gaia-10q_20180331.htm

 

 

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 March 31, 2018

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)

 

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, 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

  (Do not check if a smaller reporting company)

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 May 3, 2018

Class A Common Stock ($.0001 par value)

 

12,483,728

Class B Common Stock ($.0001 par value)

 

5,400,000

 

 

 

 


 

GAIA, INC.

FORM 10-Q

INDEX

 

PART I—FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited):

3

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2018 and December 31, 2017

4

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017

6

 

 

 

 

Notes to interim condensed consolidated financial statements

7

 

 

 

Item 2.

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

10

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

13

 

 

 

Item 4.

Controls and Procedures

13

 

 

 

PART II—OTHER INFORMATION

14

 

 

Item 1A.

Risk Factors

14

 

 

 

Item 6.

Exhibits

15

 

 

 

 

SIGNATURES

16

 

 

 

2


 

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 consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly, in all material respects, our consolidated financial position as of March 31, 2018, the interim results of operations for the three months ended March 31, 2018 and 2017, and cash flows for the three months ended March 31, 2018 and 2017. Operating results for the three-month period ended March 31, 2018 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, 2017 was derived from our audited consolidated financial statements included in our annual report on Form 10-K. The interim condensed consolidated financial statements contained herein should be read in conjunction with our audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2017.

3


 

GAIA, INC.

Condensed Consolidated Balance Sheets

 

 

 

March 31,

 

 

December 31,

 

(in thousands, except share and per share data)

 

2018

 

 

2017

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

50,671

 

 

$

32,778

 

Accounts receivable

 

 

1,305

 

 

 

1,055

 

Prepaid expenses and other current assets

 

 

3,385

 

 

 

3,082

 

Total current assets

 

 

55,361

 

 

 

36,915

 

Building and land, net

 

 

18,287

 

 

 

17,028

 

Media library, software and equipment, net

 

 

21,662

 

 

 

20,387

 

Goodwill

 

 

10,609

 

 

 

10,609

 

Investments and other assets

 

 

12,718

 

 

 

12,040

 

Total assets

 

$

118,637

 

 

$

96,979

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued and other liabilities

 

$

6,328

 

 

$

16,848

 

Deferred revenue

 

 

4,407

 

 

 

3,316

 

Total current liabilities

 

 

10,735

 

 

 

20,164

 

Deferred taxes

 

 

164

 

 

 

663

 

Contingencies (Note 6)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Gaia, Inc. shareholders’ equity:

 

 

 

 

 

 

 

 

Class A common stock, $.0001 par value, 150,000,000 shares

   authorized, 12,483,546 and 9,769,961 shares issued and outstanding

   at March 31, 2018 and December 31, 2017, respectively

 

 

1

 

 

 

1

 

Class B common stock, $.0001 par value, 50,000,000 shares

   authorized, 5,400,000 issued and outstanding

   at March 31, 2018 and December 31, 2017, respectively

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

138,181

 

 

 

100,560

 

Accumulated deficit

 

 

(30,445

)

 

 

(24,410

)

Total equity

 

 

107,738

 

 

 

76,152

 

Total liabilities and equity

 

$

118,637

 

 

$

96,979

 

 

See accompanying notes to the interim condensed consolidated financial statements.


4


 

GAIA, INC.

Condensed Consolidated Statements of Operations

 

 

 

For the Three Months Ended March 31,

 

(in thousands, except per share data)

 

2018

 

 

2017

 

 

 

(unaudited)

 

Net revenues

 

 

 

 

 

 

 

 

Streaming

 

$

9,138

 

 

$

5,209

 

DVD subscription and other

 

 

477

 

 

 

575

 

Total net revenues

 

 

9,615

 

 

 

5,784

 

Cost of revenues

 

 

 

 

 

 

 

 

Streaming

 

 

1,181

 

 

 

743

 

DVD subscription and other

 

 

91

 

 

 

77

 

Total cost of revenues

 

 

1,272

 

 

 

820

 

Gross profit

 

 

8,343

 

 

 

4,964

 

Expenses:

 

 

 

 

 

 

 

 

Selling and operating

 

 

14,810

 

 

 

10,465

 

Corporate, general and administration

 

 

1,411

 

 

 

1,352

 

Total operating expenses

 

 

16,221

 

 

 

11,817

 

Loss from operations

 

 

(7,878

)

 

 

(6,853

)

Interest and other income, net

 

 

17

 

 

 

44

 

Loss before income taxes

 

 

(7,861

)

 

 

(6,809

)

Income tax benefit

 

 

(1,826

)

 

 

(629

)

Net loss

 

$

(6,035

)

 

$

(6,180

)

Loss per share

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.39

)

 

$

(0.41

)

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

15,364

 

 

 

15,153

 

 

See accompanying notes to the interim condensed consolidated financial statements.

5


 

GAIA, INC.

Condensed Consolidated Statements of Cash Flows

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2018

 

 

2017

 

 

 

(unaudited)

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(6,035

)

 

$

(6,180

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,550

 

 

 

1,041

 

Share-based compensation expense

 

 

254

 

 

 

413

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(250

)

 

 

(211

)

Prepaid expenses and other assets

 

 

(981

)

 

 

125

 

Accounts payable and accrued liabilities

 

 

1,481

 

 

 

(2,004

)

Deferred revenue

 

 

1,091

 

 

 

625

 

Net cash used in operating activities

 

 

(2,890

)

 

 

(6,191

)

Investing activities:

 

 

 

 

 

 

 

 

Additions to media library, property and equipment

 

 

(4,058

)

 

 

(2,456

)

Net cash used in investing activities

 

 

(4,058

)

 

 

(2,456

)

Financing activities:

 

 

 

 

 

 

 

 

Repayments on line of credit

 

 

(12,500

)

 

 

 

Proceeds from issuance of common stock

 

 

37,341

 

 

 

 

Net cash provided by financing activities

 

 

24,841

 

 

 

 

Net increase (decrease) in cash

 

 

17,893

 

 

 

(8,647

)

Cash at beginning of period

 

 

32,778

 

 

 

54,027

 

Cash at end of period

 

$

50,671

 

 

$

45,380

 

 

See accompanying notes to the interim condensed consolidated financial statements.

6


 

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., was incorporated under the laws of the State of Colorado in 1988 and operates a global digital video subscription service and on-line community that caters to a unique and underserved subscriber base. Our digital content library of over 8,000 titles is available to our subscribers on most internet-connected devices anytime, anywhere commercial free. Our subscribers have unlimited access to a vast library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation related content, and more – 90% of which is exclusively available to our subscribers for digital streaming.

Our mission is to create a transformational network that empowers a global conscious community. Content on our network is currently curated into three channels, Yoga, Transformation and Seeking Truth, and delivered directly to our subscribers through our streaming platform. We curate programming for these channels by producing content in our in-house production studios with a staff of media professionals. This produced and owned content currently represents over 80% of total views. We complement our produced and owned content through long-term, predominately exclusive, licensing agreements.

In March 2018, we completed an underwritten public offering of 2,683,333 shares of our Class A common stock, which included 350,000 shares of Class A common stock issued pursuant to the over-allotment option granted to our underwriters, at a public offering price of $15.00 per share. We received net proceeds of approximately $37.1 million after deducting underwriting discounts and commissions and offering costs. A majority of our board of directors and executive management also participated in the offering.

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

There have been no material changes in our significant accounting policies, other than the adoption of accounting pronouncements below, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2017.

Use of Estimates and Reclassifications

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

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("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. We adopted ASU 2014-09 in the first quarter of 2018 using the modified retrospective approach. Because our primary source of revenues is from monthly membership fees which are recognized ratably over each monthly membership period, the impact on our consolidated financial statements is not material.

Recently Issued Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, to simplify financial reporting by eliminating the need to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment.  We will adopt the new guidance in the fourth quarter of the current fiscal year when we perform our annual goodwill impairment analysis, with no expected impact on the results.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income

7


 

statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Based on our preliminary assessment, we do not expect the new standard to have a material impact on our reported financial position or results of operations.

2. Revenue Recognition

 

Our primary source of revenues are from subscription fees. Subscribers are billed in advance at the start of their subscription and revenues are recognized ratably over the subscription period. Revenues are presented net of the taxes that are collected from members and remitted to governmental authorities. We are the principal in our partner relationships where we retain control over delivery to subscribers. For relationships where the partner controls the delivery to the subscriber, we recognize revenues on a net basis. Typically, payments made to partners for joint marketing activities are expensed.

 

Deferred revenue consists of subscription fees billed that have not been recognized. The vast majority of our deferred revenue is related to subscription fees that are expected to be recognized as revenue within the next month. The remaining deferred revenue balance is related to annual subscriptions, which will be recognized as revenue over the remaining subscription period, which is expected to occur over the next 12 months.

3. Equity and Share-Based Compensation

During the first three months of 2018, we issued 452 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 2018. We valued the shares issued to our independent directors at estimated fair value based on the closing price of our shares on the date the shares were issued, which by policy is the last trading day of each quarter in which the services were rendered.

During the first three months of 2018 and 2017, we recognized $254,000 and $413,000, respectively, 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. There were 29,800 options exercised during the first three months of 2018, with net proceeds of $0.2 million.

4. Net Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including stock options and restricted stock units, to the extent dilutive. Basic and diluted net loss per share were the same for the three months ended March 31, 2018 and 2017, as the inclusion of all potential common shares outstanding would have been anti-dilutive.

5. Income Taxes

Our provision for income taxes is comprised of the following:

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2018

 

 

2017

 

Current:

 

 

 

 

 

 

 

 

Federal

 

$

 

 

$

(107

)

State

 

 

 

 

 

(5

)

Total current

 

 

 

 

 

(112

)

Deferred:

 

 

 

 

 

 

 

 

Federal

 

 

(1,818

)

 

 

(495

)

State

 

 

(8

)

 

 

(22

)

Total deferred

 

 

(1,826

)

 

 

(517

)

Total income tax benefit

 

$

(1,826

)

 

$

(629

)

 

The income tax benefit recorded during 2018 is a result of our historical alternative minimum tax payments becoming fully refundable in 2018. Periodically, we perform assessments of the realization of our net deferred tax assets considering all available evidence, both positive and negative. Based on our historical operating losses, combined with our plans to continue to invest in our revenue growth and generate losses for the next few years, we have a full valuation allowance on our deferred tax assets. As of March 31, 2018, our gross net operating loss carryforwards were $40.0 million and $12.9 million for federal and state, respectively.

8


 

6. Contingencies

From time to time, we are involved in legal proceedings that we consider to be in the normal course of business. We record accruals for losses related to those matters against us that we consider to be probable and that can be reasonably estimated. Based on available information, in the opinion of management, settlements, arbitration awards and final judgments, if any, that are considered probable of being rendered against us in litigation or arbitration in existence at March 31, 2018 and that can be reasonably estimated are either reserved against or would not have a material adverse effect on our financial condition, results of operations or cash flows.

 

9


 

Item 2.

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

 

Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. When used in this discussion, we intend the words “anticipate,” “believe,” “plan,” “estimate,” “expect,” “strive,” “future,” “intend”, “will” and similar expressions as they relate to us to identify such forward-looking statements. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and elsewhere in this Form 10‑Q. Risks and uncertainties that could cause actual results to differ include, without limitation, general economic conditions, ongoing losses, competition, loss of key personnel, pricing, brand reputation, acquisitions, 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, fluctuations in quarterly operating results, consumer trends, the effect of government regulation and programs and other risks and uncertainties included in our filings with the Securities and Exchange Commission. We caution you that no forward-looking statement is a guarantee of future performance, and you should not place undue reliance on these forward-looking statements which reflect our views only as of the date of this report. We undertake no obligation to update any forward-looking information.

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

Overview and Outlook

We operate a global digital video subscription service with over 8,000 titles in our English library that cater to a unique, underserved subscriber base. Our digital content is available to our subscribers on most internet-connected devices anytime, anywhere, commercial-free. Through our online Gaia subscription service our subscribers have unlimited access to a vast library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation related content, and more – 90% of which is exclusively available to our subscribers for digital streaming. A subscription also allows our subscribers to download files from our library and view them without being actively connected to the internet.

Consumption of streaming video is expanding rapidly as more and more people augment their use of, or replace broadcast television and turn to, streaming video to watch their favorite content on services like Netflix, Amazon Prime, Hulu Plus, HBO Now and Gaia.

Gaia’s position in the streaming video landscape is firmly supported by its wide variety of exclusive and unique content, which provides a complementary offering to other entertainment-based streaming video services. Our original content is developed and produced in-house in our production studios near Boulder, Colorado. Over 90% of our content is available for streaming exclusively on Gaia. 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, transformation, seeking truth and conscious films. This content is specifically targeted to a unique customer base that is interested in alternatives and supplements to the content provided by mainstream media. We have grown these content options both organically through our own productions and through strategic acquisitions. In addition, through our investments in our streaming video technology and our user interface, we have expanded the many ways our subscription 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 net losses of $6.0 million and $6.2 million for the three months ended March 31, 2018 and 2017, respectively.

We are a Colorado corporation. Our principal and executive office is located at 833 West South Boulder Road, Suite G, Louisville, CO 80027-2452. Our telephone number at that address is (303) 222-3600. We maintain a website at www.gaia.com. The website address has been included only as a textual reference. Our website and the information contained on that website, or connected to that website, are not incorporated by reference into this Form 10-Q.

10


 

Results of Operations

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

 

 

 

For the Three Months Ended March 31,

 

(in thousands, except per share data)

 

2018

 

 

2017

 

Streaming revenues

 

$

9,138

 

 

$

5,209

 

DVD subscription and other revenues

 

 

477

 

 

 

575

 

Cost of streaming

 

 

1,181

 

 

 

743

 

Cost of DVD subscription and other

 

 

91

 

 

 

77

 

Selling and operating

 

 

14,810

 

 

 

10,465

 

Corporate, general and administration

 

 

1,411

 

 

 

1,352

 

Loss from operations

 

 

(7,878

)

 

 

(6,853

)

Interest and other income

 

 

17

 

 

 

44

 

Loss before taxes

 

 

(7,861

)

 

 

(6,809

)

Income tax benefit

 

 

(1,826

)

 

 

(629

)

Net loss

 

$

(6,035

)

 

$

(6,180

)

 

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

 

 

 

For the Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Net revenues

 

 

 

 

 

 

 

 

Streaming

 

 

95.0

%

 

 

90.1

%

DVD subscription and other

 

 

5.0

%

 

 

9.9

%

Total net revenues

 

 

100.0

%

 

 

100.0

%

Cost of revenues

 

 

 

 

 

 

 

 

Cost of streaming

 

 

12.3

%

 

 

12.9

%

Cost of DVD subscription and other

 

 

0.9

%

 

 

1.3

%

Total cost of revenues

 

 

13.2

%

 

 

14.2

%

Gross profit

 

 

86.8

%

 

 

85.8

%

Expenses:

 

 

 

 

 

 

 

 

Selling and operating

 

 

154.0

%

 

 

180.9

%

Corporate, general and administration

 

 

14.7

%

 

 

23.4

%

Total expenses

 

 

168.7

%

 

 

204.3

%

Loss from operations

 

 

(81.9

)%

 

 

(118.5

)%

Interest and other income

 

 

0.2

%

 

 

0.8

%

Loss before taxes

 

 

(81.8

)%

 

 

(117.7

)%

Income tax benefit

 

 

(19.0

)%

 

 

(10.9

)%

Net loss

 

 

(62.8

)%

 

 

(106.8

)%

 

Three months ended March 31, 2018 compared to three months ended March 31, 2017

Net revenues. Total net revenues increased $3.8 million, or 65.5%, to $9.6 million during the first quarter of 2018, compared to $5.8 million during the first quarter of 2017. Net revenue from streaming increased $3.9 million, or 75.0%, to $9.1 million during the first quarter of 2018 from $5.2 million during the first quarter of 2017. The increase in streaming revenues was primarily driven by our growth in the number of paying subscribers.

Cost of revenues. Cost of revenues increased $0.5 million, or 62.5%, to $1.3 million during the first quarter of 2018, from $0.8 million during the first quarter of 2017 and, as a percentage of revenues, decreased to 13.2% during the first quarter of 2018 compared to 14.2% during the first quarter of 2017, primarily due to the increase in revenue. Cost of streaming revenues increased $0.5 million, or 71.4%, to $1.2 million during the first quarter of 2018 from $0.7 million during the first quarter of 2017 and, as a percentage of streaming revenues, decreased to 12.9% during the first quarter of 2018 compared to 14.3% during the first quarter of 2017, primarily due to the lower cost of streaming associated with our higher volumes and an increase in revenue.


11


 

Selling and operating expenses. Selling and operating expenses increased $4.3 million, or 41.0%, to $14.8 million during the first quarter of 2018 from $10.5 million during the first quarter of 2017 and, as a percentage of net revenue, decreased to 154.0% during the first quarter of 2018 from 180.9% during the first quarter of 2017. The decrease was primarily due to increased marketing spending for subscriber acquisition due to our focus on accelerated subscriber growth.

Corporate, general and administration expenses. Corporate, general and administration expenses remained unchanged at $1.4 million during the first quarter of 2018 from the first quarter of 2017, and as a percentage of net revenues, decreased to 14.7% during the first quarter of 2018 from 23.4% during the first quarter of 2017.

Net loss. As a result of the above factors and a benefit from income taxes of $1.8 million, net loss was $6.0 million, or $0.39 per share, during the first quarter of 2018 compared to a net loss of $6.2 million, or $0.41 per share, during the first quarter of 2017.

Seasonality

Our member growth exhibits a seasonal pattern that reflects variations when consumers buy internet-connected devices and, as a result, tend to increase their viewing, similar to those of traditional TV and cable networks. Our member growth is generally greatest in the fourth and first quarters (October through March), and slowest in the May through August period. As we 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 long history to 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 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 March 31, 2018, our cash balance was $50.7 million. We estimate that our capital expenditures, including investments in our media library, will total approximately $9.0 million to $13.0 million for the remainder of 2018, which will be funded through our available cash balance.

Since 2007, we have had an active shelf registration with the Securities and Exchange Commission for 5,000,000 shares of our Class A common stock. In March 2018, we completed an underwritten public offering of 2,683,333 shares of our Class A common stock under the shelf registration, which included 350,000 shares of Class A common stock issued pursuant to the over-allotment option granted to our underwriters, at a public offering price of $15.00 per share. We received net proceeds of approximately $37.1 million after deducting underwriting discounts and commissions and offering costs.

In the normal course of our business, we investigate, evaluate and discuss acquisition, joint venture, minority investment, strategic relationship and other business combination opportunities in our market. For any future investment, acquisition or joint venture opportunities, we may consider using then-available liquidity, issuing equity securities or incurring indebtedness.

While there can be no assurances, we believe our cash on hand, cash expected to be generated from operations, cash that could be raised by the sale of our stock, and current and potential borrowing capabilities should 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.

As of March 31, 2018 we had no debt and an undrawn $13.5 million line of credit secured by our real estate.

12


 

Cash Flows

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

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2018

 

 

2017

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

Operating activities

 

 

(2,890

)

 

 

(6,191

)

Investing activities

 

 

(4,058

)

 

 

(2,456

)

Financing activities

 

 

24,841

 

 

 

 

Net increase (decrease) in cash

 

$

17,893

 

 

$

(8,647

)

 

Operating activities. Cash flow used in continuing operations decreased $3.3 million during the first three months of 2018 compared to the same period in 2017. The decrease was primarily due to decreased operating losses in 2018 and favorable working capital dynamics from the growth in recurring subscriber revenues.

Investing activities. Cash flow used in investing activities increased $1.6 million during the first three months of 2018 compared to the same period in 2017 primarily due to increased investment in our media library.

Financing activities. Cash flow from financing activities increased $24.8 during the first three months of 2018 compared to the same period in 2017, primarily due to the net proceeds of $37.1 million from the sale of Class A common stock in March 2018, offset by the repayment on the line of credit.  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based upon its evaluation as of March 31, 2018, 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 March 31, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


13


 

 

PART II—OTHER INFORMATION

Item 1.  Legal Proceedings.

 

None.

 

Item 1A.  Risk Factors.

 

There have been no material changes from the risk factors as previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017.

 

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

 

None.

 

Item 3.  Defaults Upon Senior Securities.

 

None.

 

Item 4.  Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

14


 

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 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

15


 

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)

 

 

 

May 7, 2018

By:

/s/ Jirka Rysavy

Date

 

Jirka Rysavy

 

 

Chief Executive Officer

 

 

(authorized officer)

 

 

 

May 7, 2018

By:

/s/ Paul Tarell

Date

 

Paul Tarell

 

 

Chief Financial Officer

 

 

(principal financial and accounting officer)

 

16