Quick10K

Gaia

Price	6.79		EPS	-1
Shares	18		P/E	-5
MCap	125		P/FCF	-21
Net Debt	7		EBIT	-26
TEV	132		TEV/EBIT	-5
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-03-31	Filed 2020-04-27 Tab Print
10-K	2019-12-31	Filed 2020-02-24 Tab Print
10-Q	2019-09-30	Filed 2019-11-05 Tab Print
10-Q	2019-06-30	Filed 2019-08-06 Tab Print
10-Q	2019-03-31	Filed 2019-04-29 Tab Print
10-K	2018-12-31	Filed 2019-03-04 Tab Print
10-Q	2018-09-30	Filed 2018-11-06 Tab Print
10-Q	2018-06-30	Filed 2018-08-06 Tab Print
10-Q	2018-03-31	Filed 2018-05-07 Tab Print
10-K	2017-12-31	Filed 2018-02-27 Tab Print
10-Q	2017-09-30	Filed 2017-11-07 Tab Print
10-Q	2017-06-30	Filed 2017-08-07 Tab Print
10-Q	2017-03-31	Filed 2017-05-05 Tab Print
10-K	2016-12-31	Filed 2017-02-28 Tab Print
10-Q	2016-09-30	Filed 2016-11-04 Tab Print
10-Q	2016-06-30	Filed 2016-08-09 Tab Print
10-Q	2016-03-31	Filed 2016-05-10 Tab Print
10-K	2015-12-31	Filed 2016-03-15 Tab Print
10-Q	2015-09-30	Filed 2015-11-06 Tab Print
10-Q	2015-06-30	Filed 2015-08-07 Tab Print
10-Q	2015-03-31	Filed 2015-05-08 Tab Print
10-K	2014-12-31	Filed 2015-03-16 Tab Print
10-Q	2014-09-30	Filed 2014-11-10 Tab Print
10-Q	2014-06-30	Filed 2014-08-08 Tab Print
10-Q	2014-03-31	Filed 2014-05-09 Tab Print
10-K	2013-12-31	Filed 2014-03-31 Tab Print
10-Q	2013-09-30	Filed 2013-11-12 Tab Print
10-Q	2013-06-30	Filed 2013-08-09 Tab Print
10-Q	2013-03-31	Filed 2013-05-09 Tab Print
10-K	2012-12-31	Filed 2013-03-18 Tab Print
10-Q	2012-09-30	Filed 2012-11-09 Tab Print
10-Q	2012-06-30	Filed 2012-08-09 Tab Print
10-Q	2012-03-31	Filed 2012-05-10 Tab Print
10-K	2011-12-31	Filed 2012-03-15 Tab Print
10-Q	2011-09-30	Filed 2011-11-09 Tab Print
10-Q	2011-06-30	Filed 2011-08-09 Tab Print
10-Q	2011-03-31	Filed 2011-05-10 Tab Print
10-K	2010-12-31	Filed 2011-03-11 Tab Print
10-Q	2010-09-30	Filed 2010-11-08 Tab Print
10-Q	2010-06-30	Filed 2010-08-09 Tab Print
10-Q	2010-03-31	Filed 2010-05-10 Tab Print
10-K	2009-12-31	Filed 2010-03-16 Tab Print

8-K	2020-04-23	Earnings, Shareholder Vote, Exhibits
8-K	2020-02-24	Earnings, Exhibits
8-K	2019-11-01	Earnings, Officers, Exhibits
8-K	2019-08-05	Earnings, Exhibits
8-K	2019-04-25	Enter Agreement, Earnings, Off-BS Arrangement, Shareholder Vote, Exhibits
8-K	2019-03-04	Earnings, Exhibits
8-K	2018-11-05	Earnings, Officers, Exhibits
8-K	2018-10-01	Accountant, Exhibits
8-K	2018-08-06	Earnings, Exhibits
8-K	2018-05-03	Earnings, Shareholder Vote, Exhibits
8-K	2018-03-21	Enter Agreement, Other Events, Exhibits
8-K	2018-02-26	Earnings, Exhibits

Balance Sheet	Income Statement	Cash Flow
CopyHistoryView Assets, Equity	CopyHistoryView Rev, G Profit, Net Income	CopyHistoryView Ops, Inv, Fin

---

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

Form 10-Q

 

For the quarterly period ended March 31, 2020

OR

For the transition period from                  to                 

Commission File Number 000-27517

 

 

GAIA, INC.

(Exact name of registrant as specified in its charter)

 

 

 

833 WEST SOUTH BOULDER ROAD,

LOUISVILLE, COLORADO 80027

(Address of principal executive offices)

(303) 222-3600

(Registrant’s telephone number, including area code)

 

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

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

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

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

 

 

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

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

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

 

 

 

 

---

 

GAIA, INC.

FORM 10-Q

INDEX

 

 

 

 

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, 2020, the interim results of operations for the three months ended March 31, 2020 and 2019, and cash flows for the three months ended March 31, 2020 and 2019. Operating results for the three months ended March 31, 2020 and 2019 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, 2019 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, 2019.

3

---

 

GAIA, INC.

Condensed Consolidated Balance Sheets

See accompanying notes to the interim condensed consolidated financial statements.

 

4

---

 

GAIA, INC.

Condensed Consolidated Statements of Operations

 

See accompanying notes to the interim condensed consolidated financial statements.

 

5

---

 

GAIA, INC.

Condensed Consolidated Statements of Changes in Equity

See accompanying notes to the interim condensed consolidated financial statements.

 

6

---

 

GAIA, INC.

Condensed Consolidated Statements of Cash Flows

 

See accompanying notes to the interim condensed consolidated financial statements.

7

---

 

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 on July 7, 1988 and operates a global digital video subscription service and on-line community that caters to a unique and underserved member base. Our digital content library includes approximately 8,000 English language titles as well as a growing selection of titles available in Spanish, German and French. Our members have unlimited access to this vast library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation-related content, and more – 90% of which is exclusively available to our members for digital streaming on most internet-connected devices anytime, anywhere, commercial free.

Our mission is to create a transformational network that empowers a global conscious community. Content on our network is currently curated into four primary channels— Yoga, Transformation, Alternative Healing, and Seeking Truth— and delivered directly to our members through our streaming platform. We develop 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 our viewership.  We complement our produced and owned content through long term, predominately exclusive, licensing agreements.

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

There have been no material changes in our significant accounting policies, other than the adoption of accounting pronouncements below, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2019.

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 Policies

In March 2019, the FASB issued ASU 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials, in order to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization. ASU 2019-02 also requires reassessing estimates of the use of a film in a film group and accounting for any changes prospectively. In addition, ASU 2019-02 requires testing films and program material license agreements for impairment at a film group level when the films or license agreements are predominantly monetized with other films and license agreements. We adopted the new standard on January 1, 2020 with no material impact to our reported financial position or results of operations in the three months ended March 31, 2020.

2. Revenue Recognition

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

3. Equity and Share-Based Compensation

In June 2019, we issued 404,891 shares of Class A common stock as part of the consideration for an acquisition of a complementary streaming platform focused on Alternative Healing. If the acquired platform maintains profitability and achieves a specific subscriber

8

---

 

growth threshold as of June 30, 2020, we may issue up to 139,665 additional shares of Class A common stock as additional consideration. We also issued 79,941 shares of Class A common stock as part of the consideration to acquire over 450 titles of original content that has been integrated into our Alternative Healing channel.

During the first three months of 2020 and 2019, we recognized approximately $465,000 and $594,000, respectively, of share-based compensation expense. Total share-based compensation expense is reported in selling and operating expenses and corporate, general and administration expenses on our condensed consolidated statements of operations. During the first three months of 2020, 24,000 options were exercised with net proceeds of $120,000. No options were exercised during the first three months of 2019.

4. Goodwill and Other Intangible Assets

There were no changes in goodwill for the period from December 31, 2019 through March 31, 2020.

The following table represents our other intangible assets by major asset class as of the dates indicated, which are included in Investments and Other Assets on the accompanying condensed consolidated balance sheet:

Copy History

		March 31,				December 31,
(in thousands)		2020				2019
Amortizable Intangible Assets
Customer related
Gross carrying amount		$	550			$	550
Accumulated amortization			(458	)			(321	)
		$	92			$	229
Unamortized Intangible Assets
Domain names		$	571			$	571

The customer related intangible assets are being amortized on a straight-line basis over 12 months. Amortization expense was $138,000 for the three months ended March 31, 2020. Amortization expense for the remainder of 2020 is expected to be $92,000.

5. Debt

On April 26, 2019, we replaced the line of credit of our wholly owned subsidiary Boulder Road LLC with a $17.0 million mortgage with BDS III Mortgage Capital B LLC, as lender.  The mortgage bears interest at a fixed spread over LIBOR, matures on May 1, 2022, with a two year extension option, is secured by our corporate campus and is guaranteed by Gaia with no recourse against other assets. The current interest rate is 5.78%. Boulder Road’s financial statements are included within our consolidated financial statements; however, as long as the mortgage is outstanding, Boulder Road’s assets and credit are only available to pay its own debts and obligations and are not available to satisfy the debts or obligations of any other entity.

In June 2019, one of our wholly owned subsidiaries issued a $1.45 million secured convertible promissory note as part of the consideration for the platform acquisition discussed in Note 3. This note is secured by the assets acquired by the subsidiary, bears interest at 2% per annum and is due and payable on January 2, 2021. The promissory note is convertible into 208,589 shares of Class A common stock at the election of the holder at any time prior to maturity. No payments are due prior to maturity. The balance due on this note is included in accounts payable, accrued and other liabilities on the accompanying condensed consolidated balance sheet as of March 31, 2020 as the maturity is within 12 months.

Also in June 2019, one of our wholly owned subsidiaries issued a $300,000 secured convertible promissory note as part of the consideration for the acquisition of a library of original content discussed in Note 3. This note is secured by the library acquired by the subsidiary, bears interest at 2% per annum and is due and payable on January 2, 2021. The promissory note is convertible into 41,145 shares of Class A common stock at the election of the holder at any time prior to maturity. No payments are due prior to maturity. The balance due on this note is included in accounts payable, accrued and other liabilities on the accompanying condensed consolidated balance sheet as of March 31, 2020 as the maturity is within 12 months.

9

---

 

6. 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 shares of common stock underlying stock options, restricted stock units and convertible notes payable, to the extent dilutive. Basic and diluted net loss per share were the same for the three months ended March 31, 2020 and 2019, respectively, as the inclusion of all underlying common shares would have been anti-dilutive.

7. Income Taxes

Our provision for income taxes is comprised of the following:

		For the Three Months Ended March 31,
(in thousands)		2020				2019
Current:
Federal		$	—			$	—
State			—				—
Total current			—				—
Deferred:
Federal			69				—
State			—				—
Total deferred			69				—
Total income tax expense		$	69			$	—

The income tax expense recorded in 2020 is a result of the amortization of goodwill over 15 years for tax purposes. Periodically, we perform assessments of the realization of our net deferred tax assets considering all available evidence, both positive and negative. Based on our historical operating losses, combined with our plans to continue to invest in our revenue growth and generate losses through 2020, we have a full valuation allowance on our deferred tax assets. As of March 31, 2020, our net operating loss carryforwards on a gross basis were $105.3 million and $28.4 million for federal and state, respectively.

8. 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, 2020 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.

 

10

---

 

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” and elsewhere in this Form 10-Q and under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. 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, the impact of the novel coronavirus, COVID-19, outbreak 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 a library of approximately 8,000 English language titles as well as a growing selection of titles available in Spanish, German and French that caters to a unique, underserved member base. Our digital content is available to our members on most internet-connected devices anytime, anywhere, commercial-free. Through our online Gaia subscription service our members have unlimited access to a library of inspiring films, cutting edge documentaries, interviews, yoga classes, transformation related content, and more – 90% of which is exclusively available to our members for digital streaming on most internet-connected devices.

Gaia’s position in the streaming video landscape is firmly supported by its wide variety of exclusive and unique content, which provides a complementary offering to other entertainment-based streaming video services. Our original content is developed and produced in-house in our production studios near Boulder, Colorado. Over 85% 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 member base.

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

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

Our focus for 2019 was on disciplined investment in our product, content library and member acquisition efforts to allow us to reduce the cash used in operations meaningfully over the year, with a continued focus on driving sustainable growth into the future. We reduced cash used in operations over 88% from 2018 to 2019 and generated cash flows from operations in the fourth quarter of 2019. We have continued this trend in the first quarter of 2020, generating $2.0 million in cash flows from operations an improvement of $4.7 million or 174% from the year ago period. The focus now is to continue to grow revenues and cash flows from operations to allow us to fund our planned investments in our content library and digital platform.

In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, or COVID-19, as a pandemic, which continues to spread throughout the United States and the world. The full impact that COVID-19 will have on our business will depend on a number of factors such as the duration and extent of COVID-19, the effect of governmental actions, changes in consumer

11

---

 

behavior, responses of our third-party business partners that offer our content through their platforms, and general economic activity, as described in Part II, Item 1A “Risk Factors” in this Form 10-Q.

In the second half of March 2020, we began to see increases in demand for our content from both current and potential members, which has created a positive trend in existing member retention, costs to acquire new members, and the corresponding revenue and cash flow impacts from these higher volumes. While we do not know when these trends might dissipate, they are providing incremental momentum in an otherwise historically slower period for new member growth.

We reported net losses of $3.6 million and $6.7 million for the three months ended March 31, 2020 and 2019, respectively.

We are a Colorado corporation. Our principal and executive office is located at 833 West South Boulder Road, Louisville, CO 80027-2452. Our telephone number at that address is (303) 222-3600. 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 it, or connected to it, are not incorporated by reference into this Form 10-Q. We are a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934 and have elected to take advantage of certain scaled disclosures available to smaller reporting companies.

Results of Operations

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

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

12

---

 

Three months ended March 31, 2020 compared to three months ended March 31, 2019

Revenues, net. Revenues increased $2.0 million, or 16.0%, to $14.5 million during the first quarter of 2020, compared to $12.5 million during the first quarter of 2019. The increase was primarily driven by an increase in both paying members and average monthly revenue per member compared to the year-earlier period. Revenues were not significantly impacted by inflation.

Cost of revenues. Cost of revenues increased $0.3 million, or 18.8%, to $1.9 million during the first quarter of 2020, from $1.6 million during the first quarter of 2019 and, as a percentage of net revenues, increased to 13.1% during the first quarter of 2020 from 12.8% during the first quarter of 2019 primarily due to increased content amortization as we have continued to invest in our original content library.

Selling and operating expenses. Selling and operating expenses decreased $1.2 million, or 7.6%, to $14.5 million during the first quarter of 2020 from $15.7 million during the first quarter of 2019 and, as a percentage of net revenues, decreased to 99.6% during the first quarter of 2020 from 126.1% during the first quarter of 2019. The decrease is primarily due to a reduction in our marketing spending during the last twelve months as we shifted our focus toward attracting new members that have a higher expected lifetime value, which reduced the volume of new members added.

Corporate, general and administration expenses. Corporate, general and administration expenses decreased $0.2 million, or 12.5%, to $1.4 million during the first quarter of 2020 compared to the same period of 2019 and, as a percentage of net revenues, decreased to 9.8% during the first quarter of 2020 from 12.8% during the first quarter of 2019, due to increased revenues in 2020 and disciplined expense management.

Net loss. As a result of the above factors net loss decreased to $3.6 million, or $0.19 per share, during the first quarter of 2020 compared to a net loss of $6.7 million, or $0.38 per share, during the first quarter of 2019.

Seasonality

Our member base growth reflects seasonal variations driven primarily by when consumers typically spend more time indoors and, as a result, tend to increase their viewing, similar to those of traditional TV and cable networks. Our member growth is generally greatest in the fourth and first quarters (October through February), and slowest in May through August. This drives quarterly variations in our spending on member acquisition efforts but does not drive a corresponding seasonality in net revenue.

Liquidity and Capital Resources

Our capital needs arise from working capital required to fund operations, capital expenditures related to acquisition and development of media content, development and marketing of our digital platforms, acquisitions of new businesses and other investments, replacements, expansions and improvements to our infrastructure, and future growth. These capital requirements depend on numerous factors, including the rate of market acceptance of our offerings, our ability to expand our customer base, the cost of ongoing upgrades to our offerings, our expenditures for marketing, and other factors. Additionally, we will continue to pursue opportunities to expand our media libraries, evaluate possible investments in businesses and technologies, and increase our marketing programs as needed. At March 31, 2020, our cash balance was $10.0 million. We estimate that our capital expenditures, including investments in our media library, will total approximately $10.0 million for the remainder of 2020, which will be funded through our available cash balance and operating cash flows. Since beginning to generate cash flows from operations in October 2019, we have generated $5.3 million in cash flows from operations, which we expect to continue growing for the remainder of 2020. These planned capital expenditures will be predominately utilized to expand our content library and build out the capabilities of our digital platforms. The planned expenditures are discretionary and with our in-house production capabilities we can scale the planned expenditures based on the available cash flows from operations as there are no contractual commitments with, or dependencies on, third parties.

On April 26, 2019, we replaced the line of credit of our wholly owned subsidiary Boulder Road LLC with a $17.0 million mortgage with BDS III Mortgage Capital B LLC, as lender. The mortgage bears interest at a fixed spread over LIBOR, matures on May 1, 2022, with a two year extension option, is secured by our corporate campus and is guaranteed by Gaia with no recourse against other assets. Boulder Road’s financial statements are included within our consolidated financial statements; however, as long as the mortgage is outstanding, Boulder Road’s assets and credit are only available to pay its own debts and obligations and are not available to satisfy the debts or obligations of any other entity.

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.

13

---

 

While there can be no assurances, we believe our cash on hand, cash expected to be generated from operations, 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 a 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.

Cash Flows

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

 

Operating activities. Cash flows used in operations improved $4.7 million during the first three months of 2020 compared to the same period in 2019. The improvement was primarily driven by reducing marketing and other operating expenses while increasing paying memberships, which drove increased revenues and deferred revenues during the period.

Investing activities. Cash flows used in investing activities decreased $1.3 million during the first three months of 2020 compared to the same period in 2019 primarily due to alignment of our content and product investments to our cash flows from operations and planned revenue growth.

Financing activities. Cash flows provided by financing activities increased $0.1 million during the first three months of 2020 from zero in the same period of 2019 primarily due to proceeds from option exercises.

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

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, 2020, 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, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

14

---

 

 

PART II—OTHER INFORMATION

Item 1.  Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

The disclosure below modifies the risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2019. These risks and uncertainties, along with those previously disclosed, could materially adversely affect our business or financial results.

Impacts of COVID-19 on our business

The impact of a novel strain of coronavirus (COVID-19), and measures to prevent its spread are affecting the macroeconomic environment and while the full impact is uncertain, our business and results of operations could be materially adversely affected. Gaia has experienced some increase in member growth and utilization as more people stay at home and rely on video content, but the longer-term economic impact is expected to adversely affect consumer spending on discretionary items and may decrease demand for our service. The impact on our business will depend on a number of factors such as the duration and extent of COVID-19, governmental actions, changes in consumer behavior, responses of our third-party business partners that offer our content through their platforms, and general economic activity.

We are attempting to conduct business as usual to the extent possible and are complying with the applicable stay at home orders issued by the Governor of Colorado. We have also canceled and postponed live events that were scheduled for March through May at GaiaSphere, our 300-person live event studio located on our campus in Colorado, and the loss of revenue and exposure from such events will negatively affect us. We lease a portion of our corporate campus, and the failure of one or more of our tenants to meet their rent and other obligations to us for an extended period could negatively affect us.

The impact of the COVID-19 outbreak may also exacerbate other risks discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K, any of which could have a material effect on us.

 

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.

15

---

 

 

 

16

---

 

SIGNATURES

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

 

 

17