NIGHTDRAGON ACQUISITION CORP. Management’s Discussion and Analysis of Financial Position and Operating Results (Form 10-Q)


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:

• our ability to select one or more suitable target companies;


     •    our ability to complete our initial business combination, particularly
          given competition from other blank check companies and financial and
          strategic buyers;



     •    our expectations around the performance of the prospective target
          business or businesses, including competitive prospects of the business
          following our initial business combination;



     •    our success in retaining or recruiting, or changes required in, our
          officers, key employees or directors following our initial business
          combination;



     •    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;



     •    our potential ability to obtain additional financing to complete our
          initial business combination;



  •   our pool of prospective target businesses;



     •    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;



     •    the ability of our officers and directors to generate a number of
          potential acquisition opportunities;



  •   our public securities' potential liquidity and trading;



  •   the lack of a market for our securities;



  •   our ability to remain in compliance with Nasdaq listing rules;



     •    the use of proceeds not held in the trust account or available to us from
          interest income on the trust account balance;



  •   the trust account not being subject to claims of third parties; or



  •   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 “Risk Factors” 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.

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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, 2021 and 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 $10.00 per 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
Delaware on December 8, 2020 for 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, 2021
were 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 $3,572,079
which consists of the change in fair value of warrant liability of $4,090,597
and interest earned on marketable securities held in the Trust Account of $4,439
offset 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 $4,480,687
and interest earned on marketable securities held in the Trust Account of
$23,401 offset by operating and formation costs of $1,058,923, transaction costs
associated with the Initial Public Offering of $579,585 and 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 $10.00 per 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
$10.00 per 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
$345,000,000 was placed in the Trust Account. We incurred $19,601,538 in Initial
Public Offering related costs, including $6,900,000 of underwriting fees,
$12,075,000 of deferred underwriting fees and $626,538 of other offering costs.
For the nine months ended September 30, 2021, cash used in operating activities
was $1,643,762. Net income of $2,834,719 was 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 $584,839 of cash
for operating activities.
As of September 30, 2021, we had marketable securities held in the Trust Account
of $345,023,401 (including approximately $23,401 of 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.


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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 SCALE
Units at a price of $10.00 per 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.

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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 $0.35 per SCALE Unit, or
$12,075,000 in 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
America requires 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's rules 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.

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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.

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