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, 2022
☐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 incorporation or organization) | (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 11, 2022, there were 14,950,00052,791,993 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, 2022
TABLE OF CONTENTS
i
CuriosityStream Inc.
Consolidated Balance Sheets
(in thousands, except par value)
Item 1. Interim Financial Statements.
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 22,761 | $ | 15,216 | ||||
| Restricted cash | 500 | 2,331 | ||||||
| Short-term investments in debt securities | 54,506 | 65,833 | ||||||
| Accounts receivable | 11,600 | 23,493 | ||||||
| Other current assets | 2,474 | 6,413 | ||||||
| Total current assets | 91,841 | 113,286 | ||||||
| Investments in debt securities | - | 15,430 | ||||||
| Investments in equity method investees | 11,140 | 9,987 | ||||||
| Property and equipment, net | 1,272 | 1,342 | ||||||
| Content assets, net | 78,855 | 72,682 | ||||||
| Intangibles, net | 316 | 1,369 | ||||||
| Goodwill | - | 2,793 | ||||||
| Operating lease right-of-use assets | 3,835 | - | ||||||
| Other assets | 588 | 689 | ||||||
| Total assets | $ | 187,847 | $ | 217,578 | ||||
| Liabilities and stockholders’ equity (deficit) | ||||||||
| Current liabilities | ||||||||
| Content liabilities | $ | 5,976 | $ | 9,684 | ||||
| Accounts payable | 9,552 | 3,428 | ||||||
| Accrued expenses and other liabilities | 10,122 | 12,429 | ||||||
| Deferred revenue | 22,297 | 22,430 | ||||||
| Total current liabilities | 47,947 | 47,971 | ||||||
| Warrant liability | 1,323 | 5,661 | ||||||
| Non-current operating lease liabilities | 4,821 | - | ||||||
| Other liabilities | 699 | 2,011 | ||||||
| Total liabilities | 54,790 | 55,643 | ||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock, $0.0001 par value – 1,000 shares authorized as of June 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021 | - | - | ||||||
| Common stock, $0.0001 par value – 125,000 shares authorized as of June 30, 2022 and December 31, 2021; 52,786 shares issued and outstanding as of June 30, 2022; 52,677 issued and outstanding as of December 31, 2021 | 5 | 5 | ||||||
| Additional paid-in capital | 355,555 | 352,334 | ||||||
| Accumulated other comprehensive loss | (452 | ) | (222 | ) | ||||
| Accumulated deficit | (222,051 | ) | (190,182 | ) | ||||
| Total stockholders’ equity (deficit) | 133,057 | 161,935 | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | 187,847 | $ | 217,578 | ||||
SOFTWARE ACQUISITION GROUP INC.
CONDENSED BALANCE SHEETS
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 the unaudited condensedthese consolidated financial statements.
SOFTWARE ACQUISITION GROUP INC.
CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2020
(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 | ) |
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, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | 22,348 | $ | 15,344 | $ | 39,975 | $ | 25,280 | ||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | 12,988 | 5,722 | 24,838 | 9,880 | ||||||||||||
| Advertising and marketing | 11,208 | 11,520 | 25,976 | 23,769 | ||||||||||||
| General and administrative | 10,603 | 9,153 | 21,106 | 17,885 | ||||||||||||
| Impairment of goodwill and intangible assets | 3,603 | - | 3,603 | - | ||||||||||||
| 38,402 | 26,395 | 75,523 | 51,534 | |||||||||||||
| Operating loss | (16,054 | ) | (11,051 | ) | (35,548 | ) | (26,254 | ) | ||||||||
| Change in fair value of warrant liability | 478 | 1,764 | 4,338 | (2,022 | ) | |||||||||||
| Interest and other (expense) income | (29 | ) | 1,036 | (86 | ) | 1,296 | ||||||||||
| Equity interests loss | (316 | ) | - | (472 | ) | - | ||||||||||
| Loss before income taxes | (15,921 | ) | (8,251 | ) | (31,768 | ) | (26,980 | ) | ||||||||
| Provision for income taxes | 56 | 53 | 101 | 79 | ||||||||||||
| Net loss | $ | (15,977 | ) | $ | (8,304 | ) | $ | (31,869 | ) | $ | (27,059 | ) | ||||
| Net loss per share | ||||||||||||||||
| Basic | $ | (0.30 | ) | $ | (0.16 | ) | $ | (0.60 | ) | $ | (0.54 | ) | ||||
| Diluted | $ | (0.30 | ) | $ | (0.19 | ) | $ | (0.60 | ) | $ | (0.54 | ) | ||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic | 52,775 | 52,567 | 52,762 | 50,327 | ||||||||||||
| Diluted | 52,775 | 52,968 | 52,762 | 50,327 | ||||||||||||
The accompanying notes are an integral part of the unaudited condensedthese consolidated financial statements.
SOFTWARE ACQUISITION GROUP INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2020
(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 | ||||||||||||||||
CuriosityStream Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net loss | $ | (15,977 | ) | $ | (8,304 | ) | $ | (31,869 | ) | $ | (27,059 | ) | ||||
| Other comprehensive income (loss) | ||||||||||||||||
| Unrealized gain (loss) on available for sale securities | 3 | (769 | ) | (230 | ) | (1,223 | ) | |||||||||
| Total comprehensive loss | $ | (15,974 | ) | $ | (9,073 | ) | $ | (32,099 | ) | $ | (28,282 | ) | ||||
The accompanying notes are an integral part of the unaudited condensedthese consolidated financial statements.
3
CuriosityStream Inc.
CONDENSED STATEMENT OF CASH FLOWSConsolidated Statements of Stockholder’s Equity (Deficit)
THREE MONTHS ENDED MARCH 31, 2020(in thousands)
(UNAUDITED)(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 | ||
Accumulated Other | Total | |||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid-in | Comprehensive Income | Accumulated | Stockholders’ Equity | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | (Loss) | Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance at March 31, 2022 | 52,767 | $ | 5 | - | $ | - | $ | 353,985 | $ | (455 | ) | $ | (206,074 | ) | $ | 147,461 | ||||||||||||||||
| Net loss | - | - | - | - | - | - | (15,977 | ) | (15,977 | ) | ||||||||||||||||||||||
| Stock-based compensation, net | 19 | - | - | - | 1,570 | - | - | 1,570 | ||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | 3 | - | 3 | ||||||||||||||||||||||||
| Balance at June 30, 2022 | 52,786 | $ | 5 | - | $ | - | $ | 355,555 | $ | (452 | ) | $ | (222,051 | ) | $ | 133,057 | ||||||||||||||||
| Balance at December 31, 2021 | 52,677 | $ | 5 | - | $ | - | $ | 352,334 | $ | (222 | ) | $ | (190,182 | ) | $ | 161,935 | ||||||||||||||||
| Net loss | - | - | - | - | - | - | (31,869 | ) | (31,869 | ) | ||||||||||||||||||||||
| Stock-based compensation, net | 109 | - | - | - | 3,221 | - | - | 3,221 | ||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (230 | ) | - | (230 | ) | ||||||||||||||||||||||
| Balance at June 30, 2022 | 52,786 | $ | 5 | - | $ | - | $ | 355,555 | $ | (452 | ) | $ | (222,051 | ) | $ | 133,057 | ||||||||||||||||
| Balance at 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 at 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 at June 30, 2021 | 52,583 | $ | 5 | - | $ | - | $ | 349,597 | $ | (1,213 | ) | $ | (179,606 | ) | $ | 168,783 | ||||||||||||||||
The accompanying notes are an integral part of the unaudited condensedthese consolidated financial statements.
4
CuriosityStream Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (31,869 | ) | $ | (27,059 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Change in fair value of warrant liability | (4,338 | ) | 2,022 | |||||
| Additions to content assets | (25,303 | ) | (22,199 | ) | ||||
| Change in content liabilities | (3,708 | ) | 4,465 | |||||
| Amortization of content assets | 19,130 | 6,989 | ||||||
| Depreciation and amortization expenses | 441 | 217 | ||||||
| Impairment of goodwill and intangible assets | 3,603 | - | ||||||
| Amortization of premiums and accretion of discounts associated with investments in debt securities, net | 758 | 352 | ||||||
| Stock-based compensation | 3,382 | 3,860 | ||||||
| Equity interests loss | 472 | - | ||||||
| Other non-cash items | 211 | - | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | 11,893 | (3,526 | ) | |||||
| Other assets | 4,040 | 185 | ||||||
| Accounts payable | 6,146 | 1,773 | ||||||
| Accrued expenses and other liabilities | (2,850 | ) | 1,091 | |||||
| Deferred revenue | (157 | ) | 8,474 | |||||
| Net cash used in operating activities | (18,149 | ) | (23,356 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | (120 | ) | (175 | ) | ||||
| Business acquisitions | - | (4,000 | ) | |||||
| Investment in equity method investees | (1,625 | ) | - | |||||
| Sales of investments in debt securities | 2,893 | 4,882 | ||||||
| Maturities of investments in debt securities | 24,373 | 11,980 | ||||||
| Purchases of investments in debt securities | (1,497 | ) | (141,644 | ) | ||||
| Net cash provided by (used in) investing activities | 24,024 | (128,957 | ) | |||||
| Cash flows from financing activities | ||||||||
| Exercise of stock options | - | 409 | ||||||
| Exercise of warrants | - | 54,898 | ||||||
| Payments related to tax withholding | (161 | ) | (22 | ) | ||||
| Proceeds from issuance of Common Stock | - | 94,101 | ||||||
| Payment of offering costs | - | (707 | ) | |||||
| Net cash (used in) provided by financing activities | (161 | ) | 148,679 | |||||
| Net increase in cash, cash equivalents and restricted cash | 5,714 | (3,634 | ) | |||||
| Cash, cash equivalents and restricted cash, beginning of period | 17,547 | 17,384 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 23,261 | $ | 13,750 | ||||
| Supplemental disclosure: | ||||||||
| Cash paid for taxes | $ | 398 | $ | 30 | ||||
| Cash paid for operating leases | $ | 219 | $ | 43 | ||||
| Right-of-use assets obtained in exchange for new operating lease liabilities (1) | $ | 3,965 | $ | - | ||||
| (1) | Includes adoption of new leasing guidance effective January 1, 2022. See Note 12 for further details. |
The accompanying notes are an integral part of these consolidated financial statements.
CuriosityStream Inc.
Notes to the Unaudited Consolidated Financial Statements
(in thousands, except share and per share data)
Note 1 — Organization and business
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Software Acquisition GroupThe principal business of CuriosityStream Inc. (the “Company” or “CuriosityStream”) is to provide customers with access to high quality factual content via a blank check company incorporateddirect subscription video on-demand (SVoD) platform accessible by internet connected devices, or indirectly via distribution partners who deliver CuriosityStream content via the distributor’s platform or system. The online library available for streaming spans the entire category of factual entertainment including science, history, society, nature, lifestyle, and technology.
The Company’s content assets are available directly through its owned and operated website (“O&O Service”), mobile applications developed for iOS and Android operating systems (“App Services”), and via the platforms and systems of third-party partners in Delaware on May 9, 2019.exchange for license fees. The Company was formedoffers subscribers a monthly or annual subscription. The price for a subscription varies depending on the purposestreaming resolution (e.g., HD or 4K) and the length of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganizationthe subscription (e.g., monthly or other similar business combinationannual) selected by the customer. As an additional part of the Company’s App Services, it has built applications to make its service accessible on almost every major customer 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. In addition, CuriosityStream has affiliate agreement relationships with, one or more businesses (the “Business Combination”and its content assets are available through, certain multichannel video programming distributors (“MVPDs”) and virtual MVPDs (“vMVPDs”). The Company is an early stage and emerging growth company and, as such, 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 relatesalso has distribution agreements which grant other media companies certain distribution rights 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.programs, referred to as program sales deals. The Company willalso sells selected rights (such as in territories or on platforms that are 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 exercisecurrently being exploited by the underwriter of the over-allotment optionCompany) to purchase an additional 1,950,000 Units, at $10.00 per Unit, generating gross proceeds of $149,500,000, which is described in content created before production begins.
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 to Software Acquisition Holdings, LLC (the “Sponsor”), generating gross proceeds of $4,740,000, which 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 of the Trust Account and is available for working capital purposes.
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 Offering 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 commissions 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”), and file tender offer documents containing substantially the same information as would be included in a proxy statement with 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) 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 provisions 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 during 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), divided 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. None of the Company’s officers or directors will indemnify the Company for claims by third parties including, without limitation, claims by vendors 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 have all vendors, service providers, prospective target businesses or other entities 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.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 2021.
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, 2019 as filed with the SEC on March 20, 2020, which contains the audited financial statements and notes thereto.2021. 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, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any future interim periods.2022.
Certain amounts presented in prior periods have been reclassified to conform to the current period presentation.
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 other than the effects of adopting new accounting guidance related to leases (see below) 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, 2021.
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 content assets, equity method investments, intangible assets and goodwill, 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 revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of March 31, 2020 and December 31, 2019.
Marketable Securities Held in Trust Account
At March 31, 2020 and December 31, 2019, the assets held in the Trust Account were substantially held in a money market fund that invests primarily in U.S. Treasury Bills.
Common Stock Subject to Possible Redemption
The Company accounts for its 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 is 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 classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance sheets.
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an assetshare-based awards 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 applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.classified warrants.
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.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
Net Income per Common Share
Net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. The Company applies the two-class method in calculating 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 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 Riskrisk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, investments, and accounts in areceivable. The Company maintains its cash, cash equivalents, and investments with high credit quality financial institution, which,institutions; at times, such balances with the financial institutions may exceed the Federal Depository Insurance Corporation coverage limit of $250,000. The Company had not experienced losses on these accountsapplicable FDIC-insured limits.
Accounts receivable are typically unsecured and management believesare derived from revenues earned from customers primarily located in the Company is not exposed to significant risks on such accounts.United States.
Fair Valuevalue measurement of Financial Instrumentsfinancial 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 money market funds and corporate, U.S. government, and municipal 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 money market funds and U.S. government debt securities. Level 2 inputs were derived using prices for similar investments and were used to value the Company’s investments in corporate and municipal debt securities.
The Company’s liabilities measured at fair value on a recurring basis include its private placement warrants issued to Software Acquisition Holdings LLC in a private placement that closed concurrently with the Company’s initial public offering (the “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 7 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 other liabilities are carried at cost, which approximates fair value because of the short-term maturity of these instruments.
Recently Issued and Adopted 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 Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which supersedes the historical lease guidance under Accounting Standards Codification (ASC) 840. Topic 842 increases transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements for both lessees and lessors. The Company adopted the new standard effective January 1, 2022, using the modified retrospective method and electing to use the package of practical expedients permitted under the transition guidance, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurementsallows for the carry forward of historical lease classification for existing leases on the adoption date and Disclosures,” approximatesdoes not require the carrying amounts representedassessment of existing lease contracts to determine whether the contracts contain a lease or initial direct costs. Prior periods were not retrospectively adjusted.
The adoption of this standard resulted in the accompanying condensedrecognition of operating lease liabilities of $5.3 million with corresponding right-of-use (ROU) assets in the amount of $4.0 million, net of existing deferred rent and lease incentives of $1.3 million. The Company did not have any finance lease liabilities as of the adoption date. There was no cumulative effect adjustment to the opening balance sheets, primarily dueof accumulated deficit as of January 1, 2022. Adoption of this new guidance did not have an impact on the unaudited consolidated statements of operations or cash flows. Refer 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 effectNote 12 for further information regarding the impact of adoption of Topic 842 on the Company’s condensedunaudited consolidated financial statements.
9Accounting Standards Effective in Future Periods
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 does not expect the implementation of ASU 2016-13 to have a material impact on its consolidated financial statements.
Note 3 – Equity Investments
Spiegel TV Geschichte und Wissen GmbH & Co. KG (the “Spiegel Venture”)
In July 2021, the Company acquired 32% ownership in the Spiegel Venture for $3.3 million. The Spiegel Venture, which prior to the Company’s equity purchase, was jointly owned and operated by Spiegel TV and Autentic, operates two documentary channels, together with various SVoD services, which provide factual content to pay television audiences in Germany. The Company has not received any dividends from the Spiegel Venture as of June 30, 2022.
Watch Nebula LLC (“Nebula”)
On August 23, 2021, the Company purchased a 12% ownership interest in Watch Nebula LLC for $6.0 million. Nebula is an SVoD technology platform built for and by a group of content creators. The Company is committed to purchasing an additional 13% ownership interest through eight quarterly payments of $0.8 million, which after each payment, the Company will obtain an additional 1.625% of equity ownership interests. Prior to the Company’s investment, Nebula was a 100% wholly owned subsidiary of Standard Broadcast LLC (“Standard”). The Company obtained 25% of the representation on Nebula’s Board of Directors, providing the Company with significant influence, but not a controlling interest. The Company has not received dividends from Nebula as of June 30, 2022.
The Company’s carrying values for its equity method investments as of June 30, 2022 and December 31, 2021 is as follows:
| Spiegel Venture | Nebula | Total | ||||||||||
| (in thousands) | ||||||||||||
| Balance at December 31, 2021 | $ | 3,089 | $ | 6,898 | $ | 9,987 | ||||||
| Investments in equity method investees (1) | - | 1,625 | 1,625 | |||||||||
| Equity interests loss | (122 | ) | (350 | ) | (472 | ) | ||||||
| Balance at June 30, 2022 | $ | 2,967 | $ | 8,173 | $ | 11,140 | ||||||
| (1) | Nebula’s investment in equity method investees balance includes an accrual of $0.8 million also reported in Accrued expenses and other liabilities as of June 30, 2022. |
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited) Note 4 —Balance sheet components
NOTE 3. INITIAL PUBLIC OFFERINGCash and cash equivalents and restricted cash
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 shareA reconciliation of the Company’s Class Acash and cash equivalents in the consolidated balance sheets to cash, cash equivalents and restricted cash in the consolidated statements of cash flows as of June 30, 2022 and December 31, 2021 is as follows:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (in thousands) | ||||||||
| Cash and cash equivalents | $ | 22,761 | $ | 15,216 | ||||
| Restricted cash | 500 | 2,331 | ||||||
| Cash and cash equivalents and restricted cash | $ | 23,261 | $ | 17,547 | ||||
At June 30, 2022, restricted cash includes cash deposits required by a bank as collateral related to corporate credit card agreements of $0.5 million. On April 16, 2022, the Paycheck Protection Program (PPP) loan was forgiven, and $1.2 million of funds were released from escrow to the Company and reclassified from restricted cash to cash and cash equivalents (see Note 6). On May 11, 2022, the One Day University (ODU) holdback of $0.5 million was paid to ODU from escrow funds previously classified as restricted cash.
Investments in debt securities
The Company’s investments in debt securities at fair value based on unadjusted quoted market prices (Level 1) and quoted prices for comparable assets (Level 2) are:
| As of June 30, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||||||||
| Cash and Cash Equivalents | Short-term Investments | Investments (non-current) | Total | Cash and Cash Equivalents | Short-term Investments | Investments (non-current) | Total | |||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
| Level 1 Securities | ||||||||||||||||||||||||||||||||
| Money market funds | $ | 12,064 | $ | - | $ | - | $ | 12,064 | $ | 11,709 | $ | - | $ | - | $ | 11,709 | ||||||||||||||||
| U.S. Government debt securities | - | 9,471 | - | 9,471 | - | 13,582 | - | 13,582 | ||||||||||||||||||||||||
| Total Level 1 Securities | 12,064 | 9,471 | - | 21,535 | 11,709 | 13,582 | - | 25,291 | ||||||||||||||||||||||||
| Level 2 Securities | ||||||||||||||||||||||||||||||||
| Corporate debt securities | - | 45,035 | - | 45,035 | - | 50,641 | 15,430 | 66,071 | ||||||||||||||||||||||||
| Municipal debt securities | - | - | - | - | - | 1,610 | - | 1,610 | ||||||||||||||||||||||||
| Total Level 2 Securities | - | 45,035 | - | 45,035 | - | 52,251 | 15,430 | 67,681 | ||||||||||||||||||||||||
| Total | $ | 12,064 | $ | 54,506 | $ | - | $ | 66,570 | $ | 11,709 | $ | 65,833 | $ | 15,430 | $ | 92,972 | ||||||||||||||||
The following tables summarize the Company’s corporate, U.S. government, and municipal debt securities:
| As of June 30, 2022 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Debt Securities: | ||||||||||||||||
| Corporate | $ | 45,461 | $ | - | $ | (426 | ) | $ | 45,035 | |||||||
| U.S. Government | 9,497 | - | (26 | ) | 9,471 | |||||||||||
| Total | $ | 54,958 | $ | - | $ | (452 | ) | $ | 54,506 | |||||||
| As of December 31, 2021 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Debt Securities: | ||||||||||||||||
| Corporate | $ | 66,281 | $ | - | $ | (210 | ) | $ | 66,071 | |||||||
| U.S. Government | 13,594 | - | (12 | ) | 13,582 | |||||||||||
| Municipalities | 1,610 | - | - | 1,610 | ||||||||||||
| Total | $ | 81,485 | $ | - | $ | (222 | ) | $ | 81,263 | |||||||
There were no material realized gains or losses recorded during the three and six months ended June 30, 2022 or 2021.
Content assets
Content assets consisted of the following:
| As of | ||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| (in thousands) | ||||||||
| Licensed content, net | ||||||||
| Released, less amortization | $ | 12,345 | $ | 11,406 | ||||
| Prepaid and unreleased | 6,413 | 9,119 | ||||||
| 18,758 | 20,525 | |||||||
| Produced content, net | ||||||||
| Released, less amortization | 26,711 | 18,507 | ||||||
| In production | 33,386 | 33,650 | ||||||
| 60,097 | 52,157 | |||||||
| Total | $ | 78,855 | $ | 72,682 | ||||
As of June 30, 2022, $5.4 million, $3.3 million, and $1.6 million of the $12.3 million 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, 2022, $7.2 million, $6.9 million, and $6.0 million of the $26.7 million 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 accounting policy for content assets, the following tables represent the amortization of content assets:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Licensed content | $ | 1,798 | $ | 1,595 | $ | 4,797 | $ | 3,278 | ||||||||
| Produced content | 8,293 | 2,658 | 14,333 | 3,711 | ||||||||||||
| Total | $ | 10,091 | $ | 4,253 | $ | 19,130 | $ | 6,989 | ||||||||
Goodwill and intangible assets
Changes in goodwill for the six months ended June 30, 2022 is as follows (in thousands):
| Balance at December 31, 2021 | $ | 2,793 | ||
| Impairment of goodwill | 2,793 | |||
| Balance at June 30, 2022 | $ | - |
During the three months ended June 30, 2022, the Company experienced a sustained decrease in its share price, and this triggering event was an indication that it was more likely than not that the fair value of the Company’s single reporting unit was below its carrying value. The Company performed an interim goodwill impairment test of its goodwill as of June 30, 2022 and recognized a goodwill impairment charge of $2.8 million during the three months ended June 30, 2022 as the fair value of the reporting unit was less than the related carrying value. This charge is included in impairment of goodwill and intangible assets on the Company’s unaudited consolidated statements of operations.
The determination of the fair value of the Company’s reporting unit was based on a combination of the income and the market approach. The Company applied equal weighting to each of the approaches in determining the fair value of the reporting unit. Under the income approach, the Company utilized discounted cash flows of forecasted future cash flows based on future operational expectations and discounted these cash flows to reflect their relative risk. The cash flows used are consistent with those the Company uses in its internal planning, which reflect actual business trends experienced and the Company’s long-term business strategy. Under the market approach, the Company utilized the guideline public company method and guideline transaction method to develop valuation multiples and compare the Company to similar publicly traded companies. The significant assumptions under each of the approaches include, among others: revenue projections (which are dependent on future customer subscriptions and content licensing agreements), operating expenses, discount rate, control premium and a terminal growth rate. The cash flows used to determine the fair values are dependent on a number of significant management assumptions, such as the Company’s expectations of future performance and the expected future economic environment, which are partly based upon the Company’s historical experience. The Company also considered its market capitalization in assessing the reasonableness of the reporting unit fair value.
During the three months ended June 30, 2022, the Company also determined there were impairment indicators with respect to certain of the Company’s definite-lived intangible assets. As a result, the Company performed an impairment test by comparing the carrying values of the intangible assets to their respective fair values, which were determined based on forecasted future cash flows. As a result of this impairment test, the Company recorded an impairment charge of $0.8 million during the three months ended June 30, 2022, which is reflected as a component of impairment of goodwill and intangible assets on the Company’s unaudited consolidated statements of operations.
Warrant liability
As described in Note 7, 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 June 30, 2022 and December 31, 2021, was as follows:
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| (in thousands) | ||||||||
| Level 3 | ||||||||
| Private Placement Warrants | $ | 1,323 | $ | 5,661 | ||||
| Total Level 3 | $ | 1,323 | $ | 5,661 | ||||
Note 5 — Revenue
The following table sets forth the Company’s revenues disaggregated by type for the three and six months ended June 30, 2022 and 2021, as well as the relative percentage of each revenue type to total revenue.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
| Subscriptions – O&O Service | $ | 7,912 | 35 | % | $ | 4,705 | 31 | % | $ | 15,218 | 38 | % | $ | 8,671 | 34 | % | ||||||||||||||||
| Subscriptions – App Services | 1,010 | 5 | % | 975 | 6 | % | 2,058 | 5 | % | 1,886 | 7 | % | ||||||||||||||||||||
| Subscriptions – Total | 8,922 | 40 | % | 5,680 | 37 | % | 17,276 | 43 | % | 10,557 | 41 | % | ||||||||||||||||||||
| License Fees – Affiliates | 5,079 | 23 | % | 4,579 | 30 | % | 9,989 | 25 | % | 9,082 | 36 | % | ||||||||||||||||||||
| License Fees – Program Sales (1) | 6,655 | 30 | % | 5,031 | 33 | % | 10,904 | 27 | % | 5,517 | 22 | % | ||||||||||||||||||||
| License Fees – Total | 11,734 | 53 | % | 9,610 | 63 | % | 20,893 | 52 | % | 14,599 | 58 | % | ||||||||||||||||||||
| Other – Total (1)(2) | 1,692 | 7 | % | 54 | 0 | % | 1,806 | 5 | % | 124 | 1 | % | ||||||||||||||||||||
| Total Revenues | $ | 22,348 | $ | 15,344 | $ | 39,975 | $ | 25,280 | ||||||||||||||||||||||||
| (1) | For the three and six months ended June 30, 2022, total related party revenue was $2.1 million, consisting of $0.5 million for the three and six months ended June 30, 2022 for content licensed by the Company to the Spiegel Venture included in License fee – Program Sales and $1.6 million for the three and six months ended June 30, 2022 for marketing services rendered to Nebula, which is included in Other revenue. |
| (2) | In addition to (1) above, Other revenue for the three and six months ended June 30, 2022 includes other marketing services for $0.1 million and $0.2 million, respectively. |
Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at June 30, 2022 are as follows:
| Remainder of year ending December 31, | For the years ending December 31, | |||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
| Remaining Performance Obligations | $ | 10,192 | $ | 7,962 | $ | 5,035 | $ | 3,339 | $ | 23 | $ | 158 | $ | 26,709 | ||||||||||||||
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 $23.0 million and $23.2 million at June 30, 2022 and December 31, 2021, respectively.
Revenues of $6.2 and $16.1 million were recognized during the three and six months ended June 30, 2022, related to the balance of deferred revenue at December 31, 2021.
Note 6 — Paycheck Protection Program Loan
On May 1, 2020, the Company applied for and received funding from the Paycheck Protection Program (“PPP”) in the amount of $1.2 million under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) (the “PPP Loan”). The PPP Loan was set to mature in May 2022 and bore interest at a rate of 1.0% per annum. 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 requirements set forth in the 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 unaudited consolidated statement of operations. On April 16, 2022, the Company received the loan forgiveness letter from the Small Business Administration (SBA) stating that the loan has been forgiven in full, including applicable interest. Following receipt of the loan forgiveness notification letter, funds of $1.2 million were released from escrow, and the Company reclassified this amount from restricted cash to cash and cash equivalents on the unaudited consolidated balance sheet.
Note 7 — Stockholders’ equity
Common Stock
As of June 30, 2022 and December 31, 2021, 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, $0.0001 par value, and one-half(b) 1,000,000 shares of one redeemablepreferred stock.
Warrants
As of June 30, 2022, the Company had A) 3,054,203 publicly traded warrants that were (i) sold as part of the units of Software Acquisition Group Inc. in its initial public offering on November 22, 2019 and (ii) issued to the PIPE Investors in connection with our business combination that closed on October 14, 2020 (the “Public Warrants”) and B) 3,676,000 Private Placement Warrants outstanding. Private Placement Warrants are liability-classified, and the Public Warrants are equity-classified.
Each whole warrant (“Public Warrant”). Each Public Warrant will entitleentitles the registered holder to purchase one share of Class Athe Company’s 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 PlacementAll Warrants will expire worthless.October 14, 2025.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In June 2019, theThe 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 havinghas 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 be 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 ofredeem the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that 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, or 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 months 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: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 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 Software Acquisition Group LLC or its permitted transferees: (i) they will not be redeemable by the initial purchasers or their permitted transferees. IfCompany; (ii) they may be exercised by the holders on a cashless basis; and (iii) they are subject to registration rights.
There were no exercises of warrants during the three and six months ended June 30, 2022.
The warrant liability related to the Private Placement Warrants is recorded at fair value as of each reporting date with the change in fair value reported within other income (expense) in the accompanying unaudited consolidated statements of operations as “Change in fair value of warrant liability” until the warrants are held by someoneexercised, expired or other thanfacts and circumstances lead the initial purchasers or their permitted transferees,warrant liability to be reclassified to stockholder’s equity (deficit). The fair value of the warrant liability for the Private Placement Warrants will be redeemable bywas estimated using a Black-Scholes pricing model using Level 3 inputs. The significant assumptions used in preparing the CompanyBlack-Scholes option pricing model are as follows:
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| Exercise Price | $ | 11.50 | $ | 11.50 | ||||
| Stock Price (CURI) | $ | 1.69 | $ | 5.93 | ||||
| Expected volatility | 89.00 | % | 58.00 | % | ||||
| Expected warrant term (years) | 3.3 | 3.8 | ||||||
| Risk-free interest rate | 2.99 | % | 1.12 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Fair Value per Private Placement Warrant | $ | 0.36 | $ | 1.54 | ||||
The change in fair value of the private placement warrant liability for the three and exercisable by such holderssix months ended June 30, 2022 resulted in a gain of $0.5 million and $4.3 million, respectively, and for the three and six months ended June 30, 2021 resulted in a gain of $1.8 million and a loss of $2.0 million, respectively.
Note 8 — Earnings (loss) per share
Basic and diluted earnings (loss) per share calculations are calculated on the same basis asof the Public Warrants.
The exercise price andweighted average 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 outstanding during the 20 trading dayrespective periods. Diluted earnings (loss) per share give effect to all dilutive potential common shares outstanding during the period starting onusing the trading day priortreasury stock method for stock options and other potentially dilutive securities. In computing diluted earnings (loss) per share, the average fair value of the Company’s common stock for the period is used to determine the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share,number of shares assumed to be purchased from 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, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Numerator - Basic EPS: | ||||||||||||||||
| Net loss | $ | (15,977 | ) | $ | (8,304 | ) | $ | (31,869 | ) | $ | (27,059 | ) | ||||
| Denominator - Basic EPS: | ||||||||||||||||
| Weighted–average shares – Basic | 52,775 | 52,567 | 52,762 | 50,327 | ||||||||||||
| Net loss per share – Basic | $ | (0.30 | ) | $ | (0.16 | ) | $ | (0.60 | ) | $ | (0.54 | ) | ||||
| Numerator - Diluted EPS: | ||||||||||||||||
| Net loss | $ | (15,977 | ) | $ | (8,304 | ) | $ | (31,869 | ) | $ | (27,059 | ) | ||||
| Decrease in fair value of Private Placement Warrants | - | (1,764 | ) | - | - | |||||||||||
| Net loss – Diluted | (15,977 | ) | (10,068 | ) | (31,869 | ) | (27,059 | ) | ||||||||
| Denominator - Diluted EPS: | ||||||||||||||||
| Weighted–average shares – Basic | 52,775 | 52,567 | 52,762 | 50,327 | ||||||||||||
| Incremental common shares from assumed exercise of Private Placement Warrants | - | 402 | - | - | ||||||||||||
| Weighted–average shares – Diluted | 52,775 | 52,968 | 52,762 | 50,327 | ||||||||||||
| Net loss per share – Diluted | $ | (0.30 | ) | $ | (0.19 | ) | $ | (0.60 | ) | $ | (0.54 | ) | ||||
For the three and six months ended June 30, 2022 and 2021, 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. Common shares issuable for warrants, will be adjusted (tooptions, and restricted stock units (RSUs) represent the nearest cent)total amount of outstanding warrants, stock options, and restricted stock units at June 30, 2022 and 2021.
| Antidilutive shares excluded: | Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Options | 5,244 | 4,737 | 5,244 | 4,737 | ||||||||||||
| Restricted Stock Units | 1,114 | 772 | 1,114 | 772 | ||||||||||||
| Warrants | 6,730 | 3,054 | 6,730 | 6,730 | ||||||||||||
| 13,088 | 8,563 | 13,088 | 12,239 | |||||||||||||
Note 9 — 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”). 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, RSUs and restricted stock.
The following table summarizes stock option and RSU activity, prices, and values for the six months ended June 30, 2022:
| 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 | ||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||
| Balance at December 31, 2021 | 1,821 | 4,747 | $ | 7.61 | 850 | $ | 11.41 | |||||||||||||
| Granted | (1,370 | ) | 821 | 3.18 | 549 | 3.15 | ||||||||||||||
| Options exercised and RSUs vested | 39 | - | - | (104 | ) | 11.28 | ||||||||||||||
| Forfeited or expired | 505 | (324 | ) | 8.20 | (181 | ) | 11.66 | |||||||||||||
| Balance at June 30, 2022 | 995 | 5,244 | $ | 6.88 | 1,114 | $ | 7.17 | |||||||||||||
There were no options exercised during the three and six months ended June 30, 2022. The intrinsic value of options exercised during the three and six months ended June 30, 2021 was $0.3 and $1.3 million, respectively.
Options generally have a four-year vesting period with 25% of the highershares vesting on each anniversary date. When options are exercised, the Company’s policy is to issue previously unissued shares of Common Stock to satisfy share option exercises.
RSUs generally have a four-year or a quarterly vesting period with 1/48th of the Market Value and the Newly Issued Price and the $18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180%shares vesting monthly or 6.25% of the highershares vesting quarterly. Upon vesting and distribution, the Company’s policy is to issue previously unissued shares of Common Stock to satisfy RSUs vested, net of shares withheld for taxes if elected by the Market Value and the Newly Issued Price.RSU holder.
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 a number of 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, also known as the simplified method, given the lack of historical exercise behavior.
The Company uses its own historical volatility as well as the 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, 2022 and 2021 were as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Dividend yield | 0 | % | N/A | 0 | % | 0 | % | |||||||||
| Expected volatility | 65% - 70 | % | N/A | 60% - 70 | % | 60 | % | |||||||||
| Expected term (years) | 6.25 | N/A | 6.00 - 6.50 | 2.50 - 6.25 | ||||||||||||
| Risk-free interest rate | 2.81% - 2.95 | % | N/A | 1.40% - 2.95 | % | 0.14% - 1.11 | % | |||||||||
| Weighted average grant date fair value | $ | 1.12 | N/A | $ | 1.91 | $ | 6.61 | |||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Stock-based compensation - Options | $ | 946 | $ | 910 | $ | 1,914 | $ | 2,729 | ||||||||
| Stock-based compensation - RSUs | $ | 648 | $ | 627 | $ | 1,468 | $ | 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 10 — Segment and geographic information
The Company operates as 1 reporting 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 are located in the United States. Revenue by geographic location, based on the location of the customers, with one foreign country individually comprising greater than 10% of total revenue, is as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| United States | $ | 14,704 | 66 | % | $ | 12,111 | 79 | % | $ | 26,503 | 66 | % | $ | 19,266 | 76 | % | ||||||||||||||||
| International: | ||||||||||||||||||||||||||||||||
| United Kingdom | 2,533 | 11 | % | 210 | 1 | % | 4,434 | 11 | % | 379 | 2 | % | ||||||||||||||||||||
| Other | 5,111 | 23 | % | 3,023 | 20 | % | 9,038 | 23 | % | 5,635 | 22 | % | ||||||||||||||||||||
| Total International | 7,644 | 34 | % | 3,233 | 21 | % | 13,472 | 34 | % | 6,014 | 24 | % | ||||||||||||||||||||
| 22,348 | 100 | % | 15,344 | 100 | % | 39,975 | 100 | % | 25,280 | 100 | % | |||||||||||||||||||||
Note 11 — Related party transactions
Equity investments
As described in Note 5, the Company recognized $0.5 million of revenue related to the Spiegel Venture during the three and six months ended June 30, 2022.
As described in Note 5, the Company recognized $1.6 million of revenue related to advertising services rendered to Nebula during the three and six months ended June 30, 2022. The Company incurred $1.0 and $2.0 million for the three and six months ended June 30, 2022, respectively, in revenue share to Nebula from subscription sales related to the Bundled Marketing and Premium Tier Agreement. This revenue share is recorded in Cost of revenues on the unaudited consolidated statement of operations. The Bundled and Premium Tier subscriptions bundles the Nebula SVoD subscription with the CuriosityStream subscription for a single subscription fee through the CuriosityStream Premium Tier.
Note 12 — Leases
The Company adopted the new leases guidance contained in Topic 842 effective January 1, 2022 using the modified retrospective method. Therefore, the reported results for the three and six months ended June 30, 2022 and the financial position as of June 30, 2022 reflect the application of this new guidance, while the reported results for the three and six months ended June 30, 2021 and the financial position as of December 31, 2021 were not adjusted and continue to be reported under the prior lease accounting guidance in effect for the prior periods.
Company as a Lessee
The Company has entered into a non-cancellable operating lease agreement for office space, which expires in 2033. The Company’s operating lease for this office space includes fixed rent payments and variable lease payments, which are primarily related to common area maintenance and utility charges. The Company has elected to not separate lease and non-lease components, as such all amounts paid under the lease are classified as either fixed or variable lease payments. Fixed leases payments were included in the calculation of ROU assets and leases liabilities and variable lease payments are recognized as lease expense. The Company has determined that no renewal clauses are reasonably certain of being exercised and have not included any renewal periods within the lease term for this lease.
At June 30, 2022, the Company had operating lease ROU assets of $3.8 million, current lease liabilities of $0.3 million, and non-current lease liabilities of $4.8 million. In measuring operating lease liabilities, the Company seeksused a weighted average discount rate of 4.4% in existence as of the January 1, 2022 adoption date. The weighted average remaining lease term at June 30, 2022 was 10.7 years.
Components of Lease Cost
The Company’s total operating lease cost for the three and six months ended June 30, 2022 was comprised of the following (in thousands):
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||
| Operating lease cost | $ | 121 | $ | 242 | ||||
| Short-term lease cost | 18 | 36 | ||||||
| Variable lease cost | 13 | 24 | ||||||
| Total lease cost | $ | 152 | $ | 302 | ||||
Maturity of Lease Liabilities
As of June 30, 2022, maturities of our operating lease liabilities, which do not include short-term leases and variable lease payments, are as follows (in thousands):
| Remaining six months of 2022 | $ | 268 | ||
| 2023 | 543 | |||
| 2024 | 557 | |||
| 2025 | 571 | |||
| 2026 | 585 | |||
| Thereafter | 3,946 | |||
| Total Lease Payments | $ | 6,470 | ||
| Less: imputed interest | (1,326 | ) | ||
| Present value of total lease liabilities | $ | 5,144 |
Company as Lessor
The Company sublets a portion of its office space to maximizea related party and accounts for the usearrangement as an operating lease. Related party sublease rental income is recognized on a straight-line basis and is included in Interest and other income in the accompanying consolidated statements of observable inputs (market data obtainedoperations. For the three and six months ended June 30, 2022, operating lease income from independent sources) and to minimize the useCompany’s sublet was less than $0.1 million. As 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 liabilities basedJune 30, 2022, total remaining future minimum lease payments receivable on the observable inputsCompany’s operating lease was $0.6 million.
Note 13 — Commitments and unobservable inputs usedcontingencies
Content commitments
At June 30, 2022, the Company had $18.9 million of content obligations comprised of $6.0 million included in order to valuecontent liabilities in the assetsaccompanying unaudited consolidated balance sheets, and liabilities:
The following table presents information about the Company’s assets$12.9 million of obligations that are measured at fair value on a recurring basis at March 31, 2020not reflected in the accompanying consolidated balance sheets as they did not yet meet the asset recognition criteria for content assets. Content obligations of $16.4 million and $2.5 million are expected to be paid during the six months ending December 31, 2019,2022 and indicates the fair value hierarchyyear ending December 31, 2023, respectively.
At December 31, 2021, the Company had $39.0 million of content obligations comprised of $9.7 million included in current content liabilities in the accompanying unaudited consolidated balance sheets and $29.4 million of obligations that are not reflected in the accompanying unaudited 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 internally produced streaming content. An obligation for the production 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 inputsreporting date.
Advertising commitments
The Company has certain commitments with regards to future advertising and marketing expenses as stated in the various 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 $10.8 million as of June 30, 2022, of which $10.1 million, $0.5 million and $0.2 million are expected to be paid during the six months ending December 31, 2022 and years ending December 31, 2023 and 2024, respectively.
Note 14 — Income taxes
The Company recorded a provision for income taxes of $0.1 million for the three and six months ended June 30, 2022 and 2021, primarily related to foreign withholding income taxes. The Company’s provision for income taxes differs from the federal statutory rate primarily due to the Company utilizedbeing in a full valuation allowance position and not recognizing a tax benefit attributable to determine such fair value:generated losses for either federal or state income tax purposes.
| Description | Level | March 31, 2020 | December 31, 2019 | |||||||
| Assets: | ||||||||||
| Marketable securities held in Trust Account | 1 | $ | 150,202,852 | $ | 149,719,910 | |||||
NOTE 9. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
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 provide 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 withand financial condition. Unless the financial statements and the notes thereto contained elsewherecontext otherwise requires, references in this Quarterly Report. Certain information contained in“Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and “the Company” are intended to mean the discussionbusiness and analysis set forth below includes forward-looking statements that involve risks and uncertainties.operations of CuriosityStream.
SpecialCautionary Note Regarding Forward-LookingForward-looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements other than statements of historical fact included in this 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,” “attribute,” “believe,” “anticipate,“continue,” “hope,” “estimate,” “expect,” “intend,” “estimate,“may,” “seek”“might,” “potential,” “seek,” “should,” “will” and variations“would,” 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 inthose contemplated by the forward-looking statements. For information identifying importantstatements as 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. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipatedincluded in the forward-looking statements, please referstatements. Factors that might cause or contribute to the Risk Factors section of the Company’ssuch differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission (the “SEC”(“SEC”). The Company’s securities filings can be accessed on March 31, 2022, and our Quarterly Report on Form 10-Q for the EDGAR section ofquarter ended March 31, 2022 filed with the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention orSEC on May 16, 2022. We assume no obligation to updaterevise or revisepublicly release any revision to any forward-looking statements whethercontained in this Quarterly Report on Form 10-Q, unless required by law.
Overview
CuriosityStream is a media and entertainment company that offers premium video programming across the principal categories 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 believe we are well-positioned for growth as a resultdigital-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 products and services: Direct to Consumer Business, Partner Direct Business, Bundled Distribution, Program Sales, Corporate & Association Partnerships and Other. The table below shows our revenue generated through each of the foregoing products and services for the three and six months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Direct to Consumer (Subscriptions – O&O and App Services) | $ | 7,363 | 33 | % | $ | 5,647 | 37 | % | $ | 14,554 | 36 | % | $ | 10,462 | 41 | % | ||||||||||||||||
| Partner Direct Business (License Fees – Affiliates) | 1,191 | 5 | % | 1,041 | 7 | % | 2,334 | 6 | % | 2,018 | 8 | % | ||||||||||||||||||||
| Bundled Distribution (License Fees – Affiliates) | 3,888 | 18 | % | 3,538 | 23 | % | 7,655 | 19 | % | 7,064 | 28 | % | ||||||||||||||||||||
| Program Sales | 6,655 | 30 | % | 5,031 | 33 | % | 10,904 | 27 | % | 5,517 | 22 | % | ||||||||||||||||||||
| Corporate & Association Partnerships (Subscriptions – O&O Service) | 1,559 | 7 | % | 33 | 0 | % | 2,722 | 7 | % | 95 | 0 | % | ||||||||||||||||||||
| Other | 1,692 | 7 | % | 54 | 0 | % | 1,806 | 5 | % | 124 | 1 | % | ||||||||||||||||||||
| Total Revenues | $ | 22,348 | $ | 15,344 | $ | 39,975 | $ | 25,280 | ||||||||||||||||||||||||
CuriosityStream’s award-winning content library features more than 15,000 programs that explore topics ranging from space engineering to ancient history to the rise of Wall Street. Our extensive catalog of originally produced and owned content includes more than 9,500 short-, mid- and long-form video and audio titles, including One Day University and Learn25 recorded lectures that are led by some of the most acclaimed college and university professors in the world. Our library also features a rotating catalog of more than 5,500 internationally licensed videos and audio programs. Every month, we launch dozens of new information, future eventsvideo titles, which are available on-demand in high- or otherwise.ultra-high definition. Through new and long-standing international partnerships, we have localized a large portion of our video library in ten different languages—so far.
Our video content 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. We also provide a premium service for $9.99 per month or $69.99 per year. Our Premium membership includes everything in our standard service, plus subscriptions to third-party platforms Tastemade, Topic, and SommTV, our equity investee Nebula, and our new service, One Day University.
Overview
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, Apple Channel, Roku Channel, Sling TV and YouTube TV.
In addition to our Direct to Consumer Business and Partner Direct Business, we have affiliate relationships with our Bundled MVPD Partners and MVPDs, which are broadband and wireless companies in the U.S. and international territories to whom we can offer a blank check company formed underbroad scope 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.
In our Program Sales Business, we sell to certain media companies a collection of our existing titles in a traditional program sales deal. We also 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.
Our Corporate & Association Partnerships business is 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 27 companies have purchased annual subscriptions at bulk discounts for their employees.
Our Other business is primarily comprised of advertising and sponsorship revenue. We offer companies the lawsopportunity to be associated with CuriosityStream content in a variety of forms, including short and long form program integration, branded social media promotional videos, advertising spots in our video and audio programs that are made available in front of the Statepaywall, and digital display ads.
Key Factors Affecting Results of Delaware on May 9, 2019Operations
Our future operating results and cash flows are dependent upon a number of opportunities, challenges, and other factors, including our ability to efficiently 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 operations over the periods presented below and are expected to continue to have such significant effects:
Revenues
Currently, the main sources of our revenue are (i) subscriber fees from the Direct to Consumer Business and Direct Subscribers, (ii) subscriber fees from Corporate & Association Partnerships, (iii) license fees from affiliates who receive subscriber fees for the purposeCuriosityStream from such affiliates’ subscribers (“Partner Direct Business” and “Partner Direct Subscribers”), (iv) license fees from bundled license fees from distribution affiliates (“Bundled MVPD Business” and “Bundled MVPD Subscribers”), (v) license fees from program sales arrangements, and (vi) Other revenue, including advertising and sponsorships. As 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, 2022, we had approximately 25 million total paying subscribers, including Direct Subscribers, Partner Direct Subscribers, Bundled MVPD Subscribers and Corporate & Association Partnerships 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 from the proceeds of the Initial Public Offering and the sale of the Private Warrants, our capital stock, debt orgenerated a combination of cash, stock and debt.
The issuance of additional sharessignificant portion 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 incomemonthly or annual subscription plans. We may in the future increase the price of our subscription plans, which may have a positive effect on marketable securities held afterour revenue from this line of our business. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a 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. 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 have been and intend to continue to focus marketing dollars on efficient customer acquisition. With respect to personnel costs, we focus on revenue-generating personnel, such as sales staff and roles that support the improvement, maintenance and marketing of our Direct Service.
Results of Operations
The financial reporting, accountingdata in the following table sets forth selected financial information derived from our unaudited consolidated financial statements for the three and auditing compliance)six months ended June 30, 2022 and 2021 and shows our results of operations as a percentage of revenue or as a percentage of costs, as applicable, for the periods indicated. We conduct business through one operating segment, CuriosityStream.
Comparison of the three months ended June 30, 2022 and 2021
| Three months ended June 30, | ||||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||||||||||
| (unaudited) (in thousands) | ||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| Subscriptions | $ | 8,922 | 40 | % | $ | 5,680 | 37 | % | $ | 3,242 | 57 | % | ||||||||||||
| License fee | 11,734 | 52 | % | 9,610 | 63 | % | 2,124 | 22 | % | |||||||||||||||
| Other | 1,692 | 8 | % | 54 | 0 | % | 1,638 | n/m | ||||||||||||||||
| Total Revenues | $ | 22,348 | 100 | % | $ | 15,344 | 100 | % | $ | 7,004 | 46 | % | ||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Cost of revenues | 12,988 | 34 | % | 5,722 | 22 | % | 7,266 | 127 | % | |||||||||||||||
| Advertising and marketing | 11,208 | 29 | % | 11,520 | 44 | % | (312 | ) | (3 | %) | ||||||||||||||
| General and administrative | 10,603 | 28 | % | 9,153 | 34 | % | 1,450 | 16 | % | |||||||||||||||
| Impairment of goodwill and intangible assets | 3,603 | 9 | % | - | 0 | % | 3,603 | n/m | ||||||||||||||||
| Total operating expenses | $ | 38,402 | 100 | % | $ | 26,395 | 100 | % | $ | 12,007 | 45 | % | ||||||||||||
| Operating loss | (16,054 | ) | (11,051 | ) | (5,003 | ) | 45 | % | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Change in fair value of warrant liability | 478 | 1,764 | (1,286 | ) | (73 | %) | ||||||||||||||||||
| Interest and other (expense) income | (29 | ) | 1,036 | (1,065 | ) | n/a | ||||||||||||||||||
| Equity interests loss | (316 | ) | - | (316 | ) | n/m | ||||||||||||||||||
| Loss before income taxes | $ | (15,921 | ) | $ | (8,251 | ) | $ | (7,670 | ) | 93 | % | |||||||||||||
| Provision for income taxes | 56 | 53 | 3 | 6 | % | |||||||||||||||||||
| Net loss | $ | (15,977 | ) | $ | (8,304 | ) | $ | (7,673 | ) | 92 | % | |||||||||||||
n/m - percentage not meaningful
Revenue
Revenue for the three months ended June 30, 2022 and 2021 was $22.3 million and $15.3 million, respectively. The increase of $7.0 million, or 46%, is due to a $3.2 million increase in subscription revenue, a $2.1 million increase in license fee revenue and a $1.6 million increase in other revenue.
The increase in subscription revenue of $3.2 million resulted primarily from a $1.6 million increase in subscriber fees received from Direct Subscribers for annual and monthly plans and a $1.3 million increase in corporate subscriptions related to the bulk agreements executed in the last quarter of 2021. The increase in license fees of $2.1 million resulted primarily from a $1.6 million increase in license fees related to a larger volume of program sales arrangements and a $0.5 million increase in bundled distribution due to new agreements launched in the second half of 2021. The increase in other revenue of $1.6 million is primarily due to revenue generated in the current quarter related to an advertising agreement with an affiliate.
Operating Expenses
Operating expenses for the three months ended June 30, 2022 and 2021 were $38.4 million and $26.4 million, respectively. This increase of $12.0 million, or 45%, primarily resulted from the following:
Cost of Revenues: Cost of revenues for the three months ended June 30, 2022 increased to $13.0 million from $5.7 million for the three months ended June 30, 2021. 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 $7.3 million, or 127%, is primarily due to the increase in content amortization of $5.8 million, which is primarily driven by the increase in program sales arrangements resulting in significant accelerated amortization, as well as foran increase in the number and cost of titles published during the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The balance of the increase in cost of revenues is primarily due diligence expenses.to a $1.3 million increase in revenue share expense related to bundled and premier tier arrangements with other streaming services as well as cost of advertising and an increase of $0.2 million in sales commissions, subtitling and broadcast costs.
Advertising & Marketing: Advertising and marketing expenses for the three months ended June 30, 2022, decreased to $11.2 million from $11.5 million for the three months ended June 30, 2021. This decrease of $0.3 million, or 3% is primarily due to a decrease in digital advertising, partner platforms and agency fees of $2.5 million, partially offset by an increase of $2.2 million in radio and TV advertising compared to the prior year period.
General and Administrative: General and administrative expenses for the three months ended June 30, 2022 increased to $10.6 million from $9.2 million for the three months ended June 30, 2021. This increase of $1.4 million, or 16%, is primarily attributable to incremental salaries and benefits.
Impairment of Goodwill and Intangible Assets: The increase of $3.6 million in operating expenses for the three months ended June 30, 2022 was the result of the impairment analysis performed during the current quarter. The analysis resulted in an impairment charge of $0.8 million related to intangible assets and an impairment charge against the entire balance of goodwill for $2.8 million. There were no such impairment charges recorded during the three months ended June 30, 2021.
Operating Loss
Operating loss for the three months ended June 30, 2022 and 2021 was $16.1 million and $11.1 million, respectively. The increase of $5.0 million, or 45%, in operating loss resulted from the increase in operating expenses of $12.0 million, or 45%, including the impairment of goodwill and intangible assets of $3.6 million, offset by an increase in revenue of $7.0 million, or 46%, in each case during the three months ended June 30, 2022 compared to the three months ended June 30, 2021, as described above.
Change in Fair Value of Warrant Liability
For the three months ended March 31, 2020,June 30, 2022, the Company recognized a $0.5 million gain compared to a gain of $1.8 million recognized during the three months ended June 30, 2021, each resulting from a decrease in the fair value of the liabilities related to the Private Placement Warrants for the respective periods.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended June 30, 2022 was less than $0.1 million expense compared to $1.0 million in income for the three months ended June 30, 2021, primarily due to greater interest income from debt investments in the prior year period.
Equity Interests Loss
For the three months ended June 30, 2022, the Company recorded $0.3 million equity interests loss related to the equity investments in the Spiegel Venture and Nebula with no comparable equity interests income or loss in the three months ended June 30, 2021.
Provision for Income Taxes
Due to generating a loss before income taxes in each of the three months ended June 30, 2022 and 2021, 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.$56 thousand and $53 thousand, respectively. This slight increase of $3 thousand, or 6%, was primarily due to an increase in foreign withholding tax expense due to an increase in contracts executed with parties in foreign jurisdictions. 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.
Liquidity and Capital Resources
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 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 sale of the Private Placement Warrants, a total of $149,500,000 was placed in the Trust Account. We incurred $8,745,223 in transaction costs, consisting of $2,990,000 of underwriting fees, $5,232,500 of deferred underwriting fees and $522,723 of other offering costs.Net Loss
ForNet loss for the three months ended March 31, 2020, cash usedJune 30, 2022 and 2021 was $16.0 million and $8.3 million, respectively. The increase of net loss of $7.7 million, or 92%, is due to the increase in total operating expenses of $12 million, or 45%, consisting primarily of the increase in cost of revenues and goodwill and intangible assets impairment charges, the $1.3 million decrease in the gain related to the change in the fair value of the warrant liability, and the $1.1 million decrease in interest and other (expense) income, partially offset by the increase in total revenues of $7.0 million or 46%, in each case during the three months ended June 30, 2022 compared to the three months ended June 30, 2021, as described above.
Comparison of the six months ended June 30, 2022 and 2021
| Six months ended June 30, | ||||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| Subscriptions | $ | 17,276 | 43 | % | $ | 10,557 | 42 | % | $ | 6,719 | 64 | % | ||||||||||||
| License fee | 20,893 | 52 | % | 14,599 | 58 | % | 6,294 | 43 | % | |||||||||||||||
| Other | 1,806 | 5 | % | 124 | 0 | % | 1,682 | n/m | ||||||||||||||||
| Total Revenues | $ | 39,975 | 100 | % | $ | 25,280 | 100 | % | $ | 14,695 | 58 | % | ||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Cost of revenues | 24,838 | 33 | % | 9,880 | 19 | % | 14,958 | 151 | % | |||||||||||||||
| Advertising and marketing | 25,976 | 34 | % | 23,769 | 46 | % | 2,207 | 9 | % | |||||||||||||||
| General and administrative | 21,106 | 28 | % | 17,885 | 35 | % | 3,221 | 18 | % | |||||||||||||||
| Impairment of goodwill and intangible assets | 3,603 | 5 | % | - | 0 | % | 3,603 | n/m | ||||||||||||||||
| Total operating expenses | $ | 75,523 | 100 | % | $ | 51,534 | 100 | % | $ | 23,989 | 47 | % | ||||||||||||
| Operating loss | (35,548 | ) | (26,254 | ) | (9,294 | ) | 35 | % | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Change in fair value of warrant liability | 4,338 | (2,022 | ) | 6,360 | n/m | |||||||||||||||||||
| Interest and other (expense) income | (86 | ) | 1,296 | (1,382 | ) | n/m | ||||||||||||||||||
| Equity interests loss | (472 | ) | - | (472 | ) | n/m | ||||||||||||||||||
| Loss before income taxes | $ | (31,768 | ) | $ | (26,980 | ) | $ | (4,788 | ) | 18 | % | |||||||||||||
| Provision for income taxes | 101 | 79 | 22 | 28 | % | |||||||||||||||||||
| Net loss | $ | (31,869 | ) | $ | (27,059 | ) | $ | (4,810 | ) | 18 | % | |||||||||||||
n/m - percentage not meaningful
Revenue
Revenue for the six months ended June 30, 2022 and June 30, 2021 was $40.0 million and $25.3 million, respectively. The increase of $14.7 million, or 58%, is due to a $6.7 million increase in subscription revenue, a $6.3 million increase in license fee revenue and a $1.7 million increase in other revenue
The increase in subscription revenue of $6.7 million resulted primarily from a $4.1 million increase in subscriber fees received from Direct Subscribers for annual and monthly plans and a $2.6 million increase in corporate subscriptions related to subscription bulk agreements. The increase in license fees of $6.3 million resulted primarily from a $5.3 million increase in license fees related to a larger volume of program sales arrangements, a $0.6 million increase in bundled distribution due to new agreements launched in the second half of 2021 and a $0.4 million increase in Partner Direct revenues due to increased subscribers to our partner’s respective platforms.
Operating Expenses
Operating expenses for the six months ended June 30, 2022 and 2021 were $75.5 million and $51.5 million, respectively. This increase of $24.0 million, or 47%, primarily resulted from the following:
Cost of Revenues: Cost of revenues for the six months ended June 30, 2022 increased to $24.8 million from $9.8 million for the six months ended June 30, 2021. 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 $15.0 million, or 151%, is primarily due to the increase in content amortization of $12.2 million, which is primarily driven by the increase in program sales arrangements resulting in significant accelerated amortization, as well as an increase in the number and cost of titles published during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The balance of the increase in cost of revenues is primarily due to a $2.5 million increase in revenue share expense related to bundled and premier tier arrangements with other streaming services and an increase of $0.3 million in subtitling and broadcast costs.
Advertising & Marketing: Advertising and marketing expenses for the six months ended June 30, 2022, increased to $26.0 million from $23.8 million for the six months ended June 30, 2021. This increase of $2.2 million, or 9%, is primarily due to an increase in radio advertising of $5.6 million and an increase in digital advertising of $0.6 million, partially offset by a decrease of $4.0 million in partner platforms, TV advertising and agency fees compared to the prior year period.
General and Administrative: General and administrative expenses for the six months ended June 30, 2022 increased to $21.1 million from $17.9 million for the six months ended June 30, 2021. This increase of $3.2 million, or 18%, is primarily attributable to $2.2 million for incremental salaries and benefits as well as smaller increases to various other expense categories, including licenses and subscriptions and professional fees.
Impairment of Goodwill and Intangible Assets: The increase of $3.6 million in operating activitiesexpenses for the six months ended June 30, 2022 is the result of the impairment analysis performed as of June 30, 2022. The analysis resulted in an impairment charge of $0.8 million related to intangible assets and an impairment charge against the entire balance of goodwill for $2.8 million. There were no such impairment charges recorded during the six months ended June 30, 2021.
Operating Loss
Operating loss for the six months ended June 30, 2022 and 2021 was $289,812. Net income$35.6 million and $26.3 million, respectively. The increase of $193,091 was$9.3 million, or 35%, in operating loss resulted from the increase in operating expenses of $24.0 million, or 47%, including the impairment of goodwill and intangible assets of $3.6 million, offset by interest earned on marketable securities heldan increase in revenue of $14.7 million, or 58%, in each case during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, as described above.
Change in Fair Value of Warrant Liability
For the six months ended June 30, 2022, the Company recognized a $4.3 million gain related to the decrease in the Trust Accountfair value of $482,942. Changes in operating assets and liabilities provided $39the liability related to Private Placement Warrants, compared to a loss of cash from operating activities.
As of March 31, 2020, we had marketable securities held$2.2 million recognized during the six months ended June 30, 2021, which was due to an increase 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 on the balance in the Trust Account may be used by us to pay taxes. Through March 31, 2020, we have not withdrawn any interest earned on the Trust Account. We intend to use substantially allfair value of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable and deferred underwriting commissions), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of March 31, 2020, we had $803,596 of cash held outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
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 identicalliability related to the Private Placement Warrants atin the prior period.
Interest and Other Income (Expense)
Interest and other income (expense) for the six months ended June 30, 2022 was a price of $1.00 per warrant at$0.1 million expense compared to $1.3 million in income for the optionsix months ended June 30, 2021, primarily due to greater interest income from investments in the prior year period.
Equity Interests Loss
For the six months ended June 30, 2022, the Company recorded $0.5 million equity interests loss related to the equity investments in the Spiegel Venture and Nebula with no comparable equity interests income or loss in the six months ended June 30, 2021.
Provision for Income Taxes
Due to generating a loss before income taxes in each of the lender.six months ended June 30, 2022 and 2021, we had a provision for income taxes of $101 thousand and $79 thousand, respectively. This increase of $22 thousand, or 28%, was primarily due to an increase in foreign withholding tax expense due to an increase in contracts executed with parties in foreign jurisdictions. 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.
We do not believe
Net Loss
Net loss for the six months ended June 30, 2022 and 2021 was $31.9 million and $27.1 million, respectively. The increase of net loss of $4.8 million, or 18%, is primarily due to the increase in total operating expenses of $24.0 million, or 47%, consisting of the increase in cost of revenues and goodwill and intangible assets impairment charges, and the $1.4 million decrease in interest and other (expense) income, partially offset by the increase in total revenues of $14.7 million or 58% and the increase in gain related to the change in fair value of the warrant liability of $6.4 million, in each case during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, as described above.
Liquidity and Capital Resources
As of June 30, 2022, we will needhad cash and cash equivalents, including restricted cash, of $23.3 million. In addition, the Company had available for sale investments in debt securities totaling $54.5 million, all of which were classified as short-term investments. All of the Company’s investments in debt securities can be readily converted to raise additional funds in ordercash to meet the Company’s ongoing operating cash flow needs. For the six months ended June 30, 2022, we incurred a net loss of $31.9 million and used $18.1 million of net cash in operating activities, while investing activities provided $24 million of net cash, and financing activities used $0.2 million of net cash.
We believe that our current cash levels and investments in debt securities that are readily convertible to cash will be adequate to support our ongoing operations, capital expenditures requiredand working capital for operatingat least the next twelve months.
Our principal uses of cash are to acquire content, promote our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligenceservice through advertising and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds availablemarketing, 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 prior to our Business Combination. Moreover,plan, we may need to obtain additional financing either to complete our Business Combination or becauseanticipate that 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 support to the Company. We began incurring these fees on November 19, 2019 and will continue to incur these fees monthly untilnet losses.
Cash Flows
The following table presents our cash flows from operating, investing and financing activities for the earliersix months ended June 30, 2022 and 2021:
| For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| (in thousands) | ||||||||
| Net cash used in operating activities | $ | (18,149 | ) | $ | (23,356 | ) | ||
| Net cash provided by (used in) investing activities | 24,024 | (128,957 | ) | |||||
| Net cash (used in) provided by financing activities | (161 | ) | 148,679 | |||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 5,714 | $ | (3,634 | ) | |||
Cash Flows from Operating Activities
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, 2022 and 2021, we recorded a net cash outflow from operating activities of $18.2 million and $23.4 million, respectively, or a decreased outflow of $5.2 million, or 22%. The decreased cash outflow from operating activities was primarily due to increased collections of our accounts receivable of $15.4 million, increase in the volume of our accounts payable outstanding of $4.4 million, increase in the amortization of content assets of $12.1 million, increase in other assets of $3.9 million, and the impairment of goodwill and intangibles of $3.6 million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease in outflow from operating activities was partially offset by increased investment in content (shown by the change in content liabilities and additions to content assets) of $11.3 million, and the decrease in deferred revenue change of $8.6 million for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.
Cash Flows from Investing Activities
Cash flow from investing activities consists of purchases, sales and maturities of investments, as well as business combinations, equity investments and purchases of property and equipment.
During the six months ended June 30, 2022 and June 30, 2021, we recorded a net cash inflow from investing activities of $24.0 million and a net cash outflow from investing activities of $129.0 million, respectively, or a decrease of cash outflow of $153.0 million, or 119%. The decrease in cash outflow from investing activities was primarily due to the decrease of the completionpurchases of available for sale investments of $140.1 million, a net increase in sales and maturities of those investments of $10.4 million, as well as $1.6 million cash outflows related to equity investments during the three months ended June 30, 2022 as compared to $4.0 million cash outflows related to a business combination during the three months ended June 30, 2021.
Cash Flows from Financing Activities
During the six months ended June 30, 2022 and 2021, we recorded net cash outflow from financing activities of $0.2 million and a net cash inflow from financing activities of $148.7 million, respectively. The net cash inflow during the six months ended June 30, 2021 of $148.7 million was attributable to the receipt of proceeds from the issuance of common stock of $94.1 million (net of $6.8 million of underwriting discounts and commissions), the exercise of 4.8 million Public Warrants resulting in cash proceeds of $54.9 million, and the exercise of stock options of $0.4 million, partially offset by the payments of transaction costs related to the issuance of common stock of $0.7 million. There was no comparable activity during the six months ended June 30, 2022.
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, 2022, 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 financial statements, which have been prepared in accordance with U.S. GAAP. Certain amounts included in or affecting the financial statements presented in this Annual Report 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 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 Business Combinationneed 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 customers 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 unaudited consolidated statements of cash flows.
The Company recognizes its content assets (licensed and produced) as “Content assets, net” on the unaudited 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 previously amortized the content assets (licensed and produced) in “Cost of revenues” on the unaudited 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. Starting July 1, 2021, the Company amortizes content assets on an accelerated basis in the initial two months after a title is published on the Company’s platform, as the Company has observed and expects more upfront viewing of content, generally as a result of additional marketing efforts. Furthermore, the amortization of original content is more accelerated than that of licensed content. We review factors that impact the amortization of the content assets on a regular basis and the estimates related to these factors require considerable management judgment. The Company continues to review factors impacting the amortization of content assets on an ongoing basis and will also 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.
As a result of a sustained decrease in the Company’s share price during the six months ended June 30, 2022, we concluded that a triggering event had occurred and conducted impairment testing of our content assets. As a result of this review, we determined no impairment charges were necessary. Refer to the “Goodwill and intangible assets” section below for further details with respect to the impairment testing performed by the Company over its goodwill and definite-lived intangible assets as of June 30, 2022.
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, which is the same or one level below the operating segment level. The Company determined that it has one reporting unit.
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. Amortization is recorded within General and administrative expenses on the consolidated statements of operations. 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.
As a result of a sustained decrease in the Company’s share price during the six months ended June 30, 2022, we concluded that a triggering event had occurred and conducted impairment testing of our goodwill and intangible assets.
During the three months ended June 30, 2022, the Company experienced a sustained decrease in its share price, and this triggering event was an indication that it was more likely than not that the fair value of the Company’s single reporting unit was below its carrying value. The Company performed an interim goodwill impairment test of its goodwill as of June 30, 2022 and recognized a goodwill impairment charge of $2.8 million during the three months ended June 30, 2022 as the fair value of the reporting unit was less than the related carrying value. This charge is included in impairment of goodwill and intangible assets on the Company’s unaudited consolidated statements of operations.
The determination of the fair value of the Company’s reporting unit was based on a combination of the income and the market approach. The Company applied equal weighting to each of the approaches in determining the fair value of the reporting unit. Under the income approach, the Company utilized discounted cash flows of forecasted future cash flows based on future operational expectations and discounted these cash flows to reflect their relative risk. The cash flows used are consistent with those the Company uses in its internal planning, which reflect actual business trends experienced and the Company’s liquidation.
long-term business strategy. Under the market approach, the Company utilized the guideline public company method and guideline transaction method to develop valuation multiples and compare the Company to similar publicly traded companies. The underwriters are entitled to deferred fee of three and half percent (3.50%)significant assumptions under each of the gross proceedsapproaches include, among others: revenue projections (which are dependent on future customer subscriptions and content licensing agreements), operating expenses, discount rate, control premium and a terminal growth rate. The cash flows used to determine the fair values are dependent on a number of significant management assumptions, such as the Company’s expectations of future performance and the expected future economic environment, which are partly based upon the Company’s historical experience. The Company also considered its market capitalization in assessing the reasonableness of the Initial Public Offering,reporting unit fair value.
During the three months ended June 30, 2022, the Company also determined there were impairment indicators with respect to certain of the Company’s definite-lived intangible assets. As a result, the Company performed an impairment test by comparing the carrying values of the intangible assets to their respective fair values, which were determined based on forecasted future cash flows. As a result of this impairment test, the Company recorded an impairment charge of $0.8 million during the three months ended June 30, 2022, which is reflected as a component of impairment of goodwill and intangible assets on the Company’s unaudited consolidated statements of operations.
In order to further validate the reasonableness of fair value as determined by the income and market approaches described above, a reconciliation to market capitalization is then performed by estimating a reasonable control premium and other market factors. Future changes in the judgments, assumptions and estimates that are used in the impairment testing for our asset group could result in significantly different estimates of fair value.
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 $5,232,500.annual subscriptions with the Company. The deferred fee will become payableCompany 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.
Subscriptions — App Services
The Company also earns subscription revenues through its App Services. These subscriptions are similar to the underwriterO&O Service subscriptions, but are generated based on agreements with certain streaming media players as well as with Smart TV brands and gaming consoles. 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.
License Fees — Affiliates
The Company generates license fee revenues from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subjectMVPDs 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 underwriting agreement.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.
Critical Accounting Policies
License Fees — Program Sales
The preparationCompany 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 condensedspecific 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.
Recently Issued Financial Accounting Standards
The information set forth under Note 2 to the unaudited consolidated financial statements under the caption “Basis of presentation and related disclosures in conformity withsummary of significant accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:policies” is incorporated herein by reference.
Common stock subject 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) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our condensed balance sheets.
Net loss per common share
We apply the two-class method in calculating earnings per share. 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 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 our income or losses.
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
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.Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
DisclosureWe maintain disclosure controls and procedures are designed to ensureprovide reasonable assurance that information required to be disclosed by us in our reports that we file or submits under the Exchange Act reports isare recorded, processed, summarized and reported within the specified time periods specified in the SEC’s rules and forms of the SEC, and that such information is accumulated and communicated to ourthe Company’s management, including our principal executive officerits Chief Executive Officer (“CEO”) and principal financial officer or persons performing similar functions,Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision andOur management, with the participation of our management, including our principal executive officerthe CEO and principal financial and accounting officer, we conducted an evaluation ofthe CFO, 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 RulesRule 13a-15(e) andor 15d-15(e) promulgated under the Exchange Act.Act) as of June 30, 2022. Based on this evaluation,these evaluations, our principal executive officerCEO and principal financial and accounting officer havethe CFO concluded that during the period covered by this report, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us 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.as of June 30, 2022.
Changes in Internal Control overOver Financial Reporting
Our management is required to evaluate, with the participation of our CEO and our CFO, any changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during each fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There waswere no changechanges in our internal control over financial reporting that occurred during the fiscal quarter of 2020 covered by this Quarterly Report on Form 10-Qended June 30, 2022 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
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 our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 20, 2020. As31, 2022 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 filed with the SEC on May 16, 2022. Any of the datethese factors could result in a significant or material adverse effect on our results of this Report, thereoperations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
There have been no material changes tofrom the risk factors previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC.SEC on March 31, 2022 and our Quarterly Report on Form 10-Q filed with the SEC on May 16, 2022.
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.
18None.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| Incorporated By Reference | ||||||||||||
| Exhibit No. | Description | Form | File No. | Exhibit | Filing Date | Filed/Furnished Herewith | ||||||
| 3.1 | Second Amended and Restated Certificate of Incorporation | 8-K | 001-39139 | 3.1 | 10/15/2020 | |||||||
| 3.2 | Amended and Restated Bylaws | 8-K | 001-39139 | 3.2 | 10/15/2020 | |||||||
| 10.1 | Offer Letter between CuriosityStream Inc. and Peter Westley, dated May 21, 2022 | 8-K | 001-39139 | 10.1 | 5/24/2022 | |||||||
| 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 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 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 and contained in Exhibit 101) | 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 15, 2022 | By: | /s/ Peter Westley |
| Name: | Peter Westley | |
| Title: | Chief Financial Officer and Treasurer | |
| (Principal Financial and Accounting | ||
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