| Basis of presentation and summary of significant accounting policies | Note
2 — Basis of presentation and summary of significant accounting policies Basis
of presentation The
consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The
consolidated financial statements include the accounts of CuriosityStream Inc. and its wholly owned subsidiaries. Intercompany balances
and transactions have been eliminated. Pursuant
to the Merger Agreement, the merger between Merger Sub and Legacy CuriosityStream was accounted for as a reverse recapitalization in
accordance with U.S. GAAP (the “Reverse Recapitalization”). Under this method of accounting, Software Acquisition Group Inc.
was treated as the “acquired” company and Legacy CuriosityStream is treated as the acquirer for financial reporting purposes. Accordingly,
for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Legacy CuriosityStream issuing stock for the net
assets of Software Acquisition Group Inc., accompanied by a recapitalization. The net assets of Software Acquisition Group Inc. are stated
at historical cost, with no goodwill or other intangible assets recorded. Legacy
CuriosityStream was determined to be the accounting acquirer based on the following predominant factors:
● Legacy
CuriosityStream’s existing stockholders have the greatest voting interest in the Company;
● The
largest individual stockholder in the Company was an existing stockholder of Legacy CuriosityStream;
● Legacy
CuriosityStream’s directors represented the majority of the initial new Board of Directors of the Company;
● Legacy
CuriosityStream’s senior management is the senior management of the Company; and
● Legacy
CuriosityStream is the larger entity based on historical revenue and has the larger employee base. The
consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of Legacy CuriosityStream.
The shares and corresponding capital amounts and losses per share, prior to the Reverse Recapitalization, have been retroactively restated
based on shares reflecting the exchange ratio of 0.626 (the “Exchange Ratio”) established in the Business Combination. 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 common stock (for periods prior to the Merger), 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. During the years ended December 31, 2021, and
2020, the top three customers (one of which is Spiegel Venture – see Note 11) accounted for 27% and 41% of the Company’s revenues,
respectively. Of these customers, one customer accounted for 14% of the Company’s revenues during the year ended December 31, 2021,
and 26% of the Company’s revenues during the year ended December 31, 2020. These same three customers accounted for 34% and 48%
of the Company’s accounts receivable at December 31, 2021 and 2020, respectively. Cash, 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. Restricted cash maintained
under agreements that legally restrict the use of such funds is not included within cash and cash equivalents and is reported in a separate
line item on the consolidated balance sheets as of December 31, 2021 and 2020. 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 December 31, 2021 and 2020 is as follows:
December 31,
2021 2020
Cash and cash equivalents $ 15,216 $ 11,203
Restricted cash 2,331 6,181
Cash, cash equivalents and restricted cash $ 17,547 $ 17,384 At December 31, 2021, restricted cash includes
funds reserved of $1,181 related to the Paycheck Protection Program (PPP) loan (see Note 6) which are being held in an escrow account
until the PPP loan is forgiven, holdback amounts of $500 and $150 reserved for indemnification purposes as part of the acquisitions of
One Day University and Now You Know Media, Inc. respectively (see Note 3), and cash deposits required by a bank as collateral related
to corporate credit card agreements of $500. The Company’s line of credit of $4,500 was terminated on July 16, 2021, and as a result,
$4,500 of cash deposits previously held by a bank as collateral were released from restriction. At December 31, 2020, restricted cash
represented cash deposits required by a bank as collateral related to the Company’s line of credit for $4,500 and corporate credit
card agreements of $500 as well as reserve funds of $1,181 related to the Paycheck Protection Program (PPP) loan. 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. 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. 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). 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. 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 years ended December 31, 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 debt securities in the accompanying consolidated balance sheets. Equity
Method Investments The
Company applies the equity method of accounting to investments when it has the ability to exercise significant influence, but not control,
over the investee. Significant influence is presumed to exist when the Company owns between 20% and 50% of the voting interests in the
investee, but the Company also applies judgment regarding its level of influence over the investee by considering key factors such as
ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.
The Company’s equity method investments are initially reported at cost and then adjusted each period for the Company’s share
of the investee’s income or loss and dividends paid, if any. The Company’s proportionate share of the net income (loss) resulting
from these investments is reported under the line item captioned “Equity interests income (loss)” on the consolidated statements
of operations. The Company classifies distributions received from equity method investments using the cumulative earnings approach on
the consolidated statements of cash flows. The
Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment
may not be recoverable. Management reviewed the underlying net assets of its investees as of December 31, 2021, and determined that the
Company’s proportionate economic interest in its investees was not impaired. The carrying value of the Company’s equity method
investments is reported as “Investment in equity method investees” on the consolidated balance sheets. Accounts
receivable Accounts
receivable is comprised of receivables from subscriptions revenue, license fees revenue, and other revenue such as service agreements
with the Spiegel Venture and a marketing services agreement with Nebula. The Company records accounts receivable net of an allowance
for doubtful accounts. The allowance is determined based on a review of the estimated collectability of the specific accounts and historical
loss experience and existing economic conditions. Uncollectible amounts are written off against the allowance for doubtful accounts once
management determines collection of an amount, or a portion thereof, to be less than probable. As of December 31, 2021, and 2020, allowance
for doubtful accounts amounted to $56 and $14, respectively. Content
assets, net 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 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 previously amortized 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. 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. This change in estimated amortization
patterns did not have a material impact on the amount of content amortization expense recorded during the year ended December 31, 2021.
The Company reviews factors that impact the amortization of the content assets on a regular basis and the estimates related to these
factors require considerable management judgment. The Company continues to review factors impacting the amortization of content assets
on an ongoing basis and will also record amortization on an accelerated basis when there is more upfront use of a title, for instance
due to significant 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. No such changes were identified during the years
ended December 31, 2021 and 2020. In addition, unamortized costs for assets that have been, or are expected to be, abandoned are written
off. Property
and equipment Property
and equipment are stated at historical cost, less accumulated depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the non-cancelable lease term or the
estimated useful lives. Repairs and maintenance expenses are expensed as incurred. Long-lived
assets The
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset
may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amount to the future undiscounted
cash flows the assets are expected to generate. If long-lived assets are considered impaired, an impairment charge is recognized for
the amount by which the carrying amount of the asset exceeds its fair value. No impairment charge related to long-lived assets was recognized
for the years ended December 31, 2021, and 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 provisions would preclude the warrant from being classified in equity
and thus the warrant is 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 “Change in
fair value of warrant liability” on the consolidated statements of operations. Business Combinations The results of businesses acquired in a business
combination are included in our consolidated financial statements from the date of the acquisition. The Company uses the acquisition method
of accounting and allocates the purchase price, including the fair value of any non-cash consideration, to the identifiable assets and
liabilities of the relevant acquired business at their acquisition date fair values. Any excess consideration over the fair value of assets
acquired and liabilities assumed is recognized as goodwill. While the Company uses its best estimates and assumptions to accurately value
assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are
inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition
date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the
conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first,
any subsequent adjustments are recorded to the consolidated statements of operations. Determining the fair value
of assets acquired and liabilities assumed requires the Company to perform valuations with significant judgment and estimates, including
the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates and selection of comparable
companies. The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining
fair values of assets acquired and liabilities assumed in a business combination. Transaction costs associated with business combinations
are expensed as incurred, and are included in general and administrative expense in the consolidated statements of operations. 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. The Company completed the required annual impairment test of goodwill
for its single reporting unit as of October 1, 2021, resulting in no goodwill impairment. The Company also determined there were no indicators
of impairment with respect to its amortizable intangible assets during the year ended December 31, 2021. 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. 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. 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 (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. 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. 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. Cost
of revenues Cost
of revenues primarily includes content asset amortization, streaming delivery costs, payment processing costs and distribution fees. Advertising
and marketing Advertising and marketing
expenses include digital, radio, brand awareness, and television types of costs. These costs are expensed as incurred. For the years ended
December 31, 2021 and 2020 advertising and marketing expenses were $52,208 and $42,152, respectively, and are reflected in advertising
and marketing costs in the accompanying consolidated statements of operations. 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. See Note 9 for further details. Income
taxes The
Company uses the asset and liability method of accounting for income taxes, in which deferred tax assets and liabilities are recognized
for the future tax consequences attributable to the differences between the carrying amounts of existing assets and liabilities as reported
in the consolidated balance sheets and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized as a component of the income tax provision in the period
that includes the enactment date. A valuation allowance is established if it is more likely than not that all or a portion of the deferred
tax assets will not be realized. The
Company’s tax positions are subject to income tax audits. The Company recognizes the tax benefit of an uncertain tax position only
if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits.
The tax benefit recognized is measured as the largest amount of benefit which is more likely than not (greater than 50% likely) to be
realized upon settlement with the taxing authority. The Company recognizes interest accrued and penalties related to unrecognized tax
benefits in its tax provision. The
Company calculates the current and deferred income tax provision based on estimates and assumptions that could differ from the actual
results reflected in income tax returns filed in subsequent years. Adjustments based on filed income tax returns are recorded when identified.
The amount of income tax paid is subject to examination by U.S. federal and state tax authorities. The estimate of the potential outcome
of any uncertain tax issue is subject to management’s assessment of the relevant risks, facts, and circumstances existing at that
time. To the extent the assessment of such tax position changes, the change in estimate is recorded in the period in which the determination
is made. Recently
issued financial accounting standards As an EGC, the 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) |
