IronNet Furloughs Almost All Employees, Curtails OperationsClosure Comes Less Than 8 Weeks After C5 Capital Agreed to Take IronNet Private
IronNet's board on Saturday authorized the company to furlough nearly all its workers and substantially curtail business operations as the board evaluates seeking bankruptcy protection.
The Washington, D.C.-area threat detection firm said the furlough and cessation of business operations constitute an event of default under the terms of the company's borrowing and may result in IronNet losing customers. IronNet employed 104 people as of Jan. 31, and the board's decision to throw in the towel comes less than eight weeks after reaching an agreement with C5 Capital to take the firm private (see: IronNet CEO Gen. Keith Alexander Out Amid Take-Private Deal).
"The company currently does not have the ability to satisfy its debts and related obligations, including with respect to any current or future defaults," IronNet President and CFO Cameron Pforr wrote Tuesday in a regulatory filing. "The company's existing cash and cash equivalents and anticipated cash flows from operations are not sufficient to meet the company's operating and liquidity needs."
IronNet Backer C5 Capital Offers to Fund Restructuring
Washington, D.C.-based C5 Capital said Saturday it had provided IronNet's board with a term sheet to fund the company's restructuring. The venture capital firm said it has given IronNet $15.2 million of financing since January as the company's sole funder, including $300,000 on Aug. 29 and $1 million of bridge financing Friday. Neither C5 nor IronNet responded to Information Security Media Group inquiries (see: C5 Looks to Take IronNet Private, Oust Gen. Keith Alexander)
"C5 Capital and its partners are committed to continue to support IronNet," the venture capital firm said in a press release Saturday.
IronNet's stock is up $0.02, or 40%, to $0.07 per share midday Tuesday at a current valuation of $8.1 million. That's a far cry from August 2021, when the firm went public through a merger with a special purpose acquisition company at a $1.2 billion valuation and stock price of $13.44 per share.
IronNet said it will retain several workers during the furlough to ensure there is no service interruption. The company has seen significant board turnover in recent days, as former Sikorsky Aircraft CFO Mary Gallagher resigned from the board Thursday and Aston Capital Managing Partner Rob LaPenta resigned Friday. IronNet said the board resignations had not been the result of any disagreement with the company.
C5 extended IronNet a financial lifeline in July in exchange for retired four-star Gen. Keith Alexander, 71, giving up day-to-day management of the company he founded nine years ago. Former Houghton Mifflin Harcourt CEO Linda Zecher, 70, has served as IronNet's chief executive since then. But in recent weeks, the walls have closed in on IronNet.
Debts Amass at IronNet
On Aug. 23, private equity firm 3i alleged IronNet was in default on a $7.5 million convertible note and demanded payment within five business days. Then, on Aug. 29, board members Jan Tighe and Donald Dixon extended an $800,000 promissory note to IronNet to address unpaid employee payroll obligations and spend no more than $100,000 on employee, contractor and vendor expenses tied to bankruptcy.
In addition to the monies owed to 3i and C5 Capital, IronNet said it has nearly $8.5 million outstanding on promissory notes issued by members of the company's board as well as $500,000 outstanding on a promissory note issued by Korr Acquisitions. IronNet said that liquidating under Chapter 7 bankruptcy would result in smaller distributions to stakeholders than reorganizing through Chapter 11 bankruptcy.
"The company currently does not have the ability to satisfy its debts."
– Cameron Pforr, president and CFO, IronNet
IronNet drastically reduced the size of its workforce prior to the furloughs, going from 316 employees as of Jan. 31, 2022, to just 104 employees a year later. The most significant job cuts took place between September and November 2022, when IronNet axed 11 employees - or 44% of its workforce - to achieve approximately $20 million in annualized cost savings, according to SEC filings.
These cost-cutting efforts paid dividends, and IronNet's net loss for the fiscal year ended Jan. 31, 2023, plummeted to $111 million, a 54.3% improvement over its $242.6 million net loss in the fiscal year ended Jan. 31, 2022. But the company's revenue sank to $27.3 million, down 1% from $27.5 million a year earlier, while the number of recurring software customers fell from 88 to 66 due to liquidity issues.
IronNet derives most of its revenue from a very small number of organizations. The company's top eight customers accounted for 61% of sales in the most recent fiscal year. The company's two largest customers accounted for 22% of revenue and 56% of the company's accounts receivable balance as of Jan. 31. The company's offerings include network detection and response and a threat intelligence feed.
IronNet is the second publicly traded cybersecurity company to cease operations this year. Washington, D.C.-area email security and threat detection vendor Cyren shut down in February after failing to sell assets or raise more capital, though Data443 eventually ended up acquiring Cyren's threat intelligence, URL categorization and email security technology out of bankruptcy in May for up to $3.5 million.