IronNet Nearly Insolvent; Board to Probe Claims of DeceptionFirm Led by Former Army Gen. Keith Alexander Lacks Money to Pay December Bills
IronNet is just days away from insolvency and its board of directors says it will investigate allegations that company executives misled investors over growth projections, the company disclosed in an after-hours filing to federal regulators.
The cybersecurity company founded and helmed by retired Army Gen. Keith Alexander, the former NSA director and U.S. Cyber Command chief, says it lacks the funds necessary to pay its bills through the rest of this month.
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Absent a cash infusion, the company told the Securities and Exchange Commission, it may need to file for bankruptcy.
IronNet says it is actively pursuing additional financing, and the network detection and response provider's board is retaining advisers to initiate a review of strategic alternatives.
Indicators of looming bankruptcy have dogged the company for months as it went through multiple rounds of layoffs, executive removals and warnings that the pace of new business was insufficient to sustain operations (see: IronNet Headed for Crash Amid Layoffs and Co-CEO Exit).
The company lost $77.7 million over the nine-month period ending Oct. 31, despite a slight improvement in revenues. During that time, it earned $20.3 million, a 4.6% improvement over the $19.4 million it earned during the same period in 2021.
IronNet's stock fell $0.01 - 3.7% - to $0.26 per share in after-hours trading. The firm went public in 2021 at a $1.2 billion valuation and stock price of $13.44 per share.
IronNet Launches Probe of Ex-Employee Allegations
The Audit Committee of IronNet's board of directors decided Wednesday to probe the validity of allegations from a former employee it says are similar to those laid out in a proposed class action lawsuit that accuses the company of misleading investors. Management downplayed the allegations in its SEC filing but said it cannot predict the investigation's "scope, duration or outcome." As a result, it does not expect to file a quarterly report covering the three months that ended Oct. 31.
The proposed stockholder class action complaint, filed in April and amended in August, alleges that CEO Alexander, former co-CEO William Welch and ex-CFO James Gerber repeatedly misled the market to believe IronNet would achieve transformational revenue based on multimillion-dollar public sector deals.
The company has since acknowledged those deals had no realistic chance of closing last fiscal year. The suit also claims that Alexander cashed out more than $5 million of his IronNet stock before the company disclosed that a majority of the large deals supporting the company's guidance hadn't come through.
IronNet in October filed a motion to dismiss the lawsuit. A hearing is scheduled for Friday Jan. 27 in a federal courtroom in Alexandria, Virginia.
Bankruptcy Looms Large
A more pressing subject for the company than the lawsuit might be what type of bankruptcy it enters. IronNet put forward arguments Friday for a Chapter 11 reorganization rather probable liquidation under Chapter 7 of U.S. bankruptcy code. The latter would result in significantly smaller distributions being made to stakeholders, IronNet asserted.
In the event of Chapter 7, IronNet argued that a court-appointed trustee would sell or dispose of IronNet's assets "in a distressed fashion over a short period of time," which the company says would result in no distributions being available for stockholders. Were the company allowed to pursue Chapter 11 protection, IronNet said, assets would be sold by existing management as part of its ongoing obligations (see: IronNet Lays Off 17% of Staff 10 Months After Going Public).
IronNet in September axed nearly 90 employees - or approximately 35% of its 250-person staff - and removed co-CEO Welch and CFO Gerber from their posts. Welch's departure was "mutually agreed with the Board" as a cost-cutting move, while Gerber left to become CFO of SimSpace. September's cuts followed layoffs in June that resulted in 55 people - or 17% of IronNet's workforce - losing their jobs.