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Deferred Revenue |
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17,181 |
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729 |
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17,910 |
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Total liabilities |
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$ |
43,204 |
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$ |
4,179 |
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$ |
47,383 |
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Stockholders' equity |
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Additional paid-in capital |
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$ |
459,349 |
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$ |
(30,173 |
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$ |
429,176 |
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Accumulated deficit |
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(400,828 |
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30,173 |
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(370,655 |
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Total liabilities and stockholders' equity |
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$ |
102,002 |
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$ |
4,179 |
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$ |
106,181 |
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3 Months Ended October 31, 2021 |
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9 Months Ended October 31, 2021 |
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Statement of Operations |
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As Previously Reported |
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Adjustments |
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As Restated |
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As Previously Reported |
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Adjustments |
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As Restated |
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Research and development |
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$ |
28,144 |
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$ |
(3,689 |
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$ |
24,455 |
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$ |
42,606 |
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$ |
(3,689 |
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$ |
38,917 |
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Sales and marketing |
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57,196 |
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(5,952 |
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51,244 |
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72,046 |
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(5,951 |
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66,095 |
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General and administrative |
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100,267 |
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(20,532 |
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79,735 |
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111,952 |
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(20,533 |
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91,419 |
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Operating Expenses |
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185,607 |
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(30,173 |
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155,434 |
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226,604 |
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(30,173 |
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196,432 |
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Operating Loss |
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(181,062 |
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30,173 |
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(150,889 |
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(213,361 |
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30,173 |
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(183,188 |
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Loss before income taxes |
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(193,088 |
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30,173 |
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(162,915 |
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(225,733 |
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30,173 |
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(195,560 |
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Benefit (provision) for income taxes |
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(34 |
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- |
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(34 |
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(56 |
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- |
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(56 |
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Net loss |
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(193,122 |
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30,173 |
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(162,949 |
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(225,789 |
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30,173 |
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(195,616 |
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Basic and diluted net loss per common share |
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$ |
(2.22 |
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$ |
0.35 |
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$ |
(1.87 |
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$ |
(3.05 |
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$ |
0.41 |
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$ |
(2.64 |
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9 Months Ended October 31, 2021 |
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Statement of Cash Flows |
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As Previously Reported |
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Adjustments |
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As Restated |
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Cash flows from operating activities |
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Net Loss |
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$ |
(225,789 |
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$ |
30,173 |
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$ |
(195,616 |
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Employee stock based compensation |
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160,156 |
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(30,173 |
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129,983 |
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Change in Operating Assets and Liabilities |
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Accounts receivable |
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(2,984 |
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(4,179 |
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(7,163 |
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Deferred revenue |
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(3,934 |
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4,179 |
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245 |
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Net cash used in operating activities |
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$ |
(59,095 |
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$ |
- |
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$ |
(59,095 |
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3 Months Ended October 31, 2021 |
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9 Months Ended October 31, 2021 |
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Statements of Comprehensive Loss |
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As Previously Reported |
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Adjustments |
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As Restated |
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As Previously Reported |
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Adjustments |
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As Restated |
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Net loss |
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$ |
(193,122 |
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$ |
30,173 |
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$ |
(162,949 |
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$ |
(225,789 |
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$ |
30,173 |
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$ |
(195,616 |
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Comprehensive loss |
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$ |
(192,819 |
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$ |
30,173 |
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$ |
(162,646 |
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$ |
(225,561 |
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$ |
30,173 |
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$ |
(195,388 |
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Statement of Changes in Stockholders' Equity for the 3 months Ended October 31, 2021 |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Total Stockholders' Equity |
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As Previously Reported |
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Adjustments |
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As Restated |
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As Previously Reported |
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Adjustments |
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As Restated |
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As Previously Reported |
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Adjustments |
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As Restated |
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Stock-based compensation |
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$ |
160,129 |
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$ |
(30,173 |
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$ |
129,956 |
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$ |
160,129 |
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$ |
(30,173 |
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$ |
129,956 |
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Net loss |
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(193,122 |
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30,173 |
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(162,949 |
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(193,122 |
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30,173 |
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(162,949 |
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Balance at October 31, 2021 |
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$ |
459,349 |
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$ |
(30,173 |
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$ |
429,176 |
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$ |
(400,828 |
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$ |
30,173 |
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$ |
(370,655 |
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$ |
58,798 |
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$ |
- |
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$ |
58,798 |
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Statement of Changes in Stockholders' Equity for the 9 months Ended October 31, 2021 |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Total Stockholders' Equity |
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As Previously Reported |
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Adjustments |
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As Restated |
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As Previously Reported |
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Adjustments |
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As Restated |
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As Previously Reported |
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Adjustments |
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As Restated |
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Stock-based compensation |
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$ |
160,156 |
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$ |
(30,173 |
) |
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$ |
129,983 |
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$ |
160,156 |
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$ |
(30,173 |
) |
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$ |
129,983 |
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Net loss |
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(225,789 |
) |
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30,173 |
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(195,616 |
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(225,789 |
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30,173 |
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(195,616 |
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Balance at October 31, 2021 |
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$ |
459,349 |
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$ |
(30,173 |
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$ |
429,176 |
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$ |
(400,828 |
) |
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$ |
30,173 |
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$ |
(370,655 |
) |
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$ |
58,798 |
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$ |
- |
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$ |
58,798 |
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