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 SeptemberJune 30, 20172020
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 and 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 |
Class A Common Stock ($.0001 par value) |
|
|
Class B Common Stock ($.0001 par value) |
| 5,400,000 |
FORM 10-Q
INDEX
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Item 1. | 3 | |
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| 4 | |
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| 5 | |
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| 6 | |
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| Condensed Consolidated Statements of Cash Flows for six months ended June 30, 2020 and 2019 | 7 |
Notes to interim condensed consolidated financial statements |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. | 14 | |
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Item 4. |
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Item 1. | 16 | |
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Item 1A. |
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Item 2. | 16 | |
Item 3. | 16 | |
Item 4. | 16 | |
Item 5. | 16 | |
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Item 6. |
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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. 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, although 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 SeptemberJune 30, 2017,2020, the interim results of operations for the three and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, and cash flows for the ninesix months ended SeptemberJune 30, 20172020 and 2016.2019. Operating results for the three and nine-month periodssix months ended SeptemberJune 30, 20172020 and 2019 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, 20162019 was derived from our audited consolidated financial statements included in our annual reportAnnual 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, 2016.2019.
Condensed consolidated balance sheets
Consolidated Balance Sheets
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
(in thousands, except share and per share data) |
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
|
| (unaudited) |
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|
|
|
|
| (unaudited) |
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ASSETS |
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Current assets: |
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|
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|
|
|
Cash |
| $ | 30,107 |
|
| $ | 54,027 |
|
| $ | 8,458 |
|
| $ | 11,494 |
|
Accounts receivable |
|
| 836 |
|
|
| 554 |
|
|
| 2,617 |
|
|
| 2,310 |
|
Prepaid expenses and other current assets |
|
| 2,505 |
|
|
| 1,303 |
|
|
| 1,767 |
|
|
| 2,443 |
|
Total current assets |
|
| 33,448 |
|
|
| 55,884 |
|
|
| 12,842 |
|
|
| 16,247 |
|
|
|
|
|
|
|
|
|
| ||||||||
Building and land, net |
|
| 17,055 |
|
|
| 16,896 |
|
|
| 22,351 |
|
|
| 22,681 |
|
Media library, software and equipment, net |
|
| 18,722 |
|
|
| 12,861 |
|
|
| 38,580 |
|
|
| 36,921 |
|
Goodwill |
|
| 10,609 |
|
|
| 10,609 |
|
|
| 17,289 |
|
|
| 17,289 |
|
Investments and other assets |
|
| 11,000 |
|
|
| 10,946 |
|
|
| 13,117 |
|
|
| 13,034 |
|
Total assets |
| $ | 90,834 |
|
| $ | 107,196 |
|
| $ | 104,179 |
|
| $ | 106,172 |
|
LIABILITIES AND EQUITY |
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Current liabilities: |
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|
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|
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|
|
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Accounts payable and accrued liabilities |
| $ | 6,318 |
|
| $ | 6,672 |
| ||||||||
Accounts payable, accrued and other liabilities |
| $ | 8,099 |
|
| $ | 10,594 |
| ||||||||
Deferred revenue |
|
| 3,253 |
|
|
| 2,434 |
|
|
| 12,320 |
|
|
| 8,025 |
|
Total current liabilities |
|
| 9,571 |
|
|
| 9,106 |
|
|
| 20,419 |
|
|
| 18,619 |
|
Long-term debt, net |
|
| 16,751 |
|
|
| 18,433 |
| ||||||||
Deferred taxes |
|
| — |
|
|
| 553 |
|
|
| 276 |
|
|
| 206 |
|
Contingencies |
|
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| ||||||||
Equity |
|
| 81,263 |
|
|
| 97,537 |
| ||||||||
Total liabilities |
|
| 37,446 |
|
|
| 37,258 |
| ||||||||
Equity: |
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Gaia, Inc. shareholders’ equity: |
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Class A common stock, $.0001 par value, 150,000,000 shares authorized, 13,772,750 and 13,023,231 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively |
|
| 1 |
|
|
| 1 |
| ||||||||
Class B common stock, $.0001 par value, 50,000,000 shares authorized, 5,400,000 shares issued and outstanding at June 30, 2020 and December 31, 2019 |
|
| 1 |
|
|
| 1 |
| ||||||||
Additional paid-in capital |
|
| 149,189 |
|
|
| 145,265 |
| ||||||||
Accumulated deficit |
|
| (82,458 | ) |
|
| (76,353 | ) | ||||||||
Total equity |
|
| 66,733 |
|
|
| 68,914 |
| ||||||||
Total liabilities and equity |
| $ | 90,834 |
|
| $ | 107,196 |
|
| $ | 104,179 |
|
| $ | 106,172 |
|
See accompanying notes to the interim condensed consolidated financial statements.
Condensed consolidated statementsConsolidated Statements of operationsOperations
|
| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||||||||||||
(in thousands, except per share data) |
| 2017 |
|
| 2016 |
| 2017 |
|
| 2016 |
|
| 2020 |
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| 2019 |
|
| 2020 |
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| 2019 |
| ||||||||
|
| (unaudited) |
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
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Net revenues |
|
|
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Streaming |
| $ | 7,025 |
|
| $ | 3,802 |
| $ | 18,290 |
|
| $ | 10,641 |
| ||||||||||||||||
DVD subscription and other |
|
| 497 |
|
|
| 660 |
|
| 1,574 |
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|
| 1,849 |
| ||||||||||||||||
Total net revenues |
|
| 7,522 |
|
|
| 4,462 |
|
| 19,864 |
|
|
| 12,490 |
| ||||||||||||||||
Revenues, net |
| $ | 16,153 |
|
| $ | 13,164 |
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| $ | 30,664 |
|
| $ | 25,631 |
| |||||||||||||||
Cost of revenues |
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|
|
| 2,083 |
|
|
| 1,785 |
|
|
| 3,984 |
|
|
| 3,385 |
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Streaming |
|
| 958 |
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|
| 636 |
|
| 2,541 |
|
|
| 1,952 |
| ||||||||||||||||
DVD subscription and other |
|
| 79 |
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|
| 65 |
|
| 225 |
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|
| 209 |
| ||||||||||||||||
Total cost of revenues |
|
| 1,037 |
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|
| 701 |
|
| 2,766 |
|
|
| 2,161 |
| ||||||||||||||||
Gross profit |
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| 6,485 |
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|
| 3,761 |
|
| 17,098 |
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|
| 10,329 |
|
|
| 14,070 |
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|
| 11,379 |
|
|
| 26,680 |
|
|
| 22,246 |
|
Expenses: |
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|
|
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Selling and operating |
|
| 10,784 |
|
|
| 6,536 |
|
| 31,812 |
|
|
| 17,383 |
|
|
| 14,417 |
|
|
| 14,173 |
|
|
| 28,875 |
|
|
| 29,895 |
|
Corporate, general and administration |
|
| 1,528 |
|
|
| 1,439 |
|
| 4,321 |
|
|
| 4,215 |
|
|
| 1,873 |
|
|
| 1,493 |
|
|
| 3,290 |
|
|
| 3,086 |
|
Total operating expenses |
|
| 12,312 |
|
|
| 7,975 |
|
| 36,133 |
|
|
| 21,598 |
|
|
| 16,290 |
|
|
| 15,666 |
|
|
| 32,165 |
|
|
| 32,981 |
|
Loss from operations |
|
| (5,827 | ) |
|
| (4,214 | ) |
| (19,035 | ) |
|
| (11,269 | ) |
|
| (2,220 | ) |
|
| (4,287 | ) |
|
| (5,485 | ) |
|
| (10,735 | ) |
Interest and other (expense) income, net |
|
| 62 |
|
|
| 20 |
|
| 150 |
|
|
| (133 | ) | ||||||||||||||||
Interest and other expense, net |
|
| (305 | ) |
|
| (196 | ) |
|
| (551 | ) |
|
| (159 | ) | |||||||||||||||
Loss before income taxes |
|
| (5,765 | ) |
|
| (4,194 | ) |
| (18,885 | ) |
|
| (11,402 | ) |
|
| (2,525 | ) |
|
| (4,483 | ) |
|
| (6,036 | ) |
|
| (10,894 | ) |
Income tax benefit |
|
| (131 | ) |
|
| (4,043 | ) |
| (760 | ) |
|
| (4,041 | ) | ||||||||||||||||
Income tax expense |
|
| — |
|
|
| 42 |
|
|
| 69 |
|
|
| 42 |
| |||||||||||||||
Loss from continuing operations |
|
| (5,634 | ) |
|
| (151 | ) |
| (18,125 | ) |
|
| (7,361 | ) |
|
| (2,525 | ) |
|
| (4,525 | ) |
|
| (6,105 | ) |
|
| (10,936 | ) |
Income from discontinued operations, net of tax |
|
| 429 |
|
|
| 100,595 |
|
| 429 |
|
|
| 97,741 |
| ||||||||||||||||
Net Income (loss) |
| $ | (5,205 | ) |
| $ | 100,444 |
| $ | (17,696 | ) |
| $ | 90,380 |
| ||||||||||||||||
Income (loss) per share—basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Income (loss) from discontinued operations |
|
| — |
|
|
| 57 |
|
|
| — |
|
|
| (258 | ) | |||||||||||||||
Net loss |
| $ | (2,525 | ) |
| $ | (4,468 | ) |
| $ | (6,105 | ) |
| $ | (11,194 | ) | |||||||||||||||
Loss per share-basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Continuing operations |
| $ | (0.37 | ) |
| $ | (0.01 | ) | $ | (1.20 | ) |
| $ | (0.34 | ) |
| $ | (0.13 | ) |
| $ | (0.25 | ) |
| $ | (0.33 | ) |
| $ | (0.61 | ) |
Discontinued operations |
|
| 0.03 |
|
|
| 6.65 |
|
| 0.03 |
|
|
| 4.56 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.01 | ) |
Basic and diluted net income (loss) per share |
| $ | (0.34 | ) |
| $ | 6.64 |
| $ | (1.17 | ) |
| $ | 4.22 |
| ||||||||||||||||
Basic and diluted net loss per share |
| $ | (0.13 | ) |
| $ | (0.25 | ) |
| $ | (0.33 | ) |
| $ | (0.62 | ) | |||||||||||||||
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
| 15,161 |
|
|
| 15,138 |
|
| 15,157 |
|
|
| 21,417 |
|
|
| 18,837 |
|
|
| 17,944 |
|
|
| 18,660 |
|
|
| 17,917 |
|
See accompanying notes to the interim condensed consolidated financial statements.
GAIA, INC.
Condensed Consolidated Statements of Changes in Equity
|
|
|
|
|
| Gaia, Inc. Shareholders |
| |||||||||||||
|
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|
|
| (unaudited) |
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| |
(in thousands, except shares) |
| Total Equity |
|
| Accumulated Deficit |
|
| Common Stock Amount |
|
| Additional Paid-in Capital |
|
| Common Stock Shares |
| |||||
Balance at January 1, 2019 |
| $ | 81,465 |
|
| $ | (58,203 | ) |
| $ | 2 |
|
| $ | 139,666 |
|
|
| 17,900,139 |
|
Issuance of Gaia, Inc. common stock for stock option exercises and share-based compensation |
| $ | 594 |
|
|
| — |
|
|
| — |
|
|
| 594 |
|
|
| — |
|
Net loss |
| $ | (6,726 | ) |
|
| (6,726 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Balance at March 31, 2019 |
| $ | 75,333 |
|
| $ | (64,929 | ) |
| $ | 2 |
|
| $ | 140,260 |
|
| $ | 17,900,139 |
|
Issuance of Gaia, Inc. common stock for stock option exercises and share-based compensation |
|
| 515 |
|
|
| — |
|
|
| — |
|
|
| 515 |
|
|
| — |
|
Issuance of Gaia, Inc. common stock asset acquisition and business combination |
|
| 3,500 |
|
|
| — |
|
|
| — |
|
|
| 3,500 |
|
|
| 484,832 |
|
Net loss |
|
| (4,468 | ) |
|
| (4,468 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Balance at June 30, 2019 |
| $ | 74,880 |
|
| $ | (69,397 | ) |
| $ | 2 |
|
| $ | 144,275 |
|
|
| 18,384,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2020 |
| $ | 68,914 |
|
| $ | (76,353 | ) |
| $ | 2 |
|
| $ | 145,265 |
|
|
| 18,423,231 |
|
Issuance of Gaia, Inc. common stock for RSU releases, 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 |
|
See accompanying notes to the interim condensed consolidated financial statements.
Condensed consolidated statementsConsolidated Statements of cash flowsCash Flows
|
| For the Nine Months Ended September 30, |
| |||||
(in thousands) |
| 2017 |
|
| 2016 |
| ||
|
| (unaudited) |
| |||||
Operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (17,696 | ) |
| $ | 90,380 |
|
Income from discontinued operations |
|
| (429 | ) |
|
| (97,741 | ) |
Loss from continuing operations |
|
| (18,125 | ) |
|
| (7,361 | ) |
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 3,452 |
|
|
| 2,757 |
|
Share-based compensation expense |
|
| 1,254 |
|
|
| 381 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
| (282 | ) |
|
| (211 | ) |
Prepaid expenses and other assets |
|
| (1,254 | ) |
|
| (584 | ) |
Accounts payable and accrued liabilities |
|
| (820 | ) |
|
| 329 |
|
Deferred revenue |
|
| 819 |
|
|
| 540 |
|
Net cash used in operating activities – continuing operations |
|
| (14,956 | ) |
|
| (4,149 | ) |
Net cash used in operating activities – discontinued operations |
|
| 429 |
|
|
| (4,849 | ) |
Net cash used in operating activities |
|
| (14,527 | ) |
|
| (8,998 | ) |
Investing activities: |
|
|
|
|
|
|
|
|
Additions to media library, property and equipment |
|
| (9,472 | ) |
|
| (4,484 | ) |
Purchase of investment |
|
| — |
|
|
| (10,020 | ) |
Net cash used in investing activities—continuing operations |
|
| (9,472 | ) |
|
| (14,504 | ) |
Net cash provided by investing activities—discontinued operations |
|
| — |
|
|
| 161,808 |
|
Net cash provided by (used in) investing activities |
|
| (9,472 | ) |
|
| 147,304 |
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from the issuance of stock |
|
| 79 |
|
|
| 994 |
|
Repurchases of stock |
|
| — |
|
|
| (76,168 | ) |
Drawdowns on line of credit |
|
| — |
|
|
| 3,000 |
|
Repayments on line of credit |
|
| — |
|
|
| (3,000 | ) |
Dividends paid to noncontrolling interest |
|
| — |
|
|
| (1,944 | ) |
Net cash provided by (used in) financing activities |
|
| 79 |
|
|
| (77,118 | ) |
Net increase (decrease) in cash |
|
| (23,920 | ) |
|
| 61,188 |
|
Cash at beginning of period |
|
| 54,027 |
|
|
| 1,266 |
|
Cash at end of period |
| $ | 30,107 |
|
| $ | 62,454 |
|
|
| For the Six Months Ended June 30, |
| |||||
(in thousands) |
| 2020 |
|
| 2019 |
| ||
|
| (unaudited) |
| |||||
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
| $ | (6,105 | ) |
| $ | (11,194 | ) |
Loss from discontinued operations |
|
| — |
|
|
| 258 |
|
Loss from continuing operations |
|
| (6,105 | ) |
|
| (10,936 | ) |
Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 6,022 |
|
|
| 4,361 |
|
Share-based compensation expense |
|
| 1,528 |
|
|
| 1,109 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (307 | ) |
|
| (744 | ) |
Prepaid expenses and other assets |
|
| 391 |
|
|
| (497 | ) |
Accounts payable and accrued liabilities |
|
| (1,960 | ) |
|
| 720 |
|
Deferred revenue |
|
| 4,295 |
|
|
| 670 |
|
Net cash provided by (used in) operating activities - continuing operations |
|
| 3,864 |
|
|
| (5,317 | ) |
Net cash provided by operating activities - discontinued operations |
|
| — |
|
|
| 76 |
|
Net cash provided by (used in) operating activities |
|
| 3,864 |
|
|
| (5,241 | ) |
Investing activities: |
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired, and purchases of intangible assets |
|
| — |
|
|
| (1,575 | ) |
Additions to media library, property and equipment |
|
| (7,081 | ) |
|
| (9,763 | ) |
Net cash used in investing activities |
|
| (7,081 | ) |
|
| (11,338 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
Repayments on line of credit |
|
| — |
|
|
| (12,500 | ) |
Proceeds from issuance of term mortgage, net of issuance costs |
|
| — |
|
|
| 16,592 |
|
Proceeds from the issuance of common stock |
|
| 181 |
|
|
| — |
|
Net cash provided by financing activities |
|
| 181 |
|
|
| 4,092 |
|
Net decrease in cash |
|
| (3,036 | ) |
|
| (12,487 | ) |
Cash at beginning of period |
|
| 11,494 |
|
|
| 29,964 |
|
Cash at end of period |
| $ | 8,458 |
|
| $ | 17,477 |
|
See accompanying notes to the interim condensed consolidated financial statements.
Notes to interim condensed consolidatedconsolidated 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 inon July 7, 1988, and operates a global digital video subscription service and on-line community that caters to a unique and underserved subscribermember base. Our digital content library of overincludes approximately 8,000 titles, iswith a growing selection of titles available to our subscribers on most Internet-connected devices anytime, anywhere, commercial free.in Spanish, German and French. Our subscribersmembers have unlimited access to athis vast library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation relatedtransformation-related content, and more – 90% of which is exclusively available to our subscribersmembers for digital streaming.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 4 primary channels— Yoga, Transformation, Alternative Healing, and Seeking Truth— and delivered directly to our subscribersmembers through our streaming platform and currently curated into three channels: Yoga, Transformation and Seeking Truth.platform. We curatedevelop 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 total views on Gaia.our viewership. We complement our produced and owned content through long term, predominately exclusive, 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 disclosedcompared to the significant accounting policies described in our Annual reportReport on Form 10-K for the year ended December 31, 2016.2019.
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.
Recently Adopted Accounting Pronouncements Adopted in 2017Policies
In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Topic 718, Compensation – Stock Compensation. ASU No. 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU No. 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We adopted this guidance effective January 1, 2017. The adoption impact on the consolidated condensed balance sheet was a cumulative-effect adjustment of $0.2 million, increasing opening retained earnings and decreasing paid-in capital.
Recent Accounting Pronouncements
In January 2017,2019, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the2019-02, Improvements to Accounting for Goodwill Impairment,Costs of Films and License Agreements for Program Materials, in order to simplify financial reportingalign the accounting for production costs of an episodic television series with the accounting for production costs of films by eliminatingremoving the need to determinecontent distinction for capitalization. ASU 2019-02 also requires reassessing estimates of the fair value of individual assets and liabilitiesuse of a reporting unit to measure goodwill impairment. Underfilm in a film group and accounting for any changes prospectively. In addition, ASU 2017-04, an entity should perform its goodwill2019-02 requires testing films and program material license agreements for impairment test by comparingat a film group level when the fair value of the reporting unitfilms or license agreements are predominantly monetized with its carrying amountother films and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, up to the amount of goodwill allocated to that reporting unit. The new guidance effectively eliminates “Step 2” from the previous goodwill impairment test. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017.license agreements. We have not determined if we will adopt the new guidance early, but do not expect the adoption of ASU 2017-04 to have a significant impact on the results of our goodwill impairment testing.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Based on our preliminary assessment, we do not expectadopted the new standard to have aon January 1, 2020 with no material impact onto our reported financial position or results of operations.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard superseded most previous revenue recognition rules, and will become effective for usoperations in the first quarterthree and six months ended June 30, 2020.
2. Revenue Recognition
Revenues consist primarily of 2018. The core principle of the standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. Our revenue transactions typically consist of a single, distinct, fixed-price performance obligation that is delivered to the customer at a single point in time, or over a subscription period. The Company will adopt ASU 2014-09 in the first quarter of 2018 using the modified retrospective approach. Because the Company's primary source of revenues are from subscription fees whichpaid by our members. We present revenues net of taxes collected from members. Members are billed in advance and revenues are recognized ratably over eachthe 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 weincurred. We do not expect the impact onallow access to our consolidated financial statementsservice to be material.
2. Discontinued Operations
On May 4, 2016, we sold our 51.4% equity interest in Natural Habitat, Inc., our eco-travel subsidiary, in exchange for $12.9 million, and recognizedprovided as part of a gain of $10.3 million as disclosed in our Current Report on Form 8-K filed May 10, 2016.
On July 1, 2016, we sold the assets and liabilitiesbundle by any of our Gaiam Brand business in exchange for a gross purchase price of $167 million, subject to closing expenses and post-closing adjustments, as disclosed in our Current Reports on Form 8-K filed May 10, 2016 and July 8, 2016. Our Gaiam Brand business previously constituted the majority of our consolidated revenues and expenses, and consisted of Gaiam branded yoga, fitness and wellness consumer products.
The Gaiam Brand business and our interest in our eco-travel subsidiary constituted all the assets and liabilities of our Gaiam Brand segment. The assets and liabilities, operating results, and cash flows of our Gaiam Brand segment are presented as discontinued operations, separate from our continuing operations, for applicable periods presented in these interim condensed consolidated financial statements and footnotes, unless otherwise indicated.
Income from discontinued operations for the three and nine months ended September 30, 2017, as reported on our condensed consolidated statements of operations, is comprised of an income tax benefit of $0.4 million.
The income from discontinued operations for the three and nine months ended September 30, 2016 , as reported on our condensed consolidated statements of operations, were comprised of the following amounts:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| ||
(in thousands) |
| 2016 |
|
| 2016 |
| ||
Net revenue |
| $ | — |
|
| $ | 52,627 |
|
Cost of goods sold |
|
| — |
|
|
| 32,975 |
|
Gross profit |
|
| — |
|
|
| 19,652 |
|
Operating expenses |
|
| 1,042 |
|
|
| 33,641 |
|
Loss from operations |
|
| (1,042 | ) |
|
| (13,989 | ) |
Other income (expense) |
|
| — |
|
|
| 234 |
|
Loss before income taxes |
|
| (1,042 | ) |
|
| (13,755 | ) |
Income tax benefit |
|
| (4,989 | ) |
|
| (4,831 | ) |
Loss from discontinued operations attributable to the non-controlling interest, net of tax |
|
| — |
|
|
| (310 | ) |
Income (loss) from the operation of discontinued operations |
|
| 3,947 |
|
|
| (9,234 | ) |
Gain on sale of Gaiam Brand segment, net of tax |
|
| 100,388 |
|
|
| 110,715 |
|
Write-off of assets impacted by, but not included in sale |
|
| 3,740 |
|
|
| 3,740 |
|
Income from discontinued operations, net of tax |
| $ | 100,595 |
|
| $ | 97,741 |
|
partners.
3. Equity and Share-Based Compensation
In June 2019, we issued 404,891 shares of Class A common stock as part of the consideration for an acquisition of a complementary streaming platform focused on Alternative Healing. We also issued 79,941 shares of Class A common stock as part of the consideration to acquire over 450 titles of original content that has been integrated into our Alternative Healing channel.
In June 2020, we issued 139,617 shares of Class A common stock as additional consideration for an earnout based on the acquired platform maintaining profitability and exceeding the upper threshold of a member growth target as of June 30, 2020.
During the first ninesix months of 2017,2020 and 2019, we issued 1,059 sharesrecognized approximately $1,528,000 and $1,109,000, respectively, of our Class A common stock under our 2009 Long-Term Incentive Plan to our independent directors,share-based compensation expense. This included $715,000 in lieu of cash compensation,additional expense for services rendered in 2017. We valued the shares issued to our independent directors at estimated fair value based on the closing price of our shares on the date the shares were issued, which by policy is the last trading day of each quarter in which the services were rendered.
During the first nine months of 2017 and 2016, we recognized $1.3 million and $0.4 million respectively, of associated stock compensation expense.June 2020 noted above. 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. ThereDuring the first six months of 2020, 32,200 options were 14,300exercised with net proceeds of $181,000. NaN options were exercised during the first ninesix months of 2017,2019.
4. Goodwill and Other Intangible Assets
There were 0 changes in goodwill for the period from December 31, 2019 through June 30, 2020.
The following table represents our other intangible assets by major asset class as of the dates indicated, which are included in Investments and Other Assets on the accompanying condensed consolidated balance sheet:
|
| June 30, |
|
| December 31, |
| ||
(in thousands) |
| 2020 |
|
| 2019 |
| ||
Amortizable Intangible Assets |
|
|
|
|
|
|
|
|
Customer related |
|
|
|
|
|
|
|
|
Gross carrying amount |
| $ | 550 |
|
| $ | 550 |
|
Accumulated amortization |
|
| (550 | ) |
|
| (321 | ) |
|
| $ | — |
|
| $ | 229 |
|
|
|
|
|
|
|
|
|
|
Unamortized Intangible Assets |
|
|
|
|
|
|
|
|
Domain names |
| $ | 571 |
|
| $ | 571 |
|
The customer related intangible assets are being amortized on a straight-line basis over 12 months. Amortization expense was $92,000 and $229,000 for the three and six months ended June 30, 2020, respectively.
5. Debt
On April 26, 2019, we replaced the line of credit of our wholly owned subsidiary Boulder Road LLC with net proceedsa $17.0 million mortgage with BDS III Mortgage Capital B LLC, as lender. The mortgage bears interest at a fixed spread over LIBOR, matures on May 1, 2022, with a two year extension option, is secured by our corporate campus and is guaranteed by Gaia with no recourse against other assets. The current interest rate is 5.75%. Boulder Road’s financial statements are included within our consolidated financial statements; however, as long as the mortgage is outstanding, Boulder Road’s assets and credit are only available to pay its own debts and obligations and are not available to satisfy the debts or obligations of $0.1 million.any other entity.
4.In June 2019, one of our wholly owned subsidiaries issued a $1.45 million secured convertible promissory note as part of the consideration for the platform acquisition discussed in Note 3. This note was converted into 206,542 shares of Class A common stock in June 2020 and cancelled.
Also in June 2019, one of our wholly owned subsidiaries issued a $300,000 secured convertible promissory note as part of the consideration for the acquisition of a library of original content discussed in Note 3. This note was converted into 40,728 shares of Class A common stock in June 2020 and cancelled.
6. Net Loss per Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all shares of common stock underlying stock options, and restricted stock units and convertible notes payable, to the extent dilutive. Basic and diluted net loss per share were the same for the three and ninesix months ended SeptemberJune 30, 20172020 and 20162019, respectively, as the inclusion of all underlying common shares would have been anti-dilutive.
5.7. Income Taxes
Our provision for income taxes is comprised of the following:
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
(in thousands) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
State |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total current |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| — |
|
|
| 42 |
|
|
| 69 |
|
|
| 42 |
|
State |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total deferred |
|
| — |
|
|
| 42 |
|
|
| 69 |
|
|
| 42 |
|
Total income tax expense |
| $ | — |
|
| $ | 42 |
|
| $ | 69 |
|
| $ | 42 |
|
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. With the sale of the Gaiam Brand business in 2016, we utilized the majority ofBased on our deferred tax assets to offset the associated gains from the sale and released the valuation allowance we had in place. During 2017, we determined the historical operating losses, generated by the business, combined with our plans to continue to invest in our revenue growth and generate losses for the next few years, indicatedthrough 2020, we have a full valuation allowance on our deferred tax assets was appropriate.assets. As of SeptemberJune 30, 2017,2020, our gross net operating loss carryforwards on a gross basis were $16.7$103.9 million and $0.8$28.0 million for federal and state, respectively.
6.8. Contingencies
From time to time, we are involved in legal proceedings that we consider to be in the normal course of business. Claimed amounts against us may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Although it is not feasible to predict the outcome of these matters with certainty, it is reasonably possible that some legal proceedings may be disposed of or decided unfavorably to us and in excess of accrued amounts, if any. 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 SeptemberJune 30, 2017,2020 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.
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 set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk”Operations” and elsewhere in this Form 10-Q.10-Q and under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. Risks and uncertainties that could cause actual results to differ include, without limitation, general economic conditions, ongoing losses, competition, loss of key personnel, pricing, brand reputation, acquisitions, availability of capital, new initiatives we undertake, security and information systems, legal liability for website content, failure of third parties to provide adequate service, future Internet-relatedinternet-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 condensed consolidated financial statements and related notes included elsewhere in this document. This section is designed to provide information that will assist in understanding our condensed consolidated financial statements, changes in certain items in those statements from period to period, the primary factors that caused those changes and how certain accounting principles, policies and estimates affect the condensed consolidated financial statements.
Overview and Outlook
We operate a global digital video subscription service with overa library of approximately 8,000 titles, with a growing selection of titles available in Spanish, German and French, that caters to a unique, and underserved subscribermember base. Our digital content is available to our subscribersmembers on most Internet-connectedinternet-connected devices anytime, anywhere, commercial free.commercial-free. Through our online Gaia subscription service our subscribersmembers have unlimited access to a vast library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation related content, and more. A subscription also allowsmore – 85% of which is exclusively available to our subscribers to download and view files from our library without being actively connected to the Internet.members for digital streaming on most internet-connected devices.
Consumption of streaming video is expanding rapidly as more and more people augment their use of, or replace broadcast television and turn to, streaming video to watch their favorite content on services like Netflix, Amazon Prime, Hulu Plus, HBO Now and Gaia. OurGaia’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. Over 90% of our content is available for streaming exclusively through a subscription to Gaia. By offering exclusive and unique content through our streaming service, we believe we will be able to significantly expand our target subscribermember 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 customermember 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 our investments in our streaming video technology and our user interface, we have expanded the many ways our subscription customermember 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-connectedinternet-connected devices as they are developed and creating a conscious community built onaround our content.
Our focus for 2019 was on disciplined investment in our product, content library and member acquisition efforts to allow us to reduce the cash used in operations meaningfully over the year, with a continued focus on driving sustainable growth into the future. We reduced cash used in operations over 88% from 2018 to 2019 and generated cash flows from operations in the fourth quarter of 2019. We continued this trend in the first half of 2020, generating $3.9 million in cash flows from operations, an improvement of $9.2 million or 174% from the year ago period. We are now focused on generating net income and cash while continuing to grow revenues.
In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, or COVID-19, as a pandemic, which continues to spread throughout the United States and the world. 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 COVID-19, 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 this Form 10-Q.
In the second half of March 2020 continuing through June 2020, we saw an increase in demand for our content from both current and potential members, which has 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. While we do not know when these trends might dissipate, they are providing incremental momentum in an otherwise historically slower period for new member growth.
We reported net losses from continuing operations of $18.1$6.1 million and $7.4$11.2 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
We are a Colorado corporation. Our principal and executive office is located at 833 West South Boulder Road, Suite G, Louisville, CO 80027-2452. Our telephone number at that address is (303) 222-3600. We maintain an Interneta website at www.gaia.com. The website address has been included only as a textual reference. Our website and the information contained on that website,it, or connected to that website,it, are not incorporated by reference into this Form 10-Q. We are a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934 and have elected to take advantage of certain scaled disclosures available to smaller reporting companies.
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) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Streaming revenues |
| $ | 7,025 |
|
| $ | 3,802 |
|
| $ | 18,290 |
|
| $ | 10,641 |
|
DVD subscription and other revenues |
|
| 497 |
|
|
| 660 |
|
|
| 1,574 |
|
|
| 1,849 |
|
Cost of streaming |
|
| 958 |
|
|
| 636 |
|
|
| 2,541 |
|
|
| 1,952 |
|
Cost of DVD subscription and other |
|
| 79 |
|
|
| 65 |
|
|
| 225 |
|
|
| 209 |
|
Selling and operating |
|
| 10,784 |
|
|
| 6,536 |
|
|
| 31,812 |
|
|
| 17,383 |
|
Corporate, general and administration |
|
| 1,528 |
|
|
| 1,439 |
|
|
| 4,321 |
|
|
| 4,215 |
|
Loss from operations |
|
| (5,827 | ) |
|
| (4,214 | ) |
|
| (19,035 | ) |
|
| (11,269 | ) |
Interest and other income (expense) |
|
| 62 |
|
|
| 20 |
|
|
| 150 |
|
|
| (133 | ) |
Loss before taxes |
|
| (5,765 | ) |
|
| (4,194 | ) |
|
| (18,885 | ) |
|
| (11,402 | ) |
Income tax benefit |
|
| (131 | ) |
|
| (4,043 | ) |
|
| (760 | ) |
|
| (4,041 | ) |
Loss from continuing operations |
|
| (5,634 | ) |
|
| (151 | ) |
|
| (18,125 | ) |
|
| (7,361 | ) |
Income from discontinued operations, net of tax |
|
| 429 |
|
|
| 100,595 |
|
|
| 429 |
|
|
| 97,741 |
|
Net loss |
| $ | (5,205 | ) |
| $ | 100,444 |
|
| $ | (17,696 | ) |
| $ | 90,380 |
|
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
(in thousands, except per share data) |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Revenues, net |
| $ | 16,153 |
|
| $ | 13,164 |
|
| $ | 30,664 |
|
| $ | 25,631 |
|
Cost of revenues |
|
| 2,083 |
|
|
| 1,785 |
|
|
| 3,984 |
|
|
| 3,385 |
|
Gross profit |
|
| 87.1 | % |
|
| 86.4 | % |
|
| 87.0 | % |
|
| 86.8 | % |
Selling and operating expenses |
|
| 14,417 |
|
|
| 14,173 |
|
|
| 28,875 |
|
|
| 29,895 |
|
Corporate, general and administration expenses |
|
| 1,873 |
|
|
| 1,493 |
|
|
| 3,290 |
|
|
| 3,086 |
|
Loss from operations |
|
| (2,220 | ) |
|
| (4,287 | ) |
|
| (5,485 | ) |
|
| (10,735 | ) |
Interest and other expense, net |
|
| (305 | ) |
|
| (196 | ) |
|
| (551 | ) |
|
| (159 | ) |
Loss before income taxes |
|
| (2,525 | ) |
|
| (4,483 | ) |
|
| (6,036 | ) |
|
| (10,894 | ) |
Income tax expense |
|
| — |
|
|
| 42 |
|
|
| 69 |
|
|
| 42 |
|
Loss from continuing operations |
|
| (2,525 | ) |
|
| (4,525 | ) |
|
| (6,105 | ) |
|
| (10,936 | ) |
Income (loss) from discontinued operations |
|
| — |
|
|
| 57 |
|
|
| — |
|
|
| (258 | ) |
Net loss |
| $ | (2,525 | ) |
| $ | (4,468 | ) |
| $ | (6,105 | ) |
| $ | (11,194 | ) |
The following table sets forth certain financial data as a percentage of revenue for the periods indicated:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Streaming |
|
| 93.4 | % |
|
| 85.2 | % |
|
| 92.1 | % |
|
| 85.2 | % |
DVD subscription and other |
|
| 6.6 | % |
|
| 14.8 | % |
|
| 7.9 | % |
|
| 14.8 | % |
Total net revenues |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of streaming |
|
| 12.8 | % |
|
| 14.3 | % |
|
| 12.8 | % |
|
| 15.6 | % |
Cost of DVD subscription and other |
|
| 1.0 | % |
|
| 1.4 | % |
|
| 1.1 | % |
|
| 1.7 | % |
Total cost of revenues |
|
| 13.8 | % |
|
| 15.7 | % |
|
| 13.9 | % |
|
| 17.3 | % |
Gross profit |
|
| 86.2 | % |
|
| 84.3 | % |
|
| 86.1 | % |
|
| 82.7 | % |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and operating |
|
| 143.4 | % |
|
| 146.5 | % |
|
| 160.1 | % |
|
| 139.2 | % |
Corporate, general and administration |
|
| 20.3 | % |
|
| 32.2 | % |
|
| 21.8 | % |
|
| 33.7 | % |
Total expenses |
|
| 163.7 | % |
|
| 178.7 | % |
|
| 181.9 | % |
|
| 172.9 | % |
Loss from operations |
|
| (77.5 | )% |
|
| (94.4 | )% |
|
| (95.8 | )% |
|
| (90.2 | )% |
Interest and other income (expense) |
|
| 0.8 | % |
|
| 0.4 | % |
|
| 0.8 | % |
|
| (1.1 | )% |
Loss before taxes |
|
| (76.7 | )% |
|
| (94.0 | )% |
|
| (95.0 | )% |
|
| (91.3 | )% |
Income tax benefit |
|
| (1.7 | )% |
|
| (90.6 | %) |
|
| (3.8 | )% |
|
| (32.4 | )% |
Loss from continuing operations |
|
| (75.0 | )% |
|
| (3.4 | )% |
|
| (91.1 | )% |
|
| (58.9 | )% |
Income from discontinued operations, net of tax |
|
| 5.7 | % |
|
| 2254.5 | % |
|
| 2.2 | % |
|
| 782.6 | % |
Net loss |
|
| (69.3 | )% |
|
| 2251.1 | % |
|
| (89.0 | )% |
|
| 723.7 | % |
|
| For the Three Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Revenues, net |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of revenues |
|
| 12.9 | % |
|
| 13.6 | % |
|
| 13.0 | % |
|
| 13.2 | % |
Gross profit |
|
| 87.1 | % |
|
| 86.4 | % |
|
| 87.0 | % |
|
| 86.8 | % |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and operating |
|
| 89.3 | % |
|
| 107.7 | % |
|
| 94.2 | % |
|
| 116.6 | % |
Corporate, general and administration |
|
| 11.6 | % |
|
| 11.3 | % |
|
| 10.7 | % |
|
| 12.0 | % |
Total expenses |
|
| 100.8 | % |
|
| 119.0 | % |
|
| 104.9 | % |
|
| 128.7 | % |
Loss from operations |
|
| (13.7 | )% |
|
| (32.6 | )% |
|
| (17.9 | )% |
|
| (41.9 | )% |
Interest and other expense, net |
|
| (1.9 | )% |
|
| (1.5 | )% |
|
| (1.8 | )% |
|
| (0.6 | )% |
Loss before income taxes |
|
| (15.6 | )% |
|
| (34.1 | )% |
|
| (19.7 | )% |
|
| (42.5 | )% |
Income tax expense |
|
| 0.0 | % |
|
| 0.3 | % |
|
| 0.2 | % |
|
| 0.2 | % |
Loss from continuing operations |
|
| (15.6 | )% |
|
| (34.4 | )% |
|
| (19.9 | )% |
|
| (42.7 | )% |
Income (loss) from discontinued operations |
|
| 0.0 | % |
|
| 0.4 | % |
|
| 0.0 | % |
|
| (1.0 | )% |
Net loss |
|
| (15.6 | )% |
|
| (33.9 | )% |
|
| (19.9 | )% |
|
| (43.7 | )% |
Three months ended SeptemberJune 30, 20172020 compared to three months ended SeptemberJune 30, 20162019
Net revenueRevenues, net. Net revenueRevenues increased $3.0 million, or 68.6%22.7%, to $7.5$16.2 million during the thirdsecond quarter of 2017,2020, compared to $4.5$13.2 million during the thirdsecond quarter of 2016. Net revenue from streaming increased $3.2 million, or 84.8%, to $7.0 million during the third quarter of 2017 from $3.8 million during the third quarter of 2016.2019. The increase in streaming revenues was primarily driven by our growthan increase in both members and average monthly revenue per member compared to the number of paying subscribers.year-earlier period. Revenues were not significantly impacted by inflation.
Cost of revenues. Cost of revenues increased $0.3 million, or 47.9%16.7%, to $1.0$2.1 million during the thirdsecond quarter of 2017,2020, from $0.7$1.8 million during the thirdsecond quarter of 2016. Cost of streaming revenues increased $0.4 million, or 50.6%, to $1.0 million during the third quarter of 2017 from $0.6 million during the third quarter of 2016,2019 and, as a percentage of streaming revenue, cost of streaming revenuenet revenues, decreased to 13.7% compared to 16.8%12.9% during the second quarter of 2020 from 13.6% during the second quarter of 2019 primarily due to the relatively fixed streaming costs offset by our higher volumes and an increase in revenue.increased revenues.
Selling and operating expenses. Selling and operating expenses increased $4.3$0.2 million, or 65.0%1.4%, to $10.8$14.4 million during the thirdsecond quarter of 20172020 from $6.5$14.2 million during the thirdsecond quarter of 2016,2019 and, as a percentage of net revenue,revenues, decreased to 143.4%89.3% during the thirdsecond quarter of 20172020 from 146.5%107.7% during the thirdsecond quarter of 2016.2019. We increased our spending on marketing during the second quarter of 2020 by approximately $0.9 million compared to the year ago quarter to take advantage of the favorable environment for attracting new members. The increase in expensesmarketing spend was primarily dueoffset by operating expense efficiencies overall as we have continued to increased marketing spending for subscriber acquisition due toreduce our planned acceleration in subscriber growth rates. The decrease as a percentage of revenues is due to revenue growth in excess of spend growth in 2017 due to increased marketing efficiencies.operating expense base through disciplined expense management.
Corporate, general and administration expenses. Corporate, general and administration expenses increased $0.1$0.4 million, or 2.9%26.7%, to $1.5$1.9 million during the thirdsecond quarter of 2017 from $1.4 million during2020 compared to the third quartersame period of 20162019 and, as a percentage of net revenue,revenues, increased to 11.6% during the second quarter of 2020 from 11.3%. The second quarter of 2020 includes $0.7 million in non-recurring share-based compensation expense, which was offset by reductions in other expenses as a result of our disciplined expense management.
Net loss. As a result of the above factors net loss decreased to 20.3%$2.5 million, or $0.13 per share, during the thirdsecond quarter of 2017 from 32.2%2020 compared to a net loss of $4.5 million, or $0.25 per share, during the thirdfirst quarter of 2016, due2019.
Six months ended June 30, 2020 compared to six months ended June 30, 2019
Revenues, net. Revenues increased $5.1 million, or 19.9%, to $30.7 million during the first six months of 2020, compared to $25.6 million during the first six months of 2019. The increase was primarily driven by an increase in both members and average monthly revenue per member compared to the increaseyear-earlier period. Revenues were not significantly impacted by inflation.
Cost of revenues. Cost of revenues increased $0.6 million, or 17.6%, to $4.0 million during the first six months of 2020, from $3.4 million during the first six months of 2019 and, as a percentage of net revenues, decreased to 13.0% during the first six months of 2020 from 13.2% during the first six months of 2019 primarily due to increased revenues.
Selling and operating expenses. Selling and operating expenses decreased $1.0 million, or 3.3%, to $28.9 million during the first six months of 2020 from $29.9 million during the first six months of 2019, and, as a percentage of net revenues, decreased to 94.2% during the first six months of 2020 from 116.6% during the first six months of 2019 primarily due to operating expense efficiencies overall as we have continued to reduce our operating expense base through disciplined expense management.
Corporate, general and administration expenses. Corporate, general and administration expenses decreased $0.2 million or 6.5%, to $3.3 million during the first six months of 2020 from $3.1 million during the first six months of 2019 and, as a percentage of net revenues, decreased to 10.7% during the first six months of 2020 from 12.0% during the first six months of 2019, due to increased revenues in revenues during 2017.
Income from discontinued operations. The operations of the Gaiam Brand segment2020 and the related gain on disposal are included in income from discontinued operations for the third quarter of 2016.disciplined expense management.
Net income (loss)loss. As a result of the above factors, net loss was $(5.2)$6.1 million, or $(0.34) per share, during the third quarter of 2017 compared to a net income of $100.4 million, or $6.64 per share, during the third quarter of 2016.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
Net revenue. Net revenue increased $7.4 million, or 59.0%, to $19.9 million during the first nine months of 2017, compared to $12.5 million during the first nine months of 2016. Net revenue from streaming increased $7.7 million, or 71.9%, to $18.3 million during the first nine months of 2017 from $10.6 million during the first nine months of 2016. The increase in streaming revenues was primarily driven by our growth in the number of paying subscribers.
Cost of revenues. Cost of revenues increased $0.6 million, or 28.0%, to $2.8 million during the first nine months of 2017, from $2.2 million during the first nine months of 2016. Cost of streaming revenues increased $0.5 million, or 30.2%, to $2.5 million during the first nine months of 2017 from $2.0 million during the first nine months of 2016 and, as a percentage of streaming revenue, cost of streaming revenue decreased to 14.0% compared to 18.4% primarily due to relatively fixed streaming costs offset by our higher volumes and an increase in revenue.
Selling and operating expenses. Selling and operating expenses increased $14.4 million, or 83.0%, to $31.8 million during the first nine months of 2017 from $17.4 million during the first nine months of 2016, and as a percentage of net revenue, increased to 160.1% during the first nine months of 2017 from 139.2% during the first nine months of 2016. The increase was primarily due to increased marketing spending for subscriber acquisition due to our planned acceleration in subscriber growth rates during 2017.
Corporate, general and administration expenses. Corporate, general and administration expenses increased $0.1 million, or 1.4%, to $4.3 million during the first nine months of 2017 from $4.2 million during the first nine months of 2016 and, as a percentage of net revenue, decreased to 21.8 % during the first nine months of 2017 from 33.7% during the first nine months of 2016, due primarily to the increase in revenues during 2017.
Income from discontinued operations. The operations of the Gaiam Brand segment and the related gain on disposal are included in income from discontinued operations for the first nine months of 2016.
Net income (loss). As a result of the above factors, net loss was $(17.7) million, or $(1.17)$0.33 per share, during the first ninesix months of 20172020 compared to a net incomeloss of $90.4$11.2 million, or $4.22$0.62 per share, during the first ninesix months of 2016.2019.
Seasonality
Our subscribermember base growth reflects seasonal variations driven primarily by when consumers typically spend more time indoors and, as a result, tend to increase their viewing, likesimilar to those of traditional TV and cable networks. OurHistorically, our member growth is generally greatest in the fourth and first quarterquarters (October through March)February), and slowest in the May through August period.August. This drives quarterly variations in our spending on customermember acquisition efforts but does not drive a corresponding seasonality in net revenue.
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 level of 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. At SeptemberJune 30, 2017,2020, our cash balance was $30.1$8.5 million. We estimate that our capital expenditures, including investments in our media
library, will total approximately $3.5$6.0 million for the remainder of 2017, which2020. Since beginning to generate cash flows from operations in October 2019, we have generated $7.3 million in cash flows from operations and we expect to continue generating cash for the remainder of 2020. These planned capital expenditures will be funded throughpredominately 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 can scale the planned expenditures based on the available cash balance.flows from operations as there are no contractual commitments with, or dependencies on, third parties.
Since 2007,On April 26, 2019, we have had an active shelf registration withreplaced the Securities and Exchange Commission for 5,000,000 sharesline of credit of our Class A common stockwholly owned subsidiary Boulder Road LLC with a $17.0 million mortgage with BDS III Mortgage Capital B LLC, as lender. The mortgage bears interest at a fixed spread over LIBOR, matures on May 1, 2022, with a two year extension option, is secured by our corporate campus and is guaranteed by Gaia with no recourse against other assets. Boulder Road’s financial statements are included within our consolidated financial statements; however, as long as the mortgage is outstanding, Boulder Road’s assets and credit are only available to date no shares have been issued under our current shelf registration.pay its own debts and obligations and are not available to satisfy the debts or obligations of any other entity.
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, cash that could be raised by the sale of our stock, and potential borrowing capabilities should be sufficient to fund our operations on both a short-term and long-term basis. In addition, we own our corporate headquarters and could enter into additional financing or a sale/leaseback transaction to provide additional funds. However, our projected cash needs may change as a result of acquisitions, product development, unforeseen operational difficulties or other factors.
We had no debt as of September 30, 2017.
Cash Flows
The following table summarizes our primary sources (uses) of cash during the periods presented:
|
| For the Nine Months Ended September 30, |
|
| For the Six Months Ended June 30, |
| ||||||||||
(in thousands) |
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities – continuing operations |
| $ | (14,956 | ) |
| $ | (4,149 | ) | ||||||||
Operating activities – discontinued operations |
|
| 429 |
|
|
| (4,849 | ) | ||||||||
Operating activities - continuing operations |
| $ | 3,864 |
|
| $ | (5,317 | ) | ||||||||
Operating activities - discontinued operations |
|
| — |
|
|
| 76 |
| ||||||||
Operating activities |
|
| (14,527 | ) |
|
| (8,998 | ) |
|
| 3,864 |
|
|
| (5,241 | ) |
Investing activities – continuing operations |
|
| (9,472 | ) |
|
| (14,504 | ) | ||||||||
Investing activities—discontinued operations |
|
| — |
|
|
| 161,808 |
| ||||||||
Investing activities |
|
| (9,472 | ) |
|
| 147,304 |
|
|
| (7,081 | ) |
|
| (11,338 | ) |
Financing activities |
|
| 79 |
|
|
| (77,118 | ) |
|
| 181 |
|
|
| 4,092 |
|
Net increase (decrease) in cash |
| $ | (23,920 | ) |
| $ | 61,188 |
| ||||||||
Net decrease in cash |
| $ | (3,036 | ) |
| $ | (12,487 | ) |
Operating activities – continuing operations. Cash flow from continuingflows used in operations decreased $10.4improved $9.1 million during the first ninesix months of 20172020 compared to the same period in 2016.2019. The decreaseimprovement was primarily due to increased marketing spend due to accelerateddriven by disciplined expense management, growth in 2017.our member base and an increase in the number of members electing to pay for an annual membership in advance.
OperatingInvesting activities – discontinued operations. Cash flow from discontinued operations increased $5.2flows used in investing activities decreased $4.3 million during the first ninesix months of 20172020 compared to the same period in 2016 as the only activity in 2017 was related2019 primarily due to income tax provision adjustments.alignment of our content and product investments to our cash flows from operations and planned revenue growth.
InvestingFinancing activities – continuing operations. Cash flow from investingflows provided by financing activities – continuing operations increased $5.0decreased $3.9 million during the first ninesix months of 20172020 compared to the same period in 2016 primarily due to increased investment in our media library in 2017 offset by an investment made in 2016.
Financing activities. Cash flow fromthe prior year, as we did not undertake financing activities increased $77.2 million during the first ninesix months of 2017 compared to2020 while in 2019 we replaced our line of credit with the same period in 2016, primarily due to our use of $76.2 million to repurchase 9,636,848 shares of Class A common stock and 842,114 stock options in our issuer tender offer completed in July 2016. mortgage discussed above.
Not applicable.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.
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 SeptemberJune 30, 2017,2020, 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 SeptemberJune 30, 2017,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings.
None.
There have been no material changes fromThe disclosure below modifies the risk factors as previously disclosed underin our annual report on Form 10-K for the heading “Risk Factors”fiscal year ended December 31, 2019. These risks and uncertainties, along with those previously disclosed, could materially adversely affect our business or financial results.
Impacts of COVID-19 on our business
The global spread of COVID-19 and the various measures to contain it are affecting the macroeconomic environment and while the full impact is uncertain, our business and results of operations could be materially adversely affected. Gaia has experienced some increase in member growth and utilization as more people stay at home and rely on video content, but the longer-term economic impact is expected to adversely affect consumer spending on discretionary items and may decrease demand for our service. The impact on our business will depend on a number of factors such as the duration and extent of COVID-19, governmental actions, changes in consumer behavior, responses of our third-party business partners that offer our content through their platforms, and general economic activity.
We are attempting to conduct business as usual to the extent possible and are complying with the applicable safer at home orders issued by the Governor of Colorado. We canceled and postponed live events that were scheduled for March through July and will be operating at limited in person capacity for events held at GaiaSphere, our 300-person live event studio located on our campus in Colorado, for the foreseeable future. The loss of revenue and exposure from such events will negatively affect us. We lease a portion of our corporate campus, and the failure of one or more of our tenants to meet their rent and other obligations to us for an extended period could negatively affect us.
The impact of the COVID-19 pandemic may also exacerbate other risks discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K, for the year ended December 31, 2016.any of which could have a material effect on us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On June 18, 2020, Gaia issued 139,617 unregistered shares of its Class A common stock to settle the additional consideration for the platform acquisition completed in June 2019 discussed above. In addition, Gaia issued 247,270 unregistered shares of its Class A common stock for the conversion of $1.75 million in secured convertible promissory notes issued as partial consideration for the acquisitions described above.
None.The unregistered shares were issued in reliance on the exemption from registration afforded by Regulation S under the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Exhibit No. |
| Description |
31.1* |
| |
|
|
|
31.2* |
| |
|
|
|
32.1** |
| |
|
|
|
32.2** |
| |
|
|
|
101.INS |
| Inline XBRL Instance Document. |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation |
104 | Cover Page Interactive Data File |
* | Filed herewith |
** | Furnished herewith |
Pursuant to the requirements of the Securities and 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) | |
|
|
| |
| By: | /s/ Jirka Rysavy | |
Date |
| Jirka Rysavy | |
|
| Chief Executive Officer | |
|
| (authorized officer) | |
|
|
| |
| By: | /s/ Paul Tarell | |
Date |
| Paul Tarell | |
|
| Chief Financial Officer | |
|
| (principal financial and accounting officer) |
18
17