SEC Filing | ZeroFox, Inc.

ZEROFOX HOLDINGS, INC.

Date: September 12, 2022

/s/ Timothy S. Bender

Name: Timothy S. Bender

Title: Chief Financial Officer

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8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 3, 2022

ZEROFOX HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware	001-39722	98-1557361
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1834 S. Charles Street

Baltimore, Maryland

21230

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (855) 936-9369

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.0001 par value per share	ZFOX	The Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $11.50 per share	ZFOXW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

EXPLANTORY NOTE

This Amendment No. 1 on Form 8-K (“Amendment No. 1”) amends the Current Report on Form 8-K of ZeroFox Holdings, Inc., a Delaware corporation (the “Company”), filed on August 9, 2022 (the “Original Report”), in which the Company reported, among other events, the completion of the Business Combination (as defined in the Original Report).

The Company is filing this Amendment No. 1 to include the following:

Unaudited condensed consolidated financial statements of ZeroFox, Inc., a Delaware corporation, as of July 31, 2022, and for the six months ended July 31, 2022 and 2021, as Exhibit 99.1;

Management’s discussion and analysis of financial condition and results of operations for ZeroFox, Inc. for the six months ended July 31, 2022, as Exhibit 99.2; and

Unaudited pro forma condensed combined financial information as of and for the six months ended July 31, 2022, and the year ended January 31, 2022, as Exhibit 99.3.

This Amendment No. 1 does not amend any other item of the Original Report or purport to provide an update or a discussion of any developments at the Company or its subsidiaries subsequent to the filing date of the Original Report. The information previously reported or incorporated by reference in or filed with the Original Report is hereby incorporated by reference in this Amendment No. 1. Capitalized terms used but not defined herein have the meanings assigned to them in the Original Report.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The unaudited condensed consolidated financial statements of ZeroFox, Inc., a Delaware corporation, as of July 31, 2022, and for the six months ended July 31, 2022 and 2021 are attached as Exhibit 99.1 and are incorporated herein by reference.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined financial information as of and for the six months ended July 31, 2022, and for the year ended January 31, 2022, is set forth on Exhibit 99.3 hereto and is incorporated herein by reference.

(d) Exhibits.


Exhibit No.		Description

99.1		Unaudited condensed consolidated financial statements of ZeroFox, Inc. as of July 31, 2022, and for the six months ended July 31, 2022, and 2021.

99.2		Management’s discussion and analysis of financial condition and results of operations of ZeroFox, Inc. for the six months ended July 31, 2022.

99.3		Unaudited pro forma financial information as of and for the six months ended July 31, 2022, and the year ended January 31, 2022.

104		Cover Page Interactive Data File (formatted as Inline XBRL)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

EX-99.1

Exhibit 99.1

ZeroFox, Inc. and Subsidiaries

Condensed Consolidated Financial Statements as of July 31, 2022 and for the six months ended July 31, 2022 and 2021

ZeroFox, Inc. and Subsidiaries

TABLE OF CONTENTS


	Page
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Condensed Consolidated Balance Sheets as of July 31, 2022 and January 31, 2022		1

Condensed Consolidated Statements of Comprehensive Loss for the six months ended July 31, 2022 and 2021		2

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit as of July 31, 2022 and 2021		3

Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2022 and 2021		4

Notes to Condensed Consolidated Financial Statements		6

ZeroFox, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


	July 31,		January 31,
(in thousands, except share data)	2022		2022
Assets
Current assets:
Cash and cash equivalents	$	2,803	$	10,274
Accounts receivable, net of allowance for doubtful accounts of $61 and $68, respectively		14,210		17,046
Deferred contract acquisition costs, current		4,918		4,174
Prepaid expenses and other assets		2,859		1,276

Total current assets		24,790		32,770
Property and equipment, net of accumulated depreciation of $2,174 and $2,022, respectively		609		694
Capitalized software, net of accumulated amortization of $3,972 and $3,657, respectively		1,082		914
Deferred contract acquisition costs, net of current portion		6,854		7,481
Acquired intangible assets - net of accumulated amortization of $5,519 and $3,940, respectively		12,631		14,210
Goodwill		35,002		35,002
Other assets		341		319

Total assets	$	81,309	$	91,390


Liabilities, redeemable convertible preferred stock, and stockholders’ deficit
Current liabilities:
Accounts payable	$	4,333	$	4,276
Accrued compensation, accrued expenses, and other current liabilities		4,302		7,020
Current portion of long-term debt		6,094		5,970
Deferred revenue, current		36,019		29,532

Total current liabilities		50,748		46,798
Deferred revenue—net of current portion		6,326		9,299
Long term debt—net of deferred financing costs of $1,866 and $1,627, respectively		52,327		45,503
Warrants		7,387		10,709

Total liabilities		116,788		112,309

Commitments and contingencies

Redeemable convertible preferred stock		138,129		132,229

Stockholders’ deficit
Common stock, $0.00001 par value; 319,462,878 authorized shares; 43,285,001 and 42,892,897 shares issued and outstanding, respectively		—		—
Additional paid-in capital		4,829		3,873
Accumulated deficit		(178,278)		(156,820)
Accumulated other comprehensive loss		(159)		(201)

Total stockholders’ deficit		(173,608)		(153,148)

Total liabilities, redeemable convertible preferred stock, and stockholders’ deficit	$	81,309	$	91,390

See notes to condensed consolidated financial statements

ZeroFox, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)


	For the Six Months Ended July 31,
(in thousands, except share data)	2022		2021
Revenue	$	28,743	$	22,690

Cost of revenue		8,729		7,733

Gross profit		20,014		14,957

Operating expenses
Research and development		8,023		5,457
Sales and marketing		18,363		14,044
General and administrative		9,985		5,870

Total operating expenses		36,371		25,371

Loss from operations		(16,357)		(10,414)

Other (expense) income
Interest expense, net		(2,931)		(1,512)
Change in fair value of warrant liability		(2,059)		(5,320)

Total other expense		(4,990)		(6,832)

Loss before income taxes		(21,347)		(17,246)

Income taxes		111		56

Net loss after tax	$	(21,458)	$	(17,302)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.50)	$	(0.41)

Weighted-average shares used in computation of net loss per share attributable to common stockholders, basic and diluted:		43,038,331		41,953,610

Other comprehensive income (loss)
Foreign currency translation		42		(49)

Total other comprehensive income (loss)		42		(49)

Total comprehensive loss	$	(21,416)	$	(17,351)

See notes to condensed consolidated financial statements

ZeroFox, Inc. and Subsidiaries

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit (Unaudited)


	Redeemable Convertible Preferred Stock																																										Accumulated Other Comprehensive Income
(in thousands, except for share data)	Series E Redeemable Convertible Preferred Stock				Series D-2 Redeemable Convertible Preferred Stock				Series D-1 Redeemable Convertible Preferred Stock				Series D Redeemable Convertible Preferred Stock				Series C-1 Redeemable Convertible Preferred Stock				Series C Redeemable Convertible Preferred Stock				Series B Redeemable Convertible Preferred Stock				Series A Redeemable Convertible Preferred Stock				Series Seed Redeemable Convertible Preferred Stock				Total Redeemable Convertible Preferred Stock				Common Stock					Additional Paid-in Capital		Accumulated Deficit			Stockholders’ Deficit
Balance—January 31, 2021		12,006,090		25,409		993,868		1,451		5,878,303		8,171		13,871,547		21,067		11,376,115		13,979		21,124,699		19,899		26,914,949		22,047		15,997,285		10,159		9,198,372		2,208		117,361,228		124,390			Accumulated Other Comprehensive Income		41,904,944		—		2,975			(118,381	)		(123	)	(115,529	)

Issuance of Series E convertible preferred stock		3,221,347		7,839		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		3,221,347		7,839		—			—		—		—			—			—
Stock-based compensation expense		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—			—		320		—			—			320
Exercise of options		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		103,108			—		22		—			—			22
Net loss		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—			—		—		(17,302	)		—			(17,302	)
Foreign currency translation adjustment		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—			—		—		—			(48	)		(48	)

Balance—July 31, 2021		15,227,437	$	33,248		993,868	$	1,451		5,878,303	$	8,171		13,871,547	$	21,067		11,376,115	$	13,979		21,124,699	$	19,899		26,914,949	$	22,047		15,997,285	$	10,159		9,198,372	$	2,208		120,582,575	$	132,229		42,008,052		$	—	$	3,317	$	(135,683	)	$	(171	)	$	(132,537	)


Balance—January 31, 2022		15,227,437		33,248		993,868		1,451		5,878,303		8,171		13,871,547		21,067		11,376,115		13,979		21,124,699		19,899		26,914,949		22,047		15,997,285		10,159		9,198,372		2,208		120,582,575		132,229		42,892,927			—		3,873		(156,820	)		(201	)		(153,148	)

Exercise of warrants		539,576		3,043		—		—		—		—		—		—		506,490		2,857		—		—		—		—		—		—		—		—		1,046,066		5,900
Stock-based compensation expense		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—			—		852		—			—			852
Exercise of options		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		392,074			—		104		—			—			104
Net loss		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—			—		—		(21,458	)		—			(21,458	)
Foreign currency translation adjustment		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—			—		—		—			42			42

Balance—July 31, 2022		15,767,013	$	36,291		993,868	$	1,451		5,878,303	$	8,171		13,871,547	$	21,067		11,882,605	$	16,836		21,124,699	$	19,899		26,914,949	$	22,047		15,997,285	$	10,159		9,198,372	$	2,208		121,628,641	$	138,129		43,285,001		$	—	$	4,829	$	(178,278	)	$	(159	)	$	(173,608	)

See notes to condensed consolidated financial statements

ZeroFox, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)


	For the Six Months Ended July 31,
(in thousands)	2022		2021
Cash flows from operating activities:
Net loss	$	(21,458)	$	(17,301)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		317		236
Amortization of software development costs		315		289
Amortization of acquired intangible assets		1,579		1,444
Stock-based compensation and consulting expense		852		320
Provision for bad debts		(7)		10
Change in fair value of warrants		2,059		5,320
Change in fair value of contingent consideration		—		(32)
Noncash interest expense		523		197
Changes in operating assets and liabilities:
Accounts receivable		2,844		1,991
Deferred contract acquisition costs		(117)		461
Prepaid expenses and other assets		(1,583)		(1,181)
Accounts payable, accrued compensation, accrued expenses, and other current liabilities		(2,660)		(356)
Deferred revenue		3,514		77
Other liabilities		(22)		—

Net cash used in operating activities		(13,844)		(8,525)

Cash flows from investing activities:
Business acquisition		—		(4,270)
Purchases of property and equipment		(245)		(322)
Capitalized software		(483)		(353)

Net cash used in investing activities		(728)		(4,945)

Cash flows from financing activities:
Exercise of stock options		104		21
Proceeds from issuance of debt, net of issuance costs paid in cash of $88 and $36, for the six months ended July 31, 2022 and 2021, respectively		7,412		4,964
Repayment of debt		(469)		—

Net cash provided by financing activities		7,047		4,985

Foreign exchange translation adjustment		54		(45)

Net change in cash, cash equivalents, and restricted cash		(7,471)		(8,530)
Cash, cash equivalents, and restricted cash at beginning of year		10,374		13,864

Cash, cash equivalents, and restricted cash at end of year	$	2,903	$	5,334


Supplemental Cash Flow Information:
Cash paid for interest	$	2,266	$	1,235
Cash paid for income taxes		50		29

Non-cash investing and financing activities:
Exercise of warrants	$	5,900	$	—
Issuance of warrants along with issuance of debt		519		—
Issuance of redeemable convertible preferred stock in connection with acquisition		—		7,839

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows.


	July 31, 2022		July 31, 2021
Cash and cash equivalents	$	2,803	$	5,234
Restricted cash included in other assets		100		100

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	2,903	$	5,334

See notes to condensed consolidated financial statements

ZEROFOX, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.	ORGANIZATION AND DESCRIPTION OF BUSINESS

The accompanying condensed consolidated financial statements include the assets, liabilities, revenues, expenses, and cash flows of ZeroFox, Inc., ZeroFox’s, Inc.’s subsidiaries, and the acquired sets of assets and activities obtained by ZeroFox, Inc. that are accounted for as business combinations (collectively, the “Company”) under accounting principles generally accepted in the United States of America (US GAAP).

The Company provides digital risk protection services and safeguards modern organizations from dynamic security risks across social, mobile, surface, deep web, dark web, email, and collaboration platforms. Using diverse data sources and artificial intelligence-based analysis, the ZeroFox platform identifies and remediates targeted phishing attacks, credential compromise, data exfiltration, brand hijacking, executive and location threats, and more. The patented ZeroFox Software as a Service (“SaaS”) technology processes and protects electronic posts, messages, and accounts daily across the social and digital landscape, spanning social media platforms, mobile app stores, the deep web, dark web, domains, and more. The Company offers its services on a subscription basis.

On December 17, 2021, the Company entered into a business combination agreement (the “Business Combination Agreement”) with L&F Acquisition Corp. (“L&F”), which was a Special Purpose Acquisition Company (a “SPAC”), and ID Experts Holdings, Inc. (“IDX”). Pursuant to the Business Combination Agreement, ZeroFox became a wholly-owned subsidiary of L&F (the “Business Combination”).

On August 3, 2022, the Business Combination, as contemplated in the Business Combination Agreement with L&F and IDX, was completed (See Note 10). In connection with the Business Combination, L&F renamed itself ZeroFox Holdings, Inc. (“New ZeroFox”)

Segment Information—Operating segments are defined as components of an enterprise for which discrete financial information is made available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The CODM is the Company’s chief executive officer. The CODM views the Company’s operations and manages its activities as a single operating segment, which is the business of providing cybersecurity intelligence, analytics, and protection services to its customers. The Company’s assets are primarily located in the United States.

Liquidity and Going Concern—For the six months ended July 31, 2022 and 2021, the Company incurred net losses of $21.5 million and $17.3 million, respectively, and incurred negative cash flows from operating activities of $13.8 million and $8.6 million, respectively. The Company has incurred operating losses since inception and continues to face significant risks associated with successful execution of the Company’s business plan that include, but are not limited to, customer acquisition, competition, market risk, and liquidity risk. The Company has historically funded its operations through the issuance of redeemable convertible preferred stock (see Note 2) and debt (see Note 5). The Company evaluated its financial condition as of July 31, 2022 and determined it is probable that, without consideration of a remediation plan to refinance or renegotiate existing debt facilities, raise new sources of capital, or completion of the Business Combination with L&F, the Company would be unable to meet working capital shortfalls in the next twelve months from the date the condensed consolidated financial statements are available to be issued, and there is substantial doubt about the Company’s ability to continue as a going concern.

On August 3, 2022, the Business Combination, as contemplated in the Business Combination Agreement with L&F and IDX, was consummated resulting in the Company becoming a wholly-owned subsidiary of L&F.

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business and does not include any adjustments to reflect the outcome of this uncertainty.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The accompanying condensed consolidated financial statements have been prepared in accordance with US GAAP as set forth by the Financial Accounting Standards Board (FASB). References to US GAAP issued by the FASB in these notes to the consolidated financial statements are to the FASB Accounting Standards Codifications (“ASC”).

Unaudited Interim Financial Information— The interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained herein comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are adequate to make the information presented not misleading. The interim condensed financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the balance sheet, comprehensive loss, and cash flows for the interim periods presented. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended January 31, 2022, incorporated by reference in this current report. The condensed consolidated statement of comprehensive loss for the six months ended July 31, 2022 is not necessarily indicative of the results to be anticipated for the entire year ending January 31, 2023, or thereafter. All references to July 31, 2022 and 2021 in the notes to condensed consolidated financial statements are unaudited.

Emerging Growth Company Status—The Company is an “emerging growth company,” (“EGC”) as defined in the Jumpstart Our Business Startups Act, (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards. As a result of this election, the Company’s financial statements may not be comparable to companies that comply with public company Financial Accounting Standards Board (“FASB”) standards’ effective dates.

The Company completed its merger with L&F on August 3, 2022. The Company will be considered a variable interest entity (“VIE”) with L&F as the primary beneficiary of the VIE. Accordingly, the Business Combination will be accounted for as a forward merger of the Company by and into L&F. Refer to Note 10 for more information regarding the Business Combination. The surviving company will remain an emerging growth company until the earliest of (i) the last day of the Company’s first fiscal year following the fifth anniversary of the completion of L&F’s initial public offering, (ii) the last day of the fiscal year in which the Company has total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which the Company is deemed to be a large accelerated filer, which means the market value of the Company’s common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th or, (iv) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

Principles of Consolidation—The accompanying condensed consolidated financial statements include the accounts of ZeroFox and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates—The preparation of the accompanying condensed consolidated financial statements in conformity with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities within these condensed consolidated financial statements. Significant estimates and judgments include but are not limited to: (1) revenue recognition, (2) capitalization of internally developed software costs, (3) forecasts and assumptions used in determining the fair value of stock-based compensation, (4) valuation of assets acquired and liabilities assumed in business combinations, (5) useful lives of contract acquisition costs, (6) warrant valuation, (7) valuation of the Company’s stock, and (8) valuation allowances associated with deferred tax assets. Management bases its estimates and assumptions on historical experience, expectations, forecasts, and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ results of prior periods.

Revenue Recognition—The Company derives its revenue from providing its customers with subscription access to the Company’s enterprise cloud platform (“subscription revenue”) and from professional services (“professional services revenue”).

The Company generates cloud-based subscription revenue primarily from sales of subscriptions to access the ZeroFox cloud platform, together with related support and intelligence services to customers. These arrangements do not provide the customer with the right to take possession of the Company’s software operating on its cloud platform at any time. These arrangements represent a combined, stand-ready performance obligation to provide access to the software together with related support and intelligence services. Customers are granted continuous access to the Company’s cloud platform over the contractual period. Revenue is recognized over time on a ratable basis over the contract term beginning on the date that the Company’s service is made available to the customer. The Company’s cloud-based subscription contracts generally have terms of one to three years, which are billed in advance and are noncancelable.

The Company offers several types of professional services, including security advisory and training services. All of the Company’s professional services are considered distinct performance obligations from the cloud-based subscriptions services within the context of the Company’s contracts. Revenue is recognized over time when the customers benefit from the services as performed or as control of the promised services is transferred to the customer, as this reflects the pattern of transfer for these professional services. These contracts are most often fixed fee arrangements and less frequently arrangements that are billed at hourly rates. These contracts normally have terms of one year or less.

Subscription revenue was 96% and 95% of total revenue for the six months ended July 31, 2022 and 2021, respectively.

Reseller Arrangements— The Company enters into arrangements with third parties that allow those parties to resell the Company’s services to end users. The partners negotiate pricing with the end customer and the Company does not have visibility into the price paid by the end customer. For these arrangements, revenue is recognized at the amount charged to the reseller and does not reflect any mark-up to the end user.

As of July 31, 2022, the Company has approximately $57.4 million of revenue that is expected to be recognized from remaining performance obligations that are unsatisfied (or partially unsatisfied) under non-cancelable contracts. Of this $57.4 million, the Company expects to recognize revenue of approximately $42.1 million in the period August 2022 through July 2023, approximately $11.4 million in the period August 2023 through July 2024, and approximately $3.9 million thereafter.

Disaggregation of Revenue — The table below provides revenues earned by line of service for the six months ended July 31, 2022 and 2021 (in thousands).


Revenue Line	2022		2021
Subscription revenue	$	27,468	$	21,556
Professional services		1,275		1,134

Total	$	28,743	$	22,690

The table below provides revenues earned based on geographic locations of our customers for the six months ended July 31, 2022 and 2021 (in thousands).


Country	2022		2021
United States	$	21,557	$	17,251
Other		7,186		5,439

Total	$	28,743	$	22,690

Goodwill and Intangible Assets– Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed when a business is acquired. The valuation of intangible assets and goodwill involves the use of management’s estimates and assumptions and can have a significant impact on future operating results. The Company initially records its intangible assets at fair value. Intangible assets with finite lives are amortized over their estimated useful lives while goodwill is not amortized but is evaluated for impairment at least annually. Goodwill is evaluated for impairment beginning on November 1 of each year or when an assessment of qualitative factors indicates an impairment may have occured. The quantitative assessment includes an analysis that compares the fair value of a reporting unit to its carrying value including goodwill recorded by the reporting unit.

The Company has a single reporting unit. Accordingly, the impairment assessment for goodwill is performed at the enterprise level. Goodwill is reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. The Company initially assesses qualitative factors to determine if it is necessary to perform the goodwill impairment review. Goodwill is reviewed for impairment if, based on an assessment of the qualitative factors, it is determined that it is more likely than not that the fair value of the reporting unit is less than its carrying value, or the Company decides to bypass the qualitative assessment. The carrying value of the reporting unit is reviewed utilizing a combination of the discounted cash flow model and a market value approach. The estimated fair value of a reporting unit is determined based on assumptions regarding estimated future cash flows, discount rates, long-term growth rates, and market values. Additionally, the Company considers income tax effects from any tax-deductible goodwill (if applicable) on the carrying amount of the reporting unit when measuring the goodwill impairment loss.

The Company monitors for events and circumstances that could negatively impact the key assumptions in determining fair value, including long-term growth projections, profitability, discount rates, volatility in the Company’s market capitalization, general industry, and market and macro-economic conditions. It is possible that future changes in such circumstances, or in the variables associated with the judgments, assumptions, and estimates used in assessing the fair value of the reporting unit would require the Company to record a non-cash impairment charge.

The Company completed its annual assessment on November 30, 2021, and there was no impairment of goodwill at the assessment date. There were no events or circumstances that occurred during the six month period ended July 31, 2022, and through the date these condensed consolidated financial statements were available to be issued, that indicated that goodwill might be impaired.

Fair Value of Financial Instruments—ASC 820-10, Fair Value Measurements and Disclosures: Overall, defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and expands required disclosures about fair value measurements. The fair value of an asset and liability is defined as an exit price and represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value, is as follows:

Level 1—Inputs are quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities or quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company’s assessment of the significance of an input to the fair value measurement requires judgment and may affect the valuation of the asset or liability being measured and its placement within the fair value hierarchy. The Company effectuates transfers between levels of the fair value hierarchy, if any, as of the date of the actual circumstance that caused the transfer.

Certain assets and liabilities, including goodwill and intangible assets, are subject to measurement at fair value on a non-recurring basis if there are indicators of impairment or if they are deemed to be impaired as a result of an impairment review.

As of July 31, 2022 and January 31, 2022, respectively, the Company had warrant liabilities measured based on Level 3 inputs. A summary of the changes in the fair value of warrants for the six months ended July 31, 2022 and 2021, respectively, is as follows (in thousands):


Warrant liability - January 31, 2021	$	2,806
Issuance of warrants		—
Loss due to change in fair value of warrants		5,320

Warrant liability - July 31, 2021	$	8,126


Warrant liability - January 31, 2022	$	10,709
Issuance of warrants		519
Exercise of warrants		(5,900	)
Loss due to change in fair value of warrants		2,059

Warrant liability - July 31, 2022	$	7,387

The assumptions used to value the warrants are described in Note 6.

The carrying amounts of accounts receivable, accounts payable, accrued expenses, and debt approximate fair value because of the short maturity terms of these instruments.

Contingent consideration liabilities related to acquisitions are measured at fair value each reporting period using Level 3 unobservable inputs. The Company’s estimates of fair value are based on assumptions believed to be reasonable, but which are uncertain and involve significant judgments by management. Any changes in the fair value of these contingent consideration liabilities are included in general and administrative expenses in the consolidated statements of comprehensive loss. There were no changes in fair value of contingent consideration during the six months ended July 31, 2022, as the contingent consideration liability was settled as of July 31, 2021. A summary of the changes in fair value of contingent consideration for the six months ended July 31, 2021 is as follows (in thousands):


Balance as of January 31, 2021	$	7,871
Gain recognized in the consolidated statement of comprehensive loss		(32	)
Issuance of redeemable convertible preferred stock		(7,839	)

Balance as of July 31, 2021	$	—

Transaction Fees—Transaction fees and expenses associated with the Business Combination are being accounted for under the assumption of a forward merger transaction and being expensed as incurred. Accordingly, the Company has recorded approximately $3.2 million and $1.4 million of professional and other transaction fees related to the Business Combination in general and administrative expenses in the Condensed Consolidated Statement of Comprehensive Loss for the six months ended July 31, 2022 and 2021, respectively.

Net Loss Per Share Attributable to Common Stockholders— Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common stock. For the purposes of this calculation, outstanding stock options, unvested restricted stock, stock warrants, and redeemable convertible preferred stock are considered potential dilutive common stock and are excluded from the computation of net loss per share as their effect is anti-dilutive.

The following table set forth computation of basic loss per share attributable to common stockholders (in thousands, except share and per share data):


	Six Months Ended July 31,
	2022			2021
Numerator:
Net loss	$	(21,458	)	$	(17,302	)

Net loss per share attributable to common stockholders	$	(21,458	)	$	(17,302	)

Denominator:
Weighted-average common stock outstanding		43,038,331			41,953,610

Net loss per share attributable to common stockholders - basic and diluted	$	(0.50	)	$	(0.41	)

The Company’s redeemable convertible preferred stock and restricted common stock contractually entitle the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to be outstanding if their effect is anti-dilutive. The following is a summary of the weighted average common stock equivalents for the securities outstanding during the period the respective periods that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive:


	Six Months Ended July 31,
	2022		2021
Preferred stock, all series (on an as-converted basis)		241,205,423		239,186,969
Common stock options outstanding		22,177,042		19,852,162
Warrants to purchase preferred stock, all series		5,840,764		5,267,696

		269,223,229		264,306,827

Redeemable convertible preferred stock—The Series Preferred is not mandatorily redeemable. The Series Preferred is contingently redeemable upon the occurrence of a deemed liquidation event and a majority vote of the holders of Series Preferred and Series Seed to redeem all outstanding shares of the Company’s redeemable convertible preferred stock. The contingent redemption upon the occurrence of a deemed liquidation is not within the Company’s control and therefore the Series Preferred is classified outside of permanent equity in mezzanine equity on the Company’s condensed consolidated balance sheets.

The redeemable convertible preferred stock was automatically converted into common stock immediately prior to the closing of the Business Combination and then converted into shares of New ZeroFox common stock.

Liquidation Rights—In the event of any liquidation or dissolution of the Company (“Liquidation Event”), the holders of common stock are entitled to the remaining assets of the Company legally available for distribution after the payment of the full liquidation preference for all series of outstanding redeemable convertible preferred stock (“Preferred Stock”).

The Company’s redeemable convertible preferred stock consists of (in thousands except share data):


	July 31, 2022				January 31, 2022
	Shares Issued and Outstanding		Amount		Shares Issued and Outstanding		Amount
Convertible preferred stock—Series E, $0.00001 par value—authorized 19,033,653 shares; (liquidation preference $28,354,249)		15,767,013	$	36,291		15,227,437	$	33,248
Convertible preferred stock—Series D, $0.00001 par value—authorized 14,833,942 shares; (liquidation preference $21,222,496)		13,871,547	$	21,067		13,871,547	$	21,067
Convertible preferred stock—Series D-2, $0.00001 par value—authorized 993,868 shares (liquidation preference $1,216,439)		993,868	$	1,451		993,868	$	1,451
Convertible preferred stock—Series D-1, $0.00001 par value—authorized shares 5,878,303 (liquidation preference $8,094,053)		5,878,303	$	8,171		5,878,303	$	8,171
Convertible preferred stock—Series C-1, $0.00001 par value—authorized 16,208,756 shares (liquidation preference $14,037,000)		11,882,605	$	16,836		11,376,115	$	13,979
Convertible preferred stock—Series C, $0.00001 par value—authorized 21,124,700 shares (liquidation preference $19,999,999)		21,124,699	$	19,899		21,124,699	$	19,899
Convertible preferred stock—Series B, $0.00001 par value—authorized 26,914,949 shares (liquidation preference $22,124,088)		26,914,949	$	22,047		26,914,949	$	22,047
Convertible preferred stock—Series A, $0.00001 par value—authorized 16,122,188 shares (liquidation preference $10,246,261)		15,997,285	$	10,159		15,997,285	$	10,159
Convertible preferred stock—Series seed, $0.00001 par value—authorized 9,198,372 shares (liquidation preference $2,285,795)		9,198,372	$	2,208		9,198,372	$	2,208

		121,628,641	$	138,129		120,582,575	$	132,229

Standards Issued and Adopted—In October 2021, the FASB issued ASU No. 2021-08, Accounting Standards Update No. 2021-08—Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. As a result of the amendments, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its preacquisition financial statements. The standard is effective for the Company for annual reporting periods beginning after December 15, 2022, and early adoption is permitted. The Company elected to early adopt ASU No. 2021-08 for fiscal year 2023. There was no impact to the Company’s condensed consolidated financial statements for the six months ended July 31, 2022.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by

clarifying and amending existing guidance. The standard is effective for the Company for annual reporting periods beginning after December 15, 2021, and early adoption is permitted. The Company adopted ASU No. 2019-12 for fiscal year 2023. There was no impact on its condensed consolidated financial statements for the six months ended July 31, 2022.

Standards Issued, but Not Yet Effective—In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance is intended to improve financial reporting about leasing transactions. This ASU affects all companies and other organizations that lease assets. Under Topic 842, the critical determination is whether a contract is or contains a lease because lessees are required to recognize lease assets and lease liabilities for all leases—finance and operating—other than short-term leases. The standard is effective for the Company for annual reporting periods beginning after December 15, 2021, and early adoption is permitted. The Company is currently in the planning stage and will adopt the guidance for the financial statements for the year ending January 31, 2023. Upon adoption, the Company will be required to report operating leases on its consolidated balance sheet for the first time. The Company has begun its adoption efforts, but cannot reasonably estimate the impact to its condensed consolidated financial statements for the year ending January 31, 2023.

In June 2016 the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which amends the accounting for credit losses for most financial assets and certain other instruments. The standard requires that entities holding financial assets that are not accounted for at fair value through net income be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The standard is effective for the Company for annual reporting periods beginning in fiscal year 2024. The Company believes the adoption will not have a material impact on its condensed consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Accounting Standards Update No. 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require bifurcation and recognition as derivatives. Additionally, ASU 2020-06 requires the application of the if-converted method for all convertible instruments in the diluted earnings per share calculation and the inclusion of the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. The amendments in this ASU are effective for all public entities for fiscal years beginning after December 15, 2021. For all other entities, including ZeroFox, the amendments are effective for fiscal years beginning after December 15, 2023. Accordingly, the Company is planning to adopt the guidance of ASU No. 2020-06 in the year ending January 31, 2024. Or, after successful completion of the Business Combination (see Note 10) the combined, public company will adopt ASU No. 2020-06 for the year ending January 31, 2023. The Company is in the process of evaluating the guidance and the impact it will have on its condensed consolidated financial statements.

3.	FAIR VALUE MEASUREMENTS

The following table sets forth by level, within the fair value hierarchy, the assets/(liabilities) carried at fair value (in thousands):


	Fair value measurements at July 31, 2022 using:
	Level 1		Level 2		Level 3			Total
Liabilities:
Warrant liabilities	$	—	$	—	$	(7,387	)	$	(7,387	)

Total financial liabilities	$	—	$	—	$	(7,387	)	$	(7,387	)

The following table sets forth by level, within the fair value hierarchy, the assets (liabilities) carried at fair value (in thousands):


	Fair value measurements at January 31, 2022 using:
	Level 1		Level 2		Level 3			Total
Liabilities:
Warrant liabilities	$	—	$	—	$	(10,709	)	$	(10,709	)

Total financial liabilities	$	—	$	—	$	(10,709	)	$	(10,709	)

The assumptions used to value the warrants are described in Note 6.

The carrying amounts of accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity terms of these instruments.

4.	ACQUISITIONS

Cyveillance Acquisition — On September 30, 2020, the Company executed an asset purchase agreement with Lookingglass Cyber Solutions, Inc. (“Lookingglass”) and Cyveillance, Inc. (collectively, the “Sellers”) to acquire substantially all of the assets and to assume certain liabilities attributable to Lookingglass’ Cyveillance business unit (the “Cyveillance Acquisition”). The Cyveillance business unit is an intelligence-led cybersecurity solutions provider. The Cyveillance Acquisition allows the Company to further scale its digital risk protection services and expand its threat intelligence capabilities. The Cyveillance Acquisition has been accounted for as a business combination in accordance with ASC 805, Business Combinations. The Company estimated a fair value of the aggregate consideration transferred to effect the Cyveillance Acquisition of $39.2 million, of which $7.2 million was paid in cash, $17.0 million was comprised of 8,110,058 shares of Series E redeemable convertible preferred stock, and $15.0 million was comprised of 10,171,735 shares of Series E redeemable convertible preferred stock held in escrow as contingent consideration.

There was no remaining contingent consideration liability as of July 31, 2022, January 31, 2022, and July 31, 2021. During the six months ended July 31, 2021, the Company released 3,221,347 shares of Series E preferred shares with a fair value of $7.8 million.

DEBT

The tables below summarize key terms of the Company’s debt that was outstanding as of July 31, 2022 and January 31, 2022 (amounts in thousands, except for interest rates).


	As of July 31, 2022
Lender	Stated Interest Rate			Effective Interest Rate			Gross Balance		Unamortized Debt Discount		Unamortized Deferred Debt Issuance Costs		Discount on Note Payable		Net Carrying Value
Stifel Bank		4.50	%		6.50	%	$	15,000	$	71	$	426	$	—	$	14,503
Orix Growth Capital, LLC		10.00	%		11.87	%		37,500		382		987		—		36,131
InfoArmor		5.50	%		5.50	%		2,813		—		—		182		2,631
PIPE Investors		5.00	%		5.00	%		5,156		—		—		—		5,156

							$	60,469	$	453	$	1,413	$	182	$	58,421

										Current portion of long-term debt					$	6,094
										Long-term debt						52,327

															$	58,421


	As of January 31, 2022
Lender	Stated Interest Rate			Effective Interest Rate			Gross Balance		Unamortized Debt Discount		Unamortized Deferred Debt Issuance Costs		Discount on Note Payable		Net Carrying Value
Stifel Bank		4.50	%		6.50	%	$	15,000	$	96	$	574	$	—	$	14,330
Orix Growth Capital, LLC		10.00	%		12.13	%		30,000		349		608		—		29,043
InfoArmor		5.50	%		5.50	%		3,281		—		—		213		3,068
PIPE Investors		5.00	%		5.00	%		5,032		—		—		—		5,032

							$	53,313	$	445	$	1,182	$	213	$	51,473

										Current portion of long-term debt					$	5,970
										Long-term debt						45,503

															$	51,473

On February 10, 2022, the Company amended its loan and security agreement with Orix Growth Capital, LCC (Orix) and provided an additional $7.5 million in borrowing. From the amended loan and security agreement with Orix, in February 2022, the Company borrowed $7.5 million, from which it received approximately $7.4 million of proceeds net of issuance cost of $0.1 million, and issued 161,112 warrants to purchase Series E redeemable convertible preferred stock at an exercise price of $1.86205. As of July 31, 2022, the outstanding principal of the loan was $37.5 million.

The terms of the loan and security agreements with Stifel Bank and Orix include financial covenants whereby ZeroFox must be in compliance with the following: a) at any time, the ratio of Total Debt (as defined in the loan and security agreements) to Annual Recurring Revenue (“ARR”) (as defined in the loan and security agreements) shall not be more than 1.00:1.00, and b) the Company shall maintain a minimum ARR, which increases over time, as defined in the loan and security agreements, measured as of the last day of each quarter. The Company was in compliance with its financial covenants as of July 31, 2022.

6.	WARRANTS

The Company, in connection with several loan and security agreements, agreed to issue lenders warrants to purchase common shares, Series A preferred shares, Series B preferred shares, Series C-1 preferred shares, and Series E preferred shares.

In February 2022, along with the amendment to the loan and security agreement with Orix, the Company issued 161,112 warrants to purchase Series E redeemable convertible preferred stock at an exercise price of $1.86205.

On July 28, 2022, the holder of series C-1 warrants exercised their right to purchase redeemable convertible preferred shares. The holder elected to net exercise their warrants resulting in the issuance of 506,490 of series C-1 redeemable convertible preferred shares.

On July 29, 2022, a holder of series E warrants exercised their right to purchase redeemable convertible preferred shares. The holder elected to net exercise their warrants resulting in the issuance of 539,576 of series E redeemable convertible preferred shares.

The initial fair values of the Company’s warrants were determined using a Black-Scholes-Merton model. The assumptions used in estimating the fair values of the Company’s warrants at issuance are as follows:


	At Issuance
Assumptions	Series E Warrants			Series C-1 Warrants			Common Warrants			Series B Warrants			Series A Warrants
Initial Valuation Date:		February 10, 2022, December 8, 2021 & January 27, 2021			June 26, 2019			June 1, 2017			September 1, 2016			May 22, 2015
Exercise price of the warrant	$	1.86205		$	1.23390		$	0.20000		$	0.82200		$	0.64050
Expected term of the warrant (in years)		10.0			10.0			10.0			10.0			10.0
Price of the underlying share - stay private	$	2.20 - $3.79		$	1.25		$	0.20		$	0.82		$	0.74
Volatility		36.38% - 40.64	%		51.90	%		60.00	%		60.41	%		66.74	%
Risk-free rate		0.87% - 2.03	%		2.05	%		2.21	%		1.57	%		2.21	%

As a result of the potential Business Combination (see Note 10), the Company began utilizing a Probability-Weighted Expected Return Method (“PWERM”) to determining the fair value of the Company’s warrants. The Company utilized a PWERM relying on (1) a Black-Scholes model to value continued operations scenario where the Company remained a private entity and (2) a transaction scenario that reflected the Business Combination.

The assumptions used in estimating the fair values of the Company’s warrants as of July 31, 2022 are as follows:


	July 31, 2022
Assumptions	Series E Warrants		Common Warrants		Series B Warrants		Series A Warrants
Exercise price of the warrant	$	1.86205	$	0.20000	$	0.82200	$	0.64050
Price of the underlying share after conversion	$	5.64	$	2.82	$	5.64	$	5.64
Expected term of the warrant (in years)		0 - 9.4		0 - 4.8		0 - 4.1		0 - 2.8
Fair value	$	3.78	$	2.62	$	4.82	$	5.00
Number of warrants		268,521		1,924,790		146,341		124,903
Liability (in thousands)	$	1,015	$	5,043	$	705	$	624

The assumptions used in estimating the fair values of the Company’s warrants as of January 31, 2022 are as follows:


	January 31, 2022
Assumptions	Series E Warrants			Series C-1 Warrants			Common Warrants			Series B Warrants			Series A Warrants
Exercise price of the warrant	$	1.86205		$	1.23390		$	0.20000		$	0.82200		$	0.64050
Price of the underlying share - stay private	$	2.94		$	2.76		$	1.85		$	3.70		$	3.70
Volatility		36.71	%		36.95	%		38.11	%		39.30	%		44.69	%
Risk-free rate		1.78	%		1.77	%		1.64	%		1.57	%		1.42	%
Price of the underlying share after conversion	$	5.64		$	5.64		$	2.82		$	5.64		$	5.64
Expected term of the warrant (in years)		0.4 - 9.9			0.4 - 8.2			0.4 - 5.3			0.4 - 4.6			0.4 - 3.3
Fair value	$	3.20		$	3.71		$	2.21		$	4.05		$	4.21
Number of warrants		912,972			648,350			1,924,790			146,341			124,903
Liability (in thousands)	$	2,922		$	2,408		$	4,260		$	593		$	526

7.	STOCK-BASED COMPENSATION

On February 1, 2013, the Company adopted the 2013 Stock Plan (the “2013 Plan”). The 2013 Plan, as amended, provides for the issuance of up to 27,802,178 shares of common stock to employees, officers, directors, consultants, and advisors in the form of nonqualified and incentive stock options, unvested stock awards, and other stock-based awards. As of July 31, 2022, there were 230,471 shares of common stock available for issuance under the 2013 Plan.

Stock options are granted at exercise prices not less than the fair value of the stock at the date of grant. The Company determines fair value periodically through independent, third-party valuations based on historical financial information. Options generally vest over four years, with 25% vesting on the first anniversary date of the grant of the option and ratably over the remaining 36 months. Options expire 10 years from the date of grant. The Company intends to issue new shares to satisfy share options upon exercise.

The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option.

Expected Volatility—As the Company is privately held and there has been no public market for its common stock to date, the expected volatility is based on the average historical stock price volatility of comparable publicly-traded companies in its industry peer group, financial, and market capitalization data.

Expected Term— The expected term of the Company’s options represents the period that the stock-based awards are expected to be outstanding.

The Company has estimated the expected term of its employee awards using the SAB Topic 14 Simplified Method allowed by the FASB and SEC, for calculating expected term as it has limited historical exercise data to provide a reasonable basis upon which to otherwise estimate expected term. Certain of the Company’s options began vesting prior to the grant date, in which case the Company uses the remaining vesting term at the grant date in the expected term calculation.

Risk-Free Interest Rate— The Company estimates its risk-free interest rate by using the yield on actively traded non-inflation-indexed U.S. treasury securities with contract maturities equal to the expected term.

Dividend Yield— The Company has neither declared nor paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero.

Fair Value of Underlying Common Stock— Because the Company’s common stock is not yet publicly traded, the Company must estimate the fair value of common stock. The Board of Directors considers numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards are approved. The factors considered include, but are not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s Convertible Redeemable Preferred Stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the Company’s shares.

The Company used the following weighted-average assumptions to estimate the fair value of stock options:


	July 31,
Assumptions	2022			2021
Weighted-average risk-free rate		1.48	%		1.45	%
Weighted-average expected term of the option (in years)		6.07			5.99
Weighted-average expected volatility		38.92	%		37.84	%
Weighted-average dividend yield		0.00	%		0.00	%

A summary of option activity for the six months ended July 31, 2022, is as follows (Aggregate Intrinsic Value in thousands):


	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding as of February 1, 2022		21,715,815		$	0.4398		6.29	$	51,688
Granted		1,214,500		$	2.3920
Exercised		(392,450	)	$	0.2659
Cancelled		(251,159	)	$	1.4682

Outstanding as of July 31, 2022		22,286,706		$	0.5376		6.45	$	50,866

Vested as of July 31, 2022		14,784,495		$	0.2660		5.41	$	37,759

Vested and expected to vest as of July 31, 2022		19,660,894		$	0.4661		6.18	$	46,279

The weighted-average grant-date fair value of options granted during the six months ended July 31, 2022 and 2021 was $1.0000 and $0.5040, respectively. The total intrinsic value of options exercised during the six months ended July 31, 2022 and 2021 was $1.0 million and $0.2 million, respectively.

Unrecognized compensation cost related to option-based compensation arrangements granted under the Plan totaled $4.3 million as of July 31, 2022. The unrecognized compensation cost as of July 31, 2022 is expected to be recognized over a weighted-average remaining period of 2.91 years. The total fair value of the common stock options that vested during the six months ended July 31, 2022, was $0.6 million.

Stock-Based Compensation Expense—The Company recognized noncash stock-based compensation expense in the accompanying Condensed Consolidated Statements of Comprehensive Loss for the six months ended July 31, 2022 and 2021, which is as follows (in thousands):


	Six Months Ended July 31,
	2022		2021
Cost of revenue	$	20	$	14
Research and development		111		47
Sales and marketing		215		116
General and administrative		506		143

Total stock-based compensation expense	$	852	$	320

8.	RELATED PARTY TRANSACTIONS

The Company leases office space in Baltimore, Maryland. The lessor is owned and operated by the Company’s chief executive officer. ZeroFox incurred rent expense of $0.2 million during each of the six months ended July 31, 2022 and 2021. The Company capitalized no leasehold improvements during the six months ended July 31, 2022. The Company capitalized $0.01 million of leasehold improvements during the year ended January 31, 2022. As of July 31, 2022 and January 31, 2022, the Company had leasehold improvements of $0.2 million and $0.2 million, respectively, net of accumulated depreciation of $0.2 million and $0.2 million, respectively. As of July 31, 2022 and January 31, 2022, the Company did not have any prepaid rent. The lessor holds a $0.1 million security deposit that is refundable at the end of the lease term.

As part of the consideration for the Cyveillance Acquisition (see Note 4), the Company issued Series E redeemable convertible preferred stock to Lookingglass. As a result, Lookingglass is a related party of the Company. Effective September 30, 2020, as part of the Cyveillance Acquisition, the Company entered into a sublease agreement with Lookingglass for office space in Reston, Virginia. Under the sublease agreement, the Company incurred rent expense of $0.1 million and $0.1 million for the six months ended July 31, 2022 and 2021, respectively. The initial term of the sublease ended on July 31, 2022 and the Company elected not to renew. During the six months ended July 31, 2022 and the year ended January 31, 2022, the Company did not capitalize any leasehold improvements. As of July 31, 2022 and January 31, 2022, the Company did not have any balance of prepaid or accrued rent for the subleased premises. In addition to the sublease, in connection with the Cyveillance Acquisition, ZeroFox and Lookingglass entered into a transition support agreement. The agreement stipulated that ZeroFox would reimburse Lookingglass for services performed as part of the transition. ZeroFox did not incur expenses under the agreement for the six months ended July 31, 2022. ZeroFox incurred $0.3 million of expenses under the agreement for the six months ended July 31, 2021. As of July 31, 2022 ZeroFox had no accrued liability payable to Lookingglass. As of January 31, 2022, ZeroFox had an accrued liability of $0.2 million that was incurred as a result of the transition support agreement.

The Company accrued $0.1 million of payment-in-kind (PIK) interest for notes payable with related parties during the six months ended July 31, 2022.

9.	COMMITMENTS AND CONTINGENCIES

General Litigation—In the ordinary course of business, the Company is involved in various disputes. In the opinion of management, the amount of liability, if any, resulting from the final resolution of these matters will not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows. The Company was not involved in any pending litigation as of July 31, 2022.

Warranties and Indemnification—The Company’s enterprise cloud platform is typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and materially in accordance with the Company’s online help documentation under normal use and circumstances.

The Company’s arrangements generally include certain provisions for indemnifying customers against liabilities if its services infringe a third-party’s intellectual property rights. To date, the Company has not incurred any material costs because of such obligations and has not accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements.

The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.

Risks and Uncertainties— The impact of the coronavirus (COVID-19) pandemic, or similar global health concerns, could negatively impact the Company’s operations, suppliers or other vendors, and its customer base. As of the report date, management is not aware of any impacts from quarantines, labor shortages or other disruptions related to COVID-19 that would have a material adverse effect on the Company’s operations. The COVID-19 pandemic did not have a material impact on our financial results.

10.

SUBSEQUENT EVENTS

ZeroFox Merger with L&F Acquisition Corp.— On December 17, 2021, the Company entered into the Business Combination Agreement with L&F.

On August 3, 2022, as contemplated by the Business Combination Agreement, ZeroFox, Inc. became a wholly-owned subsidiary of L&F. In connection with the Business Combination, L&F then changed its name to ZeroFox Holdings, Inc. (“New ZeroFox”).

All shares of ZeroFox Common Stock issued and outstanding immediately before completion of the Business Combination were exchanged for an aggregate of 82,030,308 shares of New ZeroFox Common Stock based upon the exchange ratio of approximately 0.2863 (“the Exchange Ratio”). All outstanding options to purchase shares of ZeroFox Common Stock were assumed by New ZeroFox and converted into comparable options to purchase 6,380,458 shares of New ZeroFox Common Stock based upon the Exchange Ratio. All outstanding warrants to purchase ZeroFox Redeemable Convertible Preferred Stock Series A, B and E

and ZeroFox Common Stock were assumed by New ZeroFox and converted into warrants to purchase 860,064 shares of New ZeroFox Common Stock. For warrants to purchase shares of ZeroFox Redeemable Convertible Preferred Stock Series A, B and E, the conversion first considered the conversion ratio of shares of ZeroFox Redeemable Convertible Preferred Stock into shares of ZeroFox Common Stock of 1 to 2 and then applying the Exchange Ratio. The warrants to purchase shares of ZeroFox Common Stock were converted into warrants to purchase shares of New ZeroFox Common Stock by applying the Exchange Ratio. All conversion of warrants assumed a net exercise of the warrants using the treasury stock method and an estimated ZeroFox value per share of approximately $2.86. Subsequent to July 31, 2022, all outstanding warrants assumed by New ZeroFox were net exercised.

New ZeroFox is considered both the legal and accounting acquirer of ZeroFox and accordingly, New ZeroFox will account for the Business Combination as a forward merger of ZeroFox into New ZeroFox. New ZeroFox is considered the accounting acquirer as ZeroFox is deemed to not have sufficient equity at risk to finance its ongoing operations, after consideration of the amount of non-subordinated financial support ZeroFox received as part of the Business Combination. As ZeroFox is not considered to have sufficient equity at risk, it is considered a variable interest entity (a “VIE”). New ZeroFox is considered the primary beneficiary of ZeroFox as VIE since it owns 100% of the shares of ZeroFox following the completion of the Business Combination. New ZeroFox must therefore consolidate ZeroFox as a VIE.

New ZeroFox also acquired IDX as part of the Business Combination Agreement. However, as New ZeroFox is considered the accounting acquirer of ZeroFox, the acquisition of IDX by New ZeroFox is not within the scope of these financial statements.

On August 3, 2022, as a part of the Business Combination, all outstanding principal amounts owned under the loan and security agreement with Orix were repaid from the proceeds of the Business Combination with L&F and IDX. In addition to the repayment of the outstanding principal, the loan and security agreement with Orix required a prepayment penalty of 3% of the outstanding principal balance, or $1.1 million.

On August 3, 2022 as part of the Business Combination, all outstanding principal amounts owned under the PIPE notes, $5.0 million, were set off against obligations those investors had under the Common Equity Subscription Agreements those investors had entered into with L&F.

Subsequent events have been considered for disclosure and recognition in the condensed consolidated financial statements through September 12, 2022, the date the condensed consolidated financial statements were available to be issued. No events occurred through that date that would require disclosure in the accompanying condensed consolidated financial statements, other than those discussed above.

EX-99.2

Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF ZEROFOX

You should read the following discussion and analysis of ZeroFox’s financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere or incorporated by reference in this report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs, and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere or incorporated by reference in this report, particularly in the sections of the proxy statement/prospectus, incorporated by reference, titled ‘‘Risk Factors’’ and ‘‘Special Note Regarding Forward-Looking Statements.’’ Unless otherwise indicated or the context otherwise requires, references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox section to ‘‘ZeroFox,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our,’’ and other similar terms refer to ZeroFox, Inc. and its consolidated subsidiaries before the Business Combination.

The following discussion addresses the financial condition and operating results of ZeroFox, Inc. prior to the completion of the Business Combination. L&F is considered both the legal and accounting acquirer of ZeroFox, Inc. Though L&F is considered the accounting acquirer, the following discussion does include some discussion of the liquidity and capital resources of the combined company, ZeroFox Holdings, Inc., following the completion of the Business Combination. Additionally, as the ongoing operations of ZeroFox Holdings, Inc. will be made substantially of the legacy operations of ZeroFox, Inc., the included discussion of critical accounting estimates, judgments and uncertainties, and risks are also relevant to the financial condition and results of operations of ZeroFox Holdings, Inc. on an ongoing basis.

Overview

ZeroFox was founded in 2013 with the vision that the emergence and adoption of social media, mobile applications, and cloud computing by enterprises would fundamentally change the cybersecurity paradigm. Social media represents much more than a platform where individuals connect online. The adoption of social media revolutionized the way people communicate with each other and, subsequently, how enterprises and organizations enable communication among employees, customers, partners, and prospects. Mobile applications accelerated the digital transformation in which earlier versions of the web would need to become interactive and persist across multiple modern mediums. Furthermore, cloud computing’s continued evolution and adoption demonstrate how organizations are more comfortable with data residing beyond their traditional security perimeter outside of the historical boundaries of IT governance and control.

We provide customers with an innovative and comprehensive platform for external cybersecurity. Our ZeroFox platform, which is powered by patented artificial intelligence algorithms and cyber threat intelligence, is designed to dismantle external threats to brands, people and other assets across a customer’s internet-accessible attack surface. Our patented platform processes millions of pieces of content, rich media, posts, messages, global intelligence and threat actor activity across the digital landscape, including, without limitation, mobile app stores, social media sites, dark web forums, and discrete content sources. With the data we collect and process, we identify and remediate targeted phishing attacks, credential compromise, data exfiltration, brand hijacking, executive threats, and location threats across the public-facing, open web as well as the deep web and dark web. We protect our customers’ most valued internet accessible assets.

We sell subscriptions to our ZeroFox Platform and corresponding intelligence services to organizations of all sizes across multiple industries. We primarily sell subscriptions to our Platform through our direct sales teams which leverage our global network of channel partners on both a named account and territory basis.

A majority of our customers purchase subscription agreements with a term of one year. Our subscription agreements are generally priced on the number of assets protected and the desired levels of services. Customers may extend the value of the Platform by adding disruption and threat intelligence services. We generally recognize our subscription agreements ratably over the term of the agreement. We also generate revenue from our training and investigative services, which are generally priced on a fixed-fee basis and recognized as performed.

As of July 31, 2022, we had approximately 914 customers in 53 countries, including three of the Fortune 10. No single customer represented more than 7% of our revenue in the six months ended July 31, 2022 and 2021, or the years ended January 31, 2022, 2021, and 2020.

COVID-19

The COVID-19 pandemic has further accelerated the movement toward a digital-first strategy for nearly every organization. Given unprecedented work-from-home arrangements and consumers’ increasing reliance on digital engagement for products and services, organizations and their security teams must implement new security strategies that protect against external threats to ensure trust and reduce risk. We believe that enterprises will face growing attacks on their external attack surface as modern IT infrastructure will be characterized by greater decentralization and collaboration that is dependent upon public networks.

We have shifted our approach from almost entirely in-person to a flexible work environment that is composed of in-person, hybrid in-person and remote, and fully remote. Our fully remote global team is supported and enabled for remote-only work. Our hybrid team has access to work in-person from designated offices and remote, and our in-person teams have designated offices they report to for work. The impact of the COVID-19 pandemic continues to rapidly evolve. We will continue to monitor the situation and may take further actions that alter our business operations or that we determine are in the best interests of our employees, customers, partners, and other constituents. We do not know the full extent to which the COVID-19 pandemic may impact our business and our financial performance. For additional information related to risks related to the COVID-19 pandemic see ‘‘Risk Factors—The COVID-19 pandemic could adversely affect our business, operating results, and financial condition.’’

Recent Acquisitions

On September 30, 2020, we acquired the Cyveillance business unit and particular assets from Lookingglass Cyber Solutions, Inc. (‘‘Lookingglass Cyber Solutions’’). Total consideration was $39.2 million, which consisted of $7.5 million in cash and $31.7 million in Series E Preferred Stock. The Cyveillance business unit provides threat intelligence, brand, and executive protection services to enterprise organizations.

On June 7, 2021, we acquired Vigilante ATI, Inc.^™ (‘‘Vigilante’’) a provider of dark web threat intelligence collection and analysis capabilities. Total consideration was $7.4 million, which consisted of $3.8 million in cash and $3.8 million in a note payable, reduced by $0.2 million in net liabilities assumed.

Key Factors Affecting Performance

New Customer Acquisition

Our future growth depends in large part on our ability to acquire new customers. To attract new customers, we have invested and will continue to invest, in our sales and marketing efforts. Many organizations have not yet adopted external cybersecurity solutions. Our operating results will be affected by the rate at which organizations adopt our solutions. We believe our platform addresses the evolving needs of organizations of all sizes and industries and coupled with our go-to-market strategy, presents significant opportunities for growth.

Investing in Growth

We intend to continue to invest in our business so that we can capitalize on our market opportunity. We intend to continue to invest in sales and marketing to grow our sales team, expand our brand recognition, and optimize our channel partner network. We also intend to continue to invest in our research and development team to build additional functionality and enhance existing functionality in our platform to extend our capabilities. Our success depends on our ability to enhance our technological leadership. We will also evaluate strategic acquisitions of businesses and technologies to expand and enhance the functionality of our platform.

Our investments in growth may adversely affect our operating results in the near term however, we expect that these investments will contribute to our long-term growth and success.

If these investments do not lead to expected revenue growth, our operating losses may increase, we may not achieve profitability, and our growth rates may slow.

Retention and Expansion within Customers

Our ability to increase revenue depends on our ability to retain our existing customers and grow the value of their subscriptions. We focus on increasing sales from our existing customers by increasing the number of protected assets and corresponding intelligence services delivered on and through our platform. We intend to expand existing capabilities and launch new features which we believe will contribute to increased adoption by our growing base of customers. Our ability to expand within our customer base, particularly large enterprise and government customers, will depend on a number of factors, including platform performance, competitive offerings, pricing, overall changes in our customers’ spending levels, and the effectiveness of our efforts to help our customers realize the benefits of our Platform.

Key Business Metrics

We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic directions:

Customers

We believe that the size of our customer base is an indicator of the adoption of our Platform by the market and that our net new customer additions are an indicator of the growth of our business. We focus our sales and marketing efforts on large enterprises and medium sized businesses. We define a customer as any entity that has entered into a distinct subscription agreement for access to the ZeroFox Platform for which the term has not ended or with which we are continuing to provide service and negotiating a renewal contract that expired within 90 days of the applicable measurement date. We do not consider our channel partners as customers and we treat managed service security providers, who may purchase our products on behalf of multiple companies, as a single customer.


	As of January 31,									As of July 31,
	2022			2021			2020			2022			2021
Customers		835			692			447			914			763
Period-over-period growth		21	%		55	%		30	%		20	%		60	%

Annual Recurring Revenue (‘‘ARR’’)

We believe that ARR is a key operating metric to measure our business as changes in ARR reflect our ability to acquire net new customers and to maintain, retain, and expand our relationships with our existing customers. We define ARR as the annualized contractual value of all recurring revenue related to contracts in place at the end of the reporting date, assuming any contract is renewed on its existing terms. We continue to include ARR from customers whose term has expired within 90 days of the applicable measurement date for which we are actively negotiating renewal.


	As of January 31,									As of July 31,
(dollars in thousands)	2022			2021			2020			2022			2021
ARR	$	53,930		$	44,088		$	21,757		$	61,343		$	49,344
Period-over-period growth		22	%		103	%		83	%		24	%		100	%

Dollar-Based Net Retention

We believe that our ability to retain and expand our revenue generated from our existing customers is an indicator of the long-term value of our customer relationships and our potential future business opportunities. Our dollar-based net retention rate measures the percentage change in our ARR derived from our customer base at a point in time. We exclude public sector accounts and customers with less than $10,000 in ARR from our net retention. We calculate our dollar-based net retention rate as of the period end by starting with the ARR from all subscription customers as of 12 months prior to such period end, or prior period ARR. We then calculate the ARR from these same subscription customers as of the current period end, or current period ARR. Current period ARR reflects customer renewals, expansion, contraction, and churn over the trailing 12 months. Current period ARR excludes ARR from new subscription customers in the trailing 12 months. We then divide the current period ARR by the prior period ARR to arrive at our dollar-based net retention rate. Our dollar-based net retention rate can fluctuate from period to period due to large customer contracts in any period, which may reduce our dollar-based net retention in future periods if our customers do not continue to increase their subscriptions.


	As of January 31,									As of July 31,
	2022			2021			2020			2022			2021
Dollar-based net retention		100	%		92	%		104	%		100	%		93	%

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance by excluding certain items that may not be

indicative of our business, results of operations, or outlook. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.

Other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. In particular, free cash flow is not a substitute for cash used in or generated by operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is limited as it does not represent the total increase or decrease in our cash balance for a given period.

A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, excluding stock-based compensation expense and amortization of acquired intangible assets. We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these measures eliminate the effects of certain variables unrelated to our overall operating performance.

The following table provides a reconciliation of our GAAP subscription gross profit to our non-GAAP gross profit and of our GAAP subscription gross margin to our non-GAAP subscription gross margin, for each of the periods presented:


	Year Ended January 31,									Six Months Ended July 31,
(dollars in thousands)	2022			2021			2020			2022			2021
Revenue	$	47,433		$	28,538		$	16,390		$	28,743		$	22,690
Gross profit		31,076			18,892			10,625			20,014			14,957
Add: Stock-based compensation expense		50			3			9			20			14
Add: Amortization of acquired intangible assets		481			140			—			256			225

Non-GAAP gross profit	$	31,607		$	19,035		$	10,634		$	20,290		$	15,196

Gross margin		66	%		66	%		65	%		70	%		66	%
Non-GAAP gross margin		67	%		67	%		65	%		71	%		67	%

Non-GAAP Loss from Operations

We define non-GAAP loss from operations as GAAP loss from operations, excluding stock-based compensation expense, amortization of acquired intangible assets, and public company offering costs. We believe non-GAAP loss from operations provide our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as these measures eliminate the effects of certain variables unrelated to our overall operating performance.

The following table provides a reconciliation of our GAAP loss from operations to our non-GAAP loss from operations, for each of the periods presented:


	Year Ended January 31,									Six Months Ended July 31,
(dollars in thousands)	2022			2021			2020			2022			2021
Loss from operations	$	(28,015	)	$	(18,197	)	$	(19,438	)	$	(21,347	)	$	(17,246	)
Add: Stock-based compensation expense		696			450			268			852			320
Add: Amortization of acquired intangible assets		3,022			918			—			1,579			1,444
Add: Public company offering costs		3,521			—			—			3,234			1,423

Non-GAAP loss from operations	$	(20,776	)	$	(16,829	)	$	(19,170	)	$	(15,682	)	$	(14,059	)

Free Cash Flow

We define free cash flow as net cash used in operating activities less purchases of property and equipment and capitalized internal-use software. We believe that free cash flow is a useful indicator of liquidity that provides meaningful information to management and investors about the amount of cash provided or consumed by our operating activities to be used for other strategic initiatives. Free cash flow does not represent the total increase or decrease in our cash balance for a given period and does not reflect our future contractual commitments. In addition, other companies may calculate free cash flow differently or not at all, which reduces the usefulness of free cash flow as a tool for comparison.

The following table presents a reconciliation of net cash provided by (used in) operating activities to free cash flow:


	Year Ended January 31,									Six Months Ended July 31,
(dollars in thousands)	2022			2021			2020			2022			2021
Net cash used in operating activities	$	(18,072	)	$	(15,058	)	$	(18,633	)	$	(13,844	)	$	(8,525	)
Less: Purchases of property and equipment		(572	)		(264	)		(224	)		(245	)		(322	)
Less: Capitalized software		(674	)		(494	)		(580	)		(483	)		(353	)

Free cash flow	$	(19,318	)	$	(15,816	)	$	(19,437	)	$	(14,572	)	$	(9,200	)

Components of Our Results of Operations

Revenue

We generate substantially all our revenue from subscription agreements which includes access to our hosted platform, intelligence services and disruption capabilities. The majority of our customers are invoiced annually in advance of their subscription term. Our subscription agreements are ‘‘stand ready’’ to permit platform access and provide our protection services over the contractual term. We recognize subscription revenue ratably over the term of the agreement. Professional services revenue includes training and investigative services. Professional services are most often fixed-fee arrangements and occasionally billed at hourly rates. Professional services contracts normally have terms of one year or less, revenue is recognized as the services are performed. Professional services have not been a material component of our operations.

Cost of Revenue

Costs of revenue consist primarily of third-party cloud infrastructure expenses; fees paid to data providers; personnel-related costs such salaries, bonuses, benefits, and stock-based compensation associated with our customer support, intelligence services, professional services, software services, and subscription services used to support our customers; amortization of our capitalized internal-use software; travel and related expenses; amortization of acquired technology; and allocated overhead costs. Our allocated overhead costs include depreciation and information technology expenses.

Operating Expenses

Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel related expenses including salaries, bonuses, commissions, benefits, and stock-based compensation are the most significant component of each of these categories. Operating expenses also include allocated overhead costs.

Research and Development

Research and development expenses consist primarily of personnel costs for our research, product, and engineering teams including salaries, bonuses, benefits, and stock-based compensation. Research and development expenses also include software and subscription services and third-party cloud infrastructure costs incurred in the design and development of our hosted platform along with allocated overhead costs.

We expect research and development expenses to increase in absolute dollars as we continue to increase our investments in our platform and services. However, we anticipate research and development expenses to decrease as a percentage of our revenue over time. Our research and development expenses may fluctuate as a percentage of our revenue from period-to-period depending on the timing of these expenses and the capitalization of expenses that qualify as internal-use software.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs for our sales and marketing teams including salaries, commissions, bonuses, benefits, and stock-based compensation. Sales and marketing expenses also include conferences, branding and other marketing events, software and subscription services, travel and related expenses, amortization of acquired customer relationships, and allocated overhead costs. We capitalize sales commissions from the initial acquisition of a customer subscription agreement and amortize them to sales and marketing expense over the estimated customer life. Any commissions paid for the renewal of a customer’s subscription are similarly capitalized and amortized over the term of the renewal.

We expect sales and marketing expenses to increase in absolute dollars as we continue to invest in our sales and marketing organization to drive additional revenue, further penetrate our market, and expand our global customer base. However, we anticipate sales and marketing expenses to decrease as a percentage of our revenue over time. Our sales and marketing expenses may fluctuate as percentage of our revenue from period-to-period depending on the timing of these expenses.

General and Administration

General and administrative expenses consist primarily of personnel costs for our executive, finance, legal, human resources, and information technology teams including salaries, bonuses, benefits, and stock-based compensation. General and administrative expenses also include professional fees for external accounting, legal, and other advisory services; insurance; software and subscription services; travel and related expenses; facilities related expenses; amortization of acquired trade names; and allocated overhead costs.

Following the closing of the proposed Business Combination, we expect to incur additional expenses as the result of operating as a public company including costs related to additional reporting and compliance requirements applicable to a listed company and increased expenses for insurance, accounting, legal, and other professional services. We expect general and administrative expenses to increase in absolute dollars. However, we anticipate general and administrative expenses to decrease as a percentage of our revenue over time.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest expense and the change in fair value of warrant liability. Interest expense primarily consists of contractual interest expense, as well as amortization of debt discount and issuance costs related to our term loans.

Provision for Income Taxes

Provision for income taxes consists of income taxes in foreign jurisdictions where we conduct business and certain state income taxes in the United States. We maintain a full valuation allowance for domestic and certain foreign deferred tax assets, including net operating loss carryforwards. Based on our history of losses, we expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized.

Results of Operations

The following table sets forth our results of operations for the periods presented:


	Year Ended January 31,									Six Months Ended July 31,
(dollars in thousands)	2022			2021			2020			2022			2021
Revenue	$	47,433		$	28,538		$	16,390		$	28,743		$	22,690
Cost of revenue⁽¹⁾		16,357			9,646			5,765			8,729			7,733

Gross profit		31,076			18,892			10,625			20,014			14,957
Operating expenses:
Research and development⁽¹⁾		12,810			5,942			5,582			8,023			5,457
Sales and marketing⁽¹⁾		29,873			21,466			18,852			18,363			14,044
General and administrative⁽¹⁾		16,408			9,681			5,629			9,985			5,870

Total operating expenses		59,091			37,089			30,063			36,371			25,371

Loss from operations		(28,015	)		(18,197	)		(19,438	)		(16,357	)		(10,414	)
Interest expense, net		(3,585	)		(2,233	)		(1,854	)		(2,931	)		(1,512	)
Loss on extinguishment of debt		—			(1,418	)		(1,274	)		—			—
Change in fair value of warrant liability		(7,375	)		(806	)		(75	)		(2,059	)		(5,320	)

Loss before income taxes		(38,975	)		(22,654	)		(22,641	)		(21,347	)		(17,246	)
(Benefit from) provision for income taxes		(536	)		86			98			111			56

Net loss after tax	$	(38,439	)	$	(22,740	)	$	(22,739	)	$	(21,458	)	$	(17,302	)

(1)	Includes stock-based compensation expense as follows:


	Year Ended January 31,						Six Months Ended July 31,
(dollars in thousands)	2022		2021		2020		2022		2021
Cost of revenue	$	50	$	3	$	9	$	20	$	14
Research and development		97		72		85		111		47
Sales and marketing		222		130		87		215		116
General and administrative		327		245		87		506		143

Total stock-based compensation expense	$	696	$	450	$	268	$	852	$	320

The following tables discloses the components of our consolidated statements of loss/operations as a percentage of revenue for each of the periods presented:


	Year Ended January 31,									Six Months Ended July 31,
(as a percentage of total revenue)	2022			2021			2020			2022			2021
Revenue		100	%		100	%		100	%		100	%		100	%
Cost of revenue⁽¹⁾		34			34			35			30			34

Gross profit		66			66			65			70			66
Operating expenses:
Research and development⁽¹⁾		27			21			34			28			24
Sales and marketing⁽¹⁾		63			75			115			64			62
General and administrative⁽¹⁾		35			34			34			35			26

Total operating expenses		125			130			183			127			112

Loss from operations		(59	)		(64	)		(118	)		(57	)		(46	)
Interest expense, net		(8	)		(8	)		(12	)		(10	)		(7	)
Loss on extinguishment of debt		—			(5	)		(8	)		—			—
Change in fair value of warrant liability		(16	)		(3	)		—			(7	)		(23	)

Loss before income taxes		(83	)		(80	)		(138	)		(74	)		(76	)
(Benefit from) provision for income taxes		(1	)		—			1			—			—

Net loss after tax		(82	)%		(80	)%		(139	)%		(74	)%		(76	)%

⁽¹⁾	Includes stock-based compensation expense as follows:


	Year Ended January 31,									Six Months Ended July 31,
(dollars in thousands)	2022			2021			2020			2022			2021
Cost of revenue		0	%		0	%		0	%		0	%		0	%
Research and development		—			—			—			0			0
Sales and marketing		—			—			1			1			0
General and administrative		1			1			1			2			1

Total stock-based compensation expense		1	%		1	%		2	%		3	%		1	%

Comparison of the Six Months Ended July 31, 2022 and 2021

Revenue


	The Six Months Ended July 31,				Change
(dollars in thousands)	2022		2021		$		%
Revenue	$	28,743	$	22,690	$	6,053		27	%

Revenue increased $6.1 million or 27%, to $28.7 million for the six months ended July 31, 2022 from $22.7 million for the six months ended July 31, 2021, primarily due to increased customer adoption of our subscription services. Our customer base grew from 763 as of July 31, 2021 to 914 as of July 31, 2022.

Cost of Revenue, Gross Profit, and Gross Margin


	The Six Months Ended July 31,						Change
(dollars in thousands)	2022			2021			$		%
Cost of revenue	$	8,729		$	7,733		$	996		13	%
Gross profit	$	20,014		$	14,957		$	5,057		34	%
Gross margin		70	%		66	%

Cost of revenue increased $1.0 million, or 13%, to $8.7 million for the six months ended July 31, 2022, from $7.7 million the six months ended July 31, 2021, primarily due to increases of $0.3 million for cloud infrastructure and third-party data charges, $0.2 million for independent research analysts following the Vigilante acquisition, and $0.2 million for personnel-related expenses. These increases were primarily driven by growth of our subscription services.

Research and Development


	The Six Months Ended July 31,				Change
(dollars in thousands)	2022		2021		$		%
Research and development	$	8,023	$	5,457	$	2,566		47	%

Research and development costs increased $2.6 million, or 47%, to $8.0 million for the six months ended July 31, 2022, from $5.5 million for the six months ended July 31, 2021, primarily due to an increase of $2.3 million in personnel-related expenses.

Sales and Marketing


	The Six Months Ended July 31,				Change
(dollars in thousands)	2022		2021		$		%
Sales and marketing	$	18,363	$	14,044	$	4,319		31	%

Sales and marketing expenses increased $4.3 million, or 31%, to $18.3 million for the six months ended July 31, 2022, from $14.4 million for the six months ended July 31, 2021, primarily due to an increase of $2.8 million in personnel-related expenses, $1.0 million in marketing programs due to reflecting the shift from virtual to in-person conferences, customer, and partner events, and $0.4 million in travel-related expenses.

General and Administrative


	The Six Months Ended July 31,				Change
(dollars in thousands)	2022		2021		$		%
General and administrative	$	9,985	$	5,870	$	4,115		70	%

General and administrative expenses increased $4.1 million, or 70%, to $10.0 million for the six months ended July 31, 2022, from $5.9 million for the six months ended July 31, 2021, primarily due to an increase of $1.5 million for professional fees related to compliance and reporting requirements of the Business Combination, $1.1 million for personnel-related expenses, $0.4 million for productivity tools, $0.4 million for stock-based compensation, $0.2 million for rent and facilities, and $0.2 million for travel-related expenses.

Interest Expense, Net and Other Expense, Net


	The Six Months Ended July 31,				Change
(dollars in thousands)	2022		2021		$			%
Interest expense, net	$	2,931	$	1,512	$	1,419			94	%
Change in fair value of warrant liability	$	2,059	$	5,320	$	(3,261	)		-61	%

The increase in interest expense of $1.4 million is due to increased borrowings under debt facilities. The decrease in the change in the fair value of warrant liability reflects the adjustments to record outstanding warrants at their fair value. During the six months ended July 31, 2021, the Company changed its methodology used to value warrants in order to contemplate the potential Business Combination. The change in methodology resulted in a significant increase in the Company’s warrant liability. During the six months ended July 31, 2022, the Company updated inputs to the valuation of the warrant liability to reflect the increased probability that the Business Combination would be completed, resulting in an incremental increase in the warrant liability.

Provision for Income Taxes


	The Six Months Ended July 31,				Change
(dollars in thousands)	2022		2021		$		%
Provision for incomes taxes	$	111	$	56	$	55		98	%

The increase in provision for income taxes of $0.06 million is due to estimated income taxes incurred by our foreign subsidiaries.

Critical Accounting Estimates

Our management’s discussion and analysis of financial condition and results of operations is based upon our financial statements and notes to our financial statements, which were prepared in accordance with GAAP. The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our management evaluates our estimates on an ongoing basis, including those related to the allowance for doubtful accounts, the carrying value and useful lives of long-lived assets, the fair value of financial instruments, the recognition and disclosure of contingent liabilities, income taxes, and stock-based compensation. We base our estimates and judgments on our historical experience, knowledge of factors affecting our business and our belief as to what could occur in the future considering available information and assumptions that are believed to be reasonable under the circumstances.

The accounting estimates we use in the preparation of our financial statements will change as new events occur, more experience is acquired, additional information is obtained and our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to our financial statements. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates.

The critical accounting estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below.

Revenue Recognition

Description:

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is recognized when a customer obtains control of promised services in an amount that reflects the consideration we expect to be entitled to receive in exchange for those services. In recognizing revenue, we apply the following five steps:

•

Identify contracts with customers,

•

Identify the performance obligations in the contract,

•

Determine the transaction price,

•

Allocate the transaction price to performance obligations in the contract, and

•

Recognize revenue when or as performance obligations are satisfied.

Judgements and Uncertainties:

We apply judgment in determining the customer’s ability and intent to pay, including the customer’s historical payment experience or credit and financial information pertaining to the customer.

Our contracts may contain multiple performance obligations which are accounted separately if they are capable of being distinct or are distinct in the context of the contract. Contracts with multiple performance obligations require an allocation of the transaction price to each performance obligation based on the stand-alone selling price (SSP) of each performance obligation, using the relative selling price method of allocation. We apply judgment in determining SSP for our performance obligations utilizing our observable standalone sales, sales of bundled items when standalone sales are not available, and our overall pricing methodology.

Subscription Revenue—Subscription revenue consists of revenue from subscriptions to access our Platform together with related data and support service offerings. Revenue is recognized over time on a ratable basis over the contract term beginning on the date that our service is made available to the customer.

Customers have the option to purchase additional subscription and support services at a stated price. These options generally do not provide a material right, as they are priced at our SSP.

Professional Services Revenue—All of our professional services are considered distinct performance obligations when sold on a stand-alone basis. Professional services are generally priced on a fixed-fee basis and revenue is recognized as the services are performed.

Sensitivity of Estimate to Change:

For the six months ended July 31, 2022 and 2021, subscription revenue accounted for 96% and 95% of total revenue, respectively. For the six months ended July 31, 2022 and 2021, no single customer exceeded 7% of total revenue. We do not expect SSP estimates to deviate materially period to period.

Deferred Contract Acquisition Costs

Description:

Contract acquisition costs are related to sales commissions earned for incremental costs to obtain a contract. We amortize the initial commissions over the longer of the customer relationship or over the same period as the initial revenue arrangement to which these costs relate.

Judgements and Uncertainties:

The critical accounting estimate for deferred contract acquisition costs is the amortizable life of the asset. We have estimated the period of benefit for customer relationships to be 4 years. Management monitors trends in customer attrition and the typical term of service arrangements to determine if the estimated amortizable life estimate should be updated.

Sensitivity of Estimate to Change:

The impact to our financial statements for change of one year to the estimated life of our customer relationships would approximately $0.3 million. We do not expect the useful life estimate to deviate materially period to period.

Stock-Based Compensation

Description:

We account for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. ASC 718 requires that the cost of awards of equity instruments offered in exchange for employee services, including employee stock options and restricted stock awards, be measured based on the grant-date fair value of the award. We determine the fair value of options granted using the Black-Scholes model which requires the input of subjective assumptions. We recognize the fair value of stock option awards, net of estimated forfeitures, over the period which an employee is required to provide service in exchange for the award, generally the vesting period. The fair value of restricted stock awards is based on the estimated price of our common stock on the date of grant. We recognize the fair value of restricted stock awards, net of estimated forfeitures, as expense over the requisite service period of the awards.

Judgments and Uncertainties:

The critical accounting estimates related to stock-based compensation are the assumptions utilized in the Black-Scholes valuation model and our estimate of award forfeitures.

The assumptions used by Management in the Black-Scholes model are as follows:

•

Fair value of common stock: Our common stock is not publicly traded. As such, we estimate the fair value of our common stock, as discussed below in the section titled “Common Stock Valuations.”

•

Expected term: The expected term represents the period of time that options granted are expected to remain unexercised. We calculate the expected term using the simplified method, which equals the midpoint of the options’ vesting term and contractual period.

•

Expected Volatility: As our common stock is not publicly traded, we estimate the expected volatility based on historical volatilities of comparable public traded companies. The Company expects to continue to use this methodology until such time as the Company’s stock becomes publicly traded and there is a sufficient amount of historical data to reasonably calculate the volatility of the Company’s stock.

•

Risk-free interest rate: We use the U.S. Treasury yield for a period that corresponds to the expected term of the award.

•

Divided yield: We do not currently issue dividends, and do not expect to issued dividends in the foreseeable future. Accordingly, our dividend yield is zero.


	As of July 31,
	2022			2021
Weighted-average risk-free rate		1.48	%		1.45	%
Weighted-average expected term of the option (in years)		6.07			5.99
Weighted-average expected volatility		38.92	%		37.84	%
Weighted-average dividend yield		0.00	%		0.00	%

The Company estimates the rate of option forfeiture by monitoring the rate of employee turnover and average tenure at separation of employment.

Sensitivity of Estimate to Change:

These estimates involve inherent uncertainties and the application of management’s judgement. If the Company had made different assumptions, the Company’s stock-based compensation expense and its net loss could have been materially different.

An increase in risk-free interest rate will reduce the estimated fair value of a stock option grant, while decrease in these factors will have an opposite effect.

Likewise, a decrease in volatility and expected term will decrease the estimated fair value of a stock option grant, while an increase in these factors will have an opposite effect. The Company utilizes a consistent group of peer companies unless one or more of those companies cease to be publicly traded or are no longer similar to the Company’s business. In cases where a peer group company is no longer able to be used, the Company identifies a replacement peer company for its volatility calculation.

The Company does not expect to change the dividend yield assumption in the near future.

A decrease in the Company’s estimate of option forfeiture will increase the amount of stock option expense recognized in a period while an increase will have the opposite effect.

Common Stock Valuations

Description:

Our board of directors, with input from management and third-party valuation specialists, determines the fair value of our common stock underlying our stock-based awards. The Company believes that its Board of Directors has the relevant experience and expertise to determine the fair value of its common stock. The Company’s Board of Directors intends all stock options granted to be exercisable at a price per share not less than the fair value per share of the common share underlying those stock options on the date of grant.

In the absence of a public market for the Company’s common stock, the valuation of the Company’s stock shares has been determined using a combination of valuation methodologies with varying weightings applied to each methodology. The valuation was performed in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation

Our warrant liabilities and contingent consideration are recorded at fair value based on our common stock valuation.

Judgments and Uncertainties:

Because our common stock is not publicly traded, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock including:

•

the results of contemporaneous independent third-party valuations of our common stock;

•

the prices, rights, preferences, and privileges of our Convertible Redeemable Preferred Stock relative to those of our common stock;

•

the lack of marketability of our common stock;

•

actual operating and financial results;

•

current business conditions and projections;

•

the likelihood of achieving a liquidity event, such as an initial public offering, sale of the Company, or successful business combination, given prevailing market conditions; and

•

precedent transactions involving our shares.

Sensitivity of Estimate to Change:

The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. The probability of a liquidity event and the derived discount rate are significant assumptions used to estimate the fair value of the Company’s commons stock. If the Company had used different assumptions or estimates, the fair value of the Company’s common stock, its stock-based compensation expense, and changes in fair value for warrant liabilities and contingent consideration could have been materially different.

Business Combinations

Description:

We account for acquisitions using the acquisition method of accounting. The fair value of purchase consideration is allocated to the tangible and intangible assets acquired, and liabilities assumed, based on their estimated fair values. The excess of the fair value of purchase consideration over the values of the identifiable assets acquired and liabilities assumed is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets.

We perform our annual goodwill impairment assessment beginning on November 1, or when an assessment of qualitative factors indicates an impairment may have occurred. The qualitative assessment includes an evaluation of events and circumstances including long-term growth projections, profitability, industry, market and macroeconomic conditions. The quantitative assessment includes an analysis that compares the fair value of a reporting unit to its carrying value including goodwill recorded by the reporting unit.

Judgments and Uncertainties:

Significant estimates in valuing certain identifiable assets include, but are not limited to, the selection of valuation methodologies, future expected cash flows, discount rates, and useful lives.

For goodwill, management applies judgement to determine if circumstances or events indicate if an impairment may exist. The estimate of the fair value of the related reporting unit includes several judgments, each with inherent uncertainties such as estimated future cash flows of the reporting unit and the discount rate applied to those estimated future cash flows.

Sensitivity of Estimate to Change:

Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

The impact to our financial statements for change of one year to the estimated lives our intangible assets would be approximately $0.6 million.

The Company completed its most recent annual assessment on November 30, 2021, and there was no impairment of goodwill at the assessment date.

Liquidity and Capital Resources

We have financed operations primarily through the sale of equity securities, borrowings under various security and loan agreements, and payments from customers. Our operating losses have been significant, as reflected in our accumulated deficit of $178,278 and $156,820 as of July 31, 2022, and January 31, 2022, respectively.

In connection with the Business Combination completed on August 3, 2022, ZeroFox received total net cash proceeds of $64.8 million, inclusive of the cash balances obtained through the merger with IDX and after the repayment of certain amounts of ZeroFox and IDX long term debt and transaction-related expenses. Prior to the completion of the Business Combination, we experienced an elevated level of redemptions, resulting in $10.2 million in the L&F trust account. The majority of the net proceeds of the Business Combination were provided by the Convertible Notes Financing, $150.0 million, and the Common Equity PIPE Financing, $20.0 million. Notwithstanding the value of redemptions we experienced, we believe that our cash on hand, the net proceeds of the Business Combination, and additional facilities with our current lenders will be sufficient to meet our cash requirements for at least the 12 months following the date of this prospectus.

Additional future sources of liquidity may come from the issuance of additional debt, exercise of Warrants, and/or the issuance of new shares of Common Stock. In the case of additional debt, we are permitted by the Indenture to issue no more than $50.0 million of senior debt. If we raise funds by issuing debt securities, such debt securities would have rights, preferences and privileges senior to those of holders of our Common Stock. The terms of debt securities or borrowings could impose significant restrictions on our operations. For Warrants, the Company will receive the proceeds from the cash exercise of any Warrants. The aggregate proceeds of the exercise of all outstanding Warrants, assuming cash exercise, would be $186.5 million. We believe the likelihood that warrant holders will exercise their Warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the market price of our Common Stock. If the market price for our Common Stock is less than $11.50 per share, we believe the warrant holders will be unlikely to exercise their Warrants. We may issue additional shares of our Common Stock or other equity securities of equal or senior rank in the future for investment or operational purposes. If we issue additional shares of Common Stock, dilution to our public shareholders may occur and the market price for our Common Stock may decrease and/or become more volatile.

The amount, timing, and mix of future amounts of liquidity will depend upon the judgment of ZeroFox’s management, the market price of our Common Stock, and prevailing interest rates, among other factors. Future capital requirements will depend on many factors including, but not limited to, cash collected from customers, additional borrowing, acceleration of sales and marketing costs to facilitate revenue expansion, and the continued adoption of our subscription products.

Cash Flows

The following table presents a summary of our cash flows for the periods presented:


	The Six Months Ended July 31,
(dollars in thousands)	2022			2021
Cash, cash equivalents, and restricted cash at beginning of year	$	10,374		$	13,864
Net cash used in operating activities		(13,844	)		(8,525	)
Net cash used in investing activities		(728	)		(4,945	)
Net cash provided by financing activities		7,047			4,985
Foreign exchange translation adjustment		54			(45	)

Cash, cash equivalents, and restricted cash at end of year	$	2,903		$	5,334

Operating Activities

Our largest source of cash is payments from customers. Our primary uses of cash stem from personnel-related expense, third-party hosting expense, data source expense, and overhead expense, which is primarily comprised of IT support, facilities, and insurance expense. We have primarily funded operations through a combination of equity and debt financing. Cash used in operating activities primarily consists of our net losses from operations adjusted for non-cash expenses, including change in fair value of warrant liability, stock-based compensation expense, depreciation and amortization expense, and changes in period operating assets and liabilities.

Cash used in operating activities for the six months ended July 31, 2022, was $13.8 million which consisted of our net loss of $21.5 million adjusted by $5.6 million of non-cash expenses and $2.0 million of net cash inflows from changes in operating assets and liabilities. The changes in operating assets and liabilities were driven by $2.8 million in cash inflow from accounts receivable, primarily due to the historical cyclical timing of billings for the Company being most significant at year-end; $3.5 million in cash inflow from deferred revenue, primarily due to the growth in revenue; $2.7 million of cash outflows from accounts payable, accrued compensation, accrued expenses, and other current liabilities, primarily due to the timing of payments for variable personnel compensation and the payment of liabilities related to the Business Combination; and $1.6 million in cash outflows from prepaid expenses and other assets, primarily due to $0.6 million of reimbursable transaction expenses; $0.4 million of sales tax receivable from a customer; and $0.5 million of advanced payments for future goods, services, and marketing events.

Cash used in operating activities for the six months ended July 31, 2021, was $8.5 million which consisted of our net loss of $17.3 million adjusted by $7.8 million of non-cash expenses and $1.0 million of net cash outflows from changes in operating assets and liabilities. The changes in operating assets and liabilities were driven by $2.0 million in cash inflow from accounts receivable, primarily due to the historical cyclical timing of billings for the Company being most significant at year-end; and $1.1 million in cash outflows from prepaid expenses and other assets, primarily due to advanced payments for future goods, services, and marketing events.

Investing Activities

Cash used in investing activities for the six months ended July 31, 2022, was $0.7 million which consisted of $0.5 million of capitalized software development costs and $0.2 million of capital expenditures for property and equipment. Cash used in investing activities for the six months ended July 31, 2021, was $4.9 million which consisted of $4.3 million cash paid to complete the acquisition of Vigilante, $0.4 million of capitalized software development costs, and $0.3 million of capital expenditures for property and equipment.

Financing Activities

Financing activities for the six months ended July 31, 2022 provided $7.0 million of cash which primarily consisted of $7.0 million of net proceeds from new borrowings from Orix Growth Capital, LLC, partially offset by a repayment of debt of $0.5 million to InfoArmor. Financing activities for the six months ended July 31, 2021 provided $5.0 million of cash which consisted of net proceeds of $5.0 million from new borrowings from Orix Growth Capital, LLC.

Debt Obligations

The following table presents a summary of our debt obligations for the periods presented:


	As of July 31, 2022
(dollars in thousands)	Stated Interest Rate			Gross Balance		Unamortized Debt Discount		Unamortized Deferred Debt Issuance Costs		Discount on Note Payable		Net Carrying Value
Stifel Bank		4.50	%	$	15,000	$	71	$	426	$	—	$	14,503
Orix Growth Capital, LLC⁽¹⁾		10.00	%		37,500		382		987		—		36,131
InfoArmor		5.50	%		2,813		—		—		182		2,631
PIPE Investors⁽²⁾		5.00	%		5,156		—		—		—		5,156

				$	60,469	$	453	$	1,413	$	182	$	58,421

Current portion of long-term debt												$	6,094
Long-term debt													52,327

												$	58,421

⁽¹⁾	As part of the closing of the Business Combination on August 3, 2022, the note payable to Orix Growth Capital, LLC was repaid along with a prepayment fee of $1.1 million, accrued interest, and other fees, a total payment of $38.7 million.

⁽²⁾	As part of the closing of the Business Combination on August 3, 2022, the notes payable to PIPE Investors were set off against those investors’ obligations under Common Equity Subscription Agreements those investors had entered into with LNFA.


	As of January 31, 2022
(dollars in thousands)	Stated Interest Rate			Gross Balance		Unamortized Debt Discount		Unamortized Deferred Debt Issuance Costs		Discount on Note Payable		Net Carrying Value
Stifel Bank		4.50	%	$	15,000	$	96	$	574	$	—	$	14,330
Orix Growth Capital, LLC		10.00	%		30,000		349		608		—		29,043
InfoArmor		5.50	%		3,281		—		—		213		3,068
PIPE Investors		5.00	%		5,032		—		—		—		5,032

					53,313	$	445	$	1,182	$	213	$	51,473

Current portion of long-term debt												$	5,970
Long-term debt													45,503

												$	51,473

Material Cash Requirements

Our material cash requirements are associated with repayment of debt and obligations associated with non-cancelable contracts for the purchase of goods and third-party services and operating leases. We expect to satisfy these cash requirements through cash from operations along with possible future borrowings, either under existing facilities or new facilities, or possible future equity issuances.

The following table summarizes current and long-term material cash requirements as of July 31, 2022:


	As of July 31, 2022
(dollars in thousands)	Total		Less than 1 year		1-3 years		3-5 years		Thereafter
Operating leases⁽¹⁾	$	1,473	$	887	$	586	$	—	$	—
Purchase commitments⁽²⁾		3,645		2,692		953		—		—
Debt repayments		60,469		7,344		46,875		6,250		—

	$	65,587	$	10,923	$	48,414	$	6,250	$	—

⁽¹⁾	Relates to our office facilities.

⁽²⁾	Relates to non-cancelable purchase commitments to purchase products and services entered into in the normal course of business.

Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency

To date, the majority of our sales contracts have been denominated in U.S. dollars (USD) with a limited number of contracts denominated in foreign currencies. Revenue denominated in USD was approximately 89%, 86%, and 85% for the years ended January 31, 2022, 2021, and 2020, respectively, and 90% for six months ended July 31, 2022 and 2021. Operating expenses within the United States are primarily denominated in U.S. dollars, while operating expenses incurred outside the United States are primarily denominated in each country’s respective local currency.

The functional currency of our foreign subsidiaries is each country’s respective local currency. Assets and liabilities of the foreign subsidiaries are translated into USD at the exchange rates in effect at the reporting date, and income and expenses are translated at average exchange rates during the period, with the resulting translation adjustments directly recorded as a component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are recorded in other income (expense), net in the consolidated statements of operations. As the impact of foreign currency exchange rates has not been material to our historical operating results, we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes more significant.

We do not believe a hypothetical 10% increase or decrease in foreign exchange rates would have had a material impact on our financial statements.

Interest Rate Risk

As of July 31, 2022 and January 31, 2022, we had $60.5 million and $53.3 million, respectively, of outstanding borrowings under term loans. As part of the Business Combination completed on August 3, 2022, a total of $42.5 principal value of notes was repaid or otherwise satisfied and we obtained $150 million of convertible notes. The convertible notes have a fixed interest rate of 7.0%, if interest is paid in cash, or 8.75% if interest is paid in-kind. Of our notes outstanding after completion of the Business Combination, the Convertible Notes and InfoArmor note have fixed interest rates and the Stifel Bank note has a variable interest rate that would subject us to interest rate fluctuations

We do not believe a hypothetical 10% increase or decrease in interest rates would have had a material impact on our financial statements.

Emerging Growth Company

Upon the consummation of the Business Combination, we will be an emerging growth company, as defined in the Jumpstart Our Business Startups, ‘‘JOBS,’’ Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Defined terms included below shall have the same meaning as terms defined and included in the Proxy Statement/Prospectus.

The following unaudited pro forma condensed combined financial statements are provided to aid you in your analysis of the financial aspects of the Business Combination involving L&F, ZeroFox, and IDX, the consummation of the Common Equity PIPE Investment Financing and the Convertible Notes Financing, and adjustments for other material events (“Adjustments for Material Events”), which are collectively referred to as the “Transactions.” For purposes of these unaudited pro forma condensed combined financial statements, the entity surviving the Business Combination is referred to as “New ZeroFox.”

The unaudited pro forma condensed combined financial statements are based on L&F’s historical financial statements and ZeroFox’s and IDX’s historical consolidated financial statements, as adjusted to give effect to the Business Combination. The historical financial statements of L&F and IDX were prepared based on a December 31 fiscal year-end and the historical financial statements of ZeroFox were prepared based on a January 31 fiscal year-end. Following the consummation of the Business Combination, New ZeroFox will have a January 31 fiscal year-end.

The historical balance sheets presented in the unaudited pro forma condensed combined financial statements reflect balances as of July 31, 2022 for ZeroFox and June 30, 2022 for L&F and IDX. The unaudited pro forma condensed combined balance sheet gives pro forma effect to the Business Combination as if they had been consummated on July 31, 2022.

The historical statements of operations presented in the unaudited pro forma condensed combined financial statements reflect ZeroFox’s activity for the six months ended July 31, 2022 and the year ended January 31, 2022. The historical statements of operations presented in the unaudited pro forma condensed combined financial statements reflect L&F’s and IDX’s activity for the six months ended June 30, 2022 and the year ended December 31, 2021. The unaudited pro forma condensed combined statements of operations give pro forma effect to the Business Combination as if they had been consummated on February 1, 2021.

The unaudited pro forma condensed combined financial statements have been derived from the historical financial statements and should be read in conjunction with:

•

the historical unaudited condensed financial statements of L&F as of and for the three months ended June 30, 2022, and the related notes which is incorporated by reference from the L&F Quarterly Report (10Q) filed on July 28, 2022;

•

the historical audited financial statements of L&F as of and for the year ended December 31, 2021 and the related notes which is incorporated by reference from the L&F Registration of Securities, Business Combinations Amendment (S-4/A) filed on July 14, 2022;

•

the historical unaudited condensed consolidated financial statements of ZeroFox as of and for the six months ended July 31, 2022 and the related notes; included within this current report.

•

the historical audited consolidated financial statements of ZeroFox as of and for the year ended January 31, 2022 and the related notes which is incorporated by reference from the L&F Registration of Securities, Business Combinations Amendment (S-4/A) filed on July 14, 2022;

•

the historical unaudited condensed financial statements of IDX as of and for the three months ended June 30, 2022, and the related notes included within this current report;

•

the historical audited consolidated financial statements of IDX as of and for the year ended December 31, 2021 and the related notes which is incorporated by reference from the L&F Registration of Securities, Business Combinations Amendment (S-4/A) filed on July 14, 2022;

•

the accompanying notes to the unaudited pro forma condensed combined financial statements;

•

the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of L&F,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ZeroFox,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of IDX,” and other financial information relating to L&F, ZeroFox, and IDX included which is incorporated by reference from the L&F Registration of Securities, Business Combinations Amendment (S-4/A) filed on July 14, 2022.

The Business Combination will be accounted for in accordance with the acquisition method of accounting under the provisions of ASC 805, Business Combinations, with L&F as the accounting acquirer and ZeroFox and IDX as the accounting acquirees.

Upon consummation of the Business Combination, ZeroFox is considered a variable interest entity as the equity at risk for ZeroFox is not sufficient to fund expected future cash flow needs, including funding future projected losses, and servicing existing debt obligations. L&F will hold a variable interest in ZeroFox as it will own 100% of ZeroFox’s equity. L&F will be considered the primary beneficiary as its ownership will provide the power to direct the activities that most significantly impact ZeroFox’s performance and the obligation to absorb the losses and/or receive the benefits of ZeroFox that could potentially be significant to ZeroFox. L&F will be treated as the accounting acquirer.

IDX is considered a business under ASC 805, Business Combinations. IDX is not considered the accounting acquirer in the Business Combination based on evaluation of the following factors:

•

IDX shareholders will not have the largest voting interest in New ZeroFox;

•

IDX will not comprise all of the ongoing operations of New ZeroFox;

•

IDX will not designate a majority of the governing body of New ZeroFox;

•

IDX senior management will not have a substantive role in the senior management of New ZeroFox; and

•

the largest single owner of the combined company will not be a legacy owner of IDX;

L&F is determined to be the accounting acquirer as it will be ZeroFox’s primary beneficiary and it will own 100% of IDX’s equity. L&F’s acquisitions of ZeroFox and IDX will be considered business combinations under ASC 805, Business Combinations, and will be accounted for using the acquisition method of accounting. The consideration transferred will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred to effect the acquisitions over the fair values of assets acquired and liabilities assumed will be recorded as goodwill. Transaction costs will be expensed as if the Business Combination had occurred on February 1, 2021.

The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the combined company.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JULY 31, 2022

(in thousands, except share amounts)


	Historical June 30, 2022		Historical July 31, 2022		Historical June 30, 2022		Transaction Accounting Adjustments
	L&F		ZF		IDX		Adjustments Related to ZF					Adjustments Related to IDX					Additional Pro Forma Adjustments					Pro Forma Balance Sheet
ASSETS
Current assets:
Cash and cash equivalents	$	157	$	2,803	$	17,012		(11,731	)	5	(cc)	$	(64,112	)	5	(A)		34,865		5	(AA)	$	62,086
								(39,037	)	5	(ff)		(2,623	)	5	(B)		(10,248	)	5	(BB)
																		149,806		5	(CC)
																		15,000		5	(DD)
																		(5,022	)	5	(EE)
																		(24,626	)	5	(FF)
																		(158	)	5	(GG)
Accounts receivable, net of allowance for doubtful accounts		—		14,210		12,037		—					—					—					26,247
Deferred contract acquisitions costs, current		—		4,918		1,065		—					—					—					5,983
Prepaid expenses and other assets		39		2,859		1,071		—					—					(39	)	5	(BB)		3,930

Total current assets		196		24,790		31,185		(50,768	)				(66,735	)				159,578					98,246
Marketable investments held in Trust Account		34,832		—		—												(34,832	)	5	(AA)		—
Property and equipment, net of accumulated depreciation		—		609		128		—					—					—					737
Capitalized software, net of accumulated amortization		—		1,082		—		—					—					—					1,082
Deferred contract acquisition costs, net of current portion		—		6,854		188		—					—					—					7,042
Acquired intangible assets, net of accumulated amortization		—		12,631		—		172,000		5	(aa)		94,900		5	(A)		—					279,531
Goodwill		—		35,002		—		754,083		5	(aa)		245,843		5	(A)		—					1,034,928
Deferred tax asset		—		—		1,227		37,993		5	(aa)		(1,227	)	5	(A)		—					—
								(37,993	)	5	(ee)
Other assets		—		341		—		—					—					—					341

Total assets	$	35,028	$	81,309	$	32,728	$	875,315				$	272,781				$	124,746				$	1,421,907

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	—	$	4,333	$	7,950	$	—				$	—				$	—				$	12,283
Accrued liabilities		6,253		4,302		5,680		12,777		5	(aa)		2,118		5	(A)		(6,253	)	5	(BB)		10,152
								(11,731	)	5	(cc)		(2,623	)	5	(B)
								(371	)	5	(ff)
Accrued offering costs		350		—		—		—					—					(350	)	5	(BB)		—
Deferred revenue, current		—		36,019		8,870		—					—					—					44,889
Related party convertible debt, carried at fair value		—		—		2,924		—					(2,924	)	5	(A)		—					—
Current portion of long-term debt		—		6,094		3,333		—					(3,333	)	5	(A)		(5,158	)	5	(GG)		936

Total current liabilities		6,603		50,748		28,757		675					(6,762	)				(11,761	)				68,260
Deferred underwriting fee payable		6,038		—		—												(6,038	)	5	(EE)		—
Deferred revenue—net of current portion		—		6,326		1,610		—					—					—					7,936
Accrued liabilities, long-term		—		—		779		—					—					—					779
Deferred tax liability		—		—		—		56,430		5	(aa)		—					—					18,437
								(37,993	)	5	(ee)
Long term debt—net of current portion		—		52,327		6,655		(36,131	)	5	(ff)		(6,655	)	5	(A)							16,196
Convertible debt		—		—		—		—					—					149,806		5	(CC)		149,806
Warrants		4,198		7,387		—		(7,387	)	5	(bb)		—					—					4,198

Total liabilities		16,839		116,788		37,801		(24,406	)				(13,417	)				132,007					265,612


	Historical June 30, 2022			Historical July 31, 2022			Historical June 30, 2022
	L&F			ZF			IDX			Adjustments Related to ZF and Acquisition of ZF					Adjustments Related to IDX and Acquisition of IDX					Additional Pro Forma Adjustments					Pro Forma Balance Sheet
ZeroFox redeemable convertible preferred stock		—			138,129			—			1,914		5	(bb)		—					—					—
											(140,043	)	5	(dd)
IDX redeemable convertible preferred stock		—			—			65,166			—					(65,166	)	5	(C)		—					—

Total redeemable convertible preferred stock		—			138,129			65,166			(138,129	)				(65,166	)				—					—
L&F Class A ordinary shares subject to possible redemption		34,832			—			—			—					—					(24,626	)	5	(FF)		—
																					(10,206	)	5	(HH)
Stockholders’ equity (deficit):
L&F Class A ordinary shares		—			—			—			8		5	(aa)		3		5	(A)		1		5	(HH)		12
L&F Class B ordinary shares		—			—			—			—					—					—					—

ZeroFox common stock		—			—			—			—					—					—					—

IDX common stock		—			—			1			—					(8	)	5	(A)		—					—
																7		5	(C)
Additional paid-in capital		—			4,829			24			716,424		5	(aa)		215,939		5	(A)		(3,684	)	5	(BB)		1,174,412
											5,473		5	(bb)		—					15,000		5	(DD)
											140,043		5	(dd)		65,159		5	(C)		5,000		5	(GG)
																					10,205		5	(HH)
Accumulated deficit		(16,643	)		(178,278	)		(70,264	)		178,278		5	(aa)		70,264		5	(A)		33		5	(AA)		(18,129	)
											(2,535	)	5	(ff)							1,016		5	(EE)
Accumulated other comprehensive loss		—			(159	)		—			159		5	(aa)		—					—					—

Total stockholders’ equity (deficit)		(16,643	)		(173,608	)		(70,239	)		1,037,850					351,364					27,571					1,156,295

Total liabilities, redeemable convertible preferred stock, L&F Class A ordinary shares, and stockholders’ equity (deficit)	$	35,028		$	81,309		$	32,728		$	875,315				$	272,781				$	124,746				$	1,421,907

See accompanying notes to the unaudited pro forma condensed combined financial statements.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS

ENDED JULY 31, 2022

(in thousands, except share and per share amounts)


	Historical Six Months Ended June 30, 2022			Historical Six Months Ended July 31, 2022			Historical Six Months Ended June 30, 2022			Transaction Accounting Adjustments
	L&F			ZF			IDX			Adjustments Related to ZF					Adjustments Related to IDX					Additional Pro Forma Adjustments					Pro Forma Statement of Operations
Revenue	$	—		$	28,743		$	56,706		$	—				$	—				$	—				$	85,449
Cost of revenue		—			8,729			44,207			9,900		6	(aa)		1,400		6	(A)		—					64,236

Gross profit		—			20,014			12,499			(9,900	)				(1,400	)				—					21,213
Operating expenses:
Research and development		—			8,023			2,838			—					—					—					10,861
Sales and marketing		—			18,363			4,828			4,500		6	(aa)		3,633		6	(A)		—					31,324
General and administrative		3,856			9,985			3,977			1,900		6	(aa)		3,090		6	(A)		—					16,075
											(3,790	)	6	(ee)		(2,943	)	6	(F)

Total operating expenses		3,856			36,371			11,643			2,610					3,780					—					58,260

(Loss) / income from operations		(3,856	)		(16,357	)		856			(12,510	)				(5,180	)				—					(37,047	)

Other income (expense):
Interest expense, net		—			(2,931	)		(257	)		2,275		6	(bb)		257		6	(B)		(5,283	)	6	(AA)		(6,771	)
											(607	)	6	(cc)
											(225	)	6	(ff)
Fair value adjustments		14,439			(2,059	)		(133	)		2,059		6	(dd)		133		6	(E)		—					14,439
Other expense		—			—			(473	)		—					85		6	(C)							(25	)
																363		6	(D)
Interest earned on marketable securities held in Trust Account		100			—			—			—					—					(100	)	6	(BB)		—

Total other income (expense)		14,539			(4,990	)		(863	)		3,502					838					(5,383	)				7,643

Income / (loss) before taxes		10,683			(21,347	)		(7	)		(9,008	)				(4,342	)				(5,383	)				(29,404	)

Income tax expense (benefit)		—			111			22			(6,877	)	7	(b)		(1,940	)	7	(c)		(910	)	7	(d)		(9,594	)	7	(a)

Net income / (loss) after taxes	$	10,683		$	(21,458	)	$	(29	)	$	(2,131	)			$	(2,402	)			$	(4,473	)			$	(19,810	)

Net income attributable to Class A redeemable ordinary shares (basic and diluted)	$	7,990

Net income attributable to Class B non-redeemable ordinary shares (basic and diluted)	$	2,693

Net income attributable to IDX redeemable convertible preferred stock (basic and diluted)				$	(21,458	)	$	(8	)

Net (loss) / income attributable to common stockholders (basic and diluted)				$	(21,458	)	$	(8	)

Net loss attributable to Class A non-redeemable ordinary shares (basic and diluted)																									$	(19,810	)

Net income per share attributable to Class A redeemable ordinary shares (basic and diluted)	$	0.62

Net income per share attributable to Class B non-redeemable ordinary shares (basic and diluted)	$	0.62

Net (loss) / income per share attributable to IDX redeemable convertible preferred stock (basic and diluted)							$	—

Net (loss) / income per share attributable to common stockholders (basic and diluted)				$	(0.50	)	$	—

Net loss per share attributable to Class A non-redeemable ordinary shares (basic and diluted)																									$	(0.17	)

Weighted-average shares outstanding of Class A redeemable ordinary shares used in computing net income per share attributable to stockholders of Class A redeemable ordinary shares (basic and diluted)		12,795,500

Weighted-average shares outstanding of Class B non-redeemable ordinary shares used in computing net income per share attributable to stockholders of Class B non-redeemable ordinary shares (basic and diluted)		4,312,500

Weighted-average average shares used in computing net (loss) / income per share attributable to IDX redeemable convertible preferred stockholders (basic and diluted)								12,706,627

Weighted-average average shares used in computing net (loss) / income per share attributable to common stockholders (basic and diluted)					43,038,331			12,706,627

Weighted-average shares outstanding of Class A non-redeemable ordinary shares used in computing net loss per share attributable to stockholders of Class A non-redeemable ordinary shares (basic and diluted)																										117,983,659		6	(CC)

See accompanying notes to the unaudited pro forma condensed combined financial statements.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF

OPERATIONS FOR THE YEAR ENDED JANUARY 31, 2022

(in thousands, except share and per share amounts)


	Historical Year Ended December 31, 2021			Historical Year Ended January 31, 2022			Historical Year Ended December 31, 2021			Transaction Accounting Adjustments
	L&F			ZF			IDX			Adjustments Related to ZF					Adjustments Related to IDX					Additional Pro Forma Adjustments					Pro Forma Statement of Operations
Revenue	$	—		$	47,433		$	106,072		$	—				$	—				$	—				$	153,505
Cost of revenue		—			16,357			82,745			19,800		6	(aa)		2,800		6	(A)		—					121,702

Gross profit		—			31,076			23,327			(19,800	)				(2,800	)				—					31,803
Operating expenses:
Research and development		—			12,810			4,941			—					—					—					17,751
Sales and marketing		—			29,873			7,182			9,000		6	(aa)		13,667		6	(A)		—					59,722
General and administrative		3,848			16,408			6,872			3,800		6	(aa)		6,180		6	(A)		—					54,766
											12,290		6	(ee)		5,368		6	(F)

Total operating expenses		3,848			59,091			18,995			25,090					25,215					—					132,239

(Loss) / income from operations		(3,848	)		(28,015	)		4,332			(44,890	)				(28,015	)				—					(100,436	)

Other income (expense):
Interest expense, net		—			(3,585	)		(483	)		2,849		6	(bb)		483		6	(B)		(10,565	)	6	(AA)		(13,158	)
											(957	)	6	(cc)
											(900	)	6	(ff)
Fair value adjustments		9,426			(7,375	)		(1,944	)		7,375		6	(dd)		1,944		6	(E)		—					9,426
Other expense		—			—			(716	)		—					25		6	(D)		—					—
																169		6	(C)
																522		6	(D)
Interest earned on marketable securities held in Trust Account		20			—			—			—					—					(20	)	6	(BB)		—

Total other income (expense)		9,446			(10,960	)		(3,143	)		8,367					3,143					(10,585	)				(3,732	)

Income / (loss) before taxes		5,598			(38,975	)		1,189			(36,523	)				(24,872	)				(10,585	)				(104,168	)

Income tax expense (benefit)		—			(536	)		1,716			(11,658	)	7	(b)		(5,919	)	7	(c)		(2,380	)	7	(d)		(18,777	)	7	(a)

Net income / (loss) after taxes	$	5,598		$	(38,439	)	$	(527	)	$	(24,865	)			$	(18,953	)			$	(8,205	)			$	(85,391	)

Net income attributable to Class A redeemable ordinary shares (basic and diluted)	$	4,478

Net income attributable to Class B non-redeemable ordinary shares (basic and diluted)	$	1,120

Net loss attributable to common stockholders (basic)				$	(38,439	)	$	(32,978	)

Net loss attributable to common stockholders (diluted)				$	(38,439	)	$	(32,978	)

Net loss attributable to Class A non-redeemable ordinary shares (basic and diluted)																									$	(85,391	)

Net income per share attributable to Class A redeemable ordinary shares (basic and diluted)	$	0.26

Net income per share attributable to Class B non-redeemable ordinary shares (basic and diluted)	$	0.26

Net loss per share attributable to common stockholders (basic)				$	(0.91	)	$	(2.80	)

Net loss per share attributable to common stockholders (diluted)				$	(0.91	)	$	(2.80	)

Net loss per share attributable to Class A non-redeemable ordinary shares (basic and diluted)																									$	(0.72	)

Weighted-average shares outstanding of Class A redeemable ordinary shares used in computing net income per share attributable to stockholders of Class A redeemable ordinary shares (basic and diluted)		17,250,000

Weighted-average shares outstanding of Class B non-redeemable ordinary shares used in computing net income per share attributable to stockholders of Class B non-redeemable ordinary shares (basic and diluted)		4,312,500

Weighted-average average shares used in computing net loss per share attributable to common stockholders (basic)					42,073,351			11,777,989

Weighted-average shares used in computing net loss per share attributable to common stockholders (diluted)					42,073,351			11,777,989

Weighted-average shares outstanding of Class A non-redeemable ordinary shares used in computing net loss per share attributable to stockholders of Class A non-redeemable ordinary shares (basic and diluted)																										117,983,659		6	(CC)

See accompanying notes to the unaudited pro forma condensed combined financial statements.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1.	Description of the Transactions

Business Combination, Common Equity PIPE Financing, and Notes

On December 17, 2021, L&F, ZeroFox and IDX entered into a definitive business combination agreement (the “Business Combination Agreement”). Under the terms of the Business Combination Agreement, following the domestication of L&F as a Delaware corporation that occurred on August 3, 2022, (i) ZF Merger Sub, Inc., an indirect wholly-owned subsidiary of L&F, merged with and into ZeroFox (the “ZF Merger”) on August 3, 2022, with ZeroFox as the surviving company in the ZF Merger and continuing (immediately following the ZF Merger) as an indirect, wholly-owned subsidiary of L&F, (ii) immediately following the ZF Merger, IDX Merger Sub, Inc., an indirect wholly-owned subsidiary of L&F, merged with and into IDX (the “IDX Merger”), with IDX as the surviving company in the IDX Merger (referred to herein as “Transitional IDX Entity”) and continuing (immediately following the IDX Merger) as an indirect, wholly-owned subsidiary of L&F, and (iii) immediately following the IDX Merger, Transitional IDX Entity merged with and into IDX Forward Merger Sub, LLC, an indirect wholly-owned subsidiary of L&F (the “IDX Forward Merger,” and together with the ZF Merger and IDX Merger, the “Mergers”), with IDX Forward Merger Sub, LLC as the surviving company in the IDX Forward Merger and continuing (immediately following the IDX Forward Merger) as an indirect, wholly-owned subsidiary of L&F (the mergers together with the domestication of L&F, the “Business Combination”). The cash components of the transaction were funded by the $20.0 million Common Equity PIPE Financing, and $150.0 million Convertible Notes Financing. The Notes will mature three years from issuance and accrue cash interest at 7.00% per annum payable quarterly with an option for the issuer to accrue paid-in-kind interest at an annual rate of 8.75%.

2.	Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial statements were prepared in accordance with Article 11 of SEC Regulation S-X, as amended by the final rule, Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the Business Combination (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). Management has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial information. The adjustments presented in the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the combined company reflecting the Business Combination.

The unaudited pro forma condensed combined balance sheet gives pro forma effect to the Business Combination as if they had been consummated on July 31, 2022. The unaudited pro forma condensed combined statements of operations for the six months ended July 31, 2022 and the year ended January 31, 2022 give effect to the Business Combination as if they had occurred on February 1, 2021.

Management has made significant estimates and assumptions in its determination of the pro forma adjustments. The pro forma adjustments reflecting the Business Combination are based on certain currently available information and certain assumptions and methodologies that management believes are reasonable under the circumstances. The pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments, and it is possible the difference may be material. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial statements.

On May 3, 2022, L&F held an extraordinary general meeting of shareholders and voted to approve the Extension Articles Amendment, extending the date by which L&F must complete its initial business combination from May 23, 2022 to August 24, 2022. The L&F shareholders approved the Extension Amendment Proposal at the Extension Meeting and on May 3, 2022, L&F filed the Extension Articles Amendment with the Register of Companies of the Cayman Islands. In connection with the vote to approve the Extension Amendment Proposal, the holders of 13,824,311 Class A Ordinary Shares properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.15 per share, for an aggregate redemption amount of approximately $140,378,518.

Prior to completion of the Business Combination, the holders of 2,419,687 Class A ordinary shares exercised their right to redeem their shares for cash at a redemption price of approximately $10.18 per share, for an aggregate redemption amount of $24,626,039.

After giving effect to the Extension Amendment Redemptions, as of May 27, 2022, and the additional redemptions prior to the completion of the Business Combination, there were 1,006,002 Class A Ordinary Shares and 4,312,500 Class B Ordinary Shares issued and outstanding and approximately $10,238,000 remaining in the Trust Account.

The unaudited pro forma condensed combined financial statements do not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination. L&F and ZeroFox have not had any historical relationship prior to the Business Combination. L&F and IDX have not had any historical relationship prior to the Business Combination. Prior to the Business Combination, IDX was a customer of ZeroFox.

Shares outstanding as presented in the unaudited pro forma condensed combined financial statements include 82,815,215 shares of New ZeroFox Common Stock to be issued to ZeroFox’s shareholders, 27,849,942 shares of New ZeroFox Common Stock to be issued to IDX’s shareholders, 5,318,502 shares of New ZeroFox Common Stock issued to L&F shareholders (including the 1,293,750 shares of New ZeroFox Common Stock to be issued to the Sponsor Holders that are subject to forfeiture if certain earnout conditions are not satisfied (the “Sponsor Holders Earnout Shares”)), and 2,000,000 shares of New ZeroFox Common Stock to be issued in connection with the Common Equity PIPE Financing.

As a result of the Business Combination ZeroFox’s shareholders will own approximately 70% of the shares of New ZeroFox Common Stock, IDX’s shareholders will own approximately 23% of the shares of New ZeroFox Common Stock, the Common Equity PIPE Investors will own 2% of the shares of New ZeroFox Common Stock, and the L&F Initial Shareholders will own approximately 5% of the shares of New ZeroFox Common Stock, based on the number of Class A Ordinary Shares outstanding as of August 3, 2022 immediately preceding the completion of the Business Combination (in each case, not giving effect to any shares issuable upon exercise of any L&F warrants, L&F options, or conversion of the Notes).


	Shares from Transaction (after Redemptions)		Shares from PIPE Investment		Total Shares		%
ZeroFox Shareholders		82,815,215		—		82,815,215		70	%
IDX Shareholders		27,849,942		—		27,849,942		23	%
Common Equity PIPE Investors		—		2,000,000		2,000,000		2	%
L&F Initial Shareholders		5,318,502		—		5,318,502		5	%

Total		115,983,659		2,000,000		117,983,659		100	%

The L&F Public Warrants and the L&F Private Placement Warrants have been reported as liability-classified instruments that will be subsequently remeasured at fair value in future reporting periods, with changes in fair value recognized in earnings. The 1,293,750 Sponsor Holders Earnout Shares that are subject to an earnout pursuant to the Sponsor Support Letter Agreement have been reported as equity-classified as they are indexed to the entity’s own stock and meet the additional criteria for equity classification. The L&F Public Warrants and the L&F Private Placement Warrants will continue to be reported as liability-classified and the Sponsor Holders Earnout Shares will continue to be reported as equity-classified by New ZeroFox.

3.	Accounting Treatment for the Business Combination

Upon consummation of the Business Combination, ZeroFox is considered a variable interest entity as the equity at risk for ZeroFox is not sufficient to fund expected future cash flow needs, including funding future projected losses, and servicing existing debt obligations. L&F will hold a variable interest in ZeroFox as it will own 100% of ZeroFox’s equity. L&F is considered the primary beneficiary as its ownership will provide the power to direct the activities that most significantly impact ZeroFox’s performance and the obligation to absorb the losses and/or receive the benefits of ZeroFox that could potentially be significant to ZeroFox. L&F is treated as the accounting acquirer.

L&F’s acquisitions of ZeroFox and IDX is considered business combinations under ASC 805, Business Combinations, and will be accounted for using the acquisition method of accounting. The consideration transferred to effect the acquisitions will be allocated to the assets acquired and liabilities assumed based on their estimated acquisition-date fair values. The excess of consideration transferred over the fair values of assets acquired and liabilities assumed will be recorded as goodwill. Transaction costs related to the acquisitions of ZeroFox and IDX are expensed.

4.	Exchange of Shares for New ZeroFox Common Stock

Exchange of ZeroFox Shares for New ZeroFox Common Stock

Based on 289,284,084 shares of ZeroFox Common Stock outstanding as of August 3, 2022 after the net exercise of certain warrants that occurred within a short period of time following completion of the Business Combination, and the ZF Mandatory Conversion immediately prior to the Closing, and the ZF Closing Stock per Share Consideration, determined in accordance with the terms of the Business Combination Agreement, of approximately 0.2863 of a share of New ZeroFox Common Stock, holders of ZeroFox Common Stock (excluding holders of certain ZeroFox warrants and ZeroFox options) are expected to receive 82,815,215 shares of New ZeroFox Common Stock in the Business Combination, determined as follows:


	ZeroFox Shares Outstanding as of August 3, 2022		Net Exercise of Stock Warrants		Conversion of ZeroFox Redeemable Convertible Preferred Stock into ZeroFox Common Stock			ZeroFox common stock assumed outstanding prior to Closing
Series Seed, par value $0.00001 per share		9,198,372		—		(9,198,372	)		—
Series A, par value $0.00001 per share		15,997,285		115,393		(16,112,678	)		—
Series B, par value $0.00001 per share		26,914,949		132,014		(27,046,963	)		—
Series C, par value $0.00001 per share		21,124,699		—		(21,124,699	)		—
Series C-1, par value $0.00001 per share		11,882,605		—		(11,882,605	)		—
Series D, par value $0.00001 per share		13,871,547		—		(13,871,547	)		—
Series D-1, par value $0.00001 per share		5,878,303		—		(5,878,303	)		—
Series D-2, par value $0.00001 per share		993,868		—		(993,868	)		—
Series E, par value $0.00001 per share		15,767,013		207,875		(15,974,888	)		—
Common stock, par value $0.00001 per share		43,285,001		1,831,237		244,167,846			289,284,084

Total		164,913,642		2,286,519		122,083,923			289,284,084

ZeroFox common stock assumed outstanding prior to Closing									289,284,084
ZF Closing Stock Per Share Consideration									0.2863

									82,814,578
Adjustment for fractional shares									637

Estimated shares of New ZeroFox Common Stock issued to ZeroFox stockholders upon Closing									82,815,215

Exchange of Shares of IDX Capital Stock for Shares of New ZeroFox Common Stock

Based on 45,301,745 shares of IDX Capital Stock outstanding as of August 3, 2022 and the IDX Closing Stock Per Share Consideration, determined in accordance with the terms of the Business Combination Agreement, of approximately 0.6148 of a share of New ZeroFox Common Stock, holders of IDX Capital Stock are expected to receive 27,849,942 shares of New ZeroFox Common Stock in the Business Combination, determined as follows:


	IDX Capital Stock outstanding as of August 3, 2022		Net Exercise of IDX Common Stock Warrants		Conversion of IDX Redeemable Convertible Preferred Stock into IDX Common Stock			IDX Common Stock assumed outstanding prior to Closing
Series A-1, par value $0.0001 per share		5,882,350		—		(5,882,350	)		—
Series A-2, par value $0.0001 per share		26,194,324		—		(26,194,324	)		—
Common stock, par value $0.0001 per share		13,225,071		—		32,076,674			45,301,745

		45,301,745		—		—			45,301,745

IDX Common Stock assumed outstanding prior to closing									45,301,745
IDX Closing Stock Per Share Consideration									0.6148

									27,849,966
Adjustment for fractional shares									(24	)

Estimated shares of New ZeroFox Common Stock issued to IDX stockholders upon Closing									27,849,942

5.	Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet

The pro forma adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:

Pro Forma Adjustments Related to ZeroFox:

The adjustments below relate to ZeroFox and include adjustments to record the allocation of the purchase price for the acquisition of ZeroFox and additional adjustments related to the Business Combination.

(aa)

All of the outstanding shares of ZeroFox were exchanged for shares of New ZeroFox. ZeroFox provides digital risk protection services and safeguards modern organizations from dynamic security risks across social, mobile, surface, deep and dark web, email and collaboration platforms. The ZeroFox acquisition will allow New ZeroFox to further scale its digital risk protection services and expand its customer base. The acquisition will be accounted for as a business combination in accordance with ASC 805, Business Combinations.

The following table summarizes the estimate of the consideration transferred to effect the ZeroFox acquisition (in thousands, except share and share price amounts):


Repayment of ZeroFox’s debt ⁽¹⁾	$	38,625
Shares of New ZeroFox Common Stock transferred		82,815,215
New ZeroFox Common Stock share price	$	10.00

New ZeroFox Common Stock consideration transferred	$	828,152

Total consideration transferred	$	866,777

(1)

Total consideration transferred will include payment ZeroFox’s debt with Orix and related prepayment penalty by New ZeroFox.

Adjustment 5(aa) reflects the following:

•

The adjustment reflects consideration transferred in the adjustments to L&F Class A ordinary shares (Domesticated) of $8,000 and additional paid-in capital of $866.8 million.

•

The adjustment reflects the elimination of ZeroFox’s historical equity as well as its equity arising from the other Adjustments Related to ZeroFox. These eliminations include:

•

the elimination of $4.8 million of historical additional paid-in capital;

•

the elimination of $(145.5) million of additional paid-in capital arising from the other Adjustments Related to ZeroFox;

•

the elimination of $(178.3) million of historical accumulated deficit;

•

the elimination of $(12.8) million of accumulated deficit arising from the Adjustments Related to ZeroFox; and

•

the elimination of $0.2 million of historical accumulated other comprehensive income.

•

The adjustment reflects fair value adjustments to record ZeroFox’s identifiable intangible assets and goodwill of $172.0 million and $746.4 million, respectively.

•

The adjustment reflects the acquisition of a deferred tax asset of $32.9 million and a deferred tax liability of $43.7 million.

The following table summarizes the allocation of the preliminary estimate of the purchase price to the assets acquired and liabilities assumed (in thousands):


Cash and cash equivalents ⁽¹⁾	$	(8,928	)
Accounts receivable, net of allowance for doubtful accounts		14,210
Deferred contract acquisitions costs, current		4,918
Prepaid expenses and other assets		2,859
Property and equipment, net of accumulated depreciation		609
Capitalized software, net of accumulated amortization		1,082
Deferred contract acquisition costs, net of current portion		6,854
Acquired intangible assets, net of accumulated amortization		184,631
Goodwill		789,085
Deferred tax asset		37,993
Other assets		341

Total assets acquired		1,033,654

Accounts payable		4,333
Accrued liabilities		5,348
Deferred revenue, current		36,019
Current portion of long-term debt		6,094
Deferred revenue, net of current portion		6,326
Long-term debt, net of current portion		52,327
Deferred tax liability		56,430

Total liabilities assumed		166,877

Total consideration transferred	$	866,777

(1)

Cash is presented net of payment of $11.7 million of ZeroFox’s transaction costs which are offset against accrued liabilities in the preliminary purchase price allocation above.

The excess of the purchase price over the fair values of the net identifiable tangible and intangible assets acquired will be assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the New ZeroFox’s competitive position. Goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event that management determines that the value of goodwill has been impaired, an accounting charge for the amount of impairment during the quarter in which the determination is made may be recognized. Goodwill attributable to the ZeroFox acquisition is not expected to be deductible for tax purposes.

With respect to the adoption of ASU No. 2021-08, notwithstanding the fact that the Business Combination is assumed to have occurred as of February 1, 2021, based on Article 11 guidance for the pro forma condensed statement of comprehensive income, ZeroFox used February 1, 2022 as the adoption date for purposes of the pro forma condensed statement of comprehensive income as that is the adoption date reflected in the historical financial statements for the three months ended April 30, 2022.

The following table sets forth the amounts allocated to the intangible assets identified, the estimated useful lives of those intangible assets, and the methodologies used to determine the fair values of those intangible assets (dollars in thousands):


	Fair Value		Useful Life (in years)		Fair Value Methodology
Trade names and trademarks	$	19,000		5	Relief from Royalty method Developed technology
Developed technology		99,000		5	Replacement Cost method Customer relationships
Customer relationships		54,000		6	Multi-period Excess Earnings method of the Income Approach

	$	172,000

(bb)

To reflect the net exercise of warrants to purchase ZeroFox Series A, B, and E redeemable convertible preferred stock and ZeroFox Common Stock that were outstanding and unexercised as of July 31, 2022. Upon the Business Combination, these warrants were exchanged for warrants to purchase New ZeroFox Common Stock. Within a short period time following the completion of the Business Combination, the warrants to purchase New ZeroFox Common Stock were exercised. This adjustment reduces the warrant liability by $7.4 million and increases redeemable convertible preferred stock and additional paid-in capital by $1.9 million and $5.5 million, respectively.

(cc)

To reflect the payment of ZeroFox’s total estimated advisory, legal, accounting, auditing, and other professional fees of $17.7 million that are deemed to be direct and incremental costs of the Business Combination. Approximately $8.5 million of these costs have been expensed in the historical financial statements and of that amount, approximately $5.9 million was paid as of July 31, 2022. This adjustment reduces cash and accrued liabilities by $11.7 million to reflect the payment of the unpaid costs of the Business Combination.

(dd)

To reflect the conversion of all of ZeroFox’s redeemable convertible preferred stock into ZeroFox common stock in connection with the Business Combination. Each share of all series of ZeroFox redeemable convertible preferred stock converts into two shares of ZeroFox common stock.

(ee)

To reflect an adjustment to present deferred taxes as a net deferred tax liability. The proforma tax adjustments are based on the assumption that the acquired deferred tax liabilities will be a source of income for our net operating losses. The Company will complete its analysis relating to the availability of the deferred tax liabilities as a source of income and evaluate any limitations on the use of its net operating losses when the Business Combination is complete.

(ff)

To reflect the repayment of notes due to Orix Growth Capital, LLC of $37.5 million and accrued interest of $0.3 million. The repayment of the note due to Orix Growth Capital, LLC includes a 3% pre-payment penalty of $1.1 million. The net book value of the notes includes unamortized debt issuance costs and unamortized debt discounts of $1.5 million.

Pro Forma Adjustments Related to IDX:

The adjustments below relate to IDX and include an adjustment to record the allocation of the purchase price for the acquisition of IDX and additional adjustments related to the Business Combination.

(A)

All of the outstanding shares of IDX Capital Stock were exchanged for shares of New ZeroFox Common Stock. IDX provides privacy, identity protection, and data breach response services to its government and commercial customers. The IDX acquisition will allow New ZeroFox to further scale its digital risk protection services and expand its customer base. The acquisition will be accounted for as a business combination in accordance with ASC 805, Business Combinations.

The following table summarizes the preliminary estimate of the consideration transferred to effect the IDX acquisition (in thousands, except share and share price amounts):


Cash consideration ⁽¹⁾	$	30,088
Repayment of IDX’s estimated transaction costs ⁽²⁾		6,726
Repayment of IDX’s debt ⁽³⁾		12,912

Total cash consideration and repayment of IDX’s debt and estimated transaction costs	$	49,726

Shares of New ZeroFox Common Stock transferred		27,849,966
New ZeroFox Common Stock share price	$	10.00

New ZeroFox Common Stock consideration transferred	$	278,499

Total consideration transferred	$	328,225

(1)

Total consideration transferred will include cash consideration of $47.1 million, adjusted for IDX’s closing working capital, debt, and cash. As a condition to the Business Combination, IDX retains their pre-closing cash balance. As such, the pro forma adjustment to cash includes a reduction of $17.0 million.

(2)

Total consideration transferred will include transaction costs incurred by IDX that are not deemed to be direct and incremental costs of the Business Combination that will be reimbursed by New ZeroFox.

(3)

Total consideration transferred will include payment of IDX’s debt by New ZeroFox.

Adjustment 5(A) reflects the following:

•

The adjustment reflects consideration transferred in the adjustments to cash and cash equivalents of $47.1 million, L&F Class A ordinary shares (Domesticated) of $3,000, and additional paid-in capital of $281.1 million.

•

The adjustment reflects the elimination of IDX’s historical equity as well as its equity arising from the other Adjustments Related to Acquisition of IDX (see Notes 5(B) through 5(C)). These eliminations of IDX’s equity include the elimination of IDX’s historical additional paid-in capital of $24,000 as well as the elimination of its additional paid-in capital arising from the other Adjustments Related to Acquisition of IDX of $65.2 million. The eliminations of IDX’s equity also include the elimination of historical common stock of $1,000 and the elimination of $3,000 of common stock arising from the other Adjustments Related to Acquisition of IDX. These eliminations also include the elimination of IDX’s historical accumulated deficit of $70.3.

•

The adjustment reflects fair value adjustments to record IDX’s identifiable intangible assets and goodwill of $94.9 million and $245.8 million, respectively.

•

The adjustment reflects the payment of IDX’s current portion of long-term debt, long-term debt—net of current portion, and related party convertible debt of $3.3 million, $6.7 million, and $2.9 million, respectively.

The following table summarizes the allocation of the preliminary estimate of the purchase price to the assets acquired and liabilities assumed (in thousands):


Cash and cash equivalents ⁽¹⁾	$	—
Accounts receivable		12,037
Deferred contract acquisitions costs, current		1,065
Prepaid expenses and other assets		1,071
Property and equipment		128
Deferred contract acquisition costs, net of current portion		188
Goodwill		245,843
Intangible assets		94,900

Total assets acquired		355,232

Accounts payable		7,950
Accrued liabilities		7,798
Deferred revenue, current		8,870
Deferred revenue, net of current portion		1,610
Accrued liabilities, long-term		779

Total liabilities assumed		27,007

Total consideration transferred	$	328,225

(1)

No cash was acquired as part of the Business Combination. The pro forma adjustment to cash reflects the retention of pre-acquisition cash by the IDX shareholders of $(17.0) million and the payment of cash consideration to the IDX shareholders of $(47.1) million, a total adjustment of $(64.1) million.

The excess of the purchase price over the fair values of the net identifiable tangible and intangible assets acquired will be assigned to goodwill. Goodwill represents the future benefits as a result of the acquisition that will enhance the services available to both new and existing customers and increase the New ZeroFox’s competitive position. Goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event that management determines that the value of goodwill has been impaired, an accounting charge for the amount of impairment during the quarter in which the determination is made may be recognized. Goodwill attributable to the IDX acquisition is not expected to be deductible for tax purposes.

With respect to the adoption of ASU No. 2021-08, notwithstanding the fact that the Business Combination is assumed to have occurred as of February 1, 2021, based on Article 11 guidance for the pro forma condensed statement of comprehensive income, IDX used February 1, 2022 as the adoption date for purposes of the pro forma condensed statement of comprehensive income as that is the adoption date reflected in the historical financial statements for the six months ended July 31, 2022.


	Fair Value		Useful Life (in years)		Fair Value Methodology
Trade name	$	30,900		5	Relief from Royalty method
Developed technology		14,000		5	Replacement Cost method
Breach-related contracts		2,300		1	Multi-period Excess Earnings Method of the Income Approach
Office of Personnel Management contract		43,600		6	Multi-period Excess Earnings Method of the Income Approach
Customer relationships		4,100		1	Multi-period Excess Earnings Method of the Income Approach

	$	94,900

As part of the IDX acquisition, ZeroFox incurred negligible acquisition-related costs and therefore no adjustment is reflected in these pro forma financial statements.

(B)

To reflect the payment of IDX’s total estimated advisory, legal, accounting, auditing, and other professional fees of $6.7 million that are deemed to be direct and incremental costs of the Business Combination. Approximately $4.6 million of these costs have been expensed in the historical financial statements and of that amount, approximately $4.1 million was paid as of June 30, 2022. This adjustment reduces cash and accrued liabilities by $2.6 million to reflect the payment of the unpaid costs of the Business Combination.

(C)

To reflect the conversion of all of IDX’s redeemable convertible preferred stock into IDX common stock due to the Business Combination. Each share of all series of IDX redeemable convertible preferred stock converts into one share of IDX common stock.

Additional Pro Forma Adjustments:

The adjustments below are related to the Common Equity PIPE Financing, the Convertible Notes Financing, and the Business Combination, which include additional adjustments related to L&F.

(AA)

To reflect the release of cash from the trust account to cash and cash equivalents. The entry includes an additional $33,000 of interest earned on the trust account through the completion of the Business Combination.

(BB)

To reflect the payment of L&F’s total estimated advisory, legal, accounting, auditing, and other professional fees of $14.9 million that are deemed to be direct and incremental costs of the Business Combination. The adjustment reduces cash by $10.3 million, prepaid expenses by $39,000, accrued liabilities by $6.3 million, accrued offering costs by $0.4 million, and additional paid-in capital by $3.7 million.

(CC)

To reflect the issuance of the Notes for $150.0 million. This adjustment records an increase of cash from the convertible note issuance of $149.8 million ($150.0 million, net of debt issuance costs of $0.2 million) and a corresponding increase in the carrying value of convertible debt. The Notes contain a provision whereby, in the case of an event of default, the obligation will bear additional interest at a rate equal to 2.00%. Management evaluated Events of Default and determined the non-credit related events of default represent an embedded derivative that must be bifurcated and accounted for separately from the Notes. The default rate derivative is treated as a liability, initially measured at fair value with subsequent changes in fair value recorded in earnings. Management has assessed the probability of occurrence for a non-credit default event and determined the likelihood of a referenced event to be remote. Therefore, the estimated fair value of the default rate derivative is negligible and no amount was recorded.

(DD)

To reflect the issuance of an aggregate of 1,500,000 shares of New ZeroFox Common Stock in the Common Equity PIPE Financing (excludes the 500,000 Common Equity PIPE Financing shares to be issued to holders of the ZeroFox PIK Promissory Notes, see Note 5(GG)) at a price of $10.00 per share, for an aggregate purchase price of $15.0 million.

(EE)

To reflect the settlement of the $6.0 million deferred underwriting fee payable that was incurred during L&F’s initial public offering, which is required to be settled upon completion of the Business Combination. Immediately prior to the completion of the Business Combination the deferred underwriting fee payable was reduced by $1 million. Accordingly, this adjustment includes a reduction to Accumulated Deficit of $1 million.

(FF)

To reflect the L&F’s public shareholders exercise of their redemption rights with respect to 2,419,687 L&F Class A Ordinary Shares prior to the Closing at a redemption price of approximately $10.18 per share, or $24.6 million in cash.

(GG)

To reflect the issuance of an aggregate of 500,000 shares of New ZeroFox Common Stock in the Common Equity PIPE Financing to be issued to holders of the ZeroFox PIK Promissory Notes at a price of $10.00 per share. The issuance of these shares results in a reduction to the ZeroFox PIK Promissory Notes liability and an increase to additional paid-in-capital of $5.0 million and a reduction to cash of $0.2 million for accrued interest paid at the closing of the Business Combination.

(HH)

To reflect the reclassification of 1,006,002 Class A Ordinary Shares of $10.2 million to common stock and additional paid-in capital of $10.2 million.

6.	Adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations

The pro forma adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:

Pro Forma Adjustments Related to ZeroFox:

The adjustments below relate to ZeroFox and include adjustments related to the allocation of the purchase price and additional adjustments related to the Business Combination.

(aa)

To reflect incremental amortization expense as a result of the fair value adjustment to intangible assets. Amortization expense related to developed technology is recorded as cost of revenue. Amortization expense related to the trade names and trademarks is recorded as general and administrative expense. Amortization expense related to customer relationships is recorded as sales and marketing expense.

(bb)

To reflect an adjustment to eliminate interest expense, amortization of discount and debt issuance costs on the Orix loan as it is assumed that the related debt balance would have been paid off by ZeroFox on February 1, 2021.

(cc)

To reflect an adjustment to write-off the unamortized debt discounts related to ZeroFox’s loan with Orix. The unamortized debt discounts include discounts due to unamortized debt issuance costs and warrants.

(dd)

To reflect the elimination of the change in fair value of ZeroFox’s warrant liabilities. It is assumed that the warrants to purchase ZeroFox’s Series A, B, C, C-1, and E redeemable convertible preferred stock and warrants to purchase ZeroFox Common Stock will be net exercised on February 1, 2021.

(ee)

To reflect the recognition of ZeroFox’s total estimated advisory, legal, accounting, auditing, and other professional fees of $17.7 million that are deemed to be direct and incremental costs of the Business Combination (see Note 5(cc)). Of this amount, $12.3 million was recognized in subsequent fiscal periods and has been added to the pro forma statement of operations for the twelve months ended January 31, 2022. For the pro forma statement of operations for the six months ended July 31, 2022, general and administrative expense was reduced by $3.8 million to eliminate the amount of transaction related expenses recognized in that fiscal period.

(ff)

To reflect the prepayment penalty associated with the payment of its long-term debt with Orix (see Note 5(ff)).

Pro Forma Adjustments Related to IDX:

The adjustments below relate to IDX and include adjustments related to the allocation of the purchase price and additional adjustments related to the Business Combination.

(A)

To reflect incremental amortization expense as a result of the fair value adjustment to intangible assets. Amortization expense related to developed technology is recorded as cost of revenue. Amortization expense related to the trade name is recorded as general and administrative expense. Amortization expense related to the Office of Personnel Management contract, breach-related contract, and customer relationships is recorded as sales and marketing expense.

(B)

To reflect the elimination of interest expense and amortization of deferred debt issuance costs on IDX’s loan with Comerica Bank as it is assumed that this debt balance is paid off upon Closing.

(C)

To reflect the elimination of interest expense on IDX’s related party convertible debt as it is assumed that this debt balance would have been paid off upon the Closing.

(D)

To reflect the elimination of the change in fair value of IDX’s related party convertible debt as it is assumed that this debt balance would have been paid off upon the Closing.

(E)

To reflect the elimination of the change in fair value of IDX’s warrant liabilities. It is assumed that the warrants to purchase IDX’s capital stock will be net exercised on February 1, 2021.

(F)

To reflect the recognition IDX’s total estimated advisory, legal, accounting, auditing, and other professional fees of $6.7 million that are deemed to be direct and incremental costs of the Business Combination (see Note 5(B)). Of this amount, $5.4 million was recognized in subsequent fiscal periods and has been added to the pro forma statement of operations for the twelve months ended January 31, 2022. For the pro forma statement of operations for the six months ended July 31, 2022, general and administrative expense was reduced by $1.3 million to eliminate the amount of transaction related expenses recognized in that fiscal period.

Additional Pro Forma Adjustments:

The adjustments below include adjustments related to the Common Equity PIPE Financing, the Convertible Notes Financing and the Business Combination, which include additional adjustments related to L&F.

(AA)

To reflect an adjustment to record cash interest expense of 7.00% and amortization of debt issuance costs on the Notes (see Note 5(CC)).

The Notes bear interest at a rate of 7.00% per annum, payable quarterly in cash; provided, that the issuer may elect to pay interest in kind at a rate of 8.75% per annum. The preparation of the unaudited pro forma condensed combined financials statements assumes the cash interest option was elected consistently throughout the reporting period. The following table summarizes the impact of selecting the interest in kind option on unaudited pro forma condensed combined financials statements (in thousands, except share and share price amounts):


	Cash Interest Option			PIK Option
For the six months ended July 31, 2022
Convertible debt	$	149,806		$	170,956
Total liabilities	$	265,612		$	286,762
Accumulated deficit	$	(18,129	)	$	(39,279	)
Total stockholders’ equity	$	1,156,295		$	1,135,145
Interest expense	$	6,771		$	8,721
Net los after taxes	$	(19,810	)	$	(21,820	)
Net loss per share	$	(0.17	)	$	(0.18	)
For the year ended January 31, 2022
Interest expense	$	13,158		$	16,257
Net loss after tax	$	(85,391	)	$	(88,490	)
Net loss per share	$	(0.72	)	$	(0.75	)

(BB)

To reflect the elimination of interest income related to the marketable securities held in the trust account.

(CC)

The pro forma basic and diluted net loss per share amounts presented in the unaudited pro forma condensed combined statements of operations are based upon the number of New ZeroFox shares outstanding as if the Business Combination occurred on February 1, 2021. The calculation of weighted-average shares outstanding for pro forma basic and diluted net loss per share assumes that the shares issuable in connection with the Business Combination have been outstanding for the entirety of the periods presented. The unaudited pro forma condensed combined statements of operations reflect net losses for the periods presented and, accordingly, no loss amounts have been allocated to the Sponsor Holders Earnout Shares. The Sponsor Holders Earnout Shares have also been excluded from basic and diluted pro forma net loss per share as such shares are subject to forfeiture until certain specified earnout triggering events have occurred.

Pro Forma weighted-average common shares outstanding—basic and diluted is calculated as follows for the year ended January 31, 2022 and the six months ended July 31, 2022:


	Assuming Actual Redemptions into Cash
Assume conversion of Class B ordinary shares into Class A ordinary shares effective February 1, 2021 as a result of assuming closing of the Business Combination on February 1, 2021		4,312,500
Assume reclassification of L&F Class A ordinary shares subject to redemption to L&F Class A ordinary shares not subject to redemption effective February 1, 2021 as a result of assuming closing of the Business Combination on February 1, 2021		1,006,002
Assume February 1, 2021 issuance of L&F Class A ordinary shares in connection with the closing of the Common Equity PIPE Investment Financing		2,000,000
Assume February 1, 2021 issuance of L&F Class A ordinary shares to ZeroFox shareholders as a result of assuming closing of the Business Combination on February 1, 2021		82,815,215
Assume February 1, 2021 issuance of L&F Class A ordinary shares to IDX shareholders as a result of assuming closing of the Business Combination on February 1, 2021		27,849,942

Pro forma weighted-average shares outstanding - basic and diluted		117,983,659

7.	Income Taxes

(a)

The pro forma provision for income taxes for six months ended July 31, 2022 and year ended January 31, 2022, is as follows (in thousands):


	Six Months Ended July 31, 2022			Year Ended January 31, 2022
Current tax expense:
Federal	$	—		$	—
Foreign		111			100
State and local		27			74

		138			174
Deferred tax (benefit) expense:
Federal		(8,892	)		(20,225	)
State and local Foreign		(1,334 —	)		226 —

		(10,226	)		(19,999	)
Less change in valuation allowance		494			1,048

Income tax benefit	$	(9,594	)	$	(18,777	)

The reported pro forma income tax provision differs from the amount computed by applying the statutory US federal income tax rate to the loss before income taxes due to foreign non-deductible income and nondeductible expenses, primarily consisting of transaction costs. A reconciliation of the statutory US income tax rate to the effective pro forma income tax rate for the six months ended July 31, 2022 and year ended January 31, 2022, is as follows:


	Six Months Ended July 31, 2022			Year Ended January 31, 2022
US statutory rate		21.00	%		21.00	%
Permanent differences		8.32			(0.31	)
Change in deferred tax assets and liabilities		4.40			(0.45	)
Change in valuation allowance		(1.63	)		(1.06	)
Other		(0.43	)		(0.16	)

Net income tax expense		31.66	%		19.02	%

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses between financial statement reporting and income tax reporting. Deferred income taxes as of July 31, 2022 consisted of the following (in thousands):


	July 31, 2022
Deferred tax assets
Depreciation and amortization	$	813
Deferred revenue		1,227
Stock-based compensation		118
Accruals		1,216
Charitable contributions		3
Allowance for doubtful accounts		74
Tax credits		12
Limitation on business interest expense		4,185
Net operating losses - federal and state		33,697
Credit carryforward		36
Deferred rent		15
Other, net		(15	)

Total deferred tax asset before valuation allowance		41,381
Valuation allowance		(3,388	)

Total deferred tax asset		37,993

Deferred tax liabilities:
Prepaid commissions		(2,944	)
Deferred revenue		(3,877	)
Intangibles from ZeroFox’s acquisition of a business		(786	)
ZeroFox intangibles		(32,024	)
IDX intangibles		(16,683	)
Other, net		(116	)

Total deferred tax liability before valuation allowance		(56,430	)
Valuation allowance		—
Total deferred tax liability		(56,430	)

Net deferred tax	$	(18,437	)

(b)

The following table represents the pro forma income tax adjustments for the six months ended July 31, 2022 (in thousands):


	Adjustments Related to ZF			Adjustments Related to IDX			Additional Pro Forma Adjustments
Pro forma income tax adjustments
Amortization of intangible assets	$	(4,240	)	$	(2,113	)	$	—
Net operating loss carry forward		(3,691	)		—			—
Deferred Revenue		724			171			—
Limitation of business interest expense		—			—			(1,404	)
Other		330			2			—
Valuation allowance		—			—			494

Total pro forma income tax adjustments	$	(6,877	)	$	(1,940	)	$	(910	)

(c)

The following table represents the pro forma income tax adjustments for the year ended January 31, 2022 (in thousands):


	Adjustments Related to ZF			Adjustments Related to IDX			Additional Pro Forma Adjustments
Pro forma income tax adjustments
Amortization intangible assets	$	(6,111	)	$	(4,584	)	$	—
Net operating loss carryforward		(11,811	)		—			—
Deferred revenue		4,736			342			—
Limitation of business interest expense		—			—			(3,428	)
Other		1,528			(1,677	)		—
Valuation allowance		—			—			1,048

Total pro forma income tax adjustments	$	(11,658	)	$	(5,919	)	$	(2,380	)

The pro forma tax adjustments are based on the assumption that the acquired deferred tax liabilities will be a source of income for our net operating losses. We will complete our analysis relating to the availability of the deferred tax liabilities as a source of income and evaluate any limitations on the use of our net operating losses when the Business Combination is complete.