UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For
the quarter ended
For the transition period from to
Commission
file number:
(Exact Name of Registrant as Specified in Its Charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(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 | ||
| Warrants, each exercisable for one share of Common Stock at an exercise price of $11.50 per share | 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.
Indicate
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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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging
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Indicate
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As of August 11, 2022, there were
CURIOSITYSTREAM INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022
TABLE OF CONTENTS
i
CuriosityStream
Inc.
Consolidated Balance Sheets
(in thousands, except par value)
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Short-term investments in debt securities | ||||||||
| Accounts receivable | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Investments in debt securities | ||||||||
| Investments in equity method investees | ||||||||
| Property and equipment, net | ||||||||
| Content assets, net | ||||||||
| Intangibles, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity (deficit) | ||||||||
| Current liabilities | ||||||||
| Content liabilities | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Warrant liability | ||||||||
| Non-current operating lease liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity (deficit) | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ||||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
CuriosityStream Inc.
Consolidated Statements of Operations
(in thousands, except for per share data)
(unaudited)
| For
the three months ended June 30, | For
the six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Advertising and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Impairment of goodwill and intangible assets | - | - | ||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||||||||||
| Interest and other (expense) income | ( | ) | ( | ) | ||||||||||||
| Equity interests loss | ( | ) | ( | ) | - | |||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
CuriosityStream Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
| For
the three months ended June 30, | For
the six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss) | ||||||||||||||||
| Unrealized gain (loss) on available for sale securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CuriosityStream Inc.
Consolidated Statements of Stockholder’s Equity (Deficit)
(in thousands)
(unaudited)
|
Accumulated Other |
Total | |||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock |
Additional Paid-in |
Comprehensive Income |
Accumulated | Stockholders’ Equity |
|||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | (Loss) | Deficit | (Deficit) | |||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation, net | ||||||||||||||||||||||||||||||||
| Other comprehensive income | - | - | ||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation, net | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation, net | ||||||||||||||||||||||||||||||||
| Exercise of Options | ||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation, net | ||||||||||||||||||||||||||||||||
| Issuance of Common Stock | ||||||||||||||||||||||||||||||||
| Common Stock issuance costs | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Exercise of Options | ||||||||||||||||||||||||||||||||
| Exercise of Warrants | ||||||||||||||||||||||||||||||||
| Cancellation of escrow shares | ( |
) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CuriosityStream Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| For
the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Additions to content assets | ( | ) | ( | ) | ||||
| Change in content liabilities | ( | ) | ||||||
| Amortization of content assets | ||||||||
| Depreciation and amortization expenses | ||||||||
| Impairment of goodwill and intangible assets | - | |||||||
| Amortization of premiums and accretion of discounts associated with investments in debt securities, net | ||||||||
| Stock-based compensation | ||||||||
| Equity interests loss | ||||||||
| Other non-cash items | - | |||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other assets | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Business acquisitions | - | ( | ) | |||||
| Investment in equity method investees | ( | ) | ||||||
| Sales of investments in debt securities | ||||||||
| Maturities of investments in debt securities | ||||||||
| Purchases of investments in debt securities | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Exercise of stock options | ||||||||
| Exercise of warrants | ||||||||
| Payments related to tax withholding | ( | ) | ( | ) | ||||
| Proceeds from issuance of Common Stock | ||||||||
| Payment of offering costs | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure: | ||||||||
| Cash paid for taxes | $ | $ | ||||||
| Cash paid for operating leases | $ | $ | ||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities (1) | $ | $ | ||||||
| (1) |
The accompanying notes are an integral part of these consolidated financial statements.
5
CuriosityStream
Inc.
Notes to the Unaudited Consolidated Financial Statements
(in thousands, except share and per share data)
Note 1 — Organization and business
The principal business of CuriosityStream Inc. (the “Company” or “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 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, certain multichannel video programming distributors (“MVPDs”) and virtual MVPDs (“vMVPDs”). The Company also has distribution agreements which grant other media companies certain distribution rights to the Company’s programs, referred to as program sales deals. The Company also sells selected rights (such as in territories or on platforms that are not currently being exploited by the Company) to content created before production begins.
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, 2021.
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, 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022.
Certain amounts presented in prior periods have been reclassified to conform to the current period presentation.
There have been no material changes in the Company’s significant accounting policies other than the effects of adopting new accounting guidance related to leases (see below) compared to the significant accounting policies described in the Company’s consolidated financial statements as of and for the year ended December 31, 2021.
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 content assets, equity method investments, intangible assets and goodwill, the fair value of assets and liabilities for allocation of the purchase price of companies acquired, and the fair value of 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.
6
Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily located in the United States.
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 money market funds and corporate, U.S. government, and municipal debt securities. Level 1 inputs were derived by using unadjusted quoted prices for identical assets in active markets and were used to value the Company’s investments in money market funds and U.S. government debt securities. Level 2 inputs were derived using prices for similar investments and were used to value the Company’s investments in corporate and municipal debt securities.
The Company’s liabilities measured at fair value on a recurring basis include its private placement warrants issued to Software Acquisition Holdings LLC in a private placement that closed concurrently with the Company’s initial public offering (the “Private Placement Warrants”). The fair value of the Private Placement Warrants is considered a Level 3 valuation and is determined using the Black-Scholes valuation model. Refer to Note 7 for significant assumptions which the Company used in the fair value model for the Private Placement Warrants.
The Company’s remaining financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses and other liabilities are carried at cost, which approximates fair value because of the short-term maturity of these instruments.
Recently Issued and Adopted Financial Accounting Standards
As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies. The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC.
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which supersedes the historical lease guidance under Accounting Standards Codification (ASC) 840. Topic 842 increases transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements for both lessees and lessors. The Company adopted the new standard effective January 1, 2022, using the modified retrospective method and electing to use the package of practical expedients permitted under the transition guidance, which allows for the carry forward of historical lease classification for existing leases on the adoption date and does not require the assessment of existing lease contracts to determine whether the contracts contain a lease or initial direct costs. Prior periods were not retrospectively adjusted.
7
The adoption of this standard resulted in the
recognition of operating lease liabilities of $
Accounting Standards Effective in Future Periods
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), which requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. The guidance also modifies the impairment model for available-for-sale debt securities. ASU 2016-13 is effective for the Company’s fiscal year beginning January 1, 2023. The Company does not expect the implementation of ASU 2016-13 to have a material impact on its consolidated financial statements.
Note 3 – Equity Investments
Spiegel TV Geschichte und Wissen GmbH & Co. KG (the “Spiegel Venture”)
In July 2021, the Company acquired
Watch Nebula LLC (“Nebula”)
On August 23, 2021, the Company purchased a
The Company’s carrying values for its equity method investments as of June 30, 2022 and December 31, 2021 is as follows:
| Spiegel Venture | Nebula | Total | ||||||||||
| (in thousands) | ||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | |||||||||
| Investments in equity method investees (1) | ||||||||||||
| Equity interests loss | ( | ) | ( | ) | ( | ) | ||||||
| Balance at June 30, 2022 | $ | $ | $ | |||||||||
| (1) |
8
Note 4 —Balance sheet components
Cash and cash equivalents and restricted cash
A reconciliation of the Company’s cash and cash equivalents in the consolidated balance sheets to cash, cash equivalents and restricted cash in the consolidated statements of cash flows as of June 30, 2022 and December 31, 2021 is as follows:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (in thousands) | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Cash and cash equivalents and restricted cash | $ | $ | ||||||
At June 30, 2022, restricted cash includes cash deposits required by
a bank as collateral related to corporate credit card agreements of $
Investments in debt securities
The Company’s investments in debt securities at fair value based on unadjusted quoted market prices (Level 1) and quoted prices for comparable assets (Level 2) are:
| As of June 30, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||||||||
| Cash and Cash Equivalents | Short-term Investments | Investments (non-current) | Total | Cash and Cash Equivalents | Short-term Investments | Investments (non-current) | Total | |||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
| Level 1 Securities | ||||||||||||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| U.S. Government debt securities | ||||||||||||||||||||||||||||||||
| Total Level 1 Securities | ||||||||||||||||||||||||||||||||
| Level 2 Securities | ||||||||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||||||||
| Municipal debt securities | ||||||||||||||||||||||||||||||||
| Total Level 2 Securities | ||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
9
The following tables summarize the Company’s corporate, U.S. government, and municipal debt securities:
| As of June 30, 2022 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Debt Securities: | ||||||||||||||||
| Corporate | $ | $ | $ | ( | ) | $ | ||||||||||
| U.S. Government | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
| Debt Securities: | ||||||||||||||||
| Corporate | $ | $ | $ | ( | ) | $ | ||||||||||
| U.S. Government | ( | ) | ||||||||||||||
| Municipalities | ||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
There were no material realized gains or losses recorded during the three and six months ended June 30, 2022 or 2021.
Content assets
Content assets consisted of the following:
| As of | ||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| (in thousands) | ||||||||
| Licensed content, net | ||||||||
| Released, less amortization | $ | $ | ||||||
| Prepaid and unreleased | ||||||||
| Produced content, net | ||||||||
| Released, less amortization | ||||||||
| In production | ||||||||
| Total | $ | $ | ||||||
As of June 30, 2022, $
10
In accordance with its accounting policy for content assets, the following tables represent the amortization of content assets:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Licensed content | $ | $ | $ | $ | ||||||||||||
| Produced content | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Goodwill and intangible assets
Changes in goodwill for the six months ended June 30, 2022 is as follows (in thousands):
| Balance at December 31, 2021 | $ | |||
| Impairment of goodwill | ||||
| Balance at June 30, 2022 | $ |
During the three months ended June 30, 2022, the
Company experienced a sustained decrease in its share price, and this triggering event was an indication that it was more likely than
not that the fair value of the Company’s single reporting unit was below its carrying value. The Company performed an interim goodwill
impairment test of its goodwill as of June 30, 2022 and recognized a goodwill impairment charge of $
The determination of the fair value of the Company’s reporting unit was based on a combination of the income and the market approach. The Company applied equal weighting to each of the approaches in determining the fair value of the reporting unit. Under the income approach, the Company utilized discounted cash flows of forecasted future cash flows based on future operational expectations and discounted these cash flows to reflect their relative risk. The cash flows used are consistent with those the Company uses in its internal planning, which reflect actual business trends experienced and the Company’s long-term business strategy. Under the market approach, the Company utilized the guideline public company method and guideline transaction method to develop valuation multiples and compare the Company to similar publicly traded companies. The significant assumptions under each of the approaches include, among others: revenue projections (which are dependent on future customer subscriptions and content licensing agreements), operating expenses, discount rate, control premium and a terminal growth rate. The cash flows used to determine the fair values are dependent on a number of significant management assumptions, such as the Company’s expectations of future performance and the expected future economic environment, which are partly based upon the Company’s historical experience. The Company also considered its market capitalization in assessing the reasonableness of the reporting unit fair value.
During the three months ended June 30, 2022, the
Company also determined there were impairment indicators with respect to certain of the Company’s definite-lived intangible assets.
As a result, the Company performed an impairment test by comparing the carrying values of the intangible assets to their respective fair
values, which were determined based on forecasted future cash flows. As a result of this impairment test, the Company recorded an impairment
charge of $
11
Warrant liability
As described in Note 7, the Private Placement Warrants are classified as a non-current liability and reported at fair value at each reporting period. The fair value of the Private Placement Warrants as of June 30, 2022 and December 31, 2021, was as follows:
| As of June 30, 2022 | As of December 31, 2021 | |||||||
| (in thousands) | ||||||||
| Level 3 | ||||||||
| Private Placement Warrants | $ | $ | ||||||
| Total Level 3 | $ | $ | ||||||
Note 5 — Revenue
The following table sets forth the Company’s revenues disaggregated by type for the three and six months ended June 30, 2022 and 2021, as well as the relative percentage of each revenue type to total revenue.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
| Subscriptions – O&O Service | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| Subscriptions – App Services | % | % | % | % | ||||||||||||||||||||||||||||
| Subscriptions – Total | % | % | % | % | ||||||||||||||||||||||||||||
| License Fees – Affiliates | % | % | % | % | ||||||||||||||||||||||||||||
| License Fees – Program Sales (1) | % | % | % | % | ||||||||||||||||||||||||||||
| License Fees – Total | % | % | % | % | ||||||||||||||||||||||||||||
| Other – Total (1)(2) | % | % | % | % | ||||||||||||||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| (1) | For the three and six months ended June 30, 2022, total related party revenue was $ |
| (2) | In addition to (1) above, Other revenue for the three and six months ended June 30, 2022 includes other marketing services for $ |
Revenues expected to be recognized in the future related to performance obligations that are unsatisfied at June 30, 2022 are as follows:
| Remainder of year ending December 31, | For the years ending December 31, | |||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
| Remaining Performance Obligations | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
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 $
Revenues of $
12
Note 6 — Paycheck Protection Program Loan
On May 1, 2020, the Company applied for and received
funding from the Paycheck Protection Program (“PPP”) in the amount of $
The Company elected to recognize earnings as funds are applied to covered
expenses and classify the application of funds as a reduction of the related expense in the unaudited consolidated statement of operations.
On April 16, 2022, the Company received the loan forgiveness letter from the Small Business Administration (SBA) stating that the loan
has been forgiven in full, including applicable interest. Following receipt of the loan forgiveness notification letter, funds of $
Note 7 — Stockholders’ equity
Common Stock
As of June 30, 2022 and December 31, 2021, the
Company has authorized the issuance of
Warrants
As of June 30, 2022, the Company had A)
Each whole warrant entitles the registered holder
to purchase one share of the Company’s common stock at an exercise price of $
The Company has the right to redeem the outstanding Public Warrants in whole and not in part at a price of $0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of the Company’s common stock matched or exceeded $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sent the notice of redemption to the warrant holders.
The Private Placement Warrants are identical to the Public Warrants except that, so long as they are held by Software Acquisition Group LLC 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.
There were no exercises of warrants during the three and six months ended June 30, 2022.
The warrant liability related to the Private Placement Warrants is recorded at fair value as of each reporting date with the change in fair value reported within other income (expense) in the accompanying unaudited consolidated statements of operations as “Change in fair value of warrant liability” until the warrants are 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, 2022 | As of December 31, 2021 | |||||||
| Exercise Price | $ | $ | ||||||
| Stock Price (CURI) | $ | $ | ||||||
| Expected volatility | % | % | ||||||
| Expected warrant term (years) | ||||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Fair Value per Private Placement Warrant | $ | $ | ||||||
13
The change in fair value of the private placement warrant liability
for the three and six months ended June 30, 2022 resulted in a gain of $
Note 8 — Earnings (loss) per share
Basic and diluted earnings (loss) per share calculations are calculated on the basis of the weighted average number of shares of the Company’s common stock outstanding during the respective periods. Diluted earnings (loss) per share give effect to all dilutive potential common shares outstanding during the period using the treasury stock method for stock options and other potentially dilutive securities. In computing diluted earnings (loss) per share, the average fair value of the Company’s common stock for the period is used to determine the number of shares assumed to be purchased from the exercise price of the options. Purchases of treasury stock reduce the outstanding shares commencing on the date that the stock is purchased. Common stock equivalents are excluded from the calculation when a loss is incurred as their effect would be anti-dilutive.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Numerator - Basic EPS: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator - Basic EPS: | ||||||||||||||||
| Weighted–average shares – Basic | ||||||||||||||||
| Net loss per share – Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Numerator - Diluted EPS: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Decrease in fair value of Private Placement Warrants | ( | ) | ||||||||||||||
| Net loss – Diluted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Denominator - Diluted EPS: | ||||||||||||||||
| Weighted–average shares – Basic | ||||||||||||||||
| Incremental common shares from assumed exercise of Private Placement Warrants | ||||||||||||||||
| Weighted–average shares – Diluted | ||||||||||||||||
| Net loss per share – Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
For the three and six months ended June 30, 2022 and 2021, the following share equivalents were excluded from the computation of diluted net loss per share as the inclusion of such shares would be anti-dilutive. Common shares issuable for warrants, options, and restricted stock units (RSUs) represent the total amount of outstanding warrants, stock options, and restricted stock units at June 30, 2022 and 2021.
| Antidilutive shares excluded: | Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Options | ||||||||||||||||
| Restricted Stock Units | ||||||||||||||||
| Warrants | ||||||||||||||||
14
Note 9 — Stock-based compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The fair value is recognized in earnings over the period during which an employee is required to provide the service. The Company accounts for forfeitures as they occur.
CuriosityStream 2020 Omnibus Plan
In
October 2020, the Board of Directors of the Company adopted the CuriosityStream 2020 Omnibus Plan (the “2020 Plan”). Upon
adoption of the 2020 Plan, a total of
The following table summarizes stock option and RSU activity, prices, and values for the six months ended June 30, 2022:
| Stock Options | Restricted Stock Units | |||||||||||||||||||
| Number of Shares Available for Issuance Under the Plan | Number of Shares | Weighted- Average Exercise Price | Number of Shares | Weighted - Average Grant Date Fair Value | ||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||
| Balance at December 31, 2021 | $ | | $ | | ||||||||||||||||
| Granted | ( | ) | ||||||||||||||||||
| Options exercised and RSUs vested | ( | ) | ||||||||||||||||||
| Forfeited or expired | ( | ) | ( | ) | ||||||||||||||||
| Balance at June 30, 2022 | $ | $ | ||||||||||||||||||
There
were
Options
generally have a four-year vesting period with
RSUs
generally have a four-year or a quarterly vesting period with 1/48th of the shares vesting monthly or
The fair value of stock option awards is estimated using the Black-Scholes option pricing model, which includes a number of assumptions including Company’s 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, also known as the simplified method, given the lack of historical exercise behavior.
15
The Company uses its own historical volatility as well as the historical volatility of similar public companies for estimating volatility. The risk-free interest rate is estimated using the rate of return on U.S. Treasury securities with maturities that approximate to the expected term of the option. The Company does not currently anticipate declaring any dividends.
Assumptions used to value the options granted and the resulting weighted-average grant date fair value and stock-based compensation expense for the three and six months ended June 30, 2022 and 2021 were as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Dividend yield | % | % | % | |||||||||||||
| Expected volatility | % | % | % | |||||||||||||
| Expected term (years) | ||||||||||||||||
| Risk-free interest rate | % | % | % | |||||||||||||
| Weighted average grant date fair value | $ | $ | $ | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Stock-based compensation - Options | $ | $ | $ | $ | ||||||||||||
| Stock-based compensation - RSUs | $ | $ | $ | $ | ||||||||||||
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.
Note 10 — Segment and geographic information
The
Company operates as
All
long-lived tangible assets are located in the United States. Revenue by geographic location, based on the location of the customers,
with one foreign country individually comprising greater than
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| United States | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
| International: | ||||||||||||||||||||||||||||||||
| United Kingdom | % | % | % | % | ||||||||||||||||||||||||||||
| Other | % | % | % | % | ||||||||||||||||||||||||||||
| Total International | % | % | % | % | ||||||||||||||||||||||||||||
| % | % | % | % | |||||||||||||||||||||||||||||
16
Note 11 — Related party transactions
Equity investments
As described in Note 5, the Company recognized $
As described in Note 5, the Company recognized $
Note 12 — Leases
The Company adopted the new leases guidance contained in Topic 842 effective January 1, 2022 using the modified retrospective method. Therefore, the reported results for the three and six months ended June 30, 2022 and the financial position as of June 30, 2022 reflect the application of this new guidance, while the reported results for the three and six months ended June 30, 2021 and the financial position as of December 31, 2021 were not adjusted and continue to be reported under the prior lease accounting guidance in effect for the prior periods.
17
Company as a Lessee
At
June 30, 2022, the Company had operating lease ROU assets of $
Components of Lease Cost
The Company’s total operating lease cost for the three and six months ended June 30, 2022 was comprised of the following (in thousands):
| Three months ended June 30, 2022 | Six months ended June 30, 2022 | |||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost | ||||||||
| Variable lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
Maturity of Lease Liabilities
As of June 30, 2022, maturities of our operating lease liabilities, which do not include short-term leases and variable lease payments, are as follows (in thousands):
| Remaining six months of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total Lease Payments | $ | |||
| Less: imputed interest | ( | ) | ||
| Present value of total lease liabilities | $ |
Company as Lessor
The
Company sublets a portion of its office space to a related party and accounts for the arrangement as an operating lease. Related party
sublease rental income is recognized on a straight-line basis and is included in Interest and other income in the accompanying consolidated
statements of operations. For the three and six months ended June 30, 2022, operating lease income from the Company’s sublet was
less than $
18
Note 13 — Commitments and contingencies
Content commitments
At
June 30, 2022, the Company had $
At
December 31, 2021, the Company had $
Content obligations include amounts related to licensed, commissioned and internally produced streaming content. An obligation for the production of content includes non-cancelable commitments under creative talent and employment agreements. An obligation for the licensed and commissioned content is incurred at the time the Company enters into an agreement to obtain future titles. Once a title becomes available, a content liability is generally recorded. Certain agreements include the obligation to license rights for unknown future titles, the ultimate quantity and/or fees for which are not yet determinable as of the reporting date.
Advertising commitments
The
Company has certain commitments with regards to future advertising and marketing expenses as stated in the various licensee agreements.
Certain of the agreements do not specify the amount of advertising and marketing commitment; however, the total commitments for agreements
which do specify the amount are $
Note 14 — Income taxes
The
Company recorded a provision for income taxes of $
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provide information that management believes is relevant to an assessment and understanding of our results of operations and financial condition. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of CuriosityStream.
Cautionary Note Regarding Forward-looking Statements
All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements 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,” “attribute,” “believe,” “continue,” “hope,” “estimate,” “expect,” “intend,” “may,” “might,” “potential,” “seek,” “should,” “will” and “would,” 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. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those included in forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on March 31, 2022, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 filed with the SEC on May 16, 2022. We assume no obligation to revise or publicly release any revision to any forward-looking statements contained in this Quarterly Report on Form 10-Q, unless required by law.
Overview
CuriosityStream is a media and entertainment company that offers premium video programming across the principal categories of factual entertainment, including science, history, society, nature, lifestyle and technology. Our mission is to provide premium factual entertainment that informs, enchants and inspires. We are seeking to meet demand for high-quality factual entertainment via SVoD platforms, as well as via bundled content licenses for SVoD and linear offerings, partner bulk sales, brand partnerships and content sales. We believe we are well-positioned for growth as a digital-native video platform monetizing content across this broad revenue stack.
We operate our business as a single operating segment that provides premium streaming content through multiple channels, including the use of various applications, partnerships and affiliate relationships. We generate our revenue through six products and services: Direct to Consumer Business, Partner Direct Business, Bundled Distribution, Program Sales, Corporate & Association Partnerships and Other. The table below shows our revenue generated through each of the foregoing products and services for the three and six months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
| Direct to Consumer (Subscriptions – O&O and App Services) | $ | 7,363 | 33 | % | $ | 5,647 | 37 | % | $ | 14,554 | 36 | % | $ | 10,462 | 41 | % | ||||||||||||||||
| Partner Direct Business (License Fees – Affiliates) | 1,191 | 5 | % | 1,041 | 7 | % | 2,334 | 6 | % | 2,018 | 8 | % | ||||||||||||||||||||
| Bundled Distribution (License Fees – Affiliates) | 3,888 | 18 | % | 3,538 | 23 | % | 7,655 | 19 | % | 7,064 | 28 | % | ||||||||||||||||||||
| Program Sales | 6,655 | 30 | % | 5,031 | 33 | % | 10,904 | 27 | % | 5,517 | 22 | % | ||||||||||||||||||||
| Corporate & Association Partnerships (Subscriptions – O&O Service) | 1,559 | 7 | % | 33 | 0 | % | 2,722 | 7 | % | 95 | 0 | % | ||||||||||||||||||||
| Other | 1,692 | 7 | % | 54 | 0 | % | 1,806 | 5 | % | 124 | 1 | % | ||||||||||||||||||||
| Total Revenues | $ | 22,348 | $ | 15,344 | $ | 39,975 | $ | 25,280 | ||||||||||||||||||||||||
CuriosityStream’s award-winning content library features more than 15,000 programs that explore topics ranging from space engineering to ancient history to the rise of Wall Street. Our extensive catalog of originally produced and owned content includes more than 9,500 short-, mid- and long-form video and audio titles, including One Day University and Learn25 recorded lectures that are led by some of the most acclaimed college and university professors in the world. Our library also features a rotating catalog of more than 5,500 internationally licensed videos and audio programs. Every month, we launch dozens of new video titles, which are available on-demand in high- or ultra-high definition. Through new and long-standing international partnerships, we have localized a large portion of our video library in ten different languages—so far.
Our video content is available directly through our O&O Service and App Services. Our App Services enable access to CuriosityStream on almost every major consumer device, including streaming media players like Roku, Apple TV and Amazon Fire TV, all major smart TV brands (e.g., LG, Vizio, Samsung, Sony) and gaming consoles like Xbox. Our Direct Service is available to any household in the world with a broadband connection for $2.99 per month or $19.99 per year. We also provide a premium service for $9.99 per month or $69.99 per year. Our Premium membership includes everything in our standard service, plus subscriptions to third-party platforms Tastemade, Topic, and SommTV, our equity investee Nebula, and our new service, One Day University.
20
The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee for sales to individuals who subscribe to CuriosityStream via the partners’ respective platforms. We have affiliate agreement relationships with, and our service is available directly from, major MVPDs that include Comcast, Cox, Dish and vMVPDs and digital distributors that include Amazon Prime Video Channels, Apple Channel, Roku Channel, Sling TV and YouTube TV.
In addition to our Direct to Consumer Business and Partner Direct Business, we have affiliate relationships with our Bundled MVPD Partners and MVPDs, which are broadband and wireless companies in the U.S. and international territories to whom we can offer a broad scope of rights, including 24/7 “linear” channels, our on-demand content library, mobile rights and pricing and packaging flexibility, in exchange for an annual fixed fee or fee per subscriber.
In our Program Sales Business, we sell to certain media companies a collection of our existing titles in a traditional program sales deal. We also sell selected rights (such as in territories or on platforms that are lower priority for us) to content we create before we even begin production. This latter model reduces risk in our content development decisions and creates program sales revenue.
Our Corporate & Association Partnerships business is comprised primarily of selling subscriptions in bulk to companies and organizations that in turn offer these subscriptions to their employees and members as an employment benefit or “gift of curiosity.” To date, over 27 companies have purchased annual subscriptions at bulk discounts for their employees.
Our Other business is primarily comprised of advertising and sponsorship revenue. We offer companies the opportunity to be associated with CuriosityStream content in a variety of forms, including short and long form program integration, branded social media promotional videos, advertising spots in our video and audio programs that are made available in front of the paywall, and digital display ads.
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 the Direct to Consumer Business and Direct Subscribers, (ii) subscriber fees from Corporate & Association Partnerships, (iii) license fees from affiliates who receive subscriber fees for CuriosityStream from such affiliates’ subscribers (“Partner Direct Business” and “Partner Direct Subscribers”), (iv) license fees from bundled license fees from distribution affiliates (“Bundled MVPD Business” and “Bundled MVPD Subscribers”), (v) license fees from program sales arrangements, and (vi) Other revenue, including advertising and sponsorships. As of June 30, 2022, we had approximately 25 million total paying subscribers, including Direct Subscribers, Partner Direct Subscribers, Bundled MVPD Subscribers and Corporate & Association Partnerships subscribers.
21
Since our founding in 2015, we have generated a significant portion of our revenues from Direct Subscribers in the form of monthly or annual subscription plans. We may in the future increase the price of our subscription plans, which may have a positive effect on our revenue from this line of our business. The MVPD, vMVPD and digital distributor partners making up our Partner Direct Business pay us a license fee. We recognize subscription revenues ratably during each subscriber’s monthly or yearly subscription period. We pay a fixed percentage distribution fee to our partners for subscribers accessing our platform via App Services to compensate these partners for access to their customer and subscriber bases. Our MVPD, vMVPD and digital distributor partners host and stream our content to their customers via their own platforms, such as set top boxes in the 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. 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 have been and intend to continue to focus marketing dollars on efficient customer acquisition. With respect to personnel costs, we focus on revenue-generating personnel, such as sales staff and roles that support the improvement, maintenance and marketing of our Direct Service.
22
Results of Operations
The financial data in the following table sets forth selected financial information derived from our unaudited consolidated financial statements for the three and six months ended June 30, 2022 and 2021 and shows our results of operations as a percentage of revenue or as a percentage of costs, as applicable, for the periods indicated. We conduct business through one operating segment, CuriosityStream.
Comparison of the three months ended June 30, 2022 and 2021
| Three months ended June 30, | ||||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||||||||||
| (unaudited) (in thousands) | ||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| Subscriptions | $ | 8,922 | 40 | % | $ | 5,680 | 37 | % | $ | 3,242 | 57 | % | ||||||||||||
| License fee | 11,734 | 52 | % | 9,610 | 63 | % | 2,124 | 22 | % | |||||||||||||||
| Other | 1,692 | 8 | % | 54 | 0 | % | 1,638 | n/m | ||||||||||||||||
| Total Revenues | $ | 22,348 | 100 | % | $ | 15,344 | 100 | % | $ | 7,004 | 46 | % | ||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Cost of revenues | 12,988 | 34 | % | 5,722 | 22 | % | 7,266 | 127 | % | |||||||||||||||
| Advertising and marketing | 11,208 | 29 | % | 11,520 | 44 | % | (312 | ) | (3 | %) | ||||||||||||||
| General and administrative | 10,603 | 28 | % | 9,153 | 34 | % | 1,450 | 16 | % | |||||||||||||||
| Impairment of goodwill and intangible assets | 3,603 | 9 | % | - | 0 | % | 3,603 | n/m | ||||||||||||||||
| Total operating expenses | $ | 38,402 | 100 | % | $ | 26,395 | 100 | % | $ | 12,007 | 45 | % | ||||||||||||
| Operating loss | (16,054 | ) | (11,051 | ) | (5,003 | ) | 45 | % | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Change in fair value of warrant liability | 478 | 1,764 | (1,286 | ) | (73 | %) | ||||||||||||||||||
| Interest and other (expense) income | (29 | ) | 1,036 | (1,065 | ) | n/a | ||||||||||||||||||
| Equity interests loss | (316 | ) | - | (316 | ) | n/m | ||||||||||||||||||
| Loss before income taxes | $ | (15,921 | ) | $ | (8,251 | ) | $ | (7,670 | ) | 93 | % | |||||||||||||
| Provision for income taxes | 56 | 53 | 3 | 6 | % | |||||||||||||||||||
| Net loss | $ | (15,977 | ) | $ | (8,304 | ) | $ | (7,673 | ) | 92 | % | |||||||||||||
n/m - percentage not meaningful
Revenue
Revenue for the three months ended June 30, 2022 and 2021 was $22.3 million and $15.3 million, respectively. The increase of $7.0 million, or 46%, is due to a $3.2 million increase in subscription revenue, a $2.1 million increase in license fee revenue and a $1.6 million increase in other revenue.
The increase in subscription revenue of $3.2 million resulted primarily from a $1.6 million increase in subscriber fees received from Direct Subscribers for annual and monthly plans and a $1.3 million increase in corporate subscriptions related to the bulk agreements executed in the last quarter of 2021. The increase in license fees of $2.1 million resulted primarily from a $1.6 million increase in license fees related to a larger volume of program sales arrangements and a $0.5 million increase in bundled distribution due to new agreements launched in the second half of 2021. The increase in other revenue of $1.6 million is primarily due to revenue generated in the current quarter related to an advertising agreement with an affiliate.
Operating Expenses
Operating expenses for the three months ended June 30, 2022 and 2021 were $38.4 million and $26.4 million, respectively. This increase of $12.0 million, or 45%, primarily resulted from the following:
Cost of Revenues: Cost of revenues for the three months ended June 30, 2022 increased to $13.0 million from $5.7 million for the three months ended June 30, 2021. Cost of revenues primarily includes content amortization, hosting and streaming delivery costs, payment processing costs and distribution fees, commission costs and subtitling and broadcast costs. This increase of $7.3 million, or 127%, is primarily due to the increase in content amortization of $5.8 million, which is primarily driven by the increase in program sales arrangements resulting in significant accelerated amortization, as well as an increase in the number and cost of titles published during the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The balance of the increase in cost of revenues is primarily due to a $1.3 million increase in revenue share expense related to bundled and premier tier arrangements with other streaming services as well as cost of advertising and an increase of $0.2 million in sales commissions, subtitling and broadcast costs.
23
Advertising & Marketing: Advertising and marketing expenses for the three months ended June 30, 2022, decreased to $11.2 million from $11.5 million for the three months ended June 30, 2021. This decrease of $0.3 million, or 3% is primarily due to a decrease in digital advertising, partner platforms and agency fees of $2.5 million, partially offset by an increase of $2.2 million in radio and TV advertising compared to the prior year period.
General and Administrative: General and administrative expenses for the three months ended June 30, 2022 increased to $10.6 million from $9.2 million for the three months ended June 30, 2021. This increase of $1.4 million, or 16%, is primarily attributable to incremental salaries and benefits.
Impairment of Goodwill and Intangible Assets: The increase of $3.6 million in operating expenses for the three months ended June 30, 2022 was the result of the impairment analysis performed during the current quarter. The analysis resulted in an impairment charge of $0.8 million related to intangible assets and an impairment charge against the entire balance of goodwill for $2.8 million. There were no such impairment charges recorded during the three months ended June 30, 2021.
Operating Loss
Operating loss for the three months ended June 30, 2022 and 2021 was $16.1 million and $11.1 million, respectively. The increase of $5.0 million, or 45%, in operating loss resulted from the increase in operating expenses of $12.0 million, or 45%, including the impairment of goodwill and intangible assets of $3.6 million, offset by an increase in revenue of $7.0 million, or 46%, in each case during the three months ended June 30, 2022 compared to the three months ended June 30, 2021, as described above.
Change in Fair Value of Warrant Liability
For the three months ended June 30, 2022, the Company recognized a $0.5 million gain compared to a gain of $1.8 million recognized during the three months ended June 30, 2021, each resulting from a decrease in the fair value of the liabilities related to the Private Placement Warrants for the respective periods.
Interest and Other Income (Expense)
Interest and other income (expense) for the three months ended June 30, 2022 was less than $0.1 million expense compared to $1.0 million in income for the three months ended June 30, 2021, primarily due to greater interest income from debt investments in the prior year period.
Equity Interests Loss
For the three months ended June 30, 2022, the Company recorded $0.3 million equity interests loss related to the equity investments in the Spiegel Venture and Nebula with no comparable equity interests income or loss in the three months ended June 30, 2021.
Provision for Income Taxes
Due to generating a loss before income taxes in each of the three months ended June 30, 2022 and 2021, we had a provision for income taxes of $56 thousand and $53 thousand, respectively. This slight increase of $3 thousand, or 6%, was primarily due to an increase in foreign withholding tax expense due to an increase in contracts executed with parties in foreign jurisdictions. The Company’s provision for income taxes differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a benefit for either federal or state income tax purposes.
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Net Loss
Net loss for the three months ended June 30, 2022 and 2021 was $16.0 million and $8.3 million, respectively. The increase of net loss of $7.7 million, or 92%, is due to the increase in total operating expenses of $12 million, or 45%, consisting primarily of the increase in cost of revenues and goodwill and intangible assets impairment charges, the $1.3 million decrease in the gain related to the change in the fair value of the warrant liability, and the $1.1 million decrease in interest and other (expense) income, partially offset by the increase in total revenues of $7.0 million or 46%, in each case during the three months ended June 30, 2022 compared to the three months ended June 30, 2021, as described above.
Comparison of the six months ended June 30, 2022 and 2021
| Six months ended June 30, | ||||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| Subscriptions | $ | 17,276 | 43 | % | $ | 10,557 | 42 | % | $ | 6,719 | 64 | % | ||||||||||||
| License fee | 20,893 | 52 | % | 14,599 | 58 | % | 6,294 | 43 | % | |||||||||||||||
| Other | 1,806 | 5 | % | 124 | 0 | % | 1,682 | n/m | ||||||||||||||||
| Total Revenues | $ | 39,975 | 100 | % | $ | 25,280 | 100 | % | $ | 14,695 | 58 | % | ||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Cost of revenues | 24,838 | 33 | % | 9,880 | 19 | % | 14,958 | 151 | % | |||||||||||||||
| Advertising and marketing | 25,976 | 34 | % | 23,769 | 46 | % | 2,207 | 9 | % | |||||||||||||||
| General and administrative | 21,106 | 28 | % | 17,885 | 35 | % | 3,221 | 18 | % | |||||||||||||||
| Impairment of goodwill and intangible assets | 3,603 | 5 | % | - | 0 | % | 3,603 | n/m | ||||||||||||||||
| Total operating expenses | $ | 75,523 | 100 | % | $ | 51,534 | 100 | % | $ | 23,989 | 47 | % | ||||||||||||
| Operating loss | (35,548 | ) | (26,254 | ) | (9,294 | ) | 35 | % | ||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||
| Change in fair value of warrant liability | 4,338 | (2,022 | ) | 6,360 | n/m | |||||||||||||||||||
| Interest and other (expense) income | (86 | ) | 1,296 | (1,382 | ) | n/m | ||||||||||||||||||
| Equity interests loss | (472 | ) | - | (472 | ) | n/m | ||||||||||||||||||
| Loss before income taxes | $ | (31,768 | ) | $ | (26,980 | ) | $ | (4,788 | ) | 18 | % | |||||||||||||
| Provision for income taxes | 101 | 79 | 22 | 28 | % | |||||||||||||||||||
| Net loss | $ | (31,869 | ) | $ | (27,059 | ) | $ | (4,810 | ) | 18 | % | |||||||||||||
n/m - percentage not meaningful
Revenue
Revenue for the six months ended June 30, 2022 and June 30, 2021 was $40.0 million and $25.3 million, respectively. The increase of $14.7 million, or 58%, is due to a $6.7 million increase in subscription revenue, a $6.3 million increase in license fee revenue and a $1.7 million increase in other revenue
The increase in subscription revenue of $6.7 million resulted primarily from a $4.1 million increase in subscriber fees received from Direct Subscribers for annual and monthly plans and a $2.6 million increase in corporate subscriptions related to subscription bulk agreements. The increase in license fees of $6.3 million resulted primarily from a $5.3 million increase in license fees related to a larger volume of program sales arrangements, a $0.6 million increase in bundled distribution due to new agreements launched in the second half of 2021 and a $0.4 million increase in Partner Direct revenues due to increased subscribers to our partner’s respective platforms.
Operating Expenses
Operating expenses for the six months ended June 30, 2022 and 2021 were $75.5 million and $51.5 million, respectively. This increase of $24.0 million, or 47%, primarily resulted from the following:
Cost of Revenues: Cost of revenues for the six months ended June 30, 2022 increased to $24.8 million from $9.8 million for the six months ended June 30, 2021. Cost of revenues primarily includes content amortization, hosting and streaming delivery costs, payment processing costs and distribution fees, commission costs and subtitling and broadcast costs. This increase of $15.0 million, or 151%, is primarily due to the increase in content amortization of $12.2 million, which is primarily driven by the increase in program sales arrangements resulting in significant accelerated amortization, as well as an increase in the number and cost of titles published during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The balance of the increase in cost of revenues is primarily due to a $2.5 million increase in revenue share expense related to bundled and premier tier arrangements with other streaming services and an increase of $0.3 million in subtitling and broadcast costs.
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Advertising & Marketing: Advertising and marketing expenses for the six months ended June 30, 2022, increased to $26.0 million from $23.8 million for the six months ended June 30, 2021. This increase of $2.2 million, or 9%, is primarily due to an increase in radio advertising of $5.6 million and an increase in digital advertising of $0.6 million, partially offset by a decrease of $4.0 million in partner platforms, TV advertising and agency fees compared to the prior year period.
General and Administrative: General and administrative expenses for the six months ended June 30, 2022 increased to $21.1 million from $17.9 million for the six months ended June 30, 2021. This increase of $3.2 million, or 18%, is primarily attributable to $2.2 million for incremental salaries and benefits as well as smaller increases to various other expense categories, including licenses and subscriptions and professional fees.
Impairment of Goodwill and Intangible Assets: The increase of $3.6 million in operating expenses for the six months ended June 30, 2022 is the result of the impairment analysis performed as of June 30, 2022. The analysis resulted in an impairment charge of $0.8 million related to intangible assets and an impairment charge against the entire balance of goodwill for $2.8 million. There were no such impairment charges recorded during the six months ended June 30, 2021.
Operating Loss
Operating loss for the six months ended June 30, 2022 and 2021 was $35.6 million and $26.3 million, respectively. The increase of $9.3 million, or 35%, in operating loss resulted from the increase in operating expenses of $24.0 million, or 47%, including the impairment of goodwill and intangible assets of $3.6 million, offset by an increase in revenue of $14.7 million, or 58%, in each case during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, as described above.
Change in Fair Value of Warrant Liability
For the six months ended June 30, 2022, the Company recognized a $4.3 million gain related to the decrease in the fair value of the liability related to Private Placement Warrants, compared to a loss of $2.2 million recognized during the six months ended June 30, 2021, which was due to an increase in the fair value of the liability related to the Private Placement Warrants in the prior period.
Interest and Other Income (Expense)
Interest and other income (expense) for the six months ended June 30, 2022 was a $0.1 million expense compared to $1.3 million in income for the six months ended June 30, 2021, primarily due to greater interest income from investments in the prior year period.
Equity Interests Loss
For the six months ended June 30, 2022, the Company recorded $0.5 million equity interests loss related to the equity investments in the Spiegel Venture and Nebula with no comparable equity interests income or loss in the six months ended June 30, 2021.
Provision for Income Taxes
Due to generating a loss before income taxes in each of the six months ended June 30, 2022 and 2021, we had a provision for income taxes of $101 thousand and $79 thousand, respectively. This increase of $22 thousand, or 28%, was primarily due to an increase in foreign withholding tax expense due to an increase in contracts executed with parties in foreign jurisdictions. The Company’s provision for income taxes differs from the federal statutory rate primarily due to the Company being in a full valuation allowance position and not recognizing a benefit for either federal or state income tax purposes.
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Net Loss
Net loss for the six months ended June 30, 2022 and 2021 was $31.9 million and $27.1 million, respectively. The increase of net loss of $4.8 million, or 18%, is primarily due to the increase in total operating expenses of $24.0 million, or 47%, consisting of the increase in cost of revenues and goodwill and intangible assets impairment charges, and the $1.4 million decrease in interest and other (expense) income, partially offset by the increase in total revenues of $14.7 million or 58% and the increase in gain related to the change in fair value of the warrant liability of $6.4 million, in each case during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, as described above.
Liquidity and Capital Resources
As of June 30, 2022, we had cash and cash equivalents, including restricted cash, of $23.3 million. In addition, the Company had available for sale investments in debt securities totaling $54.5 million, all of which were classified as short-term investments. All of the Company’s investments in debt securities can be readily converted to cash to meet the Company’s ongoing operating cash flow needs. For the six months ended June 30, 2022, we incurred a net loss of $31.9 million and used $18.1 million of net cash in operating activities, while investing activities provided $24 million of net cash, and financing activities used $0.2 million of net cash.
We believe that our current cash levels and investments in debt securities that are readily convertible to cash will be adequate to support our ongoing operations, capital expenditures and working capital for at least the next twelve months.
Our principal uses of cash are to acquire content, promote our service through advertising and marketing, and provide for working capital to operate our business. We have experienced significant net losses since our inception, and, given the significant operating and capital expenditures associated with our business plan, we anticipate that we will continue to incur net losses.
Cash Flows
The following table presents our cash flows from operating, investing and financing activities for the six months ended June 30, 2022 and 2021:
| For the six months ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| (in thousands) | ||||||||
| Net cash used in operating activities | $ | (18,149 | ) | $ | (23,356 | ) | ||
| Net cash provided by (used in) investing activities | 24,024 | (128,957 | ) | |||||
| Net cash (used in) provided by financing activities | (161 | ) | 148,679 | |||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 5,714 | $ | (3,634 | ) | |||
Cash Flows from Operating Activities
Cash flow from operating activities primarily consists of net losses, changes to our content assets (including acquisitions and amortization), and other working capital items.
During the six months ended June 30, 2022 and 2021, we recorded a net cash outflow from operating activities of $18.2 million and $23.4 million, respectively, or a decreased outflow of $5.2 million, or 22%. The decreased cash outflow from operating activities was primarily due to increased collections of our accounts receivable of $15.4 million, increase in the volume of our accounts payable outstanding of $4.4 million, increase in the amortization of content assets of $12.1 million, increase in other assets of $3.9 million, and the impairment of goodwill and intangibles of $3.6 million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease in outflow from operating activities was partially offset by increased investment in content (shown by the change in content liabilities and additions to content assets) of $11.3 million, and the decrease in deferred revenue change of $8.6 million for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.
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Cash Flows from Investing Activities
Cash flow from investing activities consists of purchases, sales and maturities of investments, as well as business combinations, equity investments and purchases of property and equipment.
During the six months ended June 30, 2022 and June 30, 2021, we recorded a net cash inflow from investing activities of $24.0 million and a net cash outflow from investing activities of $129.0 million, respectively, or a decrease of cash outflow of $153.0 million, or 119%. The decrease in cash outflow from investing activities was primarily due to the decrease of the purchases of available for sale investments of $140.1 million, a net increase in sales and maturities of those investments of $10.4 million, as well as $1.6 million cash outflows related to equity investments during the three months ended June 30, 2022 as compared to $4.0 million cash outflows related to a business combination during the three months ended June 30, 2021.
Cash Flows from Financing Activities
During the six months ended June 30, 2022 and 2021, we recorded net cash outflow from financing activities of $0.2 million and a net cash inflow from financing activities of $148.7 million, respectively. The net cash inflow during the six months ended June 30, 2021 of $148.7 million was attributable to the receipt of proceeds from the issuance of common stock of $94.1 million (net of $6.8 million of underwriting discounts and commissions), the exercise of 4.8 million Public Warrants resulting in cash proceeds of $54.9 million, and the exercise of stock options of $0.4 million, partially offset by the payments of transaction costs related to the issuance of common stock of $0.7 million. There was no comparable activity during the six months ended June 30, 2022.
Capital Expenditures
Going forward, we expect to make expenditures for additions to our content assets, and purchases of property and equipment. The amount, timing and allocation of capital expenditures are largely discretionary and within management’s control. Depending on market conditions, we may choose to defer a portion of our budgeted expenditures until later periods to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate cash flow. Subject to financing alternatives, we may also increase our capital expenditures significantly to take advantage of opportunities we consider to be attractive.
Off Balance Sheet Arrangements
As of June 30, 2022, we had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operation is based upon our financial statements, which have been prepared in accordance with U.S. GAAP. Certain amounts included in or affecting the financial statements presented in this Annual Report and related disclosure must be estimated, requiring management to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. Management believes that the accounting policies set forth below comprise the most important “critical accounting policies” for the Company. A critical accounting policy is one which is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such policies on an ongoing basis, based upon historical results and experience, consultation with experts and other methods that management considers reasonable in the particular circumstances under which the judgments and estimates are made, as well as management’s forecasts as to the manner in which such circumstances may change in the future.
Content Assets
The Company acquires, licenses and produces content, including original programming, in order to offer customers unlimited viewing of factual entertainment content. The content licenses are for a fixed fee and specific windows of availability. Payments for content, including additions to content assets and the changes in related liabilities, are classified within “Net cash used in operating activities” on the unaudited consolidated statements of cash flows.
The Company recognizes its content assets (licensed and produced) as “Content assets, net” on the unaudited consolidated balance sheets. For licenses, the Company capitalizes the fee per title and records a corresponding liability at the gross amount of the liability when the license period begins, the cost of the title is known, and the title is accepted and available for streaming. For productions, the Company capitalizes costs associated with the production, including development costs, direct costs, and production overhead.
Based on factors including historical and estimated viewing patterns, the Company previously amortized the content assets (licensed and produced) in “Cost of revenues” on the unaudited consolidated statements of operations on a straight-line basis over the shorter of each title’s contractual window of availability or estimated period of use, beginning with the month of first availability. Starting July 1, 2021, the Company amortizes content assets on an accelerated basis in the initial two months after a title is published on the Company’s platform, as the Company has observed and expects more upfront viewing of content, generally as a result of additional marketing efforts. Furthermore, the amortization of original content is more accelerated than that of licensed content. We review factors that impact the amortization of the content assets on a regular basis and the estimates related to these factors require considerable management judgment. The Company continues to review factors impacting the amortization of content assets on an ongoing basis and will also record amortization on an accelerated basis when there is more upfront use of a title, for instance due to significant program sales.
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The Company’s business model is generally subscription based as opposed to a model generating revenues at a specific title level. Content assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than unamortized cost. If such changes are identified, the aggregated content assets will be stated at the lower of unamortized cost or fair value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off.
As a result of a sustained decrease in the Company’s share price during the six months ended June 30, 2022, we concluded that a triggering event had occurred and conducted impairment testing of our content assets. As a result of this review, we determined no impairment charges were necessary. Refer to the “Goodwill and intangible assets” section below for further details with respect to the impairment testing performed by the Company over its goodwill and definite-lived intangible assets as of June 30, 2022.
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of acquisitions over the amount assigned to tangible and identifiable intangible assets acquired less liabilities assumed. At least annually, in the fourth quarter of each fiscal year or more frequently if indicators of impairment exist, management performs a review to determine if the carrying value of goodwill is impaired. The identification and measurement of goodwill impairment involves the estimation of fair value at the Company’s reporting unit level, which is the same or one level below the operating segment level. The Company determined that it has one reporting unit.
The Company performs an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of relevant events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if the Company concludes otherwise, an impairment test must be performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including goodwill.
Intangible assets other than goodwill are carried at cost and amortized over their estimated useful lives. Amortization is recorded within General and administrative expenses on the consolidated statements of operations. The Company reviews identifiable finite-lived intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its ultimate disposition. Measurement of any impairment loss is based on the amount by which the carrying value of the asset exceeds its fair value.
As a result of a sustained decrease in the Company’s share price during the six months ended June 30, 2022, we concluded that a triggering event had occurred and conducted impairment testing of our goodwill and intangible assets.
During the three months ended June 30, 2022, the Company experienced a sustained decrease in its share price, and this triggering event was an indication that it was more likely than not that the fair value of the Company’s single reporting unit was below its carrying value. The Company performed an interim goodwill impairment test of its goodwill as of June 30, 2022 and recognized a goodwill impairment charge of $2.8 million during the three months ended June 30, 2022 as the fair value of the reporting unit was less than the related carrying value. This charge is included in impairment of goodwill and intangible assets on the Company’s unaudited consolidated statements of operations.
The determination of the fair value of the Company’s reporting unit was based on a combination of the income and the market approach. The Company applied equal weighting to each of the approaches in determining the fair value of the reporting unit. Under the income approach, the Company utilized discounted cash flows of forecasted future cash flows based on future operational expectations and discounted these cash flows to reflect their relative risk. The cash flows used are consistent with those the Company uses in its internal planning, which reflect actual business trends experienced and the Company’s long-term business strategy. Under the market approach, the Company utilized the guideline public company method and guideline transaction method to develop valuation multiples and compare the Company to similar publicly traded companies. The significant assumptions under each of the approaches include, among others: revenue projections (which are dependent on future customer subscriptions and content licensing agreements), operating expenses, discount rate, control premium and a terminal growth rate. The cash flows used to determine the fair values are dependent on a number of significant management assumptions, such as the Company’s expectations of future performance and the expected future economic environment, which are partly based upon the Company’s historical experience. The Company also considered its market capitalization in assessing the reasonableness of the reporting unit fair value.
During the three months ended June 30, 2022, the Company also determined there were impairment indicators with respect to certain of the Company’s definite-lived intangible assets. As a result, the Company performed an impairment test by comparing the carrying values of the intangible assets to their respective fair values, which were determined based on forecasted future cash flows. As a result of this impairment test, the Company recorded an impairment charge of $0.8 million during the three months ended June 30, 2022, which is reflected as a component of impairment of goodwill and intangible assets on the Company’s unaudited consolidated statements of operations.
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In order to further validate the reasonableness of fair value as determined by the income and market approaches described above, a reconciliation to market capitalization is then performed by estimating a reasonable control premium and other market factors. Future changes in the judgments, assumptions and estimates that are used in the impairment testing for our asset group could result in significantly different estimates of fair value.
Revenue Recognition
Subscriptions — O&O Service
The Company generates revenue from monthly subscription fees from its O&O Service. CuriosityStream subscribers enter into month-to-month or 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.
Subscriptions — 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. Under these agreements, the streaming media player typically bills the subscriber directly and then remits the collected subscriptions to the Company, net of a distribution fee. The Company recognizes the gross subscription revenues when earned and simultaneously recognizes the corresponding distribution fees as an expense. The Company is the principal in these relationships as the Company retains control over service delivery to its subscribers.
License Fees — Affiliates
The Company generates license fee revenues from 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.
License Fees — 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.
Recently Issued Financial Accounting Standards
The information set forth under Note 2 to the unaudited consolidated financial statements under the caption “Basis of presentation and summary of significant accounting policies” is incorporated herein by reference.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports that we file or submits under the Exchange Act are recorded, processed, summarized and reported within the specified time periods in the rules and forms of the SEC, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of the CEO and the CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of June 30, 2022. Based on these evaluations, our CEO and the CFO concluded that our disclosure controls and procedures were effective as of June 30, 2022.
Changes in Internal Control Over Financial Reporting
Our management is required to evaluate, with the participation of our CEO and our CFO, any changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during each fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report on Form 10-Q are any of the risks described in our Annual Report on Form 10-K filed with the SEC on March 31, 2022 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 filed with the SEC on May 16, 2022. Any of 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.
There have been no material changes from the risk factors previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 31, 2022 and our Quarterly Report on Form 10-Q filed with the SEC on May 16, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
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Item 5. Other Information.
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| Incorporated By Reference | ||||||||||||
| Exhibit No. | Description | Form | File No. | Exhibit | Filing Date | Filed/Furnished Herewith | ||||||
| 3.1 | Second Amended and Restated Certificate of Incorporation | 8-K | 001-39139 | 3.1 | 10/15/2020 | |||||||
| 3.2 | Amended and Restated Bylaws | 8-K | 001-39139 | 3.2 | 10/15/2020 | |||||||
| 10.1 | Offer Letter between CuriosityStream Inc. and Peter Westley, dated May 21, 2022 | 8-K | 001-39139 | 10.1 | 5/24/2022 | |||||||
| 31.1 | Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 32.1* | Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||
| 101. INS** | Inline XBRL Instance Document | X | ||||||||||
| 101. SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||||
| 101. CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||||
| 101. LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||||
| 101. PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||||
| 101. DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||||
| 104 | Cover Page Interactive Data File (as formatted as Inline XBRL and contained in Exhibit 101) | X | ||||||||||
| * | This document is being furnished with this Form 10-Q. This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act, or the Exchange Act. |
| ** | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
| CURIOSITYSTREAM INC. | ||
| Date: August 15, 2022 | By: | /s/ Clint Stinchcomb |
| Name: | Clint Stinchcomb | |
| Title: | President and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 15, 2022 | By: | /s/ Peter Westley |
| Name: | Peter Westley | |
| Title: | Chief Financial Officer and Treasurer | |
| (Principal Financial and Accounting Officer) | ||
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