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~~April 3130, ~~2022~~2023

☐ 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
6 Waelchli Ave, #7395
McLean, VA		22102
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	TradingSymbol(s)	Name of each exchangeon 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


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 ~~111~~121,~~775~~506,~~430~~784 shares of Common Stock, par value $0.0001 per share, outstanding as of ~~May~~January 126, ~~2023~~2024.

IronNet, Inc.

Table of Contents

FORM 10‑Q

		Page
PART I — FINANCIAL INFORMATION		25
Item 1. Financial Statements		25
Unaudited Condensed Consolidated Balance Sheets		25
Unaudited Condensed Consolidated Statements of Operations		36
Unaudited Condensed Consolidated Statements of Comprehensive Loss		47
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity		5
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity		8
Unaudited Condensed Consolidated Statements of Cash Flows		79
Notes to Unaudited Condensed Consolidated Financial Statements		810
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1923
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3032
Item 4. Controls and Procedures		3134
PART II — OTHER INFORMATION		3134
Item 1. Legal Proceedings		3234
Item 1A. Risk Factors		3235
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3954
Item 3. Defaults upon Senior Securities		3954
Item 4. Mine Safety Disclosures		4054
Item 5. Other Information		4054
Item 6. Exhibits		4155
SIGNATURES		4456

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:

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;

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;

the effects of the Chapter 11 Cases on the Company and on the interests of various constituents;

Bankruptcy Court rulings in the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general;

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;

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;

risks associated with any third-party motions in the Chapter 11 Cases;

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;

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;

the consequences of the acceleration of our debt obligations;

the trading price and volatility of our common stock;

employee attrition and our ability to retain senior management and other key personnel due to the distractions and uncertainties of the Chapter 11 Cases;

our ability to maintain relationships with suppliers, customers, employees and other third parties as a result of the Chapter 11 Cases; and

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.

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.

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.

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)

	October 31,			January 31,
	April 30,			January 31,
	2022			2022
	2023			2023
Assets
Current assets
Cash and cash equivalents	$	87,~~228~~544		$	477,~~673~~568
Accounts receivable		23,~~576~~368			13,~~991~~373
Unbilled receivables		~~431~~83			~~4,637~~717
Related party receivables		1,283			3,233
Accounts receivables		3,451			4,090
Accounts and related party receivables		4,290			9,861
Inventory		2,649			2,669
Inventory		4,117			4,581
Deferred costs		3,019			3,138
Deferred costs		3,249			2,599
Prepaid warranty		1,167			1,218
Prepaid warranty		1,151			829
Prepaid expenses		978			1,743
Prepaid expenses		2,923			3,660
Other current assets		509			818
Other current assets		2,099			1,458
Total current assets	$	19,317		$	21,244
Total current assets	$	26,057		$	70,661
Deferred costs		2,142			2,975
Deferred costs		3,698			3,243
Property and equipment, net		5,698			5,972
Property and equipment, net		6,014			5,606
Prepaid warranty		889			1,141
Prepaid warranty		1,047			1,229
Deposits and other assets		2,224			2,327
Deposits and other assets		2,440			493
Total assets	$	30,270		$	33,659
Total assets	$	39,256		$	81,232
Liabilities and stockholders’ (deficit) equity
Current liabilities
Accounts payable	$	7,~~336~~116		$	27,~~348~~287
Accrued expenses		9,~~794~~684			49,~~709~~973
Deferred revenue		1816,~~329~~934			1617,~~049~~180
Deferred rent		-			159
Related party notes payable		19,022			11,845
Convertible notes payable		97,~~128~~065			-8,128
Conversion feature on convertible notes payable		774			-
Conversion features on convertible notes payable		559			734
Income tax payable		~~363~~416			~~542~~412
Other current liabilities		~~1,374~~751			~~689~~735
Total current liabilities		4761,~~098~~547			2456,~~496~~294
Deferred revenue		119,~~906~~921			179,~~517~~961
Deferred rent		-			769
Other long-term liabilities		1,955			2,128
Warrants		1			7
Total liabilities	$	73,423		$	68,383
Other long-term liabilities		2,203			-
Total liabilities	$	61,208		$	42,789
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; 103,708 and 88,876 shares issued and outstanding at October 31, 2022 and January 31, 2022, respectively		10			9
Common stock; $0.0001 par value; 500,000 shares authorized; 111,776 and 111,466 shares issued and outstanding at April 30, 2023 and January 31, 2023, respectively		11			11
Additional paid-in capital		~~489~~494,~~105~~901			~~455~~493,~~849~~902
Accumulated other comprehensive income		~~212~~53			~~271~~59
Accumulated deficit		(~~511~~538,~~279~~118	)		(~~417~~528,~~686~~696	)
Total stockholders’ (deficit) equity		(2143,~~952~~153	)		38(34,~~443~~724	)
Total liabilities and stockholders' (deficit) equity	$	3930,~~256~~270		$	8133,~~232~~659

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

IronNet, Inc.

Condensed Consolidated Statements of Operations

($ in thousands, except per share data)

(unaudited)

	Three Months Ended October 31,						Nine Months Ended October 31,
	Three Months Ended April 30,
	2022			2021			2022			2021
	2023			2022
Product, subscription and support revenue	$	6,~~674~~663		$	6,~~132~~443		$	~~19,331~~		$	~~18,038~~
Professional services revenue		~~314~~139			~~781~~245			~~952~~			~~1,327~~
Total revenue		6,~~988~~802			6,~~913~~688			~~20,283~~			~~19,365~~
Cost of product, subscription and support revenue		42,~~206~~674			2,~~082~~330			~~8,875~~			~~5,505~~
Cost of professional services revenue		839			~~286~~165			~~397~~			~~617~~
Total cost of revenue		42,~~289~~683			2,~~368~~495			~~9,272~~			~~6,122~~
Gross profit		24,~~699~~119			4,~~545~~193			~~11,011~~			~~13,243~~
Operating expenses
Research and development		63,~~804~~382			2410,~~455~~727			~~27,246~~			~~38,917~~
Sales and marketing		71,~~774~~503			5110,~~244~~667			~~27,194~~			~~66,095~~
General and administrative		197,~~723~~123			7915,~~735~~586			~~48,742~~			~~91,419~~
Total operating expenses		3412,~~301~~008			~~155~~36,~~434~~980			~~103,182~~			~~196,431~~
Operating loss		(317,~~602~~889	)		(~~150~~32,~~889~~787	)		~~(92,171~~	)		~~(183,188~~	)
Interest expense		(~~320~~1,329	)		(~~710~~89	)		~~(482~~	)		~~(1,060~~	)
Other income		~~493~~200			410			55			19
Other expense		(~~581~~218	)		(18291	)		~~(995~~	)		~~(29~~	)
Change in fair value of warrant liabilities		3			(11,302	)		6			(11,302	)
Loss before income taxes		(9,236	)		(33,157	)
Loss before income taxes		(32,007	)		(162,915	)		(93,587	)		(195,560	)
Provision for income taxes		(4	)		(11	)
Benefit from (provision for) income taxes		(2	)		(34	)		(6	)		(56	)
Net loss		(9,240	)		(33,168	)
Net loss	$	(32,009	)	$	(162,949	)	$	(93,593	)	$	(195,616	)
Basic and diluted net loss per common share		(0.08	)		(0.33	)
Basic and diluted net loss per common share		(0.30	)		(1.87	)		(0.92	)		(2.64	)
Weighted average shares outstanding, basic and diluted		112,390			99,305
Weighted average shares outstanding, basic and diluted		105,033			87,178			101,925			74,001

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

IronNet, Inc.

Condensed Consolidated Statements of Comprehensive Loss

($ in thousands) (unaudited)

(unaudited)


	Three Months Ended April 30,
	2023			2022
Net loss	$	(9,240	)	$	(33,168	)
Foreign currency translations adjustment, net of tax		(6	)		(92	)
Total Comprehensive loss	$	(9,246	)	$	(33,260	)

	Three Months Ended October 31,							Nine Months Ended October 31,
		2022			2021				2022			2021
Net loss		$	(32,009	)	$	(162,949	)		$	(93,593	)	$	(195,616	)
Foreign currency translations adjustment, net of tax			206			303				(58	)		228
Comprehensive loss		$	(31,803	)	$	(162,646	)		$	(93,651	)	$	(195,388	)

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

IronNet, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ ~~(Deficit)~~ Equity

For the ~~Nine~~Three Months Ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022

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

(unaudited)

	Common Stock			~~Additional Paid- In Capital~~		~~Accumulated Deficit~~	~~Accumulated~~Additional ~~Other~~Paid- ~~Comprehensive~~In ~~Income (Loss)~~Capital		~~Subscription Notes Receivable~~	~~Total~~Accumulated ~~Stockholders' (~~Deficit~~) Equity~~			Accumulated Other Comprehensive Income			Total Stockholders' (Deficit) Equity
	Shares		~~Amount~~	Amount
Balance at January 31, 2022	88,876		$9	$455,849		$(417,686)	$271		$-	$38,443
Balance at January 31, 2023		111,466		$	11		$	493,902		$	(528,696	)	$	59		$	(34,724	)
Exercise of stock options and settlement of restricted stock units	14,847		1	271		-	-		-	272
Cumulative effect adjustment for new accounting standard		-			-			-			(182	)		-			(182	)
Statutory tax withholding related to net-share settlement of restricted stock units	(15)		-	(91)		-	-		-	(91)
Vesting of restricted stock units		310			-			-			-			-			-
Stock-based compensation	-	-	-	~~33,075~~	-	-	-	999	-	~~33,075~~	-			-			999
Net loss	-	-	-	-	-	~~(93,593)~~	-	-	-	~~(93,593)~~	(9,240	)		-			(9,240	)
Foreign currency translation adjustment, net of tax	-		-	-			(58)		-	(58)
Foreign currency translation adjustment		-			-			-			-			(6	)		(6	)
Balance at October 31, 2022	103,708		$10	$489,105		$(511,279)	$212		$-	$(21,952)
Balance at April 30, 2023		111,776		$	11		$	494,901		$	(538,118	)	$	53		$	(43,153	)
Balance at January 31, 2021	66,934		$7	$180,853		$(175,039)	$40		$(835)	$5,026
Balance at January 31, 2022		88,876		$	9		$	455,849		$	(417,686	)	$	271		$	38,443
Issuance of common stock	598		-	305		-	-		-	305
Exercise of stock options and settlement of restricted stock units		11,565			1			92			-			-			93
Merger recapitalization	4,555		1	(12,027)		-	-		-	(12,026)
Statutory tax withholding related to net-share settlement of restricted stock units		(15	)	-				(91	)		-			-			(91	)
Issuance of PIPE Shares	12,500		1	109,857		-	-		-	109,858
Stock-based compensation		-			-			11,446			-			-			11,446
Issuance of common stock upon exercise of Public Warrants	29		-	330		-	-		-	330
Net loss		-			-			-			(33,168	)		-			(33,168	)
Issuance of common stock upon exercise of Private Warrants	3,188		-	21,492		-	-		-	21,492
Foreign currency translation adjustment		-			-			-			-			(92	)		(92	)
Issuance of merger earnout shares	1,078		-	-		-	-		-	-
Balance at April 30, 2022		100,426		$	10		$	467,296		$	(450,854	)	$	179		$	16,631
Interest earned on subscription notes receivable	-		-	8		-	-		(8)	-
Settlement of related party loan receivable for common shares	(108)		-	(1,075)		-	-		-	(1,075)
Payment of note receivable and settlement of notes receivable for common shares	(55)		-	(550)		-	-		843	293
Stock-based compensation	-		-	129,983		-	-		-	129,983
Net loss	-		-	-		(195,616)	-		-	(195,616)
Foreign currency translation adjustment, net of tax of $0	-		-	-		-	228		-	228
Balance at October 31, 2021	88,719		$9	$429,176		$(370,655)	$268		$—	$58,798

(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.

IronNet, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity

For the Three Months Ended October 31, 2022 and 2021

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

(unaudited)

	Common Stock		Additional Paid- In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)	Subscription Notes Receivable	Total Stockholders' (Deficit) Equity
	Shares	Amount
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, net of tax	-	-	-	-	206	-	206
Balance at October 31, 2022	103,708	$10	$489,105	$(511,279)	$212	$-	$(21,952)
Balance at July 31, 2021	67,502	$7	$181,181	$(207,706)	$(35)	$(548)	$(27,101)
Issuance of common stock	30	-	10	-	-	-	10
Merger recapitalization	4,555	1	(12,027)	-	-	-	(12,026)
Issuance of PIPE Shares	12,500	1	109,857	-	-	-	109,858
Issuance of common stock upon exercise of Public Warrants	29	-	330	-	-	-	330
Issuance of common stock upon exercise of Private Warrants	3,188	-	21,492	-	-	-	21,492
Issuance of merger earnout shares	1,078	-	-	-	-	-	-
Interest earned on subscription note receivable	-	-	2	-	-	(2)	-
Settlement of related party loan receivable for common shares	(108)	-	(1,075)	-	-	-	(1,075)
Settlement of notes receivable for common shares	(55)	-	(550)	-	-	550	-
Stock-based compensation	-	-	129,956	-	-	-	129,956
Net loss	-	-	-	(162,949)	-	-	(162,949)
Foreign currency translation adjustment, net of tax of $0	-	-	-	-	303	-	303
Balance at October 31, 2021	88,719	$9	$429,176	$(370,655)	$268	$-	$58,798

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

IronNet, Inc.

Condensed Consolidated Statements of Cash Flows

($ in thousands)

(unaudited)

	Nine Months Ended October 31,
	Three Months Ended April 30,
	2022			2021
	2023			2022
Cash flows from operating activities
Net loss	$	(939,~~593~~240	)	$	(~~195~~33,~~616~~168	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		~~1,815~~523			~~659~~628
Gain on sale of fixed assets		(11	)		(1	)
(Gain) Loss on sale of fixed assets		(1	)		(3	)
Loss of disposal of fixed assets		642		-	-
Employee stock based compensation		33,075			129,983
Employee stock-based compensation		999			11,446
Change in fair value of warrant liabilities		(6	)		11,302
Change in fair value of conversion options		(175	)	-
Change in fair value of commitment fee		~~421~~195		-	-
Conversion option accretion		~~106~~209		-	-
Non-cash interest expense		~~381~~1,124			~~1,061~~90
Non-cash interest income on amounts due from stockholder		-			(8	)
Excess in inventory adjustment		1,372			-
Changes in operating assets and liabilities:
Accounts and related party receivable		~~5,572~~457			(74,~~163~~783	)
Deferred costs		~~(1,105~~953	)		~~388~~(346	)
Inventories		~~(908~~20	)		(~~492~~835	)
Prepaid expenses		~~736~~764			~~(3,157~~529	)
Other current assets		~~(271~~114	)		-265
Prepaid warranty		~~(140~~304	)		~~205~~(373	)
Deposits and other assets		~~753~~103			~~(194~~382	)
Accounts payable		4,988			1,151
Accounts payable and accrued expenses		(1,487	)		(711	)
Accrued expenses		(2,463	)		2,552
Income tax payable		4			(19	)
Income tax payable		(178	)		47
Other liabilities	-				99
Other liabilities		(3	)		-
Deferred revenue		(286	)		4,965
Deferred rent		-			(100	)
Operating lease liability		(148	)		(350	)
Deferred revenue		(3,331	)		245
Net cash used in operating activities		(5,566	)		(22,184	)
Warrants		-			43
Operating lease liability		(831	)		-
Net cash used in operating activities		(53,557	)		(59,095	)
Cash flows from investing activities
Purchases of property and equipment	-	~~(2,100~~	)		(~~2,385~~62	)
Proceeds from the sale of fixed assets		11			228
Capitalized software development costs		(250	)		(850	)
Net cash used in investing activities		(2,089	)		(2,156	)
Proceeds from the sale of fixed assets	-				2
Net cash used in investing activities		(250	)		(910	)
Cash flows from financing activities
Exercise of stock options and settlement of restricted stock units		272			-
Exercise of stock options	-				93
Statutory tax withholding related to net-share settlement of restricted stock units	-	~~(91~~	)		-(91	)
Cash received to fund employee tax obligation for vested RSUs		~~19,607~~40			-17,909
Cash remitted to fund employee tax obligation for vested RSUs		(~~11,398~~2	)		-(9,066	)
Payment of equity line commitment fee	-	~~(1,750~~	)		-(1,750	)
Proceeds from issuance of convertible notes		10,000			-
Proceeds from issuance of related party debt		7,145		-
Payment of debt issuance costs		(284	)		-
Repayment of debt		(1,373	)	-
Payment of finance lease obligations		(96	)		-
Payment of common stock issuance costs	-				(96	)
Proceeds from issuance of common stock		-			634
Payment of finance lease obligations		(12	)		(96	)
Proceeds from borrowing under SVB bridge loan		-			15,000
Net cash provided by financing activities		5,798			6,903
Payment of SVB bridge loan		-			(15,000	)
Effect of exchange rate changes on cash and cash equivalents		(6	)		(92	)
Payment of PPP loan		-			(5,580	)
Net change in cash and cash equivalents		(24	)		(16,283	)
Merger recapitalization		-			4,214
Proceeds from issuance of PIPE shares		-			125,000
Payment of merger transaction costs		-			(21,179	)
Proceeds from stock subscriptions		-			292
Net cash provided by financing activities		16,260			103,381
Effect of exchange rate changes on cash and cash equivalents		(59	)		218
Net change in cash and cash equivalents		(39,445	)		42,348
Cash and cash equivalents
Beginning of the period		477,~~673~~568		$	3147,~~543~~673
End of the period	$	87,~~228~~544		$	7331,~~891~~390
Supplemental disclosures of non-cash investing and financing activities
Supplemental disclosure of cash flow information
Interest earned on subscription notes receivable	$	-		$	8
Cash paid for interest	$	142		-
Unpaid purchases of property and equipment	$	-		$	1,306
Non-cash settlement of related party loan receivable for common shares	$	-		$	1,075

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

IronNet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(shares and dollars in thousands, unless stated otherwise)

Organization and Summary of Changes in Significant Accounting Policies

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

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

~~The~~Throughout ~~Merger~~the ~~was~~notes ~~accounted~~to ~~for as a reverse recapitalization. Under this method of accounting, Legacy LGL has been treated as~~ the ~~acquired~~consolidated ~~company for~~ financial ~~reporting~~statements, ~~purposes.~~unless ~~This~~otherwise ~~determination was primarily based on Legacy IronNet's existing stockholders being the majority stockholders and holding majority voting power in the combined company~~noted, ~~Legacy IronNet's senior management comprising the majority of the senior management of the combined company~~"we," ~~and Legacy IronNet's ongoing operations comprising the ongoing operations of the combined company. Accordingly~~"us," ~~for accounting purposes~~"our," ~~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~~"Company," ~~the~~and ~~financial~~similar ~~reports~~terms ~~filed~~refer ~~with the SEC by the Company subsequent~~ to ~~the Merger are prepared as if~~ Legacy IronNet isand ~~the~~its ~~accounting~~subsidiaries ~~predecessor~~prior ~~of the Company. The historical operations of Legacy IronNet are deemed~~ to ~~be those of~~ the ~~Company.~~consummation ~~Thus, the financial statements included in this report reflect (i) the historical operating results~~ of ~~Legacy IronNet prior to~~ the ~~Merger;~~transactions ~~(ii)~~associated ~~the~~with ~~consolidated results of~~ the ~~Company, following the~~ Merger ~~on August 26~~, ~~2021; (iii) the assets~~ and ~~liabilities of Legacy~~ IronNet, atInc. ~~their historical cost;~~ and ~~(iv)~~ the Company’'s ~~equity~~subsidiaries ~~structure~~after ~~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~~Voluntary ~~the~~Filings ~~notes~~Under toChapter ~~the~~11 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.

On October 12, 2023 ("Petition Date"), the Company and IronNet Cybersecurity (“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). See Note 13, Subsequent Events, for additional information.

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, as updated by the Company's Current Report on Form 8-K filed on November 14, 2022~~2023. 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~~2024, for example, refer to the fiscal year ending January 31, ~~2023~~2024. The results of operations for the three ~~and nine~~ months ended ~~October~~April 3130, ~~2022~~2023 are not necessarily indicative of the operating results that may be expected for the full fiscal year ending January 31, ~~2023~~2024 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 ~~October~~April 3130, ~~2022~~2023, its results of operations for the three ~~and nine~~ months ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022, changes in stockholders’ equity for the three ~~and nine~~ months ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022, and cash flows for the ~~nine~~three months ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022. Certain prior-period amounts have been reclassified in the accompanying condensed consolidated financial statements and notes thereto in order to conform to the current period presentation. The accompanying unaudited condensed consolidated financial statements do not reflect the application of Financial Accounting Standards Board (“FASB”) Codification Topic 852, Reorganizations (“ASC 852”), as the Debtors did not file the Chapter 11 cases until October 12, 2023. Refer to Note 13, Subsequent Events, for more information.

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, fair value of conversion options of debt, obsolescence reserves for inventory, 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 and Going Concern

AsUnder ofASC ~~October~~Subtopic 31205-40, ~~2022,~~Presentation ~~the Company had cash and cash equivalents~~ of ~~$8,228,~~Financial ~~accounts~~Statements—Going ~~receivables~~Concern of $4,290, accounts payable and accrued expenses of $17,130, including $7,261 due to taxing authorities, and $10,300 in principal amounts owed on convertible debt. In February 2022, the Company entered into an equity line with Tumim Stone Capital, LLC (“~~Tumim~~ASC 205-40”), ~~under which~~ the Company ~~may,~~has inthe ~~its~~responsibility ~~discretion, sell shares of its common stock~~ to ~~Tumim~~evaluate ~~subject~~whether ~~to various~~ conditions and/or ~~limitations~~events ~~set~~raise ~~forth~~substantial indoubt ~~the~~about ~~purchase agreement with Tumim. In November and December 2022,~~ the Company’s ~~issued~~ability ~~shares~~to ofmeet ~~common~~our ~~stock~~future toobligations ~~Tumim~~as ~~for~~they ~~net~~become ~~proceeds~~due ofwithin ~~$586.~~one ~~The~~year ~~Company~~of isthe ~~not~~financial ~~currently~~statements ~~able~~being toissued ~~raise~~in ~~additional~~this ~~funds~~Quarterly ~~under~~Report ~~the~~on ~~equity~~Form ~~line with Tumim~~10-Q.

OnAs ~~September~~of 14April 30, ~~2022~~2023, the Company ~~entered~~had ~~into~~cash aand ~~Securities~~cash ~~Purchase~~equivalents ~~Agreement~~of ~~("SPA") with 3i LP~~$7,544 ~~or 3i,~~ which is annot ~~affiliate~~legally ofrestricted ~~Tumim, pursuant~~ to ~~which~~use, ~~the~~collectable ~~Company~~receivables ~~agreed to sell and issue senior unsecured convertible promissory notes (the "Convertible Notes") to 3i in the aggregate principal amount~~ of ~~up to~~ $253,~~750. On September 15~~451, ~~2022,~~accounts ~~the~~payable ~~Company~~and ~~issued~~accrued aexpenses ~~Convertible Note to 3i in the principal amount~~ of $1016,~~300~~800, ~~net~~including ~~of discount for cash proceeds of~~ $107,~~000.~~242 ~~The~~due ~~Company may, subject~~ to ataxing ~~number~~authorities, of ~~conditions~~which ~~set~~approximately ~~forth in the SPA with 3i~~$6,335 ~~including~~was ~~specified~~subsequently ~~minimum trading prices and trading volumes~~paid, ~~and the repayment or conversion of a specified portion of the initial Convertible Note~~$7,553 ~~borrow~~in anprincipal ~~additional~~amounts ~~$15,450~~owed ~~from 3i~~ on ~~the~~convertible ~~same~~debt ~~terms~~ and ~~conditions~~$19,045 ~~as set forth~~ in ~~the~~principal ~~initial~~amounts ~~Convertible~~owed ~~Note.~~on Asrelated ofparty ~~the date of this report~~debt, ~~the~~as ~~conditions~~discussed toin ~~the additional borrowing have not been met. See~~ Note ~~10 for more information~~9.

~~Between~~In ~~December~~February 142022, ~~2022~~the ~~and~~Company ~~April~~entered ~~20,~~into ~~2023~~an equity line with Tumim Stone Capital, ~~the~~LLC ~~Company~~(“Tumim”) ~~issued~~under ~~secured~~which ~~promissory~~the ~~notes~~Company may, in anits ~~aggregate~~discretion, ~~principal~~sell ~~amount~~shares of ~~$7,200~~its common stock to aTumim ~~total~~subject ofto ~~eight~~various ~~lenders~~conditions ~~including~~and ~~directors~~limitations ofset forth in the ~~Company~~purchase agreement with Tumim. OnAs ~~January~~of 11April 30, 2023, ~~January~~the ~~12,~~Company ~~2023,~~was ~~February~~not 8,able ~~2023,~~to ~~February~~raise ~~27,~~additional ~~2023~~funds ~~and~~under ~~April~~the 13equity line with Tumim. Subsequently, on June 16, 2023, Tumim notified the Company of Tumim’s election to terminate the Purchase Agreement, effective as of June 20, 2023.

8On September 14, 2022, the Company entered into a Securities Purchase Agreement ("SPA") with 3i LP ("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. As of April 30, 2023, the Company prepaid approximately $2,747 of the Convertible Notes to 3i and, as a result, approximately $7,553 principal amount of the Convertible Note was outstanding as of the end of the period. The Company subsequently prepaid a total of $3,320 of the Convertible Note in May and June 2023 and, as a result, approximately $4,233 in principal remained outstanding thereafter. As of the date of this report, the conditions to the additional borrowing have not been met. See Note 9 and Note 13, Subsequent Events, for additional information.

Between December 14, 2022 and September 17, 2023, the Company issued senior secured promissory notes in an aggregate principal amount of $8,475 to a total of eight lenders including directors of the Company. Between January 11, 2023 and August 31, 2023, the Company issued senior secured convertible promissory notes in the aggregate principal amount of $1115,~~845~~275 to anentities ~~entity~~ affiliated with C5 Capital Limited (“C5”), a beneficial owner of more than 5% of the Company’s outstanding ~~common stock. See Note 16 for more information.~~

common stock. As of April 30, 2023, the Company had issued $7,200 in senior secured promissory notes to eight lenders and $11,845 in senior secured convertible promissory notes to C5. See Note 9 and Note 13, Subsequent Events, for additional information.

The Company’s future capital requirements will depend on many factors, including, but not limited to the rate of its 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. The Company needs additional equity or debt financing in order to continue its operations, which it may not be able to raise on terms acceptable to it or at all. If additional funds are not available to the Company on acceptable terms, or at all, the Company’s business, financial condition, and results of operations would be adversely affected.

~~During~~Despite the ~~third~~Company’s ~~quarter~~current ofoperating ~~fiscal~~plans ~~2023,~~to implement the ~~Company~~Joint ~~undertook~~Plan a(as ~~restructuring~~defined ~~that~~in ~~reduced~~Note 13) and emerge from bankruptcy, focus its ~~headcount~~business, byreduce ~~approximately~~its ~~28%.~~expenses, ~~Refer~~improve its margins and mitigate uncertainties related to ~~Note~~the 3foregoing, ~~for~~management ~~additional~~believes ~~information.~~that ~~Subsequent~~the Company does not have sufficient cash and cash equivalents on hand to support current operations for at least one year from the ~~end~~date of ~~the~~issuance ~~quarter,~~of ~~the~~these ~~Company~~consolidated ~~undertook~~financial statements without additional ~~actions~~financing. toManagement ~~reduce~~has ~~its~~concluded ~~operating~~that ~~expenses~~there ~~and~~is ~~preserve~~substantial ~~its~~doubt ~~cash~~about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might become necessary should the Company ~~has~~be ~~continued~~unable to ~~reduce~~continue ~~its~~as ~~expenses~~a ~~and~~going ~~restructure~~concern. The ~~its~~financial ~~operations~~statements inas aof ~~continued~~April ~~effort~~30, 2023 do not include any adjustments related to ~~reduce~~the ~~its~~filing ~~capital~~of ~~requirement~~the Chapter 11 Cases.

~~Despite~~Based ~~the~~on ~~Company’s~~its current ~~operating~~planned ~~plans~~operations, toin ~~focus~~the ~~its~~absence ~~business,~~of ~~reduce~~additional ~~its~~sources ~~expenses~~of liquidity, ~~improve~~management ~~its~~anticipates ~~margins~~that ~~and~~the ~~mitigate~~Company’s ~~uncertainties~~existing ~~related~~cash toand ~~the~~cash ~~foregoing,~~equivalents ~~management~~and ~~believes~~anticipated ~~that~~cash ~~the~~flows ~~Company~~from ~~does~~operations will not ~~have~~be sufficient ~~cash~~to ~~and~~meet ~~cash~~the ~~equivalents~~Company’s onoperating ~~hand~~and toliquidity ~~support~~needs ~~current operations~~ for atany ~~least~~meaningful ~~one~~period ~~year~~of ~~from~~time following the date of ~~issuance~~this report. Given that additional sources of ~~these~~liquidity ~~consolidated~~have ~~financial~~not ~~statements~~been ~~without~~available ~~additional~~to ~~financing~~it, the Company filed the Chapter 11 Cases. The ~~Management~~Chapter ~~has~~11 ~~concluded~~Cases ~~that~~have ~~there~~not isbeen determined to alleviate the previously identified substantial doubt about the Company’s ability to continue as a going concern, including following the Effective Date of the Joint Plan. The ~~financial~~Joint ~~statements~~Plan dowas ~~not~~confirmed ~~include~~by ~~any~~the ~~adjustments~~Bankruptcy Court on January 18, 2024. The Debtors expect that ~~might~~the ~~become~~Effective ~~necessary~~Date ~~should~~of the ~~Company~~Joint bePlan ~~unable~~will tooccur ~~continue~~as soon as aall ~~going~~conditions ~~concern~~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.

~~Based~~On onSeptember ~~its~~2, ~~current planned operations~~2023, in the ~~absence~~Company offurloughed ~~additional~~almost ~~sources~~all of ~~liquidity, management anticipates that~~ the Company’s ~~existing~~employees ~~cash~~ and ~~cash~~substantially ~~equivalents~~curtailed ~~and~~business ~~anticipated cash flows from~~ operations ~~will~~as ~~not~~a beresult ~~sufficient~~of ~~to meet~~ the Company’s ~~operating and~~ liquidity ~~needs~~position. ~~for~~Subsequently, ~~any~~on ~~meaningful~~September ~~period~~29, of2023, ~~time~~given ~~following~~ the ~~date~~unavailability of ~~this report. In the event the Company determines that~~ additional sources of liquidity ~~will~~and ~~not~~after beconsidering ~~available~~strategic toalternatives, itthe orCompany ~~will~~ceased ~~not~~substantially ~~allow~~all itof toits ~~meet~~business ~~its~~activities ~~obligations~~and asterminated ~~they~~the ~~become~~remaining ~~due,~~employees of the Company ~~may~~and ~~need~~its tosubsidiaries. ~~file~~The afurlough ~~voluntary~~of ~~petition~~employees ~~for~~and ~~relief~~cessation ~~under~~of ~~the~~business ~~United~~operations ~~States~~constituted ~~Bankruptcy~~events ~~Code~~of indefault ~~order~~on toall ~~implement~~of athe ~~plan~~Company’s ofoutstanding ~~reorganization~~indebtedness. See Note 13, ~~court-supervised~~Subsequent ~~sale~~Events, ~~and/or~~for ~~liquidation.~~additional information.

~~Recent~~On ~~Accounting~~October ~~Pronouncements~~10, ~~Not~~2023, ~~Yet~~the ~~Adopted~~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 $1,500 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. See Note 13, Subsequent Events, for additional information.

InUpon ~~June 2016,~~ the ~~Financial~~execution ~~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~~Term ~~expected~~Sheet, ~~credit loss (“CECL”) method. The CECL method requires~~ the ~~recognition~~DIP ofFacility ~~all~~Lender ~~losses~~advanced ~~expected over~~ the ~~life~~Bridge ofAmount ~~a financial instrument upon origination or purchase~~ of ~~the instrument~~$1,499 ~~unless the Company elects~~ to ~~recognize such instruments at fair value with changes in profit and loss (~~the ~~fair value option)~~Company. ~~This~~The ~~standard~~Bridge Amount is ~~effective~~secured ~~for~~by ~~the~~all ~~Company for~~ the ~~earlier~~assets of the ~~fiscal~~Debtors. ~~years~~See ~~beginning~~Note ~~after~~13, ~~December~~Subsequent 15Events, ~~2022~~for oradditional ~~the time at which the Company no longer qualifies as an emerging growth company ("EGC") under SEC rules~~information. ~~Management is currently evaluating the potential impact of this guidance on its financial statements.~~

~~New~~On ~~Accounting~~October ~~Pronouncement~~12, ~~Adopted~~2023, the Debtors, filed the Chapter 11 Cases. In connection with the filing of the Chapter 11 Cases, the Debtors resumed business operations and rehired a portion of the previously furloughed and terminated employees. The Debtors and their subsidiaries continue to operate their businesses as “debtors-in-possession” ~~Fiscal~~under ~~2023~~the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The filing of the Charter 11 Cases constituted an event of default on all of the Company’s outstanding indebtedness. See Note 13, Subsequent Events, for additional information.

InThe ~~February~~Company’s ~~2016,~~ability ~~the~~to ~~FASB~~continue ~~issued~~as ~~ASU~~a ~~2016-02,~~going ~~Leases~~concern ~~(Topic~~is ~~842)~~contingent ~~(“Topic~~upon ~~842”),~~its ~~which~~ability ~~outlines~~to agenerate ~~comprehensive~~sufficient ~~lease~~liquidity ~~accounting~~to ~~model~~meet ~~that~~its ~~supersedes~~contractual ~~the~~obligations ~~previous~~and ~~lease~~operating ~~guidance~~needs. ~~The~~Beginning ~~guidance~~on ~~requires~~the ~~lessees~~Petition Date, it is also contingent upon its ability to, ~~recognize~~subject ~~lease~~to ~~liabilities~~the ~~and~~Bankruptcy ~~corresponding~~Court’s ~~right-of-use~~approval, ~~assets~~implement ~~for~~a ~~all~~Chapter ~~leases~~11 ~~with~~plan ~~lease~~of ~~terms~~reorganization ~~greater~~and ~~than~~emerge 12from ~~months~~the Chapter 11 Cases. ItAs ~~also~~noted ~~changes~~above, the ~~definition~~Bankruptcy ofCourt aentered ~~lease~~the ~~and~~Confirmation ~~expands~~Order for the ~~disclosure~~Joint ~~requirements~~Plan on January 18, 2024, and the Joint Plan will become effective upon satisfaction of ~~lease~~the ~~arrangements.~~conditions Inprecedent ~~July~~to ~~2018~~the Joint Plan, including the ~~FASB~~adoption ~~issued~~of ~~ASU~~the ~~2018-11~~Company’s new organization documents, ~~Leases~~the ~~(Topic~~recapitalization ~~842)~~of -the ~~Targeted~~Company ~~Improvements,~~in ~~which~~accordance ~~provides~~with the ~~option~~Joint Plan, the filing of anany ~~additional~~final ~~transition~~plan ~~method~~supplements, ~~that~~the ~~allows~~Debtors ~~entities~~shall tohave ~~initially~~entered ~~apply~~into the ~~new~~exit ~~lease~~financing ~~guidance~~facility atcontemplated by the ~~adoption~~Joint ~~date~~Plan, and ~~recognize~~other acustomary ~~cumulative-effect~~conditions. ~~adjustment~~Although tothe Debtors anticipate that all conditions will be satisfied, the ~~opening~~Debtors ~~balance~~can ofmake ~~retained~~no ~~earnings~~assurances inas to when, or ultimately if, the ~~period~~Joint ofPlan ~~adoption~~will become effective. The ~~Company~~Debtors ~~adopted~~expect that the ~~standard~~Effective onDate ~~February~~of 1,the ~~2022~~Joint ~~using~~Plan will occur as soon as all conditions precedent to the ~~modified~~Joint ~~retrospective~~Plan ~~basis~~have been satisfied. ~~Using~~Although the ~~modified~~Debtors ~~retrospective~~anticipate ~~approach~~that all conditions will be satisfied, the ~~Company~~Debtors ~~determined~~can anmake ~~incremental~~no ~~borrowing~~assurances ~~rate~~as atto ~~the~~when, ~~date~~or ofultimately ~~adoption~~if, ~~based~~the onJoint ~~the~~Plan ~~total~~will ~~lease~~become ~~term~~effective. ~~and~~See ~~total~~Note ~~minimum~~13, ~~rental~~Subsequent ~~payments.~~Events, for additional information.

~~The~~New ~~modified~~Accounting ~~retrospective~~Pronouncement ~~approach~~Adopted ~~provides~~in aFiscal 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. 2024

~~Adoption~~In ofJune 2016, the ~~new~~FASB ~~standard~~issued ~~resulted~~Accounting inStandards ~~the~~Update ~~recording~~("ASU") 2016-13, Measurement of ~~$974~~Credit ~~and~~Losses ~~$2,654~~on ofFinancial ~~current~~Instruments ~~operating~~(Topic ~~lease~~326). ~~liabilities~~This ~~and~~standard ~~long-term~~requires ~~operating~~a ~~lease~~new ~~liabilities,~~method ~~respectively,~~for ~~and~~recognizing ~~$2,685~~credit inlosses ~~corresponding~~that ~~right-of-use~~is referred to as the current expected credit loss (“~~ROU~~CECL”) ~~lease~~method. ~~assets~~The onCECL ~~that~~method ~~date.~~requires ~~The~~the ~~difference~~recognition ~~between~~of ~~the~~all ~~approximate~~losses ~~value~~expected ofover the ~~ROU~~life ~~lease~~of ~~assets~~a ~~and~~financial ~~lease~~instrument ~~liabilities~~upon isorigination ~~attributable~~or topurchase ~~deferred~~of ~~rent~~the instrument, ~~which~~unless isthe ~~comprised~~Company ofelects ~~tenant~~to ~~improvement~~recognize ~~allowance~~such instruments at fair value with changes in profit and ~~rent~~loss ~~abatement~~(the fair value option). ~~The~~This ~~adoption~~standard ofis effective for the ~~new~~Company ~~standard~~for ~~also~~the ~~resulted~~earlier inof ~~recording~~the ~~$187~~fiscal inyears ~~current~~beginning ~~finance~~after ~~lease~~December ~~liabilities~~15, ~~and~~2022 ~~$182~~or inthe ~~corresponding~~time ~~ROU~~at ~~assets~~which ~~for~~the ~~finance~~Company ~~leases~~no longer qualifies as ofan ~~the~~emerging ~~adoption~~growth ~~date~~company ("EGC") under SEC rules. The ~~difference~~Company ~~between~~adopted the ~~finance~~standard ~~lease~~as ~~ROU~~of ~~lease~~February ~~assets~~1, ~~and~~2023 ~~lease~~on ~~liabilities~~a ismodified ~~not~~retrospective ~~significant.~~basis ~~The~~resulting ~~cumulative~~in ~~change~~an inincrease to the beginning balance of accumulated deficit ~~was~~of approximately $20182 ~~due~~as toof ~~the~~February 1, 2023. The adoption of ~~Topic~~ASU ~~842~~2016-13 ~~and~~did ~~there~~not ~~was~~have noa material impact on the Company’'s condensed consolidated ~~statement~~financial ofstatements ~~operations~~and orrelated ~~consolidated~~disclosures ~~statement~~for ofthe ~~cash~~three-month ~~flows~~period ended April 30, 2023. ~~The~~Results ~~Company’s~~for ~~comparative~~reporting periods prior to FY2024 continue to be presented ~~and disclosed~~ in accordance with ~~legacy~~previously ~~guidance~~applicable inGAAP ~~Topic~~while ~~840.~~results ~~Refer~~for tosubsequent ~~Note~~reporting 9periods ~~for~~are ~~additional~~presented ~~information~~under ASC 326.

InNewly ~~August~~Issued ~~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~~Pronouncements ~~Convertible~~Not ~~Instruments~~Yet 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 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 nine-month period ended October 31, 2022.Adopted

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures”, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures”, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. This guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

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,
	2023		2022
United States	$	5,550	$	6,109
International		1,252		579
Total	$	6,802	$	6,688

	Three Months Ended October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
United States	$	5,634	$	6,226	$	17,478	$	17,210
International		1,354		687		2,805		2,155
Total	$	6,988	$	6,913	$	20,283	$	19,365

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

2. Revenue

Product, Subscription and Support Revenue

The Company sells a collective defense software solution that is comprised of ~~two~~three product offerings, IronDefense, IronDome, and ~~IronDome~~IronRadar. ~~The~~Through December 2022, the software platform iswas delivered through both on-premises licenses bundled with on-premises hardware and through subscription software. ~~During~~The ~~the three months ended October 31, 2022, the~~ Company ~~launched~~stopped ~~IronRadar,~~offering aon-premises ~~new~~deployment ~~product~~options ~~intended~~in toDecember ~~broaden our market reach to companies of all sizes that is delivered via subscription software~~2022.

~~Our~~The security appliance deliverables include proprietary operating system software and hardware together with regular threat intelligence updates and support, maintenance, and warranty. WeThe ~~combine~~Company combines 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~~the cybersecurity solution. The Company recognizes 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~~the Company's contracts.

Revenue from subscriptions, which allow customers to use ~~our~~the Company's security software over a contracted period without taking possession of the software, and managed services, where wethe ~~provide~~Company provides managed detection and response services for customers, is recognized over the contractual term. The cloud- based subscription revenue, where wethe Company also ~~provide~~provides hosting, recognized for the three months ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022 was $5,~~651~~777 and $35,~~792~~215, respectively~~, and for the nine months ended October 31, 2022 and 2021 were $16,069 and $10,993, respectively~~. Overall product, subscription, and support revenue recognized for the three months ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022, ~~was~~were $6,~~674~~663 and $6,~~132~~443, respectively~~, and for the nine months ended October 31, 2022 and 2021 was $19,331 and $18,038, 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. Revenue recognized from professional services for the three months ended April 30, 2023 and 2022, were $139 and $245, respectively.

Customer Concentration

For the ~~nine~~three months ended ~~October~~April 3130, ~~2022~~2023, ~~two~~3 customers accounted for 2337%, or $42,~~534,~~374 of the Company's revenue, and for the ~~nine~~three months ended ~~October~~April 3130, ~~2021~~2022, two customers accounted for 22%, or $41,~~283~~463, of the Company’s revenue. ~~Two~~As of April 30, 2023 and January 31, 2023, two customers represented 5172% and 4956% of the total accounts receivable balance, asrespectively. ofCustomer ~~October~~B ~~31,~~elected ~~2022~~not ~~and~~to ~~January~~renew ~~31,~~the ~~2022,~~contract ~~respectively~~with the Company that ended in September 2023. The Company continues to pursue a subsequent contract with Customer B.

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 MonthsEnded October 31,						For the Nine MonthsEnded October 31,
	For the Three Months Ended April 30,
	2022			2021			2022			2021
	2023		2022
Customer A	12%	13	11%		11	%		12	%		11	%
Customer B	11%	10	11%		12	%		11	%		11	%
		23	%		23	%		23	%		22	%
Customer C	14%		*
	37%		22%

* - 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 ~~contract fulfillment~~ costs are as follows:

Balance at February 1, 2021	$	2,805
Balance at February 1, 2023	$	4,362
Amounts recognized in cost of revenue		(~~1,033~~640	)
Costs deferred		~~473~~18
Foreign exchange		(3	)
Balance at April 30, 2023	$	3,740
Balance at October 31, 2021	$	2,242
Balance at February 1, 2022	$	4,604
Amounts recognized in cost of revenue		(~~9,294~~610	)
Costs deferred		~~9,640~~100
Balance at October 31, 2022	$	4,950
Balance at April 30, 2022	$	4,094

Capitalized costs are included in deferred costs on the consolidated balance sheet, of which $2,110 is current and $1,630 is long-term as of April 30, 2023. The balance of deferred commissions at ~~October~~April 3130, ~~2022~~2023 and January 31, ~~2022~~2023 were $1,~~997~~420 and $1,~~238~~751, respectively. Deferred commissions are included in the deferred costs on the condensed consolidated balance sheets, of which $~~894~~908 is current and $~~1,103~~511 is long-term as of ~~October~~April 3130, ~~2022~~2023.

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:

1012

Balance at February 1, 2021	$	34,044
Balance at February 1, 2023	$	27,141
Revenue recognized		(236,~~687~~802	)
Amounts deferred		236,~~944~~516
Foreign exchange		(12	)
Balance at April 30, 2023	$	26,855
Balance at October 31, 2021	$	34,289
Balance at February 1, 2022	$	33,566
Revenue recognized		(206,~~283~~680	)
Amounts deferred		1611,~~952~~645
Balance at October 31, 2022	$	30,235
Balance at April 30, 2022	$	38,531

Of the revenue recognized in the three months ended April 30, 2023 and 2022, $5,806 and $5,934 was included in deferred revenue as of January 31, 2023 and 2022, respectively.

Remaining Performance Obligations

As of ~~October~~April 3130, ~~2022~~2023, the ~~Company's~~ remaining performance obligations totaled $4134,~~489.~~682 The Company’s ~~future~~ recognition of revenue in the future thereon will be ~~as follows~~in:

Years Ending January 31,
2023 (3 months)	$	7,271
2024 (9 months)	$	16,960
2024		19,426
2025		13,366
2025		12,137
2026		3,817
2026		2,655
2027		539
	$	4134,~~489~~682

3. ~~Restructuring~~Equity

On September 14, 2022, the Company announced its plans to undertake a restructuring to reduce headcount by approximately 28%, which resulted in a reduction of approximately 71 positions. In connection with this action, the Company recorded total pre-tax charges of $11,043 during the three months ended October 31, 2022, which includes $655 related to one-time severance payments, which were paid in cash during the quarter ended October 31, 2022, as well as non-cash stock-based compensation expense of $10,388. This amount is comprised of $10,873 of non-cash accelerated vesting of restricted stock units, offset by forfeitures of $(486).

4. Equity

Common Stock

As of ~~October~~April 3130, ~~2022~~2023, the Company had 500,000 shares of common stock authorized and ~~103~~111,~~708~~776 shares of common stock issued and outstanding, with a par value of $0.0001 per share.

Each share of Common Stock has 1 vote.

Tumim Common Stock Purchase Agreement

On February 11, 2022, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with 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. The Commitment Fee qualifies as a derivative asset under ASC 815-40 Derivatives and Hedging — Contracts in Entity's Own Equity and was established as an asset on the condensed consolidated balance sheet, which will be adjusted over the period of the agreement to reflect fair value, with changes in fair value being recognized as a component of other expense. The Commitment Fee is measured at fair value categorized within Level 3 of the fair value hierarchy and the value derived was not determined to be material. Changes in fair value of the Commitment Fee ~~during~~for ~~the~~ three ~~and nine~~ months ended ~~October~~ 31April 30, ~~2022~~2023 of $~~420~~195 was recognized in other expense in the condensed consolidated statement of operations. As of ~~October~~April 3130, ~~2022~~2023, the ~~fair value of the~~ Commitment Fee onhas ~~the~~no ~~condensed consolidated balance sheet was $1,330~~value. ~~The Company also incurred $96 in transaction costs related to the issuance of the Purchase Agreement, which was recognized in other expense on the condensed consolidated statement of operations.~~

AsThere ofwere ~~October 31, 2022, there had been~~ no purchases of common stock under the Purchase Agreement. ~~Subsequent~~during tothe ~~October~~three ~~31,~~months ~~2022,~~ended ~~the~~April ~~Company sold 1~~30,~~762~~ ~~shares~~2023 toand ~~Tumim~~April ~~under~~30, ~~the~~2022. ~~Purchase~~As ~~Agreement~~of ~~for~~April ~~gross~~30, ~~proceeds~~2023, ofthe ~~$586. The~~ Company iswas not ~~currently~~ able to raise additional funds under the equity line with Tumim.

Subsequently, on June 16, 2023, Tumim notified the Company of Tumim’s election to terminate the Purchase Agreement, effective as of June 20, 2023. See Note 1, including under the heading “— Liquidity and Going Concern” and Note 13, Subsequent Events, for additional information.

Preferred Stock

11The 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, 2023, there were no shares of preferred stock issued or outstanding.

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 October 31, 2022, there were no shares of preferred stock issued or outstanding.

Public Warrants

~~Public~~On ~~Warrants~~November ~~may~~12, ~~only~~2019, beLegacy ~~exercised~~LGL ~~for~~sold a17,250 ~~whole~~units ~~number of shares~~ at a price of $1110.5000 per ~~share.~~unit No(the ~~fractional~~“Units”) ~~shares~~in ~~will~~its beInitial ~~issued~~Public ~~upon~~Offering, which included the full exercise by the underwriters of the ~~Public~~over-allotment ~~Warrants~~option to purchase an additional 2,250 units. ~~The~~Each ~~Public~~Unit ~~Warrants~~consisted ~~became~~of ~~exercisable~~one inshare ~~September~~of ~~2021~~Legacy LGL Class A common stock, par value $0.0001 per share, and ~~expire~~one-half inof ~~August~~one ~~2026~~warrant orto ~~earlier~~purchase ~~upon~~one ~~redemption~~share orof ~~liquidation~~Legacy LGL Class A common stock (the “Public Warrants”).

~~The~~Public ~~Company~~Warrants may ~~redeem~~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 will expire five years after the completion of the Merger or earlier upon redemption or liquidation.

Once the Public Warrants became exercisable upon the effective date of the Company's S-1 registration statement filed in September 2021, the Company obtained the ability to redeem the Public Warrants:

•

in whole and not in part;

•

at a price of $0.01 per warrant;

•

upon not less than 30 days’ prior written notice of redemption; and

•

if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like and subject to adjustment as described below) for any 20 trading days within a 30-trading day period ending on the third business day prior to the notice of redemption to the warrant holders.

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 ~~October~~April 3130, ~~2022~~2023, the Company had 8,596 Public Warrants outstanding and not exercised.

54. 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, and on February 1, 2023, the number of shares that can be issued under the 2021 plan increased by 5,818 shares, with a new limit following the ~~increase~~increases of 1824,~~434~~252 shares.

As of ~~October~~April 3130, ~~2022~~2023, 815,~~627~~604 ~~shares~~share equivalents remained available to issue under the 2021 Plan.

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

The exercise price of each ~~ISO~~stock option granted under the Stock Incentive Plans may not be less than the fair market value per share of the underlying Class A 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 the status of the 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
Outstanding at February 1, 2023		530		$	0.56		3.8	$	773
Granted		-—			-—		-—		-—
Exercised		~~(420~~—	)	$	~~0.52~~—		~~4.2~~—		~~631~~—
Forfeited or expired		(8765	)	$	0.7736		42.39		-—
Outstanding at October 31, 2022		810		$	0.53		4.1	$	1,203
Outstanding at April 30, 2023		465		$	0.59		3.6	$	—
Exercisable at October 31, 2022		810		$	0.53		4.1	$	1,203
Exercisable at April 30, 2023		465		$	0.59		3.6	$	—

For the three months ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022, the Company recorded no compensation cost and ~~$8 of compensation cost related to stock options, respectively. For the nine months ended October 31, 2022 and 2021, the Company recorded~~ an insignificant amount ~~and $40~~ of compensation cost related to stock options, respectively. The fair value of the shares under stock options granted that vested during the ~~nine~~three month periods ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022 totaled $20 and $5,~~306,~~ respectively.

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.

12The contractual term of the option ranges from the one to ten years. Expected volatility is the average volatility over the expected terms of comparable public entities from the same or similar industry as a substitute for the historical volatility of the Company’s common shares, which is not determinable without an active external or internal market. The risk-free interest rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has not historically distributed dividends and does not expect to distribute any dividends.

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.

As the closing of the Merger represented the satisfaction of the liquidity event vesting requirement for outstanding RSUs, and vesting was not probable until that time, all RSUs issued prior to the completion of the Merger were re-valued at the date of the Merger using the closing share price on that date. All RSUs were assigned a fair value of $12.85 per share. 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.

value of $12.85 per share. 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.

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
Non-vested at February 1, 2023		4,361		$	6.76
Granted		~~9,681~~—		~~3.36~~	—
Vested		(~~7,492~~351	)		8.8631
Forfeited or expired		(~~5,463~~417	)	34.4147
Non-vested at October 31, 2022		7,036		$	5.00
Non-vested at April 30, 2023		3,593		$	3.35

For the three months ended ~~October~~April 3130, ~~2022~~2023, the Company recorded $~~14,495~~999 of stock-based compensation expense, net of actual forfeitures, related to RSUs, of which ($~~2,684~~290) is associated with RSUs on a graded vesting schedule and $111,~~811~~289 is associated with RSUs on a straight-line vesting schedule. For the ~~nine~~three months ended ~~October~~April 3130, 2022, the Company recorded $3311,~~075~~441 of stock-based compensation expense, net of actual forfeitures, related to RSUs, of which $158,~~630~~588 is associated with RSUs on a graded vesting schedule and $172,~~445~~853 is associated with RSUs on a straight-line vesting schedule. For the three and nine months ended October 31, 2021, the Company recorded $129,921 of stock-based compensation expense, net of actual forfeitures, related to RSUs, all of which is associated with RSUs on a graded vesting schedule.

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, which have only service vesting conditions, ~~and~~is ~~expense will be~~ recognized on a straight-line basis ~~for~~over ~~all~~the ~~RSU~~vesting ~~awards with only service conditions~~period. 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. ~~Refer to Note 7 for additional information.~~

As of ~~October~~April 3130, ~~2022~~2023, there was $2310,~~061~~057 of unrecognized compensation cost related to unvested RSUs without performance obligations. The weighted average remaining vesting period was 2.7331 years.

~~Employee~~5. Fair ~~Stock~~Value ~~Purchase Plan ("ESPP")~~Measurements

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) 2,700 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. On February 1, 2023, the number of shares of common stock reserved for issuance under the ESPP increased by 1,115 shares. The new limit following the increase was 4,704 shares.

As of October 31, 2022, there were no purchases of shares for any eligible employee.

6. 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.”

On September 15, 2022, the Company issued the Convertible Note. Pursuant to the terms of the Convertible Note, under certain circumstances the Company may be required to redeem all or a portion of the Convertible Note in cash~~, as disclosed in Note 10~~. The convertible feature is measured at fair value categorized within Level 3 of the fair value hierarchy, with the fair value determined to be $774 on the date of issuance, which was determined to not be material. The fair value of the convertible feature was determined based on management assumptions and quotes received from financial institutions for obtaining additional debt financing. ~~There~~As of April 30, 2023, the fair value of the convertible feature was ~~not~~$559. ~~determined~~The toCompany berecognized anon-cash ~~material~~income ~~change~~of in$112 related to the change in fair value of the convertible feature ~~from~~during the ~~date~~three ofmonths ~~issuance~~ended ~~through~~April ~~October 31~~30, ~~2022~~2023.

13During the fiscal year ended January 31, 2023, the Company issued two senior secured convertible promissory notes to C5 in the amount of $5,000. During the three months ended April 30, 2023, the Company issued three additional senior secured promissory notes to C5 in the amount of $6,845. These senior secured convertible promissory notes all may require the Company to convert all or a portion of the principal and accrued and unpaid interest into shares of redeemable stock at the option of the holder up to five calendar days prior to maturity. The convertible feature is measured at fair value categorized within Level 3 of the fair value hierarchy, with the fair value of the convertible feature related to the two senior secured convertible promissory notes issued during the year ended January 31, 2023 determined to be $63. The convertible feature related to the three senior secured convertible promissory notes during the three months ended April 30, 2023 was determined to have no value as of April 30, 2023. The Company made this determination using a Black-Scholes option-pricing model. The Company recognized non-cash income of $63 related to the change in fair value of the convertible features during the three months ended April 30, 2023.

AsDuring ~~discussed~~the infiscal ~~Note~~year 4ended January 31, 2023, the Company established a derivative asset related to the Commitment Fee incurred when entering into the Securities Purchase Agreement with 3i, which is measured at fair value categorized within Level 3 of the fair value hierarchy, with the value determined to not be material. As of April 30, 2023, the Commitment Fee has no value.

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 ~~October~~April 3130, 2023 and 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 ~~and liabilities~~ measured at fair value on a recurring basis:

	October 31, 2022								January 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	6	$	—	$	—	$	6	$	102	$	—	$	—	$	102
Commitment Fee	$	—	$	—	$	1,330	$	1,330
Total financial assets	$	6	$	—	$	1,330	$	1,336	$	102	$	—	$	—	$	102
Liabilities
Warrants	$	—	$	1	$	—	$	1	$	—	$	7	$	—	$	7
Conversion option	$	—	$	—	$	774	$	774	$	—	$	—	$	—	$	—
Total financial liabilities	$	—	$	1	$	774	$	775	$	—	$	7	$	—	$	7

7. Supplemental Balance Sheet Information


	April 30, 2023								January 31, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	6	$	—	$	—	$	6	$	6	$	—	$	—	$	6
Commitment Fee	$	—	$	—	$	—	$	—	$	—	$	—	$	195	$	195
Total financial assets	$	6	$	—	$	—	$	6	$	6	$	—	$	195	$	201
Liabilities
Warrants	$	—	$	0	$	—	$	0	$	—	$	—	$	—	$	0
Conversion options	$	—	$	—	$	559	$	559	$	—	$	—	$	734	$	734
Total financial liabilities	$	—	$	0	$	559	$	559	$	—	$	—	$	734	$	734

The following table presents a summary of the changes in the fair value of the Company's Level 3 financial instruments:


	Convertible Notes Derivative Liability			C5 Notes Derivative Liability			Commitment Fee Derivative Asset
Fair Value as of January 31, 2023	$	671		$	63		$	195
Change in fair value		(112	)		(63	)		(195	)
Fair value as of April 30, 2023	$	559		$	-		$	-

The Company did not hold any Level 3 financial instruments as of April 30, 2022.

6. Supplemental Balance Sheet Information

Accrued Expenses

Accrued expenses consisted of the following:

	October 31,		January 31,
	April 30,		January 31,
	2022		2022
	2023		2023
Accrued expenses	$	~~901~~1,286	$	~~2,438~~976
Taxes payable on behalf of employees related to vested RSUs		76,~~261~~774		-6,987
Unvouched payables		1,632		2,271
Estimated additional taxes payable related to vested RSUs		468		-
	$	9,794	$	4,709
Unvouched payables		1,156		2,010
	$	9,684	$	9,973

The ~~increase~~balance inof accrued expenses as of April 30, 2023 and January 31, 2023 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. The Company made payments of $6,335 to the Internal Revenue Service ("IRS") during May 2023 to cover the portion owed to taxing authorities. In September 2023, a refund of $1,405 was received for overpayment of taxes due,

87. 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.

98. 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 no active leases that have a renewal option that is reasonably certain of being exercised.

The Company holds leases that include both lease (e.g., payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs). As the Company has elected the practical expedient to group lease and non-lease components for all leases, these are accounted for as a single lease component. The Company's leases do not include any residual value guarantees or material restrictive covenants.

Lease expense for both operating and finance leases is recognized on a straight-line basis over the lease term and is recorded in operating expenses on the ~~condensed~~ consolidated statements of operations. Interest expense incurred on finance lease liabilities is calculated using the effective interest method and is recorded in interest expense on the ~~condensed~~ consolidated statements of operations.

14The lease balances are located in the following positions on the consolidated balance sheet.

In March 2022, the Company entered into a lease agreement to lease certain computer and technology equipment, which has not commenced. The Company does not believe the ROU asset will be material. The Company does not have control over the construction or design of these assets.


	Balance Sheet Location	April 30, 2023		January 31, 2023
Assets
Operating	Deposits and other assets	$	1,780	$	1,885
Financing	Property and equipment, net		172		205

Liabilities
Current
Operating	Other current liabilities	$	622	$	607
Financing	Other current liabilities		131		130
Non-current
Operating	Other long-term liabilities		1,883		2,047
Financing	Other long-term liabilities		72		81

~~The~~Total lease ~~balances~~costs ~~are~~for ~~located in~~ the ~~following~~three ~~positions~~months onended ~~the~~April ~~condensed~~30, ~~consolidated~~2023 ~~balance~~and ~~sheet~~2022 were:

	Balance Sheet Location	October 31, 2022
Assets
Operating	Deposits and other assets	$	1,988
Financing	Property and equipment, net		114
Liabilities
Current
Operating	Other current liabilities	$	593
Financing	Other current liabilities		95
Non-current
Operating	Other long-term liabilities		2,202
Financing			-

Total lease costs for the three and nine months ended October 31, 2022 were:


	Three Months Ended		Three Months Ended
	April 30, 2023		April 30, 2022
Operating lease cost	$	146	$	341
Short-term lease cost		626		542
Variable lease cost		24		46
Finance lease cost:
Amortization of right-of-use assets		32		23
Interest on lease liabilities		4		1
Total finance lease cost	$	36	$	24

	Three Months Ended		Nine Months Ended
	October 31, 2022		October 31, 2022
Operating lease cost	$	222	$	815
Short-term lease cost		447		1,630
Variable lease cost		13		60
Finance lease cost:
Amortization of right-of-use assets		23		68
Interest on lease liabilities		1		4
Total finance lease cost	$	24	$	72

The following table summarizes future scheduled lease payments as of April 30, 2023:

The following table summarizes future scheduled lease payments as of October 31, 2022:


	Operating Leases		Finance Leases
Remaining nine months of fiscal 2024		566		132
2025		775		48
2026		797		45
2027		658		-
Total	$	2,796	$	225
Less: Imputed Interest		291		22
Present value of net lease payments	$	2,505	$	203

Lease liability, current portion		622		131
Lease liability, net of current portion		1,883		72
Total lease liability	$	2,505	$	203

	Operating Leases		Finance Leases
Remaining three months of fiscal 2023	$	184	$	-
2024		755		96
2025		775		-
2026		797		-
2027		657		-
Total		3,168		96
Less: Imputed Interest		373		1
Present value of net lease payments	$	2,795	$	95
Lease liability, current portion	$	593	$	95
Lease liability, net of current portion		2,202		-
Total lease liability	$	2,795	$	95

Supplemental information and non-cash activities related to operating and finance leases as of April 30, 2023 and 2022 are as follows:

Supplemental information related to operating and finance leases are as follows:


Cash paid for amounts included in the measurement of lease liabilities as of April 30, 2023
Operating cash flows from operating leases	$	189
Operating cash flows from finance leases		4
Financing cash flows from finance leases		12
	$	205
Weighted average remaining lease term (in years)
Operating leases		3.58
Finance leases		1.80
Weighted average discount rate
Operating leases		6.36	%
Finance leases		9.95	%

Cash paid for amounts included in the measurement of lease liabilities
Cash paid for amounts included in the measurement of lease liabilities as of April 30, 2022
Operating cash flows from operating leases	$	$416	~~950~~
Operating cash flows from finance leases		1	4
Financing cash flows from finance leases		96	96
	$	$513	~~1,050~~
Weighted average remaining lease term (in years)
Operating leases		4.33	~~4.08~~
Finance leases		1.75	~~1.25~~
Weighted average discount rate
Operating leases		6.36	~~6.36~~%	%
Finance leases		5.67	~~5.67~~%	%

~~Disclosures~~On ~~Related~~November to30, ~~Periods~~2023, ~~Prior~~the toCompany ~~Adoption~~terminated of the ~~New~~lease ~~Lease~~for ~~Standard~~and vacated its McLean Virginia headquarters. See Note 13, Subsequent Events, for additional information.

~~The Company recorded rent expense of $257 and $849 for the three and nine months ended October 31, 2021, respectively~~9. Debt

The minimum aggregate future obligations under noncancelable operating leases as of January 31, 2022 were as follows:

Year ending January 31,
2023	$	1,025
2024		755
2025		775
2026		797
2027		658
	$	4,010

As the Company did not hold finance leases as of January 31, 2022, there were no future minimum lease payments under finance leases at that time.

10. Convertible Debt

5% Convertible Promissory Notes due 2024

On September 14, 2022, the Company entered into the SPA with 3i, under which the Company agreed to sell and issue Convertible Notes to 3i in an aggregate principal amount of up to $25,750, which are convertible into shares of the Company's common stock, subject to certain conditions. On September 15, 2022, the Company issued a Convertible Note under the SPA in the principal amount of $10,300, including a 3% Original Issue Discount ("OID"), with an 18-month term. ~~Upon~~As of April 30, 2023, the ~~satisfaction~~Company prepaid approximately $2,747 of ~~additional~~the ~~conditions~~Convertible ~~set~~Notes ~~forth~~to in3i and, as a result, approximately $7,553 principal amount of the ~~SPA~~Convertible ~~that~~Note ~~have~~was ~~not~~outstanding ~~been~~as ~~met,~~of the end of the period. The Company ~~may~~subsequently ~~issue~~repaid ana ~~additional~~total of $3,320 of the Convertible Note in ~~the~~May and June 2023 and, as a result, approximately $4,233 in principal ~~amount~~remained outstanding thereafter. As of ~~$15~~the date of this report,~~450~~ atthe aconditions ~~second~~to ~~closing~~the additional borrowing have not been met. See Note 13, Subsequent Events, for additional information, including with respect to events of default under the Convertible Notes.

The Convertible Notes bear interest at an annual rate of 5.00% per annum, payable monthly on the first of each month (the "Installment Date"), beginning the first month that is 90 days following the issuance date, payable in cash and/or shares of the Company's common stock, at the Company's option. The interest rate will increase to an annual rate of 10.00% per annum upon the occurrence and during the continuance of an event of default as defined in the Convertible Notes. Each Convertible Note issued pursuant to the SPA will have a maturity date of 18 months from the date of issuance, which may be extended at the option of 3i in certain instances.

The Convertible Notes provide a conversion right pursuant to which 3i may convert any portion of the principal, together with any unpaid interest and other unpaid amounts, into shares of common stock at a conversion price of $7.50 per share, subject to adjustments in accordance with the terms of the Convertible Notes. The Convertible Note also contains provisions that provide 3i with the right, subject to certain exceptions, to require the Company to redeem all or a portion of the Convertible Note in cash. This convertible feature has been bifurcated from the host contract and accounted for separately as a derivative. The bifurcation of the embedded derivative created a debt discount of $774 which reduced the book value of the $10,300 Convertible Note and increases prospectively the amount of interest expense to be recognized over the life of the Convertible Note. Due to the provisions that may provide 3i with the right to require the Company to redeem all or a portion of the Convertible Note in cash, the balance of the Convertible Note is included in current liabilities on the ~~condensed~~ consolidated balance sheet. As of ~~October~~April 3130, ~~2022~~2023, the ~~carrying~~fair value of the Convertible ~~Note~~Notes ~~approximated~~was ~~fair~~approximately ~~value~~$5,032 based on Level 3 inputs.

On each monthly Installment Date, the Company shall repay the lesser of $687 and the principal amount then outstanding, plus accrued and unpaid interest, in cash and/or shares of common stock, at the Company’s option (the "Installment Amount"). In certain instances, but no more than once per calendar month, 3i will also have the right to accelerate the repayment of one monthly repayment obligation based on the conversion price on the acceleration date. For any Installment Amount paid in the form of shares of common stock, the applicable conversion price will be equal to the lesser of (a) $7.50, and (b) the greater of (x) 95% of the lowest VWAP in the five trading days immediately prior to such conversion, and (y) a “floor price” of approximately $0.44, subject to adjustment in accordance with the terms of the Convertible Notes. For any Installment Amount paid in cash, the price paid will be equal to 105% of the Installment Amount.

Interest expense for the three and nine months ended October 31, 2022 was $144, which was a result of effective interest of $64 incurred under the $10,300 Convertible Note using an effective interest rate of 11.9%, as well as $80 in interest expense related to the amortization of related debt issuance costs of $284 and OID of $300. The Company also recognized interest expense of $106 related to the accretion of the debt discount created by the embedded conversion feature. 17

accelerate the repayment of one monthly repayment obligation based on the conversion price on the acceleration date. For any Installment Amount paid in the form of shares of common stock, the applicable conversion price will be equal to the lesser of (a) $7.50, and (b) the greater of (x) 95% of the lowest VWAP in the five trading days immediately prior to such conversion, and (y) a “floor price” of approximately $0.44, subject to adjustment in accordance with the terms of the Convertible Notes. For any Installment Amount paid in cash, the price paid will be equal to 105% of the Installment Amount. The proceeds received from the Convertible Notes were used to fund general corporate and working capital needs.

During the three months ended April 30, 2023, the Company paid two of the Installment Amounts due in cash.

As of April 30, 2023, the effective interest rate on the Convertible Notes was 16.4%. The Company failed to pay Installment Amounts in December 2022 and April 2023, which qualifies as an event of default per the Convertible Notes, and has resulted in the Company incurring interest at a rate of 10.0% per annum since the original event of default. Interest expense for the three months ended April 30, 2023 related to the Convertible Notes was $659, which was a result of effective interest of $348 incurred under the $10,300 Convertible Note, as well as $134 in interest expense related to the amortization of related debt issuance costs and OID and $177 of interest expense related to the accretion of the debt discount created by the embedded conversion feature. Interest expense is included in interest expense in the condensed consolidated statement of operations.

The following table presents the components of the Convertible Notes:

	October 31, 2022
	April 30, 2023
Convertible Promissory Notes	$	9,632
3i Convertible Promissory Notes	$	7,274
Less: unamortized original issue discount and issuance costs		(~~504~~209	)
	$	97,~~128~~065

~~11. Income~~See ~~Taxes~~Note 13, Subsequent Events, for additional information.

~~The~~Promissory ~~income~~Notes ~~tax~~with provision for interim periods is determined using an estimate of the Company’s annual effective tax rate as adjusted for discrete items arising in that quarter. The effective income tax rate was (0.0)% for the nine months ended October 31, 2022 and (0.0)% for the nine months ended October 31, 2021. The effective tax rate differs from the U.S. statutory rate primarily due to the full valuation allowances on the Company’s net domestic deferred tax assets and impact of foreign tax rate differential.Directors

12In December 2022, the Company issued and sold secured promissory notes in an aggregate principal amount of $6,900 (the “Initial Director Notes”) to a total of eight lenders, including seven lenders who are either directors of the Company or entities affiliates with directors of the Company. ~~Related~~ ~~Party~~At ~~Transactions~~the time of issuance of the Initial Directors Notes, each of the holders of the Director Notes executed a Security Agreement, under which the Company’s obligations under the Initial Director Notes were secured by substantially all of the assets of the Company, excluding the Company’s intellectual property. The Director Notes, together with the C5 Notes described below, rank senior in right of payment to any of the Company’s existing and future indebtedness for borrowed money.

On January 11, 2023, the Company and the holders agreed to amend and restate the Initial Director Notes to be substantially in the form of the secured promissory notes issued to C5 and discussed below (the “Director Notes”). As amended and restated, the Director Notes bear interest at a rate of 13.8% per annum from the respective dates of the Initial Director Notes. On April 20, 2023, the Company issued and sold an additional Director Note in the amount of $300 to one of the initial lenders from the December 2022 issuances who is not affiliated with the board of directors. As of April 30, 2023, there is $7,200 in Director Notes outstanding. All principal and accrued interest was originally due and payable at scheduled maturity on June 30, 2023. 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. Upon issuance of the Director Notes, each of the holders executed an Amended and Restated Security Agreement which secure the Company’s obligations under the Director Notes by substantially all of the assets of the Company, excluding the Company’s intellectual property. The proceeds received from the Director Notes will be used to fund general corporate and working capital needs, including for purposes of remitting amounts due to taxing authorities for tax withholdings received for RSUs settled under the sell-to-cover method. As of April 30, 2023, the fair value of the Director Notes was approximately $4,894 based on Level 3 inputs. Interest expense for the three months ended April 30, 2023 was $237 and is included in interest expense in the condensed consolidated statement of operations.

As of January 29, 2024, there is $8,475 in principal amount of Director Notes outstanding. See Note 13, Subsequent Events, for additional information.

Convertible Promissory Notes with C5

On December 30, 2022, the Company issued a secured convertible promissory note in the principal amount of $2,000 (the “Initial C5 Note”) to an affiliate of C5, which was amended and restated on January 11, 2023 (as amended and restated, the “Restated C5 Note”). The Company issued additional senior secured convertible promissory notes to affiliates of C5 (together with the Restated C5 Note, the “C5 Notes”) in total principal amounts of $3,000 in fiscal 2023, $6,845 during the three months ended April 30, 2023, and $3,430 thereafter. As of April 30, 2023, the Company had issued secured convertible promissory notes to C5 in the amount of $11,845.

Each of the C5 Notes bear interest at an annual rate of 13.8% per annum from the date of issuance (or in the case of the Restated C5 Note, from the date of the Initial C5 Note), and was originally payable at scheduled maturity on June 30, 2023, subject to acceleration in certain circumstances. 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. The C5 Notes, together with the Director Notes, rank senior in right of payment to any of the Company’s existing and future indebtedness for borrowed money. The Company’s obligations under the C5 Notes are secured by substantially all of the assets of the Company, excluding the Company’s intellectual property, as governed by an Amended and Restated Security Agreement executed by C5 on January 4, 2023.

The C5 Notes provide C5 with the right, at any time on or after the date that is five calendar days prior to maturity, to convert all or any portion of the aggregate principal amount of the C5 Notes, together with any accrued and unpaid interest and any other unpaid amounts, into shares of the Company’s common stock, par value $0.0001 per share, at a conversion price of $2.00 per share. In the event that any shares of common stock are issued upon conversion of the C5 Notes, the Company has agreed to grant specified registration rights to C5.

The convertible feature included within the C5 Notes issued through January 31, 2023 was bifurcated from the host contract and accounted for separately as a derivative. The bifurcation of the embedded derivative created a debt discount of $63, which reduced the book value of the $5,000 C5 Notes outstanding at January 31, 2023 and increases prospectively the amount of interest expense to be recognized over the life of the C5 Notes. The convertible features for the C5 Notes issued during the quarter ended April 30, 2023 were determined to have no value and were not bifurcated from the host contract as separate derivatives. Refer to Note 5 for more information. The proceeds received from the C5 Notes have been used to fund general corporate and working capital needs.

As of April 30, 2023, the fair value of the C5 Notes is approximately $8,051 based on Level 3 inputs. Interest expense related to the C5 Notes for the three months ended April 30, 2023 was $352. The Company also recognized interest expense of $32 related to the accretion of the debt discount created by the embedded conversion feature included within the C5 Notes issued through January 31, 2023, which is included in interest expense in the condensed consolidated statement of operations.

As of January 29, 2024, there was $15,275 of C5 Notes outstanding. See Note 13, Subsequent Events, for additional information.

Debt Repayments

The following are scheduled principal repayments on debt, including convertible notes which can be settled in shares as of April 30, 2023, however the balances presented are classified as current in the consolidated balance sheet:


Fiscal year ending,	Principal
2024 (9 months)	$	25,911
2025		687
Total	$	26,598

The Company had accrued interest liabilities of $905 and $181 as of April 30, 2023 and January 31, 2023, respectively.

See Note 13, Subsequent Events, for additional information relating to the Company’s indebtedness subsequent to April 30, 2023, including the events of default currently pending related to all outstanding indebtedness, including as a result of the Chapter 11 Cases.

10. Income Taxes

The income tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate as adjusted for discrete items arising in that quarter. The effective income tax rate was (0.0)% and (0.1)% for the three months ended April 30, 2023 and 2022, respectively. The effective tax rate differs from the U.S. statutory rate primarily due to the full valuation allowances on the Company’s net domestic deferred tax assets and impact of foreign tax rate differential.

11. Related Party Transactions

Product, subscription and support revenue from Related Parties

Certain investors and companies who the Company is affiliated with purchased ~~product~~software, subscription and support revenue during the periods presented. ~~The Company recognized $210~~ and ~~$426~~the ~~of revenue from~~ contracts with related parties ~~for the three months~~ ended in October ~~31,~~ 2022. ~~and~~As ~~2021~~such, ~~respectively.~~there ~~The~~was ~~Company~~no revenue recognized ~~$948~~ and $~~1,263~~527 of revenue from contracts with related parties ~~for~~recognized during the ~~nine~~three months ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022, respectively. ~~The~~There ~~corresponding~~is no receivable ~~was~~balance $1as of April 30,~~283~~ as2023. As of ~~October~~January 31, ~~2022~~2023, ~~and~~the corresponding receivable was $~~3,233~~0 asafter ofthe ~~January~~Company ~~31,~~recorded ~~2022~~a full allowance for bad debt of $1,283.

16Indebtedness and Other Transactions

See Note 9 and Note 13~~. Net~~ ~~Loss~~for ~~Per~~additional ~~Share~~information ~~Attributable~~relating to ~~Common~~indebtedness ~~Stockholders~~held by certain affiliates of the Company, including the BOD Notes and C5 Notes.

12. Net Loss Per Share Attributable to Common Stockholders

Net Loss per common share

The Company computes basic earnings (loss) per share (“EPS") by dividing net income (or loss) available to common stockholders by the weighted average number of common shares outstanding for the reporting period. Diluted EPS is computed similarly to basic net earnings per shares, except that it reflects the effect of potential shares that would be issued if stock option awards, ~~RSUs~~restricted stock units, ~~warrants~~convertible notes, warrants and preferred shares, to the extent issued, were converted into or exercised for common stock, to the extent dilutive.

The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders:

	Three Months Ended October 31,						Nine Months Ended October 31,
	Three Months Ended April 30,
	2022			2021			2022			2021
	2023			2022
Numerator: Net loss	$	(329,~~009~~240	)	$	(~~162~~33,~~949~~168	)	$	~~(93,593~~	)	$	~~(195,616~~	)
Denominator: Basic and Diluted Weighted-average shares in computing net loss per share attributable to common stockholders		~~105~~112,~~033~~390			8799,~~178~~305			~~101,925~~			~~74,001~~
Net loss attributable to common stockholders—basic and diluted	$	(0.3008	)	$	(10.8733	)	$	~~(0.92~~	)	$	~~(2.64~~	)

Since the Company was in a net loss position for all periods presented, diluted net loss per share attributable to common stockholders will be the same as the basic net loss per share, as, in a net loss position, the inclusion of all potential common shares outstanding would be antidilutive. The potential shares of common stock excluded from the computation of diluted net loss per share for the periods presented due to their antidilutive impacts are as follows:

	As of October 31, 2022		As of October 31, 2021
	As of April 30, 2023		As of April 30, 2022
Shares of common stock issuable from stock options		~~810~~465		1,~~475~~025
Unvested RSUs		73,~~030~~593		814,~~205~~949
Convertible notes		17,~~373~~029		—
Warrants		8,606		8,606
Potential common shares excluded from diluted net loss per share		1719,~~819~~693		1824,~~286~~580

1413. ~~Deferred~~ Subsequent ~~Payroll Taxes~~Events

InFurlough ~~fiscal~~and ~~year~~Temporary ~~2021,~~Cessation ~~Legacy~~of ~~IronNet~~Business ~~elected~~Prior to ~~defer~~Voluntary ~~the~~Chapter ~~Company's~~11 portion of payroll taxes, as permitted under the CARES Act. 50% of the deferred balance was paid in December 2021, with the remaining 50% due on December 31, 2022. The balance of the payroll tax deferral is $689 as of October 31, 2022 and is included in other current liabilities on the condensed consolidated balance sheet. This payroll tax deferral was repaid in full in December 2022.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. ~~Retirement~~ ~~Plans~~in the aggregate principal amount of $556 outstanding as of the commencement of the Chapter 11 Cases discussed below (the “Korr Note”).

~~The~~DIP ~~Company~~Facility ~~provides a retirement savings plan for the benefit of its employees, including its executive officers. The plan is intended to qualify as a tax-qualified 401(k) plan so that contributions,~~ and ~~income~~Chapter ~~earned~~11 on such contributions, are not taxable to participants until withdrawn or distributed from the plan (except in the case of contributions under the 401(k) plan designated as Roth contributions). The 401(k) plan provides that each participant may contribute up to an annual statutory limit. Participants who are at least 50 years old can also contribute additional amounts based on statutory limits for “catch-up” contributions. Under the plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee as directed by participants. The Company also fully matches employee contributions up to the first 4% of salary, which amounts are fully vested.Cases

1719

~~16. Subsequent~~DIP ~~Events~~Facility

~~Secured~~On ~~Convertible~~October ~~Promissory~~10, ~~Note~~2023, ~~Financings~~the Debtors, and the DIP Facility Lender entered into a binding Term Sheet, which sets forth the principal terms of the DIP Documents, pursuant to which the DIP Facility Lender would provide the Company with ~~Directors~~a senior (priming) secured and C5superpriority 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 DIP Term Loans of up to $8,500 and a Bridge Amount of $1,500, 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.

~~Between~~Upon ~~December~~the ~~14,~~execution ~~2022~~of ~~and~~the ~~December~~Term 16Sheet, ~~2022,~~ the ~~Company~~DIP ~~issued~~Facility ~~and~~Lender ~~sold~~had ~~senior~~advanced ~~secured~~the ~~promissory~~Bridge ~~notes~~Amount ~~in an aggregate principal amount~~ of $61,~~900~~499 ~~(the “Initial Director Notes”)~~ to ~~a total of eight lenders, which included seven lenders who are either~~ the Company’s. ~~directors~~The orBridge ~~entities~~Amount ~~affiliated~~is ~~with~~secured ~~the~~by ~~Company’s~~all ~~directors. Subsequently,~~ the ~~Company~~assets ~~and the holders~~ of the ~~Initial Director Notes agreed to amend and restate the Initial Director Notes to be substantially in the form to be issued to C5 as described in the next paragraph (the “Director Notes”)~~Debtors. ~~This~~As ~~amendment~~of ~~and restatement occurred on~~ January 1129, ~~2023.~~2024, ~~The~~the ~~Director~~DIP ~~Notes~~Facility ~~bear~~Lender ~~interest~~had atadvanced aan ~~rate~~aggregate of ~~13.8% per annum from the respective dates of the Initial Director Notes~~$9,999 ~~and~~to the ~~Director Notes are payable at scheduled maturity on June 30, 2023~~Company.

OnVoluntary ~~December~~Filing ~~30,~~under ~~2022,~~Chapter ~~the Company issued a senior secured convertible promissory note in the principal amount of $2,000 (the “Initial C5 Note”) to an affiliate of C5, which was amended and restated on January~~ 11, 2023 (as amended and restated, the “Restated C5 Note”). On January 12, 2023, February 8, 2023, February 27, 2023 and April 13, 2023, the Company issued additional senior secured convertible promissory notes to affiliates of C5 (together with the Restated C5 Note, the “C5 Notes”) in principal amounts of $3,000, $4,000, $2,250 and $595, respectively. Each of the C5 Notes bear interest at a rate of 13.8% per annum from the date of issuance (or in the case of the Restated C5 Note, from the date of the Initial C5 Note), and all such notes are payable at scheduled maturity on June 30, 2023, subject to acceleration in certain circumstances.

On October 12, 2023, the Debtors filed the Chapter 11 Cases. The ~~Company’s~~Debtors ~~obligations~~and their subsidiaries continue to operate their businesses as “debtors-in-possession” under the ~~Director~~jurisdiction ~~Notes~~of the Bankruptcy Court and in accordance with the C5applicable ~~Notes~~provisions ~~are~~of ~~secured~~the byBankruptcy ~~substantially~~Code ~~all~~and orders of the ~~Company’s~~Bankruptcy ~~assets~~Court. The Chapter 11 Cases are currently jointly administered under the caption In re IronNet, ~~excluding~~Inc. ~~its~~et ~~intellectual~~al., ~~property~~Case No. 23-11710 (Bankr. D. Del. 2023).

The C5filing ~~Notes provide C5 with the right, at any time on or after the date that is five calendar days prior to maturity, to convert all or any portion~~ of the ~~aggregate~~petitions ~~principal~~for ~~amount of~~ the C5Chapter ~~Notes,~~11 ~~together~~Cases ~~with~~constituted ~~any~~an ~~accrued and unpaid interest and any other unpaid amounts, into shares of the Company’s common stock at a conversion price of $2.00 per share. In the~~ event ~~that any shares~~ of ~~common~~default ~~stock~~under ~~are~~all ~~issued upon conversion~~ of the C5Outstanding ~~Notes, the Company has agreed to grant specified registration rights to C5~~Indebtedness.

~~Exclusivity~~AWS Reinstatement

OnIn ~~December~~connection ~~22,~~with ~~2022~~the commencement of the Chapter 11 Cases, C5the ~~delivered~~Company filed a ~~non-binding~~number ~~expression~~ of ~~interest~~motions towith the ~~Board~~Bankruptcy inCourt. ~~respect~~Among ofthese was a ~~potential~~motion ~~offer~~authorizing the Debtors to ~~acquire~~enter ~~all~~into ofa reinstatement agreement with Amazon Web Services, Inc. (“AWS”) in order to reinstate and reactivate the ~~outstanding~~cloud ~~common~~computing ~~stock~~services ~~not~~provided ~~presently~~by ~~owned~~AWS (the “Reinstatement Agreement”), which had been previously terminated by AWS following the ~~buyer~~Company’s ~~group~~cessation orof ~~their~~business ~~affiliates~~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 ~~December~~October 2813, ~~2022~~2023, the ~~Company~~Bankruptcy ~~and~~Court C5 entered ~~into~~ an ~~agreement~~interim ~~pursuant~~order toapproving ~~which~~the ~~they~~motion ~~agreed~~authorizing tothe aDebtors ~~mutual~~to ~~exclusivity~~enter ~~period~~into ~~through~~the ~~January~~Reinstatement 31Agreement, ~~2023~~and tothe ~~seek~~Reinstatement Agreement was executed and delivered by IronNet Cybersecurity and AWS. Pursuant to ~~negotiate~~the ~~definitive~~Reinstatement ~~agreements~~Agreement, ~~with~~IronNet ~~respect~~Cybersecurity agreed to aassume ~~potential~~pursuant ~~offer~~to bySection C5365 of the Bankruptcy Code, and agreed to ~~acquire~~be bound by, all of the ~~outstanding~~terms ~~common~~and ~~stock~~conditions of the ~~Company~~Reinstatement ~~not~~Agreement ~~presently~~and ~~owned~~the bycustomer C5agreement between IronNet Cybersecurity and ~~certain~~AWS ofdated ~~its~~March ~~affiliates~~30, 2021 (the “~~Proposed~~AWS ~~Transaction~~Agreement”). ~~Commencement~~Upon payment to AWS of ~~the~~invoice ~~exclusivity~~arrearages ~~period~~and ~~was~~the ~~subject~~September to2023 C5invoice ~~providing~~on ~~the~~October $213,~~000~~ of2023, ~~bridge~~AWS ~~financing~~reinstated inIronNet ~~consideration~~Cybersecurity’s ~~for~~account and the ~~Initial~~AWS C5services ~~Note.~~pursuant ~~Continuation~~to of the ~~exclusivity~~AWS ~~period~~Agreement. ~~after~~Further, ~~January~~pursuant 9to the Reinstatement Agreement, ~~2023~~IronNet ~~was~~Cybersecurity ~~subject~~will tobe C5required ~~entering~~to ~~into~~make ~~additional~~weekly ~~notes~~advance ~~providing~~payments ~~$3,500~~to AWS of ~~additional~~fees ~~bridge~~and ~~financing~~charges byin ~~January~~an 9,amount ~~2023.~~equal ~~Upon~~to ~~receipt~~at least one fourth of the ~~funds~~previous month’s fees and ~~issuance~~charges, ofsubject ~~the~~to ~~Fifth~~certain C5minimum ~~Note~~amounts byspecified in the ~~Company,~~Reinstatement Agreement. Pursuant to the ~~parties~~Reinstatement ~~agreed~~Agreement, toAWS ~~extend~~may suspend the ~~exclusivity~~AWS ~~period~~services ~~until~~under ~~March~~the ~~31,~~Customer ~~2023.~~Agreement ~~While~~if ~~the~~IronNet ~~Company~~Cybersecurity nofails ~~longer~~to ~~remains~~make ~~under~~the ~~contractual~~advance ~~exclusivity~~payments ~~with~~as ~~C5,~~required ~~the~~or ~~Company~~if isit ~~continuing~~does tonot ~~negotiate~~pay ~~definitive~~any ~~agreements~~invoice ~~with~~in C5full ~~with~~within ~~respect~~two tobusiness ~~the~~days ~~Proposed~~of ~~Transaction~~invoice issuance.

~~Audit~~Rehiring ~~Committee~~of ~~Investigation~~Certain Employees

InOn ~~March~~October ~~2023~~13, ~~the Audit Committee of the Company’s Board of Directors concluded an internal investigation~~2023, ~~which~~certain ~~was~~employees ~~originally~~were ~~disclosed~~re-hired inby the Company’s ~~notification~~in ofconnection ~~late filing on Form 12b-25 filed~~ with the ~~SEC~~Chapter on11 ~~December 16, 2022~~proceedings. ~~The~~Hiring ~~Audit~~subsequently ~~Committee,~~occurred ~~assisted~~in bythe ~~independent~~ordinary ~~legal~~course ~~counsel,~~of ~~conducted~~business anand ~~investigation~~as of ~~allegations~~January ~~raised~~29, in2024, ~~a letter to~~ the Company byhad a28 ~~former~~active ~~employee~~employees. ~~The investigation determined that the claims were unsubstantiated.~~

18First 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 will apply ASC 852 in preparing the 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. For clarity, the financial statements included in this report for the period ended April 30, 2023 do not include the application of ASC 852.

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.

Post-Bankruptcy Financing

On January 17, 2024, IronNet Cybersecurity, Ferrous Investors LP, ITC Global Advisers, LLC and certain other parties entered into a Post-Bankruptcy Financing Term Sheet providing for the issuances of $15,000 of secured convertible notes following the Effective Date of the Joint Plan. Such post-Effective Date financing consists of secured convertible notes issuable by IronNet Cybersecurity that bear interest at 6.00% per annum and that will mature 48 months after issuance, unless converted into shares of Series A preferred stock of the Company. As of January 29, 2024, $500 has been issued to the Company under the Post-Bankruptcy Financing Term Sheet.

Chapter 11 Plan of Reorganization Confirmation

On January 18, 2024, the Bankruptcy Court entered the Findings of Fact, Conclusions of Law, and Order Confirming the Amended Joint Chapter 11 Plan of Reorganization (the “Confirmation Order”), which approved and confirmed the Amended Joint Chapter 11 Plan of Reorganization of the Debtors. The Debtors expect that the effective date of the confirmed Chapter 11 plan of reorganization will occur as soon as all conditions precedent to Chapter 11 plan of reorganization 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 Chapter 11 plan of reorganization will become effective.

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 a significant 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.

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.

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 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.

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 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

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 $30,000 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.

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

Unless otherwise indicated or the context otherwise requires, references in this section to “IronNet,” “we,” “us,” “our”, “the Company” and other similar terms refer to IronNet, Inc. and its subsidiaries after giving effect to the Merger.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report"), and the annual consolidated financial statements for the year ended January 31, ~~2022~~2023 and related notes included in our Annual Report on Form 10-K filed on May 216, ~~2022,~~2023 ~~as updated by our Current Report on Form 8-K filed on November 14, 2022~~ (the "Annual Report"). The interim condensed consolidated financial statements in this Quarterly Report are presented in U.S. dollars rounded to the nearest thousand, with the amounts in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) rounded to the nearest tenth of a million. Therefore, differences in the tables between totals and sums of the amounts listed may occur due to such rounding.

~~This~~All ~~Quarterly Report contains statements that may constitute “~~forward-looking statements” ~~within~~included ~~the~~herein ~~meaning~~are ofmade ~~Section~~only ~~27A~~as of the ~~Securities~~date ~~Act~~hereof. ofOur ~~1933,~~fiscal asyear ~~amended~~end ~~(the~~is ~~“Securities~~January ~~Act”)~~31, and ~~Section~~our ~~21E~~fiscal ofquarters ~~the~~end ~~Securities~~on ~~Exchange~~April ~~Act~~30, ofJuly ~~1934~~31, asOctober ~~amended (the “Exchange Act”)~~31, ~~that involve substantial risks~~ and ~~uncertainties~~January 31. ~~All~~Our ~~statements~~fiscal ~~contained~~years inending ~~this~~January ~~Quarterly Report other than statements of historical fact~~31, ~~including~~2024 ~~statements regarding our future results of operations~~ and ~~financial~~ended ~~position,~~January ~~our business strategy and plans~~31, ~~and~~2023 ~~our objectives for future operations,~~ are ~~forward-looking~~referred ~~statements.~~to ~~The~~herein ~~words~~as ~~“believes,”~~"fiscal ~~“expects,”~~2024" ~~“intends,”~~and ~~“estimates,”~~"fiscal ~~“projects~~2023,”" ~~“anticipates,” “will,” “plan,” “design,” “may,” “should,” or similar language are intended to identify forward-looking statements~~respectively.

It is routine for our internal projections and expectations to change throughout the year, and any forward-looking statements based upon these projections or expectations may change prior to the end of the next quarter or year. Readers of this Quarterly Report are cautioned not to place undue reliance on any such forward-looking statements. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and in the Annual Report under the captions “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” The impact of COVID-19 and its variants, as well as geopolitical tensions, such as the ongoing conflict between Russia and Ukraine, may also exacerbate these risks, any of which could have a material effect on us. All forward-looking statements included herein are made only as of the date hereof. Our fiscal year end is January 31, and our fiscal quarters end on April 30, July 31, October 31, and January 31. Our fiscal years ending January 31, 2023 and ended January 31, 2022 are referred to herein as "fiscal 2023" and "fiscal 2022," respectively.

Overview

GEN Keith B. Alexander (Ret.) founded our company in 2014 to solve the major cybersecurity problem he witnessed and defined during his tenure as former head of ~~The National Security Agency (~~the "NSA") and founding Commander of U.S. Cyber Command: You can’t defend against threats you can’t see. Our innovative approach provides the ability for groups of organizations—within an industry sector, supply chain, state or country, for example—to see, detect and defend against sophisticated cyber attacks earlier and faster than ever before.

IronNet has defined a new market category called Collective Defense. IronNet has developed the Collective Defense platform, a solution that can identify anomalous (potentially suspicious or malicious) behaviors on computer networks and share this intelligence anonymously and in real time among Collective Defense community members. Collective Defense communities comprise groups of organizations that have common risks, such as a supply chain, a business ecosystem, or across an industry sector, a state, or a country. This cybersecurity model delivers timely, actionable, and contextual alerts and threat intelligence on attacks targeting enterprise networks, and functions as an early-warning detection system for all community members.

This new platform addresses a large and unwavering compound problem: limited threat visibility for increasingly borderless enterprises across sectors and at the national level, paired with ineffective threat knowledge sharing across companies and sectors and a “go it alone” approach to cybersecurity. These operational gaps, combined with market dynamics like the increased velocity of sophisticated cyber attacks and the deepening scarcity of qualified human capital, have set our mission to transform how cybersecurity is waged.

Our Business

We have focused on the development and delivery of a suite of advanced cybersecurity capabilities for detection, alerting, situational awareness and hunt/remediation combined into a comprehensive Collective Defense platform. In addition to our Collective Defense platform, our product offering also includes a threat intelligence feed sold primarily though our partner ecosystem that enables the cybersecurity stack to block adversary infrastructure immediately. We complement these capabilities, delivered to both commercial and public sector enterprises, with professional services.

Product, Subscription and Support Revenue

Our primary line of business is the delivery of integrated software capabilities through our Collective Defense platform. The platform, targeting larger organizations with a more mature cybersecurity infrastructure, is comprised of two flagship products:

IronDefense is an advanced Network Detection Response ("NDR") solution that uses AI-driven behavioral analytics to detect and prioritize anomalous activity inside individual enterprises. IronNet leverages advanced AI/ML algorithms to detect previously unknown threats, which are those that have not been identified and “fingerprinted” by industry researchers), in addition to screening known threats, and applies its Expert System to prioritize the severity of the behaviors—all at machine speed and cloud scale.

IronDome is a threat-sharing solution that facilitates a crowdsource-like environment in which the IronDefense threat detections from an individual company are shared among members of a Collective Defense community, consisting of our customers who have elected to permit their information to be anonymously shared and cross-correlated by our IronDome systems. IronDome analyzes threat detections across the community to identify broad attack patterns and provides anonymized intelligence back to all community members in real time, giving all members early insight into potential incoming attacks. Automated sharing across the Collective Defense community enables faster detection of attacks at earlier stages.

Our Collective Defense platform is designed to deliver strong network effects. Every customer contributing its threat data (anonymously) into the community is able to reap benefits from the shared intelligence of the other organizations. The collaborative aspect of Collective Defense, and the resulting prioritization of alerts based on their potential severity, helps address the known problem of “alert fatigue” that plagues overwhelmed security analysts.

Our Collective Defense platform is ~~largely~~ cloud-deployed ~~(public or private), though it is also available in on-premise~~ and ~~hybrid environments, and~~ is scalable to include small-to-medium businesses and public-sector agencies as well as multinational corporations. The Collective Defense platform was available to customers on-premise and in hybrid environments until December 2022. We provide professional cybersecurity services such as incident response and threat hunting, as well as programs to help customers assess cybersecurity governance, maturity, and readiness. Our cybersecurity services are designed to create shared long-term success measures with our customers, differentiating us from other cybersecurity vendors by working alongside customers as partners and offering consultative and service capabilities beyond implementation.

Our Collective Defense platform is a subscription-based pricing and flexible delivery model, with 8386.37% of our revenue for the ~~nine~~three months ended ~~October~~April 3130, ~~2022~~2023 related to deployments involving our key ~~public~~partner, ~~cloud~~AWS. ~~providers~~To ~~Amazon~~make ~~Web~~it ~~Services~~as ~~and~~easy ~~Microsoft~~as ~~Azure.~~possible Wefor ~~also~~customers ~~support~~to ~~private~~add ~~cloud~~Collective Defense into their existing security stack, orwe ~~hyperconverged~~have ~~infrastructure~~built ~~such~~a asrich ~~Nutanix~~set asof ~~well~~APIs asthat ~~on-premise~~enable ~~environments~~integrations ~~through~~with ~~hardware~~standard ~~and~~security ~~virtual~~products, ~~options.~~including ToSIEM, ~~make~~SOAR, itEDR, asNGFW ~~easy~~tools, asand ~~possible~~cloud-native ~~for~~logs from the major public cloud providers.

19IronRadar is a threat-sharing solution that proactively and automatically updates customer cybersecurity tools to be able to detect and block malicious indicators of adversary infrastructure. IronRadar, which we launched during the fiscal year ended January 31, 2023, is intended to broaden our market reach to companies of all sizes, including those with less sophisticated cybersecurity infrastructure, and leverage our key partner relationships as the primary route to market. Developed by our team of elite threat hunters, IronRadar scours the internet fingerprinting servers to determine whether they are C2 infrastructure while being stood up, even before a cyber attack, such as ransomware, is initiated. This threat detection and response solution identifies known and unknown C2 infrastructure and is built from the ground up to be easy to deploy, making it easy for security teams to integrate IronRadar into existing tools, including SIEM/SOAR, TIP, EDRs, and firewalls, to increase effectiveness and defense. Once set up, IronRadar is regularly updated and automatically fed into a customer’s security landscape to proactively block threats, enabling faster response and creating efficiencies for security teams. IronRadar is currently available for purchase as an annual subscription and also sold directly from the AWS Marketplace.

customers to add Collective Defense into their existing security stack, we have built a rich set of APIs that enable integrations with standard security products, including SIEM, SOAR, EDR, NGFW tools, and cloud-native logs from the major public cloud providers.

IronRadar is a threat-sharing solution that proactively and automatically updates customer cybersecurity tools to be able to detect and block malicious indicators of adversary infrastructure. IronRadar, which we launched during the three months ended October 31, 2022, is intended to broaden our market reach to companies of all sizes, including those with less sophisticated cybersecurity infrastructure, and leverage our key partner relationships as the primary route to market. Developed by IronNet’s team of elite threat hunters, IronRadar scours the internet fingerprinting servers to determine whether they are command and control (“C2”) infrastructure while being stood up, even before a cyber attack, such as ransomware, is initiated. This threat detection and response solution identifies known and unknown C2 infrastructure and is built from the ground up to be easy to deploy, making it easy for security teams to integrate IronRadar into existing tools, including SIEM/SOAR, TIP, EDRs, and firewalls, to increase effectiveness and defense. Once set up, IronRadar is regularly updated and automatically fed into a customer’s security landscape to proactively block threats, enabling faster response and creating efficiencies for security teams. IronRadar is currently available for purchase as an annual subscription sold directly from the Amazon Web Services (“AWS”) Marketplace.

Professional Services

We sell professional services, including development of national cybersecurity strategies, cyber operations monitoring, security, training, red team, incident response and tailored maturity assessments. Revenue derived from these services is recognized as the services are delivered.

Financing to Date

Historically, we have financed our operations primarily through private placements of common stock, issuance of debt, warrants and redeemable convertible preferred stock.

In connection with the execution of the Merger Agreement, a number of purchasers (each, a “Subscriber”) purchased an aggregate of 12,500,000 shares of our common stock (the “PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $125.0 million. As a result of the Merger, we also received $13.3 million held in LGL Systems Acquisitions Corporation's ("Legacy LGL") trust account from proceeds related to public trust shares, net of stockholder redemptions. Transaction costs related to the issuance of the trust shares were $9.0 million. 23

OnIn ~~September~~connection ~~15,~~with ~~2022,~~the weexecution ~~issued~~of the Merger Agreement, a ~~senior~~number ~~unsecured~~of ~~convertible~~purchasers ~~promissory~~(each, ~~note~~a to“Subscriber”) 3ipurchased an aggregate of 12,500,000 LPshares of our common stock (the “3iPIPE Shares”), for a purchase price of $10.00 per share and an aggregate ~~principal~~purchase ~~amount~~price of $10125.30 million,. ~~net~~As ofa ~~debt~~result ~~discount~~of ~~for~~the ~~cash~~Merger, ~~proceeds~~we ofalso received $1013.03 million. ~~For~~held ~~more~~in ~~information~~Legacy LGL’s trust account from proceeds related to public trust shares, ~~see~~net ~~"Liquidity~~of ~~and~~stockholder ~~Capital~~redemptions. ~~Resources-3i~~Transaction ~~Convertible~~costs ~~Debt~~related ~~Facility~~to the issuance of the trust shares were $9."0 million.

~~Between~~On ~~December~~September ~~2022~~15, ~~and April 2023~~2022, we issued ~~and~~a ~~sold~~ senior ~~secured~~unsecured convertible promissory ~~notes~~note into 3i, LP (“3i”) for an aggregate principal amount of $710.23 million, tonet aof ~~total~~debt discount for cash proceeds of ~~eight~~$10.0 ~~lenders~~million. As of April 30, ~~including~~2023, ~~certain~~the ~~members~~Company ofprepaid ~~our~~approximately ~~Board~~$2.7 million of ~~Directors~~the orconvertible ~~their~~notes ~~affiliates~~to 3i and, as a result, approximately $7.6 ~~Between~~million ~~December~~principal ~~2022~~amount ~~and~~of the convertible notes remained outstanding as of April ~~2023~~30, we2023. ~~issued~~The ~~and~~Company ~~sold~~subsequently ~~secured~~prepaid ~~convertible~~$3.3 ~~promissory~~million ~~notes~~and, inas ana ~~aggregate~~result, approximately $4.2 million principal amount of ~~$11~~the convertible notes remains outstanding thereafter.8 ~~million~~As of December 31, 2023, the conditions to C5the ~~Capital~~additional ~~Limited~~borrowing ~~(“C5”)~~have not been met, ~~one~~and, ofas ~~our~~such, ~~major~~the ~~stockholders~~Company is in default under these convertible notes. For more information, see "Liquidity and Capital Resources-~~Director~~3i ~~and~~Convertible C5Debt ~~Loans.”~~Facility" Weand ~~continue~~see toNote ~~negotiate~~9 ~~with~~and C5Note as13, toSubsequent aEvents, ~~potential~~to ~~acquisition of~~ our ~~company~~interim bycondensed ~~C5,~~consolidated asfinancial ~~described~~statements ~~below~~included ~~under~~in ~~“Recent~~this ~~Developments—C5 Strategic Transaction~~report.”

OnFrom ~~September~~December ~~15,~~ 2022 to August 2023, we issued aand ~~convertible~~sold ~~note~~senior ~~(the~~secured ~~“Convertible~~promissory ~~Note”)~~notes toin ~~3i, LP (“3i”) for~~ an aggregate principal amount of $108.35 million. ~~For~~to ~~more~~a ~~information~~total onof ~~the~~eight ~~Convertible Note~~lenders, including certain members of our Board of Directors or their affiliates. For more information see "Liquidity and Capital Resources-3iDirector ~~Convertible~~and ~~Debt~~C5 ~~Facility~~Loans." The Company is in default under these secured promissory notes. See Note 9, Debt, and Note 13, Subsequent Events, to our interim condensed consolidated financial statements included in this report.

~~During~~Between ~~the~~December ~~nine~~2022 ~~months~~and ~~ended~~September ~~October 31~~2023, ~~2022,~~ we ~~incurred~~issued aand ~~net~~sold ~~loss~~senior secured convertible promissory notes in an aggregate amount of approximately $9315.63 million to C5 Capital Limited ("C5"), one of ~~which~~our ~~$33~~major stockholders.1 ~~million~~For ~~related~~more toinformation ~~non-cash~~see ~~expense~~"Liquidity ~~related~~and toCapital ~~stock~~Resources-~~based~~Director ~~compensation,~~ and ~~used~~C5 ~~$53~~Loans.6” ~~million~~The inCompany ~~cash~~is toin ~~fund~~default ~~our~~under ~~operations~~these notes. AsSee ofNote ~~October 31~~9, ~~2022~~Debt, weand ~~had~~Note ~~$8.2~~13, ~~million~~Subsequent ofEvents, ~~cash~~to onour ~~hand~~interim tocondensed ~~continue~~consolidated tofinancial ~~fund~~statements ~~our~~included ~~operations~~in this report.

During the three months ended April 30, 2023, we incurred a net loss of $9.2 million, of which $1.0 million related to non-cash expense related to stock-based compensation, and used $5.6 million in cash to fund our operations. As of April 30, 2023, we had $7.5 million of cash on hand to continue to fund our operations.

See Note 13, Subsequent Events, to our interim condensed consolidated financial statements included in this report, including, without limitation, with respect to additional indebtedness incurred after April 30, 2023, various events of default under the Company’s outstanding indebtedness and the filing of the Chapter 11 Cases.

Recent Developments

~~Going~~Chapter ~~concern~~11 Cases

~~Management~~On ~~expects~~October ~~that~~12, ~~operating~~2023, ~~losses~~the Company and ~~negative~~IronNet ~~cash~~Cybersecurity, ~~flows~~Inc. ~~from~~("IronNet ~~operating~~Cybersecurity"), ~~activities~~the ~~will~~Company’s ~~continue~~wholly-owned insubsidiary (collectively, the ~~foreseeable~~“Debtors”), ~~future~~filed asvoluntary wepetitions ~~continue~~for toreorganization ~~work~~under tothe ~~fund~~United ~~our~~States ~~operations.~~Bankruptcy AsCode (the "Bankruptcy Code") in the United States Bankruptcy Court of ~~October~~Delaware ~~31,~~("Bankruptcy ~~2022~~Court") (such cases, ~~there~~the is“Chapter ~~substantial~~11 ~~doubt~~Cases”). ~~about~~The ~~our~~Debtors ~~ability~~and totheir subsidiaries continue to operate their businesses as a“debtors-in-possession” ~~going~~under ~~concern~~the ~~within~~jurisdiction ~~one~~of ~~year~~the ~~from~~Bankruptcy Court and in accordance with the ~~issuance~~applicable provisions of ~~our~~the ~~unaudited~~Bankruptcy ~~condensed~~Code ~~consolidated~~and ~~financial~~orders ~~statements~~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).

~~Based~~On onNovember ~~our~~2, ~~current planned operations~~2023, in the ~~absence~~Debtors offiled ~~additional~~the ~~sources~~Joint ofPlan ~~liquidity, management anticipates that our existing cash~~ and ~~cash~~a ~~equivalents~~related ~~and~~proposed ~~anticipated~~disclosure ~~cash~~statement ~~flows~~with ~~from~~the ~~operations~~Bankruptcy ~~will~~Court. ~~not~~On beJanuary ~~sufficient~~18, to2024, ~~meet~~the ~~our~~Bankruptcy ~~operating~~Court ~~and~~entered ~~liquidity~~the ~~needs~~Findings ~~for~~of ~~any~~Fact, ~~meaningful~~Conclusions ~~period~~ of ~~time~~Law, ~~following~~and ~~the~~Order ~~filing~~Confirming ofthe ~~this~~Joint ~~report~~Plan. ~~There~~The isDebtors noexpect ~~assurance~~ that ~~management~~the ~~will~~Effective beDate ~~able~~of tothe ~~obtain~~Joint ~~additional~~Plan ~~liquidity or be successful in raising additional funds or that such required funds, if available,~~ will beoccur ~~available~~as onsoon ~~attractive~~as ~~terms~~all orconditions ~~that~~precedent ~~they~~to ~~will~~the ~~not~~Joint Plan have abeen ~~significant dilutive effect on our existing stockholders~~satisfied. InAlthough the ~~event~~Debtors weanticipate ~~determine~~ that ~~additional~~all ~~sources~~conditions ~~of liquidity~~ will ~~not~~ be ~~available~~satisfied, tothe usDebtors orcan ~~will~~make ~~not~~no ~~allow~~assurances usas to ~~meet~~when, ~~our~~or ~~obligations~~ultimately ~~as they become due~~if, ~~we may need to file a voluntary petition for relief under~~ the ~~United~~Joint ~~States~~Plan ~~Bankruptcy~~will ~~Code~~become ~~in order to implement a plan of reorganization, court-supervised sale, and/or liquidation~~effective.

On January 17, 2024, the IronNet Cybersecurity, Inc., Ferrous Investors LP, ITC Global Advisers, LLC and certain other parties entered into a Post-Bankruptcy Financing Term Sheet providing for the issuances of $15 million of secured convertible notes following the Effective Date of the Joint Plan. As of January 29, 2024, $0.5 million has been issued to the Company under the Post-Bankruptcy Financing Term Sheet.

See Note 13, Subsequent Events, to our interim condensed consolidated financial statements included in this report with respect to additional recent developments.

Liquidity and Going Concern

As of April 30, 2023, the Company had cash and cash equivalents of $7.5 million which is not legally restricted to use, and collectable receivables of $3.6 million, accounts payable and accrued expenses of $16.8 million, including $7.2 million due to taxing authorities, of which approximately $6.3 million was subsequently paid, $7.5 million in principal amounts owed on convertible debt and $19.0 million in principal amounts owed on related party debt, as discussed in Note 9.

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. As of April 30, 2023, the Company was not able to raise additional funds under the equity line with Tumim. Subsequently, 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 LP ("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 $25.8 million. On September 15, 2022, the Company issued a Convertible Note to 3i in the principal amount of $10.3 million, net of discount for cash proceeds of $10.0 million. The Company initially borrowed approximately $10.3 million and issued related Convertible Notes to 3i, including a 3% Original Issue Discount ("OID"), with an 18-month term. As of April 30, 2023, the Company prepaid approximately $2.7 million of the Convertible Notes to 3i and, as a result, approximately $7.6 million principal amount of the Convertible Note was outstanding as of the end of the period. The Company subsequently prepaid a total of $3.3 million of the Convertible Note in May and June 2023 and, as a result, approximately $4.2 million in principal remained outstanding thereafter. As of the date of this report, the conditions to the additional borrowing have not been met. See Note 9 and Note 13, Subsequent Events, for additional information.

Between December 14, 2022 and September 17, 2023, the Company issued senior secured promissory notes in an aggregate principal amount of $8.5 million to a total of eight lenders including directors of the Company. Between January 11, 2023 and August 31, 2023, the Company issued senior secured convertible promissory notes in the aggregate principal amount of $15.3 million to entities affiliated with C5 Capital Limited (“C5”), a beneficial owner of more than 5% of the Company’s outstanding common stock. As of April 30, 2023, the Company had issued $7.2 million in senior secured promissory notes to eight lenders and $11.8 million in senior secured convertible promissory notes to C5. See Note 9 and Note 13, Subsequent Events, for additional information.

On July 21, 2023, the Company entered into the Korr Note with Korr Acquisitions Group, Inc. In the original principal amount of $0.6 million (the "Korr Note"), which was issued with an original issue discount of 9.9%. We are currently in default under the Korr Note. See Note 9 to our interim condensed consolidated financial statements for additional information.

Despite the Company’s current operating plans to implement the Joint Plan and emerge from bankruptcy, focus its business, reduce its expenses, improve its margins and mitigate uncertainties related to the foregoing, management believes that the Company does not have sufficient cash and cash equivalents on hand to support current operations for at least one year from the date of issuance of these consolidated financial statements without additional financing. Management has concluded that there is

substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern. The financial statements as of April 30, 2023 do not include any adjustments related to the filing of the Chapter 11 Cases.

Based on its current planned operations, in the absence of additional sources of liquidity, management anticipates that the Company’s existing cash and cash equivalents and anticipated cash flows from operations will not be sufficient to meet the Company’s operating and liquidity needs for any meaningful period of time following the date of this report. Given that additional sources of liquidity have not been available to it, the Company filed the Chapter 11 Cases. The Chapter 11 Cases have not been determined to alleviate the previously identified substantial doubt about the Company’s ability to continue as a going concern, including following the Effective Date of the Joint Plan. The Joint Plan was confirmed by the Bankruptcy Court on January 18, 2024. 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.

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 furlough of employees and cessation of business operations constituted events of default on all of the Company’s outstanding indebtedness. See Note 13, Subsequent Events, for additional information.

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 $10.0 million, (the “Maximum Facility Amount”), consisting of up to $8.5 million of term loans (the “DIP Term Loans”) and $1.5 million 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 $4.5 million of the DIP Facility (inclusive of the Bridge Amount) would be available on an interim basis. See Note 13, Subsequent Events, for additional information.

Upon the execution of the Term Sheet, the DIP Facility Lender advanced the Bridge Amount of $1.5 million to the Company. The Bridge Amount is secured by all the assets of the Debtors. See Note 13, Subsequent Events, for additional information.

On October 12, 2023,the Debtors, filed the Chapter 11 Cases. In connection with the filing of the Chapter 11 Cases, the Debtors resumed business operations and rehired a portion of the previously furloughed and terminated employees. 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 filing of the Charter 11 Cases constituted an event of default on all of the Company’s outstanding indebtedness. See Note 13, Subsequent Events, for additional information.

The Company’s ability to continue as a going concern is contingent upon its ability to generate sufficient liquidity to meet its contractual obligations and operating needs. Beginning on the Petition Date, it is also contingent upon its ability to, subject to the Bankruptcy Court’s approval, implement a Chapter 11 plan of reorganization and emerge from the Chapter 11 Cases. As noted above, the Bankruptcy Court entered the Confirmation Order for the Joint Plan on January 18, 2024, and the Joint Plan will become effective upon satisfaction of the conditions precedent to the Joint Plan, including the adoption of the Company’s new organization documents, the recapitalization of the Company in accordance with the Joint Plan, the filing of any final plan supplements, the Debtors shall have entered into the exit financing facility contemplated by the Joint Plan, and other customary conditions. 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. 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. See Note 13, Subsequent Events, for additional information.

Reductions in force

Between September 2022 and ~~the~~November ~~date of this report~~2022, our headcount ~~has~~was ~~been~~ reduced by approximately ~~130~~111 employees, or approximately 5144% of our workforce. ~~These~~as ~~actions are~~ part of our initiatives to re-balance our cost structure.

We do not expect to incur future material charges in connection with these reductions in force. These reductions in force are expected to result in approximately $20.0 million of annualized cost savings in total. We may incur additional expenses not currently contemplated due to events associated with the reductions in force. The annualized cost savings are estimates and subject to a number of assumptions, and actual results may differ materially.

~~Notice~~As of ~~failure~~April to30, ~~satisfy~~2023, ~~continued~~the ~~listing~~company ~~rules~~had approximately 90 employees. As of January 29, 2024, the Company had approximately 28 employees.

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. On October 13, 2023, certain employees were re-hired by the Company in connection with the Chapter 11 proceedings.

See Note 13, Subsequent Events, to our interim condensed consolidated financial statements for additional information.

New York Stock Exchange Delisting

On October 25, 2022, we received a written notice (the “Initial Notice”) from the New York Stock Exchange (the “NYSE”) that we are no longer in compliance with the NYSE continued listing standards, set forth in Section 802.01C of the NYSE Listed Company Manual because the average closing price of our common stock was less than $1.00 per share over a period of 30 consecutive trading days. On December 21, 2022, we received a second written notice (the “Second Notice”) from the NYSE that we are no longer in compliance with the NYSE continued listing standards, set forth in Section 802.01E of the NYSE Listed Company Manual as a result of our failure to timely this Quarterly Report. On January 24, 2023, we received a third written notice (the “Third Notice”, together with the Initial Notice and Second Notice, the “Notices”) from the NYSE that we are no longer in compliance with the NYSE continued listing standards, set forth in Section 802.01B of the NYSE Listed Company Manual because our average global market capitalization over a consecutive 30 trading-day period was less than $50.0 million and, at the same time, our last reported shareholders’ equity was less than $50.0 million.

The Notices ~~have~~had no immediate impact on the listing of our common stock, which ~~will~~continued ~~continue~~ to be listed and traded on the NYSE during applicable cure periods, and dodid not result in a default under our material debt or other agreements. Toduring ~~address this issue, we intend to monitor~~ the ~~trading~~period ~~price~~covered ofby ~~our~~this listed securities and take steps to increase the value of our shares through implementation of our business strategy, and are considering all available options to regain compliance with the NYSE’s continued listing standardsreport. ~~See “ Risk Factors—The Company must regain compliance with New York Stock Exchange requirements for the continued listing of its common stock” for additional information.~~

20On 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 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.

Tumim Purchase Notices

~~Between November~~ 25, 2022 and December 9, 2022, we issued a series of purchase notices (the “Purchase Notices”) to Tumim Stone Capital, LLC (“Tumim”) pursuant to the terms of a Common Stock Purchase Agreement (the “Purchase Agreement”) we entered into with Tumim on February 11, 2022. Pursuant to the Purchase Notices, we issued 1,761,879 shares of our common stock to Tumim and received aggregate proceeds of approximately $0.6 million. For more information on the Purchase Agreement, see “Liquidity and Capital Resources—Tumim Stone Capital Committed Equity Financing.”

~~Director~~Between November 25, 2022 and C5December ~~Loans~~14, 2022, we issued a series of purchase notices (the “Purchase Notices”) to Tumim Stone Capital, LLC (“Tumim”) pursuant to the terms of a Common Stock Purchase Agreement (the “Purchase Agreement”) we entered into with Tumim on February 11, 2022. Pursuant to the Purchase Notices, we issued 2,511,365 shares of our common stock to Tumim and received aggregate proceeds of approximately $0.6 million. As of April 30, 2023, the Company was not able to raise additional funds under the equity line with Tumim. Subsequently, on June 16, 2023, Tumim notified the Company of Tumim’s election to terminate the Purchase Agreement, effective as of June 20, 2023. For more information on the Purchase Agreement, see “Liquidity and Capital Resources—Tumim Stone Capital Committed Equity Financing” and Note 13 to our interim condensed consolidated financial statements included in this report.

Between December 14, 2022 and April 20, 2023, we issued senior secured promissory notes in an aggregate principal amount of $7.2 million to a total of eight lenders including directors of the Company. On January 11, 2023, January 12, 2023, February 8, 2023, February 27, 2023, and April 13, 2023, we issued secured convertible promissory notes in the aggregate principal amount of $11.8 million to an entities affiliated with C5 Capital Limited (“C5”), a beneficial owner of more than 5% of our outstanding common stock. For more information see “Liquidity and Capital Resources—Director and C5 Loans.”

C5 Strategic Transaction

On December 28, 2022, we entered into an agreement with C5 pursuant to which we agreed to a mutual exclusivity period through January 31, 2023 to seek to negotiate definitive agreements with respect to a potential offer by C5 to acquire all of the outstanding common stock of the Company not presently owned by C5 and certain of its affiliates (the “Proposed Transaction”). Commencement of the exclusivity period was subject to C5 providing $2.0 million of financing described above under “ Director and C5 Loans.” The exclusivity period was subsequently extended on multiple occasions following additional financing from C5. ~~While~~Subsequently, weon noJuly ~~longer~~11, ~~remain~~2023, ~~under~~the ~~contractual~~Letter ~~exclusivity~~Agreement ~~with~~(the “Letter Agreement”) executed on June 16, 2023 between the Company and C5 CC Ferrous, weLLC, ~~are~~a ~~continuing~~Delaware tolimited ~~negotiate~~Liability ~~definitive~~company, ~~agreements~~as ~~with~~amended C5on July 11, 2023, was deemed executed and delivered by the Parties in accordance with ~~respect~~its toterms. The transactions contemplated by the ~~Proposed~~Letter ~~Transaction~~Agreement have been superseded by the Chapter 11 Cases. See Note 13 to our interim condensed consolidated financial statements included in this report.

Key Business Metrics

We monitor the following key metrics to measure our performance, identify trends, formulate business plans and make strategic decisions.

Recurring Software Customers

We believe that our ability to increase the number of subscription and other recurring contract type customers on our platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities. Our recurring software customers include customers who have a recurring contract for either or both of our IronDefense and IronDome platforms. These platforms are generally sold together, but they also can be purchased on a standalone basis. The following table sets forth the number of recurring software customers as of the dates presented:

	October 31,
	April 30,
	2022			2021
	2023			2022
Recurring Software Customers		7063			7491
Year-over-year growth		(531	)%		~~196~~107	%

Our recurring software customer count was negatively impacted in the first quarter of fiscal year 2024 by our current liquidity situation. We believe that our ability to strengthen our financial position and liquidity will also improve our customer retention and net new customer acquisition.

Annual Recurring Revenue (“ARR”)

ARR is calculated at a particular measurement date as the annualized value of our then existing customer subscription contracts and the portions of other software and product contracts that are to be recognized over the course of the contracts and that are designed to renew, assuming any contract that expires during the 12 months following the measurement date is renewed on its existing terms. The following table sets forth our ARR as of the dates presented:

		October 31,
		April 30,
		2022			2021
		2023			2022
	($ in millions)
Annual recurring revenue		$	24.6		$	30.1
Annual recurring revenue		$	28.2		$	27.5
Year-over-year growth			(18	)%		18	%
Year-over-year growth			3	%		30	%

Because we have contracts from government entities whose back to back renewal may be delayed due to the availability of funding between budget and authorization cycles, potential changes in contract vehicles, and increased requirements, ARR ~~may~~decreased ~~temporarily decline in periods~~ during ~~which these interruptions are active across reporting period ends. During~~ the ~~nine~~three months ended ~~October~~April 3130, ~~2022,~~2023 ~~$32.6~~as ~~million~~a result of ~~ARR from such temporary interruptions adversely affected~~ the ~~ending~~decrease ~~ARR~~in ofrecurring ~~$28.2~~software ~~million~~customer count and the ~~annual~~decrease ~~year~~in ~~over~~the ~~year~~number ~~increase~~ of ~~3%.~~existing ~~Had those~~ contracts ~~renewed without interruption, we would have reported an ARR of $60~~.8 ~~million as of October 31, 2022 and an increase of 121% from the prior year.~~

Dollar-Based Average Contract Length

Our dollar-based average contract length is calculated from a set of customers against the same metric as of a prior period end. Because many of our customers have similar buying patterns and the average term of our contracts is more than 12 months, this metric provides a means of assessing the degree of built-in revenue repetition that exists across our customer base.

We calculate our dollar-based average contract length as follows:

Numerator: We multiply the average total length of the contracts, measured in years or fractions thereof, by the respective revenue recognized for the ~~nine~~three months ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022, as applicable.

Denominator: We use the revenue attributable to software and product customers for the ~~nine~~three months ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022 in the numerator. This effectively represents the revenue base that is being generated by those customers.

Dollar-based average contract length is obtained by dividing the Numerator by the Denominator. Our dollar-based average contract length ~~increased~~decreased from 23.82 to 3 2.05 years, or ~~6.7~~22%, as of ~~October 31, 2022 as compared to~~ the end of the ~~same~~three month period inended ~~fiscal~~April ~~2022.~~30, ~~The~~2023 ~~re-emergence~~as ofcompared ~~longer term contracts in our average has led~~ to the ~~increase~~end inof ~~our~~the ~~average~~three ~~contract~~month ~~length~~period asended ofApril ~~the~~30, ~~end~~2022 ofdue ~~the~~to ~~most~~significant ~~recent~~longer ~~reporting~~term ~~period~~contracts ending.

	Nine Months Ended October 31,
	Three Months Ended April 30,
	2022		2021
	2023		2022
	(in years)
Dollar-based average contract length		32.05		23.82

Calculated Billings

Calculated billings is a non-GAAP financial measure that we believe is a key metric to measure our periodic performance. Calculated billings represent our total revenue plus the change in deferred revenue in a period. Calculated billings in any particular period aims to reflect amounts invoiced to customers to access our software-based, cybersecurity analytics products, cloud platform and professional services, together with related support services, for our new and existing customers. We typically invoice our customers on multi-year or annual contracts in advance, either annually or monthly.

Calculated billings decreased by $25.70 million, or 1443%, for the ~~nine~~three months ended ~~October~~April 3130, ~~2022~~2023 as compared to the ~~same period in fiscal 2022, and decreased by $4.5 million, or 59%, for the~~ three months ended ~~October~~April 3130, 2022 ~~as compared to the same period in fiscal 2022~~. We expect that calculated billings will be affected by the timing of entering into agreements with customers and the mix of billings in each reporting period as we typically invoice customers multi-year or annually in advance and, to a lesser extent, monthly in advance.

While we believe that calculated billings may be helpful to investors because it provides insight into the cash that will be generated from sales of our subscriptions, this metric may vary from period-to-period for a number of reasons, and therefore has a number of limitations as a quarter-to-quarter or year-over-year comparative measure. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our metric of calculated billings as a tool for comparison. Because of these and other limitations, you should consider calculated billings along with revenue and our other GAAP financial results.

The following table presents a reconciliation of revenue, the most directly comparable financial measure calculated in accordance with GAAP, to calculated billings:

		Three Months Ended October 31,
	Three Months Ended April 30,
		2022				2021				2022 vs 2021
	2023			2022				2023 vs 2022
	(in millions)	~~(in millions)~~
Revenue	$	$6.8	~~7.0~~	$	6.7	$	~~6.9~~		0.1		~~0.1~~		1.5	%	~~1.4~~	%
Add: Total Deferred revenue, end of period		26.9	~~30.2~~		38.5		~~34.3~~		(11.6	)	~~(4.1~~	)	(30.2	)%	~~(12.0~~	)%
Less: Total Deferred revenue, beginning of period		27.1	~~34.1~~		33.6		~~33.6~~		(6.5	)	~~0.5~~		(19.2	)%	~~1.5~~	%
Calculated billings	$	$6.6	~~3.1~~	$	11.6	$	~~7.6~~		(5.0	)	~~(4.5~~	)	(43.1	)%	~~(59.2~~	)%

	Nine Months Ended October 31,
	2022		2021		2022 vs 2021
	(in millions)
Revenue	$	20.3	$	19.4		0.9		4.6	%
Add: Total Deferred revenue, end of period		30.2		34.3		(4.1	)	(12.0	)%
Less: Total Deferred revenue, beginning of period		33.5		34.0		(0.5	)	(1.5	)%
Calculated billings	$	17.0	$	19.7		(2.7	)	(13.7	)%

Components of Our Results of Operations

Revenue

Our revenues are derived from sales of product, subscriptions, subscription-like software products and software support contracts as well as from professional services. ~~Product~~Products, ~~subscription~~subscriptions and support revenues accounted for 9698% ofand ~~our revenue in the three months ended October 31, 2022, 89~~96% of our revenue in the ~~same~~three ~~period~~month inperiods ~~fiscal 2022, 95% of our revenue in the nine months~~ ended ~~October~~April 3130, ~~2022,~~2023 and ~~93% of our revenue in the same period in fiscal~~ 2022, respectively. Professional services revenues accounted for 42% ofand ~~our revenue in the three months ended October 31, 2022, 11~~4% of our revenue in the ~~same~~three ~~period~~month inperiods ~~fiscal 2022, 5% of our revenue in the nine months~~ ended ~~October~~April 3130, ~~2022,~~2023 and ~~7% of our revenue in the same period in fiscal~~ 2022, respectively.

Our typical customer contracts and subscriptions range from one to five years. We typically invoice customers annually, in advance. We combine intelligence dependent hardware and software licenses as well as subscription-type deliverables with the related threat intelligence and support and maintenance as a single performance obligation, as it delivers the essential functionality of our cybersecurity solution. Most companies also participate in the IronDome collective defense software solution that provides them access to our collective defense infrastructure linking participating stakeholders. WeAs a result, we recognize revenue for this single performance obligation ratably over the expected term with the customer. Amounts that have been invoiced are recorded in deferred revenue or they are recorded in revenue if the revenue recognition criteria have been met. Judgment is required for the assessment of material rights relating to renewal options associated with our contracts.

Professional services revenues are generally sold separately from our products and include services such as development of national cyber security strategies, cyber operations monitoring, security, training, red team, incident response and tailored maturity assessments. Revenue derived from these services is recognized as the services are delivered.

Cost of Revenue

Cost of product, subscription and support revenue includes expenses related to our hosted security software and AWS Marketplace, employee-related costs of our customer facing support, such as salaries, bonuses and benefits, an allocated portion of administrative costs, and the amortization of deferred costs~~, and expense related to establishing an inventory reserve~~.

Cost of professional services revenue consists primarily of employee-related costs, such as salaries, bonuses and benefits, cost of contractors and an allocated portion of administrative costs.

Gross Profit

Gross profit, calculated as total revenue less total costs of revenue is affected by various factors, including the timing of our acquisition of new customers, renewals from existing customers, the data center and bandwidth costs associated with operating our cloud platform, the extent to which we expand our customer support organization, and the extent to which we can increase the efficiency of our technology and infrastructure through technological improvements. Also, we view our professional services in the context of our larger business and as a significant lead generator for ~~potential~~ future product sales. Because of these factors, our services revenue and gross profit may fluctuate over time.

Operating Expenses

Research and development

Our research and development efforts are aimed at continuing to develop and refine our products, including adding new features and modules, increasing their functionality, and enhancing the usability of our platform. Research and development costs primarily include personnel-related costs and acquired software costs. Research and development costs are expensed as incurred.

Sales and marketing

Sales and marketing expenses consist primarily of employee compensation and related expenses, including salaries, bonuses and benefits for our sales and marketing employees, sales commissions that are recognized as expenses over the period of benefit, marketing programs, travel and entertainment expenses, and allocated overhead costs. We capitalize our sales commissions and recognize them as expenses over the estimated period of benefit.

General and administrative

General and administrative costs include salaries, stock-based compensation expenses, and benefits for personnel involved in our executive, finance, legal, people and culture, and administrative functions, as well as third-party professional services and fees, and overhead expenses.

Interest expense

Interest expense primarily consists of interest expense incurred on the Convertible Notes and the notes issued to the Board of Directors and C5.

Other income

Other income consists primarily of ~~interest~~changes ~~income~~in fair value of the conversion option derivative liabilities established related to the Convertible Notes and related party notes to reflect fair value at the end of the reporting period and foreign currency gains.

Other expense

Other expense consists primarily of ~~the settlement of a pre-Merger claim against Legacy LGL in the first quarter of fiscal year 2023,~~ losses on the disposal of fixed assets, foreign currency exchange losses, and the change in fair value of the ~~Commitment~~conversion ~~Fee~~option derivative asset established related to the Purchase Agreement entered into with Tumim during fiscal year 2023 to reflect its fair value at the end of the reporting period.

Change in fair value of warrant liabilities

The change in fair value of warrant liabilities includes the adjustments to the warrant liability to reflect its fair value as of the end of the reporting period.

Provision for income taxes

Provision for income taxes consists of federal and state income taxes in the United States and income taxes and withholding taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state deferred tax assets.

Results of Operations

~~Comparison of the Three Months Ended October 31, 2022 and 2021~~27

Comparison of the Three Months Ended April 30, 2023 and 2022

The following tables set forth our consolidated statement of operations data for each period presented:

	Three Months Ended October 31,
	Three Months Ended April 30,												2023 vs 2022
	2022			Percentage of Revenue			2021			Percentage of Revenue			Change $			Change %
	2023			Percentage of Revenue			2022			Percentage of Revenue			Change $			Change %
	($ in thousands)
Product, subscription and support revenue	$	6,~~674~~663			9698	%	$	6,~~132~~443			8996	%	$	~~542~~220			93	%
Professional services revenue		~~314~~139			42	%		~~781~~245			114	%		(~~467~~106	)		(6043	)%
Total revenue		6,~~988~~802			100	%		6,~~913~~688			100	%		75114			12	%
Cost of product, subscription and support revenue		42,~~206~~674			6039	%		2,~~082~~330			3035	%		~~2,124~~344			~~102~~15	%
Cost of professional services revenue		839			10	%		~~286~~165			42	%		(~~203~~156	)		(7195	)%
Total cost of revenue		42,~~289~~683			6139	%		2,~~368~~495			3437	%		~~1,921~~188			818	%
Gross profit		24,~~699~~119			3961	%		4,~~545~~193			6663	%		(~~1,846~~74	)		(412	)%
Operating expenses														—
Research and development		63,~~804~~382			9750	%		2410,~~455~~727			~~354~~160	%		(177,~~651~~345	)		(7268	)%
Sales and marketing		71,~~774~~503			~~111~~22	%		5110,~~244~~667			~~741~~159	%		(439,~~470~~164	)		(8586	)%
General and administrative		197,~~723~~123			~~282~~105	%		7915,~~735~~586			~~1153~~233	%		(608,~~012~~463	)		(7554	)%
Total operating expenses		3412,~~301~~008			~~491~~177	%		~~155~~36,~~434~~980			~~2,248~~553	%		(~~121~~24,~~133~~972	)		(7868	)%
Operating loss		(317,~~602~~889	)		(~~452~~116	)%		(~~150~~32,~~889~~787	)		(~~2,183~~490	)%		~~119~~24,~~287~~898			(7976	)%
Interest expense		(~~320~~1,329	)		(520	)%		(~~710~~89	)		(101	)%		~~390~~(1,240	)		~~(55~~1,393	)%
Other income		~~493~~200			73	%		410			0	%		~~489~~190			121,~~225~~900	%
Other expense		(~~581~~218	)		(83	)%		(18291	)		0(5	)%		~~(563~~73	)		~~3,127~~(25	)%
Change in fair value of warrants liabilities		3			0	%		(11,302	)		(163	)%		11,305			(100	)%
Loss before income taxes		(9,236	)		(136	)%		(33,157	)		(496	)%		23,921			(72	)%
Loss before income taxes		(32,007	)		(458	)%		(162,915	)		(2,357	)%		130,908			(80	)%
Provision for income taxes		(4	)		(0	)%		(11	)		(0	)%		7			(64	)%
Provision for income taxes		(2	)		0	%		(34	)		0	%		32			(94	)%
Net loss	$	(9,240	)		(136	)%		(33,168	)		(496	)%		23,928			(72	)%
Net loss	$	(32,009	)		(458	)%	$	(162,949	)		(2,357	)%	$	130,940			(80	)%

Revenue

Total revenue increased by $0.081 million or 12% in the three months ended ~~October~~April 3130, ~~2022~~2023, as compared to the same period in fiscal ~~2022~~2023.

Product, subscription and support revenue increased by $0.52 million or 93% primarily due ~~to the~~ net effect of ~~the~~our ~~Company’s~~ transition from contracts that had non-recurring elements which did not renew in full, replaced by revenues from contract forms that were designed to fully renew with legacy customers and signing new customers.

Professional services revenue decreased by $0.51 million or 6043% in the three months ended ~~October~~April 3130, ~~2022~~2023, as compared to the same period in fiscal ~~2022~~2023.

Cost of Revenue

23Total cost of revenue increased by $0.2 million or 8%, in the three months ended April 30, 2023, as compared to the same period in fiscal 2023. Cost of product, subscription and support revenue increased by $0.3 million or 15%, in the three months ended April 30, 2023, as compared to the same period in fiscal 2023. The change was primarily due to an increase in cloud subscription customers and an increase in allocated labor costs related to software support services.

~~Total~~Cost ~~cost~~ of ~~revenue~~professional ~~increased~~service bycost ~~$1.9 million or 81% in the three months ended October 31, 2022, as compared to the same period in fiscal 2022. Cost~~ of ~~product, subscription and support~~ revenue ~~increased~~decreased by $20.12 million or ~~102~~95% in the three months ended ~~October~~April 3130, ~~2022~~2023, as compared to the same period in fiscal ~~2022~~2023. The ~~increase~~change was ~~due~~ primarily due to ana ~~increase~~decrease in ~~cloud~~headcount ~~subscription~~and ~~customers, costs incurred to fully ramp cloud hosting environments related to~~ a ~~significant~~decrease ~~revenue customer that was onboarded~~ in the ~~second~~volume ~~half~~ of ~~fiscal~~professional ~~year 2023, an increase in allocated labor costs related to software support~~ services, ~~duplicative~~provided ~~charges that occurred while certain customers transitioned from their on-premises~~ to ~~cloud hosted deployment formats, and the establishment of an inventory reserve in the three months ended October 31, 2022~~customers.

Cost of professional service cost of revenue decreased by $0.2 million in the three months ended October 31, 2022, as compared to the same period in fiscal 2022. This decrease was primarily due to a decrease in headcount and decrease in services provided to customers.

Gross Profit and Gross Margin

~~Certain~~Mix ~~business~~changes ~~decisions~~in ~~related to~~ cost of revenue resulted in a decrease in product, subscription, and support gross margin to 3760% in the three months ended ~~October~~April 3130, ~~2022~~2023, ~~which would have been approximately 58% during the period when excluding the expense incurred related to establishing an inventory reserve,~~ as compared to 6664% in the same period in fiscal ~~2022~~2023, and an increase in professional services gross margin to 7494% in the three months ended ~~October~~April 3130, ~~2022~~2023 as compared to 6333% in the same period in fiscal ~~2022~~2023. The period over period decrease in margin for ~~software~~product was primarily the result of ~~cloud~~ ~~costs for a significant revenue customer that ramped up in the second half of fiscal 2023,~~ an increase in allocated to labor costs related to software support, ~~and the establishment of an inventory reserve in the three months ended October 31, 2022~~services. ~~Excluding the establishment of the inventory reserve in the quarter, product, subscription and support gross margin would have been 58%.~~ Professional services margin will continue to be volatile contract to contract.

The following tables show gross profit and gross margin, respectively, for product, subscription and support revenue and professional services revenue for the three months ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022.

	Three Months Ended October 31,
	Three Months Ended April 30,						2023 vs 2022
	2022			2021			Change $			Change %
	2023			2022			Change $			Change %
	($ in millions)
	($ in thousands)
Product, subscription and support gross profit	$	~~2.5~~3,989	$	$	4.0,113	$	$	(~~1.5~~124	)		(383	)%
Professional services gross profit		~~0.2~~130			~~0.5~~80			~~(0.3~~50	)		~~(60~~63	)%
Total gross profit	$	~~2.7~~4,119	$	$	4.5,193	$	$	(~~1.8~~74	)		~~(40~~59	)%

	Three Months Ended October 31,
	Three Months Ended April 30,
	2022			2021			Change
	2023			2022			Change
Product, subscription and support margin		3759.09	%		6663.08	%		(294.0	)%
Professional services margin		7393.75	%		6332.47	%		1060.39	%
Total gross margin		3860.6	%		6562.7	%		(272.1	)%

Operating expenses

Research and development

Research and development expenses decreased by $~~17.~~7.3 million or 7268% in the three months ended ~~October~~April 3130, ~~2022~~2023, asdue ~~compared~~ to ~~the~~a ~~same~~decrease ~~period~~ in ~~fiscal 2022, primarily due to~~ non-cash stock compensation ~~expense~~ of $~~17.~~2.4 million ~~incurred in fiscal 2022 triggered by the modification of restricted stock units ("RSUs") in the three months ended October 31~~, ~~2021,~~with ~~as compared to $0.6 million in~~ the ~~same period in fiscal 2023. The~~ remaining decrease of $14.19 million ~~was~~primarily ~~driven~~relates byto ~~the~~a decrease in internal headcount, areduced ~~reduction~~AWS inexpense ~~allocated~~through ~~labor~~improved ~~costs~~practices, ~~related~~reduction toof ~~software~~third ~~support~~party ~~services~~vendor costs when possible, and ~~cost~~a ~~saving~~decreased ~~actions~~data center footprint.

Sales and marketing

Sales and marketing cost decreased by $439.52 million or 8586% in the three months ended ~~October~~April 3130, ~~2022~~2023, asdue ~~compared~~ to ~~the~~a ~~same~~decrease ~~period~~ in ~~fiscal 2022, primarily due to~~ non-cash stock compensation ~~expense~~ of $432.52 million ~~incurred in fiscal 2022 triggered by the modification of RSUs in the three months ended October 31, 2022, as compared to $0~~.6 ~~million in the same period in fiscal 2023.~~ The remaining decrease of $0.6.9 million ~~was~~is driven by the decrease in headcount and cost saving actions.

General and administrative

General and administrative costs decreased by $608.05 million or 7554% in the three months ended ~~October~~April 3130, ~~2022~~2023, asdue ~~compared~~ to ~~the~~a ~~same~~decrease ~~period~~ in ~~fiscal 2022, primarily due to~~ non-cash stock compensation expense of $695.29 million ~~incurred in fiscal 2022 triggered by the modification of RSUs in the three months ended October 31~~, ~~2022,~~with ~~as compared to $13.3 million in~~ the ~~same period in fiscal 2023. The~~ remaining decrease of $42.16 million ~~was~~ primarily driven by the decrease in ~~headcounts~~headcount and cost saving actions.

Interest expense

~~The~~Interest ~~decrease in interest~~ expense isincreased ~~due~~by to$1.2 ~~the~~million ~~interest~~or ~~expense~~1,393% ~~incurred~~in on the ~~bridge~~three ~~loan~~months ~~paid~~ended ~~off~~April in30, ~~fiscal~~2023, ~~2022~~primarily as athe ~~part~~result of ~~the~~interest ~~merger~~expense ~~offset~~incurred byon the ~~interest~~Convertible ~~accrued~~Note, ~~from~~C5 ~~the~~Notes, ~~Convertible~~and ~~Note~~Director ~~beginning~~Notes induring the three months ended ~~October~~April 3130, ~~2022~~2023.

Other income

~~The~~Other ~~increase~~income increased by $0.2 million or 1,900% in ~~other~~the ~~income~~three ~~was~~months ~~due~~ended April 30, 2023, primarily as the result of the decrease in fair value of the conversion option derivative liabilities established related to ~~foreign~~the ~~currency~~Convertible ~~adjustments~~Note and C5 Notes.

Other expense

~~Other~~The ~~expense~~change ~~increased by $0.6 million or 3,127%~~ in ~~the~~other ~~three~~expenses ~~months~~was ~~ended~~immaterial ~~October 31, 2022 as compared~~ to the ~~same~~results ~~period in fiscal 2022, primarily as the result~~ of ~~the decrease in fair value of the commitment fee derivative asset established related to the Purchase Agreement entered into with Tumim and losses on the disposal of fixed assets~~operations.

Change in fair value of warrant liabilities

Change in fair value of warrant liabilities is the result of the exercise of 5.2 million private warrants in the three months ended October 31, 2021 and the change in fair value.

Provision for income taxes

The change in provision for income taxes was immaterial to the results of operations primarily due to our continued net loss position, the accumulation of net loss carryforwards, and offsetting valuation allowance.

Comparison of the Nine Months Ended October 31, 2022 and 2021

The following tables set forth our consolidated statement of operations data for each period presented:

	Nine Months Ended October 31,
	2022			Percentage of Revenue			2021			Percentage of Revenue			Change $			Change %
	($ in thousands)
Product, subscription and support revenue	$	19,331			95	%	$	18,038			93	%	$	1,293			7	%
Professional services revenue		952			5	%		1,327			7	%		(375	)		(28	)%
Total revenue		20,283			100	%		19,365			100	%		918			5	%
Cost of product, subscription and support revenue		8,875			44	%		5,505			28	%		3,370			61	%
Cost of professional services revenue		397			2	%		617			3	%		(220	)		(36	)%
Total cost of revenue		9,272			46	%		6,122			32	%		3,150			51	%
Gross profit		11,011			54	%		13,243			68	%		(2,232	)		(17	)%
Operating expenses														—
Research and development		27,246			134	%		38,917			201	%		(11,671	)		(30	)%
Sales and marketing		27,194			134	%		66,095			341	%		(38,901	)		(59	)%
General and administrative		48,742			240	%		91,419			472	%		(42,677	)		(47	)%
Total operating expenses		103,182			509	%		196,431			1,014	%		(93,249	)		(47	)%
Operating loss		(92,171	)		(454	)%		(183,188	)		(946	)%		91,017			(50	)%
Interest expense		(482	)		(2	)%		(1,060	)		-5	%		578			(55	)%
Other income		55			0	%		19			0	%		36			189	%
Other expense		(995	)		(5	)%		(29	)		0	%		(966	)		3,330	%
Change in fair value of warrants liabilities		6			0	%		(11,302	)		(58	)%		11,308			(100	)%
Loss before income taxes		(93,587	)		(461	)%		(195,560	)		(1,010	)%		101,973			(52	)%
Provision for income taxes		(6	)		0	%		(56	)		0	%		50			(90	)%
Net loss	$	(93,593	)		(461	)%	$	(195,616	)		(1,010	)%	$	102,023			(52	)%

Revenue

Total revenue increased by $0.9 million or 5% in the nine months ended October 31, 2022, as compared to the same period in fiscal 2022.

Product, subscription and support revenue increased by $1.3 million or 7% primarily due to the net effect of the Company’s transition from contracts that had non-recurring elements which did not renew in full, replaced by revenues from contract forms that were designed to fully renew with legacy customers and signing new customers.

Professional services revenue decreased by $0.4 million or 28% in the nine months ended October 31, 2022, as compared to the same period in fiscal 2022.

Cost of Revenue

Total cost of revenue increased by $3.2 million or 51% in the nine months ended October 31, 2022, as compared to the same period in fiscal 2022. Cost of product, subscription and support revenue increased by $3.4 million or 61% in the nine months ended October 31, 2022, as compared to the same period in fiscal year 2022. The increase was due primarily to an increase in cloud subscription customers, costs incurred to fully ramp cloud hosting environments related to a significant revenue customer that was onboarded in fiscal year 2023, an increase in allocated labor costs related to software support services, duplicative charges that occurred while certain customers transitioned from their on-premises to cloud hosted deployment formats, and the establishment of an inventory reserve in the nine months ended October 31, 2022.

Cost of professional services revenue decreased by $0.2 million in the nine months ended October 31, 2022, as compared to the same period in fiscal 2022.

Gross Profit and Gross Margin

Certain business decisions related to cost of revenue resulted in a decrease in product, subscription and support gross margin to 54% in the nine months ended October 31, 2022, which would have been approximately 61% during the period when excluding the expense incurred related to establishing an inventory reserve, as compared to 69% in the same period in fiscal 2022, and an increase in professional services gross margin to 58% in the nine months ended October 31, 2022, as compared to 54% in the same period in fiscal 2022. The period over period decrease in margin for software was primarily the result of cloud costs for a significant revenue customer that ramped up in the second half of fiscal year 2023, an increase in warranty costs related to inventory held in readiness for large future contracts as well as duplicative charges that occurred while certain customers transitioned from their on-premises to cloud hosted deployment formats, the establishment of an inventory reserve in the nine months ended October 31, 2022, and an increase in allocated labor costs related to software support services. Professional services will continue to be volatile contract to contract.

The following tables show gross profit and gross margin, respectively, for product, subscription and support revenue and professional services revenue for the nine months ended October 31, 2022 and 2021.

	Nine Months Ended October 31,
	2022			2021			Change $			Change %
	($ in millions)
Product, subscription and support gross profit	$	10.5	$		12.5	$	$	(2.0	)		(16	)%
Professional services gross profit		0.5			0.7			(0.2	)		(29	)%
Total gross profit	$	11.0	$		13.2	$	$	(2.2	)		(17	)%

	Nine Months Ended October 31,
	2022			2021			Change
Product, subscription and support margin		54.1	%		69.5	%		(15.4	)%
Professional services margin		58.3	%		53.5	%		4.9	%
Total gross margin		54.3	%		68.4	%		(14.1	)%

Operating expenses

Research and development

Research and development expenses decreased by $11.7 million or 30% in the nine months ended October 31, 2022, as compared to the same period in fiscal 2022, primarily due to non-cash stock compensation expense of $17.2 million incurred in the nine months ended October 31, 2021 triggered by the modification of RSUs, as compared to $4.6 million in non-cash stock compensation expense in the same period in fiscal 2023. The offsetting increase in research and development costs of $0.6 million is the result of ramping resources to support product development, ramping of external costs to support product development and an increase driven by cloud computing costs.

Sales and marketing

Sales and marketing cost decreased by $38.9 million or 59% in the nine months ended October 31, 2022, as compared to the same period in fiscal 2022, primarily due to non-cash stock compensation of $43.5 million incurred in the nine months ended October 31, 2022 triggered by the modification of RSUs, as compared to $2.6 million in non-cash stock compensation expense in the same period in fiscal 2023. The offsetting increase in sales and marketing costs of $2.0 million is due to the expansion of our sales and marketing efforts in the first half of fiscal 2023.

General and administrative

General and administrative costs decreased by $42.7 million or 47% in the nine months ended October 31, 2022, as compared to the same period in fiscal 2022, primarily due to non-cash stock compensation of $69.2 million incurred in the nine months ended October 31, 2022 triggered by the modification of RSUs, as compared to $25.8 million in non-cash stock compensation expense in the same period in fiscal 2023. The offsetting increase of $0.7 million is due to the increase in costs related to being a publicly traded company and the overall efforts to support business operations.

Interest Expense

The decrease in interest expense is due to the interest expense incurred on the bridge loan paid off in fiscal 2022 as a part of the merger offset by the interest accrued from the convertible debenture loan beginning in the third quarter of fiscal 2023.

Other income

The net fluctuation of other income was immaterial to the results of operations.

Other expense

Other expense increased by $0.97 million or 3,330% in the nine months ended October 31, 2022, as compared to the same period in fiscal 2022, primarily as the result of a settlement of a pre-Merger claim against LGL, the cumulative impact of foreign currency losses, and the decrease in fair value of the commitment fee derivative asset established related to the Purchase Agreement entered into with Tumim..

Change in fair value of warrant liabilities

Change in fair value of warrant liabilities is the result of the exercise of 5.2 million private warrants in the nine months ended October 31, 2021 and the change in fair value.

Provision for income taxes

Liquidity and Capital Resources

Based on our current planned operations, in the absence of additional sources of liquidity, management anticipates that our existing cash and cash equivalents and anticipated cash flows from operations will not be sufficient to meet our operating and liquidity needs for any meaningful period of time following the date of this report. There is no assurance that management will be able to obtain additional liquidity or be successful in raising additional funds or that such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on our existing stockholders. In the event we determine that additional sources of liquidity will not be available to us or will not allow us to meet our obligations as they become due, we may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a plan of reorganization, court-supervised sale, and/or liquidation.

~~Prior~~Voluntary toChapter ~~March~~11 ~~10,~~Filings ~~2023, we had a banking relationship with SVB. As of the closure of SVB on March 10, 2023, we held approximately $8.1 million in cash, cash equivalents~~ and ~~investments~~Subsequent atEvents or through SVB, which represented approximately 96% of our total cash, cash equivalents and investments as of that date. SVB was closed on March 10, 2023 by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 12, 2023, the U.S. Treasury, Federal Reserve, and FDIC announced that SVB depositors would have access to all of their money starting March 13, 2023. On March 13, 2023, we were able to access all $8.1 million in cash, cash equivalents and investments held at or through SVB. While we have not experienced any losses in such accounts, the recent failure of SVB exposed us to significant credit risk prior to the completion by the FDIC of the resolution of SVB in a manner that fully protected all depositors. We are in the process of transferring some of our deposits to multiple banks to limit any future credit risk.

Given that additional sources of liquidity were not available to us and after considering strategic alternatives, on September 2, 2023, we furloughed almost all of our employees and substantially curtailed business operations as a result of our liquidity position. Subsequently, on September 29, 2023, given the unavailability of additional sources of liquidity and after considering strategic alternatives, we ceased substantially all of our business activities and terminated our remaining employees. On October 12, 2023, we filed voluntary petitions for reorganization under the Bankruptcy Code in the Bankruptcy Court (such cases, the “Chapter 11 Cases”). On October 13, 2023, certain employees were re-hired by the Company in connection with the Chapter 11 proceedings. As noted above, on January 18, 2024, the Bankruptcy Court entered the Findings of Fact, Conclusions of Law, and Order Confirming the Chapter 11 plan. The Debtors expect that the Effective Date of the Joint Plan will occur as soon as all conditions precedent to the Chapter 11 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 Chapter 11 plan will become effective.

In addition to the Chapter 11 Cases, subsequent to April 30, 2023, our liquidity position and capital resources were adversely impacted by numerous events, we issued additional indebtedness (including a debtor-in-possession financing facility in connection with the Chapter 11 Cases) and defaulted under all of our outstanding indebtedness. See above under “— Financing to Date”, “— Recent Developments”, “— Reductions in Force”, “— NYSE Delisting”, and Note 13 to our interim condensed consolidated financial statements included in this report.

SVB Matters

Prior to March 10, 2023, we had a banking relationship with SVB. As of the closure of SVB on March 10, 2023, we held approximately $8.1 million in cash, cash equivalents and investments at or through SVB, which represented approximately 96% of our total cash, cash equivalents and investments as of that date. SVB was closed on March 10, 2023 by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 12, 2023, the U.S. Treasury, Federal Reserve, and FDIC announced that SVB depositors would have access to all of their money starting March 13, 2023. On March 13, 2023, we were able to access all $8.1 million in cash, cash equivalents and investments held at or through SVB. While we did not experience any losses in such accounts, the recent failure of SVB exposed us to significant credit risk prior to the completion by the FDIC of the resolution of SVB in a manner that fully protected all depositors. To limit risk subsequent to the SVB failure, we took steps to diversify across multiple banks. As liquidity became tighter and the amount of funds held were reduced, we consolidated to one bank to make necessary payments.

Sources of Liquidity

We have incurred losses and negative cash flows from operations since inception. Through ~~October~~April 3130, ~~2022~~2023, we have funded our operations with proceeds from sales of common stock and redeemable convertible preferred stock, proceeds related to the public trust shares held by Legacy LGL that were received as part of the Merger and recapitalization, the sale of Convertible Notes (as described below) to 3i, loans issued to the Board of Directors and C5, and receipts from sales of our products and services to customers in the ordinary course of business. As of ~~October~~April 3130, ~~2022~~2023, we had cash and cash equivalents of $87.25 million, ~~and~~ $107.34 million in convertible debt outstanding under the Convertible Note, ~~described below~~$11.8 ~~Our~~million ~~primary~~in ~~source~~convertible ofdebt ~~liquidity~~outstanding isunder ~~has been~~ the ~~financing~~C5 ~~transactions~~Notes, ~~described~~ and we$7.2 ~~are~~million ~~seeking~~in ~~additional~~ debt ~~funding~~outstanding inunder ~~order~~the toDirector ~~continue~~Notes, ~~our~~all ~~operations~~described below. ~~Our~~Through ~~current~~April ~~indebtedness matures on June~~ 30, 2023, ~~and~~our weprimary ~~will~~source ~~need~~of toliquidity ~~either~~has ~~extend~~been the ~~maturity~~financing ~~date~~transactions ofdescribed ~~this~~below ~~debt~~and orwe ~~raise~~are seeking additional ~~funds~~debt funding in order to ~~repay~~continue ~~the~~our ~~debt~~operations. inSee ~~order~~Note 13 to ~~avoid~~our aninterim ~~event~~condensed ofconsolidated ~~default~~financial onstatements ~~our~~included ~~current~~in ~~indebtedness~~this report.

Tumim Stone Capital Committed Equity Financing

26On February 11, 2022, we entered into the Purchase Agreement with Tumim, pursuant to which Tumim has committed to purchase up to $175 million of common stock (the “Total Commitment”), at our direction from time to time, subject to the satisfaction of the conditions in the Purchase Agreement. Also on February 11, 2022, we entered into a registration rights agreement with Tumim (the “Registration Rights Agreement”), pursuant to which we have filed with the SEC a registration statement to register for resale under the Securities Act the shares of common stock that may be issued to Tumim under the Purchase Agreement. Pursuant to the terms of the Purchase Agreement, at the time we signed the Purchase Agreement and the Registration Rights Agreement, we paid a cash fee of $1.8 million, or 1% of the Total Commitment, to Tumim as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement.

OnShares ~~February~~of ~~11,~~common ~~2022,~~stock wewill ~~entered~~be ~~into~~issued ~~the~~to ~~Purchase~~Tumim ~~Agreement~~at ~~with~~either ~~Tumim,~~a ~~pursuant~~(i) to3% ~~which~~discount ~~Tumim~~to ~~has~~the ~~committed~~average todaily ~~purchase~~volume upweighted toaverage ~~$175~~price ~~million~~(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 “~~Total~~VWAP ~~Commitment~~Purchase Notice”), atis ~~our~~delivered ~~direction~~to ~~from~~Tumim ~~time~~(a to“Forward ~~time~~VWAP Purchase”), ~~subject~~or (ii) 5% discount to the ~~satisfaction~~lowest ofdaily VWAP during the ~~conditions~~three inconsecutive ~~the~~trading ~~Purchase~~days ~~Agreement.~~from ~~Also~~the ondate ~~February~~that ~~11,~~a ~~2022,~~VWAP wePurchase ~~entered~~Notice ~~into~~with respect to a ~~registration~~particular ~~rights~~purchase ~~agreement~~is ~~with~~delivered to Tumim (~~the~~an “~~Registration~~Alternative ~~Rights~~VWAP ~~Agreement~~Purchase”),. ~~pursuant~~Each VWAP Purchase Notice to ~~which~~Tumim wewill ~~filed~~specify ~~with~~whether the ~~SEC~~applicable purchase is a ~~registration~~Forward ~~statement~~VWAP toPurchase ~~register~~or ~~for~~an ~~resale~~Alternative ~~under~~VWAP ~~the~~Purchase, ~~Securities~~and ~~Act~~will direct that Tumim purchase the applicable number of shares of common stock ~~that~~at ~~may~~the beapplicable ~~issued~~purchase toprice. ~~Tumim~~There ~~under~~is ~~the~~no ~~Purchase~~upper ~~Agreement.~~limit ~~Pursuant~~on to the ~~terms~~price ofper ~~the~~share ~~Purchase~~that ~~Agreement,~~Tumim atcould ~~the~~be ~~time~~obligated weto ~~signed~~pay for the ~~Purchase~~common ~~Agreement~~stock ~~and~~under the ~~Registration~~Purchase ~~Rights~~ Agreement,. weThe ~~paid~~purchase aprice ~~cash~~per ~~fee~~share of ~~$1.8~~common ~~million,~~stock orto 1%be ofsold ~~the~~in ~~Total~~a ~~Commitment,~~Purchase towill ~~Tumim~~be asappropriately ~~consideration~~adjusted for ~~its~~any ~~commitment~~reorganization, torecapitalization, ~~purchase~~non-cash ~~shares~~dividend, ofstock ~~our~~split, ~~common~~reverse stock ~~under~~split ~~the~~or ~~Purchase~~other ~~Agreement~~similar transaction.

~~The~~Through ~~sales~~January ~~of common stock by us to Tumim under the Purchase Agreement~~31, ~~if any~~2023, ~~will~~we besold ~~subject to certain limitations and may occur~~2,511,365 ~~from~~shares ~~time~~ to ~~time~~Tumim atfor ~~our~~gross ~~sole~~proceeds ~~discretion, over the approximately 36-month period commencing upon the date~~ of ~~initial~~$0.6 ~~satisfaction~~million ofunder ~~all conditions to Tumim’s purchase obligations set forth in~~ the Purchase Agreement. ~~We have the right~~However, ~~but~~as ~~not the obligation, from time to time at our sole discretion, to direct Tumim to purchase certain amounts~~ of ~~our~~April ~~common stock~~30, ~~subject to certain restrictions and limitations in the Purchase Agreement~~2023, ~~that~~ we ~~specify~~were innot ~~purchase~~able ~~notices that we deliver~~ to ~~Tumim~~sell ~~under~~additional ~~the~~shares ~~Purchase Agreement (each such purchase, a “Purchase”). Shares~~ of common stock ~~will be issued~~ 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 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 to Tumim (an “Alternative VWAP Purchase”). Each VWAP Purchase Notice to Tumim will specify whether the applicable purchase is a Forward VWAP Purchase or an Alternative VWAP Purchase, and will direct that Tumim purchase the applicable number of shares of common stock at the applicable purchase price. 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.

AsSubsequently, ofon ~~October~~June 3116, ~~2022~~2023, weTumim ~~had~~notified ~~not~~the ~~sold~~Company ~~any~~of ~~common~~Tumim’s ~~stock~~election ~~under~~to terminate the Purchase Agreement~~. Subsequent to October 31~~, ~~2022,~~effective weas ~~sold 1,761,879 shares to Tumim for gross proceeds~~ of ~~$0.6~~June ~~million. However~~20, we2023. ~~are~~See ~~not~~Note ~~currently~~13 ~~able~~ to ~~sell~~our ~~additional~~interim ~~shares~~condensed ofconsolidated ~~common~~financial ~~stock~~statements toincluded ~~Tumim~~in ~~under~~this ~~the Purchase Agreement~~report.

3i Convertible Debt Facility

On September 14, 2022, we entered into a Securities Purchase Agreement (the "SPA") with 3i, under which we agreed to sell and issue senior unsecured convertible promissory notes (the "Convertible Notes") to 3i in an aggregate principal amount of up to approximately $25.8 million, which are convertible into shares of our common stock, subject to certain conditions and limitations. On September 15, 2022, we issued a Convertible Note under the SPA with a maturity date of March 15, 2024 in the aggregate principal amount of $10.3 million for net cash proceeds after debt discount of $10.0 million. Upon the satisfaction of additional conditions set forth in the SPA that have not yet been met, we may issue an additional Convertible Note in the principal amount of $15.5 million at a second closing.29

~~The~~On ~~Convertible~~September ~~Notes~~14, ~~bear interest at an annual rate of 5.00% per annum~~2022, ~~payable~~we ~~monthly~~entered oninto ~~the~~a ~~first~~Securities ofPurchase ~~each~~Agreement ~~month~~ (~~The~~the "~~Installment Date~~SPA"), ~~beginning~~with ~~the~~3i, ~~first~~under ~~month~~which ~~that~~we isagreed 90to ~~days~~sell ~~following~~and ~~the~~issue ~~issuance~~senior ~~date,~~unsecured ~~payable~~convertible inpromissory ~~cash~~notes ~~and/or~~(the ~~shares~~"Convertible ofNotes") ~~common~~to ~~stock,~~3i atin ~~our~~an ~~option.~~aggregate ~~The~~principal ~~interest~~amount ~~rate~~of ~~will~~up ~~increase~~ to anapproximately ~~annual~~$25.8 ~~rate~~million, ofwhich ~~10.00%~~are ~~per~~convertible ~~annum~~into ~~upon~~shares ~~the~~of ~~occurrence~~our ~~and~~common ~~during~~stock, ~~the~~subject ~~continuance~~to ofcertain anconditions ~~event~~and oflimitations. ~~default~~On ~~under~~September ~~the~~15, ~~Convertible~~2022, ~~Notes.~~we ~~Each~~issued a Convertible Note ~~issued~~under ~~pursuant to~~ the SPA ~~will~~with ~~have~~ a maturity date of 18March ~~months~~15, ~~from~~2024 ~~issuance,~~in ~~which~~the ~~may~~aggregate beprincipal ~~extended~~amount atof ~~the~~$10.3 ~~option~~million offor 3inet incash ~~certain~~proceeds ~~instances~~after debt discount of $10.0 million.

The Convertible Notes ~~provide~~bear ~~a conversion right in which 3i may convert any portion of the principal, together with any unpaid~~ interest ~~and other unpaid amounts, into shares of common stock~~ at aan ~~conversion~~annual ~~price~~rate of $75.5000% per ~~share~~annum, ~~subject~~payable tomonthly ~~adjustments~~on ~~in accordance with~~ the ~~terms~~first of ~~the~~each ~~Convertible~~month ~~Notes.~~(the ~~However~~"Installment Date"), webeginning ~~will~~the ~~not~~first ~~issue~~month ~~any~~that ~~shares~~is of90 ~~common~~days ~~stock~~following ~~upon conversion of any Convertible Notes, or otherwise, if~~ the issuance ~~of such common stock~~date, ~~together~~payable ~~with any common stock issued~~ in ~~connection~~cash ~~with the SPA~~ and/or ~~the~~shares ~~transaction~~of ~~contemplated~~common ~~thereby~~stock, ~~would~~at ~~exceed~~our ~~20,373,592~~option. ~~shares,~~The ~~except~~interest ~~that~~rate ~~such~~will ~~limitation~~increase ~~shall~~to ~~not~~an ~~apply~~annual inrate ~~the~~of ~~event~~10.00% ~~that~~per weannum ~~obtain~~upon the ~~approval~~occurrence ofand ~~our~~during ~~stockholders as required by~~ the ~~applicable~~continuance ~~rules~~ of ~~the~~an ~~NYSE~~event ~~for issuances~~ of ~~shares~~default ofunder ~~common~~the ~~stock~~Convertible ~~in excess of such amount~~Notes. ~~The~~Each Convertible Note ~~also~~issued ~~contains~~pursuant ~~provisions that provide 3i with the right, subject~~ to ~~certain exceptions, to require~~ the ~~Company~~SPA towill ~~redeem~~have ~~all or~~ a ~~portion~~maturity date of ~~the~~18 ~~Convertible~~months ~~Note~~from inissuance, ~~cash.~~which ~~This~~may ~~convertible~~be ~~feature~~extended ~~has~~at ~~been bifurcated from~~ the ~~host~~option ~~contract~~of ~~and~~3i ~~accounted~~in ~~for~~certain ~~separately as a derivative~~instances.

The Convertible Notes provide a conversion right in which 3i may convert any portion of the principal, together with any unpaid interest and other unpaid amounts, into shares of common stock at a conversion price of $7.50 per share, subject to adjustments in accordance with the terms of the Convertible Notes. However, we will not issue any shares of common stock upon conversion of any Convertible Notes, or otherwise, if the issuance of such common stock, together with any common stock issued in connection with the SPA and the transaction contemplated thereby, would exceed 20,373,592 shares, except that such limitation shall not apply in the event that we obtain the approval of our stockholders as required by the applicable rules of the NYSE for issuances of shares of common stock in excess of such amount. The Convertible Notes also contains provisions that provide 3i with the right, subject to certain exceptions, to require the Company to redeem all or a portion of the Convertible Notes in cash. This convertible feature has been bifurcated from the host contract and accounted for separately as a derivative.

On each monthly Installment Date, we shall repay the lesser of $0.7 million and the principal amount then outstanding, plus accrued and unpaid interest, in cash and/or shares of common stock, at our option (the "Installment Amount"). In certain instances, 3i will also have the right to accelerate some of the monthly repayment obligations. For any Installment Amount paid in the form of shares of common stock, the applicable conversion price will be equal to the lesser of (a) $7.50, and (b) the greater of (x) 95% of the lowest VWAP in the five trading days immediately prior to such conversion, and (y) a “floor price” of approximately $0.44, subject to adjustment in accordance with the terms of the Convertible Notes. For any Installment Amount paid in cash, the price paid will be equal to 105% of the Installment Amount.

On September 14, 2022, in connection with our entry into the SPA, we also entered into a Registration Rights Agreement with 3i (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, we agreed to file with the Securities and Exchange Commission (the “SEC”), within 60 calendar days following the date of the Registration Rights Agreement, a registration statement covering the resale of the shares of common stock issuable upon conversion of the outstanding Convertible ~~Note~~Notes. This registration statement was filed on November 14, 2022 and declared effective by the SEC on November 30, 2022.

During the year ended January 31, 2023, we elected to pay one of the Installment Amounts due in cash and one Installment Amount through a combination of cash and the issuance of common stock, which resulted in the issuance of 1,363,636 shares of common stock for an aggregate conversion amount of $0.4 million. During the three months ended April 30, 2023, the Company paid two of the Installment Amounts due in cash. The Company failed to pay Installment Amounts in December 2022 and April 2023, which qualifies as an event of default per the Convertible Notes, and has resulted in the Company incurring interest at a rate of 10.0% per annum since the original event of default.

As of April 30, 2023, we had $7.7 million in principal and accrued and unpaid interest outstanding related to the Convertible Notes. The Company subsequently prepaid $3.3 million and, as a result, approximately $4.2 million principal amount of the convertible notes remains outstanding thereafter. We are currently in default under the Convertible Notes.

See Note 13 to our interim condensed consolidated financial statements included in this report for more information relating to the Convertible Notes and related events of default.

Director and C5 Loans

Between December 14, 2022 and December 16, 2022, we issued and sold senior secured promissory notes in an aggregate principal amount of $6.9 million (the “Initial Director Notes”) to a total of eight lenders., which included seven lenders who are either our directors or entities affiliated with our directors. Subsequently we and the holders of the Initial Director Notes agreed to amend and restate the Initial Director Notes to be substantially in the form to be issued to C5 (the “Director Notes”). This amendment and restatement occurred on January 11, 2023. InOn April 20, 2023, we issued and sold an additional Director Note in the amount of $0.3 million to athe lender not affiliated with our directors. The Director Notes bear interest at a rate of 13.8% per annum from the respective dates of the Initial Director Notes, and the Director Notes ~~are~~were originally payable at scheduled maturity on June 30, 2023. 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 of April 30, 2023, we had $7.2 million in principal and accrued interest outstanding related to the Director Notes.

On December 30, 2022, we issued a senior secured convertible promissory note in the principal amount of $2.0 million (the “Initial C5 Note”) to an affiliate of C5, which was amended and restated on January 11, 2023 (as amended and restated, the “Restated C5 Note”). On January 12, 2023, February 8, 2023, February 27, 2023, ~~and~~ April 13, 2023, May 2, 2023 and May 8, 2023, we issued additional senior secured convertible promissory notes to affiliates of C5 (together with the Restated C5 Note, the “C5 Notes”) in principal amounts of $3.0 million, $4.0 million, $2.25 million, $0.6 million, $0.9 million, and $0.64 million, respectively. Each of the C5 Notes bear interest at a rate of 13.8% per annum from the date of issuance (or in the case of the Restated C5 Note, from the date of the Initial C5 Note), and all such notes ~~are~~were originally payable at scheduled maturity on June 30, 2023, subject to acceleration in certain circumstances. 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.

Our obligations under the Director Notes and the C5 Notes are secured by substantially all of our assets, excluding our intellectual property.

The C5 Notes provide C5 with the right, at any time on or after the date that is five calendar days prior to maturity, to convert all or any portion of the aggregate principal amount of the C5 Notes, together with any accrued and unpaid interest and any other unpaid amounts, into shares of our common stock, at a conversion price of $2.00 per share. In the event that any shares of common stock are issued upon conversion of the C5 Notes, we have agreed to grant specified registration rights to C5.

27As of April 30, 2023, we had $12.2 million in principal and accrued interest outstanding related to the C5 Notes. We are currently in default under the Director Notes and the C5 Notes.

~~price~~See ofNote ~~$2.00~~13 ~~per~~to ~~share.~~our Ininterim ~~the~~condensed ~~event~~consolidated ~~that~~financial ~~any~~statements ~~shares~~included ofin ~~common~~this ~~stock~~report, ~~are~~including ~~issued~~with ~~upon~~respect ~~conversion~~to the amendment of the foregoing notes, the issuance of additional Director Notes and C5 Notes, weand ~~have~~the ~~agreed~~events toof ~~grant~~default ~~specified~~under ~~registration~~the ~~rights~~Director toNotes and the C5 Notes.

Long-Term Liquidity Requirements

Based on our current operating plan, management believes that we do not have sufficient cash and cash equivalents on hand to support our current operations for any meaningful period of time following the date of this report. Management has concluded that there is substantial doubt about our ability to continue as a going concern.

WeGiven ~~require~~that additional ~~equity~~sources orof ~~debt~~liquidity ~~financing~~were innot ~~order~~available to ~~continue~~us and after considering strategic alternatives, on September 2, 2023, we furloughed almost all of our employees and substantially curtailed business operations. Weas ~~may~~a ~~not~~result beof ~~able~~our toliquidity ~~raise~~position. ~~financing~~Subsequently, on ~~terms~~September ~~acceptable~~29, to2023, usgiven orthe atunavailability of additional sources of liquidity and after considering strategic alternatives, we ceased substantially all of our business activities and terminated our remaining employees. IfOn ~~additional~~October ~~funds~~12, ~~are~~2023, ~~not~~we ~~available~~filed tothe usChapter 11 Cases. On October 13, 2023, certain employees were re-hired by the Company in connection with the Chapter 11 proceedings. As noted above, on ~~acceptable~~January ~~terms~~18, or2024, atthe ~~all~~Bankruptcy Court entered the Findings of Fact, weConclusions of Law, and Order Confirming the Chapter 11 plan. The Debtors expect that the Effective Date of the Joint Plan will ~~likely~~occur ~~need~~as soon as all conditions precedent to ~~declare~~the ~~bankruptcy~~Chapter or11 ~~wind~~plan ~~down~~have ~~our~~been ~~operations~~satisfied. Although the Debtors anticipate that all conditions will be satisfied, the Debtors can make no assurances as to when, or ultimately if, the Chapter 11 plan will become effective.

indebtedness. See above under “— Financing to Date”, “— Recent Developments”, “— Reductions in Force”, “— NYSE Delisting”, and Note 13 to our interim condensed consolidated financial statements included in this report.

While the Chapter 11 plan of reorganization has been confirmed by the Bankruptcy Court, we will require additional equity or debt financing in order to continue our operations, including following our emergence from bankruptcy. We may not be able to raise financing on terms acceptable to us or at all. If additional funds are not available to us on acceptable terms, or at all, we will likely need to wind down our operations.

Cash Flows

For the ~~Nine~~Three Months Ended ~~October~~April 3130, ~~2022~~2023 and ~~2021~~2022

The following table summarizes our cash flows for the periods presented:

		Nine Months Ended October 31,
		Three Months Ended April 30,
		2022				2021
		2023				2022
		(in millions)
Net cash used in operating activities	$	$	(535.6	)	$	$	(5922.12	)
Net cash used in investing activities	$	$	(20.13	)	$	$	(20.29	)
Net cash provided by financing activities	$	$	165.38		$	$	~~103~~6.49

Operating Activities

Net cash used in operating activities during the ~~nine~~three months ended ~~October~~April 3130, ~~2022~~2023 was $535.6 million, which ~~resulted~~was ~~from a net loss of $93.6 million,~~ primarily driven by growth-related operating expenses exceeding the gross profits from sales, adjusted for non-cash charges of $~~37.~~2.7 million and net cash ~~inflows~~outflows of $21.80 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $~~33.~~1.0 million of stock compensation expense, ~~and~~ $10.85 million of depreciation and amortization expense, and $1.1 ~~Cash~~million of non-cash interest expense. The remaining $6.6 million in net loss accounted for much of the net cash used in operating activities. ~~during~~Cash ~~the~~used ~~nine~~in ~~months~~operating ~~ended~~activities ~~October~~during ~~31,~~the ~~2022~~year was ~~primarily~~also driven by ~~cash~~a ~~collections~~decrease ofin ~~accounts~~accrued ~~receivable~~expenses of $51.63 million, ~~and~~which anis ~~increase~~the inresult ~~accounts~~of ~~payable~~timing of ~~$5.0~~new ~~million~~customer contracts, ~~offset~~and by a decrease in deferred revenue of $30.3 million, aoffset ~~decrease~~by incash ~~accrued~~collections ~~expenses~~of accounts receivable of $20.56 million, ~~and~~a andecrease ~~increase~~ in ~~inventory~~deferred costs of $1.0 million, ~~which~~and isa ~~the~~decrease ~~result~~in ofprepaid ~~timing~~expenses of ~~new~~$0.8 ~~customer contracts~~million.

Net cash used in operating activities during the ~~nine~~three months ended ~~October~~April 3130, ~~2021~~2022 was $5922.12 million, which primarily resulted from a net loss of $~~195~~33.62 million, ~~primarily~~of ~~driven~~which by$11.4 ~~the~~million ~~modification~~was ofattributable ~~restricted~~to non-cash stock ~~unit~~based ~~awards~~compensation. ofThe remaining $~~129~~21.98 million ~~and~~of ~~related~~the ~~non-~~net loss accounted for much of the net cash ~~expenses.~~used ~~There~~in ~~was~~operating ~~also~~activities, with an increase in the ~~fair~~receivables ~~value~~balance of ~~warrants liabilities of~~ $114.38 million ~~and~~due anto ~~increase~~lower incash ~~accrued~~collections, ~~expenses.~~largely ~~This~~being ~~was~~ offset by an increase in ~~accounts~~deferred ~~receivable~~revenue of $74.29 million. from customer payments that had not yet been recognized as revenue.

The overall decrease in net cash used in operating activities in the nine months ended October 31, 2022 as compared to the same period in fiscal 2022 was driven by an decrease in cash operating expenses of approximately $9.3 million, primarily due to higher cash collections and fewer new billings from customers of $9.2 million and increases in accrued expenses of $2.7 million, offset by increases in inventory, prepaid warranty and deferred customer costs of $2.3 million and other minor cash activity.

Investing Activities

Net cash used in investing activities ~~of $2.1 million~~ during the ~~nine~~three months ended ~~October~~April 3130, ~~2022~~2023 of $0.2 million was primarily a result of ~~purchases~~capitalized ofsoftware ~~property~~development ~~and equipment~~costs.

Net cash used in investing activities ~~of $2.2 million~~ during the ~~nine~~three months ended ~~October~~April 3130, ~~2021~~2022 of $0.9 million was primarily a result of capitalized software development costs and purchases of property and equipment.

Financing Activities

Net cash provided by financing activities of $165.38 million during the ~~nine~~three months ended ~~October~~April 3130, ~~2022~~2023 was primarily due to ~~net cash proceeds of approximately~~ $9.7 ~~million from the issuance of the Convertible Note and $8~~.21 million net cash proceeds ~~received~~from torelated ~~fund~~party ~~employees' tax withholding obligations associated with vested RSUs~~debt, which ~~will~~is ~~be disbursed to the appropriate taxing authorities,~~ offset by ~~the~~ $1.84 million ~~payment to Tumim for the commitment fee~~ in ~~connection~~repayments ~~with~~of ~~the equity line~~debt.

Net cash provided by financing activities of $~~103~~6.49 million during the ~~nine~~three months ended ~~October~~April 3130, ~~2021~~2022 was primarily due to ~~gross proceeds from the Merger recapitalization of~~ $138.38 million ~~and~~net ~~issuance~~cash ofproceeds ~~PIPE~~received ~~Shares~~to offund ~~$125.0~~employee ~~million~~tax ~~and~~withholding ~~borrowing~~obligations ~~related~~associated towith ~~the~~vested ~~Loan~~RSUs, ~~and~~which ~~Security~~is ~~Agreement~~disbursed (to the ~~"SVB~~appropriate ~~Bridge")~~taxing ~~with SVB Innovation Credit Fund VIII~~authorities, ~~L.P.~~offset ~~for~~by the $151.08 million, ~~offset by~~ payment ofto aTumim ~~PPP~~for ~~loan and~~ the ~~SVB~~commitment ~~Bridge of $5~~fee.~~6 million.~~

Contractual Obligations

Our principal ~~commitment~~commitments ~~consists~~consist of the ~~obligation~~obligations to repay amounts borrowed under (i) the Convertible Note issued to 3i, unless earlier converted into shares of our common stock under the terms of the Convertible Note, (ii) the Director Notes, and (iii) the C5 Notes. For more information regarding our indebtedness, see ~~Note~~Notes 109 and 13 to our interim condensed consolidated financial statements included in this report.

We also have commitments consisting of lease obligations for office space and equipment. For more information regarding our lease obligations, see Note 98 to our interim condensed consolidated financial statements included in this report.

We have made and, ~~while not contractually committed, we~~ expect to continue to make additional investments in our product, scale our operations, and continue to enhance our security measures. We will continue to expand the use of software systems to scale with our overall growth.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

The critical accounting policies, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

Revenue Recognition

Our revenues are derived from sales of product, subscriptions, support and maintenance, and other services. We satisfy performance obligations to recognize revenue for a single performance obligation ratably over the expected term with the customer.

Revenue is recognized when all of the following criteria are met:

Identification of the contract, or contracts, with a customer—A contract with a customer to account for exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and the parties are committed to perform, and (iii) we determine that collection of substantially all consideration to which we will be entitled in exchange for goods or services that will be transferred is probable based on the customer’s intent and ability to pay the promised consideration.

Identification of the performance obligations in the contract—Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, we apply judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation.

Determination of the transaction price—The transaction price is determined based on the consideration to which we will be entitled in exchange for transferring goods or services to the customer.

Allocation of the transaction price to the performance obligations in the contract—We allocate the transaction price to each performance obligation based on the amount of consideration expected to be received in exchange for transferring goods and services to the customer. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Recognition of revenue when, or as, we satisfy performance obligations—We satisfy performance obligations either over time or at a point in time. Revenue is recognized at or over the time the related performance obligation is satisfied by transferring a promised good or service to a customer.

Costs to Obtain or Fulfill a Contract

We capitalize incremental costs of obtaining a non-cancelable subscription and support revenue contract and on professional services revenue as contract acquisition costs. The capitalized amounts consist primarily of sales commissions paid to our direct sales force. The capitalized amounts are recoverable through future revenue streams under all non-cancelable customer contracts. Amortization of capitalized costs, which occurs on a straight line basis, is included in sales and marketing expense in the accompanying condensed consolidated statements of operations. Contract fulfillment costs include appliance hardware and installation costs that are essential in providing the future benefit of the solution, which are also capitalized. We amortize our contract fulfillment costs ratably over the contract term in a manner consistent with the related revenue recognition on that contract and are included in cost of revenue.

Stock-Based Compensation

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. Stock compensation expense for RSUs granted under the 2014 Plan, which contain both service and performance conditions, is recognized on a graded-scale basis matched to the length and vesting tranches for each grant. Stock compensation expense for RSUs granted under the 2021 Plan have only service vesting conditions. Expense will be recognized on a straight-line basis for all RSU awards with only service conditions. In the event that a RSU grant 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 fair value of RSUs is based on the fair value of our common stock on the date of the grant.

We use the Black-Scholes pricing model to estimate the fair value of options on the date of grant. The use of a valuation model requires management to make certain assumptions with respect to selected model inputs. We grant stock options at exercise prices determined equal to the fair value of common stock on the date of the grant. The fair value of our common stock at each measurement date is based on a number of factors, including the results of third-party valuations, our historical financial performance, and observable arms-length sales of our capital stock including convertible preferred stock, and the prospects of a liquidity event, among other inputs. We estimate an expected forfeiture rate for stock options, which is factored into the determination of stock-based compensation expense. The volatility assumption is based on the historical and implied volatility of our peer group with similar business models. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The dividend yield percentage is zero because we do not currently pay dividends nor do we intend to do so in the future.

These estimates involve inherent uncertainties and the use of different assumptions may have resulted in stock-based compensation expense that was different from the amounts recorded.

As of ~~October~~April 3130, ~~2022~~2023, there was $2310.1 million of unrecognized compensation cost related to unvested RSUs without performance obligations. The weighted average remaining vesting period was 2.7331 years.

Leases

In February 2016, the ~~Financial Accounting Standards Board (“~~FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) Section A- Leases: Amendments to the FASB Accounting Standards Codification. The standard requires lessees to recognize the assets and liabilities arising from leases on the balance sheet and retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. We adopted this standard and related amendments in the first quarter of fiscal 2023, using the modified retrospective approach.

The modified retrospective approach provides a method for recording existing leases at adoption with a cumulative adjustment to retained earnings. We elected the package of practical expedients which permits us 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. We also elected 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.

We applied a portfolio approach to effectively account for the lease liabilities and right-of-use lease assets. We exclude 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 $1.1 million and $2.7 million of current lease liabilities and long-term lease liabilities, respectively, and $2.9 million in corresponding right-of-use lease assets. The difference between the approximate value of the right-of-use lease assets and lease liabilities is attributable to deferred rent, which is comprised of tenant improvement allowance and rent abatement. The cumulative change in the beginning accumulated deficit was $0.02 million due to the adoption of Topic 842. There was no material impact on the Company’s condensed consolidated statement of operations or consolidated statements cash flows. Comparative periods continue to be presented in accordance with legacy guidance in Topic 840.

Recently Issued Accounting Standards

Refer to Note 1, ~~Organization and summary of changes in significant accounting policies, of the notes~~ to our unaudited condensed consolidated financial statements included in this Form 10-Q for our assessment of recently issued and adopted accounting standards.

Commitments and Contingencies

Refer to Note 87, Commitments and contingencies, of the notes to our unaudited condensed consolidated financial statements included in this Form 10-Q.

Emerging Growth Company (“EGC”) Status

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an EGC or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may or may not be comparable to companies that comply with new or revised accounting pronouncements as of public companies’ effective dates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have operations in the United States and internationally, and we are exposed to market risk in the ordinary course of our business, including the effects of foreign currency fluctuation. Information relating to quantitative and qualitative disclosures about these market risks is set forth below.

Foreign Currency Risk

The significant majority of our sales contracts are denominated in U.S. dollars, with a small number of contracts denominated in foreign currencies. A portion of our operating expenses are incurred outside the United States, denominated in foreign currencies and subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Singapore Dollar, British Pound, Japanese Yen and Australian Dollar. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our condensed consolidated statements of operations. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our historical condensed consolidated financial statements for fiscal ~~2023~~2024 or fiscal ~~2022~~2023. As the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.

3032

of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of ~~October~~April 3130, ~~2022~~2023, the end of this period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of ~~October~~April 3130, ~~2022~~2023 due to the material weaknesses in our internal control over financial reporting described below.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended October 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Material Weaknesses in Internal Control over Financial Reporting

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures are being made only in accordance with appropriate authorizations of our management and board of directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management determined that, as of January 31, 2022, we did not have a sufficient number of personnel with an appropriate degree of accounting and internal controls knowledge, experience, and training to appropriately analyze, record and disclose accounting matters commensurate with our accounting and reporting requirements, which resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of our financial reporting objectives, which constitutes a material weakness. This material weakness contributed to the following additional material weaknesses:

•

We did not design and maintain effective controls over the accounting for stock-based compensation modifications. This material weakness resulted in the restatement of our unaudited condensed consolidated financial statements as of and for the three months ended October 31, 2021. The error was corrected within our Annual ~~Report~~report on Form 10-K, filed on May 2, 2022~~, resulting in the consolidated financial statements being correctly stated for the year ended January 31, 2022~~.

•

We did not design and maintain effective controls over the review of journal entries and account reconciliations. Specifically, certain personnel have had the ability to both (i) create and post journal entries within our general ledger system, and (ii) prepare and review account reconciliations. This material weakness did not result in a material misstatement to the consolidated financial statements.

•

We did not design and maintain effective controls over information technology ("“IT"”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain: (i) program change management controls for the financial systems to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; (ii) appropriate user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs and data to appropriate personnel; (iii) computer operations controls to ensure data backups are authorized and restorations monitored; and (iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements. This material weakness did not result in a material misstatement to the consolidated financial statements.

Management determined that these material weaknesses continued to exist as of April 30, 2023. These material weaknesses could result in a misstatement of substantially all accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended April 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan

We have continued implementation of a plan to remediate these material weaknesses. These remediation measures are ongoing and ~~have~~include ~~included~~ the following:

•

we hired additional accounting and finance resources with public company experience, including expertise in technical accounting and complex transactions, including stock-based compensation arrangements, in addition to utilizing third-party consultants and specialists, to supplement our internal resources;

•

we ~~have~~are ~~revised~~revising account reconciliation controls within all business processes to require proper segregation of duties of preparer and reviewer utilizing the additional personnel mentioned above;

•

we ~~have~~are ~~implemented~~implementing comprehensive access control protocols to implement restrictions on user and privileged access to certain applications and establishing additional controls over the preparation and review of journal entries; and

•

we ~~have~~are ~~redesigned~~redesigning and ~~strengthened~~strengthening financial system and application change management controls, testing and approval controls for program development, as well as data backup and restoration controls.

The elements of our remediation ~~will~~plan ~~continue~~can toonly be accomplished over time and are subject to continued review, implementation and testing by management, as well as oversight by the audit committee of our board of directors, to determine that it is achieving our objectives. We are in the process of designing and implementing ~~the~~a variety of steps to remediate these weaknesses. The material weaknesses will not be considered remediated until our remediation plan has been fully designed and implemented, the applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Except as set forth below, we are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have an adverse effect on our business, ~~operating results or financial condition.~~

operating results or financial condition. For information regarding subsequent legal proceedings, particularly the Chapter 11 Cases, see Note 13 to our interim condensed consolidated financial statements included in this report.

Securities Litigation

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, or (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 ~~Securities~~1934 ~~Exchange~~ Act ~~of 1934~~, 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 ~~or to estimate reasonably possible losses~~.

Item 1A. Risk Factors

~~Our~~Investing ~~business~~in isour ~~subject~~common tostock ~~numerous~~involves ~~risks~~a ~~that~~high ~~you~~degree of risk. You should carefully consider. ~~These~~the risks ~~are~~and ~~more~~uncertainties ~~fully~~ described inbelow ~~the~~together ~~section~~with ~~titled~~all ~~“Risk~~of ~~Factors”~~the ~~included~~other information contained in this Quarterly Report on Form 10-Q, including our ~~Annual~~financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-KQ ~~filed~~and ~~with~~in the ~~Securities~~section titled “Management’s Discussion and ~~Exchange~~Analysis ~~Commission,~~of orFinancial ~~SEC,~~Condition onand ~~May~~Results 2of Operations,” ~~2022~~before deciding to invest in our common stock. AIf ~~summary~~any of the ~~risks~~events ~~that~~or ~~could~~developments ~~materially~~described ~~and~~below ~~adversely~~were ~~affect~~to occur, our business, prospects, operating results and financial condition could suffer materially, ~~operating~~the ~~results~~trading price of our common stock could decline, and ~~prospects~~you ~~include~~could lose all or part of your investment. The risks and uncertainties described below are not the ~~following:~~only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

•Risks WeAssociated ~~have~~with aChapter ~~history~~11 ~~of losses and we may not be able to achieve or sustain profitability in the future, which raises substantial doubt about our ability to continue as a going concern.~~Proceedings

•We ~~There~~are ~~can~~subject beto ~~no assurance that we will consummate~~ the ~~Proposed~~risks ~~Transaction with C5 or that the Proposed Transaction (as defined herein), if consummated, will enhance stockholder value,~~ and ~~speculation~~uncertainties ~~and~~associated ~~uncertainty~~with ~~regarding~~Chapter ~~the~~11 ~~outcome of the Proposed Transaction may adversely impact our business and results of operations~~proceedings.

•For Wethe ~~must~~duration ~~regain~~of ~~compliance~~our ~~with~~Chapter ~~New~~11 ~~York~~proceedings, ~~Stock~~our ~~Exchange~~operations ~~requirements~~and ~~for~~our ~~the~~ability ~~continued~~to ~~listing~~develop ofand execute our ~~common~~business ~~stock~~plan, as well as our continuation as a going concern, are subject to the risks and uncertainties associated with bankruptcy. These risks include the following:

•

•our Inability ~~the~~to ~~event~~successfully weconduct ~~pursue~~a ~~Bankruptcy~~sale, ~~Protection~~execute ~~(as~~a ~~defined~~transaction, ~~below)~~develop, weconfirm ~~will~~and beconsummate ~~subject~~a toChapter 11 plan or alternative restructuring transaction, satisfy the ~~risks~~conditions ~~and~~precedent ~~uncertainties~~to ~~associated~~any Chapter 11 plan, or otherwise realize any value with ~~such~~respect ~~proceedings.~~to our assets;

•

•our Ifability ~~organizations~~to doobtain ~~not adopt cloud-enabled,~~ and/or ~~software~~maintain ascourt aapproval ~~service-delivered~~with ~~cybersecurity~~respect ~~solutions~~to ~~that~~motions ~~may~~filed bein ~~based~~Chapter on11 ~~new~~proceedings ~~and~~from ~~untested~~time ~~security concepts, our ability~~ to ~~grow our business and results of operations may be adversely affected.~~time;

•

•our ~~Competition~~ability ~~from~~to ~~existing~~operate orwithin ~~new~~the ~~companies~~restrictions ~~could~~and ~~cause~~the usliquidity tolimitations ~~experience~~of ~~downward~~any ~~pressure on prices~~orders, ~~fewer~~including ~~customer~~ orders, ~~reduced~~related ~~margins,~~to ~~the~~cash ~~inability~~collateral, toentered ~~take~~by ~~advantage~~the ofBankruptcy ~~new~~Court ~~business~~in ~~opportunities~~connection ~~and~~with ~~loss~~the ofChapter ~~market~~11 ~~share.~~Cases;

•

~~• If~~ our ~~solutions~~ability ~~fail or are perceived~~ to ~~fail~~obtain tosufficient ~~detect~~financing, orincluding ~~prevent~~the ~~incidents~~use orof ~~have~~cash orcollateral, ~~are perceived~~ to ~~have~~allow ~~defects,~~us ~~errors,~~to oremerge ~~vulnerabilities,~~from ~~our~~bankruptcy ~~brand~~ and ~~reputation~~execute ~~would be harmed, which would adversely affect~~ our business ~~and~~plan ~~results~~ of ~~operations.~~reorganization post-emergence;

•

~~• We rely on third-party data centers and~~ our ~~own~~ability ~~colocation data centers~~ to ~~host~~maintain ~~and operate~~ our ~~platform,~~relationships ~~and any disruption of or interference~~ with ~~its use of these facilities may negatively affect~~ our ~~ability~~customers, tobusiness ~~maintain~~partners, ~~the~~counterparties, ~~performance~~employees and ~~reliability~~other ofthird ~~our platform, which could cause our business to suffer.~~parties;

•

~~• Our future success will be substantially dependent on~~ our ability to ~~attract,~~maintain ~~retain,~~contracts ~~and~~that ~~motivate~~are ~~the~~critical ~~members of our management team and other key employees throughout our organization, and the loss of one or more key employees or an inability~~ to ~~attract and retain highly skilled employees could harm~~ our ~~business.~~operations;

•

~~• If we are unable to maintain successful relationships with~~ our ~~distribution partners, or if our distribution partners fail to perform, our~~ ability to ~~market,~~execute ~~sell~~on ~~and distribute~~ our ~~platform and solutions efficiently will be limited, and our~~ business, ~~financial position and results of operations will be harmed.~~plan;

•

•our ~~Our~~ability ~~business depends, in part, on sales~~ to ~~government organizations~~attract, ~~and~~motivate ~~significant changes in the contracting or fiscal policies of such government organizations could have an adverse effect on our business~~ and ~~results~~retain ofkey ~~operations.~~employees;

•

•the ~~The~~imposition ~~success~~ of ~~our~~restrictions ~~business~~or ~~will~~obligations ~~depend~~on inthe ~~part~~Company onby ~~our~~regulators ~~ability~~related to ~~protect~~the bankruptcy and ~~enforce~~emergence ~~our~~from ~~intellectual~~Chapter ~~property rights.~~11;

•

•the Weability ~~are~~of ~~subject~~third parties to ~~laws~~seek and ~~regulations,~~obtain ~~including~~court ~~governmental~~approval ~~export and import controls, sanctions, and anti-corruption laws, that could impair our ability~~ to ~~compete~~terminate incontracts ~~our markets~~ and ~~subject~~other usagreements ~~to liability if we are not in full compliance~~ with ~~applicable laws.~~us;

•

•the ~~Our~~ability ~~management~~of ~~has~~third ~~identified~~parties ~~material~~to ~~weaknesses~~seek ~~in our internal control over financial reporting~~ and ~~may~~obtain ~~identify~~court ~~additional~~approval ~~material~~to ~~weaknesses~~terminate inor shorten the ~~future~~exclusivity orperiod ~~otherwise~~for ~~fail~~us to ~~maintain~~propose anand ~~effective~~confirm ~~system~~a ofChapter ~~internal~~11 ~~controls~~plan, ~~which~~to ~~may~~appoint ~~result~~a inChapter ~~material~~11 ~~misstatements~~trustee, ~~of our financial statements~~ or ~~cause us~~ to ~~fail~~convert tothe ~~meet~~Chapter ~~our~~11 ~~periodic~~proceedings ~~reporting obligations. • Our international operations and plans for future international expansion expose us~~ to ~~significant~~a ~~risks,~~Chapter ~~and~~7 ~~failure to manage those risks could adversely impact our business.~~proceeding;

•

32the substantial costs associated with Chapter 11 Cases, particularly if delays in the Chapter 11 Cases increase costs;

•

~~Except~~the asability ~~set~~of ~~forth~~third ~~below,~~parties ~~there have been no material changes~~ to ~~the~~assert ~~risk~~claims ~~factors~~against ~~set forth in~~ the ~~Annual Report on Form 10-K filed with the SEC on May 2~~Company, ~~2022. However,~~which the risk factors described in this Quarterly Report and in the Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may ~~also~~be become important factors that adversely affect our business. If any such risks materialize, it could have a material adverse effect on our business, financial condition, results of operations and growth prospects and cause the trading price of our common stock to decline. substantial;

•

Wethe ~~have~~actions aand ~~history~~decisions of ~~losses~~our creditors and ~~may~~other ~~not~~third beparties ~~able~~who tohave ~~achieve~~interests orin ~~sustain~~our ~~profitability~~Chapter in11 ~~the~~proceedings ~~future~~that may be inconsistent with our plans; and

•

Weuncertainties ~~have~~and ~~incurred~~continuing ~~net~~risks ~~losses~~associated inwith ~~all periods since~~ our ~~inception.~~ability We experienced net losses of $242.6 million and $55.4 million for fiscal 2022 and fiscal 2021, respectively, and net losses of $93.6 million for the nine months ended October 31, 2022. As of October 31, 2022, we had an accumulated deficit of $511.3 million. We cannot predict when or whether we will ever reach or maintain profitability. We will also continue to ~~incur significant operating expenses, which will negatively affect our results of operations if our total revenue does not increase. We cannot assure you that we will~~ achieve ~~increases in~~ our ~~total~~stated ~~revenue~~goals ~~or improvements in our results of operations. We also expect to incur significant additional legal, accounting,~~ and ~~other~~continue ~~expenses~~ as a ~~public~~going ~~operating company~~concern. ~~Any failure to increase our revenue as we invest in our business or to manage our costs could prevent us from achieving or maintaining profitability or positive cash flow.~~

~~There~~Delays isin ~~substantial doubt about~~ our ~~ability~~Chapter to11 ~~continue~~Cases asincrease athe ~~going~~risks ~~concern, and holders~~ of ~~our~~us ~~common~~being ~~stock~~unable ~~could suffer a total loss of their investment. We will need~~ to ~~raise~~reorganize ~~additional capital to continue~~ our ~~operations,~~business ~~which~~and ~~capital~~emerge ~~may~~from ~~not~~bankruptcy ~~be available on terms acceptable to us, or at all,~~ and ~~which~~increase ~~could reduce~~ our ~~ability~~costs toassociated ~~compete~~with ~~and~~the ~~could~~bankruptcy ~~harm our business~~process.

~~Our~~These ~~history~~risks ~~of losses~~ and ~~negative~~uncertainties ~~cash~~could ~~flows~~affect ~~raise substantial doubt regarding~~ our ~~ability~~business toand ~~continue~~operations asin avarious ~~going~~ways. ~~concern~~For example, ~~which may create~~ negative ~~reactions~~events toassociated ~~the~~with ~~price of~~ our ~~common~~Chapter ~~stock.~~11 Ifproceedings wecould ~~are~~adversely ~~unable~~affect toour ~~continue~~relationships aswith aour ~~going concern~~customers, webusiness ~~may~~partners, ~~have~~counterparties, toemployees ~~liquidate our assets~~ and ~~may~~other ~~receive~~third ~~less~~parties, ~~than the value at~~ which ~~those~~in ~~assets~~turn ~~are~~could ~~carried~~adversely onaffect our ~~financial~~operations ~~statements,~~ and itfinancial ~~is likely that investors will lose all or a part of their investment~~condition. ~~Further~~Also, ~~the perception that~~ we ~~may~~need bethe ~~unable~~prior toapproval ~~continue~~of asthe aBankruptcy ~~going~~Court ~~concern~~for ~~may~~transactions ~~impede~~outside ~~our~~the ~~ability~~ordinary tocourse ~~pursue~~of ~~strategic opportunities or operate our~~ business, ~~due~~including toa ~~concerns~~sale ~~regarding~~of ~~our~~all ~~ability~~or topart ~~discharge~~of our ~~contractual obligations. In addition~~business, ifwhich ~~there~~may ~~remains~~limit ~~substantial doubt about~~ our ability to ~~continue~~respond astimely ~~a going concern, investors or other financing sources may be unwilling~~ to ~~provide~~certain ~~additional~~events ~~funding to us on commercially reasonable terms,~~ or attake ~~all.~~advantage ~~In addition, we may not be able to access a portion~~ of ~~our~~certain ~~existing cash, cash equivalents and investments due to market conditions~~opportunities. ~~For~~Because ~~example,~~of ~~on March 10, 2023,~~ the ~~Federal~~risks ~~Deposit Insurance Corporation (“FDIC”), took control~~ and ~~was~~uncertainties ~~appointed~~associated ~~receiver~~with ofour ~~Silicon~~Chapter ~~Valley~~11 ~~Bank~~proceedings, ~~(“SVB”).~~we Ifcannot ~~other~~accurately ~~banks~~predict ~~and financial institutions enter receivership~~ or ~~become~~quantify ~~insolvent in~~ the ~~future~~ultimate inimpact ~~response~~of toevents ~~financial~~that ~~conditions~~will ~~affecting~~occur ~~the~~during ~~banking system and financial markets,~~ our ~~ability~~Chapter to11 ~~access~~proceedings ~~our~~that ~~existing cash, cash equivalents and investments~~ may be ~~threatened~~inconsistent ~~and~~with ~~could have a material adverse effect on~~ our ~~business~~plans ~~and financial condition. Any failure~~ or ~~delay~~that tomay ~~secure~~have ~~additional~~on ~~financing,~~ultimate orrecovery ~~our~~for ~~ability to access our existing cash~~stakeholders, ~~cash~~including ~~equivalents~~creditors and investments, could force us to delay, limit or terminate our operations, make further reductions in our workforce, liquidate all or a portion of our assets and/or seek protection, or Bankruptcy Protection, under Chapters 7 or 11 of the United States Bankruptcy Codestockholders.

InOperating ~~the~~under ~~absence~~Bankruptcy ofCourt ~~additional~~protection ~~sources of liquidity, management anticipates that our existing cash and cash equivalents and anticipated cash flows from operations, will not be sufficient to meet our operating and liquidity needs~~ for ~~any~~a ~~meaningful~~long period of time following the filing of this report. We will likely need to engage in equity or debt financings to secure additional funds. If we raise additional equity financing, stockholders would experience significant dilution of their ownership interests to the extent we issue a significant number of shares of common stock, and the market price of the common stock could decline. Our current convertible debt contains restrictions on our future debt financing, but if we engage in future debt financing, the holders of debt would have priority over the holders of common stock, and we may be required to accept terms that restrict our operations or our ability to incur additional indebtedness or to take other actions that would otherwise be in the interests of the debt holders. In addition, adverse macroeconomic developments, including without limitation inflation, slowing economic growth, rising interest rates or a potential economic recession, may reduce our ability to access such capital. Any of the above could harm our business~~, results of operations and financial condition~~.

InOur ~~the~~future ~~event~~results ~~that~~are ~~sufficient~~dependent ~~additional~~upon ~~funds~~the ~~are~~successful ~~not~~confirmation ~~obtained~~and ~~through~~implementation ~~sales~~ of ~~securities,~~a ~~funding~~plan ~~facilities,~~of ~~borrowing~~reorganization. ~~arrangements~~A ~~and/or~~long ~~asset~~period ~~sales~~of onoperations aunder ~~timely~~Bankruptcy ~~basis,~~Court weprotection ~~may~~could behave ~~required~~a tomaterial ~~reduce~~adverse ~~expenses~~effect ~~through~~on ~~the~~our ~~delay~~business, ~~reduction~~financial ~~or curtailment of our projects~~condition, orresults ~~further reduction~~ of ~~costs~~operations ~~for facilities~~ and ~~administration, or winding down of our company~~liquidity. ~~Moreover,~~So iflong weas dothe ~~not~~Chapter ~~obtain~~11 ~~such~~proceedings ~~additional funds~~continue, ~~there~~our issenior ~~substantial~~management ~~doubt~~will ~~about~~be ~~our~~required ~~ability~~ to ~~continue~~spend as a ~~going~~significant ~~concern~~amount ~~and there is increased risk~~ of ~~insolvency~~time and upeffort todealing ~~total~~with ~~loss of investment to our stockholders and other security holders. As of~~ the ~~date~~reorganization ~~hereof,~~instead ~~we have not obtained a solvency opinion or otherwise conducted a valuation~~ of ~~our~~focusing ~~properties~~on ~~to determine whether~~ our ~~debts~~business ~~exceed the fair value of our property within the meaning of applicable solvency laws~~operations. IfA ~~we are or become insolvent, holders of our common stock or other securities may lose the entire value of their investment.~~

There can be no assurances that we will be able to raise additional capital in sufficient amounts or on favorable terms, or at all. If we are unable to raise adequate additional capital when required or in sufficient amounts or on terms acceptable to us, we may have significantly reduce expenses, sell assets (potentially at a loss), cease operations altogether, pursue an acquisition of our company at a price that may result in up to a total loss on investment for our stockholders, file for bankruptcy or seek other protection from creditors, or liquidate all of our assets.35

~~There~~prolonged ~~can~~period beof nooperating ~~assurance~~under ~~that~~Bankruptcy weCourt ~~will~~protection ~~consummate~~also ~~the~~may ~~proposed~~make ~~acquisition~~it ~~transaction~~more ~~with~~difficult C5to orretain ~~that~~management ~~the~~and ~~proposed~~other ~~transaction,~~key ifpersonnel ~~completed,~~necessary ~~would~~to ~~enhance~~the ~~stockholder~~success ~~value,~~ and ~~speculation~~growth ~~and uncertainty regarding the outcome~~ of ~~the transaction may adversely impact~~ our business ~~and results of operations~~.

~~In December 2022~~Additionally, weso ~~announced~~long ~~that~~as ~~we had begun negotiating with C5 a potential transaction by which C5 would acquire all of our common stock that it does not currently own (~~the ~~“Proposed~~Chapter ~~Transaction”).~~11 Weproceedings continue ~~to negotiate definitive agreements with respect to the Proposed Transaction. However~~, ~~there~~we ~~can~~will be norequired ~~assurance~~to ofincur ~~the~~significant ~~terms,~~costs ~~timing~~for orprofessional ~~structure~~fees ~~of any transaction, or whether any such transaction will take place at all,~~ and ~~any~~other ~~such~~expenses ~~transaction~~associated iswith ~~subject~~the toadministration ~~risks and uncertainties. The process~~ of ~~reviewing~~ the ~~Proposed~~Chapter ~~Transaction~~11 ~~may~~proceedings, ~~involve~~including ~~significant~~potentially ~~resources and~~ costs. ~~In addition, the review~~ of ~~the~~litigation ~~Proposed~~arising ~~Transaction may cause or result in:~~ thereunder.

~~disruption~~While the Debtors have made and will continue to make efforts to minimize the duration of ~~our~~the ~~business;~~Chapter 11 Cases, it is impossible to predict with certainty the amount of time that the Debtors may spend in bankruptcy.

~~difficulty~~The inChapter ~~maintaining~~11 orCases ~~negotiating~~limit ~~and~~the ~~consummating~~flexibility ~~new~~of ~~business~~our ormanagement ~~strategic~~team ~~relationships~~in orrunning ~~transactions;~~our business.

~~diversion~~While we operate our business as debtors-in-possession under supervision by the Bankruptcy Court, we are required to obtain the approval of the ~~attention~~Bankruptcy Court and, in some cases, certain lenders and the creditors’ committee prior to engaging in activities or transactions outside the ordinary course of ~~management;~~business. Bankruptcy Court approval of non-ordinary course activities entails preparation and filing of appropriate motions with the Bankruptcy Court, negotiation with a creditors’ committee and other parties-in-interest and one or more hearings. The creditors’ committee and other parties-in interest may be heard at any Bankruptcy Court hearing and may raise objections with respect to these motions. This process may delay major transactions and limit our ability to respond quickly to opportunities and events in the marketplace. Furthermore, in the event the Bankruptcy Court does not approve a proposed activity or transaction, we would be prevented from engaging in activities and transactions that we believe are beneficial to us.

~~increased~~We ~~stock~~may ~~price~~not ~~volatility;~~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.

~~increased~~To ~~costs~~emerge successfully from Bankruptcy Court protection as a viable entity, we must meet certain statutory requirements with respect to adequacy of disclosure with respect to the plan of reorganization, solicit and ~~advisory~~obtain ~~fees;~~the requisite acceptances of such a plan and fulfill other statutory conditions for confirmation of such a plan, which have not occurred to date. The confirmation process is subject to numerous potential, unanticipated delays, including that the Debtors may not receive the requisite acceptances of constituencies in the Chapter 11 proceedings to confirm a Chapter 11 plan. Even if the requisite acceptances of a plan are received, the Bankruptcy Court may not confirm such a plan if other statutory requirements are not met. If a Chapter 11 plan of reorganization is not confirmed by the Bankruptcy Court, it is unclear whether we would be able to reorganize our business and what, if anything, holders of claims against us would ultimately receive with respect to their claims.

~~challenges~~There incan ~~hiring~~be no assurance as to whether we will successfully reorganize and ~~retaining~~emerge ~~key~~from ~~employees~~the Chapter 11 proceedings or, if we do successfully reorganize, as to when we would emerge from the Chapter 11 proceedings. Even if a Chapter 11 plan is confirmed and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently emerged from bankruptcy proceedings. If we are unable to successfully reorganize, we may not be able to continue our operations.

IfIn connection with the Chapter 11 Cases, we ~~are~~may ~~unable~~attempt to ~~mitigate~~sell ~~these~~all or ~~other~~certain ~~potential~~of ~~risks~~our ~~related~~assets pursuant to a sale under section 363 of the ~~uncertainty~~Bankruptcy ~~caused~~Code byor ~~our~~otherwise ~~exploration~~reorganize the Company pursuant to a Chapter 11 plan of ~~the~~reorganization. ~~Proposed~~There ~~Transaction~~can be no assurance that we will be successful in completing any such transactions because there may not be buyers willing to enter into any such transactions, itwe may ~~disrupt~~not receive sufficient consideration for such assets, or there may be objections from our ~~business~~stakeholders. If we are unable to complete these transactions, it may be necessary to seek additional funding sources or ~~could~~possibly ~~have~~convert to a ~~material~~Chapter ~~adverse~~7 ~~effect~~liquidation onprocess. ~~our~~If ~~financial~~these ~~condition~~transactions ~~and~~are ~~results~~completed, ofthey ~~operations~~may innot ~~future~~generate ~~periods~~the anticipated or desired outcomes.

33Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.

~~Our~~We ~~ability~~face touncertainty ~~complete~~regarding the ~~Proposed~~adequacy ~~Transaction,~~of if our ~~board~~liquidity ofand ~~directors~~capital ~~decides~~resources. In addition to ~~pursue~~the ~~it,~~cash ~~will~~requirements ~~depend~~necessary onto ~~numerous~~fund ~~factors~~ongoing operations, ~~some~~and ofour ~~which~~persistent ~~are~~net ~~outside~~losses ofand ~~our~~negative ~~control,~~cash ~~including~~flows ~~market~~from ~~conditions~~operations, ~~industry~~we ~~trends~~have ~~and~~incurred ~~the~~significant ~~availability~~professional offees ~~financing to C5~~ and other ~~potential~~costs ~~buyers~~in onconnection ~~commercially~~with ~~acceptable~~preparation ~~terms.~~for ~~Even if~~ the ~~Proposed~~Chapter ~~Transaction~~11 isproceedings ~~completed,~~and ~~there~~expect ~~can be no assurance~~ that itwe will becontinue ~~successful~~to orincur ~~have~~significant aprofessional ~~positive~~fees ~~effect~~and oncosts ~~stockholder~~throughout ~~value.~~the ~~Our~~Chapter ~~board~~11 ofproceedings. ~~directors~~We ~~may~~cannot ~~also~~assure ~~determine~~investors that nocash ~~transaction~~on ishand inand ~~the~~cash ~~best~~flow ~~interests~~from ofoperations ~~stockholders.~~will ~~Further,~~be itsufficient isto ~~not~~continue ~~certain~~to ~~what~~fund ~~impact~~our ~~the~~operations ~~Proposed~~and ~~Transaction,~~allow orus ~~any~~to ~~other~~satisfy ~~potential~~our ~~transaction,~~obligations orrelated ~~a decision not~~ to ~~pursue~~the ~~any~~Chapter ~~potential~~11 ~~transaction,~~proceedings ~~may~~until ~~have~~we onare ~~our~~able ~~stock~~to ~~price,~~emerge ~~business,~~from ~~financial~~the ~~condition,~~Chapter ~~and~~11 ~~results of operations~~proceedings.

WeOur ~~must~~liquidity, ~~regain~~including ~~compliance~~our ~~with~~ability ~~New~~to ~~York~~meet ~~Stock~~our ~~Exchange~~ongoing ~~requirements~~operational ~~for~~obligations, is dependent upon, among other things: (i) our ability to comply with the ~~continued~~terms ~~listing~~and conditions of the final cash collateral order, (ii) our ~~common~~ability ~~stock~~to maintain adequate cash on hand, (iii) our ability to generate cash flow from operations, (iv) our ability to successfully conduct a sale, execute a transaction, or develop, confirm and consummate a Chapter 11 plan, satisfy the conditions precedent to any Chapter 11 plan, or other alternative restructuring transaction, and (v) the cost, duration and outcome of the Chapter 11 proceedings.

OnAs October 25, 2022, we received the Initial Notice from the NYSE, indicating that we are no longer in compliance with the NYSE continued listing standards, set forth in Section 802.01C of the NYSE Listed Company Manual because the average closing price of our common stock was less than $1.00 per share over a period of 30 consecutive trading days. On December 21, 2022, we received the Second Notice from the NYSE, indicating that we are no longer in compliance with the NYSE continued listing standards, set forth in Section 802.01E of the NYSE Listed Company Manual as a result of ~~our failure to timely this Quarterly Report. On January 24, 2023, we received~~ the ~~Third~~Chapter ~~Notice~~11 ~~from the NYSE~~proceedings, ~~indicating that we are no longer in compliance with the NYSE continued listing standards, set forth in Section 802.01B of the NYSE Listed Company Manual because~~ our ~~average~~financial ~~global~~results ~~market~~may ~~capitalization~~be ~~over~~volatile ~~a consecutive 30 trading-day period was less than $50 million~~ and, atmay ~~the~~not ~~same~~reflect ~~time,~~historical ~~our last reported shareholders’ equity was less than $50 million~~trends.

~~The~~During ~~Notices have no immediate impact on~~ the ~~listing~~Chapter of11 ~~our~~proceedings, ~~common~~we ~~stock~~expect ~~and~~ our ~~common~~financial ~~stock~~results ~~will~~to continue to be ~~listed~~volatile ~~and~~as ~~traded~~restructuring onactivities ~~the~~and ~~NYSE~~expenses, ~~under~~contract ~~the~~terminations ~~common~~and ~~stock~~rejections, ~~trading~~and ~~symbol~~claims ~~"IRNT"~~assessments ~~during~~significantly ~~applicable~~impact ~~cure periods, subject to~~ our ~~continued~~condensed ~~compliance~~consolidated ~~with~~financial ~~the plan and other listing requirements of the NYSE~~statements. ~~However,~~As ~~until~~a ~~the NYSE determines that we have regained compliance~~result, our ~~common~~historical ~~stock~~financial ~~trading~~performance ~~symbol~~is ~~will~~likely ~~have~~not anindicative ~~added designation~~ of ~~".BC"~~our tofinancial ~~indicate~~performance ~~that~~after the ~~status~~date of ~~our common stock is "below compliance" with~~ the ~~NYSE~~bankruptcy ~~continued listing standards~~filing.

~~The~~In ~~Notices~~particular, ~~and~~the ~~compliance~~amount ~~with~~and ~~the~~composition ~~plan~~of doour ~~not~~assets ~~affect~~and ~~our~~liabilities ~~business~~could ~~operations~~be orsignificantly ~~our~~different ~~reporting~~as ~~obligations~~a ~~with~~result of the ~~Securities~~Chapter ~~and~~11 ~~Exchange Commission~~Cases, and itthe ~~does~~description ~~not~~of ~~conflict~~our ~~with~~operations, orassets, ~~cause~~liabilities, ancontingencies, ~~event~~liquidity ofand ~~default~~capital ~~under~~resources ~~any~~included ofin our ~~material~~periodic ~~debt~~reports or ~~other~~in ~~agreements.~~any ~~Failure~~filing towe ~~maintain~~make ~~our~~with ~~NYSE~~the ~~listing~~Bankruptcy ~~could~~Court ~~negatively~~may ~~impact~~not usaccurately ~~and~~reflect ~~our~~such ~~shareholders~~matters byduring ~~reducing~~ the ~~willingness~~pendency of ~~investors~~or tofollowing ~~hold~~the Chapter 11 Cases or the value of our ~~common~~assets ~~stock~~in ~~because~~an organized sale process in light of the ~~resulting~~uncertainty ~~decreased~~of ~~price,~~the ~~liquidity~~estimates and ~~trading~~assumptions ofused ~~our~~in ~~common~~the ~~stock~~applicable reporting principles, ~~limited~~and ~~availability~~such ofvalues ~~price~~may ~~quotations,~~be ~~and~~higher ~~reduced~~or ~~news~~lower ~~and~~as ~~analyst~~a ~~coverage~~result. ~~These~~The ~~developments~~periodic ~~may~~financial ~~also~~information ~~require~~reported ~~brokers~~to ~~trading~~the inBankruptcy ~~our~~Court ~~common~~is ~~stock~~not topresented ~~adhere~~in toaccordance ~~more~~with ~~stringent~~GAAP ~~rules~~ and may ~~limit~~differ ~~our~~materially ~~ability~~from toinformation ~~raise~~that ~~capital~~has bybeen ~~issuing~~or ~~additional~~may ~~shares~~ in the future. ~~Delisting~~be ~~may~~provided ~~adversely~~as ~~impact~~of ~~the~~quarter ~~perception~~end ofin our ~~financial~~periodic ~~condition,~~reports and ~~cause~~may ~~reputational~~reflect ~~harm~~estimates ~~with~~based ~~investors~~on ~~and~~assumptions ~~parties~~that ~~conducting~~may ~~business~~change ~~with~~significantly ~~us.~~during Inthe ~~addition,~~course of the ~~perceived~~Chapter ~~decreased~~11 ~~value~~Cases ofor ~~employee~~due ~~equity~~to ~~incentive~~other ~~awards~~contingencies, ~~may~~and, ~~reduce~~as ~~their~~applicable, ~~effectiveness~~is insubject ~~encouraging~~to ~~performance~~all ~~and~~of ~~retention~~the disclaimers presented therewith.

In ~~the~~addition, ~~event~~if we ~~pursue~~emerge ~~Bankruptcy~~from ~~Protection~~Chapter 11, wethe ~~will~~amounts reported in subsequent condensed consolidated financial statements may materially change relative to historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to a plan of reorganization. We also may be ~~subject~~required to adopt fresh start accounting, in which case our assets and liabilities will be recorded at fair value as of the ~~risks~~fresh start reporting date, which may differ materially from the recorded values of assets and ~~uncertainties~~liabilities ~~associated~~on ~~with~~our ~~such~~consolidated ~~proceedings~~balance sheets. Our financial results after the application of fresh start accounting also may be different from historical trends.

InWe ~~the~~may ~~event we file for relief under the United States Bankruptcy Code, our operations, our ability to develop and execute our business plan and our continuation as a going concern will~~ be subject to ~~the~~claims risks and uncertainties associated with bankruptcy proceedings, including, among others: our ability to execute, confirm and consummate a plan of reorganization; the high costs of bankruptcy proceedings and related fees; our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence, and our ability to comply with terms and conditions of that ~~financing;~~will ~~our~~not ~~ability~~be todischarged ~~continue our operations~~ in the ordinary course; our ability to maintain our relationships with our customers, business partners, counterparties, employees and other third parties; our ability to obtain, maintain or renew contracts that are critical to our operations on reasonably acceptable terms and conditions; our ability to attract, motivate and retain key employees; the ability of third parties to use certain limited safe harbor provisions of the United States Bankruptcy Code to terminate contracts without first seeking Bankruptcy Court approval; the ability of third parties to force us to into Chapter ~~7 proceedings rather than Chapter~~ 11 proceedings and the actions and decisions of our stakeholders and other third parties who have interests in our bankruptcy proceedings that may be inconsistent with our operational and strategic plans. Any delays in our bankruptcy proceedings would increase the risks of our being unable to reorganize our business and emerge from bankruptcy proceedings and may increase our costs associated with the bankruptcy process or result in prolonged operational disruption for us. Also, ~~we would need the prior approval of the bankruptcy court for transactions outside the ordinary course of business during the course of any bankruptcy proceedings,~~ which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with any bankruptcy proceedings, we cannot accurately predict or quantify the ultimate impact of events that could ~~occur~~have ~~during any such proceedings. There can be no guarantees that if we seek Bankruptcy Protection we will emerge from Bankruptcy Protection as~~ a ~~going~~material ~~concern~~adverse oreffect ~~that~~on ~~holders of~~ our ~~common~~financial ~~stock~~conditions ~~will~~and ~~receive~~results ~~any~~of ~~recovery from any bankruptcy proceedings~~operations.

InThe Bankruptcy Code provides that the ~~event~~confirmation weof ~~are~~a ~~unable~~plan of reorganization discharges a debtor from substantially all debts arising prior to ~~pursue~~confirmation. ~~Bankruptcy~~With ~~Protection~~few ~~under~~exceptions, ~~Chapter~~all 11claims ofthat ~~the~~arose ~~United~~prior ~~States~~to ~~Bankruptcy~~the ~~Code~~Petition Date, or, ifafter ~~pursued,~~such ~~successfully~~date ~~emerge~~but ~~from~~before ~~such~~confirmation ~~proceedings,~~of itthe ~~may~~plan of reorganization (i) would be ~~necessary~~subject to ~~pursue~~compromise ~~Bankruptcy~~and/or ~~Protection~~treatment under the plan of reorganization and/or (ii) would be discharged in accordance with the terms of the plan of reorganization. We are not currently aware of any material claims against the Debtors that would not ultimately be discharged by a Chapter 711 plan of reorganization of the ~~United~~Debtors; ~~States~~however ~~Bankruptcy~~any ~~Code~~claims ~~for~~not ~~all~~ultimately ordischarged through a ~~part~~Chapter 11 plan of reorganization could be asserted against the reorganized Debtors and may have an adverse effect on our ~~businesses~~financial condition and results of operations on a post-reorganization basis.

InWe ~~the~~have ~~event we are unable to pursue Bankruptcy Protection under Chapter 11 of the United States Bankruptcy Code~~experienced, ~~or,~~and ~~if pursued, successfully emerge from such proceedings, it~~ may becontinue ~~necessary for us~~ to ~~pursue~~experience, ~~Bankruptcy~~increased ~~Protection~~levels ~~under Chapter 7~~ of ~~the~~employee ~~United~~attrition ~~States~~as ~~Bankruptcy Code for all or~~ a ~~part~~result of ~~our businesses. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with~~ the ~~priorities established by the United States Bankruptcy Code. We believe that liquidation under~~ Chapter ~~7 would result in significantly smaller distributions being made to our stakeholders than those we might obtain under Chapter~~ 11 primarily because of the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concernproceedings.

~~We have a considerable amount of debt, which may limit our ability to fulfill our obligations and/or to obtain additional financing.~~36

As previously disclosed, on September 2, 2023, the Company furloughed almost all of its employees and substantially curtailed the ~~date~~Company’s business operations until such time that the Company has sufficient operating liquidity to rehire a portion of ~~this~~the ~~report~~furloughed employees and to resume business operations. On September 29, we2023, ~~have~~given ~~$26~~the unavailability of additional sources of liquidity and after considering strategic alternatives, all of our remaining employees were terminated, though certain key employees were subsequently re-hired in connection with the Chapter 11 proceedings.6 On ~~million~~October 13, 2023, certain employees were re-hired by the Company in connection with the Chapter 11 proceedings. As a result of ~~indebtedness~~the ~~outstanding~~Chapter 11 proceedings, we may experience increased levels of employee attrition, and our employees likely will face considerable distraction and uncertainty. ~~Our~~A ~~capital~~loss ~~structure~~of key personnel or material erosion of employee morale could adversely affect our business and ~~reliance~~results onof ~~indebtedness~~operations. ~~can~~Increased ~~have~~levels ~~several~~of ~~important~~employee ~~consequences~~attrition may cause us to rely on fewer employees, ~~including~~increase the number of key employees as a share of the total personnel we employ, ~~but~~and ~~not~~in ~~limited~~some cases these employees may be less experienced which puts at greater risk our ability to execute our plans and strategies. To conserve our cash, most of the ~~following:~~departed employees are not being replaced.

~~The~~Senior ~~terms~~management ofmay ~~our~~leave ~~indebtedness~~the ~~restrict~~Debtors ~~our~~during ~~ability~~the topendency ~~incur~~of ~~additional~~the ~~indebtedness~~Chapter in11 ~~certain~~proceedings ~~instances~~if not adequately compensated.

IfThe ~~future~~Bankruptcy ~~cash~~Code ~~flows~~limits ~~are~~a ~~insufficient,~~debtor’s ability to pay bonus compensation to insiders absent court approval. While we ~~may~~have ~~not~~obtained beBankruptcy ~~able~~Court approval of an incentive program for certain members of senior management, certain modifications to ~~make~~this ~~principal~~program or ~~interest~~incentive ~~payments~~programs onfor ~~our~~other ~~debt~~insiders ~~obligations~~would ~~when~~require ~~such~~court ~~obligation~~approval. ~~become~~If ~~due~~we are unable to obtain court approval of any executive incentive bonus program, ~~which~~certain ~~could~~members ~~result~~of inour senior management team may be undercompensated compared to both our market peers and their compensation prior to the ~~occurrence~~Chapter of11 anproceedings. ~~event~~There can be no assurance that members of ~~default~~our management team will continue to work for the Company under ~~one~~such circumstances. Should the Company lose all or ~~more~~part of ~~those~~the ~~debt~~senior ~~instruments~~management team during the pendency of the Chapter 11 proceedings, we may experience substantial disruption and value destruction as a result.

Our ~~leverage~~post-bankruptcy ~~level~~capital ~~could~~structure ~~make~~is ityet ~~more~~to ~~difficult~~be ~~for~~determined, usand toany ~~satisfy~~changes to our ~~obligations~~capital tostructure ~~our~~may ~~lenders,~~have ~~resulting~~a inmaterial ~~possible~~adverse ~~defaults~~effect on existing debt and ~~acceleration~~security holders, including holders of ~~such~~our ~~indebtedness~~common stock.

Our ~~leverage~~post-bankruptcy ~~level~~capital ~~could~~structure ~~place~~has yet to be determined and may be set pursuant to a plan that requires Bankruptcy Court approval. The reorganization of our capital structure may include exchanges of new debt or equity securities for our existing debt, equity securities, and claims against us. Such new debt may be issued at adifferent ~~competitive~~interest ~~disadvantage~~rates, ~~compared~~payment schedules and maturities than our existing debt securities. Existing equity securities are subject to a high risk of being cancelled. The success of a reorganization through any ~~competitors~~such ~~that~~exchanges ~~have~~or ~~less~~modifications will depend on approval by the Bankruptcy Court and the willingness of existing debt and security holders to agree to the exchange or ~~comparable~~modification, subject to the provisions of the Bankruptcy Code, and there can be no guarantee of success. If such exchanges or modifications are successful, holders of our debt ator ~~more~~of ~~favorable~~claims against us may find their holdings no longer have any value or are materially reduced in value, or they may be converted to equity and be diluted or may be modified or replaced by debt with a principal amount that is less than the outstanding principal amount, longer maturities and reduced interest rates. Holders of our common stock may also find that their holdings no longer have any value and face highly uncertain or no recoveries under a plan. There can be no assurance that, asany new debt or equity securities will maintain their value at the time of issuance. If existing debt or equity holders are adversely affected by a ~~result~~reorganization, it may beadversely ~~better~~affect ~~positioned~~our ability to ~~withstand~~issue ~~economic~~new ~~downturns~~debt or equity in the future. Although we cannot predict how the claims and interests of stakeholders in the Chapter 11 Cases, including holders of common stock, will ultimately be resolved, we expect that common stockholders will not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured indebtedness, are paid in full. Consequently, there is a significant risk that the holders of our common stock would receive no recovery under the Chapter 11 Cases and that our common stock will be worthless.

~~Our~~Any ~~indebtedness~~Chapter ~~has~~11 ~~the~~plan ~~general~~that ~~effect~~we ofmay ~~reducing~~implement ~~our~~will ~~flexibility~~likely tobe ~~react~~based toin ~~changing~~large ~~business~~part ~~and~~upon ~~economic~~assumptions ~~conditions~~and ~~insofar~~analyses asdeveloped ~~they~~by ~~affect our financial condition~~us. ~~The~~If ~~interest~~these ~~rates~~assumptions atand ~~which~~analyses weprove ~~might~~to ~~secure additional financings may~~ be ~~higher~~incorrect, ~~than~~or ~~our~~adverse ~~currently~~market ~~outstanding~~conditions ~~debt~~persist ~~instruments~~ or ~~higher than forecasted at any point in time~~worsen, ~~which could adversely affect~~ our ~~business,~~plan ~~financial~~may ~~condition,~~be ~~results~~unsuccessful ofin ~~operations~~its ~~and cash flows~~execution.

~~Market~~Any ~~conditions~~Chapter ~~could~~11 plan that we may implement will affect both our ~~access~~capital tostructure ~~capital~~and ~~markets~~the ownership, ~~restrict~~structure and operation of our ~~ability~~remaining tobusiness ~~secure~~and ~~financing~~will tolikely ~~make~~reflect ~~planned~~assumptions ~~capital~~and ~~expenditures~~analyses based on our experience and ~~investments~~perception of historical trends, current conditions and ~~pay~~expected ~~other~~future ~~expenses~~developments, ~~which~~as ~~could~~well ~~adversely~~as ~~affect~~other factors that we consider appropriate under the circumstances. Whether actual future results and developments will be consistent with our ~~business~~expectations and assumptions depends on a number of factors, ~~financial~~including ~~condition~~but not limited to (i) our ability to substantially change our capital structure; and (ii) the overall strength and stability of general economic conditions, ~~cash~~both ~~flows~~in the U.S. and ~~results~~in global markets. The failure of ~~operations~~any of these factors could materially adversely affect the successful reorganization of our business.

34In addition, any plan of reorganization will likely rely upon financial projections, including with respect to revenues, operating expenses, capital expenditures, debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts will not be accurate. In our case, the forecasts will be even more speculative than normal, because they may involve fundamental changes in the nature of our capital structure. Accordingly, we expect that our actual financial condition and results of operations will differ, perhaps materially, from what we have anticipated. Consequently, there can be no assurance that the results or developments contemplated by any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our business or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful implementation of any plan of reorganization.

IfThe ~~the~~amount ~~Proposed~~of ~~Transaction~~claims isallowed ~~not~~could ~~consummated~~significantly ~~and~~exceed ~~we do not generate sufficient cash flows, we may be unable to repay~~ our ~~secured convertible promissory notes when they mature~~estimates.

IfAlthough the ~~Proposed~~Bankruptcy ~~Transaction~~Court isestablished ~~not~~bar ~~consummated,~~dates wefor ~~will~~all ~~need~~creditors to ~~repay~~file ~~our~~their ~~secured~~proof ~~convertible~~of ~~promissory~~claim ~~notes~~or ininterest, ~~full~~there atcan ~~maturity~~be inno ~~June~~assurance ~~2023~~regarding ~~and~~the ~~our~~amount ~~unsecured~~of ~~convertible~~claims ~~promissory~~allowed ~~note in March 2024. If our cash flows and capital resources are insufficient~~ to ~~repay~~participate ~~our~~in ~~convertible~~distributions ~~promissory~~under ~~notes~~a ~~when~~Chapter ~~they~~11 ~~mature,~~plan weor ~~may~~that ~~have to undertake alternative financing plans,~~ such asclaims ~~refinancing~~will ornot ~~restructuring~~be ~~our~~significantly ~~debt,~~greater ~~selling~~than ~~assets or operations, or seeking to raise additional capital. We~~ may ~~not~~ be ~~able~~anticipated ~~to refinance our debt~~which, ~~or any refinancing of our debt~~ could bein atturn ~~higher~~result ~~interest~~in ~~rates~~the ~~and~~value ~~may~~of ~~require~~distributions us to ~~comply~~stakeholders ~~with~~being ~~more~~delayed, ~~restrictive~~reduced, ~~covenants~~or ~~that~~eliminated ~~could further restrict our business operations~~entirely. ~~Our~~Inevitably, ~~ability~~some toassumptions ~~implement successfully any such alternative financing plans~~ will ~~depend~~not ~~on a range of factors~~materialize, ~~including~~and ~~our~~unanticipated ~~financial~~events ~~condition,~~and ~~general~~circumstances ~~economic~~may ~~conditions~~affect ~~and~~ the ~~level~~ultimate ofresults ~~activity~~and intotal ~~capital~~amount ~~markets generally. Failure to repay or refinance our secured convertible promissory notes at or prior to maturity would result in an event~~ of ~~default~~claims ~~under~~against ~~our secured convertible promissory notes~~us.

~~Our~~In ~~recent~~certain ~~initiatives to re-balance our cost structure~~instances, ~~including~~a ~~significant~~Chapter ~~workforce~~11 ~~reductions,~~case may ~~not~~be ~~result~~converted into ~~anticipated~~a ~~savings,~~case ~~could~~under ~~result~~Chapter in7 ~~total~~of ~~costs~~the ~~and~~Bankruptcy ~~expenses~~Code, ~~that~~in ~~are~~which ~~greater~~case ~~than~~our ~~expected~~common ~~and~~stock ~~could~~would ~~disrupt~~likely ~~our~~be ~~business~~worthless.

~~Since~~There ~~September~~can ~~2022,~~be weno ~~have~~assurance ~~reduced our headcount by approximately 130 employees, representing approximately 51% of our workforce,~~ as ~~part of our initiatives~~ to ~~re-balance~~whether ~~our~~we ~~cost~~will ~~structure.~~successfully ~~These~~reorganize ~~reductions~~and inemerge ~~force~~from ~~are~~the ~~expected~~Chapter to11 ~~result~~proceedings inor, ~~approximately~~if ~~$20.0~~we ~~million~~do ofsuccessfully ~~annualized~~reorganize, ~~cost~~as ~~savings~~to inwhen ~~total. However,~~ we ~~may~~would ~~incur~~emerge ~~additional~~from ~~expenses~~the ~~not~~Chapter ~~currently~~11 ~~contemplated~~proceedings. ~~due~~If ~~to events associated with~~ the ~~reductions~~Bankruptcy inCourt ~~force,~~finds ~~for~~that ~~example,~~it ~~the~~would ~~reductions~~be in ~~force~~the ~~may~~best ~~have~~interest ~~a future impact on other areas~~ of ~~our~~creditors ~~liabilities~~ and/or ~~obligations~~the Debtors, ~~which~~the ~~could~~Bankruptcy ~~result~~Court inmay ~~losses~~convert inour ~~future~~Chapter ~~periods.~~11 ~~The~~Cases ~~annualized~~to ~~cost~~cases ~~savings~~under ~~are~~Chapter ~~estimates~~7 ~~and subject to a number~~ of ~~assumptions,~~the ~~and~~Bankruptcy ~~actual results may differ materially~~Code. WeIn ~~may~~such ~~not realize~~event, ina ~~full~~Chapter or7 intrustee ~~part,~~would ~~the~~be ~~anticipated~~appointed ~~benefits~~or ~~and~~elected ~~savings from these reductions in force due~~ to ~~unforeseen~~liquidate ~~difficulties,~~the ~~delays~~Debtors’ orassets ~~unexpected~~for ~~costs.~~distribution Ifin weaccordance ~~are~~with ~~unable to realize~~ the ~~expected~~priorities ~~operational~~established ~~efficiencies~~by ~~and cost savings from~~ the ~~announced~~Bankruptcy ~~reductions~~Code. inThe ~~force,~~Debtors ~~our~~believe ~~operating~~that ~~results~~liquidation ~~and~~under ~~financial~~Chapter ~~condition~~7 would beresult ~~adversely~~in ~~affected.~~significantly Insmaller ~~addition,~~distributions webeing ~~may~~made ~~need~~ to ~~undertake~~the ~~additional~~Debtors’ ~~workforce~~creditors ~~reductions~~than orthose ~~restructuring~~provided ~~activities~~for in ~~the~~a ~~future.~~Chapter ~~Furthermore,~~11 ~~our~~plan ~~initiatives~~because toof, ~~re-balance~~among ~~our~~other ~~cost structure~~things, ~~including~~(i) the ~~reductions~~likelihood inthat ~~force,~~the ~~may~~assets bewould ~~disruptive~~have to ~~our~~be ~~operations.~~sold ~~For~~or ~~example,~~otherwise ~~our~~disposed ~~workforce~~of ~~reductions~~in ~~could~~a ~~yield~~disorderly ~~unanticipated~~fashion ~~consequences,~~over ~~such~~a asshort ~~attrition~~period ~~beyond~~of ~~planned~~time ~~staff~~rather ~~reductions,~~than ~~increased~~reorganizing ~~difficulties~~or inselling ~~our~~such ~~day-to-day~~assets ~~operations~~in ~~and~~a ~~reduced~~controlled ~~employee~~manner, ~~morale.~~(ii) Ifadditional ~~employees~~administrative ~~who~~expenses ~~were~~and ~~not~~delays ~~affected~~resulting byfrom the ~~reductions~~appointment inof ~~force~~a ~~seek~~Chapter ~~alternative~~7 ~~employment~~trustee, ~~this~~and/or ~~could~~(iii) ~~result in us seeking contractor support at unplanned~~ additional ~~expense~~expenses orand ~~harm~~claims, ~~our~~some ~~productivity.~~of ~~Our~~which ~~workforce~~would ~~reductions~~be ~~could~~entitled ~~also harm our ability~~ to ~~attract~~priority, ~~and~~that ~~retain~~would ~~qualified~~be ~~personnel~~generated ~~who~~during ~~are~~the ~~critical~~liquidation toand ~~our~~from ~~business.~~the ~~Any~~rejection ~~failure~~of toleases ~~attract~~and orother ~~retain~~executory ~~qualified~~contracts ~~personnel~~in ~~could~~connection ~~prevent~~with usa ~~from~~cessation ~~successfully~~of ~~developing or selling our products, which would adversely affect our business~~operations.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

The Chapter 11 proceedings have caused our common stock to decrease in value materially or may render our common stock worthless.

We have a substantial amount of indebtedness that is senior to the Company’s existing shares of common stock in our capital structure. Recoveries in the Chapter 11 Cases for holders of common stock, if any, will depend upon the performance of our business, the value of our assets and other factors. Although we cannot predict how our common stock will be treated under any Chapter 11 plan at this time, the common stockholders may not receive a material, or any, recovery unless the holders of more senior claims and interests, such as secured indebtedness, are paid in full. Consequently, there is a significant risk that the holders of our common stock will receive little or

no recovery under the Chapter 11 Cases and that our common stock will decrease in value materially or become worthless. Trading prices for our securities may bear little or no relationship to the actual recovery, if any, by holders of our securities in bankruptcy proceedings.

Trading in shares of our common stock during the pendency of the Chapter 11 proceedings is highly speculative and an investor could lose all or part of their investment.

The price of our common stock has been volatile following the commencement of the Chapter 11 Cases and has and may continue to decrease in value. Accordingly, any trading in our common stock during the pendency of our Chapter 11 Cases is highly speculative and poses substantial risks to purchasers of our common stock. External factors have caused and may continue to cause the market price and demand for our common stock to fluctuate substantially. Accordingly, we cannot assure investors of the liquidity of an active trading market, the ability to sell shares of our common stock when desired, or the prices that an investor may obtain for the shares of our common stock.

In the past, following periods of extreme volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. This and other securities litigation against us could result in substantial costs and a diversion of our management’s attention and resources.

Our common stock has been delisted from the New York Stock Exchange. As a result of the delisting, our common stock began trading exclusively on the over-the-counter markets on August 6, 2023. We can provide no assurance that our common stock will continue to trade on this market, whether broker-dealers will continue to provide public quotes of our common stock on this market, whether the trading volume of our common stock will be sufficient to provide for an efficient trading market or whether quotes for our common stock will continue on this market in the future, which could result in significantly lower trading volumes and reduced liquidity for investors seeking to buy or sell our common stock. Furthermore, because of the limited market and generally low volume of trading in our common stock, the price of our common stock is likely to be volatile and more likely to be affected by broad market fluctuations, general market conditions, changes in the markets’ perception of our securities, and announcements made by us or third parties with interests in the Chapter 11 Cases.

We may be adversely affected by potential litigation, including litigation arising out of the Chapter 11 Cases.

In the future, we may become parties to litigation. In general, litigation can be expensive and time consuming to bring or defend against. Such litigation could result in settlements or damages that could significantly affect our financial results. It is also possible that certain parties will commence litigation with respect to the treatment of their claims under a Chapter 11 plan. It is not possible to predict the potential litigation that we may become party to nor the final resolution of such litigation. The impact of any such litigation on our business and financial stability, however, could be material.

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.

The Company’s ability to continue as a going concern is contingent upon its ability to generate sufficient liquidity to meet its contractual obligations and operating needs. Beginning on the Petition Date, it is also contingent upon its ability to, subject to the Bankruptcy Court’s approval, implement a Chapter 11 plan of reorganization and emerge from the Chapter 11 Cases. As a result, the Company faces risks and uncertainties related to, among other things, (i) the Company’s ability to obtain requisite support for a Chapter 11 plan from various stakeholders, and (ii) the potentially disruptive effects of the Chapter 11 proceedings on our business making it potentially more difficult to maintain business, financing and operational relationships. The outcome of the Chapter 11 Cases is subject to a high degree of uncertainty and is dependent upon factors that are outside of our control, including rulings by the Bankruptcy Court and the actions of the Company’s creditors. There can be no assurance that we will be successful in executing a transaction, or consummating a Chapter 11 plan with respect to the Chapter 11 Cases. As a result of risks and uncertainties related to the aforementioned conditions, the delisting of our common stock, and the effects of potential disruption resulting from the Chapter 11 Cases making it more difficult to maintain business, financing and operational relationships, together with our recurring losses from operations and accumulated deficit, substantial doubt exists regarding our ability to continue as a going concern for the next 12 months. See Note 13 to our interim condensed consolidated financial statements included in this report for additional details regarding the Chapter 11 Cases.

The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our obligations under all of our pre-petition debt instruments.

Risks Related to Our Business and Industry

We have a history of losses and may not be able to achieve or sustain profitability in the future.

We have incurred net losses in all periods since our inception. We experienced net losses of $111.0 million and $242.6 million for fiscal year 2023 and fiscal year 2022, respectively, and a net loss in the quarter ended April 30, 2023 of $9.2 million. As of April 30, 2023, we had an accumulated deficit of $538.1 million. We cannot predict when or whether we will ever reach or maintain profitability. We will also continue to incur significant operating expenses, which will negatively affect our results of operations if our total revenue does not increase. We cannot assure you that we will achieve increases in our total revenue or improvements in our results of operations. We also expect to incur significant additional legal, accounting, and other expenses as a public operating company. Any failure to increase our revenue as we invest in our business or to manage our costs could prevent us from achieving or maintaining profitability or positive cash flow.

Our limited operating history makes it difficult to evaluate our current business and our future prospects and may increase the risk of your investment.

We were founded in 2014 and we launched our first cybersecurity network detection and response product, IronDefense, in 2016 and our first collective defense product, IronDome, in 2018. Our limited operating history makes it difficult to evaluate our current business, our future prospects, and other trends, including our ability to plan for and model future growth. We have encountered, and we will continue to encounter, risks, uncertainties, and difficulties frequently experienced by rapidly growing companies in evolving industries, including our ability to achieve broad market acceptance of cloud- enabled, and/or SaaS delivered cybersecurity solutions and our platform, attract additional customers, grow partnerships, compete effectively, build and maintain effective compliance programs, and manage increasing expenses as we continue to invest in our business. If we do not address these risks, uncertainties and difficulties successfully, our business, and results of operations will be harmed. Further, we have limited historical financial data and operate in a rapidly evolving market. As a result, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market.

Weakened global economic conditions may harm our industry, business and results of operations.

Our overall performance depends in part on worldwide economic conditions. Global financial developments, downturns and global health crises or pandemics seemingly unrelated to us or the cybersecurity industry, may harm us, including due to disruptions or restrictions on our employees’ ability to work and travel. The United States and other key international economies have been affected from time to time by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, disruptions in access to bank deposits or lending commitments due to bank failures, bankruptcies, outbreaks of COVID-19 and the resulting impact on business continuity and travel, supply chain disruptions, inflation and overall uncertainty with respect to the economy, including with respect to tariff and trade issues. For example, inflation rates, particularly in the United States, have increased recently to levels not seen in years, and increased inflation may result in decreased demand for our products and services, increases in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital. In addition, the Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and

heightening these risks. Additionally, financial markets around the world experienced volatility following the invasion of Ukraine by Russia in February 2022. In response to the invasion, the US, UK and EU, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia (as well as possible future punitive measures that may be implemented), as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraine and Russia, which could conceivably expand into the surrounding region, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, and/or supply chain continuity, in both Europe and globally, and has introduced significant uncertainty into global markets. As the adverse effects of this conflict continue to develop and potentially spread, both in Europe and throughout the rest of the world, our customers may be negatively impacted, which in turn may cause them to delay purchasing decisions, affect subscription renewal rates and otherwise depress our customers’ spending levels. As a result, our business and results of operations may be adversely affected by the ongoing conflict between Ukraine and Russia, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict. We have current and potential new customers throughout Europe. If economic conditions in Europe and other key markets for our platform continue to remain uncertain or deteriorate further, many customers may delay or reduce their cybersecurity spending.

In addition, prior to March 10, 2023, we had a banking relationship with SVB. As of the closure of SVB on March 10, 2023, we held approximately $8.1 million in cash, cash equivalents and investments at or through SVB, which represented approximately 96% of our total cash, cash equivalents and investments as of that date. SVB was closed on March 10, 2023 by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 12, 2023, the U.S. Treasury, Federal Reserve, and FDIC announced that SVB depositors would have access to all of their money starting March 13, 2023. On March 13, 2023, we were able to access all $8.1 million in cash, cash equivalents and investments held at or through SVB. While we have not experienced any losses in such accounts, the recent failure of SVB exposed us to significant credit risk prior to the completion by the FDIC of the resolution of SVB in a manner that fully protected all depositors. Our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, the financial institutions with which we have arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we have financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.

The factors discussed above have and may continue to influence our customers’ behavior, spending patterns and general demand for our platform and services and prompt our customers to take additional precautionary measures to limit or delay expenditures and preserve capital and liquidity as they monitor global economic conditions and the risk of a global recession. The growth of our revenues and potential profitability of our business depends on demand for our platform and services generally, and business spend management specifically. In addition, our revenues are dependent on the number of users of our services. Historically, during economic downturns there have been reductions in spending on cybersecurity as well as pressure for extended billing terms or pricing discounts, which would limit our ability to grow our business and negatively affect our operating results. These conditions affect the rate of cybersecurity spending and could adversely affect our customers’ ability or willingness to subscribe to our services, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions or affect renewal rates, all of which could harm our operating results.

Our future success depends on the growth in the market for cloud-enabled and/or SaaS-delivered cybersecurity solutions. The use of SaaS solutions to manage and automate security and IT operations is rapidly evolving. As such, it is difficult to predict our potential growth, customer adoption and retention rates, customer demand for our solutions, or the success of existing or future competitive products. Any expansion in our market depends on a number of factors, including the cost, performance and perceived value associated with our solutions and those of our competitors. If our solutions do not achieve widespread adoption or there is a reduction in demand for our solutions due to a lack of customer acceptance, technological challenges, competing products, privacy or other liability concerns, decreases in corporate spending, weakening economic conditions, or otherwise, it could adversely affect our business, results of operations and financial results, resulting from such things as early terminations, reduced customer retention rates, or decreased sales. Negative or worsening conditions in the general economy both in the United States and abroad, including conditions resulting from financial and credit market fluctuations and inflation, could cause a decrease in corporate spending on enterprise software in general, and in the cybersecurity industry specifically, and negatively affect the rate of growth of our business. We do not know whether the trend in adoption of cloud- enabled and/or SaaS-delivered cybersecurity solutions that we have experienced in the past will continue in the future. Furthermore, if we or other SaaS security providers experience security incidents, loss, or disclosure of customer data, disruptions in delivery, or other problems, the market for SaaS solutions as a whole, including our security solutions, could be negatively affected.

In addition to reliance on a cloud-enabled and/or SaaS-delivered model, our cybersecurity offerings utilize a novel and relatively new approach to collective defense that relies on customers sharing sensitive customer information with us. Some of that raw customer information may contain personal or confidential information, or data perceived to be personal or confidential information. From that customer information, we generate analytics that allow us to deliver threat knowledge and network intelligence at machine speed across a wide variety of industries. Because this new approach requires the sharing of sensitive customer information, concerns may exist that sharing of the customer information may violate, or be perceived as potentially violating, privacy laws or providing a competitive advantage to another entity. As a result, some current or prospective customers may decide not to procure our products or share any customer information. Such lack of acceptance could have negative effects on us, including reduced or lost revenues or inadequate information being available for our analysis, thus making our products less effective. In addition, uncertainties about the regulatory environment concerning personal information and the potential liability raised by sharing such information could further inhibit the broad-scale adoption of our solutions.

Historically, information sharing related to cybersecurity has been a very well accepted concept from a theoretical perspective but very difficult to implement in practice. Companies are generally reluctant to share their sensitive cyber information with other entities, despite knowing the advantages of doing so. Although raw customer information will not be shared with other parties, it does undergo filtering, concatenation, and other transformations within our solutions with the goal of removing any sensitive or personal information. Misperceptions may exist, however, about what information gets shared, with whom that information is shared, and the jurisdictions (including foreign countries) of the companies with which the information gets shared. Further, concerns of existing or potential customers may exist related to the ability to completely remove any indicia of the source company, general market rejection of information sharing, or specific market skepticism of our approach to collective defense, which may further add to a lack of customer acceptance.

In addition to the potential concerns related to sharing sensitive information in a system consisting of commercial or potentially competitive entities, additional concerns can arise when governments become involved as participants in the collective defense ecosystem. From a commercial perspective, companies frequently view information sharing with governments as risky, based on perceptions that the governments might use such shared information to take action against the companies or to otherwise utilize it in a way that will expose such companies to liability. Such perceptions could lead commercial entities to stop sharing, not procure our services in the first place, or terminate their relationship with us altogether. Similarly, governments (as customers) may be unable to properly process such data or utilize it in a meaningful way, or share useful information back into our solutions. Any of these concerns could lead to reduced sales or contribute to a lack of customer acceptance. In addition, the mere involvement of one or more government entities may harm our reputation with certain companies.

~~Weakened~~If ~~global~~we ~~economic~~are ~~conditions~~unable ~~may~~to ~~harm~~attract ~~our~~new ~~industry~~customers, ~~business~~our ~~and~~future results of operations could be harmed.

~~Our~~To ~~overall~~expand ~~performance~~our ~~depends~~customer ~~in part on worldwide economic conditions. Global financial developments~~base, ~~downturns~~we ~~and~~will ~~global~~need ~~health crises or pandemics seemingly unrelated~~ to usconvince orpotential ~~the~~customers ~~cybersecurity industry, may harm us, including due~~ to ~~disruptions~~allocate ~~or restrictions on our employees’ ability to work and travel. The United States and other key international economies have been affected from time to time by falling demand for~~ a ~~variety~~portion of ~~goods~~their ~~and~~discretionary ~~services,~~budgets ~~restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, disruptions in access~~ to ~~bank~~purchase ~~deposits~~our orplatform ~~lending commitments due to bank failures, bankruptcies, outbreaks of COVID-19~~ and ~~the resulting impact on business continuity and travel, supply chain disruptions, inflation and overall uncertainty with respect to the economy, including with respect to tariff and trade issues~~solutions. ~~For~~Our ~~example,~~sales ~~inflation~~efforts ~~rates, particularly in the United States,~~ have ~~increased~~often ~~recently~~involved toeducating ~~levels~~our ~~not~~prospective ~~seen~~customers inabout ~~years,~~the ~~and~~uses ~~increased inflation may result in decreased demand for our products~~ and ~~services,~~benefits ~~increases~~of in our ~~operating~~platform ~~costs (including our labor costs), reduced liquidity~~ and ~~limits on our ability to access credit or otherwise raise capital~~solutions. InEnterprises ~~addition,~~and ~~the~~governments ~~Federal~~that use

3539

~~Reserve~~legacy ~~has~~security ~~raised~~products, ~~and~~such ~~may~~as ~~again~~signature-based ~~raise,~~or ~~interest~~malware-focused ~~rates in response to concerns about inflation~~products, ~~which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks. Additionally~~firewalls, ~~financial~~intrusion ~~markets~~prevention ~~around~~systems ~~the world experienced volatility following the invasion of Ukraine by Russia in February 2022. In response to the invasion, the US, UK~~ and ~~EU,~~endpoint ~~along with others~~technologies, ~~imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and~~ may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russia (as well as possible future punitive measures that may be ~~implemented),~~hesitant ~~as well as the counter measures imposed by Russia, in addition~~ to ~~the~~purchase ~~ongoing~~our ~~military~~platform ~~conflict between Ukraine~~ and ~~Russia,~~solutions ~~which~~if ~~could~~they ~~conceivably~~believe ~~expand~~that ~~into~~legacy ~~the~~security ~~surrounding~~products ~~region,~~are ~~remains~~more ~~uncertain;~~cost ~~however~~effective, ~~both~~provide ~~the~~substantially conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, and/or supply chain continuity, in both Europe and globally, and has introduced significant uncertainty into global markets. As the ~~adverse~~same ~~effects~~functionality ofas ~~this conflict continue to develop and potentially spread, both in Europe and throughout the rest of the world,~~ our ~~customers~~platform ~~may be negatively impacted, which in turn may cause them to delay purchasing decisions, affect subscription renewal rates~~ and ~~otherwise~~solutions ~~depress~~or ~~our~~provide ~~customers’ spending levels. As~~ a ~~result,~~level ~~our business and results~~ of ~~operations~~cybersecurity ~~may~~that beis ~~adversely~~sufficient ~~affected by the ongoing conflict between Ukraine and Russia, particularly~~ to ~~the~~meet extent it escalates to involve additional countries, further economic sanctions or wider military conflict. We have current and potential new customers throughout Europe. If economic conditions in Europe and other key markets for our platform continue to remain uncertain or deteriorate further, many customers may delay or reduce their ~~cybersecurity spending~~needs.

InWe ~~addition,~~may ~~prior~~have todifficulty ~~March~~convincing ~~10,~~prospective ~~2023,~~customers ~~we had a banking relationship with SVB. As~~ of the ~~closure~~value of ~~SVB~~adopting onour ~~March~~solutions. ~~10,~~Even ~~2023,~~if we ~~held~~are ~~approximately~~successful ~~$8.1 million~~ in ~~cash,~~convincing ~~cash~~prospective ~~equivalents~~customers ~~and~~that ~~investments~~a atcloud-enabled orplatform ~~through~~like ~~SVB,~~ours ~~which~~is ~~represented~~critical ~~approximately~~to ~~96%~~protect ofagainst ~~our total cash~~cyberattacks, ~~cash~~they ~~equivalents~~may ~~and~~not ~~investments~~decide asto ofpurchase ~~that~~our ~~date.~~platform ~~SVB~~and ~~was~~solutions ~~closed~~for ona ~~March~~variety 10of reasons, ~~2023~~some ~~by the California Department~~ of ~~Financial Protection and Innovation,~~ which ~~appointed~~are ~~the~~out ~~FDIC~~of asour ~~receiver~~control. OnFor ~~March 12~~example, ~~2023,~~any ~~the~~future ~~U.S.~~deterioration ~~Treasury,~~in ~~Federal~~general ~~Reserve,~~economic ~~and~~conditions ~~FDIC~~may ~~announced~~cause ~~that~~our ~~SVB~~current ~~depositors~~and ~~would~~prospective ~~have~~customers ~~access~~ to ~~all~~cut of their ~~money~~overall ~~starting~~security ~~March~~and ~~13,~~IT ~~2023.~~operations Onspending, ~~March~~and ~~13,~~such ~~2023,~~cuts wemay ~~were~~fall ~~able~~disproportionately toon ~~access~~cloud-based ~~all~~security $8solutions.1 ~~million~~Economic ~~in cash~~weakness, ~~cash~~customer ~~equivalents~~financial difficulties, and ~~investments~~constrained ~~held~~spending aton orsecurity ~~through~~and ~~SVB.~~IT ~~While~~operations wemay ~~have~~result ~~not~~in ~~experienced~~decreased ~~any~~revenue ~~losses~~and inadversely ~~such~~affect ~~accounts,~~our ~~the~~results ~~recent failure~~ of ~~SVB~~operations ~~exposed~~and usfinancial tocondition. ~~significant~~Additionally, ~~credit~~if ~~risk prior to~~ the ~~completion~~incidence byof ~~the~~cyberattacks ~~FDIC~~were ofto ~~the~~decline, ~~resolution~~or ofenterprises ~~SVB~~or ingovernments aperceive ~~manner~~ that ~~fully~~the ~~protected~~general ~~all~~level ~~depositors.~~or Werelative ~~are~~risk ~~in the process~~ of ~~transferring~~cyberattacks ~~some~~has ofdeclined, our ~~deposits~~ability to ~~multiple~~attract ~~banks~~new tocustomers ~~limit~~and ~~our~~expand ~~credit~~sales ~~risk.~~of ~~However,~~ our ~~access~~solutions to ~~funding~~existing ~~sources~~customers ~~and~~could ~~other~~be ~~credit~~adversely ~~arrangements~~affected. inIf ~~amounts~~organizations ~~adequate~~do tonot ~~finance~~continue orto ~~capitalize~~adopt our ~~current~~platform and ~~projected future business operations could be significantly impaired by factors that affect us~~solutions, ~~the~~our ~~financial~~sales ~~institutions~~will ~~with~~not ~~which~~grow weas ~~have~~quickly ~~arrangements~~as ~~directly~~anticipated, or ~~the~~at ~~financial services industry or economy in general. These factors could include~~all, ~~among~~and ~~others,~~our ~~events such as liquidity constraints or failures~~business, ~~the~~results ~~ability to perform obligations under various types~~ of ~~financial~~operations, ~~credit~~and ~~or liquidity agreements or arrangements, disruptions or instability in the~~ financial ~~services~~condition ~~industry~~would orbe ~~financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry~~harmed. These factors could involve financial institutions or financial services industry companies with which we have financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.

If our customers do not renew their subscriptions for our products, our future results of operations could be harmed.

In order for us to maintain or improve our results of operations, it is important that our customers renew their subscriptions for our platform and solutions when existing contract terms expire, and that we expand our commercial relationships with our existing customers by selling additional subscriptions. Our customers have no obligation to renew their subscriptions after the expiration of their contractual subscription period, which is generally one year, and in the normal course of business, some customers have elected not to renew. In addition, our customers may renew for shorter contract subscription lengths or cease using certain solutions. Our customer retention and expansion may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our services, concerns related to our current financial position and disclosed bankruptcy risk, our pricing, customer security and networking issues and requirements, our customers’ spending levels, mergers and acquisitions involving our customers, industry developments, competition and general economic conditions. Our public sector customers are also subject to budgetary cycles and funding authorizations, and funding reductions or delays can result in delays in such customers renewing their contracts with us. We have experienced several of these delays in the current fiscal year, which has delayed our ability to grow our annual recurring revenue and therefore reduced revenues below our previous expectations, in addition to delaying expected cash flows. If our efforts to maintain and expand our relationships with our existing customers are not successful, our business, results of operations, and financial condition may materially suffer.

AAs ~~limited~~a ~~number~~first ofmover ~~customers~~in ~~represent~~collective adefense ~~substantial~~for ~~portion~~the ofcommercial ~~our~~sector, ~~revenue.~~we Ifmay face significant liability if we ~~fail~~are unable to ~~retain~~effectively ~~these~~anonymize ~~customers,~~and safeguard our ~~revenue~~clients’ ~~could decline significantly~~data.

We ~~derive~~are athe ~~substantial~~first ~~portion~~major ofcommercial ~~our~~vendor ~~revenue~~to ~~from~~offer aan ~~limited~~end-to-end ~~number~~means to take full advantage of the collective defense concept that relies on customers sharing sensitive customer information with us. ~~For~~While raw customer information is not shared with other parties and shared data undergoes filtering and other transformations within our solution, with the ~~fiscal~~goal ~~year~~of ~~2022~~removing any sensitive or personal information, ~~six~~it ~~customers~~is ~~accounted~~possible ~~for~~that ~~approximately~~customer ~~one-half~~information could be accessed by third parties (including competitors of our ~~revenue~~clients), ~~with~~through ~~two~~a failure of ~~those~~our ~~customers~~procedures ~~accounting~~to ~~for~~effectively ~~over~~anonymize ~~20%~~the shared data or as a result of ~~our~~hackers ~~annual~~gaining ~~revenue~~access to the raw data collected by us. ~~During~~To the ~~first~~extent ~~nine~~we ~~months~~are ofnot ~~fiscal~~able ~~2023,~~to ~~two~~effectively anonymize and protect our customers’ ~~also~~data, ~~accounted~~we ~~for~~may ~~over~~be ~~20%~~subject to liability, which could adversely affect our business, results of operations and financial condition. In addition, given the novelty of our ~~revenue~~approach, it is possible that other risks related to our clients' data could surface of which we are currently unaware.

AsCompetition ~~a result of our customer concentration, which can vary~~ from ~~period~~existing toor ~~period,~~new ~~our~~companies ~~revenue~~ could ~~fluctuate~~cause ~~materially~~us ~~and~~to ~~could~~experience bedownward ~~materially~~pressure ~~and~~on ~~disproportionately~~prices, ~~impacted~~fewer ~~by purchasing decisions of these customers or any other significant future~~ customer. ~~Any of our significant customers may decide to purchase less than they have in the past~~orders, ~~may~~reduced ~~alter their purchasing patterns at any time with limited notice~~margins, orthe ~~may~~inability ~~decide not~~ to ~~continue~~take toadvantage ~~license our products at all, any~~ of ~~which~~new ~~could~~business ~~cause~~opportunities ~~our revenue to decline~~ and ~~adversely~~loss ~~affect our financial condition and results~~ of ~~operations.~~market ~~If we do not further diversify our customer base, we will continue to be susceptible to risks associated with customer concentration~~share.

The market for cybersecurity solutions is intensely competitive, fragmented, and characterized by rapid changes in technology, customer requirements, industry standards, increasingly sophisticated attackers, and by frequent introductions of new or improved products to combat security threats. We expect to continue to face intense competition from our current competitors, as well as from new entrants into the market. If we are unable to anticipate or react to these challenges, our competitive position could weaken, and we could experience a decline in revenue or reduced revenue growth, and loss of market share that would adversely affect our business, financial condition and results of operations. The ability to compete effectively will depend upon numerous factors, many of which are beyond our control, including, but not limited to:

•

product capabilities, including performance and reliability, of our platform, including our services and features particularly in the areas of analytics and collective defense, compared to those of our competitors;

•

our ability, and the ability of our competitors, to improve existing products, services and features, or to develop new ones to address evolving customer needs;

•

our ability to attract, retain and motivate talented employees;

•

our ability to establish, capitalize on, maintain, and grow relationships with distribution and technology partners;

•

the strength of our sales and marketing efforts; and

•

acquisitions or consolidation within our industry, which may result in more formidable competitors.

•

Our competitors include the following companies by general category:

•

first-generation NDR vendors such as DarkTrace or Vectra Networks, who offer point products based on Bayesian analysis, outlier analysis, and heuristic detection-based detection;

•

network security vendors, such as Cisco and Palo Alto Networks, Inc., who are supplementing their core network security additional behavioral-based detection with behavioral-based detection, threat intelligence and security operations solutions;

•

legacy network infrastructure and performance monitoring companies such as ExtraHop and Arista Networks, who are adding security use cases to their infrastructure products; and

•

legacy infrastructure detection and protection products (IDPS) and Sandbox from companies such as Cisco and FireEye.

Many of these competitors have greater financial, technical, marketing, sales, and other resources, greater name recognition, longer operating histories, and a significantly larger base of customers than we do. They may be able to devote greater resources to the development, promotion, and sale of services than we can, and they may offer lower pricing than we do. Further, they may have greater resources for research and development of new technologies, the provision of customer support, and the pursuit of acquisitions, or they may have other financial, technical or other resource advantages. Our larger competitors have substantially broader and more diverse product and services offerings as well as routes to market, which may allow them to leverage their relationships based on other products, or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our products.

Conditions in our market could change rapidly and significantly as a result of technological advancements, partnering or acquisitions by competitors or continuing market consolidation. Some of our current or potential competitors have made or could make acquisitions of businesses or establish cooperative relationships that may allow them to offer more directly competitive and comprehensive solutions than were previously offered and adapt more quickly to new technologies and customer needs. These competitive pressures in the market or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, increased net losses and loss of market share. Further, many competitors that specialize in providing protection from particular types of security threats may be able to deliver these more targeted security products to the market quicker than we can or may be able to convince organizations that these more limited products meet their needs.

Even if there is significant demand for cloud-based security solutions like ours or if our competitors include functionality that is, or is perceived to be, equivalent to or better than ours in legacy products that are already generally accepted as necessary components of an organization’s cybersecurity architecture, we may have difficulty increasing the market penetration of our platform. Furthermore, even if the functionality offered by other security and IT operations providers is different and more limited than the functionality of our platform, organizations may elect to accept such limited functionality in lieu of adding products from additional vendors like us. If we are unable to compete successfully, our business, financial condition, and results of operations would be adversely affected.

Competitive pricing pressure may reduce gross profits and adversely affect our financial results.

If we are unable to maintain our pricing due to competitive pressures or other factors, our margins may be reduced and our gross profits, business, results of operations and financial condition may be adversely affected. The subscription prices for our platform, solutions, and professional services may decline for a variety of reasons, including competitive pricing pressures, discounts, anticipation of the introduction of new solutions by competitors, or promotional programs offered by us or our competitors. Competition continues to increase in the market segments in which we operate, and we expect competition to further increase in the future. Larger competitors with more diverse product and service offerings may reduce the price of products or subscriptions that compete with ours or may bundle them with other products and subscriptions in an effort to leverage their existing market share to make it harder for newer companies, like us, to effectively compete.

Real or perceived defects, errors, or vulnerabilities in our platform and solutions, the failure of our platform to detect or prevent incidents, including advanced and newly developed attacks, misconfiguration of our solutions, actions or inactions by employees or contractors that create vulnerabilities in our platform or solutions, or the failure of customers to take action on attacks identified by our platform could harm our reputation and adversely affect our business, financial position, and results of operations. Because our cloud-enabled security platform is complex, it may contain defects or errors that are not detected until after deployment. We cannot assure you that our products will detect all cyberattacks, especially in light of the rapidly changing security threat landscape that our solution seeks to address. Due to a variety of both internal and external factors, including, without limitation, defects or misconfigurations of our solutions, our solutions could become vulnerable to security incidents (both from intentional attacks and accidental causes) that cause them to fail to secure networks and detect and block attacks. In addition, because the techniques used by computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, there is a risk that an advanced attack could emerge that our cloud-enabled security platform is unable to detect or prevent until after some of our customers are affected. For example, certain computer hackers may be supported or directly employed by so-called nation-states, which are generally defined as sovereign territories with individuals who share a common history and set of ideals. In the context of cybersecurity, certain aggressive nation-states with a history of disregarding generally acceptable computer network norms may employ particularly sophisticated and experienced actors who focus on being persistent, unpredictable, and innovative, with the ability to tap into significant nation-state budgets. This allows such nation-state attackers to develop expansive attack playbooks and access to cutting-edge technology to facilitate their attacks, including new, or so-called zero-day, attacks. Such nation-state attackers could successfully attack us or our customers, which could significantly harm our reputation. Additionally, our platform may falsely indicate a cyberattack or threat that does not actually exist, which may lessen customers’ trust in our solutions.

Moreover, as our cloud-enabled security platform is adopted by an increasing number of enterprises and governments, it is possible that the individuals and organizations behind advanced cyberattacks will begin to focus on finding ways to defeat our security platform. If this happens, our systems and subscription customers could be specifically targeted by attackers and could result in vulnerabilities in our platform or undermine the market acceptance of our platform and could adversely affect our reputation as a provider of security solutions. Because we host customer data on our cloud and other platforms, which in some cases may contain personally identifiable information (“PII”) or potentially confidential information, a security compromise, or an accidental or intentional misconfiguration or malfunction of our platform could result in PII and other customer data being accessible to attackers or to other customers. Further, if a high-profile security breach occurs with respect to another next-generation or cloud-enabled security system, our customers and potential customers may lose trust in such solutions generally, and cloud-enabled security solutions in particular.

Organizations are increasingly subject to a wide variety of attacks on their networks, systems, and endpoints. No security solution, including our platform, can address all possible security threats or block all methods of penetrating a network or otherwise perpetrating a security incident. There could be situations where our solutions detect attacks against a customer but the customer does not address the vulnerability, which could cause customers and the public to erroneously believe that our solutions were not effective. Real or perceived security breaches of our customers’ networks could cause disruption or damage to their networks or other negative consequences and could result in negative publicity to us, damage to our reputation, and other customer relations issues, and may adversely affect our revenue and results of operations.

As a cybersecurity provider, we may be a target of cyberattacks. If our internal networks, systems or data are or are perceived to have been compromised, our reputation may be damaged and our financial results may be negatively affected.

As a provider of security solutions, our platform may be specifically targeted by bad actors for attacks intended to circumvent our security capabilities or to exploit our platform as an entry point into customers’ endpoints, networks, or systems. In particular, because we have been involved in the identification of organized cybercriminals and nation-state actors, we may be the subject of intense efforts by sophisticated cyber adversaries who seek to compromise our systems or leverage our access. We are also susceptible to inadvertent compromises of our systems and data, including those arising from process, coding, or human errors. A successful attack or other incident that compromises us or our customers’ data or results in an interruption of service could have a significant negative effect on our operations, reputation, financial resources, and the value of our intellectual property. We cannot assure you that any of our efforts to manage this risk will be effective in protecting us from such attacks.

It is virtually impossible to entirely eliminate the risk of such compromises, interruptions in service, or other security incidents affecting our internal systems or data. Organizations are subject to a wide variety of attacks on their networks, systems and endpoints, and techniques used to sabotage or to obtain unauthorized access to networks in which data is stored or through which data is transmitted change frequently. Furthermore, employee error or malicious activity could compromise its systems. As a result, we may be unable to anticipate these techniques or implement adequate measures to prevent an intrusion into our networks, which could result in unauthorized access to customer data, intellectual property including access to our source code, and information about vulnerabilities in our product, which in turn could reduce the effectiveness of our solutions, or lead to cyberattacks or other intrusions of our customers’ networks. If any of these events were to occur, they could damage our relationships with our customers and could have a negative effect on our ability to attract and retain new customers. We have expended, and we anticipate we will continue to expend significant amounts and resources in an effort to prevent security breaches and other security incidents impacting our systems and data. Since our business is focused on providing reliable security services to our customers, an actual or perceived security incident affecting our internal systems or data or data of its customers would be especially detrimental to our reputation and customer confidence in our solutions.

In addition, while we maintain, and we will continue to maintain, insurance policies that may cover certain liabilities in connection with a cybersecurity incident, we cannot be certain that the insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims that exceed available insurance coverage, or the occurrence of changes in insurance policies, including premium increases or the imposition of large deductible or coinsurance requirements, could have a material adverse effect on our business, including our financial condition, results of operations and reputation.

Our customers depend on the continuous availability of our platform. We currently host our platform and serves our customers using a mix of third-party data centers, primarily AWS, and, primarily for our own use, in our own data centers, hosted in colocation facilities. Consequently, we may be subject to service disruptions as well as

failures to provide adequate support for reasons that are outside of our direct control. We may experience interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. Also, customers may be subject to the same risk factors as some of them host our solutions in their own data centers.

The following factors, many of which are beyond our control, can affect the delivery, availability, and the performance of our platform:

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the development and maintenance of the infrastructure of the internet;

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the performance and availability of third-party providers of cloud infrastructure services with the necessary speed, data capacity, and security for providing reliable internet access and services;

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decisions by the owners and operators of the data centers where our cloud infrastructure is deployed to terminate our contracts, discontinue services, shut down operations or facilities, increase prices, change service levels, limit bandwidth, declare bankruptcy or prioritize the traffic of other parties;

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physical or electronic break-ins, acts of war or terrorism, human error or interference (including by disgruntled employees, former employees or contractors) and other catastrophic events;

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cyberattacks, including denial of service attacks, targeted at us, our data centers, or the infrastructure of the internet;

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failure by us to maintain and update our cloud infrastructure to meet our data capacity requirements;

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errors, defects, or performance problems in our software, including third-party or open-source software incorporated in our software;

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improper deployment or configuration of our solutions;

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the failure of our redundancy systems, in the event of a service disruption at one of our data centers, to provide failover to other data centers in our data center network;

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the failure of our disaster recovery and business continuity arrangements; and

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