
PART I—FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited interim condensed consolidated financial statements for the period ended September 30, 2022, show a slight increase in total assets to $136.9 million, a net loss of $2.4 million for Q3 and $2.2 million for the first nine months of 2022, primarily due to a $2.0 million accrual for an anticipated SEC settlement Condensed Consolidated Balance Sheets As of September 30, 2022, total assets were $136.9 million, a slight increase from $133.7 million at year-end 2021, with total liabilities rising to $47.5 million from $43.5 million due to a new short-term debt of $7.5 million, while total shareholders' equity decreased slightly to $89.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 (unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $136,859 | $133,676 | | Total current assets | $16,700 | $14,983 | | Media library, software and equipment, net | $53,160 | $50,558 | | Total Liabilities | $47,507 | $43,461 | | Total current liabilities | $34,524 | $29,809 | | Short-term debt and lease liability | $7,647 | $140 | | Total Shareholders' Equity | $89,352 | $90,215 | Condensed Consolidated Statements of Operations For Q3 2022, Gaia reported a net loss of $2.4 million on revenues of $19.9 million, compared to a net income of $0.6 million on revenues of $20.4 million in Q3 2021, with the net loss for the nine months at $2.2 million on revenues of $62.5 million, primarily due to a $2.0 million charge for an anticipated SEC settlement Q3 2022 vs Q3 2021 Performance (in thousands, except per share data) | Metric | Q3 2022 (unaudited) | Q3 2021 | | :--- | :--- | :--- | | Revenues, net | $19,907 | $20,405 | | Gross Profit | $17,259 | $17,779 | | Income (loss) from operations | $(303) | $726 | | Anticipated SEC settlement | $(2,000) | — | | Net income (loss) | $(2,375) | $647 | | Diluted EPS | $(0.11) | $0.03 | Nine Months 2022 vs 2021 Performance (in thousands, except per share data) | Metric | Nine Months 2022 (unaudited) | Nine Months 2021 | | :--- | :--- | :--- | | Revenues, net | $62,458 | $58,744 | | Gross Profit | $54,146 | $51,171 | | Income (loss) from operations | $302 | $1,845 | | Anticipated SEC settlement | $(2,000) | — | | Net income (loss) | $(2,173) | $1,648 | | Diluted EPS | $(0.10) | $0.08 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, net cash provided by operating activities was $8.1 million, a decrease from $14.6 million in 2021, while net cash used in investing activities increased to $14.9 million, and net cash provided by financing activities was $7.4 million, mainly from a $7.5 million draw on a new short-term credit facility Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2022 (unaudited) | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,073 | $14,586 | | Net cash used in investing activities | $(14,903) | $(13,355) | | Net cash provided by financing activities | $7,402 | $592 | | Net change in cash | $572 | $1,823 | | Cash at end of period | $10,841 | $14,428 | Notes to Financial Statements Key notes detail Gaia's global digital video subscription service, the acquisition of Yoga International, the discontinuation of its one-time course sales business, a new $10 million revolving credit facility with $7.5 million drawn, and a significant contingency of a $2.0 million accrual for an anticipated settlement with the SEC regarding a 2019 subscriber count misstatement and whistleblower protection issues - Gaia operates a global digital video subscription service with over 10,000 titles, focusing on Yoga, Transformation, Alternative Healing, and Seeking Truth, with Approximately 75% of viewership from its in-house produced content1920 - In August 2022, the company entered into a $10 million revolving credit facility with KeyBank and had $7.5 million drawn as of September 30, 202230 - The company reached an agreement in principle with the SEC to settle an investigation for $2.0 million, relating to a misstatement of paying subscribers in Q1 2019 and issues with whistleblower protection requirements, with a liability of $2.0 million accrued43 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 6.5% revenue growth for the first nine months of 2022 to increased members and ARPU, despite Q3 revenue declining 2.5% YoY due to lower member count, with the net loss primarily caused by a one-time $2.0 million charge for an anticipated SEC settlement, and believes current cash, expected cash from operations, and a new $10 million credit facility are sufficient for funding Results of Operations For Q3 2022, revenues decreased 2.5% to $19.9 million due to lower member count, while nine-month revenues increased 6.5% to $62.5 million driven by higher member count and ARPU, with operating expenses rising partly due to the Yoga International acquisition, and the $2.0 million SEC settlement accrual significantly impacting profitability by turning an operating profit into a pre-tax loss - Q3 2022 revenue decreased by $0.5 million (2.5%) YoY, primarily due to a decrease in the overall member count57 - Nine-month 2022 revenue increased by $3.8 million (6.5%) YoY, attributed to an increase in both members and average monthly revenue per member62 - A one-time charge of $2.0 million was recorded in Q3 2022 related to an agreement in principle with the SEC Staff to resolve a pending investigation6166 - Corporate, general and administration expenses increased 33.3% in Q3 and 24.4% in the nine-month period, due to increased legal fees, personnel costs, and expenses from the Yoga International acquisition6065 Liquidity and Capital Resources The company's liquidity is supported by a $10.8 million cash balance as of September 30, 2022, and positive cash flows from operations, supplemented by a new $10.0 million revolving credit facility established in August 2022 with $7.5 million drawn, which management believes, along with expected cash from operations, is sufficient to fund remaining 2022 capital expenditures of $2-$4 million and the anticipated $2.0 million legal settlement - As of September 30, 2022, the company had a $10.8 million cash balance and generated $8.4 million in cash from continuing operations during the first nine months of the year69 - A new $10.0 million revolving credit facility was secured in August 2022, with $7.5 million drawn by September 30, 2022, to be used for working capital and general corporate purposes70 - Management believes cash on hand, expected cash from operations, and the credit facility will be sufficient to fund operations, planned capital expenditures ($2-$4 million for the rest of 2022), and the anticipated $2.0 million legal settlement6972 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Gaia, Inc. is not required to provide information for this item - The company is a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item76 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 202277 - No changes occurred during the quarter ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting78 PART II—OTHER INFORMATION Legal Proceedings The company has reached an agreement in principle with the SEC Staff to resolve an investigation that began in June 2020, involving a $2.0 million civil penalty for Gaia with no admission of guilt, for misstating paying subscriber numbers for Q1 2019 and failing to comply with SEC whistleblower protection rules, with the $2.0 million liability accrued - In September 2022, Gaia and its CFO reached an agreement in principle with the SEC Staff to resolve an investigation81 - The settlement contemplates that Gaia will pay a $2.0 million civil monetary penalty for misstating subscriber numbers in its April 29, 2019 earnings release and for failing to comply with SEC whistleblower protection requirements81 - The company has accrued a liability of $2,000,000 based on the agreement in principle, although the settlement is not yet finalized or approved81 Risk Factors As a smaller reporting company, Gaia, Inc. is not required to provide information for this item - The company is a smaller reporting company as defined in Rule 12b-2 of the Securities and Exchange Act of 1934 and is not required to provide the information under this item82 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Rule 13a-14(a) and Section 906 of Sarbanes-Oxley) and Inline XBRL data files - Filed exhibits include certifications from the Principal Executive Officer and Principal Financial Officer, as well as Inline XBRL documents88