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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 March 31, 2022

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 April 27, 2022

Class A Common Stock ($0.0001 par value)

 

15,375,160

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 March 31, 2022 and December 31, 2021

4

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021

5

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2022 and 2021

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

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

15

 

 

 

PART II—OTHER INFORMATION

16

 

 

Item 1.

Legal Proceedings

16

 

 

 

Item 1A.

Risk Factors

16

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

16

 

 

 

Item 3.

Defaults Upon Senior Securities

16

 

 

 

Item 4.

Mine Safety Disclosures

16

 

 

 

Item 5.

Other Information

16

 

 

 

Item 6.

Exhibits

17

 

 

 

 

SIGNATURES

18

 

 

 

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 March 31, 2022, the interim results of operations for the three months ended March 31, 2022 and 2021, and cash flows for the three months ended March 31, 2022 and 2021. Operating results for the three months ended March 31, 2022 and 2021 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, 2021 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, 2021.

3


 

GAIA, INC.

Condensed Consolidated Balance Sheets

 

 

March 31,

 

 

December 31,

 

(in thousands, except share and per share data)

 

2022

 

 

2021

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

8,398

 

 

$

10,269

 

Accounts receivable

 

 

2,900

 

 

 

2,728

 

Prepaid expenses and other current assets

 

 

1,912

 

 

 

1,986

 

Total current assets

 

 

13,210

 

 

 

14,983

 

Media library, software and equipment, net

 

 

51,898

 

 

 

50,558

 

Right-of-use lease asset, net

 

 

7,679

 

 

 

7,871

 

Real estate, investment and other assets, net

 

 

31,128

 

 

 

31,394

 

Goodwill

 

 

28,870

 

 

 

28,870

 

Total assets

 

$

132,785

 

 

$

133,676

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued and other liabilities

 

$

12,657

 

 

$

14,962

 

Deferred revenue

 

 

15,854

 

 

 

14,847

 

Total current liabilities

 

 

28,511

 

 

 

29,809

 

Long-term mortgage, net

 

 

6,074

 

 

 

6,109

 

Long-term lease liability

 

 

7,050

 

 

 

7,234

 

Deferred taxes

 

 

309

 

 

 

309

 

Total liabilities

 

 

41,944

 

 

 

43,461

 

Shareholders' equity:

 

 

 

 

 

 

 

 

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

   authorized, 15,375,160 and 15,061,337 shares issued and outstanding

   at March 31, 2022 and December 31, 2021, respectively

 

 

1

 

 

 

1

 

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

   authorized, 5,400,000 shares issued and outstanding

   at March 31, 2022 and December 31, 2021

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

162,856

 

 

 

162,316

 

Accumulated deficit

 

 

(72,017

)

 

 

(72,103

)

Total shareholders' equity

 

 

90,841

 

 

 

90,215

 

Total liabilities and shareholders' equity

 

$

132,785

 

 

$

133,676

 

The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.  See accompanying notes to the interim condensed consolidated financial statements.

 

4


 

 

GAIA, INC.

Condensed Consolidated Statements of Operations

 

 

 

For the Three Months Ended March 31,

 

(in thousands, except per share data)

 

2022

 

 

2021

 

 

 

(unaudited)

 

Revenues, net

 

$

21,831

 

 

$

18,896

 

Cost of revenues

 

 

2,905

 

 

 

2,438

 

Gross profit

 

 

18,926

 

 

 

16,458

 

Expenses:

 

 

 

 

 

 

 

 

Selling and operating

 

 

16,785

 

 

 

14,538

 

Corporate, general and administration

 

 

1,785

 

 

 

1,496

 

Acquisition costs

 

 

49

 

 

 

 

Total operating expenses

 

 

18,619

 

 

 

16,034

 

Income from operations

 

 

307

 

 

 

424

 

Interest and other expense, net

 

 

(60

)

 

 

(66

)

Income before income taxes

 

 

247

 

 

 

358

 

Provision for (benefit from) income taxes

 

 

 

 

 

 

Income from continuing operations

 

 

247

 

 

 

358

 

Loss from discontinued operations

 

 

(161

)

 

 

 

Net income

 

$

86

 

 

$

358

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.01

 

 

$

0.02

 

Discontinued operations

 

 

(0.01

)

 

 

 

Basic earnings per share

 

$

 

 

$

0.02

 

Diluted

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.01

 

 

$

0.02

 

Discontinued operations

 

 

(0.01

)

 

 

 

Diluted earnings per share

 

$

 

 

$

0.02

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

20,465

 

 

 

19,201

 

Diluted

 

 

20,816

 

 

 

19,724

 

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 January 1, 2021

 

$

74,235

 

 

$

(75,834

)

 

$

2

 

 

$

150,067

 

 

 

19,182,951

 

Issuance of Gaia, Inc. common stock for RSU releases, employee stock purchase plan 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2022

 

$

90,215

 

 

$

(72,103

)

 

$

2

 

 

$

162,316

 

 

 

20,461,337

 

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

 

 

540

 

 

 

 

 

 

 

 

 

540

 

 

 

313,823

 

Net income

 

 

86

 

 

 

86

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2022

 

$

90,841

 

 

$

(72,017

)

 

$

2

 

 

$

162,856

 

 

 

20,775,160

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

6


 

 

GAIA, INC.

Condensed Consolidated Statements of Cash Flows

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

 

 

(unaudited)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

86

 

 

$

358

 

Loss from discontinued operations

 

 

161

 

 

 

 

Income from continuing operations

 

 

247

 

 

 

358

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,907

 

 

 

3,099

 

Share-based compensation expense

 

 

540

 

 

 

613

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(172

)

 

 

(505

)

Prepaid expenses and other assets

 

 

74

 

 

 

282

 

Accounts payable and accrued liabilities

 

 

(1,439

)

 

 

(698

)

Deferred revenue

 

 

1,007

 

 

 

2,039

 

Net cash provided by operating activities - continuing operations

 

 

4,164

 

 

 

5,188

 

Net cash used in operating activities - discontinued operations

 

 

(161

)

 

 

 

Net cash provided by operating activities

 

 

4,003

 

 

 

5,188

 

Investing activities:

 

 

 

 

 

 

 

 

Additions to media library, property and equipment

 

 

(4,981

)

 

 

(4,774

)

Acquisitions, net of cash acquired, and purchase of intangible assets

 

 

(847

)

 

 

 

Net cash used in investing activities

 

 

(5,828

)

 

 

(4,774

)

Financing activities:

 

 

 

 

 

 

 

 

Repayment of debt

 

 

(46

)

 

 

(45

)

Proceeds from the issuance of common stock

 

 

 

 

 

71

 

Net cash provided by (used in) financing activities

 

 

(46

)

 

 

26

 

Net change in cash

 

 

(1,871

)

 

 

440

 

Cash at beginning of period

 

 

10,269

 

 

 

12,605

 

Cash at end of period

 

$

8,398

 

 

$

13,045

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Interest paid

 

$

65

 

 

$

67

 

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.  All textual currency references are expressed in thousands of U.S. dollars (unless otherwise indicated).

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

Gaia, Inc. 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 over 10,000 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 curate 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 approximately 75% 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 as described in our Annual Report on Form 10-K for the year ended December 31, 2021.

On December 22, 2021, Gaia completed the acquisition of Yoga International, Inc. (“Yoga International”). Yoga International was founded by the Himalayan Institute in 1991, as a print magazine considered by many to be an authentic voice of yoga in the West. In 2013, Yoga International transformed into a digital-only publication, and over the past 8 years has evolved into an online platform for yoga practice and education, with more than 60% of its current membership outside the United States. See our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information regarding the Yoga International acquisition.

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.

Discontinued Operations

Yoga International historically had a line of business focused on one-time transactional course sales.  With the launch of a premium membership tier that includes this content, this line of business is being discontinued in 2022 as the contractual commitments related to this line of business lapse. The course content will be utilized as part of the premium membership tier going forward.  There are no other assets or liabilities associated with this revenue stream.  As this represents a strategic shift with a major effect on our operations and financial results, we have presented the results of operations related to winding up this line of business as discontinued operations on the accompanying statement 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 three months of 2022 and 2021, we recognized approximately $540 and $613, 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. There were no options exercised during the first three months of 2022 or during the first three months of 2021.

8


 

4. Goodwill and Other Intangible Assets

There were no changes in goodwill for the period from December 31, 2021 through March 31, 2022.

The following table represents our other intangible assets by major asset class as of the dates indicated, which are included in Real estate, investment and other assets, net on the accompanying condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021.

(in thousands)

 

March 31, 2022

 

 

December 31, 2021

 

Amortizable Intangible Assets

 

 

 

 

 

 

 

 

Customer relationships

 

$

2,000

 

 

$

2,000

 

Tradenames

 

 

270

 

 

 

270

 

Accumulated amortization

 

 

(154

)

 

 

(12

)

 

 

$

2,116

 

 

$

2,258

 

 

 

 

 

 

 

 

 

 

Unamortized Intangible Assets

 

 

 

 

 

 

 

 

Domain names

 

$

563

 

 

$

563

 

Our amortizable assets are expected to be amortized on a straight-line basis over 48 months. Amortization expense was $142 for the first three months of 2022. There was no amortization expense for the first three months of 2021.  Future amortization of our amortizable intangible assets as of March 31, 2022 is expected to be as follows:

(in thousands)

 

 

 

 

2022 (remaining)

 

$

426

 

2023

 

 

568

 

2024

 

 

568

 

2025

 

 

554

 

 

 

$

2,116

 

 

5. Debt

On September 9, 2020, our wholly owned subsidiary Boulder Road LLC (“Boulder Road”) sold a 50% undivided interest in a portion of our corporate campus to Westside Boulder, LLC (“Westside”).  Boulder Road retained a 50% undivided interest in the property as well as full ownership of our studio and production facilities. On December 28, 2020, Boulder Road and Westside entered into a loan agreement with Great Western Bank, as lender, providing for a mortgage in the principal amount of $13,000. 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 underlying property.

Maturities on long-term debt, net are:

(in thousands)

 

 

 

 

2022 (remaining)

 

$

108

 

2023

 

 

150

 

2024

 

 

156

 

2025

 

 

5,801

 

 

 

$

6,215

 

 


9


 

 

6. Leases

In connection with the sale of a portion of our corporate campus as further discussed in Note 5, we leased the property pursuant to a master lease for an initial term extending through September 30, 2030, with two five-year extensions. 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, based on the present value of the lease payments over the initial lease term. On commencement of the lease, we recorded a right-of-use asset and operating lease liability of $8,800.

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

 

 

 

 

March 31,

 

 

December 31,

 

(in thousands)

 

Balance Sheet Classification

 

2022

 

 

2021

 

Right-of-use asset

 

Right-of-use lease asset, net

 

$

7,679

 

 

$

7,871

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease liability (current)

 

Accounts payable, accrued and other liabilities

 

$

725

 

 

$

718

 

Operating lease liability (non-current)

 

Long-term lease liability

 

 

7,050

 

 

 

7,234

 

 

 

 

 

$

7,775

 

 

$

7,952

 

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

Cash paid for operating lease liabilities

 

$

250

 

 

$

250

 

Operating lease expense is recognized on a straight-line basis over the lease term. Future amortization of our lease liability as of March 31, 2022 is expected to be:

(in thousands)

 

 

 

 

2022 (remaining)

 

$

750

 

2023

 

 

1,001

 

2024

 

 

1,008

 

2025

 

 

1,035

 

2026

 

 

1,064

 

Thereafter

 

 

4,253

 

Future lease payments, gross

 

 

9,111

 

Less: Imputed interest

 

 

(1,336

)

Operating lease liability

 

$

7,775

 

 


10


 

 

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 weighted-average diluted shares outstanding computation is:

 

 

For the Three Months Ended March 31,

 

(in thousands, except per share data)

 

2022

 

 

2021

 

 

 

(unaudited)

 

Weighted-average common stock outstanding

 

 

20,465

 

 

 

19,201

 

Common stock equivalents

 

 

351

 

 

 

523

 

Weighted-average number of shares

 

 

20,816

 

 

 

19,724

 

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 March 31,

 

(in thousands)

 

2022

 

 

2021

 

 

 

(unaudited)

 

Employee stock options and RSU's

 

 

228

 

 

 

30

 

 

8. Income Taxes

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 March 31, 2022. As of March 31, 2022, our net operating loss carryforwards on a gross basis were $76,800 and $20,700 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 March 31, 2022 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,” “strive,” “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, 2021. Risks and uncertainties that could cause actual results to differ include, without limitation, general economic conditions, future losses, competition, loss of key personnel, price changes, membership growth, 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

Gaia, Inc. (“Gaia,” “we” or “us”) 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 over 10,000 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.

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, mostly entertainment-based, streaming video services. With the acquisition of Yoga International in December 2021, Gaia now has a standalone yoga offering to be able to better serve the needs of consumers focused on this portion of our content offering. Our original content is developed and produced in-house in our production studios near Boulder, Colorado.

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.

The full impact that the COVID-19 pandemic will have on our business, operations and financial results will depend on a number of evolving factors that we may not be able to accurately predict.  See Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional discussion regarding risks related to the COVID-19 pandemic.

Commencing during the second half of March 2020 and 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. This trend dissipated beginning in August 2020, when 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. With the expansion of privacy regulations affecting a large number of mobile consumers during the summer

12


 

of 2021, we have continued to see an increase in the cost of our online advertising efforts which has reduced the number of new members we can add with our allocated marketing spend.

We reported net income from continuing operations of $0.2 million for the first three months of 2022, a decrease of $0.2 million from $0.4 million for the first three months of 2021.  The decrease is primarily due to ongoing integration activities related to the Yoga International acquisition.

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 March 31,

 

(in thousands, except per share data)

 

2022

 

 

2021

 

Revenues, net

 

$

21,831

 

 

$

18,896

 

Cost of revenues

 

 

2,905

 

 

 

2,438

 

Gross profit margin

 

 

86.7

%

 

 

87.1

%

Selling and operating

 

 

16,785

 

 

 

14,538

 

Corporate, general and administration

 

 

1,785

 

 

 

1,496

 

Acquisition costs

 

 

49

 

 

 

 

Total operating expenses

 

 

18,619

 

 

 

16,034

 

Income from operations

 

 

307

 

 

 

424

 

Interest and other expense, net

 

 

(60

)

 

 

(66

)

Income before income taxes

 

 

247

 

 

 

358

 

Provision for (benefit from) income taxes

 

 

 

 

 

 

Income from continuing operations

 

 

247

 

 

 

358

 

Loss from discontinued operations

 

 

(161

)

 

 

 

Net income

 

$

86

 

 

$

358

 

The following table sets forth certain financial data as a percentage of revenue for the periods indicated:

 

For the Three Months Ended March 31,

 

 

2022

 

 

2021

 

Revenues, net

 

100.0

%

 

 

100.0

%

Cost of revenues

 

13.3

%

 

 

12.9

%

Gross profit

 

86.7

%

 

 

87.1

%

Expenses:

 

 

 

 

 

 

 

Selling and operating

 

76.9

%

 

 

76.9

%

Corporate, general and administration

 

8.2

%

 

 

7.9

%

Acquisition costs

 

0.2

%

 

 

0.0

%

Total operating expenses

 

85.3

%

 

 

84.9

%

Income from operations

 

1.4

%

 

 

2.2

%

Interest and other expense, net

 

(0.3

)%

 

 

(0.3

)%

Income before income taxes

 

1.1

%

 

 

1.9

%

Provision for (benefit from) income taxes

 

0.0

%

 

 

0.0

%

Income from continuing operations

 

1.1

%

 

 

1.9

%

Loss from discontinued operations

 

(0.7

)%

 

 

0.0

%

Net income

 

0.4

%

 

 

1.9

%

Three months ended March 31, 2022 compared to three months ended March 31, 2021

Revenues, net. Revenues increased $2.9 million, or 15.3%, to $21.8 million during the three months ended March 31, 2022, compared to $18.9 million during the three months ended March 31, 2021. This was primarily driven by an increase in both members and average monthly revenue per member compared to the year-earlier period. Revenues were not significantly impacted by inflation.

Cost of revenues. Cost of revenues increased $0.5 million, or 20.8%, to $2.9 million during the three months ended March 31, 2022, from $2.4 million during the three months ended March 31, 2021 primarily due to increased amortization of our content library.  Gross

13


 

profit margin decreased during the first three months of 2022 to 86.7% from 87.1% the first three months of 2021 primarily due to increased content amortization related to an overall increase in our investment of our original content offerings as we add additional native language content in Spanish, French, and German and content acquired as part of the Yoga International acquisition.

Selling and operating expenses. Selling and operating expenses increased $2.3 million, or 15.9% to $16.8 million during the three months ended March 31, 2022, compared to $14.5 million during the three months ended March 31, 2021, driven primarily by increased personnel related and technology operating costs as we focus on expanding our international member base as well as incremental expenses incurred as part of the Yoga International acquisition. As a percentage of net revenues, these expenses remained flat at 76.9% for both the three months ended March 31, 2022 and the three months ended March 31, 2021.

Corporate, general and administration expenses. Corporate, general and administration expenses increased $0.3 million or 20.0%, to $1.8 million during the three months ended March 31, 2022 from $1.5 million during the three months ended March 31, 2021 due primarily to increased personnel related costs, as well as the addition of expenses incurred as a result of the acquisition of Yoga International. As a percentage of net revenues, these expenses increased to 8.2% for the three months ended March 31, 2022 from 7.9% for the three months ended March 31, 2021, due to increased revenues in 2022.

Seasonality

Our member base growth reflects seasonal variations driven primarily by periods when consumers typically spend more time indoors and, as a result, tend to increase their viewing, similar to those of traditional TV and cable networks. The effects of the global pandemic have shifted our historical pattern over the past two years, but we have historically experienced the greatest member growth in the fourth and first quarters (October through February), and slowest growth during May through August. This has historically driven quarterly variations in our spending on member acquisition efforts and the number of net new subscribers we add each quarter but does not result in a corresponding seasonality in net revenue. As we continue to expand internationally, we also expect regional seasonality trends to demonstrate more predictable seasonal patterns as our service offering in each market becomes more established and we have a longer history to assess such patterns.

Liquidity and Capital Resources

Our capital needs arise from working capital required to fund operations, capital expenditures related to acquisition and development of media content, development and marketing of our digital platforms, acquisitions of new businesses and other investments, replacements, expansions and improvements to our infrastructure, and future growth. These capital requirements depend on numerous factors, including the rate of market acceptance of our offerings, our ability to expand our customer base, the cost of ongoing upgrades to our offerings, our expenditures for marketing, and other factors. Additionally, we will continue to pursue opportunities to expand our media libraries, evaluate possible investments in businesses and technologies, and increase our marketing programs as needed.

Our budgeted content and capital expenditures for the remainder of 2022 are $10 to $15 million which we intend to fund with cash flows generated from operations. These planned expenditures will be predominately utilized to expand our content library and build out the capabilities of our digital platforms. The planned expenditures are discretionary and, with our in-house production capabilities, we have the ability to scale expenditures based on the available cash flows from operations. We began to generate cash flows from operations in October 2019 and have continued to generate cash flows from operations since. We expect to continue generating cash flows from operations during the remainder of 2022. We generated approximately $4 million in cash flows from operations during the first three months of 2022.  As of March 31, 2022, our cash balance was $8.4 million.

In the normal course of our business, we investigate, evaluate and discuss acquisition, joint venture, minority investment, strategic relationship and other business combination opportunities in our market. For any future investment, acquisition, or joint venture opportunities, we may consider using then-available liquidity, issuing equity securities or incurring indebtedness.

While there can be no assurances, we believe our cash on hand, cash expected to be generated from operations, and potential capital raising capabilities will be sufficient to fund our operations on both a short-term and long-term basis. However, our projected cash needs may change as a result of acquisitions, product development, unforeseen operational difficulties, or other factors.

14


 

Cash Flows

The following table summarizes our primary sources (uses) of cash during the periods presented:

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

Operating activities - continuing operations

 

$

4,164

 

 

$

5,188

 

Operating activities - discontinued operations

 

 

(161

)

 

 

 

Operating activities

 

 

4,003

 

 

 

5,188

 

Investing activities

 

 

(5,828

)

 

 

(4,774

)

Financing activities

 

 

(46

)

 

 

26

 

Net change in cash

 

$

(1,871

)

 

$

440

 

Operating activities. Cash flows provided by operations decreased $1.2 million during the first three months of 2022 compared to the same period in 2021. The decrease was primarily driven by timing of working capital, primarily accounts payable and deferred revenues.

Investing activities. Cash flows used in investing activities increased $1.1 million during the first three months of 2022 compared to the same period in 2021 due primarily to the payment of the deferred purchase consideration related to our acquisition of Yoga International.

Financing activities. Cash flows used in financing activities did not significantly change between periods.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based upon its evaluation as of March 31, 2022, our management has concluded that those disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


15


 

 

PART II—OTHER INFORMATION

None.

Item 1A. Risk Factors.

We are a smaller reporting company as defined in Rule 12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

16


 

Item 6.

Exhibits

 

Exhibit

No.

 

Description

 

 

 

31.1*

 

Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

 

 

 

31.2*

 

Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

 

 

 

32.1**

 

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2**

 

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

Inline XBRL Instance Document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

104

 

Cover Page Interactive Data File

 

*

Filed herewith

**

Furnished herewith

17


 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Gaia, Inc.

 

 

(Registrant)

 

 

 

May 2, 2022

By:

/s/ Jirka Rysavy

Date

 

Jirka Rysavy

 

 

Chief Executive Officer

 

 

(authorized officer)

 

 

 

May 2, 2022

By:

/s/ Paul Tarell

Date

 

Paul Tarell

 

 

Chief Financial Officer

 

 

(principal financial and accounting officer)

 

18