Form 10-Q
Table of Contents

 

 

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, 2016

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

 

 

 

LOGO

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)

 

 

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

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

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  

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 November 3, 2016

Class A Common Stock ($.0001 par value)   9,745,131
Class B Common Stock ($.0001 par value)   5,400,000

 

 

 


Table of Contents

GAIA, INC.

FORM 10-Q

INDEX

 

PART I—FINANCIAL INFORMATION

     3   

Item 1.

  

Financial Statements (Unaudited):

     3   
  

Condensed consolidated balance sheets at September 30, 2016 and December 31, 2015

     4   
  

Condensed consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015

     5   
  

Condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015

     6   
  

Condensed consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015

     7   
  

Notes to interim condensed consolidated financial statements

     8   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     13   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     17   

Item 4.

  

Controls and Procedures

     17   

PART II—OTHER INFORMATION

     17   

Item 1A.

  

Risk Factors

     17   

Item 6.

  

Exhibits

     20   
  

SIGNATURES

     21   

 

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Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report may contain forward-looking statements that involve risks and uncertainties. The words “anticipate,” “believe,” “plan,” “estimate,” “expect,” “strive,” “future,” “intend” and similar expressions are intended 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 factors set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” and elsewhere in this report. Risks and uncertainties that could cause actual results to differ include, without limitation, history of operating losses, general economic conditions, competition, changing consumer preferences, acquisitions, new initiatives undertaken by us, loss of key personnel, our founder’s control of us, legal disputes or arbitration proceedings, brand reputation, difficulty obtaining financing, dependence on third-party suppliers, reliance on communication networks, reliance on security and information systems, the effect of government regulation, legal liability for website content, fluctuations in quarterly operating results, changing reporting requirements, future results which vary from historical results, reduced opportunities of scale, and other risks and uncertainties included in our filings with the Securities and Exchange Commission. We caution you that no forward-looking statement is a guarantee of future performance, and you should not place undue reliance on these forward-looking statements, which reflect our view only as of the date of this report. We undertake no obligation to update any forward-looking information.

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. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to these rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, the unaudited interim condensed 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, 2016, the interim results of operations for the three and nine months ended September 30, 2016 and 2015, and cash flows for the nine months ended September 30, 2016 and 2015. Operating results for the three month period ended September 30, 2016 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, 2015 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 financial statements, including the notes thereto, for the year ended December 31, 2015.

 

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Table of Contents

GAIA, INC.

Condensed consolidated balance sheets

 

(in thousands, except share and per share data)

   September 30,
2016
     December 31,
2015
 
     (unaudited)         
ASSETS      

Current assets:

     

Cash

   $ 62,454       $ 1,266   

Accounts receivable

     604         465   

Prepaid expenses and other current assets

     1,485         729   

Current assets of discontinued operations

     —           68,860   
  

 

 

    

 

 

 

Total current assets

     64,543         71,320   

Property, equipment, and media library, net

     28,550         29,524   

Goodwill and other intangibles, net

     10,680         10,816   

Investments and other assets

     10,882         1,549   

Noncurrent assets of discontinued operations

     —           15,333   
  

 

 

    

 

 

 

Total assets

   $ 114,655       $ 128,542   
  

 

 

    

 

 

 
LIABILITIES AND EQUITY      

Current liabilities:

     

Accounts payable and accrued liabilities

   $ 6,410       $ 6,081   

Income taxes payable

     3,690         —     

Deferred revenue

     1,994         1,454   

Current liabilities of discontinued operations

     —           32,214   
  

 

 

    

 

 

 

Total current liabilities

     12,094         39,749   

Deferred taxes

     1,285      

Commitments and contingencies

     

Equity:

     

Gaia, Inc. shareholders’ equity:

     

Class A common stock, $.0001 par value, 150,000,000 shares authorized, 9,745,131 and 19,130,681 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively

     1         2   

Class B common stock, $.0001 par value, 50,000,000 shares authorized, 5,400,000 issued and outstanding at September 30, 2016 and December 31, 2015

     1         1   

Additional paid-in capital

     98,929         172,371   

Accumulated other comprehensive loss

     —           (399

Accumulated deficit

     2,345         (88,035
  

 

 

    

 

 

 

Total Gaia, Inc. shareholders’ equity

     101,276         83,940   

Noncontrolling interest

     —           4,853   
  

 

 

    

 

 

 

Total equity

     101,276         88,793   
  

 

 

    

 

 

 

Total liabilities and equity

   $ 114,655       $ 128,542   
  

 

 

    

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

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Table of Contents

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)

   2016     2015     2016     2015  
     (unaudited)     (unaudited)  

Net revenues

        

Streaming

   $ 3,802      $ 2,818      $ 10,641      $ 7,933   

DVD Subscription and other

     660        683        1,849        1,959   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     4,462        3,501        12,490        9,892   

Cost of revenues

        

Streaming

     636        529        1,952        1,706   

DVD Subscription and other

     65        79        209        255   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     701        608        2,161        1,961   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     3,761        2,893        10,329        7,931   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Selling and operating

     6,536        2,249        17,383        9,735   

Corporate, general and administration

     1,439        1,286        4,215        3,571   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     7,975        3,535        21,598        13,306   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (4,214     (642     (11,269     (5,375

Interest and other income (expense), net

     20        (18     (133     (282
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (4,194     (660     (11,402     (5,657

Income tax expense (benefit)

     (4,043     —         (4,041     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations

     (151     (660     (7,361     (5,657

Income (loss) from discontinued operations, net of tax

     100,595        (8,154     97,741        (8,165
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 100,444      $ (8,814   $ 90,380      $ (13,822
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share —basic and diluted:

        

From continuing operations

   $ (0.01   $ (0.03   $ (0.34   $ (0.23

From discontinued operations

   $ 6.65      $ (0.33   $ 4.56      $ (0.33
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share.

   $ 6.64      $ (0.36   $ 4.22      $ (0.56
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding:

        

Basic

     15,138        24,517        21,417        24,507   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     15,138        24,517        21,417        24,507   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the interim condensed consolidated financial statements.

 

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Table of Contents

GAIA, INC.

Condensed consolidated statements of comprehensive income (loss)

 

     For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 

(in thousands, except per share data)

   2016      2015     2016      2015  
     (unaudited)     (unaudited)  

Net income (loss) attributable to Gaia, Inc. shareholders

   $ 100,444       $ (8,814   $ 90,380       $ (13,822

Net loss attributable to the noncontrolling interest included in discontinued operations

     —           (550     —           (565
  

 

 

    

 

 

   

 

 

    

 

 

 

Total net income (loss) before noncontrolling interest

     100,444         (8,264     90,380         (13,257

Accumulated other comprehensive loss:

          

Foreign currency translation loss, net of tax

     —           (154     —           (246
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive income (loss)

     100,444         (8,418     90,380         (13,503
  

 

 

    

 

 

   

 

 

    

 

 

 

Less: comprehensive loss attributable to the noncontrolling interest

     —           (471     —           (422
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive income (loss) attributable to Gaia, Inc.

   $ 100,444       $ (8,889   $ 90,380       $ (13,925
  

 

 

    

 

 

   

 

 

    

 

 

 

See accompanying notes to the interim condensed consolidated financial statements

 

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Table of Contents

GAIA, INC.

Condensed consolidated statements of cash flows

 

     For the Nine Months
Ended September 30,
 

(in thousands)

   2016     2015  
     (unaudited)  

Operating activities

    

Net income (loss)

   $ 90,380      $ (13,822

(Income) loss from discontinued operations

     (97,741     8,165   
  

 

 

   

 

 

 

Net loss from continuing operations

     (7,361     (5,657

Adjustments to reconcile net loss from continuing operations to net cash provided by (used in) operating activities—continuing operations:

    

Depreciation and amortization

     2,757        2,384   

Loss on remeasurement of foreign currency

     —         434   

Share-based compensation expense

     381        245   

Changes in operating assets and liabilities:

  

Accounts receivable, net

     (211     (49

Prepaid expenses and other assets

     (584     260   

Accounts payable and accrued liabilities

     329        1,480   

Deferred revenue

     540        559   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities—continuing operations

     (4,149     (344

Net cash provided by (used in) operating activities—discontinued operations

     (4,849     5,387   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (8,998     5,043   
  

 

 

   

 

 

 

Investing activities

    

Additions to property, equipment and media library

     (4,484     (5,198

Purchase of investment

     (10,020     —    
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities—continuing operations

     (14,504     (5,198

Net cash provided by (used in) investing activities—discontinued operations

     161,808        (1,709
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     147,304        (6,907
  

 

 

   

 

 

 

Financing activities

    

Proceeds from issuance of stock

     994        160   

Repurchases of stock

     (76,168     —    

Drawdowns on line of credit

     3,000        —    

Repayments on line of credit

     (3,000     —    

Dividends paid to noncontrolling interest

     (1,944     (486
  

 

 

   

 

 

 

Net cash used in financing activities

     (77,118     (326
  

 

 

   

 

 

 

Effect of exchange rates on cash

     —         (632

Net change in cash

     61,188        (2,822

Cash at beginning of period

     1,266        3,821   
  

 

 

   

 

 

 

Cash at end of period

   $ 62,454      $ 999   
  

 

 

   

 

 

 

See accompanying notes to the interim condensed consolidated financial statements

 

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Table of Contents

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.

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

Gaia, Inc. (known as Gaiam, Inc. until July 2016) was incorporated under the laws of the State of Colorado on July 7, 1988. We operate a global digital video subscription service and on-line community that caters to a unique and underserved subscriber base. Our digital content is available to our subscribers on most Internet connected devices anytime, anywhere commercial free. The subscription also allows our subscribers to download and view files in the library without being actively connected to the internet. Through our online Gaia subscription service, our customers have unlimited access to a vast library of inspiring films, personal growth related content, cutting edge documentaries, interviews, yoga classes, and more – 90% of which is exclusively available to our subscribers for digital streaming.

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.

Divestiture of the Gaiam Brand Segment, Management Changes, Tender Offer, and Name Change

In separate transactions on May 4, 2016 and July 1, 2016, we completed the sale of the components of our former Gaiam Brand segment, which previously represented the majority of our operating revenues and expenses. The terms and implications of the sales are discussed in Note 2. Our current business which remains after the sales primarily consists of our former Gaia segment, and we now have only one business segment. In connection with the sales, we appointed new executive officers, including Jirka Rysavy as Chief Executive Officer, Brad Warkins as President, and Paul Tarell as Chief Financial Officer. We used a portion of the proceeds from the sale to conduct a tender offer that resulted in the purchase 9,636,848 shares of our Class A common stock and 842,114 stock options at $7.75 per share. On July 14, 2016, we changed our name from Gaiam, Inc. to Gaia, Inc.

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.

Recent Accounting Pronouncements

The Financial Accounting Standards Board (‘FASB”) has issued Accounting Standards Update (“ASU”) No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes (Topic 740). The amendments under the new guidance require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The guidance is effective for consolidated financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. We adopted this guidance effective April 1, 2016, and it did not have a material impact on our reported financial position or results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. In July 2015, the FASB deferred the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). We will adopt ASU 2014-09 in the first quarter of 2018 and apply the full retrospective approach. We are currently in the process of evaluating the impact of adoption of the ASU on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. We will adopt ASU 2016-02 in the first quarter of 2019 and are currently in the process of evaluating the impact of adoption of the ASU on our consolidated financial statements.

 

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Table of Contents

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Topic 718, Compensation – Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. We will adopt ASU 2016-09 in the first quarter of 2017 and are currently in the process of evaluating the impact of adoption of the ASU on our consolidated financial statements.

2. Discontinued Operations

Sale of the Gaiam Brand segment

On May 4, 2016 we sold our 51.4% equity interest in Natural Habitat, Inc. (“Natural Habitat”), our eco-travel subsidiary, in exchange for $12.85 million in cash, and recognized a gain of $10.3 million as disclosed in our Current Report on Form 8-K filed May 10, 2016.

On July 1, 2016, we sold the assets and liabilities of our Gaiam Brand business in exchange for a gross purchase price of $167.0 million, subject to closing expenses and post-closing adjustments, as disclosed in our Current Reports on Form 8-K filed May 10, 2016 and July 8, 2016. Our Gaiam Brand business previously constituted the majority of our consolidated revenues and expenses, and consisted of Gaiam branded yoga, fitness and wellness consumer products, and content (excluding the streaming rights).

The Gaiam Brand business and our interest in our eco-travel subsidiary constituted all the assets and liabilities of our Gaiam Brand segment.

Discontinued Operations

The assets and liabilities, operating results, and cash flows of our Gaiam Brand segment are presented as discontinued operations, separate from our continuing operations, for all periods presented in these interim condensed consolidated financial statements and footnotes, unless otherwise indicated. Discontinued operating results for 2015 also include legal expenses associated with the sale of our former DVD distribution business to Cinedigm. We were involved in arbitration with Cinedigm associated with the sale, which was settled during 2015.

The major components of assets and liabilities of our discontinued operations were as follows:

 

(in thousands)

   December 31,
2015
 

Current assets:

  

Cash

   $ 12,605   

Accounts receivable, net

     26,441   

Inventory, less allowances

     17,302   

Other current assets

     12,512   
  

 

 

 

Total current assets of discontinued operations

   $ 68,860   
  

 

 

 

Property, equipment and media library, net

     6,237   

Goodwill and other intangibles, net

     5,497   

Other assets

     3,599   
  

 

 

 

Total noncurrent assets of discontinued operations

   $ 15,333   
  

 

 

 

Current liabilities:

  

Accounts payable and accrued liabilities

   $ 32,214   
  

 

 

 

Total current liabilities of discontinued operations

   $ 32,214   
  

 

 

 

 

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The income from discontinued operations amounts as reported on our condensed consolidated statements of operations were comprised of the following amounts:

 

     For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 

(in thousands, except per share data)

   2016     2015     2016     2015  
     (unaudited)     (unaudited)  

Net revenue

   $ —        $ 47,799      $ 52,627      $ 120,192   

Cost of goods sold

     —          28,839        32,975        70,816   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          18,960        19,652        49,376   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     1,042        25,765        33,641        55,897   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (1,042     (6,805     (13,989     (6,521

Other (expense) income

     —          (352     234        (457
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and noncontrolling interest

     (1,042     (7,157     (13,755     (6,978

Income tax expense (benefit)

     (4,989     447        (4,831     621   

Income (loss) from discontinued operations attributable to the
non-controlling interest, net of tax

     —          (550     (310     (566
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from the operation of discontinued operations

     3,947        (8,154     (9,234     (8,165
  

 

 

   

 

 

   

 

 

   

 

 

 

Gain on disposal of discontinued operations:

        

Gain on sale of Gaiam Brand segment

     114,499        —          124,826        —     

Write-off of assets impacted by, but not included in sale

     3,740        —          3,740        —     

Income tax expense

     14,111        —          14,111        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations, net of tax

   $ 100,595      $ (8,154   $ 97,741      $ (8,165
  

 

 

   

 

 

   

 

 

   

 

 

 

Prior to its divestiture in May 2016, Natural Habitat used derivative instruments to manage a portion of its exposure to changes in currency exchange rates due to payments made to foreign tour operators. The cash flow effects of these derivative contracts during 2016 are included in Net cash used in operating activities—discontinued operations in the Statements of Cash Flows. Realized and unrealized gains and losses on currency derivatives without hedge accounting designation are included in Income from discontinued operations, net of tax in the accompanying condensed consolidated statements of operations. For the three and nine month periods ended September 30, 2016 the gain recognized was $0.0 million and $1.3 million, respectively. The asset related to the fair value of the hedging instrument was included in current assets of discontinued operations in the accompanying condensed consolidated balance sheet prior to the sale.

3. Investments

In September 2016, we purchased 10% of the outstanding common stock and associated voting rights of a privately held Colorado corporation for $10.0 million. As part of our initial investment we have the right, but not the obligation to purchase additional shares. If we elect not to utilize our right to purchase additional shares, or forfeit such right for the benefit of another party, we may be required to sell or surrender our existing stock ownership.

4. Credit Facility

In 2015 Boulder Road LLC, a subsidiary of Gaia, entered into a revolving line of credit agreement with a bank in the amount of $5.0 million. The note bears interest at the prime rate plus 3.25%, is guaranteed by us, and is secured by a Deed of Trust filed against the real property on which our principal offices are located. The value of our principal offices is in excess of the amount of the line of credit. During the nine months ended September 30, 2016, Boulder Road LLC drew and repaid $3.0 million on the line of credit. No amounts were outstanding under the line of credit as of September 30, 2016.

5. Equity

During the first nine months of 2016, we issued 19,000 shares of our Class A common stock under our 2009 Long-Term Incentive Plan to our independent directors, in lieu of cash compensation, for services rendered in 2016. We valued the shares issued to our independent directors at estimated fair value based on the closing price of our shares on the date the shares were issued, which by policy is the last trading day of each quarter in which the services were rendered.

 

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During the first nine months of 2016, we issued 182,660 shares of our Class A common stock with net proceeds of $1.0 million in connection with option exercises. In June in conjunction with the Gaiam Brand business sale, we issued 50,000 shares of our Class A common stock as a charitable contribution to a local organization. We valued the shares at the closing market price of our shares on the date they were issued and recorded a charitable contribution expense of $0.4 million. On July 1, 2016, we used a portion of the proceeds from the sale of the Gaiam Brand business to conduct a tender offer resulting in the purchase of 9,636,848 shares of our Class A common stock and 842,114 stock options at a price of $7.75 per share. In connection with the Gaiam Brand business sale, employee stock options to purchase 189,610 shares received accelerated vesting and were repurchased in the tender offer.. Subsequent to the Gaiam Brand business sale options to purchase 194,610 shares were forfeited.

The following is a reconciliation from December 31, 2015 to September 30, 2016 of the carrying amount of total equity, equity attributable to Gaia, Inc., and equity attributable to the noncontrolling interest.

 

           Gaia, Inc. Shareholders  

(in thousands)

   Total     Accumulated
Deficit
    Accumulated
Other
Comprehensive
Loss
    Class A
and Class B
Common
Stock
    Paid-in
Capital
    Noncontrolling
Interest
 

Balance at December 31, 2015

   $ 88,793      $ (88,035   $ (399   $ 3      $ 172,371      $ 4,853   

Issuance of Gaia, Inc. common stock for stock option exercises, share-based compensation and charitable contribution

     2,725        —         —         —         2,725        —    

Repurchase of shares

     (76,168         (1     (76,167  

Dividends paid to noncontrolling interest

     (1,944     —         —         —         —         (1,944

Elimination of noncontrolling interest and accumulated other comprehensive loss resulting from the sale of Gaiam Brand segment

     (2,510       399            (2,909

Net income

     90,380        90,380        —         —         —         —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2016

   $ 101,276      $ 2,345      $ —        $ 2      $ 98,929      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

6. Share-Based Payments

During the first nine months of 2016 and 2015, we extended the term of certain options granted under our 2009 Long-Term Incentive Plan to members of our executive team for an additional three months, and recognized $40,000 and $100,000 of associated stock 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.

On February 26, 2015, our board of directors and the board of directors of our subsidiary Gaia International, Inc. (formerly known as Gaia, Inc.) approved the Long-Term Deferred Equity Plan (the “deferred equity plan”) as an incentive plan for the management of our Gaia segment. In anticipation of the contemplated separation of the Gaia segment from the Gaiam Brand segment, our board of directors and the board of directors of our subsidiary Gaia International, Inc. granted restricted stock units (“RSUs”) of Gaia International, Inc.’s Class A common stock under the deferred equity plan to certain of our officers and employees involved in the Gaia segment. As previously authorized by our board of directors, on July 1, 2016 in connection with the closing of the Brand Business sale, the RSU’s granted under the deferred equity plan were exchanged for 348,841 RSU’s under our 2009 Long-Term Incentive Plan. In connection with the exchanges, each recipient entered into an individual restricted stock unit award agreement with the following terms: (i) the recipient is entitled to receive one share of Class A common stock for each RSU upon vesting, and (ii) the RSUs have a cliff vest on March 16, 2020, provided that the recipient is still an employee or director on such date. The RSUs will be automatically forfeited and of no further force and effect upon separation from the company, including involuntary termination.

7. Net Income (Loss) per Share

Basic net income (loss) per share excludes any dilutive effects of options. We compute basic net income (loss) per share using the weighted average number of shares of common stock outstanding during the period. We compute diluted net income (loss) per share using the weighted average number of shares of common stock and common stock equivalents outstanding during the period. We excluded common stock equivalents of 295,000 and 943,000 from the computation of diluted net loss per share for the three months ended September 30, 2016 and 2015, respectively, and 852,000 and 957,000 for the nine months ended September 30, 2016 and 2015, respectively, because their effect was antidilutive.

 

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The following table sets forth the computation of basic and diluted net income (loss) per share:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 

(in thousands, except per share data)

   2016     2015     2016     2015  

Net income (loss):

        

Loss from continuing operations

   $ (151   $ (660   $ (7,361   $ (5,657

Income (loss) from discontinued operations

     100,595        (8,154     97,741        (8,165
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 100,444      $ (8,814   $ 90,380      $ (13,822
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares for basic net income (loss) per share

     15,138        24,517        21,417        24,507   
  

 

 

   

 

 

   

 

 

   

 

 

 

Effect of dilutive securities

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares for diluted net income (loss) per share

     15,138        24,517        21,417        24,507   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share —basic and diluted:

        

Loss from continuing operations

   $ (0.01   $ (0.03   $ (0.34   $ (0.23

Income (loss) from discontinued operations

   $ 6.65      $ (0.33   $ 4.56      $ (0.33
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net income (loss) per share

   $ 6.64      $ (0.36   $ 4.22      $ (0.56
  

 

 

   

 

 

   

 

 

   

 

 

 

8. Income Taxes

Periodically, we perform assessments of the realization of our net deferred tax assets considering all available evidence, both positive and negative. During 2013, we determined that a full valuation allowance against our deferred tax assets was necessary due to the cumulative loss incurred over the three-year period ended December 31, 2013. Due to the gain on the sale of the Gaiam Brand segment and our expectation of utilizing the majority of our deferred tax assets to offset this gain, we released the valuation allowance on these deferred tax assets. We expect to utilize a gross amount of $80.7 million of federal net operating losses and of $30.2 million of state net operating losses.

9. Segment Information

Through June 30, 2016, we managed our company and aggregated our operational and financial information in two reportable segments, which were aligned based on their products or services.

 

  Gaia:    This segment includes our subscription video streaming service and the results of our legacy DVD subscription business together with the results of Boulder Road LLC. This segment represents our ongoing business, and the accompanying financial statements show the results of this business segment.
  Gaiam Brand:    This segment included our branded yoga, fitness, and wellness products. It also included Natural Habitat until May 4, 2016. As discussed above, we completed the sale of the remaining Gaiam Brand business on
July 1, 2016. The results of operations of the Gaiam Brand segment are shown as discontinued operations in the accompanying financial statements.

Following the sale of the Gaiam Brand segment on July 1, 2016, our chief operating decision maker reviews operating results on a consolidated basis and we therefore have one reportable segment.

10. Commitments and Contingencies

From time to time, we are involved in legal proceedings that we consider to be in the normal course of business. Claimed amounts against us may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Although it is not feasible to predict the outcome of these matters with certainty, it is reasonably possible that some legal proceedings may be disposed of or decided unfavorably to us and in excess of the amounts currently accrued. Based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, which are considered probable of being rendered against us in litigation or arbitration in existence at September 30, 2016 and can be reasonably estimated are reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.

 

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

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

Overview and Outlook

We operate a global digital video subscription service with over 7,500 titles which caters to a unique and underserved subscriber base. Our digital content is available to our subscribers on most Internet connected devices anytime, anywhere commercial free. The subscription also allows our subscribers to download and view files from our library without being actively connected to the internet. Through our online Gaia subscription service, our customers have unlimited access to a vast library of inspiring films, personal growth related content, cutting edge documentaries, interviews, yoga classes, and more – 90% of which is exclusively available to our subscribers for digital streaming on most Internet connected devices.

Consumption of streaming video is expanding rapidly with more and more people augmenting their use of, or replacing broadcast television and turning to, streaming video to watch their favorite content on services like Netflix, Amazon Prime, Hulu Plus, HBO Go and Gaia.

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 state-of-the-art production studios near Boulder, Colorado. Over 90% of our content is exclusively available for streaming to most devices that are connected to the Internet. By offering exclusive and unique content through our streaming service, we believe we will be able to significantly expand our target subscriber base.

Our available content is currently focused on yoga, health and longevity, seeking truth, spiritual growth and conscious films and series. This media content is specifically targeted to a unique customer base which 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 customer 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 on our content.

We reported losses from continuing operations of $7.4 million and $5.7 million for the nine months ending September 30, 2016 and 2015, respectively.

We are a Colorado corporation. Our registered, principal and executive office is located at 833 West South Boulder Road, Suite G, Louisville, CO 80027-2452. Our telephone number at that address is (303) 222-3999. We maintain an Internet website at www.gaia.com. The website address has been included only as a textual reference. Our website and the information contained on that website, or connected to that website, are not incorporated by reference into this filing.

Sale of the Gaiam Brand Segment

Through June 30, 2016, we operated a second business segment called the Gaiam Brand segment which developed and marketed yoga and fitness accessories, apparel, and media. It also included Natural Habitat, Inc. (“Natural Habitat”), our eco-travel business, until May 4, 2016.

On May 4, 2016 we sold all our 51.4% equity interest in Natural Habitat in exchange for $12.85 million in cash, and recognized a gain of $10.3 million. On July 1, 2016, we sold the assets and liabilities of our Gaiam Brand business in exchange for $167.0 million subject to closing expenses and post-closing adjustments and recognized a gain of $114.5 million before taxes. The Gaiam Brand business consisted of the remaining assets and liabilities of the Gaiam Brand segment. The Gaiam Brand segment previously constituted the majority of our consolidated revenues and expenses.

The operating results of the Gaiam Brand segment are presented as discontinued operations in the accompanying financial statements and discussions.

 

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Results of Operations

The table below summarizes certain of our 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)

   2016      2015      2016      2015  

Streaming revenues

   $ 3,802       $ 2,818       $ 10,641       $ 7,933   

DVD subscription and other revenues

     660         683         1,849         1,959   

Cost of streaming

     636         529         1,952         1,706   

Cost of DVD subscription and other

     65         79         209         255   

Selling and operating

     6,536         2,249         17,383         9,735   

Corporate, general and administration

     1,439         1,286         4,215         3,571   

Loss from operations

     (4,214      (642      (11,269      (5,375

Interest and other income (expense)

     20         (18      (133      (282

Loss before taxes

     (4,194      (660      (11,402      (5,657

Income tax expense (benefit)

     (4,043      —           (4,041      —     

Net loss from continuing operations

     (151      (660      (7,361      (5,657

Income (loss) from discontinued operations, net

     100,595         (8,154      97,741         (8,165

Net income (loss)

   $ 100,444       $ (8,814    $ 90,380       $ (13,822

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2016     2015     2016     2015  

Net revenues

        

Streaming

     85.2     80.5     85.2     80.2

DVD subscription and other

     14.8     19.5     14.8     19.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     100.0     100.0     100.0     100.0

Cost of revenues

        

Cost of streaming

     14.3     15.1     15.6     17.2

Cost of DVD subscription and other

     1.5     2.3     1.7     2.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     15.7     17.4     17.3     19.8
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     84.3     82.6     82.7     80.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

      

Selling and operating

     146.5     64.3     139.2     98.4

Corporate, general and administration

     32.3     36.7     33.7     36.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     178.8     101     172.9     134.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     -94.4     -18.3     -90.2     -54.3

Interest and other income (expense)

     .4     -0.5     -1.1     -2.9

Loss before taxes

     -94     -18.9     -91.3     -57.2

Income tax expense (benefit)

     -90.6     —       -32.4      —  

Net loss from continuing operations

     -3.4     -18.9     -58.9     -57.2

Income (loss) from discontinued operations

     2254.5     -232.9     782.6     -82.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     2251.1     -251.8     723.6     -139.7
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Three months ended September 30, 2016 Compared to Three months ended September 30, 2015

Net revenue. Net revenue increased $1.0 million, or 27.4%, to $4.5 million during the third quarter of 2016, compared to $3.5 million during the third quarter of 2015. Net revenue from streaming increased $1.0 million, or 34.9%, to $3.8 million during the third quarter of 2016 from $2.8 million during the third quarter of 2015. The increase in streaming revenues was primarily driven by our growth in the number of paying subscribers.

Cost of goods sold. Cost of goods sold increased $0.1 million, or 15.3%, to $0.7 million during the third quarter of 2016 from $0.6 million during the third quarter of 2015. Cost of goods sold for streaming increased $0.1 million, or 20.2%, to $0.6 million during the third quarter of 2016 from $0.5 million during the third quarter of 2015 and, as a percentage of streaming revenue, decreased to 16.7% compared to 18.8% during the third quarter of 2015 due primarily to the lower cost of streaming associated with our higher volumes and an increase in revenue.

Selling and operating expenses. Selling and operating expenses increased $4.3 million, or 190.6%, to $6.5 million during the third quarter of 2016 from $2.2 million during the third quarter of 2015 and, as a percentage of net revenue, increased to 146.5% during the third quarter of 2016 from 64.3% during the third quarter of 2015. The increase was primarily due to increased marketing spending for subscriber acquisition and an increase in payroll and related costs due to the increase in the number of employees from 2015.

Corporate, general and administration expenses. Corporate, general and administration expenses increased $0.1 million, or 11.9%, to $1.4 million during third quarter of 2016 from $1.3 million during the third quarter of 2015 and, as a percentage of net revenue, decreased to 32.3% during the third quarter of 2016 from 36.7% during the third quarter of 2015. The increase was due to an increase in legal and accounting fees, stock comp expense and an increase in payroll and related costs due to the increase in the number of employees from 2015.

Income (loss) from discontinued operations. The operations of the Gaiam Brand segment are included in income (loss) from discontinued operations. We completed the sale of the Gaiam Brand business on July 1, 2016 and recognized a $114.5 million gain on the sale during the third quarter of 2016, which is offset by transaction costs, taxes and losses from the operation of discontinued operations of $(13.9) million, compared to losses from the operation of discontinued operations of $(8.2) million in the third quarter of 2015.

Net income (loss). As a result of the above factors, net income was $100.4 million, or $6.64 per share, during the third quarter of 2016 compared to a net loss of $(8.8) million, or $(0.36) per share, during the third quarter of 2015.

Nine months ended September 30, 2016 Compared to Nine months ended September 30, 2015

Net revenue. Net revenue increased $2.6 million, or 26.3%, to $12.5 million during the first nine months of 2016, compared to $9.9 million during the first nine months of 2015. Net revenue from streaming increased $2.7 million, or 34.1%, to $10.6 million during the first nine months of 2016 from $7.9 million during the first nine months of 2015. The increase in streaming revenues was primarily driven by our growth in the number of paying subscribers from the first nine months of 2016.

Cost of goods sold. Cost of goods sold increased $0.2 million, or 10.2%, to $2.2 million during the first nine months of 2016 from $2.0 million during the first nine months of 2015. Cost of goods sold for streaming increased $0.3 million, or 14.4%, to $2.0 million during the first nine months of 2016 from $1.7 million during the first nine months of 2015 and, as a percentage of streaming revenue, decreased to 18.3% compared to 21.5% during the first nine months of 2015 due primarily to the lower cost of streaming associated with our higher volumes and an increase in revenue.

Selling and operating expenses. Selling and operating expenses increased $7.7 million, or 78.6%, to $17.4 million during the first nine months of 2016 from $9.7 million during the first nine months of 2015 and, as a percentage of net revenue, increased to 139.2% during the first nine months of 2016 from 98.4% during the first nine months of 2015. The increase was primarily due to increased marketing spending for subscriber acquisition, increased technology costs, and an increase in payroll and related costs due to the increase in the number of employees from 2015.

Corporate, general and administration expenses. Corporate, general and administration expenses increased $0.6 million, or 18.0%, to $4.2 million during the first nine months of 2016 from $3.6 million during the first nine months of 2015 and, as a percentage of net revenue, decreased to 33.7% during the first nine months of 2016 from 36.1% during the first nine months of 2015. The majority of the increase was due to one-time charges incurred during the first half of 2016 associated with the separation and sale of the Gaiam Brand segment and the previously planned separation of the Gaia segment and the Gaiam Brand segment.

 

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Income (loss) from discontinued operations. The operations of the Gaiam Brand segment are included in income (loss) from discontinued operations. During the first nine months of 2016, we recognized a $124.8 million gain on the sale of Gaiam Brand segment, which is offset by transactions costs, taxes and losses from the operation of discontinued operations of $(27.1) million, compared to loss from the operation of discontinued operations of $(8.2) million during the first nine months of 2015.

Net income (loss). As a result of the above factors, net income was $90.4 million, or $4.22 per share, during the first nine months of 2016 compared to a net loss of $(13.8) million, or $(0.56) per share, during the first nine months of 2015.

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, the level of expenditures for marketing, and other factors. Additionally, we will continue to pursue opportunities to expand our media libraries, evaluate possible investments in businesses and technologies, and increase our marketing programs as needed. At September 30, 2016, our cash balance was $62.5 million. We estimate that our capital expenditures will total approximately $2.9 million for the remainder of 2016, which will be funded through our available cash balance.

Cash Flows

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

 

     For the Nine
Months Ended September 30,
 

(in thousands)

   2016      2015  

Net cash provided by (used in):

     

Operating activities—continuing operations

   $ (4,149    $ (344

Operating activities—discontinued operations

     (4,849      5,387   
  

 

 

    

 

 

 

Operating activities

     (8,998      5,043   

Investing activities—continuing operations

     (14,504      (5,198

Investing activities—discontinued operations

     161,808         (1,709
  

 

 

    

 

 

 

Investing activities

     147,304         (6,907

Financing activities

     (77,118      (326

Effects of exchange rates on cash

     —           (632
  

 

 

    

 

 

 

Net increase (decrease) in cash

   $ 61,188       $ (2,822
  

 

 

    

 

 

 

Operating activities continuing operations. Cash flow from continuing operations decreased $3.8 million during the first nine months of 2016 compared to the same period in 2015. The decrease was primarily due to operating losses and longer payment cycles on accounts payable in 2015.

Operating activitiesdiscontinued operations. Cash flow from discontinued operations decreased $10.2 million during the first nine months of 2016 compared to the same period in 2015. The decrease was primarily due to operating losses and longer payment cycles on accounts payable in 2015.

Investing activities – continuing operations. Cash flow from investing activities – continuing operations decreased $9.3 million during the first nine months of 2016 compared to the same period in 2015. The decrease is due to $10.0 million used for the purchase of investments.

Investing activities – discontinued operations. Cash flow from investing activities – discontinued operations increased $163.5 million during the first nine months of 2016 compared to the same period in 2015. The increase was due to net proceeds from the sale Gaiam Brand business.

Financing activities. Cash flow from financing activities decreased $76.8 million during the first nine months of 2016 compared to the same period in 2015, primarily due to the use of $76.2 million to repurchase 9,636,848 shares of Class A common stock and 842,114 stock options in the tender offer completed in July 2016.

We currently have an effective shelf registration statement on file with the Securities and Exchange Commission for 5,000,000 shares of our Class A common stock and to date no shares have been issued under this shelf registration statement.

 

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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 additional indebtedness.

While there can be no assurances, we believe our cash on hand, cash generated from the sale of the Gaiam Brand segment, cash expected to be generated from operations, borrowings available under our subsidiary’s revolving credit facility, cash that could be raised by the sale of our stock, and potential borrowing capabilities should be sufficient to fund our operations on both a short-term and long-term basis. In addition, we own our corporate headquarters and could enter into additional financing or sale/leaseback transaction to provide additional funds. However, our projected cash needs may change as a result of acquisitions, product development, unforeseen operational difficulties or other factors.

Contractual Obligations

Prior to the sale of the Gaiam Brand segment, we had commitments pursuant to operating lease and media distribution agreements. These obligations were entirely assumed by the new owners of the Gaiam Brand business effective July 1, 2016.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

With the sale of our Gaiam Brand segment, we have eliminated our exposure to foreign exchange rates and have therefore determined we have no material market risk exposure as of September 30, 2016.

 

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 Exchange Act. Based upon its evaluation as of September 30, 2016, 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, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

 

Item 1A. Risk Factors

Risk Factors

As a result of the sale of our Gaiam Brand segment, risks related solely to our Gaiam Brand segment are no longer material risks to us. There have been no material changes from the risk factors previously disclosed in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, except the following risks in connection with the sale of the Gaiam Brand segment:

We have had losses, and we cannot assure future profitability

We have reported net operating losses from continuing operations of $7.4 million and $5.7 million for the nine month periods ending September 30, 2016 and 2015. We cannot assure you that we will operate profitably in future periods and, if we do not, we may not be able to meet our working capital requirements, capital expenditure plan or other cash needs. Our inability to meet those needs could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.

 

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Our historical consolidated financial information is not representative of the results we would have achieved as a stand-alone business and may not be a reliable indicator of our future results.

The historical consolidated financial information included in this filing does not reflect the financial condition, results of operations or cash flows that we would have achieved without the Gaiam Brand segment during the periods presented or those that we will achieve in the future, primarily as a result of the following factors:

 

    Before the Gaiam Brand segment was sold, our business was operated as a segment of a broader corporate organization. We shared expenses for significant corporate functions, including tax and treasury administration and certain governance functions, including internal audit, external reporting and compliance with the Sarbanes-Oxley Act of 2002. Our historical financial statements reflect allocations of corporate expenses for these and similar functions, and these allocations are less than the comparable expenses we would have incurred had we operated as a stand-alone business.

 

    We have historically benefitted from economies of scope and scale in costs, employees, vendor relationships and certain customer relationships. The loss of these benefits may have an adverse effect on our business, results of operations and financial condition.

 

    Other significant changes may occur in our cost structure, management, financing and business operations as a result of our operating independently from the Gaiam Brand segment.

As a smaller business, we may not enjoy the same benefits that we did prior to the sale of the Gaiam Brand segment.

There is a risk that, by selling the Gaiam Brand segment, we may become more susceptible to market fluctuations and other adverse events than we would have been were we still a part of a larger company. As part of a larger company, we have enjoyed certain benefits such as operating diversity, purchasing power, credit worthiness, available capital for operations and investments and opportunities to pursue integrated strategies. As a smaller business we will not have similar diversity or integration opportunities and may not have similar purchasing power, credit worthiness or access to capital markets. This could result in insufficient liquidity to carry out our business plan.

Item 2. Repurchases

Issuer Purchases of Equity Securities

 

Period

   (a)
Total number of
shares (or units)
purchased
    (b)
Average price
paid per share
(or unit)
     (c)
Total number of shares (or units)
purchased as part of publicly
announced plans or programs
     (d)
Maximum number (or approximate dollar
value) of shares (or units) that may yet be
purchased under the plans or programs
 

July 1 – 31,

     9,636,848  (1)    $ 7.75         9,636,848         —     

August 1-31

     —          N/A         —           —     

September 1-30

     —          N/A         —           —     

Total

     9,636,848      $ 7.75         9,636,848         —     

 

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Note (1): We announced a tender offer on May 10, 2016 to purchase in cash up to an aggregate of 12.0 million (i) shares of our issued and outstanding Class A Common Stock at a price of $7.75 per share, or (ii) vested and exercisable options to purchase shares of our Class A Common Stock at a purchase price equal to $7.75 per option. A total of 9,636,848 shares and 824,114 options were validly tendered and not withdrawn prior to July 1, 2016, which was the expiration date of the offer. We made payments of $74.7 million for the shares and $1.4 million for the options between July 1 and July 31, 2016. All repurchased shares were retired and all repurchased options were cancelled effective as of July 1, 2016.

 

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Item 6. Exhibits

 

Exhibit

No.

  

Description

    3.1    Articles of Amendment to the Amended and Restated Articles of Incorporation of Gaia, Inc., dated July 14, 2016 (incorporated by reference to Exhibit 3.3 of Gaia’s quarterly report on Form 10-Q filed on August 9, 2016).
  10.1†    Form of Gaia, Inc. Restricted Stock Unit Awards Agreement (incorporated by reference to Exhibit 10.1 of Gaia’s current report on Form 8-K filed July 8, 2016).
  31.1*    Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
  31.2*    Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
  32.1**    Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2**    Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema.
101.CAL    XBRL Taxonomy Extension Calculation Linkbase.
101.DEF    XBRL Taxonomy Extension Definition Linkbase.
101.LAB    XBRL Taxonomy Extension Label Linkbase.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase.

 

* Filed herewith
** Furnished herewith
Indicates a management contract or compensatory plan or arrangement

 

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SIGNATURES

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

 

      Gaia, Inc.
      (Registrant)
November 4, 2016     By:  

/s/ Jirka Rysavy

Date       Jirka Rysavy
      Chief Executive Officer
      (authorized officer)
November 4, 2016     By:  

/s/ Paul Tarell

Date       Paul Tarell
      Chief Financial Officer
      (principal financial and accounting officer)

 

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EXHIBIT INDEX

 

Exhibit

No.

  

Description

    3.1    Articles of Amendment to the Amended and Restated Articles of Incorporation of Gaia, Inc., dated July 14, 2016 (incorporated by reference to Exhibit 3.3 of Gaia’s quarterly report on Form 10-Q filed on August 9, 2016).
  10.1†    Form of Gaia, Inc. Restricted Stock Unit Awards Agreement (incorporated by reference to Exhibit 10.1 of Gaia’s current report on Form 8-K filed July 8, 2016).
  31.1*    Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
  31.2*    Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
  32.1**    Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2**    Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema.
101.CAL    XBRL Taxonomy Extension Calculation Linkbase.
101.DEF    XBRL Taxonomy Extension Definition Linkbase.
101.LAB    XBRL Taxonomy Extension Label Linkbase.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase.

 

* Filed herewith
** Furnished herewith
Indicates a management contract or compensatory plan or arrangement

 

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