GAIA, INC - Quarter Report: 2023 September (Form 10-Q)

10-Q

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 2023

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

For the transition period from to

Commission File Number 000-27517

GAIA, INC.

(Exact name of registrant as specified in its charter)

COLORADO

84-1113527

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

833 WEST SOUTH BOULDER ROAD,

LOUISVILLE, COLORADO 80027

(Address of principal executive offices)

(303) 222-3600

(Registrant’s telephone number, including area code)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock	GAIA	NASDAQ Global Market

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

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

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

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

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

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


Class		Outstanding at October 27, 2023
Class A Common Stock ($0.0001 par value)		17,609,425
Class B Common Stock ($0.0001 par value)		5,400,000

GAIA, INC.

FORM 10-Q

INDEX


PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):	3

	Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022	4

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2023 and 2022	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	7

	Notes to interim condensed consolidated financial statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

Item 4.	Controls and Procedures	16

PART II—OTHER INFORMATION		17

Item 1.	Legal Proceedings	17

Item 1A.	Risk Factors	17

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Mine Safety Disclosures	17

Item 5.	Other Information	17

Item 6.	Exhibits	18

	SIGNATURES	19

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Unaudited Interim Condensed Consolidated Financial Statements

We have prepared our unaudited interim condensed consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. While certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to these rules and regulations, we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited interim condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, our consolidated financial position as of September 30, 2023, the interim results of operations for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. Operating results for the three and nine months ended September 30, 2023 and 2022 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, 2022 was derived from our audited consolidated financial statements included in our Annual Report on Form 10-K. The interim condensed consolidated financial statements contained herein should be read in conjunction with our audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2022.

GAIA, INC.

Condensed Consolidated Balance Sheets


	September 30,			December 31,
(in thousands, except share and per share data)	2023			2022
	(unaudited)
ASSETS
Current assets:
Cash	$	11,229		$	11,562
Accounts receivable		3,829			2,955
Prepaid expenses and other current assets		4,132			2,656
Total current assets		19,190			17,173
Media library, software and equipment, net		50,481			51,115
Right-of-use lease asset, net		6,492			7,093
Real estate, investment and other assets, net		30,296			30,979
Goodwill		31,943			31,943
Total assets	$	138,402		$	138,303
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued and other liabilities	$	14,051		$	12,355
Short-term debt and lease liability		9,920			894
Deferred revenue		15,334			14,124
Total current liabilities		39,305			27,373
Long-term debt, net		5,842			14,958
Long-term lease liability		5,911			6,489
Deferred taxes		499			499
Total liabilities		51,557			49,319
Shareholders’ equity:
Class A common stock, $0.0001 par value, 150,000,000 shares authorized, 15,754,425 and 15,406,186 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		1			1
Class B common stock, $0.0001 par value, 50,000,000 shares authorized, 5,400,000 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		1			1
Additional paid-in capital		165,490			164,180
Accumulated deficit		(78,647	)		(75,198	)
Total shareholders’ equity		86,845			88,984
Total liabilities and shareholders’ equity	$	138,402		$	138,303

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

GAIA, INC.

Condensed Consolidated Statements of Operations


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in thousands, except per share data)	2023			2022			2023			2022
	(unaudited)						(unaudited)
Revenues, net	$	20,223		$	19,907		$	59,709		$	62,458
Cost of revenues		2,983			2,648			8,595			8,312
Gross profit		17,240			17,259			51,114			54,146
Expenses:
Selling and operating		16,254			15,543			49,462			48,197
Corporate, general and administration		1,433			2,019			4,726			5,598
Acquisition costs		—			—			—			49
Total operating expenses		17,687			17,562			54,188			53,844
Income (loss) from operations		(447	)		(303	)		(3,074	)		302
Interest and other expense, net		(141	)		(65	)		(375	)		(175	)
SEC settlement		—			(2,000	)		—			(2,000	)
Loss before income taxes		(588	)		(2,368	)		(3,449	)		(1,873	)
Provision for (benefit from) income taxes		—			—			—			—
Loss from continuing operations		(588	)		(2,368	)		(3,449	)		(1,873	)
Loss from discontinued operations		—			(7	)		—			(300	)
Net loss	$	(588	)	$	(2,375	)	$	(3,449	)	$	(2,173	)

Earnings (loss) per share:
Basic
Continuing operations	$	(0.03	)	$	(0.11	)	$	(0.16	)	$	(0.09	)
Discontinued operations	$	—		$	—		$	—		$	(0.01	)
Basic earnings (loss) per share	$	(0.03	)	$	(0.11	)	$	(0.16	)	$	(0.10	)
Diluted
Continuing operations	$	(0.03	)	$	(0.11	)	$	(0.16	)	$	(0.09	)
Discontinued operations	$	—		$	—		$	—		$	(0.01	)
Diluted earnings (loss) per share	$	(0.03	)	$	(0.11	)	$	(0.16	)	$	(0.10	)
Weighted-average shares outstanding:
Basic		21,154			20,806			20,951			20,686
Diluted		21,154			20,806			20,951			20,686

See accompanying notes to the interim condensed consolidated financial statements.

GAIA, INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity


	(unaudited)
(in thousands, except shares)	Total Shareholders’ Equity			Accumulated Deficit			Common Stock Amount		Additional Paid-in Capital		Common Stock Shares
Balance at January 1, 2022	$	90,215		$	(72,103	)	$	2	$	162,316		20,461,337
Issuance of Gaia, Inc. common stock for RSU releases and share-based compensation		540			—			—		540		313,823
Net income		86			86			—		—		—
Balance at March 31, 2022	$	90,841		$	(72,017	)	$	2	$	162,856		20,775,160
Issuance of Gaia, Inc. common stock for RSU releases, employee stock purchase plan, stock option exercises and share-based compensation		433			—			—		433		31,026
Net Income		116			116			—		—		—
Balance at June 30, 2022	$	91,390		$	(71,901	)	$	2	$	163,289		20,806,186
Share-based compensation		337			—			—		337		—
Net loss		(2,375	)		(2,375	)		—		—		—
Balance at September 30, 2022	$	89,352		$	(74,276	)	$	2	$	163,626		20,806,186

Balance at January 1, 2023	$	88,984		$	(75,198	)	$	2	$	164,180		20,806,186
Issuance of Gaia, Inc. common stock for RSU releases and share-based compensation		104			—			—		104		19,606
Net loss		(1,143	)		(1,143	)		—		—		—
Balance at March 31, 2023	$	87,945		$	(76,341	)	$	2	$	164,284		20,825,792
Issuance of Gaia, Inc. common stock for media library acquisition		669			—			—		669		272,980
Issuance of Gaia, Inc. common stock for RSU releases, employee stock purchase plan, and share-based compensation		481			—			—		481		55,653
Net loss		(1,718	)		(1,718	)		—		—		—
Balance at June 30, 2023	$	87,377		$	(78,059	)	$	2	$	165,434		21,154,425
Share-based compensation		56			—			—		56		—
Net loss		(588	)		(588	)		—		—		—
Balance at September 30, 2023	$	86,845		$	(78,647	)	$	2	$	165,490		21,154,425

See accompanying notes to the interim condensed consolidated financial statements.

GAIA, INC.

Condensed Consolidated Statements of Cash Flows


	For the Nine Months Ended September 30,
(in thousands)	2023			2022
	(unaudited)
Operating activities:
Net loss	$	(3,449	)	$	(2,173	)
Loss from discontinued operations		—			300
Loss from continuing operations		(3,449	)		(1,873	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		12,702			12,009
Share-based compensation expense		599			1,267
Changes in operating assets and liabilities:
Accounts receivable		(874	)		(393	)
Prepaid expenses and other assets		(1,821	)		(752	)
Accounts payable and accrued liabilities		1,714			(1,612	)
Deferred revenue		1,210			(273	)
Net cash provided by operating activities - continuing operations		10,081			8,373
Net cash used in operating activities - discontinued operations		—			(300	)
Net cash provided by operating activities		10,081			8,073
Investing activities:
Additions to media library, software and equipment		(10,371	)		(14,056	)
Acquisitions, net of cash acquired, and purchase of intangible assets		—			(847	)
Net cash used in investing activities		(10,371	)		(14,903	)
Financing activities:
Repayment of debt		(19,985	)		(141	)
Proceeds from short-term borrowings		19,900			7,500
Proceeds from the issuance of common stock		42			43
Net cash provided by (used in) financing activities		(43	)		7,402
Net change in cash		(333	)		572
Cash at beginning of period		11,562			10,269
Cash at end of period	$	11,229		$	10,841
Supplemental cash flow information
Interest paid	$	394		$	201
Value of shares issued for acquisition of content added to Media Library	$	669			—

See accompanying notes to the interim condensed consolidated financial statements.

Notes to interim condensed consolidated financial statements

References in this report to “we”, “us”, “our” or “Gaia” refer to Gaia, Inc. and its consolidated subsidiaries, unless we indicate otherwise. All textual currency references are expressed in thousands of U.S. dollars (unless otherwise indicated).

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

Gaia, Inc. (“Gaia,” “we” or “us”) operates a global digital video subscription service and on-line community that caters to a unique and underserved member base. Our digital content library includes over 10,000 titles, with a growing selection of titles available in Spanish, German and French. Our members have unlimited access to this vast library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation-related content and more – 88% of which is exclusively available to our members for digital streaming on most internet-connected devices anytime, anywhere, commercial free.

Our mission is to create a transformational network that empowers a global conscious community. Content on our network is currently organized into four primary channels—Yoga, Transformation, Alternative Healing, and Seeking Truth—and delivered directly to our members through our streaming platform. We curate programming for these channels by producing content in our in-house production studios with a staff of media professionals. This produced and owned content currently comprises approximately 75% of our members’ viewing time. We complement our produced and owned content through long term licensing agreements.

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

There have been no material changes in our significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates and Reclassifications

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

Discontinued Operations

Yoga International historically had a line of business focused on one-time transactional course sales. With the launch of a premium membership tier that includes this content, this line of business was discontinued in 2022 as the contractual commitments related to this line of business lapsed. There are no other assets or liabilities associated with this revenue stream. As this represents a strategic shift with a major effect on our operations and financial results, we have presented the results of operations related to winding up this line of business as discontinued operations on the accompanying condensed consolidated statement of operations in 2022.

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 2023 and 2022, we recognized approximately $599 and $1,267, respectively, of share-based compensation expense. Total share-based compensation expense is reported in selling and operating expenses and corporate, general and administration expenses on our condensed consolidated statements of operations. There were no options exercised during the first nine months of 2023 or 2022.

4. Goodwill and Other Intangible Assets

There were no changes in goodwill for the period from December 31, 2022 through September 30, 2023.

The following table represents our other intangible assets by major asset class as of the dates indicated, which are included in Real estate, investment and other assets, net on the accompanying condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022.


(in thousands)	September 30, 2023			December 31, 2022
Amortizable Intangible Assets
Customer relationships	$	2,000		$	2,000
Tradenames		270			270
Accumulated amortization		(1,004	)		(579	)
	$	1,266		$	1,691

Unamortized Intangible Assets
Domain names	$	563		$	563

Our amortizable assets are expected to be amortized on a straight-line basis over 48 months. Amortization expense was $142 for the three months ended September 30, 2023 and 2022 and $425 for the nine months ended September 30, 2023 and 2022. Future amortization of our amortizable intangible assets as of September 30, 2023 is expected to be as follows:


(in thousands)
2023 (remaining)	$	142
2024		568
2025		556
	$	1,266

5. Debt

On September 9, 2020, Boulder Road sold a 50% undivided interest in a portion of our corporate campus to Westside Boulder, LLC (Westside). Boulder Road retained a 50% undivided interest in the property as well as full ownership of our studio and production facilities. Boulder Road received consideration of $13.2 million in the transaction.

On December 28, 2020, Boulder Road and Westside entered into a loan agreement with First Interstate Bank, as lender, providing for a mortgage loan in the principal amount of $13.0 million. The mortgage bears interest at a fixed rate of 3.75% per annum, matures on December 28, 2025, 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 loan proceeds and are each responsible for 50% of the monthly installments. Gaia guaranteed payment of the mortgage. The mortgage is subject to certain financial covenants related to the underlying property.

On August 25, 2022 (the Closing Date), Gaia, as borrower, and certain subsidiaries, as guarantors, entered into a Credit and Security Agreement (the Credit Agreement) with KeyBank National Association (KeyBank). The Credit Agreement provides for a revolving credit facility in an aggregate amount of up to $10.0 million with a sublimit of $1.0 million available for issuances of letters of credit. Borrowings under the Credit Agreement are available for working capital and general corporate purposes, but not to fund any permitted acquisitions or other investments. As of September 30, 2023, $9.0 million was drawn under the Credit Agreement, which is included in Short-term debt and lease liability on the accompanying condensed consolidated balance sheets.

Loans made, or letters of credit issued, under the Credit Agreement mature on August 25, 2025 and are secured (subject to permitted liens and other exceptions) by a first priority lien on all business assets, including intellectual property, of Gaia and the subsidiary guarantors.

Any advance under the Credit Agreement shall bear interest at the Daily Simple SOFR rate (subject to a floor of 0.00%), plus, the SOFR Index Adjustment of 0.10%, plus a margin of 2.00%; provided, that, during the existence of a Benchmark Unavailability Period or a SOFR Unavailability Period, advances shall bear interest at the Base Rate, which is a fluctuating interest rate per annum equal to the highest of (i) the Federal Funds Rate plus 0.50%, (ii) KeyBank’s “prime rate,” (iii) SOFR and (iv) 3.00%, plus, in each instance, a margin of 1.00%.

The aggregate outstanding amount of advances under the Credit Agreement is required to be $0 for at least 30 consecutive days during the period commencing on the 12-month anniversary of the Closing Date and ending on the 24-month anniversary of the Closing Date. The company expects this requirement to be satisfied during fourth quarter 2023.

The Credit Agreement contains customary affirmative and negative covenants (each with customary exceptions), including limitations on the Company’s ability to incur liens or debt, make investments, pay dividends, enter into transactions with its affiliates and engage in certain fundamental changes. Additionally, the Credit Agreement requires Gaia to maintain a Fixed Charge Coverage Ratio of not less than 1.20 to 1.00 and to not permit the Leverage Ratio to exceed 1.50 to 1.00 for any computation period.

Maturities on long-term debt, net are:


(in thousands)
2023 (remaining)	$	9,038
2024		156
2025		5,801
	$	14,995

6. Leases

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

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


		September 30,		December 31,
(in thousands)	Balance Sheet Classification	2023		2022
Right-of-use asset	Right-of-use lease asset, net	$	6,492	$	7,093

Operating lease liability (current)	Accounts payable, accrued and other liabilities	$	767	$	745
Operating lease liability (non-current)	Long-term lease liability		5,911		6,489
		$	6,678	$	7,234


	For the Three Months Ended September 30,
(in thousands)	2023		2022
Cash paid for operating lease liabilities	$	250	$	250


	For the Nine Months Ended September 30,
(in thousands)	2023		2022
Cash paid for operating lease liabilities	$	750	$	750

Operating lease expense is recognized on a straight-line basis over the lease term. Future amortization of our lease liability as of September 30, 2023 is expected to be:


(in thousands)
2023 (remaining)	$	250
2024		1,008
2025		1,035
2026		1,064
2027		1,093
Thereafter		3,160
Future lease payments, gross		7,610
Less: Imputed interest		(932	)
Operating lease liability	$	6,678

7. Earnings Per Share

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

The weighted-average diluted shares outstanding computation is:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data)	2023		2022		2023		2022
	(unaudited)				(unaudited)
Weighted-average common stock outstanding		21,154		20,806		20,951		20,686
Common stock equivalents		—		—		—		—
Weighted-average number of shares		21,154		20,806		20,951		20,686

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


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
	(unaudited)				(unaudited)
Common stock equivalents excluded due to net loss		67		6		57		97
Employee stock options and RSUs		598		976		497		672
		665		982		554		769

8. Income Taxes

Periodically, we perform assessments of the realization of our net deferred tax assets considering all available evidence, both positive and negative. Based on our historical operating losses, combined with our plans to continue to invest in our revenue growth and content library, we have a full valuation allowance on our deferred tax assets as of September 30, 2023. As of September 30, 2023, our net operating loss carryforwards on a gross basis were $80,490 and $26,416 for federal and state, respectively. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a stimulus bill which was in response to economic consequences of the COVID-19 pandemic. The CARES Act provided an employee retention credit, which is a refundable tax credit against certain employment taxes. During the quarter ended September 30, 2023, we recorded $1,750 related to the employee retention credit in Selling and operating expenses in the condensed consolidated statements of operations with a related receivable balance from the United States government related to the CARES Act, which is recorded in Prepaid expenses and other current assets on our condensed consolidated balance sheets.

9. Non-income Taxes

The Company is subject to tax examinations for Value Added Taxes (VAT). A number of these examinations are ongoing and, in certain cases, have resulted in assessments from taxing authorities. Where a VAT liability with respect to a jurisdiction is probable and can be reliably estimated, the Company accrues for these matters in corporate, general, and administration expenses in the condensed consolidated statements of operations. Future developments relating to the foregoing could result in adjustments to these accruals.

10. Contingencies

From time to time, we are involved in legal proceedings that we consider to be in the normal course of business. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, that are considered probable of being rendered against us in litigation or arbitration in existence at September 30, 2023 and that can be reasonably estimated are either reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.

11. Subsequent Events

Class A Common Stock Offering

On October 2, 2023, we entered into an underwriting agreement with Lake Street Capital Markets, LLC (the Underwriter) relating to the offer and sale of 1,855,000 shares of our Class A Common Stock ($0.0001 par value) (the Shares). We sold the Shares to the Underwriter at the public offering price of $2.70 per share less underwriting discounts and commissions, resulting in net proceeds of $4,678. We provided a 30-day option to the Underwriter to purchase up to an additional 278,250 Shares to cover over-allotments. At time of filing, the over-allotment option was not exercised.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact are forward looking statements that involve risks and uncertainties. When used in this discussion, we intend the words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “hope,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “strive,” “target,” “will,” “would” 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” and elsewhere in this Form 10-Q and under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Risks and uncertainties that could cause actual results to differ include, without limitation: our ability to attract new members and retain existing members; our ability to compete effectively, including for customer engagement with different modes of entertainment; maintenance and expansion of devise platforms for streaming; fluctuation in customer usage of our service; fluctuations in quarterly operating results; service disruptions; production risks; general economic conditions; future losses; loss of key personnel; price changes; brand reputation; acquisitions; new initiatives we undertake; security and information systems; legal liability for website content; failure of third parties to provide adequate service; future internet-related taxes; our founder’s control of us; litigation; consumer trends; the effect of government regulation and programs; the impact of public health threats, including the coronavirus (COVID-19) pandemic and our response to it; and other risks and uncertainties included in our filings with the SEC. We caution you that no forward-looking statement is a guarantee of future performance, and you should not place undue reliance on these forward-looking statements which reflect our views only as of the date of this report. We undertake no obligation to update any forward-looking information.

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

Overview and Outlook

We operate a global digital video subscription service with a library of over 10,000 titles, with a growing selection of titles available in Spanish, German and French that caters to a unique, underserved member base. Our digital content is available to our members on most internet-connected devices anytime, anywhere, commercial-free. Through our online Gaia subscription service our members have unlimited access to a library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation related content, and more – 88% of which is exclusively available to our members for digital streaming on most internet-connected devices.

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

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

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

The full impact that the COVID-19 pandemic will have on our business, operations and financial results will depend on a number of evolving factors that we may not be able to accurately predict. See Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 for additional discussion regarding risks related to the COVID-19 pandemic.

Commencing during the second half of March 2020 and continuing through July 2020, we saw an increase in demand for our content from both current and potential members. This created a positive trend in existing member retention, costs to acquire new members, and the corresponding revenue and cash flow impacts from these higher volumes. This trend dissipated beginning in August 2020,

when we saw the online paid media advertising market start to return to historical norms with a corresponding effect on the cost of our online advertising efforts. With the rollout of privacy changes affecting a large number of mobile consumers during the summer of 2021 we saw an increase in the costs of our online advertising efforts which reduced the number of new members we add each period with our allocated marketing spend. In addition, in the period of March through October 2022, we lost about 40% of the members we added during the COVID-19 lockdowns in 2020 and 2021.

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

Results of Operations

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in thousands, except per share data)	2023			2022			2023			2022
Revenues, net	$	20,223		$	19,907		$	59,709		$	62,458
Cost of revenues		2,983			2,648			8,595			8,312
Gross profit margin		85.2	%		86.7	%		85.6	%		86.7	%
Selling and operating		16,254			15,543			49,462			48,197
Corporate, general and administration		1,433			2,019			4,726			5,598
Acquisition costs		—			—			—			49
Total operating expenses		17,687			17,562			54,188			53,844
Income (loss) from operations		(447	)		(303	)		(3,074	)		302
Interest and other expense, net		(141	)		(65	)		(375	)		(175	)
SEC settlement		—			(2,000	)		—			(2,000	)
Loss before income taxes		(588	)		(2,368	)		(3,449	)		(1,873	)
Provision for (benefit from) income taxes		—			—			—			—
Loss from continuing operations		(588	)		(2,368	)		(3,449	)		(1,873	)
Loss from discontinued operations		—			(7	)		—			(300	)
Net loss	$	(588	)	$	(2,375	)	$	(3,449	)	$	(2,173	)

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,
	2023			2022			2023			2022
Revenues, net		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues		14.8	%		13.3	%		14.4	%		13.3	%
Gross profit		85.2	%		86.7	%		85.6	%		86.7	%
Expenses:
Selling and operating		80.4	%		78.1	%		82.8	%		77.2	%
Corporate, general and administration		7.1	%		10.1	%		7.9	%		9.0	%
Acquisition costs		—	%		—	%		—	%		0.1	%
Total operating expenses		87.5	%		88.2	%		90.8	%		86.2	%
Income (loss) from operations		(2.2	)%		(1.5	)%		(5.1	)%		0.5	%
Interest and other expense, net		(0.7	)%		(0.3	)%		(0.6	)%		(0.3	)%
SEC settlement		—	%		(10.0	)%		—	%		(3.2	)%
Loss before income taxes		(2.9	)%		(11.9	)%		(5.8	)%		(3.0	)%
Provision for (benefit from) income taxes		—	%		—	%		—	%		—	%
Loss from continuing operations		(2.9	)%		(11.9	)%		(5.8	)%		(3.0	)%
Loss from discontinued operations		—	%		(0.0	)%		—	%		(0.5	)%
Net loss		(2.9	)%		(11.9	)%		(5.8	)%		(3.5	)%

Three months ended September 30, 2023 compared to three months ended September 30, 2022

Revenues, net. Revenues increased $0.3 million, or 1.5%, to $20.2 million during the three months ended September 30, 2023, compared to $19.9 million during the three months ended September 30, 2022. This was primarily driven by an increase in member count.

Cost of revenues. Cost of revenues increased $0.4 million or 15.4% to $3.0 million during the three months ended September 30, 2023, compared to $2.6 million during the three months ended September 30, 2022 related to the increase in revenues and increased content amortization. Gross profit margin decreased during the three months ended September 30, 2023 to 85.2% from 86.7% for the three months ended September 30, 2022 primarily due to increased content amortization related to an overall increase in our investment of our original content offerings.

Selling and operating expenses. Selling and operating expenses increased $0.8 million, or 5.2%, to $16.3 million during the three months ended September 30, 2023, compared to $15.5 million for the three months ended September 30, 2022, driven primarily by an increase in marketing spend expenses and tax accruals. These increased expenses are offset by a one-time Employee Retention Tax Credit (ERTC) against payroll tax expense. This ERTC tax credit was recognized upon completion of the filing. As a percentage of net revenues, selling and operating expenses increased to 80.4% for the three months ended September 30, 2023 compared to 78.1% for the three months ended September 30, 2022.

Corporate, general and administration expenses. Corporate, general and administration expenses decreased $0.6 million, or 30.0% to $1.4 million for three months ended September 30, 2023 from $2.0 million for three months ended September 30, 2022, driven primarily by decreases in salary and payroll related expenses. As a percentage of net revenues, these expenses decreased to 7.1% for the three months ended September 30, 2023 from 10.1% for the three months ended September 30, 2022.

Nine months ended September 30, 2023 compared to nine months ended September 30, 2022

Revenues, net. Revenues decreased $2.8 million, or 4.5%, to $59.7 million during the nine months ended September 30, 2023, compared to $62.5 million during the nine months ended September 30, 2022. This was primarily driven by a post-COVID subscriber contraction, experienced industry wide during the second half of 2022, which resulted in decreased revenue and overall member count into 2023. The reversal of this trend began during the first half of 2023, when we started to see member count growth along with revenues. This steady pace of growth culminated in the third quarter of 2023, when we started to see a return to the pre-contraction revenue levels.

Cost of revenues. Cost of revenues increased $0.3 million, or 3.6%, to $8.6 million during the nine months ended September 30, 2023, from $8.3 million during the nine months ended September 30, 2022 due to increased content amortization. Gross profit margin decreased during the nine months ended September 30, 2023 to 85.6% from 86.7% for the nine months ended September 30, 2022 primarily due to decreased revenues.

Selling and operating expenses. Selling and operating expenses increased $1.3 million, or 2.7%, to $49.5 million during the nine months ended September 30, 2023, compared to $48.2 million for the nine months ended September 30, 2022, driven primarily by an increase in marketing spend and tax accruals. These increased expenses are offset by a one-time Employee Retention Tax Credit (ERTC) against payroll tax expense. This ERTC tax credit was recognized upon completion of the filing. As a percentage of net revenues, these expenses increased to 82.8% for the nine months ended September 30, 2023 compared to 77.2% for the nine months ended September 30, 2022.

Corporate, general and administration expenses. Corporate, general and administration expenses decreased $0.9 million or 16.1% to $4.7 million for the nine months ended September 30, 2023 compared to $5.6 million for the nine months ended September 30, 2022, primarily driven by decreases in salary and payroll expenses. As a percentage of net revenues, these expenses decreased to 7.9% for the nine months ended September 30, 2023 from 9.0% for the nine months ended September 30, 2022, driven primarily by a decrease in revenues.

Seasonality

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

Liquidity and Capital Resources

Our capital needs arise from working capital required to fund operations, capital expenditures related to acquisition and development of media content, development and marketing of our digital platforms, acquisitions of new businesses and other investments,

replacements, expansions and improvements to our infrastructure, and future growth. These capital requirements depend on numerous factors, including the rate of market acceptance of our offerings, our ability to expand our customer base, the cost of ongoing upgrades to our offerings, our expenditures for marketing, and other factors. Additionally, we will continue to pursue opportunities to expand our media libraries, evaluate possible investments in businesses and technologies, and increase our marketing programs as needed.

Our budgeted content and capital expenditures for the remainder of 2023 are expected to be between $3.0 to $4.0 million which we intend to fund with cash flows generated from operations. These planned expenditures will be predominately utilized to expand our content library and build out the capabilities of our digital platforms. The planned expenditures are discretionary and, with our in-house production capabilities, we have the ability to scale expenditures based on the available cash flows from operations. We began to generate positive cash flows from operations in October 2019 and have continued to generate cash flows from operations since. We expect to continue generating positive cash flows from operations during the remainder of 2023. We generated approximately $10.1 million in cash flows from operations during the nine months ended September 30, 2023. As of September 30, 2023, our cash balance was $11.2 million.

As described in Note 5, during August 2022, we entered into a Credit Agreement with KeyBank, which provides for a revolving credit facility in an aggregate amount of up to $10.0 million. Funds from the Credit Agreement are available for working capital and general corporate purposes, but not to fund any permitted acquisitions or other investments. As of September 30, 2023, $9.0 million was drawn under the Credit Agreement, which is included in Long-term debt, net on the accompanying condensed consolidated balance sheets.

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, our cash expected to be generated from operations, our $10 million revolving line of credit, our potential additional borrowing capabilities now that we have a history of generating positive operating cash flows, and our potential capital raising capabilities will be sufficient to fund our operations on both a short-term and long-term basis. However, our projected cash needs may change as a result of acquisitions, product development, unforeseen operational difficulties, or other factors.

Class A Common Stock Offering

Cash Flows

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


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(in thousands)	2023			2022			2023			2022
Net cash provided by (used in):
Operating activities - continuing operations	$	3,601		$	1,686		$	10,081		$	8,373
Operating activities - discontinued operations		—			(7	)		—			(300	)
Operating activities		3,601			1,679			10,081			8,073
Investing activities		(3,252	)		(4,484	)		(10,371	)		(14,903	)
Financing activities		1			7,451			(43	)		7,402
Net change in cash	$	350		$	4,646		$	(333	)	$	572

Operating activities. Cash flows provided by operations increased approximately $2.0 million during the first nine months of 2023 compared to the same period in 2022. The increase was primarily driven by changes in earnings, timing of working capital, primarily accounts payable and deferred revenues.

Investing activities. Cash flows used in investing activities decreased $4.5 million during the first nine months of 2023 compared to the same period in 2022 due primarily to the cost reduction initiatives we completed in the first quarter of 2023.

Financing activities. Cash flows provided by financing activities were primarily impacted by borrowing and repayment activities associated with our revolving line of credit.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based upon its evaluation as of September 30, 2023, 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 September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

We incorporate by reference the Risk Factors included as Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 that we filed with the SEC on March 6, 2023.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits


Exhibit No.		Description

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

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

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

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

101.INS		Inline XBRL Instance Document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File

* Filed herewith

** Furnished herewith

SIGNATURES

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


		Gaia, Inc.
		(Registrant)

October 30, 2023	By:	/s/ Jirka Rysavy
Date		Jirka Rysavy
		Chief Executive Officer
		(Authorized Officer)

October 30, 2023	By:	/s/ Ned Preston
Date		Ned Preston
		Chief Financial Officer
		(Principal Financial and Accounting Officer)