UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2020June 30, 2021
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number:001-39139
CuriosityStream Inc.
(Exact Name of Registrant as Specified in Its Charter)
| 84-1797523 | ||
(State or other jurisdiction of
| (I.R.S. Employer Identification No.) |
1980 Festival Plaza Drive, Ste. 3008484 Georgia Ave., Suite 700
Silver Spring, Maryland 20910
Las Vegas, Nevada 89135
(Address of principal executive offices)
310-991-4982(301) 755-2050
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☒ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒☐ No ☐☒
As of May 15, 2020,August 10, 2021, there were 14,950,00052,594,879 shares of Class A common stock and 3,737,500 shares of Class B common stockCommon Stock of the registrant issued and outstanding.
SOFTWARE ACQUISITION GROUPCURIOSITYSTREAM INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2020 JUNE 30, 2021
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
CuriosityStream Inc.
Consolidated Balance Sheets
(in thousands, except par value)
SOFTWARE ACQUISITION GROUP INC.
CONDENSED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 7,069 | $ | 11,203 | ||||
| Restricted cash | 6,681 | 6,181 | ||||||
| Short-term investments | 92,487 | 22,171 | ||||||
| Accounts receivable | 10,811 | 7,222 | ||||||
| Other current assets | 3,830 | 4,467 | ||||||
| Total current assets | 120,878 | 51,244 | ||||||
| Investments | 55,716 | 2,825 | ||||||
| Property and equipment, net | 1,298 | 1,346 | ||||||
| Content assets, net | 49,136 | 32,926 | ||||||
| Intangibles, net | 1,253 | - | ||||||
| Goodwill | 2,565 | - | ||||||
| Other assets | 310 | 254 | ||||||
| Total assets | $ | 231,156 | $ | 88,595 | ||||
| Liabilities and stockholders’ equity (deficit) | ||||||||
| Current liabilities | ||||||||
| Current content liabilities | $ | 6,581 | $ | 2,116 | ||||
| Accounts payable | 5,364 | 3,577 | ||||||
| Accrued expenses and other liabilities | 4,627 | 3,313 | ||||||
| Deferred revenue | 21,462 | 12,678 | ||||||
| Total current liabilities | 38,034 | 21,684 | ||||||
| Warrant liability | 22,865 | 20,843 | ||||||
| Non-current deferred rent liability | 1,309 | �� | 1,027 | |||||
| Other liabilities | 165 | 67 | ||||||
| Total liabilities | 62,373 | 43,621 | ||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock, $0.0001 par value – 1,000 shares authorized at June 30, 2021 and December 31, 2020; 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020 | - | - | ||||||
| Common stock, $0.0001 par value – 125,000 shares authorized at June 30, 2021 and December 31, 2020; 52,583 shares issued and outstanding at June 30, 2021; 40,289 shares issued and 39,542 shares outstanding as of December 31, 2020 | 5 | 4 | ||||||
| Additional paid-in capital | 349,597 | 197,507 | ||||||
| Accumulated other comprehensive income (loss) | (1,213 | ) | 10 | |||||
| Accumulated deficit | (179,606 | ) | (152,547 | ) | ||||
| Total stockholders’ equity (deficit) | 168,783 | 44,974 | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | 231,156 | $ | 88,595 | ||||
March 31, 2020 | December 31, 2019 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 803,596 | $ | 1,093,408 | ||||
| Prepaid expenses | 144,236 | 128,133 | ||||||
| Total Current Assets | 947,832 | 1,221,541 | ||||||
| Marketable securities held in Trust Account | 150,202,852 | 149,719,910 | ||||||
| Total Assets | $ | 151,150,684 | $ | 150,941,451 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accrued expenses | $ | 144,695 | $ | 179,881 | ||||
| Income taxes payable | 53,280 | 1,952 | ||||||
| Total Current Liabilities | 197,975 | 181,833 | ||||||
| Deferred underwriting fee payable | 5,232,500 | 5,232,500 | ||||||
| Total Liabilities | 5,430,475 | 5,414,333 | ||||||
| Commitments | ||||||||
| Class A common stock subject to possible redemption, 14,015,810 and 14,044,440 shares at redemption value at March 31, 2020 and December 31, 2019, respectively | 140,720,206 | 140,527,112 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $0.0001 par value; 1,000,000 shares authorized, none issued and outstanding | — | — | ||||||
| Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 934,190 and 905,560 issued and outstanding (excluding 14,015,810 and 14,044,440 shares subject to possible redemption) at March 31, 2020 and December 31, 2019, respectively | 93 | 91 | ||||||
| Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 3,737,500 shares issued and outstanding at March 31, 2020 and December 31, 2019 | 374 | 374 | ||||||
| Additional paid-in capital | 4,799,104 | 4,992,200 | ||||||
| Retained earnings | 200,432 | 7,341 | ||||||
| Total Stockholders’ Equity | 5,000,003 | 5,000,006 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 151,150,684 | $ | 150,941,451 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
CuriosityStream Inc.
Consolidated Statements of Operations
(in thousands, except for per share data)
(unaudited)
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | 15,344 | $ | 12,049 | $ | 25,280 | 19,516 | |||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | 5,722 | 4,671 | 9,880 | 7,337 | ||||||||||||
| Advertising and marketing | 11,520 | 8,304 | 23,769 | 21,009 | ||||||||||||
| General and administrative | 9,153 | 3,437 | 17,885 | 7,621 | ||||||||||||
| 26,395 | 16,412 | 51,534 | 35,967 | |||||||||||||
| Operating loss | (11,051 | ) | (4,363 | ) | (26,254 | ) | (16,451 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Change in fair value of warrant liability | 1,764 | - | (2,022 | ) | - | |||||||||||
| Interest and other income | 1,036 | 86 | 1,296 | 418 | ||||||||||||
| Loss before income taxes | (8,251 | ) | (4,277 | ) | (26,980 | ) | (16,033 | ) | ||||||||
| Provision for income taxes | 53 | 40 | 79 | 77 | ||||||||||||
| Net loss | $ | (8,304 | ) | $ | (4,317 | ) | $ | (27,059 | ) | $ | (16,110 | ) | ||||
| Less preferred dividends and accretion of issuance costs | - | (4,354 | ) | - | (8,591 | ) | ||||||||||
| Net loss attributable to common stockholders | $ | (8,304 | ) | $ | (8,671 | ) | $ | (27,059 | ) | $ | (24,701 | ) | ||||
| Net loss per share attributable to common stockholders | ||||||||||||||||
| Basic | $ | (0.16 | ) | $ | (0.66 | ) | $ | (0.54 | ) | $ | (1.88 | ) | ||||
| Diluted | $ | (0.19 | ) | $ | (0.66 | ) | $ | (0.54 | ) | $ | (1.88 | ) | ||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic | 52,567 | 13,165 | 50,327 | 13,165 | ||||||||||||
| Diluted | 52,968 | 13,165 | 50,327 | 13,165 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CuriosityStream Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net loss | $ | (8,304 | ) | $ | (4,317 | ) | $ | (27,059 | ) | $ | (16,110 | ) | ||||
| Other comprehensive loss | ||||||||||||||||
| Unrealized (loss) gain on available for sale securities | (769 | ) | 320 | (1,223 | ) | (92 | ) | |||||||||
| Total comprehensive loss | $ | (9,073 | ) | $ | (3,997 | ) | $ | (28,282 | ) | $ | (16,202 | ) | ||||
The accompanying notes are an integral part of the unaudited condensedthese consolidated financial statements.
CuriosityStream Inc.
CONDENSED STATEMENT OF OPERATIONSConsolidated Statements of Redeemable Convertible Preferred Stock and Stockholder’s Equity (Deficit)
THREE MONTHS ENDED MARCH 31, 2020(in thousands)
(UNAUDITED)(unaudited)
| Operating costs | $ | 238,523 | ||
| Loss from operations | (238,523 | ) | ||
| Other income: | ||||
| Interest income | 482,942 | |||
| Income before provision for income taxes | 244,419 | |||
| Provision for income taxes | (51,328 | ) | ||
| Net income | $ | 193,091 | ||
| Weighted average shares outstanding, basic and diluted(1) | 4,643,060 | |||
| Basic and diluted net loss per common share(2) | $ | (0.04 | ) |
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid-in | Income | Accumulated | Equity | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | (Loss) | Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance as of March 31, 2021 | 52,549 | $ | 5 | - | $ | - | $ | 347,967 | $ | (444 | ) | $ | (171,302 | ) | $ | 176,226 | ||||||||||||||||
| Net loss | - | - | - | - | - | - | (8,304 | ) | (8,304 | ) | ||||||||||||||||||||||
| Stock-based compensation, net | 3 | - | - | - | 1,515 | - | - | 1,515 | ||||||||||||||||||||||||
| Exercise of Options | 31 | - | - | - | 115 | - | - | 115 | ||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (769 | ) | - | (769 | ) | ||||||||||||||||||||||
| Balance as of June 30, 2021 | 52,583 | $ | 5 | - | $ | - | $ | 349,597 | $ | (1,213 | ) | $ | (179,606 | ) | $ | 168,783 | ||||||||||||||||
| Balance at December 31, 2020 | 40,289 | $ | 4 | - | $ | - | $ | 197,507 | $ | 10 | $ | (152,547 | ) | $ | 44,974 | |||||||||||||||||
| Net loss | - | - | - | - | - | - | (27,059 | ) | (27,059 | ) | ||||||||||||||||||||||
| Stock-based compensation, net | 3 | - | - | - | 3,838 | - | - | 3,838 | ||||||||||||||||||||||||
| Issuance of Common Stock | 7,475 | 1 | - | - | 94,100 | - | - | 94,101 | ||||||||||||||||||||||||
| Common Stock issuance costs | - | - | - | - | (707 | ) | - | - | (707 | ) | ||||||||||||||||||||||
| Exercise of Options | 103 | - | - | - | 437 | - | - | 437 | ||||||||||||||||||||||||
| Exercise of Warrants | 4,733 | - | - | - | 54,422 | - | - | 54,422 | ||||||||||||||||||||||||
| Cancellation of escrow shares | (20 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (1,223 | ) | - | (1,223 | ) | ||||||||||||||||||||||
| Balance as of June 30, 2021 | 52,583 | $ | 5 | - | $ | - | $ | 349,597 | $ | (1,213 | ) | $ | (179,606 | ) | $ | 168,783 | ||||||||||||||||
| Redeemable | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Convertible Series A | Additional | Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Preferred Stock | Paid-in | Income | Accumulated | Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Loss) | Deficit | (Deficit) | |||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 18,383 | $ | 159,411 | 13,165 | $ | 1 | - | $ | - | $ | - | $ | (223 | ) | $ | (107,210 | ) | $ | (107,432 | ) | ||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (4,317 | ) | (4,317 | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | 438 | - | - | 438 | ||||||||||||||||||||||||||||||
| Redeemable convertible preferred stock adjustment to redemption value | - | 4,354 | - | - | - | - | (438 | ) | - | (3,916 | ) | (4,354 | ) | |||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | 320 | - | 320 | ||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 18,383 | $ | 163,765 | 13,165 | $ | 1 | - | $ | - | $ | - | $ | 97 | $ | (115,443 | ) | $ | (115,345 | ) | |||||||||||||||||||||
| Balance at December 31, 2019 | 18,383 | $ | 155,174 | 13,165 | $ | 1 | - | $ | - | $ | - | $ | 189 | $ | (91,506 | ) | $ | (91,316 | ) | |||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (16,110 | ) | (16,110 | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | 764 | - | - | 764 | ||||||||||||||||||||||||||||||
| Redeemable convertible preferred stock adjustment to redemption value | - | 8,591 | - | - | - | - | (764 | ) | - | (7,827 | ) | (8,591 | ) | |||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | (92 | ) | - | (92 | ) | ||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 18,383 | $ | 163,765 | 13,165 | $ | 1 | - | $ | - | $ | - | $ | 97 | $ | (115,443 | ) | $ | (115,345 | ) | |||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensedthese consolidated financial statements.
CuriosityStream Inc.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITYConsolidated Statements of Cash Flows
THREE MONTHS ENDED MARCH 31, 2020(in thousands)
(UNAUDITED)(unaudited)
Class A Common Stock | Class B Common Stock | Additional Paid | Retained | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in Capital | Earnings | Equity | ||||||||||||||||||||||
| Balance – January 1, 2020 | 905,560 | $ | 91 | 3,737,500 | $ | 374 | $ | 4,992,200 | $ | 7,341 | $ | 5,000,006 | ||||||||||||||||
| Change in value of Class A common stock subject to possible redemption | 28,630 | 2 | — | — | (193,096 | ) | — | (193,094 | ) | |||||||||||||||||||
| Net income | — | — | — | — | — | 193,091 | 193,091 | |||||||||||||||||||||
| Balance – March 31, 2020 | 934,190 | $ | 93 | 3,737,500 | $ | 374 | $ | 4,799,104 | $ | 200,432 | $ | 5,000,003 | ||||||||||||||||
| For the six months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (27,059 | ) | $ | (16,110 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Change in fair value of warrant liability | 2,022 | - | ||||||
| Additions to content assets | (22,199 | ) | (10,285 | ) | ||||
| Change in content liabilities | 4,465 | (2,056 | ) | |||||
| Amortization of content assets | 6,989 | 4,697 | ||||||
| Amortization, depreciation and accretion | 569 | 269 | ||||||
| Stock-based compensation | 3,860 | 764 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (3,526 | ) | (4,708 | ) | ||||
| Other assets | 185 | 434 | ||||||
| Accounts payable | 1,773 | (2,967 | ) | |||||
| Accrued expenses and other liabilities | 1,091 | (509 | ) | |||||
| Deferred revenue | 8,474 | 1,955 | ||||||
| Net cash used in operating activities | (23,356 | ) | (28,516 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | (175 | ) | (220 | ) | ||||
| Business acquisition | (4,000 | ) | - | |||||
| Sales of investments | 4,882 | 35,568 | ||||||
| Maturities of investments | 11,980 | 8,500 | ||||||
| Purchases of investments | (141,644 | ) | (12,227 | ) | ||||
| Net cash (used in) provided by investing activities | (128,957 | ) | 31,621 | |||||
| Cash flows from financing activities | ||||||||
| Exercise of stock options | 409 | - | ||||||
| Exercise of warrants | 54,898 | - | ||||||
| Tax withholding required for equity awards | (22 | ) | - | |||||
| Proceeds from issuance of Common Stock | 94,101 | - | ||||||
| Payment of offering costs | (707 | ) | - | |||||
| Borrowings on line of credit | - | 1,000 | ||||||
| Repayments on line of credit | - | (1,000 | ) | |||||
| Net cash provided by financing activities | 148,679 | - | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (3,634 | ) | 3,105 | |||||
| Cash, cash equivalents and restricted cash, beginning of period | 17,384 | 8,819 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 13,750 | $ | 11,924 | ||||
| Supplemental schedule of non-cash financing activities: | ||||||||
| Preferred dividends and accretion of issuance costs | $ | - | $ | 8,591 | ||||
| Supplemental disclosure: | ||||||||
| Interest payments | $ | - | $ | - | ||||
| Cash paid for taxes | $ | 30 | $ | 98 | ||||
The accompanying notes are an integral part of the unaudited condensedthese consolidated financial statements.
3
CuriosityStream Inc.
Notes to the Unaudited Consolidated Financial Statements
(in thousands, except share and per share data)
Note 1 — Organization and business
SOFTWARE ACQUISITION GROUP INC.
On October 14, 2020 (the “Closing Date”), CuriosityStream Inc., a Delaware corporation (formerly named Software Acquisition Group Inc. (or “SAQN ”), a publicly traded special purpose acquisition company) consummated a merger pursuant to that certain Agreement and Plan of Merger (the “Merger Agreement”), dated August 10, 2020, by and among Software Acquisition Group Inc., CS Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Software Acquisition Group Inc. (“Merger Sub”), CuriosityStream Operating Inc., a Delaware corporation (formerly named CuriosityStream Inc.) (“Legacy CuriosityStream”), and Hendricks Factual Media LLC, a Delaware limited liability company (“HFM”).
CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2020
(UNAUDITED)
| Cash Flows from Operating Activities: | ||||
| Net income | $ | 193,091 | ||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Interest earned on marketable securities held in Trust Account | (482,942 | ) | ||
| Changes in operating assets and liabilities: | ||||
| Prepaid expenses | (16,103 | ) | ||
| Accrued expenses | (35,186 | ) | ||
| Income taxes payable | 51,328 | |||
| Net cash used in operating activities | (289,812 | ) | ||
| Net Change in Cash | (289,812 | ) | ||
| Cash – Beginning | 1,093,408 | |||
| Cash – Ending | $ | 803,596 | ||
| Non-cash investing and financing activities: | ||||
| Change in value of common stock subject to possible redemption | $ | 193,094 | ||
The accompanying notes are an integral partPursuant to the terms of the unaudited condensed financial statements.
4
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Merger Agreement, a business combination between Software Acquisition Group Inc. and Legacy CuriosityStream was effected through the merger of Merger Sub with and into Legacy CuriosityStream, with Legacy CuriosityStream surviving as the surviving company and a wholly-owned subsidiary of Software Acquisition Group Inc. (the “Company”) is a blank check company incorporated“Merger” and collectively with the other transactions described in Delaware on May 9, 2019. The Company was formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses (theMerger Agreement, the “Business Combination”). The Company is an early stage and emerging growth company and, as such,On the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of March 31, 2020, the Company had not yet commenced any operations. All activity through March 31, 2020 relates to the Company’s formation, the initial public offering (the “Initial Public Offering”), which is described below, and identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statements for the Company’s Initial Public Offering were declared effective on November 19, 2019. On November 22, 2019, the Company consummated the Initial Public Offering of 14,950,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), which includes the full exercise by the underwriter of the over-allotment option to purchase an additional 1,950,000 Units, at $10.00 per Unit, generating gross proceeds of $149,500,000, which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 4,740,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement toClosing Date, Software Acquisition Holdings, LLCGroup Inc. changed its name to CuriosityStream Inc. (the “Sponsor”“Company” or “CuriosityStream”) and Legacy CuriosityStream changed its name to CuriosityStream Operating Inc., generating gross proceedsand has subsequently changed its name to Curiosity Inc.
The principal business of $4,740,000, whichCuriosityStream is described in Note 4.
Transaction costs amounted to $8,745,223 consisting of $2,990,000 of underwriting fees, $5,232,500 of deferred underwriting fees and $522,723 of other offering costs. In addition, as of March 31, 2020, cash of $803,596 was held outside ofprovide customers with access to high quality factual content via a direct subscription video on-demand (SVoD) platform accessible by internet connected devices, or indirectly via distribution partners who deliver CuriosityStream content via the Trust Account and isdistributor’s platform or system. The online library available for working capital purposes.streaming spans the entire category of factual entertainment including science, history, society, nature, lifestyle, and technology. The library is composed of more than three thousand accessible on-demand and ad-free productions and includes shows and series from leading non-fiction producers.
Following the closing of the Initial Public Offering on November 22, 2019, an amount of $149,500,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering, and the sale of the Private Warrants was placed in a trust account (the “Trust Account”) and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act of 1940, as amended (the “Investment Company Act”), as determined by the Company, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the funds in the Trust Account to the Company’s stockholders, as described below.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offeringcontent assets are available directly through its owned and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less any deferred underwriting commissionsoperated website (“O&O Service”), mobile applications developed for iOS and taxes payable on interest earned on the Trust Account) at the time of the signing of a definitive agreement to enter a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to successfully effect a Business Combination.
The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, the Company may seek stockholder approval of a Business Combination at a meeting called for such purpose at which stockholders may seek to redeem their shares, regardless of whether they vote for or against a Business Combination. The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 either immediately prior to or upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination.
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
If the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Company’s Amended and Restated Certificate of Incorporation provides that, a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from seeking redemption rights with respect to 20% or more of the Public Shares without the Company’s prior written consent.
The public stockholders will be entitled to redeem their shares for a pro rata portion of the amount then in the Trust Account ($10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The per-share amount to be distributed to stockholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriter (as discussed in Note 6). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
If a stockholder vote is not required and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (the “SEC”Android operating systems (“App Services”), and file tender offer documents containing substantiallyvia the same information as would be includedplatforms and systems of third-party partners in exchange for license fees. The Company offers subscribers a proxy statement withmonthly or annual subscription. The price for a subscription varies depending on the SEC prior to completing a Business Combination.
The Company’s Sponsor has agreed (a) to vote its Founder Shares (as defined in Note 5)streaming resolution (e.g., HD or 4K) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination, (b) not to propose an amendment to the Company’s Amended and Restated Certificate of Incorporation with respect to the Company’s pre-Business Combination activities prior to the consummation of a Business Combination unless the Company provides dissenting public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment; (c) not to redeem any shares (including the Founder Shares) and Private Placement Warrants (including underlying securities) into the right to receive cash from the Trust Account in connection with a stockholder vote to approve a Business Combination (or to sell any shares in a tender offer in connection with a Business Combination if the Company does not seek stockholder approval in connection therewith) or a vote to amend the provisionslength of the Amended and Restated Certificate of Incorporation relating to stockholders’ rights of pre-Business Combination activity and (d) that the Founder Shares and Private Placement Warrants (including underlying securities) shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased duringsubscription (e.g., monthly or after the Initial Public Offering if the Company fails to complete its Business Combination.
If the Company is unable to complete a Business Combination by May 22, 2021 (the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to us to pay taxes (less up to $100,000 of interest to pay dissolution expenses), dividedannual) selected by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law. The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
The Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the day of liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriter of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure its stockholders that the Sponsor would be able to satisfy those obligations. Nonecustomer. As an additional part of the Company’s officers or directors will indemnify the Company for claims by third partiesApp Services, it has built applications to make its service accessible on almost every major customer device, including without limitation, claims by vendorsstreaming media players like Roku, Apple TV and prospective target businesses. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to haveAmazon Fire TV, all vendors, service providers, prospective target businesses or other entitiesmajor smart TV brands (e.g., LG, Vizio, Samsung, Sony) and gaming consoles. In addition, CuriosityStream has affiliate agreement relationships with, which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.and its content assets are available through, major multichannel video programming distributors (“MVPDs”) and virtual MVPDs (“vMVPDs”).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Note 2 — Basis of Presentationpresentation and summary of significant accounting policies
Basis of presentation
The accompanying unaudited condensedconsolidated financial statements have beenare prepared in accordance with U.S. generally accepted accounting principles generally accepted(U.S. GAAP) and are consistent in all material respects with those applied in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included inCompany’s consolidated financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant toas of and for the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. year ended December 31, 2020.
In the opinion of management, the accompanying unaudited condensedconsolidated financial statements include all adjustments consisting of a normal recurring nature which are necessary for athe fair presentation of the Company’s financial position, operating results of operations, and cash flows for the periods presented.
flows. The accompanying unaudited condensedconsolidated financial statements should be read in conjunction with the Company’saudited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report on Form 10-K for the year ended December 31, 20192020, as filed with the SEC on March 20, 2020, which contains the audited financial statements and notes thereto.amended. The financial information asresults of December 31, 2019 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The interim resultsoperations for the three and six months ended March 31, 2020June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any future interim periods.2021.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those thatThere have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison ofbeen no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted outas of usingand for the extended transition period difficult or impossible because of the potential differences in accounting standards used.year ended December 31, 2020.
7
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
Use of Estimatesestimates
The preparation of condensedconsolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the reported amountsconsolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant areas in which management uses estimates include content asset amortization, the assessment of the recoverability of the content assets, the fair value of assets and liabilities and disclosure of contingent assets and liabilities at the datefor allocation of the financial statementspurchase price of companies acquired, and the reported amountsfair value of revenuescommon stock, share-based awards, and expenses duringliability classified warrants.
Concentration of risk
Financial instruments that potentially subject the reporting period.
Making estimates requires managementCompany to exercise significant judgment. It isconcentration of credit risk consist principally of cash, cash equivalents, investments, and accounts receivable. The Company maintains its cash, cash equivalents, and investments with high credit quality financial institutions; at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date oftimes, such balances with the financial statements, which management considered in formulating its estimate, could changeinstitutions may exceed the applicable FDIC-insured limits.
Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily located in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.United States.
Cash and Cash Equivalentscash equivalents and restricted cash
The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less when purchased to be cash equivalents.
At June 30, 2021, restricted cash represents cash deposits required by a bank as collateral related to the Company’s line of credit of $4,500 and corporate credit card agreements of $500. The Company did not have anyhas also reserved funds of $1,181 related to the Paycheck Protection Program (PPP) loan (see Note 5) in an escrow account until the PPP loan is forgiven. In addition, as part of the acquisition of One Day University (see Note 3), a holdback amount of $500 is reserved for indemnification purposes until one year after the acquisition date.
Fair value measurement of financial instruments
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The applicable accounting guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification at each reporting period. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The Company’s assets measured at fair value on a recurring basis include its investments in corporate debt securities and government debt securities. Level 1 inputs were derived by using unadjusted quoted prices for identical assets in active markets and were used to value the Company’s investments in government debt securities. Level 2 inputs were derived using prices for similar investments and were used to value the Company’s investments in corporate debt securities.
The Company’s liabilities measured at fair value on a recurring basis include its Private Placement Warrants. The fair value of the Private Placement Warrants is considered a Level 3 valuation and is determined using the Black-Scholes valuation model. Refer to Note 6 for significant assumptions which the Company used in the fair value model for the Private Placement Warrants.
The Company’s remaining financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and borrowings on the line of credit are carried at cost, which approximates fair value because of the short-term maturity of these instruments.
Investments
The Company holds investments in money market funds, government debt securities, and corporate debt securities which the Company classifies as available-for-sale. The investments are therefore carried at fair value based on unadjusted quoted market prices (Level 1) and quoted prices for comparable assets (Level 2), as noted below:
| As of June 30, 2021 | As of December 31, 2020 | |||||||||||||||||||||||||||||||
| Cash and Cash | Short-term | Investments | Cash and Cash | Short-term | Investments | |||||||||||||||||||||||||||
| Equivalents | Investments | (non-current) | Total | Equivalents | Investments | (non-current) | Total | |||||||||||||||||||||||||
| Level 1 Securities | ||||||||||||||||||||||||||||||||
| Money market funds | $ | 4,097 | $ | - | $ | - | $ | 4,097 | $ | 2,165 | $ | - | $ | - | $ | 2,165 | ||||||||||||||||
| Government debt securities | - | 27,722 | 7,999 | 35,721 | 5,999 | 12,892 | - | 18,891 | ||||||||||||||||||||||||
| Total Level 1 Securities | 4,097 | 27,722 | 7,999 | 39,818 | 8,164 | 12,892 | - | 21,056 | ||||||||||||||||||||||||
| Level 2 Securities | ||||||||||||||||||||||||||||||||
| Corporate debt securities | - | 61,916 | 47,717 | 109,633 | - | 8,054 | 2,825 | 10,879 | ||||||||||||||||||||||||
| Municipal debt securities | - | 2,849 | - | 2,849 | - | 1,225 | - | 1,225 | ||||||||||||||||||||||||
| Total Level 2 Securities | - | 64,765 | 47,717 | 112,482 | - | 9,279 | 2,825 | 12,104 | ||||||||||||||||||||||||
| Total | $ | 4,097 | $ | 92,487 | $ | 55,716 | $ | 152,300 | $ | 8,164 | $ | 22,171 | $ | 2,825 | $ | 33,160 | ||||||||||||||||
Unrealized gains and losses are recorded in accumulated other comprehensive income or loss, a component of stockholders’ equity (deficit). Realized gains and losses are reclassified from accumulated other comprehensive income or loss into earnings as a component of net income or loss. Realized gains reported in interest and other income in the accompanying consolidated statements of operations were not significant in the three and six months ended June 30, 2021 and 2020. The Company evaluates unrealized losses on investments, if any, to determine if other-than-temporary impairment is required to be recognized. No such other-than-temporary impairments were recognized during the three and six months ended June 30, 2021 and 2020. Investments in debt securities that will mature within one year of the balance sheet dates are reflected as Short-term investments in the accompanying consolidated balance sheets.
The following tables summarize the Company’s corporate and government debt securities:
| As of June 30, 2021 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| Debt Securities: | ||||||||||||||||
| Corporate | $ | 110,843 | $ | 1 | $ | (1,211 | ) | $ | 109,633 | |||||||
| U.S. Government | 35,723 | 1 | (3 | ) | 35,721 | |||||||||||
| Municipalities | 2,850 | - | (1 | ) | 2,849 | |||||||||||
| Total | $ | 149,416 | $ | 2 | $ | (1,215 | ) | $ | 148,203 | |||||||
The fair value of the Company’s investments in corporate and government debt securities at June 30, 2021 by contractual maturity is as follows:
| June 30, 2021 | ||||||||
| Amortized Cost | Estimated Fair Value | |||||||
| Due in one year or less | $ | 93,160 | $ | 92,487 | ||||
| Due after one year through five years | 56,256 | 55,716 | ||||||
| Due after five years | - | - | ||||||
| Total | $ | 149,416 | $ | 148,203 | ||||
Warrants
As described in Note 6, the Private Placement Warrants are classified as a non-current liability and reported at fair value at each reporting period. The fair value of the Private Placement Warrants as of March 31, 2020June 30, 2021 and December 31, 2019.2020 was as follows:
| As of June 30, 2021 | As of December 31, 2020 | |||||||
| Level 3 | ||||||||
| Private Placement Warrants | $ | 22,865 | $ | 20,843 | ||||
| Total Level 3 | $ | 22,865 | $ | 20,843 | ||||
Content assets, net
Marketable Securities Held
The Company acquires, licenses and produces content, including original programming, in Trust Accountorder to offer members unlimited viewing of factual entertainment content. The content licenses are for a fixed fee and specific windows of availability. Payments for content, including additions to content assets and the changes in related liabilities, are classified within “Net cash used in operating activities” on the consolidated statements of cash flows.
The Company recognizes its content assets (licensed and produced) as “Content assets, net” on the consolidated balance sheets. For licenses, the Company capitalizes the fee per title and records a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known, and the title is accepted and available for streaming. For productions, the Company capitalizes costs associated with the production, including development costs, direct costs and production overhead.
At March 31,
Based on factors including historical and estimated viewing patterns, the Company generally amortizes the content assets (licensed and produced) in “Cost of revenues” on the consolidated statements of operations on a straight-line basis over the shorter of each title’s contractual window of availability or estimated period of use, beginning with the month of first availability. The Company reviews factors impacting the amortization of content assets on an ongoing basis and will record amortization on an accelerated basis when there is more upfront use of a title, for instance due to significant program sales.
The Company’s business model is generally subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content assets will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.
Revenue recognition
The following table sets forth the Company’s revenues disaggregated by type for the three and six months ended June 30, 2021 and 2020, as well as the relative percent of each revenue type to total revenue.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
| Subscriptions – O&O Service | $ | 4,549 | 30 | % | $ | 3,178 | 26 | % | $ | 8,671 | 34 | % | $ | 5,812 | 30 | % | ||||||||||||||||
| Subscriptions – App Services | 1,131 | 7 | % | 889 | 7 | % | 1,886 | 7 | % | 1,706 | 9 | % | ||||||||||||||||||||
| Subscriptions – Total | 5,680 | 37 | % | 4,067 | 33 | % | 10,557 | 41 | % | 7,518 | 39 | % | ||||||||||||||||||||
| License Fees – Affiliates | 4,579 | 30 | % | 4,225 | 35 | % | 9,082 | 36 | % | 8,226 | 42 | % | ||||||||||||||||||||
| License Fees – Program Sales | 5,031 | 33 | % | 3,753 | 32 | % | 5,517 | 23 | % | 3,768 | 19 | % | ||||||||||||||||||||
| License Fees – Total | 9,610 | 63 | % | 7,978 | 67 | % | 14,599 | 59 | % | 11,994 | 61 | % | ||||||||||||||||||||
| Other – Total | 54 | 0 | % | 4 | 0 | % | 124 | 0 | % | 4 | 0 | % | ||||||||||||||||||||
| Total Revenues | $ | 15,344 | $ | 12,049 | $ | 25,280 | $ | 19,516 | ||||||||||||||||||||||||
Subscriptions — O&O Service
The Company generates revenue from monthly subscription fees from its O&O Service. CuriosityStream subscribers enter into month-to-month or annual subscriptions with the Company. The Company bills the monthly subscriber on each subscriber’s monthly anniversary date and recognizes the revenue ratably over each monthly membership period. The annual subscription fees are collected by the Company at the start of the annual subscription period and are recognized ratably over the subsequent twelve-month period. Revenues are presented net of the taxes that are collected from subscribers and remitted to governmental authorities.
The Company also offers gift certificates for use on a future date. The Company recognizes revenue from gift certificates when the services have been provided. The gift certificates do not expire.
Subscription — App Services
The Company also earns subscription revenues through its App Services. These subscriptions are similar to the O&O Service subscriptions, but are generated based on agreements with certain streaming media players as well as with Smart TV brands and gaming consoles (see Note 1). Under these agreements, the streaming media player typically bills the subscriber directly and then remits the collected subscriptions to the Company, net of a distribution fee. The Company recognizes the gross subscription revenues when earned and simultaneously recognizes the corresponding distribution fees as an expense. The Company is the principal in these relationships as the Company retains control over service delivery to its subscribers.
Licensing — Affiliates
The Company generates license fee revenues from MVPDs such as Altice, Comcast and Cox as well as from vMVPDs such as Amazon and Sling TV (MVPDs and vMVPDs are also referred to as affiliates). Under the terms of the agreements with these affiliates, the Company receives license fees based upon contracted programming rates and subscriber levels reported by the affiliates. In exchange, the Company licenses its content to the affiliates for distribution to their subscribers. The Company earns revenue under these agreements either based on the total number of subscribers multiplied by rates specified in the agreements or based on fixed fee arrangements. These revenues are recognized over the term of each agreement when earned.
Licensing — Program Sales
The Company has distribution agreements which grant a licensee limited distribution rights to the Company’s programs for varying terms, generally in exchange for a fixed license fee. Revenue is recognized once the content is made available for the licensee to use.
The Company’s performance obligations include (1) access to its SVoD platform via the Company’s O&O Service and App Services, (2) access to the Company’s content assets, and (3) licenses of specific program titles. In contracts containing the right to access the Company SVoD platform, the performance obligation is satisfied as access to the SVoD platform is provided post any free trial period. In contracts which contain access to the Company’s content assets, the performance obligation is satisfied as access to the content is provided. For contracts with licenses of specific program titles, the performance obligation is satisfied as that content is made available for the customer to use.
Payment terms for access to the Company’s SVoD services require payment in advance on or prior to the date access to the service is provided. Payments for contracts providing access to the Company’s content assets are paid either in advance, over the license term, or on a sales and usage basis. Payments for licenses of specific program titles are paid either upfront or over the license term on a fixed fee basis, or on a sales and usage basis. To date, there has been no financing component associated with the Company’s revenue arrangements and such arrangements do not contain rights of return provisions.
Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at June 30, 2021 are as follows:
| Rest of year ending December 31, | For the twelve months ending December 31, | |||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | ||||||||||||||||||||||
| Remaining Performance Obligations | $ | 10,650 | $ | 8,365 | $ | 1,271 | $ | 108 | $ | 13 | $ | 98 | $ | 20,505 | ||||||||||||||
These amounts include only fixed consideration or minimum guarantees and do not include amounts related to (i) contracts with an original expected term of one year or less or (ii) licenses of content that are solely based on sales or usage-based royalties.
Contract liabilities (i.e., deferred revenue) consists of subscriber and affiliate license fees billed that have not been recognized, amounts contractually billed or collected for program sales in advance of the related content being made available to the customer, and unredeemed gift certificates and other prepaid subscriptions that have not been redeemed. Total deferred revenues were $21,627 and $12,745 at June 30, 2021 and December 31, 2019,2020, respectively. The increase in deferred revenues is primarily due to the growth in annual subscriptions from O&O and App Services, which require upfront annual payments, as well as an increase in the volume of program sales activity.
Revenues of $2,208 and $7,861 were recognized during the three and six months ended June 30, 2021, related to the balance of deferred revenue at December 31, 2020.
Warrant liability
The Company classifies its Private Placement Warrants as liabilities as the terms of these warrants provide for potential changes to the settlement amounts dependent upon the characteristics of the warrant holder and because the holder of a warrant is not an input into the pricing of a fixed-for-fixed option on equity shares, such provision would preclude the warrant from being classified in equity and thus the warrant should be classified as a liability. The Private Placement Warrants are recorded at fair value on the consolidated balance sheets and changes in the fair value of the Company’s Private Placement Warrants in each period are reported in earnings.
Goodwill and intangible assets
Goodwill represents the excess of the cost of acquisitions over the amount assigned to tangible and identifiable intangible assets acquired less liabilities assumed. At least annually, in the fourth quarter of each fiscal year or more frequently if indicators of impairment exist, management performs a review to determine if the carrying value of goodwill is impaired. The identification and measurement of goodwill impairment involves the estimation of fair value at the Company’s reporting unit level.
The Company performs an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of relevant events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if the Company concludes otherwise, an impairment test must be performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including goodwill.
Intangible assets other than goodwill are carried at cost and amortized over their estimated useful lives. The Company reviews identifiable finite-lived intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its ultimate disposition. Measurement of any impairment loss is based on the amount by which the carrying value of the asset exceeds its fair value.
Recently issued financial accounting standards
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current U.S. GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. The new guidance also requires qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for the Company’s fiscal year beginning January 1, 2022, with early adoption permitted, and is required to be implemented using a modified retrospective approach. The Company is currently assessing the impact of the new standard on its consolidated financial statements, but anticipates a material increase in assets and liabilities due to the recognition of the required right-of-use asset and corresponding lease liability for all lease obligations that are currently classified as operating leases, such as real estate leases for corporate headquarters, as well as additional disclosure on all its lease obligations. The income statement recognition of lease expense is not expected to significantly change from the current methodology.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), which requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. The guidance also modifies the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the Company’s fiscal year beginning January 1, 2023. The Company is continuing to assess the potential impacts of ASU 2016-13 on its consolidated financial statements.
Note 3 – Business Combinations
Acquisition of One Day University
On May 11, 2021, the Company consummated the acquisition of 100% ownership of One Day University (ODU) pursuant to that certain Asset Purchase Agreement, (APA) dated May 11, 2021 (“the Acquisition Date”), by and among ODU and the Company for the aggregate consideration of $4,500 (“the Acquisition”). ODU provides access to talks and lectures from professors at colleges and universities in the Trust Account were substantially held in a money market fund that invests primarily in U.S. Treasury Bills.United States.
Common Stock SubjectAt closing of the Acquisition, the Company paid $4,000 of cash consideration with the remaining $500 to Possible Redemptionbe held by the Company as a holdback for indemnification purposes. The holdback of $500 will be released twelve months after the Acquisition Date and is recorded in restricted cash and in accrued expenses and other liabilities as of June 30, 2021 on the unaudited consolidated balance sheets.
The acquisition was accounted for as a purchase, with the results of operations, which were not material, of ODU included in the Company's consolidated results from May 11, 2021. Based on a preliminary purchase price allocation, the purchase consideration was allocated to assets acquired and liabilities assumed based on their fair values as of the Acquisition Date as follows:
| Accounts receivable | $ | 35 | ||
| Property and equipment | 11 | |||
| Content and intangibles | 2,300 | |||
| Goodwill | 2,565 | |||
| Accounts payable | (3 | ) | ||
| Deferred revenue | (408 | ) | ||
| $ | 4,500 |
The preliminary allocation of the estimated purchase price is based upon management's estimates and is subject to revision, as a more detailed analysis of intangible assets, certain tangible assets, and other assets and liabilities is completed and additional information on the fair value of assets and liabilities becomes available, including receipt of final appraisals of the net assets acquired. A change in the fair value of the net assets may change the amount of the purchase price allocable to goodwill and could impact the amounts of amortization expense. The Company used discounted cash flows analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation, including acquired intangible assets.
The acquisition of goodwill arises from the opportunity for synergies of the combined companies to grow and strengthen the Company's content proposition by adding lectures from top professors and expanding the customer base. The acquisition expands the Company's subscription video on demand services by adding monthly and annual subscribers. The goodwill is not amortized for financial reporting purposes, but is deductible for federal tax purposes.
The Company accountsincurred approximately $21 in Acquisition-related expenses, which are reported in general and administrative expenses of the consolidated statement of operations for the three and six months ended June 30, 2021.
The amounts allocated to content and intangibles has been attributed to the following categories and will be amortized over the useful lives of each individual asset identified on a straight-line basis as follows:
| Fair value | Estimated useful life (Years) | |||||
| Content | $ | 1,000 | 4.2 | |||
| Customer relationships | 700 | 3.0 | ||||
| Trademark | 500 | 6.5 | ||||
| Covenant-not-to-compete | 100 | 3.0 | ||||
| Total intangibles | 1,300 | |||||
| Total content and intangibles | $ | 2,300 | ||||
Content relates to the lectures available on the ODU library as well as premium programs available for purchase on the ODU platform. The cost approach was used to estimate the value of the content library as of the valuation date. The economic life was determined based on the lecturer’s license period of 5 years starting on the date the titles were published. ODU content is recorded as part of Content assets, net on the unaudited consolidated balance sheets.
Customer relationships represent the fair value of the future projected revenue that will be derived from the sales of lectures to existing customers of ODU. Customer relationships were valued using the discounted cash flow method under the income approach. The underlying cash flows are based on historical attrition rates. The economic life was determined based on the period in which the Company expects to receive most of the cash flows from the existing customers.
The trademark intangible relates to the “One Day University” trade name. The fair value was determined using the relief-from-royalty method under the income approach. This valuation method estimates the fair value of an asset calculating the revenues attributable to the trademark for the use of the asset, multiplied by a royalty rate. The economic life was determined based on the remaining expected period of use of the trademark.
Covenant-not-to-compete relates to an agreement between the Company and ODU’s management not to work for a competitor of the Company and limits ODU management’s ability to compete with the Company. The valuation method used to estimate the fair value was the income approach. The economic life was determined based on the remaining contractual life of the covenant-not-to-compete agreement.
Intangible assets as of June 30, 2021 were comprised of the following:
| As of June 30, 2021 | ||||||||||||||
| Remaining Amortization Period (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||
| Trademark | 6.4 | $ | 500 | $ | 11 | $ | 489 | |||||||
| Covenant-not-to-compete | 2.9 | 100 | 5 | 95 | ||||||||||
| Customer relationships | 2.9 | 700 | 31 | 669 | ||||||||||
| Intangible assets, net | $ | 1,300 | $ | 47 | $ | 1,253 | ||||||||
Reverse merger acquisition
On October 14, 2020, the Company consummated the Merger, pursuant to the terms of the Merger Agreement dated August 10, 2020, with Legacy CuriosityStream surviving the merger as a wholly owned subsidiary of the Company.
At the effective time of the Merger (the “Effective Time”), all (100%) of the issued and outstanding shares of capital stock of Legacy CuriosityStream were converted into an aggregate of 31,556,837 shares (the “Merger Shares”) of Common Stock. Pursuant to the Merger Agreement, 1,501,758 Merger Shares issued by the Company at closing would be held in escrow for a period of twelve months after the Closing Date to satisfy indemnification obligations and an additional 19,924 Merger Shares would be held in escrow pending final working capital calculations (collectively, the “Escrow Shares”). On February 22, 2021, the 19,924 Merger Shares held in escrow pending final working capital calculations were released and cancelled from escrow.
In connection with the Closing, and pursuant to the terms of a PIPE Subscription Agreement entered into by the Company with certain third-party investors (the “PIPE Investors”) in connection with the execution of the Merger Agreement, the Company completed the issuance of an aggregate of 2,500,000 newly-issued shares of Common Stock for an aggregate purchase price of $25.0 million (the “PIPE”). The shares of Common Stock issued by the Company pursuant to the PIPE were issued concurrently with the Closing of the Merger on the Closing Date.
The Company received $16.5 million in cash from the SAQN trust account and $25.0 million from the PIPE investors related to the issuance of 2,500,000 shares of Common Stock. The Company paid a total of $5.7 million of transaction costs related to the Business Combination.
Note 4 — Content assets
Content assets consisted of the following:
| As of | ||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| Licensed content, net | ||||||||
| Released, less amortization | 10,108 | 9,985 | ||||||
| Prepaid and unreleased | 4,783 | 3,022 | ||||||
| 14,891 | 13,007 | |||||||
| Produced content, net | ||||||||
| Released, less amortization | 13,137 | 9,071 | ||||||
| In production | 21,095 | 10,848 | ||||||
| In development and pre-production | 13 | - | ||||||
| 34,245 | 19,919 | |||||||
| Total | $ | 49,136 | $ | 32,926 | ||||
As of June 30, 2021, $4,903, $2,961, and $1,148 of the $10,108 unamortized cost of the licensed content that has been released is expected to be amortized in each of the next three years. As of June 30, 2021, $3,274, $3,274, and $3,169 of the $13,137 unamortized cost of the produced content that has been released is expected to be amortized in each of the next three years.
In accordance with its common stock subjectaccounting policy for content assets, the Company amortized licensed content costs and produced content costs during the three and six months ended June 30, 2021 and 2020, respectively as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Licensed content | $ | 1,595 | $ | 2,050 | $ | 3,278 | $ | 3,352 | ||||||||
| Produced content | 2,658 | 1,114 | 3,711 | 1,345 | ||||||||||||
| $ | 4,253 | $ | 3,164 | $ | 6,989 | $ | 4,697 | |||||||||
Note 5 — Line of credit and Paycheck Protection Program Loan
On February 12, 2020, the Company obtained a one-year $4,500 line of credit facility from a bank. The line of credit calls for interest-only monthly payments at a rate equal to possible redemptionthe LIBOR Daily Floating Rate plus 2.25%. The loan carries an unused fee of 0.25% annually on all committed but unused capital, payable quarterly in arrears. The entire unpaid principal balance was scheduled to be due upon the original loan maturity date of February 28, 2021. The line of credit facility is collateralized by cash of $4,500. At June 30, 2021 and December 31, 2020, there were no balances drawn and owed under the facility. During February 2021, the loan maturity date was extended to February 28, 2022.
On May 1, 2020, the Company applied for and received funding from the Paycheck Protection Program (“PPP”) in the amount of $1,158 under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) (the “PPP Loan”). The PPP Loan matures in May 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principal and interest payments are deferred for six months after the date of disbursement. The PPP provides that the use of the PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the guidancerequirements set forth in Accounting Standards Codificationthe CARES Act. The amount of loan proceeds eligible for forgiveness takes into account a number of factors, including the amount of loan proceeds used by the Company during the specified period after the loan origination for certain purposes including payroll costs, rent payments on certain leases, and certain qualified utility payments.
The Company elected to recognize earnings as funds are applied to covered expenses and classify the application of funds as a reduction of the related expense in the consolidated statement of operations. During the six months ended June 30, 2020, $990 of loan proceeds were applied to cover payroll and non-payroll expenses per the PPP. As a result, general and administrative expenses during the period from May 1 to June 30, 2020 within the statement of operations were reduced by this amount. Should the Company’s loan forgiveness application be rejected, the Company may be required to repay all, or a portion of the funds received under the PPP under an amortization schedule through May 2025 with an annual interest rate of 1%. The Company believes it has met all the requirements under the PPP, and anticipates that it will not be required to repay any portion of the grant.
Note 6 — Redeemable convertible preferred stock and stockholders’ equity
Common Stock
In connection with the Business Combination, the Company amended and restated its certificate of incorporation. As of June 30, 2021 and December 31, 2020, the Company has authorized the issuance of 126,000,000 shares of capital stock, par value of $0.0001 per share, consisting of (a) 125,000,000 shares of common stock, and (b) 1,000,000 shares of preferred stock.
On February 8, 2021, the Company consummated an underwritten public offering (the “Offering”) of 6,500,000 shares of the Company’s common stock, par value per share $0.0001 (“ASC”Common Stock”) Topic 480 “Distinguishing Liabilities, plus an over-allotment option to purchase up to 975,000 additional shares of Common Stock granted to the underwriters who participated in the Offering, which was exercised by the underwriters in full on February 5, 2021. The net proceeds from Equity.” Commonthe Offering were $94,100, after deducting $6,811 in underwriting discounts and commissions. The Company also incurred and paid offering expenses in connection with the Offering of $707 during the six months ended June 30, 2021.
Warrants
As of June 30, 2021, the Company had 3,054,203 Public Warrants (including 353,000 warrants issued in connection with the PIPE) and 3,676,000 Private Placement Warrants outstanding. Private Placement Warrants are liability-classified, and the Public Warrants and PIPE Warrants are equity-classified.
Following the consummation of the Business Combination, holders of the Public Warrants, Private Placement Warrants, and PIPE Warrants are entitled to acquire common stock of the Company. Each whole warrant entitles the registered holder to purchase one share of the Company’s common stock at an exercise price of $11.50 per share, beginning 30 days after the Closing Date. All Warrants will expire five years after the completion of the Business Combination.
Once the Public Warrants and PIPE Warrants became exercisable, the Company has the right to redeem the outstanding warrants in whole and not in part at a price of $0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of the Company’s common stock matched or exceeded $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sent the notice of redemption to the warrant holders.
The Private Placement Warrants are identical to the Public Warrants except that, so long as they are held by the Sponsor or its permitted transferees: (i) they will not be redeemable by the Company; (ii) they may be exercised by the holders on a cashless basis; and (iii) they are subject to mandatory redemptionregistration rights.
| Warrant Type | Cash Exercise Price per Share | Warrants Outstanding 12/31/20 | Warrants Exercised during the six months ended 06/30/21 | Warrants Outstanding 06/30/21 | ||||||||||||
| Public Warrants (CURIW) and PIPE Warrants | $ | 11.50 | 7,786,589 | (4,732,386 | ) | 3,054,203 | ||||||||||
| Private Placement | $ | 11.50 | 3,676,000 | - | 3,676,000 | |||||||||||
| Total | 11,462,589 | (4,732,386 | ) | 6,730,203 | ||||||||||||
The Company received total proceeds of $54,898 related to the exercise of Public Warrants of which $54,422 relate to warrants exercised during the six months ended June 30, 2021 and $476 relate to warrants exercised in December 2020. There were no warrants exercised during the three months ended June 30, 2021.
The warrant liability related to the Private Placement Warrants is classifiedrecorded at fair value as of each reporting date with the change in fair value reported within other income (expense) in the accompanying consolidated statements of operations as “Change in fair value of warrant liability” until the warrants are exercised, expired or other facts and circumstances lead the warrant liability to be reclassified to stockholder’s equity (deficit). The fair value of the warrant liability for the Private Placement Warrants was estimated using a Black-Scholes pricing model using Level 3 inputs. The significant assumptions used in preparing the Black-Scholes option pricing model are as follows:
| As of June 30, 2021 | As of December 31, 2020 | |||||||
| Exercise Price | $ | 11.50 | $ | 11.50 | ||||
| Stock Price (CURI) | $ | 13.64 | $ | 13.95 | ||||
| Expected volatility | 50.00 | % | 39.63 | % | ||||
| Expected warrant term (years) | 4.29 | 4.78 | ||||||
| Risk-free interest rate | 0.67 | % | 0.36 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Fair Value per Private Placement Warrant | $ | 6.22 | $ | 5.67 | ||||
The change in fair value of the private placement warrant liability for the three and six months ended June 30, 2021, resulted in a gain of $1,764 and a loss of $2,022, respectively.
During November and December 2018, in connection with a private placement equity offering, Legacy CuriosityStream issued 14,557,000 shares of Series A Redeemable Convertible Preferred Stock (“Series A Preferred Stock”) in exchange for gross proceeds of $145,570. Legacy CuriosityStream incurred equity issuance costs of $8,027 in connection with this offering, which were reflected as a liability instrumentreduction to the initial carrying value of the Series A Preferred Stock balance.
Holders of Series A Preferred Stock were entitled to dividends equal to 10% of the Accrued Value (defined as the original liquidation preference of $10.00 per share of Series A Preferred Stock plus an additional amount equal to the dollar amount of any accrued but unpaid dividends) per annum. Such dividends were cumulative and is measured at fair value. Conditionally redeemable common stock (including common stockaccrued daily in arrears. Cash dividends were payable when, as and if declared by the Board of Directors. If the Board of Directors did not declare a cash dividend in respect of all or a portion of the dividend when due, the Accrued Value of the Series A Preferred Stock was increased by a corresponding amount.
The Company classifies preferred shares that featuresfeature redemption rights that isare either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classifiedcontrol, as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certainGiven the redemption rights that are considered to be outside ofcontained within the Company’s control and subject to occurrence of uncertain future events. Accordingly, commonSeries A Preferred Stock, the Company accounted for the outstanding preferred stock subject to possible redemption is presented at redemption value as temporary equity outsidethrough the Closing Date. Series A Preferred Stock was initially recorded at its fair value, net of transaction costs, at the stockholders’ equity section of the Company’s condensed balance sheets.
Income Taxes
The Company complies with the accounting andoriginal issuance date. At each reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicableperiod prior to the periodsClosing Date, the amount was adjusted by accreting changes in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assetsredemption value over the period from the date of issuance to the amount expected to be realized.earliest redemption date.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2020 and December 31, 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security “CARES” Act into law. The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOL) and allow businesses to carry back NOLs arising in 2018, 2019 and 2020 to the five prior years, suspend the excess business loss rules, accelerate refunds of previously generated corporate alternative minimum tax credits, generally loosen the business interest limitation under IRC section 163(j) from 30 percent to 50 percent among other technical corrections included in the Tax Cuts and Jobs Act tax provisions. The Company does not believe that the CARES Act will have a significant impact on Company's financial position or statement of operations.
SOFTWARE ACQUISITION GROUP INC.Note 7 — Earnings (loss) per share
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
Net IncomeBasic and diluted earnings (loss) per Common Share
Net loss per common share is computed by dividing net loss bycalculations are calculated on the basis of the weighted average number of shares of the Company’s common stock outstanding during the respective periods. Diluted earnings (loss) per share give effect to all dilutive potential common shares outstanding during the period using the treasury stock method for stock options and other potentially dilutive securities and the period. The Company appliesif-converted method for redeemable convertible preferred stock prior to the two-class method in calculatingBusiness Combination. In computing diluted earnings per share. Shares of common stock subject to possible redemption at March 31, 2020, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic loss(loss) per share, since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect of warrants to purchase 12,215,000 shares of common stock that were sold in the Initial Public Offering and the private placement in the calculation of diluted loss per share, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted loss per share is the same as basic loss per share for the period presented.
Reconciliation of Net Income per Common Share
The Company’s net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not the income or losses of the Company. Accordingly, basic and diluted loss per common share is calculated as follows:
| Three Months Ended | ||||
| March 31, 2020 | ||||
| Net income | $ | 193,091 | ||
| Less: Income attributable to shares subject to possible redemption | (357,763 | ) | ||
| Adjusted net loss | $ | (164,672 | ) | |
| Weighted average shares outstanding, basic and diluted | 4,643,060 | |||
| Basic and diluted net loss per common share | $ | (0.04 | ) | |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution, which, at times may exceed the Federal Depository Insurance Corporation coverage limit of $250,000. The Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
Theaverage fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.
Recently Issued Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s condensed financial statements.
9
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 14,950,000 Units, which included the full exercise by the underwriter of its option to purchase an additional 1,950,000 Units at $10.00 per Unit. Each Unit consists of one share of the Company’s Class A common stock, $0.0001 par value, and one-half of one redeemable warrant (“Public Warrant”). Each Public Warrant will entitle the holder to purchase one share of Class A common stock at an exercise price of $11.50 per whole share (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 4,740,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant for an aggregate purchase price of $4,740,000. Each Private Placement Warrant is exercisable to purchase one share of Class A common stock at a price of $11.50 per share. The proceeds from the sale of the Private Placement Warrants were added to the net proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In June 2019, the Company issued an aggregate of 3,593,750 shares (the “Founder Shares”) to the Sponsor for an aggregate purchase price of $25,000 in cash. On November 19, 2019, the Company effected a stock dividend for 0.04 share for each Founder Share outstanding, resulting in the Sponsor holding an aggregate of 3,737,500 Founder Shares. The 3,737,500 Founder Shares included an aggregate of up to 487,500 shares subject to forfeiture by the Sponsor to the extent that the underwriter’s over-allotment was not exercised in full or in part, so that the Sponsor will collectively own, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Proposed Offering (assuming the Sponsor does not purchase any Public Shares in the Initial Public Offering and excluding the Private Placement Warrants and underlying securities). As a result of the underwriter’s election to fully exercise its over-allotment option, 487,500 Founder Shares are no longer subject to forfeiture.
The initial stockholders have agreed not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination or (B) the date on which the Company completes a liquidation, merger, capital stock exchange or similar transaction that results in the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of the Company’s Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Business Combination, the Founder Shares will be released from the lock-up.
Promissory Note — Related Party
On June 25, 2019, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note was non-interest bearing and payable on the earlier of December 31, 2019 or the completion of the Initial Public Offering. The borrowings outstanding under the Note of $235,540 were repaid upon the consummation of the Initial Public Offering on November 22, 2019.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of notes may be converted upon consummation of a Business Combination into warrants at a price of $1.00 per warrant. The warrants will be identical to the Private Placement Warrants. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would beis used to repay the Working Capital Loans.
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
Administrative Support Agreement
The Company entered into an agreement whereby, commencing on November 19, 2019 through the earlier of the Company’s consummation of a Business Combination and its liquidation, the Company will pay the Sponsor a total of $10,000 per month for office space, utilities and secretarial and administrative support. For the three months ended March 31, 2020, the Company incurred $30,000 in fees for these services, of which $45,000 and $15,000 is included in accrued expenses in the accompanying condensed balance sheets as of March 31, 2020 and December 31, 2019, respectively.
NOTE 6. COMMITMENTS
Registration Rights
Pursuant to a registration rights agreement entered into on November 19, 2019, the holders of the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of the Working Capital Loans (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) will be entitled to registration rights, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to our Class A common stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriter is entitled to a deferred fee of three and half percent (3.50%) of the gross proceeds of the Initial Public Offering, or $5,232,500. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
NOTE 7. STOCKHOLDERS’ EQUITY
Preferred Stock — The Company is authorized to issue 1,000,000 shares of $0.0001 par value preferred stock. At March 31, 2020 and December 31, 2019, there were no preferred shares issued or outstanding.
Class A Common Stock — The Company is authorized to issue up to 100,000,000 shares of Class A, $0.0001 par value common stock. Holders of the Company’s common stock are entitled to one vote for each share. At March 31, 2020 and December 31, 2019, there were 934,190 and 905,560 shares of Class A common stock issued or outstanding, excluding 14,015,810 and 14,044,440 shares of Class A common stock subject to possible redemption, respectively.
Class B Common Stock — The Company is authorized to issue up to 10,000,000 shares of Class B, $0.0001 par value common stock. Holders of the Company’s common stock are entitled to one vote for each share. The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of the Business Combination on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like. In the case that additional shares of Class A common stock, or equity linked securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so thatdetermine the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as converted basis, 20% of the sum of the total number of all shares of common stock outstanding upon the completion of the Initial Public Offering plus all shares of Class A common stock and equity linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity linked securities issued, orassumed to be issued, to any seller in a Business Combination, and any private placement-equivalent warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company). Holders of Founder Shares may also elect to convert their shares of Class B common stock into an equal number of shares of Class A common stock, subject to adjustment as provided above, at any time.
11
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
At March 31, 2020 and December 31, 2019, there were 3,737,500 shares of Class B common stock issued and outstanding.
The Company may issue additional common stock or preferred stock to complete its Business Combination or under an employee incentive plan after completion of its Business Combination.
Warrants — The Public Warrants will become exercisable on the later of (a) 30 days after the consummation of a Business Combination or (b) 12 monthspurchased from the effective date of the registration statement relating to the Initial Public Offering. No Public Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the common shares issuable upon exercise of the Public Warrants and a current prospectus relating to such common shares. Notwithstanding the foregoing, if a registration statement covering the Class A common shares issuable upon the exercise of the Public Warrants is not effective within 60 days from the consummation of a Business Combination, the holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise the Public Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their Public Warrants on a cashless basis. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.
The Company may call the Public Warrants for redemption (excluding the Private Placement Warrants), in whole and not in part, at a price of $0.01 per warrant:
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants will and the common shares issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or saleable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless. If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of common shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such warrants. Accordingly, the warrants may expire worthless.
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the options. Purchases of treasury stock reduce the outstanding shares commencing on the date that the stock is purchased. Common stock equivalents are excluded from the calculation when a loss is incurred as their effect would be anti-dilutive.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator - Basic EPS: | ||||||||||||||||
| Net loss | $ | (8,304 | ) | $ | (4,317 | ) | $ | (27,059 | ) | $ | (16,110 | ) | ||||
| Preferred dividends and accretion of issuance costs | - | (4,354 | ) | - | (8,591 | ) | ||||||||||
| Net loss attributable to common stockholders - basic | (8,304 | ) | (8,671 | ) | (27,059 | ) | (24,701 | ) | ||||||||
| Denominator - Basic EPS: | ||||||||||||||||
| Weighted–average shares – basic | 52,566,608 | 13,164,675 | 50,327,141 | 13,164,675 | ||||||||||||
| Net loss per share attributable to common stockholders – basic | $ | (0.16 | ) | $ | (0.66 | ) | $ | (0.54 | ) | $ | (1.88 | ) | ||||
| Numerator - Diluted EPS: | ||||||||||||||||
| Net loss | $ | (8,304 | ) | $ | (4,317 | ) | $ | (27,059 | ) | $ | (16,110 | ) | ||||
| Preferred dividends and accretion of issuance costs | - | (4,354 | ) | - | (8,591 | ) | ||||||||||
| Decrease in fair value of Private Placement Warrants | (1,784 | ) | - | - | - | |||||||||||
| Net loss attributable to common stockholders - diluted | (10,088 | ) | (8,671 | ) | (27,059 | ) | (24,701 | ) | ||||||||
| Denominator - Diluted EPS: | ||||||||||||||||
| Weighted–average shares – basic | 52,566,608 | 13,164,675 | 50,327,141 | 13,164,675 | ||||||||||||
| Incremental common shares from assumed exercise of Private Placement Warrants | 401,846 | - | - | - | ||||||||||||
| Weighted–average shares – diluted | 52,968,454 | 13,164,675 | 50,327,141 | 13,164,675 | ||||||||||||
| Net loss per share attributable to common stockholders – diluted | $ | (0.19 | ) | $ | (0.66 | ) | $ | (0.54 | ) | $ | (1.88 | ) | ||||
For the three and six months ended June 30, 2021 and 2020, the following share equivalents were excluded from the computation of diluted net loss per share as the inclusion of such shares would be anti-dilutive due to the net loss incurred during each period and for the Private Placement Warrants, due to the change in fair value of warrant liability resulting in an increase to net loss for the six months ended June 30, 2021. Common shares issuable for warrants, will be adjusted (tooptions, and restricted stock units represent the nearest cent)total amount of outstanding warrants, stock options, and restricted stock units at June 30, 2021 and 2020.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Antidilutive shares excluded: | ||||||||||||||||
| Options | 4,737,222 | 2,566,312 | 4,737,222 | 2,566,312 | ||||||||||||
| Restricted Stock Units | 772,284 | - | 772,284 | - | ||||||||||||
| Warrants | 3,054,203 | - | 6,730,203 | - | ||||||||||||
| Series A Preferred Stock | - | 18,382,847 | - | 18,382,847 | ||||||||||||
| 8,563,709 | 20,949,159 | 12,239,709 | 20,949,159 | |||||||||||||
Note 8 — Stock-based compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The fair value is recognized in earnings over the period during which an employee is required to provide the service. The Company accounts for forfeitures as they occur.
CuriosityStream 2020 Omnibus Plan
In October 2020, the Board of Directors of the Company adopted the CuriosityStream 2020 Omnibus Plan (the “2020 Plan”). The 2020 Plan became effective upon consummation of the Business Combination and succeeds the Legacy CuriosityStream Stock Option Plan. Upon adoption of the 2020 Plan, a total of 7,725,000 shares were approved to be equal to 115%issued as stock options, share appreciation rights, restricted stock units and restricted stock.
The following table summarizes stock option and restricted stock unit (RSU) activity for the six months ended June 30, 2021:
| Stock Options | Restricted Stock Units | |||||||||||||||||||
| Number of Shares Available for Issuance Under the Plan | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Grant Date Fair Value | ||||||||||||||||
| Outstanding at December 31, 2020 | 2,538,648 | 4,710,717 | $ | 7.06 | 413,277 | $ | 9.21 | |||||||||||||
| Granted (1) | (584,024 | ) | 207,398 | 15.96 | 376,626 | 14.74 | ||||||||||||||
| Options exercised and RSUs vested | - | (103,572 | ) | 4.06 | (7,726 | ) | 13.79 | |||||||||||||
| Forfeited or expired | 87,214 | (77,321 | ) | 4.13 | (9,893 | ) | 11.56 | |||||||||||||
| Outstanding at June 30, 2021 | 2,041,838 | 4,737,222 | $ | 7.50 | 772,284 | $ | 11.83 | |||||||||||||
| (1) | Included in options granted during the six months ended June 30, 2021, is a total of 152,358 fully vested options with an exercise price of $16.42 and a five-year contractual term, which resulted in compensation expense totaling $0.9 million being recorded upon grant. Such options were granted during the three months ended March 31, 2021. |
The intrinsic value of options exercised during the three and six months ended June 30, 2021 was $315 and $1,266, respectively. There were no options exercised during the six months ended June 30, 2020.
Options and RSUs historically have a four-year vesting period with 25% of the highershares vesting on each anniversary date. Grants during the six months ended June 30, 2021 generally have a four-year vesting period with options vesting quarterly or monthly and RSUs vesting monthly. When options are exercised, the Company’s policy is to issue previously unissued shares of the Market Value and the Newly Issued Price and the $18.00 perCommon Stock to satisfy share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.option exercises.
NOTE 8. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of stock option awards is estimated using the Black-Scholes option pricing model, which includes several assumptions including Company’s financial assetsestimates of stock price volatility, employee stock option exercise behaviors, future dividend payments, and liabilities reflects management’s estimaterisk-free interest rates.
The expected term of amounts thatoptions granted is the Company would have received in connection withestimated period of time from the salebeginning of the assetsvesting period to the date of expected exercise or paid in connection withother settlement, based on historical exercises and post-vesting terminations. The Company generally estimates expected term based on the transfermidpoint between the vesting date and the end of the liabilities in an orderly transaction between market participantscontractual term, the simplified method, given the lack of historical exercise behavior.
The Company uses historical volatility of similar public companies for estimating volatility. The risk-free interest rate is estimated using the rate of return on U.S. Treasury securities with maturities that approximate to the expected term of the option. The Company does not currently anticipate declaring any dividends.
Assumptions used to value the options granted and the resulting weighted-average grant date fair value and stock-based compensation expense for the three and six months ended June 30, 2021 and 2020 were as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Dividend yield | N/A | 0 | % | 0 | % | 0 | % | |||||||||
| Expected volatility | N/A | 60 | % | 60 | % | 60 | % | |||||||||
| Expected term (years) | N/A | 6.25 | 2.50-6.25 | 6.25 | ||||||||||||
| Risk-free interest rate | N/A | 1.48 | % | 0.14%-1.11 | % | 0.45%-1.72 | % | |||||||||
| Weighted average grant date fair value | N/A | $ | 2.38 | $ | 6.61 | $ | 2.06 | |||||||||
| Stock-based compensation – Options | $ | 910 | $ | 438 | $ | 2,729 | $ | 764 | ||||||||
| Stock-based compensation - RSUs | $ | 627 | $ | - | $ | 1,131 | $ | - | ||||||||
Stock-based compensation cost is measured at the measurement date. In connection with measuringgrant date, based on the fair value of the award, and is recognized on a straight-line basis over the requisite service period.
Note 9 — Segment and geographic information
The Company operates as 1 operating segment. The Company’s chief operating decision maker (“CODM”) is its chief executive officer, who reviews financial information presented on an entity-wide basis for purposes of making operating decisions, assessing financial performance and allocating resources.
All long-lived tangible assets and liabilities,are located in the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilitiesUnited States. Revenue by geographic location, based on the observable inputs and unobservable inputs used in order to valuelocation of the assets and liabilities:customers, with no foreign country individually comprising greater than 10% of total revenue, is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
| United States | $ | 12,111 | 79 | % | $ | 10,241 | 85 | % | $ | 19,266 | 76 | % | $ | 16,069 | 82 | % | ||||||||||||||||
| International | 3,233 | 21 | % | 1,808 | 15 | % | 6,014 | 24 | % | 3,447 | 18 | % | ||||||||||||||||||||
| $ | 15,344 | 100 | % | $ | 12,049 | 100 | % | $ | 25,280 | 100 | % | $ | 19,516 | 100 | % | |||||||||||||||||
Note 10 — Commitments and contingencies
The following table presents information about
Content commitments
At June 30, 2021, the Company’s assetsCompany had $30,074 of content obligations comprised of $6,581 included in current content liabilities in the accompanying consolidated balance sheets, and $23,493 of obligations that are measured at fair value on a recurring basis at Marchnot reflected in the accompanying consolidated balance sheets as they did not yet meet the asset recognition criteria for content assets (see Note 4). Content obligations of $25,848 and $4,226 are expected to be paid during the six months ending December 31, 2021 and the year ending December 31, 2022, respectively.
At December 31, 2020, the Company had $26,022 of content obligations comprised of $2,116 included in current content liabilities in the accompanying consolidated balance sheets and December 31, 2019,$23,906 of obligations that are not reflected in the accompanying consolidated balance sheets as they did not yet meet the asset recognition criteria for content assets.
Content obligations include amounts related to licensed, commissioned and indicatesinternally produced streaming content. An obligation for the fair value hierarchyproduction of content includes non-cancelable commitments under creative talent and employment agreements. An obligation for the licensed and commissioned content is incurred at the time the Company enters into an agreement to obtain future titles. Once a title becomes available, a content liability is generally recorded. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the valuation inputs the Company utilized to determine such fair value:reporting date.
| Description | Level | March 31, 2020 | December 31, 2019 | |||||||
| Assets: | ||||||||||
| Marketable securities held in Trust Account | 1 | $ | 150,202,852 | $ | 149,719,910 | |||||
Advertising commitments
NOTE 9. SUBSEQUENT EVENTS
The Company evaluated subsequent eventshas certain commitments with regards to future advertising and transactions that occurred aftermarketing expenses as stated in the balance sheet date upvarious licensee agreements. Certain of the agreements do not specify the amount of advertising and marketing commitment; however, the total commitments for agreements which do specify the amount are $12,016 as of June 30, 2021, of which $6,016, and $6,000 are expected to be paid during the six months ending December 31, 2021 and the year ending December 31, 2022, respectively.
Operating leases
The Company leases corporate office space in Silver Spring, Maryland. The lease expires February 28, 2033. The terms of the lease include a rent abatement period of ten months and a tenant improvement allowance of $93 and $295 for 2020 and 2021, respectively.
Total rent paid under the terms of the lease was $43 and $136 for the three months ended June 30, 2021 and 2020, respectively. Total rent paid was $43 and $272 for the six months ended June 30, 2021 and 2020, respectively. Rent expense has been calculated on a straight-line basis over the term of the lease. Accordingly, rent expense included in general and administrative expenses in the accompanying consolidated statements of operations was $127 and $133 for the three months ended June 30, 2021, and 2020, respectively, and rent expense was $257 and $266 for the six months ended June 30, 2021, and 2020, respectively. The rent and sublease rental income future minimum lease payments for the above operating lease are as follows:
| CuriosityStream rent | Sublease rental income | Net rent | ||||||||||
| Remainder of six months ending December 31, 2021 | 261 | (26 | ) | 235 | ||||||||
| Years Ending December 31, | ||||||||||||
| 2022 | 530 | (53 | ) | 477 | ||||||||
| 2023 | 543 | (54 | ) | 489 | ||||||||
| 2024 | 557 | (56 | ) | 501 | ||||||||
| 2025 | 571 | (57 | ) | 514 | ||||||||
| Thereafter | 4,531 | (453 | ) | 4,078 | ||||||||
| $ | 6,993 | $ | (699 | ) | $ | 6,294 | ||||||
Note 11 — Income taxes
The Company recorded a provision for income taxes totaling $53 and $40 for the three months ended June 30, 2021 and 2020, respectively, and $79 and $77 for the six months ended June 30, 2021 and 2020, respectively, primarily related to foreign withholding income taxes. The Company’s provision for income taxes differs from the federal statutory rate primarily due to the date thatCompany being in a full valuation allowance position and not recognizing a tax benefit attributable to generated losses for either federal or state income tax purposes.
Note 12 — Subsequent events
The Company agreed to acquire a limited partnership interest in Spiegel TV Geschichte und Wissen GmbH & Co. KG, a German limited liability partnership (“JV”), and shares of its general partner, Spiegel TV Geschichte und Wissen Verwaltungs-GmbH for a purchase price of approximately $4.2 million. The Company will hold 32% of the condensed financial statements were issued. Based upon this review,JV’s partnership interest and 32% of the general partner’s shares. The Company, did not identify any subsequent events that would have required adjustment or disclosure inSpiegel TV and Autentic GmbH contemporaneously entered into content licensing and pay television and SVOD distribution agreements as well as a shareholders’ agreement dated July 8, 2021. The closing of the condensed financial statements. transaction is subject to certain approvals under German law.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Software Acquisition Group Inc. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Software Acquisition Holdings, LLC. The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the Company’s financial condition andour results of operations should be read in conjunction with theand financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includescondition. These forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical facts and involvesubject to risks and uncertainties that could cause actual results and events to differ materially from those expectedincluded in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2020, filed with the Securities and projected. Exchange Commission (“SEC”). Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of CuriosityStream.
Cautionary Note Regarding Forward-looking Statements
All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements inunder this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. WordsWhen used in this Quarterly Report on Form 10-Q, words such as “expect,“anticipate,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations“expect,” “intend” and similar words and expressions, are intendedas they relate to us or the Company’s management, identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs,are based on the beliefs of management, as well as assumptions made by, and information currently available. A number of factorsavailable to, the Company’s management. Actual results could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated incontemplated by the forward-looking statements please referas a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’s behalf are qualified in their entirety by this paragraph.
Overview
CuriosityStream is a media and entertainment company that offers premium video programming across the entire category of factual entertainment, including science, history, society, nature, lifestyle and technology. Our mission is to provide premium factual entertainment that informs, enchants and inspires. We are seeking to meet demand for high-quality factual entertainment via SVoD platforms, as well as via bundled content licenses for SVoD and linear offerings, partner bulk sales, brand partnerships and content sales. We are well-positioned for growth as a digital-native video platform monetizing content across this broad revenue stack. We operate our business as a single operating segment that provides premium streaming content through multiple channels, including the use of various applications, partnerships and affiliate relationships. We generate our revenue through six lines of business: Direct to Consumer, Partner Direct Business, Bundled Distribution, Program Sales, Corporate & Association Partnerships and Sponsorships. For the six months ended June 30, 2021, Direct to Consumer and Corporate & Association Partnerships together represented approximately 41% of our revenue, followed by Bundled Distribution (approximately 28% of our revenue) and Partner Direct Business (approximately 8% of our revenue), Program Sales (approximately 23% of our revenue) and Sponsorships (less than 1% of our revenue). Our product and service lines and channels through which we generate revenue are described in further detail below.
Our content library features more than 3,100 nonfiction episodes, including more than 1,000 original, commissioned or co-produced documentaries, of short-form, mid-form and long-form duration, with an estimated $1 billion in original production value. Our content, approximately one-third of which is originally produced and the other two-thirds of which is licensed programming, is available directly through our O&O Service and App Services. Our App Services enable access to CuriosityStream on almost every major consumer device, including streaming media players like Roku, Apple TV and Amazon Fire TV, all major smart TV brands (e.g., LG, Vizio, Samsung, Sony) and gaming consoles like Xbox. Our Direct Service is available to any household in the world with a broadband connection for $2.99 per month or $19.99 per year for high definition resolution, or $9.99 per month or $69.99 per year for service in 4K.
The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee for sales to individuals who subscribe to CuriosityStream via the partners’ respective platforms. We have affiliate agreement relationships with, and our service is available directly from, major MVPDs that include Comcast, Cox, Dish and vMVPDs and digital distributors that include Amazon Prime Video Channels, Roku Channels, Sling TV and YouTube TV.
In addition to our Direct and Partner Direct Businesses, we have affiliate relationships with MVPDs and Bundled MVPD Partners to whom we can offer a broad scope sets of rights, including 24/7 “linear” channels, our on-demand content library, mobile rights and pricing and packaging flexibility, in exchange for an annual fixed fee or fee per subscriber.
Our Corporate & Association Partnerships business to date has been comprised primarily of selling subscriptions in bulk to companies and organizations that in turn offer these subscriptions to their employees and members as an employment benefit or “gift of curiosity.” To date, over 30 companies have purchased annual subscriptions at bulk discounts for their employees. In the future, we hope to enter into multi-year integrated partnerships where we create and distribute content in support of these partners’ Corporate Social Responsibility (CSR) and membership initiatives.
In the future, we hope to continue developing integrated digital brand partnerships with advertisers. These sponsorship campaigns would offer companies the chance to be associated with CuriosityStream content in a variety of forms, including short and long form program integration, branded social media promotional videos, broadcast advertising spots, and digital display ads. We believe the impressions accumulated in these multi-faceted campaigns would roll up to verifiable metrics for the clients. We executed on two such sponsorships in the last quarter of 2020: one in the financial services sector as well as a brand in the health and fitness sector.
The sixth line of business in our revenue stack is our Program Sales Business. We are able to sell to certain media companies a collection of our existing titles in a traditional program sales deal and we are currently party to a multi-year, multi-million dollar program sales agreement with one such media company. We are also able to sell selected rights (such as in territories or on platforms that are lower priority for us) to content we create before we even begin production. This latter model reduces risk in our content development decisions and creates program sales revenue.
Recent Developments
Equity Financing
On February 8, 2021, we consummated an underwritten public offering (the “Offering”) of 6,500,000 shares of the Company’s common stock, par value per share $0.0001 (“Common Stock”), plus an over-allotment option to purchase up to 975,000 additional shares of Common Stock granted to the Risk Factors sectionunderwriters who participated in the Offering, which over-allotment option was exercised by the underwriters in full on February 5, 2021. The net proceeds to us from the Offering were $94.1 million, after deducting $6.8 million in underwriting discounts and commissions. We also incurred and paid offering expenses in connection with the Offering of $0.7 million during the six months ended June 30, 2021. The Offering was made pursuant to the Company’s Registration Statement on Form S-1, filed with the SEC on February 1, 2021 and declared effective on February 3, 2021. During the six months ended June 30, 2021, we received funds of approximately $54.9 million for the exercise of 4.8 million Public Warrants. The receipt of the net proceeds from the Offering as well as proceeds received from the exercise of Public Warrants during the six months ended June 30, 2021 has resulted in a significant cash balance that has mitigated the Company’s potential capital risk for the foreseeable future. There were no warrants exercised during the three months ended June 30, 2021.
Asset Purchase Agreement
On May 11, 2021, the Company consummated the acquisition of 100% ownership of One Day University pursuant to that certain Asset Purchase Agreement, dated May 11, 2021, by and among One Day University and the Company for the aggregate consideration of $4.5 million. One Day University provides access to talks and lectures from professors at colleges and universities in the United States. The acquisition complements and enhances the Company’s offering of premium factual content and provides additional long-term revenue and promotional opportunities by connecting directly with new audiences in new formats.
Partnership with SPIEGEL TV
On July 29, 2021, the Company announced the expansion of its European footprint through a partnership with SPIEGEL TV, the subsidiary of the German media conglomerate SPIEGEL, and its partner, Autentic, a factual content producer and distributor. Germany is the Company’s top non-English-speaking market, and the partnership expands the Company’s reach through the addition of hundreds of hours of German-dubbed programming to the Company’s SVoD service as well as a rebranded linear channel in German-speaking Europe.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the United States and globally. The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Item 1A: “Risk Factors” section set forth in Amendment No. 1 to our 2020 Annual Report on Form 10-K filed with10-K/A for additional details. In an effort to protect the U.S. Securitieshealth and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR sectionsafety of our employees, our workforce has had and continues in most instances to spend a significant amount of time working from home, international travel has been severely curtailed. Our other partners have similarly had their operations disrupted, including those partners that we use for our operations as well as development, production, and post-production of content. While we and our partners have resumed productions and related operations in many parts of the SEC’s websiteworld, our ability to produce content remains affected by the pandemic. In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, some of which have been subsequently rescinded, modified or reinstated, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing. In addition, COVID-19 vaccinations have been increasing, though at www.sec.gov. Excepta decreasing rate with significant resistance to vaccination in certain geographies and among certain groupings of people. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, notably by the “delta” variant of the virus, will continue to negatively impact business activity across the globe. We will continue to actively monitor the situation and may take further actions that alter our business operations as expresslymay be required by applicable securities law,federal, state, local or foreign authorities, or that we determine are in the Company disclaimsbest interests of our employees, customers, partners and stockholders. It is not clear what potential effects any intentionsuch alterations or obligationmodifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.
Key Factors Affecting Results of Operations
Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including our ability to update or revise any forward-looking statements whether as a resultefficiently grow our subscriber base and expand our service offerings to maximize subscriber lifetime value. In particular, we believe that the following factors significantly affected our results of new information, future events or otherwise.
Overview
Weoperations over the periods presented below and are a blank check company formed underexpected to continue to have such significant effects:
Revenues
Currently, the lawsmain sources of the Stateour revenue are (i) subscriber fees from Direct Business and Direct Subscribers, (ii) license fees from affiliates who receive subscriber fees for CuriosityStream from such affiliates’ subscribers (“Partner Direct Business” and “Partner Direct Subscribers”) and (iii) bundled license fees from distribution affiliates (“Bundled MVPD Business” and “Bundled MVPD Subscribers”). As of Delaware on May 9, 2019 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar Business Combination with one or more businesses. We have not selected any specific Business Combination targetJune 30, 2021, we had approximately 20 million total paying subscribers, including Direct Subscribers, Partner Direct Subscribers and Bundled MVPD Subscribers.
Since our founding in 2015, we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any Business Combination target. We intend to effectuate our Business Combination using cash fromgenerated the proceeds of the Initial Public Offering and the sale of the Private Warrants, our capital stock, debt or a combination of cash, stock and debt.
The issuance of additional sharesmajority of our stock in a Business Combination:
Similarly, if we issue debt securities or otherwise incur significant indebtedness, it could result in:
We are incurring significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from May 9, 2019 (inception) through March 31, 2020 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating incomeDirect Subscribers in the form of interest income on marketable securities held aftermonthly or annual subscription plans. We charge $2.99 per month or $19.99 dollars per year for our Direct Service in high-definition resolution or $9.99 per month or $69.99 per year for service in 4K. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a revenue share or license fee. We recognize subscription revenues ratably during each subscriber’s monthly or yearly subscription period. We pay a fixed percentage distribution fee to our partners for subscribers accessing our platform via App Services to compensate these partners for access to their customer and subscriber bases. Our MVPD, vMVPD and digital distributor partners host and stream our content to their customers via their own platforms, such as set top boxes in the Initial Public Offering.case of most MVPDs. We do not incur expensesbilling, streaming or backend costs associated with content distribution through our MVPD, vMVPD and digital distributor partners.
Operating Costs
Our primary operating costs relate to the cost of producing and acquiring our content, the costs of advertising and marketing our service, personnel costs, and distribution fees. As of June 30, 2021, licensed content represented 2,081 titles and original titles represented 1,006 titles. Producing and co-producing content and commissioned content is generally more costly than content acquired through licenses.
The Company’s business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a resultgroup and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of beingthe content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content library will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. For a public company (for legal,discussion of the accounting policies for content impairment write-down and management estimates involved therein, see “— Critical Accounting Policies and Estimates” below.
Further, our advertising and marketing expenditures and personnel costs constitute primary operating costs for our business. These costs may fluctuate based on advertising and marketing objectives and personnel needs. In general, we intend to focus marketing dollars on efficient customer acquisition. With respect to personnel costs, for the first several years of our existence, we invested heavily in engineering, marketing and programming staff to build the Company and its service offering. Beginning in 2019, however, we began to focus on sales staff and other revenue-generating personnel.
Results of Operations
The financial reporting, accountingdata in the following tables set forth selected financial information derived from our unaudited consolidated financial statements for the three and auditing compliance)six months ended June 30, 2021 and 2020 and shows our results of operations as a percentage of revenue or as a percentage of costs. We conduct business through one operating segment, CuriosityStream Inc.
Comparison of the three months ended June 30, 2021 and 2020
| Three months ended June 30, | ||||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Subscriptions | $ | 5,680 | 37 | % | $ | 4,067 | 34 | % | $ | 1,613 | 40 | % | ||||||||||||
| License fee | 9,610 | 63 | % | 7,978 | 66 | % | 1,632 | 20 | % | |||||||||||||||
| Other | 54 | 0 | % | 4 | 0 | % | 50 | n/m | ||||||||||||||||
| Total Revenues | $ | 15,344 | 100 | % | $ | 12,049 | 100 | % | $ | 3,295 | 27 | % | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Cost of revenues | 5,722 | 22 | % | 4,671 | 28 | % | 1,051 | 23 | % | |||||||||||||||
| Advertising and marketing | 11,520 | 44 | % | 8,304 | 51 | % | 3,216 | 39 | % | |||||||||||||||
| General and administrative | 9,153 | 34 | % | 3,437 | 21 | % | 5,716 | 166 | % | |||||||||||||||
| Total operating expenses | $ | 26,395 | 100 | % | $ | 16,412 | 100 | % | $ | 9,983 | 61 | % | ||||||||||||
| Operating loss | (11,051 | ) | (4,363 | ) | (6,688 | ) | 153 | % | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Change in fair value of warrant liability | 1,764 | - | 1,764 | n/m | ||||||||||||||||||||
| Interest and other income (expenses) | 1,036 | 86 | 950 | 1,105 | % | |||||||||||||||||||
| Loss before income taxes | $ | (8,251 | ) | (4,277 | ) | $ | (3,974 | ) | 93 | % | ||||||||||||||
| Provision for income taxes | 53 | 40 | 13 | 33 | % | |||||||||||||||||||
| Net loss | $ | (8,304 | ) | $ | (4,317 | ) | $ | (3,987 | ) | 92 | % | |||||||||||||
n/m - percentage not meaningful
Revenue
Revenue for the three months ended June 30, 2021 and 2020 was $15.3 million and $12.0 million, respectively. The increase of $3.3 million, or 27% is due to a $1.6 million increase in subscription revenue, a $1.6 million increase in license fee revenue, and $0.1 million increase in other revenue. The increase in subscription revenue of $1.6 million resulted from an increase of $1.9 million in subscriber fees received by us from Direct subscribers for annual plans offset by a $0.3 million decrease in Corporate & Association Partnership sales. The increase of $1.6 million in license fees resulted primarily from a $1.3 million increase in revenue from Program Sales for delivery of titles made during the period. The remaining increase of $0.3 million on license revenue is primarily due to an increase of $0.3 million in revenue from Partner Direct. The increase in other revenue of $0.1 million is due to sponsorship revenue deals with customers.
Operating Expenses
Operating expenses for the three months ended June 30, 2021 and 2020 were $26.4 million and $16.4 million, respectively. This increase of $10.0 million, or 61%, primarily resulted from the changes in the components of our operating expenses described below:
Cost of Revenues: Cost of revenues for the three months ended June 30, 2021 increased to $5.7 million from $4.6 million for the three months ended June 30, 2020. Cost of revenues primarily includes content amortization, hosting and streaming delivery costs, payment processing costs and distribution fees, commission costs and subtitling and broadcast costs. This increase of $1.1 million, or 23%, is due primarily to the increase in content amortization of $1.1 million, of which $0.2 million is due to the timing and number of titles published during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and $0.9 million is due to accelerated content amortization related to our program sales contracts during the three months ended June 30, 2021 when compared to the prior year period.
Advertising and Marketing: Advertising and marketing expenses for the three months ended June 30, 2021 increased to $11.5 million from $8.3 million for the three months ended June 30, 2020. This increase of $3.2 million, or 39%, was principally due to an increase in digital advertising of $2.8 million, an increase in radio advertising of $1.2 million and an increase in partner platform advertising of $0.3 million. This overall increase is partially offset by a decrease of $0.9 million in TV advertising and a decrease of $0.2 million in brand awareness advertising when compared to the second quarter of 2020.
General and Administrative: General and administrative expenses for the three months ended June 30, 2021 increased to $9.1 million from $3.4 million for the three months ended June 30, 2020. This increase of $5.7 million, or approximately 166%, was primarily due to an increase of $1.1 million in stock-based compensation in the three months ended June 30, 2021 when compared to the three months ended June 30, 2020. Also, an increase of $1.7 million in salaries and benefits as well as bonus costs is attributable to the increased headcount for the current period when compared to the second quarter of 2020. The remaining increase in general and administrative cost is primarily due diligence expenses.to an increase of $1.3 million related for professional fees, increase of $0.4 million related to insurance costs and increase of $0.1 million related to licenses and subscriptions. During the three months ended June 30, 2020, the Company applied the receipts of the PPP loan of $1.0 million to reduce qualifying general and administrative costs, whereas there was no such activity during the three months ended June 30, 2021. We expect to incur additional expenses in future periods as we continue to invest in corporate infrastructure, including adding personnel and systems to our administrative and revenue-generating functions.
Operating Loss
Operating loss for the three months ended June 30, 2021 and 2020 was $11.1 million and $4.4 million, respectively. The increase of $6.7 million, or approximately 153%, in operating loss resulted from the increase in revenue of $3.3 million, or 27%, offset by the increase in operating expenses of $10.0 million, or 61%, during the three months ended June 30, 2021 compared to the three months ended June 30, 2020, as described above.
Change in Fair Value of Warrant Liability
For the three months ended March 31,June 30, 2021, the Company recognized a $1.8 million gain related to the change in fair value of the warrant liability, which was due to a decrease in the fair value of the Private Placement Warrants during the three months ended June 30, 2021. There was no comparable activity in the prior year period.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended June 30, 2021 increased $1.0 million compared to the same period in 2020, primarily due to interest income related to the purchase of investments.
Provision for Income Taxes
Due to our loss from operations in each of the three months ended June 30, 2021 and 2020, we had net income of $193,091, which consists of interest income on marketable securities held in the Trust Account of $482,942, offset by operating costs of $238,523 and a provision for income taxes of $51,328.$53 thousand and $40 thousand, respectively. This increase was primarily due to an increase in foreign withholding tax expense as a result of the increase in contracts executed with third parties in foreign jurisdictions in the three months ended June 30, 2021 when compared to the three months ended June 30, 2020. The Company’s provision for income taxes differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a benefit for either federal or state income tax purposes.
LiquidityNet Loss
Net loss for the three months ended June 30, 2021 and Capital Resources2020 was $8.3 million and $4.3 million, respectively. The increase of $4.0 million, or approximately 92%, resulted primarily from the increase in operating expenses, offset by a smaller increase in revenue as well as the change in the fair value of the warrant liability during the three months ended June 30, 2021 compared to the three months ended June 30, 2020, as described above.
On November 22, 2019,
Comparison of the six months ended June 30, 2021 and 2020.
| Six months ended June 30, | ||||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Subscriptions | $ | 10,557 | 42 | % | $ | 7,518 | 39 | % | $ | 3,039 | 40 | % | ||||||||||||
| License fee | 14,599 | 58 | % | 11,994 | 61 | % | 2,605 | 22 | % | |||||||||||||||
| Other | 124 | 0 | % | 4 | 0 | % | 120 | n/m | ||||||||||||||||
| Total Revenues | $ | 25,280 | 100 | % | $ | 19,516 | 100 | % | $ | 5,764 | 30 | % | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Cost of revenues | 9,880 | 19 | % | 7,337 | 20 | % | 2,543 | 35 | % | |||||||||||||||
| Advertising and marketing | 23,769 | 46 | % | 21,009 | 59 | % | 2,760 | 13 | % | |||||||||||||||
| General and administrative | 17,885 | 35 | % | 7,621 | 21 | % | 10,264 | 135 | % | |||||||||||||||
| Total operating expenses | $ | 51,534 | 100 | % | $ | 35,967 | 100 | % | $ | 15,567 | 43 | % | ||||||||||||
| Operating loss | (26,254 | ) | (16,451 | ) | (9,803 | ) | 60 | % | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Change in fair value of warrant liability | (2,022 | ) | - | (2,022 | ) | n/m | ||||||||||||||||||
| Interest and other income (expenses) | 1,296 | 418 | 878 | 210 | % | |||||||||||||||||||
| Loss before income taxes | $ | (26,980 | ) | (16,033 | ) | $ | (10,947 | ) | 68 | % | ||||||||||||||
| Provision for income taxes | 79 | 77 | 2 | 3 | % | |||||||||||||||||||
| Net loss | $ | (27,059 | ) | $ | (16,110 | ) | $ | (10,949 | ) | 68 | % | |||||||||||||
n/m - percentage not meaningful
Revenue
Revenue for the six months ended June 30, 2021 and 2020 was $25.3 million and $19.5 million, respectively. The increase of $5.8 million, or 30% is due to a $3.0 million increase in subscription revenue, a $2.6 million increase in license fee revenue, and a $0.1 million increase in other revenue. The increase in subscription revenue of $3.0 million resulted from an increase of $3.6 million in subscriber fees received by us from Direct subscribers for annual plans offset by a $0.6 million decrease in Corporate & Association Partnership sales. The increase of $2.6 million in license fees resulted primarily from a $1.7 million increase in revenue from Program Sales for delivery of titles made during the period. The remaining increase of $0.9 million on license revenue is due to an increase of $0.7 million in revenue from Partner Direct Business and an increase of $0.2 million in revenue from Bundled MVPD partners, in each case as a result of an increase in the number of users and/or subscribers for our service. The increase in other revenue of $0.1 million is due to new sponsorship revenue deals with customers.
Operating Expenses
Operating expenses for the six months ended June 30, 2021 and 2020 were $51.5 million and $35.9 million, respectively. This increase of $15.6 million, or 43%, primarily resulted from the changes in the components of our operating expenses described below:
Cost of Revenues: Cost of revenues for the six months ended June 30, 2021 increased to $9.9 million from $7.3 million for the six months ended June 30, 2020. Cost of revenues primarily includes content amortization, hosting and streaming delivery costs, payment processing costs and distribution fees, commission costs and subtitling and broadcast costs. This increase of $2.5 million, or 35%, is due primarily to the increase in content amortization of $2.3 million, of which $0.9 million is due to the timing and number of titles published during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 and $1.4 million is due to accelerated content amortization related to our program sales contracts during the six months ended June 30, 2021 when compared to the prior year period. The remaining increase in cost of revenues is due to slight increases in hosting and streaming delivery costs, processing and distribution fees, and subtitling and broadcast costs (total increase of $0.3 million). The increase of cost of revenues is consistent with the increase in revenue during the six months ended June 30, 2021.
Advertising and Marketing: Advertising and marketing expenses for the six months ended June 30, 2021 increased to $23.8 million from $21.0 million for the six months ended June 30, 2020. This increase of $2.8 million, or 13%, was principally due to an increase in digital advertising of $3.0 million, an increase in radio advertising of $1.5 million and an increase in partner platform advertising of $0.9 million, partially offset by a decrease of $2.5 million in TV advertising and a decrease of $0.1 million in brand awareness advertising when compared to the prior period.
General and Administrative: General and administrative expenses for the six months ended June 30, 2021 increased to $17.9 million from $7.6 million for the six months ended June 30, 2020. This increase of $10.3 million, or approximately 135%, was primarily due to an increase of $3.1 million in stock-based compensation in the period when compared to the six months ended June 30, 2020. Of this increase related to stock-based compensation, $2.2 million is due to the recurring recognition of compensation expense over the service period and $0.9 million is due to the immediate recognition of stock-based compensation expense of a fully vested award granted in January 2021 to an executive. Also, an increase of $2.7 million in salaries and benefits as well as bonus costs is attributable to the increased headcount of mid to senior management hires for the current period when compared to the prior period. The remaining increase in general and administrative cost is primarily due to an increase of $2.3 million related to professional fees, increase of licenses and subscriptions of $0.4 million and $0.8 million related to insurance costs. During the six months ended June 30, 2020, the Company applied the receipts of the PPP loan of $1.0 million to reduce qualifying general and administrative costs, whereas there was no such activity during the six months ended June 30, 2021. We expect to incur additional expenses in future periods as we consummatedcontinue to invest in corporate infrastructure, including adding personnel and systems to our administrative and revenue-generating functions.
Operating Loss
Operating loss for the Initial Public Offeringsix months ended June 30, 2021 and 2020 was $26.3 million and $16.5 million, respectively. The increase of 14,950,000 Units, which includes$9.8 million, or approximately 60%, in operating loss resulted from the full exerciseincrease in revenue of $5.8 million, or 30%, offset by the underwritersincrease in operating expenses of their over-allotment option$15.6 million, or 43%, in each case during the six months ended June 30, 2021 compared to the six months ended June 30, 2020, as described above.
Change in Fair Value of Warrant Liability
For the six months ended June 30, 2021, the Company recognized a $2.0 million loss related to the change in fair value of the warrant liability, which was due to an increase in the amount of 1,950,000 Units, at a price of $10.00 per Unit, generating gross proceeds of $149,500,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 4,740,000 Private Placement Warrants to our Sponsor at a price of $1.00 per Private Placement Warrants, generating gross proceeds of $4,740,000.
Following the Initial Public Offering and the salefair value of the Private Placement Warrants a total of $149,500,000during the six months ended June 30, 2021. There was placedno comparable activity in the Trust Account.prior year period.
Interest and Other Income (Expense)
Interest and other income (expense) for the six months ended June 30, 2021 and 2020 increased $0.9 million compared to the same period in 2020, primarily due to interest income related to the purchase of investments.
Provision for Income Taxes
Due to our loss from operations in each of the six months ended June 30, 2021 and 2020, we had a provision for income taxes of $79 thousand and $77 thousand, respectively. This increase was primarily due to an increase in foreign withholding tax expense as a result of the increase in contracts executed with third parties in foreign jurisdictions in the six months ended June 30, 2021 when compared to the six months ended June 30, 2020. The Company’s provision for income taxes differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a benefit for either federal or state income tax purposes.
Net Loss
Net loss for the six months ended June 30, 2021 and 2020 was $27.1 million and $16.1 million, respectively. The increase of $11.0 million, or approximately 68%, resulted primarily from the increase in operating expenses, and change in fair value of the warrant liability, partially offset by a smaller increase in revenue as well as an increase in interest and other income, in each case during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, as described above.
Liquidity and Capital Resources
As of June 30, 2021, we had cash and cash equivalents, including restricted cash, of $13.8 million. For the six months ended June 30, 2021, we incurred a net loss of $27.1 million and used $23.4 million of net cash in operating activities, while investing activities used $129 million of net cash and financing activities provided $148.7 million of net cash.
Through the date of the Merger, we have financed our operations primarily from the net proceeds of our sale of Series A Preferred Stock in November and December 2018. An additional source of liquidity includes borrowings under our Line of Credit Facility with a bank (the “Line of Credit”). This Line of Credit provides for borrowings of up to $4.5 million with interest-only monthly payments at a rate equal to the LIBOR Daily Floating Rate plus 2.25%. The Line of Credit carries an unused fee of 0.25% annually on all committed but unused capital, payable quarterly in arrears. The entire unpaid principal balance is due when the Line of Credit matures on February 28, 2022, following the execution of a one-year extension during February 2021. The Line of Credit is collateralized by cash of $4.5 million that is held in restricted cash in current assets on the consolidated balance sheet.
On February 8, 2021, we consummated the Offering. The net proceeds from the Offering were $94.1 million, after deducting $6.8 million in underwriting discounts and commissions. We also incurred $8,745,223offering expenses in transaction costs, consistingconnection with the Offering of $2,990,000$0.7 million, of underwriting fees, $5,232,500which all was paid during the six months ended June 30, 2021. During the six months ended June 30, 2021, we received funds of deferred underwriting fees and $522,723approximately $54.9 million for the exercise of other offering costs.
For4.8 million Public Warrants. There was no exercise of Public Warrants during the three months ended March 31,June 30, 2021.
We believe that our cash flows from financing, combined with our current cash and investment levels and available borrowing capacity, will be adequate to support our ongoing operations, capital expenditures and working capital for at least the next twelve months, as evidenced by our cash flows from financing activities and cash and investment balances as of June 30, 2021. We believe that we have access to additional funds, if needed, through the capital markets to obtain further financing under the current market conditions.
Our principal uses of cash are to acquire content, promote our service through advertising and marketing, and provide for working capital to operate our business. We have experienced significant net losses since our inception and, given the significant operating and capital expenditures associated with our business plan, we anticipate that we will continue to incur net losses.
Cash Flows
The following table presents our cash flows from operating, investing and financing activities for the periods indicated:
Cash Flow from Operating Activities
| For the six months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| (in thousands) | ||||||||
| Net cash used in operating activities | $ | (23,356 | ) | $ | (28,516 | ) | ||
| Net cash provided by (used in) investing activities | (128,957 | ) | 31,621 | |||||
| Net cash provided by financing activities | 148,679 | - | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (3,634 | ) | $ | 3,105 | |||
Cash flow from operating activities primarily consists of net losses, changes to our content assets (including acquisitions and amortization), and other working capital items.
During the six months ended June 30, 2021 and 2020, we recorded a net cash outflow from operating activities of $23.4 million and $28.5 million, respectively, or a decreased outflow of $5.1 million, or 18%. The decreased outflow from operating activities was primarily due to an increase in content liabilities, accounts payable, and accrued expenses and other liabilities of $7.3 million during the six months ended June 30, 2021 as compared to a decrease of $5.5 million during the six months ended June 30, 2020, the increase in deferred revenue being $6.5 million larger during the six months ended June 30, 2021, and stock-based compensation expense, amortization of content assets, and change in fair value of warrant liability increasing $7.4 million during the six months ended June 30, 2021 as compared to the six months ended June 30, 2021, partially offset by a $10.9 million increase in net loss and $11.9 million higher level of additions to content assets in the current year period.
Cash Flow from Investing Activities
Cash flow from investing activities consists of purchases, sales and maturities of investments and purchases of property and equipment.
During the six months ended June 30, 2021 and 2020, we recorded a net cash outflow from investing activities of $129 million and a net cash inflow from investing activities of $31.6 million, respectively, or an increased cash outflow of $160.6 million. The increase in cash outflow from investing activities was primarily due to the purchases of investments of $141.6 million during the six months ended June 30, 2021. We had sales and maturities of $4.9 million and $12.0 million respectively, during the six months ended June 30, 2021 compared to sales and maturities of investments of $35.6 million and $8.5 million, respectively, during the six months ended June 30, 2020. The Company also had cash outflows of $4.0 million related to the Acquisition of ODU during the six months ended June 30, 2021.
Cash Flow from Financing Activities
During the six months ended June 30, 2021, we recorded net cash inflow from financing activities of $148.7 million, which was attributable to the receipt of proceeds from the Offering of $94.1 million (net of $6.8 million of underwriting discounts and commissions) and the exercise of warrants of $54.9 million, partially offset by the payments of transaction costs related to the Offering of $0.7 million incurred during the six months ended June 30, 2021. During the six months ended June 30, 2020, financing cash activities were limited to borrowings and payments of $1 million each on the line of credit.
Capital Expenditures
Going forward, we expect to make expenditures for additions to our content assets, and purchases of property and equipment. The amount, timing and allocation of capital expenditures are largely discretionary and within management’s control. Depending on market conditions, we may choose to defer a portion of our budgeted expenditures until later periods to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate cash flow. Subject to financing alternatives, we may also increase our capital expenditures significantly to take advantage of opportunities we consider to be attractive.
Off-Balance Sheet Arrangements
As of June 30, 2021, we had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operation is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Certain amounts included in or affecting the consolidated financial statements and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the consolidated financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important “critical accounting policies” for the Company. A “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future.
Content Assets
The Company acquires, licenses and produces content, including original programming, in order to offer members unlimited viewing of factual entertainment content. The content licenses are for a fixed fee and specific windows of availability. Payments for content, including additions to content library and the changes in related liabilities, are classified within “Net cash used in operating activities was $289,812. Net income of $193,091 was offset by interest earnedactivities” on marketable securities held in the Trust Account of $482,942. Changes in operating assets and liabilities provided $39consolidated statements of cash from operating activities.flows.
As of March 31, 2020, we had marketable securities held in the Trust Account of $150,202,852 (including approximately $703,000 of interest income earned from investments in a money market fund that invests primarily in U.S. treasury bills with a maturity of 180 days or less). Interest income
The Company recognizes its content library (licensed and produced) as “Content assets, net” on the consolidated balance sheets. For licenses, the Company capitalizes the fee per title and records a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known, and the title is accepted and available for streaming. For productions, the Company capitalizes costs associated with the production, including development costs, direct costs and production overhead.
Based on factors including historical and estimated viewing patterns, the Company generally amortizes the content library (licensed and produced) in the Trust Account may be used by us to pay taxes. Through March 31, 2020, we have not withdrawn any interest earned“Cost of revenues” on the Trust Account. We intend toconsolidated statements of operations on a straight-line basis over the shorter of each title’s contractual window of availability or estimated period of use, substantially allbeginning with the month of first availability. The Company reviews factors impacting the amortization of the funds held incontent library on an ongoing basis and will record amortization on an accelerated basis when there is more upfront use of a title, for instance due to significant program sales.
Revenue recognition
Subscriptions — O&O Service
The Company generates revenue from monthly subscription fees from its O&O Service. CuriosityStream subscribers enter into month-to-month or annual subscriptions with the Trust Account, including any amounts representing interest earnedCompany. The Company bills the monthly subscriber on each subscriber’s monthly anniversary date and recognizes the Trust Account (less income taxes payable and deferred underwriting commissions), to complete our Business Combination. Torevenue ratably over each monthly membership period. The annual subscription fees are collected by the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination,Company at the remaining proceeds held in the Trust Account will be used as working capital to finance the operationsstart of the target business or businesses, make other acquisitionsannual subscription period and pursue our growth strategies.
As of March 31, 2020, we had $803,596 of cash held outsideare recognized ratably over the subsequent twelve-month period. Revenues are presented net of the Trust Account. We intendtaxes that are collected from subscribers and remitted to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants orgovernmental authorities.
Subscription — App Services
The Company also earns subscription revenues through its App Services. These subscriptions are similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants identical to the Private Placement Warrants, at a price of $1.00 per warrant atO&O Service subscriptions, but these subscriptions are generated based on agreements with certain streaming media players as well as with Smart TV brands and gaming consoles. Under these agreements, the option ofstreaming media player typically bills the lender.
We do not believe we will need to raise additional funds in order to meetsubscriber directly and then remits the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2020.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative supportcollected subscriptions to the Company. We began incurring these fees on November 19, 2019 and will continue to incur these fees monthly until the earlierCompany, net of the completion of the Business Combination and the Company’s liquidation.
a distribution fee. The underwriters are entitled to deferred fee of three and half percent (3.50%) ofCompany recognizes the gross proceeds ofsubscription revenues when earned and simultaneously recognizes the Initial Public Offering, or $5,232,500.corresponding distribution fees as an expense. The deferredCompany is the principal in these relationships as the Company retains control over service delivery to its subscribers.
Licensing — Affiliates
The Company generates license fee will become payablerevenues from MVPDs such as Altice, Comcast and Cox as well as from vMVPDs such as Amazon and Sling TV (MVPDs and vMVPDs are also referred to the underwriter from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject toas affiliates). Under the terms of the underwriting agreement.
Critical Accounting Policies
agreements with these affiliates, the Company receives license fees based upon contracted programming rates and subscriber levels reported by the affiliates. In exchange, the Company licenses its content to the affiliates for distribution to their subscribers. The preparationCompany earns revenue under these agreements either based on the total number of condensed financial statements and related disclosures in conformity with accounting principles generally acceptedsubscribers multiplied by rates specified in the United Statesagreements or based on fixed fee arrangements. These revenues are recognized over the term of America requires managementeach agreement when earned.
Licensing — Program Sales
The Company has distribution agreements which grant a licensee limited distribution rights to make estimatesthe Company’s programs for varying terms, generally in exchange for a fixed license fee. Revenue is recognized once the content is made available for the licensee to use.
The Company’s performance obligations include (1) access to its SVoD platform via the Company’s O&O Service and assumptions that affectApp Services, (2) access to the reported amounts ofCompany’s content assets, and liabilities, disclosure(3) licenses of contingent assets and liabilities atspecific program titles. In contracts containing the date ofright to access the financial statements, and income and expenses duringCompany SVoD platform, the periods reported. Actual results could materially differ from those estimates. We have identifiedperformance obligation is satisfied as access to the following critical accounting policies:
Common stock subjectSVoD platform is provided post any free trial period. In contracts which contain access to possible redemption
We account for common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control)content assets, the performance obligation is classifiedsatisfied as temporary equity. At all other times, common stockaccess to the content is classifiedprovided. For contracts with licenses of specific program titles, the performance obligation is satisfied as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemptioncontent is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our condensed balance sheets.
Net loss per common share
We apply the two-class method in calculating earnings per share. Common stock subject to possible redemption which is not currently redeemable and is not redeemable at fair value, has been excluded from the calculation of basic net loss per common share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjustedmade available for the portion of income that is attributablecustomer to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses.use.
Recent accounting standards
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
As of March 31, 2020, we were not subject to any market or interest rate risk. Following the consummation of our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts in the Trust Account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
DisclosureWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in ourthe reports that we file or submit under the Exchange Act reports is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is(2) accumulated and communicated to our management, including our principal executive officerChief Executive Officer and principal financial officer or persons performing similar functions, as appropriateChief Financial Officer, to allow timely decisions regarding required disclosure.
Under the supervision and As of June 30, 2021 (the “Evaluation Date”), our management, with the participation of our management, including our principal executive officerChief Executive Officer and principal financial and accounting officer, we conducted an evaluation ofChief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2020, as such term is(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Act).
Based on thisupon their evaluation, our principal executive officerChief Executive Officer and principal financial and accounting officer haveChief Financial Officer concluded that during the period covered by this report, our disclosure controls and procedures wereare effective as of the Evaluation Date.
On April 12, 2021, the staff of the SEC issued an SEC Staff Statement (“the SEC Staff Statement”) in which the SEC Staff clarified its interpretations of certain generally accepted accounting principles related to ensurewarrants issued by Special Purpose Acquisition Companies (“SPACs”). Based on the clarifications expressed in the SEC Staff Statement which resulted in the restatement discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2020, the Company’s management and the Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2020, there was a material weakness in controls related to the classification and accounting for warrants issued by a SPAC, which did not operate effectively to appropriately apply the provisions of ASC 815.
Remediation of Material Weakness
To remediate the material weakness, the Company studied and clarified its understanding of the accounting of contracts that may be settled in the Company’s own stock, such as warrants, as equity of the entity or as an asset or liability as highlighted in the SEC Staff Statement, and implemented additional review procedures and enhanced its accounting policy related to the accounting for such contracts to determine proper accounting in accordance with GAAP as clarified by the SEC Staff Statement. Based on actions taken, as well as the evaluation of the design and operating effectiveness of these new controls, management believes that the information requiredmaterial weakness has been remediated, subject to be disclosed by usthe ongoing evaluation of the design and operating effectiveness of these controls in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.connection with its annual assessment of internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There washas been no change in our internal control over financial reporting that occurred during the fiscal quarter of 2020ended June 30, 2021 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.reporting other than the changes described above related to the material weakness related to the accounting for warrants issued by SPACs.
We have not experienced any material impact to our internal controls over financial reporting despite the fact that certain of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation and our internal controls to minimize any impact on their design and operating effectiveness.
PART II - OTHER INFORMATION
None.From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition or cash flows
Factors that could cause our actual results to differ materially from those in this report includeQuarterly Report on Form 10-Q are any of the risk factorsrisks described in Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 201910-K/A filed with the SEC on March 20, 2020. AsMay 7, 2021. Any of the datethese factors could result in a significant or material adverse effect on our results of this Report, there have been no material changes to theoperations or financial condition. Additional risk factors disclosed innot presently known to us or that we currently deem immaterial may also impair our Annual Report filed with the SEC.business or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On November 22, 2019, we consummated the Initial Public Offering of 14,950,000 Units, which includes the full exercise by the underwriters of their over-allotment option of 1,950,000 Units. The Units sold in the Initial Public Offering, including pursuant to the over-allotment option, were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $149,500,000. B. Riley FBR, Inc. acted as the sole book-running manager of the Initial Public Offering. The securities in the offering were registered under the Securities Act on registration statements on Form S-1 (No. 333-234327 and 333-234786). The Securities and Exchange Commission declared the registration statements effective on November 19, 2019.None.
Simultaneous with the consummation of the Initial Public Offering, we consummated the private placement of an aggregate of 4,740,000 Private Placement Warrants to the Sponsor at a price of $1.00 per Private Placement Warrant, generating total proceeds of $4,740,000. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Placement Warrants are not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions.
Of the gross proceeds received from the Initial Public Offering and the Placement Units, $149,500,000 was placed in the Trust Account.
We paid a total of $2,990,000 in underwriting discounts and commissions and $522,723 for other costs and expenses related to the Initial Public Offering. In addition, the underwriters agreed to defer $5,232,500 in underwriting discounts and commissions.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
None.
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None.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| Exhibit No. | Description | Form | File No. | Exhibit | Filing Date | Filed/Furnished Herewith | ||||||
| 31.1 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.1* | Certification of the Chief Executive Officer and Chief Financial Officer | |||||||||||
| X | ||||||||||||
| 101. INS** | Inline XBRL Instance Document | |||||||||||
| X | ||||||||||||
| 101. SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||||||
| X | ||||||||||||
| 101. CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||
| X | ||||||||||||
| 101. LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101. PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
| 101. DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||
| X | ||||||||||||
| 104 | Cover Page Interactive Data File (as formatted as Inline XBRL | X | ||||||||||
| * |
| ** |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this reportQuarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: | By: | /s/ |
| Name: | ||
| Title: | President and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 13, 2021 | By: | /s/ Jason Eustace |
| Name: | Jason Eustace | |
| Title: | Chief Financial Officer and
| |
( Principal Financial and Accounting | ||
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