UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(MARK ONE)~~CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

(Mark One)

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

For the ~~quarter~~quarterly period ended ~~September 30, 2019~~October 31, 2021

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

~~For the transition period from to~~

Commission file ~~number:001-39125~~number 001-38183

IronNet, Inc.

(Exact name of registrant as specified in its charter)

~~LGL SYSTEMS ACQUISITION CORP.~~

~~(Exact Name of Registrant as Specified in Its Charter)~~

~~Delaware~~		~~83-4599446~~
Delaware	001-39125	83-4599446
(State or other jurisdiction of ~~incorporation or organization)~~ incorporation)	(Commission File Number)	(~~I.R.S.~~IRS Employer Identification No.)

7900 Tysons One Place, Suite 400
McLean, VA		22102
(Address of principal executive offices)		(Zip Code)

~~165 Liberty St., Suite 220~~Registrant’s telephone number, including area code: (443) 300-6761

~~Reno, NV 89501~~(Former Name or Former Address, if Changed Since Last Report)

~~(Address of principal executive offices)~~

~~(705) 393-9113~~

~~(Issuer’s telephone number)~~

~~Securities registered pursuant to Section 12(b) of the Act:~~


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

~~Units, each consisting of one share of Class A common stock and one-half of one redeemable warrant~~	~~DFNSU~~	~~The Nasdaq~~ Common Stock, ~~Market LLC~~
~~Class A common stock,~~ par value $0.0001 per share	~~DFNS~~ IRNT	The ~~Nasdaq~~New York Stock ~~Market LLC~~Exchange
~~Redeemable warrants, exercisable for shares of Class A~~ Warrants to purchase common stock ~~at an exercise price of $11.50 per share~~	~~DFNSW~~ IRNT.WS	The ~~Nasdaq~~New York Stock ~~Market LLC~~Exchange

~~Check~~Indicate by check mark whether the ~~issuer~~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 ~~past~~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 ~~(§232.405 of this chapter)~~ 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”,~~filer,” “accelerated ~~filer”,~~filer,” “smaller reporting ~~company”,~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐		Accelerated filer	☐	Non-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 ☐☒

~~As of December 23, 2019, there are 17,250,000~~There were 88,718,630 shares of ~~Class A common stock,~~Common Stock, par value $0.0001 per share, ~~and 4,312,500 shares~~outstanding as of ~~Class B common stock, par value $0.0001 per share, issued and outstanding.~~December 15, 2021.

~~LGL SYSTEMS ACQUISITION CORP.~~IronNet, Inc.

Table of Contents

FORM ~~10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2019~~ 10‑Q

October 31, 2021

~~TABLE OF CONTENTS~~

		~~Page~~
~~Part I. Financial Information~~		Page
PART I — FINANCIAL INFORMATION		2
Item 1. Financial Statements		2
Unaudited Condensed Consolidated Balance ~~Sheet~~Sheets		1 2
Unaudited Condensed Consolidated Statements of Operations		2 3
Unaudited Condensed ~~Statement~~Consolidated Statements of Comprehensive Loss		4
Unaudited Condensed Consolidated Statements of Changes in ~~Stockholder’s~~Stockholders’ Equity		3 5
Unaudited Condensed ~~Statement~~Consolidated Statements of Cash Flows		4 7
Notes to Unaudited Condensed Consolidated Financial Statements		5 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13 17
Item 3. Quantitative and Qualitative Disclosures ~~Regarding~~About Market Risk		15 26
Item 4. Controls and Procedures		15 27
~~Part II. Other Information~~PART II — OTHER INFORMATION		28
Item 1. Legal Proceedings		28
Item 1A. Risk Factors		28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		16 28
Item 3. Defaults upon Senior Securities		28
Item 4. Mine Safety Disclosures		28
Item 5. Other Information		28
Item 6. Exhibits		16 29
~~Part III. Signatures~~SIGNATURES		17 30

PART I -— FINANCIAL INFORMATION

Item 1. ~~Interim~~ Financial ~~Statements.~~Statements

IronNet, Inc.

~~LGL SYSTEMS ACQUISITION CORP.~~Condensed Consolidated Balance Sheets

~~CONDENSED BALANCE SHEET~~($ in thousands, except share and per share data)

~~SEPTEMBER 30, 2019~~(unaudited)

~~(UNAUDITED)~~


	October 31,			January 31,
	2021			2021
Assets
Current assets
Cash and cash equivalents	$	73,891		$	31,543
Accounts receivable		2,246			1,643
Unbilled receivable		3,885			1,425
Related party receivables and loan receivables		3,521			3,599
Account and loan receivables		9,652			6,667
Inventory		2,672			2,180
Deferred costs		2,416			2,068
Prepaid warranty		814			1,037
Prepaid expenses and other current assets		4,254			2,172
Total current assets	$	93,699		$	45,667
Deferred costs		1,320			2,056
Property and equipment, net		5,596			2,792
Prepaid warranty		897			878
Deposits and other assets		490			298
Total assets	$	102,002		$	51,691
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	4,380		$	1,922
Accrued expenses		6,196			2,591
Deferred revenue		12,929			12,481
Deferred rent		154			134
Short-term PPP loan		—			3,487
Income tax payable		135			88
Other current liabilities		689			689
Total current liabilities		24,483			21,392
Deferred rent		808			928
Deferred revenue		17,181			21,563
Warrants		43			—
Long-term PPP loan		0			2,093
Other long-term liabilities payable		689			689
Total liabilities	$	43,204		$	46,665

Commitments and contingencies (Note 7)
Stockholders’ equity
Preferred stock, $0.0001 par value; 100,000,000 shares authorized; 0ne issued or outstanding		—			—
Class A common stock; $0.0001 par value; 500,000,000 shares authorized; 88,718,630 and 65,353,098 shares issued and outstanding at October 31, 2021 and January 31, 2021, respectively		9			7
Additional paid-in capital		459,349			180,853
Accumulated other comprehensive (loss) income		268			40
Accumulated deficit		(400,828	)		(175,039	)
Subscription notes receivable		—			(835	)
Total stockholders’ equity		58,798			5,026
Total liabilities and stockholders' equity	$	102,002		$	51,691

ASSETS
Current asset – Cash $ 1,315
Deferred offering costs 115,985
Total Assets $ 117,300

LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Accrued offering costs $ 6,500
Promissory note – related party 86,806
Total Current Liabilities 93,306

Commitments

Stockholder’s Equity
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding —
Class A common stock, $0.0001 par value; 75,000,000 shares authorized; none issued and outstanding —
Class B convertible common stock, $0.0001 par value; 10,000,000 shares authorized; 4,312,500 shares issued and outstanding⁽¹⁾ 431
Additional paid-in capital 24,569
Accumulated deficit (1,006 )
Total Stockholder’s Equity 23,994
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY $ 117,300

~~(1)~~

Included up to 562,500 shares subject to forfeiture if the over-allotment option was not exercised by the underwriters (see Note 5). On November 6, 2019, the Company effected a stock dividend of 0.2 shares for each share outstanding (see Note 7).

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

~~LGL SYSTEMS ACQUISITION CORP.~~

~~CONDENSED STATEMENTS OF OPERATIONS~~2

~~(UNAUDITED)~~IronNet, Inc.

Three Months Ended September 30,
2019 For the Period from April 30,
2019 (inception) Through September 30,
2019

Formation and operating costs $ 481 $ 1,006
Net Loss $ (481 ) $ (1,006 )

Weighted average shares outstanding, basic and diluted⁽¹⁾ 3,750,000 3,750,000

Basic and diluted net loss per common share $ (0.00 ) $ (0.00 )

~~(1)~~

Excludes 562,500 shares that would have been subject to forfeiture if the over-allotment option was not exercised by the underwriters (see Note 5). On November 6, 2019, the Company effected a stock dividend of 0.2 shares for each share outstanding (see Note 7).

Condensed Consolidated Statements of Operations

($ in thousands, except per share data)

(unaudited)


	Three Months Ended October 31,						Nine Months Ended October 31,
	2021			2020			2021			2020
Product, subscription and support revenue	$	6,132		$	5,958		$	18,038		$	18,047
Professional services revenue		781			1,055			1,327			3,779
Total revenue		6,913			7,013			19,365			21,826
Cost of product, subscription and support revenue		2,082			1,252			5,505			3,534
Cost of professional services revenue		286			817			617			1,596
Total cost of revenue		2,368			2,069			6,122			5,130
Gross profit		4,545			4,944			13,243			16,696
Operating expenses
Research and development		28,144			5,687			42,606			19,965
Sales and marketing		57,196			7,155			72,046			23,265
General and administrative		100,267			4,715			111,952			16,690
Total operating expenses		185,607			17,557			226,604			59,920
Operating loss		(181,062	)		(12,613	)		(213,361	)		(43,224	)
Other (expense) income, net		(724	)		178			(1,070	)		125
Change in fair value of warrants liabilities		(11,302	)	-				(11,302	)		-
Loss before income taxes		(193,088	)		(12,435	)		(225,733	)		(43,099	)
Benefit (provision) for income taxes		(34	)		(19	)		(56	)		(58	)
Net loss	$	(193,122	)	$	(12,454	)	$	(225,789	)	$	(43,157	)
Basic and diluted net loss per common share		(2.22	)		(0.19	)		(3.05	)		(0.67	)
Weighted average shares outstanding, basic and diluted		87,178,432			65,067,942			74,001,217			64,064,424

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

~~LGL SYSTEMS ACQUISITION CORP.~~

~~CONDENSED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY~~3

~~THREE MONTHS ENDED SEPTEMBER 30, 2019 AND~~IronNet, Inc.

~~FOR THE PERIOD FROM APRIL 30, 2019 (INCEPTION) THROUGH SEPTEMBER 30, 2019~~Condensed Consolidated Statements of Comprehensive Loss

~~(UNAUDITED)~~($ in thousands) (unaudited)

Common Stock Additional Paid Accumulated Total Stockholder’s
Shares Amount in Capital Deficit Equity
Balance – April 30, 2019 (inception) — $ — $ — $ — $ —

Sale of Class B common stock to Sponsor⁽¹⁾ 4,312,500 431 24,569 — 25,000

Net loss — — — (525 ) (525 )

Balance – June 30, 2019 4,312,500 431 24,569 (525 ) 24,475

Net loss — — — (481 ) (481 )

Balance – September 30, 2019 4,312,500 $ 431 $ 24,569 $ (1,006 ) $ 23,994


	Three Months Ended October 31,						Nine Months Ended October 31,
	2021			2020			2021			2020
Net loss	$	(193,122	)	$	(12,454	)	$	(225,789	)	$	(43,157	)
Change in net unrealized gains (losses) on available for sale investments, net of tax		—			(397	)		—			(398	)
Foreign currency translations adjustment, net of tax		303			(54	)		228			(4	)
Comprehensive loss	$	(192,819	)	$	(12,905	)	$	(225,561	)	$	(43,559	)

~~(1)~~

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

IronNet, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended October 31, 2021 and 2020

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

(unaudited)


	Series A Preferred Stock								Series B Preferred Stock								Class A Common Stock							Class B Common Stock										Additional Paid- In Capital				Accumulated Deficit				Accumulated Other Comprehensive Deficit				Subscription Notes Receivables				Total Stockholders' Equity
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount
Balance at January 31, 2021			-		$		-				-		$		-				66,934		$		7				-		$		-		$		180,853		$		(175,039	)	$		40		$		(835	)	$		5,026
Issuance of common stock			-				-				-				-				598				-				-				-				305				-				-				-				305
Merger recapitalization (Note 2)			-				-				-				-				4,555				1				-				-				(12,027	)			-				-				-				(12,026	)
PIPE Shares			-				-				-				-				12,500				1				-				-				109,857				-				-				-				109,858
Issuance of common stock related to Public Warrants			-				-				-				-				29				-				-				-				330				-				-				-				330
Issuance of common stock related to Private Warrants			-				-				-				-				3,188				-				-				-				21,492				-				-				-				21,492
Issuance of earnout			-				-				-				-				1,078				-				-				-				0				-				-				-				-
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 note receivables for common shares			-				-				-				-				(55	)			-				-				-				(550	)			-				-				843				293
Stock-based compensation			-				-				-				-				-				-				-				-				160,156				-				-				-				160,156
Net loss			-				-				-				-				-				-				-				-				-				(225,789	)			-				-				(225,789	)
Foreign currency translation adjustment, net of tax of $0			-				-				-				-				-				-				-				-				-				-				228				-				228
Balance at October 31, 2021			-		$		-				-		$		-				88,719		$		9				-		$		-		$		459,349		$		(400,828	)	$		268		$		-		$		58,798

Balance at January 31, 2020, as previously reported			794		$		32,500				1,217		$		88,711				36,138		$		4				17,607		$		2		$		2,041		$		(119,666	)	$		394		$		(900	)	$		(118,125	)
Retroactive application of recapitalization (1)			(794	)			(32,500	)			(1,217	)			(88,711	)			23,984				2				(17,607	)			(2	)			121,194				-				-				-				121,194
Adjusted Balance at January 31, 2020			-		$		-				-		$		-				60,122		$		6				-		$		-		$		123,235		$		(119,666	)	$		394		$		(900	)	$		3,069
Issuance of common stock			-				-				-				-				5,231				1				-				-				44,079				-				-				-				44,080
Interest earned on subscription notes receivable			-				-				-				-				-				-				-				-				12				-				-				(12	)			-
Payments on subscription notes receivable			-				-				-				-				-				-				-				-				-				-				-				47				47
Stock-based compensation			-				-				-				-				-				-				-				-				27				-				-				-				27
Unrealized loss on investments			-				-				-				-				-				-				-				-				-								(398	)			-				(398	)
Net loss			-				-				-				-				-				-				-				-				-				(43,157	)			-				-				(43,157	)
Foreign currency translation adjustment, net of tax of $0			-				-				-				-				-				-				-				-				-				-				(4	)			-				(4	)
Balance at October 31, 2020			-		$		-				-		$		-				65,353		$		7		-		-		$		-		$		167,353		$		(162,823	)	$		(8	)	$		(865	)	$		3,664

(1)

Prior to the Merger, as defined in Note 1, Series A and Series B preferred stock were converted 1:10 to Class A common stock and Class B common stock were converted 1:1 to Class A common stock, at the Exchange Ratio of approximately 0.8141070. The conversion has been retroactively restated as of January 31, 2020.

~~LGL SYSTEMS ACQUISITION CORP.~~

~~CONDENSED STATEMENT OF CASH FLOWS~~5

~~FOR THE PERIOD FROM APRIL 30, 2019 (INCEPTION) THROUGH SEPTEMBER 30, 2019~~

~~(UNAUDITED)~~

Cash Flows from Operating Activities:
Net loss $ (1,006 )
Net cash used in operating activities (1,006 )

Cash Flows from Financing Activities:
Proceeds from promissory note – related party 86,806
Payment of offering costs (84,485 )
Net cash provided by financing activities 2,321

Net Change in Cash 1,315
Cash – Beginning of period —
Cash – End of period $ 1,315

Non-Cash investing and financing activities:
Deferred offering costs included in accrued offering costs $ 6,500
Deferred offering costs paid directly by Sponsor from proceeds from issuance of common stock to Sponsor $ 25,000

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

IronNet, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three months Ended October 31, 2021 and 2020

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

(unaudited)


	Series A Preferred Stock						Series B Preferred Stock						Class A Common Stock							Class B Common Stock								Additional Paid- In Capital				Accumulated Deficit				Accumulated Other Comprehensive Deficit				Subscription Notes Receivables				Total Stockholders' Equity
		Shares			Amount			Shares			Amount			Shares				Amount				Shares			Amount
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 (Note 2)			-			-			-			-			4,555				1				-			-			(12,027	)			-				-				-				(12,026	)
PIPE Shares			-			-			-			-			12,500				1				-			-			109,857				-				-				-				109,858
Issuance of common stock related to Public Warrants			-			-			-			-			29				-				-			-			330				-				-				-				330
Issuance of common stock related to Private Warrants			-			-			-			-			3,188				-				-			-			21,492				-				-				-				21,492
Issuance of earnout			-			-			-			-			1,078				-										-				-				-				-				-
Interest earned on subscription notes receivable			-			-			-			-			-				-				-			-			2				-				-				(2	)			-
Settlement of related party loan receivable for common shares			-			-			-			-			(108	)			-										(1,075	)			-				-								(1,075	)
Settlement of note receivables for common shares			-			-			-			-			(55	)			-				-			-			(550	)			-				-				550				-
Stock-based compensation			-			-			-			-			-				-				-			-			160,129				-				-				-				160,129
Net loss			-			-			-			-			-				-				-			-			-				(193,122	)			-				-				(193,122	)
Foreign currency translation adjustment, net of tax of $0			-			-			-			-			-				-				-			-			-				-				303				-				303
Balance at October 31, 2021			-	$		-			-	$		-			88,719		$		9				-	$		-	$		459,349		$		(400,828	)	$		268		$		-		$		58,798

Balance at July 31, 2020			-	$		-			-	$		-			64,818		$		6		-		-	$		-	$		164,929		$		(150,369	)	$		443		$		(905	)	$		14,104
Issuance of common stock			-			-			-			-			535				1				-			-			2,449				-				-				-				2,450
Interest earned on subscription notes receivable			-			-			-			-			-				-				-			-			4				-				-				(4	)			-
Payments on subscription notes receivable			-			-			-			-			-				-				-			-			-				-				-				44				44
Stock-based compensation			-			-			-			-			-				-				-			-			(29	)			-				-				-				(29	)
Unrealized loss on investments			-			-			-			-			-				-				-			-			-				-				(397	)			-				(397	)
Net loss			-			-			-			-			-				-				-			-			-				(12,454	)			-				-				(12,454	)
Foreign currency translation adjustment, net of tax of $0			-			-			-			-			-				-				-			-			-				-				(54	)			-				(54	)
Balance at October 31, 2020			-	$		-			-	$		-			65,353		$		7				-	$		-	$		167,353		$		(162,823	)	$		(8	)	$		(865	)	$		3,664

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,
	2021			2020
Cash flows from operating activities
Net loss	$	(225,789	)	$	(43,157	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		659			935
Loss (Gain) on sale of fixed assets		(1	)		220
Bad debt expense		—			33
Employee stock based compensation		160,156			27
Non-cash interest expense		1,061			97
Change in fair value of warrants liabilities		11,302			—
Non-cash interest income on amounts due from stockholder		(8	)		(12	)
Changes in operating assets and liabilities:					-
Accounts receivable		(2,984	)		(962	)
Deferred costs		388			(982	)
Inventories		(492	)		(494	)
Prepaid expenses and other current assets		(3,157	)		(71	)
Deposits and other assets		(194	)		75
Prepaid warranty		205			157
Accounts payable		1,151			(976	)
Accrued expenses		2,552			1,388
Income tax payable		47			58
Deferred rent		(100	)		(131	)
Deferred revenue		(3,934	)		2,689
Warrants		43			—
Other long-term liabilities payable		0			1,209
Net cash used in operating activities		(59,095	)		(39,897	)
Cash flows from investing activities
Purchases of property and equipment		(2,385	)		(425	)
Proceeds from the sale of fixed assets		228			81
Sales of investments		—			647
Proceeds from the maturity of investments		—			754
Net cash (used in) provided by investing activities		(2,156	)		1,057
Cash flows from financing activities
Proceeds from issuance of common stock		634			44,080
Proceeds from borrowing SVB Bridge loan		15,000			—
Proceeds from borrowing PPP loan		—			5,580
Payment of loan - SVB bridge		(15,000	)		—
Payment of PPP loan		(5,580	)		—
Merger recapitalization		4,214			—
Proceeds from PIPE shares		125,000			—
Payment of transaction costs		(21,179	)		—
Proceeds from stock subscriptions		292			47
Net cash provided by financing activities		103,381			49,707
Effect of exchange rate changes on cash and cash equivalents		218			(407	)
Net change in cash and cash equivalents		42,348			10,460
Cash and cash equivalents
Beginning of the period	$	31,543		$	10,806
End of the period		73,891			21,266
Supplemental disclosures of non-cash investing and financing activities
Interest earned on subscription notes receivable	$	8		$	12
Unpaid purchases of property and equipment		(1,306	)		—
Non-cash settlement of related party loan receivable for common shares		(1,075	)		—
Unrealized loss on investment		—			(2	)

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

IronNet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

($ in thousands, unless stated otherwise)

~~LGL SYSTEMS ACQUISITION CORP.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~

~~Note 1 — Description of~~ 1.

Organization and ~~Business Operations~~Summary of Significant Accounting Policies

IronNet, Inc. (hereinafter “IronNet”, “we”, “us”, “our”, or “the Company”), through IronNet Cybersecurity, Inc. (“Legacy IronNet”) and its subsidiaries (collectively “Combined Company”), provides a suite of technologies that provide real-time threat assessment and updates, behavioral modeling, big data analytics, and proactive threat detection and response capabilities as well as consulting services and training programs to protect against current and emerging cyber-threats.

~~LGL Systems Acquisition Corp. (the “Company”~~

The Company, whose securities are listed on the New York Stock Exchange (“NYSE”), serves as the holding company for the businesses of Legacy IronNet and its subsidiaries. Its headquarters are located in McLean, VA. Legacy IronNet was incorporated in the state of Delaware on April 30, 2019. The Company was formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities (the “Business Combination”). The Company was originally formed in Delaware under the name MTRON

Merger Agreement

On August 26, 2021, LGL Systems Acquisition Corp. ~~On August 19, 2019, the Company changed~~("Legacy LGL”), through its ~~name to~~subsidiary LGL Systems ~~Acquisition Corp.~~

Although the Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company intends to focus its search on companies in the defense, aerospaceMerger Sub Inc. (“Merger Sub”) and ~~communication industries. The Company is an early stage and emerging growth company and, as such, the Company is subject to~~Legacy IronNet, all of ~~the risks associated with early stage and emerging growth companies.~~

As of September 30, 2019, the Company had not commenced any operations. All activity for the period from April 30, 2019 (inception) through September 30, 2019 relates to the Company’s formation and the initial public offering (“Initial Public Offering”), which is described below. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.

~~The registration statements for the Company’s Initial Public Offering were declared effective on November 6, 2019. On November 12, 2019, the Company~~them Delaware corporations, consummated the Initial Public Offering of 17,250,000 units (the “Units” and, with respect to the shares of common stock included in the Units sold, the “Public Shares”), at $10.00 per Unit, which includes the full exercise by the underwriters of the over-allotment option to purchase an additional 2,250,000 Units, generating gross proceeds of $172,500,000, which is described in Note 3.

~~Simultaneously with~~ the closing of the ~~Initial Public Offering,~~transactions contemplated by the ~~Company consummated the sale of 5,200,000 warrants (the “Private Warrants”)~~Merger Agreement, dated March 15, 2021 and as amended August 6, 2021, by and among Legacy IronNet, Legacy LGL, and Merger Sub, following their approval at a ~~price~~special meeting of ~~$1.00 per Private Warrant in~~the stockholders of Legacy LGL held on August 26, 2021 (the “Merger”).

Pursuant to the terms of the Merger Agreement, a ~~private placement to~~merger of Legacy IronNet and Legacy LGL was effected by the merger of Merger Sub with and into Legacy IronNet, with Legacy IronNet surviving the Merger as a wholly-owned subsidiary of Legacy LGL. Following the consummation of the Merger, Legacy LGL changed its name from LGL Systems Acquisition ~~Holdings Company, LLC (the “Sponsor”), generating gross proceeds of $5,200,000, which is described in Note 4.~~Corp. to IronNet, Inc. on the closing date.

~~Transaction costs amounted~~Pursuant to ~~$9,971,662, consisting of $3,450,000 of underwriting fees, $6,037,500 of deferred underwriting fees and $484,162 of other offering costs. In addition, $1,549,302 of cash was held outside~~the Merger Agreement, at the effective time of the ~~Trust Account~~Merger, (i) each outstanding share of Legacy IronNet common stock and preferred stock (with each share of Legacy IronNet preferred stock being treated as if it were converted into ten (10) shares of Legacy IronNet common stock on the effective date of the Merger) was converted into the right to receive (a) a number of shares of Company common stock equal to the Exchange Ratio (as defined below) and ~~is available for working capital purposes.~~

~~Following~~(b) a cash amount payable in respect of fractional shares of Legacy IronNet common stock that would otherwise be issued in connection with the foregoing conversion, if applicable, and (ii) each Legacy IronNet option, restricted stock unit, restricted stock award that was outstanding immediately prior to the closing of the ~~Initial Public Offering on November 12, 2019, an amount of $172,500,000 ($10.00 per Unit) from~~Merger (and by its terms did not terminate upon the ~~net proceeds~~closing of the ~~sale~~Merger) remains outstanding and (x) in the case of options, represents the right to purchase a number of shares of Company common stock equal to the number of shares of Legacy IronNet common stock subject to such option multiplied by the Exchange Ratio used for Legacy IronNet common stock (rounded down to the nearest whole share) at an exercise price per share equal to the current exercise price per share for such option divided by the Exchange Ratio (rounded up to the nearest whole cent) and (y) in the case of restricted stock units and restricted stock awards, represent a number of shares of Company common stock equal to the number of shares of Legacy IronNet common stock subject to such restricted stock unit or restricted stock award multiplied by the Exchange Ratio (rounded down to the nearest whole share). In addition, Legacy IronNet stockholders and eligible holders of options, restricted stock unit awards and restricted stock awards (as applicable, only to the extent time vested as of the ~~Units~~closing of the Merger) were also eligible to receive additional merger consideration in the ~~Initial Public Offering and the sale~~form of the Private Warrants was placed in a trust account (the “Trust Account”) located in the United States, which was invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account, as described below.

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete a Business Combination having an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding taxes payable on income earned on the Trust Account and deferred underwriting commissions) at the time of the agreement to enter into an initial Business Combination. The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.

The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of ~~the amount then in the Trust Account (initially $10.00 per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the~~1,078 shares of Company to pay its tax obligations). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants, including the Private Warrants. The Company will proceed with a Business Combination onlycommon stock if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, solely if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder votevolume weighted average closing share price for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Company’s Sponsor has agreed to vote the Founder Shares (as defined in Note 5) and any Public Shares purchased after the Initial Public Offering in favor of approving a Business Combination and not to convert any shares in connection with a stockholder vote to approve a Business Combination or sell any shares to the Company in a tender offer in connection with a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction or do not vote at all.

~~LGL SYSTEMS ACQUISITION CORP.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~

Notwithstanding the foregoing, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation will provide that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group”, will be restricted from redeeming its shares with respect to more than an aggregate of 20% or more of the Public Shares, without the prior consent of the Company.

The Sponsor has agreed (a) to waive its redemption rights with respect to its Founder Shares and Public Shares held by it in connection with the completion of a Business Combination or an amendment to the Company’s Certificate of Incorporation described below, (b) to waive its rights to liquidating distributions from the Trust Account with respect to the Founder Shares if the Company fails to consummate a Business Combination, and (c) not to propose an amendment to the Company’s Certificate of Incorporation to modify a public stockholders’ ability to convert or sell their shares to the Company in connection with a Business Combination or affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination within the required time period, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.

The Company will have until November 12, 2021 (or such later date as may be approved by stockholders in an amendment to the Amended and Restated Certificate of Incorporation) to complete a Business Combination (the “Combination Period”). If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes and net of up to $50,000 of interest available to be used for liquidation expenses, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.

In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below (i) $10.00 per Public Share and (ii) the actual amount per Public Share held in the trust account as of the date of the liquidation of the trust account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, except as to any claims by a third party who executed an agreement with the Company waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.

~~Nasdaq Notification~~

On December 20, 2019, the Company received a notice from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market (“Nasdaq”) indicating that, based upon the Staff’s determination, the Class A common stock contained in the Company’s units did not satisfy the minimum 300 round lot holders requirement for the listing of its units on The Nasdaq Capital Market, as set forth in the initial listing requirements of Nasdaq Listing Rule 5505(a)(3), or the minimum 300 public holders required for continued listing, as set forth in the continued listing requirements of Rule 5550(a)(3). Therefore, the Company’s units will be delisted from Nasdaq unless the Company timely requests a hearing before a Nasdaq Hearings Panel (the “Panel”).

The Company intends to appeal the Staff’s determination to a Panel, although there can be no assurance that it will be successful. Pending the decision to be rendered by the Panel, the Company’s units will continue to trade on Nasdaq under the trading symbol “DFNSU.” Because Nasdaq will be unable to list the Company’s common stock ~~rights~~equaled or ~~warrants if~~exceeded $13.00 for ten (10) consecutive days during the ~~units separate,~~two-year period following the closing of the Merger. This condition was satisfied and the additional shares of Company common stock were issued in September 2021.

The Exchange Ratio was 0.8141070 of a share of Company common stock per fully-diluted share of Legacy IronNet common stock.

On August 26, 2021, the Company ~~does not expect~~received $13,251 held in Legacy LGL’s trust account net of redemptions. Transaction costs related to the issuance of the trust shares were $9,038.

In connection with the execution of the Merger Agreement, a number of purchasers (each, a “Subscriber”) purchased from the Company an aggregate of 12,500,000 shares of Company common stock (the “PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $125,000, pursuant to separate subscription agreements entered into effective as of March 15, 2021. Transaction costs related with the ~~Units until after it receives a decision from the Panel.~~issuance were $21,180.

~~LGL SYSTEMS ACQUISITION CORP.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~

~~Note 2 — Summary of Significant Accounting Policies~~

Basis of Presentation and Principles of Consolidation

The ~~accompanying~~ unaudited 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 ~~information~~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.

The Merger was accounted for as a reverse recapitalization in accordance with Accounting Standards Codification (“ASC”) 805, Business Combination.

As a result of Legacy IronNet being the ~~instructions~~accounting acquirer in the Merger, the financial reports filed with the SEC by the Company subsequent to ~~Form 10-Q and Article 8 of Regulation S-X~~the Merger are prepared as if Legacy IronNet is the accounting predecessor of the ~~SEC. Certain information or footnote disclosures normally~~Company. The historical operations of Legacy IronNet are deemed to be those of the Company. Thus, the financial statements included in ~~financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant~~this report reflect (i) the historical operating results of Legacy IronNet prior to the ~~rules and regulations~~Merger; (ii) the consolidated results of the ~~SEC~~Company, following the Merger on August 26, 2021; (iii) the assets and liabilities of Legacy IronNet at their historical cost; and (iv) the Company’s equity structure for ~~interim financial reporting. Accordingly, they do not include~~ all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentationperiods presented. The recapitalization of the ~~financial position, operating results~~number of shares of common stock is reflected retroactively to the earliest period presented and ~~cash flows~~will be utilized for ~~the~~calculating loss per share in all prior periods presented.

~~The accompanying~~These unaudited interim condensed consolidated financial statements should be read in conjunction with the ~~Company’s prospectus for its Initial Public Offering as filed with the SEC on November 12, 2019, as well as the Company’s Current Reports on Form 8-K, as filed with the SEC on November 12, 2019~~annual consolidated financial statements of Legacy IronNet, Inc. and ~~November 18, 2019. The interim results~~accompanying notes thereto for the ~~period from April 30, 2019 (inception) through September 30, 2019~~year ended January 31, 2021. 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 2022, for example, refer to the fiscal year ending January 31, 2022.

The results of operations for the nine and three months ended October 31, 2021 are not necessarily indicative of the operating results tothat may be expected for the ~~period from April 30, 2019 (inception) through December~~full fiscal year ending January 31, ~~2019~~2022 or ~~for~~ any future ~~periods.~~period.

~~Emerging Growth Company~~

The ~~Company is an “emerging growth company,”~~accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, except for the adjustments described as ~~defined in Section 2(a)~~part of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensationMerger discussed in ~~its periodic reports and proxy statements, and exemptions from the requirements of holding~~Note 2, necessary for a ~~nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.~~

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registrationfair statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial ~~statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out~~position as of ~~using~~October 31, 2021, its results of operations for the ~~extended transition period difficult or impossible because of~~three and nine months ended October 31, 2021 and 2020, and cash flows for the ~~potential differences in accounting standards used.~~nine months ended October 31, 2021 and 2020.

Use of Estimates

The preparation of ~~the~~ financial statements ~~in conformity with GAAP~~ requires ~~the Company’s~~ 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 and~~statements. Such estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results may differ from estimates under different assumptions or conditions.

~~Making estimates requires management to exercise significant judgment. It is~~The Company recognized Public Warrants in equity at ~~least reasonably possible that the estimate~~fair value as of the ~~effect of a condition, situation or set of circumstances that existed at the~~effective date of the ~~financial statements, which management considered~~Merger and recognized $15,740 in ~~formulating its estimate, could change~~additional paid in capital.

Warrants

The Company accounts for the ~~near term due to one or more future confirming events.~~8,606,473 warrants (comprised of 8,596,273 Public Warrants and 10,200 Private Warrants) in accordance with the guidance contained in ASC 815-40-15-7D.

The Private Warrants do not meet the criteria for equity classification and they are recorded as liabilities. Accordingly, the ~~actual results could differ significantly from those estimates.~~

~~Cash~~Company classifies the warrant instruments as liabilities at their fair value and ~~Cash Equivalents~~

~~The Company considers all short-term investments with an original maturity of three months or less when purchased~~adjusts the instrument to ~~be cash equivalents. The Company did not have any cash equivalents as of September 30, 2019.~~

~~LGL SYSTEMS ACQUISITION CORP.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~

~~Deferred Offering Costs~~

~~Offering costs consist of legal, accounting, underwriting fees and other costs incurred through the~~fair value at each reporting period. These liabilities are subject to re-measurement at each balance sheet date ~~that are directly related to the Initial Public Offering. Offering costs amounting to $9,971,662 were charged to stockholders’ equity upon the completion of the Initial Public Offering.~~

~~Income Taxes~~

~~The Company follows the asset~~until exercised, and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of aany change in ~~tax rates~~fair value is recognized in ~~income in~~ the ~~period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.~~

~~ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statements recognition and measurement~~Company’s condensed consolidated statement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

~~The provision for income taxes was deemed to be immaterial for the period from April 30, 2019 (inception) through September 30, 2019.~~

~~Net Loss Per Common Share~~

Net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period, excluding shares of common stock subject to forfeiture. Weighted average shares were reduced for the effect of an aggregate of 562,500 shares of common stock that were subject to forfeiture if the over-allotment option was not exercised by the underwriters (see Note 7). At September 30, 2019, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into shares of common stock and then share in the earnings of the Company. As a result, diluted loss per share is the same as basic loss per share for the period presented.

~~Concentration of Credit Risk~~

Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.

~~Fair Value of Financial Instruments~~

operations. The fair value of the ~~Company’s assets~~Private Warrants has been determined based on a Monte Carlo model.

In connection with the Merger, the Public Warrants were recorded within equity at a fair value of $15,740. The Public Warrants meet the criteria for equity classification and ~~liabilities,~~are recorded within Stockholders’ Equity. Accordingly, Public Warrants are initially measured at fair value and are not subject to re-measurement at each balance sheet date unless, in subsequent periods the Public Warrants no longer qualify for equity classification. The fair value of the Public Warrants issued by the Company has been determined using the quoted price.

Recent Accounting Pronouncements not Yet Adopted

The FASB issued ASU No.2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes the current lease requirements in ASC 840, Leases. ASU 2016-02 requires lessees to recognize a right-of-use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with any capital leases recognized on the consolidated balance sheets. The reporting of lease-related expenses in the consolidated statements of operations and cash flows will be generally consistent with the current guidance. The new lease guidance will be effective the earlier of the year ending January 31, 2023 or the time at which we no longer qualify as ~~financial instruments under ASC 820, “Fair Value Measurements~~an EGC (“Emerging Growth Company”) and ~~Disclosures,” approximates~~will be applied using a modified retrospective transition method to either the ~~carrying amounts represented in~~beginning of the ~~accompanying balance sheet, primarily due to their short-term nature.~~

~~Recent Accounting Pronouncements~~

~~Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if~~earliest period presented or the beginning of the year of adoption. The Company is currently ~~adopted, would have~~evaluating the impact of adopting the new standard. The adoption of this standard will require the recognition of a ~~material effect~~right of use asset and liability on the Company’s ~~condensed~~consolidated balance sheets.

In June 2016, the FASB issued ASU2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). This standard requires a new method for recognizing credit losses that is referred to as the current expected credit loss (“CECL”) method. The CECL method requires the recognition of all losses expected over the life of a financial instrument upon origination or purchase of the instrument, unless the Company elects to recognize such instruments at fair value with changes in profit and loss (the fair value option). This standard is effective for the Company for the earlier of the fiscal years beginning after December 15, 2022 or the time at which we no longer qualify as an EGC. Management is currently evaluating the potential impact of this guidance on its financial statements.

New Accounting Pronouncement Adopted in Fiscal 2022

~~Note 3 — Initial Public Offering~~In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic740): Simplifying the Accounting for Income Taxes, which modifies and eliminates certain exceptions to the general principles of ASC 740, Income Taxes. ASU 2019-12 was adopted in the first quarter of fiscal 2022. The prospective adoption of ASU 2019-12 was not material.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and of Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 was adopted in the third quarter of fiscal 2022. The prospective adoption of ASU 2018-15 was not material.

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 1 operating segment.

The following table presents revenue by geographic location:


	Three Months Ended October 31,				Nine Months Ended October 31,
	2021		2020		2021		2020
United States	$	6,226	$	6,310	$	17,210	$	20,309
International		687		703		2,155		1,517
Total	$	6,913	$	7,013	$	19,365	$	21,826

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

Reverse Recapitalization

On August 26, 2021, the Merger was accounted for as a reverse recapitalization under U.S. GAAP. Legacy IronNet was the accounting acquirer and Legacy LGL was the accounting acquiree for financial reporting purposes.

Accordingly, for accounting purposes, the financial statements of the Combined Company represent a continuation of the financial statements of Legacy IronNet, with the Merger being treated as the equivalent of Legacy IronNet issuing stock for the net assets of Legacy LGL, accompanied by a recapitalization. The net assets of Legacy LGL are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are presented as those of Legacy IronNet.

The following table reconciles the elements of the Merger to the condensed consolidated statement of cash flows for the nine months ended October 31, 2021:


	Recapitalization and associated transactions
Cash (Trust)	$	173,015
Redemptions		(159,763	)
Less: fees to underwriters and advisors		(9,038	)
Net cash received from Merger recapitalization		4,214
Issuance of PIPE Shares		125,000
Less: PIPE fees to underwriters and advisors		(21,179	)
Net cash received from PIPE Shares and Merger recapitalization		108,035
Less: debt settlement		(21,266	)
Net proceeds from Merger recapitalization, PIPE Shares and debt settlement	$	86,769

The number of outstanding shares of common stock of the Company as of October 31, 2021 is summarized as follows:


Shares by Type	Number of shares
IronNet Class A Common Stock outstanding previous to the Merger		67,501,813
Issuance of common stock (exercises of ISOs and warrant)		28,734
Number of Shares issued at the date of the business combination ( Recapitalization)
LGL Class A Common Stock outstanding previous to the Merger		17,250,000
Less: Redemption of LGL Class A previous to the Merger		(15,928,889	)
Total Class A Shares issued to former LGL shareholders		1,321,111
LGL Founders Shares		3,234,375
PIPE Shares		12,500,000
Number of Share issued at the Merger		17,055,486
Number of Shares issued (redeemed) following the consummation of the Merger
Earnout Shares		1,078,125
Private Warrants (Exercised)		3,188,229
Public Warrants (Exercised)		28,719
Payments on subscription notes receivable		(54,955	)
Shares repurchase related to loan pay-off		(107,521	)
Total Shares of Common Stock as of October 31, 2021		88,718,630

In connection with the closing of and as a result of the consummation of the Merger, certain members of the Company’s management and employees received bonus payments in the aggregate amount of $0.5 million. The bonuses have been reflected in general and administrative expenses in the condensed consolidated statements of operations.

For the three and nine months ended October 31, 2021, the Company also incurred transaction costs related to the Merger of approximately $1,556 and $2,328, respectively, which are included in general and administrative expenses on the condensed consolidated statement of operations.

IronNet Class A Common Stock (Legacy IronNet Founders Shares)

Pursuant to the ~~Initial Public Offering,~~Merger Agreement, at the ~~Company sold 17,250,000 Units, at $10.00 per Unit, which includes~~effective time of the ~~full exercise by the underwriter~~Merger each outstanding share of ~~its option to purchase an additional 2,250,000 Units. Each Unit consists of one share of~~Legacy IronNet preferred shares and common stock were converted into Class A common stock ~~and one-half~~based on the Exchange Ratio described in Note 1.

PIPE Shares

On August 26, 2021, a number of ~~one redeemable warrant (“Public Warrant”~~purchasers (each, a “Subscriber”)~~. Each whole Public Warrant entitles~~ purchased from the ~~holder to purchase one share~~Company an aggregate of ~~Class A~~12,500,000 shares of Company common stock at(the “PIPE Shares”), for a purchase price of ~~$11.50~~$10.00 per share ~~subject~~and an aggregate purchase price of $125,000, pursuant to ~~adjustment (see Note 7)~~separate subscription agreements entered into effective as of March 15, 2021 (each, a “Subscription Agreement”).

~~LGL SYSTEMS ACQUISITION CORP.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~

~~Note 4 — Private Placement~~

~~Simultaneously~~ Pursuant to the Subscription Agreements, the Company granted certain registration rights to the Subscribers with respect to the PIPE Shares. The sale of the PIPE Shares was consummated concurrently with the closing of the ~~Initial Public Offering, the Sponsor purchased~~Merger in an ~~aggregate~~amount of ~~5,200,000 Private Warrants at a price of $1.00 per Private Warrant, for an aggregate purchase price of $5,200,000. Each Private Warrant is exercisable to purchase one share~~$125,000.

Founders Shares

Reflects 3,234,375 shares of Class A common stock at an exercise price of $11.50 per share, subject to adjustment (see Note 7). The proceeds from the Private Warrants were added to the proceeds from the Initial Public Offering to be held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Private Warrants will expire worthless.

~~Note 5 — Related Party Transactions~~

~~Founder Shares~~

~~On April 30, 2019, the Sponsor purchased 3,593,750 shares of Class B~~ common stock (the “Founder Shares”) for an aggregate purchase price of ~~$25,000,~~$24, or approximately ~~$0.007~~$0.007 per share.

Debt Settlements

Loan and Security Agreement

On June 21, 2021, Legacy IronNet entered into a Loan and Security Agreement (“Term Loan” or “SVB Bridge”) with SVB Innovation Credit Fund VIII, L.P. for term loan advances of up to $15,000 to provide for working capital needs over the period leading up to completion of the combination with Legacy LGL. The Term Loan was able to be prepaid at any time and had a term for up to six months, or until the date on which Legacy IronNet completed its combination with

Legacy LGL, whichever came sooner, and bore monthly interest at a per annum rate equal to eight percent, as well as customary fees for de-SPAC bridge loans of this nature. As ~~used herein, unless~~of August 26, 2021, in conjunction with the ~~context~~Merger, the Company repaid the term loan principal and accrued interest in an aggregate amount of $15,609.

PPP loan

On April 21, 2020, Legacy IronNet entered into a Paycheck Protection Program (PPP) loan from the US Small Business Administration pursuant to the provision of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, receiving loan funds of $5,580. The loan bears interest at 1% and is payable in monthly installments beginning on September 15, 2021. As of October 31, 2021, and January 31, 2021, Legacy IronNet had an interest accrual of $0 and $44 related to the PPP loan. The unsecured loan was evidenced by a promissory note of the Company with PNC Bank (the “Lender”). On August 26, 2021, in conjunction with the Merger, the Company repaid in full all amounts due and terminated all commitments and obligations under the unsecured PPP loan.

Loans to Employees

On December 29, 2018, Legacy IronNet entered into a loan with a current executive of the Company with a principal balance of $1,000 bearing an interest rate of 2.76% for a term of three years, which was secured by a pledge of certain shares of Legacy IronNet Class A common stock. As of August 26, 2021, in conjunction with the merger, the Company resolved the loan by having the executive surrender to the Company 107,521 shares that would have otherwise ~~requires, “Founder Shares” shall~~been issuable to the executive in the Merger.

Earnout

Pursuant to the terms of the Merger Agreement, the eligible Legacy IronNet Equityholders had the right to receive up to 1,078,125 Earnout Shares, issuable upon the occurrence of the Merger. As of the close of trading on September 10, 2021, the requisite conditions of the Earnout Triggering Event were satisfied and the Company issued 1,078,125 Earnout Shares to the eligible Equityholders. The earnout does not represent contingent consideration and is in accordance with ASC 815-40. The earnout shares were indexed to the Company’s own common stock and meet the requirements for equity classification.

Restricted Stock Units

Under the terms of the Legacy IronNet’s restricted stock units, vesting of each award was subject to, among other conditions including a service requirement, the occurrence of a liquidity event, as defined by Legacy IronNet’s 2014 Stock Incentive Plan. On August 26, 2021, in connection with the close of the Merger with Legacy LGL, the Company’s Board of Directors resolved to deem the Merger as satisfying the Liquidity Event condition. The resolution resulted in a modification of the restricted stock unit awards under ASC 718 “Compensation—Stock Compensation. ”As a consequence of modification of the awards outstanding, the Company recognized a non-cash expense in the fiscal third quarter 2022 in an amount of $160,094 related to 16,634,972 outstanding RSUs, with 8,204,455 remaining unvested as of October 31, 2021.

Revenue

Software, subscription and support revenue

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

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

Revenue from subscriptions, which allow customers to use our security software over a contracted period without taking possession of the software, and managed services, where we provide managed detection and response services for customers, are recognized over the contractual term. The cloud- based subscription revenue, where we also provide hosting, recognized for the three months ended October 31, 2021 and 2020 was $3,792 and $2,180, respectively, and for the nine months ended October 31, 2021 and 2020, were $10,993 and $6,475, respectively. Overall subscription revenue recognized for the three months ended October 31, 2021 and 2020, were $6,092 and $4,432, respectively, and for the nine months ended October 31, 2021 and 2020 were $17,992 and $13,231, 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.

Customer concentration

For the nine months ended October 31, 2021, and 2020, two customers accounted for 22%, or $4,283, and one customer accounted for 10%, or $2,174, of the Company’s revenue, respectively. As of October, 2021, and January 31, 2021, three customers represent 60% of the total accounts receivable, and as of January 31, 2021, three customers represented 85% of the total accounts receivable balance.

Significant customers are those which represent at least 10% of the Company’s total revenue at each respective period ending date. The following table presents customers that represent 10% or more of the Company’s total revenue:


	For the Three Months Ended October 31,		For the Nine Months Ended October 31,
	2021	2020	2021	2020
Customer A	12%	*	11%	*
Customer B	11%	15%	11%	*
Customer C	*	*	*	10%
	23%	15%	22%	10%

* - less than 10%

Deferred Costs

The Company defers contract fulfillment costs that include appliance hardware. The balances in deferred costs are as follows:


Balance at February 1, 2021	$	2,805
Cost of revenue recognized		(1,033	)
Costs deferred		473
Foreign exchange		(3	)
Balance at October 31, 2021	$	2,242
Balance at February 1, 2020		3,080
Cost of revenue recognized		(832	)
Costs deferred		711
Foreign exchange		(3	)
Balance at October 31, 2020	$	2,956

The balance of deferred commissions at October 31, 2021 and January 31, 2021 were $1,494 and $1,319, respectively. Deferred commissions are included in the deferred costs on the condensed consolidated balance sheets, of which $1,061 is current and $433 is long-term as of October 31, 2021.

Deferred revenue

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

The balance in deferred revenue is as follows:


Balance at February 1, 2021	$	34,044
Revenue recognized		(23,687	)
Revenue deferred		19,765
Foreign exchange		(12	)
Balance at October 31, 2021	$	30,110
Balance at February 1, 2020		20,312
Revenue recognized		(19,507	)
Revenue deferred		22,196
Foreign exchange	0
Balance at October 31, 2020	$	23,001

Remaining performance of deferred revenue

As of October 31, 2021, the remaining performance of deferred revenue totaled $30,110. The Company’s recognition of revenue in the future thereon will be ~~deemed to include~~as follows:


Years Ending January 31,
2022 (3 months)	$	5,243
2023		10,770
2024		8,174
2025		4,371
2026		1,552
	$	30,110

Equity

Common Stock

As of October 31, 2021, the Company had 500,000,000 shares of Class A common stock ~~issuable upon conversion thereof. On November 6, 2019, the Company effected a~~authorized and 88,718,630 shares common stock dividend of 0.2 shares for each share outstanding, resulting in an aggregate of 4,312,500 Founder Shares being outstanding, of which an aggregate of up to 562,500 shares were subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment option was not exercised in full or in part so that the Sponsor would own, on an as-converted basis, 20% of the Company’s issued and outstanding ~~shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering). All~~at $0.0001 par value per share.

Each share ~~and per-share amounts have been retroactively restated to reflect the stock dividend. As a result~~ of ~~the underwriters’ election to fully exercise the over-allotment option, 562,500 Founder Shares are no longer subject to forfeiture.~~Common Stock has 1 vote.

Preferred Stocks

The Founder Shares are identical to the Class A common stock included in the Units sold in the Initial Public Offering except as described below and that the Founder Shares automatically convert into shares of Class A common stock at the time of the Company’s Initial Business Combination and are subject to certain transfer restrictions, as described in more detail below. Holders of Founder Shares may also elect to convert their shares of Class B convertible common stock into an equal number of shares of Class A common stock, subject to adjustment as provided above, at any time.

The Sponsor has agreed (a) to waive its redemption rights with respect to its Founder Shares in connection with the completion of a Business Combination or an amendment to the Company’s Certificate of Incorporation described below, (b) to waive its rights to liquidating distributions from the Trust Account with respect to the Founder Shares if the Company fails to consummate a Business Combination, and (c) not to propose an amendment to the Company’s Certificate of Incorporation to modify a public stockholders’ ability to convert or sell their shares to the Company in connection with a Business Combination or affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination within the required time period, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.

The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of its Founder Shares following the consummation of the Initial Public Offering until the earlier to occur of: (A) one year after the completion of the Initial Business Combination or (B) subsequent to the Initial Business Combination, (x) if the last sale price of the Company’s Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Initial Business Combination, or (y) the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.

The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of the Private Warrants until 30 days after the completion of the Initial Business Combination. The Sponsor and the Company’s officers and directors have also agreed to vote any Founder Shares held by them and any Public Shares purchased after the Initial Public Offering (including in open market and privately negotiated transactions) in favor of a Business Combination.

~~Promissory Note — Related Party~~

On May 2, 2019, the Sponsor agreed to loan the Company an aggregate of up to $150,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). This loan was non-interest bearing and payable on the earlier of (i) April 30, 2020, (ii) the completion of the Initial Public Offering or (iii) the date on which the Company determines not to proceed with the Initial Public Offering. At September 30, 2019, the Company had $86,806 outstanding under the Note. The Note was repaid on December 19, 2019.

~~LGL SYSTEMS ACQUISITION CORP.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~

~~Administrative Support Agreement~~

The Company entered into an agreement whereby, commencing on the November 5, 2019 through the earlier of the Company’s consummation of a Business Combination and its liquidation, the Company will pay an affiliate of the Sponsor a total of $10,000 per month for office space, utilities and secretarial and administrative support.

~~Related Party Loans~~

In order to finance transaction costs in connection with a Business Combination, the Sponsor, the Company’s officers or directors or their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of the notes may be converted upon consummation of a Business Combination into warrants at a price of $1.00 per warrant. Such warrants would be identical to the Private Warrants. In the event that a Business Combination does not close, the Company may use a portion of the proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans.

~~Note 6 — Commitments~~

~~Registration Rights~~

Pursuant to a registration rights agreement entered into on November 6, 2019, the holders of the Founder Shares, Private Warrants (and their underlying securities) and any warrants that may be issued upon conversion of working capital loans (“Working Capital Warrants”), if any, will be entitled to registration rights (in the case of the Founder Shares, only after conversion of such shares to shares of Class A common stock). These holders will be entitled to certain demand and “piggyback” registration rights.

The holders of Founder Shares, Private Warrants and Working Capital Warrants will not be able to sell these securities until the termination of the applicable lock-up period for the securities to be registered. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

~~Underwriting Agreement~~

The underwriters are entitled to a deferred fee of $0.35 per Unit, or $6,037,500. The deferred fee will be forfeited by the underwriters solely in the event that the Company fails to complete a Business Combination within the Combination Period, subject to the terms of the underwriting agreement.

~~Note 7 — Stockholder’s Equity~~

~~Preferred Stock —~~The Company is authorized to issue ~~1,000,000~~100,000,000 shares of preferred stock with a par value of ~~$0.0001~~$0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s ~~board~~Board of ~~directors.~~Directors. At ~~September 30, 2019,~~October 31, 2021, there were no0 shares of preferred stock issued or outstanding.

~~Common Stock~~ ~~— The authorized~~Warrants

Private Warrants

Simultaneously with the closing of Legacy LGL’s Initial Public Offering, the sponsor purchased an aggregate of 5,200,000 Private Warrants at a price of $1.00 per Private Warrant, for an aggregate purchase price of $5,200 from Legacy LGL. Over the period of September 2021 through October 2021, when the majority of these warrants were exercised on a cashless basis, the formula for such exercises made each Private Warrant effectively exercisable to purchase approximately 0.6 shares of Company common stock on a non-cash basis, each subject to its own exercise calculation applicable to the day on which the exercise was made. The Private Warrants were also redeemable in cash for $11.50 for a share of common stock. No Private Warrants were redeemed on the ~~Company includes up to 75,000,000~~$11.50 cash basis. In September and October 2021, 5,189,800 Private Warrants were exercised on a cashless basis into 3,188,229 shares of Class A common ~~stock~~stock. As of October 31, 2021, the Company had 10,200 Private Warrants outstanding and ~~10,000,000 shares of Class B convertible common stock. The shares of Class B convertible common stock will automatically convert into shares of Class A common stock at~~not exercised. During the ~~time of a Business Combination on a one-for-one basis, subject~~period ended October 31, 2021, prior to ~~adjustment for stock splits, stock dividends, reorganizations, recapitalizations and~~ the ~~like. In the case that additional shares of Class A common stock, or equity-linked securities convertible or exercisable for shares of Class A common stock, are issued or deemed issued in excess~~exercise of the ~~amounts sold~~Private warrants, the Company recognized in the ~~Initial Public Offering and~~interim condensed statements of operations $11,302 of non-cash expense related to ~~the closing~~change in fair value of an initial Business Combination, the ratio at which the Class B common stock will convert into shares of Class A common stock will be adjusted so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate 20% of the sum of the shares outstanding upon the completion of the Initial warrants.

Public Offering plus the number of shares of Class A common stock and equity-linked shares issued or deemed issued in connection with the initial Business Combination (net of conversions), excluding any shares of Class A common stock or equity-linked securities issued to any seller in the initial Business Combination and any Private Warrants or warrants issued to the Sponsor, any of the Company’s officers or directors, or any of their affiliates upon conversion of Working Capital Loans. If the Company enters into a Business Combination, it may (depending on the terms of such Business Combination) be required to increase the number of shares of Class A common stock which the Company is authorized to issue at the same time as the Company’s stockholders vote on the Business Combination, to the extent the Company seeks stockholder approval in connection with the Business Combination. Holders of the Company’s common stock are entitled to one vote for each share of common stock.

~~LGL SYSTEMS ACQUISITION CORP.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~

~~At September 30, 2019, there were no shares of Class A common stock issued and outstanding and there were 4,312,500 shares of Class B common stock issued and outstanding.~~

~~Warrants~~ — Public Warrants may only be exercised for a whole number of ~~shares.~~shares at a price of $11.50 per share. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants ~~will become~~became exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) November 12, 2020. No warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to such shares of common stock. Under the terms of the warrant agreement, the Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of the initial Business Combination, the Company will use its best efforts to file a registration statement under the Securities Act covering such shares and maintain a current prospectus relating to the shares of Class A common stock issuable upon exercise of the warrants until the expiration of the warrants in accordance with the provisions of the warrant agreement. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the public warrants is not effective within 60 days following the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.September 2021. The Public Warrants will expire five years after the completion of ~~a Business Combination~~the Merger or earlier upon redemption or liquidation.

Once the warrants ~~become~~became exercisable upon the effective date of the Company’s S-1 registration statement, the Company ~~may~~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.

	●	~~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;~~
	●	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; and
	●	~~If, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying the warrants.~~

If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the ~~warrant agreement.~~Warrant Agreement.

~~The exercise price~~In October, 28,719 Public Warrants were exercised in an amount of $330 and ~~number of~~28,719 shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of common stockwere issued at a price ~~below its~~of $11.50. As of October 31, 2021, the Company had 8,596,273 Public Warrants outstanding and not exercised.

Stock Incentive Plan

Legacy IronNet’s Board of Directors adopted and the 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 any of the employees of Legacy IronNet’s subsidiary corporations’ employees. All other awards could be granted to employees, directors and consultants of Legacy IronNet’s and to any of Legacy IronNet’s parent or subsidiary corporation’s employees or consultants.

On August 26, 2021, the closing date of the Merger, 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, which total 18,971,549 shares in the Combined Company when exercised or converted. Additionally, as of the closing date, the 2021 Equity Incentive Plan (the “2021 Plan”) was approved by Legacy LGL’s stockholders. Under the 2021 Plan, the Company may grant ISOs, RSUs and other equity securities to acquire, to convert into or to receive up to 13,500,000 shares of Class A common stock. As of October 31, 2021, there were 13,500,000 share equivalents that remained available to issue under the 2021 Plan.

All share equivalents issued or issuable under the 2014 Plan and the 2021 Plan (the “Stock Incentive Plans”) normally vest over a forty-eight month period with an initial catch up of 25% vesting at the end of the first year during which 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 15% of the share equivalents authorized under the Stock Incentive Plans.

With regard to stock option grants, the exercise ~~price. Additionally,~~price of each ISO 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. The fair value of each stock option and RSU award was originally estimated on the date of grant using the Black-Scholes Option Pricing Model using the independent valuations of the Company’s stock. The Company’s determination of the fair value of stock options and restricted stock units is affected by the Company’s stock price as well as a number of subjective and complex assumptions. These assumptions include the Company’s volatility, dividend yield, and risk-free interest rate.

Presented below is a summary of the status of the stock options under the Stock Incentive Plan:


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Intrinsic Value of outstanding options
Outstanding at February 1, 2021		2,181,668			0.53		5.9		5,572,988
Granted	-			-		-		-
Exercised		(591,157	)		0.52		5.2		7,287,806
Forfeited or expired		(115,671	)		0.57		5.5	-
Outstanding at October 31, 2021		1,474,840			0.53		5.1		18,173,257
Exercisable at October 31, 2021		1,462,370			0.52		5.1		18,024,597

For the three months ended October 31, 2021 and 2020, the Company recorded $8 and $(29) of compensation cost related to stock options, respectively. For the nine months ended October 31, 2021 and 2020, the Company recorded $40 and $27 of compensation cost related to stock options, respectively.

The RSUs granted under the 2014 Plan contain an additional vesting requirement that, in addition to the applicable time or performance vesting criteria noted above, also requires the occurrence of a liquidity event. On the date of the Merger, the Board of Directors resolved that the Merger constituted a liquidity event, triggering the liquidity event criteria for vesting. As detailed in Note 2, in connection with the close of the Merger with Legacy LGL, the Company recognized a non-cash expense in the fiscal third quarter 2022 in an amount of $160,094.

Presented below is a summary of the status of outstanding RSUs, including showing the vesting status other than the liquidity event condition:


	Number of Shares			Weighted Average Grant Date Fair Value
Non-vested at February 1, 2021		9,712,169		$	11.75
Granted		2,181,077		12.85
Vested		(2,430,871	)	12.85
Forfeited or expired		(1,257,920	)	12.85
Non-vested at October 31, 2021		8,204,455		$	11.55

The fair value of each RSU was previously estimated on the date of grant using the Black-Scholes Option Pricing Model based on the same assumptions utilized for calculating fair market value of the stock options and utilizing the as converted equivalent price of securities issued during the period. 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 revalued using a fair value of $12.85, which is the closing share price on that date.

Stock compensation expense for ISOs 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 is recognized on a graded basis matched to the length and vesting tranches for each grant. In the event that a RSU grant holder is terminated before the award is fully vested, the full amount of the unvested portion of the award will be recognized as a forfeiture in the period of termination.

As of October 31, 2021, there was approximately $ 52,908 of unrecognized compensation cost related to share-based compensation arrangements granted under the 2014 Plan, of which $3 remained for options and $ 52,905 remained for RSUs, respectively. The fair value of the shares under stock options granted that vested, net of forfeitures, during the nine month periods ended October 31, 2021, and 2020 totaled $5,306 and $579, respectively, primarily as a result of the forfeitures recognized during the periods exceeding previous estimates.

Employee Stock Purchase Plan (‘ESPP’)

In August 2021, Legacy LGL’s Board of Directors adopted, and its stockholders approved, the ESPP. The ESPP became effective immediately upon the Closing of the Merger.

The purpose of the ESPP is to provide a means by which our eligible employees and certain designated companies may be given an opportunity to purchase shares of our common stock, to assist us in retaining the services of eligible employees, to secure and retain the services of new employees and to provide incentives for such persons to exert maximum efforts for our success.

The Plan includes two components: a 423 Component and a Non-423 Component. We intend that the 423 Component will qualify as options issued under an “employee stock purchase plan” as that term is defined in Section 423(b) of the Code. Except as otherwise provided in the ESPP or determined by our board of directors, the Non-423 Component will operate and be administered in the same manner as the 423 Component.

As of October 31, 2021, there were no purchases of shares for any eligible employee.

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.”

Investments with an original maturity of three months or less at the date of purchase are considered cash equivalents, while all other investments are classified as short-term or long-term based on their maturities and their availability for use in current operations.

The following table presents our assets measured at fair value on a recurring basis:


	October 31, 2021								January 31, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash equivalents	$	102	$	—	$	—	$	102	$	102	$	—	$	—	$	102
Private Warrants		—		43		—		43		—		—		—		—
Total assets	$	102	$	43	$	—	$	145	$	102	$	—	$	—	$	102

The Company recognized a non-cash expense of $11,302 related to the change in fair value of warrants.

At the effective date of the Merger, the Public Warrants were classified in equity at quoted prices (Level 1). Public Warrants are not revalued at the end of each reporting period.

Commitments and Contingencies

Contingencies

In the ordinary course of business, the Company and its subsidiary 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.

Leases

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. The following is a schedule by year of the future minimum lease payments required under the Company’s operating leases:


Remaining three months of fiscal 2022		286
2023		1,025
2024		755
2025		775
2026		775
Thereafter		1,455
	$	5,071

The Company is recognizing the total cost of its office leases ratably over the respective lease periods. The difference between rent paid and rent expense is reflected as deferred rent in the accompanying balance sheets.

Rent expense totaled $257 and $296 for the three months ended October 31, 2021, and October 31, 2020, respectively. Rent expense totaled $849 and $1,697 for the nine months ended October 31, 2021, and October 31, 2020, respectively.

In the second fiscal quarter of 2021, we completed lease buyouts of two office spaces in Maryland, for leases that were expiring in fiscal 2021 and fiscal 2022, and we have made payments of $394 to facilitate early terminations for those leases. Based on the Company moving to a more fully remote posture, we also decreased our lease portfolio in Japan and New York.

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 nine months ended October 31, 2021 and 2020, respectively. The effective tax rate differs from the U.S. statutory rate primarily due to the full valuation allowances on the Company’s net ~~cash settle~~domestic deferred tax assets and impact of foreign tax rate differential.

On March 27, 2020, the ~~warrants. If~~CARES Act was enacted and signed into U.S. law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. Changes in tax laws or rates are accounted for in the period of enactment. The income tax provisions of the CARES Act did not have a significant impact on our current taxes, deferred taxes, or uncertain tax positions.

Related Party Transactions

Product, subscription and support revenue from Related Parties

Certain investors and companies who the Company is ~~unable to complete a Business Combination within~~affiliated with purchased software, subscription and support revenue during the ~~Combination Period~~periods presented. The Company recognized $426 and $434 of revenue from contracts with related parties for the three months ending October 31, 2021, and October 31, 2020, respectively. The Company recognized $1,263 and $1,494 of revenue from contracts with related parties for the nine months ending October 31, 2021, and October 31, 2020, respectively. The corresponding receivable was $3,521 and $ 2,540 as of October 31, 2021, and January 31, 2021, respectively.

Subscription Notes Receivables

During the nine months ended October 31, 2021, the Company ~~liquidates~~received pay offs of balances due of $843. For the ~~funds held in~~nine months ended October 31, 2020, the ~~Trust Account, holders~~Company received paid offs of ~~warrants will not receive any~~balances due of ~~such funds with respect~~$48. As of October 31, 2021, there are 0 remaining balances for subscription notes receivables. The subscription notes receivables’ accrued interest ranged from 1.40% to ~~their warrants, nor will they receive any distribution from~~2.70%, compounded annually.

10.

Net Loss Per Share Attributable to Common Stockholders

Net Loss per common share

The Company computes basic earnings per share (EPS) by dividing income (loss) available to common stockholders by the ~~Company’s assets held outside~~weighted average number of common shares outstanding for the ~~Trust Account with~~reporting period. Diluted EPS reflects the ~~respect to such warrants. Accordingly, the warrants may expire worthless.~~

~~The Private Warrants are identical to the~~effect of potential shares that would be issued if stock option awards, Restricted Stock Units, Public ~~Warrants underlying the Units sold in the Initial Public Offering, except that the~~and Private Warrants and preferred shares, to the extent issued, were converted into 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,
	2021			2020			2021			2020
Numerator: Net loss	$	(193,122	)	$	(12,454	)	$	(225,789	)	$	(43,157	)
Denominator: Basic and Diluted Weighted-average shares in computing net loss per share attributable to common stockholders		87,178,432			65,067,942			74,001,217			64,064,424
Net loss attributable to common stockholders—basic and diluted	$	(2.22	)	$	(0.19	)	$	(3.05	)	$	(0.67	)

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 ~~issuable upon~~excluded from the ~~exercise~~computation of diluted net loss per share for the periods presented due to their antidilutive impacts are as follows:


	As of October 31, 2021		As of October 31, 2020
Shares of common stock issuable from stock options		1,474,840		2,671,317
Total RSUs unvested pending settlement		8,204,455		16,102,029
Shares of common stock issuable upon conversion from preferred shares	-			21,272,479
Private Warrants		10,200		—
Public Warrants		8,596,273		—
Potential common shares excluded from diluted net loss per share		18,285,768		40,045,825

As of October 31, 2020 there were 0 Private or Public Warrants outstanding due to the fact that the Legacy LGL interim condensed consolidated balance sheet was consolidated and combined with Legacy IronNet as of the effective date of the Merger. Legacy LGL Public and Private Warrants ~~will not be transferable, assignable or salable until 30 days after~~as of August 26, 2021 were 8,624,992 and 5,200,000, respectively.

11.

COVID-19 - CARES Act. provision

During fiscal 2021, in response to the ~~completion~~increased economic uncertainties that the impact of athe COVID-19 pandemic was expected to have on our business, results of operations, liquidity and capital resources, Legacy IronNet took measures to ensure that we could continue the continuity of our business operations through the use of funding measures which included the Paycheck Protection Program (PPP) loan from the US Small Business ~~Combination, subject~~Administration pursuant to ~~certain limited exceptions. Additionally,~~ the ~~Private Warrants will be exercisable~~CARES Act. The purpose of the loan was for ~~cash or~~small businesses to keep their workforces employed through the pandemic. Legacy IronNet received loan funds of $5,580 on ~~a cashless basis,~~April 21, 2020. The loan bore interest at ~~the holder’s option,~~1% and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchaser or its permitted transferees, the Private Warrants will be redeemable bywas payable in monthly installments beginning on September 15, 2021. As of October 31, 2021, and January 31, 2021, the Company had an interest accrual of $0and ~~exercisable~~$44 related to the PPP loan. The unsecured loan was evidenced by ~~such holders~~a promissory note of Legacy IronNet with PNC Bank (the “Lender”). As detailed in Note 2, on August 26, 2021, in conjunction with the Merger, the Company repaid in full all amounts due and terminated all commitments and obligations under the unsecured PPP loan.

In addition to seeking and receiving the PPP loan under the CARES Act, Legacy IronNet also elected to defer the Company portion of payroll taxes under the CARES Act. Amounts deferred from March 1, 2020 through to the end of 2020 will become due, at 50% on December 31, 2021, with the remaining 50% due on December 31, 2022. The balance of the payroll tax deferral is $1,378 as of October 31, 2021 and is included in Other current and Long-Term Liabilities on the ~~same basis~~balance sheet.

12.

Retirement Plans

We provide a retirement savings plan for the benefit of our employees, including our named executive officers. The plan is intended to qualify as a tax-qualified 401(k) plan so that contributions, and income earned on such contributions, are not taxable to participants until withdrawn or distributed from the ~~Public Warrants.~~

~~LGL SYSTEMS ACQUISITION CORP.~~

~~NOTES TO CONDENSED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2019~~

~~(Unaudited)~~

In addition, if (x) the Company issues additional shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of an initial Business Combination at an issue price or effective issue price of less than $9.20 per share of common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors, andplan (except in the case of ~~any such issuance~~contributions under the 401(k) plan designated as Roth contributions). The 401(k) plan provides that each participant may contribute up to ~~our sponsor, initial stockholders~~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 ~~their affiliates, without taking into account any founders’ shares~~her deferred salary contributions. Employee contributions are held and invested by ~~them prior to such issuance), (y)~~ the aggregate gross proceeds from such issuances represent more than 50% of the total equity proceeds, and interest thereon, available for the funding of an initial Business Combination on the date of the consummation of an initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the common stock during the 20 trading day period starting on the trading day priorplan’s trustee as directed by participants. We also fully match employee contributions up to the ~~day on~~first 4% of salary, which ~~the~~amounts are fully vested.

13.

Subsequent Events

The Company consummated an initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of (i) the Market Value or (ii) the price at which we issue the additional shares of common stock or equity-linked securities, and the $18.00 per share redemption trigger price of the warrants will be adjusted (to the nearest cent) to be equal to 180% of the greater of (i) the Market Value or (ii) the price at which we issue the additional shares of common stock or equity-linked securities.

~~Note 8 — Subsequent Events~~

~~The Company~~has evaluated subsequent events ~~and transactions that occurred after~~through the ~~balance sheet~~ date ~~up to the date that~~ the financial statements were ~~issued. Other than as described in these financial statements,~~issued, and has determined that the ~~Company did not identify any~~only material subsequent ~~events~~event that ~~would have required adjustment or~~requires disclosure in the interim condensed consolidated financial ~~statements.~~statements is the approval on November 23, 2021 by the Compensation Committee of grants of 1,149,605 RSUs under the 2021 Plan for employees who had started with the company primarily after March 15, 2021, when the last grants under the 2014 Plan were made, and through November 15, 2021. Stock compensation amounts for the grants which had service periods beginning prior to October 31, 2021 will be included in stock compensation expense during the fourth quarter.

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

~~References~~Unless otherwise indicated or the context otherwise requires, references in this ~~report (the “Quarterly Report”)~~section to “IronNet,” “we,” ~~“us” or the “Company”~~“us,” “our”, “the Company” and other similar terms refer to ~~LGL Systems Acquisition Corp. References to our “management” or our “management team” refer to our officers~~IronNet, Inc. and ~~directors, and references~~its subsidiaries after giving effect to the ~~“Sponsor” refer to LGL Systems Acquisition Holdings Company, LLC.~~ Merger.

The following discussion and analysis of ~~the Company’s~~our financial condition and results of operations should be read in conjunction with the interim and annual consolidated financial statements and ~~the~~related notes ~~thereto contained elsewhere in this Quarterly Report. Certain information contained~~included in the ~~discussion~~Company’s final prospectus filed with the Securities and ~~analysis set forth below includes forward-looking statements that involve risks and uncertainties.~~

~~Special Note Regarding Forward-Looking Statements~~

~~This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of~~Exchange Commission (the “SEC”) on September 30, 2021 pursuant to Rule 424(b)(3) under the Securities Act ~~and Section 21E~~ of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation,1933, as amended (the “Final Prospectus”). The interim condensed consolidated financial statements in this ~~“Management’s~~report are presented in U.S. dollars (USD) rounded to the nearest thousand, with the amounts in this Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations” regarding~~Operations (“MD&A”) rounded to the ~~Company’s financial position, business strategy~~nearest tenth of a million. Therefore, differences in the tables between totals and sums of the ~~plans and objectives of management for future operations, are forward-looking statements. Words~~amounts listed may occur due to such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Suchrounding.

The following discussion contains forward-looking statements ~~relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors~~that involve risks and uncertainties. Our actual results could ~~cause actual events, performance or results to~~ differ materially from ~~the events, performance and results~~those discussed in the forward-looking statements. ~~For information identifying important factors~~Factors that could cause ~~actual results~~or contribute to ~~differ materially from~~these differences include those ~~anticipated~~discussed below and in the ~~forward-looking statements, please refer~~Final Prospectus, particularly in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” 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 ended January 31, 2021 and January 31, 2020 are referred to herein as fiscal 2021 and fiscal 2020, respectively. The three months ended October 31, 2021 and October 31, 2020 are referred to herein as quarter to date 2022 and quarter to date 2021, respectively. The nine months ended October 31, 2021 and October 31, 2020 are referred to herein as year to date 2022 and year to date 2021, respectively.

Overview

Gen. Keith B. Alexander (Ret.) founded IronNet in 2014 to solve the major cybersecurity problem he witnessed and defined during his tenure as former head of 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

IronNet has 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. IronNet complements these capabilities, delivered to both commercial and public sector enterprises, with professional services.

Software, Subscription and Support Revenue

Our primary line of business is the delivery of its integrated software capabilities through its Collective Defense platform. The platform is comprised of two flagship products:

IronDefense is an advanced 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. 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 Defense Community enables faster detection of attacks at earlier stages of the cyber kill chain.

Our Collective Defense platform delivers strong network effects: every customer contributing its threat data (anonymously) into the community reaps exponential 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.

The Collective Defense platform is available for on-premise, cloud (public or private), and hybrid environments, and is scalable to include small-to-medium businesses, public-sector agencies, as well as multinational corporations. We utilize the platform to 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 customer support 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 well beyond implementation of our Collective Defense platform.

The Collective Defense platform is available via a subscription-based pricing and flexible delivery model, with options available for major public cloud providers such as AWS and Microsoft Azure; private cloud, or HCI such as Nutanix; and on-premise environments through hardware and virtual options. To make it as easy as possible for customers to add Collective Defense into their existing security stack, we built a rich set of APIs that enable integrations with standard security products, SIEM; SOAR; EDR; NGFW tools; and cloud-native logs from major public cloud providers.

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

To date, IronNet has financed its operations primarily through private and public placements of common stock, warrants, redeemable convertible preferred stock and the closing of the Merger.

On August 26, 2021, the Company received $13.3 million held in Legacy LGL’s trust account net of redemptions.

In connection with the execution of the Merger Agreement, a number of purchasers (each, a “Subscriber”) purchased from the Company an aggregate of 12,500,000 shares of Company common stock (the “PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $125.0 million, pursuant to separate subscription agreements entered into effective as of March 15, 2021. Transaction costs associated with the issuance of the PIPE shares were $21.2 million.

During the nine months ended October 31, 2021, IronNet incurred a net loss of $225.8 million, of which $160.1 million related to a non-cash expense related to the ~~Risk Factors section~~modification of Restricted Stock Units, as well as a further non-cash expense to reflect the ~~Registration Statements~~increase in fair market value in private warrants through the dates they were exercised, and used $59.3 million in cash to fund operations. As of October 31, 2021, IronNet had $73.9 million of cash on ~~Form S-1 (Registration No. 333-234124~~hand to continue to fund operations.

IronNet expects its capital and ~~333-234550) filed~~operating expenditures to increase in connection with its ongoing activities, as IronNet:

continues to invest in research and development related to new technologies;

increases its investment in marketing and advertising, as well as the ~~SEC.~~sales and distribution infrastructure for its products and services;

maintains and improves operational, financial, and management information systems;

hires additional personnel;

obtains, maintains, expands, and protects its intellectual property portfolio; and

enhances internal functions to support its operations as a publicly-traded company.

Impact of COVID-19 On Our Business

In December 2019, the first cases of COVID-19 were reported in China. In March 2020, the World Health Organization declared COVID-19 a global pandemic. We operate in geographic locations that have been impacted by COVID-19. The ~~Company’s securities filings can be accessed on~~pandemic has impacted, and could further impact, our operations and the ~~EDGAR section~~operations of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whetherour customers as a result of ~~new information, future events~~quarantines, various local, state and federal government public health orders, facility and business closures, and travel and logistics restrictions. We anticipate governments and businesses will likely take additional actions or ~~otherwise.~~

~~Overview~~

extend existing actions to respond to the risks of the COVID-19 pandemic. We are continuing to actively monitor the impacts and potential impacts of the COVID-19 pandemic on our customers, supply chain, and other integral parts of our operations. As the pandemic continues to varying impacts around the globe, we have noted that it has impacted the timing of certain of our professional services revenues.

We instituted a ~~blank check company formed~~global work-from-home policy in March 2020 and to date have not experienced significant disruptions as a result. We expect that most of our employees will work from home indefinitely. As part of our shift to remote operations, we terminated several office leases that did not have a material financial impact on us.

In response to the increased economic uncertainties that the impact of the COVID-19 pandemic was expected to have on our business, results of operations, and liquidity and capital resources, we took measures to ensure that we would be able to maintain the continuity of our business operations. For example, in April 2020 we obtained a loan in the amount of $5.6 million from the U.S. Small Business Administration (SBA) under the ~~laws~~Paycheck Protection Program (PPP) which was paid in full at the date of the ~~State~~Merger, August 26, 2021.

In addition to receiving a PPP loan under the CARES Act, we also elected to defer our portion of ~~Delaware on April 30, 2019~~payroll taxes due for the ~~purpose~~period from March 2020 through December 31, 2020. Of the deferred amounts, one-half will become due on each of ~~effecting a merger, capital stock exchange, asset~~December 31, 2021 and 2022.

Key Factors Affecting Performance

New customer acquisition ~~stock purchase, reorganization or other similar Business Combination~~

Our future growth depends in large part on our ability to acquire new customers. If our efforts to attract new customers are not successful, our revenue may decline in the future. Our IronDefense and IronDome platforms are designed to be used in conjunction with ~~one or~~point solutions to capture and share critical data and findings to enable our behavioral analytics to identify threats and for defenders to respond more ~~businesses. We~~accurately and quickly. IronNet believes that it has significant room to capture additional market share and intends to continue to invest in sales and marketing to engage its prospective customers, increase brand awareness, and drive adoption of its solution.

Customer retention

Our ability to increase revenue depends in large part on our ability to retain existing customers.

Investing in business growth

Since inception, we have invested significantly in the growth of our business. While remaining judicious and targeted in our investments, we intend to ~~effectuate~~continue to invest in our research and development team to lead product improvements, our sales team to broaden our brand awareness and our general and administrative expenses to increase for the foreseeable future given the additional expenses for finance, compliance and investor relations as we grow as a public company. In

addition to our internal growth, we may also consider acquisitions of businesses, technologies, and assets that complement and bolster additional capabilities to our product offerings.

Key Business ~~Combination using cash from~~Metrics

We monitor the ~~proceeds~~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. We have a history of growing the number of customers who have contracted for our platforms on a recurring basis, which does not include our professional services customers. 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. We have consistently increased the number of such customers period-over-period, and we expect this trend to continue as we increase subscription offerings to small and medium-sized businesses, in addition to increased subscription offerings for our larger enterprise customers. The following table sets forth the number of recurring software customers as of the ~~Initial Public Offering~~dates presented:


	October 31,
	2021			2020

Recurring Software Customers		74			25
Year-over-year growth		196	%		47	%

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 ~~sale~~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,
		2021			2020
	($ in millions)
Annual recurring revenues		$	27.5		$	21.2
Year-over-year growth			30	%		32	%

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 months ended October 31, 2021 and 2020, as applicable.

Denominator: We use the revenue attributable to software and product customers for the nine months ended October 31, 2021 and 2020 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 decreased from 3.2 to 2.8 years, or (13)%, for the nine months ended October 31, 2021 as compared to the nine months ended October 31, 2020. As our revenues and our customer base increases, we expect our average contract length to trend downward over time. Declines in average contract length are not reflective of the average lifetime of a customer.


	October 31,
	2021		2020
	(in years)
Dollar-based average contract length		2.8		3.2

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 $9 million, or 37%, for the nine months ended October 31, 2021 in comparison with the nine months ended October 31, 2020. Calculated billings decreased $4.7 million, or 58%, for the three months ended October 31, 2021 in comparison with the three months ended July 31, 2021. We expect that calculated billings will be affected by 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,
	2021		2020		2021 vs 2020
	($ in millions)
Revenue	$	6.9	$	7.0		(0.1	)	(1	)%
Add: Total Deferred revenue, end of period		30.1		23.0		7.1		31
Less: Total Deferred revenue, beginning of period		33.6		21.9		11.7		53
Calculated billings	$	3.4	$	8.1		(4.7	)	(58	)%


	Nine Months Ended October 31,
	2021		2020		2021 vs 2020
	($ in millions)
Revenue	$	19.4	$	21.8		(2.4	)	(11	)%
Add: Total Deferred revenue, end of period		30.1		23.0		7.1		31
Less: Total Deferred revenue, beginning of period		34.0		20.3		13.7		67
Calculated billings	$	15.5	$	24.5		(9.0	)	(37	)%

Adjusted Results of Operations

The following table shows our non-GAAP results of operations for the three and nine months ended October 31, 2021 after excluding the impacts of the stock-based compensation expense and the revaluation of the Private Warrants ~~our capital~~prior to their cashless exercise and transaction costs incurred related to the Merger:


	Three Months Ended October 31,			Nine Months Ended October 31,
	2021			2021
	($ in thousands)
Net loss	$	(193,122	)	$	(225,789	)
Stock compensation expense (1)		160,094			160,094
Change in fair value of warrants liabilities		11,302			11,302
Transaction costs expense (2)		1,556			2,328
Non-GAAP Adjusted Net Loss	$	(20,170	)	$	(52,065	)

Total stock ~~debt or a combination~~based compensation of ~~cash, stock~~$160.1 million has been recorded within research and ~~debt.~~development of $20.9 million, sales and marketing of $49.3 million, and general and administrative expense of $89.9 million on the statement of operations

Transaction expenses have been recorded within general and administrative expense on the statement of operations

Components of Our Results of Operations

~~The issuance~~Revenue

Our revenues are derived from sales of ~~additional shares of our stock in a Business Combination:~~

	●	~~may significantly reduce the equity interest of our stockholders;~~
	●	~~may subordinate the rights of holders of shares of common stock if we issue shares of preferred stock with rights senior to those afforded to our shares of common stock;~~
	●	will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and most likely will also result in the resignation or removal of our present officers and directors; and
	●	~~may adversely affect prevailing market prices for our securities.~~

~~Similarly, if we issue debt securities or otherwise incur significant indebtedness, it could result in:~~

	●	~~default and foreclosure on our assets if our operating revenues after a business combination are insufficient to pay our debt obligations;~~
	●	acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contains covenants that required the maintenance of certain financial ratios or reserves and we breach any such covenant without a waiver or renegotiation of that covenant;
	●	~~our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; and~~
	●	~~our inability to obtain additional financing, if necessary, if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding.~~

As reflected in the Prospectus filed on November 12, 2019, Mr. Robert (“Bob”) V. LaPenta is no longer the non-executive co-Chairman of the Company, differing from the Form S-1 filed whereby Bob was non-executive Co-Chairman of the board. Bob remains both a member of the Sponsorproduct, subscriptions, subscription-like software products and software support contracts as well as from professional services. Products, subscriptions and support revenues accounted for 89% our revenue in quarter to date 2022, for 85% of our revenue in quarter to date 2021, for 93% of our revenue in year to date 2022 and for 83% of our revenue in year to date 2021. Professional services revenues accounted for 11% of our revenue in quarter to date 2022, for 15% of our revenue in our quarter to date 2021, for 7% of our revenue in year to date 2022 and for 17% of our revenue in year to date 2021.

Our typical customer contracts and subscriptions range from one to five years. We typically invoice customers 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 ~~manager~~single performance obligation, as it delivers the essential functionality of ~~LGL Systems Nevada Acquisition Management Partners, LLC,~~our cybersecurity solution. Most companies also participate in the IronDome collective defense software solution that provides them access to IronNet’s collective defense infrastructure linking participating stakeholders. As 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. Significant judgement 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, 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.

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 ~~approves~~we expand our customer support organization, and the ~~actions~~extent to which we can increase the efficiency of our technology and infrastructure through technological improvements. Also, we view our professional services in the ~~Sponsor. Subsequent~~context of our larger business and as a significant lead generator for 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 ~~this~~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 ~~record,~~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.

We intend to continue to make significant investments in our sales and marketing organization to drive additional revenue, further penetrate the market and expand our global customer base. In particular, we ~~formed~~will continue to invest in growing and training our sales force, broadening our brand awareness and expanding and deepening our channel partner relationships. We expect our sales and marketing expenses to decrease as a ~~duly constituted advisory committee consisting of elected advisory directors who will assist management and the board in aspects~~percentage of our ~~operations including activities aimed at effecting~~revenue over the long term, although our sales and marketing expenses may fluctuate as a ~~Business Combination. Bob has been appointed~~percentage of our revenue from period to period due to the timing and extent of these expenses.

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 ~~an advisory director~~well as third-party professional services and fees, and overhead expenses.

We expect that general and administrative expenses will increase in absolute dollars as we hire additional personnel and enhance our systems, processes, and controls to support the growth in our business as well as our increased compliance and reporting requirements as a public company.

Other income (expense), net

Other income (expense), net consists primarily of ~~this newly constituted advisory committee.~~ interest income, interest expense, and foreign currency exchange gains and losses.

Change in fair value of warrants liabilities

This line item consists of non-cash expense that was recognized due to the change in fair value of warrants liabilities.

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 Quarter to Date 2022 and Quarter to Date 2021

~~We have neither engaged~~The following tables set forth our consolidated statement of operations in ~~any operations nor generated any revenues~~dollar amounts and as a percentage of total revenue for each period presented:


	Three Months Ended October 31,
	2021			2020			Change $			Change %
	($ in thousands)
Product, subscription and support revenue	$	6,132		$	5,958		$	174			3	%
Professional services revenue		781			1,055			(274	)		(26	)%
Total revenue		6,913			7,013			(100	)		(1	)%
Cost of product, subscription and support revenue		2,082			1,252			830			66	%
Cost of professional services revenue		286			817			(531	)		(65	)%
Total cost of revenue		2,368			2,069			299			14	%
Gross profit		4,545			4,944			(399	)		(8	)%
Operating expenses
Research and development		28,144			5,687			22,457			395	%
Sales and marketing		57,196			7,155			50,041			699	%
General and administrative		100,267			4,715			95,552			2,027	%
Total operating expenses		185,607			17,557			168,050			957	%
Operating loss		(181,062	)		(12,613	)		(168,449	)		1,336	%
Other (expense) income, net		(724	)		178			(902	)		(507	)%
Change in fair value of warrants liabilities		(11,302	)	-				(11,302	)		100	%
Loss before income taxes		(193,088	)		(12,435	)		(180,653	)		1,453	%
Benefit (provision) for income taxes		(34	)		(19	)		(15	)		79	%
Net loss	$	(193,122	)	$	(12,454	)	$	(180,668	)		1,451	%

Revenue

Total revenue decreased by $0.1 million or (1)% in quarter to ~~date. Our only activities~~date 2022 compared to quarter to date 2021.

Product, subscription and support revenue increased by $0.2 million or 3% primarily due to the Company’s transition from ~~April 30, 2019 (inception) through September 30, 2019~~contracts that had material non-recurring elements which would not renew in full to contract forms that were ~~organizational activities and those necessary~~designed to ~~prepare for the Initial Public Offering, described below. We do not expect~~fully renew.

Professional services revenue decreased $0.3 million or (26)% in quarter to ~~generate any operating revenues until after~~date 2022 compared to quarter to date 2021, primarily due to the completion of a key Enterprise engagement in quarter to date 2021. Professional services accounted for 11% of our ~~Business Combination.~~ total revenue in quarter to date 2022 and for 15% of our total revenue in quarter to date 2021.

Cost of revenue

Total cost of revenue increased by $0.3 million or 14%, in quarter to date 2022, compared to quarter to date 2021. Cost of product, subscription and support revenue increased by $0.8 million or 66%, in quarter to date 2022, compared to quarter to date 2021. The increase was due primarily to an increase in customer cloud costs with business scale and a $0.2 million amortization catch-up for deployed sensors during quarter to date 2022 compared to quarter to date 2021.

Cost of professional service cost of revenue decreased by $0.5 million when comparing quarter to date 2022 and quarter to date 2021, aligned to changes in professional services revenue.

Gross Profit and Gross Margin

Mix changes in cost of revenue resulted in a decrease in software gross margin to 66% in quarter to date 2022 compared to 79% in quarter to date 2021, and an increase in professional services gross margin to 63% in quarter to date 2022 compared to 23% in quarter to date 2021. Quarter to date 2022 margin was lower due to amortization catch-up of $0.2 million that was not realized in the first half of fiscal 2022. In quarter to date 2021 we also onboarded several significant revenue customers which had not yet ramped their full cloud costs in the period and finalized the delivery of a key significant service contract in EMEA. This had materially increased margins in the comparable quarter last year. Professional services margin will continue to be volatile contract to contract as we scale the business.

We expect that gross margins for the rest of fiscal 2022 will improve slightly. Margins may remain volatile compared to ~~generate non-operating income~~fiscal 2021 due to the continuing presence of large contracts in our revenue mix.

The following tables show gross profit and gross margin, respectively, for software products and support revenue and professional services revenue for quarter to date 2022 as compared to quarter to date 2021.


	Three Months Ended October 31,
	2021		2020		Change $			Change %
	($ in millions)
Product, subscription and support gross profit	$	4.0	$	4.7	$	(0.7	)		(15	)%
Professional services gross profit		0.5		0.2		0.3			150	%
Total gross profit	$	4.5	$	4.9	$	(0.4	)		(8	)%


	2021			2020			Change
Product, subscription and support margin		66.0	%		79.0	%		(13.0	)%
Professional services margin		63.4	%		22.6	%		40.8	%
Total gross margin		65.7	%		70.5	%		(4.8	)%

Operating expenses

Research and development

Research and development expenses increased by $22.5 million or 395%, in quarter to date 2022, compared to quarter to date 2021 primarily due to non-cash stock compensation expenses ($20.9 million) triggered by the modification of the restricted stock units and ramping resources to support product development. At 407% of total revenues in quarter to date 2022 compared to 81% in quarter to date 2021, we expect that our overall R&D expenditure rate as a percentage of revenues will decline in the ~~form~~future.

Sales and marketing

Sales and marketing cost increased by $50.0 million or 699% in quarter to date 2022, compared to quarter to date 2021, primarily due to non-cash stock compensation ($49.3 million) triggered by the modification of the restricted stock units and ramped sales and marketing personnel in quarter to date 2022. At 827% of revenues in quarter to date 2022 compared to 102% in quarter to date 2021, we expect that our overall sales and marketing expenditure rates as a percentage of revenues will decline in the future.

General and administrative

General and administrative costs increased by $95.6 million or 2027% when comparing quarter to date 2022 to quarter to date 2021, primarily due to non-cash stock compensation ($89.9 million) triggered by the modification of the restricted stock units and costs related to being public. Quarter to date 2022 general and administrative expenses were at 1450% of total revenues compared to 67% in quarter to date 2021.We expect that our overall general and administrative expenditure rates as a percentage of revenues will decline in the future.

Other (expense) income, net

The net fluctuation of $0.9 million in Other (expense) income is largely the result of interest expense of $0.7 million related to the PPP loan and SVB Bridge loan. These debts and the interest were paid off at the date of the Merger.

Change in fair value of warrants liabilities

$11.3 million of non-cash expense was recognized due to the change in fair value of warrants liabilities.

Provision for income ~~on marketable securities held after~~taxes

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

Comparison of Year to Date 2022 and Year to Date 2021

The following tables set forth our consolidated statements of operations in dollar amounts and as a percentage of total revenue for each period presented:


	Nine Months Ended October 31,
	2021			2020			Change $			Change %
	($ in thousands)
Product, subscription and support revenue	$	18,038		$	18,047		$	(9	)		(0	)%
Professional services revenue		1,327			3,779			(2,452	)		(65	)%
Total revenue		19,365			21,826			(2,461	)		(11	)%
Cost of product, subscription and support revenue		5,505			3,534			1,971			56	%
Cost of professional services revenue		617			1,596			(979	)		(61	)%
Total cost of revenue		6,122			5,130			992			19	%
Gross profit		13,243			16,696			(3,453	)		(21	)%
Operating expenses
Research and development		42,606			19,965			22,641			113	%
Sales and marketing		72,046			23,265			48,781			210	%
General and administrative		111,952			16,690			95,262			571	%
Total operating expenses		226,604			59,920			166,684			278	%
Operating loss		(213,361	)		(43,224	)		(170,137	)		394	%
Other (expense) income, net		(1,070	)		125			(1,195	)		(956	)%
Change in fair value of warrants liabilities		(11,302	)		—			(11,302	)		100	%
Loss before income taxes		(225,733	)		(43,099	)		(182,634	)		424	%
Benefit (provision) for income taxes		(56	)		(58	)		2			(3	)%
Net loss	$	(225,789	)	$	(43,157	)	$	(182,632	)		423	%

Revenue

Total revenue decreased by $2.5 million or (11)% in year to date 2022 compared to year to date 2021.

Product, subscription and support revenue decreased slightly by $0.01 million primarily due to the net effect of the Company’s transition from contracts that had material non-recurring elements which would 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 $2.5 million or (65)% in year to date 2022 compared to year to date 2021, primarily due to the completion of a national cybersecurity strategy engagement in EMEA, a key Enterprise engagement, in fiscal 2021 and delays in professional services contract starts in year to date 2022 due to COVID-19. Professional services accounted for 7% of our total revenue in year to date 2022 and for 17% of our total revenue in year to date 2021.

Cost of revenue

Total cost of revenue increased by $1 million or 19%, in year to date 2022, compared to year to date 2021. Cost of product, subscription and support revenue increased by $2 million or 56%, in year to date 2022, compared to year to date 2021. The increase was due primarily to an increase in customer counts and related cloud hosting costs during year to date 2022 compared to year to date 2021.

Cost of professional service revenue decreased by $1 million or (61)% in year to date 2022, compared to year to date 2021. The decrease in cost of service revenue was primarily due to a decrease in overall professional services activity in year to date 2022 compared to year to date 2021.

Gross Profit and Gross Margin

Mix changes in cost of revenue resulted in a decrease in software gross margin to 70% in year to date 2022 compared to 80% in year to date 2021, and a decrease in professional services gross margin to 54% in year to date 2022 compared to 58% in year to date 2021. In year to date 2021 we onboarded several significant revenue customers which had not yet ramped their full cloud costs in period and finalized delivery of key significant service contract in EMEA. This had materially increased margin in the comparable period last year. Professional services margin will continue to be volatile contract to contract as we scale the business.

We expect that gross margins for the rest of fiscal 2022 will improve. Margins may remain volatile compared to fiscal 2021 due to the continuing presence of large contracts in our revenue mix.

The following tables show gross profit and gross margin, respectively, for software products and support revenue and professional services revenue for year to date 2022 as compared to year to date 2021.


	Nine Months Ended October 31,
	2021		2020		Change $			Change %
	($ in thousands)
Product, subscription and support gross profit	$	12.5	$	14.5	$	(2.0	)		(14	)%
Professional services profit		0.7		2.2		(1.5	)		(68	)%
Total gross profit	$	13.2	$	16.7	$	(3.5	)		(21	)%


	2021			2020			Change
Product, subscription and support margin		69.5	%		80.4	%		(10.9	)%
Professional services margin		53.5	%		57.8	%		(4.3	)%
Total gross margin		68.4	%		76.5	%		(8.1	)%

Operating expenses

Research and development

Research and development expenses increased by $22.6 million or 113%, in year to date 2022, compared to year to date 2021 primarily due to non-cash stock compensation expenses ($20.9 million) triggered by the modification of the restricted stock units and the ramping external costs to support product development. At 220% of total revenues in year to date 2022 compared to 91% in year to date 2021, we expect that our overall R&D expenditure rate as a percentage of revenues will decline in the future.

Sales and marketing

Sales and marketing cost increased by $48.8 millionor 210% in year to date 2022, compared to year to date 2021, primarily due to non-cash stock compensation expense ($49.3 million) triggered by the modification of the restricted stock units. At 372% of total revenues in year to date 2022 compared to 107% in year to date 2021, we expect that our overall sales and marketing expenditure rates as a percentage of revenues will decline in the future.

General and administrative

General and administrative costs increased by $95.3 million when comparing year to date 2022 to year to date 2021, primarily due to stock compensation expense ($89.9 million) triggered by the modification of the restricted stock units and costs related to being public. Year to date 2022 general and administrative expenses were at 578% of total revenues compared to 76% in year to date 2021. We expect that our overall general and administrative expenditure rates as a percentage of revenues will decline in the future.

Other (expense) income, net

The net fluctuation of $1.2 million in Other (expense) income is largely the result of ~~being a~~interest expense of $1.1 million related to the PPP loan and SVB Bridge loan. These debts and the interest were paid off at the date of the Merger.

Change in fair value of warrants liabilities

$11.3 million of non-cash expense was recognized due to the change in fair value of warrants liabilities.

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.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred losses and negative cash flows from operations since Legacy IronNet’s inception. Through October 31, 2021, we have funded our operations with proceeds from sales of IronNet common stock and redeemable convertible preferred stock, proceeds related to public ~~company (for legal,~~trust shares as part of the recapitalization, proceeds from PIPE shares, loans, and receipts from sales of our products and services to customers in the ordinary course of business and proceeds from the Reverse Recapitalization. As of October 31, 2021, the Company had cash and cash equivalents of $73.9 million.

At the effective date of the Merger, the Company repaid the outstanding principal and interests related to the PPP loan and SVB Bridge Loan.

Long- Term Liquidity Requirements

Based on our growth plan, the Company believes that its cash on hand and collectable receivables, together with cash generated from sales of our products and services will satisfy its working capital and capital requirements for at least the next twelve months.

Our future capital requirements will depend on many factors, including, but not limited to the rate of our growth, our ability to attract and retain customers and their willingness and ability to pay for our products and services, and the timing and extent of spending to support our efforts to market and develop our products. Further, we may enter into future arrangements to acquire or invest in businesses, products, services, strategic partnerships, and technologies. As such, we may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If additional funds are not available to us on acceptable terms, or at all, our business, financial ~~reporting, accounting~~condition, and ~~auditing compliance), as well as for due diligence expenses.~~results of operations could be adversely affected.

Cash Flows

For ~~the three months ended September 30, 2019~~Year to Date 2022 and Year to Date 2021

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


	Nine Months Ended October 31,
	2021			2020
	(in thousands)
Net cash used in operating activities	$	(59,095	)	$	(39,897	)
Net cash (used in) provided by investing activities	$	(2,156	)	$	1,057
Net cash provided by financing activities	$	103,381		$	49,707

Operating Activities

Net cash used in operating activities during year to date 2022 was $(59.1 million), which resulted from ~~April 30, 2019 (inception) through September 30, 2019, we had~~ a net loss of ~~$481~~$(225.8 million), primarily driven by the modification of the restricted stock units awards of $160.1 million and ~~$1,006,~~related non-cash expenses. There was also an increase in the fair value of warrants liabilities of $11.3 million and an increase in accrued expenses. This was offset by a decrease in deferred revenue of $3.9 million and a decrease in prepaid expenses and other current assets of $3.2 million.

Net cash used in operating activities during year to date 2021 was $(39.9 million), which resulted from a net loss of $(43.2 million) adjusted for noncash charges of $1.3 million. Non-cash charges primarily consisted of ~~formation~~$0.9 million of depreciation and amortization expense. Cash used in operating ~~costs.~~activities during year to date 2021 benefited from the change in deferred revenue of $2.7 million, offset by a change in accounts receivable of $(1.0 million).

~~Liquidity~~The overall increase in net cash used in operating activities by the Company in 2022 compared to 2021 was driven by an increase in cash operating expenses of approximately $6.6 million, primarily dueto one-time expenses of preparing for and ~~Capital Resources~~completing the Merger as well as the new recurring costs of operating as a public company, decreases in services revenue and increases in cost of sales totaling approximately $3.4 million as more customers analytics came more fully online, and, on the balance sheet, primarily a reduction in deferred revenue of $6.6 million attributable to higher than usual, multi-year cash prepayments received in 2021 compared to the current year .

Investing Activities

AsNet cash used in investing activities during year to date 2022 of ~~September 30, 2019, we had~~$(2.2 million) was primarily due to $(2.1 million) in purchases of property and equipment.

Net cash provided by investing activities during year to date 2021 of ~~$1,315. Until~~$1.1 million was primarily due to net proceeds from sales and maturities of investments of $1.4 million offset by $(0.4 million) in purchases of property and equipment.

Financing Activities

Net cash provided by financing activities of $103.4 million during year to date 2022 was primarily due to gross proceeds from the ~~consummation~~Merger recapitalization of $13.3 million and issuance of PIPE Shares of $125.0 million and borrowing related to the ~~Initial Public Offering, the Company’s only source~~SVB Bridge loan for $15.0 million, offset by payment of ~~liquidity~~PPP loan and SVB Bridge loan of $5.6 million.

Net cash provided by financing activities of $49.7 million during year to date 2021 was ~~an initial purchase~~primarily due to net proceeds from our issuance of common stock byof $44.1 million and the ~~Sponsor~~net proceeds from the PPP loan of $5.6 million. The PPP loan was fully paid on August 26, 2021 as part of the Merger.

Contractual obligations

Our principal commitments consist of lease obligations for office space. For more information regarding our lease obligations, see Note 7,Commitments and ~~loans from our Sponsor.~~

~~Subsequent~~Contingencies to the ~~quarterly period covered by this Quarterly Report, on November 12, 2019,~~interim condensed consolidated financial statements.

During year to date 2022 and in future years, we ~~consummated~~have made and 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 ~~Initial Public Offering~~use of 17,250,000 units at a price of $10.00 per Unit, generating gross proceeds of $172,500,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 5,200,000 Private Warrantssoftware systems to ~~our Sponsor at a price of $1.00 per warrant, generating gross proceeds of $5,200,000.~~

~~Including payments for certain prepaid assets such as liability insurance, total payments paid on or soon after the Initial Public Offering totaled $4,185,959 which was materially in line~~scale with our ~~estimated amount~~overall growth.

Off-Balance sheet arrangements

As of ~~$4,200,000. However, actual liability insurance was underestimated by $124,998 while miscellaneous costs was overestimated by $119,228.~~

~~Following the Initial Public Offering and the sale of the Private Warrants, a total of $172,500,000 was placed in the Trust Account and~~October 31, 2021, we had $1,549,302 of cash held outside of the Trust Account, after payment of costs related to the Initial Public Offering, and available for working capital purposes. We incurred $9,971,662 in transaction costs, consisting of $3,450,000 of underwriting fees, $6,037,500 of deferred underwriting fees and $484,162 of other offering costs.

We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.

In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants identical to the Private Warrants, at a price of $1.00 per warrant at the option of the lender.

We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our public shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.

~~Off-Balance Sheet Arrangements~~

We did not have any off-balance sheet ~~arrangements as of September 30, 2019.~~

~~Contractual obligations~~arrangements.

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support to the Company. We began incurring these fees on November 5, 2019 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and the Company’s liquidation.

The underwriters are entitled to a deferred fee of $0.35 per Unit, or $6,037,500. The deferred fee will be forfeited by the underwriters solely in the event that we fail to complete a Business Combination within the Combination Period, subject to the terms of the underwriting agreement.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements ~~and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management~~require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and ~~liabilities, disclosure~~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 judgements 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 ~~contingent assets~~software, subscriptions, support and ~~liabilities~~maintenance, and other services. The Company satisfies 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 on a relative standalone selling price based on the observable selling price of our products and services.

Recognition of revenue when, or as, we satisfy performance obligations—We satisfy performance obligations either over time or at a point in time as discussed in further detail below. 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 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

We use the Black-Scholes pricing model to estimate the fair value of options on the date of grant. On August 26, 2021, the Board authorized that the Liquidity Event Satisfaction for the restricted stock units will be deemed to have been met as a result of the merger and shares of common stock subject to the awards will be delivered, in accordance with the terms of the Restricted Stock Unit Agreement. As a consequence, the Company recognized a non cash expense in the fiscal third quarter 2022 in an amount of $160.1 million related to 16,634,972 outstanding RSUs, 8,204,455 remain unvested as of October 31, 2021.

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.

Recently Issued Accounting Standards

Refer to Note 1 of the notes to our unaudited consolidated financial statements included in this Form 10-Q for our assessment of recently issued and ~~income~~adopted accounting standards.

Commitments and ~~expenses during~~Contingencies

Refer to Note 7 of the ~~periods reported. Actual results could materially differ from~~notes to our unaudited consolidated financial statements included in this Form 10-Q, Commitments and contingencies

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 ~~estimates.~~standards apply to private companies. We have ~~not identified any critical accounting policies.~~

~~Recent~~elected to use this extended transition period for complying with certain new or revised accounting standards

~~Management does~~ 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 ~~believe~~be comparable to companies that ~~any recently issued, but not yet effective,~~comply with new or revised accounting pronouncements ~~if currently adopted, would have a material effect on our condensed financial statements.~~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.

As26

Foreign Currency Risk

The significant majority of ~~September 30, 2019, we were not~~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 ~~any market or interest rate risk. Following the consummation of our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts~~fluctuations due to changes in foreign currency exchange rates, particularly changes in the ~~Trust Account,~~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 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 consolidated financial statements for year to date 2022 or fiscal year 2021. As the impact of foreign currency exchange rates has not been ~~invested~~material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in ~~U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in U.S. treasuries. Due to~~ the ~~short-term nature of these investments, we believe there will be no associated material~~future if our exposure to ~~interest rate risk.~~foreign currency becomes more significant.

Item 4. ~~Controls and Procedures~~Internal Control Over Financial Reporting

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 ~~by us~~ in our reports filed or submitted under the Exchange Act ~~reports~~ is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to ~~our~~ management, including our principal executive ~~officer~~ and principal financial ~~officer~~officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our ~~principal executive officer~~Chief Executive Officer and ~~principal financial and accounting officer,~~Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the ~~fiscal~~ quarter ended ~~September 30, 2019, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.~~October 31, 2021. Based ~~on this~~upon that evaluation, our ~~principal executive officer~~Chief Executive Officer and ~~principal financial and accounting officer have~~Chief Financial Officer concluded that ~~during~~ the ~~period covered by this report, our~~Company’s disclosure controls and procedures were not effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

~~Changes in Internal Control over Financial Reporting~~

~~There was no change~~as of October 31, 2021 because of material weaknesses in our internal control over financial reporting described below. In light of the material weaknesses described below, the Company performed additional analysis and other post-closing procedures to determine its interim condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, management concluded that ~~occurred~~the financial statements included in this report fairly state the Company’s financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the ~~fiscal~~ quarter ~~of 2019 covered by this Quarterly Report on Form 10-Q~~ended October 31, 2021, that ~~has~~have materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

Material weaknesses in internal control over financial reporting

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.

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 its financial reporting objectives. This material weakness contributed to the following additional material weaknesses:

We did not design and maintain effective controls over the review of journal entries and account reconciliations. Specifically, certain personnel have the ability to both (i) create and post journal entries within our general ledger system, and (ii) prepare and review account reconciliations.

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.

These material weaknesses did not result in a material misstatement to the consolidated financial statements. However, 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.

Remediation Plan

We have committed significant effort and resources to the remediation and improvement of our internal control over financial reporting. These remediation measures are ongoing and include the following:

we hired and continued to hire additional accounting and finance resources with public company experience, in addition to utilizing third-party consultants and specialists, to supplement our internal resources;

we are 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 are 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,

we are redesigning and strengthening financial system and application change management controls as well as data backup and restoration controls.

The elements of our remediation plan can only 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 its objectives. We are in the process of designing and implementing 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. 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.

Item 1A. Risk Factors

Our business is subject to numerous risks that you should carefully consider. These risks are more fully described in the section titled “Risk Factors” included in our final prospectus filed with the Securities and Exchange Commission, or SEC, pursuant to Rule 424(b)(3) under the Securities Act of 1933, as amended, or the Securities Act, on September 30, 2021. A summary of these risks that could materially and adversely affect our business, financial condition, operating results and prospects include the following:


	•		We have experienced rapid growth in recent periods, and if we do not manage our future growth, our business and results of operations will be adversely affected.


	•		We have a history of losses and we 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 ability to maintain and grow our business and our 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 its 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.


	•		Our future success will be substantially dependent on our ability to attract, retain, and motivate the 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.


	•		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 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 management has identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.

There have been no material changes to the risk factors set forth in the Final Prospectus filed with the SEC on September 30, 2021, which are incorporated herein by reference. However, the risk factors described in this report and in the Final Prospectus 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 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.

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

None

On April 30, 2019, the Sponsor purchased 3,593,750 shares of Class B common stock for an aggregate purchase price of $25,000, or approximately $0.007 per share. On November 6, 2019, the Company effected a stock dividend of 0.2 shares for each share outstanding, resulting in an aggregate of 4,312,500 Founder Shares being outstanding. The foregoing issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of theItem 3. Defaults upon Senior Securities ~~Act.~~

None

On November 12, 2019, we consummated the Initial Public Offering of 17,250,000 Units, which included the full exercise by the underwriters of the over-allotment option to purchase an additional 2,250,000 Units, at $10.00 per Unit, generating gross proceeds of $172,500,000. The securities in the offering were registered under the Securities Act on a registration statements on Form S-1 (No. 333-234134 and 333-234550). The Securities and Exchange Commission declared the registration statements effective on November 5, 2019.Item 4. Mine Safety Disclosures

Not applicable

Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 5,200,000 warrants at a price of $1.00 per Private Warrant in a private placement to LGL Systems Acquisition Holdings Company, LLC, generating gross proceeds of $5,200,000. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.Item 5. Other Information

The Private Warrants are identical to the warrants underlying the Units sold in the Initial Public Offering, except that the Private Warrants are not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions.None

~~Of the gross proceeds received from the Initial Public Offering, the exercise of the over-allotment option and the sale of the Private Warrants, $172,500,000 was placed in the Trust Account.~~

We paid a total of $3,450,000 in underwriting discounts and commissions and $484,162 for other costs and expenses related to the Initial Public Offering. In addition, the underwriters agreed to defer $6,037,500 in underwriting discounts ad commissions.

~~For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.~~

Item 6. Exhibits

Incorporated by Reference

Exhibit

Description

Form

File No.

Exhibit

Filing Date

Number

2.1

Agreement and Plan of Reorganization and Merger, dated March 15, 2021.

S-4/A

333-256129

2.1

6-Aug-21

2.2

Amendment No. 1 to Agreement and Plan of Reorganization and Merger, dated August 6, 2021.

S-4/A

333-256129

2.2

6-Aug-21

3.1

Amended and Restated Certificate of Incorporation of the Registrant.

8-K

001-39125

3.1

1-Sep-21

3.2

Amended and Restated Bylaws of the Registrant.

8-K

001-39125

3.2

1-Sep-21

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document – instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.SCH, 101.CAL, 101.DEF, 101.LAB and 101.PRE).

~~The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.~~

~~No.~~		~~Description of Exhibit~~
~~1.1~~		~~Underwriting Agreement between the Company and Jefferies LLC, as representative of the underwriters (1)~~
~~3.1~~		~~Amended and Restated Certificate of Incorporation (1)~~
~~4.1~~		~~Warrant Agreement between Continental Stock Transfer & Trust Company and the Company (1)~~
~~10.1~~		~~Investment Management Trust Agreement between Continental Stock Transfer & Trust Company and the Company (1)~~
~~10.2~~		~~Registration Rights Agreement between the Company and the Company’s Initial Stockholder (1)~~
~~10.3~~		~~Administrative Services Agreement between the Company and LGL Systems Nevada Management Partners LLC (1)~~
~~10.4~~		~~Letter agreement with Aston Capital and Robert V. LaPenta (1)~~
31.1*		~~Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
31.2*		~~Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
32.1*		~~Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
32.2*		~~Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~
101.INS*		~~XBRL Instance Document~~
101.SCH*		~~XBRL Taxonomy Extension Schema Document~~
101.CAL*		~~XBRL Taxonomy Extension Calculation Linkbase Document~~
101.DEF*		~~XBRL Taxonomy Extension Definition Linkbase Document~~
101.LAB*		~~XBRL Taxonomy Extension Labels Linkbase Document~~
101.PRE*		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

~~Filed herewith.~~

~~(1)~~

~~Previously filed as an~~

*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to ~~our Current Report on Form 8-K filed on November 12, 2019 and~~the liabilities of that section, nor shall it be deemed incorporated by reference ~~herein.~~in any filing under the Securities Act of 1933 or the Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in such filings.

~~SIGNATURES~~

~~In accordance with~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~registrant~~Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	~~LGL Systems Acquisition Corp.~~
		IRONNET, INC.
~~Date: December 23, 2019~~	~~By:~~	~~/s/ Marc Gabelli~~
Date:	~~Name:~~ December 15, 2021	~~Marc Gabelli~~ By:	/s/ James C. Gerber
	~~Title:~~	~~Chief Executive Officer~~	James C. Gerber
		~~(Principal Executive Officer)~~

~~Date: December 23, 2019~~	~~By:~~	~~/s/ Robert LaPenta~~
	~~Name:~~	~~Robert LaPenta~~
	~~Title:~~	Chief Financial Officer
			(On behalf of the Registrant and as Principal Financial ~~and Accounting~~ Officer)

ASSETS
Current asset – Cash	$	1,315
Deferred offering costs		115,985
Total Assets	$	117,300

LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Accrued offering costs	$	6,500
Promissory note – related party		86,806
Total Current Liabilities		93,306

Commitments

Stockholder’s Equity
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding		—
Class A common stock, $0.0001 par value; 75,000,000 shares authorized; none issued and outstanding		—
Class B convertible common stock, $0.0001 par value; 10,000,000 shares authorized; 4,312,500 shares issued and outstanding⁽¹⁾		431
Additional paid-in capital		24,569
Accumulated deficit		(1,006	)
Total Stockholder’s Equity		23,994
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	117,300

	Three Months Ended September 30, 2019			For the Period from April 30, 2019 (inception) Through September 30, 2019

Formation and operating costs	$	481		$	1,006
Net Loss	$	(481	)	$	(1,006	)

Weighted average shares outstanding, basic and diluted⁽¹⁾		3,750,000			3,750,000

Basic and diluted net loss per common share	$	(0.00	)	$	(0.00	)

	Common Stock				Additional Paid		Accumulated			Total Stockholder’s
	Shares		Amount		in Capital		Deficit			Equity
Balance – April 30, 2019 (inception)		—	$	—	$	—	$	—		$	—

Sale of Class B common stock to Sponsor⁽¹⁾		4,312,500		431		24,569		—			25,000

Net loss		—		—		—		(525	)		(525	)

Balance – June 30, 2019		4,312,500		431		24,569		(525	)		24,475

Net loss		—		—		—		(481	)		(481	)

Balance – September 30, 2019		4,312,500	$	431	$	24,569	$	(1,006	)	$	23,994

Cash Flows from Operating Activities:
Net loss	$	(1,006	)
Net cash used in operating activities		(1,006	)

Cash Flows from Financing Activities:
Proceeds from promissory note – related party		86,806
Payment of offering costs		(84,485	)
Net cash provided by financing activities		2,321

Net Change in Cash		1,315
Cash – Beginning of period		—
Cash – End of period	$	1,315

Non-Cash investing and financing activities:
Deferred offering costs included in accrued offering costs	$	6,500
Deferred offering costs paid directly by Sponsor from proceeds from issuance of common stock to Sponsor	$	25,000