# FiscalNote Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [FiscalNote Holdings, Inc.](/companies/note.md) (CIK 1823466)
- Form: 10-Q
- Filed: 2022-11-14
- Accepted by EDGAR: Nov 14, 2022, 17:17 ET
- Period: 2022-09-30
- Accession: 0000950170-22-025045
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1823466/000095017022025045/note-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1823466/000095017022025045/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $29.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $82.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $5.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $15.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$44.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$68.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | −$2.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | −$2.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$109.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$175.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$1.63 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$5.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$1.39 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$4.52 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 96,235,930 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 44,876,770 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$57.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $8.9m | us-gaap:PaymentsToAcquireProductiveAssets |
| Share repurchases | 9 months, 2022-01-01 to 2022-09-30 | $88.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-30 | $78.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $102.5m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $450.4m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $61.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $269.4m | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $160.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-09-30 | $68.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-09-30 | $181.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 81,624 characters.

*The following discussion and analysis provide information that FiscalNote’s management believes is relevant to an assessment and understanding of FiscalNote’s condensed consolidated results of operations and financial condition. The discussion should be read together with the unaudited interim condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.*

*This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A, “Risk Factors” and other factors set forth in other parts of this Quarterly Report on Form 10-Q. Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “Company,” “FiscalNote,” “we,” “us,” or “our” refer to the business of Old FiscalNote, which became the business of New FiscalNote and its subsidiaries following the Closing.*

*Certain monetary amounts, percentages and other figures included below have been subject to rounding adjustments as amounts are presented in thousands. Percentage amounts included below have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts may vary from those obtained by performing the same calculations using the figures in our condensed consolidated financial statements included elsewhere herein. Certain other amounts that appear below may not sum due to rounding.*

### Overview

FiscalNote is a technology and data company delivering critical legal data and insights in a rapidly evolving economic, political and regulatory world. By combining AI, machine learning and other technologies with analytics, workflow tools, and expert research, FiscalNote seeks to reinvent the way that organizations minimize risks and capitalize on opportunities associated with rapidly changing legal and policy environments. Through a number of our products, FiscalNote ingests unstructured legislative and regulatory data, and employs AI and data science to deliver structured, relevant and actionable information that facilitates key operational and strategic decisions by global enterprises, midsized and smaller businesses, government institutions, trade groups and nonprofits. FiscalNote delivers that intelligence through its suite of public policy and issues management products, coupled with expert research and analysis of markets and geopolitical events, as well as powerful tools to manage workflows, advocacy campaigns and constituent relationships.

### Business Combination

On July 29, 2022 (the “Closing Date”), we consummated the transactions contemplated by the Agreement and Plan of Business Combination, dated November 7, 2021, as amended on May 9, 2022 (the “Merger Agreement”), by and among FiscalNote Holdings, Inc., a Delaware corporation (“Old FiscalNote”), Duddell Street Acquisition Corp., a Cayman Islands exempted company (“DSAC”), and Grassroots Merger Sub, Inc., a Delaware corporation and a wholly owned direct subsidiary of DSAC (“Merger Sub” and, together with DSAC, the “DSAC Parties”). Pursuant to these transactions, Merger Sub merged with and into Old FiscalNote, with Old FiscalNote becoming a wholly owned subsidiary of DSAC (the “Business Combination” and, collectively with the other transactions described in the Business Combination Agreement, the “Transactions”). On the Closing Date, and in connection with the closing of the Transactions (the “Closing”), DSAC domesticated and continued as a Delaware corporation under the name of “FiscalNote Holdings, Inc.” (“New FiscalNote”).

We accounted for the Business Combination as a reverse recapitalization whereby Old FiscalNote was determined as the accounting acquirer and DSAC as the accounting acquiree. While DSAC was the legal acquirer in the Business Combination, because Old FiscalNote was determined as the accounting acquirer, the historical financial statements of Old FiscalNote became the historical financial statements of the combined company, upon the consummation of the Business Combination. Accordingly, New FiscalNote, as the parent company of the combined business, is the successor SEC registrant, meaning that our financial statements for previous periods will be disclosed in the registrant’s future periodic reports filed with the SEC.

The Business Combination had a significant impact on our reported financial position and results as a result of the reverse recapitalization. The most significant change in our reported financial position and results was an increase in net cash of $65.6 million from gross cash proceeds of $325.0 million, including $114.0 million from the backstop agreement with the sponsor of DSAC, $61.0 million from DSAC’s trust account from its initial public offering, and $150.0 million from the New Senior Term Loan. Such gross proceeds were offset by $45.2 million transaction costs, which principally consisted of advisory, legal and other professional fees, and were recorded in Additional Paid-in Capital, net of proceeds from the DSAC trust and $3.5 million of debt issuance costs paid out of the proceeds of the New Senior Term Loan on the Closing Date, of which $2.8 was capitalized and $0.7 million included in the loss on debt extinguishment. Cumulative debt repayments, inclusive of accrued but unpaid interest, of $210.7 million were paid in conjunction with the close, which consisted of a $75.3 million repayment of the First out term loan, $61.7 million repayment of the Last out term loan, a $50.0 million payment used to retire the non-converting portion of the Senior Secured Subordinated Promissory Note, a $16.3 million repayment of the 8090 FV Subordinated Promissory Note, and $7.4 million repayment of the 2021 Seller Notes.

In connection with the Business Combination, we recognized a $34.9 million warrant liability on our condensed consolidated balance sheets for the fair value of the public warrants and private placement warrants that were previously issued by DSAC and assumed by New FiscalNote in the Business Combination, along with the additional private placement warrants that were issued upon the closing of the Business Combination. We adjust the liability-classified warrants to fair value at each reporting period. The warrant liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our unaudited condensed consolidated statement of operations. As a result of the recurring fair value measurement, our future financial statements and results of operations may fluctuate quarterly, based on factors that are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on the warrants each reporting period and that the amount of such gains or losses could be material.

In connection with the Business Combination, we recognized (a) $28.9 million of incremental stock-based compensation charges that consisted of $5.0 million related to certain awards that vested as a result of the Business Combination, $6.2 million related to awards issued to our CEO, COO, and CFO pursuant to their respective employment agreements, and $17.7 million related to the Earnout Awards that may be issued to shareholders and equity award holders that for accounting purposes are treated as compensation awards (See Note 14 of our condensed consolidated financial statements), (b) $45.3 million of loss on debt extinguishment as a result of repayment of certain of our outstanding debt, as well as the conversion of our convertible debt as part of the Business Combination, and (c) $32.1 million interest charge related to the derecognition of the beneficial conversion feature associated with our converted debt.

As a consequence of the Business Combination, we became an SEC-registered and NYSE-listed company, which may require us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. Upon Closing, we began to incur additional public company expenses for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources.

### Impact of the COVID-19 Pandemic

The outbreak of the novel coronavirus (“COVID-19”), which was declared a pandemic by the World Health Organization on March 11, 2020, led to adverse impacts on the U.S. and global economies, disruptions of financial markets, and created uncertainty regarding potential impacts to the Company’s operations, vendors, and customer demand. The COVID-19 pandemic has impacted, and could further impact, the Company’s operations and the operations of the Company’s suppliers and vendors as a result of quarantines, facility closures, and travel and logistics restrictions. The ultimate extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our long-term revenue growth and profitability, is uncertain and depends on factors, including the duration of the pandemic and any resurgences or new variants (such as the recent surge of the Delta and Omicron variants), the severity of the disease, responsive actions taken by public health officials or by us, the development, distribution and public acceptance of treatments and vaccines, the impacts on our customers and our sales cycles, our ability to generate new business leads, the impacts on our customers, employee and industry events, and the effects on our vendors, all of which are uncertain and currently cannot be predicted with any degree of certainty. Due to our primarily subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods. If the COVID-19 pandemic has a substantial impact on our employees’, business partners’ or customers’ productivity, our results of operations and overall financial performance may be harmed. In addition, the global macroeconomic effects of the COVID-19 pandemic and related impacts on our customers’ business operations and their demand for our products and services may persist for an indefinite period, even after the COVID-19 pandemic has subsided.

### Factors Impacting the Comparability of Our Operating Results

During the year ended December 31, 2021, we completed the following nine acquisitions:

- Oxford Analytica on February 12, 2021 for $6.5 million, consisting of cash and stock;
- Fireside on April 30, 2021 for $17.5 million, consisting of cash, seller notes and convertible notes;
- Timebase on May 7, 2021 for $4.3 million, consisting of cash and convertible notes;
- Board.org on June 3, 2021 for $19.2 million, consisting of cash and convertible notes;
- Equilibrium on June 25, 2021 for $9.4 million, consisting of cash and stock;
- Predata on June 30, 2021 for $8.6 million, consisting of cash and stock;
- Curate on August 27, 2021 for $8.4 million, consisting of cash and stock;
- Forge.ai on September 9, 2021 for $11.8 million, consisting of cash and stock; and
- Frontier Strategy Group on November 19, 2021 for $18.1 million cash.

In addition, we acquired FactSquared on December 31, 2020 for $4.3 million consisting of cash and stock. Unless noted otherwise, we refer to the acquisition of FactSquared and the acquisitions in calendar year 2021 as the “2021 Acquisitions.”

On July 29, 2022 we completed the acquisition of Aicel Technologies for $8.7 million, consisting of stock. On September 30, 2022 we completed the asset acquisition of DT-Global for approximately $0.6 million. We refer to these two acquisitions as the “2022 Acquisitions”, respectively. The 2022 Acquisitions did not have a material impact on our condensed consolidated statement of operations for the three and nine months ended September 30, 2022. The 2021 Acquisitions and Aicel contributed approximately $8.5 million and $4.4 million of subscription revenue, net of a deferred revenue adjustment of approximately $0.1 million and $1.2 million, during the three months ended September 30, 2022 and 2021, respectively, and $22.4 million and $7.3 million, net of a deferred revenue adjustment of approximately $1.9 million and $1.5 million, during the nine months ended September 30, 2022 and 2021, respectively. The 2021 Acquisitions and Aicel contributed Advisory, advertising and other revenue of approximately $0.7 million during the three months ended September 30, 2022 and 2021, and $4.0 million and $1.5 million during the nine months ended September 30, 2022 and 2021, respectively.

The consideration transferred in exchange for the 2021 Acquisitions and Aicel included a combination of cash, stock, seller notes, and contingent payments that may be settled in cash, stock, or a combination of both cash and stock. We account for contingent payments in accordance with ASC 805 which requires us to determine whether the contingent payment is considered a component of the fair value of the consideration paid to the seller (e.g., “purchase price”) or as post-combination compensation expense, generally due to employee conditions associated with the contingent payments. In either case, the use of contingent payments may introduce future non-cash earnings volatility due to the requirement to fair value certain contingent payments each balance sheet date until the contingent payment has either been earned, or the earnout period expires. During the nine months ended September 30, 2022, we recognized non-cash gains associated with our contingent payments totaling $2.2 million, primarily related to a reversal of previously recognized contingent liabilities that expired unearned during the period. During the year ended December 31, 2021, we incurred non-cash fair value charges associated with our contingent payments totaling $2.2 million. We believe that the use of contingent payments benefits both the Company and the sellers from whom we acquire companies by enabling all parties to participate in the upside of the acquired companies achieving their contingent payment requirements. We will continue to evaluate the aggregate amount, mix and structure of consideration we offer to acquire companies as we execute on our corporate development strategy in the future, in order to achieve the best possible return for the Company.

As a result of our acquisitions in 2021 and 2022, respectively, we have, and will continue to incur, significant non-cash amortization expense related to the amortization of purchased intangibles, which have reduced our operating income by approximately $1.7 million and $1.3 million during the three months ended September 30, 2022 and 2021, and $5.0 million and $2.6 million during the nine months ended September 30, 2022 and 2021, respectively.

From time to time, management reviews the Company’s existing products and services based on their financial (e.g., revenue, margin) profile and strategic factors. In connection with such a review in 2020 and 2021 management decided to cease selling certain non-core subscription products representing subscription revenue of approximately $0.3 million and $0.5 million during the three months ended September 30, 2022 and 2021, and $0.9 million and $1.8 million during the nine months ended September 30, 2022 and 2021, respectively.

We continue to invest for future growth. We are focused on several key growth levers, including cross-selling and upselling opportunities at existing clients, expanding our client base with a focus on enterprise and government customers, expansion into adjacent markets and deepening our offerings for regulated industries or sectors, and continuing to execute on our acquisition strategy. Several of these growth drivers require investment in and refinement of our go-to-market approach and, as a result, we may continue to incur additional costs upfront to obtain new customers and expand our relationships with existing customers, including additional sales and marketing expenses specific to subscription revenue.

We plan to invest a significant portion of the net proceeds from the Business Combination in building innovative products, acquiring complementary businesses, attracting new customers and expanding our leadership role in the legal and regulatory information market. We drive growth both organically and through acquisitions. We regularly evaluate acquisitions and investment opportunities in complementary businesses to supplement our existing platform, enable us to enter new markets and ensure that we are well positioned to provide critical insights to the regulated sectors of the future. Past acquisitions have enabled us to deliver innovative solutions in new categories, such as global risk analysis and environmental, social and governance (“ESG”) automation software, analytics and integration, and new data sets to enhance the functionality of our existing products. Strategic acquisitions will remain a core component of our strategy in the future.

### Seasonality

Our cash flows from operations are primarily generated from payments from subscription customers with a standard term of 12 months. When a customer enters into a new subscription agreement, or submits a notice to renew their subscription, we typically invoice for the full amount of the subscription period, record the balance to deferred revenues and ratably recognize the deferral throughout the subscription period. As a result, we experience cash flow seasonality throughout the year, with a heavier weighting of operating cash inflows occurring during the first and fourth quarters of the year, when most subscription invoices are sent, as compared to the second and third quarters of the year. Accordingly, the subscription revenue we earn in the second half of the calendar year is usually greater than the first half of the calendar year, with the fourth quarter normally our largest quarter of revenue recognition during the calendar year.

### Key Performance Indicators

In addition to our GAAP results further described and discussed below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we monitor the following key performance indicators to evaluate growth trends, prepare financial projections, make strategic decisions, and measure the effectiveness of our sales and marketing efforts. Our management team assesses our performance based on these key performance indicators because it believes they reflect the underlying trends and indicators of our business and serve as meaningful indicators of our continuous operational performance.

### Annual Recurring Revenue (“ARR”)

Approximately 90% of our revenues are subscription based, which leads to high revenue predictability. Our ability to retain existing subscription customers is a key performance indicator that helps explain the evolution of our historical results and is a leading indicator of our revenues and cash flows for subsequent periods. We use ARR as a measure of our revenue trend and an indicator of our future revenue opportunity from existing recurring subscription customer contracts. We calculate ARR on an account level by annualizing the contracted subscription revenue, and our total ARR as of the end of a period is the aggregate thereof. ARR is not adjusted for the impact of any known or projected future customer cancellations, upgrades or downgrades, or price increases or decreases. The amount of actual revenue that we recognize over any 12-month period is likely to differ from ARR at the beginning of that period, sometimes significantly. This may occur due to timing of the revenue bookings during the period, cancellations, upgrades, or downgrades and pending renewals. ARR should be viewed independently of revenue as it is an operating metric and is not intended to be a replacement or forecast of revenue. Our calculation of ARR may differ from similarly titled metrics presented by other companies.

Our ARR at September 30, 2022 and December 31, 2021, was $108 million and $97 million, respectively. Our ARR at September 30, 2022 and 2021, excluding the 2021 Acquisitions and 2022 Acquisitions, was $69 million and $63 million, respectively. ARR of the 2021

Acquisitions, and 2022 Acquisitions, was approximately $39 million and $32 million as of September 30, 2022 and 2021, respectively, including pre-acquisition ARR performance of the 2021 Acquisition companies and 2022 Acquisitions on the basis reported to FiscalNote in connection with such company’s acquisition.

### Run-Rate Revenue

Management also monitors Run-Rate Revenue, which we define as ARR plus non-subscription revenue earned during the last twelve months. We believe Run-Rate Revenue is an indicator of our total revenue growth, incorporating the non-subscription revenue that we believe is a meaningful contribution to our business as a whole. Although our non-subscription business is non-recurring, we regularly sell different advisory services to repeat customers. The amount of actual subscription and non-subscription revenue that we recognize over any 12-month period is likely to differ from Run-Rate Revenue at the beginning of that period, sometimes significantly. Our Run-Rate Revenue at September 30, 2022 and December 31, 2021, including our 2021 Acquisitions and 2022 Acquisitions, was approximately $121 million and $109 million, respectively. Our Run-Rate Revenue at September 30, 2022 and 2021, excluding the 2021 Acquisitions and 2022 Acquisitions, was approximately $76 million and $68 million, respectively. Run-Rate Revenue of the 2021 Acquisitions was approximately $45 and $38 million as of September 30, 2022 and 2021, respectively, including pre-acquisition Run-Rate Revenue performance of the 2021 Acquisition companies and 2022 Acquisitions on the basis reported to FiscalNote in connection with such company’s acquisition.

### Net Revenue Retention (“NRR”)

Our NRR, which we use to measure our success in retaining and growing recurring revenue from our existing customers, compares our recognized recurring revenue from a set of customers across comparable periods. We calculate our NRR for a given period as ARR at the end of the period minus ARR contracted from new clients for which there is no historical revenue booked during the period, divided by the beginning ARR for the period. For our federal government clients, we consider subdivisions of the same executive branch department or independent agency (for example, divisions of a single federal department or agency) to be a single customer for purposes of calculating our account-level ARR and NRR. For our commercial clients, we consider subdivisions of the same legal entity as separate customers. Customers from acquisitions are not included in NRR until they have been part of our condensed consolidated results for 12 months. Our calculation of NRR for any fiscal period includes the positive recurring revenue impacts of selling additional licenses and services to existing customers and the negative recognized recurring revenue impacts of contraction and attrition among this set of customers. Our NRR may fluctuate as a result of a number of factors, including the growing level of our revenue base, the level of penetration within our customer base, expansion of products and features, and our ability to retain our customers. Our calculation of NRR may differ from similarly titled metrics presented by other companies. NRR was 99% for the three months ended September 30, 2022 and 2021, respectively.

### Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures to clarify and enhance our understanding, and aid in the period-to-period comparison, of our performance. Where applicable, we provide reconciliations of these non-GAAP measures to the corresponding most closely related GAAP measure. Investors are encouraged to review the reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure. While we believe that these non-GAAP financial measures provide useful supplemental information, non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, their most comparable GAAP measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be comparable to similarly titled measures of other companies due to potential differences in their financing and accounting methods, the book value of their assets, their capital structures, the method by which their assets were acquired and the manner in which they define non-GAAP measures.

### Adjusted Revenue

Adjusted revenue represents revenue adjusted to include amounts that would have been recognized if deferred revenue was not adjusted to fair value in connection with the 2021 Acquisitions. Adjusted revenue is presented because we use this measure to evaluate performance of our business against prior periods and believe it is a useful indicator of the underlying performance of our business. Adjusted revenue is not a recognized term under U.S. GAAP. Adjusted revenue does not represent revenues, as that term is defined under GAAP, and should not be considered as an alternative to revenues as an indicator of our operating performance. Adjusted revenue as presented herein is not necessarily comparable to similarly titled measures presented by other companies.

### Adjusted Gross Profit and Adjusted Gross Profit Margin

We define Adjusted Gross Profit as Adjusted Revenue minus cost of revenues, before amortization of intangible assets that are included in costs of revenues. We define Adjusted Gross Profit Margin as Adjusted Gross Profit divided by Adjusted Revenues.

We use Adjusted Gross Profit and Adjusted Gross Profit Margin to understand and evaluate our core operating performance and trends. We believe these metrics are useful measures to us and to our investors to assist in evaluating our core operating performance because it provides consistency and direct comparability with our past financial performance and between fiscal periods, as the metrics eliminate the non-cash effects of amortization of intangible assets and deferred revenue, which are non-cash impacts that may fluctuate for reasons unrelated to overall operating performance.

Adjusted Gross Profit and Adjusted Gross Profit Margin have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP and should not be considered as replacements for gross profit and gross profit margin, as determined by GAAP, or as measures of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes. Adjusted Gross Profit and Adjusted Gross Profit Margin as presented herein is not necessarily comparable to similarly titled measures presented by other companies.

### EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA reflects further adjustments to EBITDA to exclude certain non-cash items and other items that management believes are not indicative of ongoing operations. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by Adjusted Revenue.

We disclose EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin in this Quarterly Report on Form 10-Q because these non-GAAP measures are key measures used by management to evaluate our business, measure our operating performance and make strategic decisions. We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are useful for investors and others in understanding and evaluating our operating results in the same manner as management. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not financial measures calculated in accordance with GAAP and should not be considered as substitutes for net loss, net loss before income taxes, or any other operating performance measure calculated in accordance with GAAP. Using these non-GAAP financial measures to analyze our business would have material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that investors may find significant. In addition, although other companies in our industry may report measures titled EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate non-GAAP financial measures, which reduces their comparability. Because of these limitations, you should consider EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin alongside other financial performance measures, including net income and our other financial results presented in accordance with GAAP.

### Key Components of Results of Operations

### Revenues

We derive our revenues from subscription revenue arrangements and advisory, advertising and other revenues. Subscription revenues account for approximately 90% of our total revenues for the nine months ended September 30, 2022 and 2021. No single customer accounted for more than 5% of revenues during the three and nine months ended September 30, 2022 and 2021, and our 10 largest customers represented less than 10% of our total revenues for the for the same periods. In calculating the aforementioned revenue concentration, (i) for our federal government clients, we consider subdivisions of the same executive branch department or independent agency (for example, divisions of a single federal department or agency) to be separate customers; and (ii) for our commercial clients, we consider subdivisions of the same legal entity as separate customers.

### Subscription Revenue

Subscription revenues consist of revenue earned from subscription-based arrangements that provide customers the right to use the Company’s software and products in a cloud-based infrastructure. Subscription revenues are driven primarily by the number of active licenses, the types of products and the price of the subscriptions. The Company also earns subscription-based revenues by licensing to customers its digital content, including transcripts, news and analysis, images, video and podcast data.

Our subscription arrangements generally have contractual terms of 12 months or more and are non-refundable regardless of the actual use of the service. Subscription revenues are recognized ratably over the non-cancellable contract terms beginning on the commencement date of each contract, which is the date our service is first made available to customers.

### Advisory, Advertising, and Other Revenue

Advisory revenue is typically earned under contracts for specific deliverables and are non-recurring in nature, although we regularly sell different advisory services to repeat customers. One-time advisory revenues are invoiced according to the terms of the contract, usually delivered to the customer over a short period of time, during which revenues are recognized.

Advertising revenue is primarily generated by delivering advertising in our own publications (Roll Call and CQ) in both print and digital formats. Revenue for print advertising is recognized upon publication of the advertisement. Revenue for digital advertising is recognized over the period of the advertisement or, if the contract contains impression guarantees, based on delivered impressions.

Book revenue is recognized when the product is shipped to the customer, which is when control of the product transfers to the customer. Shipping and handling costs are treated as a fulfillment activity and are expensed as incurred.

Events revenue is deferred and only recognized when the event has taken place and is included in other revenues.

### Cost of Revenues

Cost of revenues primarily consists of expenses related to hosting our service, the costs of data center capacity, amortization of developed technology and capitalized software development costs, certain fees paid to various third parties for the use of their technology, services, or data, costs of compensation, including bonuses, stock compensation, benefits and other expenses for employees associated with providing professional services and other direct costs of production. Also included in cost of revenues are our costs related to the preparation of contracted advisory deliverables, as well as costs to develop, publish, print and deliver our publications underlying our books revenue.

### Research and Development

Research and development expenses include the costs of compensation, including bonuses, stock compensation, benefits and other expenses for employees associated with the creation and testing of the products we offer, related software subscriptions, consulting and contractor fees and allocated overhead.

### Sales and Marketing

Sales and marketing expenses consist primarily of salaries and related expenses, including bonuses, stock compensation, benefits and other expenses for our sales and marketing staff, including commissions, related software subscriptions, consulting fees, marketing programs and allocated overhead. Marketing programs consist of advertising, events, corporate communications, brand building and product marketing activities.

### Editorial

Editorial expenses consist of salaries and related expenses, including bonuses, stock compensation, benefits and other expenses for the editorial team involved in acquiring, creating, and distributing content and allocated overhead.

### General and Administrative

General and administrative expenses are primarily related to our executive offices, finance and accounting, human resources, legal, internal operations and other corporate functions. These expenses consist of salaries and related expenses, including bonuses, stock compensation, benefits and other expenses, along with professional fees, depreciation and other allocated overhead.

### Amortization of intangibles

Amortization expense relates to our finite-lived intangible assets, including developed technology, customer relationship, databases and tradenames. These assets are amortized over periods of between three and twenty years. Definite-lived intangible assets are tested for impairment when indicators are present, and, if impaired, are written down to fair value. No impairment of intangible assets has been identified during any financial period included in our accompanying audited condensed consolidated financial statements.

### Transaction costs, net

Transaction costs consist of acquisition related costs (including due diligence, accounting, legal, and other professional fees, incurred from acquisition activity), fair value adjustments to contingent consideration due to sellers, and non-capitalizable costs.

### Interest expense, net

Interest expense, net consists of expense related to interest on our borrowings, the amortization and write off of debt issuance costs and original discount, and interest related to certain derivative instruments.

### Fair value of warrant and derivative liabilities

The fair value of warrant and derivative liabilities are accounted for in accordance with ASC 815 and ASC 480. The warrant and derivative liabilities are marked to market each reporting period in accordance with ASC 820 with all gains and losses being recorded within the condensed consolidated statement of operations and comprehensive loss.

### Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the condensed consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the condensed consolidated statements of operations and comprehensive loss in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts that are expected to be realized based on the weighting of positive and negative evidence.

### Results of Operations

The period-to-period comparisons of our results of operations have been prepared using the historical periods included in our condensed consolidated financial statements. We have derived this data from annual condensed consolidated financial statements and the following discussion should be read in conjunction with those condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

### Three and Nine Months Ended September 30, 2022 Compared to Three and Nine Months Ended September 30, 2021

The following table presents our results of operations for the periods indicated:

*(In thousands)*

| Revenues: | Three Months Ended September 30, 2022 2021 | Change $% | Nine Months Ended September 30, 2022 2021 | Change $% |
| --- | ---: | ---: | ---: | ---: |
| Subscription | $26,075 $20,139 | $5,936 29.5% | $73,186 $53,098 | $20,088 37.8% |
| Advisory, advertising, and other | 2,996 1,635 | 1,361 83.2% | 9,130 5,352 | 3,778 70.6% |
| Total revenues | 29,071 21,774 | 7,297 33.5% | 82,316 58,450 | 23,866 40.8% |
| Operating expenses: (1) |  |  |  |  |
| Cost of revenues | 8,699 5,412 | 3,287 60.7% | 23,581 14,664 | 8,917 60.8% |
| Research and development | 5,629 6,433 | (804) (12.5)% | 15,438 17,671 | (2,233) (12.6)% |
| Sales and marketing | 11,830 7,454 | 4,376 58.7% | 31,722 21,258 | 10,464 49.2% |
| Editorial | 4,218 3,786 | 432 11.4% | 11,240 10,967 | 273 2.5% |
| General and administrative | 38,945 9,337 | 29,608 317.1% | 59,535 22,199 | 37,336 168.2% |
| Amortization of intangible assets | 2,601 2,512 | 89 3.5% | 7,818 6,651 | 1,167 17.5% |
| Loss on sublease | - - | - NM% | - 1,362 | (1,362) (100.0)% |
| Transaction costs, net | 1,275 2,127 | (852) (40.1)% | 1,257 2,985 | (1,728) (57.9)% |
| Total operating expenses | 73,197 37,061 | 36,136 97.5% | 150,591 97,757 | 52,834 54.0% |
| Operating loss | (44,126) (15,287) | (28,839) 188.7% | (68,275) (39,307) | (28,968) 73.7% |
| Interest expense, net | 42,894 16,261 | 26,633 163.8% | 89,672 46,102 | 43,570 94.5% |
| Change in fair value of warrant and derivative liabilities | (21,910) (2,839) | (19,071) 671.8% | (18,524) 9,406 | (27,930) (296.9)% |
| Gain on PPP loan upon extinguishment | - - | - NM% | (7,667) - | (7,667) NM% |
| Loss on debt extinguishment, net | 45,250 - | 45,250 NM% | 45,250 - | 45,250 NM% |
| Other expense, net | 928 241 | 687 285.1% | 1,543 384 | 1,159 301.8% |
| Net loss before income taxes | (111,288) (28,950) | (82,338) 284.4% | (178,549) (95,199) | (83,350) 87.6% |
| Benefit from income taxes | (2,286) (992) | (1,294) 130.4% | (2,836) (6,737) | 3,901 (57.9)% |
| Net loss | $(109,002) $(27,958) | $(81,044) 289.9% | $(175,713) $(88,462) | $(87,251) 98.6% |
| (1) Amounts include stock-based compensation expenses, as follows: |  |  |  |  |
|  | **Three Months Ended September 30,** | **Change** | **Nine Months Ended September 30,** | **Change** |
|  | **2022** **2021** | **$%** | **2022** **2021** | **$%** |
| Cost of revenues | $13 $4 | $9 225% | $36 $9 | $27 300% |
| Research and development | 504 55 | 449 816% | 609 216 | 393 182% |
| Sales and marketing | 721 27 | 694 NM% | 828 97 | 731 754% |
| Editorial | 513 24 | 489 NM% | 560 67 | 493 736% |
| General and administrative | 28,292 77 | 28,215 NM% | 28,835 158 | 28,677 NM% |

### Revenue:

#### Subscription Revenue

Subscription revenue of $26.1 million for the three months ended September 30, 2022 increased $5.9 million, or 29%, from $20.1 million for the three months ended September 30, 2021. Subscription revenue of $73.2 million for the nine months ended September 30, 2022 increased $20.1 million, or 38%, from $53.1 million for the nine months ended September 30, 2021.

The comparability of our revenues between periods was impacted by the 2021 Acquisitions and Aicel described under “Factors Impacting the Comparability of Our Results of Operations” above. The table below presents the primary items that impacted the comparability of our subscription revenues between periods.

*(In thousands)*

| Revenue change driver: | Change for the Three Months Ended September 30, 2022 vs September 30, 2021 $% |  | Change for the Nine Months Ended September 30, 2022 vs September 30, 2021 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Increase from 2021 Acquisitions | $2,975 | 54% | $15,084 | 171% |
| Impact of 2021 Acquisitions deferred revenues adjustment | 1,036 | (89)% | (322) | 21% |
| Increase from 2022 Acquisitions | 270 | 100% | 270 | 100% |
| Decrease from discontinued products | (276) | (51)% | (913) | (51)% |
| Increase from organic business | 1,931 | 13% | 5,969 | 14% |
| **Revenues, net (total change)** | **$5,936** | **29%** | **$20,088** | **38%** |

Our organic growth during the period is primarily due to the increase in new revenue bookings made in 2021 evidenced by the growth in our organic ARR, from which we subsequently derived additional revenues as well as our continued focus on increasing our NRR. Revenue for the nine months ended September 30, 2022 reflects a full nine months of revenue from the 2021 Acquisitions, whereas revenue for the nine months ended September 30, 2021 only reflects revenue contributions from certain of the 2021 Acquisitions commencing from the date of such acquisition through the remainder of the period. As of September 30, 2021, we had acquired Oxford Analytica on February 12, 2021, Fireside on April 30, 2021, Timebase on May 7, 2021, Board.org on June 3, 2021, Equilibrium on June 25, 2021, Predata on June 30, 2021, Curate on August 27, 2021, and Forge.ai on September 9, 2021. The remaining 2021 Acquisition, FrontierView was acquired in the fourth quarter of 2021.

#### Advisory, Advertising, and Other Revenue

Advisory, advertising, and other revenue was $3.0 million for the three months ended September 30, 2022, as compared to $1.6 million for the three months ended September 30, 2021. The increase of $1.4 million, or 83%, was primarily due to $1.1 million increase in other one-time revenue and $0.3 million increase in events revenue.

Advisory, advertising, and other revenue was $9.1 million for the nine months ended September 30, 2022, as compared to $5.4 million for the nine months ended September 30, 2021. The increase of $3.7 million, or 71%, was primarily due to $2.5 million of incremental revenue from our 2021 Acquisitions, as well as an increase of other one-time revenue of $1.2 million.

#### Revenue by Geography

The below tables present our revenues split by geographic region for the periods presented:

*(In thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| North America | $25,139 | $19,385 | $5,754 | 29.7% |
| Europe | 2,284 | 2,042 | 242 | 11.9% |
| Australia | 293 | 308 | (15) | (4.9)% |
| Asia | 1,355 | 39 | 1,316 | NM% |
| Total revenues | $29,071 | 21,774 | $7,297 | 33.5% |

*(In thousands)*

|  | Nine Months Ended September 30, 2022 | 2021 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| North America | $72,443 | $52,433 | $20,010 | 38% |
| Europe | 7,286 | 5,307 | 1,979 | 37% |
| Australia | 827 | 403 | 424 | 105% |
| Asia | 1,760 | 307 | 1,453 | 473% |
| Total revenues | $82,316 | 58,450 | $23,866 | 41% |

Revenues by geography are determined based on the region of the FiscalNote contracting entity, which may be different than the region of the customer. North America revenues increased primarily due to our acquisitions of FactSquared, Fireside, Board.org, Predata, Curate, Forge, and FrontierView. Revenues outside of North America increased primarily due to our acquisitions of Oxford Analytica (included in Europe) and Timebase (included in Australia).

### Cost of revenues

Cost of revenues was $8.7 million for the three months ended September 30, 2022, as compared to $5.4 million for the three months ended September 30, 2021. The increase of $3.3 million, or 61%, was primarily attributable to $1.0 million of increased costs (excluding amortization expense) from our 2021 Acquisitions and Aicel, an increase in amortization expense of approximately $0.2 million related to capitalized software development costs and developed technology from our 2021 Acquisitions and Aicel, $1.0 million of increased costs related to the growth in our business, and $1.1 million of an increase in amortization expense related to our capitalized software development costs.

Cost of revenues was $23.6 million for the nine months ended September 30, 2022, as compared to $14.7 million for the nine months ended September 30, 2021. The increase of $8.9 million, or 61%, was primarily attributable to $5.2 million of increased costs (excluding amortization expense) from our 2021 Acquisitions and Aicel, an increase in amortization expense of approximately $1.0 million related to capitalized software development costs and developed technology from our 2021 Acquisitions and Aicel, $1.0 million of increased costs related to the growth in our business, and $1.6 million of an increase in amortization expense related to our capitalized software development costs.

### Research and development

Research and development expense was $5.6 million for the three months ended September 30, 2022 as compared to $6.4 million for the three months ended September 30, 2021. The decrease of $0.8 million, or 12%, was primarily attributable to a decrease of $1.5 million primarily related to compensation and benefits, offset by $0.4 million incremental share-based compensation triggered by the Business Combination and $0.3 million of research and development costs incurred by our 2021 Acquisitions and Aicel.

Research and development expense was $15.4 million for the nine months ended September 30, 2022 as compared to $17.7 million for the nine months ended September 30, 2021. The decrease of $2.2 million, or 13%, was primarily attributable to a decrease of $4.7 million primarily related to compensation and benefits, offset by $0.5 million incremental share-based compensation triggered by the Business Combination, and $2.1 million of research and development costs incurred by our 2021 Acquisitions.

### Sales and marketing

Sales and marketing expense was $11.8 million for the three months ended September 30, 2022 as compared to $7.5 million for the three months ended September 30, 2021. The increase of $4.3 million, or 59%, was primarily attributable to an increase of $3.1 million in sales and marketing costs incurred by our 2021 Acquisitions and Aicel, an increase of $0.6 million in salary costs as we increased our sales team headcount in the second and third quarter of 2022, as well as $0.7 million of incremental share-based compensation triggered by the Business Combination.

Sales and marketing expense was $31.7 million for the nine months ended September 30, 2022 as compared to $21.3 million for the nine months ended September 30, 2021. The increase of $10.4 million, or 49% was primarily attributable to an increase of $9.7 million in sales and marketing costs incurred by our 2021 Acquisitions and Aicel, as well as $0.7 million incremental share-based compensation triggered by the Business Combination.

### Editorial expense

Editorial expense was $4.2 million for the three months ended September 30, 2022 as compared to $3.8 million for the three months ended September 30, 2021. Editorial expense was $11.2 million for the nine months ended September 30, 2022 as compared to $11.0 million for the nine months ended September 30, 2021. Editorial expense remained relatively flat during the first three quarters in 2022 as compared to the same periods in 2021 as a result of our continued focus on monitoring costs.

### General and administrative

General and administrative expense was $38.9 million for the three months ended September 30, 2022 as compared to $9.3 million for the three months ended September 30, 2021. The increase of $29.6 million, or 317%, was primarily attributable to $17.7 million of non-cash stock based compensation expense associated with the earnout shares issued to employees who held equity ownership in old FiscalNote through ownership of common stock, vested options, or unvested options on the closing date of the Business Combination (see Note 10 in our unaudited condensed consolidated financial statements), $6.2 million of non-cash stock based compensation associated with the issuance of stock options and RSUs to our CEO, COO, and CFO pursuant to their employment agreements with New FiscalNote, $5.0 million of non-cash stock-based compensation associated with certain stock options whereby their vesting was triggered by the closing of the Business Combination, and $1.0 million increase in general and administrative expenses primarily related to incremental salary, benefits and bonus expense we incurred as we increased our headcount in preparation of becoming a public company.

General and administrative expense was $59.5 million for the nine months ended September 30, 2022 as compared to $22.2 million for the nine months ended September 30, 2021. The increase of $37.3 million, or 168%, was primarily attributable to $17.7 million of non-cash stock based compensation expense associated with the earnout shares issued to employees who held equity ownership in old FiscalNote through ownership of common stock, vested options, or unvested options on the closing date of the Business Combination (see Note 10 in our unaudited condensed consolidated financial statements), $6.2 million of non-cash stock based compensation associated with the issuance of stock options and RSUs to our CEO, COO, and CFO pursuant to their employment agreements with New FiscalNote, $5.0 million of non-cash stock-based compensation associated with certain stock options whereby their vesting was triggered by the closing of the Business Combination, and $3.5 million of general and administrative costs incurred by our 2021 Acquisitions and Aicel. The remaining increase in general and administrative expenses is primarily related to $4.7 million of incremental salary, benefits and bonus expense we incurred as we increased our headcount in preparation of becoming a public company, and $0.4 million of non-cash lease asset impairment charges.

### Amortization of intangibles

Amortization of intangibles was $2.6 million for the three months ended September 30, 2022 as compared to $2.5 million for the three months ended September 30, 2021. The increase of $0.1 million, or 4%, is primarily due to the increase in amortizable intangible assets from the 2021 Acquisitions and Aicel.

Amortization of intangibles was $7.8 million for the nine months ended September 30, 2022 as compared to $6.7 million for the nine months ended September 30, 2021. The increase of $1.1 million, or 18%, is due to the increase in amortizable intangible assets from the 2021 Acquisitions and Aicel totaling $1.6 million offset by a $0.4 million reduction in amortization expense related to intangible assets from our VoterVoice and Shungham acquisitions becoming fully amortized in 2021.

### Transaction costs, net

Transaction costs were $1.3 million for the three months ended September 30, 2022, as compared to transaction costs of $2.1 million for the three months ended September 30, 2021. The decrease of $0.9 million , or 40%, is primarily due to $2.0 million decrease in contingent compensation and earnout liabilities related to our acquisitions of Equilibrium, Forge, and FrontierView and the reversing of previously recognized earnout liabilities related to our Predata acquisitions, $0.1 million increase in transaction costs related to acquired businesses, offset by $1.3 million increase in non-capitalized costs related to the Business Combination.

Transaction costs were $1.3 million for the nine months ended September 30, 2022, as compared to transaction costs of $3.0 million for the nine months ended September 30, 2021. The decrease of $1.7 million, or 58%, is primarily due to $3.0 million decrease in contingent compensation and earnout liabilities related to our acquisitions of Equilibrium, Forge, and FrontierView and the reversing of previously recognized earnout liabilities related to our Predata acquisitions, offset by $1.4 million increase in non-capitalized costs related to the Business Combination.

### Interest expense, net

Interest expense was $42.9 million for the three months ended September 30, 2022 as compared to $16.3 million for the three months ended September 30, 2021. Interest expense was $89.7 million for the nine months ended September 30, 2022 as compared to $46.1 million for the nine months ended September 30, 2021. The increase in interest expense during the three and nine months ended September 30, 2022 was primarily due to a $32.1 million charge to interest expense we recorded related to the derecognition of beneficial conversion features embedded within the convertible notes that went into equity as part of the Company's public listing as well as incremental interest expense incurred related to the $18 million related party convertible note issued in the fourth quarter of 2021, and $20 million increase in our Senior Term Loan in the first quarter of 2022 that was not incurred during the three and nine months ended September 30, 2021 based on the issuance dates.

On July 29, 2022 we entered into a $150.0 million senior term loan that accrues PIK interest at 1%, compounded monthly, and has cash only interest payments of the greater of (a) 9% and (b) the Prime Rate plus 5%. Immediately prior to the consummation of the Business Combination, all of our convertible debt, excluding four convertible notes with a principal balance of $8.1 million, converted into common stock of Old FiscalNote, which were entitled to be exchanged for shares of Class A common shares of New FiscalNote at the Exchange Ratio. As a result of this conversion, we recognized a one-time interest charge of $32.1 million related to the derecognition of the beneficial conversion feature associated with the aforementioned convertible notes.

### Change in fair value of warrant and derivative liabilities

Change in fair value of warrant liabilities was a $21.9 million gain for the three months ended September 30, 2022 as compared to a $2.8 million gain for the three months ended September 30, 2021. The increase of $19.1 million primarily represents a $21.9 million gain that was recorded as a result of the fair value adjustment of the warrant liabilities that were assumed in connection with the Business Combination, offset by $3.1 million loss resulting from the final fair value adjustment of the embedded derivative liabilities that were settled upon conversion of the associated convertible notes as part of the Business Combination.

Change in fair value of warrant liabilities was a $18.5 million gain for the nine months ended September 30, 2022 as compared to a $9.4 million loss for the nine months ended September 30, 2021. The increase of $27.9 million, or 297%, primarily represents a $21.9 million gain that was recorded as a result of the fair value adjustment of the warrant liabilities that were assumed in connection with the Business Combination, and a $6.0 million gain resulting from the fair value adjustment of the derivative liabilities that were settled upon conversion of the associated convertible notes as part of the Business Combination.

### Loss on debt extinguishment, net

Change in loss on debt extinguishment, net for the three and nine months ended September 30, 2022 represents a $45.3 million loss that was recorded as a result of repayment of certain of our outstanding debt, as well as the conversion of our convertible debt as part of the Business Combination.

### Income tax benefit

Income tax benefit was $2.3 million for the three months ended September 30, 2022 as compared to an income tax benefit of $1.0 million for the three months ended September 30, 2021. The increase of $1.3 million in income tax benefit was primarily driven by related impacts on the Company’s valuation allowance.

Income tax benefit was $2.8 million for the nine months ended September 30, 2022 as compared to $6.7 million for the nine months ended September 30, 2021. The decrease of $3.9 million in income tax benefit was primarily driven by related impacts on the Company’s valuation allowance and return to provision adjustments.

### Certain Non-GAAP Measures

We present certain non-GAAP financial measures including Adjusted Revenues, Adjusted Gross Profit, Adjusted Gross Profit Margin and Adjusted EBITDA. Our management team assesses our performance based on these non-GAAP measures because it believes they reflect the underlying trends and indicators of our business and serve as meaningful indicators of our continuous operational performance. We believe these measures are useful for investors for the same reasons. Investors should be aware that these measures are not a substitute for GAAP financial measures or disclosures. Where applicable, we provide reconciliations of these non-GAAP measures to the corresponding most closely related GAAP measure.

### Adjusted Revenues

The following table presents our calculation of Adjusted Revenues for the periods presented, and a reconciliation of this measure to our GAAP revenues for the same periods:

*(In thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Subscription revenue | $26,075 | $20,139 | $73,186 | $53,098 |
| Deferred revenue adjustment | 123 | 1,161 | 1,853 | 1,533 |
| Adjusted subscription revenue | 26,198 | 21,300 | 75,039 | 54,631 |
| Advisory, advertising, and other revenue | 2,996 | 1,635 | 9,130 | 5,352 |
| Adjusted Revenues | $29,194 | $22,935 | $84,169 | $59,983 |

### Adjusted Gross Profit and Adjusted Gross Profit Margin

The following table presents our calculation of Adjusted Gross Profit and Adjusted Gross Profit Margin for the periods presented:

*(In thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Adjusted Revenues | $29,194 | $22,935 | $84,169 | $59,983 |
| Costs of revenue | (8,699) | (5,412) | (23,581) | (14,664) |
| Amortization of intangible assets | 2,832 | 1,569 | 6,664 | 4,077 |
| Adjusted Gross Profit | $23,327 | $19,092 | $67,252 | $49,396 |
| Adjusted Gross Profit Margin | 80% | 83% | 80% | 82% |

### EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin

The following table presents our calculation of EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin for the periods presented:

*(In thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(109,002) | $(27,958) | $(175,713) | $(88,462) |
| Benefit from income taxes | (2,286) | (992) | (2,836) | (6,737) |
| Depreciation and amortization | 5,743 | 4,378 | 15,374 | 11,598 |
| Interest expense, net | 42,894 | 16,261 | 89,672 | 46,102 |
| EBITDA | (62,651) | (8,311) | (73,503) | (37,499) |
| Deferred revenue adjustment (a) | 123 | 1,161 | 1,853 | 1,533 |
| Stock-based compensation | 30,043 | 187 | 30,868 | 547 |
| Change in fair value of warrant and derivative liabilities (b) | (21,910) | (2,839) | (18,524) | 9,406 |
| Loss on debt extinguishment, net | 45,250 | - | 45,250 | - |
| Other non-cash (gains) charges (c) | (948) | 1,045 | (9,286) | 2,407 |
| Acquisition related costs (d) | 431 | 561 | 1,003 | 1,051 |
| Other infrequent costs (e) | 435 | 1,049 | 858 | 2,736 |
| Costs incurred related to the transaction (f) | 1,791 | 521 | 2,250 | 889 |
| Adjusted EBITDA | $(7,436) | $(6,626) | $(19,231) | $(18,930) |
| Adjusted EBITDA Margin | (25.5)% | (28.9)% | (22.8)% | (31.6)% |

(a) Reflects deferred revenue fair value adjustments arising from the purchase price allocation in connection with the 2021 Acquisitions.

(b) Reflects the non-cash impact from the mark to market adjustments on our warrant and derivative liabilities.

(c) Reflects the non-cash impact of the following: (i) gain of $1,320 in the first quarter of 2022, charge of $271 in the second quarter of 2022, gain of $948 in the third quarter of 2022, and charge of $1,045 in the third quarter of 2021 from the change in fair value related to the contingent consideration and contingent compensation related to the 2021 Acquisitions, respectively, (ii) gain of $7,667 related to the partial forgiveness of our PPP Loan during the first quarter of 2022, (iii) $378 impairment charge recognized in the first quarter of 2022 related to the abandonment of one of our leases upon adoption of ASC 842 on January 1, 2022, and (iv) loss from modification to a sub-lease in April 2021 for $1,362.

(d) Reflects the costs incurred to identify, consider, and complete business combination transactions consisting of advisory, legal, and other professional and consulting costs. Includes a $500 charge we recognized related to a discretionary bonus paid to certain employees of Predata during the second quarter of 2022.

(e) Reflects the following infrequent charges: (i) costs incurred related to potential acquisitions and other capital markets related activities totaling $301 in the first quarter of 2021, $117 during the second quarter of 2021, and $218 during the third quarter of 2021, respectively, (ii) costs incurred related to litigation we believe to be outside of our normal course of business totaling $246 during the first quarter of 2021, $372 during the second quarter of 2021, $251 during the third quarter of 2021, $20 during the first quarter in 2022, and $286 during the third quarter of 2022, respectively, (iii) non-capitalizable debt raising costs totaling $64 during the first quarter of 2021, $520 during the third quarter of 2021, and $403 during the first quarter in 2022, respectively, (iv) costs to satisfy sales tax remittances incurred during the second quarter in 2021 totaling $506, (v) costs incurred related to our adoption of ASC 606 totaling $80 during the first quarter in 2021, and (vi) employee severance costs of $60 in the third quarter of 2021 and $149 in the third quarter of 2022, respectively.

(f) Includes non-capitalizable transaction costs associated with the Business Combination.

### Liquidity and Capital Resources

On July 29, 2022 the Company consummated the Business Combination with DSAC as well as the closing of the New Senior Term Loan whereby the Company received $65.6 million of net cash proceeds. At September 30, 2022, the Company’s cash and cash equivalents was $78.0 million.

The Company had a negative working capital balance of $38.2 million (excluding cash) at September 30, 2022 and had an accumulated deficit of $658.2 million and $481.4 million as of September 30, 2022 and December 31, 2021, respectively, and has incurred net losses of $175.7 million and $88.5 million for the nine months ended September 30, 2022 and 2021, respectively. Management expects that significant on-going operating and capital expenditures will be necessary to continue to implement the Company’s business plan of entering new markets, future acquisitions, and infrastructure and product development. Historically the Company’s cash flows from operations have not been sufficient to fund its current operating model.

Our capital requirements depend on many factors, including sales volume, the timing and extent of spending to support R&D efforts, investments in information technology systems, the expansion of sales and marketing activities, and execution on our acquisition strategy. We believe our cash on hand, proceeds from our expected product sales, and available borrowings under our New Senior Term Loan for certain acquisition activity, will be sufficient to meet our short-term and long-term operating expenses and capital expenditures for at least the next twelve months.

However, our ability to fund our operating expenses and capital expenditure requirements will depend in part on general economic, financial, competitive, legislative, regulatory and other conditions that may be beyond our control. Depending on these and other market conditions, we may seek additional financing. Volatility in the credit markets may have an adverse effect on our ability to obtain debt financing. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, or may require us to agree to unfavorable terms, and our existing stockholders may experience significant dilution.

### Financing Activities

Our historical financing activities included borrowings under senior secured credit facilities, senior secured promissory notes, convertible debt, and preferred share issuances. Our principal debt outstanding immediately after the closing of the Business Combination and at September 30, 2022 consisted of the following (excluding any debt discounts, as applicable):

*(In thousands)*

|  | July 29, 2022 | September 30, 2022 |
| --- | ---: | ---: |
| New Senior Term Loan | $150,000 | $150,263 |
| Convertible Notes | 10,517 | 10,788 |
| Aicel Convertible Note | 1,031 | 1,030 |
| PPP Loan | 295 | 277 |
| Total Principal Outstanding | $161,843 | $162,358 |

### New Senior Term Loan

In connection with the Closing, FiscalNote entered into a $150.0 million new senior term loan facility (the “New Senior Term Loan”) with Runway Growth Finance Corp., ORIX Growth Capital, LLC, Clover Orochi LLC, and ACM ASOF VIII SaaS FinCo LLC (together the “New Senior Lenders”). The New Senior Term Loan includes an uncommitted incremental loan facility totaling $100.0 million available upon notice if the Company meets certain financial growth criteria and other customary requirements (the “New Incremental Term Facility”) (collectively the “New Senior Credit Facility”). The annual interest of the New Senior Term Loan consists of two components: a cash interest component of (a) the greater of (i) Prime Rate plus 5.0% per annum and (ii) 9.0% payable monthly in cash, and (b) interest payable in kind component of 1.00% per annum, payable in kind monthly. The New Senior Credit Facility will mature on July 29, 2027. Beginning on August 15, 2025, 50% of the outstanding principal amount of the Senior Term Loan must be repaid in even amounts on a monthly basis over the remaining 24 months, with the final balance due on July 15, 2027. Borrowings under our New Senior Credit Facility are collateralized by substantially all of the Company’s assets. During the three and nine months ended September 30, 2022 we made cash interest payments totaling $2.1 million related to the New Senior Term Loan. See Note 8 “Debt” to the condensed consolidated financial statements included elsewhere herein.

### Convertible Notes

Four convertible noteholders with an aggregate principal amount (including accrued paid in kind interest) of $10.5 million as of the Closing Date elected not to convert their notes into shares of capital stock of the Company in conjunction with Closing. The convertible notes are unsecured, earn payable in kind interest of 15% per annum, payable in kind monthly, and mature in 2025.

### Aicel Convertible Note

On July 29, 2022, we acquired Aicel Technologies and assumed its $1.0 million convertible note. The Aicel Convertible Note is subordinate to our New Senior Credit Facility, payable in kind interest of 1%, payable in kind monthly, and matures in 2027. The Aicel Convertible Note is subordinate to our New Senior Credit Facility.

### PPP Loan

The PPP Loan requires monthly principal and interest payments of approximately $9 until maturity in 2027.

### Cash Flow Summary

The following tables summarizes our cash flows for the periods presented:

*(In thousands)*

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net loss | $(175,713) | $(88,462) |
| Net cash provided by (used in): |  |  |
| Operating activities | $(57,499) | $(24,179) |
| Investing activities | $(7,734) | $(30,309) |
| Financing activities | $111,515 | $45,992 |

### Operating activities

Cash used in operating activities consists of net loss adjusted for certain non-cash items including depreciation and amortization, stock based compensation, changes in fair value of warrant liabilities, non-cash interest expense, and loss on debt extinguishment, as well as the effect of changes in working capital and other activities.

Cash used in operating activities in the nine months ended September 30, 2022 was $57.5 million, an increase of $33.3 million compared to the nine months ended September 30, 2021. Cash used in operating activities was driven by a net loss of $175.7 million, as adjusted for the exclusion of non-cash expenses and other adjustments totaling $128.9 million, including non-cash interest expense of $50.5 million, loss on debt extinguishment of $45.3 million, stock-based compensation expense of $30.9 million, a gain due to the change in fair value of warrant liabilities of $21.9 million, and amortization and depreciation of $17.3 million, and the effect of changes in operating assets and liabilities that resulted in cash outflows of $10.4 million.

The increase in cash used in operating activities of $33.3 million in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 was primarily due to a $25.3 million increase in cash paid for interest mainly attributable to the payment of paid in kind interest as part of the debt prepayment paid by the Company as part of the Closing. Also contributing to the increase in net cash used in operating activities was an unfavorable change in operating assets and liabilities of $10.4 million. Cash used by operating activities can be impacted by factors such as new acquisitions, timing of cash receipts from customers, vendor payment terms, and timing of payments to vendors.

### Investing activities

Net cash used in investing activities in the nine months ended September 30, 2022 was $7.7 million compared to $30.3 million in the nine months ended September 30, 2021. Net cash used in investing activities in the nine months ended September 30, 2022 primarily consisted cash paid of $8.1 million of software development costs and $0.7 million of capital expenditures, offset by $1.1 million cash acquired from the acquisition of Aicel, net of cash paid for the assets acquisition of DT-Global. Net cash used in investing activities in the nine months ended September 30, 2021 was $30.3 million, primarily consisted of $26.4 million of cash paid for the acquisitions of Oxford Analytica, Fireside, Timebase, Board.org, Equilibrium, and Predata, and $3.9 million of capital expenditures.

### Financing activities

Net cash provided by financing activities in the nine months ended September 30, 2022 was $111.5 million, compared to $46.0 million for the nine months ended September 30, 2021. Net cash provided by financing activities during the nine months ended September 30, 2022 primarily consisted of $325.0 million in gross proceeds from the Business Combination (inclusive of (a) the net receipts from $150.0 million proceeds from the issuance of our New Senior Term Loan, (b) $61.0 million from DSAC’s trust, and (c) $114.0 million from the backstop agreement with the sponsor of DSAC), and $4.5 million cash proceeds from the exercise of public warrants, $0.4 million from the exercise of stock options, offset by a total of $48.7 million in transaction costs related to the Business Combination and New Senior Term Loan, $189.0 million in principal repayments of First Out Term Loan, Last Out Term Loan, Fireside Promissory Notes, 8090 FV Subordinated Promissory Note, and the New GPO Note. Net cash provided by financing activities during the nine months ended September 30, 2021 was $46.0 million, primarily consisted of $33.1 million of net cash received from the issuance of convertible notes in 2021, $12.5 million from the issuance of shares of Series G preferred stock in 2021, and $0.4 million of proceeds from the exercise of stock options.

### Commitments and Contingencies

Our principal commitments consist of obligations under leases for office space. For more information regarding our lease obligations, see Note 5 “Leases” to the condensed consolidated financial statements included elsewhere herein. For more information regarding our debt service obligations, see Note 8 “Debt” to the condensed consolidated financial statements included elsewhere herein.

### Off-Balance Sheet Arrangements

During the periods presented, we did not engage in any off-balance sheet financing activities or other arrangements that have or are reasonably likely to have a current or future material effect on our financial condition or results of operations.

### Recently Issued Accounting Pronouncements

For information regarding new accounting pronouncements, and the impact of these pronouncements on our condensed consolidated financial statements, if any, refer to Note 1 to our condensed consolidated financial statements as of September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021.

### Critical Accounting Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

### Critical Accounting Policies

We believe that of our significant accounting policies, which are described in Note 1 “*Summary of Business and Significant Accounting Policies”* to our condensed consolidated financial statements, the following accounting policies and specific estimates involve a greater degree of judgment and complexity.

### Revenue Recognition

Subscription revenues are recurring in nature and include subscription fees from customers accessing our company’s cloud-based infrastructure, digital content, transcripts, news and analysis, images, video and podcast data. Advisory, advertising and other revenue includes revenues derived from non-recurring activities where we deliver specific deliverables for clients as well as where we provide advertising in our own publications (Roll Call and CQ) in both print and digital formats, the sale of various publications, and sponsorship revenue for events organized by the Company. Our company’s subscription arrangements are generally non-cancelable and do not contain refund-type provisions. Our company recognizes revenues upon the satisfaction of its performance obligation(s) (upon transfer of control of promised goods or services to its customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services.

Our company’s contracts with customers may include promises to transfer multiple services. For these contracts, our company accounts for individual promises separately if they are distinct performance obligations. Determining whether services are considered distinct performance obligations may require significant judgment. Judgment is also required to determine the standalone selling price (“SSP”) for each distinct performance obligation. In instances where SSP is not directly observable, such as when our company does not sell the services separately, our company determines the SSP using available information, including market conditions and other observable inputs.

### Costs Capitalized to Obtain Revenue Contracts

Costs capitalized related to new revenue contracts are amortized on a straight-line basis over four years, which, although longer than the typical initial contract period, reflects the average period of benefit, including expected contract renewals. Significant judgment is required in arriving at this average period of benefit. Therefore, we evaluate both qualitative and quantitative factors, including the estimated life cycles of our offerings and our customer attrition.

### Business Combinations

Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed and pre-acquisition contingencies. We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets.

Critical estimates in valuing certain of the intangible assets and goodwill we have acquired are:

- future expected cash flows from subscription and content contracts, other customer contracts and acquired developed technologies, and trade names;
- historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;
- assumptions about the period of time the acquired trade name will continue to be used in our offerings;
- discount rates;
- uncertain tax positions and tax-related valuation allowances assumed; and
- fair value of earnout consideration.

Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

### Useful Lives of Intangible Assets

Amortization of acquired intangible assets is dependent upon estimates of useful lives, which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.

### Warrant Liabilities

The Company evaluates its financial instruments, including its outstanding warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company has outstanding public and private warrants, both of which do not meet the criteria for equity classification and are accounted for as liabilities. Accordingly, the Company recognizes the warrants as liabilities at fair value and adjusts the warrants to fair value at each reporting period. The warrant liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s unaudited condensed consolidated statement of operations.

The fair value of the public warrants is estimated based on the quoted market price of such warrants. The fair value of the private warrants is estimated using a binomial option pricing model.

### Deferred Taxes and Valuation Allowance

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts that are expected to be realized based on the weighting of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the applicable tax law. We regularly review the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute its business plans and/or tax planning strategies. Should there be a change in the ability to recover deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed.

### Incremental Borrowing Rate Used to Calculate Lease Balances

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate as the discount rate to measure the operating lease assets and liabilities. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease and includes considerations of both the market, our current capital structure and exiting debt borrowings. We perform an incremental borrowing rate analysis on a quarterly basis, or upon execution of any individually material agreement, to ensure that the rates being applied to newly acquired leases are still accurate.

## Market risk

As filed, 2,698 characters.

We are exposed to market risks in the ordinary course of our business. These risks primarily consist of inflation risk and fluctuations in interest rates and foreign currency exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

### Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, British Pound Sterling and Australian Dollar. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the United States as well as the European Union, United Kingdom, Australia, South Korea, Hong Kong and India. Our results of operations and cash flows in the future may be adversely affected due to an expansion of non-U.S. dollar denominated contracts, growth of our international entities and changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our cash denominated in foreign currency. To date, we have not engaged in any hedging strategies. As our international operations grow, we will continue to reassess our approach to manage the risk relating to fluctuations in currency rates.

Fluctuations in foreign currencies impact the amount of total assets, liabilities, revenues, operating expenses and cash flows that we report for our foreign subsidiaries upon the translation of these amounts into USD. Total revenue during the three months ended September 30, 2022, was negatively impacted by approximately 2.2% compared to the three months ended June 30, 2022.

### Interest Rate Risk

We are subject to market risk associated with changing interest rates within our variable rate New Senior Term Loan. Our exposure to changes in interest rates is associated with the Prime Rate.

As of September 30, 2022, we had outstanding borrowings on our New Senior Term Loan of $150.3 million that bears interest at a floating rate based on the Prime Rate plus an applicable margin. At September 30, 2022 the interest on our New Senior Term Loan was 11.25%. Assuming no change in the outstanding borrowings on our New Senior Term Loan, we estimate that a one percentage point increase in the Prime Rate would increase our annual cash interest expense by approximately $1.5 million.

### Inflation Risk

Although we do not believe inflation has had a material impact on our financial condition, results of operations or cash flows to date, a high rate of inflation in the future may have an adverse effect on our business.

## Controls and procedures

As filed, 4,744 characters.

### Limitations on Effectiveness of Disclosure Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of the disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, due to the material weakness described below and in Part II, Item 1A. of this report, our disclosure controls and procedures were not effective as of September 30, 2022. Notwithstanding the material weaknesses, our management has concluded that the financial statements included elsewhere in this report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.

### Material Weaknesses

In connection with the audits and reviews of our consolidated financial statements, we identified material weaknesses in our internal control over financial reporting. The material weaknesses related to the accounting for the Business Combination transaction, accounting for tax provision, abandonment of software development costs, EPS calculations, fair valuation of convertible notes and fair valuation of seller notes issued in business combinations, accounting for convertible promissory notes - embedded derivatives, accounting for related party transactions, the implementation of new revenue accounting standard ASC 606, and accounting for contract costs, as well as internal controls over administrative access to our accounting and finance systems and system change management.

### Remediation

We initiated and implemented several remediation measures including, but not limited to hiring additional accounting leadership and staff with requisite background and knowledge, engaging third parties to assist us in complying with the accounting and financial reporting requirements related to significant and complex transactions, and assist us with formalizing our business processes, accounting policies and internal control documentation, strengthening supervisory reviews by our management, and evaluating the effectiveness of our internal controls in accordance with the framework established by Internal Control – Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission. We believe the measures described above should remediate the material weaknesses identified and strengthen our internal control over financial reporting. The remediation initiatives outlined above are estimated to take place over the next 12 to 18 months. While we continue the challenging and costly process to implement our plan to remediate the material weaknesses, we cannot predict the success of such plan or the outcome of our assessment of this plan until the remediation initiatives have been completed and have been operating effectively for a sufficient period of time. We can give no assurance that these measures will remediate the deficiencies in internal control or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that may lead to a restatement of our financial statements or cause us to fail to meet our reporting obligations for the period ended September 30, 2022.

### Changes in Internal Control over Financial Reporting

Other than the material weaknesses identified and material weakness remediation activities described above, there were no changes in our internal control over financial reporting, as identified in connection with the evaluation required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 325 characters.

As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Current Report on Form 8-K filed with the SEC on August 2, 2022. However, we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Filed Nov 14, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-025045. Last ingested by Listed: Nov 2, 2026, 18:42 ET. No prices; not investment advice.