☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
_________
| Delaware | 84-1797523 | |||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||
1980 Festival Plaza Drive, Ste. 300
Las Vegas, Nevada 89135
310-991-4982
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
o
o
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||||||||||
| Emerging growth company | ☒ | |||||||||||||
SOFTWARE ACQUISITION GROUP INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2020
TABLE OF CONTENTS
| Page | ||||||
i
CONDENSED
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 | ||||
| (In thousands, except par value) | September 30, 2023 | December 31, 2022 | |||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 40,304 | $ | 40,007 | |||||||
| Restricted cash | 500 | 500 | |||||||||
| Short-term investments in debt securities | — | 14,986 | |||||||||
| Accounts receivable | 6,877 | 10,899 | |||||||||
| Other current assets | 1,410 | 3,118 | |||||||||
| Total current assets | 49,091 | 69,510 | |||||||||
| Investments in equity method investees | 6,666 | 10,766 | |||||||||
| Property and equipment, net | 822 | 1,094 | |||||||||
| Content assets, net | 45,900 | 68,502 | |||||||||
| Operating lease right-of-use assets | 3,418 | 3,702 | |||||||||
| Other assets | 411 | 539 | |||||||||
| Total assets | $ | 106,308 | $ | 154,113 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities | |||||||||||
| Content liabilities | $ | 128 | $ | 2,862 | |||||||
| Accounts payable | 6,963 | 6,065 | |||||||||
| Accrued expenses and other liabilities | 4,154 | 7,752 | |||||||||
| Deferred revenue | 12,997 | 14,281 | |||||||||
| Total current liabilities | 24,242 | 30,960 | |||||||||
| Warrant liability | 74 | 257 | |||||||||
| Non-current operating lease liabilities | 4,378 | 4,648 | |||||||||
| Other liabilities | 675 | 622 | |||||||||
| Total liabilities | 29,369 | 36,487 | |||||||||
| Stockholders’ equity | |||||||||||
| Common stock, $0.0001 par value – 125,000 shares authorized as of September 30, 2023, and December 31, 2022; 53,071 shares issued and outstanding as of September 30, 2023; 52,853 issued and outstanding as of December 31, 2022 | 5 | 5 | |||||||||
| Additional paid-in capital | 362,270 | 358,760 | |||||||||
| Accumulated other comprehensive loss | — | (40) | |||||||||
| Accumulated deficit | (285,336) | (241,099) | |||||||||
| Total stockholders’ equity | 76,939 | 117,626 | |||||||||
| Total liabilities and stockholders’ equity | $ | 106,308 | $ | 154,113 | |||||||
CONDENSED STATEMENT
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 | ) |
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Unaudited and in thousands except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Revenues | $ | 15,630 | $ | 23,569 | $ | 42,114 | $ | 63,544 | |||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Cost of revenues | 8,494 | 13,566 | 27,428 | 38,404 | |||||||||||||||||||
| Advertising and marketing | 5,106 | 5,626 | 12,424 | 31,602 | |||||||||||||||||||
| General and administrative | 6,959 | 8,757 | 22,998 | 29,863 | |||||||||||||||||||
| Impairment of content assets | 18,970 | — | 18,970 | — | |||||||||||||||||||
| Impairment of goodwill and intangible assets | — | — | — | 3,603 | |||||||||||||||||||
| 39,529 | 27,949 | 81,820 | 103,472 | ||||||||||||||||||||
| Operating loss | (23,899) | (4,380) | (39,706) | (39,928) | |||||||||||||||||||
| Change in fair value of warrant liability | 74 | 514 | 184 | 4,852 | |||||||||||||||||||
| Interest and other income (expense) | 31 | (478) | 856 | (564) | |||||||||||||||||||
| Equity method investment loss | (2,638) | (94) | (5,092) | (566) | |||||||||||||||||||
| Loss before income taxes | (26,432) | (4,438) | (43,758) | (36,206) | |||||||||||||||||||
| Provision for income taxes | 133 | 64 | 479 | 165 | |||||||||||||||||||
| Net loss | $ | (26,565) | $ | (4,502) | $ | (44,237) | $ | (36,371) | |||||||||||||||
| Net loss per share | |||||||||||||||||||||||
| Basic | $ | (0.50) | $ | (0.09) | $ | (0.83) | $ | (0.69) | |||||||||||||||
| Diluted | $ | (0.50) | $ | (0.09) | $ | (0.83) | $ | (0.69) | |||||||||||||||
| Weighted average number of common shares outstanding | |||||||||||||||||||||||
| Basic | 53,040 | 52,793 | 52,999 | 52,773 | |||||||||||||||||||
| Diluted | 53,040 | 52,793 | 52,999 | 52,773 | |||||||||||||||||||
CONDENSED STATEMENT
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 | ||||||||||||||||
COMPREHENSIVE LOSS
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Unaudited and in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Net loss | $ | (26,565) | $ | (4,502) | $ | (44,237) | $ | (36,371) | |||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Unrealized gain on available for sale securities | — | 270 | 40 | 40 | |||||||||||||||||||
| Total comprehensive loss | $ | (26,565) | $ | (4,232) | $ | (44,197) | $ | (36,331) | |||||||||||||||
3
CONDENSED STATEMENT
THREE MONTHS ENDED MARCH 31, 2020
(UNAUDITED)
| Cash Flows from Operating Activities: | ||||
| Net income | $ | 193,091 | ||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||
| Interest earned on marketable securities held in Trust Account | (482,942 | ) | ||
| Changes in operating assets and liabilities: | ||||
| Prepaid expenses | (16,103 | ) | ||
| Accrued expenses | (35,186 | ) | ||
| Income taxes payable | 51,328 | |||
| Net cash used in operating activities | (289,812 | ) | ||
| Net Change in Cash | (289,812 | ) | ||
| Cash – Beginning | 1,093,408 | |||
| Cash – Ending | $ | 803,596 | ||
| Non-cash investing and financing activities: | ||||
| Change in value of common stock subject to possible redemption | $ | 193,094 | ||
STOCKHOLDERS’ EQUITY
| (Unaudited and in thousands) | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 53,026 | $ | 5 | $ | 361,392 | $ | — | $ | (258,771) | $ | 102,626 | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (26,565) | (26,565) | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net | 45 | — | 878 | — | — | 878 | |||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | 53,071 | $ | 5 | $ | 362,270 | $ | — | $ | (285,336) | $ | 76,939 | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 52,853 | $ | 5 | $ | 358,760 | $ | (40) | $ | (241,099) | $ | 117,626 | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (44,237) | (44,237) | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net | 218 | — | 3,510 | — | — | 3,510 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 40 | — | 40 | |||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | 53,071 | $ | 5 | $ | 362,270 | $ | — | $ | (285,336) | $ | 76,939 | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 52,786 | $ | 5 | $ | 355,555 | $ | (452) | $ | (222,051) | $ | 133,057 | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (4,502) | (4,502) | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net | 16 | — | 1,656 | — | — | 1,656 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 270 | — | 270 | |||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | 52,802 | $ | 5 | $ | 357,211 | $ | (182) | $ | (226,553) | $ | 130,481 | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 52,677 | $ | 5 | $ | 352,334 | $ | (222) | $ | (190,182) | $ | 161,935 | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (36,371) | (36,371) | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net | 125 | — | 4,877 | — | — | 4,877 | |||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | 40 | — | 40 | |||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | 52,802 | $ | 5 | $ | 357,211 | $ | (182) | $ | (226,553) | $ | 130,481 | ||||||||||||||||||||||||||||||||||||
4
| Nine Months Ended September 30, | |||||||||||
| (Unaudited and in thousands) | 2023 | 2022 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | (44,237) | $ | (36,371) | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities | |||||||||||
| Change in fair value of warrant liability | (183) | (4,852) | |||||||||
| Additions to content assets | (14,074) | (31,729) | |||||||||
| Change in content liabilities | (2,734) | (4,706) | |||||||||
| Amortization of content assets | 17,706 | 29,510 | |||||||||
| Depreciation and amortization expenses | 370 | 573 | |||||||||
| Impairment of content assets | 18,970 | — | |||||||||
| Impairment of goodwill and intangible assets | — | 3,603 | |||||||||
| Amortization of premiums and accretion of discounts associated with investments in debt securities, net | 26 | 1,087 | |||||||||
| Stock-based compensation | 3,586 | 5,055 | |||||||||
| Equity method investment loss | 5,092 | 566 | |||||||||
| Other non-cash items | 363 | 288 | |||||||||
| Changes in operating assets and liabilities | |||||||||||
| Accounts receivable | 4,022 | 6,342 | |||||||||
| Other assets | 1,737 | 4,994 | |||||||||
| Accounts payable | 903 | 4,188 | |||||||||
| Accrued expenses and other liabilities | (3,947) | (4,792) | |||||||||
| Deferred revenue | (1,230) | (4,500) | |||||||||
| Net cash used in operating activities | (13,630) | (30,744) | |||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of property and equipment | (5) | (130) | |||||||||
| Investment in equity method investees | (992) | (2,438) | |||||||||
| Sales of investments in debt securities | — | 22,893 | |||||||||
| Maturities of investments in debt securities | 15,000 | 41,873 | |||||||||
| Purchases of investments in debt securities | — | (1,497) | |||||||||
| Net cash provided by investing activities | 14,003 | 60,701 | |||||||||
| Cash flows from financing activities | |||||||||||
| Payments related to tax withholding | (76) | (178) | |||||||||
| Net cash used in financing activities | (76) | (178) | |||||||||
| Net increase in cash, cash equivalents and restricted cash | 297 | 29,779 | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 40,507 | 17,547 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 40,804 | $ | 47,326 | |||||||
| Supplemental disclosure: | |||||||||||
| Cash paid for taxes | $ | 144 | $ | 571 | |||||||
| Cash paid for operating leases | $ | 360 | $ | 352 | |||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | — | $ | 3,965 | |||||||
MARCH 31, 2020
(Unaudited)
Software Acquisition Group
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 content licensing deals. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statements for the Company’s Initial Public Offering were declared effective on November 19, 2019. On November 22, 2019, the Company consummated the Initial Public Offering of 14,950,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), which includes the full exercise by the underwriter of the over-allotment option to purchase an additional 1,950,000 Units, at $10.00 per Unit, generating gross proceeds of $149,500,000, which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 4,740,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement 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 itsalso sells selected 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,content 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.
Basis of Presentation
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.2022. 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 nine months ended March 31, 2020September 30, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or2023.
Emerging Growththe purpose of exchanging content assets through licensing agreements with media counterparties. Refer to
identified certain indicators of impairment related to its content assets and performed an analysis of these assets to assess if fair value was less than unamortized costs. Refer to
Note 4 - Balance Sheet Components for further discussion. In addition, during the three months ended September 30, 2023, the Company separately performed an analysis of its Investments in equity method investees to determine if an “other-than-temporary” impairment existed. Refer to Note 3 - Equity Investments, for further discussion on the results of this analysis.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 that 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 of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
7
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
Use of Estimates
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 actualaccompanying notes. 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 Significant items subject to possible redemption in accordance withsuch estimates include amortization and fair value of content assets, 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 controlassessment of the holder or subjectrecoverability of equity method investments, and the determination of fair value estimates related 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 assetnon-monetary transactions, share-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.
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 Risk
Fair Value of Financial Instruments
a recurring basis include its private placement warrants issued to Software Acquisition Holdings LLC, the Company’s former Sponsor, in a private placement 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 6 - Stockholders’ Equity for significant assumptions which the Company used in the fair value model for the Private Placement Warrants.| (In thousands) | Spiegel Venture | Nebula | Total | ||||||||||||||
| Balance at December 31, 2022 | $ | 2,899 | $ | 7,867 | $ | 10,766 | |||||||||||
| Investments in equity method investees | 992 | — | 992 | ||||||||||||||
| Equity method investment loss | (2,025) | (3,067) | (5,092) | ||||||||||||||
| Balance at September 30, 2023 | $ | 1,866 | $ | 4,800 | $ | 6,666 | |||||||||||
| (In thousands) | September 30, 2023 | December 31, 2022 | |||||||||
| Cash and cash equivalents | $ | 40,304 | $ | 40,007 | |||||||
| Restricted cash | 500 | 500 | |||||||||
| Cash and cash equivalents and restricted cash | $ | 40,804 | $ | 40,507 | |||||||
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| (In thousands) | Cash and cash equivalents | Short-term investments | Total | Cash and cash equivalents | Short-term investments | Total | |||||||||||||||||||||||||||||
| Level 1 securities: | |||||||||||||||||||||||||||||||||||
| Money market funds | $ | 38,375 | $ | — | $ | 38,375 | $ | 17,724 | $ | — | $ | 17,724 | |||||||||||||||||||||||
| Total Level 1 securities | $ | 38,375 | — | $ | 38,375 | $ | 17,724 | — | $ | 17,724 | |||||||||||||||||||||||||
| Level 2 securities: | |||||||||||||||||||||||||||||||||||
| Corporate debt securities | — | — | — | — | $ | 14,986 | $ | 14,986 | |||||||||||||||||||||||||||
| Total Level 2 securities | — | — | — | — | $ | 14,986 | $ | 14,986 | |||||||||||||||||||||||||||
| Total | $ | 38,375 | — | $ | 38,375 | $ | 17,724 | $ | 14,986 | $ | 32,710 | ||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| (In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| Corporate | $ | 15,026 | — | $ | (40) | $ | 14,986 | ||||||||||||||||
| Total | $ | 15,026 | — | $ | (40) | $ | 14,986 | ||||||||||||||||
| (in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
| Licensed content, net: | |||||||||||
Released, less amortization and impairment1 | $ | 6,308 | $ | 11,154 | |||||||
| Prepaid and unreleased | 7,997 | 4,014 | |||||||||
| Total Licensed content, net | 14,305 | 15,168 | |||||||||
| Produced content, net: | |||||||||||
Released, less amortization and impairment2 | 20,792 | 33,094 | |||||||||
| In production | 10,803 | 20,240 | |||||||||
| Total produced content, net | 31,595 | 53,334 | |||||||||
| Total content assets | $ | 45,900 | $ | 68,502 | |||||||
1 The September 30, 2023, amount reflects a $4.4 million impairment charge recorded for the three months ended September 30, 2023. See Impairment Assessment below. | |||||||||||
2 The September 30, 2023, amount reflects a $14.6 million impairment charge recorded for the three months ended September 30, 2023. See Impairment Assessment below. | |||||||||||
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 effectthe continued adverse macro and microeconomic conditions, including the competitive environment and its impact on the Company’s condensed financial statements.
9
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering,subscriber growth, the Company sold 14,950,000 Units, which includedrevised its forecasted subscriber growth and forecasted cash flow assumptions. Additionally, companies in the full exercise bystreaming industry have experienced a decline in market valuations, and reflecting this market trend and the underwriter of its option to purchase an additional 1,950,000 Units at $10.00 per Unit. Each Unit consists of one sharefactors above, the market price of the Company’s Class Acommon shares had declined significantly through September 30, 2023.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Licensed content | $ | 1,728 | $ | 1,793 | $ | 5,478 | $ | 6,590 | |||||||||||||||
| Produced content | 3,661 | 8,588 | 12,229 | 22,920 | |||||||||||||||||||
| Total | $ | 5,389 | $ | 10,381 | $ | 17,707 | $ | 29,510 | |||||||||||||||
| (in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
| Private Placement Warrants | $ | 74 | $ | 257 | |||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||
| Subscriptions: | |||||||||||||||||||||||||||||||||||||||||||||||
| O&O Service | $ | 6,601 | 42 | % | $ | 7,890 | 33 | % | $ | 19,664 | 47 | % | $ | 23,110 | 36 | % | |||||||||||||||||||||||||||||||
| App Services | 830 | 5 | % | 960 | 4 | % | 2,556 | 6 | % | 3,018 | 5 | % | |||||||||||||||||||||||||||||||||||
| Subscriptions total | 7,431 | 47 | % | 8,850 | 38 | % | 22,220 | 53 | % | 26,128 | 41 | % | |||||||||||||||||||||||||||||||||||
| License fees: | |||||||||||||||||||||||||||||||||||||||||||||||
| Partner Direct Business | 1,177 | 8 | % | 1,157 | 5 | % | 3,361 | 8 | % | 3,491 | 5 | % | |||||||||||||||||||||||||||||||||||
| Bundled Distribution | 1,504 | 10 | % | 2,595 | 11 | % | 4,487 | 11 | % | 10,250 | 16 | % | |||||||||||||||||||||||||||||||||||
| Content Licensing | 5,082 | 32 | % | 10,790 | 46 | % | 10,715 | 25 | % | 21,692 | 34 | % | |||||||||||||||||||||||||||||||||||
| License fees total | 7,763 | 50 | % | 14,542 | 62 | % | 18,563 | 44 | % | 35,433 | 56 | % | |||||||||||||||||||||||||||||||||||
| Other* | 436 | 3 | % | 177 | 1 | % | 1,331 | 3 | % | 1,983 | 3 | % | |||||||||||||||||||||||||||||||||||
| Total revenues | $ | 15,630 | $ | 23,569 | $ | 42,114 | $ | 63,544 | |||||||||||||||||||||||||||||||||||||||
| * Other revenue primarily relates to other marketing services | |||||||||||||||||||||||||||||||||||||||||||||||
| Remainder of year ending December 31, 2023 | December 31, | ||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
| Remaining performance obligations | $ | 1,671 | $ | 4,972 | $ | 2,179 | $ | 417 | $ | 34 | $ | 219 | $ | 9,492 | |||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Trade and barter license fees: Content Licensing | $ | 4,949 | $ | — | $ | 7,416 | $ | — | |||||||||||||||
| Other trade and barter revenue* | 250 | — | 774 | — | |||||||||||||||||||
| Total trade and barter revenues | $ | 5,199 | $ | — | $ | 8,190 | $ | — | |||||||||||||||
| * Other revenue primarily relates to other marketing services | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Trade and barter advertising and marketing | $ | 648 | $ | — | $ | 1,172 | $ | — | |||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | |||||||||||||||||||||
| Trade and barter additions to content assets | $ | 7,124 | $ | — | |||||||||||||||||||
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 4,740,000 Private Placementshare. All 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. expire on October 14, 2025.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In June 2019, the Company issued an aggregate of 3,593,750 shares (the “Founder Shares”) to the Sponsor for an aggregate purchase price of $25,000 in cash. On November 19, 2019, the Company effected a stock dividend for 0.04 share for each Founder Share outstanding, resulting in the Sponsor holding an aggregate of 3,737,500 Founder Shares. The 3,737,500 Founder Shares included an aggregate of up to 487,500 shares subject to forfeiture by the Sponsor to the extent that the underwriter’s over-allotment was not exercised in full or in part, so that the Sponsor will collectively own, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Proposed Offering (assuming the Sponsor does not purchase any Public Shares in the Initial Public Offering and excluding the Private Placement Warrants and underlying securities). As a result of the underwriter’s election to fully exercise its over-allotment option, 487,500 Founder Shares are no longer subject to forfeiture.
The initial stockholders have agreed not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination or (B) the date on which the Company completes a liquidation, merger, capital stock exchange or similar transaction that results in the Company’s stockholders 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.
| September 30, 2023 | December 31, 2022 | ||||||||||
| Exercise price | $ | 11.50 | $ | 11.50 | |||||||
| Stock price (CURI) | $ | 0.71 | $ | 1.14 | |||||||
| Expected volatility | 92.00 | % | 77.00 | % | |||||||
| Expected warrant term (years) | 2.0 | 2.8 | |||||||||
| Risk-free interest rate | 5.03 | % | 4.22 | % | |||||||
| Dividend yield | 0 | % | 0 | % | |||||||
| Fair Value per Private Placement Warrant | $ | 0.02 | $ | 0.07 | |||||||
The exercise price andweighted average number of shares of Class Athe Company’s common stock issuable upon exerciseoutstanding during the respective periods. Diluted earnings (loss) per share give effect to all dilutive potential common shares outstanding during the period using the treasury stock method for stock options and other potentially dilutive securities. 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 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.
| (In thousands except per share amounts) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Numerator — Basic and Diluted EPS: | |||||||||||||||||||||||
| Net loss | $ | (26,565) | $ | (4,502) | $ | (44,237) | $ | (36,371) | |||||||||||||||
| Denominator — Basic and Diluted EPS: | |||||||||||||||||||||||
| Weighted–average shares | 53,040 | 52,793 | 52,999 | 52,773 | |||||||||||||||||||
| Net loss per share — Basic and Diluted | $ | (0.50) | $ | (0.09) | $ | (0.83) | $ | (0.69) | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||
| Options | 33 | 5,190 | 33 | 5,190 | |||||||||||||||||||
| Restricted stock units | 2,430 | 1,047 | 2,430 | 1,047 | |||||||||||||||||||
| Warrants | 6,730 | 6,730 | 6,730 | 6,730 | |||||||||||||||||||
| Total | 9,193 | 12,967 | 9,193 | 12,967 | |||||||||||||||||||
Number of Shares Available for Issuance Under the Plan | Stock Options | Restricted Stock Units | |||||||||||||||||||||||||||
| (In thousands except share price and fair value amounts) | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Grant Date Fair Value | |||||||||||||||||||||||||
| Balance at December 31, 2022 | 1,815 | 4,632 | $ | 7.13 | 759 | $ | 7.14 | ||||||||||||||||||||||
| Granted | (1,923) | — | — | 1,923 | 1.06 | ||||||||||||||||||||||||
| Options exercised and RSUs vested | 71 | — | — | (209) | 8.75 | ||||||||||||||||||||||||
| Forfeited or expired | 4,642 | (4,599) | 7.17 | (43) | 11.91 | ||||||||||||||||||||||||
| Balance at September 30, 2023 | 4,605 | 33 | $ | 5.30 | 2,430 | $ | 2.46 | ||||||||||||||||||||||
SOFTWARE ACQUISITION GROUP INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2020
(Unaudited)
In addition, if (x)grant date. When options are exercised, the Company issues additionalpreviously unissued shares of Class A commonCommon Stock to satisfy share option exercises. Upon vesting and distribution of RSUs, the Company issues previously unissued shares of Common Stock to satisfy restricted stock or equity-linked securitiesunits vested, net of shares withheld 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 faithtaxes if elected by the 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 atresulting weighted-average grant date fair value and stock-based compensation expense were as follows:
| (Stock-based compensation data in thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Dividend yield | N/A | N/A | N/A | 0 | % | ||||||||||||||||||
| Expected volatility | N/A | 65% - 70% | N/A | 60% - 70% | |||||||||||||||||||
| Expected term (years) | N/A | N/A | N/A | 6.00 - 6.50 | |||||||||||||||||||
| Risk-free interest rate | N/A | 2.81% - 2.95% | N/A | 1.40% - 2.95% | |||||||||||||||||||
| Weighted average grant date fair value | N/A | N/A | N/A | $ | 1.91 | ||||||||||||||||||
| Stock-based compensation — Options | $ | 5 | $ | 999 | $ | 1,553 | $ | 2,913 | |||||||||||||||
| Stock-based compensation — RSUs | $ | 892 | $ | 674 | $ | 2,033 | $ | 2,142 | |||||||||||||||
| Total stock-based compensation | $ | 897 | $ | 1,673 | $ | 3,586 | $ | 5,055 | |||||||||||||||
Thethe grant date, based on the fair value of the award, and is recognized on a straight-line basis over the requisite service period.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| United States | $ | 8,973 | 57 | % | $ | 13,845 | 59 | % | $ | 23,595 | 56 | % | $ | 40,348 | 63 | % | |||||||||||||||||||||||||||||||
| International: | |||||||||||||||||||||||||||||||||||||||||||||||
| Canada | 1,674 | 11 | % | 412 | 2 | % | 2,566 | 6 | % | 1,215 | 2 | % | |||||||||||||||||||||||||||||||||||
| Germany | 149 | 1 | % | 3,287 | 14 | % | 1,797 | 4 | % | 4,704 | 7 | % | |||||||||||||||||||||||||||||||||||
| Netherlands | 1,566 | 10 | % | 516 | 2 | % | 3,216 | 8 | % | 1,068 | 2 | % | |||||||||||||||||||||||||||||||||||
| Other | 3,268 | 21 | % | 5,509 | 23 | % | 10,940 | 26 | % | 16,209 | 26 | % | |||||||||||||||||||||||||||||||||||
| Total International | 6,657 | 43 | % | 9,724 | 41 | % | 18,519 | 44 | % | 23,196 | 37 | % | |||||||||||||||||||||||||||||||||||
| Total revenue | $ | 15,630 | 100 | % | $ | 23,569 | 100 | % | $ | 42,114 | 100 | % | $ | 63,544 | 100 | % | |||||||||||||||||||||||||||||||
| (In thousands) | September 30, 2023 | December 31, 2022 | |||||||||
| Accounts receivable | $ | 1,045 | $ | 3,358 | |||||||
| Accounts payable | $ | 376 | $ | 404 | |||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Revenues | $ | — | $ | 2,192 | $ | 1,084 | $ | 4,233 | |||||||||||||||
| Cost of revenues | $ | 1,142 | $ | 1,096 | $ | 3,508 | $ | 3,135 | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Operating lease cost | $ | 120 | $ | 121 | $ | 362 | $ | 363 | |||||||||||||||
| Short-term lease cost* | — | 6 | (16) | 42 | |||||||||||||||||||
| Variable lease cost | 13 | 12 | 38 | 36 | |||||||||||||||||||
| Total lease cost | $ | 133 | $ | 139 | $ | 384 | $ | 441 | |||||||||||||||
* Short term lease cost includes a refund received by the Company during the nine months ended September 30, 2023, for office space it previously occupied. | |||||||||||||||||||||||
| (In thousands) | |||||
| Three remaining months of 2023 | $ | 106 | |||
| 2024 | 557 | ||||
| 2025 | 571 | ||||
| 2026 | 585 | ||||
| 2027 | 600 | ||||
| Thereafter | 3,346 | ||||
| Total lease payments | $ | 5,765 | |||
| Less: imputed interest | (1,061) | ||||
| Present value of total lease liabilities | $ | 4,704 | |||
The following table presents information aboutCompany’s operating lease were $0.3 million.
| Description | Level | March 31, 2020 | December 31, 2019 | |||||||
| Assets: | ||||||||||
| Marketable securities held in Trust Account | 1 | $ | 150,202,852 | $ | 149,719,910 | |||||
pay $0.5 million and $0.8 million during the three months ending December 31, 2023, and year ending December 31, 2024, respectively.
14 - INCOME TAXES
ultra-high definition. Through new and long-standing international partnerships, we have localized a large portion of our video library from English to ten different languages. the periods indicated. Contents ItemITEM 2. Management’sMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our results of operations and financial condition. The following discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of OperationsReferences in this report (the “Quarterly Report”)Operations” to “we,” “us” or“us,” “our,” and “the Company” are intended to mean the “Company” refer to Software Acquisition Groupbusiness and operations of CuriosityStream 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 of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.Special Note Regarding Forward-Looking StatementsCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Quarterly Report includeson Form 10-Q contains certain statements that are, or may deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding the Company’s plans, expectations, thoughts, beliefs, estimates, goals and outlook for the future that are not historical facts and involve risks and uncertainties that could cause actual resultsintended to differ materially from those expected and projected. be covered by the protections provided under the Private Securities Litigation Reform Act of 1995.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, 2022, filed with the U.S. SecuritiesSEC on March 31, 2023, and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention orother subsequent periodic reports and future periodic reports. 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.OVERVIEWCreated by John Hendricks, founder of the Discovery Channel and former Chairman of Discovery Communications, CuriosityStream is a media and entertainment company that offers premium video and audio 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 seek to meet demand for high-quality factual entertainment via subscription video on-demand (“SVOD”) platforms, as well as via bundled content licenses for SVOD and linear offerings, content licensing, brand sponsorship and advertising, talks and courses and partner bulk sales.The main sources of our revenue are (a) subscriber and license fees earned from our Direct Business (“Direct Business”), (b) license fees from content licensing arrangements (“Content Licensing”), (c) bundled license fees from distribution affiliates (“Bundled Distribution”), (d) subscriber fees from our Enterprise business (“Enterprise”), and (e) Other revenue, including advertising and sponsorships (“Other”).We operate our business as a resultsingle 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 five products and services: Direct Business, Bundled Distribution, Content Licensing, Enterprise and Other.21The following table is a summary of our revenues for the three and nine months ended September 30, 2023, and 2022:Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2023 2022 2023 2022 Direct Business $ 8,574 55 % $ 8,589 36 % $ 25,466 60 % $ 25,476 40 % Content Licensing 5,082 33 % 10,790 46 % 10,715 25 % 21,692 34 % Bundled Distribution 1,504 10 % 2,595 11 % 4,487 12 % 10,250 16 % Enterprise 34 0 % 1,418 6 % 115 0 % 4,143 7 % Other 436 3 % 177 1 % 1,331 3 % 1,983 3 % Revenues $ 15,630 $ 23,569 $ 42,114 $ 63,544 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 approximately 10,000 short-, mid- and long-form video and audio titles, including One Day University and Learn 25 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 5,000 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.OverviewOur Direct Business revenue is derived from consumers subscribing directly through our owned and operated website (“O&O Service”), App Services, and Partner Direct relationships. Our O&O Direct-to-Consumer service is available in more than 175 countries to any household with a broadband connection. As of March 27, 2023, we increased our standard pricing for new subscribers to this service to $4.99 per month or $39.99 per year. We are currently in the process of raising the prices for our legacy subscribers, who had previously paid $2.99 per month or $19.99 per year. We also provide a blank check company formed underSmart Bundle service for $9.99 per month or $69.99 per year. Our Smart Bundle membership includes everything in our standard service, plus subscriptions to third-party platforms Tastemade, Topic, SommTV, DaVinci Kids, our equity investee Watch Nebula, LLC (“Nebula”), and our One Day University stand-alone service.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, major smart TV brands (e.g., LG, Vizio, Samsung) and gaming consoles. The multichannel video programming distributors (“MVPDs”), virtual MVPDs (“vMVPDs”) 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 lawspartners’ 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.With our Content Licensing business, we license to certain media companies a collection of our existing titles in a traditional content licensing 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 content licensing revenue.In addition to our Direct Business described above, our Bundled Distribution business includes affiliate relationships with our Bundled MVPD Partners and vMVPDs, which are broadband and wireless companies in the U.S. and international territories to whom we can offer a broad 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.Our Enterprise business is comprised primarily of providing 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.” Revenues from our Enterprise business are included within Subscriptions: O&O Services in Note 5 - Revenue in the Notes to Unaudited Consolidated Financial Statements.22Other revenue is primarily comprised of advertising and sponsorship revenue. We offer companies the opportunity 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 on our linear programming channels or in front of the Statepaywall, and digital display ads.Companies in the media industry commonly utilize trade and barter agreements in the normal course of Delaware on May 9, 2019business to reduce cash outlays for new content assets or other expenditures by exchanging existing content assets, advertising and other services. In the second quarter of 2023, we began entering into trade and barter transactions primarily for the purpose of effecting a merger, capital stockexchanging content assets through licensing agreements with media counterparties. Certain transactions may also include the exchange asset acquisition, stock purchase, reorganizationof advertising, whereby we exchange media campaigns or other similar Business Combinationpromotional services.In the future, we hope to continue developing integrated digital brand partnerships with one or more businesses.advertisers. These sponsorship campaigns offer companies the chance to be associated with CuriosityStream content in the forms described above. We believe the impressions accumulated in these multi-faceted campaigns would roll up to verifiable metrics for the clients.KEY FACTORS AFFECTING RESULTS OF OPERATIONSOur 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, increase our prices, 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 last fiscal quarter and are expected to continue to have not selected any specific Business Combination target andsuch significant effects:RevenuesSince the Company was founded in 2015, we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any Business Combination target. We intend to effectuate our Business Combination using cash fromgenerated the proceeds of the Initial Public Offering and the sale of the Private Warrants, our capital stock, debt or a combination of cash, stock and debt.The issuance of additional sharesmajority of our stock in a Business Combination:●may significantly dilute the equity interest of investors, which dilution would increase if the anti-dilution provisions in the Class B common stock resulted in the issuance of Class A shares on a greater than one-to-one basis upon conversion of the Class B common stock;●may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock;●could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors●may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and●may adversely affect prevailing market prices for our Class A common stock and/or warrants.Similarly, if we issue debt securities or otherwise incur significant indebtedness, it could result in:●default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations;●acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;●our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;●our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;●our inability to pay dividends on our common stock;●using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes;●limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;●increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;●limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy; and●other purposes and other disadvantages compared to our competitors who have less debt.We are incurring significant costs in the pursuit ofrevenues from consumers directly accessing our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful. Results of OperationsWe 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 incomecontent in the form of interest incomemonthly or annual subscription plans. We are currently in the process of raising the prices for our legacy subscribers, who had previously paid $2.99 per month or $19.99 per year. As of March 27, 2023, we increased our standard pricing for new subscribers to this service to $4.99 per month or $39.99 per year. We also provide a Smart Bundle service for $9.99 per month or $69.99 per year. Currently, our Smart Bundle pricing and pricing for most legacy subscribers remain unchanged. However, we may in the future increase the price of these existing subscription plans, which may have a positive effect on marketable securities held afterour revenue from this line of our business.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. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee, and 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 CostsOur 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 acquiring content through licenses. Cost of revenues encompasses content amortization, distribution fees, revenue sharing arrangements, hosting and streaming delivery costs, payment processing costs, commission costs, and subtitling and broadcast costs.The Company’s primary 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.23Further, our advertising and marketing expenditures and personnel costs constitute primary operating costs for our business. These costs may fluctuate based on advertising and marketing objectives and personnel needs. In general, we intend to focus marketing dollars on efficient customer acquisition. With respect to personnel costs, 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 OPERATIONSThree Months Ended September 30, 2023The financial reporting, accountingdata in the following table sets forth selected financial information derived from our unaudited consolidated financial statements for three months ended September 30, 2023, and auditing compliance),2022, and includes our results of operations as wella percentage of revenue or as a percentage of costs, as applicable, for due diligence expenses.Three Months Ended September 30, $ Change % Change* (Unaudited and in thousands) 2023 2022 Revenues Subscriptions $ 7,431 47 % $ 8,850 38 % $ (1,419) (16 %) License fee 7,763 50 % 14,542 61 % (6,779) (47 %) Other 436 3 % 177 1 % 259 146 % Total revenue $ 15,630 100 % $ 23,569 100 % $ (7,939) (34 %) Operating expenses Cost of revenues 8,494 21 % 13,566 49 % (5,072) (37 %) Advertising and marketing 5,106 13 % 5,626 20 % (520) (9 %) General and administrative 6,959 18 % 8,757 31 % (1,798) (21 %) Impairment of content assets 18,970 48 % — — % 18,970 100 % Total operating expenses $ 39,529 100 % $ 27,949 100 % $ 11,580 41 % Operating loss (23,899) (4,380) (19,519) 446 % Other income (expense) Change in fair value of warrant liability 74 514 (440) n/m Interest and other income (expense) 31 (478) 509 n/m Equity method investment loss (2,638) (94) (2,544) 2706 % Loss before income taxes $ (26,432) $ (4,438) $ (21,994) 496 % Provision for income taxes 133 64 69 n/m Net loss $ (26,565) $ (4,502) $ (22,063) 490 % * n/m = percentage not meaningful RevenueFor the three months ended March 31, 2020, we had net incomeSeptember 30, 2023, and 2022, total revenue was $15.6 million and $23.6 million, respectively. This decrease of $193,091,$7.9 million, or 34%, was primarily attributable to reductions in both License fees and Subscriptions.The decrease in License fees of $6.8 million was primarily driven by the non-renewal of certain content presale licensing arrangements and Bundled Distribution agreements, partially offset by an increase of from new trade and barter license agreements. The decrease in Subscriptions of $1.4 million was primarily due to the termination of certain corporate subscriptions related to bulk agreements, which consists of interest income on marketable securities heldtermination occurred in the Trust Accountthird quarter of $482,942, offset by operating costs2022.24Table of $238,523 and a provision for income taxes of $51,328.Liquidity and Capital ResourcesOn 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.Operating ExpensesFor the three months ended March 31, 2020,September 30, 2023, operating expenses were $39.5 million compared to $27.9 million for the same period in 2022, an increase of $11.6 million, or 41%.Cost of Revenues. For the three months ended September 30, 2023, cost of revenues decreased to $8.5 million from $13.6 million in the same period of 2022. This reduction of $5.1 million, or 37%, primarily resulted from the decrease in content amortization and a decrease in revenue share expense related to bundled and premier tier arrangements with other streaming services.Advertising and Marketing. For the three months ended September 30, 2023, advertising and marketing expenses decreased to $5.1 million from $5.6 million for the same period in 2022. This decrease of $0.5 million, or 9%, was primarily due to strategic changes in our marketing approach and cost-saving measures implemented in our advertising campaigns.General and Administrative.For the three months ended September 30, 2023, general and administrative expenses decreased by $1.8 million, or 21%, from $8.8 million for the same period in 2022 to $7.0 million. The decrease was primarily due to cost controls and efficiency measures implemented across our administrative functions.Impairment of Content Assets. For the three months ended September 30, 2023, we incurred an impairment charge of $19.0 million related to our content assets. In comparison, no such impairments were incurred for the same period in 2022. For a more detailed discussion of the impairment charge and the underlying factors contributing to the impairment, refer to Note 4 - Content Assets in the Notes to Unaudited Consolidated Financial Statements.Operating LossFor the three months ended September 30, 2023, operating loss was $23.9 million, an increase in loss of $19.5 million compared to the operating loss of $4.4 million for the same period in 2022.This increase was almost entirely attributable to the $19.0 million content assets impairment.Other Income (Expense)Change in Fair Value of Warrant Liability. For the three months ended September 30, 2023, the change in the fair value of warrant liability related to Private Placement Warrants resulted in income of $0.1 million, a decrease of $0.4 million from the income of $0.5 million in the same period in 2022. The change primarily stemmed from fluctuations in the market price of our common stock and the corresponding changes to the underlying assumptions used in the valuation model used for our Private Placement Warrants during the same period in 2022.Interest and Other Income (Expense). Interest and other income (expense) for the three months ended September 30, 2023, was $0.1 million income compared to $0.5 million expense for the same period in 2022. The decrease was primarily related to a decrease in interest income during the current year period.Equity Method Investment Loss.For the three months ended September 30, 2023, the Company recorded a loss of $2.6 million compared to a loss of $0.1 million for the same period in 2022, related to its investments in Spiegel Venture and Nebula. The increase was primarily due to the $2.3 million impairment charge recorded by the Company to its investment in Nebula during the third quarter of 2023.Income TaxesOur provision for income taxes was $0.1 million for the three months ended September 30, 2023, compared to $0.1 million for the same period in 2022. The Company’s provision for income taxes is primarily related to foreign withholding income taxes and 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.25Net LossThe net loss for the three months ended September 30, 2023, was $26.6 million, compared to $4.5 million for the same period in 2022. The increase in our net loss of $22.1 million primarily resulted from an impairment charge of $19.0 million, the reduction in revenue of $7.9 million, or 34%, and an impairment charge to one of our equity method investments of $2.3 million, partially offset by decreases in cost of revenues of $5.1 million and general and administrative expense of $1.8 million.Nine Months Ended September 30, 2023The financial data in the following table sets forth selected financial information derived from our unaudited consolidated financial statements for nine months ended September 30, 2023, and 2022, and includes our results of operations as a percentage of revenue or as a percentage of costs, as applicable, for the periods indicated.Nine Months Ended September 30, 2023 $ Change % Change* (Unaudited and in thousands) 2023 2022 Revenues Subscriptions $ 22,220 53 % $ 26,128 41 % $ (3,908) (15 %) License fee 18,563 44 % 35,433 56 % (10,094) (28 %) Other 1,331 3 % 1,983 3 % (911) (46 %) Total revenue $ 42,114 100 % $ 63,544 100 % $ (21,430) (34 %) Operating expenses Cost of revenues 27,428 34 % 38,404 37 % (10,976) (29 %) Advertising and marketing 12,424 15 % 31,602 31 % (19,178) (61 %) General and administrative 22,998 28 % 29,863 29 % (6,865) (23 %) Impairment of content assets 18,970 23 % — — % 18,970 100 % Impairment of goodwill and intangible assets — — 3,603 3 % (3,603) (100 %) Total operating expenses $ 81,820 100 % $ 103,472 100 % $ (21,652) (21 %) Operating loss (39,706) (39,928) 222 (1 %) Other income (expense) Change in fair value of warrant liability 184 4,852 (4,668) (96 %) Interest and other income (expense) 856 (564) 1,420 n/m Equity method investment loss (5,092) (566) (4,526) (420 %) Loss before income taxes $ (43,758) $ (36,206) $ (7,552) 21 % Provision for income taxes 479 165 314 n/m Net loss $ (44,237) $ (36,371) $ (7,866) 22 % RevenueFor the nine months ended September 30, 2023, and 2022, total revenue was $42.1 million and $63.5 million, respectively. This decrease of $21.4 million, or 34%, was primarily attributable to reductions in both license fees and subscriptions.The decrease in license fees of $10.1 million was primarily driven by the non-renewal of certain content licensing arrangements as well as the non-renewal of certain Bundled Distribution agreements, partially offset by an increase in new trade and barter license agreements. The decrease in Subscriptions revenue of $3.9 million was primarily due to the termination of certain corporate subscriptions related to bulk agreements, which occurred in the third quarter of 2022.26Operating ExpensesFor the nine months ended September 30, 2023, total operating expenses were $81.8 million, compared to $103.5 million for the same period in 2022, marking a reduction of $21.7 million, or 21%.Cost of Revenues. For the nine months ended September 30, 2023, cost of revenues decreased to $27.4 million from $38.4 million in the same period of 2022. This reduction of $11.0 million, or 29%, primarily resulted from the decrease in content amortization and a decrease in revenue share expense related to bundled and premier tier arrangements with other streaming services.Advertising and Marketing. For the nine months ended September 30, 2023, advertising and marketing decreased to $12.4 million from $31.6 million for the same period in 2022. This decrease of $19.2 million, or 21%, was primarily due to strategic changes in our marketing approach and cost-saving measures implemented in our advertising campaigns.General and Administrative. For the nine months ended September 30, 2023, general and administrative decreased to $23.0 million, from $29.9 million for same period in 2022. The decrease of $6.9 million, or 21%, was primarily due to cost controls and efficiency measures implemented across our administrative functions.Impairment of Content Assets. For the nine months ended September 30, 2023, We incurred an impairment charge of $19.0 million relating to our content assets. In contrast, no such impairments were identified for the for same period in 2022. For a more detailed discussion of the impairment charge and the underlying factors contributing to the impairment, refer to Note 4 - Content Assets in the Notes to Unaudited Consolidated Financial Statements.Impairment of Goodwill and Intangible Assets. For the nine months ended September 30, 2023, we incurred no impairment charges in contrast to the $3.6 million incurred for the same period in 2022.Operating LossFor the nine months ended September 30, 2023, operating loss was $39.7 million, a decrease of $0.2 million, or 1%, compared to the operating loss of $39.9 million for the same period in 2022. The declines in cost of revenues, advertising and marketing, and general and administrative expenses were almost entirely offset by the content impairment charge and the decline in revenue.Change in Fair Value of Warrant Liability. For the nine months ended September 30, 2023, the Company recognized a gain of $0.2 million, compared to a gain of $4.9 million for the same period in 2022. This reduction in gain of $4.7 million, or 96%, primarily resulted from fluctuations in the market price of our common stock and the corresponding changes to the underlying assumptions used in the valuation model for our Private Placement Warrants.Interest and Other Income (Expense).For the nine months ended September 30, 2023, Interest and other income (expense) amounted to $0.9 million an increase of $1.4 million compared to an expense of $0.6 million for the same period in 2022. The change was primarily due to increased interest income.Equity Method Investment Loss.For the nine months ended September 30, 2023, the Company recorded a loss of $5.0 million compared to a loss of $0.6 million for the same period in 2022, related to its investments in Spiegel Venture and Nebula. The increase was primarily due to the $2.3 million impairment charge recorded by the Company to its investment in Nebula during the third quarter of 2023.Income TaxesOur provision for income taxes was $0.5 and $0.2 million for the nine months ended September 30, 2023, and 2022, respectively. The Company’s provision for income taxes is primarily related to foreign withholding income taxes and differs from the federal statutory rate primarily because the Company has taken a full valuation allowance and has not recognized a benefit for either federal or state income tax purposes.27Net LossNet loss for the nine months ended September 30, 2023, was $44.2 million, compared to a net loss of $36.4 million for the same period in 2022. The increase in our net loss of $7.9 million, or 22%, was primarily due to a decrease in revenue of $21.4 million, the $19.0 million impairment charge to our content assets, a reduction in gain from the change in the fair value of warrant liability of $4.7 million and an increase in equity method investment loss of $4.5 million, partially offset by decreases in advertising and marketing of $19.2 million, cost of revenues of $11.0 million and general and administrative expenses of $6.9 million.LIQUIDITY AND CAPITAL RESOURCESLiquidityAs of September 30, 2023, the Company’s cash and cash equivalents, including restricted cash, totaled $40.8 million. For the nine months ended September 30, 2023, the Company incurred a net loss of $44.2 million and used $13.6 million of net cash in operating activities and $0.1 million of net cash in financing activities, while investing activities provided $14.0 million of net cash.As previously discussed, we began entering into trade and barter transactions in the second quarter of 2023 primarily for the purpose of exchanging content assets through licensing agreements with media counterparties. Our use of these transactions has enabled us to acquire quality content that we can monetize through various distribution channels while preserving our liquidity.We believe that our current cash levels, including investments in money market funds that are readily convertible to cash, will be adequate to support our ongoing operations, capital expenditures and working capital for at least the next twelve months. We believe that we have access to additional funds in the short term and the long term, if needed, through the capital markets to obtain further financing.We use cash principally to acquire content, promote our service through advertising and marketing, and provide for working capital to operate our business. We have experienced significant net losses since our inception, and, given the significant operating and capital expenditures associated with our business plan, we anticipate that we will continue to incur net losses.Cash Flow AnalysisThe following table presents our cash flows from operating, investing and financing activities for the nine months ended September 30, 2023, and 2022:Nine Months Ended
September 30,(Unaudited and in thousands) 2023 2022 Net cash used in operating activities $ (13,630) $ (30,744) Net cash provided by investing activities 14,003 60,701 Net cash used in financing activities (76) (178) Net increase in cash, cash equivalents and restricted cash $ 297 $ 29,779 Cash Flows from Operating ActivitiesCash flows from operating activities primarily consist of net losses, changes to our content assets (including additions and amortization), and other working capital items.For the nine months ended September 30, 2023, and 2022, we recorded a net cash outflow from operating activities of $13.6 million and $30.7 million, respectively, or a decline in outflow of $17.1 million, or 56%.For the nine months ended September 30, 2023, our use of cash was primarily due to our $44.2 million net loss, additions to content assets and change in content liabilities of $14.1 million and $2.7 million, respectively, as well as changes in accrued expenses and other liabilities, and deferred revenue of $3.9 million and $1.2 million, respectively. This was partially offset by noncash items such as amortization of content assets, stock-based compensation and equity method investment loss of $17.7 million, $3.6 million and $5.1 million, respectively. Additionally, changes in accounts receivable and other assets were $4.0 million and $1.7 million, respectively.28Of the $14.1 million in additions to content assets for the nine months ended September 30, 2023, $7.1 million was attributable to non-cash trade and barter arrangements.For the nine months ended September 30, 2022, our use of cash was primarily due to our $36.4 million net loss, additions to content assets and change in content liabilities of $31.7 million and $4.7 million, respectively, as well as changes in accrued expenses and other liabilities, and deferred revenue of $4.8 million and $4.5 million, respectively. This was partially offset by noncash items such as amortization of content assets and stock-based compensation of $29.5 million and $5.1 million, respectively. Additionally, changes in accounts receivable, other assets and accounts payable were $6.3 million, $5.0 million and $4.2 million, respectively.Cash Flows from Investing ActivitiesCash flow from investing activities consists of purchases, sales and maturities of investments, business acquisitions and equity investments and purchases of property and equipment.For the nine months ended September 30, 2023, and 2022, we recorded net cash inflows from investing activities of $14.0 million and $60.7 million, respectively, or a decrease of cash inflow of $46.7 million, or 77%.For the nine months ended September 30, 2023, our cash inflow was primarily due to maturities of investments in debt securities of $15.0 million. For the nine months ended September 30, 2022, our cash inflow was primarily due to the sale and maturities of investments in debt securities of $64.8 million, partially offset by investments in Nebula of $2.4 million.Cash Flows from Financing ActivitiesFor the nine months ended September 30, 2023, and 2022, we recorded net cash outflow from financing activities of $0.1 million and $0.2 million, respectively, attributable to payments of withholding taxes during each period.Capital ExpendituresGoing forward, we expect to continue making expenditures for additions to our content assets and purchases of property and equipment, although at a slower rate than in previous periods. 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 ARRANGEMENTSAs of September 30, 2023, we had no off-balance sheet arrangements.CRITICAL ACCOUNTING POLICIES AND ESTIMATESOur 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 Quarterly Report on Form 10-Q and related disclosures 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 need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future.29Content AssetsThe Company acquires, licenses and produces content, including original programming, in order to offer customers unlimited viewing of factual entertainment content. The content license terms consist of a fixed fee for specific windows of availability. Cash payments for content are reported within additions to content assets and changes in related liabilities within “Net cash used in operating activities was $289,812. Net income of $193,091 was offset by interest earned on marketable securities heldactivities” in the Trust Accountunaudited consolidated statements of $482,942. Changescash flows. Content acquired or licensed through trade and barter transactions is also reported within additions to content assets.The Company recognizes its content assets as “Content assets, net” in operatingthe unaudited consolidated balance sheets. For licensed content, 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.Amortization of content assets is reported within “Cost of revenues” in the unaudited consolidated statements of operations. Based on factors including historical and estimated viewing patterns, the Company previously amortized the content assets on a straight-line basis over the shorter of each title’s contractual window of availability or estimated period of use, beginning at the time a title is published on the Company’s platform. Starting July 1, 2021, the Company began amortizing content assets on an accelerated basis in the initial two months after a title is published, as the Company has observed and expects more upfront viewing of content, generally as a result of additional marketing efforts.Furthermore, the amortization of produced content is more accelerated than that of licensed content. The Company reviews 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 content licensing.The Company’s business model is generally subscription-based as opposed to a model based on generating revenues at a specific title level. Content assets 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 are written off for content assets that have been or are expected to be abandoned.Revenue RecognitionThe 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 liabilities(3) licenses of specific program titles. In contracts containing the right to access the Company SVOD platform, the performance obligation is satisfied as access to the SVOD platform is provided $39post 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 cashspecific program titles, the performance obligation is satisfied as that content is made available for the customer to use.SubscriptionsO&O Service.The Company generates revenue from operating activities.As of March 31, 2020, we had marketable securities held inmonthly subscription fees from its O&O Service. CuriosityStream subscribers enter into month-to-month or annual subscriptions with 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. treasuryCompany. The Company bills with a maturity of 180 days or less). Interest incomethe monthly subscriber on each subscriber’s monthly anniversary date and recognizes the balance inrevenue ratably over each monthly membership period. The annual subscription fees are collected by the Trust Account may be used by us to pay taxes. Through March 31, 2020, we have not withdrawn any interest earned onCompany at the Trust Account. We intend to use substantially allstart of the funds held inannual subscription period and are recognized ratably over 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 operationssubsequent twelve-month period. Revenues are presented net of the target business or businesses, make other acquisitionstaxes that are collected from subscribers and pursueremitted to governmental authorities.The Company also provides a Smart Bundle membership that includes access to our growth strategies.As of March 31, 2020, we had $803,596 of cash held outsidestandard service, as well as subscriptions to certain third-party platforms. The Company recognizes the gross subscription revenues when earned and simultaneously recognizes the corresponding fees for the third-party platforms as an expense. The Company is the principal in these relationships as it has control over providing the customer with access to the third-party platforms and the determination of the Trust Account. We intend30App Services. The Company also earns subscription revenues through its App Services. These subscriptions are similar 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,O&O Service subscriptions, but are not obligated to, loan us fundsgenerated based on agreements with certain streaming media players as may be required. If we complete a Business Combination, we would repay such loaned amounts. Inwell as with Smart TV brands and gaming consoles. Under these agreements, the event that a Business Combination does not close, we may use a portion ofstreaming media player typically bills the working capital held outsidesubscriber directly and then remits 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 identicalcollected subscriptions to the Private Placement Warrants, atCompany, net of a price of $1.00 per warrant atdistribution fee. The Company recognizes the option ofgross subscription revenues when earned and simultaneously recognizes the lender.We do not believe we will needcorresponding distribution fees as an expense. The Company is the principal in these relationships as the Company retains control over service delivery to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifyingits subscribers. Content Licensing.The Company has distribution agreements which grant a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.Off-Balance Sheet ArrangementsWe did not have any off-balance sheet arrangements as of March 31, 2020.Contractual ObligationsWe 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 supportlicensee limited distribution rights to the Company. We began incurring these fees on November 19, 2019Company’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.Partner Direct and will continueBundled Distribution.The Company generates license fee revenues from MVPDs such as Comcast and Cox as well as from vMVPDs such as Amazon and Sling TV (MVPDs and vMVPDs are also referred to incur these fees monthly until the earlier of the completion of the Business Combination and the Company’s liquidation.The underwriters are entitled to 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 we complete a Business Combination, subject toas affiliates). Under the terms of the underwriting agreement.
Trade and Barter Transactions. In the second quarter of 2023, the Company began entering into trade and barter transactions primarily for the purpose of exchanging content assets through licensing agreements with media counterparties, while certain transactions may also include the exchange of advertising, whereby the Company and its counterparty exchange media campaigns or other promotional services. The Company reviews each transaction to confirm that the content assets, advertising or other services it receives have economic substance, and records revenue in an amount equal to the fair value of what it receives and at the time that it completes its performance obligation. For advertising, the performance obligation is satisfied upon the Company’s delivery of the media campaign or other service to the counterparty. For an exchange of content, the performance obligation is satisfied at the time the content is made available for the counterparty to use, which represents the point in time that control is transferred.
Critical
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted
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 redemptionInterim Consolidated Financial Statements 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.
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.
ItemITEM 4. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresDisclosureCONTROLS AND PROCEDURESDISCLOSURE CONTROLS AND PROCEDURESWe 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 submit under the Securities Exchange Act reports isof 1934, as amended (the “Exchange Act”) are 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 September 30, 2023. Based on this evaluation,these evaluations, our principal executive officerCEO and principal financial and accounting officer haveCFO concluded that during the period covered by this report, our disclosure controls and procedures were effective to ensure that the informationas of September 30, 2023.31CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTINGOur management is required to be disclosed by usevaluate, with the participation of our CEO and our CFO, any changes 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.Changes in Internal Control over Financial ReportingThere was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during theeach fiscal quarter of 2020 covered by this Quarterly Report on Form 10-Q that has materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.32PART II -— OTHER INFORMATION
ItemITEM 1. Legal Proceedings.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.
RISK FACTORSItemITEM 1A. Risk Factors.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, 2023. 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, 2023.
ItemITEM 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.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.None.
DEFAULTS UPON SENIOR SECURITIESItemITEM 3. Defaults Upon Senior Securities.None.
MINE SAFETY DISCLOSURESItemITEM 4. Mine Safety Disclosures.Not Applicable.
EXHIBITS President and Chief Executive Officer Treasurer Principal Financial and Accounting ItemITEM 5. Other Information.None.18None.33ItemITEM 6. ExhibitsThe following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.No.Description of Exhibit31.1*Incorporated By ReferenceExhibit No. Description Form File No. Exhibit Filing Date Filed/Furnished
Herewith31.1 X 31.2 X 32.1* X 32.1**Certification of the Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.101.INS*101. INS**Inline XBRL Instance Document X 101.SCH*101. SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL*101. CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF*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 101.LAB*XBRL Taxonomy Extension Labels Linkbase Document101.PRE*104Cover Page Interactive Data File (as formatted as Inline XBRL Taxonomy Extension Presentation Linkbase Documentand contained in Exhibit 101)X *Filed herewith.**Furnished herewith
*This document is being furnished with this Form 10-Q. This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act, or the Exchange Act.**The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.34PART III. SIGNATURESIn 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.SOFTWARE ACQUISITION GROUP INC.CURIOSITYSTREAM INC. Date: May 15, 2020November 13, 2023By: /s/ Jonathan S. Huberman Clint StinchcombName: Jonathan S. HubermanClint StinchcombTitle:
(Principal Executive Officer)Date: November 13, 2023 By: /s/ Peter Westley Name: Peter Westley Title: Chief Financial Officer and Chairman of the Board of Directors
(Principal Executive Officer andOfficer)2035