| Basis of presentation and summary of significant accounting policies | Note
2 — Basis of presentation and summary of significant accounting policies Basis
of presentation The
accompanying unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles
(U.S. GAAP) and are consistent in all material respects with those applied in the Company’s consolidated financial statements as
of and for the year ended December 31, 2020. In
the opinion of management, the unaudited consolidated financial statements include all adjustments of a normal recurring nature necessary
for the fair presentation of the Company’s financial position, results of operations, and cash flows. The unaudited consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and related notes and Management’s
Discussion and Analysis of Financial Condition and Results of Operations There
have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies
described in the Company’s consolidated financial statements as of and for the year ended December 31, 2020. Use
of estimates The preparation of consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in
the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant areas in which
management uses estimates include content asset amortization, the assessment of the recoverability of the content assets, the fair value
of assets and liabilities for allocation of the purchase price of companies acquired, and the fair value of common stock, share-based
awards, and liability classified warrants. Concentration
of risk Financial
instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, investments,
and accounts receivable. The Company maintains its cash, cash equivalents, and investments with high credit quality financial institutions;
at times, such balances with the financial institutions may exceed the applicable FDIC-insured limits. Accounts
receivable are typically unsecured and are derived from revenues earned from customers primarily located in the United States. Cash
and cash equivalents and restricted cash The
Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash
equivalents. At June 30, 2021, restricted
cash represents cash deposits required by a bank as collateral related to the Company’s line of credit of $4,500 and corporate credit
card agreements of $500. The Company has also reserved funds of $1,181 related to the Paycheck Protection Program (PPP) loan (see Note
5) in an escrow account until the PPP loan is forgiven. In addition, as part of the acquisition of One Day University (see Note 3), a
holdback amount of $500 is reserved for indemnification purposes until one year after the acquisition date. Fair
value measurement of financial instruments Fair
value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants as of the measurement date. The applicable accounting guidance establishes a hierarchy for inputs
used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that
the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or
liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that
reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability. The guidance
establishes three levels of inputs that may be used to measure fair value:
● Level 1 — Quoted
prices in active markets for identical assets or liabilities.
● Level 2 — Inputs
other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
● Level 3 — Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets
and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements.
The Company reviews the fair value hierarchy classification at each reporting period. Changes in the observability of valuation inputs
may result in a reclassification of levels for certain securities within the fair value hierarchy. The
Company’s assets measured at fair value on a recurring basis include its investments in corporate debt securities and government
debt securities. Level 1 inputs were derived by using unadjusted quoted prices for identical assets in active markets and were used to
value the Company’s investments in government debt securities. Level 2 inputs were derived using prices for similar investments
and were used to value the Company’s investments in corporate debt securities. The
Company’s liabilities measured at fair value on a recurring basis include its Private Placement Warrants. The fair value of the
Private Placement Warrants is considered a Level 3 valuation and is determined using the Black-Scholes valuation model. Refer to Note
6 for significant assumptions which the Company used in the fair value model for the Private Placement Warrants. The
Company’s remaining financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses, and borrowings on the line of credit are carried at cost, which approximates fair value because of the short-term maturity
of these instruments. Investments The
Company holds investments in money market funds, government debt securities, and corporate debt securities which the Company classifies
as available-for-sale. The investments are therefore carried at fair value based on unadjusted quoted market prices (Level 1) and quoted
prices for comparable assets (Level 2), as noted below:
As
of June 30, 2021 As
of December 31, 2020
Cash
and Short-term Investments Cash
and Short-term Investments
Equivalents Investments (non-current) Total Equivalents Investments (non-current) Total
Level
1 Securities
Money
market funds $ 4,097 $ - $ - $ 4,097 $ 2,165 $ - $ - $ 2,165
Government
debt securities - 27,722 7,999 35,721 5,999 12,892 - 18,891
Total
Level 1 Securities 4,097 27,722 7,999 39,818 8,164 12,892 - 21,056
Level
2 Securities
Corporate
debt securities - 61,916 47,717 109,633 - 8,054 2,825 10,879
Municipal
debt securities - 2,849 - 2,849 - 1,225 - 1,225
Total
Level 2 Securities - 64,765 47,717 112,482 - 9,279 2,825 12,104
Total $ 4,097 $ 92,487 $ 55,716 $ 152,300 $ 8,164 $ 22,171 $ 2,825 $ 33,160 Unrealized gains and losses
are recorded in accumulated other comprehensive income or loss, a component of stockholders’ equity (deficit). Realized gains and
losses are reclassified from accumulated other comprehensive income or loss into earnings as a component of net income or loss. Realized
gains reported in interest and other income in the accompanying consolidated statements of operations were not significant in the three
and six months ended June 30, 2021 and 2020. The Company evaluates unrealized losses on investments, if any, to determine if other-than-temporary
impairment is required to be recognized. No such other-than-temporary impairments were recognized during the three and six months ended
June 30, 2021 and 2020. Investments in debt securities that will mature within one year of the balance sheet dates are reflected as Short-term
investments in the accompanying consolidated balance sheets. The
following tables summarize the Company’s corporate and government debt securities:
As of June 30, 2021
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Debt Securities:
Corporate $ 110,843 $ 1 $ (1,211 ) $ 109,633
U.S. Government 35,723 1 (3 ) 35,721
Municipalities 2,850 - (1 ) 2,849
Total $ 149,416 $ 2 $ (1,215 ) $ 148,203 The
fair value of the Company’s investments in corporate and government debt securities at June 30, 2021 by contractual maturity is
as follows:
June 30,
Amortized Cost Estimated Fair Value
Due in one year or less $ 93,160 $ 92,487
Due after one year through five years 56,256 55,716
Due after five years - -
Total $ 149,416 $ 148,203 Warrants As described in Note 6, the
Private Placement Warrants are classified as a non-current liability and reported at fair value at each reporting period. The fair value
of the Private Placement Warrants as of June 30, 2021 and December 31, 2020 was as follows:
As of As of
Level 3
Private Placement Warrants $ 22,865 $ 20,843
Total Level 3 $ 22,865 $ 20,843 Content
assets, net The
Company acquires, licenses and produces content, including original programming, in order to offer members unlimited viewing of factual
entertainment content. The content licenses are for a fixed fee and specific windows of availability. Payments for content, including
additions to content assets and the changes in related liabilities, are classified within “Net cash used in operating activities”
on the consolidated statements of cash flows. The
Company recognizes its content assets (licensed and produced) as “Content assets, net” on the consolidated balance sheets.
For licenses, the Company capitalizes the fee per title and records a corresponding liability at the gross amount of the liability when
the license period begins, the cost of the title is known, and the title is accepted and available for streaming. For productions, the
Company capitalizes costs associated with the production, including development costs, direct costs and production overhead. Based
on factors including historical and estimated viewing patterns, the Company generally amortizes the content assets (licensed and produced)
in “Cost of revenues” on the consolidated statements of operations on a straight-line basis over the shorter of each title’s
contractual window of availability or estimated period of use, beginning with the month of first availability. The Company reviews factors
impacting the amortization of content assets on an ongoing basis and will record amortization on an accelerated basis when there is more
upfront use of a title, for instance due to significant program sales. The
Company’s business model is generally subscription based as opposed to a model generating revenues at a specific title level. Content
assets (licensed and produced) are predominantly monetized as a group and therefore are reviewed in aggregate at a group level when an
event or change in circumstances indicates a change in the expected usefulness of the content or that the fair value may be less than
unamortized cost. If such changes are identified, the aggregated content assets will be stated at the lower of unamortized cost or fair
value. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written off. Revenue
recognition The
following table sets forth the Company’s revenues disaggregated by type for the three and six months ended June 30, 2021 and 2020,
as well as the relative percent of each revenue type to total revenue.
Three
Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Subscriptions
– O&O Service $ 4,549 30 % $ 3,178 26 % $ 8,671 34 % $ 5,812 30 %
Subscriptions
– App Services 1,131 7 % 889 7 % 1,886 7 % 1,706 9 %
Subscriptions
– Total 5,680 37 % 4,067 33 % 10,557 41 % 7,518 39 %
License
Fees – Affiliates 4,579 30 % 4,225 35 % 9,082 36 % 8,226 42 %
License
Fees – Program Sales 5,031 33 % 3,753 32 % 5,517 23 % 3,768 19 %
License
Fees – Total 9,610 63 % 7,978 67 % 14,599 59 % 11,994 61 %
Other
– Total 54 0 % 4 0 % 124 0 % 4 0 %
Total
Revenues $ 15,344 $ 12,049 $ 25,280 $ 19,516 Subscriptions —
O&O Service The Company generates revenue
from monthly subscription fees from its O&O Service. CuriosityStream subscribers enter into month-to-month or annual subscriptions
with the Company. The Company bills the monthly subscriber on each subscriber’s monthly anniversary date and recognizes the revenue
ratably over each monthly membership period. The annual subscription fees are collected by the Company at the start of the annual subscription
period and are recognized ratably over the subsequent twelve-month period. Revenues are presented net of the taxes that are collected
from subscribers and remitted to governmental authorities. The
Company also offers gift certificates for use on a future date. The Company recognizes revenue from gift certificates when the services
have been provided. The gift certificates do not expire. Subscription —
App Services The
Company also earns subscription revenues through its App Services. These subscriptions are similar to the O&O Service subscriptions,
but are generated based on agreements with certain streaming media players as well as with Smart TV brands and gaming consoles (see Note
1). Under these agreements, the streaming media player typically bills the subscriber directly and then remits the collected subscriptions
to the Company, net of a distribution fee. The Company recognizes the gross subscription revenues when earned and simultaneously recognizes
the corresponding distribution fees as an expense. The Company is the principal in these relationships as the Company retains control
over service delivery to its subscribers. Licensing —
Affiliates The
Company generates license fee revenues from MVPDs such as Altice, Comcast and Cox as well as from vMVPDs such as Amazon and Sling TV
(MVPDs and vMVPDs are also referred to as affiliates). Under the terms of the agreements with these affiliates, the Company receives
license fees based upon contracted programming rates and subscriber levels reported by the affiliates. In exchange, the Company licenses
its content to the affiliates for distribution to their subscribers. The Company earns revenue under these agreements either based on
the total number of subscribers multiplied by rates specified in the agreements or based on fixed fee arrangements. These revenues are
recognized over the term of each agreement when earned. Licensing —
Program Sales The
Company has distribution agreements which grant a licensee limited distribution rights to the Company’s programs for varying terms,
generally in exchange for a fixed license fee. Revenue is recognized once the content is made available for the licensee to use. The
Company’s performance obligations include (1) access to its SVoD platform via the Company’s O&O Service and App
Services, (2) access to the Company’s content assets, and (3) licenses of specific program titles. In contracts containing
the right to access the Company SVoD platform, the performance obligation is satisfied as access to the SVoD platform is provided post
any free trial period. In contracts which contain access to the Company’s content assets, the performance obligation is satisfied
as access to the content is provided. For contracts with licenses of specific program titles, the performance obligation is satisfied
as that content is made available for the customer to use. Payment
terms for access to the Company’s SVoD services require payment in advance on or prior to the date access to the service is provided.
Payments for contracts providing access to the Company’s content assets are paid either in advance, over the license term, or on
a sales and usage basis. Payments for licenses of specific program titles are paid either upfront or over the license term on a fixed
fee basis, or on a sales and usage basis. To date, there has been no financing component associated with the Company’s revenue
arrangements and such arrangements do not contain rights of return provisions. Revenues
expected to be recognized in the future related to performance obligations that are unsatisfied at June 30, 2021 are as follows:
Rest of For the twelve months ending December 31,
2021 2022 2023 2024 2025 Thereafter Total
Remaining Performance Obligations $ 10,650 $ 8,365 $ 1,271 $ 108 $ 13 $ 98 $ 20,505 These
amounts include only fixed consideration or minimum guarantees and do not include amounts related to (i) contracts with an original
expected term of one year or less or (ii) licenses of content that are solely based on sales or usage-based royalties. Contract liabilities (i.e.,
deferred revenue) consists of subscriber and affiliate license fees billed that have not been recognized, amounts contractually billed
or collected for program sales in advance of the related content being made available to the customer, and unredeemed gift certificates
and other prepaid subscriptions that have not been redeemed. Total deferred revenues were $21,627 and $12,745 at June
30, 2021 and December 31, 2020, respectively. The increase in deferred revenues is primarily due to the growth in annual subscriptions
from O&O and App Services, which require upfront annual payments, as well as an increase in the volume of program sales activity. Revenues of $2,208 and $7,861
were recognized during the three and six months ended June 30, 2021, related to the balance of deferred revenue at December 31, 2020. Warrant
liability The
Company classifies its Private Placement Warrants as liabilities as the terms of these warrants provide for potential changes to the
settlement amounts dependent upon the characteristics of the warrant holder and because the holder of a warrant is not an input into
the pricing of a fixed-for-fixed option on equity shares, such provision would preclude the warrant from being classified in equity and
thus the warrant should be classified as a liability. The Private Placement Warrants are recorded at fair value on the consolidated balance
sheets and changes in the fair value of the Company’s Private Placement Warrants in each period are reported in earnings. Goodwill and intangible assets Goodwill represents the excess
of the cost of acquisitions over the amount assigned to tangible and identifiable intangible assets acquired less liabilities assumed.
At least annually, in the fourth quarter of each fiscal year or more frequently if indicators of impairment exist, management performs
a review to determine if the carrying value of goodwill is impaired. The identification and measurement of goodwill impairment involves
the estimation of fair value at the Company’s reporting unit level. The Company performs an initial
assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of relevant
events and circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit exceeds its
carrying value and there is no indication of impairment, no further testing is performed; however, if the Company concludes otherwise,
an impairment test must be performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including
goodwill. Intangible assets other than
goodwill are carried at cost and amortized over their estimated useful lives. The Company reviews identifiable finite-lived intangible
assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may
not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting
from use of the asset and its ultimate disposition. Measurement of any impairment loss is based on the amount by which the carrying value
of the asset exceeds its fair value. Recently
issued financial accounting standards As
an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to
delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to
private companies. The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is
no longer considered to be an EGC. In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) In
June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) |
