Business Context and Reporting Period
CuriosityStream Inc., formerly Software Acquisition Group Inc., filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. Before the October 14, 2020 business combination, the company operated as a special purpose acquisition company and had no operating business or revenue. Its activities consisted primarily of the initial public offering, evaluating merger candidates, and completing the acquisition of Legacy CuriosityStream.
On October 14, 2020, the company completed its merger with Legacy CuriosityStream, changed its name to CuriosityStream Inc., issued 31,556,837 merger shares and 2,500,000 PIPE shares for $25.0 million, and withdrew $125.98 million from the trust account to fund redemptions of 12,549,512 shares.
Financial Results and Key Metrics
| Metric | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 |
|---|---|---|
| Revenue | None reported | None reported |
| Operating costs | $494,939 | $908,274 |
| Interest income | $14,074 | $559,667 |
| Net loss | $453,091 | $348,607 |
| Basic and diluted loss per share | $0.10 | $0.16 |
| Cash flow from operating activities | Not separately reported | $(787,764) |
- September 30, 2020 cash was $513,475, compared with $1.09 million at December 31, 2019.
- Marketable securities held in the trust account totaled $150.07 million, compared with $149.72 million at December 31, 2019.
- Total current liabilities were $241,068, and the deferred underwriting fee payable was $5.23 million before the merger closing.
- Common stock subject to possible redemption was recorded as temporary equity at $140.18 million, representing 13,971,338 shares.
- Total stockholders’ equity was approximately $5.0 million. The filing reports no long-term debt, capital leases, operating leases, or other long-term liabilities.
- The company withdrew $207,831 of trust-account interest to pay franchise taxes during the first nine months.
- The trust account was liquidated in connection with the October 14, 2020 business combination.
Material Changes Versus the Prior Comparable Period
- Third-quarter operating costs increased to $494,939 from $801 in the 2019 quarter, reflecting the company’s public-company and merger-related activities.
- Nine-month operating costs increased to $908,274 from $3,012 in the comparable 2019 period.
- Third-quarter net loss increased to $453,091 from $801.
- Nine-month net loss was $348,607 versus $3,012, although interest income of $559,667 substantially offset operating costs.
- Cash declined by $579,933 during the first nine months, from $1.09 million to $513,475.
- Class A shares outstanding excluding redeemable shares increased from 905,560 at year-end 2019 to 978,662 at September 30, 2020. The post-closing capital structure included 37,952,325 common shares, 2,214,246 options, and 11,504,000 public and private placement warrants.
Outlook, Risks, Contingencies, and Unusual Items
- The filing does not provide operating guidance, revenue guidance, margin targets, or forecasts for the post-merger CuriosityStream business.
- Management stated that interim results are not necessarily indicative of full-year or future results.
- Management identified COVID-19 as a risk that could negatively affect financial position and operations, but stated that the specific impact was not determinable as of the reporting date.
- A putative shareholder class action was filed in New York on September 2, 2020 concerning the merger, alleging fiduciary-duty breaches and misleading or incomplete proxy disclosures. The complaint sought injunctive and declaratory relief, attorneys’ fees, and damages in an undetermined amount. The company considered the allegations meritless but voluntarily supplemented its proxy disclosures to reduce litigation risk.
- A separate shareholder demand letter dated September 10, 2020 alleged inadequate merger disclosures and potential federal securities-law violations.
- The company’s warrants generally have an $11.50 exercise price and may expire worthless if a business combination is not completed or if other warrant conditions are not satisfied. The filing states that the business combination was completed after the reporting date.
- The company reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Facts Investors Should Verify
- Confirm the post-merger financial statements and operating metrics of the combined CuriosityStream business, since this 10-Q primarily reports the predecessor SPAC.
- Verify the final use of trust-account funds, redemption amounts, PIPE proceeds, deferred underwriting fees, and merger-related expenses.
- Review the post-closing share count, escrow shares, founder-share vesting conditions, options, and public and private placement warrants for dilution risk.
- Monitor the merger-related litigation and any settlement, dismissal, disclosure amendments, or other resolution.
- Assess liquidity after the trust-account liquidation, including cash available to fund CuriosityStream’s operations and any subsequent financing needs.