References in this report (the "Quarterly Report") to "we," "us" or the "Company" refer toNightDragon Acquisition Corp. References to our "management" or our "management team" refer to our officers and directors, and references to the "Sponsor" refer toNightDragon 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 an appropriate target business or businesses;
• 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 discussed in the forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might 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. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments.
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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. Overview We are a blank check company incorporated under the laws of theState of Delaware onDecember 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 fromDecember 8, 2020 (inception) throughJune 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 endedJune 30, 2021 , we had a net income of$595,944 which consists of operating and formation costs of$414,731 , offset by the change in fair value of warrant liability of$998,154 and interest earned on marketable securities held in the Trust Account of$12,521 . For the six months endedJune 30, 2021 , we had a net loss of$737,360 , which consists of operating and formation costs of$535,966 , transaction costs associated with the Initial Public Offering of$579,585 and compensation expense of$30,861 , offset by the change in fair value of warrant liability of$390,090 and interest earned on marketable securities held in the Trust Account of$18,962 . Liquidity and Capital Resources OnMarch 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 toNightDragon 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 six months endedJune 30, 2021 , cash used in operating activities was$1,809,974 . Net loss of$737,360 was affected by change (non-cash gain) in fair value of warrant liability of ($390,090 ), 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$18,962 . Changes in operating assets and liabilities used$1,274,008 of cash for operating activities. As ofJune 30, 2021 , we had marketable securities held in the Trust Account of$345,018,962 (including approximately$18,962 of interest income) consisting ofU.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. ThroughJune 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 ofJune 30, 2021 , we had cash of$1,454,809 . 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. 16
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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$1,500,000 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. 17
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Table of Contents Off-Balance Sheet Arrangements We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as ofJune 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 inthe 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 statement 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 Loss Per Common Share We apply the two-class method in calculating earnings per share. Net income (loss) per common share, basic and diluted for Class A common stock subject to possible redemption is calculated by dividing the interest income earned on the Trust Account, net of applicable taxes, if any, by the weighted average number of shares of Class A common stock subject to possible redemption outstanding for the period. Net income (loss) per common share, basic and diluted for and non-redeemable common stock is calculated by dividing net loss less income attributable to Class A common stock subject to possible redemption, by the weighted average number of shares of non-redeemable common stock outstanding for the period presented. 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 theSEC'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. 18
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Table of Contents OnApril 12, 2021 , the Acting Director of theDivision of Corporation Finance and Acting Chief Accountant of theSEC together issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled "Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies ("SPACs")" (the "SEC Statement"). Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar to those contained in the warrant agreement governing our warrants. As a result of the SEC Statement, we reevaluated the accounting treatment of our Public Warrants and our Private Placement Warrants, and determined to classify the warrants as derivative liabilities measured at fair value, with changes in fair value each period reported in earnings. Further, the Company corrected certain line items related to the previously audited balance sheet as ofMarch 4, 2021 in the Form 8-K filed with theSEC onMarch 10, 2021 related to misstatements identified in improperly applying accounting guidance on certain warrants, recognizing them as components of equity instead of a derivative liability. These corrections are described in Note 2, Restatement of Previously Issued Financial Statement, of the financial statements in our Form 10-Q filed with theSEC onJune 11, 2021 . Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter endedJune 30, 2021 , as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that during the period covered by this report, our disclosure controls and procedures were not effective, due solely to the material weakness in our internal control over financial reporting with respect to our accounting for our warrants as described above. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance withU.S. generally accepted accounting principles. Notwithstanding the material weakness, management has concluded that the financial statements included elsewhere in this Quarterly Report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP. Changes in Internal Control over Financial Reporting Other than as described below, there was no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In light of the material weakness, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among 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 assurance that these initiatives will ultimately have the intended effects.
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