United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended September 30, 20172021

OR

For the transition period from to

Commission File Number 000-27517

GAIA, INC.

(Exact name of registrant as specified in its charter)

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:

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  Yes☒    NO  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  Yes☒    NO  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.

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:

GAIA, INC.

FORM 10-Q

INDEX

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. CertainWhile 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 September 30, 2017,2021, the interim results of operations for the three and nine months ended September 30, 20172021 and 2016,2020, and cash flows for the nine months ended September 30, 20172021 and 2016.2020. Operating results for the three and nine-month periodsnine months ended September 30, 20172021 and 2020 are not necessarily indicative of the results that may be expected for a full year or any future interim period. These interim statements have not been audited. The balance sheet as of December 31, 20162020 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, 2016.2020.

GAIA, INC.

Condensed consolidated balance sheets

Consolidated Balance Sheets

See accompanying notes to the interim condensed consolidated financial statements.

GAIA, INC.

Condensed consolidated statementsConsolidated Statements of operationsOperations

See accompanying notes to the interim condensed consolidated financial statements.

GAIA, INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

See accompanying notes to the interim condensed consolidated financial statements.

GAIA, INC.

Condensed consolidated statementsConsolidated Statements of cash flowsCash Flows

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%80% 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,long-term licensing agreements.

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

There have been no material changes in our significant accounting policies, other than the adoption of accounting pronouncements below, as disclosedcompared to the significant accounting policies described in our Annual reportReport on Form 10-K for the year ended December 31, 2016.2020.

Use of Estimates and Reclassifications

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

Accounting Pronouncements AdoptedImplemented in 20172021

In March 2016,June 2019, the Financial Accounting Standards Board (“FASB”)FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which amends Topic 718, Compensation – Stock Compensation. ASU No. 2016-09removes certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies several aspects of the accounting for share-based paymentfranchise taxes, transactions includingthat result in a step-up in the income tax consequences, classificationbasis of awards as either equitygoodwill, and the effect of enacted changes in tax laws or liabilities, and classification on the statement of cash flows.rates in interim periods. ASU No. 2016-092019-12 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years.2020. 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, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, to simplify financial reporting by eliminating the need to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment.  Under ASU 2017-04, an entity should perform its goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount 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.  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 expect the new standard to have aon January 1, 2021 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 quarter 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 which are recognized ratably over each subscription period, we do not expect the impact on our consolidated financial statements 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 recognized 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 liabilities 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.2021.

The income from discontinued operations forWith the three and nine months ended September 30, 2016 , as reported on our condensed consolidated statements of operations, were comprisedexception of the following amounts:new standard discussed above, no other new accounting pronouncements have significance, or potential significance, to our reported financial position or results of operations.

2. Revenue Recognition

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

3. Equity and Share-Based Compensation

During the first nine months of 2017, we issued 1,059 shares of our Class A common stock under our 2009 Long-Term Incentive Plan to our independent directors, in lieu of cash compensation, 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 20172021 and 2016,2020, we recognized $1.3 millionapproximately $1,236,000 and $0.4 million$1,864,000, respectively, of associated stockshare-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 14,300 options exercised duringDuring the first nine months of 2017,2021, 90,000 options were exercised with net proceeds of $0.1 million.$615,000. During the first nine months of 2020, 32,200 options were exercised with net proceeds of $181,000.

4. Net LossGoodwill and Other Intangible Assets

There were 0 changes in goodwill for the period from December 31, 2020 through September 30, 2021. Other unamortized intangible assets included in Real estate, investments and other assets on the accompanying condensed consolidated balance sheet consist of $571,000 for domain names as of September 30, 2021 and December 31, 2020.

5. Debt

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

Maturities on long-term debt, net are:

6. Leases

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

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

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

7. Earnings Per Share

Basic net lossearnings per share is computed by dividing the net loss byusing 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. Diluted net lossperiod (“Common stock equivalents”). Common stock equivalents consist of incremental shares issuable upon the assumed exercise of stock options and vesting of restricted stock units utilizing the treasury stock method.

The computation of diluted earnings per share is computed by giving effect to allis:

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 underlying stock options and restricted stock units, toexcluded from the extent dilutive. Basic and diluted net loss per share were the same for the three and nine months ended September 30, 2017 and 2016 respectively, as the inclusion of all underlying common shares would have been anti-dilutive.calculation:

5.

8. Income Taxes

Our provision for income taxes is comprised of:

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, indicatedcontent library, we have a full valuation allowance on our deferred tax assets was appropriate.as of September 30, 2021. As of September 30, 2017,2021, our gross net operating loss carryforwards on a gross basis were $16.7$74.3 million and $0.8$20.0 million for federal and state, respectively.

6.9. 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 September 30, 2017,2021 and that can be reasonably estimated are either reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.

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,” “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, 2020. Risks and uncertainties that could cause actual results to differ include, without limitation, general economic conditions, ongoingfuture profitability or losses, continued membership growth, 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 readers in understanding our condensed consolidated financial statements, changes in certain items in those statements from periodyear to period,year, 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 – 80% 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.

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

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

We reported losses from continuing operationsnet income of $18.1 million and $7.4$1.6 million for the first nine months ended September 30, 2017 and 2016, respectively.of 2021, an improvement of $1.4 million from $0.2 million for the first nine months of 2020.

We are a Colorado corporation. Our principal and executive office is located at 833 West South Boulder Road, Suite G, Louisville, CO 80027-2452. Our telephone number at that address is (303) 222-3600. We maintain an Internet 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, or connected to that website, are not incorporated by reference into this Form 10-Q.

Results of Operations

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