References in this report (the "Quarterly Report") to "we," "us" or the "Company" refer to
NightDragon Acquisition Corp.References to our "management" or our "management team" refer to our officers and directors, and references to the "Sponsor" refer to NightDragon Acquisition Sponsor, LLC. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion 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 the Securities Act of 1933 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 Form 10-Q are forward-looking statements. Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management's current beliefs, based on information currently available. You should read these statements carefully because they discuss future expectations or state other "forward-looking" information. These statements relate to our future plans, objectives, expectations, intentions and performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to:
â¢ our ability to select one or more suitable target companies;
â¢ our ability to complete our initial business combination, particularly given competition from other blank check companies and financial and strategic buyers; â¢ our expectations around the performance of the prospective target business or businesses, including competitive prospects of the business following our initial business combination; â¢ our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination; â¢ our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination; â¢ our potential ability to obtain additional financing to complete our initial business combination; â¢ our pool of prospective target businesses; â¢ our ability to consummate an initial business combination amidst the uncertainty resulting from the ongoing COVID-19 pandemic, the economy and any business or businesses with which we consummate our initial business combination; â¢ the ability of our officers and directors to generate a number of potential acquisition opportunities; â¢ our public securities' potential liquidity and trading; â¢ the lack of a market for our securities; â¢ our ability to remain in compliance with Nasdaq listing rules; â¢ the use of proceeds not held in the trust account or available to us from interest income on the trust account balance; â¢ the trust account not being subject to claims of third parties; or â¢ our financial performance following this offering.
A number of factors could cause actual events, performance or results to differ materially from the events, performance and results described in forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A âRisk Factorsâ and elsewhere in this report. Our risk factors do not guarantee that any of these conditions currently exist and should not be construed as an affirmative statement that any such risks or conditions have not materialized, in whole or in part. These statements, like all statements in this report, speak only as of their date, and we assume no obligation to update or revise such statements in light of future developments.
Table of Contents In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements. This Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" has been amended and restated to give effect to the restatement of our financial statements at
March 31, 2021and June 30, 2021. Management has identified errors made in our historical financial statements based on our improper valuation of our Class A common stock subject to possible redemption at the closing of our Initial Public Offering. We previously determined the Class A common stock subject to possible redemption to be equal to the redemption value of $10.00per share of Class A common stock while also taking into consideration a redemption cannot result in net tangible assets being less than $5,000,001. Management has determined that the Class A common stock issued during the Initial Public Offering can be redeemed or become redeemable subject to the occurrence of future events considered outside of the Company's control. Therefore, management has concluded that the redemption value should include all Class A common stock subject to possible redemption, resulting in the Class A common stock subject to possible redemption being equal to its redemption value. As a result, management has noted a reclassification error related to temporary equity and permanent equity. This resulted in a restatement to the initial carrying value of the Class A common stock subject to possible redemption with the offset recorded to additional paid-in capital (to the extent available), accumulated deficit and Class A common stock. Overview We are a blank check company incorporated under the laws of the State of Delawareon December 8, 2020for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the Private Placement SCALE Units, our capital stock, debt or a combination of cash, stock and debt. We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful. Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities from December 8, 2020(inception) through September 30, 2021were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses. For the three months ended September 30, 2021, we had a net income of $3,572,079which consists of the change in fair value of warrant liability of $4,090,597and interest earned on marketable securities held in the Trust Account of $4,439offset by operating and formation costs of $522,957. For the nine months ended September 30, 2021, we had net income of $2,834,719, which consists of the change in fair value of warrant liability of $4,480,687and interest earned on marketable securities held in the Trust Account of $23,401offset by operating and formation costs of $1,058,923, transaction costs associated with the Initial Public Offering of $579,585and compensation expense of $30,861. Liquidity and Capital Resources On March 4, 2021, we consummated the Initial Public Offering of 34,500,000 SCALE (Stakeholder-Centered Aligned Listed Equity) Units, which includes the full exercise by the underwriter of its over-allotment option in the amount of 4,500,000 SCALE Units, at $10.00per SCALE Unit, generating gross proceeds of $345,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 1,035,000 Private Placement SCALE Units at a price of $10.00per Private Placement SCALE Unit in a private placement to NightDragon Acquisition Sponsor, LLC, generating gross proceeds of $10,350,000. Following the Initial Public Offering, the full exercise of the over-allotment option, and the sale of the Private Placement SCALE Units, a total of $345,000,000was placed in the Trust Account. We incurred $19,601,538in Initial Public Offering related costs, including $6,900,000of underwriting fees, $12,075,000of deferred underwriting fees and $626,538of other offering costs. For the nine months ended September 30, 2021, cash used in operating activities was $1,643,762. Net income of $2,834,719was affected by change (non-cash gain) in fair value of warrant liability of ( $4,480,687), transaction costs associated with the Initial Public Offering of $579,585, compensation expense of $30,861, and interest income on marketable securities held in the Trust Account of $23,401. Changes in operating assets and liabilities used $584,839of cash for operating activities. As of September 30, 2021, we had marketable securities held in the Trust Account of $345,023,401(including approximately $23,401of interest income) consisting of U.S.Treasury Bills with a maturity of 185 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through September 30, 2021, we have not withdrawn any interest earned from the Trust Account. 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 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. As of September 30, 2021, we had cash of $1,209,700. 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. 17
Table of Contents 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
$1,500,000of such loans may be convertible into SCALE Units at a price of $10.00per SCALE Unit, at the option of the lender. The SCALE Units would be identical to the Private Placement SCALE Units. 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. 18
Table of Contents Off-Balance Sheet Arrangements We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of
September 30, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual obligations We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. The underwriters are entitled to a deferred fee of $0.35per SCALE Unit, or $12,075,000in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement. Critical Accounting Policies The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies: Warrant Liability We account for the warrants issued in connection with our Initial Public Offering in accordance with the guidance contained in Accounting Standards Codification ("ASC") Topic 815, "Derivatives and Hedging," under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements of operations. Common Stock Subject to Possible Redemption We account for our common stock subject to possible conversion in accordance with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity." Common stock subject to mandatory redemption is classified as a liability instrument and measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders' equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders' equity section of our condensed balance sheets. Net Income (Loss) Per Common Share Net income (loss) per common stock is computed by dividing net income (loss) by the weighted average number of common stock outstanding for the period. The Company applies the two-class method in calculating earnings per share. Accretion associated with the redeemable shares of Class A common stock is excluded from earnings per share as the redemption value approximates fair value. Recent Accounting Standards Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC'srules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. 19
Table of Contents As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of
September 30, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective, due solely to the material weakness in our internal control over financial reporting related to the Company's accounting for complex financial instruments. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S.generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented. Management has implemented remediation steps to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for complex securities and related accounting standards. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals. Changes in Internal Control over Financial Reporting During the fiscal quarter ended September 30, 2021, other than noted below, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, other than as described herein. Management has identified a material weakness in internal controls related to the accounting for complex financial instruments as described above. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance our system of evaluating and implementing the accounting standards that apply to our financial statements, including through enhanced analyses by our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurances that these initiatives will ultimately have the intended effects. 20
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