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 June 30, 2024

OR

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

For the transition period from to

Commission File Number 000-27517

 

 

GAIA, INC.

(Exact name of registrant as specified in its charter)

 

 

COLORADO		84-1113527
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

833 WEST SOUTH BOULDER ROAD,

LOUISVILLE, COLORADO 80027

(Address of principal executive offices)

(303) 222-3600

(Registrant’s telephone number, including area code)

 

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

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

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

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

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

 

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

 

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

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

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

 

Class		Outstanding at August 2, 2024
Class A Common Stock ($0.0001 par value)		18,066,942
Class B Common Stock ($0.0001 par value)		5,400,000

 

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GAIA, INC.

FORM 10-Q

INDEX

 

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):	3
	Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023	4
	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2024 and 2023	5
	Condensed Consolidated Statements of Changes in Equity (unaudited) for the six months ended June 30, 2024 and 2023	6
	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2024 and 2023	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		18
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 5.	Other Information	18
Item 6.	Exhibits	19
	SIGNATURES	20

 

 

 

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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 United States Securities and Exchange Commission (“SEC”). While certain information and note disclosures normally included in annual audited financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 condensed consolidated financial statements contain all adjustments necessary to present fairly, in all material respects, our condensed consolidated balance sheets as of June 30, 2024, the interim condensed consolidated statements of operations for the three and six months ended June 30, 2024 and 2023, the interim condensed consolidated statements of changes in equity for the three and six months ended June 30, 2024 and 2023, and condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023. Operating results for the three and six months ended June 30, 2024 and 2023 are not necessarily indicative of the results that may be expected for a full year or any future interim period. These unaudited interim condensed consolidated financial statements have not been audited. The balance sheet as of December 31, 2023 was derived from our annual audited consolidated financial statements included in our Annual Report on Form 10-K. The unaudited interim condensed consolidated financial statements contained herein should be read in conjunction with our annual audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2023.

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GAIA, INC.

Condensed Consolidated Balance Sheets

		June 30,				December 31,
(in thousands, except share and per share data)		2024				2023
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	5,459			$	7,766
Accounts receivable			4,806				4,111
Other receivables			2,903				2,191
Prepaid expenses and other current assets			2,468				2,015
Total current assets			15,636				16,083
Media library, net			39,125				40,125
Operating right-of-use asset, net			5,875				6,288
Property and equipment, net			25,282				26,303
Equity method investment			—				6,374
Technology license, net			15,954				—
Investments and other assets, net			8,301				3,157
Goodwill			31,943				31,943
Total assets		$	142,116			$	130,273
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	14,132			$	12,038
Accrued and other liabilities			1,957				2,599
Long-term debt, current portion			158				155
Operating lease liability, current portion			809				780
Deferred revenue			17,737				15,861
Total current liabilities			34,793				31,433
Long-term debt, net of current portion (Note 4)			5,721				5,801
Operating lease liability, net of current portion			5,296				5,708
Deferred taxes, net			551				551
Total liabilities			46,361				43,493
Commitments and Contingencies (Note 8)
Shareholders’ equity:
Class A common stock, $0.0001 par value, 150,000,000 shares   authorized, 18,046,018 and 17,813,179 shares   issued, 17,981,031 and 17,748,374 shares outstanding at June 30, 2024 and   December 31, 2023, respectively			2				2
Class B common stock, $0.0001 par value, 50,000,000 shares    authorized, 5,400,000 shares issued and outstanding    at June 30, 2024 and December 31, 2023, respectively			1				1
Additional paid-in capital			170,562				170,695
Accumulated deficit			(88,433	)			(85,195	)
Total Gaia, Inc. shareholders’ equity			82,132				85,503
Noncontrolling interests			13,623				1,277
Total equity			95,755				86,780
Total liabilities and equity		$	142,116			$	130,273

See accompanying notes to the unaudited interim condensed consolidated financial statements.

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GAIA, INC.

Condensed Consolidated Statements of Operations (unaudited)

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
(in thousands, except per share data)		2024				2023				2024				2023
Revenues, net		$	22,081			$	19,839			$	43,774			$	39,486
Cost of revenues			3,415				2,839				6,583				5,612
Gross profit			18,666				17,000				37,191				33,874
Operating Expenses:
Selling and operating			18,697				17,085				36,456				33,208
Corporate, general and administration			1,988				1,520				3,617				3,293
Total operating expenses			20,685				18,605				40,073				36,501
Loss from operations			(2,019	)			(1,605	)			(2,882	)			(2,627	)
Equity method investment loss			—				(125	)							(250	)
Interest and other expense, net			(144	)			(113	)			(252	)			(234	)
Loss before income taxes			(2,163	)			(1,843	)			(3,134	)			(3,111	)
Provision for income taxes			—				—				—				—
Net loss			(2,163	)			(1,843	)			(3,134	)			(3,111	)
Net income attributable to noncontrolling interests			30				45				104				83
Net loss attributable to common shareholders		$	(2,193	)		$	(1,888	)		$	(3,238	)		$	(3,194	)
Loss per share:
Basic
Continuing operations (attributable to common shareholders)		$	(0.09	)		$	(0.09	)		$	(0.14	)		$	(0.15	)
Basic loss per share		$	(0.09	)		$	(0.09	)		$	(0.14	)		$	(0.15	)
Diluted
Continuing operations (attributable to common shareholders)		$	(0.09	)		$	(0.09	)		$	(0.14	)		$	(0.15	)
Diluted loss per share		$	(0.09	)		$	(0.09	)		$	(0.14	)		$	(0.15	)
Weighted-average shares outstanding:
Basic			23,372				20,874				23,267				20,850
Diluted			23,372				20,874				23,267				20,850

See accompanying notes to the interim condensed consolidated financial statements.

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GAIA, INC.

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in thousands, except shares)		Common Stock Shares				Accumulated Deficit				Common Stock Amount				Additional Paid-in Capital				Non-controlling interests				Total Equity
Balance at December 31, 2023			23,148,374			$	(85,195	)		$	3			$	170,695			$	1,277			$	86,780
Issuance of Gaia, Inc. common stock for employee stock purchase plan			7,444				—				—				14				—				14
Issuance of Gaia, Inc. common stock for RSU releases and share-based compensation			4,708				—				—				335				—				335
Net (loss) income			—				(1,045	)			—				—				74				(971	)
Balance at March 31, 2024			23,160,526			$	(86,240	)		$	3			$	171,044			$	1,351			$	86,158
Issuance of Gaia, Inc. common stock for RSU releases and share-based compensation			220,505				—				—				327				—				327
Igniton activity			—				—				—				(809	)			12,242				11,433
Net (loss) income			—				(2,193	)			—				—				30				(2,163	)
Balance at June 30, 2024			23,381,031			$	(88,433	)		$	3			$	170,562			$	13,623			$	95,755
(in thousands, except shares)		Common Stock Shares				Accumulated Deficit				Common Stock Amount				Additional Paid-in Capital				Non-controlling interests				Total Equity
Balance at December 31, 2022			20,806,186			$	(79,393	)		$	2			$	164,180			$	1,070			$	85,859
Issuance of Gaia, Inc. common stock for employee stock purchase plan			11,410				—				—			$	22				—			$	22
Issuance of Gaia, Inc. common stock for RSU releases and share-based compensation			8,196			—				—					82			—					82
Net (loss) income		—					(1,306	)		—				—					38				(1,268	)
Balance at March 31, 2023			20,825,792			$	(80,699	)		$	2			$	164,284			$	1,108			$	84,695
Issuance of Gaia, Inc. common stock for media library acquisition			272,980				—				—				669				—				669
Issuance of Gaia, Inc. common stock for employee stock purchase plan			10,385				—				—				20				—				20
Issuance of Gaia, Inc. common stock for RSU releases and share-based compensation			45,268				—				—				461				—				461
Net (loss) income							(1,888	)											45				(1,843	)
Balance at June 30, 2023			21,154,425			$	(82,587	)		$	2			$	165,434			$	1,153			$	84,002

See accompanying notes to the interim condensed consolidated financial statements.

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GAIA, INC.

Condensed Consolidated Statements of Cash Flows (unaudited)

 

		For the Six Months Ended June 30,
(in thousands)		2024				2023
Cash flows from operating activities:
Net loss		$	(3,134	)		$	(3,111	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Media library amortization			4,924				4,429
Depreciation and amortization			4,193				3,945
Noncash operating lease expense			472				539
Share-based compensation expense			662				543
Additions to media library			(3,938	)			(5,210	)
Equity method investment losses			—				250
Changes in operating assets and liabilities:
Accounts receivable			(895	)			73
Other receivables			(712	)			(590	)
Prepaid expenses and other current assets			(413	)			(481	)
Accounts payable			1,892				1,940
Accrued and other liabilities			(1,072	)			(2,409	)
Deferred revenue			1,876				1,352
Net cash provided by operating activities			3,855				1,270
Cash flows from investing activities:
Additions to property and equipment			(2,520	)			(1,909	)
Purchase of intangible assets			(10,000	)			—
Net cash used in investing activities			(12,520	)			(1,909	)
Cash flows from financing activities:
Repayment of long-term debt			(4,089	)			(12,686	)
Proceeds from short-term borrowings			4,000				12,600
Proceeds from sale of subsidiary common stock, net of transaction costs			6,433				—
Proceeds from the issuance of common stock			14				42
Net cash provided by (used in) financing activities			6,358				(44	)
Net change in cash, cash equivalents and restricted cash			(2,307	)			(683	)
Cash, cash equivalents and restricted cash, beginning of period			7,766				11,562
Cash, cash equivalents and restricted cash, end of period		$	5,459			$	10,879
Supplemental disclosure of cash flow information
Cash paid for interest		$	262			$	253
Supplemental disclosure of non-cash investing and financing activities
Value of shares issued for acquisition of content added to Media Library		$	—			$	669
Additions to property and equipment in Accounts payable		$	(202	)		$	—
Non-cash consideration paid for intangible assets		$	6,156			$	—

See accompanying notes to the interim condensed consolidated financial statements.

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Notes to interim condensed consolidated financial statements

References in this report to “we”, “us”, “our”, the “Company” 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).

 

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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, 2023.

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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 device 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; our ability to remediate the material weaknesses in our internal control over financial reporting and technical accounting; 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 unaudited condensed consolidated financial statements and related notes included elsewhere in this report. This section is designed to provide information that will assist readers in understanding our unaudited 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 live communications and live events 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, live events, 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 lifestyle campus 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 alternative content provided by mainstream media. We have grown these content options both organically through our own productions and through strategic acquisitions or licensing. 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.

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:

 

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		For the Three Months Ended June 30,								For the Six Months Ended June 30,
(in thousands, except per share data)		2024				2023				2024				2023
		(unaudited)								(unaudited)
Revenues, net		$	22,081			$	19,839			$	43,774			$	39,486
Cost of revenues			3,415				2,839				6,583				5,612
Gross profit margin			84.5	%			85.7	%			85.0	%			85.8	%
Selling and operating			18,697				17,085				36,456				33,208
Corporate, general and administration			1,988				1,520				3,617				3,293
Total operating expenses			20,685				18,605				40,073				36,501
Loss from operations			(2,019	)			(1,605	)			(2,882	)			(2,627	)
Equity method investment loss			—				(125	)			—				(250	)
Interest and other expense, net			(144	)			(113	)			(252	)			(234	)
Loss before income taxes			(2,163	)			(1,843	)			(3,134	)			(3,111	)
Provision for income taxes			—				—				—				—
Net loss			(2,163	)			(1,843	)			(3,134	)			(3,111	)
Net income attributable to noncontrolling interests			30				45				104				83
Net loss attributable to common shareholders		$	(2,193	)		$	(1,888	)		$	(3,238	)		$	(3,194	)

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

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2024				2023				2024				2023
		(unaudited)								(unaudited)
Revenues, net			100.0	%			100.0	%			100.0	%			100.0	%
Cost of revenues			15.5	%			14.3	%			15.0	%			14.2	%
Gross profit margin			84.5	%			85.7	%			85.0	%			85.8	%
Operating Expenses:
Selling and operating			84.7	%			86.1	%			83.3	%			84.1	%
Corporate, general and administration			9.0	%			7.7	%			8.3	%			8.3	%
Total operating expenses			93.7	%			93.8	%			91.5	%			92.4	%
Loss from operations			(9.1	)%			(8.1	)%			(6.6	)%			(6.7	)%
Equity method investment loss			0.0	%			(0.6	)%			0.0	%			(0.6	)%
Interest and other expense, net			(0.7	)%			(0.6	)%			(0.6	)%			(0.6	)%
Loss before income taxes			(9.8	)%			(9.3	)%			(7.2	)%			(7.9	)%
Provision for income taxes			0.0	%			0.0	%			0.0	%			0.0	%
Net loss			(9.8	)%			(9.3	)%			(7.2	)%			(7.9	)%
Net income attributable to noncontrolling interests			0.1	%			0.2	%			0.2	%			0.2	%
Net loss attributable to common shareholders			(9.9	)%			(9.5	)%			(7.4	)%			(8.1	)%

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Revenues, net. Revenues increased $2.242 million, or 11%, to $22.081 million during the three months ended June 30, 2024, compared to $19.839 million during the three months ended June 30, 2023. This was primarily driven by an increase in member count.

Cost of revenues. Cost of revenues increased $0.6 million or 21.4% to $3.4 million during the three months ended June 30, 2024, compared to $2.8 million during the three months ended June 30, 2023 related to the increase in revenues and revenue mix. Gross profit margin decreased during the three months ended June 30, 2024 to 84.5% from 85.7% for the three months ended June 30, 2023 primarily due to increased content amortization related to an overall increase in our investment of our original content offerings and other costs.

Selling and operating expenses. Selling and operating expenses increased $1.6 million, or 9.4%, to $18.7 million during the three months ended June 30, 2024, compared to $17.1 million for the three months ended June 30, 2023, driven primarily by an increase in marketing expense and people related expenses. As a percentage of net revenues, selling and operating expenses decreased to 84.7% for the three months ended June 30, 2024 compared to 86.1% for the three months ended June 30, 2023.

Corporate, general and administration expenses. Corporate, general and administration expenses increased $0.5 million, or 33.3% to $2.0 million for three months ended June 30, 2024 from $1.5 million for three months ended June 30, 2023, driven primarily by increases in public company expenses.

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As a percentage of net revenues, these expenses increased to 9.0% for the three months ended June 30, 2024 from 7.7% for the three months ended June 30, 2023.

Six months ended June 30, 2024 compared to six months ended June 30, 2023

Revenues, net. Revenues increased $4.3 million, or 10.9%, to $43.8 million during the six months ended June 30, 2024, compared to $39.5 million during the six months ended June 30, 2023. This was primarily driven by an increase in member count.

Cost of revenues. Cost of revenues increased $1.0 million or 17.9% to $6.6 million during the six months ended June 30, 2024, compared to $5.6 million during the six months ended June 30, 2023 related to the increase in revenues and increased content amortization. Gross profit margin decreased during the six months ended June 30, 2024 to 85.0% from 85.8% for the six months ended June 30, 2023 primarily due to increased content amortization related to an overall increase in our investment of our original content offerings and revenue mix.

Selling and operating expenses. Selling and operating expenses increased $3.3 million, or 9.9%, to $36.5 million during the six months ended June 30, 2024, compared to $33.2 million for the six months ended June 30, 2023, driven primarily by an increase in marketing expense and people related expenses. As a percentage of net revenues, selling and operating expenses decreased to 83.3% for the six months ended June 30, 2024 compared to 84.1% for the six months ended June 30, 2023.

Corporate, general and administration expenses. Corporate, general and administration expenses increased $0.3 million, or 9.1% to $3.6 million for six months ended June 30, 2024 from $3.3 million for six months ended June 30, 2023, driven primarily by increases in public company expenses. As a percentage of net revenues, these expenses were 8.3% for both the six months ended June 30, 2024 and 2023.

Seasonality

Our member base 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. We have generally experienced the greatest member growth in the fourth and first quarters (October through February), and slowest during May through August. This drives quarterly variations in our spending on member acquisition efforts and the number of net new subscribers we add each quarter but does not result in a corresponding seasonality in net revenue. As we continue to expand internationally, we 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 2024 are expected to be between $6.0 to $8.0 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 since 2020 and have continued to generate cash flows from operations since. We expect to continue generating positive cash flows from operations during the remainder of 2024. We generated approximately $3.9 million in cash flows from operations during the six months ended June 30, 2024. As of June 30, 2024, our cash balance was $5.5 million.

As described in Note 4, 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 June 30, 2024, there were no outstanding borrowings under the Credit Agreement.

As described in Note 10, in April 2024, the Company entered into a series of transactions with its subsidiary, Igniton, and a third-party entity to purchase a perpetual license for a total of $16.2 million of consideration comprised of $10.2 million of cash and $5.0 million of common stock of Igniton and $1.0 million of the Company’s equity security investment in Telomeron (the “License Purchase”).

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The license allows the Company to utilize the technology developed by the third party. This license is being recorded within the Technology license, net line item on the condensed consolidated balance sheets. The License Purchase was primarily funded through an equity financing through Igniton which raised $6.8 million of cash from third-party investors.

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.

 

Cash Flows

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

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
(in thousands)		2024				2023				2024				2023
		(unaudited)								(unaudited)
Net cash provided by (used in):
Operating activities			(2,081	)			584				3,855				1,270
Investing activities			(11,447	)			(491	)			(12,520	)			(1,909	)
Financing activities			6,388				(62	)			6,358				(44	)
Net change in cash		$	(7,140	)		$	31			$	(2,307	)		$	(683	)

Operating activities. Cash flows provided by operations increased approximately $2.6 million during the first six months of 2024 compared to the same period in 2023. The increase was primarily driven by changes in earnings, timing of working capital, primarily accrued liabilities and deferred revenues.

Investing activities. Cash flows used, including the investing activities within our 71% owned subsidiary, decreased $10.6 million during the first six months of 2024 compared to the same period in 2023 due primarily to a technology license acquired during the quarter. Excluding this subsidiary license purchase, the cash flow would be a decrease of $0.6 million.

Financing activities. Cash flows provided by financing activities were primarily impacted by repayment of long term debt

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

Management (i.e., the Company’s principal executive officer and principal 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 June 30, 2024, our management has concluded that those disclosure controls and procedures were not effective at a reasonable assurance level based on the previously identified material weaknesses in our internal control over financial reporting as described below. Notwithstanding the previously identified material weaknesses, management, including our Chief Executive Officer and Chief Financial Officer, believes the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

Previously Identified Material Weakness

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In the course of preparing our consolidated financial statements for the fiscal year ended December 31, 2023, we identified two material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. In our assessment of the effectiveness of internal control over financial reporting, we identified the following control deficiencies that represent material weaknesses as of December 31, 2023.

Specifically, we determined that we did not have appropriate technical accounting and financial reporting capabilities to properly record in our financial statements certain complex or unusual transactions. Additionally, we determined our financial close and reporting process was inadequate due to insufficient analysis of certain accounts and inadequate financial reporting systems.

These material weaknesses resulted in incorrect accounting entries that were identified and corrected through the audit of our fiscal year ended December 31, 2023. In addition, these material weaknesses resulted in errors in the consolidated financial statements and related disclosures in our Annual Report on Form 10-K for the year ended December 31, 2022 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 through September 30, 2023.

Ongoing Remediation of Previously Identified Material Weakness

We have begun taking measures, and plan to continue to take measures, to remediate the material weaknesses. In order to address these material weaknesses, we have begun to implement additional procedures and controls in the financial statement close and reporting process, which include enhanced system capabilities in most areas, enhanced reconciliation controls, enhanced review controls and financial close checklists which aim to ensure all necessary reviews and reconciliations are occurring as designed. Additionally, we have begun to enhance access to accounting training, literature, research materials and plan to increase communication channels among our personnel and outsourced third-party professionals with whom we may consult regarding the application of complex accounting transactions. We also plan to hire additional accounting and finance personnel with technical accounting and financial reporting experience.

We believe the measures described above along with other elements of our remediation plan will remediate the material weaknesses identified and strengthen our internal controls over financial reporting. We are committed to continuing to improve our internal control processes and have begun to implement the measures described above. We will also continue to review, optimize and enhance our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies or we may modify certain of the remediation measures described above. We will not consider our material weaknesses remediated until the applicable remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

For more information concerning the material weakness identified and remediation steps, see the section titled “Risk Factors – Risks Related to our Material Weakness and Restatements” included in our Annual Report on Form 10-K, filed on March 29, 2024.

Changes in Internal Control over Financial Reporting

Other than the ongoing material weakness remediation activities described above, there were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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, 2023 that we filed with the SEC on March 29, 2024.

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

On April 18, 2024, Igniton, Inc., a Colorado corporation (“Igniton”), and subsidiary of the Company, closed a sale of 2,750,000 shares of Igniton common stock (the “Igniton Shares”) to certain funds managed by AWM Investment Company, Inc. (“AWM”) for total net proceeds of $3,162,500. Igniton’s total proceeds included a $412,500 premium (the “Premium”) that was passed to the Company in exchange for the issuance to AWM of a non-transferable right granting AWM a one-time ability to sell the Igniton Shares to the Company for the total net proceeds paid (the “Option”), payable at the Company’s option, in cash or shares of the Company’s Class A common stock having a value per share equal to the trailing 5-day average VWAP prior to the exercise of the Option (the “Company Shares”). If the Company elects to pay in shares of its Class A common stock and AWM would, as a result, beneficially own more than 9.99% of the Company’s Class A common stock, AWM will receive prefunded warrants in lieu of the shares of Class A common stock that would exceed the 9.99% beneficial ownership limitation. These issuances and sales of the subsidiary stock are exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder. On July 1, 2024, the Securities and Exchange Commission declared effective a registration statement on Form S-1, registering the 2,108,334 Company Shares underlying the Company’s right to settle the Option in Company Shares.

Item 3. Defaults Upon Senior Securities.

None.

Item 5. Other Information.

During the three months ended June 30, 2024, no director or officer of Gaia adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408(a) of Regulation S-K.

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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

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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)
August 5, 2024	By:	/s/ James Colquhoun
Date		James Colquhoun
		Chief Executive Officer
		(Authorized Officer)
August 5, 2024	By:	/s/ Ned Preston
Date		Ned Preston
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

 

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