UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended SeptemberJune 30, 20202021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-39139
CuriosityStream Inc.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 84-1797523 | |
(State or other jurisdiction of
| (I.R.S. Employer Identification No.) |
8484 Georgia Ave., Suite 700
Silver Spring, Maryland 20910
(Address of principal executive offices)
(301) 755-2050
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| CURI | NASDAQ | |||
| Warrants, each exercisable for one share of | CURIW | NASDAQ |
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☒ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒☐ No ☐☒
As of November 12, 2020,August 10, 2021, there were 38,673,14352,594,879 shares of Class A common stockCommon Stock of the registrant issued and outstanding.
CURIOSITYSTREAM INC.
(successor to Software Acquisition Group Inc.)
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 2020 2021
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
CuriosityStream Inc.
Consolidated Balance Sheets
(in thousands, except par value)
(successor to Software Acquisition Group Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 7,069 | $ | 11,203 | ||||
| Restricted cash | 6,681 | 6,181 | ||||||
| Short-term investments | 92,487 | 22,171 | ||||||
| Accounts receivable | 10,811 | 7,222 | ||||||
| Other current assets | 3,830 | 4,467 | ||||||
| Total current assets | 120,878 | 51,244 | ||||||
| Investments | 55,716 | 2,825 | ||||||
| Property and equipment, net | 1,298 | 1,346 | ||||||
| Content assets, net | 49,136 | 32,926 | ||||||
| Intangibles, net | 1,253 | - | ||||||
| Goodwill | 2,565 | - | ||||||
| Other assets | 310 | 254 | ||||||
| Total assets | $ | 231,156 | $ | 88,595 | ||||
| Liabilities and stockholders’ equity (deficit) | ||||||||
| Current liabilities | ||||||||
| Current content liabilities | $ | 6,581 | $ | 2,116 | ||||
| Accounts payable | 5,364 | 3,577 | ||||||
| Accrued expenses and other liabilities | 4,627 | 3,313 | ||||||
| Deferred revenue | 21,462 | 12,678 | ||||||
| Total current liabilities | 38,034 | 21,684 | ||||||
| Warrant liability | 22,865 | 20,843 | ||||||
| Non-current deferred rent liability | 1,309 | �� | 1,027 | |||||
| Other liabilities | 165 | 67 | ||||||
| Total liabilities | 62,373 | 43,621 | ||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock, $0.0001 par value – 1,000 shares authorized at June 30, 2021 and December 31, 2020; 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020 | - | - | ||||||
| Common stock, $0.0001 par value – 125,000 shares authorized at June 30, 2021 and December 31, 2020; 52,583 shares issued and outstanding at June 30, 2021; 40,289 shares issued and 39,542 shares outstanding as of December 31, 2020 | 5 | 4 | ||||||
| Additional paid-in capital | 349,597 | 197,507 | ||||||
| Accumulated other comprehensive income (loss) | (1,213 | ) | 10 | |||||
| Accumulated deficit | (179,606 | ) | (152,547 | ) | ||||
| Total stockholders’ equity (deficit) | 168,783 | 44,974 | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | 231,156 | $ | 88,595 | ||||
September 30, 2020 | December 31, 2019 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 513,475 | $ | 1,093,408 | ||||
| Prepaid expenses | 66,858 | 128,133 | ||||||
| Total Current Assets | 580,333 | 1,221,541 | ||||||
| Marketable securities held in Trust Account | 150,071,746 | 149,719,910 | ||||||
| Total Assets | $ | 150,652,079 | $ | 150,941,451 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accrued expenses | $ | 239,116 | $ | 179,881 | ||||
| Income taxes payable | 1,952 | 1,952 | ||||||
| Total Current Liabilities | 241,068 | 181,833 | ||||||
| Deferred underwriting fee payable | 5,232,500 | 5,232,500 | ||||||
| Total Liabilities | 5,473,568 | 5,414,333 | ||||||
| Commitments | ||||||||
| Class A common stock subject to possible redemption, 13,971,338 and 14,044,440 shares at redemption value at September 30, 2020 and December 31, 2019, respectively | 140,178,510 | 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; 978,662 and 905,560 issued and outstanding (excluding 13,971,338 and 14,044,440 shares subject to possible redemption) at September 30, 2020 and December 31, 2019, respectively | 98 | 91 | ||||||
| Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 3,737,500 shares issued and outstanding at September 30, 2020 and December 31, 2019 | 374 | 374 | ||||||
| Additional paid-in capital | 5,340,795 | 4,992,200 | ||||||
| (Accumulated deficit)/Retained earnings | (341,266 | ) | 7,341 | |||||
| Total Stockholders’ Equity | 5,000,001 | 5,000,006 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 150,652,079 | $ | 150,941,451 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
CuriosityStream Inc.
Consolidated Statements of Operations
(in thousands, except for per share data)
(unaudited)
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | 15,344 | $ | 12,049 | $ | 25,280 | 19,516 | |||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | 5,722 | 4,671 | 9,880 | 7,337 | ||||||||||||
| Advertising and marketing | 11,520 | 8,304 | 23,769 | 21,009 | ||||||||||||
| General and administrative | 9,153 | 3,437 | 17,885 | 7,621 | ||||||||||||
| 26,395 | 16,412 | 51,534 | 35,967 | |||||||||||||
| Operating loss | (11,051 | ) | (4,363 | ) | (26,254 | ) | (16,451 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Change in fair value of warrant liability | 1,764 | - | (2,022 | ) | - | |||||||||||
| Interest and other income | 1,036 | 86 | 1,296 | 418 | ||||||||||||
| Loss before income taxes | (8,251 | ) | (4,277 | ) | (26,980 | ) | (16,033 | ) | ||||||||
| Provision for income taxes | 53 | 40 | 79 | 77 | ||||||||||||
| Net loss | $ | (8,304 | ) | $ | (4,317 | ) | $ | (27,059 | ) | $ | (16,110 | ) | ||||
| Less preferred dividends and accretion of issuance costs | - | (4,354 | ) | - | (8,591 | ) | ||||||||||
| Net loss attributable to common stockholders | $ | (8,304 | ) | $ | (8,671 | ) | $ | (27,059 | ) | $ | (24,701 | ) | ||||
| Net loss per share attributable to common stockholders | ||||||||||||||||
| Basic | $ | (0.16 | ) | $ | (0.66 | ) | $ | (0.54 | ) | $ | (1.88 | ) | ||||
| Diluted | $ | (0.19 | ) | $ | (0.66 | ) | $ | (0.54 | ) | $ | (1.88 | ) | ||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic | 52,567 | 13,165 | 50,327 | 13,165 | ||||||||||||
| Diluted | 52,968 | 13,165 | 50,327 | 13,165 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CuriosityStream Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net loss | $ | (8,304 | ) | $ | (4,317 | ) | $ | (27,059 | ) | $ | (16,110 | ) | ||||
| Other comprehensive loss | ||||||||||||||||
| Unrealized (loss) gain on available for sale securities | (769 | ) | 320 | (1,223 | ) | (92 | ) | |||||||||
| Total comprehensive loss | $ | (9,073 | ) | $ | (3,997 | ) | $ | (28,282 | ) | $ | (16,202 | ) | ||||
The accompanying notes are an integral part of the unaudited condensedthese consolidated financial statements.
CuriosityStream Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholder’s Equity (Deficit)
(in thousands)
(unaudited)
(successor to Software Acquisition Group Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid-in | Income | Accumulated | Equity | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | (Loss) | Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance as of March 31, 2021 | 52,549 | $ | 5 | - | $ | - | $ | 347,967 | $ | (444 | ) | $ | (171,302 | ) | $ | 176,226 | ||||||||||||||||
| Net loss | - | - | - | - | - | - | (8,304 | ) | (8,304 | ) | ||||||||||||||||||||||
| Stock-based compensation, net | 3 | - | - | - | 1,515 | - | - | 1,515 | ||||||||||||||||||||||||
| Exercise of Options | 31 | - | - | - | 115 | - | - | 115 | ||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (769 | ) | - | (769 | ) | ||||||||||||||||||||||
| Balance as of June 30, 2021 | 52,583 | $ | 5 | - | $ | - | $ | 349,597 | $ | (1,213 | ) | $ | (179,606 | ) | $ | 168,783 | ||||||||||||||||
| Balance at December 31, 2020 | 40,289 | $ | 4 | - | $ | - | $ | 197,507 | $ | 10 | $ | (152,547 | ) | $ | 44,974 | |||||||||||||||||
| Net loss | - | - | - | - | - | - | (27,059 | ) | (27,059 | ) | ||||||||||||||||||||||
| Stock-based compensation, net | 3 | - | - | - | 3,838 | - | - | 3,838 | ||||||||||||||||||||||||
| Issuance of Common Stock | 7,475 | 1 | - | - | 94,100 | - | - | 94,101 | ||||||||||||||||||||||||
| Common Stock issuance costs | - | - | - | - | (707 | ) | - | - | (707 | ) | ||||||||||||||||||||||
| Exercise of Options | 103 | - | - | - | 437 | - | - | 437 | ||||||||||||||||||||||||
| Exercise of Warrants | 4,733 | - | - | - | 54,422 | - | - | 54,422 | ||||||||||||||||||||||||
| Cancellation of escrow shares | (20 | ) | - | - | - | - | - | - | - | |||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | (1,223 | ) | - | (1,223 | ) | ||||||||||||||||||||||
| Balance as of June 30, 2021 | 52,583 | $ | 5 | - | $ | - | $ | 349,597 | $ | (1,213 | ) | $ | (179,606 | ) | $ | 168,783 | ||||||||||||||||
Three Months Ended September 30, | Nine Months | For the | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Formation and operating costs | $ | 494,939 | $ | 801 | $ | 908,274 | $ | 3,012 | ||||||||
| Loss from operations | (494,939 | ) | (801 | ) | (908,274 | ) | (3,012 | ) | ||||||||
| Other income: | ||||||||||||||||
| Interest income | 14,074 | — | 559,667 | — | ||||||||||||
| (Loss) income before benefit from (provision for) income taxes | (480,865 | ) | (801 | ) | (348,607 | ) | (3,012 | ) | ||||||||
| Benefit from (provision for) income taxes | 27,774 | — | — | — | ||||||||||||
| Net (loss) income | $ | (453,091 | ) | $ | (801 | ) | �� | $ | (348,607 | ) | $ | (3,012 | ) | |||
| Weighted average shares outstanding, basic and diluted (1) | 4,671,765 | 3,250,000 | 4,662,207 | 3,250,000 | ||||||||||||
| Basic and diluted net loss per common share (2) | $ | (0.10 | ) | $ | (0.00 | ) | $ | (0.16 | ) | $ | (0.00 | ) | ||||
| Redeemable | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Convertible Series A | Additional | Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Preferred Stock | Paid-in | Income | Accumulated | Equity | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Loss) | Deficit | (Deficit) | |||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 18,383 | $ | 159,411 | 13,165 | $ | 1 | - | $ | - | $ | - | $ | (223 | ) | $ | (107,210 | ) | $ | (107,432 | ) | ||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (4,317 | ) | (4,317 | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | 438 | - | - | 438 | ||||||||||||||||||||||||||||||
| Redeemable convertible preferred stock adjustment to redemption value | - | 4,354 | - | - | - | - | (438 | ) | - | (3,916 | ) | (4,354 | ) | |||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | 320 | - | 320 | ||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 18,383 | $ | 163,765 | 13,165 | $ | 1 | - | $ | - | $ | - | $ | 97 | $ | (115,443 | ) | $ | (115,345 | ) | |||||||||||||||||||||
| Balance at December 31, 2019 | 18,383 | $ | 155,174 | 13,165 | $ | 1 | - | $ | - | $ | - | $ | 189 | $ | (91,506 | ) | $ | (91,316 | ) | |||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | (16,110 | ) | (16,110 | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | 764 | - | - | 764 | ||||||||||||||||||||||||||||||
| Redeemable convertible preferred stock adjustment to redemption value | - | 8,591 | - | - | - | - | (764 | ) | - | (7,827 | ) | (8,591 | ) | |||||||||||||||||||||||||||
| Other comprehensive loss | - | - | - | - | - | - | - | (92 | ) | - | (92 | ) | ||||||||||||||||||||||||||||
| Balance at June 30, 2020 | 18,383 | $ | 163,765 | 13,165 | $ | 1 | - | $ | - | $ | - | $ | 97 | $ | (115,443 | ) | $ | (115,345 | ) | |||||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensedthese consolidated financial statements.
CuriosityStream Inc.
Consolidated Statements of Cash Flows
(successor to Software Acquisition Group Inc.)in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(unaudited)
(UNAUDITED)
| For the six months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (27,059 | ) | $ | (16,110 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Change in fair value of warrant liability | 2,022 | - | ||||||
| Additions to content assets | (22,199 | ) | (10,285 | ) | ||||
| Change in content liabilities | 4,465 | (2,056 | ) | |||||
| Amortization of content assets | 6,989 | 4,697 | ||||||
| Amortization, depreciation and accretion | 569 | 269 | ||||||
| Stock-based compensation | 3,860 | 764 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (3,526 | ) | (4,708 | ) | ||||
| Other assets | 185 | 434 | ||||||
| Accounts payable | 1,773 | (2,967 | ) | |||||
| Accrued expenses and other liabilities | 1,091 | (509 | ) | |||||
| Deferred revenue | 8,474 | 1,955 | ||||||
| Net cash used in operating activities | (23,356 | ) | (28,516 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | (175 | ) | (220 | ) | ||||
| Business acquisition | (4,000 | ) | - | |||||
| Sales of investments | 4,882 | 35,568 | ||||||
| Maturities of investments | 11,980 | 8,500 | ||||||
| Purchases of investments | (141,644 | ) | (12,227 | ) | ||||
| Net cash (used in) provided by investing activities | (128,957 | ) | 31,621 | |||||
| Cash flows from financing activities | ||||||||
| Exercise of stock options | 409 | - | ||||||
| Exercise of warrants | 54,898 | - | ||||||
| Tax withholding required for equity awards | (22 | ) | - | |||||
| Proceeds from issuance of Common Stock | 94,101 | - | ||||||
| Payment of offering costs | (707 | ) | - | |||||
| Borrowings on line of credit | - | 1,000 | ||||||
| Repayments on line of credit | - | (1,000 | ) | |||||
| Net cash provided by financing activities | 148,679 | - | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (3,634 | ) | 3,105 | |||||
| Cash, cash equivalents and restricted cash, beginning of period | 17,384 | 8,819 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 13,750 | $ | 11,924 | ||||
| Supplemental schedule of non-cash financing activities: | ||||||||
| Preferred dividends and accretion of issuance costs | $ | - | $ | 8,591 | ||||
| Supplemental disclosure: | ||||||||
| Interest payments | $ | - | $ | - | ||||
| Cash paid for taxes | $ | 30 | $ | 98 | ||||
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020
Class A Common Stock | Class B Common Stock | Additional Paid in | Retained | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | 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 | |||||||||||||||||||||
| Change in value of Class A common stock subject to possible redemption | 75 | — | — | — | 88,605 | — | 88,605 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (88,607 | ) | (88,607 | ) | |||||||||||||||||||
| Balance – June 30, 2020 | 934,265 | 93 | 3,737,500 | 374 | 4,887,709 | 111,825 | 5,000,001 | |||||||||||||||||||||
| Change in value of Class A common stock subject to possible redemption | 44,397 | 5 | — | — | 453,086 | — | 453,091 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (453,091 | ) | (453,091 | ) | |||||||||||||||||||
| Balance – September 30, 2020 | 978,662 | $ | 98 | 3,737,500 | $ | 374 | $ | 5,340,795 | $ | (341,266 | ) | $ | 5,000,001 | |||||||||||||||
THREE MONTHS ENDED SEPTEMBER 30, 2019 AND
FOR THE PERIOD FROM MAY 9, 2019 (INCEPTION) THROUGH SEPTEMBER 30, 2019
Class B Common Stock | Additional Paid in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance – May 9, 2019 (inception) | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| Issuance of common stock to Sponsor (1) | 3,737,500 | 374 | 24,626 | — | 25,000 | |||||||||||||||
| Net loss | — | — | — | (2,211 | ) | (2,211 | ) | |||||||||||||
| Balance – June 30, 2019 | 3,737,500 | 374 | 24,626 | (2,211 | ) | 22,789 | ||||||||||||||
| Net loss | — | — | — | (801 | ) | (801 | ) | |||||||||||||
| Balance – September 30, 2019 | 3,737,500 | $ | 374 | $ | 24,626 | $ | (3,012 | ) | $ | 21,988 | ||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements
3
(successor to Software Acquisition Group Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months | For the | |||||||
| 2020 | 2019 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (348,607 | ) | $ | (3,012 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Interest earned on marketable securities held in Trust Account | (559,667 | ) | — | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 61,275 | — | ||||||
| Accrued expenses | 59,235 | — | ||||||
| Net cash used in operating activities | (787,764 | ) | (3,012 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Cash withdrawn from Trust Account to pay for franchise taxes | 207,831 | — | ||||||
| Net cash provided by investing activities | 207,831 | — | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from issuance of Class B common stock to Sponsor | — | 25,000 | ||||||
| Proceeds from promissory note – related party | — | 125,207 | ||||||
| Payment of offering costs | — | (122,196 | ) | |||||
| Net cash provided by financing activities | — | 28,011 | ||||||
| Net Change in Cash | (579,933 | ) | 24,999 | |||||
| Cash – Beginning | 1,093,408 | — | ||||||
| Cash – Ending | $ | 513,475 | $ | 24,999 | ||||
| Non-cash investing and financing activities: | ||||||||
| Change in value of common stock subject to possible redemption | $ | (348,602 | ) | $ | — | |||
The accompanying notes are an integral part of the unaudited condensedthese consolidated financial statements.
4
(successor to Software Acquisition Group Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
CuriosityStream Inc., formerly known as Software Acquisition Group Inc. (the “Company”), was a blank check company incorporated
Notes to the Unaudited Consolidated Financial Statements
(in Delaware on May 9, 2019. The Company was formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similarthousands, except share and per share data)
Note 1 — Organization and business combination with one or more businesses.
Business Combination
On October 14, 2020 (the “Closing Date”), the CompanyCuriosityStream Inc., a Delaware corporation (formerly named Software Acquisition Group Inc. (or “SAQN ”), a publicly traded special purpose acquisition company) consummated the previously announceda merger pursuant to thethat certain Agreement and Plan of Merger (the “Merger Agreement”), dated August 10, 2020, by and among the Company,Software Acquisition Group Inc., CS Merger Sub, Inc., a Delaware corporation and a wholly-ownedwholly owned subsidiary of the CompanySoftware Acquisition Group Inc. (“Merger Sub”), CuriosityStream Operating Inc., a Delaware corporation (formerly named CuriosityStream Inc.) (“Legacy CuriosityStream”), and Hendricks Factual Media LLC, a Delaware limited liability company (“HFM”).
Pursuant to the terms of the Merger Agreement, a business combination between the CompanySoftware Acquisition Group Inc. and Legacy CuriosityStream was effected through the merger of Merger Sub with and into Legacy CuriosityStream, with Legacy CuriosityStream surviving such merger as the surviving company and a wholly-owned subsidiary of the CompanySoftware Acquisition Group Inc. (the “Merger” and collectively with the completionother transactions described in the Merger Agreement, the “Business Combination”). On the Closing Date, Software Acquisition Group Inc. changed its name to CuriosityStream Inc. (the “Company” or “CuriosityStream”) and Legacy CuriosityStream changed its name to CuriosityStream Operating Inc., and has subsequently changed its name to Curiosity Inc.
The principal business of CuriosityStream is to provide customers with access to high quality factual content via a direct subscription video on-demand (SVoD) platform accessible by internet connected devices, or indirectly via distribution partners who deliver CuriosityStream content via the distributor’s platform or system. The online library available for streaming spans the entire category of factual entertainment including science, history, society, nature, lifestyle, and technology. The library is composed of more than three thousand accessible on-demand and ad-free productions and includes shows and series from leading non-fiction producers.
The Company’s content assets are available directly through its owned and operated website (“O&O Service”), mobile applications developed for iOS and Android operating systems (“App Services”), and via the platforms and systems of third-party partners in exchange for license fees. The Company offers subscribers a monthly or annual subscription. The price for a subscription varies depending on the streaming resolution (e.g., HD or 4K) and the length of the subscription (e.g., monthly or annual) selected by the customer. As an additional part of the Company’s App Services, it has built applications to make its service accessible on almost every major customer device, including streaming media players like Roku, Apple TV and Amazon Fire TV, all major smart TV brands (e.g., LG, Vizio, Samsung, Sony) and gaming consoles. In addition, CuriosityStream has affiliate agreement relationships with, and its content assets are available through, major multichannel video programming distributors (“MVPDs”) and virtual MVPDs (“vMVPDs”).
Note 2 — Basis of presentation and summary of significant accounting policies
Basis of presentation
The accompanying unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and are consistent in all material respects with those applied in the Company’s consolidated financial statements as of and for the year ended December 31, 2020.
In the opinion of management, the unaudited consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s financial position, results of operations, and cash flows. The unaudited consolidated financial statements should be read in conjunction with the audited 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, 2020, as amended. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021.
There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s consolidated financial statements as of and for the year ended December 31, 2020.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant areas in which management uses estimates include content asset amortization, the assessment of the recoverability of the content assets, the fair value of assets and liabilities for allocation of the purchase price of companies acquired, and the fair value of common stock, share-based awards, and liability classified warrants.
Concentration of risk
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, investments, and accounts receivable. The Company maintains its cash, cash equivalents, and investments with high credit quality financial institutions; at times, such balances with the financial institutions may exceed the applicable FDIC-insured limits.
Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily located in the United States.
Cash and cash equivalents and restricted cash
The Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents.
At June 30, 2021, restricted cash represents cash deposits required by a bank as collateral related to the Company’s line of credit of $4,500 and corporate credit card agreements of $500. The Company has also reserved funds of $1,181 related to the Paycheck Protection Program (PPP) loan (see Note 5) in an escrow account until the PPP loan is forgiven. In addition, as part of the acquisition of One Day University (see Note 3), a holdback amount of $500 is reserved for indemnification purposes until one year after the acquisition date.
Fair value measurement of financial instruments
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The applicable accounting guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1 — Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| ● | Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification at each reporting period. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The Company’s assets measured at fair value on a recurring basis include its investments in corporate debt securities and government debt securities. Level 1 inputs were derived by using unadjusted quoted prices for identical assets in active markets and were used to value the Company’s investments in government debt securities. Level 2 inputs were derived using prices for similar investments and were used to value the Company’s investments in corporate debt securities.
The Company’s liabilities measured at fair value on a recurring basis include its Private Placement Warrants. The fair value of the Private Placement Warrants is considered a Level 3 valuation and is determined using the Black-Scholes valuation model. Refer to Note 6 for significant assumptions which the Company used in the fair value model for the Private Placement Warrants.
The Company’s remaining financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and borrowings on the line of credit are carried at cost, which approximates fair value because of the short-term maturity of these instruments.
Investments
The Company holds investments in money market funds, government debt securities, and corporate debt securities which the Company classifies as available-for-sale. The investments are therefore carried at fair value based on unadjusted quoted market prices (Level 1) and quoted prices for comparable assets (Level 2), as noted below:
| As of June 30, 2021 | As of December 31, 2020 | |||||||||||||||||||||||||||||||
| Cash and Cash | Short-term | Investments | Cash and Cash | Short-term | Investments | |||||||||||||||||||||||||||
| Equivalents | Investments | (non-current) | Total | Equivalents | Investments | (non-current) | Total | |||||||||||||||||||||||||
| Level 1 Securities | ||||||||||||||||||||||||||||||||
| Money market funds | $ | 4,097 | $ | - | $ | - | $ | 4,097 | $ | 2,165 | $ | - | $ | - | $ | 2,165 | ||||||||||||||||
| Government debt securities | - | 27,722 | 7,999 | 35,721 | 5,999 | 12,892 | - | 18,891 | ||||||||||||||||||||||||
| Total Level 1 Securities | 4,097 | 27,722 | 7,999 | 39,818 | 8,164 | 12,892 | - | 21,056 | ||||||||||||||||||||||||
| Level 2 Securities | ||||||||||||||||||||||||||||||||
| Corporate debt securities | - | 61,916 | 47,717 | 109,633 | - | 8,054 | 2,825 | 10,879 | ||||||||||||||||||||||||
| Municipal debt securities | - | 2,849 | - | 2,849 | - | 1,225 | - | 1,225 | ||||||||||||||||||||||||
| Total Level 2 Securities | - | 64,765 | 47,717 | 112,482 | - | 9,279 | 2,825 | 12,104 | ||||||||||||||||||||||||
| Total | $ | 4,097 | $ | 92,487 | $ | 55,716 | $ | 152,300 | $ | 8,164 | $ | 22,171 | $ | 2,825 | $ | 33,160 | ||||||||||||||||
Unrealized gains and losses are recorded in accumulated other comprehensive income or loss, a component of stockholders’ equity (deficit). Realized gains and losses are reclassified from accumulated other comprehensive income or loss into earnings as a component of net income or loss. Realized gains reported in interest and other income in the accompanying consolidated statements of operations were not significant in the three and six months ended June 30, 2021 and 2020. The Company evaluates unrealized losses on investments, if any, to determine if other-than-temporary impairment is required to be recognized. No such other-than-temporary impairments were recognized during the three and six months ended June 30, 2021 and 2020. Investments in debt securities that will mature within one year of the balance sheet dates are reflected as Short-term investments in the accompanying consolidated balance sheets.
The following tables summarize the Company’s corporate and government debt securities:
| As of June 30, 2021 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| Debt Securities: | ||||||||||||||||
| Corporate | $ | 110,843 | $ | 1 | $ | (1,211 | ) | $ | 109,633 | |||||||
| U.S. Government | 35,723 | 1 | (3 | ) | 35,721 | |||||||||||
| Municipalities | 2,850 | - | (1 | ) | 2,849 | |||||||||||
| Total | $ | 149,416 | $ | 2 | $ | (1,215 | ) | $ | 148,203 | |||||||
The fair value of the Company’s investments in corporate and government debt securities at June 30, 2021 by contractual maturity is as follows:
| June 30, 2021 | ||||||||
| Amortized Cost | Estimated Fair Value | |||||||
| Due in one year or less | $ | 93,160 | $ | 92,487 | ||||
| Due after one year through five years | 56,256 | 55,716 | ||||||
| Due after five years | - | - | ||||||
| Total | $ | 149,416 | $ | 148,203 | ||||
Warrants
As described in Note 6, the Private Placement Warrants are classified as a non-current liability and reported at fair value at each reporting period. The fair value of the Private Placement Warrants as of June 30, 2021 and December 31, 2020 was as follows:
| As of June 30, 2021 | As of December 31, 2020 | |||||||
| Level 3 | ||||||||
| Private Placement Warrants | $ | 22,865 | $ | 20,843 | ||||
| Total Level 3 | $ | 22,865 | $ | 20,843 | ||||
Content assets, net
The Company acquires, licenses and produces content, including original programming, in order to offer members unlimited viewing of factual entertainment content. The content licenses are for a fixed fee and specific windows of availability. Payments for content, including additions to content assets and the changes in related liabilities, are classified within “Net cash used in operating activities” on the consolidated statements of cash flows.
The Company recognizes its content assets (licensed and produced) as “Content assets, net” on the consolidated balance sheets. For licenses, the Company capitalizes the fee per title and records a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known, and the title is accepted and available for streaming. For productions, the Company capitalizes costs associated with the production, including development costs, direct costs and production overhead.
Based on factors including historical and estimated viewing patterns, the Company generally amortizes the content assets (licensed and produced) in “Cost of revenues” on the consolidated statements of operations on a straight-line basis over the shorter of each title’s contractual window of availability or estimated period of use, beginning with the month of first availability. The Company reviews factors impacting the amortization of content assets on an ongoing basis and will record amortization on an accelerated basis when there is more upfront use of a title, for instance due to significant program sales.
The Company’s business model is generally subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content assets will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.
Revenue recognition
The following table sets forth the Company’s revenues disaggregated by type for the three and six months ended June 30, 2021 and 2020, as well as the relative percent of each revenue type to total revenue.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
| Subscriptions – O&O Service | $ | 4,549 | 30 | % | $ | 3,178 | 26 | % | $ | 8,671 | 34 | % | $ | 5,812 | 30 | % | ||||||||||||||||
| Subscriptions – App Services | 1,131 | 7 | % | 889 | 7 | % | 1,886 | 7 | % | 1,706 | 9 | % | ||||||||||||||||||||
| Subscriptions – Total | 5,680 | 37 | % | 4,067 | 33 | % | 10,557 | 41 | % | 7,518 | 39 | % | ||||||||||||||||||||
| License Fees – Affiliates | 4,579 | 30 | % | 4,225 | 35 | % | 9,082 | 36 | % | 8,226 | 42 | % | ||||||||||||||||||||
| License Fees – Program Sales | 5,031 | 33 | % | 3,753 | 32 | % | 5,517 | 23 | % | 3,768 | 19 | % | ||||||||||||||||||||
| License Fees – Total | 9,610 | 63 | % | 7,978 | 67 | % | 14,599 | 59 | % | 11,994 | 61 | % | ||||||||||||||||||||
| Other – Total | 54 | 0 | % | 4 | 0 | % | 124 | 0 | % | 4 | 0 | % | ||||||||||||||||||||
| Total Revenues | $ | 15,344 | $ | 12,049 | $ | 25,280 | $ | 19,516 | ||||||||||||||||||||||||
Subscriptions — O&O Service
The Company generates revenue from monthly subscription fees from its O&O Service. CuriosityStream subscribers enter into month-to-month or annual subscriptions with the Company. The Company bills the monthly subscriber on each subscriber’s monthly anniversary date and recognizes the revenue ratably over each monthly membership period. The annual subscription fees are collected by the Company at the start of the annual subscription period and are recognized ratably over the subsequent twelve-month period. Revenues are presented net of the taxes that are collected from subscribers and remitted to governmental authorities.
The Company also offers gift certificates for use on a future date. The Company recognizes revenue from gift certificates when the services have been provided. The gift certificates do not expire.
Subscription — App Services
The Company also earns subscription revenues through its App Services. These subscriptions are similar to the O&O Service subscriptions, but are generated based on agreements with certain streaming media players as well as with Smart TV brands and gaming consoles (see Note 1). Under these agreements, the streaming media player typically bills the subscriber directly and then remits the collected subscriptions to the Company, net of a distribution fee. The Company recognizes the gross subscription revenues when earned and simultaneously recognizes the corresponding distribution fees as an expense. The Company is the principal in these relationships as the Company retains control over service delivery to its subscribers.
Licensing — Affiliates
The Company generates license fee revenues from MVPDs such as Altice, Comcast and Cox as well as from vMVPDs such as Amazon and Sling TV (MVPDs and vMVPDs are also referred to as affiliates). Under the terms of the agreements with these affiliates, the Company receives license fees based upon contracted programming rates and subscriber levels reported by the affiliates. In exchange, the Company licenses its content to the affiliates for distribution to their subscribers. The Company earns revenue under these agreements either based on the total number of subscribers multiplied by rates specified in the agreements or based on fixed fee arrangements. These revenues are recognized over the term of each agreement when earned.
Licensing — Program Sales
The Company has distribution agreements which grant a licensee limited distribution rights to the Company’s programs for varying terms, generally in exchange for a fixed license fee. Revenue is recognized once the content is made available for the licensee to use.
The Company’s performance obligations include (1) access to its SVoD platform via the Company’s O&O Service and App Services, (2) access to the Company’s content assets, and (3) licenses of specific program titles. In contracts containing the right to access the Company SVoD platform, the performance obligation is satisfied as access to the SVoD platform is provided post any free trial period. In contracts which contain access to the Company’s content assets, the performance obligation is satisfied as access to the content is provided. For contracts with licenses of specific program titles, the performance obligation is satisfied as that content is made available for the customer to use.
Payment terms for access to the Company’s SVoD services require payment in advance on or prior to the date access to the service is provided. Payments for contracts providing access to the Company’s content assets are paid either in advance, over the license term, or on a sales and usage basis. Payments for licenses of specific program titles are paid either upfront or over the license term on a fixed fee basis, or on a sales and usage basis. To date, there has been no financing component associated with the Company’s revenue arrangements and such arrangements do not contain rights of return provisions.
Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at June 30, 2021 are as follows:
| Rest of year ending December 31, | For the twelve months ending December 31, | |||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | ||||||||||||||||||||||
| Remaining Performance Obligations | $ | 10,650 | $ | 8,365 | $ | 1,271 | $ | 108 | $ | 13 | $ | 98 | $ | 20,505 | ||||||||||||||
These amounts include only fixed consideration or minimum guarantees and do not include amounts related to (i) contracts with an original expected term of one year or less or (ii) licenses of content that are solely based on sales or usage-based royalties.
Contract liabilities (i.e., deferred revenue) consists of subscriber and affiliate license fees billed that have not been recognized, amounts contractually billed or collected for program sales in advance of the related content being made available to the customer, and unredeemed gift certificates and other prepaid subscriptions that have not been redeemed. Total deferred revenues were $21,627 and $12,745 at June 30, 2021 and December 31, 2020, respectively. The increase in deferred revenues is primarily due to the growth in annual subscriptions from O&O and App Services, which require upfront annual payments, as well as an increase in the volume of program sales activity.
Revenues of $2,208 and $7,861 were recognized during the three and six months ended June 30, 2021, related to the balance of deferred revenue at December 31, 2020.
Warrant liability
The Company classifies its Private Placement Warrants as liabilities as the terms of these warrants provide for potential changes to the settlement amounts dependent upon the characteristics of the warrant holder and because the holder of a warrant is not an input into the pricing of a fixed-for-fixed option on equity shares, such provision would preclude the warrant from being classified in equity and thus the warrant should be classified as a liability. The Private Placement Warrants are recorded at fair value on the consolidated balance sheets and changes in the fair value of the Company’s Private Placement Warrants in each period are reported in earnings.
Goodwill and intangible assets
Goodwill represents the excess of the cost of acquisitions over the amount assigned to tangible and identifiable intangible assets acquired less liabilities assumed. At least annually, in the fourth quarter of each fiscal year or more frequently if indicators of impairment exist, management performs a review to determine if the carrying value of goodwill is impaired. The identification and measurement of goodwill impairment involves the estimation of fair value at the Company’s reporting unit level.
The Company performs an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of relevant events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if the Company concludes otherwise, an impairment test must be performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including goodwill.
Intangible assets other than goodwill are carried at cost and amortized over their estimated useful lives. The Company reviews identifiable finite-lived intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its ultimate disposition. Measurement of any impairment loss is based on the amount by which the carrying value of the asset exceeds its fair value.
Recently issued financial accounting standards
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current U.S. GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. The new guidance also requires qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for the Company’s fiscal year beginning January 1, 2022, with early adoption permitted, and is required to be implemented using a modified retrospective approach. The Company is currently assessing the impact of the new standard on its consolidated financial statements, but anticipates a material increase in assets and liabilities due to the recognition of the required right-of-use asset and corresponding lease liability for all lease obligations that are currently classified as operating leases, such as real estate leases for corporate headquarters, as well as additional disclosure on all its lease obligations. The income statement recognition of lease expense is not expected to significantly change from the current methodology.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), which requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. The guidance also modifies the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the Company’s fiscal year beginning January 1, 2023. The Company is continuing to assess the potential impacts of ASU 2016-13 on its consolidated financial statements.
Note 3 – Business Combinations
Acquisition of One Day University
On May 11, 2021, the Company consummated the acquisition of 100% ownership of One Day University (ODU) pursuant to that certain Asset Purchase Agreement, (APA) dated May 11, 2021 (“the Acquisition Date”), by and among ODU and the Company for the aggregate consideration of $4,500 (“the Acquisition”). ODU provides access to talks and lectures from professors at colleges and universities in the United States.
At closing of the Acquisition, the Company paid $4,000 of cash consideration with the remaining $500 to be held by the Company as a holdback for indemnification purposes. The holdback of $500 will be released twelve months after the Acquisition Date and is recorded in restricted cash and in accrued expenses and other liabilities as of June 30, 2021 on the unaudited consolidated balance sheets.
The acquisition was accounted for as a purchase, with the results of operations, which were not material, of ODU included in the Company's consolidated results from May 11, 2021. Based on a preliminary purchase price allocation, the purchase consideration was allocated to assets acquired and liabilities assumed based on their fair values as of the Acquisition Date as follows:
| Accounts receivable | $ | 35 | ||
| Property and equipment | 11 | |||
| Content and intangibles | 2,300 | |||
| Goodwill | 2,565 | |||
| Accounts payable | (3 | ) | ||
| Deferred revenue | (408 | ) | ||
| $ | 4,500 |
The preliminary allocation of the estimated purchase price is based upon management's estimates and is subject to revision, as a more detailed analysis of intangible assets, certain tangible assets, and other assets and liabilities is completed and additional information on the fair value of assets and liabilities becomes available, including receipt of final appraisals of the net assets acquired. A change in the fair value of the net assets may change the amount of the purchase price allocable to goodwill and could impact the amounts of amortization expense. The Company used discounted cash flows analyses, which represent Level 3 fair value measurements, to assess certain components of its purchase price allocation, including acquired intangible assets.
The acquisition of goodwill arises from the opportunity for synergies of the combined companies to grow and strengthen the Company's content proposition by adding lectures from top professors and expanding the customer base. The acquisition expands the Company's subscription video on demand services by adding monthly and annual subscribers. The goodwill is not amortized for financial reporting purposes, but is deductible for federal tax purposes.
The Company incurred approximately $21 in Acquisition-related expenses, which are reported in general and administrative expenses of the consolidated statement of operations for the three and six months ended June 30, 2021.
The amounts allocated to content and intangibles has been attributed to the following categories and will be amortized over the useful lives of each individual asset identified on a straight-line basis as follows:
| Fair value | Estimated useful life (Years) | |||||
| Content | $ | 1,000 | 4.2 | |||
| Customer relationships | 700 | 3.0 | ||||
| Trademark | 500 | 6.5 | ||||
| Covenant-not-to-compete | 100 | 3.0 | ||||
| Total intangibles | 1,300 | |||||
| Total content and intangibles | $ | 2,300 | ||||
Content relates to the lectures available on the ODU library as well as premium programs available for purchase on the ODU platform. The cost approach was used to estimate the value of the content library as of the valuation date. The economic life was determined based on the lecturer’s license period of 5 years starting on the date the titles were published. ODU content is recorded as part of Content assets, net on the unaudited consolidated balance sheets.
Customer relationships represent the fair value of the future projected revenue that will be derived from the sales of lectures to existing customers of ODU. Customer relationships were valued using the discounted cash flow method under the income approach. The underlying cash flows are based on historical attrition rates. The economic life was determined based on the period in which the Company expects to receive most of the cash flows from the existing customers.
The trademark intangible relates to the “One Day University” trade name. The fair value was determined using the relief-from-royalty method under the income approach. This valuation method estimates the fair value of an asset calculating the revenues attributable to the trademark for the use of the asset, multiplied by a royalty rate. The economic life was determined based on the remaining expected period of use of the trademark.
Covenant-not-to-compete relates to an agreement between the Company and ODU’s management not to work for a competitor of the Company and limits ODU management’s ability to compete with the Company. The valuation method used to estimate the fair value was the income approach. The economic life was determined based on the remaining contractual life of the covenant-not-to-compete agreement.
Intangible assets as of June 30, 2021 were comprised of the following:
| As of June 30, 2021 | ||||||||||||||
| Remaining Amortization Period (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||
| Trademark | 6.4 | $ | 500 | $ | 11 | $ | 489 | |||||||
| Covenant-not-to-compete | 2.9 | 100 | 5 | 95 | ||||||||||
| Customer relationships | 2.9 | 700 | 31 | 669 | ||||||||||
| Intangible assets, net | $ | 1,300 | $ | 47 | $ | 1,253 | ||||||||
Reverse merger acquisition
On October 14, 2020, the Company consummated the Merger, pursuant to the terms of the Merger Agreement dated August 10, 2020, with Legacy CuriosityStream surviving the “Closing”). merger as a wholly owned subsidiary of the Company.
At the effective time of the Merger (the “Effective Time”), all (100%) of the issued and outstanding shares of capital stock of Legacy CuriosityStream were converted into an aggregate of 31,556,837 shares (the “Merger Shares”) of the Company’s Class A Common Stock, par value $0.0001 per share (“Common Stock”).Stock. Pursuant to the Merger Agreement, 1,501,758 Merger Shares issued by the Company at closing willwould be held in escrow for a period of twelve (12) months after the Closing Date to satisfy indemnification obligations and an additional 19,924 Merger Shares willwould be held in escrow pending final working capital calculations (collectively, the “Escrow Shares”). On February 22, 2021, the 19,924 Merger Shares held in escrow pending final working capital calculations were released and cancelled from escrow.
In connection with the Closing, and pursuant to the terms of a PIPE Subscription Agreement entered into by the Company with certain third-party investors (the “PIPE Investors”) in connection with the execution of the Merger Agreement, the Company completed the issuance of an aggregate of 2,500,000 newly-issued shares of Common Stock for an aggregate purchase price of $25,000,000$25.0 million (the “PIPE”). The shares of Common Stock issued by the Company pursuant to the PIPE were issued concurrently with the Closing of the Merger on the Closing Date.
The Company received $16.5 million in cash from the SAQN trust account and $25.0 million from the PIPE investors related to the issuance of 2,500,000 shares of Common Stock. The Company paid a total of $5.7 million of transaction costs related to the Business Combination.
Note 4 — Content assets
Also
Content assets consisted of the following:
| As of | ||||||||
| June 30, 2021 | December 31, 2020 | |||||||
| Licensed content, net | ||||||||
| Released, less amortization | 10,108 | 9,985 | ||||||
| Prepaid and unreleased | 4,783 | 3,022 | ||||||
| 14,891 | 13,007 | |||||||
| Produced content, net | ||||||||
| Released, less amortization | 13,137 | 9,071 | ||||||
| In production | 21,095 | 10,848 | ||||||
| In development and pre-production | 13 | - | ||||||
| 34,245 | 19,919 | |||||||
| Total | $ | 49,136 | $ | 32,926 | ||||
As of June 30, 2021, $4,903, $2,961, and $1,148 of the $10,108 unamortized cost of the licensed content that has been released is expected to be amortized in each of the next three years. As of June 30, 2021, $3,274, $3,274, and $3,169 of the $13,137 unamortized cost of the produced content that has been released is expected to be amortized in each of the next three years.
In accordance with its accounting policy for content assets, the Company amortized licensed content costs and produced content costs during the three and six months ended June 30, 2021 and 2020, respectively as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Licensed content | $ | 1,595 | $ | 2,050 | $ | 3,278 | $ | 3,352 | ||||||||
| Produced content | 2,658 | 1,114 | 3,711 | 1,345 | ||||||||||||
| $ | 4,253 | $ | 3,164 | $ | 6,989 | $ | 4,697 | |||||||||
Note 5 — Line of credit and Paycheck Protection Program Loan
On February 12, 2020, the Company obtained a one-year $4,500 line of credit facility from a bank. The line of credit calls for interest-only monthly payments at a rate equal to the LIBOR Daily Floating Rate plus 2.25%. The loan carries an unused fee of 0.25% annually on all committed but unused capital, payable quarterly in arrears. The entire unpaid principal balance was scheduled to be due upon the original loan maturity date of February 28, 2021. The line of credit facility is collateralized by cash of $4,500. At June 30, 2021 and December 31, 2020, there were no balances drawn and owed under the facility. During February 2021, the loan maturity date was extended to February 28, 2022.
On May 1, 2020, the Company applied for and received funding from the Paycheck Protection Program (“PPP”) in the amount of $1,158 under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) (the “PPP Loan”). The PPP Loan matures in May 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principal and interest payments are deferred for six months after the date of disbursement. The PPP provides that the use of the PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act. The amount of loan proceeds eligible for forgiveness takes into account a number of factors, including the amount of loan proceeds used by the Company during the specified period after the loan origination for certain purposes including payroll costs, rent payments on certain leases, and certain qualified utility payments.
The Company elected to recognize earnings as funds are applied to covered expenses and classify the application of funds as a reduction of the related expense in the consolidated statement of operations. During the six months ended June 30, 2020, $990 of loan proceeds were applied to cover payroll and non-payroll expenses per the PPP. As a result, general and administrative expenses during the period from May 1 to June 30, 2020 within the statement of operations were reduced by this amount. Should the Company’s loan forgiveness application be rejected, the Company may be required to repay all, or a portion of the funds received under the PPP under an amortization schedule through May 2025 with an annual interest rate of 1%. The Company believes it has met all the requirements under the PPP, and anticipates that it will not be required to repay any portion of the grant.
Note 6 — Redeemable convertible preferred stock and stockholders’ equity
Common Stock
In connection with the Business Combination, the Company amended and restated its certificate of incorporation. As of June 30, 2021 and December 31, 2020, the Company has authorized the issuance of 126,000,000 shares of capital stock, par value of $0.0001 per share, consisting of (a) 125,000,000 shares of common stock, and (b) 1,000,000 shares of preferred stock.
On February 8, 2021, the Company consummated an underwritten public offering (the “Offering”) of 6,500,000 shares of the Company’s common stock, par value per share $0.0001 (“Common Stock”), plus an over-allotment option to purchase up to 975,000 additional shares of Common Stock granted to the underwriters who participated in the Offering, which was exercised by the underwriters in full on February 5, 2021. The net proceeds from the Offering were $94,100, after deducting $6,811 in underwriting discounts and commissions. The Company also incurred and paid offering expenses in connection with the Closing,Offering of $707 during the six months ended June 30, 2021.
Warrants
As of June 30, 2021, the Company changed its name from “Software Acquisition Group Inc.” to “CuriosityStream Inc.”
Inhad 3,054,203 Public Warrants (including 353,000 warrants issued in connection with the Closing,PIPE) and 3,676,000 Private Placement Warrants outstanding. Private Placement Warrants are liability-classified, and the Company withdrew $125,975,252 of Funds fromPublic Warrants and PIPE Warrants are equity-classified.
Following the Trust Account (as defined below) to fund the redemptions of 12,549,512 shares.
Upon the closing:
CURIOSITYSTREAM INC.
(successor to Software Acquisition Group Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
As a resultconsummation of the foregoing Transactions, asBusiness Combination, holders of the Public Warrants, Private Placement Warrants, and PIPE Warrants are entitled to acquire common stock of the Company. Each whole warrant entitles the registered holder to purchase one share of the Company’s common stock at an exercise price of $11.50 per share, beginning 30 days after the Closing Date and immediately followingDate. All Warrants will expire five years after the completion of the MergerBusiness Combination.
Once the Public Warrants and the PIPE Warrants became exercisable, the Company hadhas the followingright to redeem the outstanding securities:
Business Prior to the Business Combination
Prior to the Business Combination, the Company’s subsidiary was comprised of CS Merger Sub, Inc.
All activity through September 30, 2020 relates to the Company’s formation, the initial public offering (the “Initial Public Offering”), which is described below, identifying a target company for a Business Combinationwarrants in whole and consummating the acquisition of Legacy CuriosityStream.
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 includednot 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”)part at a price of $1.00$0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of the Company’s common stock matched or exceeded $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sent the notice of redemption to the warrant holders.
The Private Placement WarrantWarrants are identical to the Public Warrants except that, so long as they are held by the Sponsor or its permitted transferees: (i) they will not be redeemable by the Company; (ii) they may be exercised by the holders on a cashless basis; and (iii) they are subject to registration rights.
| Warrant Type | Cash Exercise Price per Share | Warrants Outstanding 12/31/20 | Warrants Exercised during the six months ended 06/30/21 | Warrants Outstanding 06/30/21 | ||||||||||||
| Public Warrants (CURIW) and PIPE Warrants | $ | 11.50 | 7,786,589 | (4,732,386 | ) | 3,054,203 | ||||||||||
| Private Placement | $ | 11.50 | 3,676,000 | - | 3,676,000 | |||||||||||
| Total | 11,462,589 | (4,732,386 | ) | 6,730,203 | ||||||||||||
The Company received total proceeds of $54,898 related to the exercise of Public Warrants of which $54,422 relate to warrants exercised during the six months ended June 30, 2021 and $476 relate to warrants exercised in December 2020. There were no warrants exercised during the three months ended June 30, 2021.
The warrant liability related to the Private Placement Warrants is recorded at fair value as of each reporting date with the change in fair value reported within other income (expense) in the accompanying consolidated statements of operations as “Change in fair value of warrant liability” until the warrants are exercised, expired or other facts and circumstances lead the warrant liability to be reclassified to stockholder’s equity (deficit). The fair value of the warrant liability for the Private Placement Warrants was estimated using a Black-Scholes pricing model using Level 3 inputs. The significant assumptions used in preparing the Black-Scholes option pricing model are as follows:
| As of June 30, 2021 | As of December 31, 2020 | |||||||
| Exercise Price | $ | 11.50 | $ | 11.50 | ||||
| Stock Price (CURI) | $ | 13.64 | $ | 13.95 | ||||
| Expected volatility | 50.00 | % | 39.63 | % | ||||
| Expected warrant term (years) | 4.29 | 4.78 | ||||||
| Risk-free interest rate | 0.67 | % | 0.36 | % | ||||
| Dividend yield | 0 | % | 0 | % | ||||
| Fair Value per Private Placement Warrant | $ | 6.22 | $ | 5.67 | ||||
The change in fair value of the private placement to the “Sponsor, generating gross proceeds of $4,740,000, which is described in Note 4.
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.
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.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s 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. The financial information as 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 resultswarrant liability for the three and ninesix months ended SeptemberJune 30, 2020 are not necessarily indicative2021, resulted in a gain of $1,764 and a loss of $2,022, respectively.
During November and December 2018, in connection with a private placement equity offering, Legacy CuriosityStream issued 14,557,000 shares of Series A Redeemable Convertible Preferred Stock (“Series A Preferred Stock”) in exchange for gross proceeds of $145,570. Legacy CuriosityStream incurred equity issuance costs of $8,027 in connection with this offering, which were reflected as a reduction to the initial carrying value of the resultsSeries A Preferred Stock balance.
Holders of Series A Preferred Stock were entitled to be expected for the year ending December 31, 2020 or for any future interim periods.
6
CURIOSITYSTREAM INC.
(successordividends equal to Software Acquisition Group Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts10% of the CompanyAccrued Value (defined as the original liquidation preference of $10.00 per share of Series A Preferred Stock plus an additional amount equal to the dollar amount of any accrued but unpaid dividends) per annum. Such dividends were cumulative and its wholly owned subsidiaries. All significant intercompany balancesaccrued daily in arrears. Cash dividends were payable when, as and transactions have been eliminatedif declared by the Board of Directors. If the Board of Directors did not declare a cash dividend in consolidation.respect of all or a portion of the dividend when due, the Accrued Value of the Series A Preferred Stock was increased by a corresponding amount.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirementsclassifies preferred shares that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those 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.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2020 and December 31, 2019.
Marketable Securities Held in Trust Account
At September 30, 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. During the nine months ended September 30, 2020, the Company withdrew $207,831 of the interest earned on the Trust Account to pay for its franchise taxes.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that featuresfeature redemption rights that isare either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classifiedcontrol, as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certainGiven the redemption rights that are considered to be outside ofcontained within the Company’s control and subject to occurrence of uncertain future events. Accordingly, commonSeries A Preferred Stock, the Company accounted for the outstanding preferred stock subject to possible redemption is presented at redemption value as temporary equity outsidethrough the Closing Date. Series A Preferred Stock was initially recorded at its fair value, net of transaction costs, at the stockholders’ equity section of the Company’s condensed consolidated balance sheets.
7
CURIOSITYSTREAM INC.
(successor to Software Acquisition Group Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Income Taxes
The Company complies with the accounting andoriginal issuance date. At each reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicableperiod prior to the periodsClosing Date, the amount was adjusted by accreting changes in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assetsredemption value over the period from the date of issuance to the amount expected to be realized.earliest redemption date.
ASC Topic 740 prescribes a recognition thresholdNote 7 — Earnings (loss) per share
Basic and a measurement attribute fordiluted earnings (loss) per share calculations are calculated on the financial statement recognition and measurementbasis 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 September 30, 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.
Net Income per Common Share
Net loss per common share is computed by dividing net loss by the weighted average number of shares of the Company’s common stock outstanding during the respective periods. Diluted earnings (loss) per share give effect to all dilutive potential common shares outstanding during the period using the treasury stock method for stock options and other potentially dilutive securities and the period. At September 30, 2019, weighted average shares were reducedif-converted method for redeemable convertible preferred stock prior to the effect of an aggregate of 487,500 shares of Class B common stock that are subject to forfeiture if the over-allotment option is not exercised by the underwriter (see Note 5). The Company applies the two-class method in calculatingBusiness Combination. In computing diluted earnings per share. Shares of common stock subject to possible redemption at September 30, 2020, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic loss(loss) per share, since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect of warrants to purchase 12,215,000 shares of common stock that were sold in the Initial Public Offering and the private placement in the calculation of diluted loss per share, since the exercise of the warrants was contingent upon the occurrence of future events. As a result, diluted loss per share is the same as basic loss per share for the periods presented.
Reconciliation of Net Loss per Common Share
The Company’s net loss 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 September 30, | Nine Months | For the | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net loss | $ | (453,091 | ) | $ | (801 | ) | $ | (348,607 | ) | $ | (3,012 | ) | ||||
| Less: Income attributable to shares subject to possible redemption | — | — | (382,834 | ) | — | |||||||||||
| Adjusted net loss | $ | (453,091 | ) | $ | (801 | ) | $ | (731,441 | ) | $ | (3,012 | ) | ||||
| Weighted average shares outstanding, basic and diluted | 4,671,765 | 3,250,000 | 4,662,207 | 3,250,000 | ||||||||||||
| Basic and diluted net loss per common share | $ | (0.10 | ) | $ | (0.00 | ) | $ | (0.16 | ) | $ | (0.00 | ) | ||||
CURIOSITYSTREAM INC.
(successor to Software Acquisition Group Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution, which, at times may exceed the Federal Depository Insurance Corporation coverage limit of $250,000. The Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
Theaverage fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed consolidated balance sheets, primarily due to their short-term nature.
Recently Issued Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position and results of its operations, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3. INITIAL PUBLIC OFFERING
On November 22, 2019, pursuant to the Initial Public Offering, the Company sold 14,950,000 Units, which included the full exercise by the underwriter of its option to purchase an additional 1,950,000 Units at $10.00 per Unit. Each Unit consists of one share of the Company’s Class A common stock $0.0001 par value, and one-halffor the period is used to determine the number of one redeemable warrant (“Public Warrant”). Each Public Warrant will entitleshares assumed to be purchased from the holder to purchase one share of Class A common stock at an exercise price of $11.50 per whole share (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closingoptions. Purchases of treasury stock reduce the Initial Public Offering,outstanding shares commencing on the Sponsor purchased an aggregate of 4,740,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant for an aggregate purchase price of $4,740,000. Each Private Placement Warrantdate that the stock is exercisable to purchase one share of Class A commonpurchased. Common stock at a price of $11.50 per share. The proceedsequivalents are excluded from the salecalculation when a loss is incurred as their effect would be anti-dilutive.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator - Basic EPS: | ||||||||||||||||
| Net loss | $ | (8,304 | ) | $ | (4,317 | ) | $ | (27,059 | ) | $ | (16,110 | ) | ||||
| Preferred dividends and accretion of issuance costs | - | (4,354 | ) | - | (8,591 | ) | ||||||||||
| Net loss attributable to common stockholders - basic | (8,304 | ) | (8,671 | ) | (27,059 | ) | (24,701 | ) | ||||||||
| Denominator - Basic EPS: | ||||||||||||||||
| Weighted–average shares – basic | 52,566,608 | 13,164,675 | 50,327,141 | 13,164,675 | ||||||||||||
| Net loss per share attributable to common stockholders – basic | $ | (0.16 | ) | $ | (0.66 | ) | $ | (0.54 | ) | $ | (1.88 | ) | ||||
| Numerator - Diluted EPS: | ||||||||||||||||
| Net loss | $ | (8,304 | ) | $ | (4,317 | ) | $ | (27,059 | ) | $ | (16,110 | ) | ||||
| Preferred dividends and accretion of issuance costs | - | (4,354 | ) | - | (8,591 | ) | ||||||||||
| Decrease in fair value of Private Placement Warrants | (1,784 | ) | - | - | - | |||||||||||
| Net loss attributable to common stockholders - diluted | (10,088 | ) | (8,671 | ) | (27,059 | ) | (24,701 | ) | ||||||||
| Denominator - Diluted EPS: | ||||||||||||||||
| Weighted–average shares – basic | 52,566,608 | 13,164,675 | 50,327,141 | 13,164,675 | ||||||||||||
| Incremental common shares from assumed exercise of Private Placement Warrants | 401,846 | - | - | - | ||||||||||||
| Weighted–average shares – diluted | 52,968,454 | 13,164,675 | 50,327,141 | 13,164,675 | ||||||||||||
| Net loss per share attributable to common stockholders – diluted | $ | (0.19 | ) | $ | (0.66 | ) | $ | (0.54 | ) | $ | (1.88 | ) | ||||
For the three and six months ended June 30, 2021 and 2020, the following share equivalents were excluded from the computation of diluted net loss per share as the inclusion of such shares would be anti-dilutive due to the net loss incurred during each period and for the Private Placement Warrants, were addeddue to the change in fair value of warrant liability resulting in an increase to net proceeds fromloss for the Initial Public Offering heldsix months ended June 30, 2021. Common shares issuable for warrants, options, and restricted stock units represent the total amount of outstanding warrants, stock options, and restricted stock units at June 30, 2021 and 2020.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Antidilutive shares excluded: | ||||||||||||||||
| Options | 4,737,222 | 2,566,312 | 4,737,222 | 2,566,312 | ||||||||||||
| Restricted Stock Units | 772,284 | - | 772,284 | - | ||||||||||||
| Warrants | 3,054,203 | - | 6,730,203 | - | ||||||||||||
| Series A Preferred Stock | - | 18,382,847 | - | 18,382,847 | ||||||||||||
| 8,563,709 | 20,949,159 | 12,239,709 | 20,949,159 | |||||||||||||
Note 8 — Stock-based compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the Trust Account.grant date fair value of the award. The fair value is recognized in earnings over the period during which an employee is required to provide the service. The Company accounts for forfeitures as they occur.
CuriosityStream 2020 Omnibus Plan
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In June 2019,October 2020, the Board of Directors of the Company issued an aggregate of 3,593,750 sharesadopted the CuriosityStream 2020 Omnibus Plan (the “Founder Shares”“2020 Plan”) 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 Founder Shares automatically converted into shares of Class A common stock2020 Plan became effective upon the consummation of the Business Combination onand succeeds the Legacy CuriosityStream Stock Option Plan. Upon adoption of the 2020 Plan, a one-for-one basis.total of 7,725,000 shares were approved to be issued as stock options, share appreciation rights, restricted stock units and restricted stock.
The following table summarizes stock option and restricted stock unit (RSU) activity for the six months ended June 30, 2021:
| Stock Options | Restricted Stock Units | |||||||||||||||||||
| Number of Shares Available for Issuance Under the Plan | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted- Average Grant Date Fair Value | ||||||||||||||||
| Outstanding at December 31, 2020 | 2,538,648 | 4,710,717 | $ | 7.06 | 413,277 | $ | 9.21 | |||||||||||||
| Granted (1) | (584,024 | ) | 207,398 | 15.96 | 376,626 | 14.74 | ||||||||||||||
| Options exercised and RSUs vested | - | (103,572 | ) | 4.06 | (7,726 | ) | 13.79 | |||||||||||||
| Forfeited or expired | 87,214 | (77,321 | ) | 4.13 | (9,893 | ) | 11.56 | |||||||||||||
| Outstanding at June 30, 2021 | 2,041,838 | 4,737,222 | $ | 7.50 | 772,284 | $ | 11.83 | |||||||||||||
| (1) | Included in options granted during the six months ended June 30, 2021, is a total of 152,358 fully vested options with an exercise price of $16.42 and a five-year contractual term, which resulted in compensation expense totaling $0.9 million being recorded upon grant. Such options were granted during the three months ended March 31, 2021. |
The initial stockholdersintrinsic value of options exercised during the three and six months ended June 30, 2021 was $315 and $1,266, respectively. There were no options exercised during the six months ended June 30, 2020.
Options and RSUs historically have agreed not to transfer, assigna four-year vesting period with 25% of the shares vesting on each anniversary date. Grants during the six months ended June 30, 2021 generally have a four-year vesting period with options vesting quarterly or 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 inmonthly and RSUs vesting monthly. When options are exercised, the Company’s stockholders having the rightpolicy is to exchange theirissue previously unissued 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 perCommon Stock to satisfy 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.option exercises.
The fair value of stock option awards is estimated using the Black-Scholes option pricing model, which includes several assumptions including Company’s estimates of stock price volatility, employee stock option exercise behaviors, future dividend payments, and risk-free interest rates.
The expected term of options granted is the estimated period of time from the beginning of the vesting period to the date of expected exercise or other settlement, based on historical exercises and post-vesting terminations. The Company generally estimates expected term based on the midpoint between the vesting date and the end of the contractual term, the simplified method, given the lack of historical exercise behavior.
The Company uses historical volatility of similar public companies for estimating volatility. The risk-free interest rate is estimated using the rate of return on U.S. Treasury securities with maturities that approximate to the expected term of the option. The Company does not currently anticipate declaring any dividends.
Assumptions used to value the options granted and the resulting weighted-average grant date fair value and stock-based compensation expense for the three and six months ended June 30, 2021 and 2020 were as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Dividend yield | N/A | 0 | % | 0 | % | 0 | % | |||||||||
| Expected volatility | N/A | 60 | % | 60 | % | 60 | % | |||||||||
| Expected term (years) | N/A | 6.25 | 2.50-6.25 | 6.25 | ||||||||||||
| Risk-free interest rate | N/A | 1.48 | % | 0.14%-1.11 | % | 0.45%-1.72 | % | |||||||||
| Weighted average grant date fair value | N/A | $ | 2.38 | $ | 6.61 | $ | 2.06 | |||||||||
| Stock-based compensation – Options | $ | 910 | $ | 438 | $ | 2,729 | $ | 764 | ||||||||
| Stock-based compensation - RSUs | $ | 627 | $ | - | $ | 1,131 | $ | - | ||||||||
Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized on a straight-line basis over the requisite service period.
CURIOSITYSTREAM INC.
Note 9 — Segment and geographic information
(successor to Software Acquisition Group Inc.
The Company operates as 1 operating segment. The Company’s chief operating decision maker (“CODM”) is its chief executive officer, who reviews financial information presented on an entity-wide basis for purposes of making operating decisions, assessing financial performance and allocating resources.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited) All long-lived tangible assets are located in the United States. Revenue by geographic location, based on the location of the customers, with no foreign country individually comprising greater than 10% of total revenue, is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||
| United States | $ | 12,111 | 79 | % | $ | 10,241 | 85 | % | $ | 19,266 | 76 | % | $ | 16,069 | 82 | % | ||||||||||||||||
| International | 3,233 | 21 | % | 1,808 | 15 | % | 6,014 | 24 | % | 3,447 | 18 | % | ||||||||||||||||||||
| $ | 15,344 | 100 | % | $ | 12,049 | 100 | % | $ | 25,280 | 100 | % | $ | 19,516 | 100 | % | |||||||||||||||||
Promissory Note 10 — Related PartyCommitments and contingencies
Content commitments
On
At June 25, 2019, the Sponsor agreed to loan30, 2021, the Company an aggregatehad $30,074 of upcontent obligations comprised of $6,581 included in current content liabilities in the accompanying consolidated balance sheets, and $23,493 of obligations that are not reflected in the accompanying consolidated balance sheets as they did not yet meet the asset recognition criteria for content assets (see Note 4). Content obligations of $25,848 and $4,226 are expected to $300,000 to cover expensesbe paid during the six months ending December 31, 2021 and the year ending December 31, 2022, respectively.
At December 31, 2020, the Company had $26,022 of content obligations comprised of $2,116 included in current content liabilities in the accompanying consolidated balance sheets and $23,906 of obligations that are not reflected in the accompanying consolidated balance sheets as they did not yet meet the asset recognition criteria for content assets.
Content obligations include amounts related to licensed, commissioned and internally produced streaming content. An obligation for the Initial Public Offering pursuant to a promissory note (the “Note”). The Note was non-interest bearingproduction of content includes non-cancelable commitments under creative talent and payable onemployment agreements. An obligation for the earlier of December 31, 2019 orlicensed and commissioned content is incurred at the completion oftime 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.
Administrative Support Agreement
The Company enteredenters into an agreement whereby, commencing on November 19, 2019 throughto obtain future titles. Once a title becomes available, a content liability is generally recorded. Certain agreements include the earlierobligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the Company’s consummationreporting date.
Advertising commitments
The Company has certain commitments with regards to future advertising and marketing expenses as stated in the various licensee agreements. Certain of a Business Combinationthe agreements do not specify the amount of advertising and its liquidation,marketing commitment; however, the total commitments for agreements which do specify the amount are $12,016 as of June 30, 2021, of which $6,016, and $6,000 are expected to be paid during the six months ending December 31, 2021 and the year ending December 31, 2022, respectively.
Operating leases
The Company will pay the Sponsor a total of $10,000 per month forleases corporate office space utilitiesin Silver Spring, Maryland. The lease expires February 28, 2033. The terms of the lease include a rent abatement period of ten months and secretariala tenant improvement allowance of $93 and administrative support. For$295 for 2020 and 2021, respectively.
Total rent paid under the terms of the lease was $43 and $136 for the three and nine months ended SeptemberJune 30, 2021 and 2020, respectively. Total rent paid was $43 and $272 for the Company incurred $30,000six months ended June 30, 2021 and $90,000, respectively, in fees for these services,2020, respectively. Rent expense has been calculated on a straight-line basis over the term of which $105,000 and $15,000 isthe lease. Accordingly, rent expense included in accruedgeneral and administrative expenses in the accompanying condensed consolidated balance sheets asstatements of Septemberoperations was $127 and $133 for the three months ended June 30, 2021, and 2020, respectively, and December 31, 2019,rent expense was $257 and $266 for the six months ended June 30, 2021, and 2020, respectively. The rent and sublease rental income future minimum lease payments for the above operating lease are as follows:
| CuriosityStream rent | Sublease rental income | Net rent | ||||||||||
| Remainder of six months ending December 31, 2021 | 261 | (26 | ) | 235 | ||||||||
| Years Ending December 31, | ||||||||||||
| 2022 | 530 | (53 | ) | 477 | ||||||||
| 2023 | 543 | (54 | ) | 489 | ||||||||
| 2024 | 557 | (56 | ) | 501 | ||||||||
| 2025 | 571 | (57 | ) | 514 | ||||||||
| Thereafter | 4,531 | (453 | ) | 4,078 | ||||||||
| $ | 6,993 | $ | (699 | ) | $ | 6,294 | ||||||
Note 11 — Income taxes
The Company ceased paying these monthly fees uponrecorded a provision for income taxes totaling $53 and $40 for the Closing.three months ended June 30, 2021 and 2020, respectively, and $79 and $77 for the six months ended June 30, 2021 and 2020, respectively, primarily related to foreign withholding income taxes. The Company’s provision for income taxes differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a tax benefit attributable to generated losses for either federal or state income tax purposes.
Note 12 — Subsequent events
NOTE 6. COMMITMENTS
Registration Rights
PursuantThe Company agreed to acquire a registration rights agreement entered into on November 19, 2019, the holders of the Founder Shares, Private Placement Warrantslimited partnership interest in Spiegel TV Geschichte und Wissen GmbH & Co. KG, a German limited liability partnership (“JV”), 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 exerciseits general partner, Spiegel TV Geschichte und Wissen Verwaltungs-GmbH for a purchase price 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.approximately $4.2 million. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriter was entitled to a deferred fee of three and half percent (3.50%)hold 32% of the gross proceedsJV’s partnership interest and 32% of the Initial Public Offering, or $5,232,500.general partner’s shares. The deferred fee was paid in cash upon theCompany, Spiegel TV and Autentic GmbH contemporaneously entered into content licensing and pay television and SVOD distribution agreements as well as a shareholders’ agreement dated July 8, 2021. The closing of the business combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.
Litigation Relating to the Merger
On September 2, 2020, a putative class action lawsuit was filed in the Supreme Court of the State of New York by a purported Company stockholder in connection with the merger: Khan v. Software Acquisition Group, Inc., et al., Index No. 654208/2020 (N.Y. Sup. Ct.). The Complaint names the Company and certain current members of the Company’s board of directors as defendants. The Complaint alleges, among other things, breach of fiduciary duty claims against the Company’s board of directors in connection with the Merger. The Complaint also alleges that the preliminary proxy statement filed on Schedule 14A with the SEC on August 12, 2020 was misleading and/or omitted material information concerning the Business Combination. The Complaint seeks, among other things: injunctive relief, including an order enjoining the consummation of the merger; declaratory relief; and an award of attorneys’ fees and damages in an undetermined amount.
In addition, on September 10, 2020, counsel for a purported individual stockholder of the Company sent a letter to legal counsel for the Company in connection with the Merger that alleged that the preliminary proxy statement failed to disclose certain information regarding the Merger. The Letter demanded that the Company make certain additional disclosures in the proxy statement, and claimed that the failure to make such disclosures constituted a violation of federal securities laws.
The Company believes that the allegations in the Complaint and the Letter are without merit. The Company also believes that the disclosures set forth in the preliminary proxy statement on the subjects discussed in the Complaint and the Letter comply fully with applicable law and do not need to be supplemented. However, solely to avoid the costs, risks, nuisance, and uncertainties inherent in disputes concerning these types of allegations, or potential litigation that could delay or adversely affect the Merger, the Company has determined to voluntarily supplement the preliminary proxy statement with certain additional disclosures.
CURIOSITYSTREAM INC.
(successor to Software Acquisition Group Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
NOTE 7. STOCKHOLDERS’ EQUITY
Preferred Stock — The Companytransaction is authorized to issue 1,000,000 shares of $0.0001 par value preferred stock. At September 30, 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 September 30, 2020 and December 31, 2019, there were 978,662 and 905,560 shares of Class A common stock issued or outstanding, excluding 13,971,338 and 14,044,440 shares of Class A common stock subject to possible redemption, respectively.
Class B Common Stock — The Company is authorized to issue up to 10,000,000 shares of Class B, $0.0001 par value common stock. Holders of the Company’s common stock are entitled to one vote for each share. The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of the Business Combination on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like. In the case that additional shares of Class A common stock, or equity linked securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so 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.
At September 30, 2020 and December 31, 2019, there were 3,737,500 shares of Class B common stock issued and outstanding.
The shares of Class B common stock automatically converted into shares of Class A common stock at the time of the Business Combination on a one-for-one basis.
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:
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants will and the common shares issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or saleable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.approvals under German law.
CURIOSITYSTREAM INC.
(successor to Software Acquisition Group Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless. If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of common shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such warrants. Accordingly, the warrants may expire worthless.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price and the $18.00 per share redemption trigger price described above will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
NOTE 8. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | September 30, 2020 | December 31, 2019 | |||||||
| Assets: | ||||||||||
| Marketable securities held in Trust Account | 1 | $ | 150,071,746 | $ | 149,719,910 | |||||
On October 14, 2020, in connection with the Business Combination, the Company liquidated the Trust Account to fund the Business Combination and related expenses.
NOTE 9. SUBSEQUENT EVENTS
As described in Note 1, the Company completed the Closing on October 14, 2020.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the Company’s financial condition andour results of operations should be readand financial condition. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in conjunctionforward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2020, filed with the unaudited condensed consolidated financial statementsSecurities and Exchange Commission (“SEC”). Unless the notes thereto contained elsewherecontext otherwise requires, references in this report. Certain information contained in“Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and “the Company” are intended to mean the discussionbusiness and analysis set forth below includes forward-looking statements that involve risks and uncertainties.operations of CuriosityStream.
Cautionary Note Regarding Forward-looking Statements
All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements under 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. When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements 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.
Overview
CuriosityStream is a media and entertainment company that offers premium video programming across the entire category of factual entertainment, including science, history, society, nature, lifestyle and technology. Our mission is to provide premium factual entertainment that informs, enchants and inspires. We are a former blank check company incorporated on May 9, 2019 under the name Software Acquisition Group Inc.seeking to meet demand for high-quality factual entertainment via SVoD platforms, as well as via bundled content licenses for SVoD and linear offerings, partner bulk sales, brand partnerships and content sales. We are well-positioned for growth as a Delaware corporationdigital-native video platform monetizing content across this broad revenue stack. We operate our business as a single operating segment that provides premium streaming content through multiple channels, including the use of various applications, partnerships and formedaffiliate relationships. We generate our revenue through six lines of business: Direct to Consumer, Partner Direct Business, Bundled Distribution, Program Sales, Corporate & Association Partnerships and Sponsorships. For the six months ended June 30, 2021, Direct to Consumer and Corporate & Association Partnerships together represented approximately 41% of our revenue, followed by Bundled Distribution (approximately 28% of our revenue) and Partner Direct Business (approximately 8% of our revenue), Program Sales (approximately 23% of our revenue) and Sponsorships (less than 1% of our revenue). Our product and service lines and channels through which we generate revenue are described in further detail below.
Our content library features more than 3,100 nonfiction episodes, including more than 1,000 original, commissioned or co-produced documentaries, of short-form, mid-form and long-form duration, with an estimated $1 billion in original production value. Our content, approximately one-third of which is originally produced and the other two-thirds of which is licensed programming, is available directly through our O&O Service and App Services. Our App Services enable access to CuriosityStream on almost every major consumer device, including streaming media players like Roku, Apple TV and Amazon Fire TV, all major smart TV brands (e.g., LG, Vizio, Samsung, Sony) and gaming consoles like Xbox. Our Direct Service is available to any household in the world with a broadband connection for $2.99 per month or $19.99 per year for high definition resolution, or $9.99 per month or $69.99 per year for service in 4K.
The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee for sales to individuals who subscribe to CuriosityStream via the partners’ respective platforms. We have affiliate agreement relationships with, and our service is available directly from, major MVPDs that include Comcast, Cox, Dish and vMVPDs and digital distributors that include Amazon Prime Video Channels, Roku Channels, Sling TV and YouTube TV.
In addition to our Direct and Partner Direct Businesses, we have affiliate relationships with MVPDs and Bundled MVPD Partners to whom we can offer a broad scope sets of rights, including 24/7 “linear” channels, our on-demand content library, mobile rights and pricing and packaging flexibility, in exchange for an annual fixed fee or fee per subscriber.
Our Corporate & Association Partnerships business to date has been comprised primarily of selling subscriptions in bulk to companies and organizations that in turn offer these subscriptions to their employees and members as an employment benefit or “gift of curiosity.” To date, over 30 companies have purchased annual subscriptions at bulk discounts for their employees. In the future, we hope to enter into multi-year integrated partnerships where we create and distribute content in support of these partners’ Corporate Social Responsibility (CSR) and membership initiatives.
In the future, we hope to continue developing integrated digital brand partnerships with advertisers. These sponsorship campaigns would offer companies the chance to be associated with CuriosityStream content in a variety of forms, including short and long form program integration, branded social media promotional videos, broadcast advertising spots, and digital display ads. We believe the impressions accumulated in these multi-faceted campaigns would roll up to verifiable metrics for the purposeclients. We executed on two such sponsorships in the last quarter of effecting2020: one in the financial services sector as well as a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similarbrand in the health and fitness sector.
The sixth line of business combinationin our revenue stack is our Program Sales Business. We are able to sell to certain media companies a collection of our existing titles in a traditional program sales deal and we are currently party to a multi-year, multi-million dollar program sales agreement with one such media company. We are also able to sell selected rights (such as in territories or more businesses. We completedon platforms that are lower priority for us) to content we create before we even begin production. This latter model reduces risk in our Initial Public Offering on November 22, 2019content development decisions and completed the Business Combination (as defined below) on October 14, 2020.creates program sales revenue.
Recent Developments
Equity Financing
On October 14, 2020,February 8, 2021, we consummated an underwritten public offering (the “Offering”) of 6,500,000 shares of the Business CombinationCompany’s common stock, par value per share $0.0001 (“Common Stock”), plus an over-allotment option to purchase up to 975,000 additional shares of Common Stock granted to the underwriters who participated in the Offering, which over-allotment option was exercised by the underwriters in full on February 5, 2021. The net proceeds to us from the Offering were $94.1 million, after deducting $6.8 million in underwriting discounts and commissions. We also incurred and paid offering expenses in connection with Merger Sub, the Majority Stockholder and Legacy CuriosityStreamOffering of $0.7 million during the six months ended June 30, 2021. The Offering was made pursuant to the Merger Agreement. UponCompany’s Registration Statement on Form S-1, filed with the consummationSEC on February 1, 2021 and declared effective on February 3, 2021. During the six months ended June 30, 2021, we received funds of approximately $54.9 million for the exercise of 4.8 million Public Warrants. The receipt of the Closing, Merger Sub mergednet proceeds from the Offering as well as proceeds received from the exercise of Public Warrants during the six months ended June 30, 2021 has resulted in a significant cash balance that has mitigated the Company’s potential capital risk for the foreseeable future. There were no warrants exercised during the three months ended June 30, 2021.
Asset Purchase Agreement
On May 11, 2021, the Company consummated the acquisition of 100% ownership of One Day University pursuant to that certain Asset Purchase Agreement, dated May 11, 2021, by and among One Day University and the Company for the aggregate consideration of $4.5 million. One Day University provides access to talks and lectures from professors at colleges and universities in the United States. The acquisition complements and enhances the Company’s offering of premium factual content and provides additional long-term revenue and promotional opportunities by connecting directly with and into Legacy CuriosityStream,new audiences in new formats.
Partnership with Legacy CuriosityStream surviving such merger asSPIEGEL TV
On July 29, 2021, the Company announced the expansion of its European footprint through a wholly-ownedpartnership with SPIEGEL TV, the subsidiary of the Company. German media conglomerate SPIEGEL, and its partner, Autentic, a factual content producer and distributor. Germany is the Company’s top non-English-speaking market, and the partnership expands the Company’s reach through the addition of hundreds of hours of German-dubbed programming to the Company’s SVoD service as well as a rebranded linear channel in German-speaking Europe.
COVID-19 Pandemic
In connection withMarch 2020, the closingWorld Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the United States and globally. The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. See Item 1A: “Risk Factors” section set forth in Amendment No. 1 to our 2020 Annual Report on Form 10-K/A for additional details. In an effort to protect the health and safety of our employees, our workforce has had and continues in most instances to spend a significant amount of time working from home, international travel has been severely curtailed. Our other partners have similarly had their operations disrupted, including those partners that we use for our operations as well as development, production, and post-production of content. While we and our partners have resumed productions and related operations in many parts of the world, our ability to produce content remains affected by the pandemic. In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, some of which have been subsequently rescinded, modified or reinstated, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing. In addition, COVID-19 vaccinations have been increasing, though at a decreasing rate with significant resistance to vaccination in certain geographies and among certain groupings of people. We anticipate that these actions and the global health crisis caused by COVID-19, including any resurgences, notably by the “delta” variant of the virus, will continue to negatively impact business activity across the globe. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.
Key Factors Affecting Results of Operations
Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including our ability to efficiently grow our subscriber base and expand our service offerings to maximize subscriber lifetime value. In particular, we believe that the following factors significantly affected our results of operations over the periods presented below and are expected to continue to have such significant effects:
Revenues
Currently, the main sources of our revenue are (i) subscriber fees from Direct Business Combination,and Direct Subscribers, (ii) license fees from affiliates who receive subscriber fees for CuriosityStream from such affiliates’ subscribers (“Partner Direct Business” and “Partner Direct Subscribers”) and (iii) bundled license fees from distribution affiliates (“Bundled MVPD Business” and “Bundled MVPD Subscribers”). As of June 30, 2021, we had approximately 20 million total paying subscribers, including Direct Subscribers, Partner Direct Subscribers and Bundled MVPD Subscribers.
Since our founding in 2015, we have generated the majority of our revenues from Direct Subscribers in the form of monthly or annual subscription plans. We charge $2.99 per month or $19.99 dollars per year for our Direct Service in high-definition resolution or $9.99 per month or $69.99 per year for service in 4K. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a revenue share or license fee. We recognize subscription revenues ratably during each subscriber’s monthly or yearly subscription period. We pay a fixed percentage distribution fee to our partners for subscribers accessing our platform via App Services to compensate these partners for access to their customer and subscriber bases. Our MVPD, vMVPD and digital distributor partners host and stream our content to their customers via their own platforms, such as set top boxes in the case of most MVPDs. We do not incur billing, streaming or backend costs associated with content distribution through our MVPD, vMVPD and digital distributor partners.
Operating Costs
Our primary operating costs relate to the cost of producing and acquiring our content, the costs of advertising and marketing our service, personnel costs, and distribution fees. As of June 30, 2021, licensed content represented 2,081 titles and original titles represented 1,006 titles. Producing and co-producing content and commissioned content is generally more costly than content acquired through licenses.
The Company’s business model is subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a 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 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 discussion of the accounting policies for content impairment write-down and management estimates involved therein, see “— Critical Accounting Policies and Estimates” below.
Further, our advertising and marketing expenditures and personnel costs constitute primary operating costs for our business. These costs may fluctuate based on advertising and marketing objectives and personnel needs. In general, we intend to focus marketing dollars on efficient customer acquisition. With respect to personnel costs, for the first several years of our existence, we invested heavily in engineering, marketing and programming staff to build the Company changedand its nameservice offering. Beginning in 2019, however, we began to focus on sales staff and other revenue-generating personnel.
Results of Operations
The financial data in the following tables set forth selected financial information derived from “Software Acquisition Groupour unaudited consolidated financial statements for the three and six months ended June 30, 2021 and 2020 and shows our results of operations as a percentage of revenue or as a percentage of costs. We conduct business through one operating segment, CuriosityStream Inc.” to “CuriosityStream Inc.” See Note 9 to Item 1 above for a description
Comparison of the Merger Agreementthree months ended June 30, 2021 and the transactions contemplated thereby.2020
| Three months ended June 30, | ||||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Subscriptions | $ | 5,680 | 37 | % | $ | 4,067 | 34 | % | $ | 1,613 | 40 | % | ||||||||||||
| License fee | 9,610 | 63 | % | 7,978 | 66 | % | 1,632 | 20 | % | |||||||||||||||
| Other | 54 | 0 | % | 4 | 0 | % | 50 | n/m | ||||||||||||||||
| Total Revenues | $ | 15,344 | 100 | % | $ | 12,049 | 100 | % | $ | 3,295 | 27 | % | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Cost of revenues | 5,722 | 22 | % | 4,671 | 28 | % | 1,051 | 23 | % | |||||||||||||||
| Advertising and marketing | 11,520 | 44 | % | 8,304 | 51 | % | 3,216 | 39 | % | |||||||||||||||
| General and administrative | 9,153 | 34 | % | 3,437 | 21 | % | 5,716 | 166 | % | |||||||||||||||
| Total operating expenses | $ | 26,395 | 100 | % | $ | 16,412 | 100 | % | $ | 9,983 | 61 | % | ||||||||||||
| Operating loss | (11,051 | ) | (4,363 | ) | (6,688 | ) | 153 | % | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Change in fair value of warrant liability | 1,764 | - | 1,764 | n/m | ||||||||||||||||||||
| Interest and other income (expenses) | 1,036 | 86 | 950 | 1,105 | % | |||||||||||||||||||
| Loss before income taxes | $ | (8,251 | ) | (4,277 | ) | $ | (3,974 | ) | 93 | % | ||||||||||||||
| Provision for income taxes | 53 | 40 | 13 | 33 | % | |||||||||||||||||||
| Net loss | $ | (8,304 | ) | $ | (4,317 | ) | $ | (3,987 | ) | 92 | % | |||||||||||||
n/m - percentage not meaningful
ResultsRevenue
Revenue for the three months ended June 30, 2021 and 2020 was $15.3 million and $12.0 million, respectively. The increase of Operations$3.3 million, or 27% is due to a $1.6 million increase in subscription revenue, a $1.6 million increase in license fee revenue, and $0.1 million increase in other revenue. The increase in subscription revenue of $1.6 million resulted from an increase of $1.9 million in subscriber fees received by us from Direct subscribers for annual plans offset by a $0.3 million decrease in Corporate & Association Partnership sales. The increase of $1.6 million in license fees resulted primarily from a $1.3 million increase in revenue from Program Sales for delivery of titles made during the period. The remaining increase of $0.3 million on license revenue is primarily due to an increase of $0.3 million in revenue from Partner Direct. The increase in other revenue of $0.1 million is due to sponsorship revenue deals with customers.
Our entire activityOperating Expenses
Operating expenses for the three months ended June 30, 2021 and 2020 were $26.4 million and $16.4 million, respectively. This increase of $10.0 million, or 61%, primarily resulted from inception up to November 22, 2019 wasthe changes in preparation for our Initial Public Offering. From the consummationcomponents of our Initial Public Offering through Septemberoperating expenses described below:
Cost of Revenues: Cost of revenues for the three months ended June 30, 2021 increased to $5.7 million from $4.6 million for the three months ended June 30, 2020. Cost of revenues primarily includes content amortization, hosting and streaming delivery costs, payment processing costs and distribution fees, commission costs and subtitling and broadcast costs. This increase of $1.1 million, or 23%, is due primarily to the increase in content amortization of $1.1 million, of which $0.2 million is due to the timing and number of titles published during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and $0.9 million is due to accelerated content amortization related to our activity was been limitedprogram sales contracts during the three months ended June 30, 2021 when compared to the evaluationprior year period.
Advertising and Marketing: Advertising and marketing expenses for the three months ended June 30, 2021 increased to $11.5 million from $8.3 million for the three months ended June 30, 2020. This increase of business combination candidates$3.2 million, or 39%, was principally due to an increase in digital advertising of $2.8 million, an increase in radio advertising of $1.2 million and consummatingan increase in partner platform advertising of $0.3 million. This overall increase is partially offset by a decrease of $0.9 million in TV advertising and a decrease of $0.2 million in brand awareness advertising when compared to the acquisitionsecond quarter of Legacy CuriosityStream.2020.
General and Administrative: General and administrative expenses for the three months ended June 30, 2021 increased to $9.1 million from $3.4 million for the three months ended June 30, 2020. This increase of $5.7 million, or approximately 166%, was primarily due to an increase of $1.1 million in stock-based compensation in the three months ended June 30, 2021 when compared to the three months ended June 30, 2020. Also, an increase of $1.7 million in salaries and benefits as well as bonus costs is attributable to the increased headcount for the current period when compared to the second quarter of 2020. The remaining increase in general and administrative cost is primarily due to an increase of $1.3 million related for professional fees, increase of $0.4 million related to insurance costs and increase of $0.1 million related to licenses and subscriptions. During the three months ended June 30, 2020, the Company applied the receipts of the PPP loan of $1.0 million to reduce qualifying general and administrative costs, whereas there was no such activity during the three months ended June 30, 2021. We expect to incur additional expenses in future periods as we continue to invest in corporate infrastructure, including adding personnel and systems to our administrative and revenue-generating functions.
Operating Loss
Operating loss for the three months ended June 30, 2021 and 2020 was $11.1 million and $4.4 million, respectively. The increase of $6.7 million, or approximately 153%, in operating loss resulted from the increase in revenue of $3.3 million, or 27%, offset by the increase in operating expenses of $10.0 million, or 61%, during the three months ended June 30, 2021 compared to the three months ended June 30, 2020, as described above.
Change in Fair Value of Warrant Liability
For the three months ended SeptemberJune 30, 2021, the Company recognized a $1.8 million gain related to the change in fair value of the warrant liability, which was due to a decrease in the fair value of the Private Placement Warrants during the three months ended June 30, 2021. There was no comparable activity in the prior year period.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended June 30, 2021 increased $1.0 million compared to the same period in 2020, primarily due to interest income related to the purchase of investments.
Provision for Income Taxes
Due to our loss from operations in each of the three months ended June 30, 2021 and 2020, we had a net lossprovision for income taxes of $453,091, which consists$53 thousand and $40 thousand, respectively. This increase was primarily due to an increase in foreign withholding tax expense as a result of operating costs of $494,939, offset by interest income on marketable securities heldthe increase in the Trust Account of $14,074 and an income tax benefit of $27,774.
For the nine months ended September 30, 2020, we had net loss of $348,607, which consists of interest income on marketable securities heldcontracts executed with third parties in the Trust Account of $559,667, offset by operating costs of $908,274.
Forforeign jurisdictions in the three months ended SeptemberJune 30, 20192021 when compared to the three months ended June 30, 2020. The Company’s provision for income taxes differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a benefit for either federal or state income tax purposes.
Net Loss
Net loss for the three months ended June 30, 2021 and 2020 was $8.3 million and $4.3 million, respectively. The increase of $4.0 million, or approximately 92%, resulted primarily from the increase in operating expenses, offset by a smaller increase in revenue as well as the change in the fair value of the warrant liability during the three months ended June 30, 2021 compared to the three months ended June 30, 2020, as described above.
Comparison of the six months ended June 30, 2021 and 2020.
| Six months ended June 30, | ||||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | |||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Subscriptions | $ | 10,557 | 42 | % | $ | 7,518 | 39 | % | $ | 3,039 | 40 | % | ||||||||||||
| License fee | 14,599 | 58 | % | 11,994 | 61 | % | 2,605 | 22 | % | |||||||||||||||
| Other | 124 | 0 | % | 4 | 0 | % | 120 | n/m | ||||||||||||||||
| Total Revenues | $ | 25,280 | 100 | % | $ | 19,516 | 100 | % | $ | 5,764 | 30 | % | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Cost of revenues | 9,880 | 19 | % | 7,337 | 20 | % | 2,543 | 35 | % | |||||||||||||||
| Advertising and marketing | 23,769 | 46 | % | 21,009 | 59 | % | 2,760 | 13 | % | |||||||||||||||
| General and administrative | 17,885 | 35 | % | 7,621 | 21 | % | 10,264 | 135 | % | |||||||||||||||
| Total operating expenses | $ | 51,534 | 100 | % | $ | 35,967 | 100 | % | $ | 15,567 | 43 | % | ||||||||||||
| Operating loss | (26,254 | ) | (16,451 | ) | (9,803 | ) | 60 | % | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Change in fair value of warrant liability | (2,022 | ) | - | (2,022 | ) | n/m | ||||||||||||||||||
| Interest and other income (expenses) | 1,296 | 418 | 878 | 210 | % | |||||||||||||||||||
| Loss before income taxes | $ | (26,980 | ) | (16,033 | ) | $ | (10,947 | ) | 68 | % | ||||||||||||||
| Provision for income taxes | 79 | 77 | 2 | 3 | % | |||||||||||||||||||
| Net loss | $ | (27,059 | ) | $ | (16,110 | ) | $ | (10,949 | ) | 68 | % | |||||||||||||
n/m - percentage not meaningful
Revenue
Revenue for the six months ended June 30, 2021 and 2020 was $25.3 million and $19.5 million, respectively. The increase of $5.8 million, or 30% is due to a $3.0 million increase in subscription revenue, a $2.6 million increase in license fee revenue, and a $0.1 million increase in other revenue. The increase in subscription revenue of $3.0 million resulted from an increase of $3.6 million in subscriber fees received by us from Direct subscribers for annual plans offset by a $0.6 million decrease in Corporate & Association Partnership sales. The increase of $2.6 million in license fees resulted primarily from a $1.7 million increase in revenue from Program Sales for delivery of titles made during the period. The remaining increase of $0.9 million on license revenue is due to an increase of $0.7 million in revenue from Partner Direct Business and an increase of $0.2 million in revenue from Bundled MVPD partners, in each case as a result of an increase in the number of users and/or subscribers for our service. The increase in other revenue of $0.1 million is due to new sponsorship revenue deals with customers.
Operating Expenses
Operating expenses for the six months ended June 30, 2021 and 2020 were $51.5 million and $35.9 million, respectively. This increase of $15.6 million, or 43%, primarily resulted from the changes in the components of our operating expenses described below:
Cost of Revenues: Cost of revenues for the six months ended June 30, 2021 increased to $9.9 million from $7.3 million for the six months ended June 30, 2020. Cost of revenues primarily includes content amortization, hosting and streaming delivery costs, payment processing costs and distribution fees, commission costs and subtitling and broadcast costs. This increase of $2.5 million, or 35%, is due primarily to the increase in content amortization of $2.3 million, of which $0.9 million is due to the timing and number of titles published during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 and $1.4 million is due to accelerated content amortization related to our program sales contracts during the six months ended June 30, 2021 when compared to the prior year period. The remaining increase in cost of revenues is due to slight increases in hosting and streaming delivery costs, processing and distribution fees, and subtitling and broadcast costs (total increase of $0.3 million). The increase of cost of revenues is consistent with the increase in revenue during the six months ended June 30, 2021.
Advertising and Marketing: Advertising and marketing expenses for the six months ended June 30, 2021 increased to $23.8 million from $21.0 million for the six months ended June 30, 2020. This increase of $2.8 million, or 13%, was principally due to an increase in digital advertising of $3.0 million, an increase in radio advertising of $1.5 million and an increase in partner platform advertising of $0.9 million, partially offset by a decrease of $2.5 million in TV advertising and a decrease of $0.1 million in brand awareness advertising when compared to the prior period.
General and Administrative: General and administrative expenses for the six months ended June 30, 2021 increased to $17.9 million from $7.6 million for the six months ended June 30, 2020. This increase of $10.3 million, or approximately 135%, was primarily due to an increase of $3.1 million in stock-based compensation in the period when compared to the six months ended June 30, 2020. Of this increase related to stock-based compensation, $2.2 million is due to the recurring recognition of compensation expense over the service period and $0.9 million is due to the immediate recognition of stock-based compensation expense of a fully vested award granted in January 2021 to an executive. Also, an increase of $2.7 million in salaries and benefits as well as bonus costs is attributable to the increased headcount of mid to senior management hires for the current period when compared to the prior period. The remaining increase in general and administrative cost is primarily due to an increase of $2.3 million related to professional fees, increase of licenses and subscriptions of $0.4 million and $0.8 million related to insurance costs. During the six months ended June 30, 2020, the Company applied the receipts of the PPP loan of $1.0 million to reduce qualifying general and administrative costs, whereas there was no such activity during the six months ended June 30, 2021. We expect to incur additional expenses in future periods as we continue to invest in corporate infrastructure, including adding personnel and systems to our administrative and revenue-generating functions.
Operating Loss
Operating loss for the six months ended June 30, 2021 and 2020 was $26.3 million and $16.5 million, respectively. The increase of $9.8 million, or approximately 60%, in operating loss resulted from May 9, 2019 (inception) through Septemberthe increase in revenue of $5.8 million, or 30%, offset by the increase in operating expenses of $15.6 million, or 43%, in each case during the six months ended June 30, 2019,2021 compared to the six months ended June 30, 2020, as described above.
Change in Fair Value of Warrant Liability
For the six months ended June 30, 2021, the Company recognized a $2.0 million loss related to the change in fair value of the warrant liability, which was due to an increase in the fair value of the Private Placement Warrants during the six months ended June 30, 2021. There was no comparable activity in the prior year period.
Interest and Other Income (Expense)
Interest and other income (expense) for the six months ended June 30, 2021 and 2020 increased $0.9 million compared to the same period in 2020, primarily due to interest income related to the purchase of investments.
Provision for Income Taxes
Due to our loss from operations in each of the six months ended June 30, 2021 and 2020, we had net lossa provision for income taxes of $801$79 thousand and $3,012, respectively, which consists$77 thousand, respectively. This increase was primarily due to an increase in foreign withholding tax expense as a result of formationthe increase in contracts executed with third parties in foreign jurisdictions in the six months ended June 30, 2021 when compared to the six months ended June 30, 2020. The Company’s provision for income taxes differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and operating costs.not recognizing a benefit for either federal or state income tax purposes.
Net Loss
Net loss for the six months ended June 30, 2021 and 2020 was $27.1 million and $16.1 million, respectively. The increase of $11.0 million, or approximately 68%, resulted primarily from the increase in operating expenses, and change in fair value of the warrant liability, partially offset by a smaller increase in revenue as well as an increase in interest and other income, in each case during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, as described above.
Liquidity and Capital Resources
As of SeptemberJune 30, 2020,2021, we had marketable securities held in the Trust Accountcash and cash equivalents, including restricted cash, of $150,071,746 (including approximately $572,000 of interest income earned from investments in a money market fund that invests primarily in U.S. treasury bills with a maturity of 180 days or less). Interest income on the balance in the Trust Account may be used by us to pay taxes. Through September 30, 2020, we withdrew $207,831 of interest earned on the Trust Account to pay for our franchise taxes.
$13.8 million. For the ninesix months ended SeptemberJune 30, 2020,2021, we incurred a net loss of $27.1 million and used $23.4 million of net cash used in operating activities, was $787,764. Net losswhile investing activities used $129 million of $348,607 was affectednet cash and financing activities provided $148.7 million of net cash.
Through the date of the Merger, we have financed our operations primarily from the net proceeds of our sale of Series A Preferred Stock in November and December 2018. An additional source of liquidity includes borrowings under our Line of Credit Facility with a bank (the “Line of Credit”). This Line of Credit provides for borrowings of up to $4.5 million with interest-only monthly payments at a rate equal to the LIBOR Daily Floating Rate plus 2.25%. The Line of Credit carries an unused fee of 0.25% annually on all committed but unused capital, payable quarterly in arrears. The entire unpaid principal balance is due when the Line of Credit matures on February 28, 2022, following the execution of a one-year extension during February 2021. The Line of Credit is collateralized by interest earned on marketable securitiescash of $4.5 million that is held in restricted cash in current assets on the Trust Accountconsolidated balance sheet.
On February 8, 2021, we consummated the Offering. The net proceeds from the Offering were $94.1 million, after deducting $6.8 million in underwriting discounts and commissions. We also incurred offering expenses in connection with the Offering of $559,667. Changes in operating assets$0.7 million, of which all was paid during the six months ended June 30, 2021. During the six months ended June 30, 2021, we received funds of approximately $54.9 million for the exercise of 4.8 million Public Warrants. There was no exercise of Public Warrants during the three months ended June 30, 2021.
We believe that our cash flows from financing, combined with our current cash and liabilities provided $120,510investment levels and available borrowing capacity, will be adequate to support our ongoing operations, capital expenditures and working capital for at least the next twelve months, as evidenced by our cash flows from financing activities and cash and investment balances as of June 30, 2021. We believe that we have access to additional funds, if needed, through the capital markets to obtain further financing under the current market conditions.
Our principal uses of cash fromare 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 activities.
We used substantially all of the funds held in the Trust Account to complete the Business Combination.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2020.
Contractual Obligations
We do not have any long-term debt,and capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support to the Company. We began incurring these fees on November 19, 2019 andexpenditures associated with our business plan, we anticipate that we will continue to incur these fees monthly untilnet losses.
Cash Flows
The following table presents our cash flows from operating, investing and financing activities for the earlierperiods indicated:
Cash Flow from Operating Activities
| For the six months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| (unaudited) | ||||||||
| (in thousands) | ||||||||
| Net cash used in operating activities | $ | (23,356 | ) | $ | (28,516 | ) | ||
| Net cash provided by (used in) investing activities | (128,957 | ) | 31,621 | |||||
| Net cash provided by financing activities | 148,679 | - | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (3,634 | ) | $ | 3,105 | |||
Cash flow from operating activities primarily consists of net losses, changes to our content assets (including acquisitions and amortization), and other working capital items.
During the completionsix months ended June 30, 2021 and 2020, we recorded a net cash outflow from operating activities of $23.4 million and $28.5 million, respectively, or a decreased outflow of $5.1 million, or 18%. The decreased outflow from operating activities was primarily due to an increase in content liabilities, accounts payable, and accrued expenses and other liabilities of $7.3 million during the Business Combinationsix months ended June 30, 2021 as compared to a decrease of $5.5 million during the six months ended June 30, 2020, the increase in deferred revenue being $6.5 million larger during the six months ended June 30, 2021, and stock-based compensation expense, amortization of content assets, and change in fair value of warrant liability increasing $7.4 million during the six months ended June 30, 2021 as compared to the six months ended June 30, 2021, partially offset by a $10.9 million increase in net loss and $11.9 million higher level of additions to content assets in the current year period.
Cash Flow from Investing Activities
Cash flow from investing activities consists of purchases, sales and maturities of investments and purchases of property and equipment.
During the six months ended June 30, 2021 and 2020, we recorded a net cash outflow from investing activities of $129 million and a net cash inflow from investing activities of $31.6 million, respectively, or an increased cash outflow of $160.6 million. The increase in cash outflow from investing activities was primarily due to the purchases of investments of $141.6 million during the six months ended June 30, 2021. We had sales and maturities of $4.9 million and $12.0 million respectively, during the six months ended June 30, 2021 compared to sales and maturities of investments of $35.6 million and $8.5 million, respectively, during the six months ended June 30, 2020. The Company also had cash outflows of $4.0 million related to the Acquisition of ODU during the six months ended June 30, 2021.
Cash Flow from Financing Activities
During the six months ended June 30, 2021, we recorded net cash inflow from financing activities of $148.7 million, which was attributable to the receipt of proceeds from the Offering of $94.1 million (net of $6.8 million of underwriting discounts and commissions) and the Company’s liquidation.
In addition, we agreed to payexercise of warrants of $54.9 million, partially offset by the underwriters a deferred feepayments of three and half percent (3.50%) of the gross proceeds of the Initial Public Offering, or $5,232,500. The deferred fee was paid in cash upon the closing of the Merger from the amounts held in the Trust Account, subjecttransaction costs related to the termsOffering of $0.7 million incurred during the underwriting agreement. six months ended June 30, 2021. During the six months ended June 30, 2020, financing cash activities were limited to borrowings and payments of $1 million each on the line of credit.
Capital Expenditures
Going forward, we expect to make expenditures for additions to our content assets, and purchases of property and equipment. The amount, timing and allocation of capital expenditures are largely discretionary and within management’s control. Depending on market conditions, we may choose to defer a portion of our budgeted expenditures until later periods to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate cash flow. Subject to financing alternatives, we may also increase our capital expenditures significantly to take advantage of opportunities we consider to be attractive.
Off-Balance Sheet Arrangements
As of June 30, 2021, we had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparationOur discussion and analysis of condensedour financial condition and results of operation is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Certain amounts included in or affecting the consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requiresdisclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the consolidated financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important “critical accounting policies” for the Company. A “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and assumptionsexperience, consultation with experts and other methods that affectmanagement considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future.
Content Assets
The Company acquires, licenses and produces content, including original programming, in order to offer members unlimited viewing of factual entertainment content. The content licenses are for a fixed fee and specific windows of availability. Payments for content, including additions to content library and the changes in related liabilities, are classified within “Net cash used in operating activities” on the consolidated statements of cash flows.
The Company recognizes its content library (licensed and produced) as “Content assets, net” on the consolidated balance sheets. For licenses, the Company capitalizes the fee per title and records a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known, and the title is accepted and available for streaming. For productions, the Company capitalizes costs associated with the production, including development costs, direct costs and production overhead.
Based on factors including historical and estimated viewing patterns, the Company generally amortizes the content library (licensed and produced) in “Cost of revenues” on the consolidated statements of operations on a straight-line basis over the shorter of each title’s contractual window of availability or estimated period of use, beginning with the month of first availability. The Company reviews factors impacting the amortization of the content library on an ongoing basis and will record amortization on an accelerated basis when there is more upfront use of a title, for instance due to significant program sales.
Revenue recognition
Subscriptions — O&O Service
The Company generates revenue from monthly subscription fees from its O&O Service. CuriosityStream subscribers enter into month-to-month or annual subscriptions with the Company. The Company bills the monthly subscriber on each subscriber’s monthly anniversary date and recognizes the revenue ratably over each monthly membership period. The annual subscription fees are collected by the Company at the start of the annual subscription period and are recognized ratably over the subsequent twelve-month period. Revenues are presented net of the taxes that are collected from subscribers and remitted to governmental authorities.
Subscription — App Services
The Company also earns subscription revenues through its App Services. These subscriptions are similar to the O&O Service subscriptions, but these subscriptions are generated based on agreements with certain streaming media players as well as with Smart TV brands and gaming consoles. Under these agreements, the streaming media player typically bills the subscriber directly and then remits the collected subscriptions to the Company, net of a distribution fee. The Company recognizes the gross subscription revenues when earned and simultaneously recognizes the corresponding distribution fees as an expense. The Company is the principal in these relationships as the Company retains control over service delivery to its subscribers.
Licensing — Affiliates
The Company generates license fee revenues from MVPDs such as Altice, Comcast and Cox as well as from vMVPDs such as Amazon and Sling TV (MVPDs and vMVPDs are also referred to as affiliates). Under the terms of the agreements with these affiliates, the Company receives license fees based upon contracted programming rates and subscriber levels reported amountsby the affiliates. In exchange, the Company licenses its content to the affiliates for distribution to their subscribers. The Company earns revenue under these agreements either based on the total number of subscribers multiplied by rates specified in the agreements or based on fixed fee arrangements. These revenues are recognized over the term of each agreement when earned.
Licensing — Program Sales
The Company has distribution agreements which grant a licensee limited distribution rights to the Company’s programs for varying terms, generally in exchange for a fixed license fee. Revenue is recognized once the content is made available for the licensee to use.
The Company’s performance obligations include (1) access to its SVoD platform via the Company’s O&O Service and App Services, (2) access to the Company’s content assets, and liabilities, disclosure(3) licenses of contingent assets and liabilities atspecific program titles. In contracts containing the date ofright to access the financial statements, and income and expenses duringCompany SVoD platform, the periods reported. Actual results could materially differ from those estimates. We have identifiedperformance obligation is satisfied as access to the following critical accounting policies:
Common Stock SubjectSVoD platform is provided post any free trial period. In contracts which contain access to Possible Redemption
We account for common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control)content assets, the performance obligation is classifiedsatisfied as temporary equity. At all other times, common stockaccess to the content is classifiedprovided. For contracts with licenses of specific program titles, the performance obligation is satisfied as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemptioncontent is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our condensed consolidated balance sheets.
Net Loss Per Common Share
We apply the two-class method in calculating earnings per share. Common stock subject to possible redemption which is not currently redeemable and is not redeemable at fair value, has been excluded from the calculation of basic net loss per common share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjustedmade available for the portion of income that is attributablecustomer to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses.use.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Following the consummation of our Initial Public Offering, we invested the funds held in the Trust Account in U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
DisclosureWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in ourthe reports that we file or submit under the Exchange Act reports is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is(2) accumulated and communicated to our management, including our principal executive officerChief Executive Officer and principal financial officer or persons performing similar functions, as appropriateChief Financial Officer, to allow timely decisions regarding required disclosure.
Under the supervision and As of June 30, 2021 (the “Evaluation Date”), our management, with the participation of our management, including our principal executive officerChief Executive Officer and principal financial and accounting officer, we conducted an evaluation ofChief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2020, as such term is(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Act).
Based on thisupon their evaluation, our principal executive officerChief Executive Officer and principal financial and accounting officer haveChief Financial Officer concluded that during the period covered by this report, our disclosure controls and procedures wereare effective as of the Evaluation Date.
On April 12, 2021, the staff of the SEC issued an SEC Staff Statement (“the SEC Staff Statement”) in which the SEC Staff clarified its interpretations of certain generally accepted accounting principles related to ensurewarrants issued by Special Purpose Acquisition Companies (“SPACs”). Based on the clarifications expressed in the SEC Staff Statement which resulted in the restatement discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2020, the Company’s management and the Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2020, there was a material weakness in controls related to the classification and accounting for warrants issued by a SPAC, which did not operate effectively to appropriately apply the provisions of ASC 815.
Remediation of Material Weakness
To remediate the material weakness, the Company studied and clarified its understanding of the accounting of contracts that may be settled in the Company’s own stock, such as warrants, as equity of the entity or as an asset or liability as highlighted in the SEC Staff Statement, and implemented additional review procedures and enhanced its accounting policy related to the accounting for such contracts to determine proper accounting in accordance with GAAP as clarified by the SEC Staff Statement. Based on actions taken, as well as the evaluation of the design and operating effectiveness of these new controls, management believes that the information requiredmaterial weakness has been remediated, subject to be disclosed by usthe ongoing evaluation of the design and operating effectiveness of these controls in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.connection with its annual assessment of internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the fiscal quarter of 2020ended June 30, 2021 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
reporting other than the changes described above related to the material weakness related to the accounting for warrants issued by SPACs.
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We have not experienced any material impact to our internal controls over financial reporting despite the fact that certain of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation and our internal controls to minimize any impact on their design and operating effectiveness.
PART II - OTHER INFORMATION
None. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, results of operations, financial condition or cash flows
Factors that could cause our actual results to differ materially from those in this reportQuarterly Report on Form 10-Q are any of the risks described in (i)Amendment No. 1 to our Annual Report on Form 10-K10-K/A filed with the SEC on March 20, 2020, (ii) our Definitive Proxy Statement on Schedule 14A relating to the Business Combination, initially filed with the SEC on September 17, 2020 and as amended through October 6, 2020, or (iii) our Quarterly Report on Form 10-Q filed with the SEC on August 14, 2020.May 7, 2021. Any of these factors could result in a significant or material adverse effect on our results of operations 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
None.
None.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| Description | Form | File No. | Exhibit | Filing Date | Filed/Furnished Herewith | |||||||
| 31.1 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.1* | Certification of the Chief Executive Officer and Chief Financial Officer | |||||||||||
| X | ||||||||||||
| 101. INS** | Inline XBRL Instance Document | |||||||||||
| X | ||||||||||||
| 101. SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||||||
| X | ||||||||||||
| 101. CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||
| X | ||||||||||||
| 101. LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101. PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
| 101. DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||||
| X | ||||||||||||
| 104 | Cover Page Interactive Data File (as formatted as Inline XBRL | X | ||||||||||
| * |
| ** |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this reportQuarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
| CURIOSITYSTREAM INC. | ||
| Date: | By: | /s/ Clint Stinchcomb |
| Name: | Clint Stinchcomb | |
| Title: | President and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: | By: | /s/ Jason Eustace |
| Name: | Jason Eustace | |
| Title: | Chief Financial Officer and Treasurer | |
(Principal Financial and Accounting Officer) | ||
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