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United States

Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number 000-27517

 

 

GAIA, INC.

(Exact name of registrant as specified in its charter)

 

 

COLORADO

 

84-1113527

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

833 WEST SOUTH BOULDER ROAD,

LOUISVILLE, COLORADO 80027

(Address of principal executive offices)

(303) 222-3600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock

GAIA

NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES      NO  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class

 

Outstanding at October 28, 2021

Class A Common Stock ($0.0001 par value)

 

13,917,987

Class B Common Stock ($0.0001 par value)

 

5,400,000

 

 

 


 

 

GAIA, INC.

FORM 10-Q

INDEX

 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited):

3

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2021 and December 31, 2020

4

 

 

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020

5

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2021 and 2020

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

7

 

 

 

 

Notes to interim condensed consolidated financial statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

15

 

 

 

Item 4.

Controls and Procedures

16

 

 

 

PART II—OTHER INFORMATION

17

 

 

Item 1.

Legal Proceedings

17

 

 

 

Item 1A.

Risk Factors

17

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17

 

 

 

Item 3.

Defaults Upon Senior Securities

17

 

 

 

Item 4.

Mine Safety Disclosures

17

 

 

 

Item 5.

Other Information

17

 

 

 

Item 6.

Exhibits

18

 

 

 

 

SIGNATURES

19

 

 

 

2


 

 

PART I—FINANCIAL INFORMATION

Item 1.Financial Statements (Unaudited)

Unaudited Interim Condensed Consolidated Financial Statements

We have prepared our unaudited interim condensed consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. While certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to these rules and regulations, we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited interim condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, our consolidated financial position as of September 30, 2021, the interim results of operations for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 2021 and 2020. Operating results for the three and nine months ended September 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for a full year or any future interim period. These interim statements have not been audited. The balance sheet as of December 31, 2020 was derived from our audited consolidated financial statements included in our Annual Report on Form 10-K. The interim condensed consolidated financial statements contained herein should be read in conjunction with our audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2020.

3


 

GAIA, INC.

Condensed Consolidated Balance Sheets

 

 

September 30,

 

 

December 31,

 

(in thousands, except share and per share data)

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

14,428

 

 

$

12,605

 

Accounts receivable

 

 

2,589

 

 

 

2,024

 

Prepaid expenses and other current assets

 

 

1,863

 

 

 

1,746

 

Total current assets

 

 

18,880

 

 

 

16,375

 

Media library, software and equipment, net

 

 

42,246

 

 

 

39,231

 

Right-of-use lease asset, net

 

 

8,061

 

 

 

8,622

 

Real estate, investment and other assets, net

 

 

29,199

 

 

 

28,500

 

Goodwill

 

 

17,289

 

 

 

17,289

 

Total assets

 

$

115,675

 

 

$

110,017

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued and other liabilities

 

$

9,855

 

 

$

8,947

 

Deferred revenue

 

 

14,130

 

 

 

12,376

 

Total current liabilities

 

 

23,985

 

 

 

21,323

 

Long-term mortgage, net

 

 

6,146

 

 

 

6,250

 

Long-term lease liability

 

 

7,416

 

 

 

7,952

 

Deferred taxes

 

 

257

 

 

 

257

 

Total liabilities

 

 

37,804

 

 

 

35,782

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Class A common stock, $0.0001 par value, 150,000,000 shares

   authorized, 13,917,987 and 13,782,951 shares issued and outstanding

   at September 30, 2021 and December 31, 2020, respectively

 

 

1

 

 

 

1

 

Class B common stock, $0.0001 par value, 50,000,000 shares

   authorized, 5,400,000 shares issued and outstanding

   at September 30, 2021 and December 31, 2020

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

152,055

 

 

 

150,067

 

Accumulated deficit

 

 

(74,186

)

 

 

(75,834

)

Total shareholders' equity

 

 

77,871

 

 

 

74,235

 

Total liabilities and shareholders' equity

 

$

115,675

 

 

$

110,017

 

See accompanying notes to the interim condensed consolidated financial statements.

 

4


 

 

GAIA, INC.

Condensed Consolidated Statements of Operations

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

(in thousands, except per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

(unaudited)

 

Revenues, net

 

$

20,405

 

 

$

17,537

 

 

$

58,744

 

 

$

48,201

 

Cost of revenues

 

 

2,626

 

 

 

2,264

 

 

 

7,573

 

 

 

6,248

 

Gross profit

 

 

17,779

 

 

 

15,273

 

 

 

51,171

 

 

 

41,953

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and operating

 

 

15,544

 

 

 

13,479

 

 

 

44,820

 

 

 

42,354

 

Corporate, general and administration

 

 

1,509

 

 

 

1,426

 

 

 

4,506

 

 

 

4,716

 

Total operating expenses

 

 

17,053

 

 

 

14,905

 

 

 

49,326

 

 

 

47,070

 

Income (loss) from operations

 

 

726

 

 

 

368

 

 

 

1,845

 

 

 

(5,117

)

Interest and other income (expense), net

 

 

(79

)

 

 

5,946

 

 

 

(197

)

 

 

5,395

 

Income before income taxes

 

 

647

 

 

 

6,314

 

 

 

1,648

 

 

 

278

 

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 

69

 

Net income

 

$

647

 

 

$

6,314

 

 

$

1,648

 

 

$

209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

$

0.33

 

 

$

0.09

 

 

$

0.01

 

Diluted

 

$

0.03

 

 

$

0.32

 

 

$

0.08

 

 

$

0.01

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

19,318

 

 

 

19,183

 

 

 

19,262

 

 

 

18,834

 

Diluted

 

 

19,812

 

 

 

19,737

 

 

 

19,787

 

 

 

19,442

 

See accompanying notes to the interim condensed consolidated financial statements.

 


5


 

 

GAIA, INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

 

 

(unaudited)

 

(in thousands, except shares)

 

Total Shareholders'

Equity

 

 

Accumulated

Deficit

 

 

Common

Stock

Amount

 

 

Additional

Paid-in

Capital

 

 

Common

Stock

Shares

 

Balance at December 31, 2019

 

$

68,914

 

 

$

(76,353

)

 

$

2

 

 

$

145,265

 

 

 

18,423,231

 

Issuance of Gaia, Inc. common stock for RSU releases, employee stock purchase plan, stock option exercises and share-based compensation

 

 

585

 

 

 

 

 

 

 

 

 

585

 

 

 

335,712

 

Net loss

 

 

(3,580

)

 

 

(3,580

)

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

$

65,919

 

 

$

(79,933

)

 

$

2

 

 

$

145,850

 

 

 

18,758,943

 

Issuance of Gaia, Inc. common stock for RSU releases, stock option exercises and share-based compensation

 

 

410

 

 

 

 

 

 

 

 

 

410

 

 

 

26,920

 

Issuance of Gaia, Inc. common stock for note conversion and business combination

 

 

2,929

 

 

 

 

 

 

 

 

 

2,929

 

 

 

386,887

 

Net loss

 

 

(2,525

)

 

 

(2,525

)

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

$

66,733

 

 

$

(82,458

)

 

$

2

 

 

$

149,189

 

 

 

19,172,750

 

Issuance of Gaia, Inc. common stock for RSU releases, stock option exercises and share-based compensation

 

 

404

 

 

 

 

 

 

 

 

 

404

 

 

 

10,201

 

Net income

 

 

6,314

 

 

 

6,314

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

$

73,451

 

 

$

(76,144

)

 

$

2

 

 

$

149,593

 

 

 

19,182,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

$

74,235

 

 

$

(75,834

)

 

$

2

 

 

$

150,067

 

 

 

19,182,951

 

Issuance of Gaia, Inc. common stock for RSU releases, employee stock purchase plan, stock option exercises and share-based compensation

 

 

684

 

 

 

 

 

 

 

 

 

684

 

 

 

17,895

 

Net income

 

 

358

 

 

 

358

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

$

75,277

 

 

$

(75,476

)

 

$

2

 

 

$

150,751

 

 

 

19,200,846

 

Issuance of Gaia, Inc. common stock for RSU releases, employee stock purchase plan, stock option exercises and share-based compensation

 

 

771

 

 

 

 

 

 

 

 

 

771

 

 

 

117,141

 

Net income

 

 

643

 

 

 

643

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2021

 

$

76,691

 

 

$

(74,833

)

 

$

2

 

 

$

151,522

 

 

 

19,317,987

 

Share-based compensation

 

 

533

 

 

 

 

 

 

 

 

 

533

 

 

 

 

Net income

 

 

647

 

 

 

647

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021

 

$

77,871

 

 

$

(74,186

)

 

$

2

 

 

$

152,055

 

 

 

19,317,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

6


 

 

GAIA, INC.

Condensed Consolidated Statements of Cash Flows

 

 

 

For the Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

 

(unaudited)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,648

 

 

$

209

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

9,641

 

 

 

9,026

 

Share-based compensation expense

 

 

1,236

 

 

 

1,864

 

Gain on sale of real estate

 

 

 

 

 

(6,125

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(565

)

 

 

(204

)

Prepaid expenses and other assets

 

 

(117

)

 

 

517

 

Accounts payable and accrued liabilities

 

 

989

 

 

 

(2,621

)

Deferred revenue

 

 

1,754

 

 

 

4,531

 

Net cash provided by operating activities

 

 

14,586

 

 

 

7,197

 

Investing activities:

 

 

 

 

 

 

 

 

Additions to media library, property and equipment

 

 

(13,355

)

 

 

(10,369

)

Proceeds from sale of real estate

 

 

 

 

 

13,150

 

Net cash provided by (used in) investing activities

 

 

(13,355

)

 

 

2,781

 

Financing activities:

 

 

 

 

 

 

 

 

Repayment of debt

 

 

(160

)

 

 

(17,000

)

Proceeds from issuance of debt, net of issuance costs

 

 

 

 

 

4,000

 

Proceeds from the issuance of common stock

 

 

752

 

 

 

249

 

Net cash provided by (used in) financing activities

 

 

592

 

 

 

(12,751

)

Net change in cash

 

 

1,823

 

 

 

(2,773

)

Cash at beginning of period

 

 

12,605

 

 

 

11,494

 

Cash at end of period

 

$

14,428

 

 

$

8,721

 

See accompanying notes to the interim condensed consolidated financial statements.

7


 

Notes to interim condensed consolidated financial statements

References in this report to “we”, “us”, “our” or “Gaia” refer to Gaia, Inc. and its consolidated subsidiaries, unless we indicate otherwise.

1. Organization, Nature of Operations, and Principles of Consolidation

Gaia, Inc. was incorporated under the laws of the State of Colorado on July 7, 1988, and operates a global digital video subscription service and on-line community that caters to a unique and underserved member base. Our digital content library includes approximately 8,000 titles, with a growing selection of titles available in Spanish, German and French. Our members have unlimited access to this vast library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation-related content, and more – 80% of which is exclusively available to our members for digital streaming on most internet-connected devices anytime, anywhere, commercial free.

Our mission is to create a transformational network that empowers a global conscious community. Content on our network is currently curated into four primary channels— Yoga, Transformation, Alternative Healing, and Seeking Truth— and delivered directly to our members through our streaming platform. We develop programming for these channels by producing content in our in-house production studios with a staff of media professionals. This produced and owned content currently represents over 80% of our viewership. We complement our produced and owned content through long-term licensing agreements.

We have prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”), and they include our accounts and those of our subsidiaries. Intercompany transactions and balances have been eliminated. The unaudited condensed consolidated financial position, results of operations and cash flows for the interim periods disclosed in this report are not necessarily indicative of future financial results.

There have been no material changes in our significant accounting policies, other than the adoption of accounting pronouncements below, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2020.

Use of Estimates and Reclassifications

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and disclosures. Although we base these estimates on our best knowledge of current events and actions that we may undertake in the future, actual results may be different from the estimates. We have made certain reclassifications to prior period amounts to conform to the current period presentations.

Accounting Pronouncements Implemented in 2021

In June 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of goodwill, and the effect of enacted changes in tax laws or rates in interim periods. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. We adopted the new standard on January 1, 2021 with no material impact to our reported financial position or results of operations in the three and nine months ended September 30, 2021.

With the exception of the new standard discussed above, no other new accounting pronouncements have significance, or potential significance, to our reported financial position or results of operations.

2. Revenue Recognition

Revenues consist primarily of subscription fees paid by our members. We present revenues net of taxes collected from members. Members are billed in advance and revenues are recognized ratably over the subscription term. Deferred revenue consists of subscription fees collected from members that have not been earned and is recognized ratably over the remaining term of the subscription. We recognize revenue on a net basis for relationships where our partners have the primary relationship, including billing and service delivery, with the member. Payments made to partners to assist in promoting our service on their platforms are expensed as marketing expenses in the period incurred. We do not allow access to our service to be provided as part of a bundle by any of our partners.

3. Equity and Share-Based Compensation

During the first nine months of 2021 and 2020, we recognized approximately $1,236,000 and $1,864,000, respectively, of share-based compensation expense. Total share-based compensation expense is reported in selling and operating expenses and corporate, general and administration expenses on our condensed consolidated statements of operations. During the first nine months of 2021, 90,000 options were exercised with net proceeds of $615,000. During the first nine months of 2020, 32,200 options were exercised with net proceeds of $181,000.

8


 

4. Goodwill and Other Intangible Assets

There were no changes in goodwill for the period from December 31, 2020 through September 30, 2021. Other unamortized intangible assets included in Real estate, investments and other assets on the accompanying condensed consolidated balance sheet consist of $571,000 for domain names as of September 30, 2021 and December 31, 2020.

5. Debt

On December 28, 2020, our wholly owned subsidiary Boulder Road LLC (“Boulder Road”) and Westside Boulder, LLC (“Westside”) entered into a loan agreement with Great Western Bank, as lender, providing for a mortgage in the principal amount of $13 million. The mortgage bears interest at a fixed rate of 3.75% per annum, matures on December 28, 2025, and is secured by a deed of trust on our corporate campus, a portion of which is owned by Boulder Road and Westside as tenants-in-common and the remainder of which is owned by Boulder Road. Westside and Boulder Road each received 50% of the proceeds and are each responsible for 50% of the monthly installments. Gaia guaranteed payment of the mortgage. The mortgage is subject to certain financial covenants related to the corporate campus.

Maturities on long-term debt, net are:

(in thousands)

 

 

 

 

2021 (remaining)

 

$

36

 

2022

 

 

144

 

2023

 

 

150

 

2024

 

 

156

 

2025

 

 

5,800

 

 

 

$

6,286

 

 

6. Leases

We have an operating lease for the portion of our corporate campus that Boulder Road and Westside own. We record the right to use the underlying asset for the operating lease term as an asset and our obligation to make lease payments as a liability for the 50% related to Westside.

 

Because the rate implicit in the lease is not readily determinable, we use our incremental borrowing rate to determine the present value of lease payments. Information related to our right of use asset and related lease liability is:

 

 

 

 

September 30,

 

 

December 31,

 

(in thousands)

 

Balance Sheet Classification

 

2021

 

 

2020

 

Right-of-use asset

 

Right-of-use lease asset, net

 

$

8,061

 

 

$

8,622

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease liability (current)

 

Accounts payable, accrued and other liabilities

 

$

711

 

 

$

691

 

Operating lease liability (non-current)

 

Long-term lease liability

 

 

7,416

 

 

 

7,952

 

 

 

 

 

$

8,127

 

 

$

8,643

 

 

 

 

For the Three Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

Cash paid for operating lease liabilities

 

$

250

 

 

$

56

 

 

 

 

For the Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

Cash paid for operating lease liabilities

 

$

750

 

 

$

56

 

 


9


 

 

Operating lease expense is recognized on a straight-line basis over the lease term. Future amortization of our lease liability as of September 30, 2021:

(in thousands)

 

 

 

 

2021 (remaining)

 

$

250

 

2022

 

 

1,001

 

2023

 

 

1,001

 

2024

 

 

1,008

 

2025

 

 

1,035

 

Thereafter

 

 

5,316

 

Future lease payments, gross

 

 

9,611

 

Less: Imputed interest

 

 

(1,484

)

Operating lease liability

 

$

8,127

 

 

7. Earnings Per Share

Basic earnings per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted earnings per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential shares of common stock outstanding during the period (“Common stock equivalents”). Common stock equivalents consist of incremental shares issuable upon the assumed exercise of stock options and vesting of restricted stock units utilizing the treasury stock method.

The computation of diluted earnings per share is:

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

(in thousands, except per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

(unaudited)

 

Net income

 

$

647

 

 

$

6,314

 

 

$

1,648

 

 

$

209

 

Shares used in computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common stock outstanding

 

 

19,318

 

 

 

19,183

 

 

 

19,262

 

 

 

18,834

 

Common stock equivalents

 

 

494

 

 

 

554

 

 

 

525

 

 

 

608

 

Weighted-average number of shares

 

 

19,812

 

 

 

19,737

 

 

 

19,787

 

 

 

19,442

 

Diluted earnings per share

 

$

0.03

 

 

$

0.32

 

 

$

0.08

 

 

$

0.01

 

Employee stock options with exercise prices greater than the average market price of the common stock were excluded from the diluted calculation as their inclusion would have been anti-dilutive. The following table summarizes the potential shares of common stock excluded from the diluted calculation:

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

(unaudited)

 

Employee stock options and RSU's

 

 

31

 

 

 

31

 

 

 

31

 

 

 

31

 

 


10


 

 

8. Income Taxes

Our provision for income taxes is comprised of:

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

 

 

$

 

 

$

 

 

$

 

State

 

 

 

 

 

 

 

 

 

 

 

 

Total current

 

 

 

 

 

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

 

 

 

 

 

 

 

 

 

 

69

 

State

 

 

 

 

 

 

 

 

 

 

 

 

Total deferred

 

 

 

 

 

 

 

 

 

 

 

69

 

Total income tax expense

 

$

 

 

$

 

 

$

 

 

$

69

 

The income tax expense recorded in 2020 is a result of the amortization of goodwill over 15 years for tax purposes. Periodically, we perform assessments of the realization of our net deferred tax assets considering all available evidence, both positive and negative. Based on our historical operating losses, combined with our plans to continue to invest in our revenue growth and content library, we have a full valuation allowance on our deferred tax assets as of September 30, 2021. As of September 30, 2021, our net operating loss carryforwards on a gross basis were $74.3 million and $20.0 million for federal and state, respectively.

9. Contingencies

From time to time, we are involved in legal proceedings that we consider to be in the normal course of business. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, that are considered probable of being rendered against us in litigation or arbitration in existence at September 30, 2021 and that can be reasonably estimated are either reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.

 

11


 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. When used in this discussion, we intend the words “anticipate,” “believe,” “plan,” “estimate,” “expect,” “future,” “intend”, “will” and similar expressions as they relate to us to identify such forward-looking statements. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q and under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. Risks and uncertainties that could cause actual results to differ include, without limitation, general economic conditions, future profitability or losses, continued membership growth, competition, loss of key personnel, pricing, brand reputation, acquisitions, new initiatives we undertake, security and information systems, legal liability for website content, failure of third parties to provide adequate service, future internet-related taxes, our founder’s control of us, litigation, fluctuations in quarterly operating results, consumer trends, the effect of government regulation and programs, the impact of the coronavirus (COVID-19) pandemic and our response to it, and other risks and uncertainties included in our filings with the Securities and Exchange Commission. We caution you that no forward-looking statement is a guarantee of future performance, and you should not place undue reliance on these forward-looking statements which reflect our views only as of the date of this report. We undertake no obligation to update any forward-looking information.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and related notes included elsewhere in this document. This section is designed to provide information that will assist readers in understanding our consolidated financial statements, changes in certain items in those statements from year to year, the primary factors that caused those changes and how certain accounting principles, policies and estimates affect the consolidated financial statements.

Overview and Outlook

We operate a global digital video subscription service with a library of approximately 8,000 titles, with a growing selection of titles available in Spanish, German and French that caters to a unique, underserved member base. Our digital content is available to our members on most internet-connected devices anytime, anywhere, commercial-free. Through our online Gaia subscription service our members have unlimited access to a library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation related content, and more – 80% of which is exclusively available to our members for digital streaming on most internet-connected devices.

Gaia’s position in the streaming video landscape is firmly supported by its wide variety of exclusive and unique content, which provides a complementary offering to other entertainment-based streaming video services. Our original content is developed and produced in-house in our production studios near Boulder, Colorado. By offering exclusive and unique content through our streaming service, we believe we will be able to significantly expand our target member base.

Our available content is currently focused on yoga, transformation, alternative healing, seeking truth and conscious films. This content is specifically targeted to a unique member base that is interested in alternatives and supplements to the content provided by mainstream media. We have grown these content options both organically through our own productions and through strategic acquisitions. In addition, through investments in our streaming video technology and our user interface, we have expanded the many ways our subscription member base can access our unique library of media titles.

Our core strategy is to grow our subscription business domestically and internationally by expanding our unique and exclusive content library, enhancing our user interface, extending our streaming service to new internet-connected devices as they are developed and creating a conscious community built around our content.

In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, or COVID-19, as a pandemic. The global spread of COVID-19 and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. The full impact that COVID-19 will have on our business will depend on a number of factors such as the duration and extent of the pandemic, the adoption and effectiveness of COVID-19 tests and vaccines, the effect of governmental actions, changes in consumer behavior, responses of our third-party business partners that offer our content through their platforms, and general economic activity, as described in Part II, Item 1A “Risk Factors” in our Annual Report on Form 10-K.

Commencing during the second half of March 2020 continuing through July 2020, we saw an increase in demand for our content from both current and potential members. This created a positive trend in existing member retention, costs to acquire new members, and the corresponding revenue and cash flow impacts from these higher volumes. Beginning in August 2020, we saw the online paid media advertising market start to return to historical norms with a corresponding effect on the cost of our online advertising efforts.

12


 

We reported net income of $1.6 million for the first nine months of 2021, an improvement of $1.4 million from $0.2 million for the first nine months of 2020.

We are a Colorado corporation. Our principal and executive office is located at 833 West South Boulder Road, Louisville, CO 80027-2452. Our telephone number at that address is (303) 222-3600.

Results of Operations

The table below summarizes certain detail of our financial results for the periods indicated:

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

(in thousands, except per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenues, net

 

$

20,405

 

 

$

17,537

 

 

$

58,744

 

 

$

48,201

 

Cost of revenues

 

 

2,626

 

 

 

2,264

 

 

 

7,573

 

 

 

6,248

 

Gross profit margin

 

 

87.1

%

 

 

87.1

%

 

 

87.1

%

 

 

87.0

%

Selling and operating

 

 

15,544

 

 

 

13,479

 

 

 

44,820

 

 

 

42,354

 

Corporate, general and administration

 

 

1,509

 

 

 

1,426

 

 

 

4,506

 

 

 

4,716

 

Income (loss) from operations

 

 

726

 

 

 

368

 

 

 

1,845

 

 

 

(5,117

)

Interest and other income (expense), net

 

 

(79

)

 

 

5,946

 

 

 

(197