UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
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
(State or other jurisdiction of
incorporation or organization)
84-1113527
(I.R.S. Employer
Identification No.)
833 WEST SOUTH BOULDER ROAD
LOUISVILLE, CO 80027
(Address of principal executive offices, including zip code)
(303) 222-3600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Class A Common Stock, $.0001 Par Value
Name of Each Exchange on Which Registered
NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of Registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
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
☐
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Emerging growth company
☐
Accelerated filer
Smaller reporting 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 ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The
NASDAQ Stock Market on June 30, 2017, was $98,230,000. The registrant does not have non-voting common equity.
The number of shares of Registrant’s Common Stock outstanding as of February 14, 2018 was 9,789,743 shares of the registrant’s Class A common stock and 5,400,000 shares of the
registrant’s Class B common stock.
The following documents (or portions thereof) are incorporated by reference into the Parts of this Form 10-K noted:
Part III incorporates by reference from the definitive proxy statement for the registrant’s 2018 Annual Meeting of Shareholders to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form.
DOCUMENTS INCORPORATED BY REFERENCE
GAIA, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2017
INDEX
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15.
SIGNATURES
Exhibits and Financial Statement Schedules
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PART I
Item 1.
Business
Our Business
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 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 about 80% of total views. We complement our produced and owned
content through long term, predominately exclusive, licensing agreements.
Our Content Channels
From the beginning, we have focused on establishing exclusive rights to unique content through in-house productions, licensing and
strategic content acquisitions. Today, our network includes the following channels:
Yoga – Through our Yoga channel, our subscribers enjoy unlimited access to streaming yoga, Eastern arts, and other movement-
based classes. Currently, we are one of the world’s largest providers of streaming yoga classes. Blending ancient philosophy with
modern technology, our classes on Eastern arts like T’ai Chi, Qigong, Ayurveda and more encourage the holistic integration of
body, mind and spirit.
Transformation – Through our Transformation channel, we feature a wealth of content in the niche areas of alternative health,
spiritual growth and expanded consciousness. Our original and licensed content empowers subscribers to live stronger, healthier,
more productive and enlightened lives.
Seeking Truth – As an alternative to mainstream media, our Seeking Truth channel provides new and enlightening perspectives
for today’s changing world. Through thought-provoking questions like who are we and why are we here, and topics that include
ancient wisdom and metaphysics, we go beyond the boundaries of mainstream media, and encourage our viewers to find
empowerment through knowledge and awareness. Through this channel, our subscribers have access to top names in the genre
who conduct exclusive interviews and presentations not found anywhere else.
The Streaming Video Market and Gaia
Consumption of streaming video is expanding rapidly as more and more people augment their use of, or replace broadcast television with,
streaming video to watch their favorite content on services like Netflix, Amazon Prime, Hulu Plus, HBO Now and Gaia. The streaming
video market includes various free, ad-supported and subscription service offerings focused on various genres, including films, broadcast
and original series, fitness and educational content.
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 mostly 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 to most
internet-connected devices. By offering exclusive and unique content over a streaming service, we believe we will be able to significantly
expand our target subscriber base. Gaia believes the current size of our potential target market represents approximately 15% of internet
users that currently pay for a streaming video service.
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Competitive Strengths
We believe that we differentiate ourselves from our competition and have been able to grow our business through the following
demonstrated competitive strengths:
Exclusive Content and Ubiquitous Access – We have amassed a library of unique content for which we hold exclusive worldwide
streaming distribution rights and have established exclusive relationships with certain key talent in our areas of focus. Over 90%
of our titles are available to our subscribers for streaming on virtually any internet-connected device exclusively on Gaia.
Gaia Unplugged – We are able to leverage our content licensing and ownership advantage to enable “subscriber download” as
part of our subscription. A Gaia subscription allows subscribers to download and view titles in our library without being actively
connected to the internet as long as they remain a paying subscriber.
Proprietary and Curated Content – Proprietary and curated content lies at the core of our business model. Our media offerings
introduce customers to us and help establish us as an authority in the conscious media market. Our in-house produced and owned
content represents approximately 80% of our subscribers’ viewing time. Our licensed content has initial terms ranging from 3 to
20 years. With the growth in demand for digital rights, we expect that our large library of produced and acquired content
combined with our internal production capabilities will be a key driver in our ability to grow efficiently and act as a hedge against
the rising costs of digital rights.
International Rights – The strength of our proprietary content library created by our original content production strategy and our
unique approach to content licensing have provided us with a library of niche content to which we hold exclusive worldwide
distribution rights that we believe would be difficult to acquire in today’s market. By obtaining these rights, we have created a
significant barrier to entry for competitors in our content niches and have given ourselves the potential to reach a worldwide
subscriber base with no additional licensing costs. Based on viewership, approximately 90% of our library is available worldwide.
Unique Subscriber Base – We believe that our unique and exclusive content allows us to cater to a subscriber base that traditional
media companies have mostly ignored. We believe this subscriber base can be significantly expanded as more and more people
enter our niche categories and begin accessing streaming content over the internet.
Unique Content Strength – We believe that our unique focus, combined with our content exclusivity, positions us as a
complementary service to larger streaming video providers who are primarily entertainment driven. In addition, this focus has
allowed an opportunity for significant advantages:
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•
•
Yoga, we have an established consumer brand, a vast library of popular content, and knowledge and expertise on
developing new content.
Transformation, we bring a unique focus to an otherwise crowded field. This channel empowers subscribers through
programs about alternative and integrative medicines, holistic healing, longevity, meditation, and other shows on
conscious topics that puts Gaia in the center of a rapidly growing market.
Seeking Truth, Gaia offers category-leading talent that enables us to draw the most popular and authentic speakers,
authors and experts in the alternative media world.
Growth Drivers
Our core strategy is to grow our streaming subscription business domestically and internationally using the following drivers:
Investment in Streaming Content – We believe that our investment in streaming content leads to more awareness and viewership
of our unique content. This leads to subscriber acquisition and revenue growth, allowing us to invest more into our content library
and enabling the growth cycle to continue. By investing in our in-house studios, digital asset management system and digital
delivery platforms, we can produce and distribute new digital content at low incremental costs. With our end-to-end production
capabilities and unique, exclusive, relationships with thought leaders in our areas of focus, we believe we can develop content
much more efficiently than our competitors.
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Continuous Service Improvements – We have found that incremental improvements in our service and quality enhance our
subscriber satisfaction and retention. In October 2016, we relaunched gaia.com with an entirely new technology stack at its core.
The new site was built to optimize the speed and performance of streaming video playback, provide a unique and customized site
experience for every subscriber and provide the foundation for our planned expansion into foreign languages. We continue to
refine our technology, user interfaces, and delivery infrastructure to improve the customer experience.
Overall Adoption and Growth of internet TV on Every Screen – Domestically, cable TV subscribers have been declining, while
the demand for digital content services accessible on various devices has continued to grow. Gaia is accessible on a broad array of
devices, including, but not limited to: Apple TV, iPad, iPhone, Roku, Chromecast, Android devices including phones, tablets and
Amazon Fire, laptops, desktop computers and TVs through an HDMI cord. Through this accessibility, we believe that we enhance
the value of our service to subscribers as well as position ourselves for continued growth as internet and mobile delivery of
content becomes more popular.
International Market Expansion – We believe the international streaming segment represents a significant long-term growth
opportunity for us as people around the world begin to adopt the viewing behaviors of the U.S. market. Our exclusive worldwide
streaming rights allow us to expand internationally by adding foreign language support to our service without having to invest in
local foreign operations. Today, approximately 30% of our subscribers are outside of the United States.
Complement our Existing Business with Selective Strategic Acquisitions – Our growth strategy is not solely dependent on
acquisitions. However, we will consider strategic acquisitions that complement our existing business, increase our content library,
expand our geographical reach, and add to our subscriber base. We will focus on companies with unique media content, a strong
brand identity and subscribers that augment our existing subscriber base.
Marketing
We are building awareness and demand for the Gaia brand through various channels focusing on mobile and video. Organic search, paid
search, digital and social media, email marketing, ambassador marketing, as well as various strategic partnerships make up our continually
optimized portfolio of subscriber acquisition and retention tools. Rejoining subscribers are an important source of subscriber additions,
many of which come back to Gaia.com after receiving special communications via email.
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 the website, or connected to the website, are not incorporated by reference into this Form 10-K.
History
We started as a conscious media and products company distributing conscious and non-theatrical media, with a maximum reach of
approximately 70,000 retail doors in the United States. Over the past few years we divested several businesses, including our DVD
distribution business and our Gaiam Brand consumer products business, for combined gains of over $150 million.
We also expanded the number of conscious media titles with our 2007 acquisition of the entire content library of Wisdom Television.
Wisdom operated for 20 years as a cable and satellite channel. Wisdom was the only TV channel that remained dedicated, year after year,
to conscious media. With our acquisition of their digital media library we expanded our unique library of content directed at independent
and progressive thinkers.
In 2012, we brought our streaming video service out of beta-test status, and focused our efforts on growing our streaming subscription
services domestically and internationally by expanding our streaming content, enhancing our user interface and extending our streaming
content to even more internet-connected devices.
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In 2013, we further expanded the digital yoga content available to our subscribers, and expanded our presence and subscriber base in the
yoga community through our acquisition of My Yoga Online, the largest streaming yoga media service in Canada.
In 2016, we relaunched gaia.com with an entirely new technology stack at its core. The new site was built to optimize the speed and
performance of streaming video playback, provide a unique and customized site experience for every subscriber and provide the foundation
for our planned expansion into foreign languages.
In July 2017, we launched Spanish as our first non-English language offering with over 500 native language titles. German was launched in
the fall of 2017, with French planned for early 2018.
These investments in our subscription business have been instrumental in our ability to grow by expanding our streaming video on demand
capabilities and increasing our library of unique content of transformational media, intended to awaken and inspire viewers around the
world.
Regulatory Matters
A number of existing and proposed laws restrict disclosure of consumers’ personal information, which may make it more difficult for us to
generate additional names for our direct marketing, and restrict our ability to send unsolicited electronic mail. Although we believe we are
generally in compliance with current laws and regulations and that these laws and regulations have not had a significant impact on our
business to date, it is possible that existing or future regulatory requirements will impose a significant burden on us.
Competition
While our content offering is unique, the market for subscription based content delivered over the internet is intensely competitive and
subject to rapid change. Many consumers maintain simultaneous relationships with multiple providers and can easily shift spending from
one provider to another. We are a focused provider within the streaming video market that is able to compete by providing exclusive
content available on almost any device. Our principal competitors vary by world geographic region and include multichannel video
programming distributors and internet-based movie and TV content providers, including those that provide legal and illegal (pirated)
streaming video content. We believe that due to the exclusivity of our content, we are positioning ourselves as a complementary service to
large general content providers such as television broadcasters, cable television channels, and streaming services such as Netflix, Amazon
Prime, Hulu Plus and HBO Now. Based on internal surveys of our subscribers, a majority of our U.S. subscribers also subscribe to Netflix.
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 longer history to assess such patterns.
Employees
As of February 16, 2018, we had approximately 130 employees, all of which are full-time employees. None of our employees are covered
by a collective bargaining agreement.
Intellectual Property and Other Proprietary Rights
We regard our trademarks, service marks, copyrights, domain names, trade secrets, proprietary technologies and similar intellectual
property as important to our success. We use a combination of trademark, copyright and trade secret laws and confidentiality agreements to
protect our proprietary intellectual property. Our ability to protect and
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enforce our intellectual property rights is subject to certain risks, and from time to time we encounter disputes over rights and obligations
concerning intellectual property. We cannot provide assurance that we will prevail in any intellectual property disputes.
Discontinued Operations
During 2016, we sold our equity interest in Natural Habitat, Inc. (“Natural Habitat”), our eco-travel subsidiary, in exchange for $13 million
in cash, and recognized a gain of $10 million as disclosed in our Current Report on Form 8-K filed May 10, 2016 with the Securities and
Exchange Commission.
During 2016, we also sold the assets and liabilities of our Gaiam Brand business in exchange for a gross purchase price of $167 million,
and recognized a gain of $115 million before taxes. 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).
We report these businesses as discontinued operations, and, accordingly, we have reclassified their financial results for all periods
presented to reflect them as such. Unless otherwise noted, discussions in this Form 10-K pertain to our continuing operations.
Website and Available Information
Our corporate website at www.gaia.com provides information about us, our history, goals and philosophy, as well as certain financial
reports and corporate press releases. Our www.gaia.com website also features a library of information and articles on personal development
and healthy lifestyles, along with an extensive offering of video content. We believe our website provides us with an opportunity to deepen
our relationships with our customers and investors, educate them on a variety of issues, and improve our service. As part of this
commitment, we have a link on our corporate website to our Securities and Exchange Commission filings, including our reports on
Forms 10-K, 10-Q and 8-K and amendments thereto. We make those reports available through our website, free of charge, as soon as
reasonably practicable after these reports are filed with the Securities and Exchange Commission.
We have included our website address only as inactive textual reference, and the information contained on our website is not incorporated
by reference into this Form 10-K.
Item 1A.
Risk Factors
We caution you that there are risks and uncertainties that could cause our actual results to be materially different from those indicated by
forward looking statements that we make from time to time in filings with the Securities and Exchange Commission, news releases, reports,
communications to shareholders and other written and oral communications. These risks and uncertainties include those risks described
below of which we are presently aware. Historical results are not necessarily an indication of future results. The risk factors below discuss
important factors that could cause our business, financial condition, operating results and cash flows to be materially adversely affected.
If our efforts to attract and retain subscribers are not successful, our business will be adversely affected.
We have experienced significant subscriber growth since we began our subscription business in 2007. Our ability to continue to attract
subscribers will depend in part on our ability to consistently provide our subscribers with a valuable and quality streaming experience.
Furthermore, the relative service levels, content offerings, pricing and related features of our competitors may adversely impact our ability
to attract and retain subscribers. We compete for screen viewing time with multichannel video programming distributors providing free-on-
demand content through authenticated internet applications, internet-based movie and TV content providers, including both those that
provide legal and illegal (or pirated) streaming video content, and streaming video retail stores, among others. If consumers do not perceive
our service offering to be of value, or if we introduce new or adjust existing features or change the mix of content in a manner that is not
favorably received by them, we may not be able to attract and retain subscribers.
5
In addition, many of our subscribers originate from word-of-mouth advertising from existing subscribers. If our efforts to satisfy our
existing subscribers are not successful, we may not be able to attract new subscribers, and as a result, our ability to maintain and/or grow
our business will be adversely affected. Subscribers cancel our service for many reasons, including a perception that they do not use the
service sufficiently, the need to cut household expenses, unsatisfactory availability of content, competitive services providing a better value
or experience and customer service issues not satisfactorily resolved. We must continually add new subscribers both to replace subscribers
who cancel and to grow our business beyond our current subscriber base. If too many of our subscribers cancel our service, or if we are
unable to attract new subscribers in numbers sufficient to sustain and grow our business, our operating results will be adversely affected. If
we are unable to successfully compete with current and new competitors in both retaining our existing subscribers and attracting new
subscribers, our business will be adversely affected. Further, if excessive numbers of subscribers cancel our service, we may be required to
incur significantly higher marketing expenditures than we currently anticipate in order to replace these subscribers with new subscribers.
If we are unable to compete effectively, our business will be adversely affected.
The market for streaming content is intensely competitive and subject to rapid change. New technologies and evolving business models for
delivery of streaming content continue to develop at a fast pace. Through new and existing distribution channels, consumers are afforded
various means for consuming streaming content. The various economic models underlying these differing means of streaming content
delivery include subscription, transactional, ad-supported and piracy-based models. All of these have the potential to capture meaningful
segments of the streaming content market. Several competitors have longer operating histories, larger customer bases, and stronger brand
recognition than we do and have significant financial, marketing and other resources. They may secure better terms from suppliers, adopt
more aggressive pricing and devote more resources to technology and marketing. New entrants may enter the market with unique service
offerings or approaches to providing streaming content and other companies also may enter into business combinations or alliances that
strengthen their competitive positions. If we are unable to successfully compete with current and new competitors, programs and
technologies, our business will be adversely affected, and we may not be able to increase market share and revenues, and achieve
profitability.
We could be harmed by data loss or other security breaches.
As a result of our services being internet-based and the fact that we process, store, and transmit data, including personal information, for
our customers, failure to prevent or mitigate data loss or other security breaches, including breaches of our suppliers’ technology and
systems, could expose us or our customers to a risk of loss or misuse of such information, adversely affect our operating results, result in
litigation or potential liability for us, and otherwise harm our business. We use third-party technology and systems for a variety of reasons,
including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office
support, and other functions. Although we have implemented systems and processes that are designed to protect customer information and
prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third-
party supplier, such measures cannot provide absolute security.
We have had operating losses, and we cannot assure future profitability.
We reported losses from continuing operations of $23.7 million, $10.8 million and $9.0 million for fiscal years 2017, 2016 and 2015,
respectively (excluding the results from operations we sold including a pre-tax gain of $124.8 million in 2016). We cannot assure you that
we will operate profitably in future periods and, if we do not, we may not be able to meet any future debt service requirements, working
capital requirements, capital expenditure plans, production slate, acquisition plans 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.
If we are not able to manage change and growth, our business could be adversely affected.
We are expanding our operations internationally, scaling our streaming service to effectively and reliably handle anticipated growth in both
subscribers and features related to our service, as well as continuing to provide our Spiritual Cinema Circle monthly DVD subscription
offerings for an additional fee. As we expand internationally, we are managing our business to address varied content offerings, consumer
customs and practices, in particular those
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dealing with e-commerce and internet video, as well as differing legal and regulatory environments. As we scale our streaming service, we
are developing technology and utilizing third-party internet-based or “cloud” computing services. If we are not able to manage the growing
complexity of our business, including improving, refining or revising our systems and operational practices related to our streaming
operations, our business could be adversely affected.
If our efforts to build unique brand identity and improve subscriber satisfaction and loyalty are not successful, we may not be able
to attract or retain subscribers, and our operating results may be adversely affected.
We must continue to build and maintain a unique brand identity. We believe that a unique brand identity will be important in attracting and
retaining subscribers who have a number of choices from which to obtain streaming content. To build a unique brand identity we believe
we must continue to offer content and service features that our subscribers value and enjoy. We also believe that these must be coupled with
effective consumer communications, such as marketing, customer service and public relations. If our efforts to promote and maintain our
brand identity are not successful, our ability to attract and retain subscribers may be adversely affected. Such a result may adversely affect
our operating results.
With respect to our expansion into international markets, we will also need to establish our brand identity in new markets and languages,
and to the extent we are not successful, our business in new markets may be adversely impacted.
Changes in our subscriber acquisition sources could adversely affect our marketing expenses and subscriber levels may be
adversely affected.
We utilize a broad mix of marketing and public relations programs, including social media websites such as Facebook and Twitter, to
promote our service to potential new subscribers. We may limit or discontinue use or support of certain marketing sources or activities if
advertising rates increase or if we become concerned that subscribers or potential subscribers deem certain marketing practices intrusive or
damaging to our brand. If available marketing channels are limited or curtailed, our ability to attract new subscribers may be adversely
affected.
Companies that currently promote our services may cease promoting our services, may determine to compete more directly with our
business or enter a similar business, or may decide to exclusively support our competitors. If we no longer have access to such marketing
channels, our marketing efforts may be adversely affected. If we are unable to maintain or replace our sources of subscribers with similarly
effective sources, or if the cost of our existing sources increases, our subscriber levels and marketing expenses may be adversely affected.
We face risks, such as unforeseen costs, and potential liabilities in connection with content we produce, license and/or distribute
through our service.
As a distributor of content, we face potential liability for negligence, copyright or trademark infringement or other claims based on the
nature and content of materials that we produce, license and/or distribute. We also face potential liability for content used in promoting our
service, including marketing materials and features on our website such as subscriber reviews.
We are responsible for production costs and other expenses related to our original content. We also take on risks associated with this
production, such as completion and key talent risk. To the extent we do not accurately anticipate costs or mitigate risks, or if we become
liable for content we produce, license and/or distribute, our business may suffer. Litigation to defend these claims could be costly and the
expenses and damages arising from any liability or unforeseen production risks could harm our results of operations. We may not be
indemnified to cover claims or costs of these types and we may not have insurance coverage for these types of claims.
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We rely upon a number of partners to offer instant streaming of content to various devices.
We currently offer subscribers the ability to receive streaming content through a host of internet-connected devices, including internet-
enabled TVs, digital video players and mobile devices. We intend to continue to broaden our capability to instantly stream content to other
platforms over time. If we are not successful in maintaining existing and creating new relationships, or if we encounter technological,
content licensing or other impediments to our streaming content, our ability to grow our business could be adversely impacted.
We have entered into agreements with certain consumer electronics partners, pursuant to which each makes available an “app” for viewing
our content on its hardware platform. Our agreements with our consumer electronics partners are typically between one and three years in
duration and our business could be adversely affected if, upon expiration, our partners do not continue to provide access to our service or
are unwilling to do so on terms acceptable to us, which terms may include the degree of accessibility and prominence of our service.
Furthermore, the devices consumers use to access our content are manufactured and sold by entities other than Gaia and the devices’
performance and the connection between these devices and our service may result in consumer dissatisfaction that could result in claims
against us or otherwise adversely impact our business. In addition, technology changes to our streaming functionality may require that
partners update their devices. If partners do not update or otherwise modify their devices, our service and our subscribers’ use and
enjoyment could be negatively impacted.
Any significant disruption in our network or information systems or those of third parties that we utilize in our operations could
result in a loss or degradation of service and could adversely impact our business.
Our reputation and ability to attract, retain and serve our subscribers is dependent upon the reliable performance of our network and
information systems and those of third parties that we utilize in our operations. We experience occasional system interruptions and delays
that make our websites and services unavailable or slow to respond and prevent us from efficiently providing services to our customers,
which may reduce the attractiveness of our services. If we are unable to effectively upgrade our systems and network infrastructure, and
take other steps to improve the efficiency of our systems, it could cause system interruptions or delays and adversely affect our operating
results.
Our systems may be subject to damage or interruption from adverse weather conditions, natural disasters, terrorist attacks, power loss,
telecommunications failures, computer viruses, computer denial of service attacks, or other attempts to harm these systems. Interruptions in
these systems, or to the internet in general, could make our service unavailable or degraded or otherwise hinder our ability to deliver
content to our subscribers. Service interruptions, errors in our software or the unavailability of network or information systems used in our
operations could diminish the overall attractiveness of our subscribership service to existing and potential subscribers.
We utilize third-party internet-based or “cloud” computing services in our business operations. We also utilize third-party content delivery
networks to help us stream content in high volume to our subscribers over the internet. Problems with these systems faced by us or our
service providers, including technological or business-related disruptions, could adversely impact the experience of our subscribers.
Any significant disruption in or unauthorized access to our network or information systems or those of third parties that we utilize
in our operations arising from cyber-attacks could result in a loss or degradation of service, unauthorized disclosure of data
(including subscriber and corporate information), or theft of intellectual property, including digital content assets, which could
adversely impact our business.
Our network and information systems and those of third parties we use in our operations are vulnerable to cybersecurity risks, including
cyber-attacks such as computer viruses, denial of service attacks, physical or electronic break-ins and similar disruptions. These systems
may experience directed attacks intended to lead to interruptions and delays in our service and operations as well as loss, misuse or theft of
data. Any successful attempt by hackers to obtain our data (including subscribers and corporate information) or intellectual property
(including digital content assets), disrupt our service, or otherwise access our systems (or those of third parties we use), could harm our
business, be expensive to remedy and damage our reputation. We have implemented certain systems and processes to thwart hackers and
protect our data and systems. To date hackers have not had a material impact on our
8
service or systems, although a risk remains that hackers may be successful in the future. Our insurance does not cover expenses related to
such disruptions or unauthorized access. Efforts to prevent hackers from disrupting our service or otherwise accessing our systems are
expensive to implement and may limit the functionality of or otherwise negatively impact our service offering and systems. Any significant
disruption to our service or access to our systems could result in a loss of subscribers and adversely affect our business and results of
operations.
Our reputation and relationships with subscribers would be harmed if our subscriber data, particularly payment data, were to be
accessed by unauthorized persons.
We maintain personal data regarding our subscribers, including names and payment data. This data is maintained on our own systems as
well as that of third parties we use in our operations. With respect to payment data, such as credit and debit card numbers, we rely on
licensed encryption and authentication technology to secure such information. We take measures to protect against unauthorized intrusion
into our subscribers’ data. Despite these measures we, our payment processing services or other third-party services we use, could
experience an unauthorized intrusion into our subscribers’ data. In the event of such a breach, current and potential subscribers may
become unwilling to provide the information to us necessary for them to become subscribers. Additionally, we could face legal claims or
regulatory fines or penalties for such a breach. The costs relating to any data breach could be material, and we currently do not carry
insurance against the risk of a data breach. For these reasons, should an unauthorized intrusion into our subscribers’ data occur, our
business could be adversely affected.
We rely on our proprietary technology to stream content and to manage other aspects of our operations, and the failure of this
technology to operate effectively could adversely affect our business.
We continually enhance or modify the technology used for our operations. We cannot be sure that any enhancements or other modifications
we make to our operations will achieve the intended results or otherwise be of value to our subscribers. Future enhancements and
modifications to our technology could consume considerable resources. If we are unable to maintain and enhance our technology to manage
the streaming of content to our subscribers in a timely and efficient manner, or if our technology or that of third parties we utilize in our
operations fails or otherwise operates improperly, our ability to retain existing subscribers and to add new subscribers may be impaired.
Also, any harm to our subscribers’ personal computers or other devices caused by software used in our operations could have an adverse
effect on our business, results of operations and financial condition.
Changes in how network operators handle and charge for access to data that travel across their networks could adversely impact
our business.
We rely upon the ability of consumers to access our service through the internet. To the extent that network operators implement usage-
based pricing, including meaningful bandwidth caps, or otherwise try to monetize access to their networks by data providers, we could
incur greater operating expenses and our subscriber acquisition and retention could be negatively impacted. Furthermore, to the extent
network operators were to create tiers of internet access service and either charge us for, or prohibit us from, being available through these
tiers, our business could be negatively impacted.
Increases in payment processing fees, changes to operating rules, the acceptance of new types of payment methods or payment
fraud could increase our operating expenses and adversely affect our business and results of operations.
Our subscribers pay for our services predominately using credit and debit cards. Our acceptance of these payment methods requires our
payment of certain fees. From time to time, these fees may increase, either as a result of rate changes by the payment processing companies
or as a result of a change in our business practices which increase the fees on a cost-per-transaction basis. Such increases may adversely
affect our results of operations.
We are subject to rules, regulations and practices governing our accepted payment methods. These rules, regulations and practices could
change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may
be subject to fines and higher transaction fees and lose our ability to accept these payment methods, and our business and results of
operations would be adversely affected.
9
We accept payment methods other than credit and debit cards. As our service continues to evolve and expand internationally, we will likely
continue to explore accepting various forms of payment, which may have higher fees and costs than our currently accepted payment
methods. If more consumers utilize higher cost payment methods, our payment costs could increase and our results of operations could be
adversely impacted.
In addition, we do not obtain signatures from subscribers in connection with their use of payment methods. To the extent we do not obtain
subscribers’ signatures, we may be liable for fraudulent payment transactions, even when the associated financial institution approves
payment of the orders. From time to time, fraudulent payment methods are used to obtain service. While we do have safeguards in place, we
nonetheless experience some fraudulent transactions. We do not currently carry insurance against the risk of fraudulent payment
transactions. A failure to adequately control fraudulent payment transactions would harm our business and results of operations.
If our trademarks and other proprietary rights are not adequately protected to prevent unauthorized use or appropriation, the
value of our brand and other intangible assets may be diminished, and our business may be adversely affected.
We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants and third
parties with whom we have relationships, as well as trademark, copyright and trade secret protection laws, to protect our proprietary rights.
We may also seek to enforce our proprietary rights through court proceedings. We may file trademark applications from time to time. These
applications may not be approved, third parties may challenge any trademarks issued to or held by us, third parties may knowingly or
unknowingly infringe our trademarks and other proprietary rights, and we may not be able to prevent infringement or misappropriation
without substantial expense to us.
We currently hold various domain names, including www.gaia.com and www.gaiamtv.com. Failure to protect our domain names could
adversely affect our reputation and make it more difficult for users to find our website and our service. We may be unable, without
significant cost or at all, to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the
value of our trademarks and other proprietary rights.
Intellectual property claims against us could be costly and result in the loss of significant rights related to, among other things, our
website, title selection processes and marketing activities.
Our intellectual property rights extend to our technology, business processes and the content on our website. We use the intellectual
property of third parties in marketing and providing our services through contractual and other rights. From time to time, third parties may
allege that we have violated their intellectual property rights. If we are unable to obtain sufficient rights, successfully defend our use, or
develop non-infringing technology and content or otherwise alter our business practices on a timely basis in response to claims of
infringement, misappropriation, misuse or other violation of third-party intellectual property rights, our business and competitive position
may be adversely affected.
Many companies devote significant resources to developing patents that could potentially affect many aspects of our business. There are
numerous patents that broadly claim means and methods of conducting business on the internet. We have not searched patents relative to
our technology. Defending ourselves against intellectual property claims, whether they are with or without merit or are determined in our
favor, will result in costly litigation and diversion of technical and management personnel. Infringement claims also may result in our
inability to use our current website, streaming technology, our recommendation and personalization technology or inability to market our
service. As a result of disputes, we may have to develop non-infringing technology, enter into royalty or licensing agreements, adjust our
merchandising or marketing activities or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on
terms acceptable to us.
Piracy of video, including digital and internet piracy, could adversely affect our business.
Video piracy is extensive in many parts of the world and is made easier by technological advances and the conversion of video into digital
formats. This trend facilitates the creation, transmission and sharing of high quality unauthorized copies of content on DVDs, Blu-ray discs,
and the internet. We may have to implement elaborate and
10
costly security and anti-piracy measures, which could result in significant expenses and losses of revenue. We cannot assure you that
security and anti-piracy measures will prevent the piracy of our content. The proliferation of unauthorized copies of these products could
have an adverse effect on our business, because these products could reduce the revenues we receive from our subscription service.
Our online activities are subject to a variety of laws and regulations relating to privacy which, if violated, could subject us to an
increased risk of litigation and regulatory actions.
In addition to our websites and applications, we use third-party applications, websites, and social media platforms to promote our service
and engage consumers, as well as monitor and collect certain information about users of our service. There are a variety of laws and
regulations governing individual privacy and the protection and use of information collected from such individuals, particularly in relation
to an individual’s personally identifiable information (e.g., credit card numbers). Many foreign countries have adopted similar laws
governing individual privacy, some of which are more restrictive than similar U.S. laws. If our online activities were to violate any
applicable current or future laws and regulations, we could be subject to litigation and regulatory actions, including fines and other
penalties.
We may be subject to litigation which, if adversely determined, could cause us to incur substantial losses.
From time to time during the normal course of operating our businesses, we are subject to various litigation claims and legal disputes. Some
of the litigation claims may not be covered under our insurance policies, or our insurance carriers may seek to deny coverage. As a result,
we might be required to incur significant legal fees, which may have a material adverse effect on our financial position. In addition, because
we cannot accurately predict the outcome of any dispute, it is possible that, as a result of current and/or future litigation, we will be subject
to adverse judgments or settlements that could significantly reduce our earnings or result in losses.
We may face legal liability for the content contained on our website.
We could face legal liability for defamation, negligence, copyright, patent or trademark infringement, personal injury or other claims based
on the nature and content of materials that we publish or distribute on our website. If we are held liable for damages for the content on our
website, our business may suffer. Allegations of impropriety, even if unfounded, could therefore have a material adverse effect on our
reputation and our business.
If government regulations relating to the internet or other areas of our business change, we may need to alter the manner in which
we conduct our business, or incur greater operating expenses.
The adoption or modification of laws or regulations relating to the internet or other areas of our business could limit or otherwise adversely
affect the manner in which we currently conduct our business. In addition, the continued growth and development of the market for online
commerce may lead to more stringent consumer protection laws, which may impose additional burdens on us. If we are required to comply
with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur
additional expenses or alter our business model.
The adoption of any laws or regulations that adversely affect the growth, popularity or use of the internet, including laws impacting internet
neutrality, could decrease the demand for our service and increase our cost of doing business. If internet neutrality rules are rejected,
broadband internet access providers may be able to charge web-based services such as ours for priority access to customers, which could
result in increased costs and a loss of existing users, impairment of our ability to attract new users, and material adverse effects on our
business and opportunities for growth. Additionally, as we expand internationally, government regulation concerning the internet, and in
particular, network neutrality, may be nascent or non-existent. Within such a regulatory environment, coupled with potentially significant
political and economic power of local network operators, we could experience discriminatory or anti-competitive practices that could
impede our growth, cause us to incur additional expense or otherwise negatively affect our business.
11
We could be subject to economic, political, regulatory and other risks arising from international operations.
Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and
political risks that may be different from and incremental to those in the United States. In addition to the risks that we face in the United
States, our international operations may involve risks that could adversely affect our business, including the following: the need to adapt
our content and user interfaces for specific cultural and language differences, including licensing a certain portion of our content library
before we have developed a full appreciation for its performance within a given territory; difficulties and costs associated with staffing and
managing foreign operations; management distraction; political or social unrest and economic instability; compliance with U.S. laws, such
as the Foreign Corrupt Practices Act, export controls and economic sanctions, and local laws prohibiting corrupt payments to government
officials; unexpected changes in regulatory requirements; less favorable foreign intellectual property laws; adverse tax consequences such
as those related to repatriation of cash from foreign jurisdictions into the United States, non-income related taxes such as value-added tax
or other indirect taxes, changes in tax laws or their interpretations, or the application of judgment in determining our global provision for
income taxes and other tax liabilities given inter-company transactions and calculations where the ultimate tax determination is uncertain;
fluctuations in currency exchange rates, which could impact revenues and expenses of our international operations and expose us to foreign
currency exchange rate risk; profit repatriation and other restrictions on the transfer of funds; differing payment processing systems as well
as consumer use and acceptance of electronic payment methods, such as credit and debit cards; new and different sources of competition;
different and more stringent user protection, data protection, privacy and other laws; and availability of reliable broadband connectivity and
wide area networks in targeted areas for expansion.
Our failure to manage any of these risks successfully could harm our international operations and our overall business, and results of our
operations.
We may seek additional capital that may result in shareholder dilution or that may have rights senior to those of our common
shareholders.
From time to time, we may seek to obtain additional capital, either through equity, equity-linked or debt securities. Our cash flows provided
by our operating activities have been negative in each of the last two years, primarily as a result of our decision to increase the amount
expended on marketing and expanding our subscriber base. To the extent our cash flows from operations continue to be negative, we
anticipate seeking additional capital. The decision to obtain additional capital will depend on, among other things, our business plans,
operating performance and condition of the capital markets. If we raise additional funds through the issuance of equity, equity-linked or
debt securities, our shareholders may experience dilution, and such securities may have rights, preferences or privileges senior to the rights
of our common stock. Any large equity or equity-linked offering could also negatively impact our stock price.
We may lose key employees or may be unable to hire qualified employees.
We rely on the continued service and performance of our senior management, including in particular Jirka Rysavy, our Chairman, CEO and
founder. In our industry, there is substantial and continuous competition for highly skilled business, product development, technical and
other personnel. Hiring qualified management is difficult due to the limited number of qualified professionals in the industry in which we
operate. Failure to recruit, attract and retain personnel, particularly management personnel, could materially harm our business, financial
condition, and results of operations.
We may face quarterly and seasonal fluctuations that could harm our business.
Our revenues and results of operations have fluctuated in the past, and will likely continue to fluctuate, on a quarterly basis. Such
fluctuation is the result of 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 general video streaming services. Our subscriber growth is generally greatest in the fourth and
first quarters (October through March), and slowest in the May through August period.
12
Acquisitions and new initiatives may harm our financial results.
We have historically expanded our operations in part through strategic acquisitions and through new initiatives that we generate. We cannot
accurately predict the timing, size and success of these efforts. Our acquisition and new initiative strategies involve significant risks that
could inhibit our growth and negatively impact our operating results, including the following: our ability to identify suitable acquisition
candidates or new initiatives at acceptable prices; our ability to complete the acquisitions of candidates that we identify or develop our new
initiatives; our ability to compete effectively for available acquisition opportunities; increases in asking prices by acquisition candidates to
levels beyond our financial capability or to levels that would not result in the returns required by our acquisition criteria; diversion of
management’s attention to expansion efforts; unanticipated costs and contingent liabilities associated with acquisitions and new initiatives;
failure of acquired businesses or new initiatives to achieve expected results; our failure to retain key customers or personnel of acquired
businesses and difficulties entering markets in which we have no or limited experience. In addition, the size, timing and success of any
future acquisitions and new initiatives may cause substantial fluctuations in our operating results from quarter to quarter. Consequently, our
operating results for any quarter may not be indicative of the results that may be achieved for any subsequent quarter or for a full fiscal
year. These fluctuations could adversely affect our results.
Our founder, chairman and CEO, Jirka Rysavy, has voting control over our company.
Mr. Rysavy holds 100% of our 5,400,000 outstanding shares of Class B common stock and also owns 348,682 shares of Class A common
stock. The shares of Class B common stock are convertible into shares of Class A common stock at any time. Each share of Class B
common stock has ten votes per share, and each share of Class A common stock has one vote per share. Consequently, Mr. Rysavy holds
approximately 85% of our voting stock and is able to exert substantial influence and to control matters requiring approval by shareholders,
including the election of directors, increasing our authorized capital stock, or a merger or sale of substantially all of our assets. As a result
of Mr. Rysavy’s control of us, no change of control can occur without Mr. Rysavy’s consent.
Our business is subject to reporting requirements that continue to evolve and change, which could continue to require significant
compliance effort and resources.
Because our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange
entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities,
including the Public Company Accounting Oversight Board, the SEC and NASDAQ, periodically issue new requirements and regulations.
Legislative bodies also review and revise applicable laws. As interpretation and implementation of these laws and rules and promulgation of
new regulations continues, we will continue to be required to commit significant financial and managerial resources and incur additional
expenses.
Liability relating to environmental matters may impact the value of our real property.
We may be subject to environmental liabilities arising from our ownership of real property. Under various U.S. federal, state and local laws,
an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property.
These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such
hazardous substances.
The presence of hazardous substances on real property owned by us may adversely affect our ability to sell such real property and we may
incur substantial remediation costs, thus harming our financial condition. The discovery of material environmental liabilities attached to
such real property could adversely affect our results of operations and financial condition.
Any of these events, in combination or individually, could disrupt our business and adversely affect our business, financial condition,
results of operations and cash flows.
Item 1B.
Unresolved Staff Comments
None.
13
Item 2.
Properties
Our principal executive office is located in Louisville, Colorado.
Louisville, CO
Size
150,262 sq. ft.
Use
Headquarters and studios
Lease Expiration
Owned
We lease to third parties approximately 100,000 square feet of our building space located in Colorado. We believe our facility is adequate
to meet our current needs and that suitable additional facilities will be available for lease or purchase when, and as, we need them.
Item 3.
Legal Proceedings
From time to time, we are involved in legal proceedings that we consider to be in the normal course of business. We record accruals that
can be reasonably estimated for losses related to matters against us that we consider to be probable. In the opinion of management, based
on available information, settlements, arbitration awards and final judgments, if any, that are considered probable of being rendered against
us in litigation or arbitration in existence at December 31, 2017 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.
Item 4.
Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Stock Price History
Our Class A common stock is listed on the NASDAQ Global Market under the symbol “GAIA”. On February 14, 2018, we had 3,406
shareholders of record and 9,789,743 shares of $.0001 par value Class A common stock outstanding, and we had 5,400,000 shares of
$.0001 par value Class B common stock outstanding, held by one shareholder.
The following table sets forth certain sales price data for our Class A common stock for the period indicated:
2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$
$
$
$
$
$
$
$
13.40 $
13.50 $
12.40 $
10.37 $
10.07 $
8.26 $
8.00 $
6.49 $
11.85
10.35
10.00
7.88
6.05
7.03
5.83
4.35
Issuer Purchases of Registered Equity Securities
None.
14
Dividend Policy
No dividends were declared or paid during the twelve months ended December 31, 2017 and 2016.
Sales of Unregistered Securities
None.
Equity Compensation Plan Information
The following table summarizes equity compensation plan information for our Class A common stock at December 31, 2017:
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Total
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans
1,436,348 $
—
1,436,348 $
15
7.67
—
7.67
1,563,652
—
1,563,652
Stock Performance Graph
The graph below shows, for the five years ended December 31, 2017, the cumulative total return on an investment of $100 in our Class A
common stock, assuming the investment was made on December 31, 2012. The graph compares such return with that of comparable
investments assumed to have been made on the same date in (a) the NASDAQ Composite Index, (b) the Russell 2000 Index and (c) a media
peer group, comprised of The Walt Disney Company; and Lions Gate Entertainment Corp. Our Class A common stock is traded on the
NASDAQ Global Market under the trading symbol “GAIA”. Our Class A common stock is also included in the Russell 2000 Index.
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Item 6.
Selected Financial Data
We derived the selected consolidated statement of operations data and consolidated cash flow data for the years ended December 31, 2017,
2016 and 2015, and consolidated balance sheet data as of December 31, 2017 and 2016 set forth below from our audited consolidated
financial statements, which are included elsewhere in this Form 10-K. We derived the selected consolidated statement of operations data
and consolidated cash flow data for the years ended December 31, 2014 and 2013 and consolidated balance sheet data as of December 31,
2015, 2014 and 2013 set forth below from our audited consolidated financial statements which are not included in this Form 10-K. During
2016 we sold our Gaiam Brand and eco-travel business and during 2013, we sold our non-Gaia brand entertainment media distribution
operations and discontinued our DRTV operations. These businesses are reported as discontinued operations for all periods presented
below.
16
The historical operating results are not necessarily indicative of the results to be expected for any other period. You should read the data set
forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our
consolidated financial statements and related notes, included elsewhere in this Form 10-K.
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Streaming revenues
DVD subscription and other revenues
Net revenues
Loss from operations
Loss from continuing operations
Income (loss) from discontinued operations, net of
tax
Net income (loss)
Income (loss) per share—basic and diluted:
Continuing operations
Discontinued operations
Basic and diluted net income (loss) per share
Weighted-average shares outstanding:
Basic and diluted
(in thousands)
Consolidated Balance Sheet Data:
Cash
Working capital - continuing operations
Working capital - discontinued operations
Total assets
Total liabilities
Total equity
Consolidated Cash Flow Data:
Net cash provided by (used in) operating activities
$
$
$
$
$
2017
Years ended December 31,
2015(b)
2016(a)
2014(b)
2013(c)
26,220 $
2,070
28,290
(25,141 )
(23,701 )
14,736 $
2,511
17,247
(16,575 )
(10,782 )
10,752 $
2,707
13,459
(8,711 )
(9,019 )
8,040 $
2,714
10,754
(10,726 )
(9,846 )
3,242
2,974
6,216
(10,002 )
(10,002 )
429
(23,272 ) $
97,848
87,066 $
(2,687 )
(11,706 ) $
(70 )
(9,916 ) $
(12,750 )
(22,752 )
(1.57 ) $
0.03
(1.54 ) $
(0.54 ) $
4.93
4.39 $
(0.37 ) $
(0.11 )
(0.48 ) $
(0.41 ) $
—
(0.41 ) $
(0.44 )
(0.55 )
(0.99 )
15,160
19,850
24,510
24,228
22,972
2017
2016
As of December 31,
2015
2014
2013(c)
32,778 $
16,751
—
96,979
20,827
76,152
54,027 $
46,778
—
107,196
9,659
97,537
1,266 $
(5,075 )
36,646
128,542
39,749
88,793
3,821 $
3,111
36,201
138,632
39,073
99,559
1,520
90
53,065
141,686
36,396
105,290
$
(20,792 ) $
(15,382 ) $
7,601 $
9,788 $
(23,124 )
(a)
In 2016, we recorded a combined gain of $124.8 million from the gain on the sale of our equity interest in Natural Habitat and the
sale of the Gaiam Brand business.
(b) We recorded non-cash and cash charges of $12.1 million and $3.3 million during 2015 and 2014, respectively, in connection to a
dispute and settlement with Cinedigm associated with the sale of our DVD distribution business.
(c)
During 2013, we recognized $11.0 million for certain impairments and restructuring costs, $2.0 million net loss from discontinued
operations due to the closure of our DRTV business, and the sale of GVE and a $25.0 million gain on the sale of stock. We also
recorded a $23.2 million charge to income tax expense to provide a valuation allowance against our deferred tax assets.
17
Item 7.
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-K. 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
consolidated financial statements and related notes included elsewhere in this document. This section is designed to provide information
that will assist readers in understanding our consolidated financial statements, changes in certain items in those statements from year to
year, the primary factors that caused those changes and how certain accounting principles, policies and estimates affect the consolidated
financial statements.
Overview and Outlook
We operate a global digital video subscription service with over 8,000 titles that caters 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 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 on most
internet-connected devices. 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.
18
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 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 Form 10-K.
Sale of Gaiam Brand Segment
In 2016, we sold our equity interest in Natural Habitat to Lindblad Expeditions Holdings, Inc. (NASDAQ: LIND) for $13 million and
recognized a gain of $10 million.
Also in 2016, we completed the sale of our Gaiam Brand consumer products business to Sequential Brands Group, Inc. (NASDAQ: SQBG)
and its operating partner Fit For Life LLC. Gross consideration was $167 million and we recognized a gain of $115 million before taxes.
We used the majority of the net proceeds to conduct a share repurchase tender offer and acquired approximately 9,637,000 shares of our
Class A common stock and 840,000 vested stock options at a fixed price of $7.75 per share.
Results of Operations
The table below summarizes certain of our results for the periods indicated:
(in thousands, except per share data)
Streaming revenues
DVD subscription and other revenues
Cost of streaming
Cost of DVD subscription and other
Selling and operating
Corporate, general and administration
Loss from operations
Interest and other income (expense)
Loss before taxes
Income tax benefit
Net loss from continuing operations
Income (loss) from discontinued operations, net
Net income (loss)
Years ended December 31,
2016
2017
2015
$
$
26,220 $
2,070
3,602
325
43,979
5,525
(25,141 )
515
(24,626 )
(925 )
(23,701 )
429
(23,272 ) $
14,736 $
2,511
2,567
275
24,960
6,020
(16,575 )
(351 )
(16,926 )
(6,144 )
(10,782 )
97,848
87,066 $
10,752
2,707
2,262
335
13,079
6,494
(8,711 )
(311 )
(9,022 )
(3 )
(9,019 )
(2,687 )
(11,706 )
19
The following table sets forth certain financial data as a percentage of net revenues for the periods indicated:
Net revenues
Streaming
DVD subscription and other
Total net revenues
Cost of revenues
Cost of streaming
Cost of DVD subscription and other
Total cost of revenues
Gross profit
Expenses:
Selling and operating
Corporate, general and administration
Total expenses
Loss from operations
Interest and other income (expense)
Loss before taxes
Income tax benefit
Net loss from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Years ended December 31,
2016
2017
2015
92.7 %
7.3 %
100.0 %
85.4 %
14.6 %
100.0 %
12.8 %
1.1 %
13.9 %
86.1 %
155.5 %
19.5 %
175.0 %
(88.9 )%
1.8 %
(87.0 )%
(3.3 )%
(83.8 )%
1.5 %
(82.3 )%
14.9 %
1.6 %
16.5 %
83.5 %
144.7 %
34.9 %
179.6 %
(96.1 )%
(2.0 )%
(98.1 )%
(35.6 )%
(62.5 )%
567.3 %
504.8 %
79.9 %
20.1 %
100.0 %
16.8 %
2.5 %
19.3 %
80.7 %
97.2 %
48.3 %
145.4 %
(64.7 )%
(2.3 )%
(67.0 )%
— %
(67.0 )%
(20.0 )%
(87.0 )%
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Net revenue. Net revenue increased $11.1 million, or 64.5%, to $28.3 million during 2017, compared to $17.2 million during 2016. Net
revenue from streaming increased $11.5 million, or 78.2%, to $26.2 million during 2017 from $14.7 million during 2016. The increase in
streaming revenues was primarily driven by 80% growth in the number of paying subscribers. Net revenues were not significantly
impacted by either changing prices or inflation.
Cost of revenues. Cost of revenues increased $1.1 million, or 39.3%, to $3.9 million during 2017 from $2.8 million during 2016. Cost of
revenues for streaming increased $1.0 million, or 38.5%, to $3.6 million during 2017 from $2.6 million during 2016 and, as a percentage of
streaming revenue, decreased to 13.7% compared to 17.4% during 2016 due primarily to an increase in revenue and the lower cost of
streaming associated with our higher volumes.
Selling and operating expenses. Selling and operating expenses increased $19.0 million, or 76.0%, to $44.0 million during 2017 from $25.0
million during 2016 and, as a percentage of net revenue, increased to 155.5% during 2017 from 144.7% during 2016. The increase was
primarily due to increased marketing spending for subscriber acquisition to drive the increase in our annual subscriber growth rate from
52% in 2016 to 80% in 2017.
Corporate, general and administration expenses . Corporate, general and administration expenses decreased $0.5 million, or 8.3%, to $5.5
million during 2017 from $6.0 million during 2016 and, as a percentage of net revenue, decreased to 19.5% during 2017 from 34.9% during
2016. The decrease was primarily due to the elimination of duplicate costs upon the sale of the Gaiam Brand business in 2016.
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 and Natural Habitat during 2016.
Net income (loss). As a result of the above factors, net loss was $23.3 million, or $1.54 per share, for 2017 compared to net income of
$87.1 million, or $4.39 per share, for 2016 which reflected the repurchase of approximately 40% of
20
our outstanding common stock. Net income (loss) was not significantly impacted by either changing prices or inflation.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net revenue. Net revenue increased $3.7 million, or 27.4%, to $17.2 million during 2016, compared to $13.5 million during 2015. Net
revenue from streaming increased $3.9 million, or 36.1%, to $14.7 million during 2016 from $10.8 million during 2015. The increase in
streaming revenues was primarily driven by 52% growth in the number of paying subscribers. Net revenues were not significantly
impacted by either changing prices or inflation.
Cost of revenues. Cost of revenues increased $0.2 million, or 7.7%, to $2.8 million during 2016 from $2.6 million during 2015. Cost of
revenues for streaming increased $0.3 million, or 13.0%, to $2.6 million during 2016 from $2.3 million during 2015 and, as a percentage of
streaming revenue, decreased to 17.4% compared to 21.0% during 2015 due primarily to an increase in revenue and the lower cost of
streaming associated with our higher volumes.
Selling and operating expenses. Selling and operating expenses increased $11.9 million, or 90.8%, to $25.0 million during 2016 from $13.1
million during 2015 and, as a percentage of net revenue, increased to 144.7% during 2016 from 97.2% during 2015. The increase was
primarily due to increased marketing spending for subscriber acquisition to drive growth.
Corporate, general and administration expenses . Corporate, general and administration expenses decreased $0.5 million, or 7.7%, to $6.0
million during 2016 from $6.5 million during 2015 and, as a percentage of net revenue, decreased to 34.9% during 2016 from 48.3% during
2015. The decrease was primarily due to the elimination of duplicate costs upon the sale of the Gaiam Brand business in 2016, offset by
increased costs associated with legal and accounting fees.
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 and Natural Habitat during 2016, recognizing a gain of $114.5 million,
which was offset by transaction costs, taxes and losses from the operation of discontinued operations of $16.7 million, compared to losses
from the operation of discontinued operations of $2.7 million in 2015.
Net income (loss). As a result of the above factors, net income was $87.1 million, or $4.39 per share, during 2016 compared to a net loss of
$11.7 million, or $0.48 per share, during 2015. Net income (loss) was not significantly impacted by either changing prices or inflation.
Quarterly and Seasonal Fluctuations
The following tables set forth our unaudited results of operations for each of the quarters in 2017 and 2016. In our opinion, this unaudited
financial information includes all adjustments, consisting solely of normal recurring accruals and adjustments, necessary for a fair
presentation of the results of operations for the quarters presented. You should read this financial information in conjunction with our
consolidated financial statements and related notes included elsewhere in this Form 10-K. The results of operations for any quarter are not
necessarily indicative of future results of operations.
(in thousands, except per share data)
Net revenues
Gross profit
Loss from continuing operations
Income from discontinued operations
Net loss
Basic and diluted net loss per share
Weighted average shares outstanding - basic and
diluted
March 31
$
Year 2017 Quarters Ended
June 30
September 30 December 31
8,426
7,522 $
7,267
6,485
(5,577 )
(5,634 )
—
429
(5,577 )
(5,205 )
(0.37 )
(0.34 ) $
6,558 $
5,647
(6,310 )
—
(6,310 )
(0.42 ) $
5,784 $
4,964
(6,180 )
—
(6,180 )
(0.41 ) $
15,153
15,157
15,161
15,168
$
21
(in thousands, except per share data)
Net revenues
Gross profit
Loss from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Basic and diluted net income (loss) per share
Weighted average shares outstanding - basic and
diluted
March 31
$
Year 2016 Quarters Ended
June 30
September 30 December 31
4,757
4,075
(3,421 )
106
(3,315 )
(0.22 )
4,462 $
(3,761 )
(151 )
100,595
100,444
6.64 $
4,198 $
3,451
(3,085 )
646
(2,439 )
(0.10 ) $
3,830 $
3,117
(4,126 )
(3,498 )
(7,624 )
(0.31 ) $
$
24,531
24,580
15,138
15,148
Our subscriber base growth reflects seasonal variations driven primarily by 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. This drives quarterly variations in our
spending on customer acquisition efforts, but does not drive a corresponding seasonality in net revenue.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States, which
require us to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. Note 2 to the consolidated financial statements in Item 8 of this Form 10-K summarizes the significant accounting
policies and methods used in the preparation of our consolidated financial statements.
We believe the following to be critical accounting policies whose application has a material impact on our financial presentation, and
involve a higher degree of complexity, as they require us to make judgments and estimates about matters that are inherently uncertain.
Media Library
Media Library represents the lower of unamortized cost or net realizable value of digital media content acquired through asset purchases,
capitalized costs to produce our proprietary media content, and rights obtained through license arrangements and business combinations.
The value of our acquired media library consists of the fair value of media assets obtained through asset acquisitions and business
combinations recorded at the estimated fair value of the titles acquired, which is based on a number of factors, including the number of
titles, the total hours of content, the production quality and age of the acquired media assets.
Our licensed media library is obtained through license arrangements. Generally, we pay an advance against a percentage royalty or an
upfront license fee in exchange for the distribution rights for a specific license window, but we may also obtain a license for a fixed fee for
perpetuity. These payments are capitalized at the time of payment. Certain agreements also include an ongoing royalty obligation, which
entitles the licensor to a share of the revenues generated from the licensed works. These expenses are calculated and accrued on a monthly
basis and included in costs of streaming. We pay these accrued royalties on a quarterly basis and therefore have included the related liability
in accrued liabilities.
The value of our produced media library consists of capitalized costs incurred to produce original media content, including salary and
overhead costs of our in-house production team and other third-party costs.
We amortize our media library in cost of streaming on a straight-line basis over the shorter of the license period or the estimated useful life
of the titles, which typically ranges from 12 to 90 months. The amortization period begins with the first month of availability on our
service.
22
Management reviews content viewership to determine whether viewing patterns correlate with initial estimates supporting the amortization
period utilized. If current estimates indicate that viewing is significantly higher in earlier periods relative to the remaining amortization
period, we will begin amortizing the respective titles on an accelerated basis over the amortization period. Based on this analysis, no
additional amortization was recorded during 2017, 2016 or 2015.
Our media library is reviewed for impairment when an event or change in circumstances indicates that the carrying amount of the media
library may not be recoverable. Recoverability of the media library is measured by a comparison of the carrying amount of the media
library to estimated undiscounted future cash flows expected to be generated by the media library. If the carrying amount of the media
library exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying value of the media
library exceeds its fair value.
Goodwill
Goodwill represents the excess of the purchase consideration over the estimated fair value of assets acquired less liabilities assumed in a
business acquisition. We have only one reporting unit; therefore, goodwill is assessed at the enterprise level. We review goodwill for
impairment annually as of December 31. We have the option of first assessing qualitative factors to determine whether events and
circumstances indicate that it is more likely than not that the estimated fair value of goodwill is less than its carrying amount. If it is
determined that the fair value for goodwill is more likely than not greater than the carrying amount for goodwill, then the two-step
impairment test is unnecessary. If it is determined that the two-step impairment test is necessary, then for step one, we compare the
estimated fair value of goodwill with its carrying amount, including goodwill. If the estimated fair value of goodwill exceeds its carrying
amount, we consider the goodwill to not be impaired. If the carrying amount of goodwill exceeds its estimated fair value, we perform the
second step of the goodwill impairment test to measure the amount of impairment loss. We use either a comparable market approach or a
traditional present value method to test for potential impairment. The process of evaluating the potential impairment of goodwill is highly
subjective and requires significant judgment at many points during the analysis. Application of alternative assumptions and definitions
could yield significantly different results. During 2017, 2016 and 2015, no impairment of goodwill was indicated.
Income Taxes and Deferred Tax Balances
ASC 740, Income Taxes, requires deferred tax assets and liabilities to be measured at the enacted tax rate expected to apply when the
temporary differences are to be realized or settled. The tax expense or benefit related to ordinary income or loss shall be computed at an
annual effective tax rate and the tax expense or benefit related to all other items shall be individually computed and recognized as a discrete
item when it occurs. Our annual effective tax rate for 2017 was 35.5%, however due to the federal tax rate reduction effective after
December 31, 2017, the net deferred tax assets are remeasured at 22.5%, a decrease from the current year annual effective tax rate of
35.5%. The difference in our effective tax rate is the result of the reduction in the federal corporate tax rate from 34% in 2017 to 21%
beginning in 2018. The effect of a change in tax law is recorded discretely as a component of the income tax provision related to
continuing operations in the period of enactment.
Revenues
Streaming revenues consist primarily of subscription fees paid by our streaming customers. DVD subscription and other revenues consist
of subscription fees paid by our DVD customers and rental income from tenant leases. We recognize revenues when the following four
basic criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the
seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured. We present revenues net of taxes collected
from customers. Streaming revenues are recognized ratably over the subscription term. Deferred revenues consist of subscription fees
collected from customers that have not been earned and is recognized ratably over the remaining term of the subscription.
23
Share-Based Compensation
We recognize compensation cost for share-based awards based on the estimated fair value of the award on date of grant. We measure
compensation cost at the grant date based on the estimated fair value of the award and recognize compensation cost upon the probable
attainment of a specified performance condition over the estimated performance period or for time based awards over the service period.
We use the Black-Scholes option or intrinsic valuation model to estimate the fair value of the award. In estimating this fair value, we use
certain assumptions, as disclosed in Note 8. Share-Based Compensation, consisting of the expected life of the option, risk-free interest rate,
dividend yield, and volatility. The use of a different estimate for any one of these assumptions could have a material impact on the amount
of calculated compensation expense.
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 December 31, 2017, our
cash balance was $32.8 million. We estimate that our capital expenditures, including produced content, will total approximately $13
million to $17 million for 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 and to date no shares have been issued under this shelf registration.
On December 28, 2017, our wholly-owned subsidiary Boulder Road LLC entered into a $13.5 million revolving credit facility with Great
Western Bank, secured by its real estate and guaranteed by Gaia. The credit facility matures on December 28, 2020, and the maximum
available under the credit facility reduces by $500,000 semi-annually each June 30 and December 31. Interest accrues at the prime rate
plus 0.5% with a floor of 4.25%. The credit facility requires Boulder Road to maintain a debt service coverage ratio of 1.2 to 1.0 as of the
end of each calendar year period, and contains various other affirmative and negative covenants, including among others, limitations on
indebtedness, liens, investments and loans. At December 31, 2017, $12.5 million of borrowings were outstanding under the credit facility.
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 expected to be generated from future operations, and cash that could
be raised by the sale of our stock or from new or revised credit facilities would 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, content development, unforeseen operational
difficulties or other factors.
24
Cash Flows
The following table summarizes our primary sources (uses) of cash during the periods presented:
(in thousands)
Net cash provided by (used in):
Operating activities – continuing operations
Operating activities – discontinued operations
Operating activities
Investing activities – continuing operations
Investing activities—discontinued operations
Investing activities
Financing activities
Effects of exchange rates on cash
Net (decrease) increase in cash
Years ended December 31,
2016
2017
2015
$
$
(20,792 ) $
—
(20,792 )
(13,011 )
—
(13,011 )
12,554
—
(21,249 ) $
(6,056 ) $
(9,326 )
(15,382 )
145,533
(319 )
145,214
(77,071 )
—
52,761 $
(3,787 )
11,388
7,601
(6,380 )
(2,955 )
(9,335 )
(326 )
(495 )
(2,555 )
2017 Compared to 2016
Continuing Operations
Operating activities. Cash flow used in continuing operations increased $14.7 million during 2017 compared to the same period in 2016.
The increase was primarily due to increased investment in customer acquisition efforts to accelerate our annual subscriber growth rate from
52% in 2016 to 80% in 2017.
Investing activities. Cash flow provided by investing activities – continuing operations decreased $158.5 million during 2017 compared to
the same period in 2016. The decrease is due to the $162.1 million net proceeds from the sale of the Gaiam Brand business including
Natural Habitat in 2016, offset by a $6.0 million increase in our investment in our media library.
Financing activities. Cash flows from financing activities increased $89.6 million during 2017 compared to the same period in 2016,
primarily due to the use of $77.4 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 offset by $12.5 million of borrowings under a revolving line of credit secured by our real estate entered into in
December 2017.
2016 Compared to 2015
Continuing Operations
Operating activities. Cash flow used by continuing operations increased $2.3 million during 2016 compared to the same period in 2015.
The increase was primarily due to operating losses and growth in our deferred revenue balances in conjunction with our subscriber growth.
Investing activities. Cash flow used by investing activities – continuing operations increased $151.9 million during 2016 compared to the
same period in 2015. The increase is due to the $162.1 million net proceeds from the sale of the Gaiam Brand business including Natural
Habitat, offset by investments in our media library and other investments.
Financing activities. Cash flow from financing activities decreased $76.7 million during 2016 compared to the same period in 2015,
primarily due to the use of $77.4 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.
25
Discontinued Operations
Operating activities. Cash flow from discontinued operations decreased $20.7 million during 2016 compared to the same period in 2015.
The decrease was primarily due to the Gaiam Brand business only operating the first 6 months of 2016, operating loses, and longer
collection cycles on accounts receivable in 2016.
Investing activities. Cash used in investing activities – discontinued operations decreased $2.6 million during 2016 compared to the same
period on 2015. The decrease was due to decreased investment activity prior to the Gaiam Brand business sale.
Contractual Obligations
The outstanding balance of the revolving line of credit at December 31, 2017 was fully repaid in January 2018.
Off-Balance Sheet Arrangements
We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as special
purpose entities or variable interest entities, which have been established for the purpose of facilitating off-balance sheet arrangements or
other limited purposes.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We have no material market risk exposure as of December 31, 2017.
26
Item 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Gaia, Inc. Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
27
28
30
31
32
33
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Gaia, Inc.
Louisville, Colorado
OPINIONS ON THE CONSOLIDATED FINANCIAL STATEMENTS AND INTERNAL CONTROL OVER FINANCIAL
REPORTING
We have audited the accompanying consolidated balance sheets of Gaia, Inc. (the "Company") as of December 31, 2017 and 2016, and the
related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows, for each year in the
three‑year period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). We have also
audited the Company's internal control over financial reporting as of December 31, 2017, based on the criteria established in Internal
Control ‑ Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2017 and 2016, and the results of its operations and its cash flows for each year in the three‑year period ended December 31,
2017, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established
in Internal Control ‑ Integrated Framework: (2013) issued by COSO.
BASIS FOR OPINIONS
The Company's management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's financial
statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
28
DEFINITION AND LIMITATIONS OF INTERNAL CONTROL OVER FINANCIAL REPORTING
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
EKS&H LLLP
February 26, 2018
Denver, Colorado
We have served as the Company's auditor since 2004.
29
GAIA, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
ASSETS
Current assets:
Cash
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Building and land, net
Media library, software and equipment, net
Goodwill
Investments and other assets
Total assets
Current liabilities:
LIABILITIES AND EQUITY
Accounts payable, accrued and other liabilities
Deferred revenue
Total current liabilities
Deferred taxes
Equity:
Gaia, Inc. shareholders’ equity:
Class A common stock, $.0001 par value, 150,000,000 shares
authorized, 9,769,961 and 9,752,531 shares issued and outstanding
at December 31, 2017 and 2016, respectively
Class B common stock, $.0001 par value, 50,000,000 shares
authorized, 5,400,000 shares issued and outstanding at December 31,
2017 and 2016, respectively
Additional paid-in capital
Accumulated deficit
Total equity
Total liabilities and equity
As of December 31,
2017
2016
32,778 $
1,055
3,082
36,915
17,028
20,387
10,609
12,040
96,979 $
16,848 $
3,316
20,164
663
54,027
554
1,303
55,884
16,896
12,861
10,609
10,946
107,196
6,672
2,434
9,106
553
1
1
1
100,560
(24,410 )
76,152
96,979 $
1
98,504
(969 )
97,537
107,196
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
30
GAIA, INC.
Consolidated Statements of Operations
(in thousands, except per share data)
Net revenues
Streaming
DVD subscription and other
Total net revenues
Cost of revenues
Streaming
DVD subscription and other
Total cost of revenues
Gross profit
Expenses:
Selling and operating
Corporate, general and administration
Total operating expenses
Loss from operations
Interest and other income (expense), net
Loss before income taxes
Income tax benefit
Loss from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Income (loss) per share—basic and diluted:
Continuing operations
Discontinued operations
Basic and diluted net income (loss) per share
Weighted-average shares outstanding:
Basic and diluted
2017
Years Ended December 31,
2016
2015
$
26,220 $
2,070
28,290
14,736 $
2,511
17,247
3,602
325
3,927
24,363
43,979
5,525
49,504
(25,141 )
515
(24,626 )
(925 )
(23,701 )
429
(23,272 ) $
(1.57 ) $
0.03
(1.54 ) $
2,567
275
2,842
14,405
24,960
6,020
30,980
(16,575 )
(351 )
(16,926 )
(6,144 )
(10,782 )
97,848
87,066 $
(0.54 ) $
4.93
4.39 $
$
$
$
10,752
2,707
13,459
2,262
335
2,597
10,862
13,079
6,494
19,573
(8,711 )
(311 )
(9,022 )
(3 )
(9,019 )
(2,687 )
(11,706 )
(0.37 )
(0.11 )
(0.48 )
15,160
19,850
24,510
See accompanying Notes to Consolidated Financial Statements.
31
GAIA, INC.
Consolidated Statement of Changes in Equity
(in thousands, except shares)
Balance at December 31, 2014
Issuance of Gaia, Inc. common stock
and share-based compensation
Subsidiary’s dividend to
noncontrolling interest
Comprehensive loss
Balance at December 31, 2015
Issuance of Gaia, Inc. common stock
for stock option exercises,
share-based compensation and
charitable contribution, net of tax
Repurchase of shares
Dividends paid to noncontrolling
interest
Elimination of noncontrolling
interest and accumulated other
comprehensive loss resulting from
the sale of Gaiam Brand segment
Net income
Balance at December 31, 2016
Cumulative effect adjustment of ASU
2016-09
Issuance of Gaia, Inc. common stock
for stock option exercises and
share-based compensation,
net of tax
Net loss
Balance at December 31, 2017
Gaia, Inc. Shareholders
Total
Equity
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Common
Stock
Amount
Additional
Paid-in
Capital
Common
Stock
Shares
Noncontrolling
Interest
$
99,559 $
(76,329 ) $
(200 ) $
3 $ 171,315 24,484,958 $
4,770
1,056
—
—
—
1,056
45,723
—
(486 )
(11,336 )
88,793 $
—
(11,706 )
(88,035 ) $
$
—
(199 )
(399 ) $
—
—
—
—
3 $ 172,371 24,530,681 $
—
—
(486 )
569
4,853
2,300
(76,168 )
(1,944 )
—
—
—
—
—
—
(1 )
2,300
258,698
(76,167 ) (9,636,848 )
—
—
—
—
—
—
(1,944 )
(2,510 )
87,066
97,537 $
—
87,066
(969 ) $
$
399
—
— $
—
—
2 $
—
—
—
—
98,504 15,152,531 $
(2,909 )
—
—
77
(169 )
—
—
246
—
—
1,810
(23,272 )
—
(23,272 )
$
76,152 $
(24,410 ) $
—
—
— $
—
—
1,810
—
17,430
—
2 $ 100,560 15,169,961 $
—
—
—
See accompanying Notes to Consolidated Financial Statements.
32
GAIA, INC.
Consolidated Statements of Cash Flows
(in thousands)
Operating activities:
Net income (loss)
(Income) loss from discontinued operations
Net loss from continuing operations
Adjustments to reconcile net loss from continuing operations to
net cash used in operating activities:
Depreciation and amortization
Loss on remeasurement of foreign currency
Share-based compensation expense
Changes in operating assets and liabilities:
Accounts receivable, net
Prepaid expenses and other assets
Accounts payable, accrued liabilities, and deferred taxes
Deferred revenue
Net cash used in operating activities – continuing operations
Net cash provided by (used in) operating activities – discontinued
operations
Net cash provided by (used in) operating activities
Investing activities:
Additions to property, equipment and media library
Additions to intangible assets
Purchase of investment
Proceeds from the sale of Gaiam Brand business, net
Net cash provided by (used in) investing activities—continuing
operations
Net cash used in investing activities—discontinued operations
Net cash provided by (used in) investing activities
Financing activities:
Net proceeds from issuance of stock
Repurchases of stock
Drawdowns on line of credit
Repayments on line of credit
Dividends paid to noncontrolling interest
Net cash (used in) provided by financing activities
Effect of exchange rates on cash
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Supplemental cash flow information
Interest paid
Income taxes paid
Deferred tax asset impact on APIC
2017
Years ended December 31,
2016
2015
$
(23,272 ) $
(429 )
(23,701 )
87,066 $
(97,848 )
(10,782 )
(11,706 )
2,687
(9,019 )
4,903
—
1,833
(501 )
(2,423 )
(1,785 )
882
(20,792 )
—
(20,792 )
(12,511 )
(500 )
—
—
(13,011 )
—
(13,011 )
54
—
12,500
—
—
12,554
—
(21,249 )
54,027
32,778 $
— $
69 $
77 $
3,684
—
674
(161 )
(279 )
(172 )
980
(6,056 )
(9,326 )
(15,382 )
(6,594 )
—
(10,000 )
162,127
145,533
(319 )
145,214
1,041
(76,168 )
3,000
(3,000 )
(1,944 )
(77,071 )
—
52,761
1,266
54,027 $
— $
2,430 $
763 $
3,268
408
339
(236 )
395
421
637
(3,787 )
11,388
7,601
(6,380 )
—
—
—
(6,380 )
(2,955 )
(9,335 )
160
—
—
—
(486 )
(326 )
(495 )
(2,555 )
3,821
1,266
4
1,322
—
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
33
Notes to Consolidated Financial Statements
References in this report to “we”, “us”, “our”, “Company” or “Gaia” refer to Gaia, Inc. and its subsidiaries, unless we indicate
otherwise.
1. Organization, Nature of Operations, and Principles of Consolidation
Gaia, Inc., operates 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. Through
our online Gaia subscription service, our customers 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 and view files from our library without being actively connected to the
internet. We were incorporated under the laws of the State of Colorado on July 7, 1988.
We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the
United States, or GAAP, and they include our accounts and those of our subsidiaries, over which we exercise control. Intercompany
transactions and balances have been eliminated.
Discontinued Operations
During 2016, Gaia sold its 51.4% interest in Natural Habitat, Inc. (“Natural Habitat”) and completed the sale of the Gaiam Brand consumer
product business.
Accordingly, the assets and liabilities, operating results, and cash flows for these businesses are presented as discontinued operations,
separate from our continuing operations, for all periods presented in these consolidated financial statements and footnotes, unless indicated
otherwise. See Note 11 Discontinued Operations.
Prior to the sale of our interest in Natural Habitat, our operations in foreign countries exposed us to market risk associated with foreign
currency exchange rate fluctuations between the U.S. dollar and various foreign currencies. We used derivative instruments to manage a
portion of our exposure to changes in currency exchange rates due to payments made by our eco-travel subsidiary to tour operators in other
countries. Our primary objective for entering into currency derivatives was to reduce the volatility that changes in currency exchange rates
had. We did not enter into derivative contracts for trading purposes. With the sale of our interests in Natural Habitat, we no longer use
derivative instruments.
Prior to our sale of our interest in Natural Habitat and the Gaiam Brand consumer product business, certain of our subsidiaries were partly
owned by others and we accounted for minority shareholders’ ownership through non-controlling interest in our consolidated financial
statements. These non-controlling interests were assumed by the new owners of the respective entities. We therefore no longer have any
minority shareholders that require non-controlling interests in our consolidated financial statements.
Repurchases
During 2016 we made a tender offer 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
price equal to $7.75 per option (less the exercise price of the option). A total of 9,636,848 shares and 842,114 options were validly tendered
and not withdrawn. We made payments of $74.7 million for the shares and $1.4 million for the options. All repurchased shares were retired
and all repurchased options were cancelled.
34
2. Significant Accounting Policies
Cash
Cash represents on-demand accounts with financial institutions that are denominated in U.S. dollars. We consider investments in financial
instruments purchased with an original maturity of 90 days or less to be cash equivalents. We also classify amounts in transit from payment
processors for customer credit card and debit card transactions as cash.
Property and Equipment
We state property and equipment at cost less accumulated depreciation and amortization. We include in property and equipment the cost of
internal-use software, including software used in connection with our websites. We expense all costs related to the development of internal-
use software other than those incurred during the application development stage. We capitalize the costs we incur during the application
development stage and amortize them over the estimated useful life of the software, which is typically three years. We compute
depreciation of property and equipment on the straight-line method over estimated useful lives, generally 3 to 45 years. We amortize
leasehold and building improvements over the shorter of the estimated useful lives of the assets or the remaining term of the lease or
remaining life of the building, respectively. Depreciation expense is included in Selling and operating expense, and Corporate, general and
administration expense in the accompanying consolidated statements of operations.
Media Library
Media library represents the lower of unamortized cost or net realizable value of digital media content acquired through asset purchases,
capitalized costs to produce our proprietary media content including salary and overhead costs of our in-house production team, rights
obtained through license arrangements and business combinations.
We amortize our media library in cost of streaming on a straight-line basis over the shorter of the license period or the estimated useful life
of the titles, which typically ranges from 12 to 90 months. The amortization period begins with the first month of availability on our
service.
Our media library is reviewed for impairment when an event or change in circumstances indicates that the carrying amount of the media
library may not be recoverable. Recoverability of the media library is measured by a comparison of the carrying amount of the media
library to estimated undiscounted future cash flows expected to be generated by the media library. If the carrying amount of the media
library exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying value of the media
library exceeds its fair value.
Goodwill
Goodwill represents the excess of the purchase consideration over the estimated fair value of assets acquired less liabilities assumed in a
business acquisition. We have only one reporting unit; therefore, goodwill is assessed at the enterprise level. We review goodwill for
impairment annually on December 31. We have the option of first assessing qualitative factors to determine whether events and
circumstances indicate that it is more likely than not that the fair value of a goodwill is less than its carrying amount. If it is determined that
the estimated fair value of goodwill is more likely than not greater than the carrying amount of goodwill, then the two-step impairment test
is unnecessary. If it is determined that the two-step impairment test is necessary, then for step one, we compare the estimated fair value of
goodwill with its carrying amount, including goodwill. If the estimated fair value of goodwill exceeds its carrying amount, we consider the
goodwill not impaired. If the carrying amount of goodwill exceeds its estimated fair value, we perform the second step of the goodwill
impairment test to measure the amount of impairment loss. We use either a comparable market approach or a traditional present value
method to test for potential impairment. The process of evaluating the potential impairment of goodwill is highly subjective and requires
significant judgment at many points during the analysis. Application of alternative assumptions and definitions could yield significantly
different results. During 2017, 2016 and 2015, no impairment of goodwill was indicated.
35
Long-Lived Assets
We evaluate the carrying value of long-lived assets held and used, other than goodwill, when events or changes in circumstances indicate
the carrying value may not be recoverable. We consider the carrying value of a long-lived asset impaired when the total projected
undiscounted cash flows from such asset are separately identifiable and are less than the carrying value. We recognize a loss based on the
amount by which the carrying value exceeds the estimated fair value of the long-lived asset. We determine the estimated fair value
primarily using the projected cash flows from the asset discounted at a rate commensurate with the risk involved. During 2017, 2016 and
2015, no impairment of long-lived assets was recognized.
Income Taxes
We provide for income taxes pursuant to the liability method. The liability method requires recognition of deferred income taxes based on
temporary differences between financial reporting and income tax bases of assets and liabilities, using current enacted income tax rates and
regulations. These differences will result in taxable income or deductions in future years when the reported amount of the asset or liability
is recovered or settled, respectively. Considerable judgment is required in determining when these events may occur and whether recovery
of an asset, including the utilization of a net operating loss or other carryforward prior to its expiration, is more likely than not.
Revenue Recognition
Streaming revenues consist primarily of subscription fees paid by our streaming customers. DVD subscription and other revenues consist
of subscription fees paid by our DVD customers and rental income from tenant leases. We recognize revenues when the following four
basic criteria are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the
seller’s price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured. We present revenues net of taxes collected
from customers. Streaming revenues are recognized ratably over the subscription term. Deferred revenues consist of subscription fees
collected from customers that have not been earned and is recognized ratably over the remaining term of the subscription.
Marketing
Marketing costs consist primarily of advertising expenses, which include promotional activities such as online advertising and public
relations expenditures. Advertising costs are expensed as incurred. During 2017, 2016 and 2015 we expensed $25.7 million, $13.2 million,
and $5.5 million, respectively.
Share-Based Compensation
We recognize compensation cost for share-based awards based on the estimated fair value of the award on date of grant. We measure
compensation cost at the grant date based on the estimated fair value of the award and recognize compensation cost upon the probable
attainment of a specified performance condition over the estimated performance period or for time based awards over the service period.
We use the Black-Scholes option and intrinsic valuation model to estimate the fair value of the award. In estimating this fair value, we use
certain assumptions, as disclosed in Note 8, consisting of the expected life of the option, risk-free interest rate, dividend yield, and
volatility. The use of a different estimate for any one of these assumptions could have a material impact on the amount of calculated
compensation expense.
Defined Contribution Plan
We have adopted a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (“Internal
Revenue Code”), which covers substantially all employees. Eligible employees may contribute amounts to the plan, via payroll
withholding, subject to certain limitations. The 401(k) plan permits, but does not require, us to make additional matching contributions to
the 401(k) plan on behalf of all participants in the 401(k) plan. We match 50% of an employee’s contribution, up to an annual maximum
matching contribution of $1,500. We made matching contributions to the 401(k) plan of $100,000, $82,000, and $56,000 in each of the
years ended December 31, 2017, 2016 and 2015, respectively.
36
Fair Value Measurements
Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Assets and
liabilities are valued based upon observable and non-observable inputs. Valuations using Level 1 inputs are based on unadjusted quoted
prices that are available in active markets for the identical assets or liabilities at the measurement date. Level 2 inputs utilize significant
other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly; and
valuations using Level 3 inputs are based on significant unobservable inputs that cannot be corroborated by observable market data and
reflect the use of significant management judgment. The carrying amounts of our cash, accounts receivable, accounts payable and other
current liabilities approximate their fair values.
Net Income (Loss) Per Share
Basic net income (loss) per share excludes any dilutive effects of outstanding stock awards. 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 57,000, 910,000, and 954,000 from the computation of diluted net income (loss) per share for 2017,
2016, and 2015 respectively, because their effect was antidilutive.
Investments
Our cost method investments are carried at cost and adjusted for other-than-temporary declines in fair value.
We evaluate our investments for impairments annually and when factors indicate that a significant decrease in value has occurred.
Variables considered in making such assessments may include near-term prospects of the investees and the investees’ capital structure, as
well as other economic variables which reflect assumptions market participants may use in pricing these assets. If an investment is deemed
to have experienced an other-than-temporary decline below its cost basis, we reduce the carrying amount of the investment to its quoted or
estimated fair value, as applicable, and establish a new cost basis for the investment. The Company did not record any impairment charges
on our cost method investments during the years 2017, 2016, or 2015.
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 consolidated 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.
Accounting Pronouncements Adopted in 2017
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Topic
718, Compensation – Stock Compensation. ASU No. 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 No. 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those
fiscal years. We adopted ASU No. 2016-09 in the first quarter of 2017, with no material impact.
Recently Issued Accounting Pronouncements
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 statement. The
new standard is effective for fiscal years
37
beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is
required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements, with certain practical expedients available. Our preliminary assessment is that we do not expect the
new standard to have a material impact on our reported financial position or results of operations.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard supersedes
most previous revenue recognition rules. The core principle of the guidance is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects in exchange for those
goods or services. Our revenue transactions typically consist of one distinct, fixed-price performance obligation which is delivered to the
customer at a single point in time, or over a subscription period. We adopted this new standard on January 1, 2018 using the modified
retrospective approach, with no material impact.
3. Property and Equipment
Building and Land, stated at lower of cost or estimated fair value, consists of the following as of December 31:
(in thousands)
Land
Buildings
Accumulated depreciation
2017
2016
$
$
4,829 $
17,664
22,493
(5,465 )
17,028 $
4,829
16,874
21,703
(4,807 )
16,896
Software, equipment and media library stated at lower of cost or estimated fair value, consists of the following as of December 31:
(in thousands)
Website development costs and other software
Studio, computer and telephone equipment
Media library
Accumulated depreciation and amortization
2017
2016
8,236 $
1,097
18,807
28,140
(7,753 )
20,387 $
4,421
693
11,486
16,600
(3,739 )
12,861
$
$
Future depreciation and amortization consists of the following:
(in thousands)
2018
2019
2020
2021
2022
Thereafter
$
$
6,100
5,273
3,831
2,988
2,376
12,018
32,586
38
4. Investments and Other Assets
In 2016, we purchased 10% of the outstanding common stock and associated voting rights of a privately held Colorado corporation for
$10.0 million. We are accounting for this investment using the cost method. 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 transfer these rights to another
party by certain deadlines, we may be required to surrender and forfeit our existing stock ownership.
Other assets consist of the following as of December 31:
(in thousands)
Cost method investments
Other assets
Non-current tax receivable
2017
2016
$
$
10,000 $
1,626
414
12,040 $
10,000
946
—
10,946
5. Accounts Payable, Accrued and Other Liabilities
Accounts payable, accrued and other liabilities consist of the following as of December 31:
(in thousands)
Line of credit
Accounts payable
Accrued compensation
Accrued expenses
2017
2016
$
$
12,500 $
2,283
1,127
938
16,848 $
—
2,054
844
3,774
6,672
On December 28, 2017, our wholly-owned subsidiary Boulder Road LLC entered into a revolving credit agreement (the “Credit
Agreement”) with Great Western Bank, as lender (“Great Western”). Borrowings under the Credit Agreement are secured by a deed of trust
on the real estate owned by Boulder Road LLC, and guaranteed by Gaia. The Credit Agreement provides for a revolving line of credit for
up to $13.5 million, which is reduced by $500,000 semi-annually, and is subject to certain covenants applicable to Boulder Road LLC.
Subject to certain limitations, the principal amount of the loan is due and payable on the earlier of December 28, 2020 or the termination of
the Credit Agreement. The note evidencing borrowings under the Credit Agreement bears interest at the prime rate plus 0.5% (4.50% at
December 31, 2017) with a floor of 4.25%.
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 December 31, 2017 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.
39
7. Equity
Our common stock has two classes, Class A and Class B. Each holder of our Class A common shares is entitled to one vote for each share
held on all matters submitted to a vote of shareholders. Each of our Class B common shares is entitled to ten votes on all matters submitted
to a vote of shareholders. There are no cumulative voting rights. All holders of our Class A common shares and our Class B common shares
vote as a single class on all matters that are submitted to the shareholders for a vote, except as provided by law or as set forth in our charter.
Shareholders may consent to an action in writing and without a meeting under certain circumstances. Jirka Rysavy, our chairman, holds
100% of our 5,400,000 outstanding shares of class B common stock and also owns 348,682 shares of Class A common stock.
Consequently, our chairman holds approximately 85% of our voting stock and thus is able to exert substantial influence and control matters
requiring approval by shareholders, including the election of directors, increasing our authorized capital stock, or a merger or sale of
substantially all of our assets. As a result of Mr. Rysavy’s control of us, no change of control can occur without Mr. Rysavy’s consent.
Our Class A common shares and our Class B common shares are entitled to receive dividends, if any, as may be declared by our board of
directors out of legally available funds. In the event of a liquidation, dissolution or winding up of our Company, our Class A common
shares and our Class B common shares are entitled to share ratably in our assets remaining after the payment of all of our debts and other
liabilities. Holders of our Class A common shares and our Class B common shares have no preemptive, subscription or redemption rights,
and there are no redemption or sinking fund provisions applicable to our Class A common shares or our Class B common shares.
Our Class B common shares may not be transferred unless converted into our Class A common shares, other than certain transfers to
affiliates, family members, and charitable organizations. Our Class B common shares are convertible one-for-one into our Class A common
shares, at the option of the holder of the Class B common shares. During 2017, 2016 and 2015, we issued shares of our Class A common
stock as shown in the table below under our 2009 Long-Term Incentive Plan (the “Plan”). We recorded the shares issued to our directors at
their estimated fair value based on the market’s closing price of our stock on the date the shares were issued, which by policy is the last
trading day of each quarter in which the services were rendered.
For the Years Ended December 31,
2016
2017
2015
Shares issued to independent directors for services
rendered, in lieu of cash compensation
Shares issued to employees upon exercise of stock
options
2,430
18,638
16,887
15,000
19,060
33,825
As of December 31, 2017, we had the following Class A common shares reserved for future issuance:
Conversion of Class B common shares
Awards under the Plan:
Stock options outstanding
Restricted stock units outstanding
Total shares reserved for future issuance
5,400,000
567,100
869,248
6,836,348
8. Share-Based Compensation
We issue stock based compensation awards under the Plan. The purpose of the Plan is to advance our interests and those of our
shareholders by providing incentives to certain persons who contribute significantly to our strategic and long-term performance objectives
and growth. An aggregate of not more than 3 million of our Class A common shares, subject to certain adjustments, may be issued under
the Plan, and the Plan terminates no later than April 23, 2019. The exercise price for our options is generally equal to the closing market
price of our stock at the date of the grant, and the options normally vest at 2% per month for the 50 months beginning in the eleventh
month after the grant date. Follow on option grants begin vesting in the first month after grant. We recognize the compensation expense
related to share-based payment awards on a straight-line basis over the requisite service periods of the awards, which are generally five
years for employees, and five years for board members.
40
The determination of the estimated fair value of share-based payment awards on the date of grant using the Black-Scholes option-pricing
model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. We derive the
expected terms from the historical behavior of participant groupings. We base expected volatilities on the historical volatility of our stock
over the expected term. Our use of historical volatilities is based upon the expectation that future volatility over the expected term is not
likely to differ significantly from historical results. We base the risk-free interest rate used in the option valuation model on U.S. Treasury
zero-coupon issues with remaining terms similar to the expected term on the options. We primarily use historical data by participant
groupings to estimate option forfeitures and record share-based compensation expense only for those awards that are expected to vest.
The following are the variables we used in the Black-Scholes option pricing model to determine the estimated grant date fair value for
options granted under the Plan for each of the years presented:
Expected volatility
Weighted-average volatility
Expected dividends
Expected term (in years)
Risk-free rate
2017
38% - 41%
38%
—%
3.2 - 3.5
2016
36% - 43%
39%
—%
.35 - 3.8
1.45% - 1.99%
0.54% - 1.11%
2015
34% - 50%
43%
—%
0.5 - 5.9
0.26% - 1.73%
In 2015, we commenced issuing restricted stock units (RSUs) under the Plan. The RSUs entitle the recipient to receive one share of Class A
common stock for each RSU upon vesting. The RSUs vest with cliff vesting in 5 years, provided that the recipient is still an employee or
director of Gaia on such date. The RSUs will be automatically forfeited and of no further force and effect if the vesting conditions are not
met.
We use intrinsic valuation for RSUs, which due to the nature of these awards, is typically market price of our common stock on the date of
grant.
The table below presents a summary of activity under the Plan, as of December 31, 2017, and changes during the year then ended:
(in thousands, except share and per share amounts)
Outstanding at January 1, 2017
Option grants
Restricted stock unit grants
Exercised options
Cancelled or forfeited options
Cancelled or forfeited restricted stock units
Outstanding at December 31, 2017
Exercisable options at December 31, 2017
Shares
1,351,194 $
76,950
70,705
(15,000 )
(17,700 )
(29,801 )
1,436,348 $
209,150 $
The table below presents our valuation data for the Plan:
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
7.13
5.82
—
5.61
3.21
—
7.67
6.70
5.2 $
6.9 $
13,459
1,192
(in thousands, except per share amounts)
Valuation Data:
Weighted-average fair value (per share)
Total stock-based compensation expense
Total income tax impact on provision
2017
2016
2015
$
$
$
7.68
1,833
585
$
$
$
4.92
674
551
$
$
$
1.86
339
281
We issue new shares upon the exercise of options and vesting of RSUs, which will occur in 2020 and 2022. We received approximately
$0.1 million, $1.0 million and $0.2 million in cash from stock options exercised during
41
2017, 2016 and 2015, respectively. The total intrinsic value of options exercised during 2017, 2016 and 2015 was $0.1 million, $1.8
million, and $0.1 million, respectively. The total fair value of options vested was $0.3 million, $1.3 million, and $0.9 million during 2017,
2016 and 2015, respectively.
As of December 31, 2017, there was $5.9 million of unrecognized cost related to non-vested shared-based compensation arrangements
granted under the Plan. We expect that cost to be recognized over a weighted-average period of 3.54 years.
9. Income Taxes
Our provision for income taxes is comprised of the following:
(in thousands)
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total income tax benefit
Variations from the federal statutory rate are as follows:
(in thousands)
Expected federal income tax benefit at
statutory rate of 34%
Effect of permanent other differences
Return to provision adjustments
Effect of federal rate change at year-end
Difference in basis for sale of discontinued
operations
State income tax benefit, net of federal benefit tax
assets
Valuation allowance
Total income tax benefit
42
For the Years Ended December 31,
2016
2017
2015
$
$
$
$
(1,040 ) $
5
(1,035 )
— $
—
—
105
5
110
(925 ) $
(5,884 )
(260 )
(6,144 )
(6,144 ) $
—
(3 )
(3 )
—
—
—
(3 )
2017
2016
2015
(8,373 ) $
184
(1,144 )
2,870
(5,755 ) $
212
—
—
(3,068 )
44
—
—
—
(347 )
—
(369 )
5,907
(925 ) $
(254 )
—
(6,144 ) $
(135 )
3,156
(3 )
Deferred income taxes reflect net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The components of the net accumulated deferred income tax assets
(liabilities) as of December 31, 2017 and 2016 are as follows:
(in thousands)
Deferred tax assets (liabilities):
Stock-based compensation
Depreciation and amortization
Section 181 qualified production expense
Net operating loss carryforward
Charitable carryforward
Other
Tax credits
Valuation allowance
Total deferred tax assets (liabilities), net of valuation
allowance
$
As of December 31,
2017
2016
587 $
(318 )
(1,933 )
6,012
278
342
276
(5,907 )
264
43
(2,550 )
—
—
737
953
—
$
(663 ) $
(553 )
The source of income (loss) before income taxes are as follows:
(in thousands)
Domestic
2017
(24,626 ) $
2016
(16,926 ) $
$
2015
(9,022 )
Periodically, we perform assessments of the realization of our net deferred tax assets considering all available evidence, both positive and
negative. During 2017, we determined that a $5.9 million valuation allowance against our deferred tax assets was necessary due to the
cumulative loss incurred over a three-year period, excluding the sale of the Gaiam Brand segment in 2016. We released a full valuation
allowance in 2016 on these deferred tax assets and in 2017 for AMT tax credits as recent federal tax law has recharacterized them as fully
refundable by 2021. We have federal and state net operating loss carryforwards of approximately $26.7 million and $1.3 million,
respectively, which expire after 2037.
We realized $0.1 million and $0.8 million in tax benefits recorded to additional paid-in capital because of the exercise of stock options
during 2017 and 2016, respectively. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the
tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. We measure the tax
benefits recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations in this
area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our
income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and may result in
changes to our subjective assumptions and judgments which can materially affect amounts recognized in our consolidated balance sheets
and consolidated statements of operations.
The result of our assessment of our uncertain tax positions did not have a material impact on our consolidated financial statements. Our
federal and state tax returns for all years after 2012 are subject to future examination by tax authorities for all our tax jurisdictions. We
recognize interest and penalties related to income tax matters in interest and other income (expense) and corporate, general and
administrative expenses, respectively.
43
10. Segment Information and Geographic Information
Our chief operating decision maker reviews operating results on a consolidated basis and we therefore have one reportable segment.
Geographic Information
We have subscribers in the United States and over 170 foreign countries. The major geographic territories are the U.S. and Canada, and are
based on the location of the customer. The following represents geographical data for our operations as of and for the years ended
December 31, 2017, 2016 and 2015:
(in thousands)
Revenue:
United States
International
11. Discontinued Operations
2017
2016
2015
$
$
21,977 $
6,313
28,290 $
13,641 $
3,606
17,247 $
10,519
2,940
13,459
In 2016 we sold our 51.4% equity interest in Natural Habitat, our eco-travel subsidiary, in exchange for $12.85 million in cash, and
recognized a gain of $10.3 million.
Also in 2016, we sold the assets and liabilities of our Gaiam Brand business in exchange for a gross sale price of $167.0 million and
recognized a gain of $114.5 million. 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 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.
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 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.
44
The income from discontinued operations amounts as reported on our consolidated statements of operations was comprised of the
following amounts:
(in thousands)
Net revenue
Cost of revenues
Gross profit
Operating expenses
Income (loss) from operations
Other income (expense), net
Loss before income taxes and
noncontrolling interest
Income tax expense (benefit)
Loss from discontinued operations attributable to
the non-controlling interest, net of tax
Income (loss) from the operation of discontinued
operations
Gain on disposal of discontinued operations:
Gain on sale of Gaiam Brand segment
Write-off of assets impacted by, but not included
in sale
Income tax expense
Income (loss) from discontinued operations, net of
tax
$
Years Ended December 31,
2016
2017
— $
—
—
—
—
—
52,627 $
32,975
19,652
33,641
(13,989 )
234
2015
174,559
100,652
73,907
73,118
789
(1,560 )
—
(429 )
(13,755 )
(4,831 )
(771 )
1,222
—
(310 )
(694 )
429
(9,234 )
(2,687 )
—
124,826
—
—
3,740
14,004
—
—
—
$
429 $
97,848 $
(2,687 )
12. Quarterly Results of Operations (Unaudited)
The following tables set forth our unaudited results of operations for each of the quarters in 2017 and 2016.
(in thousands, except per share data)
Net revenues
Gross profit
Loss from continuing operations
Income from discontinued operations
Net loss
Basic and diluted net loss per share
March 31
$
Year 2017 Quarters Ended
June 30
September 30 December 31
8,426
7,522 $
7,267
6,485
(5,577 )
(5,634 )
429
—
(5,577 )
(5,205 )
(0.37 )
(0.34 ) $
6,558 $
5,647
(6,310 )
—
(6,310 )
(0.42 ) $
5,784 $
4,964
(6,180 )
—
(6,180 )
(0.41 ) $
$
Weighted average shares outstanding - basic and
diluted
15,153
15,157
15,161
15,168
(in thousands, except per share data)
Net revenues
Gross profit
Loss from continuing operations
Income (loss) from discontinued operations
Net income (loss)
Basic and diluted net income (loss) per share
Weighted average shares outstanding - basic and
diluted
March 31
$
Year 2016 Quarters Ended
June 30
September 30 December 31
4,757
4,075
(3,421 )
106
(3,315 )
(0.22 )
4,462 $
(3,761 )
(151 )
100,595
100,444
6.64 $
4,198 $
3,451
(3,085 )
646
(2,439 )
(0.10 ) $
3,830 $
3,117
(4,126 )
(3,498 )
(7,624 )
(0.31 ) $
24,531
24,580
15,138
15,148
$
45
Item 9.
None.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
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, as amended. Based upon their evaluation as of December 31, 2017, our
management has concluded that those disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the year ended December 31, 2017 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-
15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, the effectiveness of our controls in future periods is uncertain and subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017 using the criteria set
forth in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission in its “Internal Control-Integrated Framework.”
Based on that assessment, our management concluded that, as of December 31, 2017, our internal control over financial reporting was
effective.
The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by EKS&H LLLP, an
independent registered public accounting firm, as stated in their report, which is included herein.
Item 9B.
Other Information
On December 28, 2017, our wholly-owned subsidiary Boulder Road LLC entered into a credit agreement with Great Western Bank for a
revolving line of credit of up to $13.5 million. See Note 5 to the Consolidated Financial Statements in Item 8 of this Form 10-K.
46
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
We incorporate herein the information required by this Item by reference to our Proxy Statement for our Annual Meeting of Shareholders,
to be held on May 3, 2018, to be filed with the Commission pursuant to Regulation 14A.
Code of Ethics
We have adopted a Code of Ethics applicable to our employees, including our principal executive officer, principal financial officer,
principal accounting officer and persons performing similar functions. We have posted a copy of our Code of Ethics on the corporate
section of our website at http://ir.gaia.com/governance-docs. Our full board of directors must approve in advance any waivers of the Code
of Ethics with respect to any executive officer or director. We will post any amendments or waivers from our Code of Ethics that apply to
our executive officers and directors on the “Governance” section of our internet website located at http://ir.gaia.com/governance-docs.
Item 11.
Executive Compensation
We incorporate herein the information required by this Item by reference to our Proxy Statement for our Annual Meeting of Shareholders,
to be held on May 3, 2018, to be filed with the Commission pursuant to Regulation 14A.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We incorporate herein the information required by this Item by reference to our Proxy Statement for our Annual Meeting of Shareholders,
to be held on May 3, 2018, to be filed with the Commission pursuant to Regulation 14A.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
We incorporate herein the information required by this Item by reference to our Proxy Statement for our Annual Meeting of Shareholders,
to be held on May 3, 2018, to be filed with the Commission pursuant to Regulation 14A.
Item 14.
Principal Accountant Fees and Services
We incorporate herein the information required by this Item by reference to our Proxy Statement for our Annual Meeting of Shareholders,
to be held on May 3, 2018, to be filed with the Commission pursuant to Regulation 14A.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report are as follows:
1.
2.
Consolidated Financial Statements.
See listing of Consolidated Financial Statements included as part of this Form 10-K in Item 8 of Part II.
Exhibits:
47
The following exhibits are incorporated by reference or are filed or furnished with this report as indicated below:
Exhibit No.
Description
3.1
3.2
3.3
3.4
4.1
10.1*
10.2*
10.3*
10.4
10.5
10.6
21.1
23.1
31.1
31.2
32.1
32.2
Amended and Restated Articles of Incorporation of Gaiam, Inc. (now known as Gaia, Inc.) dated October 24, 1999
(incorporated by reference to Exhibit 3.1 of Gaia’s quarterly report on Form 10-Q filed on August 9, 2016).
Articles of Amendment to Amended and Restated Articles of Incorporation of Gaiam, Inc. (now known as Gaia, Inc.)
dated October 4, 2006 (incorporated by reference to Exhibit 3.2 of Gaia’s quarterly report on Form 10-Q filed on
August 9, 2016).
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).
Amended and Restated Bylaws of Gaiam, Inc. (now known as Gaia, Inc.) (incorporated by reference to Exhibit 3.1 of
Gaiam’s current report on Form 8-K dated November 29, 2007 and filed November 30, 2007 (No. 000-27517)).
Form of Gaiam, Inc. (now known as Gaia, Inc.) Stock Certificate (incorporated by reference to Exhibit 4.1 of Gaiam’s
Amendment No. 6 to the registration statement on Form S-1, filed October 27, 1999 (No. 333-83283)).
Gaiam, Inc. (now known as Gaia, Inc.) 2009 Long-Term Incentive Plan, dated January 15, 2009 (incorporated by
reference to Exhibit A of Gaiam’s proxy statement dated and filed March 13, 2009 (No. 000-27517)).
Form of Employee Stock Option Agreement, under Gaiam’s 2009 Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.15 of Gaiam’s annual report on Form 10-K for the year ended December 31, 2009 filed March 16, 2010
(No. 000-27517)).
Form of Restricted Stock Unit Awards Agreement under Gaiam’s 2009 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.1 of Gaia’s current report on Form 8-K filed July 8, 2016).
Insurance and Stock Redemption Agreement, dated as of August 4, 2005, between Gaiam, Inc. (now known as Gaia,
Inc.) and Jirka Rysavy (incorporated by reference to Exhibit 10.5 of Gaiam’s current report on Form 8-K dated
August 3, 2005, filed August 9, 2005 (No. 000-27517)).
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.19 of Gaiam’s annual report on Form 10-
K for the year ended December 31, 2013 filed March 31, 2014 (No. 000-27517)).
Business Loan Agreement and Addendum dated December 28, 2017 between Boulder Road LLC and Great Western
Bank (filed herewith).
List of Gaia, Inc. Subsidiaries (filed herewith).
Consent letter from EKS&H LLLP (filed herewith).
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 (filed
herewith).
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
(filed herewith).
Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (furnished herewith).
Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (furnished herewith).
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document.
XBRL Taxonomy Extension Schema.
XBRL Taxonomy Extension Calculation Linkbase.
XBRL Taxonomy Extension Definition Linkbase.
XBRL Taxonomy Extension Label Linkbase.
XBRL Taxonomy Extension Presentation Linkbase.
*
Indicates management contract or compensatory plan or arrangement.
48
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
GAIA, INC.
By:
/s/ Jirka Rysavy
Jirka Rysavy
Chief Executive Officer
February 26, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Jirka Rysavy
Jirka Rysavy
/s/ Kristin Frank
Kristin Frank
/s/ Chris Jaeb
Chris Jaeb
/s/ David Maisel
David Maisel
Keyur Patel
/s/ Wendy Schoppert
Wendy Schoppert
/s/ Paul Sutherland
Paul Sutherland
/s/ Paul Tarell
Paul Tarell
Chief Executive Officer and Director
(Principal Executive Officer)
Director
Director
Director
Director
Director
Director
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
Chief Financial Officer
(Principal Financial and Accounting Officer)
February 26, 2018
49
Principal
$13,500,000.00
Loan Date
12-28-2017 12-28-2020 15525533871 1E1 / 150
Maturity
Call / Coll
Loan No
Account
BUSINESS LOAN AGREEMENT
Exhibit 10.6
Officer
melinc
Initials
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular
loan or item.
Any item above containing "***" has been omitted due to text length limitations.
Borrower:
Boulder Road LLC, a Colorado limited liability
Lender:
company
833 W South Boulder Rd Louisville, CO
80027
GREAT WESTERN BANK
Boulder West End 1900 Ninth St
Boulder, CO 80302
THIS BUSINESS LOAN AGREEMENT dated December 28, 2017, is made and executed between Boulder Road LLC, a
Colorado limited liability company ("Borrower") and GREAT WESTERN BANK ("Lender") on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial
loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule
attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any
Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this
Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's
sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of December 28, 2017, and shall continue in full force and effect until such time
as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys'
fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.
ADVANCE AUTHORITY. The following person or persons are authorized to request advances and authorize payments under
the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of such
authority: Paul Tarell, Chief Financial Officer of GAIA, INC., a Colorado corporation, Sole Member and Manager of
Boulder Road LLC, a Colorado limited liability company.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent
Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security
Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents
perfecting Lender's Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6) together with all
such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and
Lender's counsel.
Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified
resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In
addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its
counsel, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are
then due and payable as specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related
Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of
Default under this Agreement or under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as
of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at
all times any Indebtedness exists:
Organization. Borrower is a limited liability company which is, and at all times shall be, duly organized, validly existing,
and in good standing under and by virtue of the laws of the State of Colorado. Borrower is duly authorized to transact
business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental
licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall
be, duly qualified as a foreign limited liability company in all states in which the failure to so qualify would have a material
adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to
transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at
833 W South Boulder Rd, Louisville, CO 80027. Unless Borrower has designated otherwise in writing, the principal office
is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will
notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name.
Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges,
and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-
governmental authority or court applicable to Borrower and Borrower's business activities.
Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all
assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all
assumed business names under which Borrower does business: None.
Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have
been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a
default under (1) any provision of (a) Borrower's articles of organization or membership agreements, or
(b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or
order applicable to Borrower or to Borrower's properties.
Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed
Financial
Borrower's financial condition as of the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower
has no material contingent obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this
Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in
writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable,
Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such properties. All of Borrower's properties are
titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least
the last five (5) years.
Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and
warrants that: (1) During the period of Borrower's ownership of the Collateral, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on,
under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a)
any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal,
release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or
occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating
to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral
shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from
any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local
laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its
agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine
compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on
the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on
Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby
(1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes
liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender
against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the
Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive
the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected
by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely
affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed,
have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those
presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate
reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any
Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral
directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon
the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect,
Borrower will:
Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's
financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the
financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit
Lender to examine and audit Borrower's books and records at all reasonable times.
Financial Statements. Furnish Lender with the following:
Additional Requirements.
Rent Rolls: As soon as available, but in no event later than forty five (45) days after December 31st (12/31) and
June 30th (6/30) of each year, a complete and accurate rent roll of all tenants of the properties located at 833 West
South Boulder Road, Louisville, CO 80027, including names, addresses, rents paid/due, lease commencement and
expiration dates, and other information requested by Borrower for the most recent reporting period most recently
ended. Said report shall be prepared by Borrower in a format reasonably acceptable to Lender.
Annual Financial Statements. As soon as available, but in no event later than forty-five (45) days after FYE,
Borrowers Balance Sheet and Income Statement for the period ended, prepared by Borrower. As soon as available,
but in no event later than forty-five (45) days after FYE, GAIA, Inc.’s Balance Sheet and Income Statement for the
period ended, prepared by GAIA, Inc.
All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on
a consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements, as Lender may request from time to time.
Additional Requirements.
Debt Service Coverage Ratio (Commercial Real Estate – Property Specific) – Post- Distribution. Maintain a
minimum Debt Service Coverage Ratio of 1.20 to 1.00 as of the end of each calendar year period. “Debt Service Coverage
Ratio - Post-Distribution” means, Borrower's EBIDA after distributions plus contributions, divided by the sum of the
following for a stated period: interest expense and the current principal portion of long term debt. The financial information
for the following described property(ies) shall be included in the calculation of the ratio: The 3 building office complex
located at 833 West South Boulder Road, Louisville, CO 80027
Borrower will maintain its primary operating accounts with Lender for the life of the loan.
The subject loan to Borrower shall receive a 0.50% interest rate reduction for the next calendar quarter if the previous
quarter’s average deposit balances exceed $15,000,000 combined for Boulder Road LLC and GAIA, Inc.
Borrower will pay an “Unused Line Fee” of $30,000 for each calendar year if it does not meet the Minimum Interest
Requirement for such calendar year, which shall be measured beginning December 31, 2018. Minimum Interest
Requirement defined as a minimum $15,000.00 interest accrued and paid to Lender during a calendar year.
Advances will be limited to the following using a Borrowing Base Certificate to be measured January 1st and July 1st of
each year:
1.
Maximum credit of $13,500,000.00 to be reduced by $500,000.00 semi-annually beginning June 30,
2018, and then an additional reduction of $500,000.00 every December 31 and June 30 following that date.
2.
A minimum 10% debt yield (or 10x the average of the previous 2 years Net Operating Income) for
Borrower's previous 2 year average.
Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may
require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies
acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates
of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without
at least ten (10) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing
that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other
person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans,
Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such
information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2)
the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on
the basis of which insurance has been obtained, and the manner of determining those values; and
(6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower
will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement
cost of any Collateral. The cost of such appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender,
executed by the guarantor named below, on Lender's forms, and in the amount and under the conditions set forth in those
guaranties.
Name of Guarantor
GAIA, INC., a Colorado
corporation
Amount
Unlimited
Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing,
between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other
such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the
contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without
limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon
Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower
will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of
the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on
Borrower's books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in
accordance with GAAP.
Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this
Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender.
Borrower shall notify Lender immediately in writing of any default in connection with any agreement.
Operations. Maintain executive and management personnel with substantially the same qualifications and experience as
the present executive and management personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent manner.
Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies,
samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any
waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local
law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.
Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in
effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to
the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may
contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole
opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security
or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest.
Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or
Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make
copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains
any records (including without limitation computer generated records and computer software programs for the generation
of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may
request, all at Borrower's expense.
Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws;
not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the
part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may
result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in
any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning any intentional or unintentional action or
omission on Borrower's part in connection with any environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security
agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys
may reasonably request to evidence and secure the Loans and to perfect all Security Interests.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the
Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not
limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this
Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that
Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances
and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving
any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged
under the Note from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become
a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and
be apportioned among and be payable with any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be
due and payable at the Note's maturity.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall
not, without the prior written consent of Lender:
Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender
contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2)
sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets
(except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is
presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change
its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) make any distribution with
respect to any capital account, whether by reduction of capital or otherwise.
Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets to any other person, enterprise or
entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or
guarantor other than in the ordinary course of business.
Agreements. Enter into any agreement containing any provisions which would be violated or breached by the
performance of Borrower's obligations under this Agreement or in connection herewith.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this
Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or
any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes
incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there
occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value
of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in
good faith deems itself insecure, even though no Event of Default shall have occurred.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts
with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with
someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts,
or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Borrower fails to make any payment when due under the Loan.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in
this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security
agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may
materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's
behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the
time made or furnished or becomes false or misleading at any time thereafter.
Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made), any member
withdraws from Borrower, or any other termination of Borrower's existence as a going business or the death of any
member, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for
the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or
insolvency laws by or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect
(including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any
reason.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial
proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency
against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit
accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the
validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives
Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the
Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.
Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of
payment or performance of the Loan is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this
Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or
disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above,
such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the
Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to
pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights
and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and
agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration
or amendment.
Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's reasonable costs and expenses,
including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the reasonable
costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to
interpret or define the provisions of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or
more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may
provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any
rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and
will have all the rights granted under the participation agreement or agreements governing the sale of such participation
interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against
any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan.
Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.
Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not
preempted by federal law, the laws of the State of Colorado without regard to its conflicts of law provisions. This
Agreement has been accepted by Lender in the State of Colorado.
Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of
Boulder County, State of Colorado.
No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is
given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and
any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to
any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent
by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required
and in all cases such consent may be granted or withheld in the sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when
actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a
nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or
registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may
change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the
purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at
all times of Borrower's current address. Unless otherwise provided or required by law, if there is more than one Borrower,
any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or
unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable
as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal,
valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this
Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of a n y provision of this
Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it
appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this
Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no
circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to
any of Borrower's subsidiaries or affiliates.
Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or
any Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its
successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or
any interest therein, without the prior written consent of Lender.
Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances,
Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any
certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower
further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will
survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature,
shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force
and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in
the manner provided above, whichever is the last to occur.
Time is of the Essence. Time is of the essence in the performance of this Agreement.
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement.
Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United
States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as
the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to
such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have
the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this
Agreement:
Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's
behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.
Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement m a y be
amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement
from time to time.
Borrower. The word "Borrower" means Boulder Road LLC, a Colorado limited liability company and includes all co-
signers and co-makers signing the Note and all their successors and assigns.
Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or
personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the
form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel
mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien,
charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations
and ordinances relating to the protection of human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601,
et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.
Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default
section of this Agreement.
GAAP. The word "GAAP" means generally accepted accounting principles.
Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for
the Loan, including without limitation all Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan.
Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of
all or part of the Note.
Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity,
concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to
human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured,
transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include
without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the
Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-
products or any fraction thereof and asbestos.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents,
including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is
responsible under this Agreement or under any of the Related Documents.
Lender. The word "Lender" means GREAT WESTERN BANK, its successors and assigns.
Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or
hereafter existing, and however evidenced, including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this Agreement from time to time.
Note. The word "Note" means the Note dated December 28, 2017 and executed by Boulder Road LLC, a Colorado limited
liability company in the principal amount of $13,500,000.00, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of, and substitutions for the note or credit agreement.
Permitted Liens. The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by
Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith;
(3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of
business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness
outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (5) liens and security interests which, as of the date of this Agreement, have been disclosed
to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an
immaterial and insignificant monetary amount with respect to the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in
connection with the Loan.
Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises,
covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise,
evidencing, governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean, without limitation, any and all types of collateral security, present
and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment,
pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security
or lien interest whatsoever whether created by law, contract, or otherwise.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND
BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED DECEMBER 28, 2017.
BORROWER:
Boulder Road LLC, a Colorado limited liability company
By: GAIA, INC., a Colorado corporation, Manager of Boulder Road LLC, a Colorado limited liability company
By:
Paul TarelI, Chief Financial Officer of GAIA, INC., a Colorado corporation
Addendum to Business Loan Agreement and Related Documents
This Addendum is made as of December_, 2017, to (i) the Business Loan Agreement dated December_, 2017 (the
"Agreement") between Boulder Road LLC, a Colorado limited liability company ("Borrower") and Great Western Bank
("Lender"), (ii) the Promissory Note dated December_, 2017 (the "Note") issued by Borrower to Lender in the principal
amount of $13,500,000, (iii) the Commercial Guaranty dated December_, 2017 (the "Guaranty"), by GAIA, Inc. (the
"Guarantor") in favor of Lender, (iv) the Deed of Trust dated December_, 2017 (the "Deed of Trust"), among Borrower, Lender
and the Public Trustee of Boulder County Colorado,(v) the Assignment of Rents dated December_, 2017 (the "Assignment"),
between Borrower and Lender, and (vi) the Corporate Resolution to Guarantee certified by Guarantor to Lender dated
December_, 2017 (the "Corporate Resolution"). Capitalized terms used in this Addendum that are not defined in this
Addendum have the same meanings as set forth in the Agreement.
Bank, Borrower and Guarantor hereby agree that:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Notwithstanding anything to the contrary under the subsection titled Affirmative Covenants - Loan Proceeds in the
Agreement, the loan proceeds may be used by Gaia, Inc. for its business operations.
(a) The subsection titled Affirmative Covenants - Inspection in the Agreement is amended to add "following
reasonable written notice to Borrower" after the phrase at "any reasonable time" in the first sentence of such
subsection, and (b) the subsection titled Possession and Maintenance of the Property- Lender's Right to Enter in
the Deed of Trust is amended to add "following reasonable prior written notice to Grantor" after the phrase "at all
reasonable times" in the first sentence of such subsection.
Clause (2) under the subsection titled Negative Covenants - Indebtedness and Liens in the Agreement is
amended and restated in its entirety to read: "sell, transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower's assets (except (i) as allowed under Permitted Liens and (ii) for leases
entered into in the ordinary course of
business),".
Clause (3) under the subsection titled Negative Covenants - Continuity of Operations in the Agreement is deleted
in its entirety.
Clause (E) under the section subsection titled Cessation of Advances in the Agreement is deleted in its entirety.
Notwithstanding anything to the contrary under the subsection titled Default - Payment Default in the Agreement
or any of the Related Documents, Borrower shall have a five-day grace period to cure any payment default before
such default constitutes an Event of Default.
(a) The default set forth under the subsection titled Default - Adverse Change in each of the Agreement and the
Note is amended and restated in its entirety to read “A material adverse change occurs in Borrower’s financial
condition" and (b) the default set forth under the subsection titled Events of Default - Adverse Change in the
Guaranty and under the subsection titled Default - Adverse Change in the Assignment is amended and restated in
its entirety to read "A material adverse change occurs in Grantor's/Guarantor's (as applicable) financial condition".
The default set forth under the subsection titled Default - Insecurity in the Note is deleted in its entirety.
The subsection titled Miscellaneous - Subsidiaries and Affiliates of Borrower in the Agreement is deleted in its
entirety.
10. Clause (H) under the section titled Guarantor's Representations and Warranties in the Guaranty is amended to add
the phrase "other than litigation, claims, investigations, proceedings or similar actions arising in the ordinary
course of business that would not reasonably be expected to have a material
adverse effect on Guarantor's business or financial condition".
11. The second sentence under the section titled Lender's Rights to Receive and Collect Rents in the Assignment is
amended and restated in its entirety to read: "Lender is hereby given and granted the follow rights, powers and
authority following the occurrence and during the continuance of an Event of Default:"
12. The subsection of the Corporate Resolution titled "Actions Authorized - Execute Security Documents" is deleted in
its entirety.
All other terms and conditions of the Agreement and Related Documents will remain unchanged.
IN WITNESS WHEREOF, Borrower, Guarantor and Bank have executed this Addendum as of the date first set forth
above.
BORROWER:
Boulder Road LLC, a Colorado limited liability
By: GAIA, Inc. a Colorado corporation, as Manager of Boulder Road LLC, a Colorado limited liability company
By:
Paul Tarell, Chief Financial Officer
GUARANTOR:
GAIA, Inc., a Colorado corporation
By:
Paul Tarell, Chief Financial Officer
LENDER:
Great Western Bank
By:
Authorized Officer
GAIA, INC.
SUBSIDIARIES
Subsidiaries
Boulder Road, LLC.
Gaia International, Inc.
All subsidiaries are 100% owned by Gaia, Inc.
Exhibit 21.1
State or Country of Incorporation or
Registration
State of Colorado
State of Colorado
This list omits subsidiaries which, considered in the aggregate, would not constitute a significant subsidiary.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Gaia, Inc.’s Registration Statements, as set forth below, of our report dated February 26,
2018, relating to the consolidated financial statements and the effectiveness of internal control over financial reporting of Gaia, Inc., which
appears in this Annual Report on Form 10-K for the year ended December 31, 2017.
Exhibit 23.1
Form
S-3
S-8
EKS&H LLLP
February 26, 2018
Denver, Colorado
Registration Statement
Description
333-213895
333-161450
Shelf Registration Statement
Gaiam, Inc. 2009 Long-Term Incentive Plan
Exhibit 31.1
I, Jirka Rysavy, certify that:
1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2017, of Gaia, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15((f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with the generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 26, 2018
/s/ Jirka Rysavy
Jirka Rysavy
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Paul Tarell, certify that:
1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2017, of Gaia, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15((f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with the generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 26, 2018
/s/ Paul Tarell
Paul Tarell
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF CEO PURSUANT TO
18 U.S.C. SECTION 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1
In connection with the report of Gaia, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017, as filed with the
U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Jirka Rysavy, Chief Executive Officer, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: February 26, 2018
/s/ Jirka Rysavy
Jirka Rysavy
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CFO PURSUANT TO
18 U.S.C. SECTION 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the report of Gaia, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017, as filed with the
U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Paul Tarell, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: February 26, 2018
/s/ Paul Tarell
Paul Tarell
Chief Financial Officer
(Principal Financial Officer)