Business context and reporting period
Software Acquisition Group Inc. (the SPAC identified in the filing, not yet CuriosityStream Inc.) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The company was formed on May 9, 2019 to complete a business combination and had not commenced operating activities or generated operating revenue by quarter-end.
On August 10, 2020, after the reporting date, the company entered into a merger agreement to acquire CuriosityStream Inc. for aggregate consideration of $302.1 million in Class A common stock, subject to adjustments and closing conditions.
Financial metrics
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 |
|---|---|---|
| Operating revenue | $0 | $0 |
| Formation and operating costs | $174,812 | $413,335 |
| Interest income | $62,651 | $545,593 |
| Net income (loss) | $(88,607) | $104,484 |
| Basic and diluted earnings (loss) per share | $(0.03) | $(0.06) |
| Net cash used in operating activities | Not separately presented | $(439,114) |
The six-month net income was generated entirely by interest income on Trust Account investments exceeding operating costs and taxes; it does not reflect operating performance of CuriosityStream or another operating business. The filing does not provide meaningful operating margins because the company had no revenue.
- Cash outside the Trust Account was $836,152 at June 30, 2020, compared with $1.1 million at December 31, 2019.
- Marketable securities held in the Trust Account totaled $150.1 million, compared with $149.7 million at December 31, 2019.
- Total current liabilities were $160,098; total liabilities were $5.4 million, including a $5.2 million deferred underwriting fee payable only if a business combination is completed.
- Class A common stock subject to possible redemption was reported at $140.6 million, representing 14,015,735 shares.
- Stockholders’ equity was approximately $5.0 million. The company reported no long-term debt, capital lease obligations, operating lease obligations, or off-balance-sheet arrangements.
- The company withdrew $181,858 of Trust Account interest to pay franchise taxes during the six months.
Material changes versus prior comparable periods
- For the three months ended June 30, 2020, the company reported an $88,607 net loss versus a $2,211 net loss for the period from inception through June 30, 2019.
- For the six months ended June 30, 2020, the company reported $104,484 of net income, primarily due to $545,593 of Trust Account interest income; the prior-year comparable period covered only the company’s formation period and reported a $2,211 net loss.
- Cash declined by $257,256 from December 31, 2019, primarily reflecting $439,114 of operating cash use, partly offset by $181,858 withdrawn from the Trust Account for franchise taxes.
- The Trust Account balance increased modestly from $149.7 million to $150.1 million, primarily from investment income net of the tax withdrawal.
- The key post-period development was execution of the CuriosityStream merger agreement on August 10, 2020. At June 30, management stated that it had not selected a specific target, so the agreement represents a significant subsequent event rather than a quarter-end completed transaction.
Guidance, outlook, risks and unusual items
Management did not provide operating or financial guidance. It expected no operating revenue until completion of a business combination and intended to use substantially all Trust Account funds, subject to redemptions, taxes and deferred underwriting fees, to complete the transaction.
- The business combination was subject to stockholder approval and other closing conditions, and the filing stated that completion was not guaranteed.
- If no business combination is completed by May 22, 2021, the company must cease operations, redeem the public shares using the Trust Account, and liquidate, subject to applicable law.
- Public stockholders have redemption rights in connection with a business combination. Significant redemptions could reduce funds available to the combined company and require additional financing.
- Issuance of stock or debt to fund the merger could dilute existing investors, increase leverage, or adversely affect the combined company’s financial flexibility.
- The $5,232,500 deferred underwriting fee is payable from the Trust Account only if a business combination is completed.
- Management stated that COVID-19 could negatively affect the company’s financial position, operations, or search for a target, but the specific impact was not determinable at the reporting date.
- The filing identified a risk that negative interest rates could reduce the per-share Trust Account redemption amount below $10.00.
- The Sponsor paid or was owed a $10,000 monthly administrative support fee; $30,000 was incurred during the quarter and $60,000 during the six months.
- Disclosure controls and procedures were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the final terms, closing status, shareholder approvals, financing, redemption levels and consideration adjustments for the CuriosityStream merger.
- Reconcile the $302.1 million stated merger consideration with the final capitalization, share issuance and any dilution from founder shares, warrants or other securities.
- Verify the amount remaining in the Trust Account after redemptions, taxes, transaction expenses and payment or waiver of deferred underwriting fees.
- Assess CuriosityStream’s operating revenue, profitability, cash burn, subscriber metrics, content obligations and debt separately from this SPAC’s pre-combination financial statements.
- Review the liquidation deadline of May 22, 2021 and the consequences if the merger or another qualifying business combination does not close.