# CuriosityStream Inc. (CURI) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CuriosityStream Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1776909/000121390022016637/f10k2021_curiositystream.htm
Accession: 0001213900-22-016637
Filing date: 2022-03-31
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CURI/
All MD&A years: /company/CURI/mda/
Next year: /company/CURI/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations

On October 14, 2020, we acquired Legacy CuriosityStream. The Business
Combination was accounted for as a reverse recapitalization in accordance with Accounting Standards Codification (“ASC”)
805, Business Combinations. Under this method of accounting, Software Acquisition Group Inc., which was the legal acquirer in the Business
Combination, was treated as the “acquired” company for financial reporting purposes and Legacy CuriosityStream was treated
as the accounting acquirer. Except as otherwise provided herein, our financial statements presentation includes (1) the results of Legacy
CuriosityStream as our accounting predecessor for periods prior to the completion of the Business Combination, and (2) the results of
the Company for periods after the completion of the Business Combination.

The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of our results of operations and financial condition. The following discussion
should be read in conjunction with the Company’s financial statements and notes thereto included elsewhere in this Annual Report
on Form 10-K. This discussion contains forward-looking statements which involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in “Risk
Factors” and elsewhere in this Annual Report on Form 10-K. 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 Legacy CuriosityStream prior to the Business Combination
and to CuriosityStream Inc. following the closing of the Business Combination.

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 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 years ended December 31, 2021, and 2020:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Our award-winning video content library features thousands of nonfiction
episodes, including more than 1,000 original, commissioned or co-produced documentaries, of short-form, mid-form and long-form duration.
Our content, approximately one-third of which is originally produced with the remaining two-thirds consisting of licensed programming,
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.

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, Roku Channels, 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.

36

In the future, we also hope to continue developing integrated digital
brand partnerships with advertisers. These sponsorship campaigns offer companies the chance to be associated with CuriosityStream content
in a variety of forms, including short and long form program integration, branded social media promotional videos, broadcast advertising
spots, and digital display ads. We believe the impressions accumulated in these multi-faceted campaigns would roll up to verifiable metrics
for the clients. We executed one such advertising agreement in 2021 with Nebula. We executed on two such sponsorships in 2020: one in
the financial services sector as well as a brand in the health and fitness sector.

Prior to the Business Combination, Software Acquisition
Group Inc. was a blank check company, incorporated as a Delaware corporation on May 9, 2019, and formed for the purpose of effecting
a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more
businesses. Until the consummation of the Business Combination, Software Acquisition Group Inc. did not engage in any operations nor
generate any revenue. On October 14, 2020, upon the consummation of the Business Combination, Legacy CuriosityStream became Software
Acquisition Group Inc.’s direct subsidiary and in connection with the Closing, we changed our name from “Software Acquisition
Group Inc.” to “CuriosityStream Inc.”

Recent Developments

Acquisitions

On May 11, 2021, the Company
consummated the acquisition of 100% of One Day University for the aggregate consideration of $4.5 million. One Day University provides
access to talks and lectures from professors at colleges and universities in the United States.

On August 13, 2021, the Company
consummated the acquisition of 100% of Learn25 for fixed cash consideration of approximately $1.5 million in addition to an earnout capped
at $0.6 million. Learn25 provides access to hundreds of audio and video programs on history, science, psychology, health, religion, and
other topics from various professors and subject-matter experts around the world.

Each of these acquisitions
complements and enhances the Company’s offering of premium factual content and provides additional long-term revenue and promotional
opportunities by connecting directly with new audiences in new formats.

37

Partnership with
SPIEGEL TV

On July 29, 2021, the Company acquired a 32% ownership in Spiegel TV Geschichte
und Wissen GmbH & Co. KG (Spiegel Venture) for $3.3 million, expanding its European footprint through a partnership with SPIEGEL TV,
the subsidiary of the German media conglomerate SPIEGEL, and its partner, Autentic, a factual content producer and distributor. Germany
is the Company’s top non-English-speaking market, and the partnership expands the Company’s reach through the addition of
hundreds of hours of German-dubbed programming to the Company’s SVoD service as well as a rebranded linear channel in German-speaking
Europe.

Nebula Investment

On August 23, 2021, the Company purchased a 12% ownership interest in Watch
Nebula LLC (Nebula) for $6.0 million with the commitment to purchase an additional 13% ownership interest for a total 25% stake,
for a total of $12.5 million (through eight quarterly payments of $0.8 million). The additional equity investment can be made or declined
on a quarterly basis or accelerated at any time. The Company obtained 25% representation on Nebula’s board of directors, providing
the Company with significant influence, but not a controlling interest.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19
as a pandemic, which continues to spread throughout the United States and globally. The full extent of the impact of the COVID-19
pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately
predict. See Item 1A: “Risk Factors” section set forth in this Annual Report on Form 10-K for additional details. In an effort
to protect the health and well-being of our employees, our workforce has had and continues in most instances to spend a significant amount
of time working from home, and international travel has been severely curtailed. Our other partners have similarly had their operations
disrupted, including those partners that we use for our operations as well as development, production, and post-production of content.
While we and our partners have resumed productions and related operations in many parts of the world, our ability to produce content remains
affected by the pandemic.

The widespread availability of COVID-19 vaccines and corresponding rates
of vaccination generally have been effective in curtailing rates of infection in many parts of the United States, mitigating many of the
adverse social and economic effects of the pandemic. COVID-19 vaccinations have continued to increase, including as a result of the approval
of vaccine boosters, access to the vaccine for school-aged children, and the implementation of vaccine requirements by certain public
sector and private sector employers. Notwithstanding, there remains significant resistance to vaccination in certain geographies and among
certain groupings of people. Additionally, regulators have approved oral antiviral treatment pills, which have proven effective in reducing
severe illness from COVID-19. In many locations throughout the United States, the spread of COVID-19 decreased substantially throughout
the spring and summer of 2021, and, as a result, certain activity restrictions were lifted in whole or in part; however, due in large
part to the increased spread of new, more transmissible coronavirus variants, the number of individuals diagnosed with COVID-19 increased
substantially at the end of 2021 and early 2022.

We anticipate that these actions and the global
health crisis caused by COVID-19, including any resurgences, such as by the “delta” and “omicron” variants of
the virus, will continue to negatively impact business activity across the globe. We will continue to actively monitor the situation
and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or
that we determine are in the best interests of our employees, customers, partners, and stockholders. It is not clear what potential effects
any such alterations or modifications may have on our business, including the effects on our customers, suppliers, or vendors, or on
our financial results.

38

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 last two fiscal years 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) license fees from affiliates who receive
subscriber fees for CuriosityStream from such affiliates’ subscribers (“Partner Direct Business” and “Partner
Direct Subscribers”), (iii) bundled license fees from distribution affiliates (“Bundled MVPD Business” and “Bundled
MVPD Subscribers”), and (iv) license fees from program sales arrangements. As of December 31, 2021, we had approximately 23 million
total paying subscribers, including Direct Subscribers, Partner Direct Subscribers and Bundled MVPD Subscribers.

Since our founding in 2015, we have generated the
majority of our revenues from Direct Subscribers in the form of monthly or annual subscription plans. We charge $2.99 per month or $19.99
dollars per year for our standard Direct Service, or $9.99 per month or $69.99 per year for our premium Direct Service. 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. As
of December 31, 2021, licensed content represented 2,884 titles and original titles represented 1,043 titles. 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 intend 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.

39

Results of Operations

The financial data in the following table sets
forth selected financial information derived from our audited financial statements for the years ended December 31, 2021 and 2020
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.

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[[/GREPCENT_TABLE]]

n/m – percentage not meaningful

Revenue

Revenue for the years ended
December 31, 2021 and 2020 was $71.3 million and $39.6 million, respectively. The increase of $31.6 million, or 80% is due to a $8.3 million
increase in subscription revenue, a $20.8 million increase in license fee revenue, and a $2.5 million increase in other revenue.

The increase in subscription revenue resulted
from a $8.3 million increase in subscriber fees received by us from Direct Subscribers for annual plans which resulted from increased
brand awareness from greater advertising and marketing spending. The increase in license fees of $20.8 million resulted primarily from
a $19.1 million increase in license fees related to a larger volume of program sales arrangements, including due to a new distribution
agreement with Spiegel Venture during 2021 when compared to 2020, a $0.6 million increase in revenue from Bundled MVPD partners due to
new agreements launched during 2021, and a $1.1 million increase in license fees from our Partner Direct Business due to an increase in
the number of subscribers. The increase in other revenue of $2.5 million is primarily due to new services agreements entered into with
the Spiegel Venture and Nebula in 2021 for $1.3 million each with no comparable transactions during the year ended December 31, 2020.

Operating Expenses

Operating expenses for the years ended December 31,
2021, and 2020 were $123.7 million and $78.3 million, respectively. This increase of $45.3 million, or 58%, primarily resulted
from the following:

Cost of Revenues: Cost of revenues for
the year ended December 31, 2021 increased to $36.7 million from $15.4 million for the year ended December 31, 2020.
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 $21.3 million, or 138%, is primarily due to the increase
in content amortization of $18.2 million, which is primarily driven by the increase in program sales arrangements resulting in a significant
accelerated amortization, as well as an increase in the number and cost of titles published during 2021 compared to 2020. The balance
of the increase in cost of revenues is due to increases in revenue share expense related to bundled and premier tier arrangements with
other streaming services (increase of $1.8 million), hosting and streaming delivery costs (increase of $0.3 million), distribution fees
and commission costs (increase of $0.1 million), subtitling and broadcast costs (increase of $0.7 million), and advertising and sponsorship
costs (increase of $0.2 million). The increase of cost of revenues increased at a faster rate than the increase in revenue mainly due
to increased amortization costs related to program sales during the year ended December 31, 2021.

40

Advertising &
Marketing:  Advertising and marketing expenses for the year ended December 31, 2021, increased to $52.2 million from
$42.2 million for the year ended December 31, 2020. This increase of $10.0 million, or 24% is primarily due to an increase in
digital advertising of $9.5 million, an increase in radio advertising of $5.1 million, and an increase in agency fees of $1.8 million,
partially offset by a decrease of $5.6 million in TV advertising and a decrease of $0.8 million in partner platforms and brand awareness
advertising compared to the prior year.

General and Administrative:  General
and administrative expenses for the year ended December 31, 2021, increased to $34.9 million from $20.9 million for the
year ended December 31, 2020. This increase of $14.0 million, or 67%, is primarily attributable to $4.2 million for incremental salaries
and benefits and $2.7 million for increased stock-based compensation expense due to higher volume and the fair value of the grants made
to key executives, as well as incrementally increased headcount. In addition, an increase of $3.1 million is primarily attributable to
finance and legal professional fees related to becoming a public company, an increase of $1.4 million due to additional insurance incurred
necessary for a public company, an increase of $0.9 million related to subscriptions, an increase of $0.3 million related to the amortization
of intangible assets, and an increase of $0.2 million related to corporate taxes. The increase is also due to the recognized benefit from
the Paycheck Protection Plan (PPP) Loan we received in May 2020 of $1.2 million, which reduced salaries and benefits expense by $1.2 million,
with no comparable offset in 2021. We expect to incur additional expenses in future periods as we continue to invest in corporate infrastructure
to support the Company’s activities as a public company, including adding personnel and systems to our administrative and revenue-generating functions.

Operating Loss

Operating loss for the years ended December 31,
2021, and 2020 was $52.5 million and $38.8 million, respectively. The increase of $13.7 million, or 35%, in operating loss resulted
from the increase in revenue of $31.6 million, or 80%, offset by the increase in operating expenses of $45.3 million, or 58%, in
each case during the year ended December 31, 2021, compared to the year ended December 31, 2020, as described above.

Change in Fair Value of Warrant Liability

For the year ended December 31, 2021, the Company
recognized a $15.2 million gain related to the change in fair value of the warrant liability, which was due to a decrease in the fair
value of the Private Placement Warrants for the year. This compared to a loss of $10.2 million recognized during the year ended December
31, 2020, which was due to an increase in the fair value of the Private Placement Warrants in the prior year.

Interest and other income (expense)

Interest and other income for the year ended December 31,
2021 was comparable to the year ended December 31, 2020.

Equity Interests Loss

 For the year ended December 31, 2021, the
Company recorded $0.5 million equity interests loss related to the equity investments in the Spiegel Venture and Nebula with no comparable
income or loss in the year ended December 31, 2020.

Provision for Income Taxes

Due to generating a loss before income taxes in
each of the years ended December 31, 2021, and 2020, we had a provision for income taxes of $360 thousand and $179 thousand, respectively.
This increase of $181 thousand, or 101%, 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.

41

Net Loss

Net loss for the years ended December 31,
2021, and 2020 was $37.6 million and $48.6 million, respectively. The decrease of net loss of $11.0 million, or 23%, is primarily due
to a gain on the change in the fair value of the warrant liability that resulted in a gain of $15.2 million in 2021 compared to a loss
of $10.1 million in 2020 and the increase in revenue, partially offset by higher operating expenses and equity interest loss, in each
case during the year ended December 31, 2021 compared to the year ended December 31, 2020, as described above.

Liquidity and Capital Resources

As of December 31, 2021, we had cash and cash equivalents,
including restricted cash, of $17.5 million. In addition, the Company had available for sale investments in debt securities totaling $81.2
million, of which $65.8 million was 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 year ended December 31, 2020, we incurred
a net loss of $37.6 million and used $73.2 million of net cash in operating activities, used $74.9 million of net cash in investing activities,
while financing activities provided $148.3 million of net cash.

Through the date of the Merger, we financed our
operations primarily from the net proceeds of our sale of Series A Preferred Stock in November and December 2018.

In connection with the Merger, we received net
cash proceeds of approximately $41.5 million, prior to the payment of $5.7 million of transaction costs. On February 8, 2021, we consummated
the Offering (as defined below). The net proceeds from the Offering were $94.1 million, after deducting $6.8 million in underwriting discounts
and commissions. We also incurred offering expenses in connection with the Offering of $0.7 million. During the year ended December 31,
2021, we received funds of approximately $54.9 million for the exercise of 4.8 million Public Warrants.

On February 8, 2021, we consummated an underwritten
public offering (the “Offering”) of 6,500,000 shares of Common Stock plus an over-allotment option to purchase up to 975,000
additional shares of Common Stock granted to the underwriters who participated in the Offering, which over-allotment option was exercised
by the underwriters in full on February 5, 2021. The net proceeds to us from the Offering were $94.1 million, after deducting underwriting
discounts and commissions and transaction expenses. The Offering was made pursuant to the Company’s Registration Statement on Form
S-1, filed with the SEC on February 1, 2021, and declared effective on February 3, 2021.

We believe that our cash flows from financing,
combined with 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, as evidenced by our cash flows from
financing activities during the year ended December 31, 2021 and our cash and investment in debt securities balances at December 31, 2021.
We believe that we have access to additional funds, if needed, through the capital markets to obtain further financing under the current
market conditions.

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 years ended December 31, 2021 and 2020:

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[[/GREPCENT_TABLE]]

42

Cash Flow 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 years ended December 31, 2021 and
2020, we recorded a net cash outflow from operating activities of $73.2 million and $53.5 million, respectively, or an increased outflow
of $19.7 million, or 37%. The increased outflow from operating activities was primarily due to an increase in the investment of content
assets of $39.6 million, increase in the change in fair value of warrant liability of $24.7 million (from a loss of $9.5 million during
the year ended December 31, 2020 to a gain of $15.2 million during the year ended December 31, 2021), and an increase in the change in
accounts receivable of $10.8 million, partially offset by an increase in amortization of content assets of $18.2 million, increase in
the change in deferred revenue of $4.3 million, increase in the change in content liabilities of $8.8 million, increase in stock-based
compensation expense of $2.7 million, increase in the change in accrued expenses and other liabilities of $6.6 million, increase in amortization
of premiums and accretion of discounts associated with investments in debt securities of $2.9 million, and a decrease in net loss of $11.0
million during the year ended December 31, 2021 compared to the year ended December 31, 2020.

Cash Flow Provided by (Used in) Investing Activities

Cash flow from investing activities consists
of purchases, sales and maturities of investments, business acquisitions and equity investments and purchases of property and equipment.

During the year ended December 31, 2021 and 2020,
we recorded a net cash outflow from investing activities of $74.9 million and a net cash inflow from investing activities of $25.5 million,
respectively, or an increased cash outflow of $100.4 million. The increase in cash outflow from investing activities was primarily due
to the purchases of available for sale investments of $151.9 million, partially offset by sales and maturities of $50.4 million and $41.9
million, respectively, for the year ended December 31, 2021, compared to the purchase of available for sale investments of $28.1 million,
and sales and maturities of investments of $43.2 million and $10.7 million, respectively, for the year ended December 31, 2020. The Company
also had cash outflows of $5.4 million related to the acquisition of Learn25 and One Day University and outflows of $9.6 million related
to the equity investments in Spiegel Venture and Nebula for the year ended December 31, 2021, with no comparable activity during the year
ended December 31, 2020

Cash Flow from Financing Activities

During the year ended December 31, 2021, we recorded
net cash inflow from financing activities of $148.3 million, which was attributable to the receipt of proceeds from the Offering of $94.1
million (net of $6.8 million of underwriting discounts and commissions) and the exercise of warrants of $54.9 million and exercise of
stock options of $0.5 million, partially offset by the payments of transaction costs related to the Offering of $0.7 million and payments
related to tax withholdings of $0.5 million related to vesting of restricted stock units incurred during the year ended December 31, 2021.
During the year ended December 31, 2020, financing cash activities were limited to reverse merger acquisition proceeds of $41.5 million,
payments of reverse merger acquisition offering costs of $5.1 million, borrowings and repayments of $9.7 million on the Line of Credit
and proceeds from exercise of stock options of $0.3 million.

During the year ended December 31, 2021, we received
funds of approximately $55 million for the exercise of 4.8 million Public Warrants.

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.

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Off Balance Sheet Arrangements

As of December 31, 2021, 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 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. 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.

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

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.

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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

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), which requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified
as operating leases under current U.S. GAAP. ASU 2016-02 requires a lessee to recognize a lease liability and a right-of-use asset for
each lease with a term longer than twelve months. The new guidance also requires additional qualitative and quantitative disclosures related
to the nature, timing and uncertainty of cash flows arising from leases. The Company will adopt the new standard effective January 1,
2022, using a modified retrospective approach. The Company is continuing its evaluation of the impact of the adoption and currently estimates
the recognition of lease liabilities on the Company’s consolidated balance sheet for its operating leases in the range of approximately
$5.0 million to $6.0 million with a corresponding right-of-use assets balance, net of existing lease incentives, of approximately $3.5
million to $4.5 million, and no material impact on its consolidated statements of operations or cash flows.

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.